To kick off 2024, I’m just going to give you a chart to think about:
Notice that in 1990, Poland had about half the average income of Portugal, as did South Korea compared to the UK. By about 2021, those gaps had been completely closed. And while the 2021 data is a bit uncertain given the pandemic, IMF estimates for 2024 suggest that both Poland and South Korea have now pulled slightly ahead of Portugal and the UK.
You can find many other examples like this. Why have some countries grown rapidly while others have slowed or stagnated? In some sense, this is an age-old question in economics, and at least as far back as Adam Smith economists have been trying to answer that question.
But it’s actually a bit different now. In Smith’s day, the big question was why some countries had started on their path of economic growth, while others hadn’t started at all. Today, nearly all countries have started economic growth, but some of the early leaders in growth seem to have slowed down. But there isn’t some global reason for this that affects all countries: Poland and South Korea will likely keep growing for a while, and eventually there will be a big gap between them and Portugal and the UK.
The answer to this question is not, of course, just One Big Thing. But for countries like Portugal and the UK (and Japan and Spain and Italy and etc. etc.), the key to their economic future is figuring out what Many Little Things these economic miracles are doing right so that they can return to a path of high economic growth. And this isn’t just a race to see who wins: all countries can be winners! But without continued growth, solving economic, political, and social problems will be a huge challenge.
Maybe 2024 is when they will start to figure it out.
Today I’ll go into more detail on several measures of the labor force, but I won’t only compare it to 2019. I’ll compare it to all available data. And the sum total of the data suggests the 2023 was one of the best years for the US labor market on record. Note: December 2023 data isn’t available until January 5th, so I’m jumping the gun a little bit. I’m going to assume December looks much like November. We can revisit in 2 weeks if that was wrong.
The Unemployment Rate has been under 4% for the entire year. The last time this happened (date goes back to 1948) was 1969, though 2022 and 2019 were both very close (just one month at 4%). In fact, the entire period from 1965-1969 was 4% or less, though following January 1970 there wasn’t single month under 4% under the year 2000!
Like GDP, the Unemployment Rate is one of the broadest and most widely used macro measures we have, but they are also often criticized for their shortcomings, as I wrote in an April 2023 post.
With that in mind, let’s look to some other measures of the labor market.
Lately many journalists and folks on X/Twitter have pointed out a seeming disconnect: by almost any normal indicator, the US economy is doing just fine (possibly good or great). But Americans still seem dissatisfied with the economy. I wanted to put all the data showing this disconnect into one post.
In particular, let’s make a comparison between November 2019 and November 2023 economic data (in some cases 2019q3 and 2023q3) to see how much things have changed. Or haven’t changed. For many indicators, it’s remarkable how similar things are to probably the last month before anyone most normal people ever heard the word “coronavirus.”
First, let’s start with “how people think the economy is doing.” Here’s two surveys that go back far enough:
The University of Michigan survey of Consumer Sentiment is a very long running survey, going back to the 1950s. In November 2019 it was at roughly the highest it had ever been, with the exception of the late 1990s. The reading for 2023 is much, much lower. A reading close to 60 is something you almost never see outside of recessions.
The Civiqs survey doesn’t go back as far as the Michigan survey, but it does provide very detailed, real-time assessments of what Americans are thinking about the economy. And they think it’s much worse than November 2019. More Americans rate the economy as “very bad” (about 40%) than the sum of “fairly good” and “very good” (33%). The two surveys are very much in alignment, and others show the same thing.
State tax revenue is down a lot since last year. The latest comparable data from Census’s QTAX survey is for the 2nd quarter of 2023, and it shows a massive hit: state tax revenue was down 14% from the same quarter in 2022, which is about $66 billion. Almost all of that decline is from income tax revenue, specifically individual income tax revenue which is down over 30% (almost $60 billion). General sales taxes, the other workhorse of state budgets, is essentially flat over the year.
That’s a huge revenue decline! So, what’s going on? In some states, there has been an attempt to blame recent tax cuts. It’s not a bad place to start, since half of US states have reduced income taxes in the past 3 years, mostly reducing top marginal tax rates. But that can’t be the full explanation, since almost every state saw a reduction in revenue: just 3 states had individual income tax revenue increases (Louisiana, Mississippi, and New Hampshire) from 2022q2 to 2023q2, and they were among the half of states that reduced rates!
To get some perspective let’s look at long-run trends. This chart shows total state individual income tax revenue for all 50 states (sorry, DC) going back to 1993. I use a 4-quarter total, since tax receipts are seasonal (and because states sometimes move tax deadlines due to things like disasters, a specific quarter can sometimes look weird). And importantly, this data is notinflation adjusted. Don’t worry, I will do an adjustment further below in this post, but for starters let’s just look at the nominal dollars, because nominal dollars are how states receive money!
A few months ago I looked at the richest and poorest MSAs in the US, including adjusting for the cost of living in each MSA. One big thing I found was that the list doesn’t change that much when you adjust for the cost of living: San Jose, San Francisco, Bridgeport (CT), Boston, and Seattle are still the highest income MSAs even after accounting for the fact that they are also high-cost-of-living places to live. The gap shrinks, but they are still in the lead.
But that was adjusting for all the factors in the cost of living. But what if we just looked at one important aspect of the cost of living: housing. And since the cost-of-living adjustments (BEA’s RPP) that I was using are from 2021, what if we tried to bring the data up as close to the present as possible? We know that housing prices have increased a lot since 2021, but also that the cost of borrowing has risen dramatically too. What would this show us about the cost of living for different MSAs?
A tool from the Harvard Joint Center for Housing Studies allows us to make some pretty up-to-date comparisons. Their interactive map shows data for the 179 largest MSAs (about half of the total MSAs in the US) on the median price of each home for the second quarter of 2023 and uses interest rates from that quarter to show the rough principal and interest cost (assuming a 3.5% down payment). Taxes and insurance costs for each MSA are also estimated.
Based on those assumptions, their tool provides the minimum income you would need to purchase a home in that area, assuming a 31% debt-to-income ratio for the mortgage. And the income levels needed vary quite widely across MSAs, from a low of $44,000 in Cumberland, Maryland, to a high of over $500,000 in San Jose, CA. That’s a huge difference.
Of course, we know that incomes also vary across MSAs. But they don’t vary that much. The JCHS tool doesn’t provide this data (though a JCHS map from 2017 did compare house prices to incomes), but we can look up median family income for each MSA from Census. Doing so we see that San Jose is indeed unaffordable based on the current (2022) median income, which is “only” about $170,000. A nice income compared to the national median, but only about 1/3 of the $500,000 you would need to afford a home in San Jose. Cumberland looks much better though: median family income is over $77,000 there, about 76% more than you would need to buy a home!
What if we did a similar calculation for all MSAs in the JCHS data? The following map is my attempt to do so. Sorry, but my graphics skills are not the best, so this map isn’t as pretty as it could be (I started with the JCHS map, and just shaded in the colors I wanted to use). But I think it conveys the general idea.
Green-shaded MSAs are the most affordable: places like Cumberland, Maryland, where median family income is well above (at least 20% above, my arbitrary threshold) the amount JCHS says you need to buy a home. There are 27 Green-shaded MSAs. Blue-shaded MSAs are affordable too, and median income is between 100% and 120% of the amount needed to afford a home on the JCHS standard. There are 41 of these, making 68 total MSAs out of these 179 that are affordable. Red-shaded MSAs are less than 100%, and thus unaffordable (though as I will discuss below, some are much closer to affordable than others).
In the October 1980 Presidential debate, Ronald Reagan famously asked that question to the American voters. His next sentence made it clear he was talking about the relationship between prices and wages, or what economists call real wages: “is it easier for you to go and buy things in the stores than it was four years ago?”
Reagan was a master of political rhetoric, so it’s not surprising that many have tried to copy his question in the years since 1980. For example, Romney and Ryan tried to use this phrase in their 2012 campaign against Obama. But it’s a good question to ask! While the President may have less control over the economy than some observers think, the economy does seem to be a key factor in how voters decide (for example, Ray Fair has done a pretty good job of predicting election outcomes with a few major economic variables).
Voters in 2024 will probably be asking themselves a similar question, and both parties (at least for now) seem to be actively encouraging voters to make such a comparison. We still have 12 months of economic data to see before we can really ask the “4 years” question, but how would we answer that question right now? Here’s probably the best approach to see if people are “better off” in terms of being able to “go and buy things at the stores”: inflation-adjusted wages. This chart presents average wages for nonsupervisory workers, with two different inflation adjustments, showing the change over a 4-year time period.
Despite recent increases in prices of food, we should still all be very thankful this Thanksgiving for the abundance of affordable food available in the modern world. Looking back at my past few blog posts, I notice that I have been very food-centric in my choice of topics! And last week I also showed how the Thanksgiving meal this year will be the second cheapest ever (only behind 2019). While it’s absolutely true that food prices are up a lot in the past 2 and 4 years, they probably aren’t up as much as you have heard.
It’s always my preference to take as long-term perspective as possible when thinking about economic progress. So here’s the best way I’ve come up with to show how cheap and abundant food is today: food as a share of household spending fell dramatically in the 20th century.
Most of the data in this chart comes from the BLS Consumer Expenditure Surveys. This survey was done occasionally since 1901, and then annually since 1984. I also use BEA data to estimate personal taxes paid as a percent of spending (the CEX Surveys have some tax data, but it’s not reliable nor consistent). I picked as close to 30-year intervals as I could (with a preference for showing the earliest and latest years available), and I chose spending categories that are 90-100% of total expenditures in most of these years. Keep in mind also that these are consumer expenditures. As a nation, we spend a lot more on healthcare and education than this chart suggests, but most of that spending is not directly from households (of course, it is indirectly). Think of this chart as an average household budget.
I hope the thing that jumps out at you is that the amount money households spend on food has fallen dramatically since 1901, from over 42 percent to under 13 percent of household expenditures. To be clear, this data includes both spending on food at home and at restaurants (after 1984 we can track them separately, and groceries are pretty consistently about 60 percent of food spending). And you may be wondering about very recent trends too, such as before the pandemic. In 2022, household spent slightly less on food than they did in 2019, falling from 13.5 to 12.8%.
You may also notice that taxes have increased, though not much since 1960. Housing cost have been consistently high, and also a bit higher than 1990, going from 27 percent to 33 percent in 2022. And housing is now the single largest budget expenditure category, but for most of the first half of the 20th century, it was food that was the largest. And since people aren’t changing their housing situation more than once a year (if that), it would also have been food that dominated weekly and monthly budget decisions and worry about price fluctuations.
This year there will be lots of complaining about prices around the Thanksgiving table. And much of that is warranted! But let’s also be thankful on this food-intensive holiday for how cheap the food is.
And if some smart-aleck youngster tries to tell you that they learned on TikTok that things were better during the Great Depression (yes, people are really saying this!), have them watch this video by Christopher Clarke. Or show them that in the mid-1930s an average family spent one-third of their budget on food in my chart above, or how much labor it would have taken to buy that turkey in the 1930s (about 40 times as much time spent working as today).
Continuing my tradition of Thanksgivingposts, Farm Bureau released today the latest data on the cost of a traditional Thanksgiving meal. There is welcome news for consumers, as the nominal price of the dinner is slightly lower than last year: $61.17 vs. $64.05 in 2022. The big factor in this decline was the fall in the price of turkeys, though eight of the 12 items in this meal are lower than 2022. As they note in the press release, this is still significantly higher than 2019: about 25% higher.
Regular readers will know what’s coming. Let’s compare those prices (and some historical prices) to earnings:
The Farm Bureau turkey dinner stands at about 5.5 percent of median weekly earnings from the third quarter of this year. That’s a touch higher than 2019, when it was 5.3 percent of weekly earnings. But notice that other than 2019, the figure for 2023 is the lowest ever! (Ignoring the weird years of the pandemic, when wage data is hard to interpret.) So we haven’t quite gotten back to 2019 levels, but we are at the same level as 2018. And lower than 2017. And all prior years too.
The last few Thanksgivings have been tough for Americans. This year, we can all be thankful for falling prices and rising wages.
Last week I gave some advice on how to save money on food. Food prices are up a lot in the past 4 years, but especially since the beginning of 2021. Over the 32 months since January 2021, grocery prices (according to the CPI) are up 20 percent (keep that number in mind). To give you an idea of how unusual that is, in the 32 months before the pandemic (up to January 2020), grocery prices only rose 2 percent. Perhaps even more astonishingly, if we look at October 2019 grocery prices, they were slightly lower on average than 4 years earlier in October 2015. From a flat 4 years to a 25 percent increase over the next 4 years. That’s a huge change for consumers.
But we also shouldn’t overstate the price increases. As you might guess, the best place for overstatements is social media. You can find plenty of them. For example, this very viral video claims that her family’s grocery prices doubled (in fact, almost exactly doubled, to the penny, which is suspicious) in just one single year, from August 2021 to August 2022. According to the CPI data, grocery prices were up 13.5 percent over that period — which, don’t get me wrong, is a lot! But it’s not 100 percent. I’ll focus on this one example, but I’m sure you will believe me that you can find dozens of examples like this on social media every single day (for example, yesterday someone claimed bread prices had tripled since 2019).
Let’s leave aside for a moment that in that viral video she claims to spend $1,500 per month on groceries. This would be a massive outlier for 2022. A family in the middle income quintile spent $460 per month on groceries in 2022, and $713 on all food including restaurants. So even if this family eats every single meal at home, they are still spending twice as much as a middle income family. Even a family with 5 or more people (the largest bucket BLS uses in that report) spent $755 per month on groceries ($1,232 on all food). According to the Consumer Expenditure survey, the middle quintile grocery spending went up 16%, and the five-person household went up 19% from 2021 to 2022. Big increases, no doubt! But not 100%.
So who are we to believe? Have prices roughly doubled since 2021? Or are they up about 20 percent? People are sometimes skeptical of the consumer price index, so let’s look at the actual price data that goes into the index. BLS has data on hundreds of individual food items, but here’s a summary chart with eight common food items. Here’s the change in the prices of those items since January 2021:
It’s the time of the year when we share ideas for things to buy, possibly as Christmas or other holiday gifts. But I’m going to share with you not a specific thing to buy, but instead a method for buying things. And probably not the kind of thing you might think of sticking in a wrapped present: food.
We’ve all heard about and felt inflation lately. But food prices have been especially noticeable to consumer, and not just because it’s a product you frequently buy and probably know the price of many food items. Food prices, both at home and restaurants, have increased much more than the average price levels.
On average, prices are up about 20 percent in the US over the past 4 years. But food prices are up about 25 percent, on average.
Wages (the purple line) actually have increase faster than the general price level over the past 4 years — that may shock you given what we constantly hear in the traditional and social media about “price increases outpacing wage gains” — but it is true when we are talking about food. Your dollar doesn’t go quite as far as it used to for food.
In some sense these costs are hard to avoid: food is a necessity. But there are ways to reduce your costs, and you probably know the general tips. Eat less at restaurants. Buy generic. Buy in bulk. Etc. These are good tips, but they all involve some sacrifice or annoyance. Is there anything else a consumer can do?
Yes. Here’s a few tips that can save you money, without the sacrifice. There is some thought involved, and perhaps a slight annoyance, but I’ve found that once you get in these habits, the mental and time cost is pretty low.
1. RESTAURANT APPS
You should always be ordering your food through restaurant apps when possible, especially for fast food. I try to track limited good deals on Twitter, but most restaurants offer on-going good deals. For example, McDonalds usually has a 20% off coupon, just for using the app. Taco Bell has a $6 box you can build, which would cost around $10 to order as a combo or à la carte at the restaurant. That’s a 40% discount for using the app.
Using apps also means you are using the restaurant’s rewards programs. Valuations vary, but McDonald’s rewards are roughly worth 10% cash back.
2. CHASE THE SALES AT GROCERY STORES
Clipping coupons is the classic way of saving money at the grocery store (we even have reality shows about it), but in the modern world grocery stores have expanded the ways to effectively save the same amount of money. The clearest example is, once again, the rise of apps. Stores will often have “digital only” coupons that you need to access through their app (which is also tied to your rewards account, just like restaurants).
While I’m a strong advocate of coupon clipping (and the virtual equivalent), it can be time consuming. Another strategy that can save you is thinking ahead about seasonal and other cyclical prices. For example, my kids like M&M’s. We usually buy a bulk 62-ounce container at Sam’s Club (already a savings), but today I took the additional saving step of buying the Halloween-themed bulk container. It was 36 percent less than the identical Christmas-themed M&M’s container right next to it. And I was replacing the Easter-themed bulk container that we purchased back in April, and they just finished.
Of course, I had to be planning ahead and know that November 1st was a great day to buy M&M’s. That takes some mental effort, sure. And you might think these kinds of deals are fairly limited in nature. But holidays aren’t the only kind of seasonal deals. For example, even though most fruit is generally available year-round now, there are still predictable price cycles of when things are “in season” and when they have to be imported from expensive locations. Even if you are only able to find these cyclical deals for 10 percent of your purchases, saving 30-50% on cyclical goods will shave another 3-5% off your grocery bill — bringing it closer in line to the average increase in prices (and wages).
3. CASH BACK CREDIT CARDS
I could write an entire post about credit card rewards. But let me focus here on credit cards that are especially good for buying food. At a minimum you should be getting 2 percent back on all of your purchases, as there are several no-annual-fee cards that give you 2 percent: the Citi Double Cash and Wells Fargo Active Cash are good examples.
But on food purchases, you should be able to beat 2 percent. For example, the Citi Custom Cash card gives you 5 percent back on your top spending category each month, up to $500 of spending. This can be on either groceries or restaurants. And since a family in the median quintile spends $250 at restaurants and $460 on groceries per month, you should be getting 5 percent back on basically all of your purchases in one of these two categories. (Personally I stick to restaurants for this card, because I buy most of my groceries at Walmart and Sams Club, which don’t count towards the grocery cash back.) Or if you want a simple card that gives you 3 percent back on both groceries and restaurants, check out the Capital One SavorOne card (again, no annual fee).
There are also several cards that have rotating 5 percent cash back categories each quarter, and they often include either restaurants or groceries. How do I keep track of which card to use for what kind of purchase? Simple: put a strip of masking tape on the card with a label. This will get some chuckles from your friends or the server at the restaurant, but that’s just an opportunity to tell them how to save money too!
Is There Really a Free Lunch?
Some of my economist friends are probably skeptical at this point. Aren’t I say there is a free lunch here? Isn’t the extra hassle of the steps I suggested going to outweigh any discount you get?
The answer is No. And while economists are quick to bring up the concept of opportunity cost, I find that most people tend to overestimate their opportunity cost. But even if you don’t overestimate your opportunity cost, you can bring in another useful economic concept: price discrimination.
Restaurants are very much in the business of price discrimination, and always have been. Tuesday Night specials, happy hours, etc. Every consumer has a different willingness to pay, and since it’s hard to resell a restaurant meal, restaurants can potentially use this technique to their advantage (and yours, if you are willing to look for discrimination). Grocery stores don’t have as much of an opportunity to discriminate, but they still find ways.
Don’t be afraid of price discrimination: use it to your advantage!
Economist Writing Every Day 