Unemployment Archives - Page 4 of 7 - the patient investor %

June 15, 2015

Why Fixed Investment is Critical to the US Recovery

The financial sector normally acts as a conduit, channeling savings from private investors to the corporate sector. When the conduit works effectively, the injection of demand from corporate Investment is sufficient to offset the ‘leakage’ from demand caused by Savings. Savings patterns alter during a financial crisis, however, with concerned households cutting back on expenditure and using any surplus to pay down debt, rather than depositing with the bank or buying stocks. Household Savings rise but corporate Investment contracts. The resulting ‘leakage’ from demand causes GDP to spiral downward.

When Investment contracts, unemployment rises. The relationship is evident on the graph below, but it could also be said that Investment rises when employment grows — businesses invest in anticipation of rising demand. Either way, it is safe to conclude that rising investment and job growth go hand-in-hand.

Employment Growth and Private Nonresidential Fixed Investment

Fixed Investment and Corporate Profits

Rising corporate profits also lead to increased investment. The lag on the graph below — investment growth follows profit growth — clearly illustrates the causative relationship.

Employment Growth and Private Nonresidential Fixed Investment

This is an encouraging sign, as the current surge in corporate profits is likely to be followed by rising investment — and further job growth.

Weekly Earnings and GDP

Rising weekly earnings already point to improving aggregate demand and consequent investment growth.

Weekly Earnings Growth

All that is missing is for the federal government to increase investment in productive* infrastructure to further boost job growth.

*Infrastructure investment needs to generate a sufficient return to repay debt incurred to fund the spending. Something many politicians seem to forget when preoccupied with buying votes for the next election.

More….

The Long War [podcast]

The Impunity Trap by Jeffrey D. Sachs | Project Syndicate

RIP ZIRP | PIMCO

How much longer can the global trading system last? | Michael Pettis

Crude retraces

Gold breaks $1180 support

Itzhak Perlman: Schindler’s List (video)

There are two kinds of discontented in this world, the discontented that works and the discontented that wrings its hands. The first gets what it wants and the second loses what it has. There is no cure for the first but success and there is no cure at all for the second.

~ Og Mandino

June 15, 2015

Why Fixed Investment is Critical to the US Recovery

Employment Growth and Private Nonresidential Fixed Investment

Fixed Investment and Corporate Profits

Rising corporate profits also lead to increased investment. The lag on the graph below — investment growth follows profit growth — clearly illustrates the causative relationship.

Employment Growth and Private Nonresidential Fixed Investment

This is an encouraging sign, as the current surge in corporate profits is likely to be followed by rising investment — and further job growth.

Weekly Earnings and GDP

Rising weekly earnings already point to improving aggregate demand and consequent investment growth.

Weekly Earnings Growth

All that is missing is for the federal government to increase investment in productive* infrastructure to further boost job growth.

March 8, 2015

When good news is bad news

Jobs report redux:
?? +59,000 jobs
?? +51,000 jobs
?? +29,000 jobs
?? +24,000 jobs
Score: ☺️ http://t.co/z9xNQJA25N

— CNN Business (@CNNBusiness) March 6, 2015

“The U.S. economy added 295,000 jobs in February, a strong gain that beat expectations by a mile. Unemployment fell to 5.5%.” You would expect stocks to surge on the strong employment numbers. Instead the S&P 500 fell 1.4% on Friday. Penetration of support at 2080 warns of a correction.

S&P 500 Index

I can only ascribe this to fear of a rate rise. The stronger the employment data, the closer the prospect of the Fed raising interest rates. But Janet Yellen is likely to err on the side of caution, only raising rates when she is sure that the economy is on a sound footing and inflationary pressures are rising. That is far from the case at present, despite the good job numbers.

Chart: So much for "wage pressures" – pic.twitter.com/yGh9NbqwQa

— (((The Daily Shot))) (@SoberLook) March 6, 2015

There is plenty of short-term money in the market, however, that seems to think otherwise.

October 29, 2014

Surprising lack of inflation as unemployment falls | Bank of England

Sir Jon Cunliffe, Deputy Governor for Financial Stability at the Bank of England:

“The big surprise, therefore, for the [Monetary Policy Committee] … has been the extent to which employment has been able to grow without generating more inflationary pressure through higher pay increases. Understanding why that has happened and how long it will persist is, in my view, now key to deciding policy.”

One possible explanation may be a longer-than-usual lag between falls in unemployment and pay pressure emerging, which could mean that inflationary pressure is building in the pipeline that will be more difficult to curtail if the Bank does not act now. However, another is that a combination of factors has caused labour supply – the amount of hours of labour available to the economy – to be much stronger than in previous recoveries, for example due to the increase in women’s state pension age and changes to the incapacity benefits regime. And the fall in unemployment has included a high number of long-term unemployed, who probably act as less of a drag on pay.

Yet despite the biggest squeeze on real incomes for nearly a century, there appears to be little evidence that workers are demanding a catch-up in pay, Jon observes, possibly due to a shift in the psychology of UK workers resulting from the sharpness of the recession and the years of austerity that have followed it.

July 28, 2014

Is unemployment really falling?

US unemployment has fallen close to the Fed’s “natural unemployment rate” of close to 5.5%. Does that mean that all is well?

Chart: The unemployment rate vs. Fed's measure of "natural" unemployment rate (NAIRU) over the past 20 years – pic.twitter.com/zq2fxtcHLt

— SoberLook.com (@SoberLook) July 28, 2014

Not if we consider the participation rate, plotted below as the ratio of non-farm employment to total population.

Employment Participation Rate

Participation peaked in 2000 at close to 0.47 (or 47%) after climbing for several decades with increased involvement of women in the workforce. But the ratio fell to 0.42 post-GFC and has only recovered to 0.435. We are still 3.5% below the high from 14 years ago.

When we focus on male employment, ages 25 to 54, we exclude several obscuring factors:

the rising participation rate of women;
an increasing baby-boomer retiree population; and
changes in the student population under 25.

Employment Rate Men 25 to 54

The chart still displays a dramatic long-term fall.

July 27, 2014

Work for the Dole doesn’t work – but here is what does

From Jeff Borland, Professor of Economics at University of Melbourne:

…95% of the time a government spends thinking about unemployment should be spent thinking about ways to promote economic growth.

July 1, 2014

Full Employment and the Path to Shared Prosperity | Dissent

Great summary of the current political gridlock by Dean Baker and Jared Bernstein:

There are many policies that can reduce inequality, but there is none as straightforward conceptually and as difficult politically as full employment. The basic point is simple: at low rates of unemployment, the demand for labor allows workers at the middle and bottom of the wage distribution to achieve gains in hourly wages, annual hours of work, and thus income.

Levels of unemployment are not the gift or curse of the gods; they are the result of conscious economic policy. The decision to tolerate high rates of unemployment is a choice. It is one that has enormous implications not just for the millions of people who are needlessly unemployed or underemployed but also for tens of millions of workers in the bottom half of the wage distribution whose bargaining power is undermined by high unemployment.

It is pretty obvious that low unemployment would enhance wage growth amongst middle- and low-income workers. But the policies to create low unemployment are not as clear:

Raising inflation to lower real interest rates would not get strong support in many quarters. It would seem that you are manipulating market signals to dupe business investors to act in a fashion that may not be in their long-term best interest.
Infrastructure spending is the key to a sound recovery, but beware of raising public debt to fund anything other than productive assets that can generate a market-related return (to service the debt).
The trade deficit is a big part of any solution. We need to penalize currency manipulators like China (Japan before them) for buying US Treasurys to suppress their exchange rate and undermine US manufacturers.
Job sharing is not a long-term solution, but it does enable unemployed workers to retain skills that would otherwise be lost.

Overall, an excellent summary of what needs to be done. But it omits one vital piece of the puzzle. How do we get politicians and interest groups to act in the best interest of the country rather than their own?

July 1, 2014

Full Employment and the Path to Shared Prosperity | Dissent

Great summary of the current political gridlock by Dean Baker and Jared Bernstein:

There are many policies that can reduce inequality, but there is none as straightforward conceptually and as difficult politically as full employment. The basic point is simple: at low rates of unemployment, the demand for labor allows workers at the middle and bottom of the wage distribution to achieve gains in hourly wages, annual hours of work, and thus income.

Levels of unemployment are not the gift or curse of the gods; they are the result of conscious economic policy. The decision to tolerate high rates of unemployment is a choice. It is one that has enormous implications not just for the millions of people who are needlessly unemployed or underemployed but also for tens of millions of workers in the bottom half of the wage distribution whose bargaining power is undermined by high unemployment.

It is pretty obvious that low unemployment would enhance wage growth amongst middle- and low-income workers. But the policies to create low unemployment are not as clear:

Raising inflation to lift real interest rates would not get strong support in many quarters. It would seem that you are manipulating market signals to dupe business investors to act in a fashion that may not be in their long-term best interest.
Infrastructure spending is the key to a sound recovery, but beware of raising public debt to fund anything other than productive assets that can generate a market-related return (to service the debt).
The trade deficit is a big part of any solution. We need to penalize currency manipulators like China (Japan before them) for buying US Treasurys to suppress their exchange rate.
Job sharing is not a long-term solution, but it does enable unemployed workers to retain skills that would otherwise be lost.

May 23, 2014

How Hitler’s roads won German hearts and minds | VOX

Interesting conclusion from Hans-Joachim Voth and Nico Voigtländer, writing at VOX.

Long before the Nazi regime committed its singular crimes, it had become remarkably popular in Germany (Evans 2006). Voting records from 1933 and 1934 reveal the effect of one factor that, according to many historians, boosted support for the regime – the building of the Autobahn. Using detailed information on the geography of road-building, we isolate the effect of construction on voting behaviour by analysing the ‘swing’ in favour of the regime over a nine-month period (November 1933 to August 1934). We find that opposition declined much faster where the new ‘roads of the Führer’ ran.

Direct economic benefits for residents in Autobahn districts may have played a role, but they were probably small. More importantly, the new roads provided concrete proof of the regime’s actions, delivering on its promise to get ‘Germany moving again’. Within a couple of months of taking power, a highly ambitious highway construction project was under way at 17 different locations all over the country, affecting more than 100 electoral districts. In other words, the visible progress of road construction made the regime’s ability to follow through on its promises salient for many Germans.

Combined with effective propaganda trumpeting the regime’s successes, the roads succeeded in winning the hearts and minds of many Germans. Nor were they the only ones to be impressed. When the US Army rolled into Germany at the end of World War II, one of the officers taken with the ease of transport on motorways was Dwight D. Eisenhower. When he became President of the United States, he lead the initiative to built the country’s interstate highway system.

February 5, 2014

A Mis-Leading Labor Market Indicator | Liberty Street Economics

From a paper by Samuel Kapon and Joseph Tracy at the Federal Reserve Bank of New York:

As the economy recovered and growth resumed, the unemployment rate has fallen to 6.7 percent. …..The employment-population (E/P) ratio frequently is used as an additional labor market measure. The E/P ratio is defined as the number of employed divided by the size of the working-age, noninstitutionalized population. An advantage of the E/P ratio over the unemployment rate is that it is not impacted by discouraged workers who stop looking for employment.

Employment-population (E/P) ratio

Since the end of the recession, the E/P ratio has largely remained constant—that is, virtually none of the decline in the E/P ratio from the Great Recession has been recovered to date. An implication is that the 7.6 million jobs added since the trough of employment in February 2010 has essentially just kept pace with growth in the working-age population. In its failure to recover, the E/P ratio would seem to depict a much weaker labor market than indicated by the unemployment rate. An important question is whether this is a correct or a misleading characterization of the degree of the labor market recovery…….

Hat tip to Barry Ritholz.