Saturday, June 13, 2015
Friday, June 12, 2015
- by New Deal democrat
[UPDATE: After I published this article, I realized that I used an incorrect measure of hours worked, namely, hours for manufacturing, series AWHMAN, instead of the correct measure, hours for all jobs, series AWHI. Using the correct measure does change the results somewhat. The updated and corrected measures are here . The updated results show that the current expansion is better than 4 of the previous 7, but worse than 3 others, mesured 69 months from the beginning of the expansion. Essentially, while the number of hours and the nominal wages paid both show mediocre growth, the longevity of the expansion makes up for those deficiencies.]
Every month we read stories about what a poor labor market recovery this has been. The latest articles were from Profs. Brad DeLong and Menzie Chinn. I respectfully disagree.
With few exceptions, people don't get a job for social reasons. They go to work each day in order to earn money to purchase necessities, discretionary goods, and to save for future needs. In short, they work because of cold, hard cash.
So why is it that most economic writers appear to think the defining element of a labor market recovery after a recession is the number of jobs created?
Let me give you a few examples.
First, compare an economy that creates 1 million 40 hour a week jobs at $10/hour, with an economy that creates 2 million jobs at 10 hours a week at $10/hour. If we were to count by job creation, the second economy would be better. But that's clearly not the case. The second economy is paying out only half of the cold hard cash to workers as the first.
Next, let's compare two economies that both create 1 million 40 hour a week jobs, but one pays $10/hour and the other pays $12/hour. Clearly the second economy is better. It is paying workers 20% more than the first.
Finally, let's compare two economies that create 1 million 40 hour a week jobs at $10/hour. In the first economy, there are 3% annual raises, but inflation is rising 4%. In the second, there are 2% annual raises, but inflation is rising 1%. Again, even though the second economy is giving less raises, it is the better one -- those workers are seeing their lot improve in real, inflation-adjusted terms, whereas the workers in the first economy are actually losing ground.
In each case, the economy creating more jobs, or more hourly employment, is inferior to the economy that pays more in real wages to its workers, In other words, the best measure of a labor market recovery is that economy which doles out the biggest increase in real aggregate wages.
So let's compare the increase in real aggregate wages -- the total wages paid to all nonsupervisory workers, adjusted for inflation, from their bottom in each recession. Since that was 5 years and 11 months ago for our current recovery, that will be our measuring stick.
Below are the graphs of aggregate real wages for each of the last 6 recoveries (and from the start of the series in January 1964), measured to a point 5 years and 11 months after their recession bottom. This is calculated as follows:
average hourly earnings for nonsupervisory workers, times average hours worked, times the number of jobs, and then divided by the consumer price index, with the result indexed to 100 at the bottom. Here are the results:
1964 (start of data) +35.9%
1971: +17.1% (+20.6% at July 1973 peak)
1974: +13.6% (+23.3% at March 1979 peak)
Quite a different, and I believe more accurate, measure than simply comparing payrolls. We can immediately see the effect of labor bargaining power, as all of the economic expansions before the 1980s showed far faster real aggregate wage growth than any expansion since. Also important are the big decreases in interest rates, such as coming out of the 1982 recession, and the impact of big changes in gas prices.
The bottom line is that, measured 5 years and 11 months out from the bottom, this labor market recovery has been the third best of the 7 expansions, behind the 1960s and 1980s.
Thursday, June 11, 2015
- by New Deal democrat
This morning's retail sales report marks the demise of one of the two weak areas in the US economy.
Last fall, there was a debate as to whether the decline in gas prices would be a net positive for the US economy, as an unambiguous positive for consumers (the majority view) vs. a negative due to impact on the Oil patch (Doomers!). Prof. James Hamilton of Econbrowser wrote that the weakness in the Oil patch would be more concentrated and sooner, while the positives would be diffuse and take place over a longer period of time. That's what has happened.
With this morning's revision, even in April real inflation-adjusted retail sales exceeded their previous November high. With an additional gain of +1.2% in May, they have blown through the previous high by about 1%, even after inflation is taken into account (May inflation hasn't been reported yet). The graph below includes the revised data through April (blue), together with the broader measure of real personal consumption expenditures (red):
Not only are retail sales and real retail sals at new highs, but it is almost certain that per capita real retail sales also made a new high in May. This last measure is a pretty reliable long leading indicator, so it suggests the economy will continue to grow at least into the second quarter of next year.
1. there really was a bout of winter weakness due to unusually rough weather.
2. there has also been transitory weakness concentrated in the Oil patch, but as indicated by initial jobless claims, and as of this morning, consumer purchases, have outweighed that weakness.
3. take heart, Doomers! Industrial production still stinks, due to the overly strong US$.
Wednesday, June 10, 2015
If you are seeing this, that means that I can circumvent the clusterfk of Apple's IOS 8.3 rendering Picasa inoperable, by using the Blogger App.
- by New Deal democrat
I have a new post up at XE.com discussing yesterday's JOLTS report. Although the number of job openings are soaring, my takeaway was decidedly cautious.
Tuesday, June 9, 2015
- by New Deal democrat
After a very long hiatus, the Pied Piper of Doom is back, determined to maintain Daily Kos as a laughingstock of economic "analysis." His latest bit of expertise is to trumpet, via Wolf Richter, that they US treasury market is imploding, because it has been manipulated, titled Is this why US Treasuries are diving?:
The global bond market swoon wiped out $1.2 trillion in value since April. Bonds with long maturities suffered the most. The 10-year Treasury Note Price Index lost 3.2%. The 30-year yield, at 3.1% currently, is still very low, but it’s the highest since October 2014. And the 30-year Treasury Bond Price Index has dropped 9%.....
There are numerous reasons for this scenario – a very benign scenario where the greatest credit bubble in history winds down gradually, in small steps with many ups and downs that give the “smart money” time to reposition, rather than suddenly and all at once.And today we learned of another reason.....
So how tempting would it be to manipulate this monster [US treasury] market? Very, apparently.
Turns out, the Department of Justice smells a rat in this until now pristine Treasury market, according to the New York Post ....And now that the probe by the DOJ has started some time ago, we can assume that a finely-honed flurry of activity has broken out at these banks ....In the process, Treasury prices, left to the vagaries of the markets, which have already been spooked by the Fed’s interest-rate cacophony and other factors, are beginning to swoon from their manipulated perch.
Now, mind you, as far as I can tell Wolf Richter is basically Some Guy on the West Coast, but let's pass that. Last month I caught him cherry-picking trucking data, claiming that April trucking had "fallen again" from March, based on a misleading YoY comparison, despite a huge month-over-month gain shown in the actual data.
But to t he specific point. Here is a graph of 10 year US Treasury yields over the last year:
As you can see, since their January bottom, and particularly since mid-April, they have risen about 0.75%.
Evidence of unwinding manipulation? Well, let's test that by comparing Treasuries with yields on 10 year UK gilts:
Oh, dear. It appears someone neglected to tell the British that it was US Treasuries were being manipulated, not Gilts, since they fell even more than Treasuries, by 0.85%.
And how about those sternly upright Germans? Here's their 10 year Bund:
Now the Germans really have a right to be frosted. Despite the fact that the alleged manipulation was of US Treasuries, German bunds have unwound the most of all, rising about 0.90% just in the last month and a half! Much more than Treasuries, which only sold off by about 0.55% during that time.
So, what might account for these moves? Well, let's look at the news from the last week in January. Did anything interesting happen?
Well, first of all gas prices bottomed. This marked the end of the big deflation scare, which had dominated the Doomers at the end of 2014.
Secondly, there was this little matter that on January 25, as the BBC reported, "Anti-austerity Syriza wins election." Since then, of course, there has been a prolonged version of the annual spring Eurocrisis. Here's the take one week ago from the Financial Times:
Yields on U.S. Treasurys and German bunds hit 2015 highs on Wednesday, extending a recent government-bond selloff, after a wave of upbeat economic data highlighted the valuation concerns that have nagged investors for months.
Wednesday’s price decline is the latest sign that traders and portfolio managers are once again recalibrating their expectations for the major Western economies and financial markets, following an early-year brush with deflation fears that briefly sent yields on 10-year German debt within range of zero.
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My two cents, inflation adjusted.