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Tuesday, February 10, 2004

THE PATHETIC SHARK:
The victim of a bizarre shark attack swam 300 metres, jumped in his car, then walked to get help - with a 60 centimetre wobbegong shark still attached to his leg.
And it took a while for lifesavers on the New South Wales central coast to help Luke Tresoglavic prise the shark off his leg. “
How?
“They eventually drowned it with a hose. “

Sounds like someone got reincarnated in the wrong species.
WHY OH WHY CAN'T WE HAVE A BETTER DATA? In his on going “why oh why can't we have a better press corps?” Brad Delong seems to finaly be getting the figures into sense.
“Aha. Now it becomes clear, looking at Table C-2.* 4% per year real GDP growth plus +0.4% for the fact that the nonfarm business sector is projected to be an increasing share of the economy -3.0% for employment growth = 1.4% per year for productivity growth. The numbers add up.
Why hours per worker are not expected to grow in calendar 2004 is not explained. After all, if demand for workers is strong enough to make firms hire workers at a 3% annual rate, you would expect they would also ask their existing workers to work a little longer, no? “

Growth in Productivity, Payroll, GDP (chain), Change in Hours
1991 1.9 -0.1 -0.2 -0.3
1992 3.9 -0.6 3.3 0.3
1993 0.3 1.3 2.7 0.6
1994 1.2 2.5 4.0 0.3
1995 0.6 3.5 2.5 -0.9
1996 2.5 1.6 3.7 0.6

2000 2.7 2.6 3.7 -1.2
2001 2.1 2.1 0.5 -0.3
2002 4.9 -1.4 2.2 -0.3
2003 4.2 - 0.2 3.1 - 0.9
2004 ?0.5 3 4.0 ?

So they add up, and as the table below shows, in the last upswing, productivity growth fell as payroll growth picked up. Just like the CEA predicts this in the Economic report of the president.

But now we have the canard that employment growth and hours work must move together i.e. if payroll figures increase by say 3%, hours must increase by say 0.5%. Does the data bear this out – in 1995 payroll increased by 3.5% while hours worked fell by 0.9%. The rational is obvious, when growth first picks up, employees make their worker work longer hours. When growth continues, they hire additional workers which lets their existing employees return to their usual hours – hence hours worked often falls when payroll figure decline. Rearrage the puntutation and Brad’s hit it on the head.–“After all, if demand for workers is strong enough to make firms hire workers at a 3% annual rate, you would expect they would also ask their existing workers to work a little longer. No.”

Monday, February 09, 2004

EXTREMELY LIKELY: A dog whistle seems to have gone up that the Economic Report Of The President has made absurdly wild projections regarding the forecasted changes in the non farm payroll numbers. Calpundit comes running:

"Brad DeLong, demonstrating once again why he's an economist and I'm not, explains that the latest job growth figures from the White House are actually more peculiar than I suggested this morning.

In particular, the White House is projecting that non-farm payrolls will rise from 130.1 million at the end of 2003 to an average of 132.7 million for 2004. To me (and to Reuters) that sounded like an increase of 2.6 million, but Brad notes that to get an average of 132.7 million jobs we need to end the year at about 135.3 million This is, to put it mildly, extremely unlikely?"

Ok, let's use Brad's figures and periods (from 1940-date) for now. An increase of 5.3 million in the payroll figures from 130.1 million is a 4 % increase.

How likely is this? Well suppose you not only know nothing about economics but also that you don't even know what year it is. In the period from 1940 to the present there have been 159 12 month periods when the payroll has increased by more than 4% out of a total of 769 (overlapping) periods. So that means just taking a wild guess, which lets face it, is all anyone in Bush "troika" is capable of, you'd have a 20% chance of getting at least the 4% growth required.

But we're not guessing that wildly. We know that in the previous 2 years there have been net falls in the payroll numbers.

Since 1940 there have been 9 periods when the payroll numbers have fallen. In 5 out of 9 times payroll growth has exceeded 4% within the next 18 months. If we lower the cutoff to 3.7%, then the answer is 8 out of 9 times - the exception being the 90's upswing when payroll growth didn't exceed 3.7% in the subsequent pick up - ever.

So from a purely probabilistic perspective the projection is, to put it mildly, extremely likely to be met. Unless you'd only lived in the 90's.

The second point is whether the linear average Brad uses to calculate the number of jobs required to increase the average by 2.6 million overstates the required increase. I think it does. The fall in payroll numbers is likely to be front loaded over the next year as jobs are created on the back of recent strong growth. So rather than having constant growth of 466,000 per month over the next year (5.3 million in total), its more likely that we'll get a convex trend say - 4 months where 500 thousand jobs are added, followed by 2 of 400,000 , 2 of 300,000 then tailing off to 4 of 100,000. These numbers would increase the yearly average by 2.6 million but would only require the addition of 3.8 million jobs - considerably less than the 5.3 million we got with the linear trend. This represents only a 2.9% increase in payroll numbers and over the last 50 years pay roll numbers have increased by more than 2.9% more often than they haven't.

So the only thing that's "extremely unlikely" is that "the integrity of the administration's staff economic forecast pattern is gone."

NB figures from here ? look for 12 Months Percent Change non farm pay roll seasonally adjusted.



Sunday, February 08, 2004

FISCALLY RECKLESS OR RECKLESS WITH THEIR FIGURES: There seems to be a bit of a myth that Bush has let discretionary spending get out of hand. Most, like Brad Delong, come to this conclusion by basing their argument on current dollars i.e. not adjusted for inflation. However even looking at the real dollar figures is misleading since this does not take into account economic growth, which determines the governments ability to fund spending and the stage of the business cycle; in recessions discretionary needs increase and discretionary fiscal spending is a normal and accepted policy to stimulate the economy. So lets look at discretionary spending over the last business cycle:

1990 8.7
1991 9.0
1992 8.6
1993 8.2
1994 7.8
1995 7.4
1996 6.9
1997 6.7
1998 6.4
1999 6.3
2000 6.3
2001 6.5
2002 7.1
2003 7.6

The figures show that spending in the current year is lower than that in 1994, and considerably lower than in 1992-3 which is the comparable point in the earlier upswing and so the appropriate point to make a comparison. So is Bush fiscally reckless? Only if you're reckless with your figures.

FREE TRADE: It’s A-day in world trade and Bush’s free trade credentials are restored:
“ AUSTRALIA and the United States today signed a free trade deal eliminating duties from more than 99 per cent of American manufacturing exports to Australia”

This great news, not only is the deal of immediate effect for the majority of trade, it gives some much needed impetus to the free trade cause which has ground to a halt lately. Its an econ 101 truism that’s this is going to benefit both countries but what will it mean for the American consumer? Lamb which is poor quality, overpriced and hard to find in US supermarkets -is the most obvious benefit. Others will follow, who knows, maybe we’ll see Jars Vegimite gracing the shelves of Cub one day.

Update: But as Tim Blair observes The “right to ensure local content in Australian broadcasting” should be in the debit column
GOOGLE FISHING: I’ve back again, sorry for the break, I’m sure you didn’t miss me. Its interesting that, even when you don’t post anything, you still get traffic – thanks to google searches for Saddam, Bush or whatever. So here’s my bait for the google fish.

The Hutton enquiry has cleared Jacques Chirac of removing veil from one of Janet Jackson’s Howard Deans at the Super Quagmire. The neo conservative religious right immediately accused the Massachusetts Supreme Court of a whitewash, Ariel Sharron demanding the construction of a wall to protect the public from similar homicide singers. David Kay admitted that we were all wrong – there are no WMD’s (Woman’s mammary doodaas) underneath Janet’s blouse – although large stockpiles of silicon were found. And that’s about as much sense as the news today makes.



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