Recovery Winter?

Why Job Growth Is Likely to Slow by David Leonhardt

Why do economists expect growth to slow? The warm winter has probably pulled some spending forward into the last few months and will reduce spending in coming months, says Joshua Shapiro, an economist at MFR Inc. in New York. Rising oil prices also play a role. So does the continuing debt overhang, which makes a sustained recovery difficult.

None of these forecasts should be taken as gospel, of course. Maybe the gross domestic product numbers are wrong and will be revised upward in coming months, as government economists receive more data about the economy’s condition. Maybe the recent job gains will lead to a surge in confidence that lifts spending above expected levels.

But the most likely path includes a slowdown in job growth. It’s easy to forget that on a day with a jobs report as positive as this one.

My colleagues Binyamin Appelbaum and Annie Lowrey have each written recent articles with more details on the predicted slowdown.

And:

On Friday, Macroeconomic Advisers, one of the most closely watched forecasting firms, reduced its estimate of economic growth in the current quarter to an annual rate of 1.8 percent, from 2 percent. And 1.8 percent growth does not generally lead to very strong job growth. In the fourth quarter of last year, by comparison, the economy grew 3 percent.
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Sure enough, most forecasters do expect job growth to slow. Barclays Capital expects 200,000 jobs a month for the rest of the year. IHS Global Insight forecasts a slowdown to 180,000 jobs a month. Macroeconomic Advisers says it will slow to 140,000 jobs a month in the final three quarters of this year.

“We don’t get anything like the booming labor market with 300,000 jobs,” said Laurence H. Meyer, senior managing director of Macroeconomic Advisers and former Federal Reserve governor. “It would take much stronger growth than we have to do that.”

As a benchmark, the economy needs to create roughly 125,000 jobs a month to keep up with population growth.

Calculated Risk is more upbeat:

There are reasons to expect better job growth overall this year compared to 2011. Last year was negatively impacted by the tsunami, bad weather, high oil prices and the debt ceiling debate. We can't predict the weather, and oil prices are high again - but hopefully there will be no natural disasters this year, and also no threats of defaulting on the debt.

Plus residential investment (new home sales and housing starts) has made the bottom turn, and even with a sluggish housing recovery, residential investment will add to economic growth in 2012. Also, the employment losses from state and local governments will probably end mid-year. As the BLS noted:  

Government employment was essentially unchanged in January and February. In 2011, government lost an average of 22,000 jobs per month. 

Employment growth in manufacturing will probably slow in 2012, but the overall picture is improving. Unfortunately the labor market is still very weak with 12.8 million Americans unemployed and 5.4 million unemployed for more than 6 months.

Another positive report was the ISM services survey that indicated faster expansion in February. Negatives included a larger trade deficit, an increase in initial weekly unemployment claims, and - of course - falling house prices in January.

The February job market: not bad by recent standards by Doug Henwood
 

DeLong has spoken highly of Macroeconomic Advisors, but Calculated Risk's outlook is persuasive. Although those betting on the downside have usually been right these past few years.

Consensus, Dissensus and Economic Ideas: The Rise and Fallof Keynesianism During the Economic Crisis by Henry Farrell and John Quiggin

Crooked Timber post

(via Thoma)

Keynan Socialism is Progressive.

Simon Johnson on the Cato putsch:

"In historical terms, Professors Acemoglu and Robinson see the progressive era at the beginning of the 20th century, including the development of countervailing power for the government against powerful private business interests, as an essential part of what has gone right in the United States of America."

(via Thoma)

The Fight Over the Cato Institute: Judean People's Liberation Front/People's Liberation Front of Judea Blogging by DeLong

“Who’s In Charge Here” by Alan Beattie – A Field Guide To Maynards by Daniel Davies

John Galt Wants Price Support by Krugman

Liquidity preference, loanable funds, and Niall Ferguson (wonkish) by Krugman

Do you "believe" in rational expectation (important) by Scott Sumner

Is he saying that if the Fed had lowered rates by .50 or more in December 2007 things might not have been so bad?

As Sumner points out, the January 2001 and September 2007 Fed cuts caused short term rates to decline and long term rates to rise as well as a stock market rally. In December 2007, the Fed cut rates by .25:

The fed funds futures showed a 58% chance of a 1/4 point cut and a 42% chance of a 1/2 point cut. The more than two percent fall in US equity indices after the 1/4 cut was announced implied a 5% swing in US equity prices hinged on the Fed decision. And foreign markets seemed to respond almost equally strongly–implying that the Fed’s decision destroyed well over a trillion dollars in shareholder equity worldwide.

They kept cutting after but it didn't help as Bear Stearns was bailed out in March 2008. Maybe the system was such a house of cards that it didn't matter how much the Fed cut. Maybe if they cut more and bailed out Lehman and everyone else, there wouldn't have been a panic? But we wouldn't have had Dodd-Frank.

What about the jobs report this coming Friday?

DeLong reports:

Morgan Stanley Still Expects QE3 This Year: Morgan Stanley continues to think the Federal Reserve will provide more stimulus via bond buying this year, even as improving economic data have led many in the market to think the sun may be setting on that particular strategy. “For some time, our call has been that the Federal Reserve will undertake additional balance-sheet action in the first half of 2012,” writes Vincent Reinhart, an economist with the bank and a former top-level Fed staffer. He argues it’s most likely the Fed will act to expand its balance sheet via Treasury and mortgage bond buying — in market parlance, QE3 — at either the April or June Federal Open Market Committee, and that the ultimate size of the program could tack on $500 billion to $700 billion onto what is currently a $2.9 trillion balance sheet…. Officials won’t wish to be seen starting a high-profile action in the thick of the presidential campaign. Also, he reckons growth will still be too weak, and inflation will be falling short of the Fed’s 2% target.

The recent improvement in economic news, especially on the jobs front, will increasingly be seen as a head fake, the Morgan Stanley economist said. “We share the view that the fillip to economic growth associated with a restocking of inventories is fading and that real GDP growth will slow notably in the current quarter,” Reinhart said. “Anxiety-inducing headlines that the economy is losing steam will be conducive to Fed action.”

China is weakening with a real estate market that has turned. DeLong reported slow growth in first quarter (where did he get that?)

Ryan Avent believes Fed will stand pat.

Dean Baker pointed to an ignored, disappointing durable goods order report.

States of Depression by Krugman

Economics in the Crisis by Krugman

Worse yet, the consequences were not limited to the acolytes of freshwater economics. Quite a few economists responded to the bitter warfare between schools of thought by running away from business cycle issues in general. I know whereof I speak: when Robin Wells and I began writing our principles of economics textbook, the general view was that you should focus on long-run growth, and relegate things like recessions and recoveries to a brief section at the end. Why? Because focusing on the long run was safer, less likely to get the committees that choose textbooks riled up.

Onion's A.V. Club's Charcters we most love to hate:

Genevieve Koski
Joffrey Baratheon from the A Song Of Ice And Fire books and Game Of Thrones television series is the worst kind of twerp: a twerp with power. Entitled, insecure, venal, and violent, he can always be counted on—with prodding from his equally contemptible mother—to make decisions that benefit few besides himself and his immediate family, a quality that makes for a piss-poor king, but a grade-A villain. (Just ask the Starks.) Jack Gleeson’s portrayal of the young king in the TV series is perfectly sniveling, aided in no small part by Gleeson’s naturally haughty-looking, oh-so-slappable face. For anyone who’d like to watch Joffrey getting slapped for 10 minutes straight:

And Onion vet Tasha Robinson mentions Cersei.

Season Two photos with new characters: Davos Seaworth, Melisandre, Stannis Baratheon, Balon Greyjoy, and Brienne.

Counter Cyclical Tradition versus the Treasury View

Economic Models and Economic Predictions by Krugman

Full Employment: A Force Against Rising Inequality and Stagnant Incomes by Jared Bernstein

Full employment (i.e. tight labor markets) is one of the main policy goals of Kenyan Socialism.