US economy muddling through, growing modestly, particularly given the output gap, but growing nonetheless.

Lower crude prices should also help some.

I had guessed the Saudis would hold prices at the $120 Brent level, given their output of just over 10 million bpd showed strong demand
and their capacity to increase to their stated 12.5 million bpd capacity remains suspect. And so with the Seaway pipeline now open (last I heard)
to take crude from Cushing to Brent priced markets I’d guessed WTI would trade up to Brent.

But what has happened is the Saudi oil minister started making noises about lower prices and when ‘market prices’ started selling off the Saudis ‘followed’ by lowering their posted prices, sustaining the myth that they are ‘price takers’ when in reality they are price setters.

So to date, contrary to my prior guess, both wti and brent have sold off quite a bit, and cheaper imported crude is a plus for the US economy. Which is also a plus for the $US, as a lower import bill makes $US ‘harder to get’ for foreigners.

But the trade for quite a while has been strong dollar = weak US stocks due to export pricing/foreign earnings translations, and also because US stocks have weakened on signs of euro zone stress, which has been associated with a weaker euro. So when things seem to be looking up for the euro zone, the euro tends to go up vs the dollar, with US stocks doing better with any sign of ‘improvement’ in the euro zone.

It’s all a tangled case of cross currents, which makes forecasting anything particularly difficult.

Not to mention possible dislocations from the whale, which may or may not have run their course, etc.

And then there’s the news from Greece.

First, they made a full bond payment yesterday of nearly 500 million euro to bond holders who did not accept the PSI discounts. This is confounding for the obvious reasons, signals it sends, moral hazard, credibility, etc. etc. But it’s also a sign the politicians are doing what they think it takes to keep the euro going as the currency of the euro zone. Same goes for the decision to fund Greece as per prior agreements even when there is no Greek govt to talk to, and lots of signs any new govt may not honor the arrangements.

Even if that means tricking private investors out of 100 billion, rewarding those who defy them, whatever. Tactics may be continuously reaching new lows but all for the end of keeping the euro as the single currency.

It also means that while, for example, 10 year Spanish yields may go up or down, the intention is for Spain, one way or another, to fund itself, even if short term. Doesn’t matter.

And more EFSF type discussions. The plan may be to start using those types of funds as needed, keeping the ECB out of it for that much longer, regardless of where longer term bonds happen to trade.

As for the euro zone economy, yes, growth is probably negative, but if they hold off on further fiscal adjustments, the 6%+ deficit they currently are running for the region is probably, at this point, enough to muddle through around the 0 growth neighborhood. The upside isn’t much from there, as with limited private sector credit growth opportunities, and substantial net export growth unlikely, and strong ‘automatic stabilizers’ any growth could be limited by those automatic fiscal stabilizers. Not to mention that this type of optimistic scenario likely strengthens the euro and keeps a lid on net exports as well.

And sad that this ‘bullish scenario’ for the euro zone means their massive output gap doesn’t even begin to close any time soon.

For the US, this bullish scenario has similar limitations, but not quite as severe, so the output gap could start to narrow some and employment as a percentage of the population begin to improve. But only modestly.

The US fiscal cliff is for real, but still far enough away to not be a day to day factor. And it at least does show that fiscal policy does work, at least according to every known forecaster with any credibility, which might open the door to proactive fiscal? Note the increasing chatter about how deficits don’t seem to drive up interest rates? And the increasing chatter about how the US, Japan, UK, etc. aren’t like the euro zone members with regards to interest rates?

Same in the euro zone, where discussion is now common regarding how austerity doesn’t work to grow their economies, with the reason to maintain it now down to the need to restore solvency. This is beginning to mean that if they solved the solvency riddle some other way they might back off on the austerity. And now there is a political imperative to do just that, so things could move in that direction, meaning ECB support for member nation funding, directly or indirectly, which removes the ‘ponzi’ aspect.

And then there’s this:

Disabled Americans Shrink Size of U.S. Labor Force

By Alex Kowalski

May 3 (Bloomberg) — Michael White says he wishes he still could pluck the bass line to Hank Williams Jr.’s “Born to Boogie” and pay bills with money he earns himself. High unemployment — along with ailments that he says render his fingers inoperative and make him cough up blood — have dashed his hopes.

White is among the 1.6 million Americans who’ve claimed Social Security Disability Insurance, or SSDI, since the 18- month recession began in 2007. When the slump reduced demand for tow-truck drivers, the 60-year-old Fort Myers, Florida, resident, who has also worked as a musician, lost the job he’d held for five years and started collecting unemployment benefits.

Complications from chronic obstructive pulmonary disease, or COPD, diabetes and other medical problems then made it impossible for him to return to a labor market that lacks opportunities for people with health problems and those in better shape.

“I can’t stress enough that I’d rather be working, but my health has gotten the worst of me, and any place I would have applied wouldn’t have hired me,” White says.

The number of workers receiving SSDI jumped 22 percent to 8.7 million in April from 7.1 million in December 2007, Social Security data show. That helps explain as much as one quarter of the decline in the U.S. labor-force participation rate during the period, according to economists at JPMorgan Chase & Co. and Morgan Stanley.

Expiring Benefits

The participation rate — the share of working-age people holding a job or seeking one — was 63.8 percent in March after falling to a three-decade low of 63.7 percent in January. Disability recipients may account for as much as 0.5 percentage point of the more than 2 point drop since the end of 2007, the economists calculate, and that contribution could grow when some extended unemployment benefits expire at the end of this year.

“How we measure and understand what’s going on in the economy can be influenced by the degree to which various public- support programs are available and being used,” said Michael Feroli, chief U.S. economist at JPMorgan in New York. “With a rising number of disability beneficiaries, there are both lower unemployment rates and lower participation rates.”

More light may be shed tomorrow on the participation rate, when the Labor Department releases its April payroll report. Employers probably added 160,000 new workers last month, while the jobless rate held at 8.2 percent, according to the median forecasts of economists in Bloomberg News surveys.

Nearing Exhaustion

The White House argued in December that emergency unemployment insurance should be continued, partly because some recipients probably would apply for SSDI as their benefits neared exhaustion. Congress extended the payments in February.

“Workers on SSDI rarely return to the labor force, resulting in a loss to society of the economic contribution those workers could have made,” said the report, which was written by the National Economic Council, Domestic Policy Council, Labor Department and President’s Council of Economic Advisers. “Thus, keeping the long-term unemployed in the labor force should be a priority.”

More than 99 percent of all SSDI beneficiaries remain in the program until retirement age, David Greenlaw, a managing director in New York at Morgan Stanley, wrote in a March research note, citing government data. The program provides an average of $1,111 in monthly income to eligible workers with a physical or mental impairment that will last at least 12 months or result in death, according to Social Security.

Record Applications

The number of people collecting disability surged as the economy contracted, with the share of the U.S. population between the ages of 25 and 64 on SSDI climbing to a record-high 5.3 percent in March from 4.5 percent in 2007. Applications per 1,000 working-age people rose to 18 last year from 8 in 1990.

The gain follows a pattern typical of recessions because Social Security requires that claimants be unable to “engage in any substantial gainful activity,” a stipulation more easily satisfied when jobs are scarce and wages get cut, according to Virginia Reno, vice-president for income security policy at the National Academy of Social Insurance in Washington.

“Impediments to work are compounded for people with disabilities when the economy turns sour and there are simply fewer jobs and greater competition for the jobs that remain,” Reno said. Her group researches the impact of social insurance on economic security.

Unemployment Among Disabled

Unemployment among the disabled rose by 7.6 percentage points to 16.9 percent — in August 2009 and June 2011 — from 9.3 percent in June 2008, when the government began tracking the data. The comparable measure for healthy people climbed 4.8 points to a peak of 10.4 percent in January 2010.

White’s weekly income fell to about $800 as the recession struck, even though he often worked every day, from as much as $2,000 when the towing business was booming, he says. As towing jobs contracted nationally to 48,300 in 2010 from a peak of 52,800 in 2008, he was laid off and filed for unemployment insurance in September 2009, receiving about $1,200 a month.

Meanwhile, White says his health deteriorated: His COPD morphed into emphysema, he was diagnosed with diabetes, his fingers began to ache from neuropathy and he obtained a breathing device to combat sleep apnea. The former bass player for cover band Boston Post Road no longer could hold his guitar.

White says he routinely searched for eight to 10 jobs a week, more than required to keep his unemployment benefits, and would have taken any available position so long as his health permitted. No opportunities came up in the tight labor market, and anticipating his unemployment would run out, he applied for SSDI. He says he was approved in about five months.

Difficult Decision

The decision to go on disability can be difficult for people who’ve lost their job and then realize their health prevents them from working, said Sean Libby, vice president of corporate development at Freedom Disability, the advocacy company that helped White obtain SSDI. Unemployment insurance requires that applicants search for job opportunities, while disability insurance requires they be unable to work.

“You’re trying to make something gray into something black and white by saying, ‘On this date I woke up and I could no longer work,’” Libby said.

That gray area may be working to the advantage of some unemployed, according to economists David Autor at the Massachusetts Institute of Technology in Cambridge and Mark Duggan at the University of Pennsylvania’s Wharton School in Philadelphia. Because SSDI awards have soared even as the health of Americans has improved, SSDI “appears in practice to function like a nonemployability insurance program for a subset of beneficiaries,” they wrote in a 2006 research paper.

Lax Screening Procedures

Less-stringent screening procedures, more attractive benefits and a waning need for less-skilled workers have bolstered SSDI rolls, they said. In addition, “difficult-to- verify disorders,” including muscle pain and mental illness, more easily qualify for SSDI under program reforms, Autor wrote in a 2011 paper. The aging baby-boom population, changes in Americans’ health conditions and the entry of women into the workforce weren’t the driving forces behind the gain in SSDI, Autor wrote.

Kia Green, a Social Security spokeswoman, hadn’t responded to an e-mail request for comments as of 7:30 p.m. yesterday.

Based on current trends, 7 percent of the nonelderly adult population could be receiving disability benefits by 2018, Richard Burkhauser and Mary Daly wrote in the spring issue of the Journal of Policy Analysis and Management. That’s two years after the SSDI program will run through its trust fund, according to an April report by the Social Security trustees.

Costs Increase

Costs have increased with the rolls: The program spent $132 billion last year, more than twice as much as in 2000. Once the trust fund dries up, the program’s incoming revenue will be enough to cover only about 80 percent of scheduled benefits, the trustees said.

To help reduce the strain on the system and make it possible for more disabled people to remain in the labor force, Burkhauser, a policy professor at Cornell University in Ithaca, New York, and Daly, associate research director at the Federal Reserve Bank of San Francisco, argued SSDI should be modified. They said raising taxes on businesses with a larger share of employees on SSDI would provide an incentive for these companies to offer the employees better accommodations and rehabilitation programs that prolong their ability to work.

The current program, which assumes that disability and employment are “mutually exclusive” is “both archaic and fiscally unsustainable,” they said. “Fundamental reforms, if done well, can lower projected long-term costs for taxpayers, make the evaluative tasks of disability administrators less difficult and, importantly, improve the short- and long-run opportunities of people with disabilities.”

Karim writes:

Agreed on the conclusion. It will take a lot to get the Fed to do any more QE. Not the least reason being most of them know it doesn’t actually do anything apart from getting a lot of people scared and angry, including our esteemed politicians, for example, ready to make a propaganda show out of what they like to call ‘money printing.’

Of more concern, Bill Mitchell mentioned the drop in public sector employment may be dragging us down to negative growth. He may be right, as those paychecks are probably very ‘high multiple’ and require larger federal deficits to make up for the lost aggregate demand.

Actual multiples- propensities to spend out of income- are variable and hard to get a handle on, and therefore generally must be ‘reacted to’ with fiscal adjustments.

Unfortunately, however, all political forces are currently aligned towards deficit reduction.

And note the labor force participation rate is heading back to about where it was before women entered the labor force.

Typical day for euro zone news.
Slow motion train wreck continues.

Headlines:

EU Finance Ministers to Face Off Over Rules to Implement Basel Ill Standards
France’s Hollande Says He Hasn’t Had Parallel Talks With Merkel
Weidmann Says Reforms Are Best Basis for Growth, Zeit Reports
European Unemployment Rate Rises to Highest in Almost 15 Years
Euro-Region Manufacturing Contracts for a Ninth Month
German Unemployment Unexpectedly Rose in April Amid Crisis
Spain Can Finance Itself, Even If Expensive, Fekter Says

American Austerity

By Paul Krugman

May 1 (NYT) — With all the focus on Europe’s sudden discovery that austerity doesn’t work, we shouldn’t lose sight of just how much de facto austerity we’ve done on this side of the Atlantic. Here’s a comparison of changes in government employment (federal, state, and local) during the first four years of three presidents who came to office amid a troubled economy:

That spike early on is Census hiring; once that was past, the Obama years shaped up as an era of huge cuts in public employment compared with previous experience. If public employment had grown the way it did under Bush, we’d have 1.3 million more government workers, and probably an unemployment rate of 7 percent or less.

Karim writes:

Looking for a very bad opening and subsequent sell off in Asia and especially the euro zone as hopes of exports to the US fade leaving them no escape from their deteriorating domestic demand.

This is now the beginning of the endgame for the Euro zone, as they discover the firewall is another Maginot line that markets go through like a knife through butter.

Employers Added 120,000 Jobs in March

By Timothy R. Homan

April 6 (Bloomberg) — Hiring by American employers trailed forecasts in March, casting doubt on the vigor of the more than two-year-old economic expansion.

The 120,000 increase in payrolls reported by the Labor Department in Washington today was the smallest in five months and less than the most pessimistic estimate in a Bloomberg News survey of economists. The unemployment rate fell to 8.2 percent from 8.3 percent as people left the labor force.

Stock futures, the dollar and Treasury yields all fell as the report highlighted Federal Reserve Chairman Ben S. Bernanke’s concern that stronger economic growth is needed to keep the nation’s jobs engine humming. Today’s data also showed that Americans worked fewer hours and earned less on average per week, boding ill for the consumer spending that makes up 70 percent of the world’s largest economy.

“We see a lack of sustainability in terms of strong job growth,” Tony Crescenzi, a strategist at Pacific Investment Management Co. in Newport Beach, California, said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “This is still not strong enough to create escape velocity, which is to say an economy strong enough to make it on its own without additional monetary stimulus from the Federal Reserve.”

Among those having trouble finding work is Xander Piper, 30, who has been looking for a full-time job since September, when he completed a master’s program in social science at the University of Chicago. He decided to go to graduate school in 2010 to improve his employment prospects after losing his position at an advertising agency.

Expected Work Sooner
“When I graduated, I assumed I was going to get a job within the first couple of months,” said Piper, a San Francisco resident who said he’s looking for work in education and sometimes sends out 10 resumes a day.

“Now I work for a temp company, but even they’re having trouble staffing me,” he said. “I recently had a two to three month break at my temp company. What I have gotten recently is call center work, which is just brutal.”

A separate report today from the Fed showed consumer borrowing rose less than forecast in February, restrained by a drop in credit-card debt. Credit increased $8.7 billion, the least in four months, after an $18.6 billion gain in January.

Employment Forecasts
Employment in March was forecast to increase by 205,000, according to the median projection of 80 economists in the Bloomberg survey. Estimates ranged from increases of 175,000 to 250,000 after an initially estimated 227,000 gain the prior month.

S&P 500 futures expiring in June slumped 1.1 percent to 1,374.90 following the benchmark index’s 0.7 percent weekly loss. U.S. stock exchanges were shut for the Good Friday holiday. The dollar weakened 1 percent to 81.57 yen at 12:14 p.m. in New York, touching the lowest level since March 8. The yield on the benchmark 10-year Treasury note fell to 2.06 percent from 2.18 percent.

“We see modest growth inside the U.S. and demand for labor,” Carl Camden, president and chief executive officer of Kelly Services Inc. (KELYA) (KELYA), a Troy, Michigan-based staffing agency, said March 12 during a conference. The expansion is “a nice steady, not robust, not rock-and-roll, but a steady recovery, capable of producing a steady stream of jobs.”

Temporary Hiring
Employment at service providers increased 89,000 after a 211,000 gain in February. Professional and business service payrolls rose 31,000 last month, restrained by a 7,500 drop in temporary hiring.

J.C. Penney Co., the fourth-largest U.S. department-store company, is among employers cutting jobs. The company said today it notified about 1,000 workers, primarily in its headquarters in Plano, Texas, and its Pittsburgh customer call center, that their jobs will be cut as part of a restructuring plan.

Part of the slowdown in March may have reflected a warmer winter, which prompted some employers to hire more or retain workers in previous months than they otherwise would have, Paul Ashworth, chief U.S. economist at Capital Economics Ltd., said in an e-mail to clients. The average gain in payrolls from December through February was 246,000.

“We had mild weather, which basically had consumers in the marketplace earlier,” said Jack Kleinhenz, chief economist of the National Retail Federation, a Washington-based trade group. As a result, retailers postponed headcount reductions that typically follow the holiday shopping season, he said.

Retailers Cut Back
The March data showed a 34,000 decrease in retail employment, the biggest decline since October 2009. The Labor Department said today that the number of people unable to work due to inclement weather was 360,000 below average from December through February.

Temperatures in December through February averaged 36.8 degrees Fahrenheit (2.7 degrees Celsius), 3.9 degrees above the average in the 20th century, representing the fourth-warmest winter on record for the 48 contiguous U.S. states, according to the National Oceanic and Atmospheric Administration.

Some economists saw similarities with early 2011, when the economy slowed amid rising energy prices, a disruption of supplies caused by the tsunami in Japan and political gridlock in the U.S. over the debt ceiling.

This year, rising gasoline prices and the European debt crisis are taking a toll, said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania.

Willing To Work, Not Looking

By Sean Higgens

(Investor’s Business Daily)

A Record 2.81 Million Including this group, jobless rate is 9.9% vs. the official 8.3% figure

The official unemployment rate has improved, but the number of jobless Americans at the fringe of the workforce has never been greater. The gap between headline and alternative joblessness is the highest on record, according to an IBD analysis of Labor Department data.

The jobless rate is 8.3%, still high but down from 9.1% last August and 9.9% in April 2010. But many don’t think that gives an accurate picture. The official number excludes a record 2.81 million discouraged or other “marginally attached” people out of work that aren’t currently looking but are willing and able.

Factoring these people in, unemployment is a much higher 9.9%, 1.6 percentage points above the official rate. That’s the widest gap on record going back to 1994. It never rose above 1.1 points during the Bush administration.

That means the official rate has been falling in part because an unprecedented number of people are taking a break from searching for work.

“The labor market has weakened so much you’ve just had more and more people falling into that group,” said Heidi Shierholz, labor market economist with the liberal Economic Policy Institute.

Some lawmakers say it is time that the government started paying more attention to them.

Rep. Duncan Hunter, R-Calif., plans to introduce a bill soon that would force the Labor Department to include the marginally attached in the official number.

“Guys like me want a way to know what the unemployment rate really is. It is that simple. The unemployment rate is not really the 8.3% figure,” Hunter, a member of the Education and Workforce Committee, told IBD.

Labor already tracks at least half a dozen variations in the jobless rate publicly released each month.

‘Marginal’ Workers Left Out

The official rate is called the “U-3” number. The one including the marginally attached is the “U-5.” That one also includes: “discouraged workers, plus all other persons marginally attached to the labor force.”

The “marginally attached” are defined as those that want to work and have sought employment within the prior year but are not currently looking.

Hunter’s bill would just make U-5 the official number. “I don’t think most people even know there is an alternate way of calculating unemployment,” he said.

Economists of all stripes agree that it is arbitrary for U-3 to be the official rate. A sound case could be made for any of the others, though most argued that no one figure should be spotlighted.

GOP lawmakers may have political motives to cast President Obama’s economic record in the worst possible light.

But Wayne Vroman, senior fellow at the Urban Institute, notes that the idea of changing the statistic to the U-5 number has a bipartisan pedigree.

“A lot of advocates from the left side of the political spectrum also would want to give (the higher statistic) more prominence because it shows distress among a group that doesn’t get as much attention,” Vroman said.

Surprisingly little is known about the marginally attached. With less than two decades of data, few economists can say much except that the group is very diverse, with many reasons as to why they drop out. Some may have other means or a working spouse, or are retiring early.

Many have quit looking after months or years out of work. Average duration of unemployment was 40.1 weeks in January, just below November’s record 40.9 weeks.

The labor force participation rate has fallen to multi-decade lows even as hiring has slowly improved in recent months.

That may reflect baby-boomer retirements in part, says James Sherk, a labor economist with the conservative Heritage Foundation. But even taking that into account, “the labor force participation rate has fallen even more than you would expect.”

Comes back to the idea that resolving solvency issues in the euro zone doesn’t fix the economy.

And with negative growth the solvency math doesn’t work for any of the euro members.

And what’s with the ECB threatening to back away on liquidity support for the banking system?

So looks to me like the Greek resolution is not the end of the solvency issues, but that the focus simply moves on to the next weaker sister.

And, as previously discussed, the risk remains elevated that if Greece gets to haircut its obligations and gets funding, others will ask for the same, triggering a general, global, catastrophic financial meltdown.

My first order proposal remains an ECB distribution on a per capita basis to the euro member nations of maybe 10% of euro zone GDP per year to put the solvency issue behind them. Along with relaxed budget rules, maybe allowing deficits up to 6% of GDP annually, further supported by the ECB funding a transition job at a non disruptive wage to facilitate the transition from unemployment to private sector employment. I might also recommend deficits be increased by suspending VAT as a way to increase aggregate demand and lower prices at the same time.

Alternatively, the ECB could simply guarantee all national govt debt and rely on the growth and stability pact for fiscal discipline, which would probably require enhanced authorities.

And rather than trying to bring Greece’s deficit down to current target levels, they could instead relax the growth and stability pact limits to something closer to full employment levels. And, again, I’d look into suspending VAT to both increase aggregate demand and lower prices.

Meanwhile, elsewhere in today’s world news:

The likes of Ford adding to pension funds makes the point of the increasing and ongoing demand leakages putting a damper on GDP.

And oil prices have now crept up enough to materially cut into aggregate demand as well.

Nor are banks adding to capital to meet expanding demand for credit, which remains anemic.

Headlines:

Data Suggests Euro Zone May Slide Back Into Recession
German Manufacturing Slows as New Export Orders Fall
China’s Factory Activity Shrinks for Fourth Month
ECB Preparing to Close Liquidity Floodgates
Ford Pours $3.8 Billion Into Pension Plan
Oil Could Turn to Headwind as Dow Flirts With 13,000
UBS to Issue More Loss-Absorbing Capital
Iran ‘Winning’ on Oil Sanctions: Top Trader
Greek Bailout Puts Focus Back on Credit Default Swaps
Iran Fuels Oil-Price Rally—And Prices Could Keep Rising

As Unemployment Checks Run Out, Jobless Go ‘Mad’

Karim writes:

Average hourly earnings reached a new all-time low on a y/y basis of 1.5%.
One of the strongest historical arguments as to why deflation is unlikely is downward nominal wage rigidity.
i.e., its easier to negotiate wage growth from say 4% to 3%, then 1% to 0%, or certainly a wage cut.
But, high unemployment and high duration of unemployment will test that theory.
A move much lower from here will stoke the fears of those Fed members worried about deflation.
Of course the flip side is that this is quite likely a positive for corporate profits.

There is probably not much voter support for returning to the drachma.

The voters would probably rather have the Germans run their finances than their own leaders.

They’ve seen past drachma financial dramas, with interest rates spiking for everyone, not just the govt, rampant inflation, and a collapsing currency as well as high unemployment.

With the euro none of that happened, so it’s not obvious the currency is the problem.

What does seem obvious to them is that their leaders are the problem.

So I expect the austerity measures to pass, as the alternative is 0 deficit spending.

And if discounts are ‘granted’ the politics quickly move towards same for the rest of the euro member nations.

Payrolls up 243k, better than expected,
however the output gap continues to widen,
as we continue continue to go the way of Japan.

Labor force participation rate, 1978-now:

But their banking system is sound.

Like talking about how good the person looked at his funeral?

Karim writes:

Chart below shows the recent divergence in Conference Board confidence surveys for Canada (blue) and U.S. (red).

Barry Armstrong Show

I may have mentioned that for the size govt we have we are grossly over taxed?
;)

Real GDP is growing, but weakly compared with the postwar average recovery.

The recovery from the 1980 recession was even weaker at this stage, but that reflected a double-dip recession in 1981.

The economy would have to grow at a 7.6 percent annualized rate in order to catch up with the average postwar recovery by the end of 2012.

The consensus forecast for 2012 growth as reported by Bloomberg is 2.1 percent, up just slightly from a forecast of 2.0 percent as of last October.



Soft home prices have been central to the weakness of the recovery.

The continued weakness of nominal home prices is a postwar anomaly.



In every previous postwar recovery, the stock of household debt has risen as the recovery has begun.

In the current recovery, the collapse in home prices has severely damaged household balance sheets. As a result, consumers have avoided taking on new debt.

The result is weak consumer demand and, hence, a slow recovery.



The slow recovery is obvious in the labor market, where job growth remains painfully sluggish compared to the average recovery.

The recent uptick at the end of the Current Recovery linev(red) is the result of encouraging payroll data announced on January 6th 2012.



Because of the depth of the recent recession, one might expect stronger-than-average improvement in industrial production.

Despite the predicted snapback, the increase in industrial production during this recovery is actually slightly slower than in the average postwar case.



Capacity in manufacturing, mining, and electric and gas utilities usually grows steadily from the start of a recovery.

However, during the current recovery, investment has been so low that capacity is actually declining. Plants and machinery are depreciating faster than they are being installed.



The growth in world trade exceeds even the best postwar experiences.

However, this reflects the depth of the fall during the recession.


The federal deficit since the start of the recovery has been much higher than in previous postwar cases.

Although the deficit has shrunk slightly, its level creates significant challenges for policymakers and the economy.



The traditional American enthusiasm for the road has been dulled by a combination of weak recovery and high fuel prices.

When compared to other postwar recessions, total vehicle miles traveled in this current recovery has not only lagged the average, but has registered no growth whatever.

They don’t need to ‘create jobs’ as there is already more to do than there are people to do it.
They need to remove fiscal drag with tax cuts and/or spending increases to allow the needs to be funded:

Sustained Global Unemployment: Interesting stats from the International Labor Organization noting that there are nearly 200million unemployed globally and that another 40million jobs need to be created each year for the next decade. To generate sustainable growth while maintaining social cohesion the world must create 600million production jobs over the next decade which would still leave 900million workers and their families below the $2 a day poverty line, largely in developing countries. These numbers are fairly sobering when you consider that the world’s largest economy only managed to net create around 1.9million jobs in the recent ‘recovery’ and only around 7 million jobs even during the ‘boom’ years between 2002-2007.

My proposals remain:

1. A full FICA suspension:

The suspension of FICA paid by employees restores spending which supports output and employment.
The suspension of FICA paid by business helps keep costs down which in a competitive environment lowers prices for consumers.

2. $150 billion one time distribution by the federal govt to the states on a per capita basis to get them over the hump.

3. An $8/hr federally funded transition job for anyone willing and able to work to assist in the transition from unemployment to private sector employment.

Call me an inflation hawk if you want. But when the fiscal drag is removed with the FICA suspension and funds for the states I see risk of what will be seen as ‘unwelcome inflation’ causing Congress to put on the brakes long before unemployment gets below 5% without the $8/hr transition job in place, even with the help of the FICA suspension in lowering costs for business.

It’s my take that in an expansion the ‘employed labor buffer stock’ created by the $8/hr job offer will prove a superior price anchor to the current practice of using the current unemployment based buffer stock as our price anchor.

The federal government caused this mess for allowing changing credit conditions to cause its resulting over taxation to unemploy a lot more people than the government wanted to employ. So now the corrective policy is to suspend the FICA taxes, give the states the one time assistance they need to get over the hump the federal government policy created, and provide the transition job to help get those people that federal policy is causing to be unemployed back into private sector employment in a more orderly, more ‘non inflationary’ manner.

I’ve noticed the criticism the $8/hr proposal- aka the ‘Job Guarantee’- has been getting in the blogosphere, and it continues to be the case that none of it seems logically consistent to me, as seen from an MMT perspective. It seems the critics haven’t fully grasped the ramifications of the recognition of the currency as a (simple) public monopoly as outlined in Full Employment AND Price Stability and the other mandatory readings.

So yes, we can simply restore aggregate demand with the FICA suspension and funds for the states, but if I were running things I’d include the $8 transition job to improve the odds of both higher levels of real output and lower ‘inflation pressures’.

Also, this is not to say that I don’t support the funding of public infrastructure (broadly defined) for public purpose. In fact, I see that as THE reason for government in the first place, and it should be determined and fully funded as needed. I call that the ‘right size’ government, and, in general, it’s not the place for cyclical adjustments.

4. An energy policy to help keep energy consumption down as we expand GDP, particularly with regard to crude oil products.

Here my presumption is there’s more to life than burning our way to prosperity, with ‘whoever burns the most fuel wins.’

Perhaps more important than what happens if these proposals are followed is what happens if they are not, which is more likely going to be the case.

First, given current credit conditions, world demand, and the 0 rate policy and QE, it looks to me like the current federal deficit isn’t going to be large enough to allow anything better than muddling through we’ve seen over the last few years.

Second, potential volatility is as high as it’s ever been. Europe could muddle through with the ECB doing what it takes at the last minute to prevent a collapse, or doing what it takes proactively, or it could miss a beat and let it all unravel. Oil prices could double near term if Iran cuts production faster than the Saudis can replace it, or prices could collapse in time as production comes online from Iraq, the US, and other places forcing the Saudis to cut to levels where they can’t cut any more, and lose control of prices on the downside.

In other words, the risk of disruption and the range of outcomes remains elevated.

U.K. to Propose Work-for-Benefits Program, Sunday Times Reports

By Svenja O’Donnell

Jan 8 (Bloomberg) — The U.K. coalition government is planning a compulsory community work program for the long-term unemployed, the Sunday Times said, citing Employment Minister Chris Grayling.

The plan will include stopping benefits for as many as three years for those who refuse to sign up, the newspaper said.

Grayling has indicated his support for the plan, saying a “work for dole” program will help curb the U.K.’s expenditure on benefits for the jobless, the paper said.

People who have been unemployed for three years or more will be forced to work unpaid for six months under the terms of the program, the Sunday Times said.

In case you missed this.

From GS:

MAIN POINTS:
1. Nonfarm payroll employment increased by 200k in December, a larger gain than the consensus had expected. Part of the strong gain reflected a 42k increase in employment for “couriers and messengers”, which likely reflects temporary employment for holiday gift delivery persons. A similar spike occurred last December and was reversed in the following month, indicating that the payroll statistics are not properly seasonally adjusting for this type of hiring. Taking this into account, December employment growth was still firmer than the preceding two months, but the underlying trend is likely still below 200k.