Still no sign of labor market overheating

I’ve always argued that average hourly nominal wages are the single best indicator of demand conditions in the economy.  Of course I favor targeting NGDP, not average hourly wages, partly for political reasons and partly because hourly wages are difficult to measure.  Still, it’s worth looking at wages for signs that the economy’s problem is no longer demand-side.  And the data is unambiguous:

Wages are up 2.0% over the past 12 months.

Wages rose at a 1.9% annual rate over the past 6 months.

Wages rose at a 1.2% annual rate over the past 3 months.

Yep, money is still too tight.  The economy is gradually healing, but only because the slowing wage growth is adjusting AS to the decline in AD.  And BTW, NGDP growth is still slowing a little bit, even from the low levels of 2009-12.

The stock market liked today’s jobs number, partly because investors would like to see continued growth and continued QE.  To some extent those wishes are in conflict—the Fed will tighten policy further if economic growth is too strong.  But the Fed has tied its policy to the unemployment rate (i.e. the Evan’s Rule), whereas the monthly payroll jobs number is a better measure of economic growth.  So when the jobs number is good and the unemployment number is bad (like today) the markets will tend to rise, seeing both economic growth and the prospect of delay in further Fed tightening.  I say “further Fed tightening” because MONEY IS STILL VERY TIGHT.

In other news, job growth this year is running 189,200/month, versus 182,750/month last year.  Which economist said late last year that Fed initiatives such as QE and the Evans Rule would roughly negate the effects of fiscal austerity?  And which school of economists got it wrong, suggesting fiscal austerity would sharply slow growth?  And which school of economists got it wrong, suggesting “easy money” would lead to higher inflation.  Just asking.

The financial press speculates that the Fed may begin tightening in September, because nominal growth would be too strong if they didn’t tighten.  And also that growth is weaker than they’d like because of the sequester.  Go figure.


Tags:

 
 
 

29 Responses to “Still no sign of labor market overheating”

  1. Gravatar of Rob Rawlings Rob Rawlings
    7. June 2013 at 05:33

    “Still, it’s worth looking at wages for signs that the economy’s problem is no longer demand-side’

    Question: What signs would you expect to see in wage growth if the economy was no longer experiencing demand-side problems ?

  2. Gravatar of reader223 reader223
    7. June 2013 at 06:21

    Professor, I am a bit confused on your position with fiscal austerity, especially when you say things like:

    “Which economist said late last year that Fed initiatives such as QE and the Evans Rule would roughly negate the effects of fiscal austerity? And which school of economists got it wrong, suggesting fiscal austerity would sharply slow growth?”

    Are you implying that without fiscal austerity QE would have been just as effective? If QE has done so well negating the effects of fiscal austerity, doesn’t it make sense to support at least no change in fiscal policy in order to reap the full effects of unconventional monetary policy?

    I’m just confused on why you believe to be so at odds with Keynesian viewpoints when it seems, in reality, you guys should be agreeing on a lot of things.

  3. Gravatar of Michael Michael
    7. June 2013 at 06:21

    This post captures the absurdity of current Fed policy (as compared to an NGDP level target.) “We want to see a faster recovery, but not too much faster, because we don’t want to trigger contractionary policy”.

    If there’s a failure of expectations-based monetary policy, it is in the sort of expectations that are being set.

  4. Gravatar of Morgan Warstler Morgan Warstler
    7. June 2013 at 06:51

    Scott, I think you will regret not getting out there more on the Small Govt. circuit.

    You are perfectly able to tell that story.

    Granted, you are recently pulling some sneaky shit with the “I thought Keynesians predict…” stuff. Its good but inside baseball.

    But there’s a bunch of folks out there playing “reform cons” and none of them have the incisive econ wit you can turn on if you just let your freak flag fly.

    Note, there’s a lot of “QE isn’t working” stuff burbling up, and cons could use a thought leader on the monentary side who isn’t just trying to parrot the stuff coming out of your head.

    Anyway, you ought to noodle this.

  5. Gravatar of foosion foosion
    7. June 2013 at 07:23

    “a word about self-styled conservative “market monetarists”: guys, have you noticed who your real policy enemies are? People like me, Brad DeLong, etc. are skeptical about the Fed’s ability to offset the effects of fiscal austerity, but we do want it to try. The furious academic opposition to quantitative easing is instead coming from moderate conservative macroeconomists, notably Taylor and Feldstein. So your problem isn’t just that the GOP’s effective leader on economic issues gets his macro from Francisco D’Anconia; it’s that even the not-so-silly wing of the party is dead set against what you consider reform.”

    Guess who

  6. Gravatar of James in London James in London
    7. June 2013 at 07:30

    My bet is that the Fed won’t like the positive market response to today’s labour news. They have been talking of tapering to jawbone down the stock markets that they have also been targeting up to now (as well as 2% inflation, “growth” and unemployment). I predict we will hear more about tapering over the next few days so that they can achieve their “targets”.

    My belief is that by targeting everything but what they should target (nominal income), they cause a lot of confusion and angst. Especially when they target stock markets it is not so surprising we hear a lot of that “QE favours the rich” type commentary, because in the short term it does favour those with large equity investments.

    I wonder whether the rise in the stock market is causing embarrassment amongst the Dem political types as QE is not seen to be working that well for income, but very well for assets, which we can all see. And it may do this for a very long time, if the central bankers don’t give a much better reason for doing QE. I have been calling it “targetless QE” over here.

  7. Gravatar of One Strike for the Evans Rule | This is Ashok. One Strike for the Evans Rule | This is Ashok.
    7. June 2013 at 07:39

    […] effect were strong low wage growth  would worry investors about weak demand. (And Scott Sumner correctly argues that the small increases are a supply side […]

  8. Gravatar of Bill Ellis Bill Ellis
    7. June 2013 at 08:53

    Krugman says what I have been telling my M&M friends for a while now…

    “Actually, before I get there, a word about self-styled conservative “market monetarists”: guys, have you noticed who your real policy enemies are? People like me, Brad DeLong, etc. are skeptical about the Fed’s ability to offset the effects of fiscal austerity, but we do want it to try. The furious academic opposition to quantitative easing is instead coming from moderate conservative macroeconomists, notably Taylor and Feldstein. So your problem isn’t just that the GOP’s effective leader on economic issues gets his macro from Francisco D’Anconia; it’s that even the not-so-silly wing of the party is dead set against what you consider reform.”

    http://krugman.blogs.nytimes.com/2013/06/07/hard-money-men/

    I go further… Half of America’s “conservatives” , both rabble and elite, are when it comes to policy far more alined with the left than their cohorts on the right.

    The Friedmanites/Monetarists and the Keynesians agree on monetary policy. The Austrians take the opposite view.
    ( When we do get back to “normal”… good growth, no ZLB problem… the Keynesianess of the Keynesians will almost disappear. They will look like Monetarist. )

    The Friedmanites/Monetarists and the Keynesians disagree on fiscal policy largely because of their disagreements over the efficacy of Keynesian multipliers. Though Monetarists in general would prefer a small state for political/moral reasons… they don’t deny that economically the size of the state does not matter (within reason) as long as it is supported by proper monetary and Fiscal policies.
    On the other hand, the Austrians believe a large state equals doom.

    Politically the conservatives are confused too.
    The Libertarian leaning cons would see that the share more common ground with libs than their con buddies, if they could just accept the fact that a state larger than they would like is nessasary for a modern society to function. If they could get past that they would see that their real ally against out of controle rent seeking is the left.

    The problem is that, people being people, it is not agreement on policy that binds us to one another.

    Even though the Friedmanites/Monetarists and the Keynesians, and the libertarian right and the liberal left agree with each other on policy more than with the Austrian/moral reactionary cons …they disagree fundamentally on the why of the policy. We disagree on how human nature comes into play. It is on the why of the policy that our political lines are drawn.

    We are bound together by our outlook, not our conclusions.

    It’s Tribalism.

    We are fated to be tribal by our biology. But knowing it can help us be alert to, and confront when, tribalism leads to irrational, self defeating confrontations.

  9. Gravatar of ‘Sameness’ | Historinhas ‘Sameness’ | Historinhas
    7. June 2013 at 09:22

    […] There was no change in the employment trend. Wage growth, which recently was losing to inflation, now is barely keeping up, mostly because inflation has fallen. According to Scott Sumner: […]

  10. Gravatar of TallDave TallDave
    7. June 2013 at 09:26

    O/T, but maybe interesting. I don’t know if Scott’s ever done a post on early 2000s Canada:

    http://en.wikipedia.org/wiki/Early_2000s_recession

    The rate of job creation in Canada continued at the rapid pace of the 1990s. A number of explanations have been advanced to explain this. Canada was not as directly affected by 9/11 and the subsequent wars, and the downward pressure of these events was more muted. Canada’s fiscal management during the period has been praised as the federal government continued to bring in large surpluses throughout this period, in sharp contrast to the United States. Unlike the United States no major tax cuts or major new expenditures were introduced. However, during this time, Canada did pursue an expansionary monetary policy in an effort to reduce the effects of a possible recession.

    I did not know that (though I suspect most others here probably did).

  11. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    7. June 2013 at 09:54

    Good story by Kirsten Grind of the WSJ; the EMH is even getting attention in Omaha;

    http://online.wsj.com/article/SB10001424127887324235304578440760675943252.html

    For all the right reasons. Btw, if you don’t subscribe, just copy this:

    An Old-School Stock Picker Struggles With Index Craze

    and paste it into your browser search box. Then look for the WSJ story in the results, and click on it. Usually you get to read it for free.

  12. Gravatar of Edward Edward
    7. June 2013 at 10:08

    hard money fetishism is a sociopathic disease afflicting most on the right, and even some on the left, like Germany

  13. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    7. June 2013 at 10:10

    Also, off topic, but interesting, Larry Kotlikoff;

    http://www.pbs.org/newshour/rundown/2013/05/kotlikoff-on-the-real-problem-with-reinhartrogoff.html

    ————quote———–
    Unfortunately, there is a much deeper and uncorrectable problem with the debt figures used in RR’s paper. This problem is not that some of the data on official government debt were inadvertently omitted from the analysis. The problem is that, in fact, none of RR’s official debt series provide a meaningful, as in theoretically well-defined, measure of a country’s indebtedness.

    To the contrary, economic theory makes clear that what’s counted as official debt reflects nothing about a country’s underlying economic liabilities and everything about what the country does and doesn’t call “official borrowing.”

    It’s easy to get queasy about using official debt numbers to capture true government obligations. Just find a retiree receiving periodic payments from Uncle Sam, some of which are called interest and principal on U.S. Treasury bonds and some of which are called Social Security benefits. Next ask why RR include in their debt measure only the present value of the future bond payments and ignore completely the present value of the Social Security payments?

    The answer is there is no economic answer. Lawyers will say that Treasury bills and bonds are backed by the “full faith and credit of the United States.” But these fancy words don’t preclude formal default, let alone informal default via government-caused inflation.

    Social Security benefits, on the other hand, are inflation-projected and backed by the 40-million strong American Association of Retired Persons. So each dollar of Social Security’s current $60 trillion debt arguably counts more than a dollar of the public’s $12 trillion holding of U.S. official debt in terms of its likely implied burden on today’s and tomorrow’s taxpayers. Yet, RR includes not one penny of Social Security debt in forming their historical time series of Uncle Sam’s obligations. Nor do they include the present values of Medicare and Medicaid’s massive future benefit commitments as well as those of more modest transfer payments.
    ————-endquote———–

  14. Gravatar of Edward Edward
    7. June 2013 at 10:15

    Scott, I’ve been wanting to ask you this question for some time now,

    Suppose the U.S. Congress pulled its head out of its a** and enacted an employer based FULL payroll tax cut. All 6.2% . Would the growth in RGDP take the form of rising nominal wages and rising NGDP, and would it count under an NGDPLT regime

    I guess what I am saying is are them some forms of real growth that can only manifest themselves through higher wages and nominal spending, and not necessarily by productivity deflation or “good deflation.” Generally I support you, and NGDPLT. I think its a good idea to put a lid on nominal growth and inflation, but not necessarily RGDP growth. The proper amount of RGDP growth in the long run (we are talking about private sector driven) is infinite.
    Wouldn’t you agree?

  15. Gravatar of Edward Edward
    7. June 2013 at 10:34

    I suppose that if we enacted a broad based employer payroll tax cut, and it raised NGDP, it wouldn’t be a problem now, because of the massive hole we are in.
    I just don’t think we should put a ceiling or RGDP growth for later, when we’ve recovered

  16. Gravatar of Edward Edward
    7. June 2013 at 10:53

    “on” RGDP growth for later

  17. Gravatar of Geoff Geoff
    7. June 2013 at 10:56

    Dr. Sumner:

    “MONEY IS STILL VERY TIGHT.”

    No, you cannot know that unless you have access to the information that only a market in money production can provide. You’re just spewing hot air.

    ———

    Bill Ellis:

    “We are fated to be tribal by our biology. But knowing it can help us be alert to, and confront when, tribalism leads to irrational, self defeating confrontations.”

    Then we’re not fated.

  18. Gravatar of Don Geddis Don Geddis
    7. June 2013 at 12:40

    @Geoff: “you cannot know that [money is tight] unless…

    It’s obvious that you’re trying to define “tight money” differently than Sumner is using it. Definitions are arbitrary. If you’re going to comment on someone’s blog, please do the author the courtesy of using the words with the meaning that he intended (and that has widespread consensus in the field).

    Just having your own private definition for words, and then complaining that the statements aren’t meaningful when using your definitions, is not productive. Your comment has the form of having real content, but in reality you’re just playing rhetorical tricks with words, not saying anything meaningful.

  19. Gravatar of James in london James in london
    7. June 2013 at 13:31

    “Geoff”, are you Major Freedom in a new disguise? Are you a troll? We should be told the truth.

  20. Gravatar of Edward Edward
    7. June 2013 at 14:12

    james in london,
    Yes, Geoff is Major Freedom,
    He’ll deny it of course, but we can add that he’s a liar as well as a religious fanatic
    Similarities
    1. Both are fanatical Rothbardians They have almost the exact same beliefs
    2. Both Have made it their mission to be an Austrian “pest” on this blog.
    3. Major Freedom has said on other blogs that he likes to re-invent himself periodically, I’ve seen him go under names like “Pete” or David” Geoff is really another in a long line of those.
    4. Both have a similar “I know you are but what am I” same stupid style of arguing.

  21. Gravatar of Edward Edward
    7. June 2013 at 14:18

    Actually, I take number 4 back,
    MF is smart enough not to give his game away completely, being that 4 is one of his signature styles of arguing

  22. Gravatar of Geoff Geoff
    7. June 2013 at 17:14

    Don Geddis:

    “It’s obvious that you’re trying to define “tight money” differently than Sumner is using it. Definitions are arbitrary. If you’re going to comment on someone’s blog, please do the author the courtesy of using the words with the meaning that he intended (and that has widespread consensus in the field).”

    Hoo boy. If definitions are arbitrary, then you just argued Dr. Sumner’s definition is arbitrary by implication.

    “Just having your own private definition for words, and then complaining that the statements aren’t meaningful when using your definitions, is not productive. Your comment has the form of having real content, but in reality you’re just playing rhetorical tricks with words, not saying anything meaningful.”

    But I am not just giving you a definition. I’m giving you an argument concerning value and economics. The argument that money tightness and looseness can only be known in a free market *logically follows* from the nature of the value judgments of “tightness” and “looseness” themselves. Value judgments are individual, subjective concepts. Each individual has their own value judgments concerning their own monetary affairs. As such, it is trivial that the only way we can know such value judgments, the only source for value, would be if each individual is free to manifest those judgments in exchanges, i.e. catallactically revealed preferences.

    This isn’t just arbitrary definitions. This is the very fabric of what it means for money to be valued as anything, including too abundant or too insufficient.

    Dr. Sumner can only know if money (which is used and owned by millions of individuals) is too tight or too loose by deferring to the value judgments that arise in a free market.

    Hayek made a similar argument, I guess you must have missed it.

    James in london:

    “Geoff”, are you Major Freedom in a new disguise? Are you a troll? We should be told the truth.

    Truthfully, on my parent’s grave and my future grave, I am not Major Freedom.

    Edward:

    “Yes, Geoff is Major Freedom”

    No Edward, I’m not Major Freedom. I’ve said this many times before. I’m not lying. What else can I say? Believe what you want. If you want to believe there is a boogeyman, then so be it.

    There are many people like me on the internet BTW. You should get out more.

  23. Gravatar of ssumner ssumner
    7. June 2013 at 17:28

    Rob, I’d expect to see wage growth rising as the unemployment rate fell.

    reader223, No, I’m saying QE would not have happened if there had been more fiscal stimulus—monetary offset.

    Morgan, I gave a talk to business people in Sheboygan, Wisconsin–does that count? But OK, I’ll try to fly my “freak flag” more boldly.

    James, You may be right.

    Bill, See my next post.

    TallDave, Interesting.

    Patrick, Yes, Kotlikoff has made that point for some time now–it’s a big theme of his.

    Edward. I’m not sure what you mean by “infinite.” The payroll tax cut would boost RGDP even if it did not boost NGDP. But monetary stimulus is a much better option.

  24. Gravatar of ssumner ssumner
    7. June 2013 at 17:32

    Patrick, If enough people move to index funds there might be some equilibrium where a few stock pickers can actually beat the market. Obviously we can’t all be in index funds. But we are a long way from that point.

  25. Gravatar of Edward Edward
    7. June 2013 at 17:41

    Scott, infinite in the long run.

    i think that there is as much if not more we can advance in terms of technological development, to get to a star trek economy, for example, in the next two hundred to three hundred years. And even when we get there, we will get used to that amount of technology, and see things that we cannot do. Those boundaries will then give us opportunities to advance even further than we can imagine right now. In other words, economic progress in the long, long run has the potential to be infinite.

    If a physics professor or a natural resource theorist would object that the universe is finite, well then I will say that given the vast size of the universe, it might as well BE infinite. (It would take billions of years before we explore the entire universe.) That doesn’t even get into the possibility of multiple universes.

  26. Gravatar of Edward Edward
    7. June 2013 at 17:43

    And how, exactly, would it boost RGDP? What’s the mechanism? there are only three I can think of, higher wages, lower prices, and more and higher quality products.

  27. Gravatar of Don Geddis Don Geddis
    7. June 2013 at 18:39

    Geoff: “ If definitions are arbitrary, then you just argued Dr. Sumner’s definition is arbitrary by implication.

    All words have arbitrary definitions. It’s just a mapping between a bunch of sounds, and some semantic concept. But, in order to communicate, we need to agree to share the arbitrary definitions. What you do, is change the definitions of common terms — and then try to argue that other people made wrong statements. But you don’t admit (or maybe you don’t realize) that even though the words are spelled the same, you’re simply using different words. You’re not communicating.

    The argument that money tightness and looseness can only be known in a free market *logically follows* from the nature of the value judgments of “tightness” and “looseness” themselves.

    “Tight” and “loose”, as defined on this blog and in mainstream economics, are not value judgements. Hence, whatever you think those words mean, you’re referring to a different concept than Sumner was referring to.

    So once again, you’re not actually making a comment about anything that Sumner wrote.

  28. Gravatar of ssumner ssumner
    8. June 2013 at 06:35

    Edward, Think of it as lowering prices for a given NGDP. Or raising NGDP for a given P.

  29. Gravatar of Krugman to Market Monetarists: Whose Your Enemy | Last Men and OverMen Krugman to Market Monetarists: Whose Your Enemy | Last Men and OverMen
    20. February 2017 at 08:17

    […]     “The financial press speculates that the Fed may begin tightening in September, because nominal growth would be too strong if they didn’t tighten.  And also that growth is weaker than they’d like because of the sequester.  Go figure.”         https://www.themoneyillusion.com/?p=21661#comments […]

Leave a Reply