This table is the Fed’s response to researchers who say that only short-term unemployment puts downward pressure on inflation. It comes from a newly published research paper by Michael Kiley, a senior economist on the Fed staff. Read more
For the last three years, there has been no breakfast for journalists on the opening day of Jackson Hole, while we write up a dramatic, market-moving speech by Ben Bernanke. It’s a more sedate start this year with a thoroughly wonkish paper by Stanford’s Robert Hall.
There is not much new in it on policy. It starts with a fairly straightforward rundown on why the economy got into such a mess when interest rates hit zero after the financial crisis, and it ends by agreeing with last year’s paper by Michael Woodford on what to do with monetary policy (QE doesn’t work, you need commitments about future policy, not just guidance).
The meat of Mr Hall’s paper is about why inflation did not fall much after the crisis despite high levels of unemployment. This has been a surprise during the last few years: unemployment has not driven down wages in a way that led to deflation. Read more
When the Fed began its third round of quantitative easing last autumn, the most recent jobs report in hand was for August, which showed an unemployment rate of 8.1 per cent. Today the unemployment rate is 7.6 per cent. The Fed said it would keep buying assets, currently at a pace of $85bn-a-month, until there is a “substantial improvement” in the “outlook for the labour market”. The question is whether the current data meet that condition or at least bring it close enough that the Fed can start to taper its purchases.
You still need a strong constitution or a taste for gallows humour to read most eurozone economic statistics, as today’s release of the preliminary Q1 gross domestic product
growth contraction data shows.
The bloc is now in its longest recession since the birth of the single currency, beating the post-Lehman Brothers slump in duration, though not in the depth of the downturn. Read more
The Boston Fed’s annual economic conference has opened with a paper on labour force participation, presented by two senior Federal Reserve Board economists Christopher Erceg and Andrew Levin, that has pretty dovish implications for monetary policy.
Like most other research on this subject, they find that the big decline in labour force participation since 2007 is mainly cyclical, not structural. More interestingly, they split the “employment gap” — the gap between current employment and maximum possible employment — into an “unemployment gap” and a “participation gap”.
One of the most surprising US economic developments in recent months is the sudden decline in the unemployment rate from 9.8 per cent in November to 8.8 per cent in March. The reasons for it have profound implications for monetary policy. If you think this rate of decline is sustainable, than you quickly reach levels where monetary policy needs to tighten.
I’ve done about 1,000 words for tomorrow’s paper about today’s payrolls numbers, the seasonal and statistical effects that Wall Street economists are arguing about, and the second month of divergence between the household and establishment surveys.
I don’t know what it all means and I think that’s the point: the Fed still has no clear steer on the labour market and will have to hope that it gets one by April.
Today also saw the annual benchmark revisions to the establishment survey. We already knew that it would show still lower employment as the US came out of the recession: Read more
In a mixed set of British labour market figures today, unemployment was up, the claimant count was down, and earnings growth was rather flat. There was nothing in the figures to suggest inflation is getting out of control and when you look at the details of the Labour Force Survey data, it becomes clear that the employment picture will worsen over the next two releases.
How can I be so sure? Because the official employment and unemployment figures are based on a rolling three-month average, but the Office for National Statistics also publish monthly data for transparency. November was a shocker. The charts show this, with the employment rate falling to its lowest level since the crisis started offset by a spike in inactivity not unemployment. Read more
Unemployment has risen for the first time in six months, the Office for National Statistics said this morning, calculating that the rate rose by 0.1 percentage points to 7.9 per cent between August and October compared with the May to July quarter. This rise translates to a 33,000 increase in unemployment and an almost identical decrease in employment.
The trouble with the numbers, however, is that they are seriously distorted by an apparently rogue survey month in July which showed very strong employment levels and low unemployment. A month ago, July was part of the latest three months and now it is in the base for the comparison. Read more
An Ivy League handover may be in the cards for the post of National Economic Council director, president Barack Obama’s top economic adviser. Departing the White House is Larry Summers, former head of Harvard University, who will be returning to the famed Boston institution to teach, after delivering his farewell speech at the Economic Policy Institute on Monday. Potentially arriving is Rick Levin, an industrial economist – and president of Yale University since 1993 - who has already been active in Washington and is being considered for the job.
Mr Levin is facing competition from at least two other potential candidates – Roger Altman, the investment banker and former deputy treasury secretary who chairs Evercore Partners, and Gene Sperling, an adviser to the treasury department who recently played a big role in forging the deal with congressional leaders on the Bush tax cuts. There may be others in the mix too. ”The president is interviewing a number of qualified candidates and no decision has been made,” an administration official said on Tuesday.
Mr Levin would make a good choice for Mr Obama on several levels. Read more
Latest Fed projections for the US economy are expected to have worsened considerably from last quarter. Robin suggests the 2011 growth forecast, due for release tomorrow, will fall to 3-3.5 per cent for next year. Unemployment might rise above 8 per cent in 2012, with long-term unemployment rising by more than a percentage point to 6 per cent. Below is a summary of recent projections with Robin’s figures added to the November row:
It might only be 0.1 per cent, but the aggregate rise in euro area unemployment in September masks wildly different experiences among the 16 member states. Only Germany and the Netherlands saw unemployment fall during September, both by 0.1 per cent. Most saw no change or a slight rise. The biggest rises in unemployment were Spain, Italy, Ireland, and – perhaps surprisingly – Austria.
So the headline change – of rising unemployment – is generally representative. It’s the levels that are misleading. Unemployment in euro member states ranges from 4.4 (Netherlands) to 20.8 per cent (Spain). Spanish unemployment continues to be worrying: it is high and it is climbing, steadily and quickly, month on month. Spanish unemployment has climbed an average of 0.2 percentage points in each of the past 10 months. Slovakia is also a concern in this regard, with unemployment now standing at 14.7 per cent, up 0.9pp on the year. (If we had recent numbers for Greece, they might also be on this list.) Read more
One of the key debates within the Federal Reserve and US economic policy circles in recent months has been whether the high unemployment rate is mainly due to structural or cyclical factors.
In the end, the prevailing view is that although there are some mismatches in skills and geography in the US labour market, the main problem is a broad-based lack of demand, which will hopefully be aided by even lower borrowing costs – hence next week’s likely move towards a second round of quantitative easing.
But a survey out today by Challenger Gray & Christmas, may, on the margins, challenge that certainty. A quarterly poll by the Chicago-based employment group found that the “relocation rate” of American workers – or the percentage of job seekers who found a new position and moved to a different region as a result – hit a record low of 6.9 per cent in the third quarter (the survey started in the 1980s).
To be sure, US labour market mobility – traditionally one of the strengths of America’s economic structure – has been on the decline. The annual average relocation rate in 1990 was 30.5 per cent, sliding to 22.9 per cent in 2000 and 13.3 per cent in 2009. But it has taken a plunge this year, with the average for 2010 now at 7.3 per cent. Read more
Ben Bernanke, Federal Reserve chairman, did not satisfy everyone’s desires for a decisive, comprehensive, statement on what the US central bank will be doing to address the sluggish recovery in his speech today in Boston.
For instance, he did not even touch some of the more radical moves to tackle inflation expectations that were mentioned in the minutes from the last FOMC meeting in September, such as a nominal gross domestic product target or a price level target.
In addition, Mr Bernanke addressed some of the risks associated with quantitative easing, saying for instance that “one disadvantage of asset purchases relative to conventional monetary policy is that we have much less experience in judging the economic effects of this policy instrument, which makes it challenging to determine the appropriate quantity and pace of purchases and to communicate this policy response to the public.”
But no-one came out of the speech with the impression that the Fed is rethinking a QE2 announcement in November. Quite the contrary, it seems that the debate on the need and timing of a move is pretty much settled, but there is still some wavering and discussion on the form. Read more
The Great Recession of 2007-2009 hit hardest in two areas: sun-belt states such as Arizona and Florida that were exposed by the housing boom and bust, as well as rust-belt states like Michigan and Ohio that were already suffering from the erosion of America’s manufacturing base. Interestingly enough, Texas and the Midwest, which bore the brunt of the 1980-1982 recession, managed to escape most of the pain this time around.
The worst-off communities in this cycle were the focus of a conference this morning organised by the Brookings Institution’s Hamilton Project, which conducts research on economic policy and counts Robert Rubin, former treasury secretary, and Roger Altman, former deputy treasury secretary, as senior advisers. Read more
The European Central Bank saved 800,000 eurozone jobs during the recession! Just wait for ECB policymakers to start making the boast.
A research working paper, published this weekend on the Frankfurt institution’s website, calculates that its “non standard” measures resulted “in an unemployment rate about 0.5 percentage points lower than would have been the case following Lehman’s collapse in the absence of such measures”. The flow of bank loans to business and consumers had also been helped.
In fact the impact could have been even larger. Read more
At first glance, the numbers are finally going in the right direction – for men, at least, and driven by record-breaking levels of part-time work.
The labour market is growing again: employment rose and unemployment and inactivity fell in the second quarter, latest ONS figures show. The employment rate, which had been falling steadily, rose 0.4pp to 70.7 per cent, while the unemployment rate tempered slightly from 7.9 to 7.8 per cent.
This is a welcome change from several months in which both employment and unemployment were falling: i.e. the labour market was shrinking.
But the good news has a definite sex bias. Good news for male workers overshadows or is offset by a mostly worsening picture for women. For instance, Read more
Tomorrow, the Bureau of Labour Statistics is expected to say that private sector payrolls rose by only 42,000 in August, and that unemployment went up. Scrutiny of the numbers will be intense: both economic, for evidence on the health of the recovery and the Fed’s next move; and political, for insight into the Democrats’ prospects in this autumn’s elections.
But the 42,000 (or rather the likely -100,000 headline) is the difference between the 138,960,000 Americans who were employed in July and however many had jobs in August. A change of 100,000 is 0.07% and a change of 42,000 is 0.03% of the total. Read more
Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, has just delivered a very interesting speech in Marquette, Michigan, on the shores of Lake Superior. His focus was basically educational: to explain how the Federal Open Market Committee functions – though he did have a message for the markets – that their negative reaction to last week’s monetary policy statement was “unwarranted” and the US economy was in no worse shape than they thought before the meeting.
But in the meantime, he waded into the debate over whether the US is facing a worrying structural shift in the labour market that could lead to high unemployment rates for a very long time. Read more
American unemployment is worse than forecast under the “No Stimulus” scenario. This from Dallas Fed research (h/t zero hedge).
This rather sobering chart shows unemployment more than two percentage points above plan. The forecasts, which come from the Bureau of Labour Statistics in January 2009, predicted an almost immediate turning point in labour market fortunes. In fact, unemployment continued exactly on trend. Read more