Weekly Indicators for May 22 - 26 at XE.com

 - by New Deal democrat

My Weekly Indicators post is up at XE.com.

The easiest, quick and dirty way to gauge the near term outlook for the economy is to look at stock prices and jobless claims. This week the former made a new record high, and the four week average of the latter a new 40 year low, so that part is easy!

ZOMG! Housing plunges in April !!!

- by New Deal democrat

If you were distracted by the clickbait Doomer headlines, you missed the important story.

This post is up over at XE.com.

John Hinderaker -- Still Economically Dumber Than a Post

Hinderaker hasn't written much about economics lately.  This is fortunate, considering he and his Powerline cohorts spent the better part of an entire year being wrong about even the most basic economic point.

But he's back, just as wrong as ever.  Now he's defending the economic projections in Trump's budget:

With reasonable government policies, 3% growth is eminently obtainable. It is nowhere near what the Reagan administration achieved. Which is why the Democrats are determined to drive Trump out of office before his pro-growth policies (on repatriation, for example) can be implemented. A pro-growth administration would expose the Obama years for the economic fiasco that they were.

Ah ... no.  I'll let Federal Reserve President Kaplan explain:

The net impact of this aging trend has been, and is likely to be in the future, a reduction in the rate of labor force growth. You can see from the chart (below) that, beginning in the 2000s, population growth among those 20 to 64 years old has outpaced overall labor force growth. This trend has been due to a steadily increasing percentage of the 55–64 population within the 20–64 age range as well as a slowdown in the rate at which women have been entering the workforce. Dallas Fed economists expect these trends to continue as we head toward the 2020s.

Because GDP growth is comprised of growth in the workforce plus gains in productivity, weaker expected workforce growth trends will likely have significant negative implications for potential GDP growth in the years ahead—unless we take steps to mitigate these effects. 

In other words, because the US population is aging growth is slowing.  That's an economic truism.

Of course, Hinderaker could care less how things actually work.  The last few months have conclusively shown that he places party above country.

Marginalized populations and employment during expansions

 - by New Deal democrat

Dean Baker ran a graph over the weekend showing an apparent conundrum: namely, that in the last several years there has been an increase in the percentage of those employed who only have a high school diploma vs. a slight *decrease* in employment among those with a college degree.  Here's his graph:

This caught my attention, because I actually don't think this is such an anomaly.  So I went back and checked.

The data posted by Prof. Baker has only been published since 1992, so we don't have a long track record.  But it is interesting to note that a similar pattern asserted itself in the 1990s.  Take a look:

As the economy began to take off - in particular beginning in 1994 -  the e/p ratio of college graduates actually declined by about 1%, while the employment rate of persons with only a high school diploma increased.

Here is another look at the same data, showing the amount by which the e/p ratio for those with college degrees has historically exceeded those with only high school diplomas:

This is part of a broader picture. We get the same pattern when we compare U6 underemployment with U3 unemployment, as in the below graph which shows the amount by which U6 has historically exceeded U3:

Another marginalized group is African Americans, and here, we have longer data, going back to 1972. The below graph shows the amount by which black unemployment has historically exceeded white unemployment:

It's the same pattern.  As the economy improves during an expansion, more and more marginal, and marginalized, potential employees find work.

These same groups typically are first to feel a downturn, so the fact that the data in Prof. Baker's graph hasn't started to reverse is good news.

Real aggregate wage growth finally overtakes Reagan expansion

 - by New Deal democrat

In my opinion the best measure of how average Americans' situations have improved during an economic expansion is real aggregate wage growth.  This is calculated as follows: 

• average wages per hour for nonsupervisory workers
• times aggregate hours worked in the economy
• deflated by the consumer price index

This tells us how much more money average Americans are taking home compared with the worst point in the last recession.

Let me give you a few examples why I believe that this is the best measure of labor market progress:

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.

In short, people work for the cold hard cash that is put in their pockets, and real aggregate wage growth measures how much more of that they've received.

With that introduction, here is an updated graph of real aggregate wages for the entire past 53 years: 

So how does the current expansion compare with past ones?  Here is a chart I created several years ago showing the real aggregate wage growth in every prior economic expansion beginning with 1964:

* start of series

And here is the graph showing the Reagan-Bush economy of th 1980s. As indicated above, at their peak nearly 7 years after the expansion in wages started, they peaked at growth of +21.6%

The most recent trough for aggregate real wages after the last recession was in October 2009.  We are now 90 months later, and with the strong job reports of the last few months, real wages  have now grown 22.1%:

The present expansion is now only behind the 1960s and 1990s for the best recovery in real aggregate wages in the last half century.

Where this expansion has lagged has been the velocity of wage growth. Even with the recent spurt, the monthly average real aggregate wage growth has only been 0.25%, slightly behind the Reagan era's 0.26%, and only ahead of George W. Bush's 0.20%.

Since the 1970s, only in the late 1990s has real wage growth monthly been over 0.30%. I believe this is because of the disappearance of unions, which gave labor bargaining power,  which in the 1990s was overcome because of the length and strentgth of the tech boom itself, the only period of prolonged labor market tightness in  the last 40 years.

UPDATE: One important modification that can be made to the above data is to adjust for the growth (or lack thereof in the case of the last 10 years in the prime working age 25-54 population.  This gives us real wage growth per capita for the target demographic.

Here's what that looks like over the entire last 53 years:

It's pretty clear that since the 1970s, only the 1990s and the present expansion showed any significant growth at all.

For comparison purposes, here are the 1960s beginning in 1964:

and the 1990s:

and the present:

Measured per capita among the prime working age demographic, the current expansion is slightly better than the 1990s, but lags well behind the 1960s -- but leaves the Reagan expansion in the dust.

A thought for Sunday: the Left is winning the battle of ideas. The right's own man says so

 - by New Deal democrat

Prof. Arnold Kling, a conservative neoclassical economist who has taught at George Mason University and been affiliated with the Cato Institute, has a post up this morning in which he  reflects upon whether he has changed his mind about anything in view of developments over the last sum of years.  His reply is a notable bellwether:

I think that in general I have become more pessimistic about American political culture .... 

.... What has [ ] transpired ...... from college campuses [is a] view that capitalism is better than socialism, which I think belongs in the mainstream, seems to be on the fringe. Meanwhile, the intense, deranged focus on race and gender, which I think belongs on the fringe, seems to be mainstream..... 

.... The Overton Window on health policy has moved to where health insurance is a government responsibility. The Overton Window on deficit spending and unfunded liabilities has moved to where there is no political price to be paid for running up either current debts or future obligations. The Overton Window on financial policy has moved to where nobody minds that the Fed and other agencies are allocating credit, primarily toward government bonds and housing finance. The Overton Window on the Administrative State has moved to where it is easier to mount a Constitutional challenge against an order to remove regulations than against regulatory agency over-reach.

I would call that a good start. 

That being said, as usual I expect progress will be made one funeral at a time, as the deep, deep red Silent Generation (and primary Fox News demographic) passes this mortal coil.

__________

A postscript. Kling concludes by writing:

Outside of the realm of politics, things are not nearly so bleak. Many American businesses and industries are better than ever, and they keep improving. Scientists and engineers come up with promising ideas.

I wonder if it occurs to him that these sentences completely undercut his ideology.  After all, if evil government regulation kills innovation, well, obviously, despite the shifts in the Overton Window to the left, that obviously isn't happening, is it?

Furthermore, if that innovation has been happening during the period of time that the Brookings Institution found, via comprehensive Social Security wage data, that workers from 1983 on made only 1% more in real terms over their entire 30 year prime age careers than the workers who entered their prime earnings age in 1957, then that innovation has not translated into *any* significant increase in the well-being of average Americans over virtually their entire working lifetimes. That is a thoroughgoing and decisive failure, well worth being replaced.