October Employment Release: Market Improvement, but Not Yet Tight

The October employment release was much in line with expectations. I will focus my observations on a few observations:
(1) Alternative indicators indicate better improvement than headline (estimated) nonfarm payroll employment; (2) estimated nonfarm payroll employment has been revised upward over the past couple months; (3) estimated employment compensation growth remains muted, especially after taking into account catch-up and estimated productivity gains.

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Known Unknowns in Macro

Reader Tom argues that economic discourse should not include discussion of variables that are unobservable, to wit (or at least indicate that it’s an estimate):

You announce somebody’s estimations of a theoretical, unobservable phenomenon as “the output gap” or “the actual output gap” as if you and they actually know them to be the output gap.

If we used this criterion, what variables would be ruled out from polite conversation? A lot…let’s just take the real interest rate.

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Philadelphia Fed: Wisconsin and Kansas Growth Gaps Forecasted to Increase

And California and Minnesota surge ahead of the US. I know this sounds like a broken record, but the numbers are the numbers. And reader Patrick R. Sullivan suggests I move to Kansas, based on a Tax Foundation analysis (the same Patrick R. Sullivan who refuses to admit that his assertion that the depth of the downturn in Canada was less than that in the US during the Great Depression is wrong.) Here’s at least one reason why I don’t plan to. From today’s release of leading indices by the Philadelphia Fed, combined with last week’s release of coincident indices.

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Ed Lazear Comments on Government Forecasts

Or, the self-rehabilitation effort continues. In a WSJ op-ed entitled “Government Forecasters Might as Well Use a Ouija Board”, he writes:

My analysis of 1999-2013 reveals that the CBO’s real GDP growth forecasts for the next year were off, on average, by 1.7 percentage points, either too high or low. Administration forecasts were similarly off by a slightly larger 1.8 percentage points on average, also to high or too low. Given that the average growth rate during this period was only 2.1%, errors of this magnitude are substantial.

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