With the October jobs data, we see that the two survey methods are now yielding about the same result: year to date, the U.S. economy has created between 1.1 and 1.4 million jobs (according to the establishment and household surveys, respectively). Prior to this the household survey had been registering about 1.8 million new jobs, significantly more than the establishment survey. I think it is safe to say that private sector jobs now are rising at the rate of about 1% per year. That's not enough to bring down the unemployment rate, of course, because the labor force tends to grow by about that much each year. But it is growth, and it is progress, however slow. It's even somewhat better than the recovery following the 2001 recession, when according to the establishment survey it took the economy two and a half years to create a million new jobs.
This next chart shows that the public sector workforce continues to shrink, having now shed about 350K jobs since the end of 2008. That's essentially unprecedented, but probably necessary given how much public sector bloat there had been in prior years.
If I were advising Fed Chairman Bernanke, I would be telling him that the QE2 program he recently announced—an unprecedented and potentially highly risky experiment in monetary stimulus—should be put on hold until evidence of a faltering economy and deflation actually become threatening. You don't drop money out of helicopters just because the economy isn't growing as fast as you'd like it to.
The only employment chart that matters. The 2007 recession gap will not be filled before 2015 and it's probable that there will be an intervening recession.
ReplyDeleteYou actually believe in the household survey population controls that magically created 550000 jobs last January, do you? I don't. The labor force participation rate is back to 1984 levels.
And you can back out 90000 jobs in the payroll survey due to the benchmark revision.
On balance the October payroll survey was an A but the household survey was a D.
"The only conclusion we can reach is that Bernanke, like his Princeton University colleague Paul Krugman, suffers from "apoplithorismosphobia," a term I coined (with the help of a Greek translator) to label the psychological and irrational fear of deflation."
ReplyDeleteThe employment to population ratio is also worth considering -- more at:
ReplyDeletehttp://wjmc.blogspot.com/2010/11/us-employment-to-population-ratio.html
Public: I like that word!
ReplyDeleteLol. There is more than a grain of truth in the application of the term when describing Bernanke too.
ReplyDeleteThe more I read about sound money policy the more distant it seems the Federal Reserve is from a sustainable reality.
It is a no-brainer that economic growth comes from savings and investment. This means reward savers and get out of the way of investors investments.
To the contrary, we have a Fed that believes if you can trick people into felling wealthy, they will spend and eventually this results in growth and investment.
Each successive hiccup simply requires a little more trickery and spiked koolaid and away we all go.
Bernanke believes 100% in bailing out banks forever and at whatever cost. This will prove most foolhardy of all.
The economy will heal slowly if left alone. The economy will heal a little bit faster if Obama's policy initiatives are thwarted. The economy will heal faster still if the policy initiatives of the last two years are reversed. There is nothing that the government can do to create a rapid recovery.
ReplyDelete$10T in wealth was wiped out in the housing crash. Consumption cannot grow because people need to save. Construction will not recover because there is a glut of houses. Investment to expand capacity for consumption goods will not grow until consumption grows again. The way forward is investment to cut costs, for export and for import substitution. This will occur as the rest of the world recovers. The best the government can do now is to create an environment hospitable to investment and address public sector factors that make our economy less competitive.
A million jobs has a nice ring, but jeez, compared to the total number of US jobs--well more than 100 million-- it is a small increase. Less than one percent.
ReplyDeleteSince when does a less than one percent increase in the number of jobs in the US threaten inflation? And unemployment is still near 10 percent.
Bernanke is doing the right thibng, just not hard enough.
There is an irrational, now obsolete fear of inflation in central banker circles.
I wonder if anybody in Japan in 1990 predicted they would see 20 years of deflation, and 75 percent collapses of equity and property values.
That is the future we do not want to have.
BTW, Paul Krugman, who is not always wrong, has a great post 11/6 re commodity prices and inflation, especially his chart.
ReplyDeleteBasically, commodity prices have been in a secular uptrend for a long time, probably due to strong demand globally.
I have a theory: You should worry about inflation when there is some inflation.
Benjamin: How do you define inflation? How, when calculating the rate of inflation, can you ignore rising commodity prices, rising gold prices, rising energy prices, and rising prices (in dollar terms) in almost every country in the world?
ReplyDeleteScott-
ReplyDeleteI go by the CPI--and remember, Boskin of Stanford (very conservative fellow) thinks the CPI overstates inflation by about one percent. A recent AER peer-reviewed paper came to the same conclusion.
If Boskin and the AER paper are roughly accurate. we are about at zero inflation now.
I think we can not worry about inflation for a while, and try to get business going again, and revive real estate markets (which will really help our banks too). I want inflation, in moderation. See Japan. So yes, I favor heavy QE2. Bring on some inflation. It would also help deleverage our economy.
You and I disagree about gold. I think it is demand-driven speculation and consumption (jewelry), from China and India (where they do have inflation) that is driving gold prices up. US monetary policy has little impact. I guess we just disagree, and I can't prove I am right. But given that most gold output is consumed for jewelry in India and China, I think I make a strong argument.
Let me pose a question: If a gold-buying mania in China and India (2.5 billion people) is the reason gold prices go up, what should the US do about it? Should we not be cautious about snuffing out a US economy based on a false signal from gold prices?
Sheesh, they have had deflation in Japan for 20 years, and commodity prices have zoomed, crashed and zoomed. Thus, a mature major economy can have deflation even while global commodity prices go up. Global commodity inflation did nothing for Japan.
If you look at the chart on Krugman's blog, you see long-term (decades) secular increases in commodity prices. It is old-fashioned demand-pull inflation, from growing global markets. China and India are really coming on. We may also see corrections as new supplies are brought on line, or demand withers in the face of higher prices. Long-long term, I predict lower commodity prices.
We could suffocate our economy, put a monetary noose around our necks, and maybe dent commodity prices. To what end?
Oil is a special case, what with OPEC, thug states and the NYMEX involved. Oil can trade anywhere from $50 to $150 for a few months, regardless of US monetary policy, or aggregate global monetary policies. I am an amateur, but I studied the oil markets closely for three years, invested heavily in futures (unsuccessfully).
My take-away is that prices are erratic, irrational, cartelized, speculative, but cannot be sustained above $125 a barrel for long, or even $100 a barrel in the long-term. I was right when I speculated in oil, but ran out of innings.
Here is a question: Suppose Iraq in fact stabilizes, and oil production there rises to 12 million barrels a day, as some say it can, or about 15 percent of current world production. Iraq would rival Saudi Arabia then. Let's say oil prices sink after that.
US monetary policy? It has an influence, but so do the actions of oil-exporting thug states globally, including Venezuela, Iraq, Iran, Russia, Mexico, Libya...boy, it is an ugly roll-call of non-free market thug states.
Anyway, Scott, I enjoy your posts very much, and when I pipe up, it is just my take on things. I am very much in the pro-growth camp, I worry little about inflation until we see it above 4 percent.
Interestingly, when inflation was at 4 percent in the 1980s the Wall Street Journal editorialized that Volcker ought to ease up on the money supply.
Now we are at one percent, and people say Bernanke is being wild.
Times change. I saw pour on the money spigot.
Benjamin,
ReplyDeleteIt is the fear of deflation that will cost us our country, not inflation.
Benji is directionally correct. Grannis doesn't understand the supply chain.
ReplyDeleteAt the producer level, crude materials (commodities) prices rose 20.3%, intermediate prices rose 5.6% and finished goods rose 4.0%, all year over year.
At the wholesale level, prices rose 3.1% year on year.
At the retail level, core PCE and CPI rose less than 1.5% year over year.
Commodity prices are not feeding consumer goods or capital goods prices. As this is the worst of the 11 post-WW11 recoveries when it comes to aggregate demand, business cannot cost-push inflation in the supply chain. Period. It's called gross margin compression.
Public Library:
ReplyDeleteOkay, tell us your policy recommendations for Japan, and why has Japan been in a 20 year-deflationary trend, and now in their 17th straight month of outright deflation.
Please explain why equity and real estate prices are down 75 percent in Japan in the last 20 years, and still falling.
Address the issue of when bondholders become so influential, they demand the economy be flatlined so they do not take losses. A monetary noose around the neck of property and equity holders.
I see no upside for tight money, as practiced in Japan. It has been a telling and monumental failure. That is exactly the wrong path for us to take.
Benj,
ReplyDeleteBernanke & Co. appear to be in your camp.
The financials, represented by the SPDR sector ETF (XLF) have broken above their 200 day moving average on high volume. This is an indication of higher prices for financial equities and IMO is very good news for the economy.
Breakout points are usually tested, so for those so inclined, a correction should offer another opportunity to get long.
This is just my cheap opinion but I believe the banks are beginning a multiyear bull cycle similar to the one that occured in the ninties. The Fed is reliquifying the banks in very similar fashion. Share prices will, over time, move much higher....again, just my cheap opinion. Do your own homework if and before you invest.
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ReplyDeleteBenji,
ReplyDelete1. Start raising interest rates and reward savers.
2. Takeover failed/zombie banks/corporations and sell-off their assets to more prudent companies as quickly as possible.
3. Start reducing private assets held on the Fed's B/S.
4. Drop long term rhetoric such as 'low rates for eternity' from Fed speak forever. Market should not rely on Fed speak for arbitrage opportunities.
5. Tell Congress to get its act together. Fiscal/Taxes are the way to improve economic fundamentals and create real wealth. Not printing more dollars.
6. Remove Fed's dual mandate. Fed, if it is going to exist at all, should focus on stable money supply. Not supplying continually increasing amounts of ever more worthless dollars.
The Fed is heading towards its own demise. This is probably the best type of creative destruction we could hope for right now.
Currently, the Fed is expanding further and deeper into various forms of central planning. See Russia for possible outcomes...
Scott,
ReplyDeleteYou were talking about a Gold shellacking because of what the Fed "didn't do" the other day. It is probably time to retract that statement as Gold is leading the races once again.
John-
ReplyDeleteI think we are makig headway against the recession, but at glacial speed. There is nearly a fetish now about inflation--people forget when we had 4 percent inflation, the Wall Street Journal said to Paul Volcker, "Job done, ease up."
If the Fed stays on the strong QE path, I see a secular rally in equities and property, extending deep into this decade.
The field is wide-open for the Fed. Never in recent history has the inflationary threat been so minimal--inded, the threat is deflation.
Public Library-
ReplyDeleteYou gave your recommendations for the US (most of which have been followed by Japan for 20 years).
Why has tight money so failed Japan?
Also: I find many who say QE2 will lead to asset bubbles. Okay. Is gold then in an asset bubble? Does that mean we can expect gold to pop? Why or why not?
Benji,
ReplyDeleteJapan has never let its economy take the necessary steps to 'un-subsidize' itself from monetary and fiscal intervention.
The only way to create economic growth is through savings and investment but Japan + the US continually punish savers to reward banks/exporters in a virtuous cycle downward.
Debt loads need to come down globally and there is nothing Bernanke et al can do about it. De-leveraging will continue and is healthy although the adjustment process painful.
China will reign supreme in my opinion. They are not going to continue holding worthless dollars and they are already in the process of accumulating physical resources versus other paper assets + they now have the production capabilities.
You are too fixated on the Japanese experience but I believe your focus is misguided. You think Japan has not done enough while I think Japan has done too much of the wrong things. Namely, too much intervention and not enough purging of bad assets and rewarding savers for their efforts.
Printing more money will not solve any of this plain and simple. You are simply dead wrong on what more money can do.
Public Library-
ReplyDeleteIf you check out the St. Loo Fed website, you will find that U.S. core inflation has been trending down since 2007, and looks like it will go into deflation next year, given trend lines. It is eerily similar to Japan inflation rates befor they went into perma-recession.
U.S. real estate is in a depression, and the longer it stays in the depression, then the longer it will stay in depression. See Japan and banks. It becomes a downward spiral, as banks end up with more and more bad property loans, and become less and less eager to lend on property, lowering property values more, resulting in more bad loans....
On China: I agree, with the caveat in the West we do not understand China, and don't even know that it is the Communist Party that controls voting shares of China's publicly held companies.
Price signals and political ambitions could easily become garbled in such a system. The complete stifling of free speech is another huge negative.
Maybe China keeps growing, but maybe it collapses too. BTW, they are printing money like crazy, and make the Fed look like pikers.
But answer the Big Question: Is gold just another asset bubble caused by printing money? Will it pop?
Why or why not?
Hey Pub,
ReplyDeleteIf your dollars are 'worthless', send 'em on over to me. Be glad to take 'em off your hands.
Benj,
ReplyDeleteJapan has coddled the banking system and corporate export market for decades. Instead of taking the necessary losses and purging the system, they continue to finance weak companies with free money.
The Federal Reserve is headed down the same path. The problem is not the path, it is the interventions along the way. You either take them quickly and painfully, or you turn it into a chronic sickness that can last for decades.
Printing money won't change the result. Neither does zirp. The smart thing to do is step back and normalize and let the market work itself out.
Trying to bail out failed institutions and real estate investments by 'incentivising' people to lever is ludicrous. See 2008.
The patient is finally calling out for the necessary treatment but government continues to get in the way.
Here ya go. From Mark Cuban. The problem is not too little capital out there that we all know to be true regardless of which camp you are in (inflation/deflation).
ReplyDeletehttp://blogmaverick.com/2010/11/08/how-the-fed-is-getting-qe2-wrong-the-anti-wealth-effect/
Most of the new jobs are temporary placements in the professional and business sector through temporary help agencies. Next up are food services; i.e., french fry guys, waitresses, busboys, and dishwashers. These jobs may be keeping many households from their own financial Armageddons. They are not causing any significant impetus to "the recovery". Real GDP remains below its Q4-2007 print.
ReplyDelete