Relevant and even prescient commentary on news, politics and the economy.

A thought for Sunday: for now the economy remains on automatic pilot –and that’s good

by New Deal democrat

A thought for Sunday: for now the economy remains on automatic pilot –and that’s good
How much, if any, of the economy, has been influenced by the Trump/Ryan GOP government in Washington to date?  With one exception, not much I think.
First of all, while the jobs report was certainly good, was no better than the average report from 2014 or 2015 — or 4 of the last 8 months, for that matter:
And it wasn’t just foreseeable, it was forecast.  For the last 10 years, the nonpartisan Conference Board has published a monthly “Employment Trends Index,” an index of leading indicators for jobs.  Here’s what it looked like as of Friday:
Notice that there was a jump in the leading index beginning last summer. In the last few months we have seen those leading components feed through into actual job creation.
You know, the leading indicators really do lead, and I’ve been writing about the economy entering a period of “Indian Summer” for about half a year now.
Secondly, now that the Trump/Ryan regime is halfway through their “first 100 days,” what economic policies of any significance have been enacted?  The answer is, none.  All of the Executive Orders have primarily impacted immigration and border controls. No legislation of note has landed on Trump’s desk.

Comments (1) | |

Should The Complacent Class Be Called The Fearful Class?

by Barkley Rosser  (originally from Econospeak)

Should The Complacent Class Be Called The Fearful Class?

Tyler Cowen has published his most successful book yet, The Complacent Class, now on the Washington Post nonfiction bestseller list and getting reviewed by everybody from The Economist to the New York Times and on.  It is the Book de Jour that all are commenting on one way or another.  Is America declining because so many of its people have become complacent?  (Shame on them.)

The book has much to offer.  It is chock  full of many interesting facts, although many of them Tyler has publicized at one point or another on his blog, Marginal  Revolution.  He even pushes some newly fashionable ideas that have been in the dark for too long, such as a sort of cyclical theory of history.  And he certainly makes the case that there are lots of trends that seem to show the American people not being as energetic or adventurous as they used to be, with headline data including reduced interstate migration, reduced changing of jobs, reduced patenting, and reduced entrepreneurial startups, among other things.  He does note some external matters that may be adding to some of this, with building codes and land use restriction in economically dynamic urban areas a big culprit as it makes it harder for many to take advantage of the high paying jobs in those areas.  He has also noted that we may be running out of new scientific knowledge to learn or discover, which makes it harder to find dramatic things to patent, and indeed he wrote a previous book about this, blaming this as a major reason for secular stagnation.

But the big question is whether the title is an accurate representation of what is in the book, which has come up in a series of inconclusive blogposts about “Who is the Complacent Class?”  Frankly, it is not clear  that there is one, or if there is one, they are not the people who are responsible for the data he puts forth as supposedly claiming there is one.  If there is a complacent class in the US, it is the top 1 or 2 percent of the wealth and income distribution, who get lots of attention, but who are not the people who are not moving across state lines or changing jobs.  That is going on in the other 98 percent mostly.

Tags: Comments (16) | |

Trumpcare Saves Social Security By Killing People!

by Barkley Rosser  (originally from Econospeak)

Trumpcare Saves Social Security By Killing People!

Yes, there it is in black and white in Table 3 footnote f on p. 33 of the Congressional Budget Office (CBO) official report on the proposed American Health Care Act, aka Trumpcare. Between now and 2026 spending by the Social Security Administration is projected to decline by $3 billion if Trumpcare passes. This is due to a projected 1 out of 830 people dying who would not under the status quo, this based on a study of what happened to death rates in Massachusetts after Romneycare came in. The projected deaths are about 17,000 in 2018 and up to about 29,000 in 2026.

Another great thing? There will be a reduction in accumulated deficits of about $300 billion, with a reduction of revenues of about $0.9 trillion and a reduction of outlays of about $1.2 trillion. The former will be due to cuts in taxes on high income people while the latter will be due to eliminating subsidies to help poorer people pay for health insurance on the exchanges as well as cutbacks in Medicaid spending for even poorer people. How fortunate can we get?

Barkley Rosser

Comments (21) | |

Measures of underemployment continue to show improvement

by New Deal democrat

Measures of underemployment continue to show improvement

The unemployment rate, at 4.7%, is generally acknowledged to be decent, although not great.  But what of the underemployed?

Typically as an economy expands, the U6 (unemployed + underemployed) rate has declined more than the U3 (unemployed only) rate, as shown on the below graph which subtracts U3 from U6, thus leaving us with just the underemployed:

As the recovery matures, the two move in tandem.  As the economy weakens into a recession, the underemployed tend to feel it fist, as U6 increases more than U3.

So the good news for now is that U6 is still declining more than U3.

Comments (0) | |

February jobs report: hitting on all cylinders but wages

by New Deal democrat

February jobs report: hitting on all cylinders but wages
HEADLINES:
  • +236,000 jobs added
  • U3 unemployment rate down -0.1% from 4.8% to 4.7%
  • U6 underemployment rate down -0.2% from 9.4% to 9.2%
Here are the headlines on wages and the chronic heightened underemployment:
Wages and participation rates
  • Not in Labor Force, but Want a Job Now:  down -142,000 from 5.739 million to 5.597 million
  • Part time for economic reasons: down -136,000 from 5.840 million to 5.704 million
  • Employment/population ratio ages 25-54: up +0.1% from 78.2% to 78.3%
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.04 from $21.82 to $21.86,  up +2.5% YoY.  (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)
December was revised downward by -2,000, and January was revised upward by +11,000, for a net change of +9,000.
The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mainly positive.
  • the average manufacturing workweek was unchanged at 40.8 hours.  This is one of the 10 components of the LEI.
  • construction jobs increased by +58,000. YoY construction jobs are up +219,000.
  • manufacturing jobs increased by +28,000, and after being down YoY for a year, have now turned the corner again and are up +7,000 YoY
  • temporary jobs increased by +3,100.
  • the number of people unemployed for 5 weeks or less increased by +98,000 from 2,468,000 to 2,566,000.  The post-recession low was set over 1 year ago at 2,095,000.
Other important coincident indicators help  us paint a more complete picture of the present:
  • Overtime rose +0.1 from 3.2 to 3.3 hours.
  • Professional and business employment (generally higher- paying jobs) increased by +37,000 and are up +597,000 YoY, an acceleration over the last year’s pace.
  • the index of aggregate hours worked in the economy rose by 0.2 from  106.4 to 106.6
  •  the index of aggregate payrolls -rose by 0.6 from 132.4 to 133.0.
Other news included:
  • the alternate jobs number contained  in the more volatile household survey increased by  +447,000 jobs.  This represents an increase  of 1,485,000  jobs YoY vs. 2,,349,000 in the establishment survey.
  • Government jobs rose by +8,000.
  • the overall employment  to  population ratio  for all ages 16 and up rose from  59.9%  to 60.0 m/m  and is up +0.2% YoY.
  • The  labor force participation  rate rose  from 62.9% to 63.0%  and is up +0.1%  YoY (remember, this includes droves of retiring Bsoomers).
 SUMMARY 
This was a very good report in almost all respects, including the end of the manufacturing jobs recession, and a slight acceleration in better-paying professional and business jobs.
The few warts included the fact that none of the broader measures of labor market slack made new lows (although they did decline), and short term unemployment – a leading indicator – has not made a new low in 15 months.
But most of all, aside from some continued slack, the big shortfall in the economy as experienced by most Americans is the seemingly unending paltry wage growth.  Once again, adjusted for inflation, there has likely been no growth whatsoever in real wages YoY.  Nearly 8 years into an expansion, this ought to be totally unacceptable, and should be ringing alarm bells about what might happen to wages when the next recession inevitably hits.

Comments (5) | |

A quick primer on interest rates and rate hikes

 by New Deal democrat

A quick primer on interest rates and rate hikes

With increasing speculation that the Fed will again raise interest rates this month, I thought I would take a look at how long term rates, and the yield curve, react.
As most everybody who follows this stuff knows, in the last 60 years the yield curve has always inverted before the onset of a recession — which presumably means that it narrows before it inverts.
But *how* does it narrow?  Do long term interest rates come down, do short term rates go up, or is there some of each?
Let’s go to the graphs. Below are the yields on 10 year treasuries (blue), the Fed funds rate (green), and YoY consumer inflation (red), first from 1962 to 1983:
and from 1983 to the present:
There are a few trends that have remained true during both the earlier, inflationary era, and the more recent disinflationary and deflationary era.
First, all three generally move in the same direction, i.e., both long and short term interest rates tend to broadly correlate with the inflation rate.
Second, in terms of volatility:
 - long term interest rates are least volatile
 - the YoY inflation rate is next
 - the Fed funds rate is the most volatile.
Finally, in each case over the last 60 years, before a recession the yield curve has inverted because the Fed funds rate rose to and overtook long term rates. In the inflationary era, both continued to rise into the recession. In the more recent era, long term rates have been flat or declined slightly once there was an inversion.
Contrarily, the few times that long term rates declined to the level of the Fed funds rate (1986, 1994, 1998) it did *not* signal a recession, but rather a correction in a strong economy.
So let’s take a look at the last 12 months:
Since the end of June, long term rates have actually risen more than short term rates, and have risen to over 2.5% again this week.  This is the sign of a relatively strong economy, at least over the shorter term 6 – 12 months.  Short rates have a long ways to go before they overtake long term rates.  Of course, if long term rates rise high enough, that will act to choke off the housing market and will set up longer term weakness.  But we’re not there yet.

Comments (0) | |

The Emerging Market Economies and the Appreciating Dollar

by Joseph Joyce

The Emerging Market Economies and the Appreciating Dollar

U.S. policymakers are changing gears. First, the Federal Reserve has signaled its intent to raise its policy rate several times this year. Second, some Congressional policymakers are working on a border tax plan that would adversely impact imports. Third, the White House has announced that it intends to spend $1 trillion on infrastructure projects. How all these measures affect the U.S. economy will depends in large part on the timing of the interest rate rises and the final details of the fiscal policy measures. But they will have consequences outside our borders, particularly for the emerging market economies.

Forecasts for growth in the emerging markets and developing economies have generally improved. In January the IMF revised its global outlook for the emerging markets and developing economies (EMDE):

EMDE growth is currently estimated at 4.1 percent in 2016, and is projected to reach 4.5 percent for 2017, around 0.1 percentage point weaker than the October forecast. A further pickup in growth to 4.8 percent is projected for 2018.

The improvement is based in part on the stabilization of commodity prices, as well as the spillover of steady growth in the U.S. and the European Union. But the U.S. policy initiatives could upend these predications. A tax on imports or any trade restrictions would deter trade flows. Moreover, those policies combined with higher interest rates are almost guaranteed to appreciate the dollar. How would a more expensive dollar affect the emerging markets?

On the one hand, an appreciation of the dollar would help countries that export to the U.S. But the cost of servicing dollar-denominated debt would increase while U.S. interest rates were rising. The Bank for International Settlements has estimated that emerging market non-bank borrowers have accumulated about $3.6 trillion in such debt, so the amounts are considerable.

Comments (4) | |