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Thursday, February 20, 2014

Talking Macro: WREL show February 20, 2014

Here are notes from my weekly radio show on WREL Lexington, Virginia. The actual show seldom covers all of the topics I prepare, as what I discuss depends in part on questions from the host, Jim Bresnahan. What follows is thus expands on what I said or prepared to say.

The Economy

The Fed released its January minutes that suggests a pragmatic approach to policy targets. As I've discussed in previous shows, you can't capture the dynamics of the US labor market in a single number. The economists at the Fed of course know that, and so the headline item is that the Fed is revising its guidance that it will keep interest rates low unless inflation picks up or unemployment falls below 6.5%. That latter item is what is more flexible because jobs growth is not moving in parallel with the drop in unemployment.

First, the latest CPI (Consumer Price Index) report came out just after the show, and indicates no uptick inflation; prices are up a mere 1.6% over the past year once volatile food and energy prices are excluded (and as it happens, when they are included). That is consistent with the PPI (Producer Price Index) report released yesterday, with a 1.2% rise over the previous year. Both are far below historic levels, and the CPI remains well below the 2% target level with no indication that the rate is rising.

Back to employment. At present we have 145 million people employed in the US, below the 154 million level consist with population growth – a gap of 8.5 million. Worse, while my population growth number incorporates baby boomer retirement, in fact the baby boomers are not retiring at the same rate as in the past. For people aged 60-64, today 52% are employed, in 2005 only 50% were. For the older 65-69 bracket, in 2005 only 30% were working but today it's 35%. That's bad news for those at the younger end of the age bracket. In 2005 some 68% of those age 20-24 were working, but today only 62% have jobs. So the Fed is sensibly treating the unemployment number as just one more indicator, and not tying policy to a single number.

Other indicators likewise suggest muted growth. Housing starts were 880,000 in January, seasonally adjusted to reflect normal winter weather. Obviously this year's not been normal. So perhaps we'll see things pick up in Spring, but the pre-bubble level was more like 1.6 million starts (the bubble level peaked at over 2 million). But the level remains far below what we need for robust growth, and of course bad weather means that construction workers and the stores that sell to them are having a very bad start in 2014.

Finally, there's a Bloomberg story on divorce rates rising from a 40-year low in 2009. The story claims that's good news, but I'm not so sure. Yes, hard times make it more challenging for spouses to find the jobs that enable survival after a break-up. But long-term unemployment is a destroyer of families, something observed in the Great Depression of the 1930s, which left many mothers single when their men hit the road in search of work and didn't come back. But more consistent of the "economy is better" interpretation is that new household formation is rising.

That's consistent with what I've seen of my son and his friends. None of them have girlfriends, and the reason they give is that without stable jobs, it's just not a responsible thing to do. For all the decrying by their elders of today's youth, other indicators suggest the same, including a drop in children born to single mothers and in abortions.

United Way of Rockbridge update

Let me close with an update on the local United Way of Rockbridge annual campaign. While the website calendar isn't yet updated, and the thermometer outside Walmart remains on its side with the new sign blown off, we are now just shy of $220,000 or 88% of our $250,000 goal with results from Mohawk, one major employer workplace campaign, still pending. We still very much need those in our residential campaign who have procrastinated to contribute – a check to UWR at 218 S Main in Lexington (zip 24450) would be very much appreciated, and we should have a "click and contribute" button added to our web site within the next week, as we no longer want to be given credit card numbers. [Next week I will talk about our Community Leaders program, recognizing small businesses who support us.]

We also held our Annual Meeting yesterday, with reports from 16 agencies. It was both heartening and sobering to hear their reports, heartening because of the dedication of the volunteers and staff of these local community-oriented non-profits, and sobering because they too report slower contributions amidst increased demands for their services. Since we want to keep pushing ahead with our Community Impact program, Rockbridge Reads!, without cutting back on our assistance to these agencies, we really need to hit our fundraising goal.

Over the next weeks I will introduce the groups to which we contribute. One is RAOC, the Rockbridge Area Occupation Center headquartered in Buena Vista, which provides jobs to physically able but mentally challenged individuals. Now others in the area do this, Kroger and Food Lion for example employ individuals as do others, working in conjunction with the Community Services Board. So RAOC complements other efforts, running yard care and cleaning services, providing supervised work environments for individuals referred to them by the Virginia Department of Rehabilitative Services. Some of their workers are capable of using chainsaws, others are good at mowing. If you might be able to use their skills, please contact RAOC! – I provided their website link above.

Mike Smitka