Healthcare, Groceries, Jobs, and Earnings . . . the Economy

We are amazingly ignorant of what is going on economically in the United States. But for groceries, the nation had a good economy. The right president was in the right place to ensure Americans had what they needed during several years of a pandemic. He no leaves the nation and presidency with a sound economy.

The presidency did not and does not have the same influence on a concentrated groceries market as it does on healthcare. And to keep it from being more concentrated, the FTC through the courts blocked the merger of Kroger and Albertsons. Each grocery chain had already bought other grocery chains.

As my partner in consulting Ted had stated, we have experienced one of the best economies we have had in a long while in spite of a pandemic and other things that arose to block the administration.

Bidenomics Delivered on Its Promises, WSJ Opinion

by Jared Bernstein

Even as Donald Trump campaigned on how terrible the U.S. economy was, it was posting strong numbers. At President Biden’s Council of Economic Advisers, we showed that real gross domestic product consistently beat expectations. The U.S. looks especially strong compared with other advanced economies, and GDP is running far above estimates of its potential. If all this sticks, it’s profoundly good news about our economy’s underlying growth rate—and a vote of confidence for Bidenomics.

At 4.1%, unemployment is low, as are layoffs. Inflation is gradually but reliably easing. Consumer spending—the engine of American growth—shows no sign of letting up. The combination of a strong labor market and easing inflation is generating real wage gains, which in turn support retail sales. The S&P 500 just delivered its best two years since the late 1990s.

Another strong economic indicator bearing the Biden administration’s fingerprints is investment spending. Analysis by the U.S. Treasury shows that business investment has outperformed both the historical cyclical pattern and post-Covid forecasts. We accomplished this supply-side expansion not by giving tax breaks to the wealthy, but by creating direct incentives for the private sector through the Chips and Inflation Reduction acts.

Based on this evidence, Mr. Trump’s broad economic criticism was simply wrong.

When it came to criticism of consumer prices, however, he was on more solid ground. He was correct to point out that consumers wanted not only cheaper groceries and services, but also lower borrowing and mortgage rates. My colleagues and I were acutely aware that people remembered what things cost before the pandemic, and that they wanted those prices back. Moreover, Americans were unmoved by our cost-cutting efforts, despite some successes such as reductions in junk fees and healthcare costs. Food and other grocery prices were particularly salient to voters, perhaps even more so than gasoline prices.

But there’s not that much policymakers can do to bring grocery prices down, especially in the near term. Even Mr. Trump himself is now admitting this.

To see why, compare groceries with healthcare.

The federal government will spend $1.9 trillion on healthcare this year. That’s about 36% of the total expected health spending in the country, which means the government has some sway over the market. This allows the government to do what Mr. Biden did: beat big pharma. By flexing the government’s bargaining power, the Biden administration was able to lower costs on vital prescription drugs.

Groceries are a different beast. True, the government spends significantly to help low-income Americans afford groceries. But we don’t make the prices in this sector and we take what we can get. There is insufficient competition in food and grocery production, particularly in meat production, and we took steps against this. But that’s a long-term play, not one that could be totally realized in a single electoral cycle.

I shared this perspective with Mr. Biden this past year. No president likes to hear that we don’t have immediate leverage in an area so important to consumers. But his response was the economically correct one. He said that if we can’t lower costs, then people need rising real pay.

Only a deep recession could bring price levels back to where they were before the pandemic. That’s obviously undesirable. Instead we tried to restore Americans’ jobs and earnings such that they could better afford their wants and needs. We’ve made important progress on this front. For middle-wage workers, yearly wage growth has been outpacing price growth for 22 months. It now takes fewer work hours to buy a bag of groceries than it did in 2019.

What this all means is that the incoming administration is inheriting a strong economy, though it’s also receiving high price levels relative to prepandemic days. As always, there are risks on the horizon. Here’s what was on our watch list as we left the building.

Inflation could pick back up. Four factors have facilitated the easing to this point: The labor market isn’t overheated, inflation expectations remain steady, supply chains are in good shape, and the price of oil has stayed relatively low. Mr. Trump’s deportation and tariff policies could undo this progress. A mass-deportation regime would tighten the labor market considerably, and a wave of new tariffs could disrupt price setters’ expectations.

Another concern is that the incoming team will pursue trade isolation and use the trade deficit as some kind of score card. Doing so would unravel our work to give priority to robust trade flows with our partners, which would disrupt global supply chains and energy prices, adding new pressures to inflation.

Finally, despite a stronger-than-expected December 2023 jobs report, we are watching whether the job market has cooled too much. As I noted above, it certainly isn’t overheated. But the unemployment rate, though historically low, is up 70 basis points since April 2023, and the rate of hiring out of unemployment has slowed. This poses risk. But as long as consumer and investment demand continue to support job creation and layoffs stay low, the job market should remain healthy.

I’m sure, despite some of their comments, that our successors are aware we’re passing them a strong economy. My sincere hope is that the new team builds on the progress we made.