June 05, 2012
Some Thoughts on the Employment Release
The employment release for May has raised concern, and rightly so, amongst policymakers. Figure 1 shows that nonfarm payroll employment growth has tailed off to 0.6% m/m, and 0.9% on a three month basis (both annualized, in log differences). Other labor indicators from the household survey are slightly more positive.
Figure 1: Log nonfarm payroll employment (blue), and log civilian employment adjusted to NFP concept (red), both s.a. NBER defined recession dates shaded gray. Source: BLS via FRED, BLS, NBER and author’s calculations.
Figure 1 also presents the household series employment series adjusted to conform to the nonfarm payroll concept. Note that it is both higher in level, and in m/m growth (at 3.6% in May). However, this series exhibits greater volatility due to its smaller survey size, so it’s useful to note that the 3 month growth rate is
-1.5%. Over the past year, the adjusted series has grown 1.7%, compared to 1.3% for the official NFP series. The establishment series will be benchmark-revised in the January release, while the household research series will be revised when new population controls are incorporated.
I tend to focus on the establishment series because the sample is larger. However, the household survey does provide some interesting insights this time around. The most important insight, gleaned from Figure 2, is the reminder that the unemployment rate is the ratio of two variables, employment and the labor force.
Figure 2: Unemployment rate (blue, left axis), and civilian employment (red, right axis) and civilian labor force (green, right axis), in thousands, all seasonally adjusted. NBER defined recession dates shaded gray. Source: BLS, May employment situation via FRED, NBER, and author’s calculations.
So while civilian employment rose 422,000, the labor force rose by 642,000, resulting in the slight increase in the unemployment rate. In this sense, the rise in the unemployment rate is a good thing, insofar as labor force participation is rising.
Nonetheless, it’s clear that the economy is slowing, as evidenced by high frequency indicators of GDP, as shown in Figure 3.
Figure 3: Log real GDP (blue bars), and monthly GDP from Macroeconomic Advisers (red), and e-forecasting (green). NBER defined recession dates shaded gray. Source: BEA (2012Q1 2nd release), Macroeconomic Advisers, e-forecasting, and NBER.
These outcomes, combined with the widespread slowdown in Europe and China, confirm that responsible US policy makers would implement further expansionary policies.
Posted by Menzie Chinn at June 5, 2012 01:14 PMdigg this | reddit
The CBO has estimated that the coming tax increases and spending cuts will likely throw the economy into recession in 2013. And that was before the latest unemployment report. 400 billion of that anti-stimulus are tax increases and 200 billion are spending cuts. Given that both sides should be able to agree that the tax increases are unambiguously bad, shouldn't responsible policymakers start by agreeing to cancel taxmageddon?
Posted by: Rick Stryker at June 5, 2012 04:56 PM
Rick Stryker I don't think anyone wants to see the tax cuts expire next year. And I hope no one wants to see spending cuts either. The problem is that no responsible policy maker should want to see the tax cuts become permanent either. If policy makers would agree to a straight up one year extension of the tax cuts along with countercyclical spending increases, then I don't see any problem. But frankly this assumes away the problem because the Tea Party Republicans are not responsible policy makers. If the choice comes down to going over a cliff in 2013 by allowing the tax cuts to expire along with countercyclical spending versus going over the cliff a few years later after making the tax cuts permanent, then that's a tough call. I'd probably recommend going over the cliff in 2013.
Posted by: 2slugbaits at June 5, 2012 06:50 PM
Dispatches XXIV: Wisconsin voters deliver stunning rebuke to public employee unions
Walker up by 16 points with 1/3 of the vote in! Sure, it may come in a little, but it will still be far wider than even the most optimistic polls, and far, far wider than the Walker-Barrett 2010 race. In other words, the moderate-to-liberal voters of Wisconsin support Scott Walker much more after his union reforms than they did before!
This is a Waterloo of epic proportions for the unions.
As a great TelePrompTer reader once said, "This was the moment when the rise of the [unions] began to slow, and our [country] began to heal."
One might expect this result would cause some soul-searching among leftist supporters of over-pensioned government unions. One would be wrong.
Posted by: W.C. Varones at June 5, 2012 08:05 PM
Inflation and employment, have a direct relationship the Phillips curve, when debts and employment have an inverse one.
The ECB statistics pocket book is providing for a handy reading, on the erosion of the purchasing power of money or the power of accruals. Statistics pocket book (The impact of inflation on the purchasing power of money chapter prices)
This table is an easy guide,when establishing a probability bet on the potential fastest payers (please see Statistics pocket book P 39)
It will still take 20 years, everything remaining the same to depreciate a debt by 54.4% at a steady inflation rate of 4%.
This reading may be coupled with (Inflation, taxation, and the underground economy Pr B. Aruoba)
The way to debts erasing through inflation “It's a Long Way to Tipperary” and the way to full employment trough inflation starts to be worn out.
Posted by: ppcm at June 6, 2012 01:04 AM
This was a big win for Walker and the anti-union movement overall. Wisconsin is open for business, and the communist period is still over.
I think this was a foolish vote to call at this time. Clearly, the polling numbers were coming in weak--and a reason the Democratic establishment and the President didn't put their full weight behind the effort.
At the same time, the outcome provides momentum for the right. It creates the impression that Wisconsin is in play and that Republicans have a good chance in November.
Given the lopsided result, this recall was not a good idea.
Posted by: Steven Kopits at June 6, 2012 01:33 AM
I thought this was a post and a discussion on the May BLS Labor Report? Perhaps, you hit the wrong thread with your non sequitor remarks on this thread. In any case I agree with Menzie, while U3 did increase, the increase is more the result of people leaving NILF and returning to the CLF in search of a job. There is still hope out there in the Labor Market and skepticism on the Business side. The economy is slowing which should forestall any potential increase in Fed Rates.
Posted by: run75441 at June 6, 2012 04:39 AM
These outcomes, combined with the widespread slowdown in Europe and China, confirm that responsible US policy makers would implement further expansionary policies.
Reading Menzie's post I was encouraged. It was actually good analysis, then I got to the last sentence - above - and it was like the puchline to a bad joke. "Where did that come from?" screamed in my mind.
It reminded me of when my daughters were teenagers. They would weave a tale that was totally logical and then their conclusion would be, "and so I need to buy a new dress." It didn't matter if the tale had nothing to do with the conclusion. Their conclusion was to them a given. The tale was just a web for my benefit.
Posted by: Ricardo at June 6, 2012 05:32 AM
Econbrowser readers know who to nominate. Write to Mickey Kaus about this
“There are some duties a blogger cannot shirk. If I’m going to gloat, though, it would be good to find the most egregiously embarrassing prediction of doom for Walker (and his ‘overreach’ in changing the rules of public employee unionism) in the past year and a half. Please submit your nominations below. Bonus points if they were not written by E.J. Dionne.”
Posted by: EB at June 6, 2012 05:43 AM
With the ten year T-bill down under 1.6%, and briefly under 1.5%, we really need to check expectations based on past experience. We are in uncharted territory here.
For the 3rd year in a row, Europe has ruined a promising expansion in the U.S.
I would take comfort in that I could at least refinance my mortgage for a ridiculously low interest rate, but I can't even do that. The banks want 25% down (rightfully so). I, like most other homeowners across America, can't prove that my home has 25% equity, thus I can't refi.
So the upside of low interest rates is absolutely nothing. The downside is that it is another leading indicator that the economy is really screwed up, not unlike the summer of 2007 when all of a sudden no one could get Jumbo mortgages.
Posted by: Buzzcut at June 6, 2012 05:51 AM
"...responsible US policy makers would implement further expansionary policies."
Here's an interesting undergraduate Macro Final Exam question:
Assume, for the moment, fiscal stimulus might not spark self-sustaining growth. Natural "wearing off" of each stimulus would cause the economy to stall. After each stall, a larger stimulus might be necessary to restart (again, perhaps transitory) growth.
Q: If you were a policy maker, how would you weigh the benefits of entering such a stimulus program against the potential costs of exit? Discuss.
Posted by: David Pearson at June 6, 2012 06:25 AM
Funny. When I read Ricardo's inability to connect economic weakness and monetary policy at the zero bound with the need for fiscal stimulus, I, too, am reminded of a teenager making an illogical case for a forgone conclusion.
Posted by: kharris at June 6, 2012 06:37 AM
The engine of job growth is small business. Businesses are not moving forward with new projects to create jobs because of poor sales and economic and regulatory uncertainty. The latter is now at the top in the NFIB survey. In fact, regulatory and government mandated costs issuing from the current administration have been in the fore since the spring of 2010 (passage of the Health Care Act). Lack of expansion on the part of a broad swath of small business due to regulatory and cost impositions and uncertainty has caused a portion of the “poor sales” of all businesses. Causality is not the other way around. Entrepreneurs in high margin industries where breakthrough technology promises big rewards are indeed putting their capital to work at high risk despite these impediments. As are multinational firms which are outsourcing. However the magnitudes larger number of low margin domestic businesses are sitting things out because of uncertainty about costs they fear are coming. A second viral strain accompanying anti-business sentiment is the hollowing out of manufacturing and support industries due to currency manipulation by China. A third strain is the government’s muzzle on domestic petroleum exploration and production. The latter two strains amount to a $600 billion loss of American purchasing power that could and would boost production and jobs here. Each billion translates into 10,000 jobs. Policy directed at energy independence, countering un-free trade here in the world’s largest trade deficit country, and a lifting of the anti-business sentiment cloud would cause output and jobs to soar. Many special interests as well as much misguided belief stand in the way. One of these beliefs is that the one-trick pony of Keynesian spending is the solution. It had its place at the crescendo of the crisis, but no longer as the rapidly accruing debt is becoming unmanageable and there are Clydesdales to do the work now.
Posted by: JBH at June 6, 2012 06:41 AM
I agree, if the economy slows further, we will need some expansionary policy.
However, I think that monetary policy lacks the punch we need to kick the economy out of neutral.
Traditional borrow and spend fiscal policy has reached the point where it is politically infeasible, not to mention the risk that it is ineffective and ends doing little more than adding to our debt load.
Major tax cuts are irresponsible at this juncture and have the same risk as borrow and spend fiscal policy.
I think a possible solution, and an alternative to inflating our way to prosperity, is through regulatory channels.
*Relax restrictions on the development of fossil fuels upstream and downstream. Create incentives to build more nuclear power plants, a few refineries, and remove the new barriers to coal power. Jobs are created today, but more importantly, future consumers/business will benefit from cheap energy.
That's controversial, and if some don't like it, then there are other areas where regulatory burdens provide a disincentive for the private sector to mobilize the slack in our economy.
I am not suggesting we roll back regulations to the dawn of the industrial revolution. My general claim is that we can't afford traditional stimulus measures and the regulatory route provides an alternative that could grow the economy and tax revenues without raising marginal tax rates. It buys time to craft a long run solution to our debt problem.
Posted by: tj at June 6, 2012 06:45 AM
David Pearson: You should really read DeLong and Summers' paper. If persistently large negative output gap has a permanent effect on potential GDP, then we have different criteria for stimulus. If the real cost of government borrowing is near (or below zero), well, do the math.
JBH: Misleading segue from "economic and regulatory uncertainty" to proposals to eliminate regulatory uncertainty. As I have noted on a couple of occasions, regulatory uncertainty seems to have little import in statistical analyses , while economic uncertainty a lot. So if we could settle on tax rates, commit to eschewing threats to not raise the debt limit or close down the government, maybe we could have some real progress.
By the way, if there is a "muzzle" on domestic oil exploration and production, it must not be a very effective one. Where'd you get that wording -- from the American Petroleum Institute?
JBH and tj: As for regulatory burden, see .
JBH: I think rigorous statistical analyses have shown it is not small businesses, but new businesses, that create the most jobs. However, I've never seen anything more than anecdotal evidence regarding regulatory burden and entrepreneurial efforts in high tech areas. (I'm sure health inspections are a burden in the restaurant business -- my father was in that business -- but trust me, you want those regs in place!).
Posted by: Menzie Chinn at June 6, 2012 07:37 AM
JBH -- hate to bother with you with something like the facts, t you do know that at this point in the cycle payroll employment is stronger under Obama than it was under bush.
But is someone tells the big lie often enough about the fear of regulation some fool is sure to believe it.
P.S. Bush also issued more new regulation than Obama has. But I would not want to confuse you with the facts.
Posted by: spencer at June 6, 2012 08:57 AM
Inferring from your response, your answer to the Final Exam question above would be brief:
"The premise of the question is wrong. We know for certain that stimulus will spark self sustaining growth (see DeLong, Summers). Therefore the expected cost of exit is zero."
Posted by: David Pearson at June 6, 2012 09:15 AM
Regarding the study "" you cited above -
There are state regs in addition to federal regs. They all produce incentives/disincentives so I would question any study that finds no correlation. Even the authors question their own results.
Here are some disincentives from the 9th circuit.
Posted by: tj at June 6, 2012 11:00 AM
Spencer (1) Nowhere did I make any comparison with Bush. My comments are based on my understanding of the cycle.(2) It is well-known from the business cycle literature that output and jobs tend to rise faster from deep recessions than from shallow ones. Employment-peak-to-employment-trough, employment fell 3.1% in the 82 recession, 1.5% in the 90 recession, and 2.0% in the 01 recession. Job recoveries 36 months out from the business cycle troughs of those recessions were 11.1%, 4.6%, and 1.8% respectively. Coming off its deep 6.4% drop during the last recession, employment ought by now to have risen from its June 2009 (business cycle trough) value 20 to 25% by now. Instead up just 2.9%, the gain is only a tenth of what could have been expected. (3) Average annual pages in Federal Register 2001-08 = 76,786. In 2009-11 = 78,181. Nor is any piece of regulation as complex, opaque, and uncertainty provoking to the business community as is Obamacare.
Posted by: JBH at June 6, 2012 12:38 PM
@tj, that is not correct. At 27 months out from the trough in employment, payrolls have increased 2.9% in the current recovery. For the previous recession, payrolls were 3.7% higher. No axe to grind, just some clarification.
Posted by: BL at June 6, 2012 12:50 PM
How this for expansionary?
Eliminate income taxes for 1 quarter, but expire the Bush tax cut for upper income and cap gains.
Posted by: aaron at June 6, 2012 01:01 PM
JBH: You wrote: "It is well-known from the business cycle literature that output and jobs tend to rise faster from deep recessions than from shallow ones." And it is well known that recoveries from financial crises/housing busts are slower than the typical recovery. Maybe somebody should run a multiple regression. Oh, somebody did...as discussed for instance here.
Posted by: Menzie Chinn at June 6, 2012 01:08 PM
tj You seem confused. The case before the 9th Circuit is exactly the kind of ambiguity you get when you do not write clear, detailed and lengthy regulations. It's precisely because there are many competing interests on every side of every issue that regulations must be complicated. As I said the other day, you can either accept detailed regulations written by the Executive or you can leave it up to the court system to interpret regulations and fill in the blanks where there is ambiguity. But you can't avoid complexity. Deal with it.
JBH One of these beliefs is that the one-trick pony of Keynesian spending is the solution. It had its place at the crescendo of the crisis, but no longer as the rapidly accruing debt is becoming unmanageable
Debt is increasing, but it's not because there's been too much Keynesian spending. Government spending has been in free fall since late 2010. What you don't apparently understand is that fiscal austerity in a ZIRP recession increases the debt. Your comments are a good example of why business people have almost nothing substantive to contribute to macroeconomic arguments. I roll my eyes everytime some Sunday talk show invites Carly Fiorina...and she never disappoints with oodles of mindless drivel.
Posted by: 2slugbaits at June 6, 2012 02:06 PM
When the complexity gets to the point where "you have to pass the bill to find out what's in the bill", then the bill needs to be broken down into pieces that can be fully vetted and debated prior to a vote.
By the way, there were multiple cases referenced in that link. Each case is a clear example of regulation run amok.
Posted by: tj at June 6, 2012 05:24 PM
tj You know perfectly well that Nancy Pelosi was being sarcastic. Her point was that the GOP knew perfectly well what was in the bill...which was exactly why the GOP didn't want to pass it. I didn't think you were that naive that you actually believed the GOP didn't know what was in the bill and what was in each amendment.
You still didn't address the fact that any regulation that is not complex is an invitation to litigation in the courts. That's the way the system works. Regulations are complex because interest groups across the spectrum hire zillions of lawyers to press their advantage in any ambiguity.
Posted by: 2slugbaits at June 6, 2012 08:03 PM
One thing to keep in mind is that the m/m change in payrolls has surprised on the downside in the last three months mostly because of distortions introduced by the mild winter and seaonal factors. My modelling suggests these distortions will fade from this point forward, leaving m/m changes in payrolls to more closely reflect the underlying momentum of the economy. Leading indicators of employment suggest the m/m change in private payrolls should average between 150K-200K in the months ahead.
Posted by: John Anania at June 7, 2012 06:01 AM
Naive? You don't see how congress/president rush these huge bills through after warning that there is no time to delay? They roll them out hours before they vote on them. Congress, right and left alike, admitted they didn't read the bill(s). The public has 0 chance of catching the hidden treasures buried by special interests.
The ability of elected officials to effectively represent their constituents has been lost. This is the point I am making and your post about necessary complexity only proves the need for a more limited government.
Obamacare is a great example. Nearly a thousand directives for HHS, etc to implement. Yes, we would need even more complexity if we don't want HHS, the EPA, etc interpreting policy with a partisan bias. Yes, we need more complexity if we want fewer HHS, EPA regulators interpreting policy in such a biased fashion it ends up in the courts.
So, you are right, legsilation is complex. In fact, it has become so complex that it demands a more limited role for government. To argue otherwise is to argue for pushing the U.S. under a bureaucratic mudslide. We will be crushed under the weight of an ever-expanding bureaucratic sludge. Otherwise, we end up with government lording over every aspect of our lives.
Case in point, government regulates health care through entitlements. Thus, government believes it can reduce entitlement spending by mandating that sugary drink containers be less than 16 oz. Do you really want more of that? Really?
Posted by: tj at June 7, 2012 09:11 AM