Monday, January 9, 2012

Today's links

1--The Soft Bigotry of Low Employment Expectations, Paul Krugman, NY Times

Excerpt: A brief note while in transit, about today’s jobs report.

Obviously it’s better than we’ve been seeing. But we need much faster job growth; it says something about how beaten down we are that this is considered good news.

Let me give two back-of-the-envelope ways to think about how inadequate 200,000 jobs a month is.

First, note that there are still about 6 million fewer jobs than there were at the end of 2007 — and that we would normally have expected to have added around 5 million jobs over a four-year period. So we’re 11 million jobs down — and we need at least 100,000 jobs a month just to keep up with working-age population growth. Do the math, and you’ll see that it would take 9 or 10 years of growth at this rate to restore full employment.

Alternatively, note that during the Clinton years — all 8 of them — the economy added around 230,000 jobs a month. As it did that, the unemployment rate fell about 3 1/2 percentage points — which is about what we’d need from here to get back to something that felt like full employment. Again, this suggests that we’re looking at something like a decade-long haul to have full recovery.

2--Waiting for Recovery, NY Times

Excerpt: , it will take far greater monthly growth than the 200,000 jobs created in December — and higher quality jobs — to spur significant consumer spending and a self-reinforcing recovery. For that to occur, the government will have to do more.

At a minimum, to avoid a collapse in consumer demand and a rise in joblessness, Congress needs to extend existing federal unemployment benefits and the payroll tax cut beyond their expiration in late February. To create jobs now while laying a foundation for future growth, the economy needs a broader jobs agenda, like the one proposed last year by President Obama, including government spending for public works, aid to state and local governments and an infrastructure bank.

Before Congress recessed for the holidays, Republican lawmakers resisted all that. In the face of intense public disapproval and pressure from their own leaders, they finally agreed to renew jobless aid and the payroll tax cut — but only for two months. The question now is whether Republican lawmakers will continue to resist and reduce even basic assistance.

If they don’t do what is needed, it will be impossible to gain any traction in the still-ailing job market. December’s tally, 200,000 more jobs, was almost surely inflated by about 40,000 jobs because of a problematic seasonal adjustment in counting holiday couriers and messengers.

Meanwhile, gains in higher-paying blue-collar jobs, which are essential to strong consumer spending, were tentative. An addition of 23,000 manufacturing jobs, for instance, followed four months of little change. Categories that have been steadily adding jobs (retail stores, bars and restaurants) tend to be low-paying, while categories that were flat in December (including state government jobs) tend to be solidly middle class.

Joblessness, though declining, continued to exert a profound drag on the economy. The unemployment rate dropped to 8.5 percent in December, compared with 8.7 percent in November and a peak of 10 percent in October 2009. The improvement is not as dramatic as it seems, however, because the difficult job market over that period has caused many potential workers to drop out (or never enter) the labor force.

In the four years since the Great Recession began in December 2007, nearly everyone in the country has been touched by mass unemployment. If you are lucky to have held on to your job, you surely have relatives and friends who have lost theirs or children who haven’t been able to find one. In December, unemployment among 16-to-24-year-olds was 16.7 percent, still up 5 percentage points since the start of the recession.

3--An Appalling Idea, Even by Washington Standards, CBPP via economist's view

Excerpt: For legislation to extend the payroll tax cut through the end of 2012, House Republicans are expected to push for a provision on unemployment insurance (UI) that is appalling even by current Washington standards. Neither President Obama nor Congress should accept any payroll-tax legislation that includes it. Here’s why:

The provision, part of a full-year payroll-tax bill that the House passed in December, would deny UI benefits to any worker who lacks a high school diploma or GED and is not enrolled in classes to get one or the other — regardless of how long the person worked or whether he or she has access to adult education, which itself has been subject to significant budget cuts in the past few years and is heavily oversubscribed.

The proposal would deny UI benefits to hundreds of thousands of workers — many of them middle-aged — who have worked hard, played by the rules, and effectively paid UI taxes for years and who then were laid off due to no fault of their own. ...

4--Under Obama, a Record Decline in Government Jobs, NY Times

Excerpt: Over all — including a decline of 12,000 public sector jobs in the Labor Department report for December — government employment is down 2.6 percent over the last three years, compared to a decline of 2.2 percent in the early Reagan years. That is a record.

That record, which will seem a dubious distinction to public-sector employees, is largely a result not of federal policy but of shrinking state governments. State employment fell 1.2 percent in 2011 — the largest percentage for any year since counting began in 1955. The number is down 2.2 percent over the last three years. It was up 1.2 percent during Reagan’s first three years, declining in only one of the years.

Local government jobs used to be deemed super safe. Since the federal government started tracking the statistic in 1955, there have been only six years when local government employment declined. They have come in threes: 1981, 1982 and 1983, the first three years of the Reagan administration, and 2009, 2010, 2011, the first three years of the Obama administration.

5--A solid step in the right direction for the labor market, EPI

Excerpt: This morning’s release of the December 2011 employment situation report, which marked four years since the official start of the recession in December 2007, capped off 2011 on a positive note. Both the establishment survey and the household survey showed improvement – the labor market added 200,000 jobs, hours and wages were up, unemployment ticked down, underemployment dropped, and the duration of unemployment spells declined. This is a step in the right direction.

However, it will take many years of reports this strong or stronger to bring the labor market back to health. The jobs deficit of the 2008-09 period, defined as the number of jobs lost since the recession started plus the jobs we should have added to keep up with the normal growth in the working-age population, remains well over 10 million, and at December’s growth rate the United States will not recover its pre-recession unemployment rate until 2019.

Despite relatively strong month, December caps off two years of little improvement in the labor market

Two years ago, in December 2009, the unemployment rate was 9.9 percent, and it is now 8.5 percent. How much improvement does that drop actually represent? Given weak job prospects, many would-be workers dropped out of (or never entered) the labor force over this period, a trend that reduces the measured unemployment rate but does not represent real improvement in employment. If the workers who comprise the drop in the labor force participation rate (from 64.6 percent to 64.0 percent) over the last two years were counted as unemployed, the unemployment rate would be 9.5 percent now instead of 8.5 percent...

To get back to the pre-recession unemployment rate in four years – by the end of 2015 – would require adding around 320,000 jobs every month between now and then. Expectations are that sustained robust job growth is at least a year off. The U.S. workforce can’t afford to wait. The ongoing crisis in the labor market calls for substantial additional stimulus to generate jobs.

6--How Austerity Is Killing Europe, NYRB

Excerpt: The European Union has become a vicious circle of burgeoning debt leading to radical austerity measures, which in turn further weaken economic conditions and result in calls for still more damaging cuts in government spending and higher taxes.....Over the past two years, the severe 2009 recession, which started in the U.S. but spread across Europe, have imperiled the finances of one European country after another. As a result, Portugal, Ireland, Spain and Italy are coming under pressure from the EU to cut government spending and raise taxes to reduce their deficits if they wanted to qualify for a bailout. All have done so. Ireland and Portugal sharply cut spending and still had to take tens of billions of euros to help meet financial obligations as of course did Greece. The European Central Bank bought the bonds of Italy and Spain. Britain’s Conservative government led the way in ruthless government cutbacks in 2010. France has adopted its own austerity package, and even Germany, the supposed economic leader of Europe, has planned to cut its deficit by a record 80 billion euros in 2014.

Proponents of austerity claim that as nations take control of their finances businesses become more convinced that interest rates will not rise and that growth will resume.

...There is a far better solution. And it would not require the failure of the euro. The eurozone and perhaps the entire EU must act like a unified country, ready to recognize that it must take responsibility for the drastic social effects of rapid spending cuts. The U.S. is no shining example of enlightened policies, but the European Central Bank must guarantee the debt of its members just like the Federal Reserve guarantees the debt of the U.S. Treasury. It can then force restructuring of debt in these nations, with some private investors taking losses. A financially unified Eurozone must then issue bonds to raise the money to pay back debts but also to provide a social net for the people of nations that are cutting back their spending on social programs to meet their remaining financial commitments. (This is what the US does, for example, by sending Social Security checks and aid for the unemployment to every state in the union.) This can be accompanied by demands for reforms in nations like Greece where taxes must now be collected more efficiently and unusually excessive public spending stopped.

Germany has the financial wherewithal to lead this rescue. But it is blocking the fiscal union from acting like a single nation with compassion for all Eurozone citizens. It is also refusing to underwrite a substantial new fiscal stimulus—good-old fashioned Keynesianism...

The EU leaders must get over their obsession with eliminating deficits. They now want to reduce every country’s deficit to less than 0.5 percent. This is disaster. It will lead to very slow growth for a long time. Instead, they must use temporary deficits to restart growth. Rarely has policymaking been this poor. Sooner than later, the citizens of these nations will say, No more!, and political instability will result.

7--Does the Obama Administration Really Want People to Celebrate Job Growth That Will Get Us Back to Full Employment in 2028?, CEPR

Excerpt: That's what reporters should have been asking as the Obama administration put a positive spin on the 1.6 million job growth in 2011. The economy has to create roughly 1 million jobs a year to keep pace with the growth of the labor force. With a shortfall of jobs that is currently near 10 million, it will take more than 16 years to get the economy back to full employment at the 2011 rate of job growth.

Reporters should have been ridiculing Obama administration for their poor grasp of arithmetic for celebrating such a dismal job performance. They certainly should have pointed out to readers the absurdity of their boasts about the recent pace of job growth.....we currently have a shortfall of around 10 million jobs. If we generate 200,000 jobs a month, then we are cutting into this shortfall at the rate of 100,000 a month, since we need 90,000-100,000 jobs a month just to keep pace with the growth of the population. This means that in 100 months we should expect to be back to full employment. So the champaign bottles for that happy occasion will be dated 2020.

8--Americans buy record numbers of guns for Christmas, Telegraph

Excerpt: Americans bought record numbers of guns last month amid an apparent surge in popularity for weapons as Christmas presents.

According to the FBI, over 1.5 million background checks on customers were requested by gun dealers to the National Instant Criminal Background Check System in December. Nearly 500,000 of those were in the six days before Christmas.

It was the highest number ever in a single month, surpassing the previous record set in November.

On Dec 23 alone there were 102,222 background checks, making it the second busiest single day for buying guns in history.

9--Fed Nears Adoption of an Inflation Target as Bernanke Pushes Transparency, Bloomberg

Excerpt: Federal Reserve officials are nearing agreement on adopting an inflation goal as Chairman Ben S. Bernanke extends his push for improving transparency and communications with the public.

“We are very close to having inflation targeting in the U.S.,” James Bullard, president of the Federal Reserve Bank of St. Louis, said in a radio interview yesterday on Bloomberg Surveillance hosted by Tom Keene and Ken Prewitt. “We are getting closer to being able to make a committee-wide statement about these longer-term policy goal issues.”

An explicit numeric inflation objective would mark another step in Bernanke’s unprecedented campaign to open the Fed’s policy process to public view to boost accountability and effectiveness. The Fed chairman has also introduced regular press conferences and will publish the central bank’s own forecasts for the benchmark lending rate this month. At the same time, Bernanke is following a road already taken by central banks from Sweden to New Zealand.

“We’re in a situation where everyone is starting to appreciate the benefits of having the Fed be able to provide clear signals,” said Mark Gertler, a New York University economist and research co-author with Bernanke.

10--From the archives: Shadow inventory armageddon, Dr Housing Bubble

Excerpt: To break down the figures even further you have 2.48 million loans that are less than 90 days delinquent (3 missed payments), 1.9 million loans that are 90+ days delinquent (more than 3 missed payments), and 2.16 million loans already in the foreclosure process. In total, this adds up to over 6.54 million loans in the distressed pipeline and this is what I would categorize as the shadow inventory. As the chart above highlights, only about 500,000 properties are actually real estate owned and show up for sale in local MLS data (and not all REO show up but a lot do). The cure rates are abysmal on many of the loans and many are underwater to levels that will never cure on these properties. In fact, the latest data shows that the typical foreclosure process timeline is now up to a stunning 599 days!

“(LPS) The July Mortgage Monitor report released by Lender Processing Services, Inc. shows that foreclosure timelines continue their steady upward trend, as a payment has not been made on the average loan in foreclosure in a record 599 days. Of the nearly 1.9 million loans that are 90 or more days delinquent but not yet in foreclosure, 42 percent have not made a payment in more than a year with an average delinquency of 397 days, also a new record. At the same time, first-time foreclosure starts in June were near three-year lows, and first-time delinquencies accounted for only 25 percent of new delinquent inventory.”

Even more disturbing you have 42 percent of the 1.9 million loans that are 90 or more days delinquent not making a payment in more than a year (approximately 798,000 mortgages are going with no mortgage payment for more than a year yet no foreclosure process has been initiated).

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