Beat the Press is Dean Baker's commentary on economic reporting. He is a Senior Economist at the Center for Economic and Policy Research (CEPR). To never miss a post, subscribe to a weekly email roundup of Beat the Press.

Please also consider supporting the blog on Patreon.

Follow on Twitter Like on Facebook Subscribe by E-mail RSS Feed

Last week’s job report, in spite of the slow job growth for February, was actually pretty good news. As many of us pointed out, the most likely reason that the Labor Department reported only 20,000 new jobs in February, is that the economy reportedly added 311,000 jobs in January.

There is always a substantial element of error in these numbers. If we envision that there is some underlying rate of job growth of say, 180,000 a month, if we get a number like January’s strong figure, it is reasonable to expect that job growth in subsequent months will be slower. Either the rapid growth in January was due to error in the survey, or alternatively many businesses may have decided that January was a good time to hire. In both cases, it is reasonable to expect slower growth in future months.

If this just sounds like hand waving to cover up a bad story, consider that the non-seasonally adjusted change in employment in February was a plus 827,000 jobs. In other words, if we just looked at the raw data, the economy actually added a ton of jobs in February. Of course, the economy always adds lots of jobs in February. In 2018 it added 1,236,000 and in 2017 it added 1,030,000. This is why we have seasonal adjustments. But the adjustment is never perfect, and it is one of the factors that leads to error in the headline numbers that get so much attention.

So we should not be too troubled by the weak job growth reported for February. However, as I noted in my jobs report, there was a drop in average weekly hours, which could presage lower hiring in future months. Also, several sectors, notably construction (both residential and non-residential) and manufacturing seem to be weakening, so there are some grounds for concern about slowing growth, apart from the 20,000 jobs reported for February.

But I actually wanted to focus on the good news in the report, specifically the edging down of the unemployment rate to 3.8 percent and the modest acceleration in the rate of growth in the average hourly wage to 3.4 percent over the last year. These items are very good news, especially when we consider that they were the result of policy, specifically the Federal Reserve Board’s decision to allow the unemployment rate to fall below the 5.5 percent unemployment rate that most economists had considered a floor.

Add a comment

There continues to be a large market for pieces saying the big conflict in the US is generational rather than class. The Huffington Post made its latest contribution today.

The piece is more than a bit confused, but its headline explicitly gives the intention "America's Defining Divide Is Not Left vs. Right. It's Old vs. Young." Beyond this basic point, as in worry about age, not class, it is difficult to figure out what the article is talking about.

The subhead tells readers, "voters over retirement age will continue to dominate US politics until at least 2060." This might lead us to believe that the piece is talking older voters generically, as in people over age 65 or age 62, but then much of the discussion focuses on the baby boomers. By 2060, the youngest baby boomer will be age 96 and the oldest will be 114. It doesn't seem plausible that the survivors among this group will be dominating politics. Most of the baby boomers will have died off by 2040 and their influence will be radically diminished by 2030.

But even as a story describing the baby boomers the piece gets many things wrong. It tells readers:

"Four out of five older families own homes, compared to just one in four younger families. Most own stocks and a large plurality are business owners. Nearly 1 in 9 older households are millionaires and, according to a 2015 study, are the only age group in America whose net worth has increased since 1989.

"Politically speaking, this means older households have a profoundly different narrative of the U.S. economy than every other cohort. Gen Xers and millennials, who have seen their incomes stagnate and their living costs explode, are gravitating toward candidates who prioritize issues like student debt and income inequality. Older voters, by contrast, will be more likely to vote for candidates who promise to boost the stock market, lower taxes and push up property values."

While most older people own stock, they do not own very much. In 2016, the average amount of wealth outside of a home for the middle quintile of people between the ages of 55 and 65 $99,200. For the fourth quintile, it was just $25,400. If two-thirds of this wealth was invested in the stock market, it still does not imply a very large stake in the market for most of this cohort.

Add a comment

This is getting annoying. According to data in the Fed's Financial Accounts for the 4th quarter of 2018, the profit share of national income rose again in 2018. While national income rose 4.7 percent, profits rose 7.8 percent. There are two reasons this is annoying.

The first is that these are before-tax profits. Remember that big corporate income tax the Republicans pushed through Congress in 2017? One of the stories why this was going to be good for all of us, and not just for that small group who own lots of shares of stock, is that a portion of the tax cut would be passed on as a higher before-tax wage share. Well, it's only year one, and these data are subject to large revisions, but it looks like we're going the wrong way here. Since taxes fell sharply, after-tax profits were up 16.2 percent.

For those keeping score at home, the share of profits paid in taxes fell to 10.2 percent. One of the claims with the tax cut was that they were lowering the tax rate, but eliminating the deductions, so we would collect something close to the new 21 percent nominal tax rate. Well, it seems the Republicans got half of that right.

The other reason this is annoying is that the unemployment rate was below 4.0 percent last year. This is supposed to be inflation territory, where tight labor markets force employers to bid up wages, as that is the only way they can find workers. (Just a few years back, most economists would have told us that we hit inflation territory when the unemployment rate fell below 5.5 percent, or even 6.0 percent.)

Anyhow, if the profit share is still rising, then we obviously have not hit inflation territory. Employers can clearly afford to pay higher wages, without raising prices. Profit shares increased hugely in the weak labor market following the collapse of the housing bubble. I had been expecting (and hoping) that some of this increase would be taken back as the labor market tightens, but apparently, we're still going the other way.

Keep this in mind next time you hear see a story about labor shortages and employers not being able to find workers. That's not true on this planet.

This diatribe comes with one very important qualification. Profit data are highly erratic and subject to large revisions. It is possible that this picture will look different as it is revised later this year, or possibly in subsequent years. But given the data we have now, workers should be getting more — much more.

Add a comment

I'm serious. In an article on the history of socialism in Milwaukee, the city chosen to host the Democratic national convention in 2020, the Post told readers:

"And, at least on an ideological level, the socialists of that time had a surprising amount in common with today’s Republicans. They supported low taxes and opposed public debt. They believed in a “pay-as-you-go” form of governance ...."

This assertion is so obviously contradicted by the facts, it is amazing that it could appear in the paper. The deficit and debt rose hugely under three of the last four Republican presidents (Reagan, George W. Bush, and Trump). It is more than a bit absurd to claim that a party that consistently supports policies that raises deficits and debt opposes public debt and believe in "pay-as-you-go" governance.

It is difficult to imagine how the Post could make such an absurd claim about Republican policies.

Add a comment

With the presentation of his 2020 budget, Donald Trump has been getting a ton of grief over the large current and projected future budget deficits. While his budget shows the deficit coming down, this is due to large cuts to programs that middle income and lower income people depend upon, like Social Security, Medicare, and Medicaid. His projections for falling deficits also depend on assuming a faster growth rate than just about anyone thinks is possible. So realistically, we are looking at a story of large deficits for the indefinite future.

While this is supposed to be really bad, people who pay attention to economic data may think otherwise. If we look at the Congressional Budget Office's (CBO) projections for the unemployment rates for 2018, 2019, and 2020, from 2017, before the tax cut was passed, they were respectively, 4.2 percent, 4.4 percent, and 4.7 percent. If we look at CBO's latest projections for these three years, they are 3.9 percent (actual)  3.5 percent and 3.7 percent, respectively. The difference between the latest projections and the pre-tax cut projections imply a gain of more than 2 million in employment in each of these years.

These two million additional people being employed is a big deal not only for these workers and their families but for tens of millions of other workers who have more bargaining power as a result of a tighter labor market. And, we're supposed to think this is a bad thing because of the deficit and debt? Tell the children of the people who are now working because of the larger deficit or whose parents have higher pay how the debt is a burden on them.

Of course, giving a big tax cut to corporations and rich people was just about the worst way imaginable to boost the economy. The promised investment boom is not happening. The boost is coming because rich people are spending a portion of their tax cuts and their increased share buybacks and dividends. But we could have also given the money to middle-income and lower-income people who would have been happy to spend it as well.

Even better, we could have used to money to promote clean energy, retrofitting buildings to make them more energy efficient, and subsidizing mass transit. Our children have much more to fear from a wrecked environment than government debt.

In any case, the debt/deficit whiners should acknowledge the substantial economic gains from stimulating the economy with a larger deficit. It is a really big deal for a large number of people at the middle and bottom of the income distribution.

Add a comment

In the Soviet Union, for a long time, official publications (which were the only publications) were prohibited from mentioning Leon Trotsky, one of the leaders of the revolution, who subsequently fell out with Stalin and was forced into exile. I'm wondering if The New York Times has the same policy towards mentioning the trade deficit as a cause of economic weakness.

It's hard to reach any other conclusion after seeing David Leonhardt's piece on the recurring tendency of forecasters to be overly optimistic about economic growth. Leonhardt points to the persistent shortfall of demand as the major problem slowing growth. Following Larry Summers, he suggests policies that could boost investment and consumption. 

While these are both good ways of increasing demand, so is a lower trade deficit. This is very basic economics. If the trade deficit were 1.0 percent of GDP rather than a bit more than 3.0 percent of GDP, it would provide the same boost to demand as a $400 billion annual stimulus package.

It's sort of amazing that Leonhardt can leave such a basic and obvious point out of this discussion. Did the NYT's commissars airbrush the trade deficit out of the article?

Add a comment

That seems pretty much definitional, but many readers of this Washington Post piece, on what is in effect insider trading by top management, may miss this point. As CEO pay has exploded over the last four decades, from 20 to 30 times the pay of a typical worker to 200 or 300 times, many have discussed this rise as though it is somehow in collusion with shareholders.

That makes zero sense. The money that CEOs and top management pocket is money that otherwise could have gone to shareholders. Shareholders have no more interest in CEOs getting big paychecks than they do in seeing assembly line workers or retail clerks getting big paychecks. Contrary to the view that shareholders have been making out like bandits, stock market returns over the last two decades have actually been low by historical standards.

When it comes to reining in CEO pay, shareholders should be viewed as allies. This matters not just because CEOs don't deserve such outrageous paychecks, but because bloated CEO pay affects pay scales throughout the economy. If this is hard to understand, ask a high-level university administrator near you how much they get paid. 

Add a comment

Neil Irwin had a good piece discussing the slower job growth reported for February, along with more rapid wage growth. He argued that as a result of recent evidence of slowing growth (not so much from this jobs report) the Fed may be inclined to leave interest rates where they are, or possibly even lower them. However, the pick up in wage growth may lead the Fed to worry about inflation and therefore raise interest rates.

While Irwin notes the pick up is modest, so it's not obvious it will lead to higher inflation (also given the large shift from wages to profits in the Great Recession, higher wages could come out of the profit share rather than being passed on in higher prices), there is another important factor in the equation. Productivity growth, which directly reduces the cost of an hour of labor, increased to 1.8 percent last year. This is 0.5 percentage points above its trend rate since 2005. (It is still well below the 3.0 percent pace from 1995 to 2005 and from 1947 to 1973.)

Productivity data are notoriously erratic, so it is entirely possible that the 2018 pickup will turn out to be an aberration, but if faster growth is sustained, it would mean that the economy could support a more rapid pace of wage growth. There are some complicating index issues, but as a first approximation, if productivity growth is 1.8 percent, workers can have 3.8 percent nominal wage growth, and we could still keep at the Fed's 2.0 percent inflation target.

As some of us have argued, it is reasonable to expect that productivity growth will accelerate as the labor market tightens. The basic logic is that when labor gets scarce, employers have an incentive to try to use less of it. That means productivity growth.

There are three channels through which this can work. The first is a simple composition one. When labor becomes more expensive, the least productive jobs go unfilled. My favorite example is the midnight shift at a convenience store. The productivity of this worker has to be very low. (How many people come in to buy grocery items at 2:00 in the morning?) In a tight labor market, the convenience store closes at midnight and opens in the morning. By eliminating the least productive jobs, average productivity rises.

The second channel is that employers may be able to reorganize the workplace to do more with fewer workers. Even though our textbooks tell us that employers always have the optimal mix of labor and capital inputs and workplace organization, there are actually places where workers are not employed in the most efficient manner. The bosses may not care when workers are plentiful, but when the bad boss sees all his workers leaving for better jobs, he may think about trying to improve his workplace.

Add a comment

The latest round of layoffs at Buzzfeed, the Huffington Post, and other major news outlets has raised new questions about the future of the traditional model of advertising-supported journalism. While a small number of news outlets, like The New York Times, continue to thrive, few others seem to be profitable in the current environment.

This raises the prospect of a future in which there will be ever fewer reporters to keep the public informed and to scrutinize the actions of public officials and regulatory agencies. While we all recognize the inevitability of abuse and corruption with a regime that bans a free press, we will get the same outcome in a world where the market is structured in a way to make the operation of independent media difficult or impossible.

We can look to structure the market in a way that overcomes this problem. Specifically, we can have a modest individual tax credit ($100 to $200 per person) that can be used to finance journalism and other creative work.

The basic problem faced by news outlets, and other producers of creative work, is that the Internet has made it possible to transfer written material, as well as recorded music and video material, at near zero cost. This means that the condition loved by economists, with the price being equal to the marginal cost, implies that this material would be available for free. If users pay what it costs to deliver a news article, song, or movie over the web, they would pay nothing, leaving no money to support the workers who produced the material.  

This problem is not altogether new. The point of a copyright monopoly was to allow the creator of a creative work to charge a price that was well above the marginal cost of transferring material. However, the Internet makes this problem far more serious with the cost of transferring material falling to zero and copyright enforcement becoming ever more difficult. In this context, it makes sense to look to alternative mechanisms.

A tax credit for supporting creative work should not be seen as an altogether new concept. This can be viewed as a variation on the tax deduction for charitable contributions. Under this system, the government effectively subsidizes any charitable organization a taxpayer chooses to support.

Add a comment

It is always fun, even if tiresome, to mock Donald Trump for getting things wrong. This is why the jump in the merchandise trade deficit last year to $891.2 billion was especially newsworthy.

Trump had made the trade deficit one of the central issues in his campaign and promised to reduce it to bring back good-paying jobs in manufacturing. He was going to use his skills as a negotiator to get better deals from our trading partners. For this reason, the fact that the deficit is going up, not down, is somewhat amusing. In this case, unlike the last decade, the rise in the trade deficit is associated with a modest increase in manufacturing employment rather than a crash, so the implications of the rise are not nearly as serious. 

Nonetheless, it is worth getting the story straight. It is somewhat misleading to refer to the 2018 trade deficit as "record-breaking" as in this Washington Post headline. While the $891.2 billion deficit is considerably larger in nominal terms than the previous record of $838.3 billion, set in 2006, it is considerably smaller measured relative to the size of the economy.

The 2018 deficit is equal to 4.3 percent of GDP. The 2006 deficit was equal to 6.1 percent of GDP. If we are making historical comparisons, this is the more relevant figure, not the dollar amount.

Add a comment