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?

Federal Reserve Monetary Policy: Nominal-Spending Target Preferable to Inflation Target | National Review

Federal Reserve Monetary Policy: Nominal-Spending Target Preferable to Inflation Target | National Review

Medicaid Scare Tactics Are Irresponsible | Economics21

Medicaid Scare Tactics Are Irresponsible | Economics21

Massachusetts Benchmarks outlook, pessimistic and grounded on "wage-less job growth"

In its latest dispatch, the Editorial Board of MassBenchmarks isn't pleased with the Massachusetts economy: low worker productivity, unfilled niche jobs and near-zero wage growth. These factors will not bode well for state tax receipts say the consortium of economists. They explore some of the reasons for slow wage growth:

There is also some reason to believe that the declining pricing power of firms in some sectors of the economy has hampered their ability to raise wages. And rising health care costs are consuming resources employers might have used to raise employee wages in settings where these benefits are provided. Additionally, the aging of the workforce and the rising number of retirements have allowed some employers to replace their more experienced and more highly paid staff with younger and presumably lower-paid new staff members.

Read the entire summary here.

spi0617.pdf

spi0617.pdf

545353_cshomeprice-release-0627.pdf

545353_cshomeprice-release-0627.pdf

What Dropping Unemployment Doesn't Tell Us | Gerald P. O'Driscoll, Jr.

What Dropping Unemployment Doesn't Tell Us | Gerald P. O'Driscoll, Jr.

Conte at NewBostonPost.com: Millennials Like the Hub, But Can They Afford To Live Here?

Call it the latest attempt to bridge the knowledge gap in Boston between aging Baby Boomers and the Millennials. The eminent Boston Foundation, a century-old, well-endowed charity that doubles as a think tank, is talking a lot more to the next generation as it prompts the city’s civic leaders to hand over the reins to Boston’s millennials.

“The baby boomers have been late in turning their attention to the millennials,” said Paul Grogan, foundation president, last month. “We still think we are young.” Read more at NewBostonPost.com.

MA Employment Situation: 4.2 Percent 2,900 jobs added in May

OVERVIEW

• The state’s total unemployment rate increased to 4.2 percent in May from the April rate of 3.9 percent.
• The April estimate was revised to a loss of 800 jobs per the Bureau of Labor Statistics estimate provided to the Executive Office of Labor and Workforce Development (EOLWD). 
• The labor force increased by 17,100 residents in April, as 4,900 more residents were employed and 12,200 more residents were unemployed over the month.
• Education and Health Services added 2,500 jobs over the month. Over the year, Education and Health Services gained 19,100 jobs. 
• Information added 500 jobs over the month; over the year, Information gained 4,300 jobs.
• Over the year, federal, state and local government combined gained 5,400 jobs.
•  Professional, Scientific, Technical Service subsector lost 2,100 jobs between April and May; while retail trade lost 1,200 jobs.
•  Construction added 300 jobs in May; since last year the sector has added 4,800 jobs.
• Trade, transportation and utilities lost 800 jobs in May but gained 3,900 over the past year. 

ANALYSIS 

From May 2016 to May 2017, the Bureau of Labor Statistics estimates Massachusetts has added 58,300 jobs. The state’s labor force participation rate – the total number of residents 16 or older who worked or were unemployed and actively sought work in the last four weeks – increased thus explaining the higher jobless rate.  “During 2017 Massachusetts continues to experience large increases in the labor force. May’s labor force participation rate of 66.7%, the highest rate since October 2008, allows for ongoing economic growth. As the pool of people actively searching for work increases, our workforce development agencies remain focused on ensuring that the next generation of job seekers have access to next generation job training,” outgoing Labor and Workforce Development Secretary Ronald L. Walker, II said. The LFP over the year has increased 1.7 percent. However, the state’s unemployment rate of 4.2 moved toward the national rate of 4.3 percent.  The state’s retail sector lost 1,200 but has gained 3,200 jobs since last year. Manufacturing continues to decline with 200 lost jobs in May and 1,900 since last year.  At the end of December 2016, the state’s unemployment rate stood at a low of 3.1 percent. That rate was much lower than the rates for medium-sized cities in the Commonwealth (see table below).

 

The Grumpy Economist: NoahLogic

The Grumpy Economist: NoahLogic

Why Aren’t American Teenagers Working Anymore? - Bloomberg

Why Aren’t American Teenagers Working Anymore? - Bloomberg

Your mechanic may soon use this app

This is not your dad's auto repair shop, Clearing targeting millennials tethered to their smartphones, Openbay is weaving auto mechanics into the habits of young consumers: 

Openbay is one of several innovative and industry-leading companies that offer auto care businesses a marketplace and subscription services to align themselves with the modern consumer’s buying habits and meet expectations of immediate gratification and convenience.

High skills generation induces consumption that requires more high skill production, driving inequality

From the new NBER working paper by Justin Caron, Thibault Fally and James Markusen, "Per Capita Income and the Demand for Skills," 

Almost all of the literature about the growth of income inequality and the relationship between skilled and unskilled wages approaches the issue from the production side of general equilibrium (skill-biased technical change, international trade). Here, we add a role for income-dependent demand interacted with factor intensities in production. We explore how income growth and trade liberalization influence the demand for skilled labor when preferences are non-homothetic and income-elastic goods are more intensive in skilled labor, an empirical regularity documented in Caron, Fally and Markusen (2014). In one experiment, counterfactual simulations show that sector neutral productivity growth, which generates shifts in consumption towards skill-intensive goods, leads to significant increases in the skill premium: in developing countries, a one percent increase in productivity leads to a 0.1 to 0.25 percent increase in the skill premium. In several countries, including China and India, simulations suggest that the historical growth experienced in the last 25 years may have led to an increase in the skill premium of more than 10%. In a second experiment, we show that trade cost reductions generate quantitatively very different outcomes once we account for non- homothetic preferences. These imply substantially less predicted net factor content of trade and allow for a shift in consumption patterns caused by trade-induced income growth. Overall, the negative effect of trade cost reductions on the skill premium predicted for developing countries under homothetic preferences (Stolper-Samuelson) is strongly mitigated, and sometimes reversed. 

Or to put in other words:

We provide a quantitative assessment of a simple yet overlooked mechanism:  growth in income increasingly shifts consumption patterns towards goods and services that require relatively more skilled labor in their production. 

Read more here. (Gated)

Is the growing financialization of an economy a good thing?

Ugo Panizza of the Graduate Institute Geneva and CEPR takes a look at the literature centered on the financialization of economies.

This paper reviews the empirical literature on the links between finance and growth with a special focus on the empirical literature that has shown that the marginal contribution of Financial depth to economic growth becomes negative in countries with large Financial sectors (the ìtoo much Financial result). It then assesses the empirical and theoretical validity of recent criticisms to this literature and concludes by discussing avenues for future research aimed at identifying the channels through which a very large finance sector can slow down economic growth.

Here's a key public choice area for further examination.

There is evidence of substantial lobbying by the financial industry  and given that financial deregulation affects the rents captured by financial industry participants, it is possible that a large financial sector, which increases the lobbying power of the financial industry, would lead to more pressure for socially inefficient financial regulation which, in turn, further increases the lobbying power of the financial industry.

More here.

Here’s Why I Think Renewable Energy Is Finally Living up to Hype | Frank Holmes | Pulse | LinkedIn

Here’s Why I Think Renewable Energy Is Finally Living up to Hype | Frank Holmes | Pulse | LinkedIn

Quick take on today's jobs numbers: U-Rate: 4.3%; Jobs: +138,000

OVERVIEW

• The unemployment rate declined to 4.3 percent in March while payrolls expanded by 138,000, according to the Bureau of Labor Statistics.
• The Labor Force Participation (LFP) rate declined by 0.2 percentage point to 62.7 percent for May. The employment-population ratio also declined by 0.2 percentage point to 60.0 percent.
• Employment rose in mining and health care, +7,000 and +24,000 respectively. 
• Employment in the other major sectors— construction, manufacturing, wholesale trade, retail trade, transportation and warehousing, information, financial activities and government —were unchanged. 
• In May, average hourly earnings for all employees increased by 4 cents to $26.22, representing a 2.5 percent year over year increase. 
• In May, employment in the professional services sector remains strong keeping up with the average gains for 2016. 
• The March employment situation report was revised down further to 50,000 from 79,000 originally reported. April’s increase in jobs was also revised downward from 211,000 to 174,000.  Over the past three months, job gains averaged 121,000. 
• The average workweek for all employees was unchanged at 34.4 hours.


ANALYSIS


The payroll employment report fell well below Wall Street consensus of 180,000 jobs and below the 12-month average of 181,000. The BLS private sector employment reported 123,831 private sector jobs. According to an ADP report earlier this week, private sector employment increased by 253,000 jobs from April to March. The number of persons employed part-time (but who would like more hours), was little changed at 5.2 million suggesting the growing jobs market isn’t matching worker needs. Employment in mining, (which covers the oil and gas extraction industries) has increased by 47,000 since October 2016. Employment in food and drinking places also continued to move upward. In the last 12 months, this sector has added 267,000 jobs. The battered retail sector appeared to stem previous losses; job payrolls showed little change since April. The heavily government-funded health care sector continued to grow with hospitals adding 7,000 jobs. However current year to date average monthly growth is down at 22,000 per month compared to 32,000 for 2016. "This report is clearly soft in every material respect relative to expectations and relative to last month. That's a disappointment," said Eric Winograd, U.S. economist at Alliance Bernstein. However, he added, "I don't think it's soft enough to cause a fundamental rethink of the economic outlook."  Economists will now wait for the Federal Reserve Bank to weigh the new payrolls number as it adjusts monetary policy.

The nation's health care sector grows even during recessions. 

Increased consumption for most families despite growth in income inequality

Income inequality has been increasing but so has consumption according to a working paper by Bruce Sacerdote of Dartmouth College. 


Extract:
Despite  the  large  increase  in  U.S.  income  inequality,  consumption  for  families  at  the  25th  and  50th percentiles  of  income  has  grown  steadily  over  the  time  period  1960-2015.  The  number  of  cars  per household  with  below  median  income  has  doubled  since  1980  and  the  number  of  bedrooms  per  household has  grown  10  percent  despite  decreases  in  household  size.  The  finding  of zero growth in American real wages since the 1970s is driven in part by the choice of the CPI-U as the price deflator (Broda and Weinstein 2008). Small biases in any price deflator compound  over  long  periods  of  time.  Using a  different  deflator  such  as  the  Personal  Consumption Expenditures index (PCE) yields modest growth in real wages and in median household incomes throughout  the  time  period.  Accounting  for  the  Hamilton (1998)  and  Costa  (2001)  estimates  of  CPI  bias  yields  estimated  wage  growth  of  1  percent  per  year during  1975-2015.  Meaningful growth  in  consumption  for  below  median  income  families  has  occurred even  in  a  prolonged period of increasing income inequality, increasing consumption inequality and a decreasing share of national income accruing to labor.


Link: Fifty Years Of Growth In American Consumption, Income, And Wages - 61497-w23292.pdf

Long Run Growth of Financial Technology

From the abstract:

In most sectors, technological progress boosts efficiency. But financial technology and the associated data-intensive trading strategies have been blamed for market inefficiency. A key cause for concern is that better technology might induce traders to extract other's information from order flow data mining, rather than produce information themselves.

Defenders of these new trading strategies argue that they provide liquidity by identifying uninformed orders and taking the other side of their trades. We adopt the lens of long-run growth to understand how improvements in financial technology shape information choices, trading strategies and market efficiency, as measured by price informativeness and market liquidity. We find that unbiased technological change can explain a market-wide shift in data collection and trading strategies. But our findings also cast doubt on common wisdom. First, although extracting information from order flow does crowd out production of  fundamental information, this does not compromise price informativeness. Second, although taking the opposite side of uninformed trades is  typically called "providing liquidity," the rise of such trading strategies does not necessarily improve liquidity in the market as a whole. 

Long Run Growth of Financial Technology available at NBER.

The Limits of West Virginia's Recent Comeback - Bloomberg

The Limits of West Virginia's Recent Comeback - Bloomberg

Massachusetts adds 3,900 jobs in April 2017 as unemployment rate ticks up to 3.9 percent

OVERVIEW

• In its preliminary estimates, the Bureau of Labor Statistics suggests that Massachusetts added 3,900 jobs in April. The job gains over the previous month (March 2017) occurred in Professional, Scientific, and Business Services; Education and Health Services; Trade, Transportation, and Utilities; Other Services; Information; and Manufacturing.
• The state’s labor force participation rate increased to 66.5 percent from 65.9 percent with an increase of 33,000 entrants into the job market.
• Government lost 1,000 jobs in April but since last year the sector has added 7,700 jobs or 1.7 percent.

ANALYSIS 

• More workers are coming off the sidelines to enter the job market. The state’s unemployment rate for April 2017 increased only because the labor force saw an increase of 33,000 workers or 1.5 percent since last year. This represents a healthier view of full employment. The unemployment rate of 3.9 percent is still lower than the national rate of 4.4 percent. Since April 2016, the Administrative & Support, Waste Management, and Remediation sector added 7,000 jobs, the percentage leader at 3.9 percent. The Health Care and Social Assistance subsector continues to grow adding 18,300 jobs — at a 3.0 percent clip. Education Services has remained flat adding zero jobs while the Arts, Entertainment and Recreation subsector lost 1,300 jobs. Local government remains a strong jobs generator with 5,800 jobs. Despite well-known struggles, the Retail sector added 4,100 since last April.

For the past decade, Americans have been paying less for gasoline in real terms

The Grumpy Economist: WalBank

The Grumpy Economist: WalBank

Meltzer, Fed Historian Who Criticized Bailouts, Dies at 89 - Bloomberg

Meltzer, Fed Historian Who Criticized Bailouts, Dies at 89 - Bloomberg

Robots and Jobs: Evidence from US Labor Markets

Robots and Jobs: Evidence from US Labor Markets

Comments on the April 2017 BLS jobs report: U-Rate: 4.4%; Jobs: + 211,000

OVERVIEW 
* The unemployment rate declined to 4.4 percent in March while payrolls expanded by 211,000, according to the Bureau of Labor Statistics. 

* The Labor Force Participation (LFP) rate remained virtually the same as the previous month at 62.9 percent for April. The employment-population ratio also changed little at 60.2 percent 

* Employment rose in leisure and hospitality, health care and social assistance, financial activities and mining. 

* Employment in construction, manufacturing, wholesale trade, retail trade, transportation and warehousing, information and government were unchanged since March. 

* In April, the BLS reported that average hourly earnings for all employees increased by 7 cents to $26.19, representing a 2.5 percent year over year increase. 

 * Employment in mining rose by 9,000. The BLS noted a rebound off an October 2016 low, with the sector adding 44,000 since then. 

 * Employment in the professional services sector has grown by 612,000 over the past 12 months. 

 * The original and disappointing March employment situation report was revised down from an 98,000 increase to just a 79,000 increase. However, February was revised up from 219,000 to 232,000. 

Civilian Unemployment Rate 2007-present

ANALYSIS 

The payroll employment report beat Wall Street consensus of 191,000 jobs. The BLS private sector employment estimate arrived at 194,000 jobs beating another estimate. According to the ADP report earlier this week, private sector employment increased by 177,000 jobs from March to April. 

Over the past three months, the economy has added, on average, 174,000 jobs a month. The number of long-term unemployed (greater than 27 weeks) was unchanged. The number of involuntary part-time workers declined by 281,000 in April. 

The average workweek for all private payrolls increased by 0.1 hour to 34.4 hours. 

The Leisure and Hospitality sector led the April report with 55,000 new jobs. Since the end of the recession, the sector has gained approximately one percent in the share of total jobs in the U.S. private economy. 

The BLS noted that while Health Care and Social Assistance increased by 37,000 jobs in April, that number is below “the average gain of 32,000 per year.” Financial activities added 19,000 jobs with 14,000 of those jobs coming in the insurance sector. 

The LFP rate has changed little since February 2016. “Two hundred thousand for jobs growth is just such a huge number, you’d think we’d get to a point where employers have to raise wages, and we’re still not seeing it,” Tara Sinclair, an economist at George Washington University told the Washington Post. Even with a healthy job market, that wage goal remains elusive for workers.

PDF version of Research Note.

Trade between the U.S. and Canada

Courtesy of: Visual Capitalist