Although we are not fully recovered economically, with the unemployment rate at 3.9% it is now a decent time to take stock at how the COVID recession and its aftermath compares to previous recessions. The answer: the cumulative increase in unemployment was pretty typical.
The unemployment rate rose sharply to 14.8% in April 2020 (higher if you count misclassified workers). But then it started falling sharply the next month. Adding up all of the cumulative increase relative to its pre-recession value it is 6.5 point-years of elevated unemployment.
That is much less than 20.5 point-years of elevated unemployment following the financial crisis and roughly typical for post-war recessions like what is generally considered the mild 2001 recession (where unemployment did not rise nearly as high but its elevation lasted longer).
In 2020 it was credible to worry about a second Great Depression. We avoided it. Partly due to the huge policy response (in part due to those warnings). Partly because COVID was more like a natural disaster that the economy quickly rebounds from.
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How tight is the labor market? Let's look at four different ways to assess it: prime age employment rate, the unemployment rate, unemployed per job opening, and the quits rate. This figure scales them all to be comparable using data from roughly two decades prior to the pandemic.
All of them are tighter than they were, on average, in the roughly two decades before the pandemic. Do not, however, confuse that with maximum employment--the economy was almost certainly below maximum employment, on average, over that period.
The quits rate is off-the-charts tight: it is 4 standard deviations tighter than it was pre-pandemic. That is huge. And it matters because the quits rate is as good or better a predictor of both prices and wages than any of these other variables. piie.com/blogs/realtime…
The economy added 6.4 million jobs in 2021, a 4.5 percent increase in jobs. that makes 2021 the seventh fastest year for job creation since the aftermath of World War II.
The unemployment rose very rapidly in March & April 2020 but then it has fallen rapidly ever since. Cumulatively the unemployment rate was 6.5 point-years above it's pre-recession value. That is about typical for postwar recessions and much better than the financial crisis.
FOMC comes in largely as expected following the much welcome Powell pivot. The dots now set the default of three hikes next year--which is both the likely policy and also reduces the risk of surprising markets. We'll see how Chair Powell sounds in the presser.
I still find it unfathomable that as recently as 2 months ago the median FOMC member forecast core PCE inflation of 3.7% for the year. They already had price data for the first eight months of the year when they made that forecast. Now they're at 4.4%.
Also a pretty large increased in the forecast for inflation in 2022, now is 2.7%. I would still take the over on that but with much less confidence than I've taken the over on their 2021 forecasts.
Russia has had more excess mortality from COVID than almost any other country in the world--more than double the US deaths and vastly greater than the Chinese deaths.
But you wouldn't know it from looking at Russian economic data: GDP back or even above pre-COVID foreacasts.
This shows the limits of the "control the virus to save the economy" thesis--both as a positive theory that predicts economic growth & as a normative recommendation.
Look at the vast differences in *reported* deaths for China and Russia and their economies look roughly the same.
Russia's excess deaths are also well above their officially reported numbers too and second only to Bulgaria with more than 1 million excess deaths. China likely underreports COVID deaths but would still be a tiny number compared to Russia. economist.com/graphic-detail…
What I would like to see from the FOMC today, what I expect the FOMC to do today and what the FOMC will do next year--one tweet for each.
OUGHT:
1. Raise it's 2022 inflation forecast to 2.8%+.
2. Revise its statement to ditch the dichotomous language about needing to at maximum employment and return to the framework language.
3. Announce ending asset purchases in March
4. Median dots show three hikes in 2022.
(OK, cheating with one extra tweet: would also love to see the median long-run unemployment forecast come down to 3.5% and the long-run FFR come down to something more like 2.0% given that the neutral real rate is probably about zero. But less important than the above.)
Nominal retail sales up 0.3% in November, last 2 months revised down. Well below expectations & reflects a reduction in inflation-adjusted sales.
BUT, I always like to step back and focus more on what we know than the new increment. And what we know is retail sales remain high.
That last tweet was nominal retail sales. About two-thirds of that increased spending reflects higher prices but one-third reflects people purchasing more. Real sales are converging back to pre-pandemic trends but very slowly. We're way, way, way past pent up demand.
The retail sales release mostly covers goods but it gives us a glimpse of one particular service: food services & drinking places. Nominal sales back on track in this sector but prices are up so real sales are a still a bit off--and have not really risen since Delta emerged.