Recovering, with a stutter

Sep 5, 2014 21:28 UTC

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The economy added 142,000 jobs in August. It was a pretty big disappointment, considering the consensus estimate was around 225,000. The unemployment rate ticked down to 6.1% from 6.2% — bad news, since the decline comes from people dropping out of the labor force, rather than people getting jobs. Nick Bunker and Heather Boushey sum it up: “The U.S. economy is steadily if slowly expanding but not enough to spark sustained growth in jobs and wages and a commensurate decline in unemployment.”

Cardiff Garcia writes that “the report is hard to reconcile not only [with] other recent indicators [ISM data was great, auto sales are up, initial jobless claims were unchanged in August] but also with the obviously stronger momentum in prior jobs reports this year.” However, he continues, “if the acceleration in the recovery since the end of the first quarter has slowed, it wouldn’t be the first time that the US economy has head-faked observers.”

There is, however, a little bit of positive news. The number of workers working part time for economic reasons declined, and the number of long-term unemployed is down to early 2009 levels. Plus, given that the data is noisy, it’s important to remember that “right now 2014 is still on pace to be the best year for both total and private sector job growth since 1999,” says Bill McBride. Further, Jared Bernstein writes that “the safest conclusion from this numbers is this: August’s lousy report notwithstanding, we are solidly in the midst of a moderate jobs recovery.” If you smooth the data for the last year, the economy is growing at a clip of 207,000 jobs per month, says Bernstein.

The question at this point, it seems, is what’s going on with prime-aged workers? The employment rate for 25-54 year-old workers is still too low, say the Bloomberg View editors. “As of August, about 76.7 percent of people aged 25 to 54 were employed… still about 3.9 million jobs short of 79.8 percent, the average ratio over the 10 years through 2007.” Brad DeLong says there’s no way this trend “is simply a continuation and acceleration of structural trends that had been ongoing since 1990.” Given that, the question remains — when will we finally recover? — Shane Ferro

On to today’s links:

Primary Sources
The Survey of Consumer Finances – The Fed

New Normal
Surprise! Inequality didn’t get better during the Great Recession – FiveThirtyEight

Climate Change
An investigation into rapidly rising sea levels – Reuters

Right On
It’s never been more lucrative to be a math-loving people person – HBR

MORNING BID – Laboring for insights

Sep 4, 2014 13:02 UTC

The unemployment report occupies a unique position as a bit of a lagging indicator (especially when it comes to wage growth) and yet the most important economic figure that markets look at on a monthly basis. Various indicators point to the likelihood of another strong report come Friday that should accelerate recent trends in markets – more gains in the stock market (with a helping of the “this means the Fed is going to cut us off from the punch bowl blah-blah” stuff) and more strength in the dollar, regardless of whatever incipient gains the euro can muster after the European Central Bank meeting.

Underlying indicators to watch suggest that the U.S. economy has started to move more dramatically higher, whether it’s from the Federal Reserve’s Beige Book or Goldman Sachs’ analyst indicator, a composite of analyst commentary that functions as sort of a “corporate Beige Book.”

Some of the striking data out of this include better-than-expected strength in the consumer spending area, where Goldman expects consumption to rise to about 2.5 to 3 percent over the rest of the year. Their index is above 60 now for the fourth month running – like the ISM data, 50 signals growth – and they’re seeing particularly good strength in new orders and sales/shipments, also pointing to better demand.

That should translate once again to more hiring as the economy moves into the middle of this expansion, one that didn’t see the post-recession pop that many expected and instead as a substitute has put together a long, grinding string of more than 60 months of steady but unspectacular growth.

With the recent shift in jobless claims to a consistent figure around 300,000 on a weekly basis – and sometimes lower – and consumer confidence rebounding, the key figure to watch on Friday is probably again the U-6 figure on labor force underutilization, the broader measure of unemployment the Fed likes to look at rather than just the unemployment figure itself. Since the beginning of 2013, as the regular unemployment rate has dropped to 6.2 percent from 7.9 percent, the U-6 rate has dropped more sharply to 12.2 percent from 14.4 percent. The number of unemployed has dropped to 9.67 million from 12.32 million in that time. The labor force has been stubbornly stagnant, rising to 156.02 million from 155.69 million in Jan. 2013, and so the participation rate hasn’t budged all that much – it’s actually fallen to 62.9 percent from 63.6 percent, and the inability of people to get back into the labor force because they’re discouraged has been an Achilles heel for the jobs market since this recession ended.

There’s some hope this is changing, again, based on consumer confidence figures and manufacturing and service-sector surveys pointing to improved demand and confidence. And the Fed’s Beige Book pointed to specific job shortages – tech workers in the Boston region, truck drivers in New York – but still yet not enough to really suggest the increase in demand that brings out 300,000-plus jobs reports every month. For August, the expectation is for about 225,000 in nonfarm payrolls growth, and for earnings to rise 0.2 percent on the month.

Mr. Cantor Goes to Wall Street

Sep 3, 2014 21:48 UTC

No longer bringing in a government salary, Eric Cantor has decided to try his hand at investment banking. The former House majority leader will become a vice chairman and managing director at the investment banking boutique Moelis. His compensation will be around  $3.4 million through the end of next year (plus “the reasonable cost of a New York City apartment”).

What will Cantor do at an investment bank? Probably not a lot of Excel. Dennis Kelleher, the head of the public-interest group Better Markets (which opposes the banking lobby in Washington), says he’ll likely be lobbying for Wall Street among his former colleagues after his mandatory one-year ban expires next August. Kelleher tells Annie Lowrey, “Wall Street is after what it’s always buying in Washington: access, influence, and unfair advantage.” He also gets into specifics:

They’re going to be fighting everything from tax policy on carried interest, to derivatives, to capital rules, to making sure the [Commodity Futures Trading Commission] is never properly funded, to making sure that the biggest deregulation bill since the repeal of Glass-Steagall, the mislabeled ‘Jobs Act,’ is put in place.

Matt Levine thinks Kelleher is almost totally wrong on the above points. “Obviously it is tempting to think of Wall Street as a monolith whose only aim is to free itself from pesky regulations. But: It’s not,” he writes. Moelis doesn’t even deal with most of what Kelleher mentions in the above, he says. Cantor’s real value, and the reason Levine thinks he is going to Moelis, is because he’s important. “Important people like to deal with other important people.”

The Epicurean Dealbreaker more or less agrees with Levine, adding that “I venture to guess Mr. Cantor will most likely offer access and intelligence on whom to contact within government to his employers and clients, rather than leading any direct or indirect lobbying charge himself.” That’s soft influence, if you will. — Shane Ferro

On to today’s links:

Spend too much time thinking about money and you will go crazy – Paul Krugman

EU Mess
“The risk of [Europe] entering a period of self-reinforcing deflation is currently very small” – IMFS

The Quaint Economy
“What is modern craft banking?” – Field & Main

If passengers are willing to wait for just five minutes, almost 95% of cab trips could be shared – MIT

“Oops, we raised rates too soon” – Cardiff Garcia

RIP Goldman Sachs aluminum conspiracy (which never existed) – Matt Levine

Why a Citigroup breakup is still a good idea – Rob Cox

Right On
Banking will never know a more disruptive force than Excel, say bankers – Izabella Kaminska

MORNING BID – The economic state of things

Aug 1, 2014 13:19 UTC

The jobs report takes a bit of heat off of Thursday’s selloff, which was predicated in part on some nonsense out of Europe and more importantly some kind of growing consensus that the economy is getting hot enough that it might force the Federal Reserve to start raising rates a bit earlier than expected, given a sharp and unexpected rise in the employment cost index on Thursday. And while it’s fair to suggest the stock market has gotten a bit ahead of itself when the Fed is rapidly moving toward the end of its stimulus policies, it’s also possible that stocks have gotten ahead of themselves for a far more prosaic reason – the economy isn’t strong enough to support the kind of valuations we’re seeing in equities right now.

That’s not to say we’ve got bubbles all over the place in stocks – they’re pretty few and far between – but credit standards in various places have loosened, and if the Fed starts raising rates we’re going to see a pretty quick reversal of that before long. There are significant signs of concern emerging in places like the high yield market, which has dropped off sharply in recent days, particularly among the weakest credits, and the housing and auto markets, which are better leading indicators than the jobs data, also suggest that the slack credit standards may end up hitting a wall before long.

Jim Kochan at Wells Fargo Fund Management pointed out that with the U-6 unemployment rate picking up to 12.2 percent this month, it conforms to what Fed Chair Janet Yellen has said in the past – that the “report is consistent with Ms. Yellen’s view that it is too early for the Fed to be contemplating a ‘liftoff’ in the fed funds rate.” That’s caused the expectations for a rate hike – per CME Fed Watch – to back off a bit, with April odds now down to 37 percent (from 43 percent a couple days ago) and June down to 52 percent from 58 percent a couple of days ago.

The U-6 rate ticked up as more people entered the workforce.

The U-6 rate ticked up as more people entered the workforce.

As the labor market improves, there are growing concerns about leading economic areas that point to a slackening in activity and will serve as the real test of the economy’s ability to survive as monetary policy recedes from the picture and interest rates start to rise (even with the Fed still at near-zero and expected not to raise rates until April at least, if not thereafter).

The Detroit team of Bernie Woodall, Ben Klayman and Paul Lienert teamed up for a piece that notes how a minority of groups are seeing real concerns about credit standards being loosened to a point that suggests auto sales demand is being driven by too-easy money. People have long talked about how auto loans tended to be on average about five years – matching approximately a value of a car (to a point) and now the average loan has risen to about 66 months, which means there are plenty more people offering terms to seven or eight years.

Cars are made to last longer than years ago, but it still represents an extension of debt payments over a longer period of time that’s worrisome. Car sales figures are due out later today – July auto sales are expected to show a slight dip to a 16.7 million annualized rate from 17 million in June, and full-year forecasts are set to hit their highest rate since since 2006. Similar action can be seen in the housing market as well, where the four-week moving average of the MBA’s purchase index has been steadily declining for several weeks now. That’s probably to some extent a summer effect but that index now sits far below levels seen in mid-2013 when it rose to a four-year peak.


That said, again – it’s a bit early to conclude that the leading areas of the economy have given up the ghost and we’re now headed for an inexorable descent into a recession – housing and auto sales fluctuate quite a bit, and even in expansions sharp declines can be seen. The 12-month moving average of U.S. housing starts are still on an uptrend from a year-over-year basis.

On the other hand, the 12-month average of existing home sales has slipped to 4.908 million. Sales of existing homes have had long periods of stagnation amid economic expansions before – they were weak from mid-1994 to mid-1995 and were slack from mid-1987 to mid-1989 as well. The most recent experience in housing – boom-and-bust – seems overstated of yet. So give it a few months.

MORNING BID – What’s all the Yellen about?

Jul 15, 2014 12:51 UTC

Rants from TV commentators aside, the market’s going to be keenly focused on Janet Yellen’s congressional testimony today, with a specific eye toward whether the Fed chair moderates her concerns about joblessness, under-employment and the overall dynamism of the labor force that has been left somewhat wanting in this recovery. The June jobs report, where payrolls grew by 288,000, was welcome news even as the economy continues to suffer due to low labor-force participation and weak wage growth.

Inflation figures are starting to show some sense of firming in various areas, for sure, but still not at a point that argues for a sharp move in Fed rates just yet. Overall, a look at Eurodollar futures still suggests the market sees a gradual, very slow uptick in overall rates – the current difference between the June 2015 futures and June 2016 futures are less than a full percentage point – not as low as it was in May of this year, but still lower than peaks seen in March and April 2014 and in the third quarter of 2013, before a run of weak economic figures and comments from Fed officials themselves scared people again into thinking that the markets would never end up seeing another rate hike, like, ever again.

Now the expectations for Fed moves have coalesced around late in the first half of 2015 for at least the first token rate rises, and it might even be a bit sooner depending on what happens with employment and inflation figures. On this front, Liz Ann Sonders of Charles Schwab points out that some of the leading and coincident indicators for the labor market look promising – noting that the jobless rate overall and the payroll figures are lagging indicators.

She points out that private-sector employment is up 9 percent since the end of the recession, outpacing the economy’s overall 5.9 percent growth rate – and that’s clearly due to a lot of local and state government austerity that was forced upon municipalities and other localities due to diving tax revenues and weak growth. Government employment didn’t finally trough until mid-2013, and has since started to come up a bit more, but it’s still down 3 percent from the end of the recession; the gains in private employment don’t completely obviate whatever need there is for government jobs and services – particularly if federal and state employment tends to be middle-class labor.

Job quits and layoffs figures are improving.

Job quits and layoffs figures are improving.

Other factors pointing to strength – the improvement in the JOLTS data, the job openings labor turnover survey, which shows job openings rising to levels consistent with the 2007 area – still not at the same level as it was in 2001 during the end of the tech boom, but much better than what’s been happening of late.

The “quit rate” also measured by JOLTS points to more people voluntarily leaving jobs – again, the 2.1 percent rate for private payrolls falls short of the 2.5 to 2.6 percent level during the end of the last boom and far from the 2.8-2.9 percent level back in 2001 – but it’s important enough that Yellen may modify some of her language. Given she’s learned pretty quickly to try to bore people to death after the “six months” remark that set people off, those looking for lots of news may be disappointed. But if there is to be any, it could be here.

Thirsty for work [Updated]

Jordan Fraade
Jul 11, 2014 21:09 UTC

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Last week’s jobs report may have capped off the best six-month period since the recovery began, but the long-term unemployment situation is as terrible as ever. Nearly3.1 million Americans have been out of work for six months or longer — a third of all unemployed Americans. This isn’t just a bad business cycle, says Nick Bunker. It has become structural problem in the labor market* (see update below). The Beveridge Curve, which tracks the relationship between the unemployment rate and job vacancies, has shifted outward, meaning there are lots of job vacancies, but more unemployed people than you would have expected had the pre-recession trend continued. There are plenty of jobs out there, Bunker says. Employers just aren’t hiring people to do them.

Catherine Rampell points to new data from NBER and Chicago Fed researchers showing that the average job opening is going unfilled for an average of 25.1 days, the longest vacancy rate since May 2001. She’s got a number of ideas on why this is happening, but she’s convinced that the one thing that’s not causing it is job seekers lacking the skills that employers want. If this were about the skills gap, she says, employers competing for a small pool of skilled applicants would be forced to raise wages — something we haven’t seen recently.

A 2012 paper from the Boston Fed backs this up, saying the high rate of unemployment is pervasive across the entire economy, and therefore not the result of a skills mismatch. Ben Casselman sums up a more recent NBER paper: “The high level of long-term unemployment during and after the Great Recession was driven by the lack of jobs and the difficulty of finding work after a long period of joblessness, not by characteristics [meaning skills] of the unemployed themselves.” Danny Vinik looks at a number of factors, from labor-market dropouts to wage growth, and says that what’s happening isn’t just a crisis, it’s a national tragedy.

There’s lots of debate about what to do next. One thing we definitely should not do, according to Robert Waldmann, is what happened last December: get rid of extended unemployment benefits. Waldmann writes that the conservative argument that the expiration of those benefits motivated people to find work in 2014 is not backed up by month-to-month employment data. Dean Baker says that we should bring the long-term unemployed back into the workforce by changing Americans’ labor habits as a way to spread the work around, such as “encouraging firms to reduce work hours as an alternative to laying people off.” James Pethokoukis suggests tackling the problem on a number of fronts, including tax credits for hiring, privatized job-training programs, and vouchers to help people move to places where they can find work.

There’s some hope, yet. Suzy Khimm notes that on Wednesday, Congress overwhelmingly passed a bill that streamlines federal job-training programs and gives private employers more say in how they work. — Jordan Fraade

On to today’s links:

A Cynking ship - Shane Ferro
Data’s drawbacks: The best way to commute is not always the fastest - Shane Ferro

Expensive Habits
The most expensive cities for expats aren’t anywhere near London or Moscow - Quartz

It’s Academic
A “peer review ring” has been busted - Washington Post

Data Points
The millennial daughter of the head of the Mortgage Bankers Association will continue renting, thanks - Lorraine Woellert

For a hefty fee, the Awl’s staff will teach you how to dress - Shirterate

Not everyone is upset about London’s banking shenanigans - Jason Karaian

So Hot Right Now
Unlisted real estate sales are a thing now - Carla Fried

Copy Wrong
Aereo would like to be considered a cable company - Aereo Blog
But its argument is probably going to fail –  Brian Fung

* In fact, that’s not what Nick Bunker said at all. It was the opposite: “If you look at their Beveridge Curve for economic recoveries going back over 60 years, you see the current shift is actually quite typical.” We regret that we erred in our original reading.

MORNING BID – Minute by minutes

Jul 9, 2014 13:44 UTC

The bond market remains pretty much tethered to the 2.50 percent to 2.60 percent range that’s prevailed for the 10-year note for quite some time now, with the primary catalyst being today’s release of the Federal Reserve’s minutes from its most recent meeting. The relevant data that investors are probably paying most attention to – the jobs report last week, the JOLTS jobs survey, shows some more things that is meant to keep the Fed engaged rather than moving toward an imminent increase in rates. The quit rate – the rate at which people leave jobs for others – is still historically a bit on the low side, not at a level that would make the Fed more comfortable that the kind of labor-market dynamism needed for the Fed to shift to raising interest rates. Fact is, the central bank just isn’t there yet.

And with that in mind, that means those investors clamoring for higher rates are probably going to continue to see their expectations unmet for a longer period of time, and with sovereign buyers from Europe and Japan wandering outside those halls, there’s an ongoing bid in the market that continues to thwart short-sellers who are just waiting for that right moment to bet against the bond market. That’s been a lonely trade of late – or rather, a popular trade, just a big loser as trades go.

Players in the markets may also be looking to see whether the Fed discusses the other exit strategies it has — reverse repos and the like — making that another thing to watch for in the late release. Dealers have been divided on whether the Fed will raise rates merely to 25 basis points or direct to 50 — our most recent polls are split on this, but a move to 50 would probably assuage a few of those who think the Fed is getting behind the curve.

Earnings play a factor in this equation as well however. The decline in earnings estimates has actually been subdued in the second quarter, compared with the first quarter, according to Goldman Sachs, which suggests a pickup in activity after the weak first quarter. Earnings don’t really get going for another few days, but the signs of growth will be what investors worried about valuations are looking for. The current valuation situation, as Chuck Mikolajzcak wrote in a story yesterday, points to some measures that are worrisome – the Case Shiller PE figure, for instance – while a couple of others like operating P/E, suggest only slightly expensive levels. With more strategists starting to worry of a correction, earnings would go a long way toward supporting equities.

from Data Dive:

Here’s why it’s so hard to land a job

Jun 25, 2014 13:31 UTC

Six years into the recovery, the American jobs situation is still in a rut. The relationship between how many people are looking for a job (the unemployment rate) and how many jobs are available (the jobs opening rate) has historically been predictable. Plotting it out in chart form gives you what is known as the Beveridge Curve, named after the British economist William Beveridge. The idea is that as the number of workers who are looking for a job rises — which to employers means the pool of talent for them to hire from gets bigger — the available jobs get filled and the opening rate goes down.

This is what it has looked like since 2001:

The Beveridge Curve

The first thing to notice is that something happened in 2008: the Beveridge Curve shifted to the right and stayed that way. That means employers aren’t hiring as many unemployed people as they should be, according to a pre-2008 view of the world. It is also one of the reasons the economy feels like it is still bad, even though the recession officially ended five years ago.

The question is why is the curve so far off from what would be expected in a normal recovery? And how can things be brought back on track?

The answer often cited is that the economy has a skills mismatch. Fewer people are finding jobs than they have in the past because they aren’t qualified for the jobs that are available. This is less about the Great Recession and more about changing technology and needs. Imagine a 45-year-old man who has worked in an auto factory his whole life up until it was shut down in 2009. He can’t be quickly or easily retrained to be a nurse or a computer programmer, which are the only jobs he sees available that pay as much as his old manufacturing job, so he remains unemployed.

But there’s a problem with this theory: if the problem really is a mismatch of jobseekers to jobs, why did it happen so suddenly? The decline in manufacturing and the need for computer programmers existed long before 2009. Plus, as Dean Baker notes, if a skills mismatch really were the big problem, wages should be rising for those who do have the skills (and the jobs). But they’re not.

Economist Brad DeLong floated another reason for the shift a few days ago. The shift in the curve might be because of a collapse of social networks. He doesn’t mean Facebook friends, but the loose network acquaintances people have in their daily lives (maybe even people you've met but aren't friends with on Facebook).

Think of your aunt’s best friend who you see at a July 4 party once a year, who paid you $50 to organize all her files one summer when you were 15. She might say, “Hey, my office is looking for an administrative assistant, and I heard from your aunt that you need a job. Send me your resume.” DeLong is worried that young people might not have enough of those connections, and, more worryingly, that older workers that got laid off during the Recession haven't kept up with their old connections. Submitting a resume through a computerized system is just not as effective as knowing someone in real life..

Then the next question becomes: what caused the atrophy of our social networks?

from Data Dive:

After six years, the US economy got its jobs back

Jun 6, 2014 15:57 UTC

"The scariest jobs chart ever", which Bill McBride at Calculated Risk has been updating month by month for years, is finally ready to be retired.

That’s right — with the 217,000 jobs added in May, the US economy is finally, finally back to the pre-recession employment level.

Screen Shot 2014-06-06 at 11.30.08 AM.png

And yet, while US employment is technically at an all-time high, we’re still behind. While the US now has more jobs than before the recession, the population has grown a lot in the last six years, and the labor force participation rate is the lowest it has been since 1978.

Breathe a sigh of relief at this milestone, but know we still have a long way to go.

MORNING BID – Be not afraid of more bond-market rallies

Jun 6, 2014 13:38 UTC

After the world’s most boring jobs report in history (seriously, misses consensus by 1,000, unemployment and wage growth in-line with expectations, and revisions over the last two months amount to a total decline of 6,000 jobs, which is a pittance), the bond market is catching a bit of a bid again. That shouldn’t be a surprise given the way this market is still taking its cues from the European bond market, which is soaring on what would otherwise be a quiet Friday. (Those of you who read Richard Leong’s story yesterday noting the likely rally in bonds post-jobs would have been all over this – just sayin’.)

It’s not going to be long before Spain’s 10-year yield falls through the U.S. 10-year yield – the spread has narrowed to about 6-7 basis points and at one point was around 3 basis points before the jobs figures. Even though the in-line figures could argue for higher rates, the report doesn’t change the consensus on the economy all that much and allows fixed income to concentrate on supply and relative valuation issues – and those point to yields remaining under pressure. Mark Grant of Southwest Securities lays it out well on a lot of issues in a comment this morning, but very specifically, he points out that “money from Asia and the Middle East is going to come pouring into the American market because of the yields here versus all of Europe. When the French 5 year yield is 304% less than the American one something is going to give and the ECB will not permit that answer to be a higher French yield.”

Lower European yields are pressuring U.S. yields.

Lower European yields are pressuring U.S. yields.

Supply and demand remains part of the equation as well. Headed into this week, issuance of U.S. debt was down 14 percent from this time a year ago and overall worldwide debt issuance was down 5 percent; US corporate debt issuance has been relatively steady, down 2 percent from this time a year ago. Couple that with the big run for yields coming from banking institutions around the world, other funds and insurance institutions worldwide, and U.S. private pension funds, and that imbalance is also contributing to an ongoing bull move in the bond market. (BofA-Merrill notes that first-quarter private pension fund purchases did slow from the second half of 2013.)

Treasury issuance is down, municipal bond issuance has declined, and the Federal Reserve is still holding a lot of debt overall. “Higher prices and falling yields can be caused by a number of things and this time around the cause is not a financial debacle,” Grant writes, and it’s hard to disagree on this one. Merrill notes that for the year-to-date, fund flows into all fixed income come to about $55.6 billion, about on a par with the $58 billion into equities – so the “everything is awesome” rally continues.

Where’s that leave other markets? Well, savers are going to continue to get hit on this – which encourages more risk taking, be it in stocks, real estate, credit or what-have-you. The lower rates may help offset some of the softness that the housing market has endured over the last few months, seeing as how it takes mortgage rates lower. Then again, several more strong economic reports are going to create a bit of a conundrum – it’s hard to see how real growth of 5 percent (that is, nominal growth of about 3 to 3.5 percent in the second quarter, plus inflation in the range of 1.7 to 1.8 percent) supports a 2.5 percent 10-year yield, but we may be about to find out.