Thursday, September 26, 2013

The private sector is ready to go

Labor market conditions have improved significantly in the past month or so. Combine this with the dramatic improvement in households' finances this year, and one is forced to ask: why is there still so much pessimism in regards to the economy? To be sure, there are lots of things that could be better (e.g., the labor force participation rate, the unemployment rate), but there are important labor market metrics that are now almost as good as they get. 

In the past six months, initial claims for unemployment have declined at a 27% annualized pace. They have rarely been this low. Labor market conditions have improved significantly; the chances of a worker being fired today are almost as low as they have ever been.

The number of people receiving unemployment insurance has declined 24% in the past year, and is now down almost to pre-recession levels.

With labor market conditions about as tight as they get, and with corporate profits at record levels, the economy is primed for a burst of hiring and stronger growth IF business confidence improves. This is not such a bad problem to have, since there are any number of things that can be done to unleash the economy's pent-up potential: for example, we could cut tax burdens, reduce regulatory burdens, improve confidence in monetary policy (e.g., start tapering, start raising short-term interest rates), and simplify the tax code.

The private sector is ready to go; now we just need to get government out of the way.


William said...

Except in 1998 and 1999 when there didn't seem to be a serious care in the world ( the hey-day of the "day traders" ), when has there not been major problems in the USA and the World. Think of them: the Great Depression, WWII, the post WW II Recession, the Korean War, the years on years of the Cold War and threat of nuclear annihilation, the Cuban debacle and nuclear threat, the launch of Sputnik and the "we're behind in education" scare, high inflation of the late 1970s and early 1980s, the dominance of Japan technologically and managerially in the late 1980s, the rise of terrorism and airplane and ship hi-jackings, Bill Clinton's impeachment, the 2000 bursting of the tech / internet bubble, 9/11 etc. etc.

It is rather bizzare that 5 years after the March 2009 S&P 500 low, folks are still so pessimistic. What is wrong with us that we can't bounce back as the USA has done many time before?? Did I fail to mention the Civil War??

Benjamin said...

Something squishy about these labor figures...I fear too many people are going on SSDI or other welfare programs. One-third of returning vets now claim post traumatic stress disability (the PTSD program was liberalized and no one complained).

The solution is lower taxes on productive behavior and...a more robust growth policy on behalf of the Fed.

The Fed is expansive? Hardly...we see PCE deflator dropping towards 1 percent.

In the last five years the PCE chain index up 6 percent, a record low increase.

The Fed is fighting heroically---against inflation. Um, wrong battle.

John said...

"Pent-up demand" may exist in the upper 5%, but the middle class is either broke or hanging onto their dough for retirement. Health care and college are too expensive. Repealing Obamacare will not help the former. We need a Canadian-style single-payer system. Higher ed needs to go on a diet.

Joseph Constable said...

What is weird about initial claims is that they are so low. Historically 300k was a bubble. With so many more people working now it is like 250k in times past which is bizarrely low.

I am in the VA healthcare system. While it isn't a single payer system it has many of the worst elements. There is a drug the wise few at the top of the VA say they will not provide. A top specialist at Stanford says I should take it. And I do. It is only about $18 a month so it isn't cost that the VA is concerned about. You may not regret going single payer personally but many people will suffer when you eliminate the flexibility of personalized care and replace it with a bureaucracy.

What needs to eliminated is the monopolistic protections and cost shifting.

William said...
This comment has been removed by the author.
William said...

Health care in the USA is extremely complex so it can not be discussed on a Blog in a couple of paragraphs. Suffice it to say that the USA pays twice as much per patient as does Canada, western European countries, Scandinavian countries and Japan; but our system's results are inferior to those countries as shown by many studies.

So why pay double for an inferior product - that is the bottom line for this country.

This will make most reader puke; but the World Health Organization studies concluded that FRANCE - place your hand over your mouth - had the best over-all health care system in terms of results for all patients.

So go ahead and spout your rhetoric, but as a physician who has read the studies and results, those are my conclusions.

steve said...

william, the problem as I see it is the "for profit" incentive US docs have. the more tests/surgeries/procedures they order, the more they get paid and don't forget medical malpractice lawyers. always on the sidelines ready to pounce. patients EXPECT these things and would never give up their treatments just as they'll never vote away the dole. we are rightly screwed and I see no way out. train wreck is unavoidable as boomers age.

William said...

I agree with you Steve. And it is not just Doctors, hospitals are only two happy to buy the latest expensive technology - often when there are no comparative studies to justify there use. Why? Because the purchased equipment results in new expensive charges which they didn't have previously - a new source of revenue.

And the equipment makers sell their products (think CAT scaners, MRI machine, hip and knee replacements or pacemakers) for much more to US hospital than to hospitals in Europe or Japan, etc. partly because American hospitals charge much more for these procedures and can afford to pay.

I read a recent article that charges for various CAT or MRI scans in Japan are only 20% of what US hospital's charge.

And of course everyone should know that prescriptions cost US patients much more than citizens of other countries pay.

The whole system is unintelligible to most people including those who work in it. A NY Times study asked hospitals around the US what common procedures would cost their patients. Many couldn't, or wouldn't, say what these procedures typically cost. Among those which did provide a cost figure, the costs varied dramatically even within the same city, not to mention between cites or states. Some hospitals charged as much as 3 times more than others.

Burt said...

Nice point about gold being twice its long term deflated average. Here's a graph of deflated gold vs. 10-year forward return..