Kansas economic indicators show rising wages, inflation as unemployment returns to pre-COVID levels

Jason Tidd
Topeka Capital-Journal
The Kansas Statehouse shines bright through a bed of peonies flowers Tuesday afternoon.

Many economic indicators in Kansas are rebounding after the crash early in the coronavirus pandemic, but not all have returned to pre-pandemic levels. 

While the unemployment rate is about where it was before the first COVID-19 case was reported in March 2020, legislators remain concerned with surging inflation and smaller workforce.

Edward Penner, a senior economist at the Kansas Legislative Research Department, gave the Legislative Budget Committee an update on quarterly economic indicators at Tuesday's meeting.

The GDP declined by 32.4% in the U.S. and 32.2% in Kansas in the second quarter of 2020 as the pandemic and lockdowns led to recession. But the third quarter had a sharp bounce-back of 38.7% in the U.S. and 39.5% in Kansas.

Since then, the seasonally adjusted nominal GDP growth is more steady. In Kansas, the growth was 6.7% in the final quarter of 2020 and 13.7% in the first quarter of 2021.

Second-quarter data isn't available for Kansas, though the state's GDP growth over the past two years has consistently outperformed the national number, which was 13% in the second quarter.

"The economy still is bouncing back from that decline," Penner said.

Sen. Rick Billinger, R-Goodland, asked whether the GDP factors in businesses that closed permanently due to the pandemic.

"Even despite those businesses, their closures are largely reflected in the first and second-quarter declines of GDP in 2020," Penner said. "The reality of the economy that we've seen is that the economy has largely bounced back, even with those businesses having closed. New businesses would have replaced them, or other existing businesses that did survive that had expanded since that time.

"They're in essence built into the data. It's just kind of the reality that yes, there were lots of businesses that didn't close in the recession, but the economy's growing and has grown now for four consecutive quarters since then."

More:Flu reporting season starts today in Kansas. Will lax COVID-19 policies result in more sickness this year?

Inflation rising; national housing market slowing

"Inflation has been on a steady increase, really for most of the the current calendar year," Penner said.

Year-over-year changes in the non-seasonally adjusted Consumer Price Index show inflation was around 2% and slowly rising in the Midwest prior to the pandemic.

The CPI change briefly turned negative during the early months of the national emergency. Inflation was mostly stable around 1% for the rest of 2020, then jumped sharply during the first half of 2021 to nearly 6%.

"Inflation has certainly been large for several months in a row now," Penner said. "There's been a lot of inflation, and that hasn't dropped off."

He said certain sectors have been bigger drivers of the inflation, including lumber, energy, food, transportation and housing.

Rep. Kathy Wolfe Moore, D-Kansas City, asked whether the housing market will start to calm after "a lot of cash buyers who are buying well above appraised value, and so it's shooting up the price of homes dramatically."

Penner said the nationwide housing market has started to slow down, but he was unsure whether the trend had reached Kansas.

"No one expects housing prices to crash," he said. "But I think that the acceleration of the market — most people do think — is behind us at this point."

Billinger said he has seen inflation in the price of waferboard at his local lumberyard. He said the price of gasoline is up more than $1.

"It's terrible," he said.

More:Audit: Projects using hotly debated Kansas economic development tool not hitting key benchmarks

Trade organization AAA Kansas reports the state's average price as of Wednesday was $2.912 per gallon. Exactly one year ago, the average price was $2.010.

Rep. Troy Waymaster, R-Bunker Hill and chairman of the Legislature's budget committee, said the auto dealerships in Great Bend typically have full car lots. That's no longer the case.

"It's very strange to see the loss with literally, the GM one, but just two vehicles sitting on the lot," Waymaster said. "I know that's the same with other dealerships, at least in the central part of the state."

Waymaster said he and his wife are looking at buying a new vehicle and had to drive to Kansas City, where they were surprised at the trade-in value on their current vehicle.

"I was actually shocked how much I was going to be getting for a used car that I was going to be trading in because it was about $6,000 over NADA," he said.

Penner said the global microchip shortage is to blame, with pandemic supply issues from the semiconductor manufacturing industry in east Asia. He said most forecasters predict the chip shortage will start to unwind by the end of the calendar year, but there will be a lingering lag time affecting international industries.

More:Everything you need to know about the chip shortage that's plaguing automakers

Penner said it "has a cascading effect on the economy" and is also "one of the contributing factors to the inflation."

The downward shift in supply of new vehicles has thus caused an upward shift in demand for used vehicles, driving up prices on both new and used vehicles while creating a relative shortage of used vehicles.

Federal Reserve policy is also an important contributor to inflation.

"Coming out of the the pandemic shutdown and recession, the interest rates have been kept near zero," Penner said. "The Fed is getting the inflation that they have looked for. Now, they have given signals that they're going to draw back on that and maybe adopt a monetary position that would slow down inflation a little bit.

"But for right now, they have taken an approach that seems designed to keep inflation going. And certainly the monetary policy, the fiscal policy that the federal level has, has had the same effect."

Wages rise and unemployment stabilizes with smaller labor force

"Wage growth, which had been relatively lessoned throughout much of the early parts of the pandemic, has really started to pick back up itself over the last couple of months," Penner said. "Of course, that probably comports with what you are experiencing, and what your constituents are telling you, that in order to get workers back, they are offering higher wages, and that is consistent across basically all sectors."

Wages dropped in the early months of the pandemic but have been steadily rising since June 2020. The average hourly wage for a private sector employee was a little above $25.5 at that time. In June 2021, it was about $27.

Waymaster asked about job shortages.

"When you drive around anywhere in the state, you see signs outside of buildings saying hiring bonuses, even for fast food restaurants," Waymaster said. "In my community, they haven't been able to find employees and so they had to adjust their hours for shift reasons ... because you can't find people who want to go back into the workforce."

A workforce shortage doesn't appear to have increased how many hours are worked by employees.

"In terms of are businesses in essence compensating for a lack of workers by increasing hours for their existing workers ... you really aren't seeing a lot of that," Penner said, pointing to a graph on average weekly hours.

Private sectors are working, on average, about the same number of hours now as they were a year ago. Penner suggested that such a trend could emerge in third quarter data.

The seasonally-adjusted unemployment rate jumped to about 12% in Kansas in April 2020, but steadily declined afterward. It has held steady between 3% and 4% since the start of the calendar year.

"We are very nearly basically back to pre-pandemic levels when it comes to the unemployment rate," Penner said.

Unemployment insurance claims are not used to calculate the unemployment rate, which comes from a household survey.

More:Pandemic unemployment fraud estimates higher than initially thought. The number could reach $700 million.

Kansas labor force smaller than pre-pandemic

The Kansas unemployment rate is below the national rate, which hasn't recovered as much. However, there are fewer Kansans working now than a year and a half ago.

"The labor force is not as large now as it was pre-pandemic, and we don't necessarily have a great grasp of when that will bounce back," Penner said.

More than 100,000 jobs were lost statewide in April 2020, according to nonfarm employment data. Jobs statistics have started to recover but not as quickly as the unemployment rate.

"We are still well below what we were, to the tune of some probably 50,000-ish jobs," Penner said. "... Part of that is probably explained by labor force participation rate still not being backed up to what was pre-pandemic."

Rep. Kyle Hoffman, R-Coldwater, noted that people who left the labor force aren't factored into the unemployment rate.

Billinger questioned the accuracy of the data, citing his experience driving home from Topeka.

"It just seems to me that when it comes to unemployment, it's pretty hard to figure out how many people are actually unemployed, how many have dropped out," Billinger said. "The only thing I can tell you ... when you pay people to stay home, they're going to stay home. I don't think these numbers are even close.

"It's a shame when you pull up to a fast food restaurant and you can't even go in and use the washroom because they have no one working. So I think it's way, way higher than these charts are showing."