Thursday, July 14, 2011

Mr Bernanke, Just What the Hell Are You Waiting For?

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Yesterday (Wednesday July 13), Federal Reserve Chair Ben Bernanke was once again before Congress, testifying on the economy. Buried way down in the Reuters coverage of the hearing was this little nugget:

After recovering from the steepest recession in generations beginning in the summer of 2009, the U.S. economy has lost momentum in recent months. Gross domestic product expanded just 1.9 percent in the first three months of the year, and the second quarter does not look to have been much better.

Bernanke held to the view that recent weakness was due in part to temporary factors like energy costs and the effects on global industry from Japan's earthquake and tsunami.

But he acknowledged the labor market remains weaker than the Fed would like.
The labor market also remains weaker than the 14M unemployed and the 25M - 30M un and underemployed would like as well. While part of the stated Fed mission is "pursuit of maximum employment," the actions of the Fed over these last few years seem to have been more along the lines of "we'll pretend to do something and maybe the miracle will occur." As far as Bernanke's "...view that recent weakness was due in part to temporary factors...," as I've stated before, there are always "temporary factors" that are going to have an effect on life. It is part of life and should be part of his work to be anticipating and dealing with those "temporary factors" as they occur rather than using them as an excuse.

This past Sunday (July 10), Bloomberg had an article on Fed Data Researchers showing that the major problems for jobs are demand and not structural:
Daly is among researchers throughout the Federal Reserve system -- from San Francisco to Philadelphia and the board in Washington -- who are scouring data, examining models and gleaning anecdotes to determine why the jobless rate has remained stuck around 9 percent or more since April 2009. Most are reaching the conclusion that any long-term, structural shifts in the labor market aren’t significant enough to keep the U.S. from returning to a pre-crisis unemployment level of 5 percent to 6 percent by about 2016.

...snip...

Another telling indicator is joblessness among recent college graduates between the ages of 20 and 24, according to Daniel Aaronson, director of microeconomic research for the Federal Reserve Bank of Chicago. The rate climbed to 14.5 percent in June from 8 percent four years ago, as the national rate rose to 9.2 percent from 4.6 percent. The similarity points to cyclical causes because young people should be more able to relocate or switch industries to find work, said Aaronson, 43.
Dean Baker managed to de-bunk the "unemployment is structural" noise in this post back from September '10. Nice of the Fed researchers to finally agree (or for TradMed to at least report it.)

Today's report of Initial Unemployment Claims is out, and the numbers do show a drop from last week's report. Quite a sizable drop in fact, from 427K to 405K. Of course, the Reuters article fails to mention that the numbers from last week were revised upwards from the initial report of 418K (which I did in fact predict would happen, although without specifying a number). My guess is that the 405K number will wind up being revised upwards by next week to the tune of 5K to 10K more and that it will be spun in whatever way is the most positive.

While Bernanke was taking his wait and see attitude on jobs and unemployment, he was also being asked about inflation. Again from Reuters (also linked above)
Republicans and some economists accused the Fed of laying the groundwork for future inflation, while leaders in emerging economies accused the Fed of a backdoor dollar devaluation.
Would you believe that it's those DFH's at the Wall St Journal, who manage to refute the "ZOMG! INFLATION" noise? Yep, in this blog post with the title "Overtime, Not Wage Increases, Drive Income Growth":
Working families’ incomes have grown in recent decades. But the gains came mostly because they worked longer hours than because of wage increases, according to new research by the Brookings Institution‘s Hamilton Project.

Among two-parent families, median earnings did rise by an inflation-adjusted 23% from 1975 to 2009. But the parents’ combined hours worked increased by 26% during the same period–accounting for most of the income gains.
Working more for less, Hoocoudanode?

And because I can:

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