Kevin Bahr on Disconnects Between Economic Data, Perceptions

Frederica Freyberg:
In economic news and the presidential campaign, what is the disconnect between lowered inflation, low unemployment and higher wages and consumers who feel the pain of high costs at the checkout and then blame the current Biden administration, longing for what they believe to be the halcyon days of Trump. We try to unpack this now with chief analyst at the Center for Business and Economic Insight at UW-Stevens Point, Kevin Bahr. Professor, thanks very much for being here.

Kevin Bahr:
Thank you for having me back, Frederica.

Frederica Freyberg:
So by important measures, the economy is strong. Why aren’t average consumers feeling it, if they aren’t?

Kevin Bahr:
Huh. Complex question, but I think the big, probably, sticking point for some people in terms of not feeling the strength of the economy, the strength of the stock market, has basically been food prices. Food prices are up significantly, if you look over the past five years, they have risen about 26% in the United States and that food price, I mean, it’s tough because when food prices go up, it’s not like you can avoid buying food. It’s something that everybody needs, and particularly for lower and middle income Americans, that takes up a bigger portion of your overall budget, so it really hits lower and middle income Americans hard. That being said, it’s been global factors that have increased global food prices and that includes anything from Putin invading the Ukraine, which caused wheat prices to raise 50%, the Ukraine and Russia account for about 25% of global wheat exports, agricultural fertilizer spiked. Russia is the number one exporter of agricultural fertilizer. Then you throw in things like the avian flu, supply chain problems, and then overall inflation has been up so production costs are up and labor costs are up, so this is a global thing.

Frederica Freyberg:
So it’s not, as some would strongly suggest, ‘corporate greed’ where profits are up over 40%?

Kevin Bahr:
Well, you can argue that plays into it. I mean, that would be one of the factors. Global profits are basically at record levels. Back in 2022, they backed off a little bit, but they’re still up significantly, say, relative to 2019, so that plays into it, but then you also get into what can be done to maybe lessen industry concentration in some areas of the food industry, and that’s kind of a long-term thing. You’re not going to be solving that overnight.

Frederica Freyberg:
So I read a saying that prices rise like a rocket and fall like a feather. Is that what is happening here or have market forces kind of changed more significantly?

Kevin Bahr:
Well, it’s sort of a combination. Prices typically go up a lot easier than what they come down. If you go back and look at the history of the United States, prices in a given month overall, don’t really come down too often, but, again, with kind of the recent, kind of the recent run up in costs, production costs are up, transportation costs are up, labor costs are up. So it’s a lot harder to get prices to come down. Some products, yes. I mean there is going to be fluctuation in some products but the overall price level, it’s tough to drive down.

Frederica Freyberg:
What else is contributing to people feeling like the economy is bad for them?

Kevin Bahr:
You can look at the housing market. Housing’s been tough and a lot of the increase in, for example, housing prices went up about — the increase in housing prices in the first three years of this decade matched the increase in housing prices over the entire last decade, and that has really been driven by the drop in supply, which started to occur in 2020. So if you look at the overall listings, available housing, that has increased certainly contributed significantly to the cost of housing and housing prices. So between cost of housing and food prices, those are the big sticking points for the economy.

Frederica Freyberg:
So how much is political messaging contributing to consumers’ attitudes about their own economic well-being?

Kevin Bahr:
I think political messaging plays a big factor. Let me throw something out just so we kind of hit both sides of the aisle, if you will. The global price of oil tanked from $70 to about $25 a barrel on the first half of 2020. So oil companies cut their production, lowered their levels of inventory. You couldn’t blame Trump for the reduction in oil production. And there’s global factors at play as far as food prices. I don’t think Biden should be blamed for that. The only thing you could say contribute to that, we’ve had a very strong economy, strong demand, strong job market, a lot of people are working. If you had unemployment at 10% rather than below 4%, that would make a difference in the overall demand.

Frederica Freyberg:
We leave it there. Professor Bahr, thanks very much.

Kevin Bahr:
Thank you very much.