Last year I wrote an article in our company’s biannual newsletter detailing what I thought was necessary for our industry, natural gas, to recover from the plunge in it’s the price. In it I said “…relying on input demand for the production of inelastic goods (stuff we buy largely regardless of price i.e. food & energy) to return the industry to sunnier times is akin to expecting rip-roaring profit growth in the grocery industry to fuel robust growth in GDP.” Now it seems some prominent people are indirectly trying to make that case about GDP growth.
After an extension of unemployment benefits ran into some stiff headwinds last week, House Speaker Nancy Pelosi reminded us that they “inject demand into the economy.” She went further and informed us of a new advantage: it “creates jobs faster than almost any other initiative you can name.” Huh? It’s debatable whether or not unemployment benefits are even a job preserver, much less a job creator.
It is technically true that they do support demand, but demand for what? Given that benefits average a little more than 1/3 of the average weekly wage nationally, demand is most likely relegated to the most essential, necessary goods, such as groceries, probably the most indispensable goods we buy.
Even in the absence of such assistance, don’t most people, especially parents, find a way to provide for such necessities, be it drawing on savings, taking whatever work can be found, seeking private charity (family or church) or even selling assets? If someone can’t find a job after 26 weeks, the range of time when most benefits originate from taxes on businesses, it’s probably time to evaluate his/her/their current living expenses i.e. rent/mortgage, TV, phones, etc.
Regardless of the source of funds, we will always eat and clean ourselves. Therefore, the purchase of groceries rarely fluctuates. It is true that when a society becomes richer the makeup of its diet changes, incorporating more meat for example, an entrée that is a luxury in many parts of the world. We also might buy more brand-name foods. This might explain why we spent 17% more on groceries in 2007, the last year of solid economic growth before the recession, than last year.
Still, in those beefier, even steak-ier, Charmin-using times, groceries accounted for less than 10% of GDP. In 2009, that figure was 5 ½ %. Last year’s figures arguably represent the minimum amount of basic food we need to get by. This is why we are unlikely to ever see a headline that reads “Grocery Stores’ Profit Lead the Way in 3rd Quarter GDP Surge”.
Whatever jobs that may have been shed at Del Monte that were not subsequently absorbed by generic fruit & vegetable canners are unlikely to return due to an extension of unemployment insurance.
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