Saturday, August 1, 2015
Friday, July 31, 2015
- by New Deal democrat
The employment cost index (ECI), a median measure of employee compensation, pretty much laid an egg in the second quarter, and actually decreased slightly when deflated by personal consumption expenditures.
It is instructive to compare this with several other measures of employee compensation, first of all, another median measure of usual weekly earnings for full time employees (red):
Note that even with the 2Q small decline, the wage trend as measured by the ECI has been improving, whereas usual weekly earnings have been generally flat perhaps with slight improvement over the last several years.
Why the difference? Most likely in the differing ways the two measures treat part time employment. Here is a good explanation from Moody's:
There are several measures of wages and compensation, but one of the most closely watched is the employment cost index. This measure is important because it attempts to control for differences in job mix that can affect wage growth and therefore capture inflation in the true underlying cost of labor....
The ECI controls for job mix by measuring average compensation within specific groups of workers within the same firm... including ... part- or full-time status .... For example, if a firm interviewed for the ECI has one worker who is a part-time nonunion cashier and another who is a full-time unionized cashier, they would not be grouped together.
As a result, when firms increase [decrease] their share of part-time workers to save on compensation costs, it will not show up as a decline [increase] in the ECI. This is potentially problematic, as early in the recession there was a significant rise in part-time workers, and during the recovery this has fallen.
Thursday, July 30, 2015
- by New Deal democrat
As you all probably know by now, the first estimate of 2nd quarter GDP was reported at +2.3% annualized, in line with the Atlanta Fed's GDPNow calculator (and kudos to them!). Real GDP also grew at +2.3%. As the graph below shows, this is par for the course for the last 4 years, in which YoY real GDP has grown at +2%, +/-1%:
There have been a few diehard Doomers who have been trumpeting an alleged recession this year, based mainly on Industrial Production and related metrics, usually citing the downturn in the Oil patch (which, as I have repeatedly pointed out, has been more than outweighed by increased consumer spending).
Speaking of which, here is the YoY% change in GDP (blue) compared with the YoY% change in the price of gasoline, inverted (/10 to better scale)(red):
While the price of gas is hardly the single determinant of GDP, since consumer spending is 70% of GDP, it is an important one. As gas prices rose YoY into 2012, downward presssure was placed on real GDP. As YoY gas prices stabilized and then declined, there has been a general upward trend in real GDP.
With today's release, and the accompanying revisions to prior quarters, Doomers will have to go back to their tinfoil hat claims that the numbers are cooked. Because we are always DOOMED; only the rationalization changes.