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

France’s Fiscal Dilemma Solved

France’s Fiscal Dilemma Solved

I was struck by this morning’s headline in the New York Times:

No doubt this was intended as irony, but that itself is ironic, since the “unrealistic” attitude it sums up is actually a good starting point for policy.  France has one of the world’s better welfare states, and it should be preserved and enhanced.  French taxes are very high—almost half of national income—and should be cut.  Carbon needs to be priced far more comprehensively and aggressively than Macron’s idiotic gas surcharge, but that can be done with little or no additional net taxes.  (Hint: rebate.)

So what squares this circle?  France’s budget deficit is way too small, about 2.6% of GDP the past two years.  Given the slack in its economy (over 9% headline unemployment) and rock bottom real interest rates, France would be wise to cut taxes and preserve spending even if the gilets jaunes had never existed.  Of course, it is prohibited from doing this by the eurozone’s Stability and Growth Pact, but that’s an argument against the Pact, not the policy.

Nothing I’ve said goes against standard macroeconomic advice.  The reason for bringing it up is that headline, and the article that follows it, which recycles a facile putdown of populism that is both economically ignorant and disdainful of social needs.  Come to think of it, that could be a good way to describe Macron and the political circle he represents.

Comments (3) | |

I told you so: the March employment report showed a slowdown in the leading sectors

I told you so: the March employment report showed a slowdown in the leading sectors

For the past few months, I have been forecasting a jobs slowdown. That has been based in part on the natural progression of a downturn in long leading indicators, then short leading indicators, and finally to coincident indicators of which jobs along with industrial production are the Queen and King, respectively.

Further, I have pointed out that, even when the spread between short and long term bonds simply gets tight, even if there is no outright inversion, employment growth almost always falters. And goods-producing employment – including manufacturing and construction jobs – has *always* faltered in the past 60 years.

Finally, since temporary jobs are a well-known leading indicator for jobs as a whole, I have been expecting them to slow down if not turn down.

March’s jobs report  delivered all of this in spades.

But I received a little blowback on this point, suggesting that the declines were trivial or that I was retrospectively cherry-picking to support a Doomish hypothesis. Far from it: this is something I’ve been forecasting for months in specific sectors, and in the last three months, even in the face of big overall employment gains, it has shown up.

So, to set the record straight, before I get to the March graphs, let me recap the literally 15 times I warned of a coming slowdown in manufacturing, construction, and temporary jobs, and in the goods sector  generally. If you don’t want to read the “I told you so” part, just scroll right past number 15 to the bolded headline and you’ll get right to the March jobs graphs.

The 15 times I forecast an oncoming slowdown in leading employment sectors

1. Last August: the simple tightening of the yield curve suggests a subsequent jobs slowdown

Four times during the 1980s and 1990s the difference in the interest yield between 2 and 10 year treasury bonds got about as low as it is now [Note: i.e., August 2018] (blue in the graphs below). That occurred in 1984, 1986, 1994, and 1998.

Even though on none of those 4 occasions a recession followed, on 3 of 4 of those occasions YoY employment gains … subsequently declined …

In other words, even if the Fed stops raising rates now [as of August 2018], and the yield curve does not get tighter or fully invert, my expectation is that monthly employment gains will decline to about half of what they have recently been — i.e., to about 100,000 a month — during the next year or so.

Comments (0) | |

Wage Growth

Based on my wage equation, last January I warned to expect a sharp acceleration in wage growth in 2018.  Now that wage growth has risen       from 2.4% in 2017 to 3.4% in 2018, the same economic variables imply that wage growth may be flattening out.  If wage growth remains near    current levels it will be one less factor pressurizing the Fed to tighten.

One of the key variables driving wages higher a year ago was inflation expectations.  Because there  are no good long run measures of inflation expectations  I use the three year trailing growth in the CPI as a proxy for  inflation expectations.  A year ago that measure was starting to     accelerate, but now it appears to be flattening out and should be an   important  factor limiting wage gains.


The first sign of slower wage growth was the 3 month growth rate of average hourly earnings slipping below the year over year change in this months employment report.


Comments (3) | |

There He Goes Again

On my personal blog, I mentioned that Tom Nichols is absolutely unwilling to discuss the run up to the US/UK?Australian invasion of Iraq. He is careless about facts and expresses contempt for even considering the official conclusions drawn by Hans Blix. He will not face evidence and has total contempt for expertise.

He asked me to stop replying to him and I did, but I have proof that he is wrong.

The man can’t handle facts and he refuses to listen to actual experts on the topics on which he makes assertions based on prejudice, stubborness and tribal loyalty.

Now I am here to mentoin that he’s done it again.

He has a little twitter exchange with Mike Gravel in which he demonstrates, again, his contempt for data and experts.

Nice come back. At a level with “There you go again”*. But stupid. First the rate of opioid overdose deaths is vastly higher now than in 1980. The drug problem of the 1960s was minor compared to the current crisis. By 1980 the heroin epidemic had passed. It’s true that there was a crack epidemic during the Reagan administration. But the big drug in 1980 was marijuana which is no longer a problem, because our generation (the pot heads of the 70s) are making the laws and know it was never a big problem.

But Nichols really demonstrates his contempt for data and expertise by asserting that “poverty” and “1980” go together. There is a technical literature on poverty. The first statistic is the official poverty rate. That rate was low in 1980 and shot up as soon as Reagan was elected (I am not asserting causation — it had more to do with Volcker). Nichols has a vague sense that the country was in bad shape in 1980 then Reagan saved it. He can’t be bothered to look up the relevant official statistics before tweeting. He places his prejudice and conservative tribal loyalty above the calculations of subject matter experts, because he has no respect for expertise.

Comments (7) | |

Partners, Not Debtors: The External Liabilities of Emerging Market Economies

by Joseph Joyce    (lifted from Capital Ebbs and Flows)

Partners, Not Debtors: The External Liabilities of Emerging Market Economies

My paper,  “Partners, Not Debtors: The External Liabilities of Emerging Market Economies,” has been published in the January 2019 issue of the Journal of Economic Behavior & Organization.

Here is the abstract:

This paper investigates the change in the composition of the liabilities of emerging market countries from primarily debt (bonds, bank loans) to equity (foreign direct investment, portfolio) in the decades preceding the global financial crisis. We examine the determinants of equity and debt liabilities on external balance sheets in a sample of 21 emerging market economies and 20 advanced economies over the period of 1981-2013. We include a new measure of domestic financial development that allows us to distinguish between financial institutions and financial markets. Our results show that countries with higher economic growth rates have larger amounts of equity liabilities. The development of domestic financial markets is also linked to an increase in equity liabilities, and in particular, portfolio equity. In addition, larger foreign exchange reserves are associated with larger amounts of portfolio equity. FDI liabilities are more common when domestic financial institutions are not well developed.

The publisher, Elsevier, provides a link to provide free access to the paper for 50 days. You can find it here:

Comments (0) | |

March jobs report: good nowcast, concerning forecast

March jobs report: good nowcast, concerning forecast

  • +196,000 jobs added
  • U3 unemployment rate unchanged at 3.8%
  • U6 underemployment rate unchanged at  7.3%

Leading employment indicators of a slowdown or recession


I am highlighting these because many leading indicators overall strongly suggest that an employment slowdown is coming. The following more leading numbers in the report tell us about where the economy is likely to be a few months from now. With one exception, these either decelerated or outright declined.

  • the average manufacturing workweek was unchanged 40.7 hours. This is one of the 10 components of the LEI. It is down -0.6 hours from its peak during this expansion.
  • Manufacturing jobs declined by -.6,000. YoY manufacturing is up 209,000, a big deceleration from last summer’s pace.
  • construction jobs rose by 16,000. YoY construction jobs are up 246,000, also a big deceleration from last summer.
  • temporary jobs declined by -5400. YoY these are up +44,900. These are only up 3700 in the past 5 months, a big slowdown.
  • the number of people unemployed for 5 weeks or less fell by -68,000 from 2,194,000 to 2,126,000.  The post-recession low was set 10 months ago at 2,034,000.
Wages and participation rates

Here are the headlines on wages and the broader measures of underemployment:

Comments (1) | |

March news good so far; the Fed has plenty of scope to cut rates

March news good so far; the Fed has plenty of scope to cut rates

While we are waiting for tomorrow’s jobs report, let’s step back for a moment and look at where we are in the big picture of the economic cycle.

So far, March data is running pretty positive.  In addition to the decent ISM manufacturing report I discussed the other day, motor vehicle sales turned out to be excellent, topping 18 million annualized:

The ISM services index, like the manufacturing index, also downshifted, but continued positive:

Comments (5) | |

Watch for temp jobs weakness in Friday’s employment report

Watch for temp jobs weakness in Friday’s employment report

Yesterday I looked at manufacturing jobs, and goods-producing jobs generally, as two what to look for in Friday’s jobs report.

Today let’s follow up with temporary jobs, an acknowledged leading indicator for jobs as a whole.

As I wrote about a couple of months ago, the American Staffing Association’s Staffing Index does a good job forecasting the trend in temporary jobs in the monthly employment report.

And here, the news is becoming slightly, but more and more, negative. In the four week period through the end of March, the YoY comparison slipped to -1.7%, its worst yet:

The index went negative YoY at the turn of the year, and has gradually deteriorated since.


Comments (0) | |

Manufacturing slowdown apparent, but no contraction

Manufacturing slowdown apparent, but no contraction

With yesterday’s ISM report for manufacturing in March, let’s take an updated look at this sector, with a particular emphasis on what to look for in this Friday’s jobs report.

The ISM manufacturing index, and its more leading new orders sub-index, both continued positive in March, with the former at 55.3 and the latter at 57.4. Both of these are good, solid, positive numbers. Here’s the updated graph from

Comments (0) | |