This all started out because I see mixed signals in the labor market: (1) lots of jobs down is the most obvious (you cite it), but also (2) openings up and (3) wages up.
Moreover that was 2 months ago, improved rapidly since then.
Some of the tone, even of your tweets, sounds like the economy is like it was in 2010 or 2011. But it was more like somewhere in the 2017 period plus or minus and moving forward rapidly.
I'm a big believer in rebalancing policy towards fiscal, both for stimulus, social insurance, growth and more. Monetary policy can help support that rebalancing. Whatever you think about the appropriate time for interest rate liftoff it was moved up by the stimulus. That is good.
We have a lot of demand. At this stage I am more worried about supply. The main levers on supply are vaccines, reopening, childcare, etc.
And, I know you disagree, but I don't understand why UI will be more generous in July than it was during the massive COVID wave in January.
I don't think Keynes is exactly right for this because he was talking about a demand shock. But what we have now is a positive demand shock (thanks for fiscal and monetary policy) and a lingering negative supply shock.
Finally, I'm surprised you appear reject the notion that reservation wages matter. If a worker's outside option goes up then their reservation wage goes up, labor supply falls, and wages rise. That is a dynamic I've seen you praise before.
Which is to say, reservation wages are a real thing. You might have some story about why raising reservation wages won't negatively impact employment (and it might be a non crazy story, although would be stronger in the absence of so much stimulus from fiscal policy).
Not saying I want people to be paid less. Just saying it is silly to say unemployment definitionally doesn't exist because of reservation wages. Of course unemployment exists.
So also silly to say labor shortages definitionally don't exist because employers won't raise wages.
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I'll go on a Twitter break after the jobs #s tomorrow. Will get everything out of my system before then.
Which brings me to inventories.
They are very low, getting lower, and cannot go below zero (although I also thought oil prices couldn't go below zero either so who knows.)
A good way to look at inventories is the inventory-to-sales ratio. The first tweet in this thread shows that overall inventories were 1.3 months of sales in February, towards the low end of its historic range. The number has almost certainly declined since then.
Inventories were at record lows in February in many areas of the economy including retail trade--both autos and excluding autos.
And February was an eternity ago, it likely is lower since then given the huge sales figures for March.
I agree with everything in the thread up to this point. You have to make policy based on your best guess. In this case we have research from the US and other countries before 2020 that can inform priors. We have theory. We have commonsense.
What is your argument for why UI should be more* generous in July and August (when COVID will hopefully be way down and jobs way plentiful) than it was in January and February (when COVID was spiking and jobs were scarce).
*Addition of COBRA subsidies.
Also at this point no one is going out to repeal the UI bump, that isn't part of the debate. If anything this is setting up the question of what happens after September. (And I'm open to making a $100 bump permanent to raise the replacement rate in a progressive manner.)
One thing to keep in mind is that anecdotes are terrible. But lagged data in a rapidly changing market is also terrible. So right now would place more than usual weight on anecdotes (and my normal weight is zero). And use real-time data to update.
For example: job openings.
Job openings are very high but so are the number of people looking for jobs. A good measure of labor market tightness is the ratio of job openings to the unemployed. That was 1.4 unemployed per job opening in February, similar to what it was in mid-2016.
BUT, that was February. The economy has changed rapidly since then. The number of job openings on Indeed increased 17% from the end of February to the end of April. The number of unemployed has likely fallen since March (the most recent data).
You see this especially in the distribution of wages. The first quartile of workers had extremely low wage growth in 2011-14 but have particularly high wage growth now. atlantafed.org/chcs/wage-grow…
Moreover, these data only go through March and as @arindube has pointed out there is a lot of intertia in the data. So would not expect to see a lot of increase yet.
The general view is that labor market in February or March 2021 had a lot more slack than it did in 2019. That is probably right and if the only data you had was the unemployment rate, employment rate or jobs it would seem true.
But if instead the only data you had was on labor market flows from JOLTS you would think the economy was much hotter in February 2021 than in 2019, in fact you might think it was the hottest in decades. (@nick_bunker)
Between these two, if all you had was the data on composition-adjusted wage growth from the Atlanta Fed you would note that wage growth was roughly the same as 2019 and was highest for the lowest-income workers. So labor market not much looser than 2019. atlantafed.org/chcs/wage-grow…
GDP up 6.4% annual rate (it actually grew 1.6%) with large increases in consumption, biz fixed investment, housing & govt offset by a large reduction in inventories & increase in the trade deficit.
(US residents bought more stuff but a bunch came out of inventories and imports.)
As a result, U.S. GDP was 3.8% below it's pre-pandemic trend in Q1.
Note, this is not an estimate of the output gap, I would suspect the output gap was somewhat smaller because of some scarring from pandemic (less investment, R&D, early retirements, deaths).
The pattern of shortfalls from trend are wild:
Consumer durables 15% above trend in Q1 while services 8% below trend.
Business fixed investment still not recovered by residential investment booming.