Odds and Ends

December 6th, 2016 at 9:58 am

–I continue to earnestly and ploddingly try to find the way back to Factville. Over at WaPo.

–More on the seriously botched decision by a Texas judge to enjoin/block the new overtime rule that should have gone into effect a few days ago (Dec 1). Over at Vox.

–Readers know my take on Trump’s Carrier deal: smart politics, great the <1K workers whose jobs were saved, but lousy economics in the sense that it’s neither scalable nor a systemic way to push back on trade-induced job losses. As we speak, many factories including the Carrier plant are sending jobs abroad.

But I thought Steve Pearlstein’s take was unique, smart, and very much worth reading. Steve argues that if president’s use the bully pulpit to throw serious shade on companies that disinvest in their workers, we might be able to move norms back to an earlier period where such behavior was widely viewed as not good capitalism, but bad management. I do think he needs to deal with the fact that Trump may be talking sticks here but he’s giving carrots. That, it seems to me, blocks the norm-bending. But I still think he’s onto something.

–Finally, coming soon: re this Trump tax cut everybody’s getting wound up about, allow me to ask: do we really need a tax cut??!!

 

Another solid jobs report, but wage growth NOT pushing up price growth (so chill, Fed…)

December 2nd, 2016 at 9:39 am

Payrolls were up 178,000 last month and the unemployment rate fell to a nine-year low of 4.6 percent, in yet another installment of solid, monthly job reports. Wage growth was flat in November, manufacturing jobs are down, and the labor force contracted slightly, so the report was not uniformly positive. But the job market continues to close in on full employment, and the Federal Reserve is unlikely to see anything in today’s report to prevent them from tapping the brakes with an interest rate hike at their meeting later this month.

Below, however, I argue that the absence of inflationary pressure should make them think twice before slowing a labor market that’s finally delivering jobs and (looking at the trend versus just November’s data) wage gains to workers who’ve long been left behind.

Also, in today’s write-up, I feature a quick comparison of two job markets: the one inherited by president-elect Donald Trump and the one inherited 8 years ago by Barack Obama. The difference is really something.

Smoothing out the monthly bips and bops, we see that the 178,000 payroll gain is very much in lockstep with the underlying trend in the pace of job creation. As revisions slightly lowered gains in the prior two months, the patented JB smoother shows that average monthly job gains in the last three months were 176,000. That’s a slight deceleration from the 205K pace over the past 6 months, but broadly speaking, we’re adding north of 170K jobs per month this year, a pace of job growth that should be plenty fast enough to keep the job market on target for reaching full employment at some point later next year.

smoother_dec

But isn’t 4.6% unemployment at or below most people’s definition of the lowest unemployment can go without triggering spiraling price growth? Yes, but there are very important mitigating factors.

–The underemployment rate, which also fell last month, is, at 9.3%, still well above its full employment level, which I judge to be around 8.5%. This rate captures slack that’s not in the headline rate, including involuntary part-time workers. As the job market tightens, the number of such workers is solidly trending down (down about 400K over the past year, to 5.7 million), a clear and positive symptom of job market improvement. But this key indicator is still too high.

–The labor force participation rate is still too damn low. As noted, the labor force contracted a bit last month and this contributed to the decline in unemployment. While the size of the labor force is a very noisy monthly number, it should be noted that the less noisy participation rate remains, at 62.7%, historically low. Some of that has to do with demographics and retiring boomers. But the employment rate of 25-54 year-olds is still only slowly climbing back to pre-recession levels, and 8 years into the recovery, has only regained 60% of its recession-induced loss.

–Perhaps most importantly from the Fed’s perspective, wage growth is NOT bleeding into price growth (see below).

The report, as noted, includes a few less positive results. Manufacturing remains a real weak spot. Employment in the sector is down slightly each of the last four months, including 4,000 last month. This year, factory sector jobs are down 60,000; over a comparable period last year (Jan-Nov, 2015) they were up 20,000, and in 2014, they were up 186,000. This pattern links closely to the appreciation of the dollar, which makes our manufactured exports less competitive in foreign markets. It’s also a politically timely observation, suggesting were going to need much more thoughtful and systemic policy than president-elect Trump’s recent Carrier plant intervention.

Wage growth was surprisingly flat over the month (down 0.1%), but that’s probably mostly give-back from last month’s 0.4% pop. You’ve really got to look at the year-over-year trend for average hourly wages, which shows a 2.5% gain over the past year, very much on a trend that’s up from about 2% a year ago. In fact, if we average this wage series over the past three months and compare to the average for the three months before that, it’s growing at a 2.9% annual rate.

Which brings me to the Fed point. Today’s report will be scrutinized for evidence as to the Federal Reserve’s plans to raise the benchmark interest rate they control when they meet later this month. Before this morning’s release, futures markets put a 93% probability on a rate hike. After the release, that rose to 95%.

Those probabilities speak to the “will they” question. But should the Fed raise?

This is much less obvious. Yes, there is good evidence that the tightening job market has boosted workers’ bargaining clout, leading to faster wage growth (see the first scatter plot below). Given the long, dry, slack-driven period for wage growth, this is an unequivocal plus.

un_wg

The risk, from the Fed’s perspective, is that as the labor market hits utilization constraints that come with full employment, faster wage growth will bleed into faster inflation, and that invokes part 2 of their mandate: 1) full employment at 2) stable prices.

But the second figure shows no such bleeding and ergo no need to suture the non-existent wound with a rate hike (along with no need for such stretched metaphors).

wg_pr

Finally, and I’ll have more to say about this later, let’s use a few indicators from today to look at the job market that president-elect Trump is inheriting compared to the one President Obama inherited. The table below shows various indicators from November 2008 compared to those from last month.

obama_trump

The difference is remarkable. Remember, presidents get credit and blame for many economic outcomes over which their policies have little impact, so a lot of what goes on in terms of the nation’s impression of their economic effectiveness, at least initially, is basically luck.

When it comes to the inherited trend, Obama basically was “catching a falling knife.” Payrolls fell a horrific 769,000 in the month he took office. The unemployment rate was about 7% on its way up to 10%.

Conversely, Trump is climbing aboard a very favorable trend, with steady job gains delivering low unemployment and increasing wage gains.

Like they say: If you can’t be good, be lucky.

Yes, the Rust Belt demands an answer. But does anyone know what it is?

November 29th, 2016 at 9:37 am

This WaPo piece by James Hohmann makes a strong point that one hears a good deal these days: the Hillary Clinton campaign failed to provide hope that her administration could bring good jobs back to key swing states like Ohio, while the Trump campaign succeeded in hammering that message home.

The piece focuses on a foresightful memo written in May by David Betras, a Democrat operative in Ohio, warning that Ms. Clinton was getting beat on the jobs message:

“More than two decades after its enactment, NAFTA remains a red flag for area voters who rightly or wrongly blame trade for the devastating job losses that took place at Packard Electric, GM, GE, numerous steel companies, as well as the firms that supplied those major employers,” Betras…tried to explain to the Clinton high command. “Thousands of workers in Ohio … continue to qualify for Trade Readjustment Act assistance because their jobs are being shipped overseas.”

“Look, I’m as progressive as anybody, okay? But people in the heartland thought the Democratic Party cared more about where someone else went to the restroom than whether they had a good-paying job,” he complained. “‘Stronger together’ doesn’t get anyone a job.”

“The messages can’t be about ‘job retraining.’ These folks have heard it a million times and, frankly, they think it’s complete and total bulls**t,” he continued.“Talk about policies that will incentivize companies to repatriate manufacturing jobs. Talk about infrastructure … The workers we’re talking about don’t want to run computers; they want to run back hoes, dig ditches (and) sling concrete block. … Somewhere along the line we forgot that not everyone wants to be white collar.”

Like I said, that’s a perfectly smart, defensible rap that in hindsight looks awfully prophetic. But something very big and very important is missing from Betras’ warning and Hohmann’s analysis: neither Democrats nor Republicans really know what to do to help these workers and their communities.

Trump was either devious or smart enough–choose your adjective–to pretend he had/has a solution and to successfully sell a nostalgic vision to these voters. Frankly, I’m not sure many believed him as much as they didn’t see much reason for going with her and figured they’d give him a chance. If he fails to deliver, as I suspect he will, they’ll throw him out when they get the chance.

Hillary Clinton was a lot more fundamentally honest about this issue of bringing the factory jobs back to the swing states in the Rust Belt. Instead, she told a more complicated story about reshaping globalization through better trade deals and investing in advanced manufacturing, and yes, retraining workers. Precisely the stuff Betras correctly said would not resonate.

But as long as we’re being honest, we must admit that neither side has a strong, convincing plan to restore high-value added jobs to the many communities that have lost much of their manufacturing base.

We’re much better, as Democrats, at policies that help the poor. Higher minimum wages and strong work supports like the Earned Income and Child Tax Credits can combine to make what would be a $15,000 job a $30,000 job (e.g., raise the minimum from $7.25 to $12 and add $5K of refundable tax credits; sprinkle liberally [sic] with affordable health care).

But when it comes to pushing back on the impact of globalization–to “repatriating manufacturing jobs” as Betras called for–we’re at much more of a loss.

This must change, and not just for political reasons (though that should be a strong motivator for politicos), but for policy reasons.

The deeply flawed premise through which elites have long operated is that trade is a net plus for everyone as long as the winners compensate the losers. But in the real world, the winners both fail to do so and use their winnings to buy tax and deregulatory policies that further screw the losers.

I’ve studied this problem for years and don’t have anything like a complete answer. I do know that we must start by lowering our economically large, persistent, and distortionary trade deficit, especially to the extent that it is pumped up by other countries manipulating savings and exchange rates. Also, Betras is right about a robust infrastructure program, but that’s a temporary fix.

But I would strongly urge my colleagues in the progressive policy analytic community (and the foundations that support them) to move this problem–the loss of good, middle-class jobs in significant swaths of the nation–to the top of their agendas. We’ve gone too long without an answer to this one, and the consequences are not at all pretty.

If the Trump administration wants to do something useful, should progressives still oppose them?

November 28th, 2016 at 8:18 pm

The question I pose above came out of this piece I posted in today’s WaPo on confusion in the Trump camp about trade deals and trade deficits:

To hear President-elect Trump tell it, ripping up, repealing or renegotiating international trade deals will bring back lost factory jobs and restore the glory days of the American working class. Wilbur Ross, Trump’s nominee to run the Commerce Department, plans to work with his new boss to release America from “the bondage” of “bad trade agreements.”

Conversely, to President Obama, the for-now defunct Trans-Pacific Partnership trade agreement would have boosted America’s growth, raised living, environmental and labor standards in the 11 other signatory countries, and blocked China from dominating the global stage.

They can’t both be right, and the record shows that neither are. Those hoping that American industry will rise again if and when the president-elect whacks deals like the North American or Korea trade deals will be profoundly disappointed. Neither does the failure of the TPP pave the way for the rise of our new Chinese overlords.

The problem with this hyper-elevation of trade deals is that it conflates the deals with the trade. The real problem, as I’ll explain, is the persistent and economically large trade deficits that the United States has run with our trading partners since the mid-1970s, which at this point have little to do with trade deals.

If the Trump administration seriously intends to help the displaced manufacturing workers and communities that were instrumental in the president-elect’s upset victory, it will need to shift its line of attack from trade deals to the trade deficit.

I think it would be good economic policy, and probably good politics–though truth be told, I really have no idea anymore about what’s good politics–to help workers, families, and communities hurt by the downsides of globalization. For years, elites from all sides of the aisle have basically ignored these people’s loss of high value-added work, assuring them that globalization is always and everywhere a force for good, at least as long as the winners win enough such that they can compensate the losers.

Whether or not they do so–i.e., compensate the losers–well, that’s “outside the model.”

If the new administration wants to try to help those displaced workers who were so instrumental in their upset victory–a very, very big if–I’ve got ideas that I believe would work better than ripping up trade deals or imposing 45 percent tariffs.

If they want to run a real infrastructure program, unlike the wasteful privatization scheme they’ve cooked up, progressives with a background in public goods have useful ideas here as well.

Progressives are already shouting loudly, as we should, when the incoming Trump administration puts forth patently lousy ideas, like their big, regressive tax cut or their repeal–and maybe sorta partially replace later–of Obamacare.

But what about if they want to invest in infrastructure or preserve manufacturing jobs or reduce the trade deficit or possibly raise the minimum wage? Should we emulate the Tea Party/McConnell in the Obama years and basically maintain that any wins for a Trump administration, including those that actually help working people, should be opposed on political and ideological grounds?

“Yes” is not a crazy answer. Based on Trump’s campaign, his administration poses an existential threat to inclusive democracy in general and minorities, women, immigrants, and Muslims in particular. There are reasonable people who worry that any successes that accrue to a Trump administration spell danger for their vulnerable enemies.

Then there’s the Bernie Sanders approach: “To the degree that Mr. Trump is serious about pursuing policies that improve the lives of working families in this country, I and other progressives are prepared to work with him. To the degree that he pursues racist, sexist, xenophobic and anti-environment policies, we will vigorously oppose him.”

As I said above and in many other places, I’m a deep skeptic about the extent to which the president elect “…is serious about pursuing policies that improve…” etc. Each day, and these are the early days, cabinet picks and various related antics suggest that, as many of us strongly suspected, all that populist stuff was just for the campaign.

But I will continue to not solely critique but to offer ways to actually accomplish the purported goals of the administration vis-a-vis working people, as I did in the WaPo piece today. If nothing else, people should learn about what an actual pro-worker agenda really looks like.