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.
...

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.

Valar Morghulis

Kenyan Socialism has two mottos. Eppur Si Muove and Valar Morghulis (Old Valyrian for: "all men must die").

"Dornish law does not apply." Tyrion had been so ensnared in his own troubles that he'd never stopped to consider the succession. "My father will crown Tommen, count on that."

"He may indeed crown Tommen, here in King's Landing. Which is not to say that my brother may not crown Myrcella, down in Sunspear. Will your father make war on your niece on behalf of your nephew? Will your sister?" [Oberyn] gave a shrug. "Perhaps I should marry Queen Cersei after all, on the condition that she support her daughter over her son. Do you think she would?"

Never, Tyrion wanted to say, but the word caught in his throat.... "I don't know how my sister would choose, between Tommen and Myrcella," he admitted. "It makes no matter. My father will never give her that choice."

"Your father," said Prince Oberyn, "may not live forever."

Something about the way he said it made the hairs on the back of Tyrion's neck bristle. Suddenly he was mindful of Elia again, and all that Oberyn had said as they crossed the field of ash. He wants the head that spoke the words, not just the hand that swung the sword. "It is not wise to speak such treasons in the Red Keep, my prince. The little birds are listening."

"Let them. Is it treason to say a man is mortal? Valar morghulis was how they said it in Valyria of old. All men must die. And the Doom came and proved it true."

        George R.R. Martin -- A Storm of Swords

It's Halftime in America ... and We're Winning by Yglesias

review of Scheiber's The Escape Artists by Yglesias

Why We Need A Volcker Rule by Mike Konczal

Lula's Brazil by Perry Anderson (31 March 2011)

DeLong on Glasner by Daniel Kuehn

DeLong writes

As I have said before, IMHO Cassel and Hawtrey see a lot but also miss a lot. The Bagehot-Minsky and the Wicksell-Kahn traditions have a lot to add as well. And Friedman was a very effective popularizer of most of what you can get from Cassel and Hawtrey.

But, as I have said before, those of us who learned this stuff from Blanchard, Dornbusch, Eichengreen, and Kindleberger--who made us read Bagehot, Minsky, Wicksell, Metzler, and company--have a huge intellectual advantage over others.

Realism and Utopia in The Wire by Fredric Jameson (pdf download)

(via David Haglund)

Mike Konczal at Rortybomb on February auto sales:

As auto sales per capita go up, unemployment goes down.  And we just saw a major jump in auto sales.  Eric Platt at Business Insider: ”As predicted by Business Insider, statistics firm Autodata Corp. is calling the February seasonally adjusted annual rate of sales at 15.1 million units for the U.S. auto industry.  Earlier in the afternoon, Business Insider forecast the rate for February would come in at 15.1 million, a substantial jump from January’s 14.1 million pace.”

And plugging an extra million into the equation means that unemployment should drop around 0.3% – to a rate of 8%.  We need to be talking 300,000+ jobs to get to that rate.

All kinds of caveats – no idea if the auto sales relationship holds up, lots of unemployed are on the sidelines, which means the unemployment rate may go up even with job gains as people re-enter the work force, etc.  But still promises to be a monster next Friday.  We’ll be covering it on twitter starting at 8:30am sharp.

False Starts by Kash Mansori

But over the past couple of months we have now been experiencing a third round of positive signs on the recovery in the US. Is this spring likely to reveal yet another false start for the US economy?

I don't think so. I think this time the improvements are for real, and more sustainable. There are two primary reasons that I say this (putting aside the obvious one, which is "third time's the charm"). First, the housing market finally appears to be well and truly near its cyclical bottom. Yes, house price indexes are still showing some declines, but there is good reason to think that there's very little further for house prices to fall. House price-to-rent ratios and real housing prices are just about where they were in the late 1990s, before the housing bubble was even a glimmer in any home-owner's eye. It's not likely that prices will fall much further. And construction activity has already bottomed out, with changes in real estate construction now adding to economic growth rather than subtracting from it.

The second reason is that the process of debt deleveraging by American households is further along than it was during the false economic starts of 2010 and 2011.

(via Thoma)

Secret Commerce Department Report Shows the Economy May be Faltering by Dean Baker

In short, this is an unambiguously bad report. My view is that it is probably an anomaly. We will perhaps see upward revisions in the second report for January or a big bounceback in the February numbers. But, this report definitely deserved some attention. It might seem rude to spoil the celebrations over our 3.0 percent growth rate last quarter, but that is what reporters are supposed to do.

E.U. Leaders Challenged by Rise in Joblessness

The jobless rate in the 17 euro zone countries rose in January to 10.7 percent, from 10.6 percent in December. It reached the highest level since 1999, when the euro was introduced, according to Eurostat, the European Union’s statistics agency. Flagging economies like Italy and Greece were responsible for much of the increase. For all 27 E.U. countries, the rate ticked up to 10.1 percent in January from 10.0 percent in December.  

European countries nonetheless diverged widely: Spain again topped the list with a 23.3 percent jobless rate, followed by Greece, at 19.9 percent in November. That compared with 4 percent unemployment in Austria and 5 percent in the Netherlands.

Federal Reserve Chairman Sees Modest Growth by Binyamin Appelbaum

But the Fed has remained cautious, and Mr. Bernanke repeated a familiar list of reasons for that stance, including the depressed housing market and turbulence in Europe. The Fed also has overestimated the pace of recovery several times in recent years.

“The recovery of the U.S. economy continues, but the pace of expansion has been uneven and modest by historical standards,” Mr. Bernanke said. He noted that the Fed did not expect “further substantial declines” in the unemployment rate this year.

As a result, he said the Fed remained committed to continuing its economic stimulus efforts, keeping short-term interest rates near zero and maintaining a large portfolio of Treasuries and mortgage bonds to further reduce long-term rates, holding down borrowing costs for businesses and consumers.

Mr. Bernanke gave no indication that the Fed was considering new efforts, like increasing its holdings of mortgage-backed securities to bolster the housing market. Indeed, his remarks suggested that the Fed’s attention was shifting to the possibility that the recovery is outpacing its expectations.