The figure below shows the monthly year-on-year change in the number of nonfarm employees in the U.S. (blue line), California (red line) and the Los Angeles metro area (green line) between January 2004 and August 2014.
The U.S. and California have observed monthly increases in this employment measure since August 2010, while the Los Angeles metro area has observed a monthly increase in this employment measure since October 2010.
The most recent data reveal that year-on-year employment growth continues in the Los Angeles metro area (1.7 percent, July 2014), California (2.1 percent, July 2014) and the U.S. (1.8 percent, August 2014).
As of July 2014, the number of nonfarm employees in the Los Angeles metro area is 202,000 lower than the peek level observed prior to the great recession in December 2007.
Jesse Newman reports on the state of the U.S. corn crop in this Wall Street Journal article. Corn prices have fallen to the lowest level in four years as expectations of a record harvest mount, according to the article.
1) Using the model of supply and demand, sketch how the corn market has changed relative to last year. Does it make sense that the price of corn has decreased as the expected supply has increased? Explain.
2) “Eventually, we’re going to have to send a signal to the world farmer: Don’t plant any more corn,” according to the article. If this statement is true, is the price elasticity of demand for corn likely elastic or inelastic? Explain how you know.
It appears that the 60 percent increase in Japan’s consumption tax has done more harm to its econmy than first estimated. In the second quarter of 2014, Japan’s GDP declined by 7.1 percent at an annualized rate, which is the largest decrease in GDP since early 2009 (when GDP declined 15 percent, at an annualized rate).
The figure below is from the Financial Times. Read a related news report here.
The Bureau of Labor Statistics (BLS) released its August 2014 jobs report. Read the BLS report here.
The U.S. added 142,000 jobs in August 2014, compared with an average monthly gain of 212,000 over the prior 12 months.
The unemployment rate in August decreased to 6.1 percent.
Importantly, the labor force participation rate in July was little changed at 62.8 percent and the employment-population ratio was unchanged at 59 percent.
Here are other highlights from the August report:
The number of long-term unemployed (those jobless for 27 weeks or more) declined to 3 million persons. The number of long-term unemployed has decreased by 1.3 million over the last 12 months. They account for 31.2 percent of the unemployed.
Individuals working part time because their hours had been cut back or because they were unable to find a full-time job, at 7.3 million persons, was little changed in August.
The number of discouraged workers in August 2014 was 775,000 persons, little changed from a year earlier. Discouraged workers are persons not currently looking for work because they believe no jobs are available for them.
Los Angeles’s Case-Shiller housing price index (HPI) from January 1987 to June 2014 is shown in the figure below.
Los Angeles’s pre-recession housing market peak was April 2006. Similar to the rest of the U.S., Los Angeles’s housing market declined after 2006 and it has subsequently recovered.
If the Los Angeles housing market is split into thirds, the pattern observed is similar to that of other U.S. housing markets: relative to the high and middle tiers, the low tier experienced the greatest decline after the housing bust and is now experiencing the strongest growth rate.
The top third of Los Angeles’s housing market—the high tier segment—reached a maximum value of 240 in April 2006. The high tier declined 32 percent to reach its lowest HPI value of 163 in March 2012. As of June 2014, this segment of Los Angeles’s housing market has increased 32 percent from its 2012 low.
The middle third of Los Angeles’s housing market—the middle tier segment—reached a maximum value of 282 in April 2006. The middle tier declined 42 percent to reach its lowest HPI value of 164 in January 2012. As of June 2014, this segment of Los Angeles’s housing market has increased 37 percent from its 2012 low.
The bottom third of Los Angeles’s housing market—the low tier segment—reached a maximum value of 339 in February 2007. The low tier declined 56 percent to reach its lowest HPI value of 148 in June 2009. As of June 2014, this segment of the Los Angeles’s housing market has increased 57 percent from its 2009 low.
Josh Barro has a very interesting piece applying the Coase theorem to the problem of reclining airline seats. Click here to read the article.
Barro writes: he owns the right to recline, and if his reclining bothers you, you can pay him to stop. We could (but don’t) have an alternative system in which the passenger sitting behind him owns the reclining rights. In that circumstance, if Barro really cared about being allowed to recline, he could pay the passenger sitting behind him to let him recline. In either case, the same outcome would occur. That is, unless the transaction costs are too high–a point Barro discusses in his article.
Real gross domestic product (GDP) increased 4.2 percent in the second quarter of 2014 (see table below), according to the Bureau of Economic Analysis’s second estimate. Click here to read the BEA’s August 28 news release.
According to the BEA’s news release the increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, nonresidential fixed investment, state and local government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.
On Friday, the International Trade Commission confirmed the imposition of steel tariffs on imported steel pipe and tube from South Korea, India, Taiwan, Turkey, Ukraine and Vietnam. Click here to read about it in the WSJ.
The heart of the matter is: foreign steel prices have been as much as 20 percent lower that U.S. steel prices. As a result of the significant price difference, there has been a surge in steel imports into the US. However, the impact of the steel tariffs will cause the price of imported steel to increase.
Reference Karlan and Morduch’s International Trade chapter for the following questions.
1) As imports increase, explain what happens to total surplus in the domestic economy.
2) As imports increase, explain how consumer surplus and producer surplus change.
3) As imports increase, are producers or consumers more likely to claim trade is unfair? Why?
4) If a tariff on imported steel is imposed, who are the winners and who are the losers in the domestic economy? Explain.
The figure below shows average GDP growth over the previous four years, adjusted for inflation.
The second figure shows average consumer-price inflation over the previous four years.
The recent slowing of GDP growth and inflation comes at a time with central bankers in the U.S. and around the globe wrestle with making changes to monetary policy. Recent GDP and inflation data are making central bankers reluctant in some places (US, UK, China) and unable in others (EU, Japan) to dial back the easy money employed since the great recession.
1) Discuss why recent data make central bankers reluctant to dial back easy money policies in the US and UK.
2) Discuss why recent data make central bankers unable to dial back easy money polices in Japan and the EU.
The Bureau of Labor Statistics (BLS) released its July 2014 Consumer Price Index (CPI) report. Click here to read the report.
The CPI increased 2.0 percent over the last 12 months (see the figure below). This reading is at the Fed’s inflation target of 2 percent.
Core CPI–which excludes food and energy prices–increased 1.9 percent over the last 12 months.
The following figure shows both CPI and Core CPI since July 2013.
The Eurozone has slowed to a halt. Gross domestic product in the 18-member currency bloc was flat in the second quarter of 2014, compared with the growth of 0.2 percent in the first quarter of 2014. That translated into 0.2 percent growth in annualized terms, down from the first quarter’s 0.8 percent pace.
The figure below shows recent GDP growth for the Eurozone, Germany, France, Italy, and Spain.
Japan’s gross domestic product shrank 6.8 percent on an annualized basis in the second quarter of 2014. See the figure below.
It was the largest decline since the first quarter of 2011. The significant decline in GDP occurred in the quarter that the national sales increased 60 percent (from 5 to 8 percent). Click here and here to read related news reports.
Discuss why a 60 percent increase in Japan’s national tax rate likely caused its GDP to decline.