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Doesn't Anyone Talk About Unemployment Claims Anymore? Print
Friday, 04 February 2011 06:32

It doesn't seem that the business press is paying any attention to the data on unemployment claims put out by the Labor Department each week. These reports used to generally earn a small story or mention in a larger story on the release of other economic data.

The weekly data are erratic, but they do give a good current snapshot of the state of the labor market. The Labor Department reported 415,000 new claims last week, partly reversing a big jump to 457,000 claims the prior week. The 4-week average edged by 1,000 to 430,000. The economy did not start creating jobs regularly after the last recession, until claims had fallen below 400,000 in the fall of 2003.

 
Doesn't Bernanke Know That Temporary Employment Is Down? Print
Friday, 04 February 2011 06:00

That might have been an appropriate headline for an article reporting on a press conference by Federal Reserve Board Chairman Ben Bernanke in which he reportedly said that employers are hiring temporary workers because they are uncertain about the future strength of the economy. In fact, in spite of recent hiring temporary employment is still down almost 15 percent from its pre-recession level.

The article also includes the comment that "critics" of Bernanke's policy of quantitative easing say that it "devalues the dollar." This is what supporters of the policy would say too. The United States has a large trade deficit. In an economy with floating exchange rates the way in which a deficit is reversed is through a decline in the value of the currency. That is why people to see this imbalance corrected, and see the United States borrow less from abroad, want to see the value of the dollar fall.

The implication of the view attributed to "critics" is that they want to see the United States continue to run large trade deficits and to borrow large amounts of money from abroad.

 
It Often Snows in January Print
Friday, 04 February 2011 05:20

The NYT's article on retail sales in January was headlined: "Despite Snowstorms, Many Retailers Posted Gains in January." It is important to remember that the comparison is made to January of the previous year. There are always snowstorms in the Northeast and Midwest in January. This is only a factor in the data if the snowstorms were worse than normal. That would not obviously be the case for January of this year.

Btw, it is worth noting that the retail chain store reports are of less value than they had been in prior years because Wal-Mart, which accounts for more than half of chain store sales, no longer reports its sales monthly. Sears, which is the second largest retail chain, also does not publicly report monthly sales. 

It seems the Post is also surprised by snow in January.

 
The Post Gets Reporting on a "Free-Trade" Agreement Right Print
Thursday, 03 February 2011 05:18
The Washington Post had a piece on Montana Senator Max Baucus's efforts to obstruct the approval of Korea trade pact unless the rules of exporting beef are changed. While the agreement is called a "free-trade" agreement, the article rightly avoids using this description. It simply uses the more neutral and concise term "trade" pact. It can be done.
 
Car Sales are Up, Compared to What? Print
Wednesday, 02 February 2011 05:56
The media touted the 17 percent increase in January car sales compared to the level reported for January 2010. It is not clear that this implies a very good month, since sales were quite weak in January of last year. The 800,000 level of sales estimated for January is a decline of 17.5 percent from 970,000 average monthly sales for the fourth quarter of 2010. If this sales rate continues through February and March then car sales will be a major drag on GDP growth for the quarter.
 
The Problem of Structural Unemployment: Really Incompetent Managers Print
Wednesday, 02 February 2011 05:27

The Washington Post had a major front page article highlighting the argument that the reason that the country has high unemployment is that workers don't have the skills needed for the jobs that are available. While it features comments from several employers, the only data that it presents to support this case is that the number of job openings reported by the Bureau of Labor Statistics is 900,000 higher than the low in the summer of 2009. The number of openings is still down by more than 1,000,000 from pre-recession levels. Furthermore, even if every last job opening were filled (an absurd situation, since there will always be some flux in the labor market), it would still leave almost 80 percent of the unemployed without jobs.

The anecdotal evidence from employers suggests that the problem is that people who run businesses don't understand basic economics. It presents comments from one employer who complains that he can't find workers for jobs that pay $15 an hour. This is not a very good wage. It would be difficult for someone to support themselves and their children on a job paying $15 an hour ($30,000 a year). If the company president understood economics, then he would raise wages enough so that the jobs were attractive to workers who have the necessary skills. 

If the economy were actually suffering from a problem of structural unemployment, then we should be seeing substantial sectors of the economy, either by region or occupation, where wages are rising rapidly. We don't see this. There is no major industry or occupational grouping where there is evidence of large pay increases. We should also see big increases in average weekly hours, as firms try to work their existing workforce harder due to the unavailability of additional workers. We don't see this either.

In other words, the data provide essentially zero support for the claim that the economy's problem is that workers don't have the right skills for the available jobs. All the evidence supports the idea that the problem is simply we have not generated enough demand (i.e. the problem is with the people who design economic policy, not with the country's workers). 

Interestingly, in spite of the lack of evidence, we continue to see stories about how unemployment is structural. Rather than relying on evidence, these pieces invariably include anecdotes from employers who apparently don't understand that if you can't get the workers you need, then you must offer a higher wage. 

 
It Doesn't Matter that Oil is Priced in Dollars # 78,254 Print
Tuesday, 01 February 2011 17:54

The NYT told readers that:

"A stronger euro blunts the effect of rising prices for oil and other commodities, which are traditionally priced in dollars." Actually, it does not matter at all that the oil and other commodities are priced in dollars, the point is that the euro has gone up in value. If the euro were to rise in value against other currencies then people in the euro zone would pay fewer euros for their oil even if oil was priced in euros.

In this story, the dollar is simply the medium of exchange. Oil is not fixed in price in dollars, the price of oil is fluctuating in dollars and all other currencies. The only question that matters is the value of the euro relative to other currencies, it doesn't matter which currency is the basis for the purchases.

The piece also includes the interesting comment that:

"German wages have not started rising to alarming levels yet, Mr. Chaney said, 'this is something that is on the radar screen.'” It is likely that most people would not be alarmed by the plausible rate of growth for German wages in the near future. The people who would find such wage growth "alarming," are likely a very small subset of NYT readers or people in Europe and the United States.

 
Housing Market: Ever Hear of It? Print
Tuesday, 01 February 2011 06:01

Yeah, it's a little known market that involves every household in the country and is valued at more than $16 trillion. According to some accounts, it had something to do with the recession.

It seems the media still don't really know much about the market, otherwise we would have seen news articles on the Census Bureau's report on vacancy rates for the 4th quarter. The report showed a substantial drop in vacancy rates from both the last quarter and the fourth quarter of 2009. While vacancy rates are still at historically high levels, this is the first clear decline from the peak vacancy rates reached in 2007. Under the theory that prices are affected by the balance of supply and demand, we should not expect to see house prices finally stabilize until the vacancy rate returns to a more normal level. This report suggests that the market is finally moving toward that point, although it still has far to go.

The report also includes data on homeownership, which showed a further decline. Homeownership rates are now below their 1998 level. On an age-adjusted basis (older people are more likely to be homeowners), the bulk of the increase in ownership rates since the 1990-91 recession has now been reversed.

This information about the state of the housing market and homeownership would have been worth some mention, especially since so many politicians seem to view homeownership as being of great importance.

 

Addendum: It seems that the Wall Street Journal has heard of the Census Bureau.

 
It is Possible to Fire Tenured Teachers Print
Tuesday, 01 February 2011 05:54
This is a point that would have been worth stating clearly in an article on efforts by many Republican governors to eliminate teacher tenure. In every jurisdiction that has tenure, teachers who are demonstrated to be incompetent can be removed from the classroom and fired. However administrators must take the time to document that a teacher is incompetent before they can be fired. Many school administrators choose not to bother with the effort to remove under-performing teachers.
 
Math and Economics Are Hard! Print
Monday, 31 January 2011 05:36

That is pretty much what former Obama adviser Steven Rattner had to say in the Washington Post today. In his piece, Rattner told President Obama:

"don't blame the talented economists who were advising you .... Creating jobs is a slow and frustrating process in the wake of a tough recession."

Calling the president's economic advisers "talented" is good for their self-esteem (we know how important that is), but in the real world, their talent as economists must be judged by their performance. Missing the biggest asset bubble in the history of the world (a credential shared by all of the president's economic advisers) doesn't speak well for them. 

However even more important is their failure to generate jobs for the country's workers following the bubble's collapse, which has to be the top priority for economic policy. While job creation might be "hard" other countries have managed to do it. For example, Germany has managed to bring down its unemployment rate from 7.1 percent at the start of the downturn to 6.7 percent today. This was accomplished in spite of the fact that Germany actually had a steeper downturn than the United States.

Mr. Rattner's piece suggests one of the key causes of the administration's failure to generate jobs. Rattner highlights the more rapid productivity growth in the United States over the last decade than in other countries, in particular singling out Germany as country with slower growth.

While faster productivity growth is generally better than slower growth, this is not the case when an economy does not have full employment. In this context, faster productivity growth just leads to more unemployment. One of the key mechanisms that Germany has used to keep its unemployment rate down is work-sharing. This is a program where the government subsidizes firms for keeping workers on their payroll, but working fewer hours than normal.

An expected outcome of this program is lower productivity. The idea is that it is best to keep people employed, where they can still get most of their paycheck, continue to develop their skills, and maintain contacts with their fellow workers. The alternative of having them laid off would mean higher productivity in the short-term, but it could lead to millions of workers joining the long-term unemployed. It is very difficult for these workers to be subsequently re-employed, therefore leading to permanent losses to the economy. Of course a prolonged period of unemployment is also likely to be devastating to the unemployed workers and their families.

 

 
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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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