Latest IMF data helps us see how political choices impact on health and economic outcomes

The IMF recently updated their – World Economic Outlook database – April 2021 – which allows for quick cross country comparisons. Some of the data series are suspect (like structural deficit estimates) for reasons that I have explained before, but many of the national accounts series are useful. I have been doing work on the relative responses to the pandemic and the impact on economic performance as well as researching the next chapter of one of the current book chapters. So today, I just present some interesting graphs and calculations. Nothing deep but the figures then provoke some deep thinking. The lessons are pretty clear: Covid elimination strategies protect health and the economy better; Austerity is highly damaging; and there is a massive shift in the world order going on and we should be learning from that. And all of the trends I examine are ultimately the result of political choices. That is the important point to keep in mind.

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US labour market – strong improvement but for how long?

Last Friday (April 2, 2021), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – March 2021 – which showed that the recovery since the catastrophic labour market collapse in March and April 2020, which had stalled in recent months, has got back on track as States open up their economies. Payroll employment growth was very strong and the unemployment rate fell by 0.2 points to 6 per cent. The broader labour wastage captured by the BLS U6 measure fell by 0.4 points to 10.7 per cent. Whether the vaccination process in train allows businesses to remain open is an unknown at present. Time will tell.

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US Congress to consider a vote on condemning MMT – signals progress

On March 25, 2021, a member of the US House of Represenatives “introduced a resolution in the House of Representatives this week condemning Modern Monetary Theory, recognizing that its implementation would lead to higher deficits and inflation”, while a “companion bill” was introduced into the US Senate (Source). The full text of the proposed legislation is available – HERE. The Bill is full of factual errors. But I thought the most significant aspect is the ‘authorities’ they call upon for justification. A parade of mainstream economists and progressive economists are quoted to give support for the Bill. And I haven’t seen one disclaimer from those mentioned disassociating themselves from some of the wild inferences that the Bill makes. They have allowed themselves to be co-opted by their silence in this rather tawdry and dishonest exercise. That is not surprising at all.

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US labour market recovery is stop-start and precarious

Last Friday (February 5, 2021), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – February 2021 – which is consistent with a view that the US labour market recovery is stop-start at present and not reducing the jobs lost since March 2020 at any reasonable rate. prediction. Payroll employment growth was stronger in February. The labour force survey data showed consistent employment growth but not strong enough to really do anything about unemployment and the broader labour wastage captured by the BLS U6 measure which was constant at 11.1 per cent. Participation was steady in February, which when coming off a recession is a sign that employment growth is subdued. I remain wedded to the view that the US will have to stabilise the health situation before they will be able to sustain any reasonable economic recovery. Whether the vaccination process in train allows for that is an unknown at present. But with states like Texas seemingly in denial with respect tot the virus, I suspect bad outcomes will emerge in the month ahead. And with the Blue Democrats trying to be Republicans (denying a reasonable stimulus) that doesn’t augur well.

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US labour market in dire straits – overheating potential – zero

Payroll employment highly subdued. 408 thousand workers exit the labour force due to lack of jobs. Overheating potential zero. In last month’s assessment – US labour market – things are getting worse again as the virus spreads (January 18, 2021) – I predicted things would get worse given the trajectory of the virus. I have formed a strong view that nations have to deal with the health issue before they can expect the economy to open up again. No nation can ignore a spiralling death rate and avoid some restrictions which damage the economy. The evidence demonstrates that the nations that have largely suppressed the virus are doing the best in economic terms. Last Friday (February 5, 2021), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – January 2021 – which is consistent with my prediction. Payroll employment growth has slowed rapidly (only increasing by 49 thousand). But the labour force survey data is a bit difficult to interpret this month due a population benchmarking changes (see below). In terms of the household survey, employment rose by 201 thousand and the labour force was reduced by 408 thousand, meaning that official unemployment fell by 606 thousand and the unemployment rate fell by 0.4 points. Taking out the population control effect, the labour force shrank by 200 thousand. While the signals are a little confused, the data is showing there is no strong recovery going on at the moment as the health crisis intensifies. There is an elevated degree of excess capacity. I consider that the US will have to stabilise the health situation before they will be able to sustain any economic recovery. And we can disregard New Keynesian macroeconomists who are suffering from attention deficit problems it seems, and claiming that the economy is close to overheating and cannot absorb the proposed stimulus from the new Administration. The stimulus is actually too little!

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US labour market – things are getting worse again as the virus spreads

US Department of Labor’s latest unemployment claimant data is worrying with the claimants in the week to January 9, 2021 rising to 1,151,051 a shift of 231,335. This is the highest level since the week ending July 25, 2020 and confirms what we now know – that unless a nation deals with the health crisis and gets the virus infections under control (preferably to the point of zero community transmission), it cannot hope for a sustainable economic recovery. The data is the result of lockdowns leading to layoffs in the hospitality and recreation sectors which has pushed the US economy back into contraction. The rise in new claimants follows the payroll data that revealed that employment had fallen by 140,000 (net) – see this blog post for analysis of that data release – US labour market recovery has ended as health problem intensifies (January 11, 2021). And given the nature of the employment most impacted, you can be sure that socio-economic inequalities will have risen. I will write about that last issue another day.

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US labour market recovery has ended as health problem intensifies

It has been clear that with the virus infections in the US increasing rapidly and with the lack of fiscal support from government, that the labour market conditions would probably start to deteriorate after a brief period of recovery following the first blush with the virus. I have been predicting that since December 2020. The latest data reveals that assessment was accurate. On January 8, 2021, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – December 2020 – which reveals a deteriorating or static situation, depending on the weight one gives to the payroll data relative to the household survey. Payroll employment fell by 140 thousand. In terms of the household survey, with employment and the labour force hardly moving, unemployment and the unemployment rate was unchanged. While the signals are a little confused, the data is showing the recovery has ended as the health crisis intensifies. I consider that the US will have to stabilise the health situation before they will be able to sustain any economic recovery. The US appears to be going in the opposite direction to that.

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Is the $US900 billion stimulus in the US likely to overheat the economy – Part 2?

The answer to the question posed in the title is No! Lawrence Summers’ macroeconomic assessment does not stack up. In – Is the $US900 billion stimulus in the US likely to overheat the economy – Part 1? (December 30, 2020) – I developed the framework for considering whether it was sensible for the US government to provide a $US2,000 once-off, means-tested payment as part of its latest fiscal stimulus. Summers was opposed to it claiming that it would push the economy into an inflationary spiral because it would more than close the current output gap. Today, I do the numbers. The conclusion is that there is more than enough scope for the Government to make the transfers without running out of fiscal space.

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Is the $US900 billion stimulus in the US likely to overheat the economy – Part 1?

Comments made last week by the former Clinton, Obama and now Biden economist Lawrence Summers contesting whether it was sensible for the US government to provide a $US2,000 once-off, means-tested payments was met with widespread derision and ridicule from progressive commentators. There were Tweets about eviction rates, bankruptcy rates, poverty rates, and more asserting that the widespread social problems in the US clearly meant that Summers was wrong and a monster parading as a progressive voice in the US debate. I didn’t see one response that really addressed the points Summers was making. They were mostly addressing a different point. In fact, the Summers statement makes for an excellent educational case study in how to conduct macroeconomic reasoning and how we need to carefully distinguish macro considerations from distributional considerations, even though the two are inextricably linked, a link that mainstream macroeconomics has long ignored. So while Summers might have been correct on the macro issues (we will see) he certainly wasn’t voicing progressive concern about the distributional issues and should not be part of the in-coming Administration. This is Part 1 of a two-part analysis. In Part 2 we will do some sums. In this part, we will build the conceptual base.

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US labour market deteriorating – health and economic policy failures

Last month, I noted that with the virus infections in the US increasing rapidly and renewed lockdowns almost inevitable combined with the lack of fiscal support from government, labour market conditions would probably deteriorate in November. I thought the US faced an uncertain and pessimistic future. The latest data reveals that assessment was accurate. On December 4, 2020, the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – November 2020 – which reveals a deteriorating situation. Employment growth has slowed dramatically and participation fell by 0.2 points, which is the only reason that the unemployment rate fell by 0.2 points. Once we take into account the decline in the labour force, we realise that the fall in unemployment is illusory – it just means that workers who would normally be considered unemployed are now being classified as outside the labour force (that is, as hidden unemployed). The impasse at Congress on the the size and design of the next tranche of fiscal support is not helping. And then the data shows the lax health policy is allowing the virus to run out of control and how that plays out is anyone’s guess. I suspect a nation has to get the health problem sorted before they can really sort out the economic problem. The US appears to be going in the opposite direction to that. I doubt it will turn out well.

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