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(What’s Left of) Our Economy: The Real Demographics of Wage Growth

31 Wednesday May 2017

Posted by Alan Tonelson in (What's Left of) Our Economy

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(What's Left of) Our Economy wages, Atlanta Federal Reserve Bank, Baby Boomers, Bloomberg, Conor Sen, demographics

The debate over whether American wages are rising or not continues apace. Hopefully, if only for the sake of competitiveness, the optimists will come up with offerings better than Conor Sen’s column on Bloomberg today. He claims that breaking workers down by age group shows clearly that the only cohort of the workforce suffering anything close to wage stagnation is the huge generation of Baby Boomers.

According to Sen, data from the Atlanta branch of the Federal Reserve demonstrates that the slow wage growth of the Boomers is dragging down all of these pay figures – but that this problem will steadily fade away as they retire. And because the economy keeps generating huge numbers of job openings, and because so many businesses are reporting labor shortages, the wage “tailwinds” for younger workers are going to be “great.”

Unfortunately, understood properly (i.e., examined for the entire time span of the Atlanta Fed data series Sen is touting), the numbers tell a very different story. It’s true that wage increases get bigger the younger the worker, as the Atlanta Fed chart below shows. But the more important trend illustrated is that, for all generations of workers tracked, this wage growth has weakened over time. (It’s important to note that these statistics are tracking wages of different age groups as they exist in any given year. They don’t examine the wages of age groups as they age.)

You can easily see this trend by just eye-balling the chart. Although wage increases have experienced ups and downs for all age cohorts, each successive peak since 1998 has been lower than the last. Nor are your eyes deceiving you.

The interactive feature of the chart (which can be used in on the original on the Atlanta Fed website linked above) makes clear that, measured by twelve-month moving averages, median wage growth for the workforce as a whole peaked (before inflation) in the spring and summer of 2001 at about 5.2 percent. For workers aged 16-24, though, wages then were surging by roughly 9.5 percent (slightly less than in the late-1990s), for those in the 25-54-year old group, the figure was between five and 5.2 percent, and for that year’s workers older than 55, only about 3.7 or 3.8 percent.

The next high for the overall workforce came in the fall of 2007 – just before the Great Recession hit. Overall wages were still rising in pre-inflation terms, but only at 4.2 percent. That was also the rate of increase recorded in wages for the 25-54 cohort, while wages for older workers were improving by only about 3.2 or 3.3 percent a year. The best performance was put in by the young, whose wages were increasing by 9.3 percent. So these peak figures were lower for all groups of workers than the previous one.

The next wage peak has come this spring. But overall wages have only been rising at a 3.5 percent annual rate. The 25-54-year old age group has done a bit better – 3.8 percent. But that’s lower than their last peak increases (4.2 percent). The boomers’ rate of increase is a thoroughly unimpressive 2.2 percent – also lower than this cohort’s progress just before the recession struck. Although younger workers are indeed doing much better than that – their paychecks have been growing by 7.5 percent – but that pace is much slower than the 9.3 percent increases registered a decade ago. Moreover, just last November, the wages for the 16-24s were improving at an 8.4 percent annual rate. So for the time being, they’re already past peak.

In other words, although younger workers have consistently out-earned older workers for the last nearly two decades, their rates of increase keep trending lower and lower. And guess what? Everything we know about biology tells us they’re going to get older – and therefore presumably move into the age groups whose wages haven’t risen nearly as fast.

Past isn’t always prologue, and it’s indeed possible that this secular decline (in relative terms) could be broken in the years ahead by any number of developments – like continually sluggish productivity growth or the emergence of genuine labor shortages throughout the U.S. economy. But it seems just as likely that recent wage-depressing developments will continue and new ones will emerge. More automation is certainly conceivable, as are higher immigration levels (especially if President Trump’s political fortunes don’t take a turn for the better), and the arrival of a new recession. (The latter is almost certainly a matter of “when,” not “if.”)

Here, though, is what I am pretty confident about. Few Americans are going to look at the Atlanta Fed chart showing steadily lower highs for young workers’ wage increases and conclude that Happy Days Are Already Here Again on the paycheck front.

(What’s Left of) Our Economy: The Closer You Get, the Weaker US Manufacturing Looks

17 Sunday Jan 2016

Posted by Alan Tonelson in (What's Left of) Our Economy

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Atlanta Federal Reserve Bank, automotive, Federal Reserve, Financial Crisis, Great Recession, industrial production, inflation-adjusted growth, information technology hardware, manufacturing, Obama, production, technology, {What's Left of) Our Economy

Although they’ll be revised twice more in the next two months alone, the December manufacturing output figures released Friday by the Fed just gave us more of the kinds of new full-year numbers that make data geeks (figuratively) salivate – and that everyone else needs to know about.

They mean that we can speak with added confidence about where domestic industry does and doesn’t stand since the financial crisis triggered the Great Recession eight years ago – and some of the crucial details show that American manufacturing could be in even more serious trouble than is already recognized.

First, these first full-year 2015 industrial production data indicate that domestic manufacturing keeps growing more slowly even than the rest of the sluggish U.S. economy. That matters because one of the biggest lessons taken from the financial crisis by a wide range of leading American public figures was that the nation needed to rely for its growth more on sectors that create real wealth (like manufacturing) and less on sectors that largely rearrange wealth (like finance). President Obama was only the best known. 

We won’t get the first full-year numbers on the economy’s overall 2015 growth until the end of this month, but through the first three quarters of the year, it expanded by 2.15 percent after adjusting for inflation. The manufacturing figures during the same period? 1.79 percent.

Moreover, the gap is unlikely to have narrowed much in the final three months of 2015. The Federal Reserve reports that real manufacturing output expanded by a mere 0.16 percent from the end of the third quarter through the end of the fourth quarter. That’s about the same rate as the total gross domestic product projection put out by the Atlanta Federal Reserve’s impressively reliable growth tracker.

Second, real production growth in the automotive sector slowed tremendously in 2015, and automotive has until now been manufacturing’s biggest growth leader by far. Inflation-adjusted output of vehicles and parts did improve more (3.70 percent) last year than overall manufacturing output (0.74 percent). But that automotive growth rate is down from 9.78 percent the year before, and is automotive’s worst growth performance since its 32.81 percent near freefall in 2008. In fact, as noted in Friday’s post on the industrial production figures, the automotive sector entered technical recession in December, with its after-inflation production down on net over a seven-month stretch.

Automotive’s boost to manufacturing is also clear from examining statistics going back to start of the last recession. Real output for American industry is now down 1.51 percent since the downturn’s December, 2007 onset – eight years ago. Without automotive, that production slump is 4.81 percent. Moreover, no other major sectors of manufacturing show any signs of picking up the slack.

Finally, these new 2015 manufacturing output numbers should remind us that the sector has also been powered by growth engine where the numbers are downright dubious – information technology hardware. Last year, the Federal Reserve tells us, inflation-adjusted output in computers and parts, semiconductors, telecommunications gear, and similar sub-sectors rose by 1.61 percent – more than twice as fast as overall manufacturing. And since the last recession began, its growth has been a stellar 45.83 percent. In fact, without these high tech industries, American manufacturing output would be down by 5.29 percent.

But as I’ve written before, here’s the problem: The inflation-adjusted data for information technology hardware likely overstate output by a considerable amount. The reason: These products tend to have a high import content, and this import content has probably been under-counted because the prices of these info-tech goods are falling faster than government economists can track. As a result, when this import content is adjusted for inflation, the numbers come out too low – and the domestic content figures that make up the rest of these products come out too high.

In his State of the Union address four years ago, President Obama rightly emphasized the need to create “an economy that’s built to last -– an economy built on American manufacturing, American energy, skills for American workers, and a renewal of American values.” And he pointedly noted that “this blueprint begins with American manufacturing.” As he enters his last year in the White House, this goal with respect to manufacturing sadly remains un-achieved.

(What’s Left of) Our Economy: A Buy American Road to a Stronger Recovery

30 Wednesday Dec 2015

Posted by Alan Tonelson in (What's Left of) Our Economy

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Atlanta Federal Reserve Bank, Buy American, Christopher S. Murphy, Department of Transportation, domestic content, Economic Policy Institute, manufacturing, railroads, recovery, Robert Scott, Trade, Trade Deficits, University of Massachusetts, {What's Left of) Our Economy

As 2015 draws to a close, the bad news about an already dreary American economy seems to be getting worse. For example, the Atlanta Federal Reserve Bank’s system for forecasting economic growth – which has been very reliable lately – currently expects the nation’s output to expand after inflation at an annual rate of only 1.30 percent. So it’s great to be able to report that some in the policy community have been touting practical ways to strengthen the recovery – and good job creation – that don’t depend on creating ever more national debt. Their proposal: require the public sector to buy more U.S.-made goods, and especially manufactures.

Some Buy American rules are permitted by World Trade Organization rules (ditto for similar measures by other countries); therefore Washington and state and local governments are able to make sure that some of what they purchase with Americans’ tax dollars is produced in the United States, and therefore generates growth and employment at home. But as shown by new studies from the University of Massachusetts and the Economic Policy Institute, much more can and should be done.

The UMass report, published earlier this month, makes clear the enormous potential of that further growth. It found that the American public sector is the biggest single customer of goods and services in the world, with its appetite reaching $1.10 trillion in 2013. Moreover, manufactured goods represent $400 billion of that total. Since the American manufacturing sector turned out $2.2 trillion worth of products in 2013 according to the UMass researchers, government is already a huge player.

Although its findings apply to all Buy America programs, the UMass study zeroes in on those that have been in place for buses and rail cars since 1982 – precisely to revive two once-thriving industries that seemed in terminal decline. Indeed, to this day, none of the world’s major rail equipment producers are based in the United States. The study is especially valuable for its detailed examination of the Department of Transportation’s domestic content standards, which regulate how much of the makeup of a manufactured product (i.e., the share of its parts, components, and materials) needs to originate in the United States in order to be legally considered American-made.

The authors conclude that big reasons for the continued troubles of the rolling stock industry have been domestic content provisions that:

> remain too low (largely because the content of sub-components isn’t adequately taken into account, and because the rules don’t cover design and administrative activities);

>are continually compromised by too many waivers;

>and are poorly monitored and enforced.

In addition, the study makes a critical point about the inadequacy of the current “lowest price” standards that enable foreign producers to win many rail and bus contracts for the share of content they can compete for under Buy American rules. These criteria, they rightly note, greatly understate the longer-term benefits to the U.S. economy – and therefore to taxpayers – of nurturing more manufacturing production and employment at home.

As a result, even though the rules require that 60 percent of all federally purchased rail car components be made in the United States, and 100 percent of the final assembly performed domestically, the actual overall mandated U.S. content of these systems is only 40 percent. The UMass researchers estimate that even raising the effective domestic content level for rail car procurement from the current 40 percent to 60 percent would increase by nearly 29 percent the numbers of American jobs created by such spending. And of course, each dollar of that re-channeled spending would stay in the United States and add to economic growth, rather than leaking abroad.

A broader look at the effects of better Buy America policies has been taken by Robert Scott of the Economic Policy Institute. In a late November post, Scott examined the impact of legislation proposed by Connecticut Democratic Senator Christopher S. Murphy that would close major loopholes in existing federal policies and raise the required U.S. content level from 50 percent to 60 percent.

His findings: Simply closing the biggest loophole would boost domestic manufacturing output by $8.5 billion annually (based on recent federal procurement rates) and therefore generate $13.5 billion in new overall growth each year (because increases in manufacturing output have a “multiplier effect” on the rest of the economy). On the employment front, the bill could generate up to 100,000 new manufacturing jobs. And the higher level of domestic content could add to the $160 billion worth of manufactures currently purchased annually by Washington under current Buy America rules, as well as to the jobs they create.

Compared to the size of the American manufacturing sector and the larger economy, these numbers are small. But as big as they are, total federal purchases were only 6. 5 percent of U.S. gross domestic product in 2013. As I have repeatedly written, trade policy overhaul that simply keeps the deficit from rising higher would have much bigger payoffs. How much longer before the president, the Congress, and most of the current crop of presidential candidates get the message?

Blogs I Follow

  • Current Thoughts on Trade
  • Protecting U.S. Workers
  • Marc to Market
  • Alastair Winter
  • Smaulgld
  • Reclaim the American Dream
  • Mickey Kaus
  • David Stockman's Contra Corner
  • Washington Decoded
  • Upon Closer inspection
  • Keep America At Work
  • Sober Look
  • Credit Writedowns
  • GubbmintCheese
  • VoxEU.org: Recent Articles
  • Michael Pettis' CHINA FINANCIAL MARKETS
  • New Economic Populist
  • George Magnus

(What’s Left Of) Our Economy

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Our So-Called Foreign Policy

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Im-Politic

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Signs of the Apocalypse

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

The Brighter Side

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Those Stubborn Facts

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

The Snide World of Sports

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Guest Posts

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

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Current Thoughts on Trade

Terence P. Stewart

Protecting U.S. Workers

Marc to Market

So Much Nonsense Out There, So Little Time....

Alastair Winter

Chief Economist at Daniel Stewart & Co - Trying to make sense of Global Markets, Macroeconomics & Politics

Smaulgld

Real Estate + Economics + Gold + Silver

Reclaim the American Dream

So Much Nonsense Out There, So Little Time....

Mickey Kaus

Kausfiles

David Stockman's Contra Corner

Washington Decoded

So Much Nonsense Out There, So Little Time....

Upon Closer inspection

Keep America At Work

Sober Look

So Much Nonsense Out There, So Little Time....

Credit Writedowns

Finance, Economics and Markets

GubbmintCheese

So Much Nonsense Out There, So Little Time....

VoxEU.org: Recent Articles

So Much Nonsense Out There, So Little Time....

Michael Pettis' CHINA FINANCIAL MARKETS

New Economic Populist

So Much Nonsense Out There, So Little Time....

George Magnus

So Much Nonsense Out There, So Little Time....

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