Author: Peter Rupert

By Thomas Cooley, Ben Griffy, and Peter Rupert

Today the BLS announced that November payroll employment increased 178,000. This was in line with expectations and consistent with recent months. Several of the headline numbers indicate a very strong jobs report: unemployment declined to its lowest level since August 2007; but these numbers mask the continued truncation in the labor force, as much of this decline was driven by a decline in the labor force participation rate. The establishment survey contained positive results for the employed.

Of the increase in employment, 156,000 were private sector jobs, up from 135,000 in October. The single largest category was the services sectors, providing 139,000 new jobs, which was more than the 128,000 created in October. About half of this came from professional services, while most of the rest was composed of education and health services. Government employment (local, state, and federal) increased by 22,000, up from 7,000 in October. Average weekly hours held constant at 34.4, having changed little over the past year:

Hourly earnings showed a small decline, moving from $25.92 to $25.89 per hour, and breaking a year a positive growth, though the decline was small and year over year, the growth rate was still positive:

As with last month’s employment report, the household survey again contained some less positive results for the US labor market. Unemployment continued to trend down, declining to 4.6 percent from 4.9 percent in October, it’s lowest since before the recession:

 

More inclusive measures (U6) also exhibited this downward trend. The rate for adult men declined from 4.6 to 4.3, and the rate for women declined from 4.3 to 4.2. Superficially, all of these statistics are very positive. However, much of the decline was driven not by new jobs, but by unemployed leaving the labor market, which contributed about a third of the decline in the unemployment rate:

Accounting for this decline were a large decline in reentrants and new entrants to the labor market, which combined to account for 144,000 of the overall 387,000 decline in unemployment levels.

Both of these statistics suggest that unemployment is a very persistent state for some workers, leading to discouragement among workers. Indeed, the household survey also reports a large uptick in marginally attached workers, from 1,700,000 to 1,932,000, with about half of this increase coming from discouraged workers.

The only real take-away is that indicators for the labor market are mixed at this point. For those who are attached to the labor market, there are positive signs about employment opportunities. The continuing concern is the decline in labor force participation. However, this report was sufficiently strong and should not deter the Fed from making its expected move on interest rates at he next meeting.

 

In order to facilitate broader discussion of the election, we have written a set of python scripts to download and organize data relating to the election. There is still a fairly high barrier to obtaining election results, so we wanted to make a clean source available for those interested. In addition to the series discussed in our previous post (here), we have included data on voting machines for those who wish to explore questions related to the recount.The code will download election results, graph them, and merge them into a .csv for statistical analysis.

We have made them available through the following sources:

1. github: here
2. dropbox: here

To run it, install Python (we suggest Anaconda), open a terminal and run the “Main.py” program from the file in which it was downloaded after editing options. It is likely that with a fresh installation of Python, additional modules will be necessary. This can be done by opening a terminal and typing “pip install <module name>” without quotes, and the required module substituted for <module name>.

Series available (County-level):

1. 2016 Election (President, House, Senate, Governor)
2. 2012 Election (President, House, Senate, Governor)
3. 2008 Election (President, House, Senate, Governor)
4. 2004 Election (President, House, Senate, Governor)
5. Economic Statistics (unemployment, income, establishments, industries)
6. Demographics (race, age, gender, education)

Series provided but not merged (County-level):

1. 2002 industry composition
2. Voting Rights Act coverage
3. Voting machine type (paper, electronic, etc.)

The available options are explained and edited in the “Main.py” file. We will be gradually updating our code to include options for more series, as well as merging the “extra” series currently not merged.

Any coding contributions or comments are much appreciated.

By Thomas Cooley, Ben Griffy, and Peter Rupert
Today’s second estimate of real GDP from the Bureau of Economic Analysis shows an increase of 3.2% for Q3. The advance estimate for Q3 had an increase of 2.9%. The final estimate for Q2 was also revised up to 1.4% from 1.1%. The year over year change (blue line) had been trending down for the past 5 quarters or so.

The overall rise in real GDP was led by a 2.8% increase in real personal consumption expenditures (PCE) that contributed 1.9 percentage points to the gain in GDP. Compared to other recoveries this one is now quite mature, yet continues to grow at a steady pace.

There was also a large rise in exports, up 10.1% and imports also increased slightly, up 2.1%. Overall, net exports contributed 0.87 percentage points to GDP growth. Investment, on the other hand, continues to be weak, coming from both nonresidential (up 0.1%) and residential fixed investment (down 4.4%). Spending on equipment has declined 6 out of the last 8 quarters.

This GDP report certainly provides enough support for the FOMC to raise rates during their December 13-14 meeting. Friday’s jobs report is expected to reinforce the view that the economy is on a stable path and that monetary policy can be normalized.

By Thomas Cooley, Ben Griffy, and Peter Rupert

At the start of Nov. 8th, most pundits would have been equally shocked by a Donald Trump victory as they would have been by Harry Truman rising from his grave clutching a newspaper celebrating his 1948 electoral victory. Almost universally, onlookers predicted a large, if not resounding victory for Hillary Clinton. And now a week later, many of those pundits have begun to acknowledge their own hubris in their predictions.

We take the opportunity to explore this and the past several elections, to see what differences might have driven such an unexpected outcome. What we find is interesting: Once we control for the level of education and unemployment in a county, the proportion of white men in a county was not predictive of a higher likelihood of voting for Trump. Counties with higher unemployment and less education were much less likely to vote for the Democratic ticket than they were in 2012, while all race and gender groups appear to have been more likely to increase their vote for Clinton once demographics were included. Additionally, counties that were heavily employed in manufacturing closer to the enactment of NAFTA swung their vote away from Clinton and may have decided the election.

To do this analysis, we combined county-level election results for the previous two elections, 2012 and 2016, with a number of characteristics of those counties, including race and gender, education, unemployment, and employment by industry (2-digit), for the most recent years available (most often 2015). We also include the percent of the county employed in manufacturing jobs for the year 2002 (the earliest year available at the county level) to assess whether a narrative about NAFTA and trade may have had a role in determining the outcome of the election. We further merge information on the counties previously covered by the Voting Rights Act (prior to the Shelby decision, 2013) to see what impact lifting the pre-clearance requirement may have had on the election.

As one might expect, there is a strong geographic component to the outcome of the election. The coasts strongly supported Clinton, while the center overwhelmingly supported Trump:

An interactive version of the maps presented here, as well as instructions on how to use them are available at the bottom of the post. There are subtle, but important differences between the geographic distribution of votes in these two elections. Notably, Democratic losses were concentrated in areas that were strongholds as recently as 2012:

What drove these differences? There’s no doubt that the results are, at least to some degree, consequence of an undertow of racism, sexism, and homophobia, that voters were able to exorcise from the privacy of the voting booth. It’s also true Hillary Clinton was also an historically unpopular candidate, exceeding only her rival in popularity among presidential candidates. But it also seems that the economically dispossessed were willing to overlook these flaws to support Trump. The table below reports the marginal effect that a one percent change in a set of covariates had on the support for Clinton relative to Obama. We measure this change in support as the percent in a county voting for Clinton in 2016 minus the percent in that county that voted for Obama in 2012. The covariates are all the same scale, between 0 and 100, meaning that a 10 percent increase in the unemployment rate in a county implies a 5 percent decrease in support for Clinton relative to Obama in 2012 (see the number corresponding to unemployment in the table below). We also use state fixed effects, meaning that these results are relative to the average change in the state.

A quick read of this table reveals some interesting, and potentially surprising statistics. Counties with higher percentages of Hispanic and Latino voters turned out for Clinton, while counties with higher unemployment aligned with Trump’s populist message. The African American vote did not seem to improve Clinton’s outcomes, and we discuss some causes for this below. As has already been widely reported, counties with higher percentages of white men were more likely to support Trump, relative to 2012, which is shown by the cross-term in row 3 (remember that each variable is 0 to 100, so the cross-term ranges from 0 to 10000, potentially). There is an important subtlety here: once county-level demographic and economic characteristics are controlled for, counties with white men actually increased their vote for Clinton relative to how they voted in 2012, for almost all the combinations of percent male and percent white in the dataset. However, the cross-term in row 3 indicates that as either the percent white or percent male in a county increased, the margin got smaller, suggesting that highly white or male counties were less likely to vote for Clinton than their more diverse peers. Still, for all but the most white counties in the dataset, our model would predict that they would increase their vote for Clinton, relative to Obama in 2012. The dichotomy between what we see in our dataset and what we observed in the election is that the places that were overwhelmingly white and changed their votes to Trump also have higher rates of unemployment and higher percentages of residents with a high school degree or less. Nationally, the distribution of white males is shown below (counties in gray did not have the relevant data):

This seems at least geographically consistent with the narrative that white men swung the election for Trump. Our interpretation is that covariates that might be strongly correlated with certain geographic regions, like unemployment and education, are strongly correlated with support for Trump. As shown above, those with a high school education or less strongly decreased their support for Clinton relative to their support for Obama in 2012. That distribution geographically is displayed here:

Again, it appears that these groups are concentrated in states that had a substantial impact on the election, though not as densely as one might expect. Somewhat surprisingly, repeating the analysis above with a variable that represents the percent of counties with white men with a high school education or less does not yield significant results, that is at least partially suggestive that the most common narrative following the election, that low-education white male voters swung states from Clinton to Trump isn’t consistent with the data. Again, this is probably because there is a strong correlation between these groups and other characteristics. The result that we find most interesting comes from the variable labeled “Percent Employed in Manufacturing (2002),” the earliest year for which employment by sector is available at the county level. This means that counties with higher percentages of their workers employed in manufacturing sectors in 2002 were substantially less likely to vote for Clinton than they were for Obama just four years before. This could of course simply be correlation, but it’s also possible that these workers still hold the Clinton’s responsible for declining job prospects as a result of NAFTA in 1994. Where were these industries located? See below:

We see that the percentage of individuals employed in manufacturing is fairly evenly distributed among states in the Midwest and the South. Remember that several key states in the election, Pennsylvania, Wisconsin, and Michigan, were decided by about 1.5 percent or less of the total vote, meaning that the shift in voting in these manufacturing heavy counties could have played a large role. Equally as important as the percent employed in manufacturing is the number of potential voters who were employed in these industries, and where they were located:

Unfortunately, many counties lack data on share of manufacturing from the 2002 data source. From the data we can obtain, counties that switched votes from Democrat to Republican, those in the Midwest had higher percentages of their workforce employed in manufacturing, and larger numbers employed in those industries as well. Furthermore, these industries were highly concentrated in the “Rust Belt,” the states closest to the Great Lakes. These states had been traditional Democratic strongholds, but swung to the Republicans for the first time in several elections. With this data, we can only conjecture about whether this was a cause, but it does appear that counties with jobs that were more likely to leave following the adoption of NAFTA shifted their votes in large quantities to the Republican ticket.

Another interesting and important narrative in this election is the removal of the Voting Rights Act as a protection against impeding voter participation. Could this also have played a role in swinging the election? Prior to Shelby County v. Holder (2013), which ruled the pre-clearance requirement unconstitutional, there were a number of jurisdictions under the purview of Section 5 of the Voting Rights Act (link). When we repeat the same exercise as before, predicting the percent change in Democratic support within a county between 2016 and 2012, we come to an interesting and perhaps counter-intuitive conclusion: support for Clinton was higher in previously covered counties than for Obama in 2012, at least as a percentage of those voting. Doing the same analysis as above, but including an indicator variable for counties that were covered by the Voting Rights Act yielded the following:

What this suggests is that voters in counties that had previously been under the protection of the Voting Rights Act increased their support for Clinton by 2 percent relative to 2012. Some of this could be a result of much negative rhetoric on the Republican side being targeted at the minority groups that were previously protected by the Voting Rights Act.

Note that this is not the difference in the total number of ballots cast for the two candidates in this election, but the change in the number of ballots cast in total between 2012 and 2016. Thus, Given that the average number of ballots cast in a county was around 40,000, this decrease in counties that had been covered by the VRA is substantial. Overall, the number of ballots cast increased by an average of about 1,000 per county between 2012 and 2016, suggesting that the turnout was substantially depressed in counties that were previous covered by the Voting Rights Act, though per our analysis, this didn’t seem to translate into a higher percentage of votes for the conservative on the ticket. And, at least graphically, it doesn’t seem like these differences could have swung the election:

Given the geographic location of these covered counties, it seems unlikely that it directly played a role in shaping the presidential election, though it may have impacted North Carolina, and probably did have an impact in down-ballot races.

It’s still not entirely clear what drove such an unexpected result, but we think that the narrative needs some clarification. Having delved into the data, it appears that a long-standing disaffection for free-trade may have driven a lot of Midwest voters to switch party allegiances they held as recently as 2012 and vote Republican. In places that determined the outcome of the election, states like Wisconsin, Ohio, Pennsylvania, and Michigan, a disproportionate number of people had been employed in industries (in 2002) that were most likely to be impacted by NAFTA.

Interactive Maps: To use these maps, click on the corresponding link. You will either automatically or be prompted to download an html document. After downloading this document, either double click or drag-and-drop into your internet browser. This will open the interactive data. This slightly convoluted process is because we cannot embed the graphics in WordPress.

Clinton Voting Distribution: link

Obama Voting Distribution: link

Change 2012 to 2016: link

Manufacturing (Percent): link

Manufacturing (Levels): link

Race and Gender: link

Education: link

Voting Rights Act: link

By Thomas Cooley, Ben Griffy and Peter Rupert

Today’s release of the employment situation by the BLS shows employment increasing by 161,000, as measured from the estalishment survey. Moreover, both August and September were revised up. For August, the third (and final) estimate has employment 9,000 higher than the second estimate. For September, the second estimate is 35,000 higher than the first. Here you can find revisions going back to 1979.

Private sector employment increased 142,000 and all of that came from the service producing sectors as the net for the goods producing sectors was zero. Construction jobs increased 11,000, manufactuing fell by 9,000 and mining and logging (oil, mainly) continued to contract, down another 2,000 jobs.

Since the trough of the great recession, dated June of 2009 by the NBER, employment growth has been steady…yet below all other expansions except for the 2001 cycle. 

Average weekly hours were flat at 34.4 and average hourly earnings ticked up from $25.82 to $25.92.

Data from the household survey showed a different picture, however. While the unemployment rate moved only slightly down, 4.96% to 4.87%, the number of those employed fell by 43,000 and the civilian labor force dropped by 195,000. The labor force participation rate dropped from 62.9% to 62.8% and the employment to population ratio fell from 59.8% to 59.7%.

The productivity and costs report came out yesterday and revealed a 3.1% climb in productivity, with output increasing 3.4% and hours increasing 0.3%. In addition, second quarter productivity was revised up from -0.6% to -0.2%. Unit labor costs increased 0.3%, with a 3.4% rise in hourly compensation and a 3.1% rise in productivity.

While the labor market continues to expand it does seem that it has cooled off in some respects. Unemployment rates have stopped declining, labor force participation is down, hours of work are flat and productivity has only recently increased after three quarters of decline. Evidently the FOMC thought so as they announced at their latest meeting earlier this week that they were maintaining their current stance of policy, with two members dissenting…both wanted an increase in the target rate to 0.5-0.75%. With one more employment report before the next FOMC meeting it remains to be seen whether they feel there is enough strength in the underlying economy to present us with another December increase.

By Thomas Cooley, Ben Griffy and Peter Rupert

The Bureau of Economic Analysis release of the first estimate of Q3 GDP showed the economy expanded at a 2.9% clip at an annualized rate, the largest growth rate in two years. The 2.9% rate was more than double the 2nd quarter rate of 1.4%.  The solid GDP report, combined with a labor market that continues to provide new jobs, will give the Fed all the leeway it needs to increase rates in December.

It seems important to point out that in spite of the good report, growth coming out of the recession still pales relative to growth coming out of previous recessions. That has been the story for seven years even though we have seen some robust quarters.

Personal consumption expenditures showed a somewhat muted 2.1% rise.

Residential investment has shown weakness over the past two quarters, -7.7% in Q2 and -6.2% in Q3, after two years of positive growth. Non-residential fixed investment has also been quite weak over the past year or so. In general, investment continues to be a disappointing feature of the data.

 

Some of the strength in GDP came from a rise in net exports.  Exports rose in spite of a stronger dollar and imports stayed flat.

It remains to be seen if the improved growth can be sustained.  There are many uncertainties – the election, the path of Brexit, the future of trade deals, and so on.  These are weighing on expectations and may be reflected in Q4 GDP growth.

By Thomas Cooley, Ben Griffy and Peter Rupert

The BLS announced this morning that the establishment survey data revealed only a modest increase in employment of 156,000 for September. In addition, the July number was revised down from 275,000 to 252,000 but August was revised up from 151,000 to 167,000, so overall pretty much a wash as to the overall state of employment.

The labor market has averaged around 200,000 per month over the previous year. It appears clear from this report that it provides little help in assessing the next FOMC move.

Private sector employment was up 167,000 and government employment fell 11,000. This was consistent with the GDP report for Q2, which reported that state and local government spending had fallen. The mining and logging sector (oil sector is included) showed no decline in employment, the first non-negative number in two years.

Employment in the manufacturing sector shrank for the second consecutive month, down 16,000 in August and 13,000 this month. The services sector gained 157,000 jobs.

Average weekly hours rose slightly from 34.3 to 34.4.

The household survey showed a somewhat more robust looking labor market. The number of employed according that survey increased 354,000, with the labor force increasing 444,000. The overall impact drove the labor force participation rate up from 62.8 to 62.9.

The increase in the labor force moved the unemployment rate up slightly from 4.92% to 4.96%, so does not look quite as drastic as going from 4.9% to 5.0% as reported.

Looking at the composition of the unemployed since 2007 shows that job losers as a fraction of the unemployed are even lower than they were in 2007 and reentrants are a higher fraction of the unemployed.  Job losers at the nadir of the recession accounted for about 65% of the unemployed but only about 50% today. On the other hand new entrants accounted for about 6.5% of the unemployed at the nadir and now account for over 10%. The graph below shows how each of those changed since 2007.

The number of persons unemployed 27 weeks and longer fell slightly but is moving quite sluggishly and as a fraction of the unemployed remains at about a quarter, still higher than any time since 1948.

Once again the employment report does not help much in assessing what the FOMC will do at the next meeting. While the report showed continuing strength in the labor market and according to some beat expectations…still nothing to write home about.

By Thomas Cooley, Ben Griffy, and Peter Rupert

There has been a rash of recent data showing the U.S. economy growing stronger. Rising incomes,  stronger domestic demand, and rising net exports are signaling a more robust economy. The upward revisions to second quarter GDP support that view and the hope and reasonable expectation is that the third quarter will be stronger still setting the table for a Fed rate hike later this year. The third estimate for second quarter GDP growth, released this morning by the BLS (link) estimates that the US economy grew at an annualized rate of 1.4% in the second quarter, up from a previous estimate of 1.1%, and up from the first quarter, in which the rate was 0.8%.

These gains were largely accrued from increases in personal consumption expenditures, which increased at an annualized rate of 4.3%, exports, which grew at a rate of 1.8%, and fixed nonresidential investment, which grew at a rate of 1.0%. Offsetting these gains were declines in residential investment, of 7.7%, government spending (national fell 0.4%, while state and local fell 2.5%), and imports, which rose 0.2%. It should be noted that the levels of the categories that grew dwarf the levels of those that declined, leading to the overall increase in headline numbers.

As noted, personal consumption expenditures (PCE) played the largest role in GDP growth last quarter. This bucked a trend over the previous four quarters in which percent growth in the component had fallen, while still remaining positive. Growth in the component more than doubled over the Q1 figure, and was nearly at its highest rate of growth since the Great Recession. This is a strong indication that US consumers are confident in the direction of the US economy. For comparison, many European economies have not seen consumption growth of 4.3% in total since the beginning of the Great Recession:

Which shows the importance that the US economy has as a global driver of growth. In total, changes in PCE would have caused a 2.88% increase in GDP, all else equal.

Residential and non-residential investment swapped growth trends, with non-residential investment ticking positive for the first time in three quarters, and residential investment turning negative for the first time since 2013Q4. Nonresidential investment was driven up by increases in expenditures on industrial equipment, and intellectual property products, with the latter increasing by 9.0% at an annualized rate. Overall, Gross Private Domestic Investment caused a decline in GDP of 1.34%, if all other components were held constant.

The report should be taken with cautious optimism that the US has absorbed some of the global economic uncertainty in stride. Even more cause for optimism is that GDP growth would have been 1.7% annualized if the contribution of government spending had been removed, a highly variable series that has limited forecasting ability on the health of the economy, particularly in an election year. These figures are perhaps inauspicious in comparison to the halcyon heights of US economic history, but in the context of our times, they continue to reflect the strength of the US economy in period of great uncertainty.

By Thomas Cooley, Ben Griffy and Peter Rupert

Employment from the establishment survey reported by the BLS increased 151,000, nearly all of which was in the private service sectors, increasing 150,000. The goods producing sector decreased 24,000, roughly offset by government employment, up 25,000.
Manufacturing employment has shown considerable weakness since 2015, while the service sector has continued to show strength. Education and health services along with leisure and hospitality posted the largest gains of the subsectors. Revisions were pretty much a wash: down 21,000 for June and up 20,000 for July.

Average weekly hours fell to 34.3 after six straight months at 34.4. Labor force participation and the employment population ration were essentially unchanged.

The household survey wasn’t encouraging either. Employment, according to the household survey, increased only 97,000 and the unemployment rate ticked up slightly from 4.88% to 4.92%. The number of unemployed persons increased as did those not in the labor force. The number of people working part-time for economic reasons increased for the second straight month, but the number of people marginally attached to the labor force trickled down.

The problem the markets now face is that this report only increases uncertainty. The FOMC has been suggesting of late they seem to be favoring a rate increase sooner rather than later. Over the past three months employment increases have average 232,000 jobs a month but the most recent numbers are softer. If this had been a stronger report a rate increase would have certainly been likely this year. It may still be but it is likely that the Fed will wait for more indications. The CPI for July was unchanged and for the previous year up only 0.8.  If the economy keeps going sideways the Fed has a quandary: clearly they would like to get on more normal path, but the sluggish economy and global uncertainty have forced tepid policy responses until the storm quiets.

By Thomas Cooley, Ben Griffy and Peter Rupert

Today’s revised estimate of Q2 GDP from the BEA saw only a small downward revision that did little to change the economic outlook. The advance estimated growth of 1.2% was revised down to 1.1%. Personal consumption expenditures continues to be the main driver it appears, contributing 2.94%, while there was also a smaller decrease in private fixed investment. Although, investment overall has continued to look weak.

The general weakness, PCE aside, will almost certainly keep the Fed sitting on their hand this September.

Yellen’s Jackson Hole Remarks:

Federal Reserve Chairwoman Janet Yellen spoke at the annual meeting in Jackson Hole this morning (link to transcript). Entitled “The Federal Reserve’s Monetary Policy Toolkit: Past, Present, and Future,” she focused on whether the current monetary tools are adequate for future downturns. Most specifically, she points to the ability of the Federal Reserve to affect the quantity of reserves held by banks. After the government pumped extra liquidity into the market following the Great Recession, the previous policy tool (changing the volume of reserves offered by the Fed in the overnight market) would have been dwarfed by the reserves available from banks. To prevent this from happening, the Congress implemented a policy in October 2008 to allow interest to be paid on reserved held by banks. The results have been nothing short of astonishing:

Yellen made the case for a gradually rising Federal Funds rate conditional on economic conditions continuing to strengthen.  This strengthened the prospect that we will see further rises this calendar year.  All told, the prospect seems to be for gradual improvement of the economy as reflected in the steady improvement in employment and wages, but no major moves in the Fed’s policy stance or targets.