Brad DeLong's Semi-Daily Journal (2004)

But offshoring and globalization will cure all this, right?

Or will we have one of those moments when someone sees a relationship not noticed or ignored before.

Brad, you may have noticed I'm lacking proficiency in economics and only know the market as a fairly serious investor...naw, know next to nothing about economics except as a sufferin' observer. But that doesn't stop me from issuing an opinion! 1) Oil price hikes would tend to displace workers, no? rumors of up to $50 a barrel? and 2) Fuzzy but worrying reports that Bush is going off track a la Nixon (only it sounds worse), news which might put business in a wait-and-see mode and which would certainly play a role in yesterday's market drop. Or am I the one who's way off track?

according to reports, the household number is like 650,000. This is ridiculous.

things have gottesn so out of whack between payroll and household numbers that I no longer know which numbers to believe.

Suresh,

Believe the payroll numbers. The household numbers are useful only for such activities as calculating the jobless rate. (Firms don't know how many people want jobs. Only households can tell you that.) But take comfort, the average monthly job gain reported by households over the past 6 months (as I noteed somewhere else around here) is 182,000, vs an average of 180,000 for firms. The problem comes when you notice that the very recent trend in household reports of job gains is up, while that for establishments is down.

By the way, the BLS's birth/death plug subtracted 91,000 jobs from the overall tally, so if you want to argue that BLS doesn't have any idea what it is doing in correcting for creation and distruction of firms, you can get a 123,000 job rise - still pretty tepid.

Apparently our solidly recovering economy can only generate significant payroll jobs in months that have a "r". I'm going to call this the "Oyster Law".

10000 new mfg jobs. 21000 auto jobs lost (gasoline goes up, car purchases go down, the pattern holds)

"bizarrely weak job market"

shakeout of unproductive enterprises in the recession

job loss in state employment and state contract workers plus ripple effect

ultra-low interest rates greatly dropped the cost of borrowing to add technology to replace workers with technology

technology has come of age to replace workers
(when was the last time you called a person to make airline reservations? How often to you use auto checkout at the store?)

labor options in other countries have been made "user friendly"

These statistics merely reflect a parochial nationalistic viewpoint. Worldwide, American corporate management is hiring like gangbusters. Why should we who are still employed at six-figures-plus have to put up with all this whining? Let'em move to China or India. Instead of pressuring the Chinese to revalue their currency (which great mobs of economists assure us would have no effect whatsoever), we should be encouraging them to set up an H1B program for American workers.

Follow up on Kharris -- the birth/death model is not seasonally adjusted data and it generates a very large gain in job in the spring and very low jobs over the rest of the year.

I am very worried that this plug factor may have been the reason behind the surge in jobs in the spring.

I watch hours worked data closely and it was somewhat better. The smtd three month growth of hours worked is about 2.3%, what it has been since late last year. But it is consistent with the analysis that the economy has slowed sharply to some 2% to 4% rate -- enough to keep employment stable but to make no significant gains in absorbing the unemploymed.

Yo Brad,

Keep on hitting the "tax shift" or "tax delay" at every opportunity. The meme will spread.

People need to realize that the tax cuts never happened.

ECRI's smoothed US growth index slowed to +0.1% in the latest week, from readings in the low teens earlier in the year. For those not familiar with the ECRI index, I have one bit of advice - get familiar. It has done a splendid job of telegraphing turns in the economy for quite some time. ECRI research director Banerji has been saying the best growth is over for several months. He was right about that, as usual.

If I have a "home business" grooming dogs for 10 hours a week, I am "employed" as far as the CPS is concerned. If I temped one day last week, I am "employed". If I stuffed envelopes for my father's company for 1 hour last week (my stay-at-home wife has done this a few times and been paid for it), I am "employed".

Glad to see the 'informal economy' is booming under President Bush!

kharris: "(Firms don't know how many people want jobs. Only households can tell you that.)"

Well -- "Would you like a job? - No, thanks, I'm self employed".

General Glut: Good point. The definition of what cmoprises employment (i.e. a "job") can be found via the BLS website, www.bls.gov, but I'm too much in a rush right now to go searching.

no question, i buy the payroll numbers. but i am shocked at how much these two have diverged in the last few months and i am still searching for a halfway decent explanation.

this puts the kibosh on the 'expected' 25 bps raise in August. This also serves notice to 'dubya' - as we say in hindi - 'doobh gaya' (sunk).

I am now firmly convinced that the so called 'consensus' estimates that come out before the actual numbers are literally pulled out of thin air and are not worth the paper they are printed on.

Just wondering, is the Dept of Labor gaslighting Alan Greenspan?

Everyone expected another 25 basis point increase in the Fed funds rate next week, and now it's possible that they won't.

Now, it's not certain.

If they revise the figures up by a hundred thousand or so after the Fed meets, they still dodge the effects of another rate increase until after the election.

I agree with Mr. Vines

Civilian nonfarm employment growth:
http://anonymous.coward.free.fr/rbr/employment_growth_july04_2.gif

Seen at WaPo:

"We're not satisfied," Treasury Secretary Snow told reporters in Pittsburgh. "We're encouraged, though, by the fact that the unemployment rate came down."

Evidently, the Bush administration's goal is to drive everyone out of the workforce, attaining an unemployment rate of 0.

That's good--and funny, Jon H. What you said.

Charles

Much as I enjoy you folks sticking it into the Administration, you all know full well that America is not in a liquidity trap. Accordingly, the effects of any fiscal expansion will be systematically offset by the Fed as it pursues an aggregate demand target that is invariant to the demand-side effects of fiscal policy.

This means that the the cylical trend in labor demand is not systematically correlated with the demand-side effects of fiscal policy. Fiscal policy may matter to employment EX POST, but only because the Fed makes forecast errors and policy mistakes. There is no SYSTEMATIC relationship that might support the notion that fiscal policy should be designed to manage labor demand except when we are in liquidity trap. I know you know this. Or at least I know you know this is the consensus view among the macro guys. Delong has himself written on this point, in that excellent piece comparing Keynesianism and monetarism.

In saying otherwise, you follow the Bush team in spreading a falsehood. That you do so with a political motivation suiting my taste does not excuse it in my view. Liberals should pride themselves on trying to find the truth.

Bush did not cause the weak labor market any more than Clinton did. I might be inclined to blame the Fed for a policy misstep, but even that would be a stretch given that inflation has recently picked up. It is not clear to me that monetary policy has been too tight.

Stuff happens. It need not be anyone's fault, not even the obviously-evil President Bush, whom I believe should be impeached for other reasons.

Gerard MacDonnell: are you saying that the argument advanced here and generally on the Democratic side, that targeted short-run tax cuts would not have produced better results than we got with the tax cuts tilted for the wealthy, is wrong? If so, can you point to something explanatory?

If you watch money supply and free reserves they imply that the Fed is actually significantly tighter than it believes.

Interestingly, these are great PE indicators and
the market falling while earnings growth is still strong means the PE is falling -- what these two fed policy indicators imply should be happening. In other words, the stock market fall is also saying the Fed is too tight.

Interetingly, real MZM growth and real monetary base growth both lead growth by about a year and both are suggesting industrial production growth whould soon slow sharply.

I would love to hear some of the macro/finance mavens' theories about what is happening. The number crunching and regressions are very nice and I learn a lot from your reports of leading indicators and the newer indices, but it would be nice to hear some reasons regarding fundamentals also.

My own (probably semi-macro-literate) take is that there must have been some increase in secular productivity growth in the 90's, even after accounting for hedonic stuff and other accounting problems. So that means we are closer to a liquidity trap situation that in other post-war recoveries. I think MacDonnell's view is only helpful if we live in world of "L"-shaped curves, and I don't think we do.

So I am turning into an old fashioned lefty unverisal-glut type of guy. Need to put more money in the hands of high marginal propensity to consume types, and enough of the new demand will be for home grown services and other things that cannot be easily outsourced, and things will look up quickly. Also get firms out of cost-cutting your way to profits way of thinking into meeting quick increase in demand way of thinking. I think employment spurts have been bunched around periods when ordinary people have been given cash (rebates, tax refunds) in a world of liquidity constraints.

I guess that means I am a hopeless Krugmanite.

Where am I wrong?

Gerard,
are you saying that you think the administration could not have promoted any other policies that may have produced a stronger job market?

Grandpa; Only a fool is sure

Spencer

"Interestingly, [money supply and free reserves] are great PE indicators and the market falling while earnings growth is still strong means the PE is falling -- what these two fed policy indicators imply should be happening. In other words, the stock market fall is also saying the Fed is too tight."

Please explain this interesting argument more carefully. What puzzles me is why price earning ratios are still so high after 3 years of bear market followed by a fine years and then 7 flat months. Why is the S&P price earning ration near 20?

Sec. Chao is saying the household survey and the payroll survey are giving mixed signals. But both series show the total increase in employment since Jan. 2004 has been just shy of 1.1 million news jobs (compared to the 1.0 million increase in labor supply). Maybe Chao is confused by the flip-flops of Sec. Snow who touts the reliability of whichever figure shows the larger increase for that particular month.

Excuse me, all you naysayers, but 32,000 jobs created in a single month is alot of jobs.

For example, if each of those jobs were a mile long and layed end to end, then those jobs would stretch all the way around the circumference of the earth and then some.

If each of those jobs weighed the same as an adult elephant, then their combined weight would exceed that of a Nimitz class aircraft carrier.

So don't tell me 32,000 is not alot of jobs.

James Vines -

Not until academic economist jobs start being outsourced to India. (which is already happening - "distance learning")

Kaus, thank you for some patriotic perspective. For these Frenchlooking liberal statistic worshipping ninnies, any job created under Bush is a bad job.

Some liberals are too obsessed with running America down that they can't see we've turned the corner. 32,000 jobs almost fills up a small baseball stadium, for god's sake. Stop whining, everyone. Cut your hair and get a job. And wave that flag. Because we're not turning back on all that nanny state nonsense. Health care, bah! Here's an idea, if you want to cut health care costs, don't get sick. OK, you haters? Sheesh. Grow a brain. And look around the corner. Cause America's comin'!

Whiners and complainers, all of you! In my day, we were goddamn thankful for an additional 32,000 jobs. Do you think jobs grow on trees?

Two observations:

1) This marks the second month in a row in which inventories have grown faster than employment. The same thing happened in late 2000-early 2001, at the beginning of the "recession." Overall stagnant job growth coupled with rapidly accelerating inventory, to me, spells TROUBLE!

2) The BLS is posting a document on their website acknowledging (but dismissing as minor) concerns that increases in outsourcing result in overstating GDP growth. One might look at GDI growth instead, as it is based on incomes derived from production, rather than final expenditures. I ran the numbers and found that during the Clinton years, GDI almost always was higher than GDP, while during the recent Bush "recovery" the opposite was true (with the exception of the last quarter of data). Might this explain part of the "jobless recovery?"

I should say -- GDI *growth* was almost always higher than GDP *growth*. It's the growth rates I'm comparing, not the levels... Sorry!

Anne send me an e-mail and I will return a paper I published last year in Business Economics on monetary policy and the stock market.

It has a PE model that expains the S&P 500 pe since WW II despite a couple of major structural shifts between rates and PEs.

personally, i would like to know how much of the difference between the payroll and household employment figures can be explained by the difference in the way the two surveys account for the black market economy.

whenever i answer the question from anti-offshoring/outsourcing activists about what Americans should be doing instead of the good high-paying jobs they're trained to do, i always tell them they should go into the black market. there's plenty of money to be made in the black market, providing all kinds of important and necessary goods and services, and the risk premiums are better than in the legitimate market.

that usually shuts them the hell right up.

"We're not satisfied," Treasury Secretary Snow told reporters in Pittsburgh. "We're encouraged, though, by the fact that the unemployment rate came down."

Can Secretary Snow read?

"Both the number of unemployed persons, 8.2 million, and the unemployment rate, 5.5 percent, were essentially unchanged in July."

http://www.bls.gov/news.release/empsit.nr0.htm

Spencer,
I would love to see your paper--it sounds like very interesting reading. Can you make it available?

Tried this once already - hope it isn't a duplicate post.

Gerard,

Gerard,

Good textbook, but have you noticed that Greenspan has shown a decided lack of reliance on the textbook? Insisting a liquidity trap is the only situation in which fiscal policy will have independent impact on economic activity misses an enormous amount of behavior and commentary from the Fed. Fed officials, having first protested that fiscal policy assistance was unneeded, have since recognized repeatedly that fiscal policy assistance arrived advantageously. At the same time Fed officials recognized the value of fiscal stimulus, they maintained the easiest monetary policy in 4 decades. They were not offsetting fiscal stimulus, they were piling on. Fed folks seemed somewhat baffled by the resistance of prices and employment to all efforts to boost them. While there has been overall growth in output, some components of economic performance have looked for all the world like we were in a liquidity trap. So while we may not have been in a liquidity trap, the Fed officials were willing to behave as if we were.

Beyond that, the aggregate demand argument ignores a good bit of detail about where the government uses its spending. Government jobs have been just about flat for roughly 2 years. Since Greenspan has shown enormous tolerance for fiscal stimulus, we have no strong reason to believe he would have hiked rate sooner if fiscal policy had aimed more directly at job creation, as long as it did not seem to boost inflation. The federal government could, for instance, have provided transfers to the states.

If the point you wanted to make was that elected officials don’t have a lot of control over the economy in the short to medium term, I would find some sympathy for the position – though I think there is always room for policy to improve. In the actual push-and-pull of this business cycle, I think the “Fed pursues policy that is invariant to demand-side effects of fiscal policy” argument misses a great deal.

kharris and Spencer

Terrific posts!
Thanks.

>Bush did not cause the weak labor market

Cause, no.

Turn a molehill into a mountain, yes.

The tax policies of the last three years, the failure to apply stimulus when it was appropriate, and the failure to deal appropriately with energy supply problems, as well as a poor choice of new demand to generate add up to one thing:

Depression, which is what they are going to call this when the history books are written and it is safe to just laugh at Bush and the people who made sorry apologies for him.

I agree that kharris post is very good. And in fact there has been a great deal of fiscal stimulus over the last 3 years. I think there was an Urban Institute study that estimated that US fiscal stimulus has replaced every dollar lost from lower business activity during the recession plus a little more.

Only problem is that the types of fiscal stimulus have been very poorly chosen -mainly tax cuts for wealthy and subsidies for heavy industry and agriculture. Not much domestic spending bang for the buck there.

Gerard: " There is no SYSTEMATIC relationship that might support the notion that fiscal policy should be designed to manage labor demand except when we are in liquidity trap.'

Wow, I feel stupid when I come here. So, did you just say that fiscal policy should not be used to help create jobs unless we are in a liquidity trap? A liquidity trap is when interest rates go to zero and so monetary stimulation doesn't work (like in Japan), right? I see why you have to go to fiscal policy then. But why wouldn't you do this at other times?

The Bush apologists are baseless and pathetic.

The bottom line is Bush will be the first Pres since Herbert Hoover to have a net negative in jobs over 4 yrs.

A major reason for the Bush economic malaise is that Bush's tax cuts ( mainly for wealthy ) did not work. In the short term, tax cuts bolster demand/spending but unless the fundamental problem of job growth/employment is fixed consumer demand/spending recedes like we're now seeing.

Bush has demonstrated ideological paralysis with no REAL solutions to improving US economy other than 'colluding' with Greenspan to have artificially low interest rates for 3 years which allowed home building and cash availability thru refinancing.

Even with this Bush has FAILED to stimulate a healthly sustainable US economy togehter with respectable job growth.

OY !

OY !

OY !

OY !