Author: Brian Barnier

22 June 2014 “Noisy” said Federal Open Market Committee (FOMC) Chair Janet Yellen regarding the Consumer Price Index (CPI) data for May. And the markets moved. Should this have surprised markets? Q: What is “noisy” data? A: When an estimate fluctuates significantly, especially without really helping to answer a question being asked – like asking a restaurant employee “is this coffee too hot?” Q: So why is some data “noisy?” A: Data are often noisy due to short-term factors or data quality, so one month is not a trend for those economists who measure change in years and decades. Also,…

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June 16, 2014 Eyes are increasingly focused on FOMC interest rate statements. The search is for real (inflation-adjusted) interest rates: Low enough to spur borrowing for physical asset investment High enough to provide appropriate returns to savers and avoid excess inflation A distinction is the extent to which lower real rates can stabilize an aspect of the economy versus directly enable growth (goods, services and wages). The Real Rates-Real People Curve provides helpful insight. The Curve is a scatter plot illustrating how real interest rates move compared to real wages and salaries per person. As with supply-demand curves, these charts…

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29 May 2014 Digging behind the numbers in “Measures to know of healthy jobs and paychecks” (April 23, 2014) aspired to clarify several points, including: U-3 unemployment rate (Official) does not consistently track with U-6 unemployment rate (Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons) Job quality (in terms of total hours, skill level, permanence and wages) matters. A job lost in a long term health care facility is not fully recovered by a home health care worker and a job in hospitality does not equal a job in…

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May 19 2014 “Is the market overvalued?” is a fear-fraught debate. Often, the measure discussed is the Price/Earnings Ratio. “Price” is the current price per share, and “earnings” is the earnings per share (EPS). P/Es come in several flavors — EPS in the denominator of the ratio can be backward (using historical data) or forward (using consensus analyst growth estimates). The number of periods used can vary in each direction. Forward, up to five years, but often one. Backward, can be ten years (for the “Cyclically-Adjusted” created by Robert Shiller), but often one. “Earnings” can be different, such as GAAP-basis…

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8 May 2014 Jobs data from the Bureau of Labor Statistics provide counts of people in categories of employment, unemployment and change. Data also includes hours worked and average hourly earnings. As we dig into the data, we question quality of jobs in skills, longevity and wages. Adding up all the wages and salaries is part of Compensation of Employees data reported by the Bureau of Economic Analysis in the Gross Domestic Product and Personal Consumption Expenditures data releases. This video clip (3 min) from Modern Wall Street provides insights from reading these two data sets together. This includes why…

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23 April 2014 People on Main Street and town squares have long felt the official (also termed “U3”) unemployment rate hides important information about job quality, how long people have been unemployed, job security, openings, pace of hiring and quits, and level of wages paid. And, people feel how this hides what they personally face in their industry, location and personal characteristics such as age and education. While many policy-makers feel that U3 is still the best overall measure of unemployment, this too is being questioned because of U3’s difficulty tracking directly to: •    Broader group of employed people needing…

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15 April 2014 As US Real Wages and Salaries slowly rebuild, investors and policy-makers look for causes to the slow growth. Real Wages and Salares is often a more helpful of job health than un/underemployment counts because real wages and salaries is personal. It’s about paychecks and money circulating in the economy. Real Wages and Salaries depends on inflation, hours worked and hourly earnings. While domestic causes are important, global causes are increasingly important. Especially important are import patterns.  Why? Because: * Imports puts downward pressure on domestic prices for similar goods and services * Global capacity puts dowward pressure…

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GDP

1 April 2014 “Consumers are 70% of the economy” is often heard. Where does this come from? What does it mean? This statement refers to Personal Consumption Expenditures (PCE) relative to Gross Domestic Product (GDP). The ratio has never quite hit 70%. It has been on an up-slope from about 58% in 4Q1967. All time high was about 69% in 2011. As of 4Q2013 it is 68.2%. Importantly, not all PCE growth is a measure of discretionary consumer action. Payments that are pressed onto consumers or difficult to down-shift (such as housing or medical care) are not measures of consumer…

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20 March 2014 “Beans, bacon, whisky and lard” are the old sailor’s 4 basic food groups. When it comes to measuring inflation, exactly how much pure price increase is in a can of beans? As the FOMC muses about inflation, consider the complications in measuring generalized price increases. A few include: What question are we answering? A measure of inflation depends on how the answer will be used. Thus, measures have been constructed differently, including: Buyers:      Consumers by:           Occupation, primarily Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) used mostly to calculate Social Security cost…

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11 March 2014 Q: If Gross Domestic Product (GDP) estimates are quarterly, why are there one or more releases each month? A: The U.S. Commerce Department’s Bureau of Economic Analysis (BEA) calculates estimates of GDP. Estimates get better over time with improved completeness or refinement of source data. “Advance” estimate, near the end of the first month after the end of the quarter “Second” estimate, near the end of the second month “Third” estimate, near the end of the third month “Latest” estimate, in following quarter, annual and 5 year comprehensive or “benchmark” revisions. Some comprehensive revisions reflect a changing…

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