The Economics and Politics of Revoking NAFTA

From a new NBER working paper by Raphael Auer, Barthélémy Bonadio, and Andrei A. Levchenko 

Abstract:

We provide a quantitative assessment of both the aggregate and the distributional effects of revoking NAFTA using a multi-country, multi-sector, multi-factor model of world production and trade with global input-output linkages. Revoking NAFTA would reduce US welfare by about 0.2%, and Canadian and Mexican welfare by about 2%. The distributional impacts of revoking NAFTA across workers in different sectors are an order of magnitude larger in all three countries, ranging from -2.7 to 2.26% in the United States. We combine the quantitative results with information on the geographic distribution of sectoral employment, and compute average real wage changes in each US congressional district, Mexican state, and Canadian province. We then examine the political correlates of the economic effects. Congressional district-level real wage changes are negatively correlated with the Trump vote share in 2016: districts that voted more for Trump would on average experience greater real wage reductions if NAFTA is revoked.

Gated version here. 

Behind the Market Swoon: The Herdlike Behavior of Computerized Trading - WSJ

Behind the Market Swoon: The Herdlike Behavior of Computerized Trading - WSJ

The November 2018 Employment Situation in Massachusetts

U-Rate: 3.4%; +4,600; +60,500 YoY

OVERVIEW

• According to the Executive Office of Labor and Workforce Development, the state’s total unemployment rate dropped one-tenth of a percentage point to 3.4 percent in November.
• According to the federal Bureau of Labor Statistics, the state added 4,600 jobs in November. 
• he state’s unemployment rate was three-tenths of a percentage point lower than the national average of 3.7 percent. 
• The state’s Labor Force Participation Rate (LFP) remained at 68.0 percent. Since November 2017, the LFP rate by 2.7 percentage points.
• Trade, Transportation and Utilities added 3,100 over the month and Professional, Scientific and Business Services added 1,700 with Education and Health Services adding 1,200.
• Financial Activities lost 700 jobs over the month with Construction (-500), Other Services (-300) and Manufacturing (-100) also losing jobs in November. 
• Two sectors remained unchanged over the month: Government and Leisure and Hospitality.

ANALYSIS
Since January the Massachusetts monthly unemployment rate averaged 3.5 percent. The state continues to enjoy an unemployment rate less than the national rate. 

The jobs economy is driven mostly by the state’s Professional, Scientific and Business Services sector, which created 27,600 jobs since last November. However, the Leisure and Hospitality sector shed 800 jobs since that time. Financial Activities only added 700 jobs. Government has lost jobs. 

Education and Health Services comprise the largest sector in Massachusetts. (See table above) Over the past 12 months it has added 14,400 jobs. 

Assuming the BLS figure of 60,500 new jobs, the state created a monthly average of approximately 5,000 jobs since last November.  Northern New England is benefiting from low unemployment rates. 

PDF Version

Stock market woes raise a nagging fear: Is a recession near?

Stock market woes raise a nagging fear: Is a recession near?

Economists Love Carbon Taxes. Lots of Regular Folks Don't. - Hit & Run : Reason.com

Economists Love Carbon Taxes. Lots of Regular Folks Don't. - Hit & Run : Reason.com

With Revenues Soaring, States Are Spending More. But on What?

With Revenues Soaring, States Are Spending More. But on What?

What is the Yield Curve, and Why is it Flattening?

Notes on the U.S. Employment Situation for November 2018: U-Rate: 3.7%; Jobs: +155,000

OVERVIEW

• The unemployment rate remained at 3.7 percent in November with payrolls expanding by 155,000 jobs, according to the Bureau of Labor Statistics.  
• The Labor Force Participation (LFP) rate remained at 62.9 percent. The Employment-Population ratio also remained at 60.6 percent. The number of unemployed dropped from October to November by 100,000 from 6.075 million to 5.975 million.
• Job gains took place in Health care (+32,000) and Manufacturing (+27,000) and Transportation and Warehousing (+25,000).
• In addition, Professional and Business Services added 32,000 jobs while Retail Trade added 18,000 jobs.  
• According to the BLS, the following sectors saw little or no change in employment: Mining, Wholesale Trade, Information, Financial Activities, Leisure and Hospitality, and Government. 
• Over the year, average hourly earnings have increased by 81 cents or 3.1 percent. In November the average hourly private nonfarm wage rang in at $27.35, an increase of six cents. The average workweek for all employees decreased by 0.1 hour to 34.4 hours in November. 

ANALYSIS

Total nonfarm payroll employment only rose by 155,000 in November and the unemployment rate remained at 3.7 percent for the third consecutive month.

Earlier this week, Wall Street expected a payroll increase by 197,000 jobs. 

The BLS reported 161,000 new private sector jobs were created compared with the estimate from the ADP payrolls report released earlier this week of 179,000 private payrolls.  

The number of persons employed part-time for economic reasons remained at 4.8 million. The number of long-term unemployed was dropped by 120,000 to 1.25 million. This group represents 20.8 of all unemployed persons. 

Revisions to the previous two months showed there were 12,000 less new jobs. October was revised down to 237,000 from 250,000 and September was revised up to 119,000 from 118,000. November’s payrolls number was below the 2018 monthly average of 208,000 jobs per month. 

Still, there’s only a smaller number of jobs slated to come online.  “The economy only needs to create 60,000 to 70,000 jobs to keep pace with the growth of the working-age population, so job growth is still strong,” Julia Pollak, labor economist at ZipRecruiter told MarketWatch.com. 

Despite the turmoil in the stock market, workers are enjoying wage gains. Wages rose 3.1% over the prior year, the fastest pace of annual wage growth since April 2009 according to Yahoo Finance. Even with lower payroll growth, the economy faces a shortage of workers.  

George H.W. Bush's Underappreciated Legacy: The Balanced Budgets Of The 1990s

Fall has not been kind to tech stock leaders FAANG falls

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How to identify ARIMA p d and q parameters and fit the model in Python

From the Visual Capitalist "In Charts: How American Household Finances are Changing"

In Charts: How American Household Finances are Changing

Tax Foundation's International Tax Competitiveness Index

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From the Tax Foundation: 

The structure of a country’s tax code is an important determinant of its economic performance. A well-structured tax code is easy for taxpayers to comply with and can promote economic development while raising sufficient revenue for a government’s priorities. In contrast, poorly structured tax systems can be costly, distort economic decision-making, and harm domestic economies.

Read more here. 

Under construction: Local economy East Boston, Ward 1-Boston, 02128

BUSINESS DEVELOPMENT
#DBA New Certificates issued
10 for November 2017

EMPLOYMENT DATA
State Unemployment Rate (MA)
3.7% October 2017

U.S. Unemployment Rate
4.1% October 2017

Metro Boston Unemployment Rate*
3.3% September 2017

State and Area Employment (000s)
3,643 October 2017

Jobs Added MA YoY
69,000 October 2017

Suffolk County Unemployment# & Rate 13,410; 3.1% October 17 NSA

Boston Unemployment Rates
3.1% October 2016

U.S Productivity: 3.0% 3rd Qtr. 2017 est.

Suffolk County Avg. Wkly Wage
$2,016 (1st Qtr 2017)

Occupational Employment and Wage Estimates (Boston Metro 5/2016)
$32.66 (avg. hr)
$67,930 (avg. annual salary.)

HOUSING
Housing Permits (MA): 1568
October 2017

Massachusetts Homeownership Rate
59.7% (2016)

Change in FHFA State House Price Indexes
(Seasonally Adjusted, Purchase-Only Index, 2017Q2:1.96)


CONSUMER

U.S. CPI-U, All items, 12-month % change*
0.1% (10/2017 over 10/2016) All Items YoY: +2.0%

Boston Metro Consumer Price Index
2.7% (9/2017 over 9/2016)

ENERGY

Boston Average Price - Gasoline, Unleaded Reg., Per Gallon/ 2.560 October 2017

Massachusetts Average Price Heating Oil
$2.877 per gallon 11/27/17 (excl. taxes)

Stock Market: Local:
East Boston Savings Bank Stock Latest

Bloomberg MA Stock Index (BCMAX:IND)

Hardly failing! Donald Trump makes the New York Times great again!

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The Massachusetts Employment Situation: U-Rate 3.5%; Jobs 4,400; 64,400 YoY

OVERVIEW

•    According to the Executive Office of Labor and Workforce Development, the state’s total unemployment rate dropped one-tenth of a percentage point to 3.5 percent in October.
  
•    According to the federal Bureau of Labor Statistics, the state also added 4,400 jobs in October.
  
•    The state’s unemployment rate was two-tenths of a percentage point lower than the national average of 3.7 percent.
  
•    The state’s Labor Force Participation Rate (LFP) continued to improve since October 2017. It now stands at 68.0 percent, an increase of 2.6 percentage points. October estimates show 3.69 million residents were employed in Massachusetts.
  
•    The largest private sector percentage job gains over the past year took place in the Construction (+5.4); Professional, Scientific and Business Services (+5.1); Information (+2.0); and Education and Health Services (+1.9).
  
•    Meanwhile, Financial Activities; Leisure and Hospitality each lost 400 jobs while Government lost 300 jobs. 

ANALYSIS

The Massachusetts economy steamrolls ahead. By adding 4,400 jobs, the state’s economy showed no signs of slowing down.

 "The Massachusetts unemployment rate continues to remain low at 3.5 percent and has now held below 4 percent for 30 consecutive months. With the Commonwealth's consistently low rate of unemployment, the economy continues to add jobs at a healthy clip and our labor force continues to grow to meet employment needs," Labor and Workforce Development Secretary Rosalin Acosta said. 

The job market is so attractive that the October labor force increased by 10,800. Employers are competing for talent. 

Consolidation in the state’s financial sector has been gradual. The state’s financial sector has not appreciably grown as the economy recovered from the Great Recession. 

In February 2007, 10 months before the recession began, the sector employed 232,000 workers; today it employs 222,000 workers on a seasonally adjusted basis. 

However, wages in the sector have increased in real terms. The average hourly wage for financial workers in January 2007 was $36.45 compared to today’s average hourly wage of $42.55. The ascent in wages picked up slightly in July 2007 as jobs in the sector began to recover. 

As defined by the BLS, the financial sector classification includes finance, insurance, real estate, rental and leasing subsectors. 

Big Cities’ Success Reflects Deepening Urban-Rural Divide - WSJ

https://www.wsj.com/articles/big-cities-success-reflects-deepening-urban-rural-divide-1542239287

When will Uber make money?

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2018 Midterm Results: Is the Carbon Tax Dead? - Bloomberg

2018 Midterm Results: Is the Carbon Tax Dead? - Bloomberg

Health Care Policy and Marketplace Review: What Neither the Republicans Nor the Democrats Understand About Obamacare

Health Care Policy and Marketplace Review: What Neither the Republicans Nor the Democrats Understand About Obamacare

The Welfare Generation: 51.7% Kids in 2017 Lived in Households Getting Govt Assistance

The Welfare Generation: 51.7% Kids in 2017 Lived in Households Getting Govt Assistance

Mass. business confidence hits 17-month low, Associated Industries of Massachusetts survey shows - Boston Business Journal

Mass. business confidence hits 17-month low, Associated Industries of Massachusetts survey shows - Boston Business Journal

What Google Searches are Showing

WalletHub: Boston ranks second best city for STEM professionals

From the Daily Free Press: 

Boston is the second best metro area in the nation for STEM (science, technology, engineering and math) professionals to live, according to a recent report by WalletHub, a personal finance website.

Seattle, Washington, came first in the rankings, which were based on 17 metrics which evaluated three general categories: professional opportunities, friendliness to the STEM fields and quality of life for residents.

Read more here. 

Notes on today's U.S. jobs report: A 3.7% unemployment rate and 250,000 new jobs

OVERVIEW

• The unemployment rate remained at 3.7 percent in October with payrolls expanding by 250,000 jobs, according to the Bureau of Labor Statistics. 
• According to the BLS, Hurricane Michael, which fell while the agency collected data, had no noticeable effect on job estimates.
• The Labor Force Participation (LFP) rose 0.02 to 62.9 percent. The Employment-population ratio also finished up for the month at 60.6 percent. The number of unemployed for the month was 6.1 million representing a decline over the year of 449,000 persons. 
• Job gains took place in, Health care (+36,000), Manufacturing (+32,000), Construction (+30,000) Professional and business services (+35,000) and the Transportation and warehousing sector (+25,000).
• Mining grew by 5,000 jobs in October while Leisure and hospitality gained 42,000 withstanding the impact of Hurricane Florence. While employment was unchanged in this sector, the two-month growth matched the 12-month average at 21,000 per month.
• In addition, according to the BLS, the following sectors saw little or no change in employment: Wholesale trade, Retail trade, Information, Financial activities and Government.
• Over the year, average hourly earnings have increased by 83 cents or 3.1 percent. In October, the average hourly private non-farm wage rang in at $27.30, an increase of five cents. The average workweek for all employees clocked in at 34.5 hours.
• The number of persons employed part-time for economic reasons was unchanged at 4.6 million. The number of long-term unemployed also changed little at 1.4 million. This group represents 22.5 percent of all unemployed persons.

ANALYSIS

Total nonfarm payroll employment rose by 250,000 in October.  Not knowing how to gauge weather interruptions from last month, Wall Street forecasts provided a wide range of payroll increases between 105.000 to 253,000  jobs. 

The BLS revised numbers for September downward (from 134,000 to 118,000) and upward for August (from 270,000 to 286,000). These revised figures show that job gains have averaged 218,000 over the past three months. 

The BLS reported 246,000 new private sector jobs were created compared with the ADP payrolls report released earlier this week of 227,000 private payrolls.  

The continued growth in the manufacturing sector emerged as one of the highlights on today’s report. The sector has added 296,000 jobs over the past year— most of it coming from durable goods production. Here, in this sector, the workweek remained steady at 40.8 hours. 

While the economy is at full employment, worker productivity is lagging. Output, the amount produced by workers, has been sluggish. At 1.3 percent in the most recent measure, productivity has failed to surpass 2 percent for the last 32 quarters. Nearly two decades ago, productivity gains fell regularly in the 3 percent range. 

According to the Wall Street Journal, Chicago Fed President Charles Evans noted the importance of productivity to the nation’s long-term growth in speech earlier this year. “Higher sustainable growth would be great. However, we can’t get there without boosting the underlying trends in labor input or productivity,” Mr. Evans said. 

Manufacturing sector labor productivity increased 0.5 percent in the third quarter, according the third quarter report released earlier this week.  There’s some good news for workers: Average hourly earnings have recovered from the Great Recession but still below the 2008 pre-recession peak. Labor force participation, which has languished as a result of the retiring baby-boom workers inched up by 0.2 percentage point over the year.  These two trends point to mounting pressures on the Federal Reserve Bank to stick to its plan to raise interest rates through 2019.

Amazon and its new minimum wage

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First Trust Advisors' Outlook: Economy Rising

Brian Wesbury at FTPortfolios.com

A solid 3.5% real GDP growth rate reported for Q3 wasn't enough to appease the doomsayers.  They say inventories boosted growth and that can't last.  Plus, they say, business investment was soft.

What the pessimists miss is that the surge in inventories in Q3 was a rebound from the unusual outright decline in Q2.  Inventories subtracted 1.2 percentage points from real GDP growth in Q2 and then added 2.1 points in Q3.  This was close to a mirror-image of what happened with net exports, which added 1.2 points in Q2 and then subtracted 1.8 in Q3.

Yes, real business investment grew at only a 0.8% annual rate in Q3, but we've had tepid quarters before, including as recently as the end of 2016, without signaling an impending recession.  And don't be surprised if the recent figures get revised up in the next two months.

Are we counting the benefits of cloud computing to GDP?

A new NBER working paper by David Byrne, Carol Corrado and Daniel E. Sichel titled, "The Rise of Cloud Computing:  Minding Your P's, Q's and K's."

Abstract:

Cloud computing--computing done on an off-site network of resources accessed through the Internet--is revolutionizing how computing services are used.  However, because cloud is so new and it largely is an intermediate input to other industries, it is difficult to track in the U.S. statistical system.  Moreover, there is a paucity of systematic information on the prices of cloud services.  To begin filling this gap, this paper does three things.  First, we define the different segments of cloud computing and document its explosive expansion.  Second, we develop new hedonic prices indexes for cloud services based on quarterly data for compute, database, and storage services offered by Amazon Web Services (AWS) from 2009 to 2016.  These indexes fall rapidly over the sample period, with quickening (and double digit) rates of decline for all three products starting at the beginning of 2014. Finally, we highlight the puzzle of why investment in IT equipment in the NIPAs has been so weak while capital expenditures have exploded for IT equipment associated with cloud infrastructure.  We suggest that cloud service providers are undertaking large amounts of own-account investment in IT equipment and that some of this investment may not be captured in GDP.

Gated copy available here. 

Are Cars Much Better than 50 Years Ago? - Econlib

Are Cars Much Better than 50 Years Ago?

David Henderson Asks: Are Cars Much Better than 50 Years Ago?

More here.

Third-quarter GDP cools a bit to a still-solid 3.5% rate - MarketWatch

Third-quarter GDP cools a bit to a still-solid 3.5% rate - MarketWatch

How Scooters (and the Data They Collect) Can Transform Cities | News & Opinion | PCMag.com

How Scooters (and the Data They Collect) Can Transform Cities | News & Opinion | PCMag.com

Gallup: U.S. Economic Assessments Best in Nearly Two Decades

U.S. Economic Assessments Best in Nearly Two Decades

The U.S. is back on top!

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New Boston Indicators analysis finds that despite economic gains, inequality persists in Greater Boston

A new report by Boston Indicators finds that Greater Boston’s continued economic boom has failed to crack persistent economic inequality among residents. 

The new report, Boston’s Booming… But for Whom?: Building Shared Prosperity in a Time of Growth, was released Wednesday morning to a crowd of 300 people at the Edgerley Center for Civic Leadership.

The report finds that Boston actually ties for second nationally among the nation’s largest cities when it comes to the ability of those raised in lower-income households to improve their economic state as working-age adults. Boston also ranks high when breaking out by race, but the analysis finds that Blacks in the cohort still earn 22% less than their white peers.

The challenges of the economic boom on the middle-class are evident in the shrinking size of Boston’s middle class. A Boston Indicators analysis finds that while the number of low- and high-income city residents has risen sharply in the past three decades, the number of middle-class residents has declined.

One possible culprit? The cost of housing. Despite the City of Boston playing a leadership role in the region by creating thousands of units of affordable housing, the Indicators team analysis found just 20 census tracts of 150 in Boston where median rent would be considered affordable for a median income household. That list included zero tracts in Roxbury, Dorchester or Mattapan.

Affordable housing by median income
Redoubling efforts to produce affordable housing, close Boston’s racial homeownership gap, improve transportation, and continue to reduce incarceration in Massachusetts are highlighted among a dozen local action areas for building greater shared prosperity in the region.

The report is available now for download, and easily can be read online at bostonindicators.org.

The Indicators team plans to take deeper dives into a number of the issues raised by the report during the course of the coming year.


Source: Boston Foundation

Can higher capital taxes finance infrastructure and diminish inequality?

A new NBER working paper, "Overcoming Wealth Inequality by Capital Taxes that Finance Public Investment," by Linus Mattauch, David Klenert, Joseph E. Stiglitz, and Ottmar Edenhofer 

Abstract:

Wealth inequality is rising in rich countries. Capital taxation used simply to finance redistribution may not be able to counteract this trend, but can increased public investment financed by higher capital taxes? We examine how such a policy affects the distribution of wealth in a setting with distinct wealth groups:  dynastic savers and life-cycle savers. Our main finding is that public investment financed through capital taxes always decreases wealth inequality when the elasticity of substitution between capital and labor is moderately high.  Indeed, for all elasticities of substitution greater than a threshold value, at high enough capital tax rates, dynastic savers disappear in the long run.  Below these rates, both types of households co-exist in equilibrium with life-cycle savers

gaining from the higher capital tax rates.  These results are robust with respect to the different roles of public investment in production. We calibrate our model to OECD economies and find the threshold elasticity to be 0.82.

More here. 

Notable read: James Dorn on Leland B. Yeager

From the just-released Fall 2018 issue of Cato Journal: James Dorn memorializes Leland Yeager, a member of the Virginia School of Political Economy. 


Abstract: 

In this memorial essay, I wish to paint a picture of Leland as a “market grandmaster,” in the sense of his keen understanding of markets and prices along with the role of money in facilitating exchange, and the importance of property rights in shaping incentives and behavior. Along with James Buchanan, Gordon Tullock, Ronald Coase, G. Warren Nutter, Roland McKean, and others, he was an important member of the Virginia School of Political Economy.

U.S. Employment Situation: 3.7% unemployment rate with 134,000 new payrolls

OVERVIEW

• The unemployment rate dropped to 3.7 percent in September with payrolls expanding by 134,000 jobs, according to the Bureau of Labor Statistics.  The unemployment rate is the lowest since 1969. 
• The Labor Force Participation (LFP) remained at 62.7 percent. The Employment-population ratio finished for the month at 60.4 percent, little changed. The number of unemployed for the month was 6.0 million, declining by 270,000. 
• The economy added 137,000 jobs in September.  Job gains took place in Professional and business services (+54,000), Health care (+26,000) and the Transportation and warehousing sector (+24,000).
• In addition, Construction added 23,000 jobs while Manufacturing added 18,000 jobs.  
• According to the BLS, the following sectors saw little or no change in employment: Wholesale trade, Retail trade, Information, Financial activities and Government. 
• Over the year, average hourly earnings have increased by 73 cents or 2.8 percent. In September the average hourly private nonfarm wage rang in at $27.24, an increase of eight cents. The average workweek for all employees was unchanged at 34.5 hours. 
• Despite Hurricane Florence, the BLS said its surveys were within normal ranges. Major analysts appeared to agree.  
• The number of persons employed part-time for economic reasons increased by 263,000 to 4.6 million. The number of long-term unemployed was little changed at 1.4 million. This group represents 22.9 of all unemployed persons.

ANALYSIS

Total nonfarm payroll employment rose by 134,000 in September well below the 12-month average of 201,000.  Wall Street expected a payroll increase by 185,000 jobs. The BLS reported 121,000 new private sector jobs were created compared with the ADP payrolls report released earlier this week of 230,000 private payrolls. 

While jobs created were below expectations, the BLS revised numbers for July (from 147,000 to 165,000) and August from 201,000 to 270.000). After revisions, the BLS found the three-month average for new jobs arrived at 190,000 per month. Manufacturing continues to improve. Over the past year the sector has added 278,000 jobs — four-fifths of that growth taking place in the high-wage durable goods sector. 

That could continue to improve as the nation’s manufacturing system continues to express optimism despite a worker shortage. According to the National Association of Manufacturers, “Nearly 93 percent of manufacturers are projecting further expansion for their businesses, and positive sentiment among smaller companies is up to 91.3 percent.” 

In one of the only downsides of today’s report, Hurricane Florence may have caused some weakness in the Leisure and hospitality sector (-17,000).  
Hispanic unemployment is at an all-time low.  

Unemployment drifted downward for all groups by educational attainment (See chart below). "The labor market is in excellent shape heading into the end of 2018, perhaps the best it has been in 50 years,"  Gus Faucher, chief economist at PNC told CNBC. "Job growth was a bit softer in September, but some of that was from Hurricane Florence, and it should bounce back through the rest of 2018 and into 2019."

Chart by East Boston Economics - BLS,Table A4 - Educational Attainment

Fake News Comes to Academia - WSJ

Gated, WSJ subscription required "Fake News Comes to Academia"

September 2018 ADP National Employment Report : +230,000 nonfarm private sector jobs

ADP National Employment Report | September 2018

New article from Econ Journal Watch: And the IMF Said, Let There Be Data, and There Was Data: Private Capital Stocks in the Eastern Bloc

From two graduates of the Suffolk University PhD program in Economics I had the pleasure of knowing and working with over the years. Here's Ryan Murphy and Colin O'Reilly's new paper. 

And the IMF Said, Let There Be Data, and There Was Data: Private Capital Stocks in the Eastern Bloc

Abstract

The International Monetary Fund has recently published a dataset on public and private capital stocks for 170 countries from 1960–2015 using the perpetual inventory methodology. Following a reckless assumption, opaquely imposed, the dataset likely overstates levels of private investment as a percentage of total investment in former Eastern bloc countries, and thereby likely overstates their private capital stocks. This comment explores the nature and implications of the assumption, and suggests that, in light of the problem, the scope of the IMF project be significantly diminished to address the issue.

Read more here (PDF). 

Hat tip to MarginalRevolution.com.

The relationship between venture capital and growth

https://commons.wikimedia.org/wiki/File:Investing_money.jpg

From "Financing Ventures," a new paper by Jeremy Greenwood, Juan Sanchez and Pengfei Han 

Abstract: 

The relationship between venture capital and growth is examined using an endogenous growth model incorporating dynamic contracts between entrepreneurs and venture capitalists. At each stage of fi nancing, venture capitalists evaluate the viability of startups. If viable, VCs provide funding for the next stage. The success of a project depends on the amount of funding. The model is confronted with stylized facts about venture capital; viz., statistics by funding round concerning the success rate, failure rate, investment rate, equity shares, and the value of an IPO. Raising capital gains taxation reduces growth and welfare.

The paper is available here.

Massachusetts State Tax Revenue by Source: Fiscal 2018

From the Office of State Auditor, "Determination of Whether Net State Tax Revenues Exceeded Allowable State Tax Revenues - Fiscal Year 2018."

Comments on the MA Employment Situation for August 2018: U-Rate: 3.6%; Jobs: +6,100 jobs; +68,100 YoY

OVERVIEW

• The state’s unemployment rate remained at 3.6 percent in August  according to the federal Bureau of Labor Statistics. 
• Over the last 12 months, Massachusetts added 68,100 jobs. 
• The Labor Force Participation rate increased three-tenths of a percentage point to 67.6 percent. 
• The state’s labor force population stands at 3.806 million. Since August 2017, the LFP rate is up 2.1 percentage points. 
• The largest private sector job gains took place in the Education and Health Services (+2,500) the Leisure and Hospitality (+1,700), Professional, Scientific and Business Services (+1,500), Information (+900) and Construction (+500).
• Manufacturing and Trade, Transportation and Utilities each lost 600 jobs.  Other Services lost 100 while Government added 100 jobs; over the past year this sector lost 500 jobs.

ANALYSIS

The August unemployment rate in Massachusetts again was three-tenths of a percentage point lower than the national rate of 3.9 percent. 

"The August estimates indicate the Commonwealth’s labor force and employment are at their highest levels while our unemployment rate remains consistently low - all indicators of the continuing positive economic outlook for the Commonwealth of Massachusetts." Labor and Workforce Development Secretary Rosalin Acosta said last Friday.  

Massachusetts is the locomotive pulling New England states. New Hampshire was the only other New England with a statistically significant change from last August. Maine, along with New Hampshire and Vermont were the NE states with unemployment rates significantly different than the U.S. rate. Only one state, Connecticut saw a downturn in its LFP rate from 66.2 to 65.6 percent. 

Year to date, all NE states are near the November 2017 estimates for 2018 by the New England Economic Partnership.  (MA: 3.7; ME: 3.3; RI: 4.0; VT:3.0; NH 2.5 and CT: 48.) 

NAM's Monday Economic Report: A look at JOLTS

http://tinyurl.com/yanwqev3

U.S. Employment Situation August 2018: U-Rate: 3.9%; Jobs: +201,000

OVERVIEW

• The unemployment rate remained 3.9 percent in August with payrolls expanding by 201,000 jobs, according to the Bureau of Labor Statistics.
• The Labor Force Participation (LFP) declined to 62.7 percent. The Employment-population ratio also declined in August by 0.2 to 60.3 percent. The number of unemployed for the month was 6.2 million, little changed from July. 
• Among the major groups, the unemployment rate for adult men was 3.5 and 3.6 percent, respectively. Among minority groups, unemployment was 6.3 percent (Blacks), 3.0 percent (Asians) and 4.7 percent (Hispanics). 
• In August, employment grew in the Wholesale trade, Health care, Professional services, Transportation and warehousing, and Mining.
• Professional and business services added 53,000 jobs. 
• Wholesale trade added 22,000 jobs while Health care added 33,000. Wholesale trade benefited from the growth in durable good wholesale subsector while health care benefited from gains in the ambulatory and hospital subsectors.
• Manufacturing changed little in August. 
• Month over month, employment in the other major sectors—Retail trade, Financial activities, Leisure and hospitality—changed little. 
• Over the year, average hourly earnings have increased by 77 cents or 2.9 percent. In August the average hourly private nonfarm wage rang in at $27.16.
• The average workweek for all employees was unchanged at 34.5 hours. 
• The number of persons employed part-time for economic reasons changed little over the month but was down by 830,000 over the year.

ANALYSIS

Job growth continued into August with 201,000 payroll jobs added. The consensus estimate centered around 191,000, according to CNBC. 

Employment growth in August fell in line with the average monthly growth of 196,000 for the past 12 months. 

The BLS reported that 204,000 private sector jobs were created during the month. Earlier in the week, ADP reported an increase of 163,000 nonfarm private sector jobs for August.  Hindsight took some —but not much— enthusiasm out of previous two monthly payrolls reports.  The BLS revised the payroll number for June 2018 to 208,000 from 248,000 and did the same for July 2018 — revising that month’s number to 147,000 from the 157,000 previously reported. 

Examining five years of August data, economists expect the month’s numbers to be revised upward. The new numbers show the three-month average showed up at the rate of 185,000 jobs. The number of long-term unemployed (for more than 27 weeks or more) was little changed in August although over the past year the number had declined by 403,000. This group accounted for 21.5 percent of U.S. unemployment. 

The energy sector, after a near two-year slump, generated 104,000 jobs “almost entirely in support activity for mining.”  

Manufacturing is at a sweet spot, while employment changed little in this sector, employment was up by 254,000 with more than three fourths coming the durable goods segment. 

The latest jobs and wages reports provide little ammunition for doves at the Federal Reserve Bank. There are no reasons to keep interest rates low. The Fed wanted to see growth in wages before hiking and its clear wages are moving in the right direction. 

The economy is at a peak. Business confidence is up and supported by consumer optimism. “Today’s strong economy is finally translating into wage gains for more workers,” Andrew Chamberlain, chief economist of the labor-market research firm Glassdoor told MarketWatch.

Mark Thoma's You Tube videos

A very good teacher. Here are Professor Thoma's You Tube videos.

How Do Imports Affect GDP? | St. Louis Fed

How Do Imports Affect GDP? | St. Louis Fed

The Grumpy Economist

The Grumpy Economist

The Failure of Rational Choice Philosophy - The New York Times

The Failure of Rational Choice Philosophy - The New York Times

The Failure of Rational Choice Philosophy - The New York Times

The Failure of Rational Choice Philosophy - The New York Times

MA Employment Situation for July 2018 U-Rate: 3.6%; Jobs: +4,800 jobs; +66,800 YoY

OVERVIEW

• The state’s unemployment rate rose to 3.6 percent in July  according to the federal Bureau of Labor Statistics. 
• Over the last 12 months, Massachusetts added 66,800 jobs. 
• The largest private sector job gains took place in the Education and Health Services (+2,700) the Construction (+1,900), Professional, Scientific and Business Services (+2,100), Manufacturing (+1,400) and Trade, Transportation and Utilities (+500). 
• Information jobs remained unchanged, with the sector losing 700 jobs over the past year.
• Other Services --- which includes service jobs such as mechanics and nonprofit managers –—lost 900 jobs but are up 3,600 over the past year.
• Government lost 1,100 jobs; over the past year this sector lost 100. 
• The July unemployment rate was three-tenths of a percentage point lower than the national rate of 3.9 percent.
• The unemployment rate in July 2017 was one-tenth of a percentage point higher. 

ANALYSIS

Individuals are continuing to re-enter the Massachusetts labor force, which increased from 27,100.  At 67.3 percent the state’s LFP rate is up 1.8 percentage points.  “Job estimates show the Commonwealth has gained over 51,000 jobs since December and 213,600 jobs since January 2015. These job gains, alongside low unemployment rates and labor force growth are signs of the continued health of the Massachusetts labor market,” Labor and Workforce Development Secretary Rosalin Acosta said last Friday. 

That increase pushed up the state’s unemployment to 3.6 percent in July.  As a percentage of the state’s total employment, Other Services has remained stable since 2000 where it was 3.34 percent, rising only to 3.84 percent in July 2018. At the same time, Professional and Business Services has increased its share of the workforce to 16.14 percent from 14.48 percent in 2000. (See chart). 

Meanwhile, youth unemployment hit a 52-year low according to the Wall Street Journal. The latest data suggest that the U.S. labor market is so tight it’s drawing workers from the 16 to 24 age category back into the labor pool. However, LFP among this group is still high. The WSJ noted that LFP remained at 60.9 percent, a long distance from the 1989 rate of 77.5 percent.

Comparing Growth: Other Services v. Professional & Business Services in MA

A Surprising Bulwark for the U.S. Economy: The Personal Saving Rate - WSJ

A Surprising Bulwark for the U.S. Economy: The Personal Saving Rate - WSJ

Where White House touts a boom, most economists see a blip

Where White House touts a boom, most economists see a blip

The latest productivity stats from the BLS

U.S. worker productivity accelerated this spring at the best pace in more than three years https://t.co/oqXRWTNKJK pic.twitter.com/cl4NS1f96Q

— Real Time Economics (@WSJecon) August 15, 2018

America's Trade Deficit Is Still Growing and That's Just Fine!

"A country is far more likely to run a trade deficit when its economy is booming and personal consumption is high," writes Daniel Drezner, a professor of international politics at Tufts University, in The Washington Post. "If Trump really wanted to shrink the trade deficit, he would push to revoke his own tax bill. But he really does not want to do this."

From Reason.com: America's Trade Deficit Is Still Growing -- And that's just fine 

U.S. Job Growth over the last 7.8 years: Pretty good!

You will find more infographics at Statista

Robert Gordon revisits the Phillips Curve

"Friedman and Phelps on the Phillips Curve Viewed from a Half Century's Perspective" a new NBER working paper by Robert J. Gordon.

Abstract:

In the late 1960s the stable negatively sloped Phillips Curve (PC) was overturned by the Friedman-Phelps natural rate model.  Their PC was vertical in the long run at the natural unemployment rate, and their short-run curve shifted up whenever unemployment was pushed below the natural rate.   

This paper criticizes the underlying assumption of the Friedman-Phelps approach that the labor market continuously clears and that changes in unemployment down or up occur only in response to "fooling" of workers, firms, or both.   A preferable and resolutely Keynesian approach explains quantity rationing by inertia in price and wage setting.  The positive correlation of inflation and unemployment in the 1970s and again in the 1990s is explained by joining the negatively sloped Phillips Curve with a positively sloped dynamic demand curve.  For any given growth of nominal GDP, higher inflation caused by adverse supply shocks implies slower real GDP growth and higher unemployment.  

This "triangle" model based on inflation inertia, demand, and supply worked well to explain why inflation and unemployment were both positively and negatively correlated between the 1960s and 1990s, but in the past decade the slope of the short-run Phillips Curve has flattened as inflation exhibited a muted response to high unemployment in 2009-13 and low unemployment in 2016-2018.   

It remains to be seen whether a continuation of low unemployment will cause a
modest and fixed extra amount of inflation, thus reviving the stable Phillips curve of the early 1960s, or whether inflation will continuously accelerate as Friedman and Phelps would have predicted.

Gated version available here. 

Note on the U.S. Employment Situation: July 2018 - 3.9% U-Rate; +157,000 jobs

OVERVIEW

• The unemployment rate declined to 3.9 percent in July with payrolls expanding by 157,000 jobs, according to the Bureau of Labor Statistics.
• The Labor Force Participation (LFP) remained at 62.9 percent. The employment-population ratio rose in July to 60.5 percent; it has increased by 0.3 percentage point over the year. The number of unemployed for the month was 6.3 million. Since last year 676,000 persons left the status of unemployment. 
• In July employment grew in the manufacturing, health care, construction and professional services.
• Manufacturing added 37,000 jobs with durable goods manufacturing accounting for most of the gain. Over the past year manufacturing has added 327,000 jobs.  
• Professional and business services added 51,000 jobs. This sector has added 518,000 jobs over the past year. 
• Employment in the other major sectors—mining, wholesale trade, transportation and warehousing, information, financial activities, and government —changed little over the month.
• Over the year, average hourly earnings have increased by 71 cents or 2.7 percent.
• Among major worker groups he jobs rates remained unchanged except for adult men and Whites. 

ANALYSIS

The U.S. economy added 157,000 jobs failing to meet the consensus figure of 190,000.  However, the report looks even better when considering the moving three-month average of 224,000. That’s because figures for the previous two-months were revised upward (+244,000 to +268,000 for May and +213,000 to +248,000 for June). 

The number of part-time workers was little changed in July at 4.6 million but declined by 669,000 over the past year. The number of long-term unemployed (more than 27 weeks) also was unchanged at 1.4 million. This group accounts for 22.7 percent of all unemployed. 

Retail trade changed little with an increase of 7,000 jobs; those gains were essentially wiped out by the decline of 32,000 jobs in sporting goods, hobby, book and music stores. Manufacturing continues to grow although it is far from pre-recession levels. (See chart.) 

Manufacturing grew in the transportation equipment subsector (+13,000), machinery (+6,000) and electronic instruments (+2,000).  Manufacturing has not recovered the jobs lost after the onset of the Great Recession.  It is unclear how the pending trade and tariff wars will play out in the job market over the next few months.  Opinions are varied.  "While the ongoing trade dispute may discourage businesses to invest and hire down the road, today's jobs report suggests the jobs market is not yet collateral damage," said Beth Ann Bovino, chief U.S. economist at S&P Global Ratings in New York.