Jared Bernstein With Some Good News on the Economy

The market sure didn't seem too impressed by what was a great nonfarm payroll number this morning. Expectations were for 200,000, yet the numbers were closer to 300,000.

How did the Market respond? By another triple digit loss in the Dow which leaves us with an opening week that is one of the worst ever at negative 1000 points.

http://www.cnbc.com/2016/01/08/us-markets.html

You know the headlines coming: Does this mean President Trump? Last year was a very torrid year for job growth with even some signs of wage growth finally.

But the market drop this week has been arresting and the CNBC analyst types are all talking using the R word this week. Though they are probably talking recession in the hope that this will bring them an R word they like-a Republican President.

So what does Jared Bernstein make of this? While being a great economist like Bernstein formally a White House economic adviser for Vice President Biden doesn't make you omniscient, it does make you about as good an authority as you can find on what's next for the economy.

After reading him, I at least feel a lot better for now. If you believe him, then the economy isn't going to conspire to give us a GOP President and a Supreme Court titled 7-2 for the conservatives.

Hillary wrote an important editorial today about the need for a Democrat with three SJC Justices over 80 in 2017.

https://www.bostonglobe.com/opinion/2016/01/08/make-break-moment-for-supreme-court-appointments/ULPa9x5VEUjqfeTn8rCpdN/story.html

Bernstein doesn't think we are at full employment yet-the economy has further to grow. 

"Simply put, for all the turmoil out there in the rest of the world, the US labor market tightened up significantly in 2015. Based on some important indicators I discuss below, we are not yet at full employment. But we’re headed there at a solid clip, and that pace accelerated in recent months."

http://jaredbernsteinblog.com/2015-was-solid-year-for-job-growth-what-happens-next-matters-a-lot/

Bernstein sees the labor force participation rate finally rising some-about 1.5 points. Wage growth is finally showing up-and he warns against any burst of inflationphobia.

"Wage growth: It is finally picking up, and thus finally reflecting a tighter job market with some competition among employers for workers. Hourly pay grew 2.5%, before inflation, last year, compared to 1.8% in 2014. But it is essential for policy makers not to conflate any acceleration in wage growth with inflationary acceleration in wage growth. In fact, inflation, even leaving oil out of the picture, has been low and steady. Wage competition is a good thing, representing a more favorable alignment of labor supply and demand than workers have enjoyed in years. Let it proceed!"

Sounds good. But what caused the huge market selloff this week is driven largely by China apparently. What does he have to say about China?

"To what extent is the recent stock market turmoil, here and in China, in these jobs data? Only about 5% of our exports go to China, so, unlike countries like Brazil and some African nations that export extensive commodities to China, we’re not likely to feel a slowing China through export channels."

"Imports, however, are another story. Around 20% of our goods’ imports are from China and we already run large trade imbalances with them of around 1.5% of GDP, more then $300 billion/year. As the yuan depreciates in value relative to the dollar, this could exacerbate that gap and amplify the unfavorable manufacturing results cited above."

"This trade channel has gotten less attention than the finance channel in recent days, as our own stock market has sold off partly in reaction to China’s market woes. Global capital flows have, of course, been portentous in recent years, and no one should underestimate their potential impact, as once they go south, we too often find out that our financial markets are a lot more inter-connected than we thought. But so far, we see the impact of the strong dollar in the jobs and growth numbers more than we see financial turmoil spilling over from securities’ markets."

"In sum, 2015 was a good year for job growth. By the end of the year, the tightening job market finally started showing signs of generating some wage pressures. But we’ve got a ways to go before the economy’s growth is broadly shared. For that, we need to get to and stay at full employment. We’re not there yet, but were getting closer every month. It is thus essential to accommodate these developments, especially though complementary monetary policy. Unless inflation starts to behave in a much more threatening manner–a probability I believe to be low–when it comes to the job-market expansion, love it and leave it alone!"

Here is Sumner on the recent US phenomenon of slowing manufacturing growth but steady GDP and lowering unemployment:

"Can an $18 trillion dollar economy keep growing at a fairly steady rate, despite a sudden slump in the industrial sector (manufacturing, mining and utilities)?"

"Somehow RGDP has maintained a roughly 2% growth rate since 2010, despite a sudden slump in the industrial sector. Is that even possible? Yes, services picked up the slack."

"Next question: Can two $18 trillion dollar economies, each of which have the third largest land mass on Earth, continue growing despite a slump in the industrial sector?"

"Of course the second $18 trillion economy (PPP) is China. And in China, industrial growth has fallen from the 9% to 10% range in 2013 to about 6% in 2015."

"However there is one very important difference between the two cases. Lots of people believe the Chinese GDP data can’t possibly be correct, given the big reduction in the growth rate of industrial production. But I don’t recall anyone questioning the US figures, despite an even larger slowdown in the growth rate of industrial production."

"PS. After I wrote this post I noticed that Tyler Cowen is predicting Chinese growth will soon fall to zero. I think growth will be closer to 6%, and don’t see how his reasons (excessive debt, etc.) would not have applied equally well in other years. Indeed he doesn’t mention what I think is the best argument for a Chinese recession, an overvalued exchange rate which is reducing NGDP growth. In any case, I think the safest prediction is the same one I’ve been making for over 35 years. Boom! And look at the bright side, if I’m wrong this time then my record will still be better than the Golden State Warriors. Tyler also mentions slowingAustralian growth, and indeed troubles in the mining sector are affecting Australia. However it’s worth noting that Australia’s unemployment rate actually declined during 2015."

http://www.themoneyillusion.com/?p=31396#comments

Doesn't sound like Sumner thinks we're headed for a recession right now either.