June 05, 2009
James Pethokoukis: "An improving job market"
Hmm. I'm not sure about this statement.
Figure 1: Log nonfarm payroll employment, Dec 2008 (blue); Feb 2009 (red); Apr 2009 (green); May 2009 (black). NBER defined recessions shaded gray. Source: BLS via FREDII, NBER, and author's calculations.
Figure 2: Log nonfarm payroll employment (blue); nonfarm payroll employment minus government employment (green); aggregate weekly hours index, total private industry (red), normalized to 0 at 2007M12. NBER defined recessions shaded gray. Source: BLS via FREDII, NBER, and author's calculations.
On the other hand, I liked two of the caveats in his earlier post.
1) I am not sure if I am as quite as euphoric as my friend economist Robert Brusca -- "Today we have not just 'Green shoots' but an authentic sighting of the Jolly Green Giant himself" -- but the decline in payroll losses is very good news.
3) Those long-term unemployment numbers are bad news for foreclosure rates and credit card defaults.
Posted by Menzie Chinn at June 5, 2009 08:11 PMdigg this | reddit
I have been consistent, and it is looking like I will be right :
1) NBER recession trough in Q309
2) 131M jobs at the job bottom
3) UE rate crosses 10%
People said I was too optimistic. It will turn out that I was just right.
Posted by: GK at June 5, 2009 10:39 PM
Not my words, but Rosenbergs:
We have to put the data into perspective. Before the Lehman collapse, when equities were in a moderate bear market and bonds in a moderate bull market, the worst nonfarm payroll result we saw was -175,000. We don’t seem to recall too many pundits rejoicing over employment declines at that time, which were basically half of what was just posted in May. Moreover, the worst nonfarm payroll number in the 2001 recession — right after 9-11 — was -325,000; and before that, at the depths of the 1990-91 recession, the worst report showed a -306,000 print. So basically, what we saw today was a number consistent with a deep recession — just not quite as deep as the near-6% at an annual rate contraction we saw in the first quarter. It is difficult to rejoice over an employment data that is consistent with real GDP still declining anywhere from a 2% to 4% at an annual rate. Now here we are, close to nine months after the Lehman collapse, and we are still printing employment numbers that are double what they were before pre-Lehman. That is the bigger picture.
Moreover, the internals of today’s report, in a word, were awful. Not only are businesses still cutting jobs but they are also reducing the hours that their employees are working; the private workweek hit a new record low of 33.1 hours (from 33.2 hours in April). So, total labour input was much weaker than the headline payroll suggests and this is vividly illustrated in the aggregate-hours worked index, which fell 0.7% MoM and something ‘green shoot’ advocates will not like discuss since this was actually worse than the 0.3% MoM drop in April; this takes the three-month trend to a -8.6% annual rate. Think about that for a moment because what goes into GDP is total hours worked and productivity — so the latter better continue to hang in there or else we are going to be seeing some nasty output data going forward that may well take Mr. Market by surprise. Put another way, if companies had held hours worked constant in May instead of cutting them, to achieve the total labour input they achieved last month would have required — get this — a 927,000 payroll cut. ‘Green shoot’ indeed.
Back to me. Granted David is a bit more bearish and over-the-top sometimes, but I think the most valid point is the lost hours worked, how is the economy supposed to sustain any sort of recovery (anemic or otherwise) if the labour market is recieving fewer hours and saving more? Multiplier effects are get weak knees and I think that may just be the beginning. For the first time ever the entire bond market pushed yeilds up (30ff thru 30yr) and cash was up almost 1.5%, that seems like the start of a ripple as opposed to a blip.
Posted by: john at June 6, 2009 06:41 AM
As we chug into $3 per gallon gas, the vehicle will pull over into the breakdown lane.
We'll see what the numbers tell us then.
Posted by: beezer at June 6, 2009 07:03 AM
The root cause of this depression is the same as that of the Great Depression -- protectionist trade policies. The difference is that this time around the protectionism is in Asia, where through exchange rate manipulation the Japanese have long maintained the equivalent of 20-50% tariffs against US goods and services (combined with an export subsidy of similar magnitude), and the Chinese have outdone them with currency undervaluation equivalent to tariffs nearing 100%. Other Asian nations have maintained similar currency undervaluations (even if they wouldn't have done so independently, they were forced to do so by the competitive pressure of the Chinese and Japanese undervaluations). And on top of their undervaluation tariff barriers these nations have put numerous non-tariff barriers in place, too.
In terms of labor component, the tariff barrier equivalents of the exchange rate manipulations are even greater, because currency misvaluation effect nets out to zero on imported materials and energy, which for many products are a non-negligible fraction of price.
The result has been fun-house mirror distortion of the world economy -- a ludicrous situation in which the Chinese government now holds about $2,000 in US debt for every man, woman and child, having printed to buy that debt about 15,000 yuan, an amount about equal to the average annual base pay for Beijing residents at 2005 levels, and well above that for residents of most other urban areas. The difference in the labor value of those amounts can be approximated by comparing them to household income levels. Whereas $2,000 is about 1/25th of the median US annual household income, 15,000 yuan is well over half the median Chinese household income even in the most prosperous urban areas (can't find stats for a more precise estimate). So the Chinese government has forced the typical household to forgo consumption of the fruits of much more than a year of Chinese labor in exchange for a quantity of dollars that can buy only about two weeks worth of the fruits of US labor.
I'm sure someone will pipe up to point out that US labor is more productive, so the difference is not so great. But much of what makes US labor seem so productive is our ability to buy high-value-added components from Asia at prices well below their true value, and use them to produce goods and services that can be sold at US prices. If all the components had to be made in the US, or the prices for imported components accurately reflected the value of the labor in them, US labor would not appear anywhere near so productive.
The final effect of the Asian "non-tariff tariff barriers" has been that that fraction of the US work force that in non-fun-house-mirror-distorted economy would be employed manufacturing goods for export and domestic consumption can (to a first approximation) be employed only in either the transport, warehousing, distribution and sale of imported Asian goods that will be bought with money borrowed from Asia, or in other activities that can be financed with money borrowed from Asia but where Asia-based labor cannot compete. But as we have seen in one sector of the latter type, home construction, the unnatural forcing into a sector of people who wouldn't normally work there produces a glut of supply which the market cannot absorb.
Looking at it from another viewpoint, the refusal of Asian nations to abandon protectionism and engage in balanced trade results in a situation in which the world economy can continue to operate in that mode only as long as US citizens are willing and able to continuously accumulate debt, essentially without limit. But since that simply isn't possible, the fundamental reality is that the world economy cannot continue to operate in that mode. Now, the only entity both willing and able to continue borrowing from the Asian nations on a scale sufficient to fund their trade surpluses is the US government; but instead of using the borrowed money in ways such as to employ US workers who might then purchase the exported goods and keep the music playing, the government is instead using it to bail out banks that use it to buy Treasury securities rather than lending it to consumers (as the consumers who want more debt generally are poor credit risks, and the bankers can no longer use plausible deniability as protection from the consequences of lending to them). Since the only people whose consumption this subsidizes are those in the financial businesses, and they receive only that fraction of the money paid out as salaries and bonuses, the fraction of the money borrowed from Asia that can flow back to the Asians through purchases of their export goods is too small to sustain the system, which is coming apart at the seams, one seam at a time.
Unless the US government quickly shifts from using its borrowings to bail out banks, and institutes programs that directly fund employment of millions of consumers so they can once again buy Asias exports at a scale sufficient to sustain the Brobdingnagian vendor-financing frauds its governments have been running, US employment cannot recover.
Looking at it from yet another viewpoint, as a moderately frugal US citizen with zero debt and significant savings, I am currently employing nearly all the Americans I wish to employ -- i.e., there are no fruits of US labor that I wish to consume in greater quantity than I am at present. Because I'm setting up a woodworking shop in my basement, I am buying quite a lot of tools and machinery, but almost all of their production labor content is Asian, and the only US labor content is in their transportation, warehousing and sale -- and this is even more true of the tools remaining to be bought. So going forward my employment of US labor will not include even that current increment; I'm not going to employ a personal trainer, nor a realtor, nor a mortgage broker, nor a Lexus salesperson, nor a home-builder, nor any of the other people whose jobs lost in this downturn were financed by Asian purchases of GSE's. It appears I have a lot of company.
Since the Asians appear unlikely to soon start demanding that we get the money to pay for their exports by selling them useful goods and services, the only potential employer for those laid-off people I am not going to employ is the government, through programs like those FDR initiated in the Great Depression.
I was hoping that Obama recognized this and was going to be a second FDR. But I think that, rather, he is a second Herbert Hoover (a great man who just couldn't grasp the scale and nature of the nation's problem).
Because the Asians refuse to change their ways, the only way to keep the system running is to keep it running in its current mode, which requires the US to continually borrow from Asia on a massive scale and use the borrowings to purchase Asian exports. Since we have such a glut of housing we can't possibly use housing construction, sales and finance to employ the surplus workers*, Great-Depression-scale public works projects are the only alternative. Without them, there ain't gonna be no recovery in US employment and consumption, and the world economic system will disintegrate.
*Of course, one public work project could be to tear down all homes more than, say, twenty years old and replace them with nice new government-owned homes leased out at rents everyone could afford.
Posted by: jm at June 6, 2009 12:38 PM
China keeping its currency undervalued is the only thing preventing oil from going to $150.
If the CY appreciates, their purchasing power for oil rises, and then demand for oil rises, pushing prices to unprecedented heights.
Plus, if the CY rises, the Indian Rupee also rises due to the gravitational pull. This would also increase demand on oil.
Posted by: GK at June 6, 2009 01:46 PM
I think the best way to get a picture of the (deteriorating) job market would be to put together the # of employed workers, the hourly wage, and the hours worked. I haven't yet done that math, but with the # of employed workers and the hours worked declining, I suspect they offset any gains in wages (whether or not connected to productivity gains or inflation).
Posted by: Terry at June 7, 2009 08:15 AM
If the renminbi rises, China's economy will suffer and its demand for oil will drop.
Posted by: don at June 8, 2009 11:54 AM