Comment on the BEA report on Massachusetts GDP state

OVERVIEW

• Real gross domestic product (GDP) state increased in 43 states and the District of Columbia where real gross domestic product (GDP) increased in the first quarter of 2017, according to statistics on the geographic breakout of GDP released by the U.S. Bureau of Economic Analysis.
• The Massachusetts economy grew by 1.1 percent in the first quarter of 2017. This was slightly below the 1.2 national average. 
• The growth rate was slower than the annual rate for 2016 which posted at 2.0 percent but was an improvement over the first quarter of 2016 which contracted by 2.0. 
• Real GDP by state growth in the first quarter ranged from 3.9 percent in Texas to -4.0 percent in Nebraska. See Chart 1 from the BEA. 
• As a region, the six states of New England only grew by 0.9 percent. The Southwest — Texas, New Mexico, Arizona and Oklahoma — grew the largest for Qtr1-2017 at 3.3 percent nearly three times the adjusted-for-state comparison U.S. rate of 1.2 percent. 
• The current dollar size of the Massachusetts GDP by State is $519.9 billion. 

ANALYSIS 

GDP-State is the market value of goods and services produced by labor and property (or capital) in a state. The sum of GDP for all states released this week (1.2 percent for Qtr1-2017) differs from the national GDP number (1.2 percent)* since outputs like military and overseas activity can’t be attributed to any one state.  The Massachusetts economy comprises 2.7 percent of the total U.S. economy according to the BEA update. New England, as a region comprises one of the smallest at 5.4 percent outpacing the Rocky Mountain states which accounts for 3.4 of the national total. 

Real Estate and Rental and Leasing, Mining and Durable Goods Manufacturing were the leading contributors nationally. In Massachusetts, the leading contributions to the percent change were: Real Estate and Rental and Leasing, Construction, Health Care and Social assistance, Durable-goods Manufacturing, Wholesale Trade, Nondurable-goods Manufacturing, and Administrative and Waste Management Services. (See Table 1 p. 2.) 

Massachusetts ranked 25th in growth during the first quarter.  How did Massachusetts rank in this latest BEA report compared with its high-technology competitors?  The state of Washington grew by 2.7 percent, Virginia by 2.0 percent while the Utah economy grew by 1.9 percent. Meanwhile, California slowed to 0.1 percent, Colorado by 0.4 percent; North Carolina grew by 0.7 percent as Minnesota contracted by 0.3 percent. 

*Revised figure from 7/28 GDP press release; The originally reported figure was 1.4 percent.

Why people are getting the hell out of the Northeast | New York Post

Why people are getting the hell out of the Northeast | New York Post

The value of the mortgage interest deduction is overstated

A study that should have implications for tax reform. An optimal tax system collects revenue from the broadest base. Economists have long believed that the homeowner mortgage deduction misallocates capital to the housing sector. This new study, "Do People Respond to the Mortage Interest Deduction?: Quasi-Experimental Evidence from Denmark," from Jonathan Gruber, Amalie Jensen and Henrik Kleven finds that prospective homeowners are not swayed by the tax incentive.

Using linked housing and tax records from Denmark combined with a major reform of the mortgage interest deduction in the late 1980s, we carry out the first comprehensive long-term study of how tax subsidies affect housing decisions.  The reform introduced a large and sharp reduction in the mortgage deduction for top-rate taxpayers, while reducing it much less or not at all for lower-rate taxpayers.  We present three main findings.  First, the mortgage deduction has a precisely estimated zero effect on homeownership. This holds even in the very long run.  Second, the mortgage deduction has a sizeable impact on housing demand at the intensive margin, inducing homeowners to buy larger and more expensive houses.  Third, the largest effect of the mortgage deduction is on household financial decisions, inducing them to increase indebtedness. These findings suggest that the mortgage interest deduction distorts the behavior of homeowners at the intensive margin, but is ineffective at promoting homeownership at the extensive margin and any externalities that may be associated with it.

The paper is available at the National Bureau of Economic Research.

MA Employment Situation: Urate: 4.3 percent -- 10,000 jobs added in June

OVERVIEW

• The state’s total unemployment rate increased to 4.3 percent in June from the May rate of 4.2 percent according to the Executive Office of Labor and Workforce Development.
• Preliminary estimates suggest that Massachusetts added 10,000 jobs in June.  Since last June the economy has added 65,900 jobs.
• The labor force participation rate (LFP) remained at 66.7 percent over the month; however, this represents a 1.8 percent increase from June 2016.
• Education and Health Services added 6,700 jobs over the month. Over the year, Education and Health Services gained 28,200 jobs.
• Information added 200 jobs over the month; over the year, this sector gained 1,300 jobs.
• Federal, state and local government combined gained 400 jobs (5,500 over the past 12 months).
• Professional, Scientific, Business Service subsector lost 2,200 jobs bringing year over year to 13,900.
• Construction lost 2,800 jobs in June but since last year the sector has added 1,800 jobs.
• In June, the manufacturing sector gained 500 jobs but posted a 12-month loss of 1,400 jobs.
• The May estimate was revised with a gain of 2,000 jobs as opposed to the 2,900 originally reported.

ANALYSIS

 "During the first six months of 2017, Massachusetts has experienced the largest increase in the labor force on record, and the 66.7 labor force participation rate is now 3.9 points higher than the U.S. rate. These marked labor force gains should help ease labor market pressures and are signs of a growing economy in the Commonwealth," Labor and Workforce Development Secretary Rosalin Acosta said upon yesterday’s release. 

The increase in the unemployment rate is due to the fact more workers are rejoining the labor force. The LWD office says that 121,400 workers re-entered the market from June 2016.  Only construction and professional services lost jobs over the month. But all other sectors posted strong growth with education and health services leading the way. 

Government continues to grow employment rising by 1.2 percent over the past year.  

The growth in Massachusetts jobs should ensure that state income tax revenues grow, thus alleviating some of the sales tax revenue drift.  

The often-neglected “Other Services” category continues to move with Professional, Scientific and Business Services as a percentage of total nonfarm employment, roughly 4 percent and 15 percent respectively. 

Both are strongly correlated. The Bureau of Labor Statistics defines “Other Services” as those jobs (except for Public Administration) that provide services such as machine repair, administering religious services, grantmaking, personal and pet care services as well as other establishments. Sector growth since the last recession has been mostly flat at 0.22 percent since 2007.

Currently reading: Dani Rodrik's ECONOMICS RULES: THE RIGHTS AND WRONGS OF THE DISMAL SCIENCE

Thus far a wonderful explanation on economic models.  Can't wait to finish it.

Retail urgent care: It helps

A new working paper from Diane Alexander, Janet Currie, Molly Schnell examines a much-needed innovation in health care deliveries: 

Retail clinics are an innovation that has the potential to improve
competition in health care markets.  We use the universe of emergency room (ER) visits in New Jersey from 2006-2014 to examine the impact of retail clinics on ER usage. We find significant effects of retail clinics on ER visits for both minor and preventable conditions; Residents residing close to an open clinic are 4.1-12.3 percent less likely to use an ER for these conditions.  Our estimates suggest annual cost savings from reduced ER usage of over $70 million if retail clinics were made readily available across New Jersey.
A few years ago, Boston Mayor Menino prevented the opening of such "minute clinics" at CVS stores primarily to protect Boston Medical Center and community health centers. There's a public choice lesson to be learned. 

New Working Paper: The Employment Effects of Minimum Wages: Some Questions We Need to Answer

Here's a new paper from labor economist David Neumark: 

The literature on the employment effects of minimum wages is about a
century old, and includes hundreds of studies. Yet the debate among
researchers about the employment effects of minimum wages remains
intense and unsettled. This essay discussed the key questions that
have arisen in the past research that, if we can answer them, may
prove most useful in making sense of the conflicting evidence. I
also focus on additional questions we should consider to better
inform the policy debate, in particular in the context of the very
high minimum wages coming on line in the United States, about which
past research is quite uninformative.
Certain to add to the debate on how we think about minimum wages in the U.S.

Mercatus Center: Massachusetts fiscal situation at risk

Massachusetts ranks 48th in fiscal health according to a new study from the Mercatus Center at George Mason University. Here's the summary:

On the basis of its fiscal solvency in five separate categories, Massachusetts is ranked 48th among the US states for its fiscal health. On a short-run basis, Massachusetts holds between 45 percent and 111 percent of the cash needed to cover short-term obligations. Revenues cover 96 percent of expenses, and net position decreased by $319 per capita in FY 2015. On a long-run basis, a net asset ratio of −1.84 points to a heavy reliance on debt and large unfunded obligations. Long-term liabilities are 239 percent of total assets, for a per capita long-term liability of $9,919. Total primary government debt is $28.43 billion, or 6.9 percent of personal income, nearly twice the average in the states. The best score for Massachusetts was for trust fund solvency. On a guaranteed-to-be-paid basis, unfunded pension obligations are $115.75 billion, or 28 percent of state personal income. OPEB is 4 percent of state personal income. 

Here's an interesting chart: 

Read the whole study.  Here's a gated SHNS article on the study.

Economist Dani Rodrik: Populism should not be a surprise

The new Dani Rodrik paper: Populism and the Economics of Globalization

Populism may seem like it has come out of nowhere, but it has been on the rise for a while. I argue that economic history and economic theory both provide ample grounds for anticipating that advanced stages of economic globalization would produce a political backlash. While the backlash may have been predictable, the specific form it took was less so. I distinguish between left-wing and right-wing variants of populism, which differ with respect to the societal cleavages that populist politicians highlight. The first has been predominant in Latin America, and the second in Europe. I argue that these different reactions are related to the relative salience of different types of globalization shocks.

Men and Republicans Are the Best Tippers - Bloomberg

Men and Republicans Are the Best Tippers - Bloomberg

Analysis of US EMPSIT U-Rate 4.4%; Jobs added: 220,000;

OVERVIEW

• The unemployment rate rose to 4.4 percent in June while payrolls expanded by 222,000, according to the Bureau of Labor Statistics.
• The Labor Force Participation (LFP) rate rose by 0.1 percentage point to 62.8 percent for June. The employment-population ratio was little changed at 60.1 percent.
• Health care added 37,000 jobs and social assistance added 23,000 jobs.
• Employment in the other major sectors— construction, manufacturing, wholesale trade, retail trade, transportation and warehousing, information and government —were unchanged.
• Employment in the financial activities sector rose by 17,000 in June after stalling in May.
• In June, average hourly earnings for all employees increased by 4 cents to $26.25, representing a 2.5 percent year over year increase.
• In June, employment in the professional services sector rose by 35,000.
• The April employment situation report was revised up from 174,000 to 207,000 and the change from May was also revised up from the 138,000 to 152,000.  The two-month revisions accounted for 47,000 jobs that were previously not identified.
• The average workweek for all employees rose by 0.1 hour to 34.5 hours.

ANALYSIS
The payroll employment report highlighting 220,000 new jobs exceeded the Wall Street consensus of 170,000 jobs.  The new number arrived as a pleasant surprise. According to an ADP report earlier this week, private sector employment increased by 158,000 jobs from May to June. According to the BLS, employment growth has averaged 180,000 per month thus far this year — slightly below the 2016 average monthly gain of 187,000.   

The positive news in today’s report underscores that since January, the unemployment rate and the number of unemployed are down by 0.4 percentage point and 658,000. The rolling three-month average with the new revisions indicate job gains of 194,000 a month. 

However, the LFP rate continues to plague the jobs recovery; it has changed little from 62.8 percent and shows “no clear trend over the past year.” The number of persons employed part-time (but who would like more hours), was little changed at 5.3 million. In June, 1.6 million persons were marginally attached to the labor force, down by 197,000.  

The BLS estimates that 1.1 million persons marginally attached remain out of the workforce for reasons such as family responsibilities and school attendance. Teen-age unemployment has trimmed down from 15.9 percent last June to 13.3 percent in June 2017. 

Relative to the growth in jobs, wage gains remain weak. The report "is another illustration that the real economy is in good health," said Paul Ashworth, chief U.S. economist at Capital Economics. "The only disappointment is that wage growth still shows few signs of accelerating."

PDF version of this Research Note

Debate: Is Adam Smith the Father of Economics and Free-Market Capitalism?

Reason presents a lively debate among libertarians -- Mark Skousen of FreedomFest and Gene Epstein of Barron's-- that argues for a favorite founding father of economics: Adam Smith alone on the pedestal or a the lesser known Frenchman, Richard Cantillon leading a contingent of competing economists? 


Transcript here.

2.  Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence
from Seattle
by Ekaterina Jardim, Mark C. Long, Robert Plotnick, Emma van Inwegen, Jacob Vigdor, Hilary Wething  -  #23532 (LS)

Abstract:

This paper evaluates the wage, employment, and hours effects of the
first and second phase-in of the Seattle Minimum Wage Ordinance,
which raised the minimum wage from $9.47 to $11 per hour in 2015 and
to $13 per hour in 2016.  Using a variety of methods to analyze
employment in all sectors paying below a specified real hourly rate,
we conclude that the second wage increase to $13 reduced hours worked
in low-wage jobs by around 9 percent, while hourly wages in such jobs
increased by around 3 percent. Consequently, total payroll fell for
such jobs, implying that the minimum wage ordinance lowered low-wage
employees' earnings by an average of $125 per month in 2016. 
Evidence attributes more modest effects to the first wage increase. 
We estimate an effect of zero when analyzing employment in the
restaurant industry at all wage levels, comparable to many prior
studies.

http://papers.nber.org/papers/w23532?utm_campaign=ntw&utm_medium=email&utm_source=ntw

Can the observations of building permit activity explain the stock mr

From a new NBER working paper

Stock volatility during the Great Depression was two to three times
higher than any other period in American financial history.  The period has been labelled a "volatility puzzle" because scholars have been unable to provide a convincing explanation for the dramatic rise in stock volatility (Schwert, 1989).  We investigate the volatility puzzle during the period 1928-1938 using a new series of building permits, a forward-looking measure of economic activity.  Our results suggest that the largest stock volatility spike in American history can be predicted by an increase in the volatility of building permit growth. Markets appear to have factored in a forthcoming economic disaster.

What would building permit activity tell us today?