We have an economy with a positive first derivative and negative second derivative—everything is continuing to improve but it improving at a slower pace than before.
Normally 661,000 jobs would be something to celebrate. But when you’re 11 million jobs short of where you were in February the slowing pace of recovery is a worry.
Three reasons for it:
1. Easy recovery already happened. Has been people being called back from temporary layoff, permanent unemployment rising.
2. CARES Act expired.
3. Virus resurgence.
Notably in September there were 661,000 jobs added (payroll survey) while 1.5m reduction in temporary layoff (household survey). That is worrying because the fuel of labor market recovery is going away.
Also notable, the labor force participation rate has not moved since July. Normally we would expect a strengthening economy to have an increase in participation rates. Moreover, if the $600 was having a large disincentive effect that should have raised participation.
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Core PCE inflation came in a little above the already high expectations in Feb. The pattern is the opposite of what you want to see--the shorter the window the higher the annualized rate (and still high at 12 months):
Here are the full set of numbers. They were uniformly ugly in February.
If you're looking for some slivers of reassurance, market-based core (which excludes imputed items like portfolio fees) was only up 2.4% over the last 12 months. And "only" 3.0% annualized over the last three, less than the regular core.
Income taxes are distort trade by reducing purchases of imports. At least they do so as much as VATs do. Which is to say not any more than they reduce purchases of domestic goods.
A hopefully irrelevant thread.
A simple toy example.
Consider a person in Spain with 100€ in income that they use to buy oranges. Absent taxes oranges cost 1€. They must spend all their income this year.
In this case they could buy 100 total oranges--imported plus Spanish.
Now assume there's a 25% VAT.
VAT raises the cost of imported oranges to 1.25€, this is the way it is supposed to be like a tariff.
Of course, also raises the cost of Spanish oranges to 1.25€. This is not a tariff & is trade neutral.
This was as expected, consistent with a very gradual slowing, and ~2.5% underlying inflation.
Here are the full set of numbers.
On the favorable side of the ledger, market-based core inflation--which is a better predictor of future inflation than regular core--has been somewhat lower. This excludes things like implied price of portfolio management fees.
COVID ripped apart economies around the world. Amazingly most rich countries snapped back almost completely very quickly. By the end of 2021, 12 of 27 advanced OECD economies had unemployment rates below pre-COVID forecasts. The US did not. In fact, it was the fourth worst.
A 🧵
This🧵looks at unemp rates cross countries. I'll do another w/ GDP growth across countries which tells a similar story.
But unemp rates preferable because a cleaner answer speed/fullness of RECOVERIES. Growth differences can be more structural (e.g., productivity & demography).
My aim in this and the thread that I'll post later is to be much more systematic than @Noahpinion was in his response to my @ForeignAffairs piece. He had some good arguments there but his international macro comparisons were, at best, unsystematic. noahpinion.blog/p/anti-anti-ne…