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Jason Furman

@jasonfurman

Dec 3, 2021 • 10 tweets • 4 min read • Read on X

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Willie Powell & my blog on today's (confusing) jobs numbers. We put the last year in context. Contrary to widespread belief, job growth has been near expectations--as surprisingly strong labor demand offsets surprisingly weak labor supply. A 🧵 piie.com/blogs/realtime…

To understand what was expected we use the median forecast from the Survey of Professional Forecasters. Other forecasts were similar. Overall, has slightly outpaced. Here is avg monthly jobs for 2021:

Nov 2020 forecast: 432K/month
May 2021 forecast: 562K/month
Actual: 555K/month

Similar story for unemployment. Back in May (the first forecast that incorporated the American Rescue Plan) the SPF expected the UR to be about 4.9% in Nov, instead it was 4.2%.

(Note, they don’t forecast labor force participation but likely would be worse than expected.)

But not everything has played out as expected, there have been two big surprises: a decline in labor supply and an increase in labor demand. They've roughly offset each other for employment but both have led to higher nominal wages.

(Technical note: we think of labor supply/demand as functions of *real* wages. I'm showing nominal due to a combo of wage illusion and expectation of transitory inflation. Both assumptions becoming increasingly untenable.)

Willie and I decompose the 1.5 pp decline in LFPR since COVID hit and find it is roughly one-third due to population aging, one-fifth due to ongoing weakness, and nearly half is "other." That "other" is both men and women, working age and retirement age.

At the same time there were 0.6 unemployed per job opening, a very tight labor market by that metric.

Different labor market indicators sending different signals. EPOP is still relatively slack, UR more balanced, & U/V and quits very tight. Which is right? The latter two have a lot of merit and worth taking seriously as Willie & I discussed before piie.com/blogs/realtime…

The net result of this is nominal wages well above trend, something unusual if all you looked at is unemployment. Overall, those gains are being eaten by inflation—except for lower-wage workers who are seeing real gains, albeit at a slower pace than before COVID.

Overall, the economy is 5 million jobs short of where it was expected to be prior to COVID. The gap is closing but fiscal and monetary policy should still be accommodative—as they are very likely to be. FIN.

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More from @jasonfurman

Jason Furman

@jasonfurman

Apr 12

Four roughly true and important propositions about trade. Asserting not explaining here, will explain sometime:

1. The volume of trade depends, inter alia, on the magnitude of domestic and foreign tariffs:

X + M = f (US tariffs , foreign tariffs)

2. The balance of trade depends mostly on U.S. macroeconomic balances, like the budget deficit and level of business investment:

X - M = f(US macro balances)

3. Well being goes up when X + M goes up. This is both because we get the benefits of imports and also the better jobs in areas we specialize in.

4. Well being doesn't have a monotonic relationship to X - M. Too large a deficit or surplus both problems, "ideal" value depends.

Read 8 tweets

Jason Furman

@jasonfurman

Mar 28

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):

1 month: 4.5%
3 months: 3.6%
6 months: 3.1%
12 months: 2.8%

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.

Read 7 tweets

Jason Furman

@jasonfurman

Mar 18

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.

The person can now buy 80 total oranges.

Read 6 tweets

Jason Furman

@jasonfurman

Mar 3

The Atlanta tracker is predicting GDP growth of -2.8% in Q1.

S&P, which I generally trust a lot, is at 1.6%. Goldman is also at 1.6%.

Atlanta likely wrong. And regardless doesn't say what you think it does.

So continue your deep breathing.

To understand what I think is going wrong with Atlanta you need to understand that imports show up twice in the national accounts--cancelling out.

You might know that GDP = C + I + G + X - M

If you import a Japanese car then M goes up. You might think that lowers GDP but...

The imported car also shows up as a + in GDP, cancelling out the - import.

If it is imported for use by a family, business or government then it shows up in C, I or G respectively.

If a business imports it & no one buys it then it is increased inventory, which shows up in I.

Read 12 tweets

Jason Furman

@jasonfurman

Mar 3

Given the renewed interest in national income accounting a brief primer on the role of government spending in GDP.

Short version: (1) critical to include govt for accounting identities but (2) can debate welfare-relevant metric or best forecasting "signal".

A 🧵.

Three identical ways to think about the size of the economy:

1. Final expenditures (including consumers, businesses and government)

2. Incomes (including wages and profits)

3. Production (value added or final production) khanacademy.org/economics-fina…

If a consumer, business or govt buys a US-made car that counts in the expenditure portion of GDP as C, I or G.

The wages of the auto worker or the profits of the auto company show up in the income version.

And the auto companies making a car shows up in the production version.

Read 12 tweets

Jason Furman

@jasonfurman

Feb 28

Core PCE inflation in January, annual averages:

12 months: 2.6%
6 months: 2.6%
3 months: 2.4%
1 month: 3.5%

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.

Read 7 tweets

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