Saturday, September 2, 2017

Weekly Indicators for August 28 - September 1 at

 - by New Deal democrat

My Weekly Indicator column is up at

Interest rates have improved, while there are several cracks in transport.

Friday, September 1, 2017

The August jobs report smacked of late cycle deceleration

 - by New Deal democrat

As promised, here is my abbreviated and late take on this morning's employment report.

While the additions to temporary positions (a leading indicator for jobs overall), and construction, and manufacturing jobs were welcome, this report sure looked like late cycle deceleration.

The YoY% growth in jobs - a very un-noisy metric - declined again slightly:

The number of people not in the labor force who want a job shot back up:

Those who are involuntarily part-time went sideways:

On the (relatively) bright side, when we adjust both of these metrics by the working age population, the comparisons with the last two expansions aren't quite so weak:

Finally, what on earth is it going to take to get wage growth for nonsupervisory workers?

And, although I won't bother showing the graph, we didn't make any progress on either the unemployment or underemployment rate.

So while the good news is, I still don't see any actual downturn anywhere near in time, this employment report was another sign of late cycle deceleration.

Housekeeping note on the employment report.

 - by New Deal democrat

I will be running an errand when the employment report comes out at 8:30.

I will put something up at about 10:30 to 11 eastern time. It will be a little truncated, but I will hit the high (or low) points, and try to highlight a few things that are overlooked in other commentators' posts.

Thursday, August 31, 2017

Trickle-down, with the emphasis on "trickle"

Since the turn of the Millennium, a torrent of corporate tax cuts has resulted in a trickle of investment growth.
 - by New Deal democrat
This morning Dean Baker objects to:
the argument ... that reducing corporate taxes will lead to more investment and thereby greater wage growth in the future. The data from the last seventy years show there is no relationship between aggregate profits and investment.

As can be seen, there is no evidence that higher corporate profits are associated with an increase in investment. In fact, the peak investment share of GDP was reached in the early 1980s when the after-tax profit share was near its post war low. Investment hit a second peak in 2000, even as the profit share was falling through the second half of the decade. The profit share rose sharply in the 2000s, even as the investment share stagnated. In short, you need a pretty good imagination to look at this data and think that increasing after-tax profits will somehow cause firms to invest more
I was a little puzzled why Dean didn't differently scale the two series so it would be easier to see any leading/lagging relationship.  Further, since corporate profits are a long leading indicator, and nonresidential fixed investment is more of a coincident indicator, I was pretty sure that there would be a correlation.

To take a better look, I compared the YoY% changes in each, so that they would scale more equally.  Here's what that looks like divided into 1948-86, and 1986-present:

Sure enough, there is a leading/lagging relationship between the two. That doesn't mean that an increase in corporate profits *causes* more investment, it just means there is a correlation with a lag.

But also notice that, in the post-WW2 era, the two series move in similar scales: a 40% increase in profits tends to lead to something close to a 40% increase in investment.  From the 1980s to the present, a 40% increase in profits leads to a much smaller increase in investment on the order of 10%.

In other words, even if we take the strong case, and assume there is a causative relationship, when we scale the two series more equally, we see that there is a big difference between the post-WW2 era, and the era that began with Ronald Reagan's presidency:

Simply put, particularly since the turn of the Millennium, a torrential increase in corporate profits only leads to a teaspoonful of investment.

The same is true of wage growth. Since wage growth is pro-cyclical, it tends to peak at the end of expansions, well after corporate profits peak.  So there is a leading/lagging relationship on a *cyclical* basis. But *secularly,* corporate profits have increased while wage growth has gradually deflated:

At this stage of the economic expansion, under counter-cyclical policy, if anything we should be trying to run a fiscal surplus. As we have seen above, a corporate tax cut now will do next to nothing for ordinary Americans, and will recklessly blow out the budget at the exact wrong time.

Bottom line: we don't need even more profits for corporations.  We need to increase the share of wage growth relative to corporate profit growth.

Wednesday, August 30, 2017

A Quick update on Bonddad

 - by New Deal democrat

I had a long conversation with Hale Stewart this morning.

He says he has been incredibly lucky. He, his spousal unit, and his pooches are all fine.  They have had no flooding at all.

On the other hand, he says that metro Houston in general is a complete mess. It sounds like, once the water has finally receded, Houston 2017 might resemble New Orleans 2005.

Tuesday, August 29, 2017

Comparing the 2014 and 2017 housing slowdowns

 - by New Deal democrat

We  had an interest rate spike late last year similar to the spike in mid-2013.  In 2014 the resulting housing slowdown resolved positively.  Will it do so again this year?

This post is up at

Monday, August 28, 2017

Notes on Harvey: if Karma could bring her litter to visit the Texas GOP

 - by New Deal democrat

First of all, as many of you already know, the M.I.A. proprietor of this here blog, Hale Stewart, resides in the Houston area.  I traded messages with him on Saturday, and as of then, he was doing OK.

Secondly, when Superstorm Sandy hit New Jersey and New York, Texas Republicans were prominent among those who opposed aid.  Ultimately aid was provided -- but not until 75 days after the storm. 

There were two Sandy-related aid bills.

The first bill granted FEMA a $9.7 billion increase to borrow for the National Flood Insurance Program. It passed the Senate on a voice vote, but the following Texas GOP Members of Congress voted against the aid:

Mike Conaway (Midland) 
Bill Flores (Bryan)
Louie Gohmert (Tyler)
Kenny Marchant (Coppell)
Mac Thornberry (Clarendon)
Randy Weber (Pearland)
Roger Williams (Austin)

The second bill provided $17 billion emergency funding to the victims and to affected NY and NJ communities.  Both Texas Senators Ted Cruz and John Cornyn voted agains the bill.  In addition to all of the above Representatives, the following Texas GOPers also voted against this aid:

Ted Poe (Humble)
Sam Johnson (Plano)
John Ratcliffe (Heath)
Jeb Hensarling (Dallas)
Joe Barton (Arlington)
Kevin Brady (The Woodlands)
Michael McCaul (West Lake Hills)
Kay Granger (Fort Worth)
Lamar Smith (San Antonio)
Pete Olson (Sugarland)
Michael Burgess (Lewisville)
Blake Farenthold (Corpus Christi)
John Carter (Round Rock)
Pete Sessions (Dallas)

Now that it is Texas suffering a catastrophe, of course some of these same politicians will be at the front of the line braying for help. While with the GOP in control of the entire federal government, Karma will not be paying a visit with her litter, in a just world aid would be provided immediately -- on the same day they all visit NY and NJ, apologize, and abjectly beg forgiveness.

Of course, the "better angels" will prevail this time. But rest assured, the next time a disaster befalls anywhere in the Northeast, these same Texas politicians will once again vote against aid. In the meantime, above is the Roll Call of Shame for posterity.