Ch-ch-ch-changes! (Both personal and fiscal impulse)

April 10th, 2019 at 3:39 pm

Good changes: I continue to recover from the brain hemorrhage I sustained on March 23. Today’s my first meds-free day and I’ve been blessedly headache free. Thanks again for the outpouring of support–it’s been really uplifting.

Neutral Changes: As I slowly rev up Ye Olde Analysis Shoppe, I found the figure below (by GS fiscal analyst Alec Phillips) to be worth a close look. It underscores a point that even seasoned budget analysts sometimes miss: the role of fiscal impulse. 

One of the more important policy-driven determinants of near-term US growth is under debate right now: setting discretionary spending levels for 2020/21. Because of 2011 legislation that set caps for such spending, avoiding a sharp drop requires Congress to pass a bill approving spending above the caps. They’ve done so numerous times before and, while there’s a lot of squabbling going on about this both within and between the parties, it’s likely they’ll bust the caps again.

The point I wanted to underscore here is even were Congress to agree to keep the levels of discretionary spending stable over the next few years, the impact will be a fading of fiscal stimulus on real GDP growth, as the lines at the end of the figure below reveal. That’s because when it comes to fiscal impulse, it’s not the level that matters. It’s the change.

The last deal–the one that determined spending in 2018/19–went both well above the caps but, more important from an impulse perspective, went well above prior agreements. As far as I can suss out about what’s on the table in terms of the next round of spending, we’re unlikely to see numbers higher than the 18/19 deal (around $300 bill above the caps). Thus, Phillip’s projection of the fiscal impulse going forward under various scenarios if flat next year. Roughly speaking, that’s one reason to expect 2020 growth to be closer to 2 percent than 3 percent.

Source: Alec Phillips, GS Research

I don’t think the negative impulse forecasts from the WH or sequestration (“no caps deal”) are likely. And the House D’s line may get nudged up a bit based on proposals by the Progressive Caucus. But the larger point is that when you read analyses suggesting that these spending levels won’t drop, that doesn’t mean their impact on growth won’t drop. In fact, it will, as positive fiscal impulse downshifts to neutral.

An update on my condition

April 4th, 2019 at 10:52 am

Friends and followers —

As some of you know, on March 23 I had a brain hemorrhage, technically known as a subarachnoid hemorrhage.  This is a very serious condition, often fatal or disabling.
But I appear to have been very lucky.  After spending nine days in the ICU at Fairfax Hospital, I was discharged and am now recovering at home.  The recovery period is likely to take quite a while, with good days and bad days.  It could be a matter of months before I’m back to some version of my pre-hemorrhage self.
I’ve benefited immensely from a tremendous outpouring of love and support from family, friends and colleagues, for which I am enormously grateful.  I’ve also benefited from excellent medical care.
I’m not sure when I’ll be posting or writing about the economy, but I plan to do so as soon as I am able.
Thanks for your concern and support,

A personal update

March 27th, 2019 at 4:31 pm

I won’t be posting for a couple of weeks due to a medical emergency. However, the prognosis is good and I look forward to returning to my blog soon.

The loss of a great economist and a great man

March 18th, 2019 at 11:15 am

Like everyone else who knew him, I’m in shock and despair over news of the death of the economist Alan Krueger. Alan was the best kind of colleague: always inquisitive, incredibly rigorous about what constituted facts and evidence in economics, and willing and able to talk about his work in ways that made sense to anyone who would listen.

I admired everything about Alan, but a few things stand out. He taught us a lot about creativity. Like the rest of us, he crunched numbers that were available from the usual sources. But he didn’t stop there. He believed that if you want to know the answer to something, sometimes you have to go out and get the data yourself, something very few economists do.

I can’t be the only one who’s been in meetings with Alan, scratching our heads about some policy outcome, only to have him show up at the next meeting with a survey he somehow fielded with the answer to the question.

It was this creativity that led to his path-breaking, minimum-wage work with David Card. Their book, Myth and Measurement, stands as one of the most muscular treatises not just on the facts of minimum wages–a national debate, btw, that Alan and David totally altered, to the benefit of millions of low-wage workers and their families (and how many of us can say that?…). The book is a shining example, one I’ve tried to emulate my own work, of how to test an economic assumption that everyone believes, but is wrong.

With his brain power, he could have been high-handed and haughty, but he was anything but. To the contrary, he went out of his way to be a kind and empathetic friend. Once, when we worked together in the Obama administration, a prominent Democrat publicly distanced himself from some something I’d written. Before I’d even heard about it, I got a sympathetic note from Alan reminding me that politics is one thing, but we don’t throw our friends under the bus (his words, which I remember to this day).

I simply can’t believe he’s not there for me to shoot an email off to, asking him some gnarly question that he typically answered for me in a clarifying sentence that completely unwound my confusion. Then, with that out of the way, we’d gossip a bit.

A terribly sad day…a huge loss. All any of us can take solace in is how lucky we are to have known him.

Jobs report, Feb 2019 [truncated]: Outliers happen, and faster real wage growth!

March 8th, 2019 at 9:34 am

Got a late start this AM, so just highlights for now, with more analysis to come.

Outliers happen!

Payrolls rose a mere 20K last month, a huge downside outlier given the recent trends as shown below in our monthly smoother. The average over the past 3-months of 186K is a much more reliable take on the current underlying pace of job growth. Consider, for example, that payroll jobs were up 311K last month, a value well above trend. So, at least for now, consider this downside miss payback for last month’s huge upside.

Of course, the 20K could be harbinger of a downshifting in the pace of payroll job growth. Such a downshift–though not of that magnitude–is not unexpected given a number of facts: job growth slows as we close in on full capacity in the labor market; US GDP is slowing as fiscal stimulus fades (the tax cuts were a sugar high; not a trickle-down miracle); global growth has slowed; the trade deficit–a drag on growth–has increased in recent quarters.

But one month does not a new trend make and it is too soon to tell whether a new trend is underway.

Then there’s the Household Survey

The survey of households, from which the jobless rate is derived, is telling a different story, one more consistent with the trend conditions in the job market (some of these results are bounceback from January’s gov’t shutdown). The unemployment rate ticked down to 3.8 percent and not because people left the labor market (the participation rate was unchanged) but because the unemployed got jobs (employment rose 255,000 in this survey). There was a large, shutdown-related reversal in involuntary part-time work; unemployment for high-school dropouts hit a near-all-time low of 5.3 percent (it was 5 percent last July), suggesting robust labor demand in the low-wage labor market (a key theme of my work in this area is the extent to which persistently tight labor markets help the least advantaged); and the broader underemployment measure (U-6) also fell to a cyclical low of 7.3 percent.

Finally, decent wage growth, nominal and real

The figures show annual changes in nominal hourly wages for all private-sector workers and for the 80 percent who are production, non-supervisors (think “middle-wage workers”), with 6-month moving averages. The story here is that after being stuck at 2.5 percent for a patch around 2017, the tighter job market began to deliver more bargaining power to wage earners, and firms have had to bid wages up, such that hourly pay is now rising about a point faster than it was back then.

Because topline inflation has been held back by low energy prices, the next figure shows a beneficent collision between faster nominal pay and slower price growth, the difference being real earnings growth. I estimate that the CPI for February rose 1.6 percent. If I’m right, real hourly pay for middle-wage workers is up almost 2 percent, a solid pace for real wages that will boost the buying power of working households.

I’m going to jump for now but will be back soon with some compelling figures (if one can say so ones self) showing how low unemployment is boosting wage growth, but faster wage growth is not juicing price growth.