Last Friday (April 26, 2019), the US Bureau of Economic Analysis published their latest national accounts data (advance estimate) – Gross Domestic Product, First Quarter 2019 (Advance Estimate) – which tells us that the annualised real GDP growth rate of 3.2 per cent surprised most commentators (for its strength). As this is only the “Advance estimate” (based on incomplete data) there is every likelihood that the figure will be revised when the “second estimate” is published on May 30, 2019. Underlying the strong headline figure, however, are shifting expenditure patterns in the US. Household consumption growth is declining and the contribution to growth was down from 1.7 points in December 2018 to 0.82 points. The personal saving rate rose from 6.8 per cent of disposable income to 7 per cent as households tightened up in the face of record levels of debt and sluggish wages growth. The investment rose and Gross private domestic investment also contributed 0.92 points to growth, up from 0.66 points. However, that contribution was driven mostly by a rise in inventories, which can signal two things – either unsold goods due to firms overestimating domestic demand or stock-building in expectation of stronger future spending. I suspect it is the first of these explanations. Further, net exports were a strong contributor (1.03 points) after undermining growth in the December-quarter 2018. Real disposable personal income increased 2.4 per cent (down from 4.3 per cent in December). Overall, and notwithstanding the strong growth, the problems for the US growth prospects are two-fold: (a) What will be the contraction in consumption expenditure growth with slow wages growth and elevated personal debt levels? Most of the consumption growth is coming because more people are getting jobs even though wages growth is flat. (b) Can net exports growth defy Trump’s trade policy? We will wait and see.
Wednesday today and a short blog. I also have to travel a lot today. But some brief comments on an interesting article from French commentator Michel Lepetit – Nourrir le débat sur une annulation partielle (370 mds€) de la dette publique (April 15, 2019) – which means more or less “Promoting the debate on a partial cancellation (€370 billion) of public debt”. The article proposes that the Banque de France cancels its holding of French government debt (the €370 billion), which could also lead other national central banks in the Eurosystem following suit with respect to their own government debt holdings. He argues that the cancellation (write off) would have no negative social impacts and could help Eurozone governments fund the transition to a low-carbon future. Above all, it reflects an understanding of Modern Monetary Theory (MMT). Michel Lepetit argues that the QE implemented by central banks, especially since the GFC demonstrates the patent failure of the foundations of monetarist dogma (“l’échec patent des fondements du dogme monétariste”).
Last week’s (April 5, 2019) release by the US Bureau of Labor Statistics (BLS) of their latest labour market data – Employment Situation Summary – March 2019 – is still being affected by the variability in the sampling and benchmarking changes made by the BLS. However, working through those impacts, one concludes that the US labour market is still adding jobs, albeit at a slower pace than last year. The unemployment rate remains low (at 3.81 per cent) and the participation rate has come off a bit, indicating a slowdown in underway, although month-to-month variability should not be taken as a trend. It is also clear that there is still a substantial jobs deficit remaining and considerable scope for increased participation.
I am travelling all day today and I will resurface, in blog terms, on Monday. A quiz will pop up tomorrow as usual. For now a brief excursion into the Dutch press, which has decided to join the wannabees attacking Modern Monetary Theory (MMT). The scenario outlined in the article I read earlier today takes the criticisms to a new level. We are no longer worried about hyperinflation, crowding out, sky high interest rates. No, things are likely to get much worse than that. If any government takes on MMT (noting it is not a regime that can be taken on) to operationalise a Green New Deal then tax rates will have to rise to around 100 per cent, households and firms will stop working and producing, and a massive famine in possible where millions die. Sort of Project Fear stuff that has marked the Remain position in the Brexit debate!
Last week’s (March 8, 2019) release by the US Bureau of Labor Statistics (BLS) of their latest labour market data – Employment Situation Summary – February 2019 – is a little hard to believe and shows the sampling variability involved in survey work. In January, the BLS estimates that total non-farm payroll employment rose by 311,000 (revised up from 304,000). This month the estimate was only 20,000. So either the US economy is crashing (given employment is a lagging indicator) or some one-off factors (bad weather, shutdown, you name it) were present or the results are too variable to be believed. The most likely explanation is that employment growth is fading and the strength in the US labour market coming into 2019 is gone. Taking the Household Survey results, we saw employment rise by 255 thousand and the official unemployment rate fell by 0.2 points to 3.8 per cent on the back of a steady participation rate. Even with all this volatility in the estimates, the best guess is that the US labour market has probably weakened somewhat from where it was at the end of 2018. It is also clear that there is still a substantial jobs deficit remaining and considerable scope for increased participation.
It is Wednesday – so just a few observations and then we get down a bit dirty (funky that is). Today, I consider the GND a bit, critics of MMT, Japan, and more. Never a dull moment really. I didn’t really intend writing much but when you piece together a few thoughts, the words flow and so it is. The main issue is the recurring one – the lets have a little, some or no MMT narrative. This misconception regularly crops up in social media (blog posts, Twitter etc) and tells me that people are still not exactly clear about what MMT is, even those who hold themselves as speaking for MMT in one way or another. As I have written often, MMT is not a regime that you ‘apply’ or ‘switch to’ or ‘introduce’. An application of this misconception is prominent at the moment in the Green New Deal discussions. The argument appears to be that we should not tie progressive policies (for example, the Green New Deal) to Modern Monetary Theory (MMT) given the hostility that many might have for the latter but who are sympathetic with the former. Apparently, it is better to couch the Green New Deal in mainstream macroeconomic concepts to make the idea acceptable to the population. That sounds like accepting Donald Trump’s current ravings about the scourge of socialism. It amounts to deliberately lying to the public about one aspect of the economics of the GND just to get support for the interventions. I doubt anyone who thinks democracy is a good thing would support such a public scam. And so it goes.
Last week’s (February 1, 2019) release by the US Bureau of Labor Statistics (BLS) of their latest labour market data – Employment Situation Summary – January 2019 – showed that total non-farm payroll employment rose by 304,000 and the unemployment rate rose by 0.1 points to 4 per cent on the back of a 0.1 points rise in the participation rate. The labour force survey estimates were significantly impacted by changes in population benchmarks (an annual occurrence). However, all indications are that the labour market continues to improve. We will see in the next few months whether the strong January payroll employment growth was a one-off blip or a sustained trend. While the US labour market is looking fairly robust there is still a substantial jobs deficit remaining which tells us that it remains some distance from full employment. And, my latest analysis on which occupations are enjoying the employment growth shows that there has been a distinct hollowing out of median pay jobs (the so-called ‘middle class’ jobs), which helps to explain the sharp increases in income inequality.
Last week’s (January 4, 2019) release by the US Bureau of Labor Statistics (BLS) of their latest labour market data – Employment Situation Summary – December 2018 – showed that total non-farm payroll employment rose by 312,000 and the unemployment rate rose by 0.2 points to 3.9 per cent on the back of a 0.2 points rise in the participation rate. The coincidence of rising employment and rising participation is usually a good sign as workers are being attracted back into the labour force by the increased job opportunities. We will see in the next few months whether that is a one-off blip or a sustained trend. If it is a sustained trend then the rise in unemployment as a consequence of the labour force growth outstripping employment growth will be temporary and sustained reductions in unemployment will then occur. While the US labour market is looking fairly robust there is still a substantial jobs deficit remaining which tells us that it remains some distance from full employment. There is room for expansion.
In yesterday’s short blog post – Some Brexit dynamics while across the Channel Europe is in denial (January 2, 2019), I noted that various European Commission officials were boasting about how great the monetary union had been over the last 20 years. European Commission President Jean-Claude Juncker had the audacity (and delusion) to claim it had “delivered prosperity and protection to our citizens. it has become a symbol of unity, sovereignty and stability”. I think he was either drunk or in a parallel universe or both. I provided two graph (GDP growth and employment) to show how poorly performed the monetary union has been since its inception. Today, I want to bring to your attention a Bank of International Settlements (BIS) research report which categorically finds that the European banks during the pre-crisis period not only fuelled the massive boom in sub-prime loans and doomed-to-fail assets that were floating around at the time, but also “enabled the housing booms in Ireland and Spain”. Rather than the US banking system being primarily responsible for the pre-crash buildup of private debt, the European banks were also helping the “leveraging-up of US households”. The “European banks produced, not just invested in, US mortgage-backed securities”. This role is not well understood or recognised. And it was because the Single Market mentality of the neoliberal European Union which abandoned proper prudential oversight and regulation allowed it to happen. So much for “prosperity”, “protection” and “stability”.
On December 19, 2018, the Federal Reserve Bank Open Market Committee (FOMC), which determines the monetary policy settings in the US, increased the policy interest rate by 25 basis points to 2.5 per cent, as part of its plan to ‘normalise’ monetary policy. Even within the parameters of their own logic, it is hard to see any inflation threat. Long-term inflationary expectations suggest that people expect an unchanged situation over the next decade. Which suggests that the current unemployment rate is not seen as a threat to the price level. Now, while the FOMC decision may or may not cause some slow down in real GDP growth, given the blunt and ambiguous nature of monetary policy adjustments, the really disturbing aspect of the policy change is the fact that the FOMC members were plotting to push up unemployment by more than 1.2 million people as a plan to lower the inflation rate by a few basis points. Not only is that an obscene revelation but the fact that the FOMC use economic models that cannot tell them that the economic costs of such a shift are massive compared to any benefits that might arise from a slightly lower inflation rate tells us that policy is being made using deeply flawed, useless economic theory and models. Moral bankruptcy and incompetence rules.