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

An Increasingly Divergent US Economy

An Increasingly Divergent US Economy

Lots of people have been huffing and puffing about whether or not the US economy will go into a recession in the near future, with Menzie Chinn and Jim Hamilton at Econbrowser saying it is now about 50-50 whether or not the US economy will go into recession by the end of 2020.   I do not have a horse in that race, but I am struck that a new odd phenomenon has recently appeared in the US economy, a split between sectors regarding their performance that recently seems to be increasing.

The sectors are manufacturing, which has been declining now for several months and is the harbinger of recession. Meanwhile single family permits are up, and YOY permits overall are up by 8 percent that may well hold off any recession if it continues to accelerate.  It is unclear which will win out.

So the general story of manufacturing looking to decline while housing construction is likely to rise still holds for the fairly near future.

The manufacturing decline has been widely tied to the trade wars, which would appear to be at least partly responsible.  It is also the sector that through trade may be experiencing the pressures of the slowing of global growth.

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Positive housing, initial claims, and Philly Fed outweigh negative industrial production

Positive housing, initial claims, and Philly Fed outweigh negative industrial production

So, after a nearly empty week until now, there were four economic reports this morning. Three of them were good.

First, although overall housing starts and permits declined, single family permits, the most forward looking and least volatile of the metrics, were only 3000 off a new  expansion high (red in the graph below, vs. multi-family permits):

Housing’s rebound is the biggest single argument against a recession later next year.

 

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A Nobel for the Randomistas

A Nobel for the Randomistas

I don’t think anyone was surprised by this year’s “Nobel” prize in economics, which went to three American-based specialists in the design of on-the-ground experiments in low income countries, Abhijit Banerjee, Esther Duflo and Michael Kremer.  I think the award has merit, but it is important to keep in mind the severe limitations of the work being honored.

The context for this year’s prize is the long, mostly frustrating history of anti-poverty projects in the field of development economics.  Much of the world, for reasons I’ll put to the side for now, is awash in poverty: billions of people lack access to decent sanitation, medical care, education and physical and legal protection, not to mention struggling to put food on the table, a roof over their head and cope with increasing demands for mobility.  A lot of money has been spent by aid organizations over the years to alleviate these conditions, without nearly enough to show for it.  (My specialty, incidentally, has been in child labor, which has been the focus of a large piece of this work.)

There have been various reactions to the lack of progress.  One has been to argue that the effort has been too weak—that we need more money and ambition to turn the corner.  This is Jeffrey Sachs, for instance.  Another is that the whole enterprise is misbegotten, a relic of colonialism that was always destined to fail.  You can get this in either a right wing (William Easterly) or left wing (Arturo Escobar) version.  (I critiqued the “left” stance on child labor here.)  A third is where this Nobel comes in.

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Weekly Indicators for October 7 – 11 at Seeking Alpha

by New Deal democrat

Weekly Indicators for October 7 – 11 at Seeking Alpha

My Weekly Indicators post is up at Seeking Alpha.

The stars are aligning for the recovery from the present slowdown in the longer term. But in the meantime, the present and short term data is still soft.

As usual, clicking over and reading helps reward me a little bit for my efforts.

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Scenes from the September jobs report

Scenes from the September jobs report

I shared the best good news from the September jobs report released last Friday: there’s a good argument that the economy has reached “full employment,” although we could do even better if real wages improved more. Today let’s look at the bad news, which comes from examining the leading indicators for employment.

That there has been a jobs slowdown is by now well established. In the last 8 months, per the more reliable establishment report, 1,135,000 jobs have been added, an average of 142,000 per month, which If we subtract temporary census hiring of 26,000, becomes 139,000. And keep in mind that the number of jobs added between March 2018 and March 2019 is going to be reduced from roughly 210,000 to 167,000 per month:

Next, the three leading sectors of employment I track are temporary help (blue in the graph below), manufacturing (gold), and residential construction (red). Here’s what they look like compared with 2018, showing the slowdown this year:

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August JOLTS report: nearly all employment measures now neutral

August JOLTS report: nearly all employment measures now neutral

The JOLTS report for August showed a decline in all metrics m/m as well as a slowing trend overall.

To review, because this series is only 20 years old, we only have one full business cycle to compare. During the 2000s expansion:

  • Hires peaked first, from December 2004 through September 2005
  • Quits peaked next, in September 2005
  • Layoffs and Discharges peaked next, from October 2005 through September 2006
  • Openings peaked last, in April 2007

as shown in the below graph (quarterly, normed to 100 as of May 2018):

Here is the close-up on the past five years (monthly):

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Medicare for All

Medicare for All

The abstract for “Does Medicare Coverage Improve Cancer Detection and Mortality Outcomes?” by Rebecca Mary Myerson, Reginald Tucker-Seeley, Dana Goldman and Darius N. Lakdawalla:

Medicare is the largest government insurance program in the United States, providing coverage for over 60 million people in 2018. This paper analyzes the effects of Medicare insurance on health for a group of people in urgent need of medical care – people with cancer. We used a regression discontinuity design to assess impacts of near-universal Medicare insurance at age 65 on cancer detection and outcomes, using population-based cancer registries and vital statistics data. Our analysis focused on the three tumor sites with recommended screening before and after age 65: breast, colorectal, and lung cancer. At age 65, cancer detection increased by 72 per 100,000 population among women and 33 per 100,000 population among men; cancer mortality also decreased by 9 per 100,000 population for women but did not significantly change for men. In a placebo check, we found no comparable changes at age 65 in Canada. This study provides the first evidence to our knowledge that near-universal access to Medicare at age 65 is associated with improvements in population-level cancer mortality, and provides new evidence on the differences in the impact of health insurance by gender.

I can’t vouch for the results, not having read the article in full, but the study design looks good, provided they avoided the spurious results from higher order nonlinear relationships separated by the discontinuity.

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Real average and aggregate wages for September

Real average and aggregate wages for September

Now that we have the September inflation reading, let’s take a look at real wage growth.

First of all, nominal average hourly wages in September increased +0.2%, while consumer prices were unchanged. As a result, after rounding, real average hourly wages for non-managerial personnel increased +0.1%. This translates into real wages of 97.7% of their all time high in January 1973:

On a YoY basis, real average wages were up +1.7%, still below their recent peak growth of 1.9% YoY in February:

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Closing The Open Skies

Closing The Open Skies

Trump’s stonewalling on impeachment is the top story, snore.  Lower down and more important is Trump allowing Turkey to attack the Kurds in Syria with the support of Russia. Even GOP senators do not like this and ISIS fighters may get out. But, heck, those will go to Europe, and unlike the Btis and Canadians, the Kurds did not help us out in Normandy in WW II.  And, probably most important, Trump has major business interests in Turkey.

However, much less reported (although covered by David Ignatius in WaPo today), but arguably more important than either is Trump’s decision to withdraw from the “Open Skies” agreement with Russia to allow oversight flights by each over the other to test for “doomsday weapons” development, an idea initially proposed by Eisenhower in 1956.  This continues an ongoing collapse of nuclear arms control agreements, with Trump having withdrawn from the Intermediate Nuclear Forces agreement last year, much to the consternation of most of Europe, although arguably Russia had been in violation of it for a long time.  Back in 2002 Bush withdrew from the Anti-Ballistic Missile agreement, which his people thought was a much more important thing to do than fight al-Qaeda.

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Drain the Ukrainian Swamp

Drain the Ukrainian Swamp

Trump’s latest excuse for withholding arms for the Ukrainian government to defend itself against Putin’s invitations so he can extract dirt against the Bidens is what again? Oh yea – he wants to root out corruption. REALLY? OK – start with this:

KYIV, Ukraine (AP) — As Rudy Giuliani was pushing Ukrainian officials last spring to investigate one of Donald Trump’s main political rivals, a group of individuals with ties to the president and his personal lawyer were also active in the former Soviet republic. Their aims were profit, not politics. This circle of businessmen and Republican donors touted connections to Giuliani and Trump while trying to install new management at the top of Ukraine’s massive state gas company. Their plan was to then steer lucrative contracts to companies controlled by Trump allies, according to two people with knowledge of their plans.

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