Saturday, February 7, 2015

US Job Growth Fastest Since Dot-Com Boom of the 1990s

Strong upward revisions reported yesterday by the Bureau of Labor Statistics pushed US payroll job gains to levels not seen since the dot.com boom of the 1990s. According to preliminary data, the economy added 257,000 total payroll jobs in January 2015. The report revised gains for November upward from 353,000 to 423,000 and those from December from 252,000 to 329,000.

The government sector lost 10,000 jobs in January. The government sector had added jobs in November and December, but over the year since January 2014, government jobs were down by 17,000. All levels of government shed jobs in January, but the federal government showed the largest losses. All told, the government sector has lost 688,000 jobs, including a net loss of 55,000 at the federal level, since the inauguration of President Barak Obama six years ago, contrary to his opponents’ idea that his administration would give rise to an “explosive growth of government jobs.”

Meanwhile, private sector jobs have boomed. The economy added 3,127,000 private payroll jobs between January 2014 and January 2015. That easily eclipsed the peak rate of job creation during the housing bubble of the early 2000’s, and was the strongest 12-month showing since 1997, at the height of the dot.com boom. >>>Read more

Follow this link to view or download a slideshow with additional charts of the latest US employment situation

Monday, February 2, 2015

Fifty Years of Macroeconomic Misery: Arthur Okun's Misery Index and Modern Variants

Remember the 1960s? The 1970s? Back then, inflation surged from one peak to another but failed to deliver the low unemployment rates promised by the Phillips curve. In fit of frustration, economist Arthur Okun invented what he called the misery index—the sum of the inflation and unemployment rates. As the chart shows, those were miserable years indeed.

Today we don’t hear much about the misery index. True, the index hit a 20-year peak in the depths of the Great Recession, but people hardly noticed. Now it is back to a relatively comfortable level and still headed down. In an era of chronically low inflation, Okun’s index just isn’t miserable enough to make the headlines. Couldn’t we add something to spice it up a little?

Spicing Up the Misery Index

Economists Robert Barro, and more recently, Steve Hanke, have tried to do just that. Both have added measures of real output growth and an interest rate to the misery index in an attempt to capture macroeconomic factors other than inflation and unemployment that make people unhappy. >>>Read more

Follow this link to view or download a slideshow version of this post

Friday, January 30, 2015

As US Growth Slows in Q4, Inflation Turns Negative

The Bureau of Economic Analysis reported today that the growth rate of real GDP slowed to anannual rate of 2.6 percent in the fourth quarter of 2014. That is barely half of the 5 percent rate reported for the third quarter, but still a bit above the 2.4 percent average growth rate since the recovery began in mid-2009. Today’s advance estimate is based on preliminary data and is subject to revision. The average revision from the advance to the third estimate, without regard to sign, is 0.6 percentage points.

Today’s release from the BEA includes a set of inflation estimates that are based on data from the national income accounts and thus represent an independent check on the more widely reported consumer price index compiled by the Bureau of Labor Statistics. The most closely watched of the BEA’s inflation indicators is the index for personal consumption expenditures (PCE index), which is used by the Federal Reserve as a guide to monetary policy. The PCE index decreased at a -0.5 percent annual rate in the quarter, putting it far below the Fed’s official target of +2 percent. A supplementary market-based version of the PCE index fell even more rapidly, at -1.1 percent. The market-based index excludes financial services and other items for which there are no observable market prices. >>>Read more

Follow this link to view or download a slideshow with additional charts from the latest GDP report

Monday, January 19, 2015

Consumer and Producer Surplus: A Slideshow-Tutorial

Consumer and producer surplus are useful concepts for explaining many points of microeconomic theory and policy. Applications include gains from trade in both domestic and international markets, the incidence and excess burden of a tax, and the deadweight loss from externalities.

Unfortunately, producer and consumer surplus are not always explained well in introductory micro textbooks. One problem (this applies to my own text as much as to others) is that there is only room in a conventional textbook for a limited number of graphs. A slideshow format works better because you can explain the concepts step by step, building your graphs piece by piece as you go along.

I wrote a slideshow-tutorial on consumer and producer surplus several years ago when I was teaching an MBA economics course in Zagreb, but I never posted it anywhere for easy public access. Earlier today, while I was working on my post and slideshow on the soda tax, I realized it would be useful to make the consumer and producer surplus tutorial available as a backgrounder, so here it is.

Follow this link to view or download a classroom-ready slideshow-tutorial on consumer and producer surplus

The Economics of a Soda Tax

The idea of a soda tax is not new. Such a tax is supposed to have a double dividend by raising revenue and, at the same time, attacking the problems of diabetes and obesity.

Despite these features, soda taxes have been hard to implement. Washington State passed such a tax in April 2010 only to see it overturned by a ballot measure in November of the same year. Resistance to soda taxes has been fueled in part by heavy lobbying by the American Beverage Association, which is said to have spent $14 million to defeat the Washington tax and $10 million in an unsuccessful effort to derail the Berkeley version. Industry lobbying also helped quash New York Mayor Bloomberg's attempt to outlaw super-size servings of sweetened beverages.

In the classroom, the soda tax can serve as a vehicle to illustrate several key microeconomic concepts, including supply and demand, elasticity, tax incidence, consumer and producer surplus, excess burden, and externalities of consumption. I have just posted an updated version of my popular 2010 sideshow on the economics of the soda tax. Check it out: Cut-and-paste it into your lecture slides or assign it to your students as a reading. Enjoy!

Follow this link to view or download a classroom-ready slideshow on the economics of a soda tax.

Sunday, January 18, 2015

Prices are Falling in the Eurozone, but is it "Real" Deflation?

The Eurozone has been on the brink of deflation for months. The latest data show that for the first time, consumer prices for the currency area as a whole (and for 12 of its 19 member countries) were actually lower in December than a year earlier. But is it “real” deflation?

In a pair of posts [1] [2] last fall, when EZ inflation was merely low, but not yet negative, I explained that there are two kinds of deflation.
The nasty kind of deflation, which everyone rightly fears, is driven by falling aggregate nominal demand. As demand collapses, it drags both real output and the price level down with it. There is a serious risk of a self-reinforcing downward spiral in which debtors can’t repay their loans, defaults and falling asset prices undermine the financial system, zero interest rates render monetary policy powerless, and rising unemployment sparks social unrest.

However, there is also a benign kind of deflation, driven by rising productivity. In that scenario, conservative monetary policy restrains the growth of nominal GDP while real output surges ahead. The rate of inflation is negative, but growing output provides borrowers with the cash flow they need to repay their loans, rising productivity allows real wages to rise, and nominal interest rates, although low, do not need to fall all the way to the zero bound. In the US and UK, such productivity-driven deflation was the norm during much of the nineteenth century and reappeared again, more briefly, in the prosperous 1920s.

So which kind of deflation is Europe facing now? The bad, demand-driven kind,  or the good, supply-driven variety? A little of each, it seems. >>>Read more

Follow this link to view or download a slideshow-tutorial, "Why Fear Deflation?".

 

Saturday, January 10, 2015

As Unemployment Rate Falls to New Low, How Much Slack Remains in the Labor Market?

The Bureau of Labor Statistics reported today that the unemployment rate dropped to 5.6 percent in December, a new low for the recovery. For the first time in years, the unemployment rate has fallen to the range of 5.25-5.75 percent that the Fed considers consistent with its mandate to maintain full employment. A broader measure of unemployment, U-6, also fell to a new low.

In the same release, the BLS reported that payroll jobs increased by a robust 252,000 in December. On top of that, it made upward adjustments totalling 50,000 to the already-strong job gains for October and November. That brought the 12-month gain in payroll jobs to 2,952,000, the best annual gain since 1999.

These latest data raise a critical question: How much slack remains in the US labor market? Is it time to start tightening policy to forestall an outbreak of inflation, or is there room for employment to expand further without inflationary pressure? To answer these questions, we need to look beyond the headlines to some of the less familiar indicators of the employment situation. >>>Read more

Follow this link to view or download a slideshow with additional charts of the employment situation