How we feel about the value of our money plays a huge role in the growth of the economy and the wellbeing of our monetary future. Entire sections of the government, like the Federal Reserve, are dedicated to managing that public perception through a two-pronged approach of managing interest rates and informing the press of their opinions to placate public anxiety. People turn to experts like the federal reserve along with metrics such as GDP growth rates and stock values to determine the value of their money both now and in the future. These projections then inform how people will decide to spend their money now or attempt to save, which will lead to a contraction or expansion of the economy. 

While these metrics may seem like a holistic picture, their current numbers fail to rationalize the growing anxiety of an impending recession in the United States. While the economy has steadily been growing since the Great Recession, a Deloitte Global Millennial Survey states that 45% of millennials in the workforce believe that they will never achieve the financial status of their parents.

Where could this anxiety come from? 

Well, let’s look at wages.

Up to 80% of Americans live from paycheck to paycheck.  Because of that, wages are one of the more direct indicators of economic growth and wealth for a majority of the U.S. population. Wages themselves tend to grow with inflation and GDP. This stems from the concept that if more money is put into the economy, that money has the capacity to circulate through exchange. That has not been the case recently, however. 

Since the Great Recession in 2008, average wages have dropped significantly due to unemployment and an increasingly competitive job market for most sectors. In 2008, the sentiment was simply that everyone just wanted a job, and so most people were willing to take jobs at lower pay. As the economy began to improve in the subsequent decade, average wages remained virtually the same. If we account for inflation, this means that the average worker was actually being paid less over the course of ten years. This is because the same amount of money must pay for the constantly growing costs of commodities such as housing, food, education, and medicine. This lack of growth is attributed to businesses holding off on increasing wages. Instead, they are apportioning more of its increasing revenues to shareholders.

While it may seem like a bad move on the companies, this actually is a common business practice due to the sticky wage theory: wages may be easy to rise, but are increasingly difficult to drop during a recession. However, this theory is becoming impractical for the era. As companies continue to keep wages low, when a recession ultimately does hit, they have no choice but to layoff workers rather than cut costs . These policies instead increase wealth inequality and leave working Americans vulnerable to financial struggle or even disaster.

The good news is that wages are beginning to rise. Some economists attribute this to a tightening job market as unemployment rates drop . Others say government policies such as increasing the minimum wage have forced companies to address this stagnation. Still, there is a lot work to be done as productivity continues to increase while wages fail to grow at the same rate . Policies such as the most recent tax cuts to companies have also failed to increase the spread of wealth (Forbes). Thus, many Americans are seeing increasing inflation due to a rising GDP yet consistent or underperforming wage growth, leading them to believe that their lives are getting more expensive but that they will ultimately be unable to afford it.

According to my notes, the Consumer Price Index is “how expensive things are.” In accordance with this definition, I picture the CPI as an endless itemized price list of every item ever sold. Clearly, this is not an accurate picture of the CPI, which indicates that my definition needs some work. The Bureau of Labor Statistics defines the Consumer Price Index as “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.” In other words, the CPI is a measure that tells us both the magnitude and direction of price changes. 

How does it do this? Well, instead of keeping an index of the exact dollar value of every item in the market, it measures the change from its old price to its current price. The CPI is a culmination of price comparisons; it looks at what goods used to cost and tells us whether that same good costs more, less, or the same amount.

The CPI also can tell us just how much prices are changing. Below is one version of the U.S. Bureau of Labor Statics’ CPI chart.

The larger the bars on the chart, the greater the change in price. As we can see, the energy bar is far larger than the other categories and also grows in the opposite direction. This tells us that while the prices of other goods are increasing, the price of energy has dropped dramatically. 

This type of market shift can tell us a lot about the economy. Is energy getting cheaper because there is an abundance of supply? Is energy getting cheaper because advances in technology? Is energy getting cheaper because the cost of production of energy is getting cheaper? Well, to put it bluntly, the CPI doesn’t know and doesn’t care. However, these important questions, all of which carry massive implications about the health and trends of the economy, wouldn’t be getting asked if it weren’t for the data presented by the CPI. By measuring changes in prices, the CPI becomes a valuable trailing economic indicator and allows economists to predict future market changes.  

 The CPI is a crucial tool for economists to both hypothesize about the future of the economy and recognize important trends that have already begun (inflation is the best example of this). Without the CPI, economists would have no streamlined way of knowing how much or in what way prices change. So yes, at its core, the CPI is a measure of “how expensive things are.” But at the end of the day, it is a hell of a lot more helpful than just a running list of numbers. 

One of the many ways that scholars and economists try and predict the state of the economy is through what is known as an economic indicator. Recently it has been discovered that popular search engines such as Google have been able to predict economic trends in times of a nearing recession. But if America’s searches on Google are close to any sign of the state of the economy, then a recession is not as near as we may believe.

The future trends of the economy can be measured through a type of economic indicator known as a leading indicator. A research company by the name of DataTrek followed American Google searches for words such as “coupon” and “unemployment” leading up to the Great Recession. Google searches for the word “coupon” began to increase by more than 5% starting in 2005. Then there began to see a spike in the search from the term in which it rose to 45% in 2008 which was the start of the Recession. The peak of “coupon” being searched was 2011 when searches were 200% above where they were in 2005.

Searches for the term “coupon” is a result of consumers looking to spend less on items or to not even spent at all. DataTrek has found that as of June 2019 searches for this word were 7% lower since the previous summer. Other phrases tend to have an insight into the concern and curiosity of the American consumer.

According to the Washington Post, August of 2019 marked the first time that the numbers for people searching “Recession” + {current year} exceeded the numbers that were seen during the Great Recession. The likely cause for this immediate spike in searches could be linked to the Dow Jones falling more than 800 points in August and with an inverted yield curve showing troubling signs.

While this can be rather helpful in trying to find new ways to predict the direction of the American economy, there are many flaws with using this as a measure to accurately depict what is going on because each time someone is searching any of these words.

One may simply be inclined to study what a recession is for a class, looking for a coupon before making the weekly trip to the supermarket or even finding themselves being autocorrected while misspelling the tv show “Succession” There are numerous possibilities as to why one would be inclined to search for “coupon” or “Recession” and not all are directly related to the actions of the economy.

In the same study from DataTrek, keywords related to television and entertainment were linked to signs of unemployment given that people had more free time and also limited money on spending for entertainment outside of their home.Economists across the country including JPMorgan Chase’s chief economist Bruce Kasman told Bloomberg, that he believes that chances are low for a nearing Recession. Within some time it will unravel if there is a Recession nearing and if the Google data can indicate the foreseeable future of the United States economy.

Additional Sources:https://www.bloomberg.com/news/articles/2019-01-24/google-searches-signal-u-s-consumption-intact-economist-says

Health is the new wealth, but the two are far from mutually exclusive. From clothing to food to hobby trends–wellness is something to aspire to and is correlated to status. Whether it is sporting the newest athleisure brand, the new diet fad that is organic, vegan, free of toxins, and packed with micro and macronutrients, or paying upwards of $30 per workout class–being healthy is elite. According to the Global Wellness Institute, wellness expenditures ($4.2 trillion) are now more than half as large as total global health expenditures ($7.3 trillion), and businesses are catching on. They have capitalized off of early trends, and the wellness industry has grown about 13% in a short two years from 2015-2017 (GWI).  

If you are familiar with basic economic principles and the rules of supply and demand, the increased popularity surrounding healthy foods sent prices flying high for everyone involved, thus making them more exclusive. Access to healthy food should be a basic right–instead, it is cheaper to get a full meal from a fast food stop than to have fresh vegetables at dinner. There is no shortage of food in the United States. 50% of produce in the United States is thrown away each year–some 60 million tons (or $160 billion) (The Atlantic). Yet 13% of the country’s population lives in a food-insecure household, meaning that they do not have full access or ability to purchase healthy foods (Medium.com). This leads to a large population experiencing malnutrition–whether that means hunger or obesity, it impacts more than just those directly involved. 

Although the obesity epidemic in the United States falls across all socioeconomic status’, there is a concentration of food insecurity in lower socioeconomic status. The high demand and limited access to healthy foods is a huge reason to blame for obesity and its correlation to lower socio-economic status. “More than 23 million Americans, including 6.5 million children, live in low-income urban and rural neighborhoods that are more than a mile from a supermarket. These communities are known as “food deserts” since they lack access to affordable, nutritious food. Lack of access is one reason why many children are not eating recommended levels of fruits, vegetables, and whole grains.”(Letsmove.gov). Low-income neighborhoods offered greater access to food sources that promote unhealthy eating. The distribution of fast-food outlets and convenience stores differ by the racial/ethnic characteristics of the neighborhood (NCBI). Rather than presenting these communities with nutritious and energizing food, they are presented with options that have an adverse effect. 

Food fuels you with energy to perform at one’s potential, but fast food does the opposite. It causes health issues–primarily obesity. Obesity is related to some of the leading causes of death, including heart disease, some cancers, stroke, and type 2 diabetes (PRB.org). Obesity is a grave public health threat, and accounts for 18 percent of deaths among Americans (Commonwealthfund.org). These health issues naturally lead to higher health care costs and create a cyclical trap where people are stuck in a cycle of poor eating because of the food they can access. 

Introducing poor eating habits from a young age teaches children and instills the pattern for the rest of their life. The cycle of poor eating habits and bad health negatively impacts them as well as communities at large. Without the ability to perform at one’s full potential, it can lead to reduced economic productivity. According to a study, obesity “costs the nation over $8 billion per year in lost productivity” (Yale.edu).
Despite the thriving U.S. weight-loss market (worth $66 billion in 2017), (Webwire.com) we need a long term sustainable option. The diet industry commodifies and glamorizes health and wellness when in reality it should simply be accessible to all. Health is not something that should be a fleeting trend, but the exclusivity factor in conjunction with our farming techniques, our country is headed into a serious health crisis. To have a prosperous next generation, it is important to invest in the health of all communities for a better future together.

Just a couple days ago, on September 18, the Federal Reserve dropped interest rates by a quarter point. This is the second time the Fed cut rates in 2019 as an effort to encourage businesses to take out loans to hire more people leading to expansion and to boost economic activity by encouraging people to take out loans and use that money to spend and invest. This boosted economy means all is well and a recession can be avoided as long as people keep spending. With low rates, it is easier to borrow money and encourages more spending and investing. So, why aren’t people spending more? The perception of a soon-to-come recession.  

            “The Federal Reserve should get our interest rates to down to ZERO, or less, and we should then start to refinance our debt… A once in a lifetime opportunity that we are missing because of boneheads,” tweets the President of the United States. When the current sitting president calls the head of the Federal Reserve, who he appointed, a “bonehead,” it does not instill any sort of confidence in American people that our economy is stable and growing. Unsurprisingly, it has the very opposite effect. People are fearful of a potential recession. It has been over 10 years since our economy’s last big recession and people seem to believe that we are due for another. As a result of this fear, people are ultra-conscious of their spending habits and make even more of an effort to save money. Saving money might be great for people’s pockets, but it does not contribute to boosting economic growth. Less spending can lead to a slowdown in the economy and as a result, the recession.

Some economic indicators reveal the reality of the U.S. consumer. What retail spending, worker pay, and household spending show is that a consumer in the United States is still financially healthy. The supposed coming recession is not supported by these economic indicators but is instead backed by the public perception that our economy is due for downturn.

Had the Federal Reserve listened to President Trump’s suggestions, the public would likely have been even more fearful of oncoming doom. To conform would show weakness in our central banking system. If the Federal Reserve did cut interest rates to zero, like suggested, there would likely be even more of a panic that the recession is imminent. The Federal Reserve made a decision independent of the president which is critical in maintaining the mysterious reputation and its ability to create money and to withdraw money from the economy. If they acted as the president suggested they should, the public perception would shift to distrust in the central bank, and ultimately an even more problematic idea of the potential recession.

To avoid the recession people strongly believe is overdue, people must borrow money to spend which will contribute to economic growth. The health of our economy is now reliant on whether people respond to the lowered interest rates and to the encouragement to spend and invest. The recession is not a guarantee, and people should take individual action to make sure they add value to a growing economy.

On September 18th, California Assembly Bill 5 (AB5) was signed into law. Its effects will be felt most strongly in the gig economy, where many don’t feel great about it. The basic premise of California AB5 is to define the law what constitutes independent contracting and what circumstances make workers full employees with benefits (such as minimum hourly wage and compensation plans).  

Lyft, Uber, Postmates, and DoorDash are the companies where the most workers will be affected.  Hundreds of thousands of drivers (alongside thousands at other companies in this gig economy space) will now be considered employees. Full time drivers are in for a somewhat good change, as they will receive positive benefits but are also now committing themselves to businesses that were designed to profit off of independent contractors. According to a Lyft driver interviewed in a recent report in the Wall Street Journal, ride rates have decreased by about 50% in the past four years. The cost of being a full-time driver is now higher and higher because they make near (and sometimes sub) minimum wage and have to pay the costs of keeping their vehicles in top shape at all times. In the chart below you can see how much California makes up of these companies profit streams. 

The people that AB5 affects most negatively are the part time drivers, as they now lose the flexibility of choosing when and how long they work in the face of being required and pushed to work more and more hours to make being a driver actually profitable. Expenses like gas, car repair, and giving up time at other part-time/independent professional endeavors will take a toll and force these drivers to either seek full time employment or move on to other pursuits. Other states will most likely follow the path California AB5 has set up, as gig economy corporations have grown sacel-wise at such a rate in usage and in contractors that labor laws must be passed to ensure the safety of full time workers. Adding the misfortune of drivers negatively affected by this bill is that they still have no control over what the pricing on rides is. Uber and Lyft can cut back pricing on rides as much as they want to accommodate the decrease in drivers on the street

Uber alone accounts for over 65% of the ride share market according to the Business of Apps journal. Even as their IPO this year did not go very well, they still stand as the juggernaut in the ride service arena, as seen in the Statista chart below. 

On the opposite consumer side of things, this bill will lower the amount of uber drivers on the street while demand keeps increasing, and according to the Wall Street Journal will make ride prices unstable. It will be interesting to see how this change affects the free shared rides agreement Lyft has with USC for a two mile radius around campus. Many students use it to get home safely each night, as this benefit activates after 7pm. It would not be unreasonable for the company to cease programs like this for the time being while their employee number will likely go through a shifting period. 

Sources: 

https://qz.com/1706754/california-senate-passes-ab5-to-turn-independent-contractors-into-employees/

https://www.latimes.com/california/story/2019-09-22/skelton-ab5-employment-law-independent-contractors-gig-economy

https://www.theatlas.com/charts/OffkCowSV

https://www.statista.com/chart/17261/lyft-vs-uber/