Gregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.
That’s certainly a frightening headline to read, and one that doesn’t need much explanation. When you’re experiencing something that hasn’t happened in four decades, people will understandably be concerned. Nobody likes uncertainty. Rather than spend time going over the details of the report, I think it will be more productive to look at it from a different angle. Any time we get a disappointing piece of economic news, I’m always asked if there’s anything positive to say about it. I’m always up for a challenge, so here goes. This report should motivate the Federal Reserve to take aggressive action, by hiking rates by 0.50% next month. A big hike like this will show markets and consumers they mean business, and are ready to take whatever actions are needed to defeat inflation. This would go a long way to calming markets, which tend to overreact to every piece of bad news that comes out. It’s important to remember that the Fed hiking short-term rates doesn’t mean mortgage rates will go up by the same amount. In fact, by hiking short-term rates, the Fed can reduce inflation expectations, which can actually bring mortgage rates down. Don’t believe me? Then check this article out. I’m not saying it will happen right away, but as inflation abates through Fed action, it’s certainly a possibility down the road. I know nobody wants higher mortgage rates, but we must have some historical perspective. We’ve been spoiled by the record-low rates of the past few years, and are scared of any 30-year rate that starts with a four, five, or six. But did you know that the average 30-year mortgage rate over the past 50 years is just under 8%? Do you remember that when we had a housing "bubble" in the late 2000s, rates were averaging about 6.5%? The point is that housing markets survive, and even thrive, with higher rates. Another sign of hope is the recent decline in COVID-19 cases, which has led many states to remove business restrictions. As the economy returns to normal, more people will return to work. This should help ease supply-chain issues, which in time will bring prices lower. While inflation remains a big concern, we have a strong labor market, rising wages, a booming housing market, and the hope that life is finally returning to normal.
Jobless Claims Fall Again
Initial claims for unemployment recently fell to 223,000, the third straight decline after rising to 290,000 in the middle of January. This marks a very quick recovery from the impact of Omicron, and a return to pre-pandemic levels. In 2019, weekly jobless claims averaged 218,000.
COVID-19's Impact on Business
The Bureau of Labor Statistics issued a report last week titled "U.S. Business Response to the COVID-19 Pandemic." It’s not the most exciting report, but since I needed a closing story, here are the main findings:
24% of establishments either increased pay or gave bonuses, with the biggest wage hikes in the accommodation and food services industry.
34.5% increased telework for some or all their employees.
17.5% required COVID-19 vaccinations for some or all employees, with 28% offering either money or paid time off to get vaccinated.
24.6% offered flexible or staggered work hours to employees.