Axios Capital

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February 17, 2022

Situational awareness: Walmart reported its fiscal Q4 earnings this morning, delivering strong results even as the company grappled with supply strains, Omicron absences, and higher labor costs. πŸ“ˆ

  • This week in Capital, we examine the real price of a tank of gas, a baby bust, crummy hotel customer service, and the time the first Black Fed governor shut down segregationist Sen. Strom Thurmond, all in 1,497 words, a 6-minute read.

1 big thing: America is now energy independent

Data: Energy Information Administration. Chart: Axios Visuals
Data: Energy Information Administration. Chart: Axios Visuals

For decades, politicians have talked about the U.S. achieving energy independence, a seemingly elusive goal of producing enough fuels to avoid relying on the rest of the world to fill up gas tanks and keep electricity flowing.

  • It's elusive no more. The U.S. produced more petroleum than it consumed in 2020, and the numbers were essentially in balance in 2021, according to the Energy Information Administration.

Why it matters: The surge in oil prices taking place in 2022 has radically different implications for the U.S. economy β€” and for key geopolitical relationships in the Middle East and Russia β€” than in past episodes when energy prices have risen.

The big picture: In the past, when oil prices spiked, the impact on the U.S. economy was straightforward: It made America poorer, as more of our income went overseas to pay for imported energy.

  • Now, after the shale gas revolution of the last 15 years, the impact is more subtle. Higher fuel prices disadvantage consumers and energy-intensive industries, yes. But there is a counteracting surge in incomes for domestic energy producers and their workers.
  • Higher oil prices no longer depress overall measures of prosperity like GDP and national income, but rather shift it around toward certain regions. Texas and North Dakota win; Massachusetts and North Carolina lose.

By the numbers: As recently as 2010, America imported 9.4 million barrels a day of oil more than it exported. That had swung to a 650,000 barrel per day surplus in 2020, and preliminary numbers for 2021 show trade pretty much in balance last year (h/t to Harvard's Jason Furman for flagging the data charted above).

Worth noting: To the degree the U.S. does still import oil, more of it is coming from our closest ally. Canada was the source of 51% of U.S. petroleum imports in the first 10 months of 2021, compared with 8% from the Persian Gulf (h/t to Harvard's Jason Furman for flagging the data charted above).

  • By contrast, the Gulf states supplied more than 30% of American petroleum imports in 2008.

Free idea for an international relations professor: Assign an essay question on how the changing economics of energy could affect America's stance in Middle Eastern diplomacy.

The impact on geopolitics extends to a potential Russian invasion of Ukraine. Disruptions to European energy supplies would have a less direct effect on the U.S. than they might have in an earlier era.

The bottom line: When oil prices spike, it's no longer a problem for overall growthβ€”but because energy is a global market, it still means pain for American consumers and the sitting administration.

2. Gas prices are pretty normal, actually

Credit: Axios Visuals; Source: Energy Information Administration, Bureau of Labor Statistics
Credit: Axios Visuals; Source: Energy Information Administration, Bureau of Labor Statistics

Those rising gasoline prices are fueling discontent with the economy β€” so much so that the Biden administration is considering suspending the federal gas tax.

  • But when you look at gas prices relative to what workers are earning, prices are actually pretty average compared to recent decades.

Why it matters: The gas price spike may have tons of political relevance, but to the degree prices remain in a normal range it lessens the actual economic significance.

By the numbers: In January, the $3.32 average national price for a gallon of regular gasoline implied that a person earning the average hourly wage for a non-supervisory worker ($26.92) would need to work for 1.85 hours, or 111 minutes, to fill up a hypothetical 15-gallon tank.

  • Since 1991, that figure has averaged 1.81 hours, or 108 minutes.
  • The low point in that span for hours of work needed to fill up was February 1999 (1.04 hours); the high point was June 2008 (3.37).

Yes, but: Gas prices have risen sharply since a low early in the pandemic, and it might be the speed of the rise β€” and uneven gains in wages β€” that are causing popular outrage.

3. The Great Recession baby bust

Credit: Axios visuals; Source: CDC
Credit: Axios visuals; Source: CDC

The global financial crisis caused a spiraling economic crisis. It may have also triggered a lasting demographic shift β€” or at the least it coincided with one.

Why it matters: The steep drop in the birth rate that took place just as the global economy collapsed 14 years ago will have a long tail of effects for the American economy, and society.

The big picture: For decades, there was a steady relationship between the number of women in the age range of 15–44 and the number of babies born β€” it hovered between 65 and 70 per 1,000 women in that bracket.

  • Starting in 2008, that number began a precipitous decline, to 55.8 in 2020, according to new research published in the Journal of Economic Perspectives.

An obvious potential explanation would be that the weak economy caused cash-strapped families to be less inclined to have children, write the authors of the paper, Melissa Kearney and Luke Pardue of the University of Maryland and Phillip Levine of Wellesley.

Yes, but: The size of the drop is much larger than would be predicted based on past economic downturns, and this birth rate drop continued through the 2010s even as the economy recovered.

  • They also found that a range of policy changes that might affect the birth rate, such as Medicaid funding, access to contraception, and child support laws can't explain the steepness of the birth rate decline.

More promising as an explanation, they write, is a potential shift in attitudes and preferences for having children among the cohort of people who were entering adulthood starting in 2007.

The bottom line: Whatever the underlying cause, the falling birth rates of the 2007–2020 period mean a smaller workforce in the 2030s and beyond β€” worsening the financial challenges of entitlement programs like Social Security.

4. Hotel service might remain crummy forever

A hotel housekeeper puts a sheet on a bed

A blast from the past? Photo: Marcus Brandt/picture alliance via Getty Images

Staying in a hotel isn't what it used to be. A devastating collapse in travel during the pandemic combined with severe labor shortages have meant less housekeeping, reduced food offerings and short-staffed front desks β€” even at high-end properties.

  • But how much of that will turn out to be temporary, and how much permanent?

The big picture: Leading hotel chains themselves are struggling to figure that out β€” and questioning how much people really value things like daily room cleaning and free breakfast.

State of play: In earnings calls this week, executives at the two of the biggest hotel operators, Marriott and Hilton, each addressed questions around labor costs and service levels with ambiguity.

  • Marriott CEO Anthony Capuano told analysts that "we continue to evolve our approach" regarding daily room cleaning, with its lower tier brands offering "opt-in" housekeeping service and luxury brands sticking to daily cleaning.
  • "We're testing those options today. We're using those learnings to try and strike the right balance between guest expectations and economic realities for the owners," he said.

Over at Hilton, chief financial officer Kevin Jacobs said: "Obviously, everybody knows what's going on with inflation."

  • But: "We think we can do a better job for customers, give them what they want, take away what they don't want and won't pay for," β€” and achieve higher margins, Jacobs said.

The bottom line: Hotel owners are trying to figure out how to take advantage of the inflationary moment to achieve higher profit margins, and it may come at the cost of services.

5. When the first Black Fed governor silenced Strom

Members of the Federal Reserve Board of Governors, including Andrew Brimmer, in 1970

The Federal Reserve Board in 1970, with Andrew Brimmer in back row, center right. Photo: Bettman/Contributor

The Federal Reserve is on track to have the most diverse leadership team in its history, pending Senate confirmation of Lisa Cook and Philip Jefferson as governors. They would be the fourth and fifth Black governors in the central bank's 108-year history.

  • Andrew Brimmer was the first, appointed by President Lyndon Johnson in 1966. His story, as told in an oral history recorded in 2007, is riveting.

The backstory: As the Kennedy and Johnson administrations pursued civil rights legislation, they embraced the legal theory that federal civil rights legislation was constitutional because racial discrimination inhibited interstate commerce.

  • Brimmer, a Harvard-trained economist, worked at the Commerce Department before his appointment to the Fed β€” and developed statistical evidence of segregation's effects on commerce across state lines.
  • Black travelers were prohibited from stopping at convenient restaurants and hotels on the interstate highway system, and Brimmer found that this burden as much as tripled travel times for Black drivers.

At a Senate hearing, segregationist South Carolina Sen. Strom Thurmond questioned the data.

  • "Along Highway 95, I-95, in South Carolina, there's this intersection at which you show no place of accommodation for Black travelers," Thurmond said, according to Brimmer's recollection. "But I know there is a fine hotel there, and I've seen colored people in there."

Continued Brimmer: "At that point I turned and asked my assistant to call the director of the Commerce Department's field office in South Carolina and ask what the situation was. Is there a hotel there, and if so, does it accept Black customers?"

  • "Within 40 minutes, I was told that the director of the Field Office had interviewed the owner and operator of that hotel. The owner had said, 'The Senator's right. He has seen Black people in here, but they work here. Under state law, I cannot serve them.'"

As Brimmer summed it up: "After that, Senator Thurmond was quiet."

Thanks for reading!