Friday, February 3, 2017

January jobs: more of the same

Job gains in January beat expectations by a significant margin (+227K vs. +180K), but from a big-picture perspective, nothing much has changed over the past six months or so. Private sector jobs (the ones that really count) are growing at a modest 1.8% rate, the rate which has prevailed since last summer. We've seen an uptick in animal spirits (e.g., consumer confidence, small business optimism, equity prices), but it hasn't yet translated into anything substantial on the employment front.

As the chart above shows, monthly changes in private sector jobs can be, and typically are, quite volatile. You can't draw strong inferences from one month's numbers.

The chart above looks at the rate of change in private sector jobs over the past six and twelve months. This has been roughly 1.8% since last summer, and that is a relatively slow pace even for this relatively tepid recovery. We'd have to see a few more months of job gains like January's before getting excited. I'm not saying this won't happen, just that it's premature to declare that the pace of economic growth has accelerated.

The growth of the labor force has been unusually weak for most of this recovery, but it has been improving somewhat on the margin for the past year or so. I'd expect this to continue.

Part-time employment has been fairly steady for the past seven years or so, and it has declined to a relatively low level compared to the total employment, as the chart above shows. This is the pattern which has prevailed in almost all modern recoveries. Nothing remarkable. 


Matthew Grech said...

Scott: In your opinion, why does the border adjustment scheme have life? Why isn't the truly pro-growth Republican crowd pushing for an elimination of the corporate tax? (It doesn't raise that much money for the US Treasury anyway.) Short of that, why isn't a 15% broad tax with a fix to the repatriation dilemma put forward? I'm sincerely asking: what forces could possibly be for this overwrought, complicated tariff mess?

steve said...

Matthew, answer: lawyers and accountants, ten of thousands of them...

steve said...

Oh, I almost forgot, GO PATS!

Scott Grannis said...

My sense is that Trump's insistence on some sort of plan that taxes imports (and/or some kind of border tax system or consumption tax) is running into opposition from others (like me) who realize it is suboptimal, if not very complicated and very different from our current system, which is manifestly suboptimal. Even among smart economists there is confusion and at the very least a lack of consensus. For example, see John Cochrane:

Instead of a border tax, I would love to see a quick fix for corporate income taxes that would slash rates and eliminate the penalty for repatriating profits. Next, I would love to see lower rates on income and capital gains, coupled with a limit on, or the elimination of, most deductions. I would also hope that whatever plan is proposed be evaluated by CBO using dynamic scoring methods. Cutting corporate taxes significantly—considering how obviously egregious they are currently—would have to result in many positive knock-on effects that would surely boost growth and expand the tax base.

amritsari said...

Scott - your arguments regarding cutting corporate taxes, repatriation etc etc are a simple rehash of the old trickle down theory. You realize that these arguments do not resonate with the working class anymore ?? Thats the reason Trump won. The working class has been waiting for the trickle down for the last 30 years and has only seen stagnant wages and fewer opportunities. And no it wasn't because of Obama. It has been a secular trend over many presidencies. Please try again.

Scott Grannis said...

Productivity is the driver of living standards. It has been extremely low for the past 7-8 years, averaging about 0.6% per year. Poor productivity can be traced back to weak corporate investment, which in turn has been impacted by our egregiously high corporate income tax, plus all the new regulations that burdened companies under Obama. And then of course we have the massive increase in government spending that began in late 2008 and which more than doubled the burden of federal debt outstanding. High taxes, increased regulatory burdens, huge income redistribution easily explain why there has been no trickle-down: government has killed all the trickle-down incentives. I'll blame Bush II for some of this as well.

Tumnus said...

It seems to me that the supply side has won and there is overcapacity and over supply of about everything.
It also seems that there is a concentration of capital which is tax advantaged vs. labor who have to pay higher graduated taxes on, higher social security taxes on income, and gets little or no subsidy on medical insurance premiums.
It seems time to re-evaluate capital gains tax advantage accrued mainly be the top 10% of the population.
A professional earning in the 6 figure range pays 15.75% SS tax, 39.6% federal and perhaps state income tax as well. Meanwhile, wealth lives on capital gains and pays in the 20% range.
It seems tax fairness should tax all income the same. I truly appreciated Reagan's 80s tax reform where everyone paid 28%. The Bush I, in the deal with the Democrats increased income tax and lower capital gains.
Tax on the first $118,500 is over 55%. Income tax reform could definitely boost the demand side. Just food for thought.

Benjamin Cole said...

Tumnus does raise a good point: Reagan's tax cuts (which I liked) resulted in equal taxation of wages and investment income, setting aside FICA taxes.

Here is an observation: American economists tend to go ballistic at mention of a border or import tax. But the heavy FICA taxes on hiring and working are rarely a topic.

Scott Grannis said...

Re Supply side: I think it's helpful to take a big-picture look at the relationship between capital and labor. Capital is essentially if labor is to be well-compensate and able to enjoy a prosperous lifestyle.

Labor and capital are the two major inputs to an economy. When one is abundant, by inference we know that the other is scarce. When an economy has an abundance of capital, labor will be is such high demand that wages will be high and demand will be strong. But when an economy like Venezuela, for example, finds itself with a severe shortage of capital, then labor is in over-supply and wages are miserable and demand is anemic. Lots of capital requires lots of labor (to man the factories and the stores, and the back offices). We should therefore do everything possible to encourage capital formation because that is the key to prosperity.

The US has chosen to tax capital at egregious rates (e.g., our corporate income tax which is the highest in the developed world) and that is why labor is not enjoying as much prosperity as we should be capable of. Capital remain offshore, and businesses prefer to pay dividends rather than use profits to expand their business. More investment would surely follow a reduction in corporate income taxes, and that would boost jobs, wages, and ultimately demand.

Benjamin Cole said...

Global real estate investment company Kennedy Wilson (NYSE:KW) today announced that the company and its partner acquired Radius, a 282-unit multifamily community in the South Lake Union submarket of Seattle, Washington, for $141 million


That is $500k per unit. Sounds very rich. Maybe there is a convert-to-condos move. Across the street from Seattle has the usual West Coast property zoning.

Keep your eye on real estate. If it cracks, then lenders will pull back, widening the crack etc.

steve said...

Off the subject but I don't think Scott will mind. A paraphrase of some of Seth Klarman's recent musings. More or less backing up my assertion that stock and bond markets delinked. Stocks seem far more optimistic than bonds to me. Moreover, I am a vehement critic of "AMERICA FIRST". Rather, borrowing from Ayn Rand, it should be ME FIRST and all consumers should have access to worldwide goods without tariffs and trading limits. Protectionism will have a bad ending and the GOP will be blamed for it.

Scott Grannis said...

Klarman is correct to worry about Trump's trade policies, and that is what has most concerned me. But I disagree that tax cuts could prove problematic. In fact, I think a major new concern has arisen of late: that Trump and the Republicans may not be able to agree on a tax reform/cutting plan this year. It is the absence of tax cuts, or their perceived delay, that poses a serious risk to the economy this year. Investors have been pricing in the likelihood of tax reform this year; if it is instead postponed until next year, or if it is not promised to be retroactive to the beginning of this year, then people will have a strong incentive to postpone investment and income until next year. This could seriously weaken the economy, as was the case with the phasing in of tax cuts in Reagan's early years which in turn helped create a recession.

Benjamin Cole said...

Seth Klarman is evidently the Oracle of the Hour. I never heard of him before, but now he is deferred to by many. He seems like a very smart guy, and has been a successful investor, so hats off.

And yet Klarman seems have accepted modern-day macroeconomic orthodoxy, which is departing from empirical observation more with each passing year.

So, how to explain Japan?

The central bank there, the Bank of Japan, now owns 40% of Japanese government bonds (JGBs). They have run big national deficits for decades and yet have deflation. (Worth noting, they have strong apartment construction in Tokyo--property zoning is weak, a big, big positive).

In other words, the Japanese government owes money to itself. The debt has disappeared, as the central bank printed money and bought 40% of JGBs outstanding, and is still buying!

Obviously, orthodox macroeconomics is broken. I have advocated balanced federal budgets for decades. Yet, obviously, in the modern world, a central bank can buy back government debt without consequence, and possibly with salubrious effect. The Fed bought $4 trillion in Treasuries and MBS, and hardly anything happened. Inflation actually went down for a while.

The Brit economist Adair Turner advocates simple money-financed fiscal programs, aka helicopter drops, to boost aggregate demand. My guess is that Turner is right.

On trade:

The above report says that nations that run large deficits have house price bubbles. Well, if a nation consumes more than it produces, it must sell assets, and foreigners like property. But property is zoned to create shortages.

Klarman and the nation need to address this issue. Are large inflows of capital into property markets a good thing, if property is zoned to artificially create scarcity?