Don't shoot the messenger

POST FALLS — At the height of the COVID pandemic, citizens received stimulus checks, rent and student loan payments were deferred, unemployment benefits were increased and government spending was up.

“All of this amounted to a massive expansion of household spending power,” Idaho Department of Labor economist Sam Wolkenhauer told a Post Falls Chamber of Commerce gathering Tuesday. “The great irony is that quarter 2 of 2020 was when we all got locked up and everything shut down. All this uncertainty and people weren’t spending money.”

America had reached an all-time high for household wealth, Wolkenhauer said. Yet the unemployment rate was “crossing over the 15% mark.” Typically when unemployment is high, spending power is low.

“All of this adds up to about 5 trillion more dollars in liquidity in the U.S. economy than there was pre-COVID,” Wolkenhauer said. “Ordinarily this might be good. But in this case, it’s bad. And it’s why we have inflation.”

As of this month, the economic outlook is challenging.

“We’ve got a lot of different plot lines going on right now. We’ve got inflation, interest rate hikes, raw materials shortages, labor shortages, demographic collapse,” he said. “I don’t know which horseman we’re on but it’s very, very interesting.”

Americans are now seeing the highest rate of inflation since the 1970s, Wolkenhauer said. Nationwide, average prices are up by 8.5%. Interest rate increases are being announced from the Federal Reserve, and we’ll likely see several more, Wolkenhauer said. Underpinning all aspects of inflation are the issues of supply and demand.

On the supply side of the equation are huge problems getting raw materials in place: aluminum, gas, oil, chemical components, lumber and “almost everything you can think of in an industrial context,” Wolkenhauer said.

The supply chain issues are made worse by the Ukraine war because the global manufacturing system isn't actually very diverse, Wolkenhauer said. For example, there's a global semiconductor shortage.

Semiconductors require a silicon wafer etched with an industrial laser. Industrial lasers are produced with processed neon gas. Seventy percent of the world's processed neon gas comes out of Odessa, Ukraine.

Neon gas can be produced anywhere but only if one has the manpower to do it.

“America has the technology to make neon gas, but where do we find the labor to bring a new neon plant online?” Wolkenhauer said. “This (lack of employees) limits our ability to solve all our other problems.”

Transportation difficulties also plague the global economy. American ports are severely backlogged.

“There are ships moored offshore. Long wait times to unload and a long wait time to reload, because there’s not enough truck drivers to make the loops with the cargo containers,” Wolkenhauer said.

Globally, major ports are also shut down, such as Shanghai, China.

“Since COVID started we’ve entered this new troubling environment where nodes in the global shipping system will just go offline abruptly,” he said.

There's money for Americans to spend, but because producing and delivering the products people want to buy can’t happen at a concurrent rate, supply chains are severely strained.

“This is the kind of hidden system that makes the whole economy function properly, and it’s severely disrupted right now,” Wolkenhauer said. “This is why we have inflation.”

Shipping container freight rates went from $1,446 in March of 2020 to $8,152 in March 2022. Aluminum jumped from $1,611 to $3,348 per metric ton, and crude oil went from $32 to $117 per barrel.

Inflation on raw materials is approaching 25%, Wolkenhauer said.

During the pandemic, nationwide spending dipped to a very low rate, Wolkenhauer said. Post-COVID, many are going out again. Discretionary, retail spending in the U.S. has increased by about $600 billion per month.

“This is a huge demand pressure on the economy,” Wolkenhauer said.

COVID caused a sharp dip in employment rates but Idaho’s post-COVID recovery was exemplary. Idaho did better than any other state in recovering lost jobs and is now the No. 1 state in creating new jobs. Many states are still trying to dig out of the hole left in COVID’s wake.

“Idaho had been the best performing state before COVID and we’re the best performing state post-COVID,” Wolkenhauer said.

Now Idaho’s job creation rates have slowed. There aren't enough job seekers to fill all the open positions.

“We have three times as many jobs as we have job seekers,” Wolkenhauer said.

We’ve used up all of our available labor supply and several factors affect its lack. These include skill level mismatch, low population growth, high retirement, disabilities of despair, child-care availability and choosy job seekers.

Skill level mismatch is a diplomatic way of saying that when the economy reaches an unemployment rate of 2 or 3%, those left are too difficult to employ, Wolkenhauer said. This can refer to those suffering from mental health issues, for example.

“You’re left with this leftover layer that’s very hard to gainfully employ,” Wolkenhauer said.

According to the U.S. Bureau of Labor Statistics, Coeur d’Alene has hovered between 3.3% and 4.5% unemployment between October 2021 and February 2022.

And that’s not the only problem we’re facing locally.

America’s population growth is “anemic” despite the booming population growth seen in Kootenai County.

“Our natural growth is negative. The birth rate is below the replacement rate,” Wolkenhauer said. “The only reason the population has grown in the last two decades is foreign immigration.”

This fact segues into the high retirement rate. Baby Boomer retirements are straining the available labor supply. Typically when people retire, their rate of economic consumption goes down, but current retirees are not following this trend, Wolkenhauer said. They're continuing to spend and consume services, though their places in the labor market have not been replaced. COVID also prompted many to retire early.

“Disabilities of despair” refers to statistical data involving drug addiction, alcohol abuse or suicidality, Wolkenhauer said.

“These three things collectively are the biggest cause of death for males under the age of 65,” he said. “Collectively they keep hundreds of thousands of individuals nationally from living productive lives and being part of the workforce.”

Child-care availability is another of the economy’s “notoriously” difficult problems.

There are inflexible ratios between the number of children for whom a caregiver can be responsible. Early childhood education is not an industry in which “production can be ramped up,” Wolkenhauer said. Often, those choosing to work with children prefer to work for a school system. The income and other valuable benefits are higher.

“All of these things individually don’t make up the labor crisis,” Wolkenhauer said. “But when you put them all together, it’s not hard to see why we’re having such a hard time finding labor.”

Wokenhauer offers three key takeaways high and continued inflation will continue, the workforce shortage is “chronic,” and we are “living in an economy with physical limitations.”

“There’s no way around this because you’re dealing with physical problems, ports, trucking and raw materials” he said. “We’re dealing with a demographic reality that we have no capacity to manipulate.”