Yesterday the Labor Department released October data from its monthly Job Openings and Labor Turnover Survey (JOLTS). The release got surprisingly little attention in the media.
While there were no big surprises, it does not paint a picture of a robust labor market. The number of job opening was down 150,000 from the September level and was almost 300,000 below the peak hit in July. That is not necessarily a big deal; the monthly data are erratic and a monthly change of this size could just be sampling error. Nonetheless, the number of opening has been essentially flat since April, which means that the relatively strong growth reported in the establishment survey does not seem to be making it difficult for firms to find workers.
Consistent with this story, the quit rate remained at a relatively low 1.9 percent. This is a measure of workers’ confidence that they can leave a job they don’t like and either quickly get a new job or survive on savings or the earnings of other family members. The 1.9 percent rate is well above the 1.3 percent rate at the bottom of the downturn, but low relative to pre-recession levels. In fact, in the weak labor market following the 2001 recession (we continued to lose jobs until September of 2003) the quit rate never fell below 1.8 percent. The current reading looks much more like a recession than a strong labor market. (The series only goes back to the end of 2000, so we don’t have long experience with it.)
Quit Rate
Source: Bureau of Labor Statistics.
Yesterday the Labor Department released October data from its monthly Job Openings and Labor Turnover Survey (JOLTS). The release got surprisingly little attention in the media.
While there were no big surprises, it does not paint a picture of a robust labor market. The number of job opening was down 150,000 from the September level and was almost 300,000 below the peak hit in July. That is not necessarily a big deal; the monthly data are erratic and a monthly change of this size could just be sampling error. Nonetheless, the number of opening has been essentially flat since April, which means that the relatively strong growth reported in the establishment survey does not seem to be making it difficult for firms to find workers.
Consistent with this story, the quit rate remained at a relatively low 1.9 percent. This is a measure of workers’ confidence that they can leave a job they don’t like and either quickly get a new job or survive on savings or the earnings of other family members. The 1.9 percent rate is well above the 1.3 percent rate at the bottom of the downturn, but low relative to pre-recession levels. In fact, in the weak labor market following the 2001 recession (we continued to lose jobs until September of 2003) the quit rate never fell below 1.8 percent. The current reading looks much more like a recession than a strong labor market. (The series only goes back to the end of 2000, so we don’t have long experience with it.)
Quit Rate
Source: Bureau of Labor Statistics.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
Paul Krugman and Larry Summers both have very good columns this morning noting the economy’s continuing weakness and warning against excessive rate hikes by the Fed. While I fully agree with their assessment of the state of the economy and the dangers of Fed rate hikes, I think they are overly pessimistic about the Fed’s scope for action if the economy weakens.
While the Fed did adopt unorthodox monetary policy in this recession in the form of quantitative easing, the buying of long-term debt, it has another tool at its disposal that it chose not to use. Specifically, instead of just targeting the overnight interest rate (now zero), the Fed could have targeted a longer term interest rate.
For example, it could set a target of 1.0 percent as the interest rate for the 5-year Treasury note, committing itself to buy more notes to push up the price, and push down the interest rate to keep it at 1.0 percent. It could even do the same with 10-year Treasury notes.
This is an idea that Joe Gagnon at the Peterson Institute for International Economics put forward at the depth of the recession, but for some reason there was little interest in policy circles. The only obvious risk of going the interest rate targeting route is that it could be inflationary if it led to too rapid an expansion, but excessively high inflation will not be our problem if the economy were to again weaken. Furthermore, if it turned out that targeting was prompting too much growth, the Fed could quickly reverse course and let the interest rate rise back to the market level.
Of course, it would be best if we could count on fiscal policy to play a role in getting us back to full employment (lowering supply through reduced workweeks and work years should also be on the agenda), but the Fed does have more ammunition buried away in the basement and we should be pressing them to use it if the need arises.
Paul Krugman and Larry Summers both have very good columns this morning noting the economy’s continuing weakness and warning against excessive rate hikes by the Fed. While I fully agree with their assessment of the state of the economy and the dangers of Fed rate hikes, I think they are overly pessimistic about the Fed’s scope for action if the economy weakens.
While the Fed did adopt unorthodox monetary policy in this recession in the form of quantitative easing, the buying of long-term debt, it has another tool at its disposal that it chose not to use. Specifically, instead of just targeting the overnight interest rate (now zero), the Fed could have targeted a longer term interest rate.
For example, it could set a target of 1.0 percent as the interest rate for the 5-year Treasury note, committing itself to buy more notes to push up the price, and push down the interest rate to keep it at 1.0 percent. It could even do the same with 10-year Treasury notes.
This is an idea that Joe Gagnon at the Peterson Institute for International Economics put forward at the depth of the recession, but for some reason there was little interest in policy circles. The only obvious risk of going the interest rate targeting route is that it could be inflationary if it led to too rapid an expansion, but excessively high inflation will not be our problem if the economy were to again weaken. Furthermore, if it turned out that targeting was prompting too much growth, the Fed could quickly reverse course and let the interest rate rise back to the market level.
Of course, it would be best if we could count on fiscal policy to play a role in getting us back to full employment (lowering supply through reduced workweeks and work years should also be on the agenda), but the Fed does have more ammunition buried away in the basement and we should be pressing them to use it if the need arises.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
The context is Nigeria’s economic relationship with China. The NYT complains to readers that China is providing goods at a lower cost than other other countries or the country’s domestic industry.
“Chinese goods are so dominant that consumers have few other choices.”
The article points out that the goods are of varying quality and some, in the case of electronic items, may pose safety problems. Of course, the reason that consumers have few other choices is that the Chinese products sell for much lower prices than the goods produced by competitors.
The piece also complains that China’s firms are willing to accept a lower return on investment in Nigeria:
“The risks [associated with investing in Nigeria] have prompted Western companies to demand very fat profits before putting money into the country — returns on the order of 25 to 40 percent a year. Their Chinese counterparts have been willing to accept 10 percent or less.”
The piece points out that low cost Chinese imports have displaced hundreds of thousands of manufacturing workers in Nigeria. While this is likely true, this is an entirely predictable outcome of the removal of trade barriers, a process that the NYT usually celebrates in both its opinion and news pages.
The standard argument is that the gains from consumers in the form of lower prices easily exceed the losses to the workers who lose their jobs. There may be an issue of redirecting some of these gains to help the unemployed workers, but the country as a whole still gains. It is striking that the NYT seems reluctant to accept economic orthodoxy on trade when it comes to China’s role in Nigeria and the rest of Africa.
The context is Nigeria’s economic relationship with China. The NYT complains to readers that China is providing goods at a lower cost than other other countries or the country’s domestic industry.
“Chinese goods are so dominant that consumers have few other choices.”
The article points out that the goods are of varying quality and some, in the case of electronic items, may pose safety problems. Of course, the reason that consumers have few other choices is that the Chinese products sell for much lower prices than the goods produced by competitors.
The piece also complains that China’s firms are willing to accept a lower return on investment in Nigeria:
“The risks [associated with investing in Nigeria] have prompted Western companies to demand very fat profits before putting money into the country — returns on the order of 25 to 40 percent a year. Their Chinese counterparts have been willing to accept 10 percent or less.”
The piece points out that low cost Chinese imports have displaced hundreds of thousands of manufacturing workers in Nigeria. While this is likely true, this is an entirely predictable outcome of the removal of trade barriers, a process that the NYT usually celebrates in both its opinion and news pages.
The standard argument is that the gains from consumers in the form of lower prices easily exceed the losses to the workers who lose their jobs. There may be an issue of redirecting some of these gains to help the unemployed workers, but the country as a whole still gains. It is striking that the NYT seems reluctant to accept economic orthodoxy on trade when it comes to China’s role in Nigeria and the rest of Africa.
Read More Leer más Join the discussion Participa en la discusión
A NYT article on cuts to government subsidies for solar and wind energy were put in place by a conservative government, “determined to tighten spending and balance the budget in a program to grow the economy.” The piece does not indicate how budget cuts in the current economic situation are supposed to “grow the economy.”
As the article points out, Denmark’s economy is suffering from a lack of demand.
“Shortly after taking over in June, the new government was forced to cut its forecast for economic growth to 1.5 percent this year and 1.9 percent in 2016, citing a slow recovery in domestic demand.”
Cutting spending on clean technologies means less demand, not more. This would mean that the government’s plans to reduce its subsidies are in direct conflict with its stated desire to increase growth.
While it is certainly the case that in some contexts lower government spending can lead to lower interest rates, which will spur consumption and investment (the Danish Kroner is tied to the euro, so interest rates have no effect on the exchange rate), this is hardly a plausible story in the case of Denmark. The interest rate on its 10-year government bonds is currently 0.91 percent. By comparison, the rate in the United States is 2.27 percent. In this context, it is unlikely that cuts to government spending can have much of a further effect in lower interest rates, nor that any further reduction in rates would have a noticeable effect on spending.
A NYT article on cuts to government subsidies for solar and wind energy were put in place by a conservative government, “determined to tighten spending and balance the budget in a program to grow the economy.” The piece does not indicate how budget cuts in the current economic situation are supposed to “grow the economy.”
As the article points out, Denmark’s economy is suffering from a lack of demand.
“Shortly after taking over in June, the new government was forced to cut its forecast for economic growth to 1.5 percent this year and 1.9 percent in 2016, citing a slow recovery in domestic demand.”
Cutting spending on clean technologies means less demand, not more. This would mean that the government’s plans to reduce its subsidies are in direct conflict with its stated desire to increase growth.
While it is certainly the case that in some contexts lower government spending can lead to lower interest rates, which will spur consumption and investment (the Danish Kroner is tied to the euro, so interest rates have no effect on the exchange rate), this is hardly a plausible story in the case of Denmark. The interest rate on its 10-year government bonds is currently 0.91 percent. By comparison, the rate in the United States is 2.27 percent. In this context, it is unlikely that cuts to government spending can have much of a further effect in lower interest rates, nor that any further reduction in rates would have a noticeable effect on spending.
Read More Leer más Join the discussion Participa en la discusión
The state of economics is pretty dismal these days, which is demonstrated constantly in the reporting on major issues. The NYT gave us a beautiful example this morning in a piece on a pledge by China’s government of $60 billion in aid to Africa.
The third paragraph told readers:
“Against longstanding accusations that China benefits from a lopsided relationship with Africa, contentions that have recently gained traction as China’s trade deficits with many African nations have widened, Mr. Xi said that ‘China has the strong political commitment to supporting Africa in achieving development and prosperity.'”
Okay folks, get those scorecards ready. In standard textbook theory, poor countries are supposed to run trade deficits with rich countries. The story goes that capital is plentiful in rich countries while it’s scare in poor countries. Rich countries should therefore lend capital to poor countries where it will get a better return.
The flip side of this flow of capital (it is an accounting identity) is that poor countries run trade deficits with rich countries. These trade deficits allow the poor countries to build up their infrastructure and capital stock while still have enough goods and services to meet the needs of their populations. If relatively better off countries like China are willing to give money, rather than lend it, the developing country trade deficits should be even larger.
This means that folks who believe the textbook trade theory should see the widening of the trade deficits that African nations are running with China as evidence that they are gaining from the relationship, not as evidence that the relationship is lopsided.
The state of economics is pretty dismal these days, which is demonstrated constantly in the reporting on major issues. The NYT gave us a beautiful example this morning in a piece on a pledge by China’s government of $60 billion in aid to Africa.
The third paragraph told readers:
“Against longstanding accusations that China benefits from a lopsided relationship with Africa, contentions that have recently gained traction as China’s trade deficits with many African nations have widened, Mr. Xi said that ‘China has the strong political commitment to supporting Africa in achieving development and prosperity.'”
Okay folks, get those scorecards ready. In standard textbook theory, poor countries are supposed to run trade deficits with rich countries. The story goes that capital is plentiful in rich countries while it’s scare in poor countries. Rich countries should therefore lend capital to poor countries where it will get a better return.
The flip side of this flow of capital (it is an accounting identity) is that poor countries run trade deficits with rich countries. These trade deficits allow the poor countries to build up their infrastructure and capital stock while still have enough goods and services to meet the needs of their populations. If relatively better off countries like China are willing to give money, rather than lend it, the developing country trade deficits should be even larger.
This means that folks who believe the textbook trade theory should see the widening of the trade deficits that African nations are running with China as evidence that they are gaining from the relationship, not as evidence that the relationship is lopsided.
Read More Leer más Join the discussion Participa en la discusión
The Post has an interesting piece discussing Janet Yellen’s tenure as Fed chair as she prepares to possibly raise interest rates for the first time since the onset of the recession. The piece discusses Yellen’s Republican critics in Congress who want to rein in the power of the Fed to conduct monetary policy. These critics complain that the Fed has been too loose with the money supply and that this will result in runaway inflation.
It would have been worth noting that these critics have been repeatedly proven wrong. They have been complaining about loose monetary policy for over five years yet the inflation rate has consistently been well below the Fed’s 2.0 percent target. This information would have been useful to readers trying to evaluate the seriousness of their complaints.
The Post has an interesting piece discussing Janet Yellen’s tenure as Fed chair as she prepares to possibly raise interest rates for the first time since the onset of the recession. The piece discusses Yellen’s Republican critics in Congress who want to rein in the power of the Fed to conduct monetary policy. These critics complain that the Fed has been too loose with the money supply and that this will result in runaway inflation.
It would have been worth noting that these critics have been repeatedly proven wrong. They have been complaining about loose monetary policy for over five years yet the inflation rate has consistently been well below the Fed’s 2.0 percent target. This information would have been useful to readers trying to evaluate the seriousness of their complaints.
Read More Leer más Join the discussion Participa en la discusión
Neil Irwin had a piece in the Upshot section of the NYT raising the possibility that the Fed could have negative interest rates on reserves, rather than its current near zero rate, as a way to provide an additional boost to the economy. The argument is that it is very inconvenient to carry cash, so deposits would not flee banks even if the interest rate were a small negative number.
The problem is that this analysis does not consider the realities of the banked population. Banks have millions (tens of millions?) of customers with relatively low balances. These customers are marginally profitable to the banks. (Often the banks profit on fees from these people, like overdraft charges.)
If banks had to pay interest on reserves then these accounts would be even less desirable for banks, since they now would have to pay interest on the reserves that the small account holders had brought to their bank. For this reason, they may opt to raise their fees for opening and maintaining a bank account. The result would be that more people would be getting by without bank accounts.
Any serious discussion of negative interest rates has to deal with this problem.
Neil Irwin had a piece in the Upshot section of the NYT raising the possibility that the Fed could have negative interest rates on reserves, rather than its current near zero rate, as a way to provide an additional boost to the economy. The argument is that it is very inconvenient to carry cash, so deposits would not flee banks even if the interest rate were a small negative number.
The problem is that this analysis does not consider the realities of the banked population. Banks have millions (tens of millions?) of customers with relatively low balances. These customers are marginally profitable to the banks. (Often the banks profit on fees from these people, like overdraft charges.)
If banks had to pay interest on reserves then these accounts would be even less desirable for banks, since they now would have to pay interest on the reserves that the small account holders had brought to their bank. For this reason, they may opt to raise their fees for opening and maintaining a bank account. The result would be that more people would be getting by without bank accounts.
Any serious discussion of negative interest rates has to deal with this problem.
Read More Leer más Join the discussion Participa en la discusión
