Ask the SF Fed
“Ask the SF Fed” is a series of live discussions on various topics that impact communities, families, and businesses across our District. During the event, our featured speaker will answer questions that have been pre-submitted by the public. We invite you to subscribe to learn more about future Ask the SF Fed events.
Watch our live discussion from February 7, 2023 on Inflation and the Economy with Sylvain Leduc, EVP and Director of Research at the San Francisco Federal Reserve.
During this event, Sylvain covered the drivers of high inflation, current labor market dynamics, and the Fed’s efforts to restore price stability. He also answered pre-submitted questions from the public in a discussion forum with our host moderator, Laura Monfredini, Senior Vice President.
This was a livestreamed event open to everyone.
Quick Clips from Ask the SF Fed | February 7, 2023
Mix of Inflation Contributors Is Changing
Core services inflation has been rising over the past year, while goods inflation and energy inflation have been moderating in recent months. This means the mix of inflation contributors is changing, with services becoming a more substantial part of overall inflation.
Changing Consumption Patterns
Spending patterns on goods and services were following trend lines until things abruptly changed when the pandemic arrived. People switched to buying more goods while cutting back on services. Now these trends appear to be reversing. Goods consumption is moderating, while services consumption is rising back toward its pre-pandemic trend line. This suggests the economy may be normalizing.
Goods Inflation Is Falling
For the better part of 20 years, the United States had roughly no inflation in the goods sector, largely due to technological advancements and manufacturing offshoring. That changed during the pandemic, as demand for goods surged while supply chains were disrupted, leading to high inflation. Now goods inflation is rapidly declining as supply chains recover and consumption patterns begin to shift back to pre-pandemic trends.
Services Inflation Remains High
Around two-thirds of U.S. consumer spending is on services. Inflation in this sector is currently much higher than the pre-pandemic levels we saw in the 2000s and 2010s. This is a concern for policymakers because services inflation tends to be a bit more persistent than goods inflation and is more affected by rising labor costs.
Unemployment Is Lowest Since 1960s
Right before the pandemic, the labor market was strong and the unemployment rate was below 4%, its lowest level since the 1960s. That was derailed by the pandemic, which saw unemployment surge to 14% as the economy shut down. However, unemployment quickly recovered due to strong fiscal and monetary support, as well as improving health conditions. Now the unemployment level is even lower than it was at the end of 2019.
Job Openings Are Plentiful
Job openings is a measure that tracks how many open positions exist in the economy per unemployed worker. These data started to be collected in the early 2000s. Currently, the level of job openings is the highest on record, with approximately two job vacancies per unemployed worker. This suggests historically strong demand for workers and ongoing resilience in the labor market.