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: