This is the web version of the WSJ’s daily economic newsletter. You can sign up here.
In today’s issue, what to look for in today’s jobs report, signs of inflation in producer prices, big tech’s big profits, and why weak worker productivity is such a big concern.
IT’S JOBS DAY!
U.S. employers likely extended their hiring streak to a record 88 straight months in January. Economists estimate nonfarm payrolls rose by 177,000 while the unemployment rate held at 4.1%, its lowest level since December 2000. It’s almost getting repetitive.
But there are things to watch. First, what’s happening to the pace of job creation? It’s been slowing, probably because it’s getting harder to find workers. Employers added an average of 171,000 jobs a month in 2017, down from 187,000 the year before.
But…don’t be surprised if there’s an outlier number either. Individual forecasts range from 155,000 to 220,000 for January and there can be a lot of noise in monthly data. Look instead at the trend.
MISSED A PAY DAY
If the labor market really is getting that much tighter, wages should be firming.
We may not see that in January, though. That’s because of an exciting thing called calendar bias. As Pantheon Macroeconomics’ Ian Shepherdson explains, the problem arises when the Labor Department completes its employment survey before the 15th of the month—payday for many people—as was the case in January.
Mr. Shepherdson surmises that smaller firms report wages paid on cash rather than accrual basis, so hourly earnings end up looking soft.
“Note that this makes no difference at all to our base case forecast for a clear pick-up in wage growth this year, thanks to the falling unemployment rate and, we think, a fading of the drag from persistent downside inflation surprises,” Mr. Shepherdson says.
Comments or suggestions for Real Time Economics? Write to Jeffrey Sparshott at realtimeeconomics@wsj.com, tweet to @WSJecon and visit wsj.com/economy for the latest.
WHAT TO WATCH TODAY
The U.S. employment report for January is due out at 8:30 a.m. ET.
The University of Michigan’s consumer sentiment index for January comes out at 10 a.m. Economists expect a reading of 95.0, reflecting a broadly upbeat assessment of the economy.
U.S. factory orders for December come out at 10 a.m. Economists expect a gain of 1.5% , not far out of line with the prior month’s 1.3%.
TOP STORIES
ARE WE AT FULL EMPLOYMENT?
If all the world’s economists were laid end to end, they’d never reach a conclusion. Or so the old saying goes.
Many economists believe the U.S. is at or near full employment. S&P Global economists believe, in fact, that there’s still a significant amount of slack in the U.S. labor market: “[A]ccording to our calculation, compared to the employment rate of 2000 as a benchmark, the economy is still 2.2 million prime-age (ages 25-54) men and 1.1 million prime-age women short of full employment.”
The ratings agency expects the labor market to sop up those workers in the next year or so, though not before the unemployment rate drops another half of a percentage point, or perhaps even a full point from the 17-year low of 4.1%.
Of course, the economy was running pretty hot back in 2000, so that may not be the best jumping-off point. The Federal Reserve is forecasting an unemployment rate of 3.9% by the end of this year and sees the long-run rate at 4.6%.
ELUSIVE INFLATION
Tighter labor markets and solid economic growth suggest there should be some inflation pressures lurking in the background.
Suttle Economics highlights the prices index from yesterday’s closely watched Institute for Supply Management manufacturing survey. It hit the highest level since May 2011.
“Amid all the low-inflation-hype and angst, it is interesting to look at the ISM prices paid index over the long-run. Between 1995 and 1982, which I think we can all agree was a U.S. inflation phase, the index averaged 69.8. Between 1983 and 2003 (the disinflation phase), the index averaged 55.1. Since 2004, the average has been 60.5, consistent with moderate, but persistent, (producer) goods price inflation.”
It’s not just the U.S. In Switzerland, where consumer prices fell for many years before last year, the PMI purchase-price index rose to 73.7, near an all-time high. The puzzle is when this feeds into higher consumer-price inflation. If it happens in Switzerland, it will happen elsewhere too.
TECH’S HOLD ON THE ECONOMY
Three companies that dominate the tech sector—and swaths of the global economy—reported record quarterly financial results on Thursday.
Apple’s profits topped $20 billion for the first time, Google parent Alphabet recorded its 32nd consecutive quarter of revenue growth of 20% or more, and Amazon delivered a profit exceeding $1 billion for the first time, Laura Stevens, Tripp Mickle and Jack Nicas report.
Greg Ip recently looked at the anti-trust case against today’s tech giants and concluded there wasn’t one, at least not yet.
“They are driving down prices and rolling out new and often improved products and services every week. That may not be true in the future: If market dominance means fewer competitors and less innovation, consumers will be worse off than if those companies had been restrained.”
PRODUCTIVITY MATH
Why aren’t all the technological advances of the past decade translating into more efficient workers?
U.S. worker productivity grew below its long-run average for the seventh straight year in 2017, Eric Morath reports. Nonfarm business-sector productivity, measured as the goods and services produced per hour worked, advanced 1.2% last year from 2016. That matched the average rate recorded from 2007 through 2017, and is well below the 2.1% annual rate averaged since 1947.
Soft productivity gains are an impediment to stronger wage growth, and ultimately a better economic performance. Here’s why: The economy’s growth path is largely determined by productivity plus labor force growth. To get to 3% annual economic growth on a consistent basis, you need productivity growth of 2% or more. The latest numbers are going the wrong way.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
This week marked Janet Yellen’s last policy meeting as head of the Federal Reserve. Her counterpart in China may also be ready to step down. The Economist looks at Zhou Xiaochuan’s legacy after 15 years leading China’s central bank. “He leaves with China far stronger and his own role much more prominent. No one person can take credit for the flourishing economy. But Mr Zhou, who is 70, deserves more than most.”
Some entrepreneurs create businesses when they see an opportunity. Others are forced into starting a business because they lack options in the labor market. The University of California, Santa Cruz’s Robert Fairlie and University of Nevada, Reno’s Frank Fossen create a working definition for the two types of startups and find that “opportunity” entrepreneurship tends to be cyclical while “necessity” entrepreneurship runs counter-cyclical. “Opportunity entrepreneurship is also found to be associated with more growth-oriented businesses.”
from Real Time Economics http://ift.tt/2E6WbW2
No comments:
Post a Comment