Slides from today’s talk at the AFL-CIO

June 14th, 2016 at 3:26 pm

Some attendees asked for my slides so here they are.

A few explanations for those who weren’t there.

NIWG=non-inflationary wage growth, which I argued equals the the three factors you see there. What I’m calling “Bivens x” is Josh Bivens estimate that at current or even somewhat faster wage growth rates it would take a few years before the compensation share of national income was back to its pre-recession peak. This is another source, an underappreciated one, of NIWG.

The pictures in slide 5 just show my analysis of how wage growth is not bleeding into price growth. Details here.

The last slide mentions the FEPM: full employment productivity multiplier, explained here.


Catching up on some old stuff

June 13th, 2016 at 9:21 am

Given the horrific mass-shooting in Orlando over the weekend, it seems irreverent and off-point to scribble about the usual grist for the mill. So a bit of catchup and forward-looking stuff.

–I’ll have a great interview in tomorrow’s WaPo with CBPPs Elizabeth McNichol on the need for infrastructure investment, with an emphasis on the state and local dimensions. Read her recent paper for background.

–The Fed meets this week to probably/hopefully not move on interest rates. I’ve got another piece coming out later this week arguing that this is a good thing. Given very low interest rates across the globe and volatile capital flows, even a small tap on the breaks could slow the economy a lot more than planned, drawing in capital, strengthening the dollar, and exacerbating the trade deficit, with no room to offset the drag through monetary or fiscal policy (the former’s constrained by the near-zero-lower-bound, the latter by dysfunctional politics).

–I testified in the House last week (for almost three hours!) as House Republicans tried to kill the Obama administration’s new overtime rule. Here’s my spoken testimony and here’s the longer, written version. No one will be surprised that the R’s want to block the updating of the threshold, which, as the figure below shows, even with the new update, is only partially back to where it was in the mid-1970s. But I was struck by the depth of their negativity, by the extent of their rancor at the new rule. They really can’t abide middle-class people catching a break on this one and are deeply frustrated that they may not be able to stop it, much like the ACA.

thumbnail_OT & Inequality_450

–I took off from a WSJ piece on student debt to think about the factors that distinguish between good debt and bad debt.

–Riffing on Paul Ryan’s nothing-burger of an anti-poverty plan on the Talk Poverty podcast.

I won’t veer much out of my lane and get into the Orlando shooting other than to offer a few links and a thought or two.

This piece by Richard Kim really resonated. It includes some curse words, as it should.

–This political analysis from the WaPo seemed about right to me. Above I note how political dysfunction blocks needed fiscal policy. Fine, whatever…we can debate that. But what’s so deeply frustrating and scary about this last in a series of these murderous events is that the same dysfunction blocks necessary action against such attacks.

What’s that? There’s nothing that could have been done to stop this given that the guy was a security guard with legitimate gun licenses? Well, how about this?: if you’re someone that the FBI has interviewed twice because of concerns about the danger you might pose to society, and you’ve recently purchased an assault weapon, a light goes off somewhere and law enforcement looks you up and keeps a very close eye on you.

Again, I don’t mean to tread outside my expertise, but I was in the car yesterday listening to about an hour of analysis about the killings and all I heard was endless chatter about whether this was terrorism, hate crime, blah, blah. What does it matter which demons got inside this madman’s head? Would it be less of a tragedy if his toaster told him to do it versus his sick, twisted version of religion amped up by homophobia?

I’m not at all saying such analysis is unimportant; as Kim points out, the assault on a gay club is a particularly wrenching aspect of this tragedy. But I am saying that when I hear such an emphasis on motivation and so little on prevention, I’m reminded of the incredible and impenetrable dominance of the gun lobby (see Michael Cohen on this point).

Once again, pundits (and a CEO) conflate trade and trade agreements

June 6th, 2016 at 9:59 am

I found both Robert Samuelson and Jeffrey Immelt (GE’s CEO) to be largely missing the boat, if not the container ship, this AM in the former’s WaPo oped. The flaws here are a) conflating trade agreements (TAs) with globalization and b) labeling all the candidates protectionist (Immelt: “every candidate is protectionist”).

Let’s start with that last bit. It’s very important to listen carefully to what candidates are actually saying. Hillary Clinton, for example, while opposing the TPP, has emphasized, “Even if the United States never signs another trade agreement, globalization isn’t going away.”

That is not protectionism; it’s realism. It’s not just that those who insist on conflating globalization with TAs miss this forest for the trees. It’s that by failing to understand what’s really gone wrong with both trade and trade policy, their arguments incent greater anger and paradoxically risk sacrificing the benefits of expanded trade both here and abroad.

One important hint that this trade/TA conflation is misguided comes from the International Trade Commission’s recent review of the economic impacts of the TPP. They find that, by 2032, they expect the deal to increase US real GDP by $42.7 billion, or 0.15 percent, and increase employment the equivalent of 128,000 full-time jobs, or 0.07 percent.

As I wrote at the time: “…let’s wrap our head around the magnitude of these predictions. The forecast is that the TPP will boost real GDP 0.15 percent over its baseline value 15 years from now. When you back out the report’s assumed growth rates for real GDP with and without the TPP in place, you find that this is equivalent to one month of real GDP growth. That is, real GDP would hit its TPP level one month later in a world with no TPP.”

Not to mention that estimates of such a tiny magnitude based on a 6,000 page, 12-country trade deal – 15 years out – are surely statistically indistinguishable from no changes at all.

The impacts of actual globalization, on the other hand, are profound, both positive and negative, particularly in the US case wherein we have sustained economically large trade deficits for decades now.

Samuelson argues that the loss of political support for trade isn’t about pocketbook economics. It’s about the “loss of national sovereignty.” Maybe so for the punditry, but for everyday folks, it’s about the well-documented hit to their jobs and real wages. David Autor et al find that surging Chinese imports led to the loss of over 2 million jobs, a full 17 percent of manufacturing job losses over the 1990s and 2000s. Josh Bivens finds the costs of expanded trade with low-wage countries to be around $1,800 apiece for non-college graduates (who still, ftr, represent about two-thirds of the work force). And Bivens’ numbers are in real terms, i.e., accounting for the clear price gains from globalization’s expanded supply chains (Autor et al too find significant, negative, real wage impacts).

Immelt, for his part, argues that unless candidates stop saying nasty things about trade, he’s going to “localize” GE’s production, meaning produce closer to where they sell. That, he warns, will ding American exports.

If he’s truly making portentous business location decisions based on campaign rhetoric, you should probably short the stock. No question, Trump in particular is especially incoherent on trade policy (and everything else), and may well be a protectionist, though that’s not how he’s run his own businesses. Certainly, as Larry Summers writes today, a Trump presidency would potentially generate tremendous economic uncertainty, if not recession.

Even then, one would hope Immelt and other multinational CEOs would make production choices based on the numbers along with the actual political outcomes. If producing closer to where you sell makes economic sense, then GE should do so, which, for the record, has led some American companies back towards onshoring formerly foreign production. The key factors here are not politicians’ rhetoric or even, as the ITC report shows, trade deals: they’re exchange rates, relative unit labor costs (wages relative to productivity), and transportation costs.

In order to resolve the current anger in a way that might preserve and further the benefits of globalization, we must:

–recognize that not everyone who criticizes TAs is a protectionist. Stop the name calling.

–stop pretending the costs of trade have not fallen heavily on large groups of workers and their communities who are not assuaged by cheap, flat panel TVs (President Obama’s e.g. on why the working class should support the TPP in his otherwise excellent economics speech last week).

–begin to seriously contemplate how we reform the TA process such that the new rules of the road are not written by and for corporate interests but by a much broader group of stakeholders on all sides of the border with legitimate concerns about labor, environment, and sovereign rights.

I’m working with colleagues on the latter and will have something ready soon. I truly hope it contributes to a new, improved, and much more realistic conversation.


May’s seriously downbeat jobs report puts kibosh on Fed rate hike; underscores need for deep infrastructure dive

June 3rd, 2016 at 9:37 am

In an unexpectedly downbeat jobs report, employers added only 38,000 jobs last month, the worst month for job gains since employment started recovering in 2010. Downward revisions trimmed the employment gains for the prior two months by 59,000, and the labor force participation rate fell again in May, as it had in April. That drove the unemployment rate down to a recovery low of 4.7 percent, but for the wrong reason: not because of people getting jobs but because of people leaving the job market.

Given the volatility in these monthly reports, I have been appropriately cautious in suggesting that the US job engine has truly downshifted. However, a look at JB’s monthly smoother now at least tentatively supports that conclusion. Going from 12, to 6, to 3 month averages of monthly job gains shows a steady deceleration from 200,000 to 116,000.

Source: BLS, my calculations.

Source: BLS, my calculations.

This new, slower trend could, of course, reverse if growth picks up and part of May’s very low topline number is due to the strike at Verizon, a one-off event which, according to the Bureau, reduced the payroll count by about 35,000. But even adding those information workers back into May’s tally, the three-month bar in the smoother would rise to 127,000, still well below the 200,000 trend over the last 12 months.

The negative report surely puts the nail in the coffin of a Fed rate hike at their meeting later this month. Prior to the report, the futures market probability of a June hike was about 20 percent. After the release, it quickly fell to 4 percent.

Weak job creation is weighing on the labor force participation rate, which is down 0.4 tenths of a percent over the last two months. At 62.6 percent, the LFPR is back to where it was last December. While retiring baby-boomers have been correctly cited as a structural—vs. cyclical—factor lowering participation, the recent decline has also occurred among “prime-age” workers, those 25-54. In other words, what we’re seeing here is more than a benign, demographic trend; it’s a trend that is also a function of weak labor demand failing to pull people into to the job market.

Most goods-producing industries shed jobs in May, including durable manufacturing, down 18,000. Over the past 12 months, this important manufacturing sub-sector has shed 80,000 jobs, a sharp reversal from the addition of 120,000 jobs in the prior 12 months. The stronger dollar, which makes our exports less price-competitive, is a major factor in this unfortunate turnaround.

Another sign of weak labor demand was the increase in involuntary part-timers – i.e., those who would prefer full-time jobs – by 470,000. Again, the monthly series is noisy, so we should discount the large jump, but the underemployment rate, which includes these workers, remains stuck at 9.7 percent, at least a point above where it would be in a full-employment job market.

There were some bright spots in the report. Job creation in health care continues to churn along, with employment up 46,000 last month and about 490,000 over the past year. As we’ve shown, this favorable trend coincided with the advent of health care reform’s premium subsidies and Medicaid expansion; it’s unlikely that’s a coincidence. The unemployment rate for workers with at least some college attainment held at lower than average rates of about 4 percent for those with some college and 2.4 percent for those with college degrees, and their LFPRs did not fall in May.

Finally, wage growth rose a mild 0.2 percent over the month, but is up 2.5 percent over the past year. That’s an acceleration over the 2 percent growth rate that prevailed last year at around this time.

The lower trend in job creation that appears to have taken hold could, as noted, reverse. Real GDP growth in the first quarter of the year was less than 1 percent, and current forecasts for the second quarter are tracking well above that. Then there’s the strike, and weather issues could also be adding noise to the data.

But it would be a mistake to write off these dour numbers. Moreover, while the Fed can certainly do no harm by holding rates steady, that’s not the same as helping. Fiscal policy is looking more and more like an essential, missing ingredient in labor demand, and with borrowing costs still as low as they are, a smart move by policy makers would be to quickly start up an infrastructure program, perhaps in the critically important areas of water safety or our long-ignored public school facilities.

Clearly, in the midst of both political dysfunction and a contentious election, this would be a heavy political lift. But it’s still the right thing to do.

Jobs day tomorrow. See you here shortly after 8:30 release.

June 2nd, 2016 at 4:35 pm

Expectations are for about 160K on jobs, which happens to be last months number. My model says 135K, but I think it’s low–some funny stuff going on with UI claims. GS researchers note that: “Payroll growth should be held back by a strike at Verizon Communications, which BLS figures suggest idled 35,100 workers during the survey period” so add that to the mix.

This is the last jobs report before the Fed’s mid-June meeting, so if the payroll number does come in well under the 200K trend and wage growth remains relatively tame, I’d expect that to dampen the craze to raise in June, but we’ll see. I know what Chair Yellen means when she says she’s data driven, i.e., she means what she says. For some of the more hawkish folks over there, one worries it’s “yeah, yeah, we’re data driven. Now, let’s raise the rate.”