A Penny for Your Thoughts

The Great Penny Shortage and Job Data

Jobs Situation

It’s Jobs Report Friday, but because of the government shutdown, we’ll go another month without knowing what’s happening in the labor market. The best we can do is look at private data and job cut announcements, neither of which looks promising. ADP data already hints at weakness. The payroll processor announced that private firms added 42,000 jobs in October. U.S.-based employers announced layoffs for over 150,000 jobs in October, the biggest drop for that month in more than two decades.

So, while we wait for official numbers, let’s discuss another headline that shapes everyday transactions— The Great American Penny Shortage.

Exact Change, Please

Source: https://www.cheapism.com/mcdonalds-is-rounding-totals-up-or-down-due-to-nationwide-penny-shortage/

Kroger is asking for exact change. Some McDonald’s locations are rounding cash transactions to the nearest nickel. Both are adapting to a shortage created when President Trump halted penny production earlier this year, a move expected to save the Treasury about $56 million annually. But is this really a savings? The answer is no, Monday Morning Economist covered this earlier this year.

The Penny Shortage

To understand the Penny shortage, its history, and how to navigate this problem, we reached out to Janet Harrah, economist and Executive Director of the Center for Economic Analysis and Development (CEAD) at Haile College of Business. Here is what she shared with us.

The U.S. Mint’s decision echoes a historical precedent. In 1857, Congress retired the half-cent coin because inflation had rendered it obsolete — it cost more to produce than it was worth. The same is now true of the penny.

According to Janet Harrah, “the key is managing the transition fairly”.

Other countries, such as Canada, have already successfully implemented this approach. They introduced symmetric rounding rules for cash payments:

• Amounts ending in 1 or 2 cents round down.

• Amounts ending in 3 or 4 cents round up.

• Electronic payments are still processed to the exact cent. No rounding needed.

And in truth, Americans already live with rounding:

• Gas prices are listed in fractions of a cent but charged to the nearest penny.

• Sales tax and credit card interest are routinely rounded.

Precision has always been an illusion.

But one complication remains: certain laws, including SNAP retail rules, prohibit different pricing between cash and electronic transactions.

The Bottom Line

Ending penny production makes economic sense — it’s inefficient to spend more to make money than the money is worth. But the transition must be fair and clear. Rounding rules should be transparent, symmetric, and limited to cash transactions.

Paying cash? Make sure to carry exact change and prepare to see more rounding at the checkout lane.