Saturday, February 6, 2016

Weekly Indicators for February 1 - 5 at

 - by New Deal democrat

My Weekly Indicator post is up at at .  The big news this week was what happened to the US$.

Friday, February 5, 2016

Ed Morrissey Should Really Stop Writing About Economics

     Y'know ... Ed Morrissey of Hot Air is consistent.  For the last 8 years (which, interestingly enough, corresponds with the Obama presidency) Ed has reported that the economy has been terrible -- just terrible.  Ed will take any statistic that has the potential for negative spin, and do just that -- spin it as negatively as possible.  I knew when the headline employment number came out, Ed would be all over it. And, sure enough, he printed "Meh: US added 151,000 jobs in January" within hours of the BLS release.

     First of all, let's look at Ed's actual qualifications to write about this topic.  Does he have any meaningful economic background or is he simply a blogger with a strong political angle?  Here's a link to his Wikipedia page, and the answer is "no" on the qualification question.  There is no mention of a college major or minor in econ (in fact, there is no mention of any higher education), nor is there any mention of a job in finance.  Econ isn't something you can teach yourself.  Most of the people at the Federal Reserve and in financial services are at least econ minors.  Most, in fact, are CFAs and Ph.Ds.

     Most of Ed's story is your standard "cut and paste" job, meaning there is little actual self-produced analysis.  What is "original" is this specific mentions of "underemployment:"

Numerous news services heralded the a drop in U-3 rate of unemployment to 4.9%, but the number of people not in the workforce also rose by 360,000 people from last month (table A-16). That follows an increase of 284,000 the previous month. Those not in the labor force who want a job increased by 461,000, and that follows an increase of 379,000 in the previous month. The latter measure had been falling in 2015, but has reversed itself by 840,000 in two months — both in the 0.7%-growth-rate Q4.

Ed is one of the many people who, over the last few years, found the labor force participation rate. More specifically, he noticed it was dropping.  However, let's take a look at the longer trend:

Somehow I doubt this graph was even on Ed's radar during the Bush years when it started dropping. However, the pace of acceleration has increased since the end of the recession.

This leads to two questions: why did it increase and why is it decreasing?  It started to rise for two reasons: women entered the labor force and the baby boomers hit their peak earnings years.  Why is it declining now?  Well, there's actually been a ton of research on the topic (done by people who actually have a background in econ).   Interestingly enough, Ed has yet to link to any solid research on the topic.  Invictus over at the Big Picture blog has got a great set of links on the topic here.  Here's the general conclusion:

At least 50% (and probably more) is caused by retiring baby boomers.

Then there's the huge drop in working teenagers, largely because they're in school (which is a good thing -- y'know -- they're learning):

The increase in life spans means some people keep on working because they like it.

There is a percentage of people ages 24-54 (the prime working age) that have left the labor force.  Most of them are people with a high school or less educational level who used to work in blue collar industries who have been left behind due to globalization and automation.  
These data points aren't on Ed's radar screen.

So, here's the real story.  Economists and demographers have known about the LFPR drop for some time.  There has been a ton of scholarly, well-researched articles on the topic.  And their general conclusion is most of the drop can be explained through reasoned analysis and explanation.

In addition, Ed Morrissey is completely unqualified to discuss or write about economics.  There is nothing in his background to indicate he understands the nuances of the science and he's obviously more interested in creating negative political spin than actionable intelligence.  He has yet to post any link to a scholarly article on economics or the markets, instead posting excerpts from news storiees.

This of course won't stop him from writing on econ.  He (unfortunately) suffers from the Dunning Kruger effect.  And his readers will certainly learn nothing meaningful from his "analysis."  All we can do is keep a public record of his gross incompetence in the hopes he will eventually discontinue his efforts.

January jobs report: an hours, wages, and participation surge under the headlines

- by New Deal democrat


  • 151,000 jobs added to the economy
  • U3 unemployment rate down -0.1% to 4.9%
With the expansion firmly established, the focus has shifted to wages and the chronic heightened unemployment.  Here's the headlines on those:

Wages and participation rates
  • Not in Labor Force, but Want a Job Now: up 87,000 from 5.886 million to 5.973 million
  • Part time for economic reasons: down 34,000 from 6.022 million to 5.988 million
  • Employment/population ratio ages 25-54: up +0.3% from 77.4% to 77.7% 
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.06 from $21.27 to $21.33,  up +2.-%YoY. (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)
November was revised upward by 28,000.  December was revised downward by 30,000, for a net change of -2,000. 

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were generally positive.

  • the average manufacturing workweek rose from 41.6 hours to 41.7 hours.  This is one of the 10 components of the LEI and will be a positive.
  • construction jobs 18,000.  YoY construction jobs are up 264,000.  
  • manufacturing jobs increased by 29,000, and are up 45,000 YoY.
  • Professional and business employment (generally higher-paying jobs) increased by 9,000 and are up 620,000 YoY.

  • temporary jobs - a leading indicator for jobs overall decreased by -25,200.

  • the number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - decreased by -156,000 from 2,405,000 to 2.249,000.  The post-recession low was set 5 months ago at 2,095,000.

Other important coincident indicators help us paint a more complete picture of the present:

  • Overtime was unchanged at 3.3 hours.

  • the index of aggregate hours worked in the economy rose by 0.4 from  104.9 to 105.3. 
  • The broad U-6 unemployment rate that includes discouraged workers was unchanged at 9.9%.
  •  the index of aggregate payrolls rose by 0.9  from 126.9 to 127.8.
Other news included:      
  • the alternate jobs number contained in the more volatile household survey increased by 615,000  jobs.   This represents an increase  of 2,440,000  jobs YoY vs. 2,665,000 in the establishment survey.  
  • Government jobs fell by -7,000.  
  • the overall employment  to  population ratio for all a ges 16 and above rose by .1 to 59.6  m/m and +0.3% YoY.  The labor force participation rate rose  0.1% from 62.6%  to  62.7%  and is down -0.2 % YoY (remember, this incl udes droves of retiring Boomers).  

The headline employment number was a little light this month, but look at the great internals:

  • average wages rose smartly
  • aggregate hours also rose smartly
  • wages and hours for December were revised upward.  This means that real aggregate wages had a big increase, probably over 1% in just one month.
  • part time for economic reasons declined
  • the employment population ratio for prime working ages 25 54 rose by 0.3% and has finally made up more than 1/2 of its loss from the Great Recession

There were only a few negatives:

  • the broad U6 unemployment rate did not fall
  • those not in the labor force who want a job now rose
  • temporary jobs fell

Bottom line:  January was a great month for workers' paychecks. Finally!