September Jobs Report Update

The BLS released its official statistics today, delayed more than two weeks due to the shutdown. They aren't good. Only 148,000 jobs were added, below the private estimate of ADP. Revisions to previous months roughly balanced out. 

Despite a good start to the year, job growth has returned to disappointing numbers. Now which chumps were talking about it being time to scale back monetary stimulus again?

Politics and Yellen's Nomination

When Janet Yellen was nominated to be a Fed Vice-Chairperson, all four Republican members of the Senate Banking Committee voted against her. With Bob Corker of Tennessee saying:

"She was not particularly modest about the role of monetary policy in the economy and I don’t see any evidence that’s changed."

Note that this is not a statement on a specific theory of monetary policy or even on a side of any general debate about monetary policy, such as what the inflation target should be. Mr. Corker is saying he doesn’t like her because she believes that Fed policy has an important influence on the economy. That period is bold for emphasis. That should be requirement number 1 for a Fed Chair. Paul Volcker is famous for showing how easily the Fed can stifle inflation. Even the libertarian Alan Greenspan recognized the importance of monetary policy enough to not feel any need for modesty. Ben Bernanke's academic career was about how influential monetary policy remained over the economy even when interest rates are near 0%.

Here’s a metaphor economists like to use. Say you are a passenger in a car, and have never seen a car before. The car is driving along a hilly road, and maintains a constant speed uphill and downhill. The driver is so skilled that yo can adjust the acceleration and breaking to cancel out the effect of the hills. Without controlling for anything else, you would find that the actions of the driver have no effect on the speed of the car. The speed stays constant whether the driver hits the breaks or the gas. Bob Corker, among others, is that passenger, and probably has about the same understanding of economics as the theoretical passenger has about cars, or hills for that matter.

Typically monetary policy stays in the background, keeping inflation from rising above its target. But in a debt crisis, the reaction of monetary policy can greatly influence the severity of the damage; it can mean the difference between a depression and recession. There's no need for modesty.

The Next Chairperson of the Federal Reserve

Or at least she better be. Janet Yellen was nominated for the Chair of the Federal Reserve, and no nominee has gotten less than 70 votes in the Senate for their confirmation. But the low of 70 was for the current Chairperson, Ben Bernanke, a Republican nominated by a Democrat.

She is the first woman to be nominated for the position; and the best person for the job. She is immensely experienced, and respected in the economics community. She has frequently been called a "dove", which is to suggest she is less concerned about inflation than a "hawk" would be. This is a lazy misnomer: Yellen has defended the Fed's 2% inflation target as much as anyone. It's only now that unemployment is above "full employment" and inflation has been consistently below the Fed's target that she has been a leader in structuring the Fed's unconventional policy responses. 

The correct debate isn't about inflation hawks vs. doves. It's about whether a person feels monetary policy is effective enough to bring unemployment down, and inflation up, to target even when interest rates are near 0%. It is, and Dr. Yellen knows this.

September Jobs Report

There was no jobs report due to the shutdown. A private estimate by ADP, puts September job growth at 166,000ish. But the private estimates are often well off from the BLS figures, which go through at least two more (sometimes substantial) revisions. The private estimates certainly aren’t the market movers the BLS figures are. But this figure, if accurate enough, provides evidence of a slowing economy. Not to mention that 800,000 people are temporarily out of paid work, and around 1 million are working with delayed pay, due to the shutdown.

This points to a reality of the shutdown: it is costly, and increasingly so the more time passes. From the 70% of federal intelligence employees furloughed, to new NIH patients turned away, to NOAA furloughing employees just to bring some back again for an approaching storm, to Maryland projected to lose $5 million of tax revenue per day. In the longer run, far more of these jobs become essential than the label suggests. 

But an overlooked effect of the shutdown is the lack of data. The Federal Reserve has pursued a policy that has a rough unemployment target (down to under 7%), and an inflation target (long term expectation no higher than 2%). Now neither statistic is being collected or reported by the BLS, the primary source for these figures. So the longer the shutdown lasts, the less reliable the data that guides monetary policy will become.