I know I must sound like a broken record but the economic data week to week paints the same picture. Manufacturing related data released last week was generally quite positive, the housing market is still scraping along the bottom and jobless claims remain stubbornly elevated. I think that sentence has sufficed to describe the situation for months now but if this recovery is to be anything more than a temporary inventory rebuilding effort, that will have to change soon. The surprisingly robust consumption of the last few months would seem to have its limits if employment doesn’t start to turn around. Government transfer payments (extended unemployment benefits, tax credits, etc.) have been a significant factor in maintaining disposable income but that can’t continue indefinitely.

The weekly data got off to a good start with the Empire State Manufacturing survey from the NY Fed which showed continued strength in manufacturing. While the overall index did fall slightly from last month, the individual components were strong. New orders, shipments, inventories, delivery time and employment all rose strongly. The Philly Fed Survey released later in the week also continued to show expansion but was not quite as positive as the NY report with a draw in inventories. Both of the reports are correlated with Industrial Production which was released on Monday and was a bit disappointing. IP was up only 0.1% and that was due to an increase in utility production - which probably means it was due to cold weather.  The manufacturing component fell although that was mostly due to changes in auto production. Ex autos manufacturing rose 0.1%. And year over year IP is up 1.7%. While the IP report was a bit weak, overall it appears that manufacturing is continuing to trend upward.

Same store retail sales reported by Redbook and ICSC Goldman both showed a 3.2% year over year rise. I have been consistently surprised by consumption in this recession as the public’s attitude seems at odds with their actions. Consumer confidence surveys are consistently negative, we hear numerous anectdotes about more frugal consumers and yet every time I venture out to a mall, the places are packed. The same is true of restaurants, at least here in Miami. One explanation may be the large number of “homeowners” who have stopped making their mortgage payments and therefore have more to spend on other things. Or at least that’s part of it; I don’t think there are enough of those people to really make that much difference but time will tell.

Speaking of real estate, housing starts were down for the month by 5.9% and a 575,000 annual rate. Permits were at a 612,000 rate. Weather had some effect but housing starts have just flattened out at a lower level. That will continue until we get more of the inventory worked off. Household formation has taken a hit in this recession - as it does in every recession - and Congress may still do something stupid on immigration but the fact is that with population growth we can’t build at this low rate for very long. Home builders are already starting to acquire land again and thanks to the Congressional bailout last year, they have cash on hand to do so. Didn’t know about the homebuilder bailout? Well, don’t feel left out; most people missed it. What Congress did was allow companies to write off losses against profits from up to five years ago and collect tax refunds. Lennar used this little manuever to collect a refund of $320 million, Beazer $101 million and KB Homes $100 million. Nice payday if you own a Congressman. Anyway, starts are limping along now at a low rate but I expect them to turn higher later this year.

We got three reports on prices last week. PPI and CPI showed little inflation but the import and export prices report wasn’t as kind. While month to month changes in all three reports were fairly benign the year over year numbers are far from it. Import prices rose 11.2% while export prices were up only 3.1%. A lot of these swings in import and export prices are due to the wide swings in commodity prices (primarily oil and agricultural products) but the big rise also reflects the price of a lower value for the dollar. I’ve said this before but it bears repeating - we can’t eliminate the trade deficit by devaluing the dollar because the price of the things we import will rise and most of those things aren’t optional. We will be importing oil for the forseeable future regardless of price. Most economists and the Fed expect low inflation due to “slack” in the economy- in other words they still cling to the Phillips curve view of the world that should have been discredited in the 70s - but I will let the value of the dollar guide me. If the dollar falls, that is inflation; the general rise in consumer prices or asset prices is the result. Right now we are still seeing price rises that are a result of last year’s devaluation.

Jobless claims fell slightly last week but this report continues to disappoint. We’re still stuck over 450,000 when we need numbers at least in the 300s to get any significant job growth. I don’t expect this to be a jobless recovery as most do. The recoveries from the last two recessions were marked by slow employment recoveries but the recessions were also marked by relatively mild drops in employment to begin with. The very rapid deterioration of jobs in this recession and the depth of the cuts argues for a more robust recovery. Rising productivity can only go so far and if the recovery continues companies will have to hire. But so far….it isn’t happening and my thesis may be just wrong. This is - by far - the most worrying economic statistic I follow.

Leading economic indicators continued to point to expansion but the details weren’t that impressive. Yield spread is still the largest positive contributor while consumer expectations, jobless claims and building permits are the big laggards. As I’ve said in the past consumer confidence isn’t something that concerns me but jobless claims are a big worry. The LEI spiked higher as the recovery started and has now stalled at the higher level. For a renewed uptrend we’ll need to see more positive components.

Markets Review 

The large cap indices joined their smaller brethren in breaking out last week. The mid cap and small cap indices broke out first and it seemed only a matter of time before the large cap S&P 500 and Dow followed suit. That happened last week and despite a small sell off on Friday, it was a positive week. Breadth continues to be very strong but volume is still weak. There is broad participation in the rally with new highs swamping new lows. In other words, this is a healthy and pretty normal rally. The question - as always - is whether it can continue and for now I remain in the bullish camp. That doesn’t mean we can’t or won’t have corrections along the way, but until I see evidence that the economic recovery is stalling, I see no reason to alter my bullish stance on stocks.

The market is not especially expensive at these levels if earnings estimates are to be believed. And for the last few quarters analysts have been too pessimistic in their outlook and have had to play catch up in their estimates. Most estimate changes have been higher over that time but now the changes are more even handed with as many estimate cuts as rises. While some might take that as evidence that the analysts have caught up to reality I see it differently. I think once again that analysts are underestimating the earning power of US corporations. Productivity is rising rapidly and sales comparisons to last year are still fairly easy. Rising sales and rising productivity mean rapidly rising earnings. I expect the vast majority of companies to beat estimates again in the first quarter.

After the first quarter, well that’s a tougher call and depends on how the recovery proceeds. As the second quarter progresses we’ll have a better idea if the recovery is accelerating and can adjust our expectations concerning earnings. If employment starts to ramp up confidence in the recovery will climb and so will expectations. If employment doesn’t start to improve soon, I don’t see how positive economic momentum can be maintained. And we simply can’t get much higher stock prices without higher earnings because interest rates are already at rock bottom so multiple expansion seems unlikely. In fact, interest rates may be the more important factor in coming months as the Fed tries to work its way out of the quantitative easing business. If they screw it up and interest rates spike higher, all bets are off in the stock market. I don’t want to pre-judge the outcome but I have to say I am skeptical that Bernanke and Co. can pull this off without a major disruption somewhere.

Foreign markets continue to lag the US as they have since October. I still believe that foreign economies, particularly the emerging markets, offer better growth prospects over the long term than the US but it isn’t exactly a contrarian move to be bullish on those markets right now. In fact the two most contrarian plays right now are to be long US and Japanese stocks. The Japanese market in particular is a wallflower and cheap as hell. Stocks trade for about 1.4 times book value and includes some of the world’s best known brands. Yes, they look expensive on an earnings basis but that is based on earnings in a deep recession. From a macro viewpoint there are problems, most notably a large debt to GDP ratio, but I think they may finally be ready to address some long standing issues. Deflation has dogged the economy for years but the BOJ may finally be ready to push the yen lower and there seems little appetite for more Keynesian stimulus that has accomplished little over the last two decades. I have been out of the Japanese market for a while but the sun may be rising again.

I’ve been bullish on this market since last March (Bottom?) and stayed that way through the sideways corrections along the way and I’d love to say that this chart means that it has even more to run…..but I don’t think this means all that much. Every market is different and the duration of the rally is dependent on policy which can’t be predicted. Could the bull market move higher and last longer? Um, yeah. Could it peak right here and return to bear mode? Yep. It depends on policy, monetary and other and until we know how those things come out it makes no sense to try and predict the future. Still, at least this tells us we aren’t in some kind of uncharted territory.

The U.S. Second Circuit Court of Appeals on Friday ordered the Fed to release details of emergency lending programs it adopted starting in late 2007 to shore up the financial system and forestall a complete meltdown of global financial markets.

Bloomberg LP, the parent of Bloomberg News, and News Corp’s Fox News Network sought details of the central bank’s actions under the federal Freedom of Information Act, or FOIA, which requires government agencies to make documents public.

The Fed argued against disclosure, citing an exemption that it said allows federal agencies to refuse to disclose trade secrets and commercial or financial information.

It also contended that allowing disclosure of participants in the programs and the collateral they posted could cause “competitive and reputational harm,” perhaps triggering bank runs, and impede the central bank’s ability “to effectively manage the current, and any future, financial crisis.”

But giving the Fed power to deny disclosure because it thinks it best to do so “would undermine the basic policy that disclosure, not secrecy, is the dominant objective of,” Chief Judge Dennis Jacobs wrote for a three-judge panel.

“If the Board believes such an exemption would better serve the national interest,” he added, “it should ask Congress to amend the statute.”

Bloomberg had won its case at the district court level, while Fox News had lost its case. The Second Circuit ruling threw out the ruling against Fox and ordered a lower court judge to decide what materials must be disclosed.

I believe that one of the reasons interbank lending came to a halt in the fall of 2008 was that banks had no way to know which banks were solvent and which ones weren’t. That was a direct result of the Fed’s emergency lending programs so in my mind, the Fed was part of the problem not the solution. This ruling chips away a little of the immense power of the Fed and is a welcome development.

Steve Liesman just interviewed some schmuck from the Independent Community Bankers Association who claimed this was an awful ruling and that it could cause banks to fail if discount window borrowers identities were routinely disclosed. Sorry pal, but if a bank is borrowing from the discount window it has done something very, very wrong to its balance sheet and probably deserves to fail. It isn’t the disclosure of discount window borrowing that causes failure; its whatever you did that put the bank in a situation where borrowing from the discount window was necessary. I’ve got no sympathy for bankers who have screwed up their balance sheet and want to hide behind the Fed. Too bad, so sad. Let’em fail and move on.

Information received since the Federal Open Market Committee met in January suggests that economic activity has continued to strengthen and that the labor market is stabilizing. Household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly. However, investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt; those purchases are nearing completion, and the remaining transactions will be executed by the end of this month. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

In light of improved functioning of financial markets, the Federal Reserve has been closing the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities and on March 31 for loans backed by all other types of collateral.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability.

Essentially no change in the assessment of the state of the economy. The language changed slightly - the labor market is stabilizing versus the deterioration..is abating - but basically they see the economy as slowly improving. The statement about investment is slightly changed as well. In January it said that business investment in equipment and software appears to be picking up whereas this month they say that investment has risen significantly. The inflation language is exactly the same and still based on faulty Phillips curve thinking.

Hoenig dissented again and they added an explanation this time: “Hoenig…believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability.” Isn’t it the actual maintenance of the fed funds rate at exceptionally low levels that causes the imbalances and not just the language? Just wonderin’…..

The light data week started with the Goldman and Redbook retail readings on Tuesday which showed big rebounds from the snowed in numbers of the last few weeks. Goldman’s same store sales metric jumped 2.9% week over week. By the way, I spent the week in Chicago visiting my daughter (who is attending the School of the Art Institute of Chicago) and when temperatures moderated the city fairly jumped to life. Tuesday was a beautiful spring-like day with afternoon temperatures around 60 with sunny skies. I went out for a jog and passed 4 parks packed with parents and kids. I think the harsh winter has people itching to get out of the house and my guess is that they’ll be spending when they do. It has never paid to bet against the US consumer.

Mortgage purchase applications rose for the second straight week (+5.7%). This might be a precursor to a surge in sales before the expiration of the tax credits in April. It could also have something to do with the weather warming up - I don’t want to read too much into these numbers.

Wholesale trade numbers showed rapidly improving sales (+1.3%)  and falling inventories for durable goods. A lot of people pooh poohed the 4th quarter GDP report because much of the gain was a result of inventories falling more slowly. It has been suggested that GDP gains built on inventory gains are temporary and that may be true but it should be noted that the inventory building hasn’t even started yet. Indeed the inventory to sales ratio is just now at the level I suggested months ago would be the trigger for a rise in production. So if inventory rebuilding is temporary so be it, but it is going to have a positive effect on GDP for at least another quarter.

The disappointments for the week were released on Thursday. The trade deficit shrank in January with both exports and imports falling. Neither was due to significant prices changes but imports fell faster than exports producing a slight drop in the deficit. These numbers were for January though and activity likely rebounded in February. China reported big gains in exports and imports in February. And it shouldn’t be forgotten that exports are up over 23% year over year. The other disappointing release of the week was the jobless claims report which showed only a small drop in claims. This is the one report that continues to worry me week to week. There have been some positive trends in the jobs reports - temp jobs and manufacturing - but we are not likely to get significant growth in jobs until claims fall under 400,000 on a weekly basis and that is still a ways away (462k).

Retail sales for February were up 0.3% and up 0.8% ex autos. And excluding both autos and gasoline, sales were up 0.9%. Sales are up 3.9% year over year and this was a very solid report. As mentioned above, it has never paid to bet against the US consumer; sales continue to  beat expectations.

The last report of the week was the U of Michigan mid month consumer sentiment report which showed a small drop from February. I don’t usually pay much attention to these reports, but the market has reacted negatively to the last two reports so I feel I should comment. These reports are interesting but are, at best, coincident indicators. They don’t lead the stock market or the economy and as such don’t provide much guidance for investors. Sentiment will improve after conditions have already improved.

The economic recovery continues to surprise most analysts and investors and it is gaining strength. If history is any guide at all, it is also likely just getting underway.

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I would not be surprised to see a run up to the  142 area that would close the gap on the chart. Just as we had a one sided market not long ago with everyone short the dollar, the opposite is the case now with everyone seemingly short the euro. I suppose it will depend to some degree on what happens with Greece but that looks more and more likely to be resolved without major disruption outside of Greece. The better play frankly may be gold which should get a bump higher if the euro rallies:

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The present financial crisis has set in bold relief the Jekyll and Hyde nature of contemporary central banks. It has made apparent both our utter dependence on such banks as instruments for assuring the continuous flow of credit in the aftermath of a financial bust and the same institutions’ capacity to fuel the financial booms that make severe busts possible in the first place.

Yet theoretical treatments of central banking place almost exclusive emphasis on its stabilizing capacity—that is, on central banks’ role in managing the growth of national monetary aggregates and in supplying last-resort loans to troubled financial (and sometimes nonfinancial) firms in times of financial distress. This one-sided treatment of central banking reflects both the normative nature of much theoretical work on the subject—that is, its tendency to focus on ideal rather than actual central-bank conduct—and the (usually tacit) assumption that however much central banks might depart in practice from ideal, financially stabilizing policies, they at least succeed in limiting the amplitude of booms and busts, compared to what would occur in the absence of centralized monetary control.

I propose to challenge this conventional treatment of central banking by arguing that central banks are fundamentally destabilizing—that financial systems are more unstable with them than they would be without them. To make this argument, I must delve into the history of central banking and explain both why governments favored the establishment of destabilizing institutions in the first place and why there is the modern tendency to regard central banks as sources of financial stability. I hope to show that the modern view of central banks as sources of monetary stability is in essence a historical myth.

As I have argued for years now that the Fed is the source of out troubles, naturally I tend to agree with Selgin’s appraisal of their performance. Read the whole thing and decide for yourself.

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I do believe the results of the Austrian study I linked to are valid because while there are cultural differences, Austrians are human too and respond to incentives just as Americans do. One of the interesting things about economics is that incentives tend to work pretty much the same across cultures although to me it is the micro differences between cultures that are often most interesting. However, since this seems to be a sticking point for you I am willing to concede the point and move on. There are plenty of studies which support my viewpoint; I only linked to a few. Like I said before, this isn’t particularly controversial in economics.

I am somewhat confused about what you find offensive about Kyl’s remark that “unemployment relief doesn’t create new jobs” and that “paying unemployment compensation is a disincentive…to seek new work.” This statement, if you accept the vast majority of the economic literature, is not controversial and is literally true. I added the modifier “at the margin” to clarify the statement but even without the modifier the statement stands. Kyl did not say that it is a disincentive to everyone and while I don’t want to speak for him, I doubt that’s what he meant. So are you offended that some humans respond to the incentive of extended benefits by remaining unemployed voluntarily? Or are you offended that Kyl pointed it out?

As for Tom Delay, well, I have to admit that I find nearly everything about the man offensive. If he were found dead tomorrow, hogtied inside a house tented for termites with a bruise on the back of his head, I’d say, “nothing to see here, move along”. And I have serious doubts as to whether the exterminator understands the concept of economic incentives or the effects of policy at the margin. So, if you feel the need to ream Tom Delay at any point in the future, you won’t hear a peep out of me.

What I’ve been trying to get at is exactly this idea that incentives in the current environment don’t matter. It seems this is becoming an accepted way to view things and I think it is being used as an excuse to enact policies that we normally wouldn’t accept. I am not an economist as I’m a more practical kind of fellow but I’m not dumb and I’ve been studying the topic for nearly 30 years now. For me, economics is not about the equations and models that have become so prevalent over the last several decades (although with an engineering background I have no problem understanding the math); economics is the study of human behavior. In short it is about how humans respond to the incentives placed before them. Incentives matter regardless of the economic environment and one of the more interesting things about it is that as humans we often respond to incentives in unconcious ways. The brain works in mysterious ways. Even if the incentives are weak or the effects they cause are weak, they matter because they effect behavior for some individuals. In some cases the actions of individuals at the margin make a large difference in the outcome of a policy that seems relatively benign on the surface. Think butterfly wings and weather. Incentives always matter.

Someone earlier in the thread asked why Republicans always try to make their point with anecdotes. That is particularly rich considering the recent health care summit where every Democrat on the panel started with a sob story about the pain and suffering of someone due to the lack of health insurance but even if it is true, there is nothing wrong with making an economic point with anecdotes. In fact, I think it is often more enlightening than a page of equations describing the behavior of mythical individuals within an economic model that resembles the real world only superficially. The anecdotes mentioned on this thread, if true, all add evidence to the debate. All of us probably knows someone - and those of us who self identify as Southerners probably know several someones - for whom the difference between an unemployment check and a paycheck is measured in six packs or boxes of shotgun shells or most frighteningly, both. The people I know who fall in that category often make up the difference between the unemployment check and the paycheck by working off the books so their cash income is basically unchanged. The question before us is whether we just ignore those people -and keep paying them benefits- or acknowledge them and deal with them. As I said earlier in the thread, when do we cut off these extended benefits? At what level of unemployment will it be acceptable? Burying our head in the sand and saying that we are offended by the notion that some Americans are lazy bastards who will milk the system does not further the debate.

As for the political nature of your post, you are right of course. You are free to make political points if that is what you desire. But if your political point is that Republicans are meanies and Democrats are not, that isn’t particularly original or insightful. I don’t particularly care for politicians of any stripe and tend to lump them together in a group I label, “Impeding Social Progress” or “Liars” or ”Waste of Oxygen”. I tend toward the public choice theory and believe that politicians of all stripes are just doing what all the rest of us do -responding to the incentives placed before them and acting in their own best interests. You are free to believe that Democrats really care more about their fellow citizens than Republicans but I find it hard to swallow.

As for Zandi, well I tend to think more along classic economic lines and so don’t find his brand of Keynesianism very convincing. Or anyone else’s for that matter. It doesn’t matter to me what party or candidate he works for. I surely didn’t mean to imply that I support The Heritage Foundation either though. My political leanings are libertarian so most of my think tank reading is done at places like FEE and Cato.

Like everyone else out here I’m just trying to figure out what is the right thing to do to fix the mess that is the US economy. I think the folks there at The Big Picture are too and I’ll keep reading and commenting when I think it’s important to add my two cents. As BR said in the thread, good debate and very interesting to read all the comments.

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Paul Krugman, last Friday:

But that’s not how Republicans see it [unemployment benefits]. Here’s what Senator Jon Kyl of Arizona, the second-ranking Republican in the Senate, had to say when defending Mr. Bunning’s position (although not joining his blockade): unemployment relief “doesn’t create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work.”

Dancing DeLay agreed:

Crowley pointed out that saying “people are unemployed because they want to be” is a “hard sell.”

DeLay responded: “Well, it is the truth.”

Without trotting out all manner of charts and graphs [BR: Ok, one chart] to demonstrate how absurd this position is, I’ll make one comment and ask a few questions:

Comment:  This position — at its core — essentially labels Americans as lazy ne’er-do-wells who’d just as soon live off society’s largesse than earn a living. Is that really a position any politician would want to take?  Does anyone else find that as offensive as I do?  Anyone know someone who’s living on UI and lovin’ it?

Question for Senater Kyl and Dancing DeLay:  How would you explain the epidemic laziness that apparently afflicts Americans exactly at business cycle peaks, which is then somehow miraculously cured at business cycle troughs?

Interestingly, the JOLTS data was released just yesterday, and we see that there are still well over five unemployed for every job opening (near the recent record of over six, though there was an improvement in the number of job openings).  The un- and under- employment rates speak for themselves.  Comments like these should really be beneath any reasonable level of civil discourse.  It is pathetic that they’re not.

Anyone who reads this blog or my weekly updates knows that I defer to no one when it comes to my contempt for politicians (especially assholes like Tom Delay) but this is a tempest in a teapot. Here’s the comment I left on the Big Picture website:

Invictus: Do you really not understand the concept of “at the margin”? These politicians are twits but there is a definite correlation between the length of joblessness and the generousness of jobless benefits. The anecdote above about the lady’s boyfriend is exactly what this is about. Saying that extending jobless benefits extends the length of unemployment does not mean that all people who are jobless are lazy. All it means is that there are workers at the margin who will remain unemployed longer for a variety of reasons if benefits are extended. It might be because they don’t want to take a job at lower pay than the one they lost or some other reason. If they have sufficient savings extended unemployment benefits might allow them to wait for the “perfect” job rather than taking whatever comes along. You might believe there is a social benefit to that and there may be, but it doesn’t change the fact that this type of behavior does happen with some small sample of the population. There are numerous studies demonstrating this effect if you’d take the time to search them out.

This is really pretty basic stuff and there are tons of studies which confirm the behavior:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=425572

http://ideas.repec.org/p/ces/ceswps/_1765.html

http://www.heritage.org/research/Labor/wm2759.cfm

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=537948

http://www.nber.org/papers/w2741

In other words, this isn’t particularly controversial stuff in the econ world.

Having said all that, I am not opposed to the extension of benefits in this case. The effects are at the margin and with unemployment this high are likely to be minimal. Yes, some will voluntarily extend their stay on the unemployment rolls but the vast majority are looking to get off as soon as they possibly can. But that doesn’t excuse lazy thinking on the part of Invictus.

Update: Invictus has responded:

Invictus Says:
March 10th, 2010 at 8:23 pm

@jyc3

Out of five, one’s from the Heritage Foundation, two from a prof who’s at the University of Chicago, confirming what I’d said about the politicization of data analysis. I’ll look at the other two.

However, as BR pointed out, when you’ve got record or near-record applicants/job-seekers for every job opening, it stands to reason that duration is going to increase and even those who aren’t lazy are going to have a tough time.

And

Invictus Says:
March 10th, 2010 at 8:36 pm

@jyc3

Excerpt of abstract from first of remaining two studies I go to look at: “…this program is targeted to individuals aged 50 years or older, living in certain eligible regions in Austria.”

I’m thinking a study involving a 50+ year old cohort in “certain eligible regions in Austria” might not be so applicable to the entire UI-collecting population of the United States. But, of course, I could be wrong. On to Study #5.

and

Invictus Says:
March 10th, 2010 at 8:58 pm

Speaking of studies:

Two recent studies have resurrected the idea of using UI insurance as economic stimulus. The Congressional Budget Office (CBO) reviewed vari­ous stimulus measures and concluded that UI pay­ments were one of the most effective means of stimulating the economy. In 2004, Mark Zandi released a macroeconomic study of fiscal policies that concluded that unemployment insurance ben­efits provided the greatest “bang for the buck.” He found that each $1 spent on additional UI bene­fits resulted in $1.73 of economic growth in the short run.

I note that Mark Zandi was an economic advisor to the presidential campaign of John McCain.

And I have responded in kind:

jyc3 Says:
March 10th, 2010 at 9:08 pm

Invictus: They used this program in the study to isolate the effect. One of the problems with these studies as with all studies of this nature is that you are working with a counterfactual. Since you don’t know what would have happened without the extension it is hard to isolate the exact effects of the study. Using examples such as the one in this study makes it easier to isolate the effect because it was targeted to a small group. That doesn’t invalidate the results of the study; if anything it makes them more relevant.

You are missing the point here – the effects are at the margin. That doesn’t mean they don’t exist and for you to say that this is beneath civil discourse is like saying we should just bury our heads in the sand when it comes to human behavior we don’t like. You seem to be saying that acknowledging that people do exist at the margin who respond to these incentives is somehow evil or wrong. It isn’t; it’s an acknowledgement of the way humans actually act. Unless I’m missing something, that is what the study of economics is all about. It’s important information to have and should inform policy in some ways. As I said in my blog post, I happen to agree with the extension of benefits in this case because the effects are extremely marginal due to the extreme degree of unemployment. That’s the compassionate thing to do at this point. But what would be the right thing to do if the unemployment rate was 7%? or 6%? or 5%? Maybe these studies might be useful in those cases and we shouldn’t ignore them.

You and others here are making an assumption about the motives of people who do these studies or use them. While Tom Delay and Jim Bunning may have a political axe to grind (although Bunning is retiring and Delay is out of office and unlikely to ever be elected to anything again), I don’t and I seriously doubt the researchers (with the possible exception of Heritage which is obviously partisan) who produced these studies do either. You are the one that tried to make a political point with your post by responding to what some stupid politician said. Of course the politicians are trying to score political points; so what. Barry runs money and so do I and the only thing we should want to know is what the effects of a certain policy are on the economy and the markets. That’s why this stuff is important; not so one side can score political points. Grow up.

and

jyc3 Says:
March 10th, 2010 at 9:20 pm

Invictus: Just to further make the point that you are the one trying to score political points here. You cite Zandi’s study above and point out that Zandi was an advisor to McCain as if that is somehow relevant. Whether the study is sound scholarship is totally irrelevant to who has employed Zandi as an advisor. I didn’t vote for McCain and frankly Zandi as an advisor would tend to make me less likely to vote for him anyway but that is irrelevant. And by the way, the link you provide is pretty good debunking of Zandi’s paper. Thanks for the link so I didn’t have to do it myself. Again, who cares about the politics? Are you interested in being a good analyst, a good investor or just a partisan hack? You can’t be both.

 

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March 10 (Bloomberg) — The U.S. may add as many as 300,000 jobs in March, the most in four years, setting the stage for what some economists say will be sustained employment gains.

Better weather, hiring of temporary government workers and a growing economy may bring the biggest job increases since March 2006, said David Greenlaw, chief fixed-income economist at Morgan Stanley in New York. The rise would be the second since President Barack Obama took office in January 2009.

February payrolls dropped by 36,000, the Labor Department reported last week, depressed in part by East Coast snowstorms that closed many businesses. Excluding the effects of the weather and the hiring of government workers to conduct the 2010 Census, payrolls would have climbed by about 100,000, Greenlaw said yesterday in a Bloomberg Radio interview.

“If you get a plus 100,000 number again in March, then you’d be talking about a headline reading of a little bit better than 300,000 when you factor in the weather bounce-back and the census effect,” he said.

Later in the article Bruce Kasman at JP Morgan is quoted as expecting 200 -300k and Jon Hatzius at Goldman recently raised his estimate to 275k. Joe LaVorgna of Deutsche Bank is expecting to average 300,000 for the next few months:

“We have overcut inventories, we have overcut capital spending and we have overcut jobs,” said LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. A March payroll gain of as much as 450,000 “can’t be ruled out,” he said, and further increases are “going to convince people of the sustainability and durability of the recovery.”

Regular readers know that I’ve been among the more bullish since the low last March. I never thought the economy was that bad to begin with and if Paulson, Bernanke and especially Bush hadn’t panicked, I don’t think we would have ever seen the type of job destruction we did. Of course that can’t be proved but I think if we start getting some rapid job growth soon, that view will be at least partially vindicated. Productivity has soared throughout the recession, something which isn’t normal for a recession, demand has been amazingly resilient given the circumstances and now we’re starting to see investment come back. The only piece left is for hiring to pick up and like these economists I think we’re on the verge of that as well.

Having said all that, if the market continues to rally into the March payroll report, we could be setting up for a major disappointment if the numbers aren’t big. In fact with expectations this high so far from the report, expectations will probably continue to rise and a disappointment then becomes more likely. Of course that assumes the market continues to rally into the report. I am bullish on the market and the economy so that is what I expect but I have to say, I don’t much like all these people agreeing with me.

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