The financial markets around the world have over the last week demonstrated, once again, that they are subject to wild swings in irrationality despite mainstream economists holding out the idea that these sorts of transactions exhibit pure rationality. Some of the capital movements are explained by a shift in the interest rate spread between Japan and the US as the former nation decided to increase interest rates modestly. That altered the profitability of financial assets in each currency and so there were margins to exploit. But the big seings came when the US Bureau of Labor Statistics (BLS) released their latest labour market data last Friday (August 2, 2024) – Employment Situation Summary – July 2024 – which showed payroll employment increasing by only 114,000 (well down on expectation) and the unemployment rate rising by 0.2 points to 4.3 per cent. Suddenly, the headlines were calling an imminent recession in the US and that triggered a flight into safer assets (government bonds) away from shares etc, which drove down bond yields (as bond prices rose) and left some short-run carnage in the share markets. A few days later the panic subsided and one has to ask what was it all about. In this blog post, I examine the labour force data and add some new extra ‘recession predictors’ to see whether the panic was justified. The conclusion is that it was not....
William Mitchell — Modern Monetary Theory
US labour force data provides no basis (yet) for recession panicBill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
“The number of people employed part time for economic reasons rose by 346,000 to 4.6 million in July. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs.”
ReplyDeleteThis may also be Social Security recipients who can’t make more than $19,999 per year and they’ve hit the max…. Trumps removal of taxes on SS may alleviate this problem depending on how he does it.…
For an MMT guy, Bill (and Warren) doesn't pay much attention to the fiscal flows. Not sure he even knows where to find them. Instead, he (they) does like every other mainstream economist, and looks at the monthly data.
ReplyDeleteEmployment is a lagging indicator. Does Bill drive his car by looking in the rear view mirror? Forecasting forward economic conditions by looking at employment trends is not very helpful.
ReplyDeleteEmployment is an indicator of ideological preferences. Even the way unemployment is reported is politicized. Bill knows this yet dispenses with it when doing his forecasts.
ReplyDeleteRight the MMT people think UE is a policy choice in the first place …
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