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BLS Labor Report, plus implications

ResponsiblyIrresponsible
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7/2/2015 2:06:12 PM
Posted: 1 year ago
The Bureau of Labor Statistics released its monthly labor report earlier today [which can be found here: http://www.bls.gov...], reporting the following:

(1) The conventional unemployment rate ticked down 20 basis points to 5.3 percent.
(2) The U6 unemployment rate, which factors in marginally attached and involuntarily part-time workers, ticked down 30 basis points to 10.5 percent.
(3) The labor force participation rate fell considerably, by 30 basis points, to 62.6 percent.
(4) Average wages were flat on a monthly basis and up 2 percent on a yearly basis.
(5) Average workweek for nonfarm private workers didn't change.
(6) Employment-to-population ratio didn't move from 59.3 percent.

I think the signals from this are mixed: we saw a substantial increase in the participation rate in last month's report and then a similar-magnitude decrease this month, though the prior band for the LFPR - 62.7 to 62.9 percent - has held constant for some time, and that we're finally breaking away from that suggests that trend estimates might be lower than we thought. Lower trend labor-force participation, of course, would translate into lower-trend RGDP growth (via any basic Cobb-Douglas production function), which might explain why RGDP numbers have been somewhat lackluster, though Q2 projections robust, in spite of nonfarm payroll growth in excess of 200,000 jobs per month, which still displays "above normal" growth.

Wages also were showing signs of acceleration in previous months. We saw last month, for instance, year-on-year growth of 2.3 percent, but now they're reverting to their old trend line of 2 percent on a 12-month basis. This suggests a few things. First, that the job market is still improving, and that the unemployment rate is ticking down within 10 basis points of the upper bound of FOMC projections of the NAIRU (though, mind you, the downward shift in the civilian labor force might explain some of that) would normally indicate wage pressures. The absence of any of these wage pressures and still-lackluster inflation numbers indicates either that (a) it's coming, (b) the Phillips-Curve coefficient is so low that inflation will only appear down the road, suddenly, as though a time bomb, or (c) we got the NAIRU wrong, and it may be even below the lower forecasted bound of 5 percent. Second, there could be secular forces, such as lower trend productivity growth, holding down wages. Lower productivity, which relates output to hours worked, would tend to suggest that the economy can't continue to grow vibrantly without inducing inflationary pressures, though insofar as it holds down wages - and we know prices and wages tend to be sticky, though wages nevertheless are "stickier" - it may restrain consumption such that prices don't accelerate out of control.

Bottom line: I think we're nearing full employment and need to accept that the labor force participation rate *will not* return to its pre-recession level close to 66 percent. There may be some residual cyclicality, but it's small - as in small enough that it's outweighed in the risk calculus by policy lags. It does, however, suggest that the Fed has considerable room, if it so chose (though Yellen has already indicated this *isn't* a possibility), to overheat ever so slightly and allow wage and price pressures to build and investment, productivity, and business formation to pick up, hopefully shifting the LRAS - productive capacity or potential output, essentially - back to the right.

So, it's a bone to the hawks which can be twisted in a dovish direction, as of course I'll do.
~ResponsiblyIrresponsible

DDO's Economics Messiah
lannan13
Posts: 23,017
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7/3/2015 12:34:08 PM
Posted: 1 year ago
At 7/2/2015 2:16:37 PM, ResponsiblyIrresponsible wrote:
The only problem is that they distort the unemployment rate to exclude those receiving government benefits. They used to have the "Misery Factor" Which, I believe, added the unemployment and inflation rates. We can see that if we were to look at the ACTUAL unemployment rate it would be a whole lot higher.
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If the sky's the limit then why do we have footprints on the Moon? I'm shooting my aspirations for the stars.

"If you are going through hell, keep going." "Sir Winston Churchill

"No one can make you feel inferior without your consent." "Eleanor Roosevelt

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ResponsiblyIrresponsible
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7/3/2015 12:41:30 PM
Posted: 1 year ago
At 7/3/2015 12:34:08 PM, lannan13 wrote:
At 7/2/2015 2:16:37 PM, ResponsiblyIrresponsible wrote:
The only problem is that they distort the unemployment rate to exclude those receiving government benefits. They used to have the "Misery Factor" Which, I believe, added the unemployment and inflation rates. We can see that if we were to look at the ACTUAL unemployment rate it would be a whole lot higher.

The Misery Index has never been a part of the BLS report, and many people who receive government benefits work - including, for that matter, seniors.

The Index does indeed add the unemployment and inflation rates, but... the unemployment rate is converging on normal level - as is the U6, for that matter, thought we have no sure-fire estimate of its "normal" level (though it was 10% in 1996) - but the inflation rate is astonishingly *below* normal levels. That's actually a really bad thing, despite what dipsh1t politicians will tell you.
~ResponsiblyIrresponsible

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lannan13
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7/6/2015 7:30:53 AM
Posted: 1 year ago
At 7/3/2015 12:41:30 PM, ResponsiblyIrresponsible wrote:
At 7/3/2015 12:34:08 PM, lannan13 wrote:
At 7/2/2015 2:16:37 PM, ResponsiblyIrresponsible wrote:
The only problem is that they distort the unemployment rate to exclude those receiving government benefits. They used to have the "Misery Factor" Which, I believe, added the unemployment and inflation rates. We can see that if we were to look at the ACTUAL unemployment rate it would be a whole lot higher.

The Misery Index has never been a part of the BLS report, and many people who receive government benefits work - including, for that matter, seniors.

The Index does indeed add the unemployment and inflation rates, but... the unemployment rate is converging on normal level - as is the U6, for that matter, thought we have no sure-fire estimate of its "normal" level (though it was 10% in 1996) - but the inflation rate is astonishingly *below* normal levels. That's actually a really bad thing, despite what dipsh1t politicians will tell you.

Inflation is definately an issue though low. I do have to say that the fed needs to raise interest rates in order to keep inflation rates down.
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If the sky's the limit then why do we have footprints on the Moon? I'm shooting my aspirations for the stars.

"If you are going through hell, keep going." "Sir Winston Churchill

"No one can make you feel inferior without your consent." "Eleanor Roosevelt

Topics I want to debate. (http://tinyurl.com...)
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Diqiucun_Cunmin
Posts: 2,710
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7/6/2015 8:22:10 AM
Posted: 1 year ago
At 7/6/2015 7:30:53 AM, lannan13 wrote:
At 7/3/2015 12:41:30 PM, ResponsiblyIrresponsible wrote:
At 7/3/2015 12:34:08 PM, lannan13 wrote:
At 7/2/2015 2:16:37 PM, ResponsiblyIrresponsible wrote:
The only problem is that they distort the unemployment rate to exclude those receiving government benefits. They used to have the "Misery Factor" Which, I believe, added the unemployment and inflation rates. We can see that if we were to look at the ACTUAL unemployment rate it would be a whole lot higher.

The Misery Index has never been a part of the BLS report, and many people who receive government benefits work - including, for that matter, seniors.

The Index does indeed add the unemployment and inflation rates, but... the unemployment rate is converging on normal level - as is the U6, for that matter, thought we have no sure-fire estimate of its "normal" level (though it was 10% in 1996) - but the inflation rate is astonishingly *below* normal levels. That's actually a really bad thing, despite what dipsh1t politicians will tell you.

Inflation is definately an issue though low. I do have to say that the fed needs to raise interest rates in order to keep inflation rates down.

You know very well the grave consequences of saying that, lol. :P
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

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ResponsiblyIrresponsible
Posts: 12,398
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7/6/2015 10:34:14 AM
Posted: 1 year ago
At 7/6/2015 7:30:53 AM, lannan13 wrote:
At 7/3/2015 12:41:30 PM, ResponsiblyIrresponsible wrote:
At 7/3/2015 12:34:08 PM, lannan13 wrote:
At 7/2/2015 2:16:37 PM, ResponsiblyIrresponsible wrote:
The only problem is that they distort the unemployment rate to exclude those receiving government benefits. They used to have the "Misery Factor" Which, I believe, added the unemployment and inflation rates. We can see that if we were to look at the ACTUAL unemployment rate it would be a whole lot higher.

The Misery Index has never been a part of the BLS report, and many people who receive government benefits work - including, for that matter, seniors.

The Index does indeed add the unemployment and inflation rates, but... the unemployment rate is converging on normal level - as is the U6, for that matter, thought we have no sure-fire estimate of its "normal" level (though it was 10% in 1996) - but the inflation rate is astonishingly *below* normal levels. That's actually a really bad thing, despite what dipsh1t politicians will tell you.

Inflation is definately an issue though low. I do have to say that the fed needs to raise interest rates in order to keep inflation rates down.

It's not, at least not right now; low inflation in this case is partly a function of a positive AS shock - falling oil prices - but that's largely worn off. For the most part, it's a byproduct of low AD, and *that* is a problem for future employment prospects. Raising rates now, as Sweden and the ECB did in 2011 or as Japan did in 2000 and 2006 will only make things dramatically worse.
~ResponsiblyIrresponsible

DDO's Economics Messiah
lannan13
Posts: 23,017
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7/6/2015 12:34:30 PM
Posted: 1 year ago
At 7/6/2015 10:34:14 AM, ResponsiblyIrresponsible wrote:
At 7/6/2015 7:30:53 AM, lannan13 wrote:
At 7/3/2015 12:41:30 PM, ResponsiblyIrresponsible wrote:
At 7/3/2015 12:34:08 PM, lannan13 wrote:
At 7/2/2015 2:16:37 PM, ResponsiblyIrresponsible wrote:
The only problem is that they distort the unemployment rate to exclude those receiving government benefits. They used to have the "Misery Factor" Which, I believe, added the unemployment and inflation rates. We can see that if we were to look at the ACTUAL unemployment rate it would be a whole lot higher.

The Misery Index has never been a part of the BLS report, and many people who receive government benefits work - including, for that matter, seniors.

The Index does indeed add the unemployment and inflation rates, but... the unemployment rate is converging on normal level - as is the U6, for that matter, thought we have no sure-fire estimate of its "normal" level (though it was 10% in 1996) - but the inflation rate is astonishingly *below* normal levels. That's actually a really bad thing, despite what dipsh1t politicians will tell you.

Inflation is definately an issue though low. I do have to say that the fed needs to raise interest rates in order to keep inflation rates down.

It's not, at least not right now; low inflation in this case is partly a function of a positive AS shock - falling oil prices - but that's largely worn off. For the most part, it's a byproduct of low AD, and *that* is a problem for future employment prospects. Raising rates now, as Sweden and the ECB did in 2011 or as Japan did in 2000 and 2006 will only make things dramatically worse.

No, if we don't raise rates the economy will bubble and we'll end up with another Dot Com crisis or another Housing Crisis. Greenspan warned of this in 1996.
-~-~-~-~-~-~-~-Lannan13'S SIGNATURE-~-~-~-~-~-~-~-

If the sky's the limit then why do we have footprints on the Moon? I'm shooting my aspirations for the stars.

"If you are going through hell, keep going." "Sir Winston Churchill

"No one can make you feel inferior without your consent." "Eleanor Roosevelt

Topics I want to debate. (http://tinyurl.com...)
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ResponsiblyIrresponsible
Posts: 12,398
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7/6/2015 12:40:29 PM
Posted: 1 year ago
At 7/6/2015 12:34:30 PM, lannan13 wrote:
At 7/6/2015 10:34:14 AM, ResponsiblyIrresponsible wrote:
At 7/6/2015 7:30:53 AM, lannan13 wrote:
At 7/3/2015 12:41:30 PM, ResponsiblyIrresponsible wrote:
At 7/3/2015 12:34:08 PM, lannan13 wrote:
At 7/2/2015 2:16:37 PM, ResponsiblyIrresponsible wrote:
The only problem is that they distort the unemployment rate to exclude those receiving government benefits. They used to have the "Misery Factor" Which, I believe, added the unemployment and inflation rates. We can see that if we were to look at the ACTUAL unemployment rate it would be a whole lot higher.

The Misery Index has never been a part of the BLS report, and many people who receive government benefits work - including, for that matter, seniors.

The Index does indeed add the unemployment and inflation rates, but... the unemployment rate is converging on normal level - as is the U6, for that matter, thought we have no sure-fire estimate of its "normal" level (though it was 10% in 1996) - but the inflation rate is astonishingly *below* normal levels. That's actually a really bad thing, despite what dipsh1t politicians will tell you.

Inflation is definately an issue though low. I do have to say that the fed needs to raise interest rates in order to keep inflation rates down.

It's not, at least not right now; low inflation in this case is partly a function of a positive AS shock - falling oil prices - but that's largely worn off. For the most part, it's a byproduct of low AD, and *that* is a problem for future employment prospects. Raising rates now, as Sweden and the ECB did in 2011 or as Japan did in 2000 and 2006 will only make things dramatically worse.

No, if we don't raise rates the economy will bubble and we'll end up with another Dot Com crisis or another Housing Crisis. Greenspan warned of this in 1996.

Alan Greenspan was also dead wrong on the gold standard, and when he suggested we ought to raise rates a year ago. On top of it, he's attending an anti-Fed conference later this year at the same time as Jackson Hole. Appeals to authority never actually work out, but this one is especially tenuous.

The threat of a bubble is nonexistent. There were substantial differences between dot-come and the housing the bubble, namely that the later was driven by credit, the former by irrational exuberance, such that it's actually conceivable that monetary policy may have induced it. However, the evidence isn't the least bit conclusive. Rates were low, sure, but we don't actually know if policy was excessively loose because the natural rate was unobservable. It's conceivable that the Fed's reaction function with respect to productivity shocks - due to its then-implicit inflation target - is off, but NGDP at the time was essentially on-trend: there were no signs of overheating in the early 2000s. That might speak to a few possibilities, either (a) that the bubble explanation itself is wrong or (b) that this was a function of regulatory failure, not overly loose monetary policy.

But if I bought the suspect explanation that monetary policy was to blame, there's no signs of a bubble at this current juncture. Have you seen the RGDP numbers? Horrible. The inflation numbers? Even worse. Financial markets will be financial markets, but the S&P in light of recent events has been essentially flat, and even the 2 percent drop as late was reversing all the gains of the year.

tl;dr: The burden is on you to prove that asset prices deviate from fundamentals, which is the textbook definition of a bubble. I've yet to see it.
~ResponsiblyIrresponsible

DDO's Economics Messiah
lannan13
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7/8/2015 6:27:11 PM
Posted: 1 year ago
At 7/6/2015 12:40:29 PM, ResponsiblyIrresponsible wrote:
You also have to remeber that the Labor force DECLINED by 432,000. Meaning that in perspective of our allies at home in terms of their Central Banking. The US has 94 MILLION Americans not working. That includes people actually receiving benefits who aren't included in current US statistics. Meaning that employement is at a 38 year low of 62.8%.
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If the sky's the limit then why do we have footprints on the Moon? I'm shooting my aspirations for the stars.

"If you are going through hell, keep going." "Sir Winston Churchill

"No one can make you feel inferior without your consent." "Eleanor Roosevelt

Topics I want to debate. (http://tinyurl.com...)
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ResponsiblyIrresponsible
Posts: 12,398
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7/8/2015 6:40:07 PM
Posted: 1 year ago
At 7/8/2015 6:27:11 PM, lannan13 wrote:
At 7/6/2015 12:40:29 PM, ResponsiblyIrresponsible wrote:
You also have to remeber that the Labor force DECLINED by 432,000.

I do -- I mentioned that in the OP. It's probably statistical noise since that decline roughly mirrors the uptick in the labor force in the past two months. But, if anything, it suggests that the rosy U3 figure needs to be examined only in its proper context.

Meaning that in perspective of our allies at home in terms of their Central Banking.

What does this mean?

The US has 94 MILLION Americans not working.

The actual number is more like 93.6 million, but it's a misleading statistic, as discussed in this politifact article [http://www.politifact.com...].

Here's why: that numbers comes from the employment-to-population ratio. The numerator is cut-and-dry: the number of people employed. The denominator is just working-age people, so that includes people of retirement age, college students, high schoolers (since it starts at age 16), and even people who are long-term unemployed but whose skills have atrophied to such a degree that they won't return to the labor force -- i.e., the narrative from Krueger et al. out of Princeton that many marginally attached workers are so disconnected from the labor force that they apply virtually no downward pressure on wages or upward pressure on inflation [http://www.brookings.edu...]. For many, there's probably some truth to that, though there is some evidence of a cyclical drop-off in the LFPR: Cooper and Luengo Prado estimate that at one third of the decline in the LFPR [https://www.bostonfed.org...]; Aaronson and Hu estimate that one half fo the decline was cyclical [https://www.chicagofed.org...]; and Aaronson et al. estimate that a forth is cyclical [http://www.federalreserve.gov...]. No matter how you cut it, the 93.6 million figure is highly misleading, and cannot in any conceivable way serve as a measure of labor-market slack.

That includes people actually receiving benefits who aren't included in current US statistics.

A lot of people on welfare do work -- and with unemployment benefits for about 1.3 million people having run out, the temporary uptick in the natural rate has largely fizzled out. I'm not sure what number you're even referring to at this point.

Meaning that employement is at a 38 year low of 62.8%.

Where's the 62.8% coming from? The labor force participation rate is at a 38-year low at 62.6 percent -- that much is true. But over the past few months it's stayed with a band of 62.7 to 62.9 percent, and as the three studies I just pointed to demonstrate, it's possible that as much as three quarters of that decline is structural in nature, since we already know that the labor force participation rate has been falling since the early 2000s. It accelerated in 2008, surely, and much of that was due to cyclical factors, though the baby boomers also turned 62 that year. A lot of the decline is due to hysteresis, increasing returns to education, aging of the population, and even crowding out of jobs for younger workers.

This is the point I made about Bernie Sander's silly comment about "the real unemployment rate being 12%." If we use the U6, that's even factually wrong, though we shouldn't, because there's context to those figures -- the marginally attached workers may not ever reenter. Some may. But, even if I bought that, there's some evidence that involuntarily part-time workers are here to stay, anyway [http://www.frbsf.org...].
~ResponsiblyIrresponsible

DDO's Economics Messiah