Econ Intel Brief - March 12, 2025
On the CPI inflation print, and why cutting "bullshit jobs" in government could boost GDP.
All,
In today’s EIB, please find…
Key Takeaways on Today’s Consumer Price Index Release
Highlights for Media Hits
Cutting “Bullshit Jobs” in Government Could Boost U.S. GDP by $140 Billion
Recession Watch
Preview of Upcoming Data Releases
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Chris
Key Takeaways
At 8:30am, the BLS announced that in Feb 2025:
Headline CPI inflation printed at 0.22% month-over-month, in line with the Cleveland Fed’s nowcast (0.23%).
Core CPI inflation printed at 0.23% month-over-month, a bit lower than the than the Cleveland Fed’s nowcast of 0.27%.
As a result:
The 12-month rate of headline CPI inflation fell to 2.8%, down 0.2% from last month.
The 12-month rate of core CPI inflation fell to 3.1%, down 0.2% from last month.
“Core” CPI inflation excludes food and energy prices. While these prices obviously matter for consumers, they tend to be more volatile than other categories. Core CPI inflation serves as a useful rule-of-thumb forecast of inflation in the near term.
(These figures are seasonally adjusted.)
Highlights for Media Hits
This is a solid print for messaging. During Pres. Trump’s first full month back in office:
The monthly increase in consumer prices was half the rate of Pres. Biden’s last month in office (0.2% vs. 0.5%). Of particular note:
Gas prices fell by 1.0%.
Airline fares fell by 4.0%.
New vehicle prices fell by 0.1%.
Wage growth outpaced inflation. Adjusted for inflation, average hourly earnings rose by 0.1%.
The 12-month increase in consumer prices was lower than almost every month during the Biden admin. By my quick count, inflation was only lower during six full months of the Biden admin.
(These figures are seasonally adjusted.)
Cutting “Bullshit Jobs” in Government Could Boost U.S. GDP by $140 Billion
There appears to be some confusion on this point.
Government jobs deplete a valuable resource: people’s time and effort. In exchange, some government jobs provide a socially worthwhile benefit, which is only indirectly included in GDP. Soldiers and judges sell no goods or services in the marketplace; there is no line item for “peace” or “justice” in the National Income and Product Accounts. Yet, we would be much poorer without them.
Other government jobs squander labor on pushing paper around an agency, straightjacketing entrepreneurs in red tape, or digging potholes in the road of industry. This labor could be productively used by the private sector. To repurpose a term, what could be the economic gain from cutting “bullshit jobs” in government?
The Federal government employs about 3 million people (excluding military personnel). For sake of argument, suppose half of those workers have jobs that are pointless, or even harmful. If these workers were re-allocated to the private sector, then business employment would increase by about 1%.
A decent rule of thumb is that a 1% increase in business employment raises real GDP by about 0.5%. Nominal GDP is a bit less than $30 trillion per year. At current prices, a 0.5% increase in real GDP would generate an additional $140 billion of economic activity each year. This would amount to an average of $1,000 per year, per household.
Note: These estimates only reflect the gains from shrinking the Federal workforce. Actually ending the aforementioned “entrepreneurial straightjacketing” and “pothole digging” would produce substantially larger gains. My point is that merely reducing the Federal workforce would not be a drag on the economy, but could actually provide a modest boost in the long run. The fall in government spending would be more than offset by the rise in private consumption, private investment, and net exports.
Recession Watch
Concerning real GDP growth in Q1 2025…
The Atlanta Fed’s nowcast is -2.4%, up from -2.8% last week.
The New York Fed’s nowcast is 2.67%, down from 2.94% last week
While the Atlanta Fed’s model is generally quite reliable, I am inclined to believe the New York Fed’s nowcast in this instance. Key economic indicators remain healthy.
Employment is rising.
Industrial production is flat.
Real personal income (ex. government transfers) is rising.
Advance Real Retail Sales are flat.
Federal Reserve Chairman Powell made several interesting comments during his speech on the U.S. economic outlook. In particular, Powell does not seem to put much weight on falling consumer confidence, which he claims has “not been a good predictor of consumption growth in recent years.”
Preview of Upcoming Data Releases
The Federal Open Market Committee will announce its monetary policy decision at 2:00pm ET on Wednesday, March 19. I expect no change the target range for overnight rates (4.25% to 4.50%). This month’s solid jobs report gives the Federal Reserve additional space to keep monetary policy tight and reduce inflation to 2%. Powell’s comments on the outlook have essentially confirmed this outcome.