PEORIA MAGAZINE May 2022

W elcome back to PeoriaMagazine’s Econ Corner, a recurring feature inwhichwe pose questions to experts about various economic issues and how they affect our lives and careers here in central Illinois. Dr. Joshua Lewer, Chairman of the Department of Economics andMcCord Professor of Executive Management Development at Bradley University, returns to provide this month’s analysis. Peoria Magazine (PM) : A recent New York Times story posed the question, “Is America’s economy entering a new normal?” After a quarter century of rock-bottom interest rates, low inflation and wage stagnation, all of the above are now heading in the opposite direction. So how would you answer that question? Dr. Lewer : First let me say that with technological progress and market-based competitive forces at work, our economy is always moving to a new state of normalcy. But what is distinctively unique during this contemporary period is the elevated and persistent inflation pressures the average American household is now facing. What Americans are experiencing now is the negative effects from negative real returns. Let me explain. On interest rates, the nominal yield on the 10-year bond has risen from 1.5 percent at the end of 2021 to 2.5 percent at the start of April 2022. That is a huge move for bonds in a short period of time. But with inflation running at 7.9 percent, the real return is negative 5.4 percent. Similarly, according to the Bureau of Labor Statistics’ most recent jobs report, average hourly earnings are at an all-time record high of $31.73. This is up from $30.06 per hour in March 2021, or a whopping 5.6 percent. But, this 5.6 percent gain doesn’t feel like a gain because purchasing power has declined by 2.3 percent. The inflation tax, coupled with other uncertainties, has caused America’s confidence to falter. The best-known measure of Americans’ perceptions about the future is the University of Michigan’s Consumer Sentiment Index. It now stands at decade-low levels. When consumers expect a bleak future, they cut back on spending, thus lowering Gross Domestic Product (GDP). If, on the other hand, U.S. households are optimistic about the future, they feel comfortable spending and investing, causing a positive feedback loop for the economy and the equity markets. I don’t expect consumer sentiment to improve much until we see some semblance of price stability. PM : Some have likened the combination of the pandemic/ war in Ukraine and their attendant side effects to the Great Recession of 2008, the rampant inflation of the 1970s and even the Great Depression of the 1930s in terms of their potential impact on economic behaviors. What’s your take? Do you see consumer behaviors permanently changing, and if so, how so? Should Americans now be saving more and buying less, for example?

ECON CORNER

An Interview with Dr. Joshua Lewer Chairman of the Department of Economics and McCord Professor of Executive Management Development at Bradley University

INTERVIEW BY MIKE BAILEY

76 MAY 2022 P EORIA MAGAZINE