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February 4, 2013

Latest Posts from Economist's View

Latest Posts from Economist's View

Posted: 05 Jan 2013 12:06 AM PST
Posted: 04 Jan 2013 12:10 PM PST
Justin Fox says the age of economist's imperialism is ending:
The End of Economists' Imperialism, by Justin Fox: "By almost any market test, economics is the premier social science," Stanford University economist Edward Lazear wrote just over a decade ago. ...
Lazear went on to describe how economists, with the University of Chicago's Gary Becker leading the way, had been running roughshod over the other social sciences — using economic tools to study crime, the family, accounting, corporate management, and countless other not strictly economic topics. "Economic imperialism" was the name he gave to this phenomenon (and to his article, which was published in the February 2000 issue of the Quarterly Journal of Economics). And in his view it was a benevolent reign. "The power of economics lies in its rigor," he wrote. "Economics is scientific; it follows the scientific method of stating a formal refutable theory, testing theory, and revising the theory based on the evidence. Economics succeeds where other social scientists fail because economists are willing to abstract."
Triumphalism like that calls for a comeuppance, of course. ...
He goes on to describe how "I've found myself talking to and reading a little of the work of sociologists and political scientists, and coming away impressed with how adept they are in quantitative methods, how knowledgeable they are about economics, and how willing they are to challenge economic orthodoxy," and he gives several examples of other disciplines working in what is traditionally the realm of economists (with teasers of more to come). He ends with:
What's going on is probably not the incipient overthrow of economics. As described by Lazear, its imperialistic power has in large part been the result of its uniformity of approach over the past half century. (That, and economists have actually been right about some things.) As best I can tell, there is no such methodological consensus in sociology, political science, anthropology, or history at the moment. But the economists' consensus is wobblier than it's been in a while (especially in macro), there is ample motive for insurrection, and the non-economists' stores of intellectual ammunition are growing. Economics may well have reached the stage of imperial overstretch. Interesting times lie ahead.
Posted: 04 Jan 2013 10:04 AM PST
I should have waited a few more minutes -- here's Tim Duy's reaction to the employment report:
Employment Report Nothing If Not Consistent, by Tim Duy: The employment report for December 2012 continues the trend of remarkable consistency:
On his Twitter account, Neil Irwin runs the numbers:
Consistency! Dec. payrolls (+155k); 3 mo avg (151k); 6 mo avg (160k); 12 mo avg (153k); 24 mo. avg (153k).
No exciting year-end ramp up like at the end of 2011, just more of the same. Something a little different, however, in the wage data:
Statistical bounce? Or evidence of enough improvement in labor markets that firms actually need to step up the pace of wage growth? I would certaintly see that as good news, although I will let the equity analysts puzzle over what that means for corporate margins.
Aggregate hours worked made a healthy gain in December:
suggesting that the underlying economy continues to chug along at a moderate pace despite the ups-and-downs of quarterly GDP reports.
Construction gained 30k jobs. This may be a Sandy-related increase or, as some will suspect, a reflection of improving housing starts:
On the latter point, I would add that the construction sector still looks employee-heavy relative to the level of starts:
Prior to 2006, the ratio held remarkably steady at 4. This suggests to me that housing starts need to go higher until construction firms begin hiring more aggressively. Until then, expect firms to increase the hours of existing workers.
Manufacturing gained 25k, seemingly at odds with the softness of recent months reported by the ISM and core-manufacturing orders data. Professional and business services gained just 19k, with the subcategory of temporary help basically flat - is this where fiscal cliff angst impacted hiring? Education and health services had a solid, although expected, gain of 65k, leisure and hospitality gained 31k.
The government sector continued to shed jobs, loosing 13k employees, including 11.5k in local education:
There is some hope that the government sector offers more job support this year as state and local finances improve. I am skeptical that we get better than just holding steady on average. Anecdotally, local finances are still very tight. Although housing starts are increasing, in many cases the new construction won't come on the tax roles for 9 to 12 months or longer. In addition, I suspect the first wave of revenue relief will end up in the pockets of public employees seeking to offset the weak wage growth of recent years.
The household survey details were not as strong as the establishment numbers, although differences between the two are not unusual. Employment grew by just 23k, while the ranks of unemployed gain by 164k. The labor force gained by 192k, leaving the unemployment rate flat at the revised November rate of 7.8%. The rise in the number of unemployed could indicate workers returning to the labor force, which would suggest improved confidence in the state of the labor market.
What does this report imply for the Fed? As it is largely consistent with past reports, it doesn't seem likely to have immediate implications. Some were unsettled by this part of the most recent minutes:
In considering the outlook for the labor market and the broader economy, a few members expressed the view that ongoing asset purchases would likely be warranted until about the end of 2013, while a few others emphasized the need for considerable policy accommodation but did not state a specific time frame or total for purchases. Several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet. One member viewed any additional purchases as unwarranted.
The key part of this section is "considering the outlook for the labor market and the broader economy." If you believe that although 2013 growth will on average be modest, but accelerate in the second half of the year, you might reasonably believe that job growth will accelerate as well. Moreover, it is reasonable to expect that the various financial and fiscal risks will ease throughout the year as well. If this is true, then the Fed will start easing back on the asset purchase program. This is especially true if the unemployment rate moves closer to 6.5%; they will want to be done with asset purchases prior to considering a rate increase. Of course, if none of this comes to pass - for example, fiscal multipliers are higher than anticipated and the economy continues to muddle along - then the Fed will continue asset purchases. As always, it is data dependent.
Bottom Line: The employment report is, on average, more of the same. Ongoing slow but steady improvement. The year-over-year gain in wages might be a precursor to a more positive dynamic in the labor market, but one month does not make a trend. In and of itself, the report is likely consistent with the Fed's forecast, and thus not a motivation for an imminent policy change.
Posted: 04 Jan 2013 09:48 AM PST
Running way behind this morning, so will take advantage of the Creative Commons license at CEPR and rely on Dean Baker for analysis of the employment report (see also Calculated Risk, Angry Bear):
Unemployment Unchanged at 7.8 Percent, Economy Adds 155,000 Jobs, by Dean Baker: Manufacturing added 25,000 jobs, the strongest growth since April.

The unemployment rate remained at 7.8 percent in December, the same as the revised number for November. The unemployment rate has essentially been unchanged the last four months. Interestingly, while the unemployment rate has fallen by 0.7 percentage points from its year-ago level, the employment-to-population ratio (EPOP) is unchanged at 58.6 percent, just 0.4 percentage points above the low for the downturn. The establishment survey showed the economy adding 155,000 jobs in December. This is virtually identical to the 151,000 average over the last three months and the 154,000 average over the last year.
There was little very new in the demographic distribution of unemployment. White men continue to do somewhat better than white women, with the unemployment rate for white men dipping by 0.2 percentage points to 6.2 percent, putting it marginally below the 6.3 percent rate for women. The unemployment rate for white men had peaked at 9.6 percent in Oct-Nov of 2009 when the unemployment rate for white women was just 7.3 percent. The unemployment rate for African Americans rose by 0.8 percentage points to 14.0 percent, indicating that a 1.3 percentage points drop reported in November was an aberration.
The big job gainers continue to be the over 55 cohort, with employment growth of 32,000 in December, more than the 28,000 overall employment gain for workers 16 and older reported in the household survey. Over the last year, older workers have accounted for 1,777,000 of the 2,409,000 reported gain in employment. The biggest losers have been the 45-54 cohort, who have seen their employment fall by 288,000 over this period. In both cases the gender split has been close to even.
All the duration measures of unemployment fell in December. The median duration of unemployment is now 2.6 weeks below its year-ago level; the mean 2.8 weeks lower; and the share of long-term unemployed is down by 3.7 percentage points. On the other side, the number of discouraged workers is up 123,000 from the year-ago level, the largest increase since December of 2010.
The job growth in the establishment survey continues to show some erratic seasonal patterns. Retail reported a loss of 11,300 jobs after adding a total of 107,000 the prior two months. The decline was driven by a loss of 18,700 jobs in clothing. This reflects earlier hiring for the holiday shopping season. Jobs for couriers fell by 10,800 in December, a decline that will almost surely be reversed.
Manufacturing added 25,000 in December, the largest increase since a 42,000 rise reported in March. The rise in jobs was also accompanied by a small increase in the length of the average work week from 40.6 to 40.7 hours. Interestingly, the non-durable sector accounted for most of the rise, adding 14,000 jobs. While most of this gain was just offsetting a 13,000 decline reported in November, there was 0.2 hour increase in the length of the work week in the non-durable sector, raising it to 40.3 hours compared with 40.0 in October.
Construction added 30,000 jobs in December. This sector has been an anomaly, with employment up by just 20,000 year-over-year in spite of large gains in both residential and non-residential construction. The information sector shed 9,000 jobs, largely reversing an increase of 13,000 jobs in November. Employment in the temp sector was essentially flat in December, providing little evidence of any pent-up demand awaiting the resolution of the "fiscal cliff" debate.
Health care added 44,500 jobs, which is likely just offsetting the relatively weak 19,700 jobs reported for November. Restaurants added 38,000 jobs in December, considerably more than the 24,000 average over the last year.
Government employment fell by 13,000, almost entirely the result of a drop of 11,500 jobs in local government education. Over the last year jobs in local government education have been down by 54,000, but this is almost exactly offset by an increase of 53,000 jobs in state government education.
There is little in this report to suggest any divergence from the modest growth path that the economy has been following the last two years. The 155,000 pace of job growth is consistent with a declining unemployment rate, but will not return us to full employment until the next decade.

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