Inflation May Follow Recovery

Many people believe higher inflation is just around the corner, especially with the U.S. government flooding the market with new money. It’s worth keeping a keen eye on several factors that could ignite inflation.

More good news is finding space on the financial pages as the global economy continues a slow recovery.

World trade flows have been rebounding, and business inventories continue to decline. Even unemployment, a lagging indicator of economic upturn, appears to have peaked and is showing signs of improvement.


But the 12 regional banks of the U.S. Federal Reserve have supported the recovery by printing more and more money. Many economists believe this may lead to another round of inflation similar to what happened in the 1970s.

Inflation is a sustained increase in the general level of prices for goods and services. With the huge debt our government has created (in excess of $10 trillion!), many investors believe the value of the dollar is declining.

Forces Feed Beast

Nobel Prize Economist Milton Friedman (1912-2006) defined inflation as “too much money chasing too few goods.” For the last decade or so, however, inflation has been unusually low. And, until very recently, there has been too little money chasing too many goods.

Historically, inflation doesn’t suddenly appear as a beast out of thin air. There are three different forces that drive inflation.

The first requirement is a surge in demand in an overheating economy.

In an overheating economy, the government, corporations and households try to buy more goods and services than can be produced, trending prices higher. That’s not a problem right now since there’s plenty of slack in the global economy. The world’s factories are running well below capacity.

Inflation also requires a significant increase in consumer income. High employment has kept wage increases well below their long-term average. A big increase in wages will not likely occur until there is full employment.

The third requirement is an increase in the money supply and credit growth. The Federal Reserve’s historic money supply increase has certainly stoked inflationary fears.

But WMB believes it will take more than the Fed pumping money into the system to ignite inflation.

Banks must also open the floodgates of credit. To date, we still are not seeing an easing of bank credit. Banks haven’t increased lending levels to their pre-crash highs and many are still recovering from their last credit binge.

Looking Ahead Now

All three factors – demand, wage growth, and money and credit growth – must rise simultaneously for inflation to take hold, according to most financial experts.

That’s only likely to occur only after we’ve had a full recovery and a complete healing of the financial system.

WMB believes that although there has been recent growth in our economy, a full recovery is still far down the road. And, a full recovery of the banking system is likely even further away.

But the borrowing continues, and policy makers may be tempted to take the easy way out by printing new money, which could fuel inflation worries.

WMB believes that over the near term, a small increase in inflation wouldn’t be entirely unwelcome — it would be a sign the economy has finally recovered. Higher inflation may or may not hit us hard at some point in the future.

In the meantime, we should continue to keep all eyes focused on the 800-pound gorilla known as inflation. Feed it too much and suffer the consequences across the board, from industry to consumers.

This post is by TechMan, WMB co-author who blogs about trends, issues and ideas affecting industry, business, technology and consumers. If you like this post, please share it.

Underemployment Is Growing

The job numbers just released by the U.S. Bureau of Labor Statistics show the national unemployment rate holding steady at 9.7 percent, but it's not reason to celebrate if you look deeper.

The emerging trend is that more people are accepting part-time and temporary work in a desperate effort to get off assistance. Some economists will say the generation of part-time and temporary jobs is a sign of economic recovery which could lead to permanent job growth.

Notice the word "could" because there are no guarantees the United States will boldly emerge from the worst economic decline since the Great Depression.

What we have now is growing underemployment that represents a crossroads -- one way leads toward recovery, the other to further decline. The underemployment rate, as of February, stood at 16.8 percent.

The bureau’s definition of underemployment includes three categories: the unemployed who are still looking for work, the unemployed who have stopped looking for work, and those who are employed part time but would like to be employed full time.


For the history buffs among us, the Depression of the 1930s was a long, slow and painful climb back, speeded up only by our entry into World War II in December 1941. And, like today, the U.S. government propped up many failing institutions, from banks to manufacturing, and created public works jobs.


The U.S. unemployment rate for February 2010 remained at 9.7 percent (same as January) as only 36,000 jobs were shed in the month, according to the bureau. A healthy job market in America means an unemployment rate of about 3.5 percent to 4 percent, economists say.

The number of Americans working part time because they were unable to find full-time jobs increased by 500,000 -- to 8.8 million, a discouraging sign to many, but jobs continued to increase in the temporary help sector, which added nearly 50,000 jobs, according to MediaJobsDaily reporter Rachel Kaufman.

One only needs to scan the Help Wanted classified ads online or in print to see an abundance of part-time and temp jobs across many sectors. The same holds true for many of the larger job board Web sites, such as Indeed and Simply Hired.

Does this portend a slow economic recovery, or does it indicate a more ominous trend with employers filling gaps with second-class workers? Think about this: If employers survived the Great Recession with reduced staffs and expenditures, what incentives do they have to hire new full-time workers?

Perhaps the answer -- no laughs or eye rolling, please -- rests with congressional action to make job creation more enticing to employers.

The U.S. House of Representatives passed a $35 billion jobs bill Thursday night that will exempt employers from Social Security taxes if they hire unemployed workers. The bill already cleared the Senate but since the House modified the measure, it goes back to the Senate.

The Big Questions: Will it be enough for employers, especially those in the hard-hit sectors such as housing, automotive and publishing, to rethink their staffing requirements? Or will lingering economic anxieties prevent companies from gambling on an uncertain future?

The answers may await in the second quarter of this year (April, May, June). If the pace of economic recovery has not picked up, and it looks like more of February's indicators, the rest of 2010 could be in serious doubt.

As for me, I practice what I preach at writenowworks.com.

Numbers Confound Job Picture

It's always about numbers these days, especially when anyone points to key figures involving unemployment levels and job creation. At issue is the wide variety in both categories, depending on what source is cited.

The job openings rate in December 2009 was 1.9 percent, little changed from November 2009, the U.S. Bureau of Labor Statistics recently reported. That means there are roughly 2.5 million open jobs, with the U.S. unemployment rate standing at 9.7 percent in January 2010, per the government's report. It's not pretty by any definition.

Job openings increased in state and local governments across the country, while openings decreased in the Midwest. The industries with the highest percentage of openings are education and health services, at 2.7 percent; that's still down from 3.5 percent in December 2008.

Essentially, if a given company in America has 98 employees on its payroll, it's looking to hire two, according to a report at mediabistro.com by Rachel Kaufman of MediaJobsDaily. That's not very encouraging if you're among the 14.8 million Americans unemployed, as of the bureau's January 2010 figures.


Sergey Novoselov, blogging about the Bureau of Labor Statistics report at resumark.com, offers a different analysis of the numbers. In reality, unemployment reached an all-time high of 18 percent, which is the official number reported by the bureau, Novoselov says. There are a few different categories (sets of data) published on a regular basis and the main focus is usually on the “official” U3 unemployment rate (currently 9.7 percent, seasonally adjusted, according to Novoselov.

U3 is the total number of unemployed as a percentage of the civilian labor force. U4 is the next category that includes unemployed workers plus discouraged workers (someone who’s available to work but has stopped actively seeking work). U5 unemployment includes all from the previous category (U4), plus marginally attached workers (those able and willing to work but not actively seeking).

U6 is the most realistic figure involving today’s job market, Novoselov says. In addition to those unemployed from the previous categories, it also includes workers forced to work part time because they are not able to find full-time jobs.

The U6 unemployment number is 18 percent (16.5 percent, not seasonally adjusted) -- the highest number on record, according to the bureau.


Regardless of which sets of job numbers are used, there seems to be general agreement this recession is the deepest and longest downturn since the Great Depression.

There also is an emerging viewpoint from many sources that the impact on our consumer-based society may extend years, with some industries -- print media, for example -- never fully recovering because advertisers have migrated to other sources such as the Web. That's the downside.

Moving forward, the No. 1 priority for our leaders should be speeding recovery, so we can turn this negative gridlock into positive action for the greatest number of Americans.

As for me, I practice what I preach at writenowworks.com.