Populareconomicsblog

Popular Economics Weekly

Calculated Risk

When will they come back to work? That is the question economists are asking with the August unemployment report out today. Although the Calculated Risk graph shows how quickly job creation has recovered in comparison with past recessions (red line) there are still some 5.3 million fewer jobs since February 2020.

Total nonfarm payroll employment rose by 235,000 in August, and the unemployment rate declined by 0.2 percentage point to 5.2 percent, the U.S. Bureau of Labor Statistics reported today. So far this year, monthly job growth has averaged 586,000. In August, notable job gains occurred in professional and business services, transportation and warehousing, private education, manufacturing, and other services. Employment in retail trade declined over the month.

“There was some good news – the decline in the unemployment rate, the decline in permanent job losers, and the decline in long term unemployed – however, there are still 5.3 million fewer jobs than prior to the recession,” said Calculated Risk’s Bill McBride, “and overall this was a disappointing report, probably due to the sharp increase in COVID cases.”

A major reason for the lackluster jobs report is the seasonal adjustment that BLS makes, which means there were just 235,000 more jobs created this time of year than is ‘normal’. In ‘normal’ years there is usually a hiring surge for schools in the fall, but many schools aren’t opening or are slow to open because of the tiff over mask mandates, particularly in the red states.

And the Delta variant of SARS-CoV2 is surging. Mask mandates are a crucial question, because students wearing masks are less likely to have to quarantine under the U.S. Centers for Disease Control and Prevention protocols.

“If a classroom of 25 students is masked and one of them comes down with COVID-19, no one but the sick student has to stay home. If children in the classroom are not masked, anyone in close contact with someone who tests positive must stay home for at least 7 days,” said the Baltimore Sun recently.

It cites several examples: Mississippi has 20,000 students quarantined and South Carolina and Arkansas also had hundreds out of school. Several districts have shut schools down as cases of the virus surged. And by Thursday, five Florida school districts were defying their governor’s order and instituting mask mandates after thousands of their students were quarantined. Hillsborough County alone had sent home about 10,000 students in the first week of school, the Tampa Bay Times reported.

In other words, the unemployment picture is chaotic because red states have chosen to make mask mandates a political issue that will hamper school openings perhaps for months, harming the health of K-12 students unnecessarily. Red-leaning states are doing this really for one reason only—they believe it will rally their troops for the 2022 election.

“The good news is that the change in total nonfarm payroll employment for June was revised up by 24,000, from +938,000 to +962,000, and the change for July was revised up by 110,000, from +943,000 to +1,053,000. With these revisions, employment in June and July combined is 134,000 higher than previously reported,” said McBride.

The BLS reported that in May 2017, the 5.5 million teachers and instructors make up 65 percent of employment in elementary, middle, and secondary schools nationwide. There are over 2 million elementary and middle school teachers, representing 24 percent of total school employment. There are nearly 1.1 million secondary school teachers. And add to that 550,000 janitors and school administrators employed.

So it is not so good news that the red states are having so much trouble with mask mandates. Do they really believe endangering the health of children is a winning political issue?

Harlan Green © 2021

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

The Mortgage Corner

CBO

Fed Chair Alan Greenspan in early 2000 convinced GW Bush that he could finance GW’s war on terror without raising taxes by borrowing money at ultra-low interest rates. America’s sovereign debt had AAA credit rating at the time, and still does with two of the three major accreditation agencies. Greenspan maintained we could have a “soft landing” if the US economy overheated by tightening credit gradually without causing a recession.

Problem was the Fed under Greenspan held rates down too long with too easy credit as inflation began to rise and the economy overheated, resulting in too much irrational exuberance by banks and lenders that resulted in the Great Recession.

Does that sound familiar? Economists are beginning to wonder if the Fed under Jerome Powell to making the same mistake in financing our recovery from the COVID-19 pandemic.

However, the US economy is in a much better place now to tame economic activity—i.e., can create a soft landing without causing an ensuing recession—if the Biden administration and congress will pay for the investments we are making in our public improvements with the current infrastructure and family plan bills working through congress.

This is in addition to the already passed $trillions to pay for the pandemic. The new legislation will increase productivity by giving Americans earning wages and salaries better working conditions, and families a better education, including paid childcare and family leave that will lift many families with young children out of poverty.

The benefits of putting Americans back on a footing with other developed countries in the 38-member Organization of Economic Co-operation and Development (OECD) are almost incalculable, most of whose citizens work fewer hours for the same or better pay while producing the same amount of goods and services.

The bipartisan infrastructure deal reached by President Joe Biden and a group of senators would not only add to economic growth, but also lower the national debt, according to a new study from the University of Pennsylvania’s Wharton School.

“Over time, as the new spending declines, IRS enforcement continues, and revenue grows from higher output, the government debt declines relative to baseline by 0.4 percent and 0.9 percent in 2040 and 2050 respectively,” said Wharton team as cited by CNBC in June.

The problem has never been what policies would improve the lives on America’s Main Street, but how to pay for them, and it will take additional legislation under the budget reconciliation process to boost taxes. Over the past 40-odd years government-is-the-problem policies instigated in 1980 by conservative Democrats and Republicans had cut taxes and whittled down government programs that would benefit Main Street.

The solution is more progressive taxation enacted that would divert profits from corporations and investors not investing in America’s future to where it will do the most good—in our sadly neglected infrastructure and social safety net.

There are many more safeguards in place that should cushion a soft landing if inflation becomes worrisome because of safeguards put in place since the Great Recession; such as requiring banks and other lending institutions to maintain higher reserves.

The Biden administration wants to pay for future, more equitable economic growth by raising taxes on the wealthiest and corporations, rather than borrowing more that would increase the federal debt. The problem will be to refute the reigning economic orthodoxy that says higher taxes inhibit growth and investment.

However, the lower tax rates that have prevailed since 1980 have increased income inequality rather than boosting long term growth rates,

The best ways to deal with inflation and any possible overheating is to invest in the health and economic security of future generations rather than those of past generations that haven’t done enough to pay for the future.

Harlan Green © 2021

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Financial FAQs

BEA.gov

The U.S. economy grew at a blistering pace in the spring and repaired most of the damage caused by the pandemic thanks to widespread coronavirus vaccinations and a nearly full reopening of the economy.

The Q2 GDP report verifies that the American economy is capable of easily accommodating the Biden administration’s proposed infrastructure and American Family plan spending of some $4 trillion in additional government investments, should they be passed in their present form.

“Real gross domestic product (GDP) increased at an annual rate of 6.5 percent in the second quarter of 2021, reflecting the continued economic recovery, reopening of establishments, and continued government response related to the COVID-19 pandemic,” according to the Bureau of Economic Analysis (BEA).

This is huge after the first quarter’s 6.3 percent growth and shows both consumers and businesses are spending enough to boost GDP growth past the pre-pandemic level.

The increase in real GDP in the second quarter reflected increases in personal consumption expenditures (PCE), nonresidential fixed investment, exports, and state and local government spending that were partly offset by decreases in private inventory investment, residential fixed investment, and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.

Such growth should continue in the third quarter with agreement being reached on the $1 trillion national infrastructure plan after weeks of fits and starts, once the White House and a bipartisan group of senators agreed on major provisions of the package that’s key to President Joe Biden’s agenda.

The package includes $110 billion for highways, $65 billion for broadband and $73 billion to modernize the nation’s electric grid, according to a White House fact sheet. Additionally, there’s $25 billion for airports, $55 billion for waterworks and more than $50 billion to bolster infrastructure against cyber attacks and climate change. There’s also $7.5 billion for electric vehicle charging stations.

Government assistance payments in the form of loans to businesses and grants to state and local governments increased in Q2, while social benefits to households, such as the direct economic impact payments, declined. In the first quarter of 2021, real GDP increased 6.3 percent (revised), as I said.

“The $1.2 trillion Bipartisan Infrastructure Framework is a critical step in implementing President Biden’s Build Back Better vision,” said the White House fact sheet. “The Plan makes transformational and historic investments in clean transportation infrastructure, clean water infrastructure, universal broadband infrastructure, clean power infrastructure, remediation of legacy pollution, and resilience to the changing climate. Cumulatively across these areas, the Framework invests two-thirds of the resources that the President proposed in his American Jobs Plan.”

Inflation is running hot, as was expected from the sudden surge in demand that has GDP growth exceeding its pre-pandemic level. The PCE price index that the Fed prefers to measure inflation increased 6.4 percent, compared with an increase of 3.8 percent (revised). Excluding food and energy prices, the PCE price index increased 6.1 percent, compared with an increase of 2.7 percent (revised).

This level of inflation is worrisome if prolonged, but the Federal Reserve believes supply bottlenecks are causing the price rises that should subside once industry activity returns to normal and the 7 million workers still unemployed due to the pandemic return to work.

This is the biggest investment in America’s future since the Eisenhower and Kennedy days more than two generations ago when our tax monies were spent on real things; like our interstate highway system, moon landings, and development of the Internet.

These new government spending initiatives will find new ways to benefit workers in this new economy as other developed countries are doing—i.e., with governments working to pay it forward for future generations.

Harlan Green © 2021

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen