Daily Archives: December 9, 2013 @ 10:15 pm (Monday)

Fed paper hikes NAIRU

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As previously discussed, this happens with every down cycle, and is disproven every time demand picks up.

Meanwhile, real wages continue to under perform and remain disgraceful

This new Fed paper says that everyone who left the labor force since early 2012 is not coming back. In other words, the labor market is tighter than the Fed thinks and the NAIRU is higher which is why wages are rising, see also chart below:

Excerpts:
“The decline in the participation rate since the first quarter of 2012 is entirely accounted for by … retirement.”

“…a plausible conjecture is that the 2008 financial crisis and associated losses of wealth might have had the effect of delaying their retirement age, while the subsequent recovery of financial wealth has allowed more of them to retire in the last few years.”


Fed: “On the Causes of Declines in the Labor Force Participation Rate”


In the attached GEP from earlier this year we also found that most of the decline in the participation rate is driven by longer-term, structural factors, such as demographics.

Happy to discuss, let us know.


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Bundle of Tax Breaks Again Set to Lapse

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A bit more austerity on the way, seems:

Bundle of Tax Breaks Again Set to Lapse

(WSJ) Congress appears almost certain to allow a batch of temporary tax breaks to lapse at the end of 2013. The breaks range from broad provisions such as research credits for businesses and a sales-tax deduction for individuals, to narrower ones such as a credit for buying electric motorcycles. The number of temporary tax breaks has snowballed from a handful in the 1980s to more than 50 now, and some lawmakers are beginning to think the package might have become excessive. While extending them for a year or two at a time has helped mask their price tag, the Congressional Budget Office said that if the existing temporary breaks were extended over the next decade, they would cost the U.S. government almost $1 trillion. To keep the package intact, lawmakers rely on a tactic known as logrolling, supporting each other’s priorities in order to preserve their own breaks.

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