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

Silencing the Science on Gun Research

There is still a lot of headline material concerning the role of guns in our lives, and a lot of anecdotal material and thoughts abound. Also I seem to note an increase in the reporting of police in Lakewood, Washington and firemen in Webster, NY murders by gun makes the news as well. We are a site that also values data to help in policy decisions as we try to govern ourselves. Hence this article from JAMA caught my attention on the apparent lack of more specific data on injuries and deaths from media.

The Journal of the American Medical Association notes in Silencing the Science on Gun Research that basic gahering and reporting data was defunded and/or forbidden by government agencies including the Center for Disease Control and Prevention, National Institute on Alcohol Abuse and Alcoholism, Hational Institute of Health, and other Department of Health agencies. The following is an excerpt:
(hat tip reader Tom B.)

The nation might be in a better position to act if medical and public health researchers had continued to study these issues as diligently as some of us did between 1985 and 1997. But in 1996, pro-gun members of Congress mounted an all-out effort to eliminate the National Center for Injury Prevention and Control at the Centers for Disease Control and Prevention (CDC). Although they failed to defund the center, the House of Representatives removed $2.6 million from the CDC’s budget—precisely the amount the agency had spent on firearm injury research the previous year. Funding was restored in joint conference committee, but the money was earmarked for traumatic brain injury. The effect was sharply reduced support for firearm injury research.

To ensure that the CDC and its grantees got the message, the following language was added to the final appropriation: “none of the funds made available for injury prevention and control at the Centers for Disease Control and Prevention may be used to advocate or promote gun control.”4

Precisely what was or was not permitted under the clause was unclear. But no federal employee was willing to risk his or her career or the agency’s funding to find out. Extramural support for firearm injury prevention research quickly dried up. Even today, 17 years after this legislative action, the CDC’s website lacks specific links to information about preventing firearm-related violence.

When other agencies funded high-quality research, similar action was taken. In 2009, Branas et al5 published the results of a case-control study that examined whether carrying a gun increases or decreases the risk of firearm assault. In contrast to earlier research, this particular study was funded by the National Institute on Alcohol Abuse and Alcoholism. Two years later, Congress extended the restrictive language it had previously applied to the CDC to all Department of Health and Human Services agencies, including the National Institutes of Health.6

The US military is grappling with an increase in suicides within its ranks. Earlier this month, an article by 2 retired generals—a former chief and a vice chief of staff of the US Army— asked Congress to lift a little-noticed provision in the 2011 National Defense Authorization Act that prevents military commanders and noncommissioned officers from being able to talk to service members about their private weapons, even in cases in which a leader believes that a service member may be suicidal.9

Given the chance, could researchers achieve similar progress with firearm violence? It will not be possible to find out unless Congress rescinds its moratorium on firearm injury prevention research. Since Congress took this action in 1997, at least 427 000 people have died of gunshot wounds in the United States, including more than 165 000 who were victims of homicide.1 To put these numbers in context, during the same time period, 4586 Americans lost their lives in combat in Iraq and Afghanistan.10

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Disappearing inconvenient data

Via Barry Rithotz at The Big Picture comes Bruce Bartlett’s take on

Bruce Bartlett and the dangers of Republican know-nothingism 

Bruce Bartlett goes off on some of the denialist behavior from the GOP. Bartlett writes: When a study doesn’t support their dogma, the GOP censors it: Nonpartisan Tax Report Withdrawn After G.O.P. Protest

Original study still available here: Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945 (PDF)

Bartlett discussed how Republicans destroyed much of Congress’s analytical ability when they took over in 1995: Gingrich and the Destruction of Congressional Expertise
He adds “This is part and parcel with poll denialism, global warming denialism, and the general right wing disdain for facts and reality.”

Note: Before making any kneejerk partisan reaction to this, note that Bartlett — Like Stockman and others — sre not trying to mske a pro-Democrat argument; rather, they are acknowledging a major societal concern when one of the 2 major political parties have foresaken science and reality and facts when they disagree with their agenda.

(Dan here…I am willing to bet this is a non-partisan issue to some extent and age old way of supporting agendas…but if data cannot be trusted to have a bit of independence, where does that leave us?)

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US economy in August: moving sideways

With the (roughly) 11% decline in US equities year-to-date, talk of a US recession has resurfaced. Through mid August, the high frequency economic indicators point to further weakness, rather than a double dip.

In my view, whether or not the US is IN a recession – defined as the coincident variables followed by the NBER (.xls) are turning downward – is really a moot point for a good chunk of the working-aged population. It probably ‘feels’ like the economy never exited recession to many.

As an aside, it would be difficult for the US economy to actually ENTER a contractionary phase right now, since the cyclical forces that normally drag the US into recession – inventories, auto sales, and housing – are at severely depressed levels. Confidence (or lack thereof) can reduce domestic spending and investment – it’s in this respect that the losses in equity equity markets are important. It takes time for shocks to work their way into the economic data. Nevertheless, high frequency indicators do not point to recession…for now.

Claims are elevated but ticked up last week. If claims do not fall back in coming weeks, the unemployment rate will rise again. This could indicate the outset of a contracting economy.

Weekly diesel production shows an increase in transportation activity (please see this post for an explanation of the data).

Read More After the Jump!

The demand for diesel (in real barrels per day) recovered, rising at a rate of roughly 15% annually for each of the weeks of July 29 and August 05. Annual growth declined to -3% in the week of August 12; but this series (even in annual growth rates) is highly volatile, and the 4 week moving average of annual growth decelerated only mildly, from 7% to 6%.

Finally, daily Treasury tax receipts are slowing but growth remains positive.

The chart illustrates the annual growth rate of the 30-day rolling sum of daily withholding receipts for income and employment tax payments. This series proxies the health of the labor market. Spanning the last three months, the annual growth rate decelerated to 4% (May 18 through August 18 this year compared to the same period last year) from 4.6% in the three months previous. There’s no indication of a contraction in tax receipt activity, but a further trend downward in the pace of tax receipt gains would turn some heads.

Nothing to indicate a contraction in the high-frequency data; but the deceleration is worrisome, given that consumers must ‘earn’ their consumption rather than ‘borrow’ for consumption. I don’t feel particularly positive about the state of the US economy. Neither does Mark Thoma.

Rebecca Wilder

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The Q2 US GDP report – just terrible

Bureau of Economic Analysis today reported that real gross domestic product in the US increased at an annual rate of 1.3% in the second quarter of 2011. This (newly revised – see below) acceleration in real GDP was driven primarily by a slowdown in import demand, stronger federal spending, and a pickup in non-residential fixed investment. Real gross domestic purchases – GDP minus net exports – was weaker than the headline, increasing 0.7% on the quarter, reflecting the positive contribution from external demand. Domestic demand is barely growing – remember these are annualized rates, not q.q rates.

Below the hood, the pace of personal consumption expenditures slowed markedly, +0.1% in the second quarter compared to +2.1% in the first. Some of the drag to consumption will bounce back in the third quarter, as auto sales and the supply chain disruptions dissipate – durable goods decreased 4.4% over the quarter. On the bright side, real nonresidential fixed investment picked up 6.3% in the second quarter and tripling the pace seen in the first. Real net exports contributed a large 0.58% to the headline growth number, as real exports maintained a healthy pace and imports decelerated over the quarter.

Overall, I think that the story is pretty consistent with the details of the labor market: the economy is improving, but domestic demand is very weak.The US economy is increasingly likely to enter a ‘growth recession’ – sub-potential growth – in 2011. And as David Altig highlights, a growth recession is generally associated with an economic contraction.

On the revisions

The drop in Q1 2011 growth to 0.4% was certainly not expected. Much of it was due to a reclassification of domestic inventory build (adds to GDP) to imports (subtracts from GDP). But there’s a lot more.

Today’s estimates reflect the annual revisions of the US national accounts. The revisions date back to 2003, which show a deeper recession and a quicker rebound. We now know that GDP bottomed in the second quarter of 2009, after having fallen 5.1% since the fourth quarter of 2007. Previously, the cumulative drop in GDP was 4.1%. The recovery through Q1 2011 was slightly faster, 4.9% in the pre-revised data compared to 4.64% in the revised series. (Rdan….4.9% is correct figure)

(Rdan: revised chart to correct calculation error…8/1)

Broadly speaking, though, the revisions show that economic momentum is petering out on a 6-month/6-month annualized basis. In sum, nominal spending on consumption goods and services was revised downward by 307.8 billion dollars spanning the years 2008-2010, and nominal fixed investment spending dropped by 83.9 billion dollars compared to previous estimates. Government spending is proving to be less of a drag than previously thought (in nominal terms), having been revised 5 billion dollars higher compared to previous estimates over the same period.

On balance, the expected 2011 growth trajectory will struggle to top 2%, as a rather positive 2H 2011 of 3.0% and 3.5% in Q3 and Q4, respectively, would imply a 1.9% Y/Y pace for 2011 as a while. I seriously doubt we’ll get that trajectory in H2 2011 – we’ll have to see what economists now forecast – but the downside risk to the economy is pervasive. It’s not just Japan.

Rebecca Wilder

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The US economy: July’s not looking any better

Next week the Bureau of Economic Analysis will release its estimate of Q2 US GDP growth. Of 69 economists polled, the bloomberg consensus is that the US economy grew at a 1.8% annualized rate spanning the months of April to June over January to March. In all, this quarterly growth rate implies just 1.9% annualized growth during the first half of 2011. Not much of an expansion.

Economists have put their ‘hope’ into the second half of 2011. But high frequency data show that the third quarter is setting up to be a doozy as well. This is too bad because we’re talking about jobs and the welfare of American families here.

I like to follow two weekly indicators to get a feel for the labor market and the corporate trucking business. The message is clear: the economy is not improving.

First, the bellwether of the state of the US labor market – weekly initial unemployment claims – continues to disappoint. In the week ending July 16, seasonally adjusted initial claims increased 10,000 to 408,000. The 4-week moving average was 421,250, which is just 19,000 below its May peak of 440,250. This week’s report fell on the BLS’ survey week, so the July employment report is likely to be another weak one (weak is of course a euphemism for the June report).

The chart below illustrates the annual growth rate of the non-seasonally adjusted 4-week moving average of initial unemployment claims. I use this for comparison to the second series, diesel consumption, which is not seasonally adjusted. I include the recession bars for association with the business cycle. Claims really are more of a coincident indicator – but the frequency is helpful for gauging the state of the real economy.

The weekly claims are not indicating a recession – they are contracting on an annual basis. However, the contraction in claims is slowing, -8.4% Y/Y, which is much slower than the average -13% annual drop in claims during the first quarter of 2011. Unless claims start to fall more precipitously, the labor market will continue to be stuck in neutral – not good.

Second, the US Energy Information Administration releases weekly estimates of distillate fuel oil supplied to the end user in thousands of barrels per day (real). This is important because roughly 90% of this number is comprised of diesel fuel.

Given that diesel fuel is a primary input to construction and commercial
and industrial trucking, the weekly series serves as a high-frequency
indicator of domestic demand for goods that are transported across the
country. There are seasonalities to this data , but the message is clear:
demand for diesel fuel suggests that wholesale demand is inherently weakening.

Unlike diesel prices, which can be impacted by number of factors including taxes, refining capacity, and most recently by IEA’s petroleum release, consumption measures absolute demand.

The chart below illustrates the same representation of demand for distillate fuel (primarily diesel) as the annual growth rate of the 4-week moving average. The latest data point is July 15. The annual decline was a bit less severe in the week of July 15 – but this series is quite a bit more volatile, and the downward trend in fuel consumption has been established.

As of last week, these two high frequency indicators demonstrate no marked improvement in domestic demand through July.

Rebecca Wilder

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The current labor market expansion: third poorest performer 24 months after the recession’s end since 1948

It’s now two years after the end of the Great Recession, and the unemployment rate has ticked downward just 9 pps (percentage points) since its 10.1% peak. Pundits call this an expansion since GDP has fully retraced its recession losses; but the unemployment rate tells a very different story.

(click to enlarge)

The chart illustrates the unemployment rate after 24 months since each recession’s end spanning 1948 to June 2011. The business cycle dates are set by the National Bureau of Economic Research. The rates are indexed to the first month of each cyclical recovery for comparison, and the raw data are referenced in the table at the end of this post.


Spanning the business cycles since 1948, the average decline in the unemployment rate is 20 pps from its peak to 24 months after the recession’s end. In the ’07-’09 ‘expansion’, the unemployment rate has fallen by less than half the average, -9 pps since the first month of recovery, July 2009.

In terms of relative labor market performance 24 months into the recovery/expansion, this cycle is the fourth worst – really the third worst since 24 months into the 1980 recovery is the 1981-1982 recession.

Technically, we’re not seeing a jobless recovery, since the unemployment rate peaked early on in the recovery (month 4); but it might as well be. Sticking with the household survey, employment (as opposed to the nonfarm payroll) is down by near 7 million since the economic peak and down 644 thousand since the recession’s trough. Yes, employment is net down since the recession ended. These numbers are affected by the annual population controls, but the trend (or lack thereof) is loud and clear.

The labor market is festering – we need a real policy response now.

Rebecca Wilder

Chart data (before index construction)

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US labor market: wage and salary growth vs. payroll growth

I’ll make this quick, since I’m going to get in trouble for writing on a national holiday. But the pace of annual jobs growth is too slow to generate strong wage and salary income. Much empirical research has been dedicated to the estimation of consumption functions, generally finding that labor income is the primary driver of consumption (here’s a primer at the Federal Reserve Board). However, by extension jobs growth is highly correlated with wage and salary growth, roughly 50% of personal income – this is the relationship I analyze here.

Roughly half of the BEA’s measure of personal income comes in the form of wage and salary, so called labor income and simply referred to as ‘wages’ from here on out. This is highly correlated with nonfarm payroll growth, both in nominal and real terms (92% and 79%, respectively, since 1996). The chart below illustrates the correlation between real wage growth and nonfarm payroll since 1982 (I use real wage so as to account for the effects of inflation).

The annual pace of real wage gains and jobs growth have declined over time (jobs growth is measured using the nonfarm payroll). Simply eyeballing the data, there’s a structural shift roughly around 1996, as listed in the table below.

Using these two time periods, 1982-1995 and 1996-05/2011, I estimate a simple model of real wage growth on nonfarm payroll growth. The chart for the 1996-2011 model is illustrated below; and for reference, the regression results across both time periods are copied at the end of this post.


Note: I do not have time for a full blown econometric analysis. I did, however, perform statistical tests for serial correlation in the errors, unit roots in the transformed data (none), and general modeling tests.

I come to two general conclusions regarding the relationship between real wage growth and jobs growth over time:

(1) Real wage growth has become more persistent over time. In the first period, 1982-1995, just one lag was required to expunge the errors of autocorrelation. Spanning the second period, 1996-2011, three lags were required. The sum of the coefficients on the three lags is 0.87 in the later sample, or current wage growth is highly dependent on previous periods – sticky if you will.

(2) Nonfarm payroll growth has become less significant over time. Spanning the years 1982-1995, the coefficient on annual payroll growth was 0.27 – for each 1pps increase in the annual payroll growth, the trajectory of annual real wage growth increased by 0.27pps. The coefficient dropped to 0.17 in the sample spanning 1996-2011. This is probably a consequence of service sector jobs growing as a share of the labor market. I’d like your ideas in comments as well.

Clearly this is a very simple model but it does highlight that wages are likely stuck in the mud for some time. In May, annual real wages fell 0.6% over the year, having decelerated for 5 of the 7 months since November 2010. Real wages can pick up, but it takes time AND jobs growth faster than the 0.67% annual pace in May 2011.

Ultimately, what this analysis tells me is with wealth effects slowing markedly – the trajectory of the S&P decelerated and house prices continue to fall – it’s going to take a burst of payroll growth to get real wage and salary growth back on track enough to finance US domestic consumption. One caveat to all of this negativity is that oil prices are coming off – this will boost real wage and salary growth directly.

Rebecca Wilder
P.S. I guess this turned out somewhat less ‘quick’ than I had anticipated – not in trouble yet! Gotta go.


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Here’s to hoping: wage, salary, and income gains

There are reasons to expect the second half of the year to be be stronger than the first. Here are two: (1) the rebound in industrial activity following supply chain disruptions, and (2) possible impetus to investment spending coming from the depreciation allowance that expires this year. These factors, though, are just dressing up what may be weak underlying demand. Why? Because without significant jobs growth, it’s unclear that we’ll see the wage, salary, and income generation needed for a healthy continuation of the deleveraging cycle.

On the bright side, the Q1 2011 Gross Domestic Income, GDI, report does show a smart rebound in wage and salary accruals. The problem is, that corporate profit growth, which generally leads wage and salary accruals growth, is slowing. (GDI is the income side of the BEA’s GDP release and you can download the data here.)

The chart illustrates annual domestic profit and wage/salary growth spanning 1981 Q1 to 2011 Q1. The series are deflated by the GDP price index. Real domestic profit growth has been robust, peaking at 65% Yr/Yr in Q4 2009 and decelerating to 7% in Q1 2011. The surge in corporate profits brought real wage and salary accruals growth to a 2.1% annual pace in Q1 2011.

With higher input costs and slowing productivity gains, domestic profit margins are likely to be squeezed unless demand re-emerges smartly. The implication is that real wage and salary accruals growth may be nearing ‘as good as it gets’ territory during the aftermath of a balance sheet recession.

And labor’s losing it’s share of the pie. The chart below illustrates the various component contributions to annual gross domestic income growth. (the best that I could do on size vs. clarity – click to enlarge)

The data are quarterly data spanning 1981 Q1 to 2011 Q1 and deflated by the GDP price index. Wage and salary accruals have become a smaller part of income growth in the last decade. Spanning 1981-2000, the average contribution to income growth from wage and salary accruals was 1.5% (simple average), where that spanning the years 2001-current was just 0.3%. The average corporate profit contribution held firm over the same two periods, roughly 0.3%.

Growth momentum has slowed over the period, however, the deceleration in wage and salary contribution is quite striking. I can’t explain it even with the ‘demographic shift’; but this trend is likewise reflected in the employment to population ratio.

Wages, income, spending power, consumption, saving – they’re all different ways to say the same thing: earned income can be spent in one of three ways, on taxes, consumption, or saving. And in this recovery, saving via income gains is important as households further deleverage. We can’t afford compensationless expansion.

The key to growth in 2011 and 2012 is wages, salaries, and income – here’s to hoping.

Rebecca Wilder

Update: Spencer has a foreboding point in comments from my earlier post on GDP. He notes that inflation measured by the GDP deflator probably understates the impetus to domestic prices – domestic purchases is more appropriate at a 3.8% annual rate. The implication, according to Spencer via Email is, “If the inflation rate is really 3.8%, not 1.9 %, it strongly implies that the dominant cause of the economic weakness is higher inflation, not supply chain disruptions.”

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GDP – a disappointing report

Yesterday I addressed the weak high-frequency indicators, specifically with respect to leading indicators of investment spending on equipment and software (durable goods). I argued that Q2 has not started off well, given that the real core orders for capital goods are down compared to the January to March average.

The BEA reported that Q1 2011 growth was 1.8% on a seasonally-adjusted and annualized basis, which is unrevised from the first release but the composition of spending changed somewhat. On the margin, Q1 2011 looks a bit less stellar (if you can call 1.8% annualized growth ‘stellar’) with consumption growth being revised downward to 2.2% over the quarter (previously 2.7%). Below is an illustration of the Q1 2011 contributions to GDP growth before 8:30am (1.75%) and after 8:30am (1.84%).

I think that the story is pretty simple: higher gasoline prices is even worse for consumption than initially anticipated, and inventory accumulation remains a large driver of economic performance.

It’s still way to early to predict what the entirety of 2011 will bring – the IMF forecasts 2.8% annual growth – but the bar’s rising on the quarterly growth trajectory to attain that level of growth. I suspect that forecasts will be revised downward.

Although this is purely conjecture since the April figures are only recently rolling out, Q2 2011 growth is unlikely to be much better. Investment spending is already looking weak for April. And consumption growth may be lackluster on auto sales (H/T spencer) – durables consumption accounted for half of the quarterly growth rate in consumption (0.66% contribution to total GDP quarterly growth). Government spending is a drag, so it’s up to net exports!

Let’s look at what’s happened to the spending components of GDP during the ‘recovery’.

The chart illustrates the cumulative growth in the spending components of GDP (ex inventories). Exports and imports have bounced back on a strong rebound in international trade, 21% and 20%, respectively. Domestic spending is being driven largely by investment spending: consumption is 4% above it’s lows, while fixed investment spending is up 8% (of course, the decline was much larger). Government spending is broadly unchanged (-0.2%) since the outset of the recovery.

There’s much more to this report, like profits and wages, so I’ll revisit if time permits.

Rebecca Wilder

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Durable goods orders: more evidence of near-term weakness in the US economy

They keep calling it a ‘soft patch’ in my business; but when’s the data going to show otherwise? This soft patch is persistent, and durable goods orders confirm it into Q2 2011.

Note: The ‘all manufacturing’ orders Y/Y growth rate are available through March only in Datastream for the chart above; the nondefense capital goods ex aircraft orders are current through Aptil.
READ MORE AFTER THE JUMP!From the Census April preliminary release on durable goods orders and shipments:

New orders for manufactured durable goods in April decreased $7.1 billion or 3.6 percent to $189.9 billion, the U.S. Census Bureau announced today. This decrease, down two of the last three months, followed a 4.4 percent March increase. Excluding transportation, new orders decreased 1.5 percent. Excluding defense, new orders decreased 3.6 percent.

We know that the auto industrial production print was influenced by the supply chain disruptions stemming from the Japanese earthquake. This probably affected the durable goods orders and shipments as well. Furthermore, the big monthly drop was driven (partially) by a large 30% decline in nondefense aircraft and parts orders over the month.

But the gist of the report, in my view, was disappointing. Total durable goods shipments fell 1% over the month, while new orders plummeted 3.6%. This is a very volatile series, and the March growth in new orders was revised upward to 4.4% over the month from 2.5%; but the average growth rate in ‘core orders’ is showing holes.

Core durable goods orders, ‘nondefense capital goods excluding aircraft’ – a leading indicator of domestic investment spending on equipment and software – fell 2.6% over the month. Volatile, yes; but the real core goods orders turned negative, -0.33% on a 3-month average growth basis, furthering a downward trend that’s been in place since January 2011. The April figure was down 0.2% on a real basis compared to the January-March 2011 average – not a good start to Q2 2011.(The real series is constructed using the CPI durable goods deflator.)

The contributions to Q1 2011 fixed investment spending demonstrate that the entirety of fixed investment growth came from equipment and software, 0.8% quarterly contribution. (On data, you can view the contributions data in Table 2 of the release here or download the data for the entire report here.)

So when will this ‘soft patch’ end? Neil Soss today tells me that 2H 2011 will be quite the kicker, as the temporary supply chain disruptions to industrial activity wear off. We’ll see. It’s going to take quite a bit of growth in 2H 2011 to get the US back on track to the consensus 2011 growth forecast of 2.7% (according to Consensus Economics May report).

Rebecca Wilder

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