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Economists at the Hamilton Project of the Washington DC think-tank, the Brookings Institution, say that up until the early 1970s, virtually all prime-aged men were gainfully employed - - regardless of whether they had a high school diploma or a college degree. Over the last 40 years, however, the United States has witnessed a dramatic change in the employment situation for men, particularly for less-educated workers who have faced greater challenges finding jobs and have increasingly dropped out of the labour force.
As shown in the chart above, while employment rates for men with bachelor’s degrees have declined only slightly, employment of men with only high school diplomas has fallen considerably -- from a high of 97% in 1967 to just 76% today. (These figures exclude incarcerated men - - in 2009, 3.4% of men ages 30-50 with high school degrees were institutionalized, versus only 0.3% of men with college degrees.) Source: Brookings Institution
US economic growth is expected to be modest in 2011 and following President
Obama's announcement on Monday of a tax deal with the Republicans, several
economists have revised up their forecasts.
The President shocked fellow Democrats when he announced a deal with
Republicans to extend Bush-era tax cuts for all taxpayers, including the
wealthy. In return, the Republicans agreed to support an extension of expiring
unemployment benefits and a temporary cut in workers' share of the Social
Security payroll tax.
The prospect of foregoing the chance to cut the deficit by $1trn, triggered a
sell-off in bonds and the Wall Street Journal reports today that the yield on the
10-year Treasury bond, a benchmark for US consumer and corporate borrowings, hit
its highest level since June, peaking at 3.33% before settling at 3.236%.
Prof. Robert Frank of Cornell University says that
according to research from Moody's Analytics, the
top 5% of Americans by income account for 37% of all
consumer outlays. Outlays include consumer spending,
interest payments on installment debt and transfer
payments. By contrast, the bottom 80% by income
account for 39.5% of all consumer outlays.
it is no surprise, of course, that the rich spend so
much, since they earn a disproportionate share of
income. According to economists Emmanuel Saez and
Thomas Piketty, the top 10% of earners captured
about half of all income as of 2007.
The wealthiest 1% of the population earn 19% of
the income but pay 37% of the income tax.
“I’ve said before that I felt that the middle-class tax cuts were being
held hostage to the high-end tax cuts,” PresidentObama said on
Tuesday. “I think it’s tempting not to negotiate with hostage-takers, unless
the hostage gets harmed. Then people will question the wisdom of that strategy.
In this case, the hostage was the American people, and I was not willing to see
them get harmed.”
JP Morgan Chase economists on Tuesday said the plan could boost growth by
half a percentage point next year to 3.5%. Goldman Sachs economists said the
effect would add at half a point to a full percentage point on top of its
forecast of 2.7% growth next year. Deutsche Bank economists said the payroll-tax
cut alone could provide a boost of 0.7 percentage point above the 3.3% growth
expected next year.
The US economy is expected to grow only modestly through next year, a Reuters
poll published Wednesday showed.
US gross domestic product (GDP) will grow at a 2.0% annualized rate in the
current quarter, the same pace as the third quarter and unchanged from the
consensus last month, according to the median forecast from almost 70
Growth is expected to accelerate to an annualized 2.2% in the first quarter
of next year, and 2.5% in the second quarter of 2011, also unchanged from the
In the October poll, only 11 of 69 economists correctly predicted the 2.0%
growth rate for the third quarter of this year. Most were too pessimistic.
Nearly 6m Americans looked for work but weren’t able
to find employment at all in 2009, a new report shows.
The Labor Department’s report on
work experience in 2009, issued on Wednesday, highlights the
long-term unemployment problem that’s likely to linger for
years. Some 5.8m job-seekers were without work for
the entire year in 2009, an increase of 2.7m from a
The majority of those unemployed for the entire year,
nearly 57%, were men.
Long-term unemployment - - people out of work for 27 weeks or more
- - has been at the highest level since at least 1948. Of all those unemployed, 41.9% had been out of work
for more than six months as of November.
The Brookings Institution's Hamilton Project
has examined the “job gap,” or the number of months it would take to
get back to pre-recession employment levels (while absorbing the 125,000 people
who enter the labour force each month).
Michael Greenstone, director, The Hamilton Project and Senior Fellow,
Economic Studies and Adam Looney, Senior Fellow, Economic Studies, and Policy
Director, The Hamilton Project say that in November, the job gap remained basically unchanged from October’s gap of
If the economy adds about 208,000 jobs per month, the average monthly rate for
the best year of job creation in the 2000s, then it will take 143 months, or
about 12 years to close the job gap. At a more optimistic rate of 321,000 jobs
per month, the average monthly rate for the best year of the 1990s, the economy
will reach pre-recession employment levels in 60 months, or about 5 years.
One of Wall Street's top economists discusses the direction of the economy, with Dick Berner, Morgan Stanley, and CNBC's Steve Liesman:
Moderate acceleration still on track. In a report published
this week, Richard Berner, the chief US economist at investment bank Morgan
Stanley, said most incoming data have been somewhat stronger than expected, with
3Q GDP growth at 2.5%, and a further pick-up in 4Q is likely (MS is expecting
annualised 4Q growth at 3.5%). Finally, it appears that the fundamentals are
working to improve final demand: Despite disappointing November employment data,
job and income gains are boosting income and thus consumer spending; pent-up
demand and favourable financial conditions are helping capital spending; and a
reacceleration in global growth appears to be helping net exports. (Some of the
acceleration seen in 4Q is purely statistical, reflecting the seasonal quirks in
US net exports; MS expects net exports to add 2.6% to GDP this quarter,
following subtractions of 3.5% in 2Q and 1.8% in 3Q).
But two headwinds seem likely to restrain growth to 3% next year.
Berner says housing markets and housing activity are weak and, barring
aggressive new policy actions, are likely to remain so through 2011. Home
prices may slide by another 10%. And while state and local government revenues
have begun to rebound, those governments are still apt to raise taxes and cut
Weak November employment data understate gradual labour market
improvement... The economist says there were few bright spots in thee
November data: Payroll growth slowed, the workweek was flat and the unemployment
rate ticked higher to 9.8% as employment measured by the household survey
declined by 173,000. The surprising softness in jobs was broadly based,
although some sectors (such as retail trade) may have been influenced by faulty
seasonal adjustment. The only bright spot in the report was a 40,000 rise in
temporary help employment - - reinforcing the trend that has been evident in
recent months and consistent with an underlying pick-up in labour demand.
...but imply below-trend November readings on income and production.
Hours and earnings were weaker than expected, leading to only a 0.1% rise in
aggregate weekly payrolls, and implying that personal income growth is likely to
be below trend in November. Meanwhile, the index of manufacturing hours slipped
0.1%, suggesting that industrial production is also likely to show only a
sluggish advance in December.
More than a trillion dollars is sitting in corporate coffers, but that won't last for long, says Michael Thompson, Standard & Poor's:
Gap between November employment data and forecasts was not unusually
large. Berner says last Friday's disappointing employment data
triggered a number of enquiries along the lines of "How could expectations be
so far off?" He says to be sure, the report was definitely weaker than
expected, but it was hardly a remarkable event from the standpoint of historical
comparisons. For example since 2004, the average absolute error has been 55,000
and the standard deviation of the misses has been 67,000. So, the November miss
of a little over 100,000 is well within a couple of standard deviations.
Moreover, the miss would be even smaller if you incorporated the 38,000 net
upward revision to September/October.
Future revisions may take November payrolls higher. The
economist says it's also important to keep in mind that the initial print can
change significantly over time. For the past several months, the payroll data
have been consistently revised higher, largely reflecting the impact of
contemporaneous seasonal adjustment. From a longer-term perspective, a number
of factors can lead to significant changes to the initially published estimates
- - including benchmark revisions that correct for inaccuracies in the
birth/death adjustment. Most of the larger revisions have been attributable to
the benchmark revisions, and these tended to be in an upward direction when the
economy was growing and a downward direction when the economy was in recession.
Hand-off from productivity-led recovery to sustained growth still
underway. Berner says the bottom line is that
there isn't a good
explanation for the weaker-than-expected results in November. But MS believes
that a broad array of indicators are pointing to an upswing in employment growth
and a gradual underlying decline in the unemployment rate. In particular,
companies appear to have pushed productivity about as far as they can during the
early stages of this recovery, and if the demand side of the economy is
sustained (as the most recent retail sales results imply), then hiring should
follow. Thus, MS expects to see the hand-off from productivity-led growth to an
expansion sustained by job and income gains continue to play out over the course
of coming months.
The Fed still expects very low core inflation. The
continued slide in core inflation through October to 0.6% in terms of the CPI
and 0.9% as measured by the Fed's preferred gauge (the PCE price index) leaves
it well below the Fed's comfort zone. Berner says while the Fed doubtless welcomes the rise
in market-based inflation expectations, it's not sufficient to make officials
comfortable with the inflation outlook; indeed, the rate-setting FOMC's (Federal
Open Market Committee) central tendency of only 1.3% core inflation in 2012 and
1.6% in 2013 strongly suggests that it isn't thinking of an exit strategy from
its current policy stance any time soon.
Reinforcing the Fed's conviction in QE2.
from the Fed's standpoint, the unemployment rate, at 9.8% in November, is
unacceptably high, and much stronger, sustained economic and job growth will be
needed to change that reality. Berner says a continuation of QE2 (bond
buying) is data-dependent, and
it's a long way between now and June, so he is hesitant to draw any long-term
policy implications from the November jobs report. However, he concludes
that based on the MS
forecast of sustainable growth and a clear bottoming in core inflation, he still
expects the buying program to cease in June.