You know this meme about how everybody’s so pissed off about how bad the economy is? Is that right?

February 5th, 2016 at 3:06 pm

I heard the POTUS’s econo-press conference today where he went off on how the economy was like an aging dude working out after eating a double-bacon-cheese burger, or something like that. Anyway, he got a question about if the job market is really improving, including wage gains like those I featured today, why aren’t people feeling it?

I hear that a lot–it’s a fair question, and especially given the extent of inequality and its negative impact on long-term wage and income stagnation for many in the workforce, I’m not surprised by this sentiment. There’s a whole lot of reasonable economic expectations that haven’t been met for far too long.

But all that said, I’d expect the improvements that I and others have been documenting to make some difference in people’s and businesses’ sentiments about the economy, especially given cheap gas, low inflation, and the increasing buying power of at least some people’s paychecks.

Given the pervasiveness of this meme of dissatisfaction, you’d expect consumer and business confidence surveys to be in the tank, right?

Not so much, actually. I don’t have time for a deep dive and I just pulled these off of this very helpful website. It’s true that the trend in recent months has been pretty flat. And I’m sure you can find some version of this sort of thing that shows a more negative trend. But these figures of consumer sentiment do not look to me like they’re wholly disconnected from the improving job market. Most trends appear to have recovered from the Great Recession.

I don’t conclude for a moment that every one is feeling great, nor should they. There’s too much poverty, too much inequality, too much racism, too much violence, too many guns, too little mobility, and way, way too much political power concentrated in the hands of the few.

Speaking of politics–and President Obama made this point well–one wonders how much of this negative meme is a function of candidates for presidents whining about how horrible everything is, and how that’s the fault of [group you don’t like goes here].

Anyway, I’m not nearly so quick to believe the meme that nobody’s feelin’ the improving economy. I’d like to see more facts of the case.



Obama’s new oil fee idea and the increase in miles driven

February 5th, 2016 at 12:17 pm

Readers know I’ve long called for an increase in the federal gas tax. I’m not trying to piss anybody off–believe me, I was initially pleased earlier this week when I filled my tank up for under $20! Then, I thought about how fossil fuels are truly under-priced.

I mean this in two senses. First, we cannot realistically maintain our highway and transit systems on an 18.4 cents a gallon federal gas tax that hasn’t been increased in over 20 years. Not only have the costs of maintaining public transportation gone up but the auto fleet is more fuel efficient. Obviously, that latter point is a plus, but it means less revenue into the highway trust fund.

Second, there are sound environmental reasons for increasing the price on carbon. But because of a uniquely timed collision between increased supply and weakened demand, the prices of oil and gas are extremely low right now. From the perspective of the environmental damage they cause–the transportation sector accounts for 30 percent of our greenhouse gas emissions–they’re too cheap.

That’s why I like the new idea from the White House to phase in, over five years, a $10 fee per barrel of oil, both domestic and imported. Here’s a useful explainer from Vox. As you’ll see, they’re thinking of this as far more than just another way to boost the federal gas tax. It’s part of an agenda to clean up transportation writ large.

To be clear, I’m totally cognizant of the distributional burden of higher energy costs on low and middle-income families. I’ll get back to that.

But my point here is that for awhile there where it looked like Americans were driving a lot less, even as the recession was in the rear view mirror and gas prices were letting up a bit. But as the figure below shows, that’s over. If anything, the slope of the “miles driven” curve–and it’s a 12-month average–looks steeper than in the past, which is what you might expect given how cheap gas is right now.

Now, the fact that the statutory incidence is on the oil companies doesn’t tell you much about who pays the proposed fee. They’ll pass it forward to consumers, and that will disproportionately hurt the least advantaged. To offset this, the administration has proposed that 15% of the revenues be used to relieve this disproportionate burden.

No, this isn’t going anywhere in this Congress. Hard to see it getting too far in the next one either. But the problem exists, and as the figure shows, it’s getting more serious, not less. At some point, we either deal with this threat or it deals with us.


Source: FHWA

Source: FHWA


Jobs Day: Slower payroll growth but faster wage growth as we get closer to full employment

February 5th, 2016 at 9:30 am

Job growth slowed in January, as the nation’s employers added 151,000 net new jobs, compared to over 250,000 in each of the prior three months. However, while slower job growth may be a function of recent market volatility and slower growth abroad, it is far too soon to draw any such conclusions from one month’s data. As my monthly smoother shows, average employment gains are solidly over 200,000 in recent months, and if this underlying trend persists, the labor market will continue its steady trek towards full employment.

Unemployment ticked down slightly to 4.9 percent, and for the “right reasons”—i.e., more people got jobs as opposed to more people gave up looking. Average hourly wages were up 2.5% over the last year—that’s an acceleration over the 2% pace that prevailed earlier in the recovery, signaling that the tightening job market may finally be giving workers a bit more in the way of bargaining power, something they’ve lacked for  a very long time. I return to this critically important point below.

The average work week ticked up a bit as well, and 60 percent of private sector industries added jobs, including an unexpected pop in factory jobs, up 29,000 last month, the sector’s strongest month since November of 2014.

In other words, despite the slowdown in payroll gains, today’s report should be considered yet another entry in a series of quite positive jobs reports.

Remember, these are sampled data, and the monthly confidence interval in payroll gains is 100,000, meaning that the true monthly number of net jobs added is likely between 50,000 and 250,000. That’s why it’s useful to smooth out the monthly bips and bops using JB’s patented smoother, shown below. Over the past three months, the average monthly gain has been about 230K, and the other bars show this has been around the trend growth rate for the past year or so.

Source: BLS, my calculations

Source: BLS, my calculations

Now, on to this month’s Rorschach test. Focus on the hourly wage growth line (orange?–I’m color blind!) in the figure below (I’ll get to the other line in a moment). That circled bit at the end shows the acceleration I referred to earlier, and it is very much what I and other fans of tight labor markets have predicted (and longed for!) for quite a while now (this is the average wage, but, importantly, production worker wage growth is following a similar pattern).

Sources: BLS, BEA

Sources: BLS, BEA

Do you see that uptick and think, “Great—we’re getting closer to full employment and that means that the benefits of growth might have a chance to be more broadly shared! USA! USA!”? To be clear, we’re not yet at full employment. The underemployment rate (U-6) has been stuck at 9.9%; my estimate is that it needs to be 8.5% before we’re there.

Or do you look at the line and say, “Janet, slam on the breaks!”? IE, as wages growth faster, you worry they’ll bleed into prices and the Fed better act now to preempt that possibility.

If that’s where you’re coming from, and I sincerely hope it’s not—remember: periods of full employment have been the big exception over the past 40 years—then look at the other line, which plots PCE core inflation, the Fed’s preferred metric of price pressures. It is not showing any commensurate acceleration. True, the Fed needs to look around the next corner in this regard, but if anything, expectations are deflationary, in no small part due to the headwinds from the strong dollar and sharply slower growth in emerging economies.

Such headwinds remind us that there are unquestionably economic jitters out there in the world that bear close watching. But the US job market continues to truck along, adding over 200,000 jobs per month on average over the past year, helping to push the unemployment rate closer to full employment, and, most importantly, providing workers with a bit of the bargaining power they need to finally claim their fair share of the growth they’re helping to produce.

“I’ll have the wage mash-up with a side of low inflation”

February 4th, 2016 at 3:27 pm

So, with the productivity data out this AM–such as it was–I’ve now got the five wage and compensation series I need for the latest version of our patented wage mash-up (details here). I added a trend this month so you could see the bit of acceleration at the end of the series. That’s good to see as it suggests the tightening job market is likely delivering a bit of bargaining power to workers who’ve seen way too little of that for way too long (some parts of the country are clearly already at full employment).

Inflation’s very low so even these modest 2%’ish gains translate into faster real wage growth. And from the Fed’s perspective, that’s the key point.

In case they’re busy, I’ve taken the liberty [street] to make my friends over there a handy checklist:

Tighter job market, check;
Slight nominal wage acceleration, check;
Inflationary pressures, NOT CHECK!

Feet off of brakes, double-check!

Source: BLS, my calculations

Source: BLS, my calculations

The FEPM (full employment productivity multiplier)

February 4th, 2016 at 2:31 pm

Over at the WaPo, I speak to the existence of an FEPM. Hard to prove–I think you’d probably need to track individual firms over time–but I’ll bet it’s operative. I’ll note without comment that according to a BLS release this AM, productivity fell 3% in the first quarter. Now, that didn’t happen–noisy quarterly data. But the average for 2016 was 0.6% and average yearly growth has been less than one percent since 2011. (OK, that wasn’t without comment but this is one of the most serious economic constraints we face.)

Source: BLS

Source: BLS