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.
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!
Inflation has been constantly in the news over the past 2 years, but it has especially been in the news lately with regards to one country: Argentina. That country has been experiencing triple-digit annual inflation lately, and it has become one of the key issues in the current presidential race.
How bad is inflation in Argentina? Here’s a comparison to some other G20 countries from September 2019 through September 2023 (data from the OECD).
Cumulative consumer price inflation in Argentina over the past 4 years is over 800 percent. That means goods which cost 100 pesos in September 2019 now costs 900 pesos, on average. Well, they did in September. It’s almost November now, so if the recent inflation rates persisted, those goods are around 1,000 pesos now.
Turkey also stands out as a country with very rapid inflation the past 4 years — without Argentina on the chart, Turkey would clearly stand out from the rest. But other than Turkey, all the other countries are bunched at the bottom. Has there not been much difference among them? Not quite.
This next chart removes Argentina and Turkey:
In this second chart we see two standouts on the opposite end of the spectrum: Japan and Switzerland have had extremely low inflation, just 6 and 5 percent cumulatively since late 2019 (and this is not unusual for these two countries in recent history).
For us here in the USA, things don’t look so good. Only Brazil and the EU are higher (and the EU is mostly due to energy price inflation in Eastern Europe), so other than that we are basically tied with the UK for the worst inflation performance among very high income countries during the pandemic. That’s bad news! But perhaps one silver lining is that average wages in the US have outpaced inflation slightly: 23 percent vs 20 percent growth over this time period. That’s not much to celebrate — except relative to most of the rest of the world.
Last weekend I had the opportunity to visit an arcade, but not one of those modern fancy arcades with virtual reality, laser tag, etc. This arcade specializes in having old-school games, primarily pinball, but also early video arcade games. You pay a cover charge ($5 for kids, $10 for adults), and then you use quarters to play the games. But here’s the cool part: the price of the games is the same as it was when the games were first released.
As an economist, of course, I was very interested in the prices.
They had pinball machines that dated back the 1960s, and video games from the late 1970s. Most video arcade games were around 50 cents for the early games (late 1970s and early 1980s). But the pinball machines started out at 25 cents, with the earliest game they had being a Bally Blue Ribbon machine, manufactured in 1965 (interestingly, some of the earlier machines had slots for both dimes and quarters — I assume the price was adjustable mechanically). Notably, you also got to play 5 balls for this price (3 balls seems to be standard later on).
How should we think about that 25 cents? A standard reaction is to adjust the number for inflation. Using the CPI-U as the inflation index, that means the 25 cents from 1965 is “worth” about $2.40 now. That’s interesting, but I don’t think it really provides the relevance that we want today.
An alternative is to calculate the “time price” of playing the game. Using the average hourly wage of $2.67 in December 1965, we can calculate that it would take about 5.5 minutes of work to pay for that game — a game which probably only lasts about 5.5 minutes, unless you are really good at it!
Another comparison we could do is with the cost of video games today compared with wages today. But that’s not really a fair comparison — video games are much more advanced today. We would need to do some sort of quality adjustment, which is overly complicated.
But, at least in my case, there is no need to do the quality adjustment — I can play the exact same game as 1965. In fact, I did (several times). There was also that $10 cover charge that I mentioned, and if I spread that fixed cost over 40 games, it cost me about 50 cents per play (including the 25 cents to start the machine) to play the 1965 Bally’s Blue Ribbon Pinball machine. At the average wage today of $29 per hour, it takes about 1 minute to afford a play of that same game. In other words, my Blue-Ribbon-Pinball standard of living is about 5.5 times greater than in 1965.
Now this isn’t to say we are 5.5 times better off overall than 1965. Prices don’t stay constant for most goods! But hopefully it is a useful way to think about that 25 cent price tag from the past, and how to compare it to today.
You may have heard that there is a new viral song which deals with a few economic issues. Noah Smith has a good analysis of “Rich Men North of Richmond,” which he mostly finds to be incorrect in its analysis (for example, of welfare policy). But Smith does say that the song has a point: manufacturing wages haven’t performed well in recent years. Not only has pay for factory workers “[lagged] the national average in recent years,” for those workers in Virginia, it’s lower in real terms than in 2010.
Well that all doesn’t sound good! Smith is only going back to about 2000 with the data he shows. What if we took a longer run perspective? What if we took a really long-run perspecitive?
Here’s wages for blue-collar factor workers that goes back to 1939 in the US:
The wage data (for manufacturing production workers) is from BLS and the PCE price index is from the BEA. What do you notice as you look at the data?
First, it is true that the last 20 years or so hasn’t been great. Only about 8% cumulative growth since 2002. That’s not great!
But as you look back further, you’ll notice that gains are substantial. Compared to what some might consider the “golden age” of manufacturing wages, the early 1950s, real wages have roughly doubled. It’s true, the growth rate from 1939-1973 is much, much better than the following 50 years. Wouldn’t it be nice if that growth rate had continued! But no doubt you’ve seen many memes saying something like “in the 1950s you could support a family on one high-school graduate income, but not today!” This data suggests that view of the 1950s is a little distorted by nostalgia.
One final thing to note: we might think that one big change in recent decades is that a lot more compensation goes to benefits, rather than wages. There’s actually a total compensation series for blue-collar workers going all the way back to 1790:
The total compensation data, as well as the CPI data that I used to inflation-adjust the figures (to 2022 dollars), comes from the fantastic resource Measuring Worth. This is a total compensation measurement, so it includes benefits, but the source data tells us that up until the late 1930s, it’s really just a wage measure. So potentially we could splice this together with the above chart, to get a “wage only” series covering the entire history of the US.
However, when we look at total compensation, we still see the post-1970s stagnation. Real compensation is roughly the same as about 1977. Yikes! Note here that we’re using the CPI, since the PCE index only goes back to 1929, and the CPI tends to overstate inflation (yes, that’s right, sorry CPI truthers). Still, it’s not the most optimistic picture.
Or isn’t it? With all of the automation and global competition in manufacturing coming on board in the past 50 years, perhaps our baseline is that things could have been much worse. In any case, if we look at total compensation, it’s currently about double what it was in the post-WW2 era. That’s even with the dip in 2022 due to high CPI inflation.
Wages and compensation of blue-collar productions workers have indeed been growing slowly for the past few decades. That much is true. On the other hand, they are still among the highest they have ever been in history, over 50 times (not 50%, 50 times!) higher than at the birth of this nation. This ranks them as probably the highest wages anywhere in world history for an occupation that doesn’t require an advanced degree. That history is worth knowing.
The latest CPI-U price data shows that the rate of inflation in the US has slowed significantly to just 3% in the past 12 months. That’s a huge improvement from the peak last June, when the annual rate of inflation was over 9%. Still, prices as a whole aren’t falling, and they clearly aren’t anywhere near where they were before the pandemic: using the CPI-U, prices are up over 17% since January 2020.
Lately I’ve heard many people asking a good question: will prices ever get back down to where they were? Usually they mean pre-pandemic prices, though sometimes they refer to a particular point-in-time (such as the start of Biden’s presidency). The only correct answer is “we don’t know,” but I think a likely answer for many goods and services is “no.” For many reasons, the nominal prices of most goods and services rise over time. Though this is not true for everything, of course (newer technologies are one example we often see).
But what about specific goods that we buy frequently? Will we ever see gasoline consistently below $3 per gallon again? Will we ever see milk consistently below $4 per gallon again? What about eggs and bread? And indeed, these prices are well above January 2020 levels: 23% higher for milk, 43% for bread, 45% for gasoline, and a whopping 52% for eggs. For the price data, I am using this convenient data on common food and energy goods from BLS.
For some of these items, I do think you might someday see prices fall back to levels consumers were used to from the recent past, since food and energy prices tend to be volatile. For others, though maybe not. But I think we as consumers can become overly focused on staples that we buy frequently and can easily recall the price in our heads. For example, while eggs, bread, and milk are items that we buy frequently (including being the staples of stocking up before a storm), in total these constitute just 0.6% of average consumer spending.
If instead of those 3 staples, your mind naturally anchors on produce prices, the trends look different: oranges are up 23%, but bananas are only up 10%, and tomatoes are, in fact, down 14% since January 2020. But again, these items are less than 0.5% of total consumer spending. Ideally, we shouldn’t anchor on any one subset of goods when doing a good analysis, even if it is natural for us to do so in our lives as consumers.
This is where the benefit of a price index, like the CPI-U, comes in.
On summer vacation, I recently visited Mount Rushmore. It’s amazing structure, and the story of its construction is as impressive as the monument itself. Much of the story you learn when visiting is the story of its creation. As an economist, of course seeing the following display with wage data got me very excited:
While the sign says that laborers made 30 cents per hour, searching online it appears that 50 cents was more common. More skilled workers, such as assistant sculptors, made $1.50 per hour. These were, as the sign says, “good wages” for that time. In the economy generally, production workers made around 50 cents per hour our as well around that time period, and most of the construction of Rushmore was during the Depression (some of the workers were WPA funded), so having any job, much less one that paid pre-Depression wages, was certainly a good one.
How does this compare to wages today? This is always a tricky question, as I have documented on this blog several times before, but the most straight forward approach (and good first approximation) is a simple CPI inflation adjustment. Using 1929 as the baseline year, when construction was in full swing, 30 cents an hour is roughly $5 today, 50 cents per hour is close to $9, and $1.50 would be about $26.50. That doesn’t sound too bad!
The best comparison I like to use is BLS’s average hourly earnings for private production and non-supervisory workers. Averages aren’t perfect, but this measure excludes management occupations that will be distorting the average. In May 2023, that wage was $28.75 per hour. So the average worker today earns 3-6 times as much per hour as these “good paying jobs” in the late 1920s and the Depression. And, as the Rushmore signage notes, these jobs were seasonal. Their off-season jobs probably paid even less.
The wage of the assistant sculptor does compare well with average wages today, but that pay was unusual for the time and was likely a highly skilled worker. The only record I can find of anyone making that much at Rushmore was Lincoln Borglum, the son of the main sculptor Gutzon Borglum. Lincoln oversaw the completion of the project after Gutzon’s death, and it was only in later years on the project that his pay was increased to $1.50 per hour.
For the typical laborer on Rushmore, having a good job was indeed good to have, but the wages pale in comparison to a typical worker today.
Where is that recession that pundits have been predicting for over a year now? The suspense is killing me. Despite savage hikes in interest rates that have led to a collapse in regional banks and in home buying, the economy just keeps chugging along, and inflation continues to run way above the targeted 2% level. What’s going on?
An article I just read on the Seeking Alpha applied finance website points to three interrelated factors. I will cite and credit the author (whose moniker is “Long-Short Manager”; he runs a couple of investment funds) for the content here, while noting that I agree with his points based on other reading. These points all relate to ongoing strong financial position of the (average) American consumer, who mainly drives the spending in our economy.
( 1 ) Reduced Debt Service
The article notes:
The graph above shows household debt payments as a percent of disposable personal income going back to 2000. Since peaking at 13% right before the financial crisis, it steadily improved to 2020, with a subsequent large drop due primarily to lowered mortgage rates (usually the largest debt obligation of a household). It is the lowest it has been this century.
(Although mortgage rates have jumped in the past year, most existing mortgages were taken out pre-2023, when interest rates had been pushed to near zero by the Fed.)
( 2 ) Robust Wage Growth
The next graph from the Atlanta Fed’s wage tracker (note that the methodology used by this tracker is fundamentally different from the Fed’s employment cost index …) shows that job hoppers on average are making about 3% more than core inflation (call that 5%) whereas the average stayer is making a half percent over core inflation. This is allowing people to catch up for the year that they got behind on inflation.
Likewise, the author notes that although job quits have come down in the past year, they remain well above re-COVID levels.
( 3 ) We Are Still Spending Down Gigantic Pandemic Stimulus Windfall
As we have noted earlier, the government/Fed combination dumped some $4 trillion into our collective pockets in 2020-2021. This includes enhanced unemployment benefits as well as direct stimulus payments, at a time when much of our normal spending (e.g., on travel, sports, commuting, etc.) was curtailed. We are still spending down these excess savings at a good clip, which seems to be a fundamental driver of the currently robust economy:
The last figure on the consumer shows how excess savings (defined as the extra savings consumers accumulated during the pandemic due to fiscal transfers and reduced spending due to lockdowns) has evolved – it should now be around 700 billion and ought to be fully depleted by the end of the year – leaving the consumer still with the lowest debt service ratios of the century and wages caught up with inflation. If you are wondering why we haven’t had a recession despite economists saying we will have it within 6 months for about 12 months now, these charts should tell you why. The tailwind from consumers has exceeded any headwinds from reduced investment due to higher rates.
Back in December I pointed out that, thanks to slowing inflation, real wages had been rising since June 2022 (using either the CPI or the PCEPI for inflation adjustments).
With the latest monthly data, we can now report more good news for wage earners: CPI-adjusted wages have increased over the past 12 months. That had happened since 2021. In the past 12 months, wages of production and non-supervisory workers are up 5.1%, just a hair more than the annual increase in the CPI of 5.0%. It’s not much, and we’re not back to our pre-pandemic norm of 2% real wage growth. But it is more good news that we may finally getting past our post-COVID inflationary hangover.
Recently I was watching a lecture by historian Marcus Witcher which addressed the treatment of African Americans in the Jim Crow era. Witcher mentioned the “pig laws,” which were severe legal punishments given to Blacks in the South for what used to be petty crimes. Such as stealing a pig. He mentioned that the fines could be anywhere from $100 to $500, and then he asked me directly: how much is $100 adjusted for inflation today?
My initial, immediate answer was about $3,000. That turns out to be almost exactly correct for around 1880. But the more I thought about it, the more I realized that this wasn’t a satisfactory answer. We were trying to put $100 from a distant past year in context to understand how much of a burden this was for African Americans at the time. Does knowing that adjusted for inflation it’s about $3,000 give us much context?
Economist Writing Every Day 