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US Labour Market – creating work but participation and real wages falling

Last Friday (August 5, 2022), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – July 2022 – which reported a total payroll employment rise of only 528,000 jobs and an official unemployment rate of 3.5 per cent. Many commentators immediately claimed that the labour market was tightening as a result of the decline in the official unemployment rate, but that was all down to a decline in the participation rate – less people looking for work – which is a sure sign that job opportunities are becoming harder to access. When the hires data comes out soon, we will be able to be more definitive on that. The other interesting aspect of this data is that real wages continued to decline in all industry sectors – they have systematically fallen each month since March 2022. I note some commentators are trying to claim that wage pressures are now pushing inflation. That conclusion is untenable given the data. The US labour market is still producing employment but it is hardly booming.

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    The Weekend Quiz – August 6-7, 2022 – answers and discussion

    Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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      The Weekend Quiz – August 6-7, 2022

      Welcome to The Weekend Quiz. The quiz tests whether you have been paying attention or not to the blog posts that I post. See how you go with the following questions. Your results are only known to you and no records are retained.

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        Corporate profit greed is driving inflationary pressures

        Despite all the hysteria about the current inflationary pressures and the reversion of central bank policy committees to the New Keynesian norm – interest rates have to rise to kill off inflation otherwise it becomes a self-fulfilling process where wage demands are made in ‘expectation’ of more inflation and firms (passively in their view) have to pass on the higher unit costs, I remain of the view that this period is transitory. That doesn’t win me any friends (other than my true friends). It also leads to another hysterical line of Twitter-type statements that the Modern Monetary Theory (MMT) have gone silent because they were wrong about fiscal deficits not causing inflation and are too ashamed to admit it. I haven’t gone silent. I have been continuous in my advocacy both privately and publicly. The rise in fiscal deficits during the pandemic and the central bank bond purchases have had little to do with this inflationary episode. Covid, sickness of workers, War, natural disasters (floods, fires) and noncompetitive cartels and energy markets are the reason for the inflation (variously in different countries) and interest rate increases won’t do much at all to target changes in those driving factors. New ECB research (released August 3, 2022) in their Economic Bulletin (Issue 5, 2022) – Wage share dynamics and second-round effects on inflation after energy price surges in the 1970s and today – reinforces my assessment of the situation.

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          British Tory MP spills the beans on government debt

          It’s Wednesday and I have a few items of interest (to me at least) to warm us up for the music feature, which is beautiful though sad. First up we learn how a senior Tory MP has made admissions to the media that completely contradict mainstream macroeconomics and validate what Modern Monetary Theory (MMT) tells us. Second, we learn from the latest ECB data just how ‘flexible’ (read: anything goes) it can be in its government funding. Italy and Spain are being rescued at present. As I said anything goes. And third, the vandalism of the Reserve Bank of Australia continues. Then we can rest and listen to some glorious singing.

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            Low US unemployment does not negate the conclusion that the US economy is now in recession

            The US Bureau of Economic Analysis published the latest US National Accounts data last week (July 28, 2022) – Gross Domestic Product, Second Quarter 2022 (Advance Estimate) – which showed that the US economy is now in technical recession – two consecutive quarters of negative GDP growth. After recording a contraction of 1.6 per cent in the March quarter in real GDP, the advance estimates for the June quarter show a further contraction of 0.9 per cent. Many commentators are, however, denying the recession narrative because they are pointing to the low unemployment rate (of 3.6 per cent). It is true, that the GDP figures are often revised and when the final, second-quarter estimates are available, they might record positive growth. But there is a puzzle emerging. We have long held the view (based on Okun’s Law – see below), that when GDP growth declines, the unemployment rate rises. This is a long-held stylised fact that has until Covid stood the test of time. But Covid has changed things and at present the US (and other nations) are experiencing a major slowdown in the growth of their working age population as a result of quite alarming rises in long-term disability as a result of the enduring impacts of Covid infections (and repeated infections). That has meant that unemployment rates are lower than they otherwise would have been as a result of worker shortages. On the one hand that is good for the employed. But, on the other hand, it is disastrous for workers who are now disabled. So the meagre fact that unemployment is low does not negate the conclusion that the US economy is now in recession, which has been deliberately created first by a massive fiscal contraction, and then, by the irresponsible conduct of the Federal Reserve Bank.

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              The Weekend Quiz – July 30-31, 2022 – answers and discussion

              Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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                The Weekend Quiz – July 30-31, 2022

                Welcome to The Weekend Quiz. The quiz tests whether you have been paying attention or not to the blog posts that I post. See how you go with the following questions. Your results are only known to you and no records are retained.

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