Jobs Report: Second Impressions

May 2nd, 2014 at 10:59 am

Scattered thoughts as some dust settles re jobs and broader economy:

–I strongly doubt this is any sort of game changer for the Fed.  It’s a big mistake to extrapolate from the stronger than expected payroll number to an early liftoff on the federal funds rate.  Why?

–Because they’re not moved by outliers and as shown below, the recent, smoothed trend in monthly payrolls shows little acceleration, with recent trend gains around 230K/month;
–They’re–Chair Yellen in particular–concerned about the depressed labor force rate, as they should be given its implications for macro growth.  Even discounted the big monthly down tick in April, the trend there too is stuck at historically low levels.
–Wages and especially prices (core PCE) are just simply not indicative of inflationary pressure.

–More broadly speaking, crystal balls are just muddy right now: I didn’t love that 0.1% print on Q1 GDP, and as noted today’s household survey disappointed.  But the payroll survey, which is more reliable than the HH, looks good—even better than expected.

–Maybe some weather in the GDP report, so I’d say pay more attention to yr/yr trend in real GDP of 2.3%.  But the weather card feels a bit overplayed to me.  Housing investment is clearly slowing and the growing trade deficit is a concern.

–So keep that champagne on ice.  Let’s stipulate that GDP’s growing around trend–about 2%.  Well, we’ve still got big output gaps to close, high unemployment (especially accounting for labor force decline), too many long-term unemployed, nothing-special wage trends, and depressed labor force participation.  We need faster growth.

–If I were supreme ruler, I’d extend UI to help the long-term unemployed, but more so, I’d do some pretty deep infrastructure investment in public goods.  And I’d stress dovish, or at least data driven, forward guidance at the Fed.

MONTHLY CHANGE IN PAYROLL EMPLOYMENT (000’s) AND SMOOTH TREND

payrl_trn

Source: BLS (note: big spike in 2010 is temporary hiring around decennial Census)

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5 comments in reply to "Jobs Report: Second Impressions"

  1. Tyler says:

    I think the problem is that the federal budget deficit is too small. Because the Republicans control the House, Senate Democrats should propose a huge tax cut for the middle class. If the Republicans oppose it or say it needs to be offset by fiscal austerity, they will look like total hypocrites. Voters don’t like hypocrisy.


    • Joe says:

      A huge tax cut for the middle class is tough to do now given the level of progressiveness in the current federal income tax code. The only way to give that kind of target relief is with another silly “making work pay” transfer payment. Or, you can reduce the payroll tax but that puts more pressure on two of the most fiscally sensitive programs.

      If you cut the income lowest tax rate, you may find, that while the middle class benefits, in total, the bulk of the benefits go to the higher quintiles (since presumably they would pay the maximum tax assessed at the lowest marginal rate; that also translates to a payroll tax cut since the upper quintiles max the payment there too). That would be a non-starter since the evil 1% should get zero relief ever!

      Republicans would almost certainly embrace a middle class tax cut. Paying for it would be in the next budget where additional offsetting cuts would come into play. Instead the Republicans could jump on the bandwagon, make it larger and claim it (tax cuts) are what they have been pushing for all along.

      I think the Democrats would not want to go that route right now.


      • Tyler says:

        I think the poor would benefit the most from a payroll tax cut because the payroll taxes are so regressive.

        Regarding a federal income tax cut, my understanding is that billionaires don’t pay the federal income tax. Therefore, a federal income tax cut would reduce inequality.


        • Joe says:

          The top 1% (including billionaires) pay plenty of income taxes. They make 15% of all income yet pay ~24% of all federal taxes (including payroll). Given that the lowest 40% of earners pay less than 5% of federal taxes (including payroll) any reduction in the lowest marginal rate would significantly benefit the more well off (since they would “fill” that lowest tax bracket and thus get the full benefit of that reduction.

          The payroll tax cut would benefit everyone but especially those who max out contributions.


  2. Larry Signor says:

    2 percent GDP growth is pitiful considering the US population growth is .71 percent (2012 number: http://data.worldbank.org/indicator/SP.POP.GROW). We don’t have to experience negative GDP growth to have an poorly performing economy, inadequate growth is just as devastating. There are sectors of the economy that already are experiencing negative growth, other sectors that are stronger hide this strain. It is much like Paul Krugmans deflation argument, the negative anomalies are already in motion though we have a positive nominal measurement.


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