Saturday, March 23, 2019

Weekly Indicators for March 18 - 22 at Seeking Alpha

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

As you can imagine, the big news was about the fact that almost every single yield curve there is - except the one I report on every week in that post - inverted yesterday.

Also, as I mentioned in an e-mail to a couple of folks this morning, the big thing that bothers me is that ***EVERYONE*** is watching it. And a forecasting tool that everyone pays attention to, ceases to be an accurate forecasting tool. It’s called “Second Order Chaos.” Humans are very clever and intelligent chimpanzees, and when you observe them, they observe you back, and react to the observation.

Anyway, as usual, clicking over and reading helps reward me with a little $$$ for my efforts.

Friday, March 22, 2019

... And, the 10 year treasury yield inverts

 - by New Deal democrat

Yesterday over at Seeking Alpha I wrote about how the Fed is boxed in. The essence of the article is that, while lower rates are good for the housing market, a fuller yield curve inversion adds to the evidence that a recession may take place first, unless the Fed completely reverses course and starts cutting interest rates very soon.

Please click on over and read the whole article. Not only should it be educational for you, but it rewards me a little for my efforts in writing about the economy.
And so what do I see when I check out interest rates this morning? This:
For the first time, the yield curve inversion has spread to the 10 year Treasury, which is yielding less than either the 6 month or even the one month Treasury bill.
On December 3, the 2- and 3- to 5 year Treasury yield inverted, with the shorter maturities paying more than the longer maturity.
The next morning in a post entitled “The Camel’s Nose is in the Tent - Maybe,” which I’ll quote from at length below:
Most of the commentary you have read probably boils down to an assertion that this is bad (it is) and that a recession is now likely in the next 12 to 24 months (maybe). ...
[Historically, w]hen the 2 to 5 year spread [has] inverted, typically the 2 to 10 year spread did so simultaneously or very shortly, as in days or a week, later. Usually later, so did the 10 to 30 year spread. In fact, when all three of those levels were in inversion simultaneously, a recession always followed within 12 to 24 months. But, even if we just consider the 2 to 5 year spread, its inversion usually was a prelude to a full spread inversion of the yield curve.
In other words, as the saying goes, "the camel's nose is in the tent." If you're not familiar with the saying, it means that the rest of the camel is likely to soon follow, with bad consequences for the people in the tent.
I went on to note a few exceptions:
1. Several times - at the end of 1994 and the beginning of 1998 -- an inversion only happened for one day or even only intraday. [That did] not signal an oncoming recession ....
2. The 10 to 30 year spread had a number of false positives. We don't have to worry about that for now.
3. [T]he second half of 1998 a false positive as well, since no recession began until nearly 3 years after the inversion started, and over two years after it ended....
Most significantly, as in 1998, the Fed might react. If you are aware of the history of an inversion, and if I am aware of the history of an inversion, and if all of the other commentators who are writing about it are aware of the history of an inversion ... then don't you think the Fed and its economists might possibly discuss the possible implications of an inversion[?] ....The Fed is an actor. The Fed has agency. The Fed can affect the future course of the bond market. The Fed can react to this news if it chooses, and thereby change the future.
As I noted yesterday, the Fed did indirectly (via a steep stock market sell-off) respond to that inversion by changing its tone several weeks later, and earlier this week it pretty much eliminated the likelihood of any further rate hikes this year. But as I also noted, that might not be enough. The Fed may need to cut rates, and very soon, in order to stave off.a recession.
So let’s update through this morning. First, here’s what the 10 year minus 6 month treasury yield spread looks like for the past 60 years:
Aside from exactly one day in 1998, the only false positive was in 1966. Every other time this range inverted, a recession followed.
Following the inversion in 1966, the economy barely missed a recession, as payrolls, industrial production, and real retail sales all decline for several months or more in 1967:
Only real income continued to grow strongly, and real GDP only downshifted to near zero for one quarter in 1967.
And as I pointed out yesterday, the Fed lowered rates only 4 months after the inversion.
Meanwhile, virtually the last of the positive long leading indicators, corporate profits, finally get reported for Q4 next week. Earnings for the S&P 500 declined in Q4, and if corporate profits did too, then almost all of my long leading indicators will be flashing red.

Thursday, March 21, 2019

A couple of nuggets of good economic news

 - by New Deal democrat

Sometimes there is almost no economic news at all. This isn’t one of those times. 

Because there have been increasingly ominous signs among the long leading indicators, that have been spilling over into the short leading indicators, suddenly there are a lot of signs and portents to look at. A lot less about jobs and wages that I keep exclusively here.
So, once again I got waylaid preparing a long piece for Seeking Alpha, on how the Fed may need to *cut* rates quickly in order to avoid a recession, that may not get posted until tomorrow.
In the meantime, here are a couple of graphs to give you something to chew on.
First, I’ve noted in the last few months how wages for ordinary workers have started to take off. A few people have pointed out that it may be less due to overall tightness in the labor market and more due to statutory minimum wage increases.
It looks like they’ve got a good point. Here’s a graph of wage growth for low wage workers in states that have raised the minimum wage vs. those that have not:
Pretty self-explanatory.
Second, recently the number of initial jobless claims has risen somewhat. The good news is, that number has backed off from the spike that occurred during the government shutdown:

The four week moving average of initial claims, at 225,000, is only about 9% above its low point 6 months ago. That does show some weakness, but not enough to warrant even a yellow caution flag at this point.

Wednesday, March 20, 2019

The widened Panama Canal is disrupting internal US transportation patterns

 - by New Deal democrat

The newly-widened Panama Canal opened to traffic in late 2016. Since then, there have been several ongoing disruptions in how goods are transported from suppliers in Asia to their ultimate markets in the US, including affects on seaports, trucking, and rail.

This post is up at Seeking Alpha.  As usual, clicking over and reading should be educational for you, and helps reward me for my work.

Tuesday, March 19, 2019

Over 50% of all wealth in the US is inherited not earned

 - by New Deal democrat

I got waylaid putting together a very detailed post about how the newly-widened Panama Canal is disrupting the internal US transportation network. When it goes up at Seeking Alpha, I’ll link to it.

In the meantime, here is something that I found a week or two ago for you to chew on. Over half of all US wealth is not earned but inherited:

According to a report summarized recently in the Washington Post“The wealthiest 1 percent of American households own 40 percent of the country's wealth.”

It’s likely that about 25% of all wealth in the US is inherited of the top 1%. I strongly suspect the relationship is even more egregious at the level of the top 0.1% and top 0.01%.

It’s hard to argue that the US is at all a meritocracy when the starting points are so distorted.

Monday, March 18, 2019

The government shutdown may have caused a mini-recession

 - by New Deal democrat

Aside from being a monumentally poor policy outcome, and aside from the hardship it caused nearly a million workers, the government shutdown may also have caused a general contraction in production, sales, and income, and a slowdown in employment, that if it were longer would qualify as a recession.
Because the affected three months straddle Q4 2018 and Q1 2019, both quarters will likely show positive real GDP growth, it won’t be a recession. Let’s call it a mini-recession.
Although shorthand for a recession is two quarters of GDP contraction, that wasn’t the case for 2001, and the NBER has indicated that a general downturn in production, employment, sales, and income are the crucial criteria. So let’s look at each.
Industrial production declined significantly in December, and the small rebound in January was not enough to overcome that downturn. This is especially true of the manufacturing component:
The same is also true of real retail sales:
But lest you think that retail sales were an outlier, here are general business sales (including manufacturers’ and wholesalers’ sales)(BLUE) which also peaked in November, and inventories (red):
I included both because sales lead inventories, as is shown for the 2015-16 “shallow industrial recession” in the graph.
The NBER pays attention to “real personal income less transfer payments.” Since we don’t have the deflator for January, nor the amount of transfer payments, I am making use of CPI as a placeholder for the deflator:
These increased strongly in December, but declined in January.
Finally, here is employment:
No decline here, but one of the three lowest monthly readings in February. And of course, this is well within the range of being revised to a negative over the next several months.
Put the four series together, and you get a picture of an economy that in terms of production, employment, income, and sales suddenly contracted in December and January.
Assuming these series bounce back no later than March - which I expect to happen - the downturn isn’t deep enough nor long enough to qualify as a recession. But the government shutdown may have done significantly more damage than was projected at the time. And this highlights how poor pubic policy, whether it comes from the Fed, the Congress, or the Administration, can very quickly topple a slowing economy into outright recession.

Sunday, March 17, 2019

Preventing Presidential autocracy: thoughts on reining in Executive power

 - by New Deal democrat

 Matt Yglesias posted a jarring tweet this past week when he wrote:

He elaborated by linking to a long-form article he wrote four years ago, explaining his position, where in relevant part, he wrote:
America's constitutional democracy is going to collapse. 
Some day ... there is going to be a collapse of the legal and political order and its replacement by something else. If we're lucky, it won't be violent. If we're very lucky, it will lead us to tackle the underlying problems and result in a better, more robust, political system. If we're less lucky, well, then, something worse will happen.
In a 1990 essay, the late Yale political scientist Juan Linz observed that "aside from the United States, only Chile has managed a century and a half of relatively undisturbed constitutional continuity under presidential government — but Chilean democracy broke down in the 1970s."
Yglesias — and Linz — saved me a lot of work. Because I had long ago heard that the US was the only Presidential democracy that hadn’t succumbed to autocratic rule. That was precisely Linz’s finding. At this point the only other democracies that I know of that come close are Costa Rica (since the last coup of 1948) and the Fourth and Fifth French Republics (since 1945).

Historically, the problem has been that, over time, in any Presidential system, the President accretes more and more power (vs. a corrupt, ineffective, and/or deadlocked Legislature) until the Legislature degenerates into a toothless rubber-stamp, or else is disbanded by a President turned autocrat.

The US has not been immune. The first six Presidents, through John Quincy Adams, saw themselves as “Chief Magistrates,” only vetoing laws they thought were unconstitutional, and at least approximating a meritocracy in their limited number of appointments.  That began to change with Andrew Jackson, who vetoed any legislation that did not exactly conform to his wishes, and initiated the “spoils system” of appointing only political backers to government posts.

With the vast expansion of the bureaucracy during the 20th Century, Presidents obtained much more power via all of the appointments they were able to make. And following the Second World War, the large and permanent global military footprint enabled lots of chances for the Commander in Chief to flex his muscle.

Now we are getting very close to the final crossroads. Obama committed troops to Syria after the Congress completely gave up their war-making authority, preferring to sit on the sidelines and snipe. Trump’s declaration of an emergency simply because he could not get what he wanted out of Congress, if upheld by the Supreme Court, all but ensures that government by Executive Decree, that can only be overruled by a 2/3’s majority of both Houses of Congress, will probably quite soon become the norm.

In fact, Trump’s refusal of the GOP’s compromise proposal is almost certainly because, now that he has found this powerful new toy, he intends to use it more.

Once Presidential Emergency Edicts become more routine, unless this or any future President’s party fails to seat at least 1/3 + 1 in both Houses of Congress, why even bother convening?   

The bottom line is, I agree with Yglesias. We are on the way to autocratic Presidential rule unless the power of the Presidency is definitively reined in.

So, how should the Executive be reined in? Obviously, this must be via Constitutional changes. Below are my considered opinions for how to do that.

The mixed Presidential-parliamentary system used, for example, in France, in which some Executive powers are vested in a “Premier” or “Prime Minister” who is a member of the Legislature seem to be the best remedy. In the US, there are seven Presidential powers that ought to be either limited, or devolved in whole or in part to the Congress or its Legislative head:

1. Appointment of rule-making authorities in the bureaucracy (vs. adjudicating authorities, whose appointments would remain with the President). For example, the SEC both makes rules for corporate governance, and enforces those rules. The President ought to be completely taken out of the former, Legislative, role. Those regulators should be appointed solely by Congress.

2. Aside from full declaration of war, or the need for an emergency response, devolution of the authority for taking of limited military action. Thus, for example, if the Congress were to refuse to declare war, then any commitment of troops to Syria would be the sole authority of the Legislative head. (This would make Congress far more responsive to popular skepticism of any such adventure). This is in accord with the manifest intention of the Consitution originally, in which *all* types of hostilities, including limited ones such as a “Writ of Reprisal” were vested in the Congress.

3. The 2/3’s majority requirement to overcome a veto gives the President too much Legislative power. The requirement, if not outright eliminated, ought to be reduced to something like 60%. And in any case, a sustained veto should only delay implementation of a law duly passed by Congress for two years, so that whether the law should go forward or not becomes a campaign issue in the next Congressional elections.

4. The Legislative head should be able to be removed in a no-confidence vote just as in Parliamentary systems, although a majority negative vote in both Houses of Congress might be required.

5. Unless specifically embodied in the language of Treaties, the President should not be able to single-handedly terminate them (just as the President cannot unilaterally terminate laws with which he disagrees).

6. The President should not be able to pardon any member of his own Administration for any acts committed before or during that person’s service during the Administration, nor for any acts undertaken in support of the President, or in conspiracy with the President.

7. No emergency declared by any President should be allowed to last longer than the time necessary for Congress to convene and debate the alleged emergency, e.g., 60 days.

I know I’m just typing some words on a keyboard for a few readers. But the bottom line is, government by Presidential Edict looks like it is looming in our near future. Parliamentary democracies are far less susceptible to such autocratic power grabs than Presidential systems have been. Two hundred years of such history ought to be enough to learn the lesson. The remedy must be a clear circumscribing of Presidential authority, with an effective counterweight in the Congress.

Saturday, March 16, 2019

Weekly Indicators for March 11 - 15 at Seeking Alpha

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

The rebound after the government shutdown has lifted the nowcast into slightly positive territory.  Still, it seems clear at this point that the shutdown caused the already-weakening economy to skirt with recession during December and January.

In my opinion Dean Baker is correct. Recessions aren’t as sneaky as Austin Goolsbee claims in his NYT article yesterday. What the *possible* “mini-recession” of December and January has in common with the very shallow 2001 recession is that both feature a weakening economy that is then hit with exogenous events, including poor government policy (the “China shock,” Trump’s trade wars, the government shutdown) and also in 2001, the September 11 terrorist attacks.

But as Baker points out, 2001 highlighted the bursting of a stock market bubble, apparent in the long leading indicator of corporate profits. Other long leading indicators had also flashed warning signals:

  • Housing had also declined over -10%, as measured by the long leading indicator of single family housing permits.
  • Long term interest rates had climbed over 2% from their 1998 lows. 
  • Real M1 had fallen by almost -7%
  • The yield curve had inverted.
  • Bank lending had gotten tighter.
  • Real retail sales per capita had peaked a year before.
Really not sneaky at all.

UPDATE: If you don’t want to go behind the NYT’s paywall, here is what Goolsbee said, via the trusty commenter Anne at Economist’s View. Goolsbee’s position is actually pretty close to what I’ve written above. Small shocks like poor government decisions can take a weak economy and tip it into recession, although Goolsbee focuses on consumer confidence.

Friday, March 15, 2019

Industrial production weak, while JOLTS employment remains strong

 - by New Deal democrat

I’ll have more to say next week, but for now here are the headlines on this morning’s data.

Taken together, production and employment are the King and Queen of coincident indicators - certainly in terms of how the NBER scores expansions and recessions. Both February industrial production and January JOLTS for employment were reported this morning, and delivered differing messages.
First, industrial production for February was weak. While total production gained slightly (+0.1%), manufacturing production declined for the second month in a row:

Here is what that same data looks like measured YoY:
There may have been a production boom last summer, but it’s over now.
If industrial production is the King of Coincident Indicators, then employment is the Queen. The JOLTS report for January, which included substantial revisions for all of 2018, included an all-time high in the number of quits (red), and an improvement in hires (BLUE):

Not shown, but layoffs and discharges made a new 12 month low, and openings were just below theirs. If there is a fly in the ointment, it is that since midyear 2018, there has been very little improvement in all of the JOLTS metrics except for layoffs and discharges.
Basically, production and employment taken together show deceleration since summer of 2018, with production actually contracting slightly while employment continues to improve.

Initial jobless claims not at warning levels yet

 - by New Deal democrat

With the economy slowing so markedly, suddenly there is a lot I can post about!
So here is a quick note about initial jobless claims. They are a short leading indicator, and at least as smoothed over a 4 week or monthly average, they aren’t too noisy.
I have two ways of looking at them:
1. The four week moving average rises more than 10% above its low point almost once a year. But by the time it is 15% above its low, a recession is usually imminent or may even have begun. So my cutoff point is 12%, above which there is a significantly increased chance of an oncoming recession. In September, this average hit its expansion low of 206,000:

If the 4 week moving average rises above 230,600, this metric is triggered. It did hit this number last month likely due to the government shutdown, but I am discounting that.
2. If the monthly average turns higher YoY for two consecutive months, that usually gives a short warning that a recession is about to begin. As the below graph shows, it was higher YoY in February:

If it averages higher than 228,600 for March, it would hit this point. For the first two weeks of March, it is 226,000:

Triggering one metric results in a yellow flag “caution”; hitting both results in a red flag “warning.”
Although we are close in both metrics, neither has been triggered yet.

Thursday, March 14, 2019

Leading scenes from the February jobs report

 - by New Deal democrat

Let me catch up with some details from last Friday’s employment report.

As a preliminary matter, the overwhelming take was that the poor +20,000 gain was “nothing to see here, just an outlier.” The problem with that take is that, for all of 2018, the average monthly gain in jobs was just over +200,000 a month. January came in more than 100,000 above that, at +311,000 jobs, and yet I don’t recall anyone taking the same position, that it was just an “outlier” to the positive side then! Here’s a graph, from which the 2018 average of 204,500 monthly jobs gain has been subtracted, so that the variance from that average shows as positive or negative:    

So, yes, it’s true that February was a bigger outlier, to the downside, than January was, to the upside, but both were outliers. If you average the two months together, you get +165,500 jobs per month, a significant downdraft from the 2018 average.

Moving on, last week I said to pay attention to three leading sectors of jobs: temporary jobs, construction, and manufacturing. In the past I’ve shown that at least 2 of the 3 sectors contract for a number of months before any recession begins. Here’s what all three sectors look like from January 2018 to the present:

We had a contraction in temp jobs in January, from revisions, and a contraction in construction in February, after an outsized January gain. Manufacturing hung on with a small gain.

Here’s the same information graphed as the YoY% change, first over the past 8 years:

The 2015-16 “shallow industrial recession” clearly stands out as a pocket of weakness.

Now here’s a close-up since the beginning of 2018:

All three show decelerating YoY gains since roughly the beginning of last autumn.
Last week I also said that I expected the YoY pace of job gains to start decelerating. Only one month, of course, but it did do that:

YoY job gains are at the lowest in over 6 months.

Finally, let’s take a look at two more leading metrics contained in the jobs report.

First, the manufacturing work week:

Historically, this starts deteriorating before manufacturing jobs. It is presently down -0.6 hours from its peak in summer of last year. In the past a decline of -0.5 hours has typically been associated with at least a slowdown, and by the time the decline hits 1.0 hours you are on the cusp of a recession.

Next, short term unemployment of less than 5 weeks. This is one of the “short leading indicators” listed by Prof. Geoffrey Moore:

Typically if the three month average is less than 5% above its low, the expansion is intact. If that average is more than 10% above its low, a recession is near or may have just begun. Presently the three month average is 6% above its recent low. Take this with a grain of salt, because it includes the government shutdown month of January.

The bottom line is that, even averaging January with February, all of the leading employment indicators show some deterioration, but none of them are at a point where I would expect them to be if a recession were imminent.

Wednesday, March 13, 2019

More evidence for a Q4 “Recession Watch”

 - by New Deal democrat

About a month ago, based on those Q4 2018 reports that had not been delayed by the government shutdown, plus workarounds for those that were missing, I went of “Recession Watch” for Q4 of this year.

Now all of the missing pieces have been reported, and they add to the evidence justifying the call. 

This post is up at Seeking Alpha.

My base case remains slowdown vs. recession. But I see a slowdown becoming more entrenched as the year goes on, and government policy missteps (good thing we have a competent Administration, so we won’t see any of those! /s) could easily tip us into contraction. If we do go that route, it probably won’t be led by the producer side of the economy, but rather by stretched budgets on the consumer side.

Tuesday, March 12, 2019

Real wage growth continued to improve in February

 - by New Deal democrat.     

Now that we have February’s CPI (up +0.2%), let’s update nominal and real wage growth.

First, here is a graph of nominal wage growth YoY vs. consumer inflation YoY since the beginning of this expansion almost 10 years ago:

First of all, why do I bother with nominal wages? Because employers don’t give out inflation-adjusted salary and wage increases. If they give you a 3% raise, it’s a 3% raise regardless of what happens to inflation. And the long term picture is that nominal wage growth decelerates coming out of recessions until unemployment (or, more likely, underemployment) falls to the point where employees gain a little bargaining power:

To return to the first graph, nominal wage growth has been improving YoY since late 2012. Meanwhile CPI has been meandering around a 2% YoY average, depending on what has been happening with gas prices. Since lately these have been stagnant or down YoY, consumer inflation has waned.

As a result, real wages have improved considerably in the past year, to the point where they are now exactly -3% off their peak in the early 1970’s:

But because aggregate payrolls declined in February, according to the employment report, the aggregate pay that non-managerial workers took home, in real terms, declined by -0.4% in February. In real terms, this amount has increased by 28.2%, down from an increase of 28.6%, more than they earned at the worst point after the Great Recession in October 2009:

Neverthelss, real wage growth in general continued to be good news. Be aware, however, that real wage growth is a long *lagging* indicator, that starts up well after a recession bottoms, and can continue even into the next recession.

Monday, March 11, 2019

Negative Nov. and Dec. revisions overwhelm positive January retail sales

 - by New Deal democrat

The initial spin on this morning’s delayed retail sales report for January has been positive, with for example the Wall Street Journal calling it a “rebound” and “a sign of solid economic momentum in the first quarter.

Ummmmm, No.

Both nominally and in real terms, retails sales did improve by +0.2% in January over December.

The problem is, both November and December were revised downward. In particular, December’s initially reported poor -1.2% showing got even worse, to -1.6% nominally. In other words, for the two months combined, retail sales even measured nominally declined by -0.2%.

Here’s what they look like in real terms through January:  

Because real retail sales tend to lead employment (red in the graph below) with a variable lag on the order of 6-9 months, this downturn in retail sales is more evidence that February’s poor employment report should not simply be dismissed as an outlier:

On a YoY basis, real retail sales peaked over a year ago. They have sharply decelerated since then all the way to roughly zero. We should expect employment gains to also decelerate, and February’s poor report is consistent with such a deceleration having started.

I expect to put up a more detailed look at Seeking Alpha, probably tomorrow. Once it is up, I will link to it here.

Sunday, March 10, 2019

A modest proposal to use FICA-style tax withholding as a transition to “Medicare for All”

 - by New Deal democrat

Probably the foremost reform advanced by the Democratic Party at present is “Medicare for All.” Personally I don’t particularly care whether it is ultimately necessary to have single payer (like Canada) or universal coverage (like France or Germany) or a hybrid of each (like Australia). I am fond of the Japanese saying that translates as “There are many paths to the top of Mount Fuji,” but let’s set that aside for now.

What is generally acknowledged is the problem of how to create a “bridge” between the hodge-lodge of government and employer-based coverages we have now to whatever is ultimately passed as “Medicare for All.” That’s because there will understandably be a lot of blowback if people “lose” an employer healthcare plan, or else get hit with a new tax.

I propose that a system of payroll tax withholding that includes Obamacare and “Medicare for All” plans in addition to employer-provided medical benefits will work. Specifically, I propose three tweaks to Obamacare as it existed in 2016:

       1. Two new spaces for mandatory FICA-style tax withholding spaces are added to each paycheck. One is for “Medicare for All” employment coverage, and the second is for “Medicare for All” unemployment coverage.   

     2.  The individual mandate penalty that the GOP killed in 2018 remains dead. But it is replaced, in all cases where an individual is not covered by employer-provided coverage, with an automatic payroll deduction for individual enrollment that defaults to the least expensive monthly bronze plan for individuals under 40, and the least expensive monthly silver plan for individuals age 40 through 64. This would kick in only for new employees in the first two years, after which it would apply to all employees.

     3. Employers could voluntarily purchase, on behalf of their employees, coverages that are at least at the mandated levels set forth in #2 above.

Here’s how it would work. Let’s start with two specimen paychecks. The first is from New York State. The second is for a state that does not have Medicaid expansion or mandatory unemployment withholding.

Note that, as required by law, all employers must withhold Social Security and Medicare taxes (FICA). Each of the two specimen paychecks above has specific boxes for that FICA withholding. By contrast, Medicaid is not funded by payroll taxes, but is a direct government responsibility. Additionally, the employer *may* also withhold taxes for, e.g., the employer’s medical plan, and state unemployment insurance, as we see in the first of the two specimen paychecks above.

As indicated in #1 above, I propose that two more boxes for mandatory withholding would be added to all paychecks. Call them MFA1 for medical coverage while employed, and MFA2 for medical coverage during periods of unemployment. 
Most importantly, note that FOR MOST PEOPLE BOTH NUMBERS WOULD BE ZERO! Specifically, both “MFA1 and MFA2” would be zero if the employer provides health coverage, and is subject to COBRA. 

But if the employer does *not* provide coverage, then, just like when you start a job you tell your employer how many standard tax deductions to withhold, a person with an Obamacare policy would have that amount withheld and either automatically sent to their provider, or a second check made out by the employer to the provider. If an employee d oes not have Obamacare, and does not select a provider, then the MFA1 withholding would pay the default low cost bronze or silver Obamacare provider, depending on the employee’s age, as set forth in #2 above.

Further, an employer who is not currently providing coverage, or wants to end their own program and switch to an Obamacare plan, could automatically enroll all employees in such a plan, provided the Obamacare plan is at least at the equivalent level of the employer’s current plan. I envision this provision might be temporary, e.g., in effect for only 5 or 10 years by which time I suspect most employers will be out of the employer-sponsored healthcare business.

“MFA2” would be meant to fund Obamacare insurance coverage for those who are not employed and are not covered by  SCHIP, VA coverage, or a state-sponsored Medicaid  or unemployment plan (Hence the difference between the two paychecks). I anticipate that this would be a small universe of people. Just as a back of the envelope guess, let’s peg that at 5% of the total. In other words, it anticipates that for all people as an average, maybe for 2 of 40 working years between 25 and 65, that average  person would need such coverage. If the average Obamacare premium were, let’s say $400 per month, 5% would be an MFA2 amount of $20. Again, in a state where Medicaid or other plan covers this, THE AMOUNT  OF MFA2 TAX WITHHOLDING WOULD BE ZERO. IT WOULD ALSO BE ZERO IF THE PERSON HAS AN EMPLOYER PLAN, IN WHICH CASE COBRA APPLIES.

Finally, I envision the plan being phased in for new employees for 2 years. That’s because there is a lot of job turnover. Many if not most people who do not have employer healthcare coverage, nor existing Obamacare policies, are likely to start a new job during that period. Thus, they’re never going to notice a decrease in take-home pay in an existing paycheck, because it won’t happen! It is simply going to be part of the standard deductions in the paycheck they receive from a new job.

In summary, under my for a FICA-based “bridge” to “Medicare for All”:
  • ALL medical coverage for workers, whether provided by the employer or by Obamacare or “Medicare for All”, would be paid for by mandatory withholding taxes in paychecks.
  •  a person who has an existing employer healthcare plan won’t have to give up their plan. They will also pay no new taxes. 
  •  A person who presently is covered by Obamacare or some other government plan individually likewise won’t have to give up their plan. At most their premiums will be paid directly out of their paycheck vs. having to pay individually out of their take home pay, and they will have to pay the “MFA2” withholding. But they won’t even notice that if they get a new job within the first two years. 
  • Nobody on any existing other government plan is affected. And EVERYBODY is covered, including those who don’t qualify for any other plan including existing Obamacare — that’s what “MFA2” withholding is for. At worst if they started out adulthood with no coverage, and had no job, so that they had never paid for “MFA2” coverage before, there might be a lien or surcharge on their “MFA2” withholding once  they started their first job.
  • in combination with all existing private and public plans, this proposal provides universal health care coverage.

Submitted for your consideration.

Saturday, March 9, 2019

Weekly Indicators for March 4 - 8 at Seeking Alpha

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

The distortions caused by the government shutdown appear to have ended, which has given the indicators generally a little boost.

As always, clicking on the link and reading should hopefully be educational for you, and helps reward me a little bit for the work I put in.

Friday, March 8, 2019

February jobs report: the first sign of the economic slowdown spreading to jobs?

 - by New Deal democrat

  • +20,000 jobs added
  • U3 unemployment rate -0.2% from 4.0% to 3.8%
  • U6 underemployment rate  -0.8% from 8.1% to 7.3% (NEW 20 YEAR LOW)
Here are the headlines on wages and the broader measures of underemployment:

Wages and participation rates
  • Not in Labor Force, but Want a Job Now: down -32,000 from 5.254 million to 5.222 million
  • Part time for economic reasons: down -837,000 from 5.147 million to 4.510 million
  • Employment/population ratio ages 25-54: unchanged at 79.9% 
  • Average Hourly Earnings for Production and Nonsupervisory Personnel: rose $.08 from  $23.10 to $23.18, up +3.5% YoY.  (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.) 
Is a recession close?

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mixed.
  • the average manufacturing workweek fell -0.1 hours from 40.8 to 40.7 hours. This is one of the 10 components of the LEI.
  • Manufacturing jobs rose +4,000. YoY manufacturing is up 242,000.
  • construction jobs declined -31,000. YoY construction jobs are up 373,000.  
  • temporary jobs rose +5800. YoY these are up +67,000.
  • the number of people unemployed for 5 weeks or less fell by -131,000 from 2,325,000 to 2,194,000.  The post-recession low was set nine months ago at 2,034,000.

Holding Trump accountable on manufacturing and mining jobs

 Trump specifically campaigned on bringing back manufacturing and mining jobs.  Is he keeping this promise?  
  • Manufacturing jobs rose an average of +12,000/month in the past year vs. the last seven years of Obama's presidency in which an average of +10,300 manufacturing jobs were added each month.   
  • Coal mining jobs increased by 100 for an average of +160/month vs. the last seven years of Obama's presidency in which an average of -300 jobs were lost each month
December was revised upward by +5,000. January was also revised upward by +7,000, for a net change of +12,000.

Other important coincident indicators help  us paint a more complete picture of the present:
  • Overtime was unchanged at 3.5 hours.
  • Professional and business employment (generally higher-paying jobs) rose by +42,000 and  is up +537,000 YoY.
  • the index of aggregate hours worked for non-managerial workers fell by -0.6%
  •  the index of aggregate payrolls for non-managerial workers fell by -0.3%    
Other news included:            
  • the  alternate jobs number contained  in the more volatile household survey increased by +255,000  jobs.  This represents an increase of 1,736,000 jobs YoY vs. 2,509,000 in the establishment survey.    
  • Government jobs fell by -5000.
  • the overall employment to population ratio for all ages 16 and up was unchanged at  60.7% m/m and is up 0.3% YoY.          
  • The labor force participation rate was unchanged at 63.2% and is up +0.2% YoY.


There are two themes to this report. The first is that it reversed both last month’s establishment and household reports. Last month the first was excellent and the second was poor. This month the establishment survey laid an egg, as featured in the headline number, while the household survey rose smartly, as featured in involuntary part time work, discouraged workers, and both the unemployment and underemployment rates. Positive news also included another good increase in non-supervisory wages.

But this month’s report actually went beyond taking back January’s report. The YoY change in construction, manufacturing, and total jobs for the last two months combined are all lower than they were in December. So we both aggregate hours worked and aggregate payrolls. The manufacturing workweek declined for the second month in a row.  It’s also worth noting that the YoY increase in the household report is significantly lagging the establishment report.

In summation, I suspect this month marked the first month in which the economic slowdown showed up in the jobs report.