Three Measures of Unemployment

The FRED Blog has an interesting assessment of unemployment, as measured by the 4-Week Moving Average of Initial Claims, Civilian Unemployment Rate and Average (Mean) Duration of Unemployment:

Take note especially of the Average (Mean) Duration of Unemployment – this corresponds to the “Scariest jobs chart ever” at Calculated Risk. From the FRED Blog using the analogy of the “unemployment bathtub”:

Economists often find a bathtub to be a useful metaphor for the behavior of unemployment. There’s some inflow of newly unemployed workers and some outflow as workers find jobs. A classic way to measure the inflow has been with initial claims of unemployment benefits, the blue line, in which we see spikes at the start of each recession. This inflow of newly unemployed persons initially reduces the mean duration of unemployment, the green line. But the green duration line rises as the blue initial claims line falls—since people who become unemployed early in the recession and remain so are unemployed for a while by the time the recession winds down. Every recession follows this pattern: Claims peak, then unemployment peaks, then duration peaks. The logic is essentially that of the bathtub: First it fills quickly; then, after some time, it begins to drain. But as this is happening, those left in tub have been there longer and longer.

The alarming measurement was just how long it took to reach pre-recession peak levels of jobs lost – a level reached “April 2014 with revisions.” Since we have met and exceeded this level for some time, the concerns now turn to issues such as the levels of employment (part-time temporary vs. full-time) as well as the “quality of jobs.”

FRB Atlanta GDPNow: Q2 Throttled Down Slightly

From the FRB Atlanta nowcast:

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2016 is 2.5 percent on May 17, down from 2.8 percent on May 13. The second-quarter forecast for real residential investment growth declined from 5.3 to 2.5 percent after this morning’s housing starts release from the U.S. Census Bureau, the forecast for real consumer spending growth ticked down from 3.7 percent to 3.6 percent after this morning’s Consumer Price Index release from the U.S. Bureau of Labor Statistics, and the forecast for the contribution of inventory investment to second-quarter growth declined from -0.24 percentage points to -0.39 percentage points after this morning’s industrial production release from the Federal Reserve. The latter decline was concentrated in motor vehicle and parts dealers’ inventories.

NOWCast 2016-05-17Get the full dataset here and report here.

The Implications of Policy on Public Behavior

The FRED Blog posted a very interesting dataset that illustrates the sway that public policy holds on public behavior, spending decisions and in this case, wealth preservation, “taxpayers adjusted their various income streams by trying to shift income from the beginning of 2013 to the end of 2012. This shift applies primarily to capital income.” The results are illustrated below in a customizable FRED graph:

Other comments in the post help explain the variance between two identical datasets (with the same label):

Both lines have the same title, real disposable personal income per capita, and yet they look very different. The extra careful reader will notice one series has a yearly frequency and the other has a monthly frequency. Here, frequency matters a lot, but not because of the usual concerns about seasonality. Income climbs steeply at the end of 2012 before falling dramatically in January 2013. This has to do with the so-called fiscal cliff: A series of temporary income tax cuts were set to expire on December 31, 2012, increasing the tax rate on personal income for many people in potentially significant ways.

This is quite interesting as it relates to this particular variance, but take a look at the same data from the last sixteen years:

What explains the variances showing very similar patterns? (Including a spike/cliff right in the middle of the Great Crash of 2008.) See the full post here.

Sluggish Wage Growth, Trend or Cycle?

The suggestion that wages have not kept time with costs, even as unemployment has continued to decline is unlikely to surprise anyone, such as the following commentary in the Economist:

Low unemployment means that employers have to try harder to find new workers, while existing workers can threaten to move elsewhere. As a result, workers should be able to demand higher wages. Yet firms in America seem not to have got the message. Inflation-adjusted wages for typical workers are stagnant. In fact, they have barely grown in the past five years; average hourly earnings rose 2% year-on-year in February of 2015: about the same as in February of 2010.

FRED demonstrates this same wage data as a trend, that since the 1980’s has diverged from GDP. The graph below shows the same data as comparative indexes where “it’s immediately apparent that the GDP figure is now higher than wages, meaning that it has grown faster since the 1980s:”

The post notes this caveat when trying to aggregate wages:

It’s not totally obvious how we should define wages—because wage dynamics change so much over the distribution. Low, medium, and high wages have grown at different rates and at different times. From a macroeconomic perspective, however, it makes some sense to measure the average wage. The effect of so doing is that we put more weight on the higher earners than the average person, a result of a positively skewed wage distribution. (Recall the definition of skewness: Here, it means the top tail can pull up the mean past the average person’s wage, the median wage.)

But why? According to the same post, both GDP and BLS data “plummeted in the Great Recession, but since then have been growing at about the same pace. The decline in wages as a fraction of GDP is not a result of a sluggish recovery from the Great Recession, but rather from effects predating it.” This still does not explain why, but more or less, what has happened. Again, the same post in the Economist suggests a “wage hangover,” where “firms preferred to return to more normal management conditions, and to let too-high wages adjust over time: “pent-up” wage cuts have been achieved simply by not granting raises. Wages, in other words, are not rising by more because in many cases they are already too high.” Wow! That is so simple yet reasonable, it may very well be a significant factor contributing to this trend. Another factor cited is what many of us know anecdotally as well as from the data: “part-time for economic reasons” and other forms of un- or under employment.

Fed Chairwoman: Trying to Build Consensus Among Disparate Views on Policy

Even with all the discussion of the implications of China’s Move to Devalue the Yuan, it has been widely accepted that a policy of firming easy money would probably still move forward. But this could prove more challenging for the Fed given the variegated opinions among policy makers:

Officials have signaled for months they intend to start raising short-term rates from near-zero interest before year-end. But they have provided no clear sign of having settled on whether to move at their next policy meeting Sept. 16-17. Minutes of their July 28-29 meeting, released Wednesday, underscored why the decision remains a close call.

“Most [officials] judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point,” the minutes said.

That passage might be read as a hint that officials saw a September rate increase in the cards, but the minutes showed officials had wide-ranging views about taking that step and several notable sources of trepidation.

The Fed has said it won’t move rates until it is more confident inflation will rise toward its 2% target after running below it for more than three years. “Some participants expressed the view that the incoming information had not yet provided grounds for reasonable confidence that inflation would move back to 2 percent over the medium term,” the minutes said.

The conundrum is self obviating: move too fast, and you are going to tank this forward moving, but tepid recovery. Do nothing, and you might have fueled yet another bubble. And there are voices calling for action citing the need for credibility, confidence and timing, others, for caution:

Other developments are giving Fed officials new reason for caution. At the July meeting they noted China’s stock-market declines; since then Chinese officials have allowed their currency to depreciate, a new source of concern about the growth outlook in the world’s second largest economy.

U.S. crude oil prices hit a six-year low Wednesday and U.S. stocks tumbled, boosting demand for ultrasafe U.S. government debt. The yield on the benchmark 10-year Treasury note fell to 2.129% from 2.196% on Tuesday and marks the yield’s lowest closing level since May 29. A gauge of 10-year inflation expectations in the bond market fell to the lowest level since January.

So back to the conundrum. Wait and by implication, call into question the health of the U.S. economy, or move forward and see if the economy “would be able to absorb higher interest rates and that inflation was moving toward the committee’s objective.” That’s life in the big chair.

WSJ: A yuan for your thoughts, Janet?

Last week saw a whole array of opinions, outrage (misguided, genuine or contrived) and interminable commentary on the implications of China’s actions earlier last week while still maintaining the status of [just shy of] currency manipulators by the U.S. executive branch. Earlier this week in the Journal, China Moves to Devalue Yuan:

China’s yuan has been on an upward track for a decade, during which the country’s economy grew to be the second largest in the world and the currency gained importance globally. The devaluation Tuesday was the most significant downward adjustment to the yuan since 1994, when as part of a break from Communist state planning, Beijing let the currency fall by one-third.

China sets a midpoint for the value of the yuan against the U.S. dollar. In daily trading, the yuan is allowed to move 2% above or below that midpoint, which is called the daily fixing. But the central bank sometimes ignores the daily moves, at times setting the fixing so that the yuan is stronger against the dollar a day after the market has indicated it should be weaker.

With Tuesday’s move, the fixing will now be based on how the yuan closes in the previous trading session. As a result, the yuan’s fixing was weakened by 1.9% Tuesday from the previous day, leaving it at 6.2298 to the U.S. dollar, compared with 6.1162 on Monday. The yuan dropped as much as 1.99% from its previous close to 6.3360 against the dollar in Shanghai and fell as much as 2.3% in Hong Kong in early trading.

Ironically, this move was ostensibly to allow the market to play a greater role in the value of China’s currency. But contra to this view:

“The real proof in whether this change is about reform or growth will come when authorities resist the urge to intervene down the road when another policy goal that could be achieved by a significant revaluation or devaluation comes knocking,” said Scott Kennedy, an analyst at the Center for Strategic & International Studies, a Washington think tank.

“China wasn’t able to resist that urge on the stock market, so the government doesn’t get the benefit of the doubt on this quite yet,” Mr. Kennedy said, a reference to China’s recent moves to prevent further declines in its equities markets.

What about Inflation?

In an opinion post, Rate Watchers Read the Chinese Tea Leaves, the authors makes an interesting point regard another variable that could complicate matters:

Speaking before and after the step, respectively, Atlanta and New York Federal Reserve Bank presidents Dennis Lockhart and William Dudley cast doubt on the notion that run-of-the mill macroeconomic turbulence would delay a September increase. And a survey of 60 economists by The Wall Street Journal conducted mostly before China’s bombshell showed that 82% expected an increase next month.

But what about its effect, at the margin, on a critical set of U.S. economic data? Namely, inflation. Friday’s producer-price index and Wednesday’s consumer-price index will be the penultimate readings before the big decision.

…With markets recovering somewhat from the shock, China’s move probably won’t delay a September hike. But its contribution to slower price gains overall could slow the pace of Fed tightening.

 See more analysis here:


Fed Capital Requirements: Bearing the Cost that Failure Would Impose on Others

Too big to fail is a narrowing option. And running with riskier assets is going to be costly for larger banking institutions, according to new rules by Federal Reserve as noted in the Wall Street Journal:

The Fed completed one rule stating that the eight largest banks in the country should maintain an additional layer of capital to protect against losses, its plainest effort yet to encourage them to shrink. At the same time, it offered a reprieve to General Electric Co.’s finance unit from more-intensive regulation, after the company promised to cut its assets by more than half.

…Regulators have pushed big banks to expand their capital buffers to better absorb losses, reduce their reliance on volatile forms of funding, improve their risk management and cut back on risky assets. So-called stress tests measure banks’ resilience each year and can restrict shareholder payouts at firms that don’t pass.

For Wall Street banks and their investors, the emerging regime presents a series of choices: specifically whether to pay the cost of new regulation, which will fall to the bottom line, or change their business models by shedding businesses or withdrawing from certain markets, such as owning commodities.

In a quote that I think is one of the best commentaries on the subject,

Fed Chairwoman Janet Yellen, before voting to approve the new measure, said financial firms must “bear the costs that their failure would impose on others.” She offered banks the choice of maintaining more capital to reduce the chance they would fail, or get smaller and reduce the harm their failure would have on the financial system.

The big banks of course object to the action stating that it will remove billions from the economy. Below is a graph of the big 8 that will be hit with he most significant requirements (click for larger image):

Bigger Buffer

But it is not size along that determines how each bank will be assessed, “the size of each bank’s additional capital requirement is tailored to the firm’s relative riskiness, as measured by the Fed’s formula, which considers factors such as size, entanglements with other firms and internal complexity. As those factors shrink or grow, so will a bank’s surcharge.”

Volume at the Ports and Twenty Years of Trends

While the ports of Long Beach and Los Angeles have trends that are somewhat at parity with one another, they certainly do not necessarily move in tandem. Which is probably the self-obviating point of different cargo. That said, I thought it would be interesting to plot the last twenty years of activity for the two ports. The Port of Los Angeles gets a little more granular with their posted statistics, but for the purpose of comparison, both data sets for the two interactive charts were set up consistently.

May showed the following shipment activity at the Port of Los Angeles:

Containerized cargo volumes edged up .8 percent compared to the same period last year. The Port handled a total of 694,791 Twenty-Foot Equivalent Units (TEUs) in May 2015…Imports decreased .8 percent, from 351,403 Twenty-Foot Equivalent Units (TEUs) in May 2014 to 348,427 TEUs in May 2015. Exports declined 3.5 percent, from 158,473 TEUs in May 2014 to 152,917 TEUs in May 2015…Factoring in empties, which increased 7.9 percent, overall May 2015 volumes (694,791 TEUs) increased .8 percent. For the first five months of 2015, overall volumes (3,181,718 TEUs) are down 4 percent compared to the same period in 2014.

Mouse over the charts to see the underlying data, or select/de-select items from the legend:

Port of Los Angeles Container Trade TEUs

On the other hand, the port of Long Beach had the following swing in activity:

Cargo rose at the Port of Long Beach by 6 percent in May, the third consecutive month of growth, the busiest month since October 2007, and the busiest May since 2006. A total of 635,250 TEUs (twenty-foot equivalent units) of containerized cargo were moved through the Port in May. Imports numbered 327,317 TEUs, a 4.8 percent increase from the same month last year. Exports decreased 7.4 percent to 135,855 TEUs. Empty containers rose 22.6 percent to 172,078 TEUs. With imports exceeding exports, empty containers are sent overseas to be refilled with goods.

Port of Long Beach Container Trade TEUs

This is a welcome surge of activity as the fiscal year to date measurement of cargo is still lightly contracted from 2014. The Port of Long Beach attributes some of the volume to be due to a “stronger retail market,” as well as added activities and services “in order to boost cargo growth.”

The Marginally Attached – A Look at the Five Largest States

The U.S. Bureau of Labor Statistics (BLS) defines marginally attached in simple, straightforward language:

Marginally attached workers
Persons not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months (or since the end of their last job if they held one within the past 12 months), but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Discouraged workers are a subset of the marginally attached.

Discouraged workers
Persons not in the labor force who want and are available for a job and who have looked for work sometime in the past 12 months (or since the end of their last job if they held one within the past 12 months), but who are not currently looking because they believe there are no jobs available or there are none for which they would qualify.

For the purpose of illustration, the FRED graph below has the top five states  selected (which accounts for more than a third of the nation’s population), showing the trend of marginally attached workers for more than a decade.

The trend lines show the inherent headwinds since the beginning of economic recovery in June 2009. The still “on the grid” numbers of the marginally attached and discouraged workers has hung on much longer than a decade ago. What’s more, six years into recovery, not one of these states has returned to its pre-recession level of the marginally attached:

Marginally Attached-Pre-Recession

This could be due in part to an aging population as well as population shifts and growth in general. This also illustrates why for so many, the recovery has not felt like a recovery. The reality is, jobs are being added as illustrated by the decreased levels of the marginally attached from the corresponding peak levels by state (peak levels were between July 2010 and October 2011):

Marginally Attached Percentage Below Peak Levels

Burst of Volume at the Port of Los Angeles

Significant volume surge at the Port of Los Angeles with a rise in containers of nearly 14% per today’s news release,

The Port of Los Angeles has released its June 2014 containerized cargo volumes. In June 2014, overall volumes increased 13.89 percent compared to June 2013. Total cargo for June was 736,438 Twenty-Foot Equivalent Units (TEUs), the largest volume in monthly containers since September 2012.

Container imports rose 16.55 percent, from 328,324 TEUs in June 2013 to 382,666 TEUs in June 2014. Exports rose 8.51 percent, from 148,203 TEUs in June 2013 to 160,823 TEUs in June 2014.

Combined, total loaded imports and exports increased 14.05 percent, from 476,528 TEUs in June 2013 to 543,489 TEUs in June 2014. Factoring in empties, which increased 13.4 percent year over year, overall June 2014 volumes (736,438 TEUs) rose 13.89 percent compared to June 2013 (646,650 TEUs).

For the first six months of calendar year 2014, overall volumes (4,052,227 TEUs) have increased 9.2 percent compared to the same period in 2013. June closed out the Port’s 2013-2014 fiscal year with a total increase of 5.55 percent compared to the previous fiscal year.

Good news with one interesting footnote from DC Velocity that could account for part of the volume,

Phillip Sanfield, a port spokesman, said last month’s strong import volumes were due in part to cargo entering U.S. commerce earlier than usual ahead of a possible labor strike or management lockout at West Coast ports…Sanfield said there is no way at this time to quantify the role of labor concerns in influencing June’s traffic data. “Perhaps we’ll know more about the impact after July and August volumes come in.”

Irrespective of this potential impact, the same article reports that terminal operators expectations are, “to see an increase in the number of mega-container ships calling the port.” Here is the monthly table: