Kocherlakota: Antidotes to Brexit

http://www.bloomberg.com/view/articles/2016-07-06/three-antidotes-to-the-brexit-crisis

Schedule for Week of July 10, 2016 [feedly]

----
Schedule for Week of July 10, 2016
// Calculated Risk

The key economic reports this week are Retail Sales and the Consumer Price Index (CPI) on Friday.

For manufacturing, Industrial Production, and the July New York Fed manufacturing survey, will be released this week.

----- Monday, July 11th -----
10:00 AM ET: The Fed will release the monthly Labor Market Conditions Index (LMCI).

----- Tuesday, July 12th -----
9:00 AM ET: NFIB Small Business Optimism Index for June.

10:00 AM: Job Openings and Labor Turnover Survey for May from the BLS.

This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Jobs openings increased in April to 5.788 million from 5.670 million in March.

The number of job openings (yellow) were up 4% year-over-year, and Quits were up 9% year-over-year.

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for May. The consensus is for a 0.2% increase in inventories.

----- Wednesday, July 13th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

2:00 PM: the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

----- Thursday, July 14th -----
8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 265 thousand initial claims, up from 254 thousand the previous week.

8:30 AM: The Producer Price Index for June from the BLS. The consensus is for a 0.3% increase in prices, and a 0.2% increase in core PPI.

----- Friday, July 15th -----
8:30 AM: The Consumer Price Index for June from the BLS. The consensus is for a 0.3% increase in CPI, and a 0.2% increase in core CPI.

8:30 AM ET: Retail sales for June will be released.  The consensus is for retail sales to increase 0.1% in June.

This graph shows retail sales since 1992 through May 2016.

8:30 AM: the New York Fed Empire State manufacturing survey for July. The consensus is for a reading of 5.0, down from 6.0.

 9:15 AM: The Fed will release Industrial Production and Capacity Utilization for June.

This graph shows industrial production since 1967.

The consensus is for a 0.4% increase in Industrial Production, and for Capacity Utilization to increase to 75.0%.

10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for May.  The consensus is for a 0.1% increase in inventories.

10:00 AM: University of Michigan's Consumer sentiment index (preliminary for July). The consensus is for a reading of 93.5, unchanged from 93.5 in June.
----

Shared via my feedly newsfeed

Europe on the edge after Brexit vote and Spanish elections [feedly]

Europe on the edge after Brexit vote and Spanish elections
http://peoplesworld.org/europe-on-the-edge-after-brexit-vote-and-spanish-elections/

On the surface, the June 23 Brexit and the June 26 Spanish elections don't look comparable. After a nasty campaign filled with racism and Islamophobia, the British-or rather, the English and the Welsh-took a leap into darkness and voted to leave the European Union (EU). Spanish voters, on the other hand, rejected change and backed a right-wing party that embodies the policies of the Brussels-based trade organization.

But deep down the fault lines in both countries converge.

For the first time since Margaret Thatcher and Ronald Reagan rolled out a variety of free market capitalism and globalization that captured much of the world in the 1980s, that model is under siege. The economic strategy of regressive taxes, widespread privatization, and deregulation has generated enormous wealth for the few, but growing impoverishment for the many. The top 1 percent now owns more than 50 percent of the world's wealth.

The British election may have focused on immigration and the fear of "the other"-Turks, Syrians, Greeks, Poles, etc.-but this xenophobia stems from the anger and despair of people who have been marginalized or left behind by the globalization of the labor force that has systematically hollowed out small communities and destroyed decent paying jobs and benefits.

"Great Britain's citizens haven't been losing control of their fate to the EU," wrote Richard Eskow of the Campaign for America's Future, "They've have been losing it because their own country's leaders-as well as those of most Western democracies-are increasingly in thrall to corporate and financial interests."

While most of the mainstream media reported the Spanish election as a "victory" for acting Prime Minister Mariano Rajoy's Popular Party (PP) and a defeat for the left, it was more a reshuffle than a major turn to the right, and, if Rajoy manages to cobble together a government, it is likely to be fragile and short-lived.

It was a dark night for pollsters in both countries. British polls predicted a narrow defeat for the Brexit campaign, and Spanish polls projected a major breakthrough for Spain's left, in particular Unidos Podemos (UP), a new alliance between Podemos and the Communist/Green coalition, Izquierda Unida.

Instead, Brexit passed easily and the UP lost 1 million votes from the last election, ending up with the same number of seats they had in the old parliament. In contrast, the Popular Party added 14 seats, although still falling well short of a majority.

Spain's voters deterred from change

A major reason for the Spanish outcome was Brexit, which roiled markets all over the world, but had a particularly dramatic effect on Spain. The Ibex share index plunged more than 12 percent and blue-chip stocks took a pounding, losing about $70 billion dollars. It was, according to Spain's largest business newspaper, "The worst session ever." Rajoy-as well as the center-left Socialist Workers' Party (PSOE)-flooded the media with scare talk about stability, and it partly worked. The Popular Party poached eight of its 14 new seats from the center-right Ciudadanos Party and probably convinced some UP voters to shift to the mainstream SP.

But Rajoy's claim that "We won the election. We demand the right to govern," is a reach. The PP has 137 seats, but it needs 176 seats to reach a majority in the 350-seat parliament. The Prime Minister says he plans to join with Ciudadanos, but because the latter lost seats in the election, such an alliance would put the PP seven votes short. An offer for a "grand alliance" with the Socialists doesn't seem to be going anywhere. "We are not going to support Rajoy's investiture or abstain," said PSOE spokesman Antonio Hernando. An abstention would allow the PP to form a government.

Which doesn't mean Rajoy can't form a government. There are some independent deputies from the Basque country and the Canary Islands who might put Rajoy over the top, but it would be the first coalition government in Spain-and a fragile one at that.

Part of that fragility is a scandal over an email between Rajoy and Jean-Claude Juncker, head of the European Commission, that was leaked to the media. The Commission is part of the "troika," along with the International Monetary Fund and the European Central Bank, that largely decides economic policy in the EU.

During the election, Rajoy promised to cut taxes and moderate the troika-imposed austerity measures that have driven Spain's national unemployment rate to 22 percent, and a catastrophic 45 percent among young people. But in a confidential email to Juncker, the Prime Minister pledged that, "In the second half of 2016, once there is a new government, we will be ready to take further measures to meet deficit goals."

In short, Rajoy lied to the voters. If the PP had won an absolute majority that might not be a problem, but a coalition government is another matter. Would Ciudadanos and the independents be willing to associate themselves with such deceit and take the risk that the electorate would not punish them, given that such a government is not likely to last four years?

Unidos Podemos supporters were deeply disappointed in the outcome, although the UP took the bulk of the youth vote and triumphed in Catalonia, Spain's wealthiest province, and the Basque country. What impact UP's poor showing will have on divisions within the alliance is not clear, but predictions of the organization's demise are premature. "We represent the future," party leader Pablo Iglesia said after the vote.

There is a possible path to power for the left, although it leads through the Socialists. The PSOE dropped from 90 seats to 85 for its worst showing in history, but if it joins with the UP it would control 156 seats. If such a coalition includes the Catalans, that would bring it to 173 seats, and the alliance could probably pick up some independents to make a majority. This is exactly what the left, agreeing to shelve their differences for the time being, did in Portugal after the last election.

The problem is that the PSOE refuses to break bread with the Catalans because separatists dominate the province's delegation and the Socialists oppose letting Catalonia hold a referendum on independence. Podemos also opposes Catalan separatism, but it supports the right of the Catalans to vote on the issue. 

Rajoy may construct a government, but it will be one that supports the dead-end austerity policies that have encumbered most of the EU's members with low or flat growth rates, high unemployment, and widening economic inequality. Support for the EU is at an all-time low, even in the organization's core members, France and Germany.

Danger ahead

The crisis generated by the free market model is hardly restricted to Europe. Much of Donald Trump's support comes from the same disaffected cohort that drove the Brexit, and, while "The Donald" is down in the polls, so were the Brexit campaign and the Spanish Popular Party.

The next few years will be filled with opportunity, as well as danger. Anti-austerity forces in Spain, Italy, Greece, Portugal, and Ireland are organizing and beginning to coordinate resistance to the "troika." But so, too, are parties on the right: France's National Front, Hungary's Jobbik, Greece's Golden Dawn, Britain's United Kingdom Independence Party, Austria's Freedom Party, Denmark's People's Party, and Sweden's Democratic Party.

Instead of reconsidering the policies that have spread so much misery through the continent, European elites were quick to blame "stupid" and "racist" voters for Brexit. "We are witnessing the implosion of the postwar cultural and economic order that has dominated the Euro-American zone for more than six decades," writes Andrew O'Hehir of Salon. "Closing our eyes and hoping that it will go away is not likely to be successful."

A majority of Britain said "enough," and while the Spanish right scared voters into backing away from a major course change, those voters will soon discover that what is in store for them is yet more austerity.

"We need to end austerity to end this disaffection and this existential crisis of the European project," said a UP statement following the election. "We need to democratize decision making, guarantee social rights, and respect human rights."

The European Union is now officially a house divided. It is not clear how long it can endure.

This article originally appeared at Conn Hallinan's blog Disp

 -- via my feedly newsfeed

Bernstein: Jobs Report: June’s big number reveals welcome bounceback, but you’ve gotta smooth these noisy data.

Jobs Report: June's big number reveals welcome bounceback, but you've gotta smooth these noisy data.

July 8th, 2016 at 10:11 am

[Before I jump into analysis of the jobs report, I'm compelled to add a brief note about the violence and deaths in Dallas last night and the deaths of Alton Sterling and Philando Castile earlier this week. I will not try to hold forth on these tragedies other than to say that I'm both indelibly saddened and deeply enraged. That said, I'm sure my pain and anger are a fraction of that of many others directly affected by these murders. My heart goes out to all the victims.]

Payrolls posted a big 287,000 jump in June in stark contrast to revised gains of just 11,000 in May. Such monthly volatility provides an extremely clear example of why we should never over-interpret one month's worth of jobs data. You have to "smooth," or average out the gains over numerous months, as I do below. When you do so, you get a picture of a solid job market, adding somewhat fewer jobs than a year ago, but still making progress towards full employment.

The unemployment rate ticked up to 4.9% as more people entered the labor market, leading to a small but welcome uptick in the participation rate, up one-tenth to 62.7%. Year-over-year wage growth ticked up slightly as well, from 2.5% to 2.6%, a positive sign that some of the benefits of the ongoing recovery are finally reaching workers' paychecks. As shown below, this pace of wage growth remains well below Fed chair Yellen's benchmark target of 3.5%. In other words, this trend should be very much welcomed, not feared! It's what's supposed to happen as the job market improves and working people get a little more bargaining power.

The punchlines are thus as follows: May's dismal report was an outlier; the US recovery proceeds apace; Brexit hasn't shown up in the jobs numbers; wage growth is slowly picking up a bit of speed, as I'd expect; and the job growth engine has downshifted from around 200K/month to around 150K/month, once you smooth out the monthly noise. That's also to be expected as we get closer to full employment, though given that we're not there yet, both monetary and fiscal policy needs to continue to be as pro-growth as possible. This policy stance is underscored by the absence of inflationary pressures.

JB's patented monthly smoother is particularly important this month. The monthly trend job gains over the past 3 months is about 150K, 6 months: ~170K; 12 months: ~200K. There's the downshift noted above.

Source: my analysis of BLS data.

A few other highlights from the report:

–The underemployment rate ticked down from 9.7% to 9.6%, but this more comprehensive measure of labor market slack (it includes part-time workers who'd rather be working full-time and those "marginally attached" to the labor force) shows we're not yet at full employment, which calls for an underemployment rate about a full point lower.

–As noted, there's a positive trend in average hourly earnings (see figure below). But note also Chair Yellen's wage benchmark of 3.5% shown in the figure. There's considerable room for wages to continue to accelerate. Those calling on the Fed to raise rates and thwart this trend are both wrong on the substance—wage-growth is not pushing up price growth—and implicitly suggesting that those who've gained the least from the recovery thus far need to take a hit. This, in my view, is the monetary policy version of "the system is rigged."

Source: BLS

–After losing 16,000 jobs in May, manufacturing rebounded in June, adding 14,000 factory jobs.  Smoothing over recent months, employment in the sector is down 4,000 jobs/month this year, compared to +10K/month in 2014-15. This reversal is partly a function of the stronger dollar, which makes our manufactured exports less competitive, leading to larger trade deficits. More broadly, it reinforces the need for better rules of the road in our trade deals, a topic that's become highly elevated in the presidential campaign.

Federal Reserve economists are just as good at taking averages as I am, and thus I'm very confident the Fed won't overreact to the big June jobs number and resume their rate normalization campaign. Brexit uncertainty, the risk of further strengthening of the dollar, and labor market volatility all push against an interest rate increase. Once you average over the past few months, choppy waters smooth out a bit, suggesting a generally solid, ongoing labor market recovery.

John Case
Harpers Ferry, WV

The Winners and Losers Radio Show

7-9 AM Weekdays, WSHC-Listen Live, Shepherd University

Sign UP HERE to get the Weekly Program Notes.

Employment Rebounds in June, but Unemployment Edges Higher [feedly]

Employment Rebounds in June, but Unemployment Edges Higher
http://economistsview.typepad.com/economistsview/2016/07/employment-rebounds-in-june-but-unemployment-edges-higher.html

Dean Baker

Employment Rebounds in June, but Unemployment Edges Higher: The Labor Department reported that the economy added 287,000 jobs in June, a sharp bounce back from the 11,000 jobs now reported for May. A big factor in the reversal was the end of the Verizon strike, which subtracted 37,000 jobs from the May growth number and added the same amount in June, but even adjusting for this effect, the June growth figure is much stronger.

The job gains were widely spread across sectors. ...

The average hourly wage is 2.6 percent above its year-ago level. In the last three months, it has risen at a 2.7 percent annual rate compared with its level for the prior three months. While there has been some acceleration in wage growth by this measure, the Employment Cost Index shows no upward trend whatsoever. Clearly compensation is being shifted in part from benefits, most importantly health care, into wages. It is important not to mistake this shift for an increase in labor costs.

The household survey showed a bleaker picture. The unemployment rate rose modestly to 4.9 percent. The employment-to-population ratio (EPOP) fell to 59.6 percent as employment measured by the household survey increased by just 67,000. Employment in the household survey is still more than 200,000 below its March level.

By demographic group, the most disturbing item is the reported rise in the unemployment rate among black teens to 31.2 percent. It had been 23.3 percent in February. These data are highly erratic, but the trend is large enough that it could reflect a substantial deterioration in the labor market.

Employment patterns by education are showing an interesting pattern in this recovery. Over the last year the unemployment rate for college grads has not changed while their EPOP is down by 0.3 percentage points. By contrast, the unemployment rate for those with a high school degree has fallen by 0.4 percentage points and by 0.6 percentage points for those with less than a high school degree. Their EPOPs have risen by 0.3 and 1.2 percentage points, respectively. The increased demand for skills is not obvious in this picture.

Other aspects of the household survey were mixed. There was a drop of 587,000 in the number of people working involuntarily part-time, which more than reversed a sharp rise reported for May. The number of discouraged workers is more than 150,000 below its year-ago level and not too far above pre-recession levels. The duration measures of unemployment were mixed. The median duration of unemployment spells fell slightly to 10.3 weeks, a new low for the recovery, but both the average duration and share of long-term unemployed rose slightly.

The percentage of unemployment due to voluntary quits remained constant at 10.7 percent. This is near the high for the recovery, but still far below pre-recession levels.

On the whole, this should be seen as a modestly positive report. The job growth in the establishment survey was impressive, but it still only brings the three-month average to 147,300. At the same time, the household survey is indicating a much weaker picture. The establishment survey is generally a better measure, but even the establishment survey is not showing strong job growth over the three-month period.

See also:

 -- via my feedly newsfeed

Strong job growth in June inspires optimism after recent weaker reports [feedly]

Strong job growth in June inspires optimism after recent weaker reports
http://www.epi.org/blog/strong-job-growth-in-june-inspires-optimism-after-recent-weaker-reports/

After the weakness in payroll job growth the last two months, this month's Employment Report gives us reason to be optimistic about the future of the economy. Payroll employment grew by 287,000 jobs in June. As I discussed extensively yesterday, this is the kind of job growth that would likely get us to full employment within the next year. Specifically, if we saw job-growth in excess of 260,000 jobs per month over the next year, we could expect to see the unemployment rate approach 4.0 percent and the labor force boost up significantly. If instead we averaged closer to 100,000 jobs per month (not far below the average of the three months leading up to this report), this would only keep the economy in a steady state of labor market health, pulling in just enough workers to absorb new population growth.

Robust payroll employment is only one piece of the full employment puzzle, and other indicators are still lagging behind. Two key puzzle pieces are the prime-age employment-to-population ratio (EPOP) and nominal wage growth.

The share of the population 25-54 years old with a job fell significantly during the recession. For much of the last four years, the prime-age EPOP has been climbing, albeit in fits and starts. In June, it hit 77.8 percent, about where it's sat the last few months. It still has a long way to go before it hits the most recent pre-recession peak of 80.3 percent from 2007 or the full employment peak of 81.9 percent in 2000. At 77.8 percent, the current prime-age EPOP is still below the lowest level reached during the last two business cycles we experienced before the Great Recession (78.1 percent).

Read more

 -- via my feedly newsfeed

UO-led study casts a shadow on the American dream

July 5, 2016 - 6:00am

•  Twitter
•  Facebook

It may be time for a reality check on a big part of the American dream.

According to UO psychology professor Azim Shariff, there is the idea — one that is touted by many politicians — that the ease to easily change our economic status by changing jobs is enough to make the nation's large levels of income inequality easier to swallow.

In reality, though, the United States has the second-lowest income mobility — the ability to make such job changes — among rich countries, according to recent economic studies noted prominently by Shariff and colleagues in a study published in the journal Perspectives on Psychological Science.

In the study, Shariff and co-authors Dylan Wiwad and Lara B. Aknin, both of Canada's Simon Fraser University, explored the tolerance for inequality in 19 countries, along with numerous economic and social factors. They found that a country's fluid mobility of people between economic stations was a strong predictor of whether people tolerated the country's level of inequality.

"Income mobility was actually a stronger predictor of tolerance for inequality than actual levels of inequality," Wiwad said. "Essentially, people found it more tolerable to live in a relatively unequal place with high mobility, than in a relatively equal place where economic positions were fixed across generations."

To examine the causal relationship, the researchers blended recent research in economics and social sciences by testing people's perceptions in a controlled psychological experiment.

They recruited an economically representative sample of 521 Americans — evenly split between the five pre-tax household income ranges used by the U.S. Department of Commerce. Participants read articles that portrayed American income mobility rates as being high or low, and then were given time to appraise what the articles meant for their own futures.

Those who had been led to believe that mobility was high, with people easily moving between different relative economic positions, were more likely to tolerate income inequality than were those in groups where mobility was portrayed as low. The level of frustration with inequality, however, rose when the mobility rates were seen as low.

"What we saw is that when people don't see much mobility their tolerance for income inequality drops, and their outrage starts to grow," Shariff said. "They start to see the economic arrangement as fundamentally unfair."

Indeed, subsequent analyses revealed that the perception that people earned their economic position based on their own efforts was a key mechanism as to why a mobile society is seen as a tolerable one, even if unequal. The second mediating reason was whether people saw a future for their children.

"If there is no mobility, it's a sticky society where people who are born at the top will stay at the top. But if people see a mobile society — one in which their children have a chance of moving up — then they are willing to tolerate some discrepancies between rich and poor," Shariff said.

But people generally do a poor job estimating how much mobility actually exists, and despite low actual mobility in the U.S., Americans err on the side of being overly optimistic, he said. "In general, almost everyone thinks they are more likely to move up the ladder than they actually are. And no one thinks they're actually going to experience downward mobility."

Shariff noted that although these misperceptions may fill people with hope and optimism, the seductive narrative of the American dream may lull people into a sense of complacency about the country's gross disparities between rich and poor.

John Case
Harpers Ferry, WV

The Winners and Losers Radio Show

7-9 AM Weekdays, WSHC-Listen Live, Shepherd University

Sign UP HERE to get the Weekly Program Notes.