Wonkbook: The first-quarter curse
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 | Friday, May 4, 2012 |
 Ezra Klein's Wonkbook | ||
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For the last few years, the economy has played the same trick on us: in or around the first quarter, jobs growth suddenly roars to life. And then, just as belief in the recovery takes hold, we slump back into stagnation. In 2010, for instance, the average monthly jobs growth in March, April and May was 316,000. That was distorted by temporary hiring for the decennial Census. But after 24 months of straight jobs losses, it was exciting. It got Bernanke began talking about "green shoots." And then, in June, the economy lost 167,000 jobs. So much for the shoots.
Then, in 2011, the same thing happened. Between February and April, average job growth was 239,000. There was talk that we were finally out of the woods. And then came four months in which job growth averaged 80,000.
Now fast forward a couple of months. Between November 2011 and February of this year, average monthly job growth was 246,000. And there was no census hiring to muck things up. It felt as if we had turned the corner. Matt Yglesias named it "recovery winter." And then, in March, payroll growth fell to 120,000. Sorry, folks.
The disappointing March number was, to be fair, a surprise. And we could be surprised this month, too. Perhaps job growth will come in at 250,000. Or perhaps that'll happen next month. Don't ever mistake forecasts for fact.
But there's good news here, too. Our standards for what constitutes a "disappointing" jobs report are going up. Two years ago, the good months were distorted by census hiring, and when they ended, the economy lost 167,000 jobs in a single month. One year ago, the good months were based on real hiring, and when they ended, we were still creating jobs -- just not as many as we wanted to be. And this year, the good months were the best months we've had so far. And if they've been interrupted, it's by job growth that's still well over 100,000 a month -- which is a lot better than how the previous cycles of high expectations ended.
So our labor market highs are getting higher and our lows are getting lower. It's happening slowly -- much too slowly, in fact -- but that is a recovery. At least, it is so long as it keeps going.
Wonkbook dashboard:
RCP Obama vs. Romney: Obama +3.4%.
RCP Obama approval: 48.1%.
Top stories
1) Expectations for today's jobs report are low. "What a difference one bad month - and one bad report - can make in expectations. A month ago, after three strong jobs reports, the median forecast of economists polled by Bloomberg was for a gain of 205,000 jobs in March. The low estimate was for 175,000 jobs, only 30,000 less...The actual report said that only 120,000 jobs were created. Unsurprisingly, there is a lot less optimism now. The median forecast for the April number - to be reported Friday morning - is 160,000. But several expect a number at or below 125,000. The minimum forecast is 89,000...What may be needed for a strong recovery now is something that no one seems to expect: a revival in government jobs. Last month, there were 200,000 fewer government jobs than there had been a year earlier. The Bloomberg consensus is for a loss of another 5,000 government jobs in April." Floyd Norris in The New York Times.
@DLeonhardt: Is March/April slowdown largely a makeup for abnormal warm-winter gains -- and just a pause before faster growth? Or has econ really slowed?
@justinwolfers: Amazing how much effort goes into forecasting a number we'll learn tomorrow, & how little goes into forecasting conditions in a year or two.
2) The recovery isn't reaching middle-skill workers. "Ninety-five percent of the net job losses during the recession were in middle-skill occupations such as office workers, bank tellers, and machine operators, according to research by economists Nir Jaimovich of Duke University and Henry Siu of the University of British Columbia. That's what we all assume happens in recessions: The middle class is hit hardest, then eventually climbs back. Only, that comeback isn't happening. Job growth since the end of the recession has been clustered in high-skill fields inaccessible to workers without advanced degrees or in low-paying industries, the economists found...The Great Recession accelerated a decades-long shift in the economy away from the kind of moderate-skill jobs that have long supported a broad U.S. middle class. Less obvious in the past, this downward movement is now plainly visible in the lopsided recovery. The same middle-skill jobs were decimated in the recessions of 1990-91 and 2001." Mike Dorning in Bloomberg Businessweek.
3) More than half of states expect surpluses. "More than half of US states expect to end their current fiscal year with a cash surplus, as the recovery in the economy boosts tax revenues and reduces pressure that has weighed on state budgets for several years, a survey of state budget officials showed. During the past four years, state lawmakers have closed more than $500bn of budgets gaps as tax revenues plummeted in the wake of an economic recession that began in 2007. For the first time since then, a number of states are expecting to have extra cash at year end. Some 29 states, including Arizona, Indiana, New Jersey and New York, projected that revenues will exceed spending plans in the fiscal year ending June 30, the NCSL said. For the states that were facing gaps, they were relatively small compared to recent years...Most states plans to put their surpluses in rainy day funds or carry them forward to next year." Nicole Bullock in The Financial Times.
4) House leaders are close to a deal on the Export-Import Bank. "House leaders appear to have settled on a framework to extend the Export Import Bank's charter into 2014 and raise its loan exposure cap to $140 billion - a 40 percent increase. Some language issues remain, and there was no official comment late Thursday from the two principals in the talks, Majority Leader Eric Cantor (R-Va.) and Democratic Whip Steny Hoyer (D-Md.). But several people familiar with the talks said a three-year extension with the higher $140 billion cap is now the agreed-upon target. And the hope is to have a bill that can be moved through Congress before the end of May. The $140 billion cap is still shy of what the White House projects will be needed by the bank by 2014 but reflects significant movement by Cantor to get a deal. As recently as March, the Republican leader was proposing a much shorter extension and cap of $113 billion." David Rogers in Politico.
5) Global regulators unveiled proposals to boost capital requirements. "Bank trading desks face a new threat to their profitability after global regulators unveiled proposals on Thursday to force them to hold more capital against the risk of heavy losses when markets freeze. The Basel Committee on Banking Supervision's 'fundamental review of the trading book' aims to close loopholes that have allowed banks to cut capital requirements by parking assets in their trading books. Bankers and lawyers said the proposals, if approved, would push up capital requirments and could making buying and selling assets - as opposed to holding them to maturity - far less profitable. The proposal is expected to hit institutions with large trading desks, such as Barclays, Goldman Sachs and Deutsche Bank, particularly hard. Higher capital requirements could also make it harder for some European banks to gain any advantage over their US rivals when they have to stop trading with their own capital under the US Volcker rule." Brooke Masters in The Financial Times.
6) TransCanada will reapply for a permit for Keystone XL. "The Canadian firm behind the controversial Keystone XL pipeline will reapply as early as Friday for a federal permit to ship carbon-intense crude oil from Alberta to the United States, according to people familiar with the company's plans. In January, the Obama administration denied a permit for TransCanada, the firm hoping to build the project, on the grounds that a congressionally mandated deadline of Feb. 21 did not give officials enough time to evaluate the pipeline's impact. Since then TransCanada has said it would proceed with plans to construct the segment running from Cushing, Okla., to Port Arthur, Tex., and unveiled a new route for the pipeline in Nebraska...The new route TransCanada proposed in mid-April would steer clear of northwestern Nebraska's Sandhills region, though it still runs over parts of the Ogallala aquifer." Juliet Eilperin in The Washington Post.
Top op-eds
1) KRUGMAN: Inequality is preventing a recovery. "Before the Great Recession, I would sometimes give public lectures in which I would talk about rising inequality, making the point that the concentration of income at the top had reached levels not seen since 1929. Often, someone in the audience would ask whether this meant that another depression was imminent. Well, whaddya know? Did the rise of the 1 percent (or, better yet, the 0.01 percent) cause the Lesser Depression we're now living through? It probably contributed. But the more important point is that inequality is a major reason the economy is still so depressed and unemployment so high. For we have responded to crisis with a mix of paralysis and confusion -- both of which have a lot to do with the distorting effects of great wealth on our society. Put it this way: If something like the financial crisis of 2008 had occurred in, say, 1971 -- the year Richard Nixon declared that 'I am now a Keynesian in economic policy' -- Washington would probably have responded fairly effectively." Paul Krugman in The New York Times.
@mattyglesias: Quick fixes, easy answers, short-term thinking, and kicking the can down the road are all badly underrated in policy debates.
2) COHN AND STRAUSS: The individual mandate enhances liberty. "As they await the Supreme Court ruling on the Affordable Care Act, legal critics of the law say their case is about liberty. If the government can instruct people to obtain health insurance, they keep asking, what's to stop it from requiring them to buy broccoli? But the real threat to liberty in this case isn't a hypothetical broccoli law. It's the problem that the mandate remedies -- the failure of the health-insurance market -- and the long-standing national crisis of rising health-care costs that Congress finally found a way to address...Critics of the health-care law say the Affordable Care Act is unprecedented. But, in 1792, President George Washington signed the Militia Act, requiring all men to purchase a gun and knapsack. The goal was defense of liberty. A decision to uphold the health-insurance mandate would be a powerful defense of liberty in the modern age." Jonathan Cohn and David Strauss in Bloomberg.
3) BIGGS: College graduates need jobs, not cheaper loans. "All workers face wage cuts and job losses during a recession, when the supply of labor outstrips demand. But in this recession, new college graduates have been particularly hard hit. According to an analysis by the Center for Labor Market Studies at Northeastern University, 54% of bachelor's degree-holders under age 25, about 1.5 million in total, were jobless or underemployed last year. To help out college students, President Obama is promising to retain the interest rate on government-issued student loans that was temporarily lowered in 2007. Mitt Romney, the presumptive Republican presidential nominee, also favors this measure...Lower payments on college loans after graduation won't come close to repairing the long-term economic damage that new graduates will suffer as a result of entering the workforce during a downturn." Andrew Biggs in The Wall Street Journal.
4) BROOKS: The future of higher education is online. "Online education is not new. The University of Phoenix started its online degree program in 1989. Four million college students took at least one online class during the fall of 2007. But, over the past few months, something has changed. The elite, pace-setting universities have embraced the Internet. Not long ago, online courses were interesting experiments. Now online activity is at the core of how these schools envision their futures...What happened to the newspaper and magazine business is about to happen to higher education: a rescrambling around the Web...Research into online learning suggests that it is roughly as effective as classroom learning. It's easier to tailor a learning experience to an individual student's pace and preferences. Online learning seems especially useful in language and remedial education...The early Web radically democratized culture, but now in the media and elsewhere you're seeing a flight to quality." David Brooks in The New York Times.
5) TYSON: We should increase taxes on capital gains and dividends to pay for corporate tax cuts. "The US should offset at least some of the revenue losses from a lower corporate-tax rate by raising tax rates on corporate shareholders. Most countries that reduced their corporate-tax rates have followed this path, while the US has done the opposite. At 15%, America's tax rates on dividends and capital gains are at historic lows, while the profit share of national income is at an all-time high. Defenders of low rates for capital owners argue that it minimizes 'double' taxation of corporate income - first of the corporation and then of its shareholders. A lower corporate-tax rate would weaken this justification. Moreover, pension funds, retirement plans, and non-profit organizations, which receive about 50% of all corporate dividends, do not pay tax on these earnings, and would benefit from a lower corporate-tax rate." Laura Tyson in Project Syndicate.
Cover interlude: Trampled By Turtles play Arcade Fire's "Rebellion (Lies)."
Got tips, additions, or comments? E-mail me.
Still to come: Workers' productivity falls; a search for new uses for abandoned drugs; Congress avoids wading into the debate over location tracking; a standardized charging system for electric cars; and a ukulele featuring the atomic symbol.
Economy
Most small banks won't be able to repay TARP funds. "Most of the small banks bailed out by US taxpayers during the financial crisis likely will not be able to repay the Treasury department, the Obama administration has conceded. The admission came Thursday in the form of a blog post by Timothy Massad, assistant Treasury secretary for financial stability, who wrote that the agency does not expect the majority of the nearly 350 lenders still partially owned by American taxpayers to repurchase in the next 12-18 months the preferred stock Treasury received in exchange for bailing them out. The recognition by the department comes after numerous government reports warned that the Treasury lacked an adequate plan to divest its remaining stake in smaller lenders, defined as those with less than $10bn in assets. The Treasury invested some $15bn in small banks, but has received only about $8.5bn in return." Shahien Nasiripour in The Financial Times.
Retail sales fell short of expectations. "Sales momentum for retailers slowed in April. The 19 chains tracked by Thomson Reuters reported a thin 0.8 percent increase in sales at stores open at least a year, missing the 1.5 percent gain that analysts were expecting. Combined with strong sales at the start of the year, the lackluster April results indicated that an early burst of consumer spending did not last long. 'While projections were that consumer spending would continue to accelerate, there are signs that it may be slowing,' said Alison Jatlow Levy, a retail strategist at the consulting firm Kurt Salmon...Even after accounting for Easter's changing place in the calendar, retail sales were rising more slowly. For March and April combined, retailers' same-store sales increased by 2.5 percent, versus the 5.4 percent gain they posted for the same period a year ago, according to Thomson Reuters." Stephanie Clifford in The New York Times.
Workforce productivity fell. "The productivity of U.S. workers fell in the first quarter, suggesting that companies are approaching the limit of how much they can squeeze from the workforce. U.S. nonfarm productivity--defined as output per hour worked--declined at a 0.5% annual rate in the first quarter, the Labor Department said Thursday. Productivity fell because output rose at a 2.7% rate, while hours worked increased at a 3.2% pace. Productivity, which spiked sharply in the early part of the recent economic recovery, is a key part of the economy's ability to raise living standards. When companies get more output from fewer workers they are able to raise wages and profits without stoking inflation. The downside is that in the short term higher productivity can mean less need for hiring--one reason job growth was so light in the early stages of the recovery. Productivity soared from the second half of 2009 through the beginning of 2010." Conor Dougherty in The Wall Street Journal.
The U.S. sees promising signs in its talks with China. "American officials said early Friday that their annual summit meeting on strategic and economic issues with China had resulted in tangible economic concessions, despite the unprecedented diplomatic furor over a Chinese human-rights advocate seeking aid from American officials. The case of the Chinese dissident, Chen Guangcheng, has overshadowed the annual strategic and economic dialogue between...However, a senior administration official said in a telephone briefing from Beijing that China has gone further than ever in allowing competition with its powerful state-owned enterprises and creating consumption-led growth in its export-focused economy...For the first time, according to senior American officials, Chinese policy makers said they would commit to removing advantageous financing and regulatory conditions to state-owned enterprises, a significant step forward in the eyes of the Obama administration." Annie Lowrey in The New York Times.
@tylercowen: What did *you* do for nominal gdp today? Just asking.
Hilarious old technology interlude: The Viewtron System and Sceptre Videotex Terminal, from AT&T and Knight Ridder.
Health Care
The U.S. could save hundreds of billions in health costs by copying the Dutch. "Here's one way America could cut $705 billion in health care costs: Act more like the Netherlands. The Dutch are far from the most thrifty spenders when it comes to health care. In the Commonwealth Fund's new comparison of 13 countries, the Netherlands is the second-highest spender as a percent of their economy (coming in, to no great surprise, right after the United States). But if the United States dedicated the same percent of it's economy to health care as the Dutch do, costs would drop by 41 percent. And here's some encouraging news: When you look at how the Dutch health care system works, it's not actually a huge leap from how we'll deliver care here in the United States when the big pieces of the Affordable Care Act come into effect. As we move toward implementing a health insurance system that bears a strong resemblance to that of the Netherlands, the country does provide a more optimistic preview of where we might be headed." Sarah Kliff in The Washington Post.
The NIH is trying to find new uses for abandoned drugs. "The U.S. government said Thursday it will work with large pharmaceutical companies to try to find new uses for once-promising drugs that have been cast aside by the industry. The National Institutes of Health initially will work with Pfizer Inc., Eli Lilly & Co. and AstraZeneca PLC to match abandoned drugs with researchers from universities, hospitals and the NIH. Researchers at the NIH's new National Center for Advancing Translational Sciences generally will focus on drugs known to work on a specific gene but that somehow failed in initial testing by the company behind them. The goal is to find a different ailment they can treat, since it often is easier to work with an existing drug than create one from scratch...As examples of drugs that earlier found new purposes, Dr. Collins pointed to AZT and raloxifene. AZT once was a cancer drug but became an important therapy for AIDS patients." Thomas Burton in The Wall Street Journal.
Domestic Policy
Congress is taking a pass on the debate over location tracking. "When it comes to police access to cellphone location data of suspects, Congress has left the courts holding the bag. The high-stakes privacy debate over law enforcement tracking citizens using geolocational data is one Congress -- despite a few bills and a hearing on the horizon -- isn't likely to resolve anytime soon. Lawmakers have left it to the courts, while the Supreme Court seemed to toss it back to the Hill recently...These days, the same technology that ensures smartphone users can't get lost on their way to a new restaurant allows the police to track their movements. If it sounds slightly Orwellian, that's because it is. But there's no clear legal standard for when the cops can get their hands on that detailed information. A federal privacy statute was passed in 1986, a technological eon ago. Despite that, most lawmakers have little appetite for tackling the issue." Keith Perine in Politico.
Cities are worried about their readiness for cyberattacks. "A study commissioned by President Obama to assess the nation's ability to respond to terrorist attacks and man-made and natural disasters has found that state and local officials have the most confidence in their public health and medical services but are the most concerned about whether agencies can respond to cyberattacks. The report, conducted by the Federal Emergency Management Agency, said that state and local officials also felt unprepared to provide adequate housing in their communities after a disaster. Called the National Preparedness Report, the assessment is the first of its kind released by the federal agency and was intended to serve as a baseline for preparedness. In March 2011, Mr. Obama signed a directive ordering the federal government to release an annual report on the nation's response capacities, which have received intense scrutiny since the Sept. 11, 2001, attacks and Hurricane Katrina." Michael Schmidt in The New York Times.
Woodworking interlude: The Atom ukulele.
Energy
Automakers agreed on a standardized charging system for electric cars. "A group of eight U.S. and foreign automakers announced an agreement Thursday on a standardized charging system for electric cars, which they say will 'harmonize' the technology and speed up charging times. Ford, General Motors, Chrysler-Daimler, Audi, BMW, Porsche and Volkswagen announced they would display the new charging systems during the upcoming Electric Vehicle Symposium in Los Angeles. The companies said the chargers would combine 'one-phase AC-charging, fast three-phase AC-charging, DC-charging at home and ultra-fast DC-charging at public stations into one vehicle inlet.'...The standardized charging system, which the companies said was chosen by the International Society of Automotive Engineers, will be available for use on electric cars in the United States and Europe. The automakers said the chargers will be available for purchase by the end of 2012 and compatible with their 2013 models." Keith Laing in The Hill.
Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.
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