The pool at the All-Star Movie resort at Walt Disney World in Orlando, Florida (Photo from touringplans.com)
A recent article in the Wall Street Journal has the headline “Even Disney Is Worried About the High Cost of a Disney Vacation.” According to the article, “Some inside Disney worry that the company has become addicted to price hikes and has reached the limits of what middle-class Americans can afford ….”
As we discuss in Microeconomics, Chapter 15, the Walt Disney Company engages in price discrimination in a number of ways, by, for instance, charging more for ticket prices to its theme parks during the end-of-year holidays than on other days. Disney also offers hotels at different price levels, ranging from deluxe hotels like the Grand Floridian to more basic value hotels like the All-Star Movie Resort. In the case of hotels, some of the price difference is explained by differences in operating cost. Luxury hotels tend to have more amenities, including larger pools and restaurants on site, which raises their costs. Part of the difference in price, though, is the result of Disney estimating that people with higher incomes have a more inelastic demand for hotels than do people with lower incomes.
The Wall Street Journal article relies in part on data provided by Len Testa on his site touringplans.com. He notes that between 2018 and 2025, the percentage increase in the price Disney charged for staying at a value resort was less than the rate of inflation. In other words, the real price—the nominal price corrected for the effects of inflation—of staying at a Disney value resort decreased during that period. On the other hand, the percentage increase in the price Disney charged for staying at a deluxe was more than the rate of the inflation. So, the real price of staying at a Disney deluxe resort increased during this period.
One interpretation of these data is that over this period, Disney increased the extent of the price discrimination it was practicing with respect to hotel prices. It increased the gap between the price the families with more inelastic demand for Disney hotels pay and the price families with more elastic demand for Disney hotels pay. The article quotes Josh D’Amaro, who is the Disney executive in charge of the company’s theme parks, as saying “we intentionally offer a wide variety of ticket, hotel and dining options to welcome as many families as possible, whatever their budget.”
On February 12, the Bureau of Labor Statistics (BLS) released its monthly report on the consumer price index (CPI). The following figure compares headline inflation (the blue line) and core inflation (the dotted green line).
The headline inflation rate, which is measured by the percentage change in the CPI from the same month in the previous month, was 3.0 percent in January—up from 2.9 percent in December.
The core inflation rate,which excludes the prices of food and energy, was 3.3 percent in January—up from 3.2 percent in December.
Headline inflation and core inflation were both above what economists surveyed had expected.
In the following figure, we look at the 1-month inflation rate for headline and core inflation—that is the annual inflation rate calculated by compounding the current month’s rate over an entire year. Calculated as the 1-month inflation rate, headline inflation (the blue line) jumped from 4.5 percent in December to 5.7 percent in January—following a large jump in inflation from November to December. Core inflation (the dotted green line) more than doubled from 2.5 percent in December to 5.5 percent in January.
Overall, considering 1-month and 12-month inflation together, today’s data are concerning. One-month headline inflation is the highest it’s been since August 2023. One-month core inflation is the highest it’s been since April 2023. This month’s CPI report reinforces the conclusion from other recent inflation reports that progress on lowering inflation appears to have stalled. So, the probability of a “no landing” outcome, with inflation remaining above the Fed’s target for an indefinite period, seems to have increased.
Of course, it’s important not to overinterpret the data from a single month. The figure shows that 1-month inflation is particularly volatile. Also note that the Fed uses the personal consumption expenditures (PCE) price index, rather than the CPI, to evaluate whether it is hitting its 2 percent annual inflation target.
As we’ve discussed in previous blog posts, Federal Reserve Chair Jerome Powell and his colleagues on the Fed’s policymaking Federal Open Market Committee (FOMC) have been closely following inflation in the price of shelter. The price of “shelter” in the CPI, as explained here, includes both rent paid for an apartment or a house and “owners’ equivalent rent of residences (OER),” which is an estimate of what a house (or apartment) would rent for if the owner were renting it out. OER is included in the CPI to account for the value of the services an owner receives from living in an apartment or house.
As the following figure shows, inflation in the price of shelter has been a significant contributor to headline inflation. The blue line shows 12-month inflation in shelter, and the green line shows 1-month inflation in shelter. Twelve-month inflation in shelter has been declining since the spring of 2023, but in January it was still relatively high at 4.4 percent. One-month inflation in shelter—which is much more volatile than 12-month inflation in shelter—rose sharply from 3.3 percent in December to 4.6 percent in January. Clearly a worrying sign given that many economists were expecting that shelter inflation would continue to slow.
To better estimate of the underlying trend in inflation, some economists look at median inflation and trimmed mean inflation.
Median inflation is calculated by economists at the Federal Reserve Bank of Cleveland and at Ohio State University. If we listed the inflation rate in each individual good or service in the CPI, median inflation is the inflation rate of the good or service that is in the middle of the list—that is, the inflation rate in the price of the good or service that has an equal number of higher and lower inflation rates.
Trimmed-mean inflation drops the 8 percent of goods and services with the highest inflation rates and the 8 percent of goods and services with the lowest inflation rates.
The following figure shows that 12-month trimmed-mean inflation (the blue line) jumped from 3.1 percent in December to 5.2 percent in January. Median inflation (the green line), which had been stable over the past five months, increased from 3.2 percent in December to 3.9 percent in January.
The following figure shows 1-month median and trimmed-mean inflation. One-month trimmed-mean inflation jumped from 3.1 percent in December to 5.1 percent in January. One-month median inflation rose from 3.2 percent in December to 3.9 percent in January. These data provide confirmation that (1) CPI inflation at this point is running higher than a rate that would be consistent with the Fed achieving its inflation target, and (2) that progress toward the target has slowed.
Looking at the futures market for federal funds, investors who buy and sell federal funds futures contracts are not expecting that the Fed’s policymaking Federal Open Market Committee (FOMC) will cut its target for the federal funds until this fall. (We discuss the futures market for federal funds in this blog post.) Investors assign a higher probability to the FOMC leaving its target range for the federal funds rate unchanged at 4.25 percent to 4.50 percent at its January, March, June, July, and September meetings. It’s not until the FOMC’s meeting on October 28-29 that, as shown below, investors assign a higher probability to a rate cut than to the committee leaving the rate unchanged.
As we noted in a recent post on the latest jobs report, the Bureau of Labor Statistics (BLS) has updated the population estimates in its household employment survey to reflect the revised population estimates from the Census Bureau. The census now estimates that the civilian noninstitutional population was about 2.9 million larger in December 2024 than it had previously estimated. The original undercount was significantly driven by an underestimate of the increase in the immigrant population.
The following figure shows the more rapid growth of foreign-born workers in recent years in comparison with the growth in native-born workers. In the figure, we set the number of native-born workers and the number of foreign-born workers both equal to 100 in January 2007. Between January 2007 and January 2025, the number of foreign-born workers increased by 40 percent, while the number of native-born workers increased by only 6 percent.
As the following figure shows, although foreign-born workers are an increasingly larger percentage of the total labor force, native-born workers are still a large majority of the labor force. Foreign-born workers were 15.3 percent of the labor force in January 2007 and 19.5 percent of the labor force in January 2025. Foreign-born workers accounted for about 56 percent of the increase in the total labor force over the period from January 2007 to January 2025.
H/T to Jason Furman for pointing us to the BLS data.
This morning (February 7), the Bureau of Labor Statistics (BLS) released its “Employment Situation” report (often called the “jobs report”) for January. This report was particularly interesting because it includes data reflecting the annual benchmark revision to the establishment, or payroll, survey and the annual revision of the household survey data to match new population estimates from the Census Bureau.
According to the establishment survey, there was a net increase of 143,000 jobs during January. This increase was below the increase of 169,000 to 175,000 that economists had forecast in surveys by the Wall Street Journal and bloomberg.com. The somewhat weak increase in jobs during January was offset by upward revisions to the initial estimates for November and December. The previously reported increases in employment for those months were revised upward by a total of 100,000 jobs. (The BLS notes that: “Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.”)
The BLS also announced the results of its annual revision of the payroll employment data benchmarked to March 2024. The revisions are mainly based on data from the Quarterly Census of Employment and Wages (QCEW). The data in payroll survey are derived from a sample of 300,000 establishments, whereas the QCEW is based on a much more comprehensive count of workers covered by state unemployment insurance programs. The revisions indicated that growth in payroll employment between March 2023 and March 2024 had been overstated by 598,000 jobs. Although large in absolute scale, the revisions equal only 0.4 percent of total employment. In addition, as we discussed in this blog post last August, initially the BLS had estimated that the overstatement in employment gains during this period was an even larger 818,000 jobs. (The BLS provides a comprehensive discuss of its revisions to the establishment employment data here.)
The following table shows the revised estimates for each month of 2024, based on the new benchmarking.
The BLS also revised the household survey data to reflect the latest population estimates from the census bureau. Unlike with the establishment data, the BLS doesn’t adjust the historical household data in light of the population benchmarking. However, the BLS did include two tables in this month’s jobs report illustrating the effect of the new population benchmark. The following table from the report shows the effect of the benchmarking on some labor market data for December 2024. The revision increases the estimate of the civilian noninstitutional population by nearly 3 million, most of which is attributable to an increase in the estimated immigrant population. The increase in the estimate of the number of employed workers was also large at 2 million. (The BLS provides a discussion of the effects of its population benchmarking here.)
The following table shows how the population benchmarking affects changes in estimates of labor market variables between December 2024 and January 2025. The population benchmarking increases the net number of jobs created in January by 234,000 and reduces the increase in the number of persons unemployed by 142,000.
As the following figure shows, the unemployment rate, as reported in the household survey, decreased from 4.1 percent in December to 4.0 percent in January. The figure shows that the unemployment rate has fluctuated in a fairly narrow range over the past year.
The establishment survey also includes data on average hourly earnings (AHE). As we’ve noted in previous posts, many economists and policymakers believe the employment cost index (ECI) is a better measure of wage pressures in the economy than is the AHE. The AHE does have the important advantage of being available monthly, whereas the ECI is only available quarterly. The following figure shows the percentage change in the AHE from the same month in the previous year. AHE increased 4.1 percent in January, which was unchanged from the December increase. By this measure, wage growth is still somewhat higher than is consistent with annual price inflation running at the Fed’s target of 2 percent.
There isn’t much in today’s jobs report to change the consensus view that the Fed’s policymaking Federal Open Market Committee (FOMC) will leave its target for the federal funds rate unchanged at its next meeting on March 18-19. One indication of expectations of future rate cuts comes from investors who buy and sell federal funds futures contracts. (We discuss the futures market for federal funds in this blog post.) As shown in the following figure, today these investors assign a probability of 91.5 percent to the FOMC keeping its target range for the federal funds rate unchanged at the current range of 4.25 percent to 4.50 percent at the March meeting. Investors assign a probability of only 8.5 percent to the FOMC cutting its target range by 25 basis points at that meeting.
Earlier this week, the Bureau of Labor Statistics (BLS) released its “Job Openings and Labor Turnover” (JOLTS) report for December 2024. The report indicated that labor market conditions remain strong, with most indicators being in line with their values from 2019, immediately before the pandemic. The following figure shows that, at 4.5 percent, the rate of job openings remains in the same range as during the previous six months. While well down from the peak job opening rate of 7.4 percent in March 2022, the rate of job openings was the same as during the summer of 2019 and above the rates during most of the period following the Great Recession of 2007–2009.
(The BLS defines a job opening as a full-time or part-time job that a firm is advertising and that will start within 30 days. The rate of job openings is the number of job openings divided by the number of job openings plus the number employed workers, multiplied by 100.)
In the following figure, we compare the total number of job openings to the total number of people unemployed. The figure shows a slow decline from a peak of more than 2 job openings per unemployed person in the spring of 2022 to 1.1 job openings per unemployed person in December 2024—about the same as in 2019 and early 2020, before the pandemic. Note that the number is still above 1.0, indicating that the demand for labor is still high, although no higher than during the strong labor market of 2019.
The rate at which workers are willing to quit their jobs is an indication of how they perceive the ease of finding a new job. As the following figure shows, the quit rate declined slowly from a peak of 3 percent in late 2021 and early 2022 to 2.0 percent in July 2024, the same value as in December 2024. That rate is below the rate during 2019 and early 2020. By this measure, workers’ perceptions of the state of the labor market may have deteriorated slightly in recent months.
The JOLTS data indicate that the labor market is about as strong as it was in the months prior to the start of the pandemic, but it’s not as historically tight as it was through most of 2022 and 2023. In recent months, workers may have become less optimistic about finding a new job if they quit their current job. The “Great Quitting,” which was widely discussed in the business press during the period of high quit rates in 2022 and 2023 would seem to be over.
On Friday morning, the BLS will release its “Employment Situation” report for January, which will provide additional data on the state of the labor market. (Note that the data in the JOLTS report lag the data in the “Employment Situation” report by one month.)
Today (January 31), the BEA released monthly data on the PCE as part of its Personal Income and Outlays report. In addition, the Bureau of Labor Statistics (BLS) released quarterly data on the Employment Cost Index (ECI).
The Fed relies on annual changes in the PCE price index to evaluate whether it’s meeting its 2 percent annual inflation target. The following figure shows PCE inflation (blue line) and core PCE inflation (red line)—which excludes energy and food prices—for the period since January 2016 with inflation measured as the percentage change in the PCE from the same month in the previous year. Measured this way, in December PCE inflation (the blue line) was 2.8 percent, unchanged from November. Core PCE inflation (the red line) in December was also 2.8 percent, unchanged from November.
The following figure shows PCE inflation and core PCE inflation calculated by compounding the current month’s rate over an entire year. (The figure above shows what is sometimes called 12-month inflation, while this figure shows 1-month inflation.) Measured this way, PCE inflation rose in December to 3.1 percent from 1.5 percent in November. Core PCE inflation rose in December to 1.9 percent from to 1.3 percent in November. Core inflation is generally a better measure of the underlying trend in inflation. So, 1-month core PCE inflation running below the Fed’s 2 percent target is an encouraging sign. But the usual caution applies that 1-month inflation figures are volatile (as can be seen in the figure), so data from one month shouldn’t be overly relied on.
Turning to wages, as we’ve noted in earlier posts, the Fed’s policymaking Federal Open Market Committee (FOMC) prefers the employment cost index (ECI) to average hourly earnings (AHE) as a measure of the increase in labor costs.
The AHE is calculated by adding all of the wages and salaries workers are paid—including overtime and bonus pay—and dividing by the total number of hours worked. As a measure of how wages are increasing or decreasing during a particular period, AHE can suffer from composition effects because AHE data aren’t adjusted for changes in the mix of occupations workers are employed in. For example, during a period in which there is a decline in the number of people working in occupations with higher-than-average wages, perhaps because of a downturn in some technology industries, AHE may show wages falling even though the wages of workers who are still employed have risen. In contrast, the ECI holds constant the mix of occupations in which people are employed. The ECI does have this drawback: It is only available quarterly whereas the AHE is available monthly.
The data released this morning indicate that labor costs continue to increase at a rate that is higher than the rate that is likely needed for the Fed to hit its 2 percent price inflation target. The following figure shows the percentage change in the ECI from the same quarter in the previous year. The blue line shows only wages and salaries of private industry workers, while the red line shows total compensation, including non-wage benefits like employer contributions to health insurance, for all civilian workers. The two measures of wage inflation follow similar paths. The rate of increase in the wage and salary measure decreased slightly from 3.9 percent in the third quarter of 2024 to 3.8 percent in the fourth quarter. The movement in the rate of increase in compensation was very similar, also decreasing from 3.9 percent in the third quarter of 2024 to 3.8 percent in the fourth quarter.
If we look at the compound annual growth rate of the ECI—the annual rate of increase assuming that the rate of growth in the quarter continued for an entire year—we find that the rate of increase in wages and salaries increased from 3.1 percent in the third quarter of 2024 to 3.6 percent in the fourth quarter. Similarly, the rate of increase in compensation increased from 3.2 percent in the fourth quarter of 2024 to 3.6 percent in the fourth quarter. So, this measure indicates that there has been some increase in the rate of wage inflation in the fourth quarter, although, again, we have to use caution in interpreting data from only one quarter.
Taken together, the PCE and ECI data released today indicate that the Fed still has a way to go before bringing about a soft landing—returning inflation to its 2 percent target without pushing the economy into a recession.
Today (January 30), the Bureau of Economic Analysis (BEA) released its advance estimate of GDP for the fourth quarter of 2024. (The report can be found here.) The BEA estimates that real GDP increased at an annual rate of 2.3 percent in the fourth quarter—October through December. That was down from the 3.1 percent increase in real GDP in the third quarter. On an annual basis, real GDP grew by 2.5 percent in 2024, down from 3.2 percent in 2023. A 2.5 percent growth rate is still well above the Fed’s estimated long-run annual growth rate in real GDP of 1.8 percent. The following figure shows the growth rate of real GDP (calculated as a compound annual rate of change) in each quarter since the first quarter of 2021.
Personal consumption expenditures increased at an annual rate of 4.2 percent in the fourth quarter, while gross private domestic investment fell at a 5.6 annual rate. As we discuss in this blog post, Fed Chair Jerome Powell’s preferred measure of the growth of output is growth in real final sales to private domestic purchasers. This measure of production equals the sum of personal consumption expenditures and gross private fixed investment. By excluding exports, government purchases, and changes in inventories, final sales to private domestic purchasers removes the more volatile components of gross domestic product and provides a better measure of the underlying trend in the growth of output.
The following figure shows growth in real GDP (the blue line) and in real final sales to private domestic purchasers (the red line) with growth measured as compound annual rates of change. Measured this way, in the fourth quarter of 2024, real final sales to private domestic producers increased by 3.2 percent, well above the 2.3 percent increase in real GDP. Growth in real final sales to private domestic producers was down from 3.4 percent in the third quarter, while growth in real GDP was down from 3.1 percent in third quarter. Overall, using Powell’s preferred measure, growth in production seems strong.
This BEA report also includes data on the private consumption expenditure (PCE) price index, which the FOMC uses to determine whether it is achieving its goal of a 2 percent inflation rate. The following figure shows inflation as measured using the PCE (the blue line) and the core PCE (the red line)—which excludes food and energy prices—since the beginning of 2016. (Note that these inflation rates are measured using quarterly data and as percentage changes from the same quarter in the previous year to match the way the Fed measures inflation relative to its 2 percent target.) Inflation as measured by PCE was 2.4 percent, up slightly from 2.3 percent in the third quarter. Core PCE, which may be a better indicator of the likely course of inflation in the future, was 2.8 percent in the fourth quarter, unchanged since the third quarter. As has been true of other inflation data in recent months, these data show that inflation has declined greatly from its mid-2022 peak while remaining above the Fed’s 2 percent target.
This latest BEA report doesn’t change the consensus view of the overall macroeconomic situation: Production and employment are growing at a steady pace, while inflation remains stubbornly above the Fed’s target.
Federal Reserve Chair Jerome Powell at a press conference following a meeting of the FOMC (photo from federalreserve.gov)
Members of the Fed’s Federal Open Market Committee (FOMC) had signaled that the committee was likely to leave its target range for the federal funds rate unchanged at 4.25 percent to 4.50 percent at its meeting today (January 29), which, in fact, was what they did. As Fed Chair Jerome Powell put it at a press conference following the meeting:
“We see the risks to achieving our employment and inflation goals as being roughly in balance. And we are attentive to the risks on both sides of our mandate. … [W]e do not need to be in a hurry to adjust our policy stance.”
The next scheduled meeting of the FOMC is March 18-19. It seems likely that the committee will also keep its target rate constant at that meeting. Although at his press conference, Powell noted that “We’re not on any preset course.” And that “Policy is well-positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate.” The statement the committee released after the meeting showed that the decision to leave the target rate unchanged was unanimous.
The following figure shows, for the period since January 2010, the upper bound (the blue line) and lower bound (the red line) for the FOMC’s target range for the federal funds rate and the actual values of the federal funds rate (the green line) during that time. Note that the Fed is successful in keeping the value of the federal funds rate in its target range.
A week ago, President Donald Trump in a statement to the World Economic Forum in Davos, Switzerland noted his intention to take actions to reduce oil prices. And that “with oil prices going down, I’ll demand that interest rates drop immediately.” As we noted in this recent post about Fed Governor Michael Barr stepping down as Fed Vice Chair for Supervision, there are indications that the Trump administration may attempt to influence Fed monetary policy.
In his press conference, Powell was asked about the president’s statement and responded that he had “No comment whatever on what the president said.” When asked whether the president had spoken to him about the need to lower interest rates, Powell said that he “had no contact” with the president. Powell stated in response to another question that “I’m not going to—I’m not going to react or discuss anything that any elected politician might say ….”
As we noted earlier, it seems likely that the FOMC will leave its target for the federal funds rate unchanged at its meeting on March 18-19. One indication of expectations of future rate cuts comes from investors who buy and sell federal funds futures contracts. (We discuss the futures market for federal funds in this blog post.) As shown in the following figure, today these investors assign a probability of 82.0 percent to the FOMC keeping its target range for the federal funds rate unchanged at the current range of 4.25 percent to 4.50 percent at the March meeting. Investors assign a probability of only 18.0 percent to the committee cutting its target range by 25 basis points at that meeting.
At the close of stock trading on Friday, January 24 at 4 pm EST, Nvidia’s stock had a price of $142.62 per share. When trading reopened at 9:30 am on Monday, January 27, Nvidia’s stock price plunged to $127.51. The total value of all Nvidia’s stock (the firm’s market capitalization or market cap) dropped by $589 billion—the largest one day drop in market cap in history. The following figure from the Wall Street Journal shows movements in Nvidia’s stock price over the past six months.
What happened to cause should a dramatic decline in Nvidia’s stock price? As we discuss in Macroeconomics, Chapter 6 (Economics, Chapter 8, and Money, Banking, and the Financial System, Chapter 6), Nividia’s price of $142.62 at the close of trading on January 24—like the price of any publicly traded stock—reflected all the information available to investors about the company. For the company’s stock to have declined so sharply at the beginning of the next trading day, important new information must have become available—which is exactly what happened.
As we discussed in this blog post from last October, Nvidia has been very successful in producing state-of-the-art computer chips that power the most advanced generative artificial intelligence (AI) software. Even after Monday’s plunge in the value of its stock, Nvidia still had a market cap of nearly $3.5 trillion at the end of the day. It wasn’t news that DeepSeek, a Chinese AI company had produced AI software called R1 that was similar to ChatGTP and other AI software produced by U.S. companies. The news was that R1—the latest version of the software is called V3—appeared to be comparable in many ways to the AI software produced by U.S. firms, but had been produced by DeepSeek despite not using the state-of-the-art Nvidia chips used in those AI programs.
The Biden administration had barred export to China of the newest Navidia chips to keep Chinese firms from surging ahead of U.S. firms in developing AI. DeepSeek claimed to have developed its software using less advanced chips and have trained its software at a much lower cost than U.S. firms have been incurring to train their software. (“Training” refers to the process by which engineers teach software to be able to accurately solve problems and answer questions.) Because DeepSeek’s costs are lower, the company charges less than U.S. AI firms do to use its computer infrastructure to handle business tasks like responding to consumer inquiries.
If the claims regarding DeepSeek’s software are accurate, then AI firms may no longer require the latest Nvidia chips and may be forced to reduce the prices they can charge firms for licensing their software. The demand for electricity generation may also decline if it turns out that the demand for AI data centers, which use very large amounts of power, will be lower than expected.
But on Monday it wasn’t yet clear whether the claims being made about DeepSeek’s software were accurate. Some industry observers speculated that, despite the U.S. prohibition on exporting the latest Nvidia chips to China, DeepSeek had managed to obtain them but was reluctant to admit that it had. There were also questions about whether DeepSeek had actually spent as little as it claimed in training its software.
What happens to the price of Nvidia’s stock during the rest of the week will indicate how investors are evaluating the claims DeepSeek made about its AI software.
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