Global Economic Watch


Recent Posts



  • AP: Economic Mobility Among Young Workers Hits 50-year Low

    We know the Great Recession had a significant impact on young workers. Now we are seeing some startling data on economic mobility among young adults. 25-29 year old Americans look to be stuck. As the Associated Press 's Hope Yen reports, new Census data reveals that this cohort is showing the lowest mobility rates in half a century: Among adults aged 25 to 29, just 4.9 million, or 23.3 percent, moved in the 12 months ending March 2013. That is down from 24.6 percent in the same period the year before, and the lowest level since at least 1963. By metropolitan area, Portland, Ore., Austin, Texas, and Houston were among the top gainers in young adults, reflecting stronger local economies. Denver and Washington, D.C., topped the list of destinations for college graduates. Demographers say the delays in traditional markers of adulthood — full-time careers and homeownership — may prove to be longer-lasting. Roughly 1 in 5 young adults aged 25 to 34 is now disconnected from work and school. ‘‘Young adulthood has grown much more complex and protracted, with a huge number struggling to reach financial independence,’’ said Mark Mather, an associate vice president at the private Population Reference Bureau. ‘‘Many will get there, but at much later ages than we’ve seen in the past. More and more, we’re seeing many young adults routinely wait until their 30s to leave the parental nest.’’ The decline in migration among young adults is being driven by a drop in local moves within a county, which fell to the lowest level on record. Out-of-state moves also fell, from 3.8 percent in 2012 to 3.4 percent, but remained higher than a 2010 low of 3.2 percent. Read the full report here .
  • Feducation: Monetary Policy and Unemployment

    In this so-called jobless recovery , unemployment is always top of mind. So let's go back to basics with the St. Louis Fed 's Feducation series. In this episode, Mary Suiter , an assistant vice-president at the St. Louis Fed, gives a helpful talk on the different types of unemployment, and how monetary policy is tied to rates of joblessness.
  • NY Fed President Sees Economy in a 'Tug -of-war'

    Speaking at Syracuse University on Friday, NY Fed President William Dudley let it be known he is still seeing mixed signals from the economic data. A lot of the recent data, he says, is promising. Household net worth has increased. Banks have loosened credit lines. Consumer spending is up. Home prices are rising and excess supply of housing is lessening. However, a number of risks to the outlook are evident. Long-term interest rates, including mortgage rates, have risen significantly since early May. Since then, we have seen a sharp drop in refinancing mortgage applications, a more moderate but significant decline in purchase mortgage applications and fairly flat housing starts and new home sales. Although I do not anticipate that the rise in long-term rates will lead to a downturn in housing, these developments do suggest that higher mortgage rates have cut into the upward momentum of the housing sector. We will need to monitor upcoming data closely to assess more fully the impact of higher rates on the housing recovery. Another risk is that federal fiscal policy could exert further restraint on the economy during the rest of this year and in 2014. It is difficult to assess how much of the contractionary effects from sequestration, for example, have already occurred, or still remain ahead. A related issue is the high degree of uncertainty about fiscal policy. In coming weeks, Congress will be considering how to fund the government for the next fiscal year and will also be debating what to do about the debt limit. This creates uncertainty about the fiscal outlook and may exert a restraining influence on household and business spending. One other risk to highlight is the global economic outlook. Even though the euro area appears to have begun to grow again after a protracted recession, growth in that area is still expected to be fairly weak at best. In addition, growth in many of the largest emerging economies has slowed, and some of the countries with large trade and current account imbalances have seen their financial markets and currencies come under pressure. If growth abroad were to slow, this could impede the growth of U.S. exports and this could result in less strength in manufacturing production and employment in the U.S. Thus, returning to an analogy I have used in previous speeches, I see the economy in a tug-of-war between these headwinds and underlying fundamental improvement, with a great deal of uncertainty over when the improvement in the underlying fundamentals will prevail. In the end, my best guess is that growth for all of 2013, measured on a Q4/Q4 basis, will be near the post-recession average. But I believe a good case can be made that the pace of growth will pick up some in 2014. The private sector of the economy should continue to heal, while the amount of fiscal drag should subside. I also expect that, despite the near-term concerns, growth prospects among our major trading partners will improve next year. And this combination of events is likely to create an environment in which business investment spending will strengthen. However, the notion that the economy will grow more swiftly remains a forecast rather than a reality at this point. Read the full speech here .
  • BLS Jobs Report: Slow Decrease in Unemployment Rate Continues

    The jobs picture gets just a little better with each passing month. The U.S. economy added another 169,000 jobs in August, and the unemployment rate dropped another 0.1% to 7.3%, according to the Department of Labor . The labor force participation rate is at 63.2% (compared with 63.4 percent in July). Here's a look at the unemployment trends from the Bureau of Labor Statistics : Here are some of the key data from other areas we like to track in the monthly jobs report: The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) declined by 334,000 to 7.9 million in August. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job. In August, 2.3 million persons were marginally attached to the labor force, down by 219,000 from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Among the marginally attached, there were 866,000 discouraged workers in August, essentially unchanged from a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.5 million persons marginally attached to the labor force in August had not searched for work for reasons such as school attendance or family responsibilities. Read the full report from the BLS here .
  • HBR: Comparing Jobless Recoveries--Great Recession and Great Depression

    Justin Fox , editorial director of the Harvard Business Review Group , offers up a little perspective at the HBR blog. As bad as the post-Great-Recession jobless recovery has been--and Fox is not suggesting it been anything other than terrible--take a look at it in comparison to the Great Depression years: Fox writes: What lessons can one draw from this? Basically, if you think this downturn was comparable in origin and inherent severity to the other recessions since World War II, then we've been the victims of economic-policy bungling of epic proportions. If, on the other hand, you think the proper comparison is the Great Depression, the last U.S. downturn brought on by a severe financial crisis, you'd have to say the White House, Congress, and most of all the Federal Reserve have done an absolutely brilliant job relative to their early-1930s counterparts. I'd lean toward explanation No. 2 — we did actually learn something from the Great Depression, although probably not enough. Read One Difference Between a Great Recession and a Great Depression: Jobs here .
  • The Link Between Home Ownership Rates and Rising Unemployment

    The jobless recovery has us looking everywhere for the culprits--the factors that exacerbate unemployment. But we have not spent a lot of time connecting home ownership and unemployment. University of Warwick's Andrew Oswald and Dartmouth's David Blanchflower say they have evidence "that the high rate of home ownership in the western world may be an important reason for the high unemployment that we all see around us." In a new paper they share data from U.S. states and linkages between increased home ownership rates and lost jobs. Oswald provides a summary of their findings at Vox : Famously, Switzerland has 3% unemployment and 30% home ownership, while Spain has 25% unemployment and 80% home ownership. Simple correlations of this kind do not count as (remotely) persuasive causal evidence. They are open to the objection, in particular, that they do not difference out country fixed effects. So, in our paper we take many decades of data from US states, which as a federally organised nation state, offers a useful spatial mini-laboratory for econometric work on unemployment rates, and we then estimate state panel unemployment equations. We adjust for state fixed effects, for year dummies, and for the demographic and educational composition of the people who live in the different states. When this is done, we find that the lagged home-ownership rate acts as a strong predictor of the unemployment rate. The size of the estimated effect is startling: A doubling of home ownership is associated with more than a doubling of the long-run unemployment rate. As a check, we show that this result is holds up against splitting the data set into different sub-periods and into different areas (such as North and South) within the US. We also show that the patterns are – very probably – not because home owners themselves are disproportionately unemployed. Our work chimes with forthcoming recent research by Jani-Petri Laamanen, who studies a natural experiment in Finland (2013). Read High home ownership as a driver of high unemployment here .
  • Janet Yellen's Cautious Optimism the Unemployment Will Continue to Trend Down

    In a speech yesterday to the Money Marketeers of New York University , Federal Reserve Vice-Chair Janet Yellen said she did not see the current high unemployment in the U.S. as structural, but rather cyclical with a threat of becoming structural. And she points to the "slack in the labor market"--shown in the figure below--as a sign that moderate growth will be coming and will then lower unemployment. Yellen: Putting all the evidence together, I see no good reason to doubt that our nation's high unemployment rate indicates a substantial degree of slack in the labor market. Moreover, while I recognize the significant uncertainty surrounding such forecasts, I anticipate that growth in real gross domestic product (GDP) will be sufficient to lower unemployment only gradually from this point forward, in part because substantial headwinds continue to restrain the recovery. One headwind comes from the housing sector, which has typically been a driver of business cycle recoveries. We have seen some improvement recently, but demand for housing is likely to pick up only gradually given still-elevated unemployment, uncertainties over the direction of house prices, and mortgage credit availability that seems likely to remain very restricted for all but the most creditworthy buyers. When housing demand does pick up more noticeably, the huge overhang of both unoccupied dwellings and homes in the foreclosure pipeline will likely allow demand to be met for a time without a sizable expansion in homebuilding. A second headwind comes from fiscal policy. State and local governments continue to face extremely tight budget situations in light of the weak economy, depressed home prices, and the phasing out of federal stimulus grants, though overall tax revenues have been improving and that should continue as the economy expands further. At the federal level, stimulus-related policies are scheduled to wind down, while both real defense and nondefense purchases are expected to decline over the next several years under the spending caps put in place last year. A third factor weighing on the outlook is the sluggish pace of economic growth abroad. Strains in global financial markets have eased somewhat since late last year, an improvement that reflects in part policy actions taken by European authorities. Nonetheless, risk premiums on sovereign debt and other securities are still elevated in many European countries, while European banks continue to face pressure to shrink their balance sheets, and concerns about the outlook for the region remain. A further slowdown in economic activity in Europe and in other foreign economies would inhibit U.S. export growth. Read the full speech here .
  • Menzie Chinn on 'Unexpectedly fast net job creation'

    There seems to be fairly wide agreement that we have been witnessing a jobless recovery in the U.S. So it comes as a bit of a surprise to learn, as Menzie Chinn points out at Econbrowser , that private employment growth is outpacing GDP. Chinn shows the growth rate of private employment against GDP in this figure: Chinn: Notice that from 2008Q4 onward, employment growth was below the regression line (i.e., employment was underpredicted), and continued on into the recovery period. The most recent observations have indeed been above the regression line. But there does seem to be a consistent pattern wherein contractions are associated with employment growth below that implied by the relationship that obtains over both upswings and downswings. This suggests to me that we don’t want to look at static relationships (levels on contemporaneous levels, or growth rates on contemporaneous growth rates), but rather dynamic ones. And perhaps ones that allow for different behavior in contractions (after all, GDP business cycles are not symmetric – contractions are shorter than expansion). Read Okun’s Law, the Jobless Recovery, and Unexpectedly Fast Net Job Creation here .
  • SF Fed's 'Economic In Person' Series: The Great Recession and Unemployment

    One key legacy of the Great Recession will be the damage it caused to the labor market, says Mary Daly . That damage is deep and wide. And it only just begins to show up in the stats discussed in the media. In the first installment of a new series from the Federal Reserve Bank of San Francisco , Daly--Associate Director of Research and Group Vice President at the bank--discusses four distinguishing characteristics of the recession and its impact on unemployment. frbsf on Broadcast Live Free
  • Job Seekers to Available Jobs Ratio

    December has brought a small wave of positive news on the unemployment front--though much of it is better described as "less negative news." Lest we get carried away by dips in the unemployment rate and jobless claims, Economic Policy Institute economist Heidi Shierholz reminds us that the conditions are not ripe for a major shift. Shierholz points to the ratio of job seekers to available jobs, which remains above 4:1. Shierholz: To put this figure in context, it’s useful to note that the highest this ratio ever got in the early 2000s downturn was 2.8-to-1, and in December 2000, the month the JOLTS survey began, the ratio was 1.1-to-1. While the job-seekers ratio has been generally slowly improving since its peak of 6.9-to-1 in the summer of 2009, today’s data release marks two years and 10 months—147 weeks—that the ratio has been above 4-to-1. A job-seekers ratio of more than 4-to-1 means that for more than three out of four unemployed workers, there simply are no jobs. In October, there were 10.6 million more unemployed workers than job openings. Furthermore, the lack of job openings relative to unemployed workers is in no way limited to particular industries such as construction—unemployed workers dramatically outnumber job openings across the board, in every major industry. Read the full post here .
  • Brookings Experts on What They Think Obama Shoud Push for in Speech on Jobs

    Ahead of President Obama's highly anticipated policy speech on jobs, the Brookings Institution held a roundtable conversation on possible policy measures the Obama administration might make in order to improve the bleak economic picture. Michael Mussa , senior fellow at the Peterson Institute for International Economics , made the case for infrastructure spending. Mussa argued that passing the highway bill is among the most expedient, and least controversial paths to increasing public hiring: You can watch other excerpts from the discussion here , and read a full transcript here .
  • NY Fed: Temporary Joblessness and Recessions

    We have news coming out of the Department of Labor this morning that jobless claims dropped again last week . This is good news, but while the unemployment rate is declining, it is doing so at a very slow pace. This is somewhat different from some past recoveries. And Erica Groshen , a VP at the Federal Reserve Bank of New York , points out one possible factor: temporary unemployment. Take a look at the percentage of overall job losses that temporary unemployment made up for recessions from 1973-1981compared to the Great Recession (as shared by Groshen on the New York Fed's Liberty Street Economics blog): Groshen writes: During the last three downturns, temporary layoffs clearly played a much smaller role in the total rise in joblessness. I show three different bars because the beginnings and ends of recessions can be dated in different ways: official National Bureau of Economic Research (NBER) dates, unemployment rate peaks and troughs, and temporary layoff troughs close to unemployment rate troughs. Any way you measure it, temporary layoffs accounted for much less of the peak-to-trough increase in joblessness during the 2007 recession than they did in downturns before 1990. In our Current Issues article on the 2001 recession, Simon Potter and I offer two explanations for the switch away from temporary layoffs. The first focuses on modern personnel practices, such as lean staffing. Here, firms use recessions as opportunities to cull their workforces, close inefficient facilities, or make other fundamental changes. Rather than just “weathering the storm,” they try to emerge stronger. The second explanation notes that shallow, short recessions may have less cyclical “collateral damage.” That is, the impact of a mild recession may be highly concentrated in firms and industries that need to change, with little impact on fundamentally healthy firms or industries. If healthy employers prefer temporary layoffs (because they want their workers back when conditions improve), then a mild, short recession would lead to proportionally fewer temporary layoffs. In the 2001 recession, the new personnel practices were prevalent, but the downturn was not deep or long. So, in our article, we couldn’t tell which explanation was correct. However, the fact that the severe Great Recession did not cause a big spike in temporary layoffs suggests that new behavior patterns of employers are likely to be an important explanation. Read Temporary Layoffs during the Great Recession here .
  • Mark Thoma: Two Forecasts on Employment Recovery

    Unemployment dropped below 9% in Feburary, but it appears we will wait a long time before it gets down to 4%. Mark Thoma has two projections for how long it will take for the US to return to "full employment." Here's the optimisitc forecast, based on employment recovery following recessions since 1948: Here's the pessimistic projection, based on only the last two recessions: Thoma's methodology is available here and here .
  • Macroeconomic Advisers on the Jobless Recovery

    The analysts at Macroeconomic Advisers are forecasting that employment in the US will return to pre-Great Recession 2013. Yes, jobs are being created (at least in the private sector), they say, but at a very slow pace. And they anticipate that pace to remain slow. Here's a look at their forecast, compared to previous recessions: During the first two years following recessions in the 1970’s and 1980’s, output in the nonfarm business sector rose on average at a robust annual rate of 7.1%, but during the most recent three recoveries, output growth averaged a much more tepid 3.4%. This is comparable to the differences in private payroll employment, which rose at an average annual rate of 3.5% during the earlier recoveries, but at only a 0.1% (!) average annual rate during the last three recoveries. The difference in these two growth rates — a reduction of 3.5 percentage points — is comparable to the reduction in the rate of output growth of 3.7 percentage points. Read Macro Musing: Are We in Another Jobless Recovery? here .
  • BLS: Real Wages Rose in May

    Unemployment numbers continue to look bad, as the Department of Labor yesterday reported that unemployment insurance claims rose slightly last week . For those people who do have jobs, real wages have gone up, according to the Bureau of Labor Statistics . Real average hourly earnings went up 0.5 percent (seasonally adjusted) from April to May, while real average weekly hours rose 0.8 percent. One key factor: the Consumer Price Index declined 0.2 percent . Here's a look at the trend in real wages over the last year: Read the report from the BLS here .