Last week there was a CD post featuring the graph above of initial claims for unemployment benefits, which was mentioned on Greg Mankiw’s blog.
Now a recently released study by labor economist Tim Kane for the Joint Economic Committe of Congress “Employment Numbers As Recession Indicators” reports (p. 12) that:
The most surprising finding, contrary to conventional wisdom, is that both payroll and household employment measures are of no value as recession indicators. The 1-month change in the unemployment rate has value, but is perhaps prone to false signals due to its moderately high variance. Finally, we have learned that unemployment insurance claims are very valuable and reliable pre-recession indicators. The fact that the UI data are released weekly makes it even more timely, and so it merits close attention.
From the Executive Summary: The best pre-recession employment indicator is actually weekly claims for unemployment insurance (UI).
From the WSJ:
Kane based his model on the three-month change in the unemployment rate and initial jobless claims. Both rose in December, which pushed up Kane’s model to signal 35% recession odds, which was still below what many on Wall Street and academia have thought.
Yet the surprising decline in weekly jobless claims this month to around 300,000 — which is usually consistent with a very healthy labor market — has brought those chances down to around 15%-16%, Kane said.
The government’s resources are not infinite. If it gives out $150 billion today, it must collect an extra $150 billion in taxes tomorrow (unless the government cuts spending, which nobody seems interested in). That’s a law of arithmetic. Where will that future $150 billion come from? From the same people who are being encouraged to spend their rebate checks today. That’s why this whole thing is eerily similar to the sub-prime lending crisis that got us into this mess — people are being encouraged to spend beyond their means and forgetting that it’s all got to be paid back someday.
The only way out is for people to actually earn more so they can afford to pay those future taxes. They can earn more only if they work more. They’ll work more only if they have the right incentives. For $150 billion, you can hand out a lot of incentives. But the stimulus package is incentive-free.
~Steven Landsburg in today’s LA Times
In China 25 years ago, over 600 million people—two-thirds of the population—were living in extreme poverty (on $1 a day or less). Now, the number on $1 a day is below 180 million. In the world as a whole, a stunning 135 million people escaped dire poverty between 1999 and 2004. This is more than the population of Japan or Russia—and more people, more quickly than at any other time in history.
~The Economist Magazine, “The World’s Silver Lining: In a Week of Financial Uncertainty We Look Behind the Headlines to a World That is Unexpectedly Prosperous and Peaceful”
From today’s LA Times:
In May, June and July the U.S. Treasury will likely mail out $100 billion worth of checks to working households. If past experience is any guide, at least $50 billion of these funds will be spent — which together with multiplier effects will add about 3% to the annualized growth rate in the third quarter of 2008. If food stamp increases or extended unemployment insurance are added to the final package, as demanded by many in the Senate, the macroeconomic benefits would be somewhat larger.We will eventually need to pay back this money, but an extra year of lower unemployment and higher output will put us in a better position to do so.
Steven E. Landsburg:
In sum, you (along with the president and the majority of Congress) are asking us to:
- shower people with loans to encourage reckless spending;
- somehow expect that the loan recipients will feel both richer and not richer at the same time (so that they’ll spend more without working less), and;
- do all this in the name of delaying the sometimes painful adjustments that are going to have to get made a year down the line in any event.
I object. The last time large numbers of people were showered with loan money and encouraged to live beyond their means, it was called the sub-prime crisis, which is what got us into this mess to begin with.
Note: All week in the LA Times, Jason Furman, an advisor to President Clinton, and author-economist Steven E. Landsburg discuss the U.S. economy and the recently announced stimulus package.
Standings So Far: Landsburg 1, Furman 0.
A recent post reported that every major U.S. commercial bank was profitable last year. An anonymous commenter reported some 2008 earnings per share (EPS) estimates for some of the banks listed in the post. That comment inspired the table above (click to enlarge), which shows 2007 EPS (actual) and 2008 EPS estimates for 17 of the largest U.S. commercial and investment banks.
1. Merrill Lynch is the only major investment bank to report negative earnings in 2007, and all other banks above were profitable last year. For 2008, $5.22 EPS is forecast for Merrill Lynch.
2. For 2008, all 17 banks are expected to be profitable, and EPS for 12 out of 17 banks are expected to increase from 2007.