Posted by: Michael Mandel on September 05
This morning’s employment report has settled the question of whether the U.S. is in recession. With the unemployment rate jumping to 6.1%, the answer is unequivocally yes.
Now the question is: How bad will the recession get? The answer: Pretty bad. So far the jobs cuts have mainly hit construction and manufacturing. Over the past year, those two sectors have lost roughly 850,000 jobs.
However, the job disaster has not yet truly hit the rest of the economy. In particular, over the past year real estate is down only 39,000 jobs, commercial banking is down only 5,000 jobs, and securities and commodities is actually up 14,000. These industries have to make a lot of big job cuts to get to where they need to be.
What’s more, I expect a lot more job cuts in retail and wholesale trade. Consumers still have not yet fully adjusted their spending downward to the new realities. When they do, the bottom is going to fall out of retailing.
Finally, whatever impetus the U.S. economy was getting from exports is going to ebb away, as Japan and Europe are showing negative growth in the second quarter. That won’t help manufacturing.
My best guess is that the U.S. economy is going to experience a sharp downdraft in the rest of 2008 (think severe turbulence in an airplane), led by falling consumer spending and by falling employment. .The only cushion is healthcare and education (to some degree), But even those jobs will slow down as government budgets get tight.
The drop in oil prices will help a bit, but high energy costs have already done their damage.by sucking a lot of buying power out of the economy. To put it a different way, if you’ve paid $100 extra for gasoline, that $100 doesn’t magically reappear when gas prices go back down. It’s gone.
We are having to pay back for the years of consumer excess. And it won’t be pretty.
Posted by: Michael Mandel on September 04
The BLS has just published its response to its critics, especially John Williams at Shadow Government Statistics. The BLS writes:
One widely cited alternative index is based on an estimate that changes to the CPI since 1983 have lowered its growth rate by at least 7 percentage points per year. The use of the geometric mean alone is stated to have lowered the CPI growth rate by 3 percentage points, and other BLS changes, such as the use of hedonic models and OER, supposedlyhave lowered the growth rate by an additional 4 percentage points.
Each of these estimates of the impact of BLS changes is inconsistent with the empirical evidence. As noted earlier, the BLS has computed indexes showing that the use of the geometric mean formula has reduced the growth rate of the geometric mean of the CPI by only -0.28 percentage point per year, not 3 percentage points. Also discussed earlier, BLS analyses have shown that if the implementation of hedonic adjustment models since 1999 has had any net downward effect, it is very small.
I looked at the Williams site, and I honestly have no idea where he gets his numbers. Can anyone enlighten me?
Posted by: Michael Mandel on August 28
Should the Fed be worried about inflation? It depends on whether Bernanke and friends are looking at the prices of what we make, or the prices of what we buy. Take a look at this chart. The blue line is the inflation rate for gross domestic purchases--that is, what we buy. The pink(?) line is the inflation rate for gross domestic product--what we make. In both cases, what's being measured is inflation over the previous year.
Measured on a year over year basis, prices for what we make--even including food and energy--are rising at a 2% pace, their slowest rate since 2002. In fact, if we just look at this quarter, the price change for GDP was only 1.2%, the slowest rate since 1998!
On the other hand, the prices for what we buy are soaring--up 3.5% over the past year, and rising at a 4.2% rate in the second quarter.
Historically these two indexes move more or less in parallel. The last time they were so far apart was 1980, when Volcker was in the middle of executing his big squeeze. But in that case, they were both very high (roughly 11% for gross domestic purchases, and roughly 9% for gross domestic product). And they were both moving in the same direction--up.
But this time the two indexes are flashing very very different signals. So which one should the Fed look at? What we buy, or what we make?
Posted by: Michael Mandel on August 26
Assuming that the boom ended in 2007, the new census data allows us to identify the big winners and losers in this business cycle. Obviously a high school or a college degree by itself was not enough to make you a winner.
The big surprise: Even a mere masters degree was not good enough to give you a gain in this cycle. Only a professional degree or a PhD let you avoid a real loss in in come.
Here's the chart of the change in real median earnings from 2000 to 2007, for full time workers.
(trying out a new chart style).
Posted by: Michael Mandel on August 26
The latest income distribution numbers are out from the Census Bureau. There's something there for everyone, Democrats and Republicans. Real median household income is up, real mean household income is down. Real median earnings of both male and female full-time workers rose, but Real per capita income fell.
For my part, I'm back to my regular business of being concerned with young college grads--the ones who don't have advanced degrees. Basically, the last numbers show almost no change between 2006 and 2007 (as the chart below shows). Young college grads still have not made back their losses from the earlier part of the decade.
I'll have more in a bit.
