US EMPSIT November 2017: 4.1 percent U-Rate; Payrolls +228,000

OVERVIEW

• The unemployment rate remained at 4.1 percent in November while payrolls expanded by 228,000, according to the Bureau of Labor Statistics.
• The Labor Force Participation (LFP) remained at 62.7 percent for November. The employment-population ratio was little changed at 60.1 percent. 
• The manufacturing sector added 31,000 jobs. The BLS reports “that since a recent low in November 2016, manufacturing has increased by 189,000 jobs.”
• Professional and business services added 46,000 jobs in November and health care added 30,000. 
• Employment in the other major sectors— mining, wholesale trade, retail trade, transportation and warehousing, information, leisure and hospitality, financial activities and government —changed little. 
• In November, average hourly earnings for all employees increased by 5 cents to $26.55; over the past year, hourly earnings have risen by 64 cents or 2.5 percent. 
• The September employment report was revised up from +18,000 to +38,000 and the change in October was revised down from +261,000 to +244,00 Over the past three months, job gains have averaged 170,000 a month.  The six-month average monthly growth is 177,600. From January, the economy added on average 174,000 monthly jobs.

ANALYSIS

In November, the American factory kicked into high gear. Since last year the manufacturing sector has added 189,000 jobs. Subsector growth took place in machinery (+8,000), fabricated metal products (+7,000), computer and electronic products (+4,000), and plastics and rubber products (+4,000).  The payroll employment report exceeded the  Wall Street consensus of 200,000 jobs.  According to an ADP report earlier this week, private sector employment increased by 190,000 jobs in November. The unemployment rolls decreased over the past 12 months by 799,000 workers. The number of part-time for economic reasons remained at 4.8 million. Nonetheless, there is talk of a labor shortage in the manufacturing sector where employers are investing in resources to train new workers and by increasing automation.  The tight labor market suggests that wages should be  increasing faster that today’s reported annual rate of 2.5%. But percentage growth in lower paid jobs since 2007 in the leisure and hospitality sectors (0.2) have outstripped high-value-adding professional and business services (0.1) and the overall job (0.1) growth (See table below). Another view is more generational than structural. According to USAToday, “Some economists say the government's measure of average earnings growth may be skewed downward by the retirements of higher-paid Baby Boomers and the entry into the labor force of lower paid Millennials.” For now, holding a job is more important than higher wages. Overall, the job market is on solid ground giving the Federal Reserve an opportunity to raise rates.

PDF version of this post.

ADP estimate for November 2017: 190,000 Jobs

My co-authored Massachusetts State Revenue Estimate from the Beacon Hill Institute

Is life better or worse than 50 years ago?

You will find more statistics at Statista

Knowing shortfalls of dynamic scoring key to sound tax reform | TheHill

Knowing shortfalls of dynamic scoring key to sound tax reform | TheHill

Sources of tax revenue for the Commonwealth of Massachusetts

What are the sources of state tax revenue?  A useful pie chart from State Auditor Suzanne Bump's September 2017 report, "Determination of Whether Net State Tax Revenues Exceeded Allowable State Tax Revenues: For the Period July 1, 2016 through June 20, 2017," illustrates the components of the state's revenue stream.

Which nation has the highest tax burden?

You will find more statistics at Statista.

Fear the robots!

You will find more statistics at Statista

NEEP: "Employment growth will be constrained by the number of available workers"

From Alan Clayton-Matthews' presentation to the New England Economic Partnership conference at the Boston Fed yesterday.  A recurring challenge faces Massachusetts and New England: "demographic constraints." Because the region is not growing its working-age population as quickly as the rest of the nation, employers will struggle to find workers. For a variety of reasons older workers may see the need to remain in the labor force due to either financial considerations or in response to other incentives to remain on the job.  

More from Professor Clayton-Matthews: "Construction will be the fastest growing sector, but health services and skilled business sectors will add the most jobs."  Through 2021 the composition of the Massachusetts workforce will not be radically different than what we see today with the erosion of jobs in manufacturing. 

For a recap of the discussion from yesterday's conference, read Michael Norton's State House News Service dispatch. 

Casey Mulligan's latest study on the labor market effects of the Affordable Care Act

From University of Chicago's Casey Mulligan, a new paper titled, "The Employer Penalty, Voluntary Compliance, and the Size Distribution of Firms: Evidence from a Survey of Small Businesses."

Abstract: 

A new survey of 745 small businesses shows little change in the size distribution of businesses between 2012 and 2016, except among businesses with 40-74 employees, in a way that is closely related to whether they offer health insurance coverage.  Using measures of both size and voluntary regulatory compliance, the paper links these changes to the Affordable Care Act's employer mandate.  Between 28,000 and 50,000 businesses nationwide appear to be reducing their number of full-time-equivalent employees to below 50 because of that mandate.  This translates to roughly
250,000 positions eliminated from those businesses. 

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

A look at the MA jobs picture for October 2017

Source: Executive Office of Labor and Workforce Development, Author's calculations.

The job picture in Boston over the past year

Housing consumes 39.2% of all spending for Boston

Only 4 percent of Internet users in Germany access the web by mobile; For India it's 70%

You will find more statistics at Statista

When it comes to business data, is Yelp as good as the U.S. Census?

From the paper titled, "Nowcasting the Local Economy: Using Yelp Data to Measure Economic Activity," by Edward L. Glaeser, Hyunjin Kim and Michael Luca

Here's the abstract from NBER.

Abstract:

Can new data sources from online platforms help to measure local economic activity? Government datasets from agencies such as the U.S. Census Bureau provide the standard measures of local economic activity at the local level.  However, these statistics typically appear only after multi-year lags, and the public-facing versions are aggregated to the county or ZIP code level. In contrast, crowdsourced data from online platforms such as Yelp are often contemporaneous and geographically finer than official government statistics.  In this paper, we present evidence that Yelp data can complement government surveys by measuring economic activity in close to real time, at a granular level, and at almost any geographic scale.  Changes in the number of businesses and restaurants reviewed on Yelp can predict changes in the number of overall establishments and restaurants in County Business Patterns.  An algorithm using contemporaneous and lagged Yelp data can explain 29.2 percent of the residual variance after accounting for lagged CBP data, in a testing sample not used to generate the algorithm.  The algorithm is more accurate for denser, wealthier, and more educated ZIP codes.

My Boston Business Journal op-ed on Amazon and Massachusetts

An argument for Massachusetts as the site for Amazon's second headquarters. (Subscription required). 

The rise of the machines. What does it mean?

A new working paper from the National Bureau of Economic Research by Erik Brynjolfsson, Daniel Rock, Chad Syverson. Abstract:  

We live in an age of paradox.  Systems using artificial intelligence match or surpass human-level performance in more and more domains, leveraging rapid advances in other technologies and driving soaring stock prices.  Yet measured productivity growth has declined by half over the past decade, and real income has stagnated since the late 1990s for a majority of Americans.  We describe four potential explanations for this clash of expectations and statistics:  false hopes, mismeasurement, redistribution, and implementation lags.  While a case can be made for each, we argue that lags have likely been the biggest contributor to the paradox.  The most impressive capabilities of AI, particularly those based on machine learning, have not yet diffused widely.  More importantly, like other general purpose technologies, their full effects won't be realized until waves of complementary innovations are developed and implemented.  The required adjustment costs, organizational changes, and new skills can be modeled as a kind of intangible capital. A portion of the value of this intangible capital is already reflected in the market value of firms. However, going forward, national statistics could fail to measure the full benefits of the new technologies and some may even have the wrong sign.

New NBER Working Paper: Diagnosing the Italian Disease

A new working paper by Bruno Pellegrino and Luigi Zingales. From the abstract: 

We try to explain why Italy's labor productivity stopped growing in the mid-1990s.  We find no evidence that this slowdown is due to trade dynamics, Italy's inefficient governmental apparatus, or excessively protective labor regulations.  By contrast, the data suggest that Italy's slowdown was more likely caused by the failure of its firms to take full advantage of the ICT revolution.  While many institutional features can account for this failure, a prominent one is the lack of meritocracy in the selection and rewarding of managers.  Familyism and cronyism are the ultimate causes of the Italian disease. 

Read more at NBER Working Papers.  

The Massachusetts economy is roaring

Massachusetts Benchmarks today reports:

Based on the latest available data, MassBenchmarks now estimates that the state economy grew at a 4.9 percent pace, versus 3.1 percent nationally during the second quarter of 2017. In the first quarter the BEA estimates that Massachusetts grew at a 1.1 percent rate as compared to 1.2 percent for the U.S.

Read the entire report here. 

Who's holding the most cash outside of the U.S.?

You will find more statistics at Statista

A one-year look at where the jobs are in Massachusetts

The state's total unemployment rate dropped to 3.9 percent in September from 4.2 percent according to the Executive Office of Labor and Workforce Development. From September 2016 to September 2017, BLS estimates Massachusetts has added 62,300 jobs. 

Job growth was strong in the state's Health Care and Education and Professional Services supersectors. Specifically, the Health Care and Social Assistance subsector added 20,600 jobs since September 2016 with Professional, Scientific and Technical Services adding 8,500. Meanwhile, Construction added 6,200 jobs. 

Chart by East Boston Economics

• Chart: The World's Most And Least Competitive Countries | Statista

• Chart: The World's Most And Least Competitive Countries | Statista

Tech's push to teach coding isn't about kids' success – it's about cutting wages | Technology | The Guardian

Tech's push to teach coding isn't about kids' success – it's about cutting wages | Technology | The Guardian

More money for Massachusetts transportation won't solve problems

The Massachusetts Taxpayers Foundation this week released a new report on the state's transportation system.  Key take-away:

“What is clear is that the state lacks the requisite information to make profoundly difficult choices,” the report writes. “Questions such as which projects to fund and when, and how revenue sources should be allocated must be included as part of a long-term sustainable transportation finance plan to address our transportation needs. Unfortunately, the state has not yet adopted such a plan.”

MassLive.com has a good summary of the report. 

Boston Fed President Eric Rosengren: Trends point to higher inflation

From the Boston Fed:

Speaking in New York, Boston Fed President Eric Rosengren said that underlying trends suggest "an economy that risks pushing past what is sustainable, raising the probability of higher asset prices, or inflation well above the Federal Reserve's 2 percent target."

"Steps lowering the probability of such an outcome seem advisable – in other words, seem like insurance worth taking out at this time," he said. "As a result, it is my view that regular and gradual removal of monetary accommodation seems appropriate."

Noting that the weakness in inflation readings appears to be transitory, Rosengren said "the declines in the unemployment rate below the level most see as sustainable seem likely to be more long-lasting."

"Discerning the underlying trends in unemployment and inflation – looking through transitory effects – is likely to be quite difficult in coming months," Rosengren said, citing the impact of recent hurricanes on economic data.

In addition, Rosengren noted that the Federal Reserve's dual mandate indicators – employment and inflation – are sending somewhat conflicting signals of late: labor markets have continued to improve, yet inflation has slipped down a notch this year.

Asking how policymakers might resolve the conflicting signals when "the central bank's dual mandate is 'dueling,'" Rosengren explored the forecasts of both central bankers and private forecasters. Both suggest that by the end of next year, inflation is expected to be close to target, while the unemployment rate will continue to fall – and as a result, will move further below most estimates of a sustainable unemployment rate.



Read more: Trends and Transitory Shocks - Federal Reserve Bank of Boston

35.  Tarnishing the Golden and Empire States: Land-Use Restrictions
and the U.S. Economic Slowdown
by Kyle F. Herkenhoff, Lee E. Ohanian, Edward C. Prescott  -  #23790 (EFG)

Abstract:

This paper studies the impact of state-level land-use restrictions on
U.S. economic activity, focusing on how these restrictions have
depressed macroeconomic activity since 2000.  We use a variety of
state-level data sources, together with a general equilibrium spatial
model of the United States to systematically construct a panel
dataset of state-level land-use restrictions between 1950 and 2014. 
We show that these restrictions have generally tightened over time,
particularly in California and New York.  We use the model to analyze
how these restrictions affect economic activity and the allocation of
workers and capital across states.  Counterfactual experiments show
that deregulating existing urban land from 2014 regulation levels
back to 1980 levels would have increased US GDP and productivity
roughly to their current trend levels. California, New York, and the
Mid-Atlantic region expand the most in these counterfactuals, drawing
population out of the South and the Rustbelt.  General equilibrium
effects, particularly the reallocation of capital across states,
accounts for much of these gains.  

http://papers.nber.org/papers/w23790?utm_campaign=ntw&utm_medium=email&utm_source=ntw

Structural Transformation, Deep Downturns, and Government Policy

Joseph E. Stiglitz

NBER Working Paper No. 23794
Issued in September 2017
NBER Program(s):   DAE   EFG

Most recessions are a result of some shock to the economic system, typically amplified by financial accelerators, and leading to large balance sheet effects of households and firms, which result in the effects persisting. But, over time, the balance sheets get restored. Even banks recover.

But episodically, the “shock” is deeper. It is structural. Among advanced countries, the movement from agricultural to manufacturing in the last century, and the more recent movement from manufacturing to the service sector reflect such a large economic transformation. The associated downturns are longer lasting. The usual responses, in particular, monetary policy, are only of limited efficacy. Policies have to be designed to facilitate such transformations: markets on their own typically do not do well.

This paper explains why such transformations are associated with persistently high unemployment, and describes the effects of particular government policies. It looks at the lessons of the Great Depression both for the advanced countries and the developing countries as they go through their structural transformations.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Which sectors provided the most job growth since January 2007: A 10-year look

Source: Bureau of Labor Statistics, CES Series

Last Friday, the Bureau of Labor Statistics reported the U.S. economy created 156,000 jobs in August 2017, a number below economists' consensus estimates. The unemployment rate "was little unchanged" according to the BLS, but actually ticked upward to 4.4 percent. Major job gains emerged in manufacturing, construction, professional and technical services, health care and mining. How have these sectors fared since the peak before the Great Recession, which began in December 2007 and ended in June 2009? How does Friday's snapshot relate to longer term trends? 

The decline in manufacturing jobs in the United States has trended downward over the decades. Few workers are producing more output. The interesting takeaway from this chart is the decline in construction jobs. Despite the uptick in the economy, construction jobs are down 800,000 since January 2007.  The high-paying education and health services and professional the business services added more than two-thirds of the decade long gain to total non-farm employment. Less impressive is the gain in the generally lower paid professions of leisure and hospitality which added 2.6 million since January 2007. 

When pot laws are not the same across states, can we expect seepage?

In their new working paper, Benjamin Hansen, Keaton Miller, Caroline Weber ask "How Extensive is Inter-State Diversion of Recreational Marijuana?" Only a small amount they say. 

Abstract:

Despite federal prohibition, recreational marijuana is available to 21% of the United States population.  A chief concern among policy makers across multiple levels of government and political parties is inter-state diversion of marijuana from states with legal markets to others.  We measure this diversion with a natural experiment.  Oregon opened a recreational market on October 1, 2015, next to an existing market in Washington, which opened on July 8, 2014.  Using comprehensive administrative data on the universe of Washington sales, we find Washington retailers along the Oregon border experienced a 41% decline in sales immediately following Oregon's market opening.  Retailers along Washington's borders with Idaho and Canada experienced no such decline.  The decline occurred equally across weekdays and weekends, and was largest among the largest transaction sizes, suggesting diversion, not drug tourism, was to blame. Our estimates suggest that 11.9% of the marijuana sold in Washington was diverted out of the state before Oregon legalized and
7.5% remains diverted today.

A gated copy of the research paper can be found here.