Policy Backgrounders

The Weekly Round-Up: Developments on the Economy (November 11, 2022)

November 11, 2022

CED & ESF ECONOMIC & POLICY BRIEF

The Weekly Round-Up:

Developments on the Economy

November 11, 2022

This week CEOs and financial markets received mixed news about the US economy.

As of Thursday morning, results from the US midterm elections show that Republicans hold 206 seats in the House of Representatives, while Democrats hold 183, with 46 not yet declared, for a current Republican gain of 9 seats. In the Senate, Democrats and Republicans each hold 48 seats, with races outstanding in Arizona, Nevada, and a runoff in Georgia on December 6. 

From one perspective, the results were good for Democrats: historically, the party of the President in power averages a loss of 28 House seats and four Senate seats. Even as Democrats beat expectations, however, the loss of the House of Representatives will make governing more demanding for the Administration for the next two years.  Upcoming major issues for the new year include the Federal budget and national debt (the debt ceiling must be raised by sometime next summer, depending on Federal spending and revenues over the next few months).

October CPI readings showed some welcome relief on inflation and are consistent with our forecast that topline year-over-year CPI growth probably peaked in Q2 2022. Still, the readings remain near four-decade highs. The improvement in the headline reading was fairly broad-based, with many components showing moderating month-over-month price increases or even contractions. However, this progress was offset by elevated shelter and energy prices. Another month of easing price increases would be welcomed by the Fed, but we continue to expect a 50 basis point hike in December.

The Bureau of Labor Statistics’ Employment Situation report showed that total nonfarm payroll employment increased by 261,000 in October, and the unemployment rate rose to 3.7 percent. Labor demand remains strong while labor supply is constrained, keeping the labor market tight. Some cooling of labor shortages has been observed over the past few months, but October’s report emphasizes that we are not yet near significant easing of recruitment and retention difficulties.

For more information on these and other events, please see below:

1. CPI RISES 0.4 PERCENT IN OCTOBER

2. EMPLOYMENT SITUATION: ROBUST JOB GROWTH CONTINUES

3. INITIAL UNEMPLOYMENT CLAIMS RISE

4. US MIDTERM ELECTIONS

5. FTC UNFAIR TRADE RULE ON FEES

6. ENERGY DEPARTMENT ANNOUNCES INFLATION REDUCTION ACT FUNDS

7. SOME BUY AMERICAN WAIVERS EXPIRE UNDER IIJA

8. MONKEYPOX UPDATES

1. CPI RISES 0.4 PERCENT IN OCTOBER

The Consumer Price Index (CPI-U) rose 0.4 percent in October, for an annual inflation rate of 7.7 percent, the smallest 12-month increase for any period since January, showing more cooling of inflation than some analysts expected. Shelter contributed more than half of the increase, as gasoline and food prices also increased, with the energy index increasing 1.8 percent (gasoline and electricity rose, but natural gas decreased). The food index increased 0.6 percent. Some indexes, including used cars and trucks, apparel, medical care, and airline fares declined. The Bureau of Labor Statistics also reported that real average hourly earnings decreased 0.1 percent from September to October, on a seasonally adjusted basis and 2.8 percent, seasonally adjusted, from October 2021 to October 2022. Combined with a decrease of 0.9 percent in the average workweek, this led to a 3.7 percent decline in real average weekly earnings over this period.

The Federal Reserve closely watches Core CPI, which excludes volatile food and energy prices and is thought to be more predictive of future inflation. This index rose 0.3 percent in October, half of September’s 0.6 percent increase and the slowest rate of the year. (Over the last twelve months, Core CPI increased 6.3 percent.) Shelter inflation—the largest contributor to September’s figure—is measured on a lag from current market conditions, because it measures what customers are currently paying, not what they would pay if their rents were negotiated today. Measures of spot rents are slowing, and CPI will reflect that only later.

Read The Conference Board’s full analysis of the CPI data here.

2.  EMPLOYMENT SITUATION: ROBUST JOB GROWTH CONTINUES

The Bureau of Labor Statistics released its report on the Employment Situation, which presents data on the jobs market from two monthly surveys. Total nonfarm payroll employment increased by 261,000 in October according to the payroll survey, and the unemployment rate rose to 3.7 percent according to the household survey. The 261,000 jobs gained in October followed a gain of 315,000 in September. Most industries reported increases in employment. Leisure and hospitality gained 35,000 jobs (after adding 107,000 jobs last month), with other notable gains reported in health care and social assistance (71,100), professional and business services (39,000), manufacturing (32,000), and wholesale trade (14,600). Job growth is, however, down from its pace in the first half of 2022, which averaged 444,000 jobs a month. The Conference Board’s Economy, Strategy and Finance Center notes some signs that the labor market is cooling: the slowing pace of payroll growth and data from The Conference Board’s surveys of consumers and CEOs. These surveys show that households believe that finding jobs has become more difficult, while CEOs believe that attracting quality workers has become less difficult.

3. INITIAL UNEMPLOYMENT CLAIMS RISE

The Department of Labor reported Thursday that initial claims for unemployment insurance, a weekly indicator of labor market health, were 225,000 for the week ending November 5, an increase of 7,000  over the previous week’s revised level and the largest jump in several weeks. However, this level of claims is moderate by historical standards and below the July highs of 261,000. The Conference Board’s latest economic forecast shows the unemployment rate rising to 4.3 percent, well above its current level of 3.5 percent, by the second quarter of next year.

4. US MIDTERM ELECTIONS

As of 9:00 Thursday morning, results from the midterm elections show that Republicans hold 206 seats in the House of Representatives, while Democrats hold 183, with 46 not yet declared (mostly as mail-in ballots continue to be counted), for a current Republican gain of 9 seats (218 are needed for control). In the Senate, Democrats and Republicans each hold 48 seats, with races outstanding in Arizona, Nevada, and a runoff in Georgia on December 6.  So far, Democrats have flipped one Senate seat (Pennsylvania).

From one perspective, the results were good for Democrats: historically (1934-2018), the party of the President in power averages a loss of 28 House seats and four Senate seats; this would be the seventh time that the party in power gains a Senate seat if Democrats keep control of the Senate. Using these and other figures, the American Presidency Project at UC Santa Barbara had written before the election that it expected Democratic losses of 30 seats in the House and 3 in the Senate. Even as Democrats beat expectations, however, the loss of the House of Representatives will make governing more demanding  for the Administration for the next two years.  Upcoming major issues for the new year include the Federal budget and national debt (the debt ceiling must be raised by sometime next summer, depending on Federal spending and revenues over the next few months).

Republicans now have 24 state governors and Democrats 22, with flips to Democrats in Maryland and Massachusetts and four races undecided (Alaska, Arizona, Nevada, and Oregon). In notable ballot measures, California rejected, by 59-41 percent, an income tax increase on incomes over $2 million to fund electric vehicles, but Massachusetts approved a 4 percent surtax on incomes over $1 million to fund education and transportation. South Dakota voted to expand Medicaid with nearly 56 percent in favor, becoming the seventh state to expand Medicaid in five years through popular vote. Arizona narrowly defeated Proposition 309 that would have required in-person voters to show an unexpired photo ID and mail-in voters to submit an affidavit of identity; Nevada rejected, 51.5 to 48.5 percent, switching to ranked choice voting, while Connecticut easily approved allowing early in-person voting.

Exit polls showed that inflation (31 percent), abortion (27 percent), crime and gun policy (11 percent each), and immigration (10 percent) were the most prominent concerns driving individual votes, while 47 percent said “the economy and jobs” was the most important issue facing the country, with immigration and abortion a distant second at 9 percent each. Men broke Republican (55 percent in AP’s poll, 56 percent in the network exit poll), while more women supported Democrats (49 percent in AP’s poll, 48 percent in the network exit poll). Hispanic support for Democrats fell by about 10 percent, and Asian American support for Democrats fell dramatically from 2018, from about 77 percent to either 64 percent (AP) or 58 percent (network poll). Independent voters comprising about 31 percent of the electorate, split almost evenly between the parties.

The nonpartisan US Elections Project tracker shows that by the mid-afternoon of Election Day, states recorded a total of 45,920,446 early votes (20,487,803 in person and 25,432,643 by mail). A total of 58,142,486 mail ballots were requested; the current figure shows that 43.7 percent were returned by Election Day (some outstanding ballots may still be counted if they were received before the close of polls or postmarked by Election Day, depending on state law).

5. FTC UNFAIR TRADE RULE ON FEES

The Federal Trade Commission issued an Advanced Notice of Proposed Rulemaking (ANPRM) on “unfair or deceptive fees” for consumers “that are charged for goods or services that have little or no added value to the consumer, including goods or services that consumers would reasonably assume to be included within the overall advertised price”; The FTC highlighted several industries in which it believes these fees are common, including auto loans and purchases, travel and hospitality, telecommunications, tickets for live entertainment, and payday loans. It noted that in some instances hidden fees cause prices to consumers to be 20 percent higher “than when the actual price was disclosed upfront.” The FTC seeks comments on whether fees can be addressed through existing rules and statutes and whether it should issue a new trade regulation rule under Section 19(b) of the FTC Act. The FTC also seeks comments on the prevalence of “misrepresenting or failing to disclose clearly and conspicuously, on any advertisement or in any marketing, the total cost of any good or service for sale,” including additional fees. Comments on the ANPRM are due January 9.

6. ENERGY DEPARTMENT ANNOUNCES INFLATION REDUCTION ACT FUNDS

The Department of Energy announced how it would use $1.55 billion in funds provided by the Inflation Reduction Act for the Department’s Office of Science, stating that the funding will both “pave the way for a zero-carbon, clean energy future” and “accelerate ongoing upgrades to critical facilities and other national laboratory infrastructure projects.” The funding includes six specific research priorities: advanced scientific computing, basic energy sciences, high energy physics, fusion energy, nuclear physics, and isotope research. In all, fourteen national laboratories are receiving funds, with the largest recipient being Oak Ridge National Laboratory in Tennessee, with $491 million in funding for fusion and isotope research. The Department has published a full breakdown of the projects receiving funds. An additional $15.5 million will be distributed in January.

7. SOME BUY AMERICAN WAIVERS EXPIRE UNDER IIJA

The Department of Transportation ended the waiver of the Build America, Buy America requirements in the Infrastructure Investment and Jobs Act (IIJA), leaving only a narrow waiver for de minimis costs, small grants, and minor components. The resumption of Build America Buy America requirements of the Build America Buy America Act which is itself part of the IIJA, also contain some transition provisions. Contracts entered into prior to November 10 still waive the requirements, as will contracts entered into prior to March 10, 2023, if they resulted from solicitations published before May 14, 2022.

8. MONKEYPOX UPDATES

As of November 7, the US has confirmed a total of 28,709 cases of monkeypox. States with the highest case numbers include California (5,512), New York (4,127), Florida (2,739), Texas (2,760), and Georgia (1,927). Globally, 78,379 cases have been confirmed, with 77,430 cases confirmed in locations that have not historically reported monkeypox. The countries with the highest case numbers include the US (28,709), Brazil (9,312), Spain (7,336), France (4,097), and the UK (3,701). A total of thirty deaths have been reported in locations that have not historically reported monkeypox.

A UK study found evidence for “substantial” pre-symptomatic transmission of monkeypox. The researchers estimate that 53 percent of transmission occurred before symptoms appeared, with transmission detected up to four days before the onset of symptoms. The findings were based on routine surveillance and contact tracing of 2,746 individuals who tested positive for monkeypox in the UK between May 6 and August 1 and indicate that many infections cannot be prevented by asking individuals to isolate upon the onset of symptoms.

A team of researchers at the University of Missouri have identified specific mutations in the monkeypox virus that have enabled it to grow stronger and smarter. The team analyzed DNA sequences of over 200 strains spanning from 1965 when the virus first began spreading to outbreaks in the early 2000s and in 2022. “By doing a temporal analysis, we were able to see how the virus has evolved over time, and a key finding was the virus is now accumulating mutations specifically where drugs and antibodies from vaccines are supposed to bind,” said researcher Shrikesh Sachdev. The findings could potentially lead to of modified versions of existing drugs or new drugs addressing current mutations.