Economy | - Part 30

Rising Prices and the Fed

Given the dearth of officially reported consumer price inflation in recent years, don’t look for this to be a major topic today when new Federal Reserve Chair Janet Yellen appears before the House Financial Services Committee in the first of two appearances on Capitol Hill this week to present the central bank’s semi-annual monetary policy report to Congress.

That’s not to say that it won’t be at some point in Yellen’s tenure…

Nevertheless, there is clearly an ongoing disagreement about how fast prices will rise as this WSJ story details the differing views on inflation between the experts and the laymen.

Predicting Prices

In short, Americans think inflation will be about twice as high as the Fed does, however, as noted in the article, there are fundamental differences in how consumers view current and potential price changes and how economists view them.

Also, kudos to Ms. Yellen who mentions the word “inflation” an impressive 11 times in her prepared testimony today. Somehow, I don’t think this will be quite enough to stop some Republicans from expressing their grave concern about it.

Economic Confidence and Politics

More evidence of a polarized nation comes via this Gallup survey data that combines economic confidence by state with a range of questions on political views. As has been seen in the detailed weekly confidence data in recent years, with the exception of scandals for the party in power, it seems nothing will boost the confidence of the the party not in power.

Economic Confidence Obama Disapproval

The flip side of this is that – and this should come as no surprise – most of the highest-ranking states in economic confidence are in the top 10 for presidential approval.

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Diverging Labor Market Surveys

This report at MarketWatch provides some graphical evidence of just how far the Labor Department’s two major labor market surveys have diverged over the last three months.

As should be clear from the chart above, the establishment survey is the more reliable of the two as the much more volatile household survey, today, showed the best three-month period of job creation in 14 years according to MarketWatch.

It’s been prone to wild swings before, as recently as last summer when jobs were being lost at a rate of over 200,000 a month which, at the time, most people just ignored. All of this kind of makes the official unemployment rate that much more of a joke.

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Payrolls Up 113K, Jobless Rate Down to 6.6%

The Labor Department reported that U.S. payrolls rose far less than expected in January as government job losses offset some of the brisk hiring by construction firms and normally strong areas of job growth such as health care failed to make a positive contribution.

The unemployment rate fell from 6.7 percent to 6.6 percent and, in contrast to recent months, the improvement was due solely to more people finding work as the ranks of the unemployed fell and those counted as “not in the labor force” declined.

January Jobs Report

Following a gain of just 75,000 in December, the U.S. economy added only 113,000 jobs in January, far below the consensus estimate for an increase of 180,000 and average monthly gains of 194,000 in 2013.

The jobless rate fell to its lowest level since 2008 as more Americans entered the labor force and found jobs. After declining by 374,000 in December, the labor force increased by 523,000 in January, pushing the participation rate up from 62.8 percent to 63.0 percent, the highest level in four months following recent 35 year lows.


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Is Obamacare a Disincentive to Work?

As an early retiree, I can tell you first hand how the Affordable Care Act has been a tremendous help financially. If you’ve got no debt and a modest lifestyle, you don’t need much income to live on and, prior to 2014, health care would have been one of your biggest expenses, even if you were in good health and didn’t have to worry about getting coverage.

It’s easy to see how the ranks of early-retirees will swell, however, the effect will be limited as most people have not saved nearly enough to exit their cubicles for good.

For younger workers, however, it’s a different situation since they’ve got many years of employment ahead of them rather than already thinking about calling it quits as someone in their 40s or 50s might be doing and here’s where it gets interesting, as explained by CBO Director Douglas Elmendorf the other day:

It’s clear there’s a big disincentive to work – the non-partisan CBO chief says so himself.

Former Bush Administration economist Keith Hennessey takes a stab at the impact this would have for a young family thinking about improving their lot in life by working more or seeking higher paying jobs (that typically require more hours and/or stress). However, you slice it, this results in some horrendous marginal tax rates, particularly when you factor in other government benefits that are reduced or lost as incomes rise.

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