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| February 2018 »
Fed Stands Pat, But More Rate Hikes Are On The Way, by Tim Duy: As anticipated, the Fed left rates unchanged at the conclusion of yesterday’s FOMC meeting. The statement was little changed but the handful of revisions point to continuing rate hikes. The Fed remains on track for three 25bp rate hikes in 2018. For the most part, the turnover at the Fed combined with ongoing solid data has left the remaining doves sidelined. The low inflation warnings of last year were largely a head fake as the Fed was always positioned to continue raising rates as long as there looked to be continuing downward pressure on unemployment. ...Continued here...
Posted by Mark Thoma on Wednesday, January 31, 2018 at 04:43 PM in Economics, Monetary Policy |
Gauti Eggertsson, Ragnar Juelsrud, and Ella Getz Wold at VoxEU:
Monetary policy with negative nominal interest rates: Economists disagree on the macroeconomic role of negative interest rates. This column describes how, due to an apparent zero lower bound on deposit rates, negative policy rates have so far had very limited impact on the deposit rates faced by households and firms, and this lower bound on the deposit rate seems to be causing a decline in pass-through to lending rates as well. Negative interest rates thus appear ineffective in stimulating aggregate demand. ...
Posted by Mark Thoma on Wednesday, January 31, 2018 at 11:28 AM in Economics, Monetary Policy |
Olivier Coibion, Yuriy Gorodnichenko, and Mauricio Ulate at the CBPP:
Real-Time Estimates of Potential GDP: Should the Fed Really Be Hitting the Brakes?: Summary
The most recent releases of Gross Domestic Product (GDP) imply that the current level of U.S. output is almost equal to the Congressional Budget Office’s (CBO’s) estimate of the “potential level of GDP,” a measure of how much the U.S. economy could produce if its resources were fully and efficiently utilized. The World Bank further estimates that this closing of the output gap has occurred not just in the U.S. but across most advanced economies (World Bank 2018). Ten years after the onset of the Great Recession, according to this view, the economy has finally returned to its potential level and economic policy instruments should be gradually returned to normal levels, a process the Federal Reserve is now implementing.
In this brief, based on our earlier research, we challenge this conclusion. According to our analysis, CBO’s and other similar estimates of potential output are too pessimistic, and as such, they encourage policymakers, such as those at the Federal Reserve, to accept lower levels of potential than those which could be achieved. This pessimistic view and associated policies could be extremely costly to U.S. households.
Our findings include:
In deriving potential GDP, current methods used by key agencies tend to under-respond to the shocks they should respond to and over-respond to the shocks that they should not respond to. Most recently, this has led to some frequently used estimates of potential GDP that are as much as $1.2 trillion, or nearly $10,000 per household, below our preferred estimate. Methods that do not feature the under-/over-responsiveness problem we document imply that more active stimulus on the part of the Federal Reserve is warranted to enable actual GDP to finally catch up to potential. The benefits of this policy shift would include significantly greater household incomes and higher employment levels than those engendered by the current policy stance.
Should the Federal Reserve be Raising Rates due to a Closing Output Gap? ...
Posted by Mark Thoma on Wednesday, January 31, 2018 at 11:28 AM in Economics, Monetary Policy |
Noëmie Lisack, Rana Sajedi and Gregory Thwaites at Bank Underground:
Population ageing and the macroeconomy: An unprecedented ageing process is unfolding in industrialised economies. The share of the population over 65 has gone from 8% in 1950 to almost 20% in 2015, and is projected to keep rising. What are the macroeconomic implications of this change? What should we expect in the coming years? In a recent staff working paper, we link population ageing to several key economic trends over the last half century: the decline in real interest rates, the rise in house prices and household debt, and the pattern of foreign asset holdings among advanced economies. The effects of demographic change are not expected to reverse so long as longevity, and in particular the average time spent in retirement, remains high.
An unprecedented demographic change…
Posted by Mark Thoma on Wednesday, January 31, 2018 at 11:27 AM in Economics |
Posted by Mark Thoma on Wednesday, January 31, 2018 at 11:27 AM in Economics, Links |
"This will end badly":
Bubble, Bubble, Fraud and Trouble, by Paul Krugman, NY Times: The other day my barber asked me whether he should put all his money in Bitcoin. And the truth is that if he’d bought Bitcoin, say, a year ago he’d be feeling pretty good right now. On the other hand, Dutch speculators who bought tulip bulbs in 1635 also felt pretty good for a while, until tulip prices collapsed in early 1637.
So is Bitcoin a giant bubble that will end in grief? Yes. But it’s a bubble wrapped in techno-mysticism inside a cocoon of libertarian ideology. And there’s something to be learned about the times we live in by peeling away that wrapping. ...
In principle, you can use Bitcoin to pay for things electronically. But you can use debit cards, PayPal, Venmo, etc. to do that, too — and Bitcoin turns out to be a clunky, slow, costly means of payment. ... There’s really no reason to use Bitcoin in transactions — unless you don’t want anyone to see either what you’re buying or what you’re selling, which is why much actual Bitcoin use seems to involve drugs, sex and other black-market goods. ...
So are Bitcoins a superior alternative to $100 bills, allowing you to make secret transactions without lugging around suitcases full of cash? Not really... Bitcoin ... is ... an asset whose price is almost purely speculative, and hence incredibly volatile. ...
Oh, and Bitcoin’s untethered nature also makes it highly susceptible to market manipulation. ...
But what about the fact that those who did buy Bitcoin early have made huge amounts of money? ...
As Robert Shiller, the world’s leading bubble expert, points out, asset bubbles are like “naturally occurring Ponzi schemes.” Early investors in a bubble make a lot of money as new investors are drawn in, and those profits pull in even more people. The process can go on for years before something — a reality check, or simply exhaustion of the pool of potential marks — brings the party to a sudden, painful end.
When it comes to cryptocurrencies there’s an additional factor: It’s a bubble, but it’s also something of a cult, whose initiates are given to paranoid fantasies about evil governments stealing all their money (as opposed to private hackers, who have stolen a remarkably high proportion of extant cryptocurrency tokens). ...
So no, my barber shouldn’t buy Bitcoin. This will end badly, and the sooner it does, the better.
Posted by Mark Thoma on Tuesday, January 30, 2018 at 03:06 PM in Economics, Financial System |
Posted by Mark Thoma on Tuesday, January 30, 2018 at 02:13 PM in Economics, Links |
This is from Thomas Piketty's blog, but it is a collective effort signed by a group of people (listed at the end of the Piketty post):
Democratising Europe begins with ECB nominations: While our eyes are glued to the interminable vicissitudes of the German Groko, a no less important story is playing out in Brussels, but has so far met with indifference. On January 22nd and February 19th, Eurogroup finance ministers will hold private meetings that will mark the beginning of a profound renewal of the European Central Bank executive board. The first big change will be the planned replacement of current Vice-President, Vitor Constancio. In the next two years, no less than 4 of the 6 members of the executive body of the ECB, Mario Draghi included, will be replaced.
All signs indicate that the future of economic, fiscal and monetary policy in eurozone countries is at stake in this series of nominations. ...
After a decade of crisis, the ECB is no longer the same institution that was drawn up by the Treaties...; it speaks on equal terms with the four other “presidents” of the Union (of the Commission, the Council, Eurogroup, and, finally, the European Parliament) when it comes to designing the political and institutional future of eurozone government, etc.
And yet, it as if the coming nominations are just another technicality. While there is in fact a rare occasion for leading parties and actors of representative politics to make their weight felt on the crucial issue of eurozone governance, everything seems set to keep nominations behind closed doors. ...
The nomination process does not have to be conducted in private. It doesn’t have to be yet another game of European musical chairs. ...
Posted by Mark Thoma on Monday, January 29, 2018 at 11:10 AM in Economics, Fiscal Policy, Monetary Policy |
This is from Josh Hendrickson at The Everyday Economist:
On Prediction: Suppose that you are a parent of a young child. Every night you give your child a glass of milk with their dinner. When your child is very young, they have a lid on their cup to prevent it from spilling. However, there comes a time when you let them drink without the lid. The absence of a lid presents a possible problem: spilled milk. Initially there is not much you can do to prevent milk from being spilled. However, over time, you begin to notice things that predict when the milk is going to be spilled. For example, certain placements of the cup on the table might make it more likely that the milk is spilled. Similarly, when your child reaches across the table, this also increases the likelihood of spilled milk. The fact that you are able to notice these “risk factors” means that, over time, you will be able to limit the number of times milk is spilled. You begin to move the cup away from troublesome spots before the spill. You institute a rule that the child is not allowed to reach across the table to get something they want. By doing so, the spills become less frequent. You might even get so good at predicting when the milk will spill and preventing it from happening that when it does happen, you and your spouse might argue about it. In fact, with the benefit of hindsight, one of you might say to the other “how did you not see that the milk was going to spill?”
Now suppose that there was an outside observer who studied the spilling of milk at your house. They are tasked with difficult questions: How good are you at successfully predicting when milk is spilled? Were any of your methods to prevent spilling actually successful? ...
Posted by Mark Thoma on Monday, January 29, 2018 at 11:09 AM in Econometrics, Economics, Macroeconomics |
From Cecchetti & Schoenholtz:
Time Consistency: A Primer: “[S]ome useful policy strategies are ‘rule-like’, in that by their forward-looking nature they constrain central banks from systematically engaging in policies with undesirable long-run consequences.” Ben S. Bernanke and Frederic S. Mishkin, “Inflation Targeting: A New Framework for Monetary Policy,” Spring 1997.
The problem of time consistency is one of the most profound in social science. With applications in areas ranging from economic policy to counterterrorism, it arises whenever the effectiveness of a policy today depends on the credibility of the commitment to implement that policy in the future.
For simplicity, we will define a time consistent policy as one where a future policymaker lacks the opportunity or the incentive to renege. Conversely, a policy lacks time consistency when a future policymaker has both the means and the motivation to break the commitment.
In this post, we describe the conceptual origins of time consistency. To emphasize its broad importance, we provide three economic examples—in monetary policy, prudential regulation, and tax policy—where the impact of the idea is especially notable. (For other examples, see here and here.) ...
Posted by Mark Thoma on Monday, January 29, 2018 at 11:09 AM in Economics, Policy |
Posted by Mark Thoma on Monday, January 29, 2018 at 11:09 AM in Economics, Links |
From the NBER Digest:
Cutback in H-1B Visas Did Not Raise Employment for Natives, by Steve Maas, NBER Digest: In response to concerns that foreign workers were taking jobs from Americans, especially in high-technology fields, Congress cut the annual quota on new H-1B visas from 195,000 to 65,000, beginning with fiscal year 2004. A study by Anna Maria Mayda, Francesc Ortega, Giovanni Peri, Kevin Shih, and Chad Sparber, based on data for the fiscal years 2002-09, finds that the reduced cap did not increase the hiring of U.S. workers.
In The Effect of the H-1B Quota on Employment and Selection of Foreign-Born Labor (NBER Working Paper No. 23902), the researchers examine data obtained through a Freedom of Information Act request to present the first assessment of the consequences of the cap reduction on various sectors of the skilled labor force.
The H-1B program, which was launched in 1990, has provided foreign-born, college-educated professionals their main entry point into the U.S. market. As much as half the growth in America's college-educated science, technology, engineering and mathematics workforce in subsequent decades can be attributed to H-1B workers.
Since the cap was tightened in 2004, firms hired between 20 and 50 percent fewer new H-1B workers than they might have hired had it remained at 195,000 visas per year. The researchers find, however, that the reduced pool of foreign workers did not lead firms to hire more Americans, and conclude that this suggests "low substitutability between native-born and H-1B workers in the same skill groups." The cap only applies to for-profit companies, not to new employees of educational institutions or nonprofit research institutions.
The researchers also find that the quota reduction resulted in changes to the composition of new visa holders and the companies that hired them. Employment losses were concentrated at the lowest and highest ends of the wage scale, leading H-1B workers to become more concentrated among workers with mid-level skills. "The binding H-1B cap reduced the number of workers who were likely to have been among the most talented and productive foreign individuals seeking U.S. employment." Yet these are just the workers who might have contributed technological advances benefiting the entire economy.
The cap led to an increased concentration of India-born workers in computer-related fields. The paper posits that Indians had a leg up on other foreign workers because of long-established labor networks in the software and semiconductor industries.
On the employer side, the lower cap favored larger firms with greater experience navigating the bureaucracy of the visa program and with in-house legal teams that could handle the paperwork. This proved especially advantageous in fiscal years 2008 and 2009, when demand for visas was so high that the number of applications exceeded the quota level within the first week and the government resorted to a computerized random lottery system to allocate them. Smaller firms simply could not afford to spend money applying for visas when they were not sure whether they would obtain one.
Posted by Mark Thoma on Saturday, January 27, 2018 at 10:32 AM in Economics, Immigration, Unemployment |
Posted by Mark Thoma on Friday, January 26, 2018 at 11:22 AM in Economics, Links |
From the NBER Digest:
The Housing Market Crash and Wealth Inequality in the U.S., by Jen Deaderick, NBER Digest: Middle-class households tend to be heavily leveraged, with their homes as primary assets, while the rich tend to have more diverse investments. This made the middle class particularly vulnerable to the housing market crash.
Wealth inequality in the U.S. rose steeply between 2007 to 2010, largely as a result of the sharp decline in house prices during that period, Edward N. Wolff reports in Household Wealth Trends in the United States, 1962 to 2016: Has Middle Class Wealth Recovered? (NBER Working Paper No. 24085). Households with a greater concentration of wealth in their homes — including younger households, African Americans, and Hispanics — fared worse than other groups. The decline in home prices had a far greater percentage impact on the net worth of the middle class than the stock market plunge had on net worth of the top 1 percent.
The study draws on data from the Survey of Consumer Finances (SCF), which was conducted eleven times between the years 1983 and 2016. It defines wealth as net worth — the current value of all marketable assets minus any outstanding debts. This wealth measure excludes the future value of Social Security benefits and defined benefit pension payments. Median net worth declined from $118,600 in 2007 to $66,500 in 2010. Mean net worth, which is more sensitive to the holdings of high net worth households, declined from $620,500 to $521,000 — a drop of 16 percent. By 2016, median net worth had rebounded to $78,100, while mean net worth had reached $667,600, surpassing its 2007 value.
The rich tend to have a more diverse range of investments than the middle class, making them less vulnerable to declines in particular asset categories. The middle class tends to be heavily leveraged, with their homes as primary assets. As a result, they were disproportionately affected by the housing crash. Median wealth fell more than house prices from 2007 to 2010.
The study also reports the average return on all investments for households in different strata of the wealth distribution. For the period 1983-2016, "the average annual return on gross assets for the top 1 percent was 0.57 percentage points greater than that of the next 19 percent and 1.44 percentage points greater than that of the middle quintiles." This return differential, which contributes to greater wealth accumulation by those in higher wealth categories, is largely due to greater weight on owner-occupied housing in the asset holdings of the middle class, and a higher weight on corporate stocks — historically a high return asset class — in the portfolios of the wealthiest households.
The racial divide in wealth-holding widened with the housing crisis. In 2007, the ratio of debt to net worth in African-American households averaged 0.553, as opposed to 0.154 for white households. The ratio of mortgage debt to home value was also greater for African-American households: 0.49 compared with 0.32. The greater leverage made the relative loss in home equity after the housing crash far greater for African-American households. Hispanic households were even harder hit, as many bought homes at high prices between 2001 and 2007 in states that saw particularly steep drops in home prices. Both African-Americans and Hispanics recovered fairly well after the Great Recession, though not quite to their 2007 levels.
The study also notes a significant reduction in the relative wealth of the young versus the old during the Great Recession. "The average wealth of the youngest age group [households headed by someone under the age of 35] collapsed almost in half, from $105,500 in 2007 to $57,000 in 2010 (measured in 2016 USD), its second lowest point over the 30-year period ...while the relative wealth of age group 35-44 shrank from $357,400 to $217,600, its lowest point over the whole 1983 to 2010 period." This may be the result of younger households having bought homes at peak housing prices. The wealth of older age groups declined by less during this period.
Posted by Mark Thoma on Thursday, January 25, 2018 at 12:39 PM in Academic Papers, Economics, Housing, Income Distribution |
Posted by Mark Thoma on Wednesday, January 24, 2018 at 08:24 PM in Economics, Links |
Posted by Mark Thoma on Tuesday, January 23, 2018 at 11:25 AM in Economics, Links |
Posted by Mark Thoma on Thursday, January 18, 2018 at 09:19 AM in Economics, Links |
From Vasco Curdia of the SF Fed:
Vasco Curdia, research advisor at the Federal Reserve Bank of San Francisco, stated his views on the current economy and the outlook as of January 11, 2018.
Real GDP grew at an annual rate of 3.2% in the third quarter, according to the final estimate of the Bureau of Economic Analysis. We forecast that GDP growth averaged 2.5% for 2017. The momentum in GDP growth reflects strong gains in personal income and consumer confidence, supported by continued strength in the labor and financial markets. As monetary policy continues to normalize over the next two to three years, we expect growth to gradually fall back to our trend growth estimate of about 1.7%.
We continue to see strengthening in labor market conditions. Nonfarm payroll employment increased by 148,000 jobs in December, a bit below expectations. Over the past six months, job gains have averaged close to 166,000, well above the amount needed to absorb the flow of new workers into the labor force.
The unemployment rate was unchanged in December from its November value of 4.1%. We expect the rate to fall below 4.0% in 2018 as the economy continues to strengthen. With the gradual removal of monetary policy accommodation, we expect the unemployment rate to return gradually to our estimate of the natural rate of unemployment of 4¾%.
Inflation remains below the FOMC’s target of 2%. In November, the personal consumption expenditure (PCE) price index rose 1.8% over the past 12 months, and the core PCE price index, which removes volatile food and energy prices, rose 1.5%. Transitory developments for a few categories of goods and services held down inflation in 2017. As these developments loosen their hold, we expect continued tightness in the labor market will push inflation up in the coming year.
At the December meeting, the FOMC raised the target range for the federal funds rate by a quarter to 1.25% to 1.50%. Short-term rates followed suit, while longer-term yields did not respond as much to the FOMC announcement.
The relationship between economic slack and inflation is often referred to as the Phillips curve. The theory behind this relationship maintains that conditions that push the economy beyond full employment lead to increased cost pressures on firms and capacity constraints. Cost pressures lead to higher wages and labor costs, while capacity constraints and strained supply chains in the face of high demand push up intermediate costs. In response to these higher costs, firms tend to increase the prices they charge for their goods and services, leading to price inflation.
Various factors can influence cost pressures independently of economic strength. For example, labor market frictions, such as changes in bargaining power, labor force participation, or long-term unemployment can push up the natural rate of unemployment. Oil prices, the strength of the US dollar, or import prices can similarly affect cost pressures in the economy.
Inflation expectations also can affect the transmission from cost pressures to price inflation. For example, high inflation expectations in the early 1980s contributed to elevated price inflation for some time, despite high unemployment. If individual firms expect economy-wide prices to increase at a fast pace, they will be reluctant to slow their own price increases. If many firms follow the same reasoning and expect other firms to keep raising prices, then overall inflation will remain strong. Similarly, strategic industry-specific considerations may affect price inflation. For example, recent price wars in the telecommunications sector have led to weaker inflation numbers.
Staff statistical analysis finds a negative relationship between the unemployment gap and the cyclical component of inflation (excluding components that are not sensitive to business cycle conditions) over the period 2001 to 2017, consistent with economic theory. Currently, the economy is beyond full employment and thus, based on the Phillips curve, we are likely to see an increase in cyclical inflation, in turn pushing up overall price inflation.
The views expressed are those of the author, with input from the forecasting staff of the Federal Reserve Bank of San Francisco. They are not intended to represent the views of others within the Bank or within the Federal Reserve System. FedViews generally appears around the middle of the month. Please send editorial comments to Research Library.
Posted by Mark Thoma on Tuesday, January 16, 2018 at 12:46 PM in Economics, Monetary Policy |
"So will our modern know-nothings prevail?":
Know-Nothings for the 21st Century, by Paul Krugman, NY Times: These days calling someone a “know-nothing” could mean one of two things..., you might be comparing that person to a member of the Know Nothing party of the 1850s, a bigoted, xenophobic, anti-immigrant group that at its peak included more than a hundred members of Congress and eight governors. More likely, however, you’re suggesting that said person is willfully ignorant, someone who rejects facts that might conflict with his or her prejudices.
The sad thing is that America is currently ruled by people who fit both definitions. ...
The parallels between anti-immigrant agitation in the mid-19th century and Trumpism are obvious. ...
After all, Ireland and Germany, the main sources of that era’s immigration wave, were the shithole countries of the day. Half of Ireland’s population emigrated in the face of famine, while Germans were fleeing both economic and political turmoil. Immigrants ... were portrayed as drunken criminals if not subhuman. They were also seen as subversives: Catholics whose first loyalty was to the pope. A few decades later..., immigration ... of Italians, Jews and many other peoples inspired similar prejudice.
And here we are again..., there are always new groups to hate.
But today’s Republicans ... aren’t just Know-Nothings, they’re also know-nothings. The range of issues on which conservatives insist that the facts have a well-known liberal bias just keeps widening.
One result of this embrace of ignorance is a remarkable estrangement between modern conservatives and highly educated Americans... Remarkably, a clear majority of Republicans now say that colleges and universities have a negative effect on America. ...
Think of where we’d be as a nation if we hadn’t experienced those great waves of immigrants driven by the dream of a better life. Think of where we’d be if we hadn’t led the world, first in universal basic education, then in the creation of great institutions of higher education. Surely we’d be a shrunken, stagnant, second-rate society.
And that’s what we’ll become if modern know-nothingism prevails. ...
Trumpism is as an attempt to narrow regional disparities, not by bringing the lagging regions up, but by cutting the growing regions down. For that’s what attacks on education and immigration, key drivers of the new economy’s success stories, would do.
So will our modern know-nothings prevail? I have no idea. What’s clear, however, is that if they do, they won’t make America great again — they’ll kill the very things that made it great.
Posted by Mark Thoma on Tuesday, January 16, 2018 at 09:40 AM in Economics, Education, Immigration, Politics, Universities |
Posted by Mark Thoma on Monday, January 15, 2018 at 10:04 AM in Economics, Links |
Posted by Mark Thoma on Saturday, January 13, 2018 at 10:27 AM in Economics, Links |
We have a shithead president.
That is all.
Posted by Mark Thoma on Friday, January 12, 2018 at 01:13 PM in Politics |
Posted by Mark Thoma on Tuesday, January 9, 2018 at 02:21 PM in Economics, Links |
"Republicans in Congress are increasingly determined to participate in obstruction of justice":
The Worst and the Dumbest, by Paul Krugman, NY Times: Like millions of people around the world, I was reassured to learn that Donald Trump is a “Very Stable Genius.” You see, if he weren’t — if he were instead an erratic, vindictive, uninformed, lazy, would-be tyrant — we might be in real trouble.
Let’s be honest: This great nation has often been led by mediocre men, some of whom had unpleasant personalities. But they generally haven’t done too much damage, for two reasons.
First, second-rate presidents have often been surrounded by first-rate public servants. ...
Second, our system of checks and balances has restrained presidents who might otherwise have been tempted to ignore the rule of law or abuse their position. ...
But that was then. Under the Very Stable Genius in Chief, the old rules no longer apply.
When the V.S.G. moved into the White House, he brought with him an extraordinary collection of subordinates — and I mean that in the worst way... And many incredibly bad lower-level appointments have flown under the public’s radar. ...
And while unqualified people are marching in, qualified people are fleeing. There has been a huge exodus of experienced personnel at the State Department; perhaps even more alarming, there is reportedly a similar exodus at the National Security Agency.
In other words, just one year of Trump has moved us a long way toward a government of the worst and dumbest. It’s a good thing the man at the top is, like, smart.
Meanwhile, what about constraints on presidential misbehavior? Hey, checks and balances are just so 1970s, you know? ...Republicans in Congress are increasingly determined to participate in obstruction of justice. ...
In other words, even as much of the world is questioning Trump’s fitness for office, the only people who could constrain him are doing their best to place him above the rule of law.
So far, the implosion of our political norms has had remarkably little effect on daily life... The president spends his mornings watching TV and rage-tweeting, he has wreaked havoc with the government’s competence and his party doesn’t want you to know if he’s a foreign agent. Yet stocks are up, the economy is growing and we haven’t gotten into any new wars.
But it’s early days. We spent more than two centuries building a great nation, and even a very stable genius probably needs a couple of years to complete its ruin.
Posted by Mark Thoma on Tuesday, January 9, 2018 at 02:18 PM in Economics, Politics |
Posted by Mark Thoma on Monday, January 8, 2018 at 01:02 PM in Economics, Links |
Data Lining Up For The Fed’s Rate Hike Forecast, by Tim Duy: Last Friday the Bureau of Labor Statistics released a fairly lackluster employment report. In most ways, the story remains the same – steady improvement in the labor market but no signs of overheating in the form of wage growth. The mix will keep the Fed on track for three rate hikes this year, as the consensus policymaker will view this kind of report as a reason to neither accelerate nor slow the pace of tightening. ...Continued here...
Posted by Mark Thoma on Monday, January 8, 2018 at 10:32 AM in Economics, Monetary Policy |
Job Growth Slows Modestly, But Black Unemployment Falls to Record Low: The Bureau of Labor Statistics reported slightly weaker than expected job growth in December, with the economy adding 148,000 jobs. There was a modest downward revision to the data for the prior two months, which brought the three-month average to 204,000. The unemployment rate remained unchanged at 4.1 percent for the third consecutive month.
The best news in this report was the drop in the unemployment rate for blacks to 6.8 percent, the lowest since these data were first collected in 1972. The previous low was 7.0 percent in April of 2000. This is consistent with the view that a low unemployment rate disproportionately benefits the most disadvantaged groups. The black unemployment rate averages close to twice the white unemployment rate. This ratio has been reduced somewhat as the labor market tightened. The unemployment rate for whites in December was 3.7 percent.
Healthy job growth has continued to pull more prime-age workers (ages 25 to 54) into the labor market with the employment-to-population ratio (EPOP) edging up to 79.1 percent. This is a new high for the recovery, but it is still more than a full percentage point below its pre-recession level and 2.8 percentage points below the peak high in 2000.
It is worth noting that the EPOPs of varying demographic groups have not followed a predictable pattern since 2000. In the last recovery, women in the 25-to-34 age group showed the sharpest falloff in EPOPs. At present, they are one of the groups closest to recovering their 2000 EPOP. While men in the 25 to 34 grouping now show the sharpest falloff in EPOPs among prime-age workers, their EPOPs pretty much moved with the EPOPs for other prime-age workers in the last recovery. This suggests caution in assuming that changes in these EPOPs are due to supply-side issues as opposed to the strength of the labor market.
In this respect, it is worth noting that less-educated workers continue to be the biggest gainers from the continuing expansion. The EPOP for workers with just a high school degree has risen by 0.6 percentage points over the last year. For workers without a high school degree it has risen by 0.5 percentage points. By contrast, for workers with a college degree it is unchanged.
Other news in the household survey was mixed. All the duration measures of unemployment fell, with the average and median duration hitting new lows for the recovery, albeit still slightly higher than pre-recession levels. On the other hand, the percent of unemployment due to voluntary quits edged down to 10.9 percent. By comparison, it was over 13.7 percent in 2000.
On the payroll side, a disproportionate share of the job growth occurred in the goods-producing sector with construction adding 30,000 jobs and manufacturing adding 25,000 jobs. Employment in the mining and logging sector overall was unchanged, although coal mining lost jobs for the third consecutive month.
Health care added 31,400 jobs and restaurants added 25,100 jobs, both in line with their averages over the last year. The professional and technical services lost 4,700 jobs, the first decline in more than two years. This was driven by a loss of 15,400 jobs in accounting, a decline that is sure to be reversed as a result of the new tax law. The big loser was retail, which lost 20,300 jobs. Employment in the sector is down by 66,500 over the last year or 0.4 percent.
The most troublesome item in this report is the continued weakness of wages. The average hourly wage rose 2.5 percent over the last year, but this may actually be slowing. The annual rate for the last three months compared with the prior three months has been just 1.7 percent.
The weakest wage growth has been in manufacturing, where wages have risen by just 1.6 percent over the last year, and mining and logging, where the increase has been just 0.3 percent. This is consistent with production shifting from higher-paying union sites to lower paying non-union sites. Wages in retail have risen by a weak 2.1 percent, while in accommodation and food services they have risen by 3.6 percent, likely reflecting the impact of higher minimum wages.
On the whole, this is a positive report, but it certainly indicates no basis for concern about the labor market overheating.
Posted by Mark Thoma on Friday, January 5, 2018 at 07:08 PM in Economics, Unemployment |
Posted by Mark Thoma on Friday, January 5, 2018 at 06:38 PM
Posted by Mark Thoma on Wednesday, January 3, 2018 at 05:52 PM in Economics, Links |