Tag Archives: Macroeconomics

Unemployment Insurance Claims Not Letting Up

From Calculated Risk, a graph including today’s release of unemployment insurance claims:

Everyone thinks that this is terrible news, that unemployment insurance claims are not letting up. But take a look back during the tech boom recession, claims didn’t let up for a long time either. Given the severe magnitude of this recession, we won’t see any easing of unemployment insurance claims back to pre-recession levels for a very long time. Some structural employment issues at play may even cause claims to bottom out much higher than had previously in the boom times. A more dynamic labor market may be in order if hiring rates peak at a point that would offset claims, and that would mean that with a little more context, the issue isn’t as bad as we see it. Ups and downs should be expected.  This is really an issue of scale, and the severity of our recession has skewed our benchmark.

The next growth area for the economy

The optimism is rushing in as the new cadre for the future of the American economy, most of which was given a lift thanks to the new employment numbers for March.  While many report on the green shoots that help point to the one, rosy conclusion there still remains the question of where our growth will come from. From Slate, an article on “Why the U.S. recovery will be bigger, faster, and stronger than economists and politicians expect” gives a clue as to what the next new growth area for the economy will be: infrastructural efficiency.

In the short term, the ruthless pursuit of efficiency translates into the uncomfortable—and unsustainable—dichotomy of rising profits and falling employment. But the focus on efficiency is creating new business opportunities for smart companies. At BigBelly Solar, a Needham, Mass.-based firm whose solar-powered trash compactors reduce the need for both labor and energy, sales doubled in both 2008 and 2009. “Cities and institutions like universities and park systems are eager to do more with less,” says CEO Jim Poss. Leasing 500 compacting units has allowed Philadelphia to cut weekly pickups from 17 to five and will save it $13 million over 10 years. BigBelly employs fewer than 50 people, but like many businesses in fast-growing markets it indirectly supports a much larger number of jobs. At Mack Molding, an Arlington, Vt., contract manufacturer, 35 workers are kept busy on two shifts producing compactors. “When you add the employees at the more than 50 component suppliers, this work is supporting another 180 jobs,” says Joan Magrath, vice president of sales and engineering at Mack Molding. BigBelly compactors, which are entirely made in the United States, have been exported to 25 countries. It’s a drop in the bucket. But thousands of start-ups and small businesses are trying to crack the markets developing at home and abroad.

The value added is obvious. More waste can be processed at a lesser cost.  In the case of Philadelphia, the $13 million dollar savings can now be allocated to provide more value regarding something else, providing more momentum for growth in either the public or private sector.  While traditional waste handlers may be out of a job, the article notes that much higher skilled, production jobs are created in order to produce the automated receptacles.

The short-coming of this article is that it doesn’t delve any deeper into the potential that efficiency systems like this can create for the economy.  This blog has detailed some incredible ideas at maximizing efficiency, either by finding value in waste or building economies of scale.  The author misses how important infrastructural efficiency will be for the economy, especially since a lot of this efficiency will result in energy savings, usually not propelled by cost, but towards providing a greener future.  The more value we can squeeze per unit of (insert labor or widget here), the higher productivity the U.S. will enjoy which will entail higher income per individual.

Where the U.S. stands on the Laffer Curve

From Greg Mankiw:

Taxes/GDP x GDP/Person = Taxes/Person

Here are the results for some of the largest developed nations:

France
.461 x 33,744 = 15,556

Germany
.406 x 34,219 = 13,893

UK
.390 x 35,165 = 13,714

US
.282 x 46,443 = 13,097

Canada
.334 x 38,290 = 12,789

Italy
.426 x 29,290 = 12,478

Spain
.373 x 29,527 = 11,014

Japan
.274 x 32,817 = 8,992

Senate passes jobs bill

So the Senate just voted on the jobs bill and it is now going to Obama.  I predict with a 99.87% certainty that Obama will pass it, only so that he can push it aside to get political points while getting to bigger business for the next session of congress.  Here is what the bill will offer: (bullet points added, from NYT)

  • …businesses that hire workers who have been jobless for at least 60 days will be exempt from paying the 6.2 percent payroll tax on those employees’ earnings until the end of the year. If those workers stay on for a full year, businesses will also get a $1,000 tax credit. (The employee’s pay would still be subject to the usual personal income taxes.) The business tax breaks would add up to about $15 billion in all.
  • It also provides an extra $20 billion for road and bridge construction and extends the federal highway program through year-end.

And that’s it. $30 billion in corporate tax breaks is soon to follow, which is probably being pushed by Dems in order to compliment the oddly restrictive, albeit mildly effective hiring incentive.

But where is the investment tax credit Obama said he would like to see when he gave his State of the Union address? This bill won’t do much for employment as much as we hope.  Construction spending is only expected to ease some of the pain for construction workers on federal contracts.  Of course I can’t quantify what this will do. (I will look out for it) I know that at this turning point in the economy, with productivity up and a lot of pent up need for hiring, an investment tax credit would definitely stimulate demand.  Weak demand is the reason that’s keeping employment from taking off.

Quick note on GDP rise

It’s a bit late, but I want to comment on it considering it is relatively good news above the surface. For those who didn’t see, the advanced release for GDP in 4th quarter clocked growth at around 5.7%. (here) Considering that this is an advanced release, it will most likely get revised downward later to a more conservative estimate. Why so high? Inventories, mostly, and it is expected that such a growth rate can’t be maintained. ( IHS Global Insight sees growth in 2010 to be around 2.5% – 3.0%)

Beneath the surface there is a nugget of optimism that I want to point out, and that Obama should pay attention to, since timing is critical.  From the BEA release:

Real nonresidential fixed investment increased 2.9 percent in the fourth quarter, in contrast to a decrease of 5.9 percent in the third. Nonresidential structures decreased 15.4 percent, compared with a decrease of 18.4 percent. Equipment and software increased 13.3 percent, compared with an increase of
1.5 percent. Real residential fixed investment increased 5.7 percent, compared with an increase of 18.9 percent.

If you haven’t read previously, I pointed out Greg Mankiw’s belief that an investment tax credit is a great way to spur growth in the economy. I made my case here on Mankiw’s point. Already businesses are seeing that it is profitable in some sectors, notably software, to decide to invest.  As you can see it has spurred tremendous growth for output, which means that demand can only follow.  This in turn will create jobs.  Obama has already indicated an attempt in his State of the Union speech (here) to try and pass a job bill to include an investment tax credit.  Smart move. However, Obama continues to supplant the focus on small businesses when he should be focusing on all sizes.  I am sure not many populists will even notice in order to gain steam against it, because after all, it helps everyone, not just small businesses.   But Obama needs to act quickly if he is going to want to keep growth like this for 2010.  Let’s hope, for something like this at least, that politics don’t get in the way again.

Econ Rap – Keyenes vs. Hayek

It’s all over the place but I figured I had to post it because, well…, it’s good!

So the job picture didn’t work out as hoped

U.S. nonfarm payroll employment decreased by 85,000 jobs in December.  (here) However, the previous month was revised upward from 11,000 jobs lost to 4,000 jobs gained, so we were able to eke out some positive job growth after all.  My previous posted hoped for some positive job growth, given the prior enthusiasm and I’ll take some at least in the revisions.   It is interesting that the ADP numbers was only off by a 1,000 given the usual disparity, but that is mostly due to a decreases in the government employment.  Professional business services and health and education services happened to add a total of 85,000 jobs while every other sector dragged down the total number.  Overall, not good but not that bad either. At least the unemployment rate didn’t budge.  No one really hires during the holidays and will only fire given necessity.   In times like these necessity holds out more than usual since the environment for demand is poor.  This only leads me to believe that 2010 should be a good year for jobs and January will be the month to start.