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.