Saturday, May 4, 2013

Today's links

1--Job Growth, Big Picture
Job Growth Better Than You Think
Chart
Source: MoneyBeat

2---Understanding the painfully slow jobs recovery, Reuters

jobs chart shows just how bad the recession was for employment, and just how painfully slowly we’re scratching our way back: we’re more than five years into this jobs recession, and we’re still at the worst levels seen in the wake of the dot-com bust.

One of the reasons is the undisputed conclusion of Reinhart and Rogoff: that recoveries from financial crises are much slower than recoveries from other crises. But there’s something bigger going on, too, which Joe Stiglitz writes about today in a very wonky blog post for the IMF.
This is more than just a balance sheet crisis. There is a deeper cause: The United States and Europe are going through a structural transformation. There is a structural transformation associated with the move from manufacturing to a service sector economy. Additionally, changing comparative advantages requires massive adjustments in the structure of the North Atlantic countries.

3---Job's Report, angry bear

The combination of weak wage growth and a shorter workweek meant that  average weekly wages fell from m$824.53 to $821.13.  This measures accounts for some 80% of the labor force and implies that consumer spending growth  will continue to depend heavily on  upper income spending.

4--Dark side to jobs report: Big drop in hours worked, marketwatch
Commentary: Shorter work week equivalent to 500,000 jobs lost

5---This report is consistent with the weak growth we have seen since the end of the stimulus. It will be surprising if the unemployment rate does not rise by the end of the year., Dean Baker

While the total jobs number was somewhat better than the consensus prediction, the composition was disturbing. More than a fifth of the added jobs (34,600) were in employment services. Restaurant employment accounted for 38,000 jobs and the retail sector added 29,300. These three sectors accounted for more than half of April job growth. Health care added 19,000 jobs, a bit less than its 25,000 average over the last year.
 
In addition to the unbalanced nature of the job growth, there was 0.2 hour decline in the length of the average workweek. This led to 0.4 percentage point drop in the index of average weekly hours, equaling the largest declines since the recovery began.
 
The job losers were led by the government sector, with the federal government shedding 8,000 jobs, 3,500 of which were in the Postal Service. State and local governments lost 3,000 jobs, bringing their job loss over the last year to 224,000. Construction shed 6,000 jobs, all in the non-residential sector. This reflects less public building as reported in the March construction data. Manufacturing employment was flat in April for the second consecutive month. There is clearly little momentum in this sector right now.
 
 
The BLS employment report shows the official unemployment rate ticked down 0.1 percentage point to 7.5%,and the current population survey statistics are a mixed bag of strange.   More people were employed, yet the number of people stuck in part-time jobs continues to increase.  The labor participation rate stayed at the same May 1979 record low.   U-6, a broader measure of unemployment, ticked up 0.1 percentage point to 13.9%
 
7---Dr Copper says the party's over, Business insider
 
 
While the two economies are very different, their current predicaments are eerily similar. If I am right, this means that Europe’s leaders may be deluding themselves in thinking that the eurozone’s crisis is fundamentally different to Japan’s.

Japan’s and Europe’s crises began when their financial sector imploded following the burst of gigantic bubbles caused by earlier capital inflows into the money and the real estate markets. In both economies, governments tried to keep the banks afloat with injections (capital and liquidity) that failed to restore their capacity to borrow and to lend.

Both in Japan and in the eurozone, the zombification of the banking system was ‘bought’ at the cost of taxpayers and to the detriment of the real economy; the result being a fall in the incomes from which the banking losses and the public debts had to be repaid.

In both realms politicians had too cozy a relationship with bankers and did not dare expropriate them, cleanse the banks and sell them back to the private sector (as Sweden did in 1992 or South Korea in 1998). The result of these political failures, both in Japan and in the eurozone, have been a carbon copy of one another.

Put differently, Japan and the eurozone are in different phases of the same type of crisis, with Japan at a more advanced stage of this common disease courtesy of having had an earlier start.
The eurozone is unique in world economic history in that it comprises governments with no central bank (to back their economic policies) and a European Central Bank with no government to work with. In this sense, the eurozone is a very different kettle of fish, when compared to Japan.

These differences reveal deep weaknesses that the eurozone has and Japan is free of. The eurozone’s complacency in the face of stagnation means the ‘Japanese disease’, which is now spreading throughout Europe, is going to do even more damage to Europe than it did to Japan over the past two decades.

Moreover, when the time comes for Europeans to reach the same conclusions that Mr Abe and Mr Kuroda have now turned into policy, the eurozone will lack the institutions to put them into practice. The most likely result will be the eurozone’s disintegration; a development which, ironically, will undoubtedly damage Japan’s recovery – just as it will damage the rest of the global economy.

 9-----Where Have All the Jobs Gone?, Jared Bernstein, NYT
 
One explanation may be that capital investment has become, to put it politely, more “labor saving.” Yes, this process has been going on forever, but robotics and other ways of automating tasks may be accelerating it.
      
Second, our large and persistent trade deficits have exported too much demand. There’s nothing wrong, and a lot right, with increased global trade. The problem comes when it stays out of balance for so long, as it has in America, with trade deficits averaging 5 percent of G.D.P. in the 2000s, compared with 1 percent in the 1990s. That’s millions of net jobs lost.
      
Third, a growing number of economists believe that our very high levels of inequality are not just whacking the incomes of the “have-nots” but are slowing job growth as well. Part of this works through the demand channel: with so much spending power in the hands of so few, consumer demand is becoming bifurcated. Walmart will do well on one end, Neiman Marcus on the other, with too little in between. Another part works through misallocation: too much economic activity devoted to “innovative” finance and too little to sectors more germane to middle-class jobs and incomes.
      
What would it take to reverse these trends? For one thing, in the near term, do no harm. Austerity, including sequestration, is the economic version of medieval leeching. The Federal Reserve continues to apply high doses of monetary stimulus, and that’s supporting low interest rates, which in turn are linked to the improving housing market. But it can’t do it alone, and Congress is counteracting such tailwinds with fiscal headwinds.
       
We also need a significant, permanent program to absorb excess labor (an explicit part of the Humphrey-Hawkins law). We should consider restarting and rescaling a subsidized jobs program from the 2009 Recovery Act that, though relatively small, made jobs possible for hundreds of thousands of workers.
      
And we have to reassess our manufacturing policy, including reducing the trade deficit. That means both reshaping our dollar policy — going after competitors who suppress their currencies’ value to get an edge on net exports — and public investments in areas where clean energy intersects with production.
      
Finally, financial deregulation has become the enemy of full employment: it funnels capital to unproductive parts of the economy, and plays a key role in the “shampoo cycle” of bubble, bust, repeat. Less volatile capital markets mean fewer shocks to the job market
 
 
Meaningless to increase lending in a world without borrowers
 
The underlying cause of a balance sheet recession is a decline in—and ultimate disappearance of—private demand for funds due to a critical shortage of borrowers.  Yet the quantitative easing policies adopted by central banks in the major economies are all designed to increase the number of
lenders
 
. When the problem stems from the lack of willing borrowers, the central bank’s emergence as a new lender is hardly going to improve the situation. If anything, new lending by the central bank will further weaken private sector financial institutions already hurt by excessive competition. An objective analysis of the BOJ’s easing program in light of other countries’ experiences with quantitative easing suggests investors would be wise to rein in their expectations. There is no reason why the money multiplier should turn positive when private demand for funds is nonexistent despite zero interest rates.....
 
Second and third pillars of Abenomics could address weak demand for funds
 
The correct way to address the anemic private demand for funds that is at the bottom of Japan’s prolonged economic slump is to undertake fiscal stimulus and structural reforms—the second and third components of Abenomics. Fiscal stimulus in particular would be able to raise the money multiplier and create demand by having the government borrow and spend unborrowed private savings. The only reason the money supply in Japan has not shrunk despite extensive private-sector deleveraging is that the government has successfully served as borrower of last resort
 
Deflation took root in Japan when economy fell off fiscal cliff in 1997
 
Money supply cannot expand without growth in private credit
 
Common to all of these countries is the fact that businesses and households are saving in spite of zero interest rates. They are doing so because of the severe damage caused to balance sheets when the bubble collapse drove asset prices lower while leaving debts intact. Private savings are running at 8.8% of GDP in Japan, while the corresponding figures are 7.0% for the US,3.3% for the UK, 8.1% for Spain, 8.6% for Ireland, 7.0% for Portugal, and 4.4% for Italy. The fact that businesses and households in these economies are responding to zero interest rates by saving money rather than borrowing and spending aggressively clearly suggests that lending—and hence the money supply—will not expand no matter how much base money the central bank supplies. Growth in private credit has been severely depressed, as noted here on numerous occasions. Even in the US, where conditions are said to be relatively healthy, private credit has yet to recover to pre-Lehman levels. Quantitative easing—whether in Japan, the US, or the UK—cannot directly stimulate the economy or raise the rate of inflation so long as businesses and households refuse to borrow money and spend it.
 
 
 

No comments:

Post a Comment