The US as deadbeat: discuss

The US as deadbeat: discuss – BBC – Asked to name the biggest threat hanging over the global economy in 2011, most people will tell you it’s the crisis in the Eurozone. Newsnight spent a lot of time debating its future only last night.   I decided we should also think about a more distant – but ultimately much larger – cloud on the global economic horizon. That is the possibility of a full-scale loss of confidence in US assets.  It’s not an issue for the next few months, perhaps, especially with decent prospects for US growth in 2011. But both at the state and the federal level, America is awash with red ink, with debt rising "as far as the eye can see." Looking at thes numbers, and America’s dysfunctiona politics, if investors ever started to question America’s creditworthiness, or seriously sell the dollar, it could make the bailouts on the European periphery look like a tea party.
The Employment Report is Weaker than Expected – The employment report came out today, and it’s weaker than many people expected. The unemployment rate did fall to 9.4 percent in December. However, a deeper look into the numbers reveals that a big part of the decline is due to the fact that 260,000 people left the labor force. The employment population ratio did increase, so there were employment gains, but the establishment survey indicates that only 103,000 jobs were created in December. That’s barely enough to keep up with normal population growth, and far short of what is needed to reemploy the millions who have lost jobs and would like to work again. Dean Baker provides more detail on the underlying numbers:
How “missing” workers impact the jobless data – The labor force should have increased by around 4.2 million workers from December 2007 to December 2010 given working-age population growth over this period, but instead it has fallen by 246,000. This means that the pool of missing workers now numbers around 4.4 million.
If just half of these workers were currently in the labor force and were unemployed, the unemployment rate would be 10.7% instead of 9.4%. None of these workers is reflected in the official unemployment count, but their entry or re-entry into the labor force will contribute to keeping the unemployment rate high. –From Heidi Shierholz’ analysis of the latest unemployment report.
Unemployment Falls to 9.4 Percent, but 260,000 Leave Labor Force… The Labor Department reported that the unemployment rate fell to 9.4 percent in December, however much of the reason for the decline was a drop of 260,000 in the size of the labor force. The 0.4 percentage-point drop in the unemployment rate was the largest since April of 1998, but this decline may just be an aberration. The drop in unemployment showed up primarily among white men, who saw their unemployment rate fall by 0.6 percentage points from 9.1 percent to 8.5 percent, as their EPOP rose by 0.4 percentage points. The unemployment rate for white women edged down by 0.2 percentage points to 7.3 percent. African Americans had a modest 0.2 percentage-point drop in their unemployment rate to 15.8 percent, but this was all due to people leaving the labor force. The EPOP for African Americans fell from 52.5 percent to 52.2 percent.  The story was also not good for Hispanics. While the unemployment rate dipped slightly to 13.0 percent, this was almost entirely due to people leaving the labor force as the EPOP for Hispanics fell 0.2 percentage points to a new low. By age, employment growth continues to be concentrated among workers over age 55. They accounted for 73.4 percent of December employment growth.

More of the Same, by Tim Duy: The jobs report was a clear disappointment relative to both expectations at the beginning of the week and certainly after the blowout ADP report.  After adjusting expectations to the upside, ADP once again scores a major miss (how we came to care about this data series still remains a mystery to me).  That said, the overall tenor of fourth quarter employment reports suggest an economy growing around trend growth.  Better, but not good enough to prompt a policy response from the Fed. The headline NFP gain was 103k overall, 113k private.  Consensus had been looking for something around 140k at the beginning of the week.  On the upside, the BLS revised up the October and November numbers, so that the average monthly NFP gain during the fourth quarter was 128k, pretty much right in the middle of the 100k to 150k estimates of growth required to keep a lid on unemployment. 

Painfully Slow Jobs Progress – The job market is getting better — but oh so slowly, especially given how far it still has to go. The chart below shows the three-month average change in employment, going back to the start of the recession. You can see that since the economy deteriorated this past summer, it has started to recover again. Today’s employment report continues to show recovery. But the pace of job creation is now only barely fast enough to keep up with population growth. Over the last three months, the economy has added an average of 130,000 jobs a month. If that pace picked up to 200,000 jobs a month, almost 10 years would have to pass before the unemployment rate fell below 6 percent. If the pace picked up to 250,000 a month — roughly what it was in the late 1990s (controlling for population size) — five more years would have to pass. These grim projections are reason to be disappointed that today’s report wasn’t stronger.
Employment: The Declining Participation Rate – An interesting question is why the unemployment rate fell so sharply, even with relatively few payroll jobs added (103,000 jobs added in December). First, it is important to remember that there are two separate surveys for the Employment Situation Summary. The unemployment rate comes from the Current Population Survey (CPS: commonly called the household survey), a monthly survey of about 60,000 households. The payroll jobs number comes from Current Employment Statistics (CES: payroll survey), a sample of "approximately 140,000 businesses and government agencies representing approximately 410,000 worksites". See this post for a discussion of the two surveys.  The following table is based on the Household survey (all seasonally adjusted):
Don’t Blame the Snowstorms for Disappointing Jobs Data – Snowstorms hit much of the Northeast in late December, while snow blanketed other regions of the U.S. earlier during the month. But they don’t appear to have done much to hit employment. Severe weather can suppress payroll figures, particularly if the snow keeps people out of work for a week. About half of U.S. companies issue weekly paychecks. Last February, the back-to-back snowstorms kept some workers at home for the week during which the Labor Department bases its employment survey. As a result, they weren’t counted as employed under the payroll survey. (Many U.S. workers are not paid for snow days.) That led to weak payroll gains in February — an increase of just 39,000 — followed by a sharper increase of 208,000 in March (part of it payback from February).  But December 2010 was different. The snowstorms in the Northeast came long after the Labor Department’s survey week (which is the week that includes the 12th of the month), at a time when many workers would’ve been off for the holidays anyway.

Massachusetts court voids Foreclosures –  From Bloomberg: Banks Lose Pivotal Massachusetts Foreclosure Case  The state Supreme Judicial Court today upheld a judge’s decision saying two foreclosures were invalid because the banks didn’t prove they owned the mortgages, which he said were improperly transferred into two mortgage-backed trusts. The concurring opinion by Justice Cordy helps clarify the situation:  I concur fully in the opinion of the court, and write separately only to underscore that what is surprising about these cases is not the statement of principles articulated by the court regarding title law and the law of foreclosure in Massachusetts, but rather the utter carelessness with which the plaintiff banks documented the titles to their assets. There is no dispute that the mortgagors of the properties in question had defaulted on their obligations, and that the mortgaged properties were subject to foreclosure.  Although there was no apparent actual unfairness here to the mortgagors, that is not the point. …


 Banks Lose Pivotal Massachusetts Foreclosure Case –  U.S. Bancorp and Wells Fargo & Co. lost a foreclosure case in Massachusetts’s highest court that will guide lower courts in that state and may influence others in the clash between bank practices and state real-estate law. The ruling drove down bank stocks.  The state Supreme Judicial Court today upheld a judge’s decision saying two foreclosures were invalid because the banks didn’t prove they owned the mortgages, which he said were transferred into two mortgage-backed trusts without the recipients’ being named.  Joshua Rosner, an analyst at the New York-based research firm Graham Fisher & Co., called the decision “a landmark ruling” showing that at least in Massachusetts a mortgage “must name the assignee to be valid.”  “This is likely to open the floodgates to more suits in Massachusetts and strengthens cases in other states,” Rosner said. “We agree with the judge that the plaintiffs, who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure,” Justice Ralph D. Gants wrote for a unanimous court.

Won’t someone hand these people some pitchforks? – I RECENTLY wrote a post on the lack of economic-driven anger among many Americans, that read in part:In America, the language of the angriest is very similar to that of the plutocrats themselves. Indeed, the complaint that today’s elite lack the noblesse oblige of the aristocrats of old, and are therefore risking public anger, seems to badly misread American public opinion. The middle class doesn’t want hand-outs from condescending rich people. They want moralistic language and complaints about deficits. Matt Yglesias says: Kevin Drum endorses this, but I think it’s really mistaken. The only problem here is that populist rage in America doesn’t happen to line up with the policy objectives of the mainstream Democratic Party. Every poll I’ve seen shows strong support for higher taxes on rich people and lower taxes on non-rich people.. Democrats flirted with making this part of their agenda, but ultimately blinked…

Chairman Ben Bernanke pontificates on the municipal bond market (worries are overblown), the dollar (it’s holding up), oil (don’t blame him for its rise) and the Fed’s mandate (he welcomes a debate on it) in the question and answer session of his testimony with the Senate Budget Committee. Here are the highlights so far:

  • 1) Mr. Bernanke downplayed the notion that many state and local governments run the risk of defaulting and that the municipal bond market could be headed for turmoil. The muni market, he says, has been functioning “reasonably well,” with lots of bond issuance and liquidity in trading.
  • 2) Mr. Bernanke says his quantitative easing policy is not to blame for the sharp increase in the price of oil. Instead, oil’s rise is the result of strong demand from emerging markets.
  • 3) He welcomed a congressional debate about the Fed’s legal mandate. Mr. Bernanke said he’s not seeking a change in the mandate, but could live with a change if Congress decides to pursue one.

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