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  • Why Is Unemployment so High in Spain?

    Do you think it is hard to find a job in the United States? Try looking in Spain, where youth (15-24 years old) unemployment rates have exceeded 50% since 2012.  The figure below shows youth unemployment for both Spain and the United States beginning in 1995.  Even when Spain was experiencing strong economic growth from 1995 to 2008, youth unemployment rates were around 20 percent!

    Spain Youth Unemployment

    But it is not just rough for the youth of Spain: the figure below shows overall unemployment rates in Spain, which consistently dwarf those from the United States. 

    Spain Unemployment

    Economists believe the main reasons for these differences are labor market regulations in Spain – regulations that were actually put in place to help workers.

    For example, mandated severance pay in Spain is particularly generous.  Until 2012, any Spanish firm that wished to fire a worker was required to continue to pay them for 45 days for every year they were employed.  Thus, if a firm wanted to fire a ten-year employee, they’d have to pay them for 450 days after their employment ended.  This regulation make it very difficult for young workers to break into the labor force.  They also incentivize firms to search longer for just the right worker to fill open positions.  Both of these increase frictional unemployment.  In 2012 this requirement was reduced to 20 days of pay for every year of employment.

    Another regulation is mandated annual increases in wages and benefits.  That is, firms are required by law to give pay and benefits raises every year.  Think about this from the firm’s perspective: before you ever hire and retain a worker for more than a year, you will be sure they are worthy of their current pay plus raises.  These regulations increase the time firms spend searching for just the right match, and again, increase frictional unemployment.

    Remember: Incentives affect behavior.

    All of this data is available from the Organization for Economic Co-operation and Development (OECD).

  • Unemployment Rate Steady, but Labor Force Participation Falls Again

    On Friday, the BLS released its monthly jobs report. The good news is that the unemployment stayed low at the low rate of 5.1 percent. 

    Screen Shot 2015-10-02 at 8.55.53 PM

    However, the results regarding the labor force participation rate (LFPR) and the number of jobs added are not as positive. Labor force participation fell to 62.4% – the lowest rate since October 1977. So there are still millions of workers sitting on the sidelines in the U.S. economy.

    Screen Shot 2015-10-02 at 9.43.03 PM

    To understand just how low this rate is, consider that the LFPR has not been lower since women entered the labor force en masse in the 1960s and 1970s.  To see this, let's look at the LFPR for men only (graphed below).  The LFPR for men has not been lower since we began keeping records (1948).  In fact, I would guess that the only era in U.S. history when this could possibly have been lower would be the Great Depression era – too bad we don't have that data.  

    Male LFPR

    Finally, the economy only added 142,000 jobs in the last month. This is low compared to both the current years' average of 198,000 and as well as 2014's average of 260,000.

    Screen Shot 2015-10-02 at 9.03.42 PM

    Another reason economists are less enthusiastic about this report is that the number of jobs added for July and August is now revised downward – with 60,000 jobs added less than reporter earlier.

     

  • More Jobs Growth in July

    The July jobs report from the BLS showed change in the unemployment rate (5.3%) and labor force participation rate (62.6%).  The unemployment rate since 2004 is plotted below:

     Unemployment July 2015

    The big positive news is the estimate of 215,000 new jobs added in the economy overall.  This continues three straight months of more than 200,000 new jobs.

    Payroll July 2015

    One last trend to watch:  although the long run trend for the U.S. economy is increasing jobs in the service sector along with relative declines in manufacturing, the July report estimates increases in manufacturing jobs.  The net change of employment opportunities in manufacturing +15,000, up from just +2,000 the month before.

  • Ho-Hum Growth in Second Quarter

    Today, the BEA released their  first (Advance) GDP estimate for the second quarter of 2015, estimating real GDP growth of 2.3%.  These figures will be revised over the next few months, but for now, they indicate positive but pedestrian growth below the long-run historical average of 3%.  The graph below shows quarterly real GDP growth since the beginning of 2004.

     GDP 2q2015

    The big news is that the growth estimates for the first quarter of this year were revised up to +0.6% from -0.2%.  This means that the economy has had positive growth now for over a year.

    The table below shows the contributions of each of the four major pieces of GDP:

    Growth components

  • Year-over-year CPI Edges up

    For the first time since last December, the CPI is above it's level from twelve months earlier.  The latest CPI estimates from the Bureau of Labor Statistics show an increase of 0.3% in June, and 0.1% over the year. 

    The graph below shows 12-month CPI changes since 2006.
     
    CPI June 2015
     
     

    In fact, 2015 has seen gasoline prices on quite a roller-coaster ride  – decreasing by by 18.7 % in January, increasing by 10.4% in May, and by 3.4 % in June. Given the large volatility  food and energy, core CPI is calculated omitting those prices – and core CPI increased by 1.8 % over the past twelve months.

     
    The food index rose by 0.3 % in June, which may not seem that much – but some individual foods have experienced significant price rises. Let's hope you put more than eggs in your shopping basket, because eggs have experienced their largest increase since August 1973, up 18.3% in June alone. This egg price spike the product of simple supply and demand economics: the avian flu has caused a chicken shortage.
     
    The table below lists some examples of prices that moved positively and negatively over the past twelve months.

    Price Table June 2015

     

  • GDP Down in First Quarter (Again)

    Real GDP in the U.S. fell by 0.7% in the first quarter of 2015, according to the latest report from the BEA.  The graph below shows growth by quarters since the beginning of 2005.

    GPD2015.I

    It seems reasonable to ask: what is wrong with the first quarter?  After all, since 2010, there have only been three quarters where U.S. real GDP has been negative – and these were the first quarters of the years 2011, 2014, and 2015. 

    Economists are of three views on this.  The first two are summarized well by Justin Wolfers here. One is that there are exogenous random shocks have hit the economy, and this has lately been in the first quarter. An example is bad weather (think polar vortex). Second, it is possible that the BEA is not correctly measuring the seasonal adjustments in the first quarter of data.  In other words, the GDP estimate is just wrong.

    Finally, Tyler Cowen posits that maybe the economy does naturally go through a seasonal cycle after all.  Perhaps this is related to a lull after the holiday season.  From this view, the first quarter downturn is accurate and should not be smoothed out of the data with seasonal adjustments.

    Whatever the case, we can all agree to hope for a large uptick in the second quarter.

  • Promising Jobs Report

    The economy added 223,000 new jobs in April, up from 85,000 in March. Today's BLS jobs report also estimates the unemployment rate down to 5.4%, the lowest level since May 2008.  Keep in mind, the unemployment rate was 6.2% just a year ago.

    Unemplyment april 2015

     
    You may wonder why the employment data seems to relay good news while recent GDP growth has been weak.  One possibility is that the Advance Estimate of GDP growth in the first quarter will be revised upward when we are able to evaluate a more complete data set.  Another possibility is that the employment figures will be revised downward.  In fact, in this current report, the jobs growth for March has been revised downward to just 85,000 (from the original estimate of 126,000). 
     Payroll april 2015
    Just like last month, the employment in oil related activities continued to fall. Among the new jobs 45,000 were added by the construction industry. Over the past 12 months, the industry added 280,000 jobs. This shows signs of recovery after the housing bubble in 2006.

  • Unemployment Rate Steady but Job Losses in Oil Extraction

    The  unemployment rate in remained steady at 5.5% in March.  The graph below shows the steady decline over the past year, falling from  6.6% one year ago.  The number of long-term unemployed also stayed constant in March. However, this number decreased by 1.1 million over the past year.

    Unemployment rate mar 2015

    Jobs growth did slow in March, with just 126,000 new jobs. This is down from an average of 269,000 new jobs per month over the past twelve months.

    Nonfarm payroll mar 2015

    There is at least one very good economics lesson in this report:  Employment in mining actually fell by 11,000 jobs in March.  The BLS report states that the employment declines "were concentrated in support activities for mining, which includes support for oil and gas extraction."  Thus the lost jobs are a direct result of the falling gasoline prices over the first few months of this year. 

     

     

     

     

     

     

     

     

     

  • CPI up for First Time since October

    According to the BLS, the CPI increased by 0.2% in February on a seasonally adjusted basis. This is the first increase after a consecutive decline in the last three months. The index was unchanged over the last twelve months. Hence, the ups and downs in the last twelve months have evened out, so that we are at the same price level again that we had in February 2014.
     
      CPI Graph 03-24-2015
     
    Generally, the increase in the price level last month can be attributed to the sudden increase in gas prices. After a series of declines, the index for gasoline rose for the first time since July. The change from December to January was -18.7%, while the change from January to February was +2.4 percent.
     
    The food index also increased by 0.1 percent. However, the results for the past month were mixed. Even though in increased on average, three of six major grocery store group indices declined, while the other three increased.
     
    In the table below you can find the percentage of popular items in the last twelve months. If you compare the table to the same table from last month, you will notice that the growth in price is broad-based.
     
    CPI Table 03-24-2015

  • Unemployment Rate Drops to 5.5%

    The BLS released yet another positive jobs report this morning.  Nonfarm payroll employment increased by 295,000 jobs in February and the unemployment rate dropped to just 5.5% – the lowest level since May 2008. 

    Unemp0215

    The question going forward is now: how close are we to the natural rate of unemployment?  Many economists believe this is around 5.5 percent.