22 Comments

Instead of claiming there's some kind of 'hidden growth' in GDP the more obvious cause to stagnant GDP with increasing employment is that the newly employed are vastly less productive than the people employed at the last peak of growth. The peak of Boomer births occurred around 1957, 65 years ago. We're in the process of swapping Boomers who have decades of work experience for Zoomers with zero experience and woke college degree.

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Months ago you argued about inflation but ignored significant differences in U.S. price indexes (and similitudes in consumer price indexes among developed countries). Now you argue about the U.S. recession/stagnation and rely on some BLS employment data but ignore important BLS data.

Please tell me what you think about these ZH posts based on all BLS data for the last two months:

https://www.zerohedge.com/markets/something-snaps-us-labor-market-full-part-time-workers-plunge-multiple-jobholders-soar

https://www.zerohedge.com/markets/something-snaps-job-market-multiple-jobholders-hit-all-time-high-unexplained-18-million

I believe that you and many other economists have been ignoring the economic consequences of government responses to Covid-19. Indeed, U.S. economists have ignored what happened in the rest of the world. I understand that in all countries politicians want to ignore those consequences but the economists' failure to assess them properly makes me laugh at their conclusions. BTW, here in Chile, I'm watching the same movie aggravated by the ongoing political conflict.

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Aug 7, 2022·edited Aug 7, 2022

I was explaining your idea to a friend about why GDP growth is a mishmash measure with low precision while employment is a much better measured concept, and that's why you thought we were not in a recession (or a major reason why). But, and this echos what Christopher B, Invisible Sun, and a few others seem to indicate, I realized in the course of that explanation that saying "Economic Activity" is increasing when employment is increasing is equivalent to saying that "Productivity" is constant or increasing.

But productivity varies from industry to industry, job to job, and even worker to work. And the productivity measures we have are basically GDP measures, because aggregate productivity requires making comparisons between different workers producing different things. Just to make up a vaguely topical example, if 150k computer programmers with an average wage of 250k lose their jobs and 600k waiters with a wage of 50k become employed, that's a net decline in economic activity even though employment is going up. I agree we should focus on better signals, but if we want to measure economic activity we need to make aggregation assumptions about the relative value of different activities. I don't see how using the employment and not GDP figures helps us with that.

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founding

The situation remains the same. I am totally confused by all the chop in the system. The only bet that feels reasonable right now is continue to expect volatility. My newest confusion based on yesterday’s numbers: how long will the yield curve stay inverted? People are loaning money to the government at a lower rate for ten years than for two months. That is a sign of deep underlying disfunction in the capital markets. Usually it indicates a recession is coming. Of that isn’t the case, what gives? Would love to have markets that didn’t have a thumb on the scale from the fed.

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Are these new hires in new jobs = economic expansion, or are they plugging gaps in the labour force created by the economic shutdown?

Why are so many companies reporting they cannot find enough staff to bring them up to pre-shut down levels and resume normal output?

Shutting down the global economy for two years is going to produce economic situations that are difficult to analyse. But one thing is certain: we are in trouble, and it’s only just started nit least because the same people responsible for getting us into it, are the same bungling fools responsible for getting us out of it.

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I wouldn't take a single report as confirmation anymore

https://www.zerohedge.com/markets/something-snaps-job-market-multiple-jobholders-hit-all-time-high-unexplained-18-million

You can ignore the Zerohedge conclusion, but not the data. The employment surveys aren't correlated anymore which means none of them is a proxy for economic health on its own. I strongly suggest not coming to any conclusions unless you are willing to comb through the data at a high (low?) level yourself as former strong correlations have broken.

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founding

I submit it’s helpful to keep in mind that reporting the 528,000 change in employment understates the magnitude of economic activity or, borrowing from Arnold, of “patterns of specialization and trade”.

In round numbers, hires in June were probably around 6,500,000 and separations around 6,000,000.

While hires minus separations as reported by the Bureau of Labor Statistics don’t tie out exactly to the BLS’s 528,000 net figure, I think they’re close enough to illustrate the important point that the absolute change is far larger than the relative change.

So net new jobs were 500,000, but there were something like 10 times that many “new jobs” and “lost jobs”.

Thanks to Alchian & Allen for the insight.

PS. With the margin of error caveat noted, total seasonally adjusted non-farm employment of 152,536 as reported does appear to surpass the previous record of 152,504 pre-Covid record set in February 2020.

https://fred.stlouisfed.org/graph/?graph_id=1068786

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The establishment survey is a lagging indicator- always has been. In 2008, employment in that survey increased until June 2008, and didn't really decline until after October of that year.

Sure, the GDP numbers are probably uninterpretable right now with regards to whether or not there is a recession, but the inflation numbers are not. I track with spreadsheets all my spending. I am spending 50% more on food than I did just 3 years ago, and I buy the same items at the same rates as I did then. 3 years ago, my 12 month running average (I buy for both myself and my mother) was $101/week. As of last Wednesday, it was $142, and I have spent a running average of $156/week averaged over the last 2 months. My health insurance, a policy I haven't changed in 3 years has gone from $55/month to $252/month, and it covers a little less than it did 3 years ago since Blue Cross/Blue Shield has, itself, altered the policy slightly. I don't drive a lot, so gas isn't a big expense, but, of course, it is up over 50% in the last 3 years as well.

I can't find a single item that is at the same price or lower than it was prior to 2019. I recently had to replace my dumb cell phone because 3G is being phased out at the end of the year and the battery isn't holding much of a charge any longer. The phone I bought in 2015 cost me $95. I replaced it with a phone that is exactly as capable functionally but much more tedious to use, but is literally the lowest grade available at Verizon. Cost 150 dollars. That isn't indicative of growth to me, of any kind. It is all money illusion at this point as far as I can tell, and it doesn't seem to be getting better or increasing in a less worse way.

I say we revisit this topic 6 months from now after Powell has been forced to increase the rates he has control over by another 2-4%, if he has the courage to tried to get a handle on inflation.

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Nov 6, 2022·edited Nov 6, 2022

"The big question about economic statistics these days has to be, “Where is the missing GDP?” Either firms were hiring all those workers to sit around doing nothing or the GDP data are not picking up all of the economic activity that is taking place. "

I don't think one can immediately assume GDP was low for one of the two reasons you give, even if I agree data errors seems the best guess. For example, aren't there a lot of new vehicles sitting waiting for computer chips before they can be sold? Aren't companies still waiting unusually long for shipping deliveries? What else is held up? (except that industrial production supposedly went up)

Although it seems a small factor over 6 months, Christopher B makes a different point about replacing experienced with inexperienced workers. And I'd bet much of the recent hiring was in lower wage, lower skill, lower productivity service sector jobs. It wouldn't take much reduction in output from the highly productive to cancel out the less productive workers being added. I'd bet there are other factors too.

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We need better metrics AND all the metrics are messed up by Covid and the gov't responses.

The Army is letting go thousands who don't want to get jabbed - and yet is failing to achieve its recruitment goals, by a lot.

Vax qualifications and exclusions mess up the metrics.

Inflation is much less messed up - too much money chasing too few goods (AND higher energy prices, which look a lot like inflation.)

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I have read that around 800,000 jobs were added by seasonal adjustment and that unadjusted jobs were down by over 300000. So the actual jobs don't indicate increased economic activity, just less of a decline than usual, if you believe that the seasonal adjustment is legitimate.

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