This morning, the Department of Labor released its monthly jobs report. During May, 345,000 jobs were lost and the unemployment rate reached 9.4%
The job loss was much better than anticipated: economists were expecting a loss of more than 500,000.
The four-month running average of the jobs number declined for the second straight month. When this value declines for four months, it has been a reliable indicator that a recession has ended. This is yet more encouraging news, suggesting that the severe recession begun during the Bush administration may be at an end.
Friday, June 5, 2009
Jobless Claims Continue to Decline
Initial jobless claims for the week ending May 30, 2009 were 621,000. This represents a decline of 4,000 from last week’s revised number. Continuing claims were 6,735,000, 15,000 les than last week’s number. This is the first time this number has declined during the current economic downturn.
In a previous post, I introduced what I call the “8-4 number”, which indicates how the four-week running average of initial jobless claims compares to the same value from eight weeks earlier. Based on an historical analysis, when this values declines for eight consecutive weeks, it indicates that a recession has ended. Currently, the value has declined for six weeks, giving hope that the current recession, begun during the Presidency of George W. Bush, may be at an end.
If next weeks initial jobless claims are less than 643,000, we will be one step closer to achieving this, and giving us a strong indication that the recession has ended.
In a previous post, I introduced what I call the “8-4 number”, which indicates how the four-week running average of initial jobless claims compares to the same value from eight weeks earlier. Based on an historical analysis, when this values declines for eight consecutive weeks, it indicates that a recession has ended. Currently, the value has declined for six weeks, giving hope that the current recession, begun during the Presidency of George W. Bush, may be at an end.
If next weeks initial jobless claims are less than 643,000, we will be one step closer to achieving this, and giving us a strong indication that the recession has ended.
Thursday, February 19, 2009
Continuing Claims Approach 5 Million
For the week ending February 14, 2009, seasonally-adjusted jobless claims were 627,000. This is the same as last week after an upward revision of 4,000. The four-week running average stands at 619,000. Continuing claims rose to 4,987,000, as did the four-week running average, which have now reached 4,839,500.
The initial claims continue to be the worst since the Reagan-era recession of the early 1980s, while the continuing claims are the worst in the 41-year series curretnl;y available from the Department of Labor.
The initial claims continue to be the worst since the Reagan-era recession of the early 1980s, while the continuing claims are the worst in the 41-year series curretnl;y available from the Department of Labor.
Tuesday, February 17, 2009
How Will The So-Called “FairTax” Affect Prices and Wages?
The “FairTax” is a proposal designed to replace essentially all federal taxes with a national retail sales tax on all new goods and on all services. The two most well-known proponents of this new tax system are talk show host Neal Boortz and Congressman John Linder: they have written two recent books on the subject. Hereafter, I will refer to these two gentlemen as B&L for brevity.
Recently, I have begun an examination of this plan, and started by trying to objectively evaluate the primary claims of its boosters. Before I continue this examination, I have to address one of the principal assertions, one that seems to permeate the discussion of this issue. This is the issue of what will happen to the price of goods and services, and to the take-home pay of Americans if the FairTax were to be implemented.
In their first book, B&L specifically claim that, even when including the addition of the FairTax, prices will not rise. They say that the prices of goods and services have, on average, an “imbedded tax” of 22%. This is complicated, but in essence it is based on the fact that workers and businesses and suppliers in the various steps in the production process all pay some kind of federal tax, and that the consequence is that the final price of goods and services must include this tax. If all of these federal taxes were eliminated, as they would under the FairTax, then all of this imbedded tax would disappear. They further assert that, after the taxes were removed, “market forces” would drive the prices down by this amount. Then, after the 23% FairTax is added, the prices would be back to where they were before. That is, when one looks at the relationship between the prices of goods and services before and after the implementation of the FairTax, there would be little or no change.
B&L then assert that with the FairTax, there would be no deductions from a worker’s gross pay. Therefore, everyone would get 100% of his or her paycheck. At various places in their 2005 book, B&L then go on to claim that because of this, people would get “…an immediate 25 to 30 percent increase in their take home pay” (B&L 2005, p. 83). This claim is repeated at several other places in the book.
So, after the FairTax is implemented, prices remain constant, and everyone gets a 25-30% increase in their take home pay because their gross pay would no longer be decreased due to income or payroll taxes. They put these two pieces together in no uncertain terms on pages 111 and 160. Anyone reading this book can come to no conclusion other than the assertion that everyone will have 25-30% more money every month and prices will not change. This would be wonderful! If this were true, who could be in opposition to this plan?
Think for a moment about this. Compare the days just before implementation of the FairTax to those just afterward. Prices are the same, but everyone has 25-30% more money. How is this possible? From where would the money come? Well, the truth is that it is impossible. B&L and the many other supporters who repeat this claim are stating something that is simply false.
The argument in favor of this scenario is complicated. At first reading, even I thought it sounded good. The reason that it is not true is also a bit complicated, but can be understood if you think of it in this way: B&L can’t do two things with the same pool of money. They can’t take the money that would be paid in federal taxes under the current plan and both reduce prices AND give the money to their employees by giving them their gross pay as take home pay. They can do one OR the other, but not both. Either prices will remain constant and everyone’s take home pay will do likewise, or everyone will get an increase in take home pay AND the prices of goods and services will go up about the same amount. When examining take home pay and prices, they will remain constant relative to one another.
I imagine some FairTax proponents who read this will likely want to write an immediate rebuttal, simply restating what can be found in B&L’s books and all over the internet. However, before you do this, I suggest that you look at their 2008 book. On page 141, they restate this scenario (prices constant, everyone gets much more in take home pay) as “…a claim that has taken on mythical proportion in the anti-FairTax literature.” They then proceed to state that this is NOT true, and that it is likely that prices and take home pay will probably both go up by about the same amount.
In their 2005 book, B&L repeatedly made this assertion. Then in their 2008 book, they speak as if this were some claim invented by anti-FairTax people. In short, they made an incorrect assertion in their earlier book, and then tried to disavow it in the 2008 book. Yet, their myth lives on. Throughout their books, and indeed throughout the FairTax literature, there is constant reference to keeping “100% of your paycheck”. They meant for us to believe that it was 100% of our current gross pay.
This whole scenario is, I believe, one of the principal reasons why many people support the FairTax. Yet, it is untrue, so untrue in fact that B&L now disclaim ever having said it. Keep this in mind when you read or hear anything about the FairTax.
Recently, I have begun an examination of this plan, and started by trying to objectively evaluate the primary claims of its boosters. Before I continue this examination, I have to address one of the principal assertions, one that seems to permeate the discussion of this issue. This is the issue of what will happen to the price of goods and services, and to the take-home pay of Americans if the FairTax were to be implemented.
In their first book, B&L specifically claim that, even when including the addition of the FairTax, prices will not rise. They say that the prices of goods and services have, on average, an “imbedded tax” of 22%. This is complicated, but in essence it is based on the fact that workers and businesses and suppliers in the various steps in the production process all pay some kind of federal tax, and that the consequence is that the final price of goods and services must include this tax. If all of these federal taxes were eliminated, as they would under the FairTax, then all of this imbedded tax would disappear. They further assert that, after the taxes were removed, “market forces” would drive the prices down by this amount. Then, after the 23% FairTax is added, the prices would be back to where they were before. That is, when one looks at the relationship between the prices of goods and services before and after the implementation of the FairTax, there would be little or no change.
B&L then assert that with the FairTax, there would be no deductions from a worker’s gross pay. Therefore, everyone would get 100% of his or her paycheck. At various places in their 2005 book, B&L then go on to claim that because of this, people would get “…an immediate 25 to 30 percent increase in their take home pay” (B&L 2005, p. 83). This claim is repeated at several other places in the book.
So, after the FairTax is implemented, prices remain constant, and everyone gets a 25-30% increase in their take home pay because their gross pay would no longer be decreased due to income or payroll taxes. They put these two pieces together in no uncertain terms on pages 111 and 160. Anyone reading this book can come to no conclusion other than the assertion that everyone will have 25-30% more money every month and prices will not change. This would be wonderful! If this were true, who could be in opposition to this plan?
Think for a moment about this. Compare the days just before implementation of the FairTax to those just afterward. Prices are the same, but everyone has 25-30% more money. How is this possible? From where would the money come? Well, the truth is that it is impossible. B&L and the many other supporters who repeat this claim are stating something that is simply false.
The argument in favor of this scenario is complicated. At first reading, even I thought it sounded good. The reason that it is not true is also a bit complicated, but can be understood if you think of it in this way: B&L can’t do two things with the same pool of money. They can’t take the money that would be paid in federal taxes under the current plan and both reduce prices AND give the money to their employees by giving them their gross pay as take home pay. They can do one OR the other, but not both. Either prices will remain constant and everyone’s take home pay will do likewise, or everyone will get an increase in take home pay AND the prices of goods and services will go up about the same amount. When examining take home pay and prices, they will remain constant relative to one another.
I imagine some FairTax proponents who read this will likely want to write an immediate rebuttal, simply restating what can be found in B&L’s books and all over the internet. However, before you do this, I suggest that you look at their 2008 book. On page 141, they restate this scenario (prices constant, everyone gets much more in take home pay) as “…a claim that has taken on mythical proportion in the anti-FairTax literature.” They then proceed to state that this is NOT true, and that it is likely that prices and take home pay will probably both go up by about the same amount.
In their 2005 book, B&L repeatedly made this assertion. Then in their 2008 book, they speak as if this were some claim invented by anti-FairTax people. In short, they made an incorrect assertion in their earlier book, and then tried to disavow it in the 2008 book. Yet, their myth lives on. Throughout their books, and indeed throughout the FairTax literature, there is constant reference to keeping “100% of your paycheck”. They meant for us to believe that it was 100% of our current gross pay.
This whole scenario is, I believe, one of the principal reasons why many people support the FairTax. Yet, it is untrue, so untrue in fact that B&L now disclaim ever having said it. Keep this in mind when you read or hear anything about the FairTax.
Thursday, February 12, 2009
Initial Jobless Claims Continue to Rise
Seasonally adjusted initial jobless claims for the week ending January 31 were 626,000, an increase of 35,000 over the previous week, which had been revised up another 3,000. This is the highest number since 1982 during the Reagan years. The four-week running average reached 582,250, a new high for this recession and again the highest since 1982.
Seasonally adjusted continuing claims also reached a new high for the current economic downturn: they reached 4,788,000 for the week ending January 24, with the four-week running average rising to 4,672,000. This represents the highest level in the 41-year data set available from the Department of Labor.
Seasonally adjusted continuing claims also reached a new high for the current economic downturn: they reached 4,788,000 for the week ending January 24, with the four-week running average rising to 4,672,000. This represents the highest level in the 41-year data set available from the Department of Labor.
Tuesday, February 10, 2009
The So-Called FairTax: Are The Claims True?
The so-called FairTax plan is a proposal to change the way in which federal taxes are collected. Instead of the several taxes currently collected by the IRS, including personal income taxes, social security taxes, corporate income taxes, and estate taxes, this proposal will rely on a tax on all new goods and on all services.
The primary proponents for this plan are Atlanta talk show host Neal Boortz and Congressman John Linder. They have written two books on the subject. I will refer to them these two authors and proponents as “B&L”.
Last time, I said that I would begin to look at the claims of B&L to see if they are true or at least reasonable. I chose to begin with the primary claims that are written on the outside covers of their two books. The first, which I began to examine last week, is that the so-called FairTax plan would, “eliminate federal taxes and the IRS”.
The first part of this assertion, that the plan will “eliminate federal taxes”, is not true. As I said last time, the total amount of federal taxes collected under the new plan would be exactly the same as that collected under the current system. In fact, “revenue neutrality” is a major component of the plan: B&L go to great lengths to indicated that the total taxes collected would be the same before and after implementation of the so-called FairTax.
So, this is a lie. If you don’t want to call it a “lie”, then you have to fall back on the notion that we are simply renaming the taxes. If we have taxes called “A” and we switch to collecting the same amount of taxes and call them “B”, would anybody call this the elimination of federal taxes?
Let’s look at the second part of the claim, the part that says that the so-called FairTax plan would lead to the elimination of the IRS. Why is this a good thing? Well, a lot of people don’t like the IRS. A lot of people don’t like taxes.
The Internal Revenue Service is the governmental agency in charge of collecting federal taxes. At present, it collects about $2.6 trillion. The budget of the IRS is about $11 billion. So, the cost of collection, as represented by the fraction of the total taxes collected that go to fund the IRS, is 0.42%. That is, four cents of every ten dollars collected.
If the so-called FairTax plan will lead to the elimination of the IRS, how will taxes be collected? B&L explain that this new tax on all new goods and on all services would be collected by the states. They say that 45 states already collect sales tax, so it shouldn’t be too difficult for them to collect the so-called FairTax and pass it along to the federal government. But first, businesses will have to collect the tax, as they do sales tax, and send it into the states. The states will get 0.25% of the tax collected, for providing the service. The individual businesses will also get 0.25% for their trouble.
So, the tax collectors will get 0.5% of the total tax to keep track of it and pass it along to the state and ultimately to the federal government. Now, we spend 0.42% of the total taxes collected on the IRS so that they can collect taxes. Under the so-called FairTax plan, we’ll be spending 0.50% on tax collection at the local and state level. The FairTax would cost more.
Will we need a large federal agency to monitor this whole thing? Well, surely we’ll need some kind of agency. The cost of this will be on top of the 0.50% that it is already costing us.
How is this a good thing? I’m not sure. Now, we pay about four cents for every ten dollars of total federal taxes to fund the IRS. Under the so-called FairTax plan, we would pay at least five cents, and probably a good deal more.
B&L think that eliminating the IRS is a very attractive thing. On the covers of their books, they have the bold letters “IRS” with a red circle around it and a red line through it. This has become a “logo” of the so-called FairTax plan. Apparently, they are relying on people’s displeasure with the IRS to promote their plan. They must not think that people would mind paying more (probably a good deal more) of their tax dollars for the collection of taxes, just as long as it didn’t go to something called “The IRS”.
The first claim of B&L is that the so-called FairTax plan will “eliminate federal taxes and the IRS”. The first part is not true, and the second part may be true, but their plan will wind up costing us more than the IRS costs now. So far, I don’t find anything compelling about the so-called FairTax plan. Perhaps B&L would like to explain to me how this is a good thing.
I’ll continue by examining more claims next time.
The primary proponents for this plan are Atlanta talk show host Neal Boortz and Congressman John Linder. They have written two books on the subject. I will refer to them these two authors and proponents as “B&L”.
Last time, I said that I would begin to look at the claims of B&L to see if they are true or at least reasonable. I chose to begin with the primary claims that are written on the outside covers of their two books. The first, which I began to examine last week, is that the so-called FairTax plan would, “eliminate federal taxes and the IRS”.
The first part of this assertion, that the plan will “eliminate federal taxes”, is not true. As I said last time, the total amount of federal taxes collected under the new plan would be exactly the same as that collected under the current system. In fact, “revenue neutrality” is a major component of the plan: B&L go to great lengths to indicated that the total taxes collected would be the same before and after implementation of the so-called FairTax.
So, this is a lie. If you don’t want to call it a “lie”, then you have to fall back on the notion that we are simply renaming the taxes. If we have taxes called “A” and we switch to collecting the same amount of taxes and call them “B”, would anybody call this the elimination of federal taxes?
Let’s look at the second part of the claim, the part that says that the so-called FairTax plan would lead to the elimination of the IRS. Why is this a good thing? Well, a lot of people don’t like the IRS. A lot of people don’t like taxes.
The Internal Revenue Service is the governmental agency in charge of collecting federal taxes. At present, it collects about $2.6 trillion. The budget of the IRS is about $11 billion. So, the cost of collection, as represented by the fraction of the total taxes collected that go to fund the IRS, is 0.42%. That is, four cents of every ten dollars collected.
If the so-called FairTax plan will lead to the elimination of the IRS, how will taxes be collected? B&L explain that this new tax on all new goods and on all services would be collected by the states. They say that 45 states already collect sales tax, so it shouldn’t be too difficult for them to collect the so-called FairTax and pass it along to the federal government. But first, businesses will have to collect the tax, as they do sales tax, and send it into the states. The states will get 0.25% of the tax collected, for providing the service. The individual businesses will also get 0.25% for their trouble.
So, the tax collectors will get 0.5% of the total tax to keep track of it and pass it along to the state and ultimately to the federal government. Now, we spend 0.42% of the total taxes collected on the IRS so that they can collect taxes. Under the so-called FairTax plan, we’ll be spending 0.50% on tax collection at the local and state level. The FairTax would cost more.
Will we need a large federal agency to monitor this whole thing? Well, surely we’ll need some kind of agency. The cost of this will be on top of the 0.50% that it is already costing us.
How is this a good thing? I’m not sure. Now, we pay about four cents for every ten dollars of total federal taxes to fund the IRS. Under the so-called FairTax plan, we would pay at least five cents, and probably a good deal more.
B&L think that eliminating the IRS is a very attractive thing. On the covers of their books, they have the bold letters “IRS” with a red circle around it and a red line through it. This has become a “logo” of the so-called FairTax plan. Apparently, they are relying on people’s displeasure with the IRS to promote their plan. They must not think that people would mind paying more (probably a good deal more) of their tax dollars for the collection of taxes, just as long as it didn’t go to something called “The IRS”.
The first claim of B&L is that the so-called FairTax plan will “eliminate federal taxes and the IRS”. The first part is not true, and the second part may be true, but their plan will wind up costing us more than the IRS costs now. So far, I don’t find anything compelling about the so-called FairTax plan. Perhaps B&L would like to explain to me how this is a good thing.
I’ll continue by examining more claims next time.
Saturday, February 7, 2009
Jobs Numbers Get Worse
The January jobs number released by the Department of Labor on Friday were the worse than in any month in the currently available data set provided by the Department of Labor, which began in 1975. In January, 598,000 jobs were lost. This pushes the total lost during the last year to 3,500,000. The current employment level (percentage of the civilian noninstitutional population that are currently employed) stands at 65.5%, which is the lowest level since 1987 during the last years of the Regan administration.
The official unemployment rate reached 7.6%, the worst since the last year of the Presidency of George H. W. Bush. However, this number does not reflect the true percentage of people who would like to work but are unable to find a job. In a recent post, I formulated a measure of that I call the Adjusted Unemployment Rate. This value stands at 10.1%, the worst since the third year of the Reagan Presidency. The difference between the official unemployment rate and this adjusted figure has reached 2.5%, the highest in more than 40 years. This difference reflects, to some degree, the extent to which workers have become frustrated and have stopped looking for work.
In combination with recent jobless claims data, these data continue to indicate a deepening recession and the worse economic situation in at least 25 years and probably since the Great Depression.
The official unemployment rate reached 7.6%, the worst since the last year of the Presidency of George H. W. Bush. However, this number does not reflect the true percentage of people who would like to work but are unable to find a job. In a recent post, I formulated a measure of that I call the Adjusted Unemployment Rate. This value stands at 10.1%, the worst since the third year of the Reagan Presidency. The difference between the official unemployment rate and this adjusted figure has reached 2.5%, the highest in more than 40 years. This difference reflects, to some degree, the extent to which workers have become frustrated and have stopped looking for work.
In combination with recent jobless claims data, these data continue to indicate a deepening recession and the worse economic situation in at least 25 years and probably since the Great Depression.
Thursday, February 5, 2009
Initial Jobless Claims Continue to Rise
Seasonally adjusted initial jobless claims for the week ending January 31 were 626,000, an increase of 35,000 over the previous week, which had been revised up another 3,000. This is the highest number since 1982 during the Reagan years. The four-week running average reached 582,250, a new high for this recession and again the highest since 1982.
Seasonally adjusted continuing claims also reached a new high for the current economic downturn: they reached 4,788,000 for the week ending January 24, with the four-week running average rising to 4,672,000. This represents the highest level in the 41-year data set available from the Department of Labor.
Seasonally adjusted continuing claims also reached a new high for the current economic downturn: they reached 4,788,000 for the week ending January 24, with the four-week running average rising to 4,672,000. This represents the highest level in the 41-year data set available from the Department of Labor.
Tuesday, February 3, 2009
The So-Called FairTax: The National Retail Sales Tax Plan
In 2005, radio talk show host Neal Boortz and congressman John Linder wrote a book entitled “The FairTax Book”. In 2006, they put out a minor revision with the same name in softcover. In 2008, they published “FairTax: The Truth”. These three books comprise what most people know about this new tax plan, and serve as the sourcebook for most of those promoting it.
Recently, I wrote the first in what will be a series of pieces about the so-called FairTax. Here, I will continue by introducing the major claims of proponents. As I continue to examine this new tax plan, I will try to bring into focus the claims in support and in opposition. As you read these articles and any responses that result, I encourage you to look past the hype on either side, and to be very aware of the tone of the arguments. This is a serious proposal and deserves serious consideration. If either side has to resort to personal attacks and repetition of unsubstantiated claims, readers should be wary.
In this previous piece, I introduced this new tax plan and began to discuss what I think is one of the major arguments in favor of the plan that I believe is untrue, and said that I would continue discussion of this issue. However, I have decided to put that discussion off for a bit. I am going to let Boortz and Linder determine the order in which I examine the pros and cons of this plan.
But before I continue, I want to explain why I so frequently put “so-called” in front of the “FairTax”. The reason is quite simple. By using this name, the proponents are trying to influence people in its favor before they know anything about it. They could call it the “Babies and Puppy Dogs Tax Plan” or the “Truth and Justice Tax Plan” or the “Mothers and Apple Pie Tax Plan” and I would have the same objections. This tax proposal should stand on its merits. I cannot help but think that if the proponents thought that it could stand on its merits, they would not need to give it such a name. If they were trying to be descriptive, they would call it the “National Retail Sales Tax Plan”. That is what it is. Then they could inform people about what that means and see if they like it.
So, what are the principal claims of this proposal? Perhaps the best place to start is to look at the main points that the authors chose to put in the most prominent places in their books. There are nine “bullet points” on the back cover of their first book. The first four of these are also presented almost verbatim on the back cover of their latest book. So, these would seem to be what they believe are the most important points.
Here is the first one. The quote is from the back cover of their latest book. This plan will “eliminate federal taxes and the IRS”. This would seem to be, perhaps, the most important claim: the logo that has been adopted by proponents, one that appears on the cover of all three books, is “IRS” with a red circle around it and red line through it.
Will this new tax plan eliminate federal taxes? One of the key claims about this plan is that it is “revenue neutral”. This is stated on p. 76 of their first book: “ …the federal government…will receive from the national retail sales tax exactly what they are receiving under the current tax system.” Notice that here they call it a national retail sales tax. So, the amount of federal tax collected will be exactly the same under the new plan as under the old. Will this plan eliminate federal taxes? No. The total amount of federal tax will be exactly the same. This plan will not eliminate federal taxes.
So, why would anyone say that it does? Perhaps it is because such a claim would be popular. If someone proposed a plan that was the “Give Everyone a Millions Dollars Plan”, I think people would like the idea.
The second part of their first claim is that this new plan will eliminate the IRS. Will it do so? Perhaps. The plan will eliminate the federal income tax and most other existing federal taxes, and therefore it can be truthfully argued that it might eliminate the IRS as it now exists. It will replace these taxes with a new tax that will, B&L argue, will be exactly the same amount as is currently collected. A new agency would need to be created to monitor this new tax.
So what is the IRS? The Internal Revenue Service is the part of our federal government that is charged with collecting taxes. An important component is enforcement: much of its efforts are aimed at determining whether or not people pay their taxes, and if not, to make them do so. For most of us, our interaction with the IRS is each spring when we prepare our tax forms and submit them. Many people don’t like paying taxes, so they don’t like the IRS.
Is an enforcement arm of a national taxation entity necessary, or will people, given the chance, simply pay all of their taxes voluntarily? It would be nice if the latter were true, but is it reasonable?
So, if this new tax plan were adopted, there would need to be a new governmental agency established to collect this new tax. It would probably need to be large to keep track of all the taxes due and those collected. It would need to be large to collect taxes due from those who did not want to pay them. That is, it would need an enforcement arm, and probably a very large one.
In a nutshell: will this new tax plan “eliminate federal taxes and the IRS”? It will not eliminate federal taxes. This is a false claim. It will simply give a new name to the taxes collected to support our federal government. It might eliminate the IRS, but will replace it with a new agency with a different name. The new agency will very likely be just as large as the IRS. Proponents will deny this: they will claim that the same amount of federal taxes can be successfully collected without any large bureaucracy. Given what you know about people and taxes, does this seem reasonable?
Next, I will look at this exact point: is it reasonable to expect that the same amount of federal taxes can be collected under the new plan without an agency as large as the IRS.
Recently, I wrote the first in what will be a series of pieces about the so-called FairTax. Here, I will continue by introducing the major claims of proponents. As I continue to examine this new tax plan, I will try to bring into focus the claims in support and in opposition. As you read these articles and any responses that result, I encourage you to look past the hype on either side, and to be very aware of the tone of the arguments. This is a serious proposal and deserves serious consideration. If either side has to resort to personal attacks and repetition of unsubstantiated claims, readers should be wary.
In this previous piece, I introduced this new tax plan and began to discuss what I think is one of the major arguments in favor of the plan that I believe is untrue, and said that I would continue discussion of this issue. However, I have decided to put that discussion off for a bit. I am going to let Boortz and Linder determine the order in which I examine the pros and cons of this plan.
But before I continue, I want to explain why I so frequently put “so-called” in front of the “FairTax”. The reason is quite simple. By using this name, the proponents are trying to influence people in its favor before they know anything about it. They could call it the “Babies and Puppy Dogs Tax Plan” or the “Truth and Justice Tax Plan” or the “Mothers and Apple Pie Tax Plan” and I would have the same objections. This tax proposal should stand on its merits. I cannot help but think that if the proponents thought that it could stand on its merits, they would not need to give it such a name. If they were trying to be descriptive, they would call it the “National Retail Sales Tax Plan”. That is what it is. Then they could inform people about what that means and see if they like it.
So, what are the principal claims of this proposal? Perhaps the best place to start is to look at the main points that the authors chose to put in the most prominent places in their books. There are nine “bullet points” on the back cover of their first book. The first four of these are also presented almost verbatim on the back cover of their latest book. So, these would seem to be what they believe are the most important points.
Here is the first one. The quote is from the back cover of their latest book. This plan will “eliminate federal taxes and the IRS”. This would seem to be, perhaps, the most important claim: the logo that has been adopted by proponents, one that appears on the cover of all three books, is “IRS” with a red circle around it and red line through it.
Will this new tax plan eliminate federal taxes? One of the key claims about this plan is that it is “revenue neutral”. This is stated on p. 76 of their first book: “ …the federal government…will receive from the national retail sales tax exactly what they are receiving under the current tax system.” Notice that here they call it a national retail sales tax. So, the amount of federal tax collected will be exactly the same under the new plan as under the old. Will this plan eliminate federal taxes? No. The total amount of federal tax will be exactly the same. This plan will not eliminate federal taxes.
So, why would anyone say that it does? Perhaps it is because such a claim would be popular. If someone proposed a plan that was the “Give Everyone a Millions Dollars Plan”, I think people would like the idea.
The second part of their first claim is that this new plan will eliminate the IRS. Will it do so? Perhaps. The plan will eliminate the federal income tax and most other existing federal taxes, and therefore it can be truthfully argued that it might eliminate the IRS as it now exists. It will replace these taxes with a new tax that will, B&L argue, will be exactly the same amount as is currently collected. A new agency would need to be created to monitor this new tax.
So what is the IRS? The Internal Revenue Service is the part of our federal government that is charged with collecting taxes. An important component is enforcement: much of its efforts are aimed at determining whether or not people pay their taxes, and if not, to make them do so. For most of us, our interaction with the IRS is each spring when we prepare our tax forms and submit them. Many people don’t like paying taxes, so they don’t like the IRS.
Is an enforcement arm of a national taxation entity necessary, or will people, given the chance, simply pay all of their taxes voluntarily? It would be nice if the latter were true, but is it reasonable?
So, if this new tax plan were adopted, there would need to be a new governmental agency established to collect this new tax. It would probably need to be large to keep track of all the taxes due and those collected. It would need to be large to collect taxes due from those who did not want to pay them. That is, it would need an enforcement arm, and probably a very large one.
In a nutshell: will this new tax plan “eliminate federal taxes and the IRS”? It will not eliminate federal taxes. This is a false claim. It will simply give a new name to the taxes collected to support our federal government. It might eliminate the IRS, but will replace it with a new agency with a different name. The new agency will very likely be just as large as the IRS. Proponents will deny this: they will claim that the same amount of federal taxes can be successfully collected without any large bureaucracy. Given what you know about people and taxes, does this seem reasonable?
Next, I will look at this exact point: is it reasonable to expect that the same amount of federal taxes can be collected under the new plan without an agency as large as the IRS.
Friday, January 30, 2009
Gross Domestic Product Falls 3.8% in 4th Quarter of 2008
The Bureau of Economic Analysis released its first estimate of change in Gross Domestic Product (GDP) for the fourth quarter of 2008. Real GDP (adjusted for inflation) fell 3.8% in the 4th quarter compared to the preceding quarter. GDP fell 0.5% in the 3rd quarter. This represents the fifth quarter during the Presidency of George W. Bush when the GDP has fallen. This is the first time we’ve experienced back-to-back quarterly declines since the presidency of George H. W. Bush.
Today’s estimate is called the “advance” estimate. In about a month, a revised “preliminary” estimate will be released, with the final number coming about a month later.
These numbers continue to indicate that the nation is experiencing its worst economic condition since 1982 during the second year of the administration of President Ronald Reagan. In late 1981 and early 1982, real GDP fell 5.0% and 6.6% in consecutive quarters. Yesterday’s initial jobless claims number also represent the worst numbers since this same period over 25 years ago.
Today’s estimate is called the “advance” estimate. In about a month, a revised “preliminary” estimate will be released, with the final number coming about a month later.
These numbers continue to indicate that the nation is experiencing its worst economic condition since 1982 during the second year of the administration of President Ronald Reagan. In late 1981 and early 1982, real GDP fell 5.0% and 6.6% in consecutive quarters. Yesterday’s initial jobless claims number also represent the worst numbers since this same period over 25 years ago.
Thursday, January 29, 2009
Jobless Claims Continue To Rise
Initial jobless claims for the week ending January 24 were 588,000, up slightly from a revised 585,000 recorded last week. The four-week running average stands at 542,500. Continuing claims reached continued to rise, reaching 4,776,000. The four-week running average is 4,630,000. All of these figures represent the highest levels since 1982 during the severe recession of the Reagan administration. The complete Department of Labor press release can be found here.
Tuesday, January 27, 2009
The So-Called “FairTax”
A couple of years ago, I wrote a column on the so-called “FairTax” for one of our local newspapers. In it, I pointed out some of the major claims of its proponents, and then tried to point out that they are, in many cases, unfounded.
This proposal has gathered a rather small army of supporters who can certainly be called “enthusiastic”. Why they are so enthused about a proposal that does not benefit most of them is a puzzle to many. This “enthusiasm” was made clear by a letter to the editor written by one of them shortly after my previous column. Rather than simply trying to point out flaws in my reasoning, it began with a demeaning personal attack on me. I’m hoping that any replies to this piece will be focused on the facts.
So, what is this so-called “FairTax”, who is promoting it, and how are they doing so? In a nutshell, the legislation would eliminate essentially all Federal taxes and replace them all with a single tax on all new goods and all services. In essence, it is a sales tax, but would apply to services as well as goods. The proponents say that a tax rate of 23% would be sufficient to raise the same amount of revenue as do all of our current Federal taxes and the payroll taxes combined.
This number has provoked a lot of discussion. Let’s look briefly at this before proceeding. Under the plan, an item that would cost $1.30 to the consumer would, in its price, contain $0.30 of tax. They say that since 0.30/1.30 = 23%, that the tax rate is 23%. That math is correct. However, when we typically pay sales tax, we look at the price of the item BEFORE the tax is added and then add a set percentage on top of that. So, this item cost $1.00 to which $0.30 tax was added. We would call this tax rate 30%: 0.30/1.00 = 30%. This is actually just a definitional difference, but it is important because the so-called “FairTax” is often called a “national sales tax” or a “consumption tax” and these are usually computed such that the tax rate above should be viewed as 30%. Let’s not dwell on this – let’s just recognize that, depending on how it is computed, the tax rate is either 23% or 30%.
Who are the proponents of the so-called “FairTax”? Apparently, it has its origin within a group of Texas businessmen who did not like the current taxation system for a variety of reasons. They formed a group called the “Americans For Fair Taxation” and formulated the plan. It became known as the “FairTax”, and has been introduced in Congress every year since 1999 by Georgian congressman John Linder. The most vociferous proponent of the plan is, perhaps, Atlanta radio talk show host Neil Boortz. In fact, Boortz and Linder have published two books on the subject. For short, I will refer to these books by the initials of the authors “B&L”.
Several of the early candidates for President in 2008 expressed support for the so-called “FairTax”, although neither Party’s nominee did so. Among these, perhaps Mike Huckabee was the most vocal supporter. Because it is widely thought that Huckabee is already running for President in 2012, it is likely that the so-called “FairTax” will receive considerable attention over the next few years.
There are a number of claims made by this proposal’s supporters. Over the next several weeks, I’ll be looking at them in some detail. To begin this process, let’s look at what I think may be the most attractive aspect of the so-called “FairTax”. It would be the most attractive, that is, if it were true. This claim deals with the idea of “embedded” taxes and what will happen to the prices of goods and services and to the take-home pay of Americans should this plan be enacted.
From here on, I will refer to this proposal as the “FT” for short. In their initial book, B&L claimed that with the FT, the prices that people will pay for goods and services after the imposition of the tax will be essentially the same as they were before its enactment. They also claimed that everyone would get to keep 100% of their paychecks. So, quite pointedly, they claimed that prices would remain constant and everyone would get to keep their gross pay, thereby yielding an increase of, say, 25-30% in their take-home pay.
Who wouldn’t like such a scenario? I would, too, if it weren’t fantasy.
In reality, the relationship between prices and take-home pay will remain the same after the FT in put in place. Perhaps both would remain the same – perhaps both would increase by about the same amount. But the fantasy that everyone would have 25-30% more money to use on goods and services that had not increased in prices is just that – fantasy.
The claim is so far-fetched that B&L have backed off of it to some degree, even seeming to claim that they never really said it. I will take this up next, now that I have introduced this proposal to readers. You will be able to look at the quotes that I will supply and then decide for yourself what B&L said and what they meant.
This proposal has gathered a rather small army of supporters who can certainly be called “enthusiastic”. Why they are so enthused about a proposal that does not benefit most of them is a puzzle to many. This “enthusiasm” was made clear by a letter to the editor written by one of them shortly after my previous column. Rather than simply trying to point out flaws in my reasoning, it began with a demeaning personal attack on me. I’m hoping that any replies to this piece will be focused on the facts.
So, what is this so-called “FairTax”, who is promoting it, and how are they doing so? In a nutshell, the legislation would eliminate essentially all Federal taxes and replace them all with a single tax on all new goods and all services. In essence, it is a sales tax, but would apply to services as well as goods. The proponents say that a tax rate of 23% would be sufficient to raise the same amount of revenue as do all of our current Federal taxes and the payroll taxes combined.
This number has provoked a lot of discussion. Let’s look briefly at this before proceeding. Under the plan, an item that would cost $1.30 to the consumer would, in its price, contain $0.30 of tax. They say that since 0.30/1.30 = 23%, that the tax rate is 23%. That math is correct. However, when we typically pay sales tax, we look at the price of the item BEFORE the tax is added and then add a set percentage on top of that. So, this item cost $1.00 to which $0.30 tax was added. We would call this tax rate 30%: 0.30/1.00 = 30%. This is actually just a definitional difference, but it is important because the so-called “FairTax” is often called a “national sales tax” or a “consumption tax” and these are usually computed such that the tax rate above should be viewed as 30%. Let’s not dwell on this – let’s just recognize that, depending on how it is computed, the tax rate is either 23% or 30%.
Who are the proponents of the so-called “FairTax”? Apparently, it has its origin within a group of Texas businessmen who did not like the current taxation system for a variety of reasons. They formed a group called the “Americans For Fair Taxation” and formulated the plan. It became known as the “FairTax”, and has been introduced in Congress every year since 1999 by Georgian congressman John Linder. The most vociferous proponent of the plan is, perhaps, Atlanta radio talk show host Neil Boortz. In fact, Boortz and Linder have published two books on the subject. For short, I will refer to these books by the initials of the authors “B&L”.
Several of the early candidates for President in 2008 expressed support for the so-called “FairTax”, although neither Party’s nominee did so. Among these, perhaps Mike Huckabee was the most vocal supporter. Because it is widely thought that Huckabee is already running for President in 2012, it is likely that the so-called “FairTax” will receive considerable attention over the next few years.
There are a number of claims made by this proposal’s supporters. Over the next several weeks, I’ll be looking at them in some detail. To begin this process, let’s look at what I think may be the most attractive aspect of the so-called “FairTax”. It would be the most attractive, that is, if it were true. This claim deals with the idea of “embedded” taxes and what will happen to the prices of goods and services and to the take-home pay of Americans should this plan be enacted.
From here on, I will refer to this proposal as the “FT” for short. In their initial book, B&L claimed that with the FT, the prices that people will pay for goods and services after the imposition of the tax will be essentially the same as they were before its enactment. They also claimed that everyone would get to keep 100% of their paychecks. So, quite pointedly, they claimed that prices would remain constant and everyone would get to keep their gross pay, thereby yielding an increase of, say, 25-30% in their take-home pay.
Who wouldn’t like such a scenario? I would, too, if it weren’t fantasy.
In reality, the relationship between prices and take-home pay will remain the same after the FT in put in place. Perhaps both would remain the same – perhaps both would increase by about the same amount. But the fantasy that everyone would have 25-30% more money to use on goods and services that had not increased in prices is just that – fantasy.
The claim is so far-fetched that B&L have backed off of it to some degree, even seeming to claim that they never really said it. I will take this up next, now that I have introduced this proposal to readers. You will be able to look at the quotes that I will supply and then decide for yourself what B&L said and what they meant.
Thursday, January 22, 2009
Weekly Jobless Claims Match Recent High
The Department of Labor released the weekly jobless claims data this morning. The initial claims number for the week ending January 17 was 589,000. This matches the high reached four weeks ago, and represents the highest total since 1982. The four week running average remained constant at 519,250 and is down from the high reached four weeks ago. Continuing claims for the week ending January 10 rose to 4,607,000. This is slightly lower than the high reached two weeks earlier.
Thursday, January 15, 2009
Jobless Claims Climb to 524,000 for Week Ending January 10, 2009
The Department of Labor (DOL) released the weekly jobless claims report this morning at 8:30am EST. Seasonally-adjusted initial jobless claims for the week ending January 10, 2009 were 524,000. Those for the preceding week were revised upward by 3,000 to 470,000. The four-week running average was 518,500, a decline of 8,000 from the previous week. This represents the fourth week in which this value declined. Seasonally-adjusted continuing claims for the week ending January 3 were 4,497,000. The four-week running average continued to climb, reaching 4,497,750.
Recently, I did an analysis of the historical pattern of jobless claims in an effort to find signals that might mean the end of the recession is at hand. The numbers for this week offer no such evidence. Go here to read this.
For the complete DOL press release, go here.
Recently, I did an analysis of the historical pattern of jobless claims in an effort to find signals that might mean the end of the recession is at hand. The numbers for this week offer no such evidence. Go here to read this.
For the complete DOL press release, go here.
Wednesday, January 14, 2009
December Retail Sales Decline
Advance retail and food services sales estimates for the month of December, adjusted for seasonal and holiday-related differences, dropped considerably from month ago and year ago figures. Numbers from the U. S. Census Bureau indicated that sales were off 2.7% from November and 9.8% from December 2007. These numbers are not adjusted for inflation. Total sales for 2008 were down 0.1% from a year ago.
The data helped send the Dow Jones Industrial Average down 248 points for the day.
For the entire story, go here.
The data helped send the Dow Jones Industrial Average down 248 points for the day.
For the entire story, go here.
Tuesday, January 13, 2009
January 20, 2009 – Thank Goodness!!
Next Tuesday at 11:30am, President-elect Barack Obama will assume the Presidency of the United States of America. What a wonderful moment that will be! We cannot know for certain what the future will bring, but once again we can be hopeful that the future will be better than the past.
Our country faces the most severe economic crisis in three generations. Rather than working to solve these problems, President Bush has chosen to spend his last days in office in an attempt to polish his legacy.
For many, it is difficult to remember where we were eight years ago and what these years have meant to the average citizen of this country. Let’s take a look at some of these aspects of our national economy.
The Gross Domestic Product (GDP) is the measure of the total value of all goods and services produced in the country. During the eight years of the President Clinton, when adjusted for inflation, it grew at an annual rate of 3.6%. During the past eight years, it has grown 2.2% per year. When you factor in the fact that our population grows at about 1% per year, these figures become 2.6% vs. 1.2% in terms of the amount of goods and services produced, and therefore available to, each citizen.
Recessions, as defined by the National Bureau of Economic Research, are periods of reduced economic activity: GDP declines and unemployment rises. During the past eight years, two recessions have begun. During the eight years under President Clinton, there were no recessions. This has been a repeating pattern in recent years: of the past 11 recessions, 10 began with Republicans in the White House.
Despite what President Bush has said again and again, he did NOT inherit a country in recession. The recession of 2001 began five months after his election. It was also not caused by the attacks of 9/11: it began five months prior to that terrible day.
The years of President Bush have been particularly hard on working Americans. Although he will boast that three million jobs were created during his two terms, over 14 million jobs were needed just to keep up with our increasing population. This means that there was a “jobs deficit” of over 11 million during his Presidency. There has been a deficit in five of his eight years. In contrast, there were 23 million jobs created during President Clinton’s term in office, far more than the 13 million needed to keep up with growth in the work force. In every year of the Clinton Presidency, there were more jobs created than were needed to employ our growing population. In my lifetime, two Presidents have overseen periods of “jobs deficits”, and their names were Bush.
The Stock Market is also an indicator of economic growth, although it is not solely due to activities within our country: most large corporations do business around the world. During the past eight years, the Dow Jones Industrial Average has declined by 17%. In contrast, this value rose 229% during President Clinton’s years. The Market declined in each of President Bush’s terms. All of us are acutely aware of recent Market losses: it has dropped 40% in a little over a year. The last eight years represent the worst Stock market performance of a Presidential administration since that of President Herbert Hoover.
Perhaps of greatest consequence to the long term health of our country is the massive debt that has been accumulated during the past eight years. Today, the National Debt stands at $10.6 trillion. $4.9 trillion of that has been accumulated during the last eight years. 46% of the National Debt has been accumulated during the Presidency of George W. Bush. In fiscal year 2008, we spent $412 billion just on interest payments on our debt. Since half of that was accumulated during the past eight years, we can thank President Bush for saddling us with these interest payments. And they will be with us for years to come.
At this point, every American’s share of President Bush’s debt is over $16,000. Every year, each of us will have to pay an additional $630 in taxes just to pay interest on the debt he has accumulated. On average, we will each have to pay taxes totaling $16,000 to eliminate this debt accumulated under this President. Where will President Bush be when we have to make this sacrifice?
We can’t know what will happen during the Presidency of Barack Obama. But as we move into this next phase of our country’s history, let’s be crystal clear on what has happened over these past eight years. Economically, it has been a true disaster. Let us all hope that better days lie ahead economically, and in all of the other aspects in which this country has been tarnished of late.
Our country faces the most severe economic crisis in three generations. Rather than working to solve these problems, President Bush has chosen to spend his last days in office in an attempt to polish his legacy.
For many, it is difficult to remember where we were eight years ago and what these years have meant to the average citizen of this country. Let’s take a look at some of these aspects of our national economy.
The Gross Domestic Product (GDP) is the measure of the total value of all goods and services produced in the country. During the eight years of the President Clinton, when adjusted for inflation, it grew at an annual rate of 3.6%. During the past eight years, it has grown 2.2% per year. When you factor in the fact that our population grows at about 1% per year, these figures become 2.6% vs. 1.2% in terms of the amount of goods and services produced, and therefore available to, each citizen.
Recessions, as defined by the National Bureau of Economic Research, are periods of reduced economic activity: GDP declines and unemployment rises. During the past eight years, two recessions have begun. During the eight years under President Clinton, there were no recessions. This has been a repeating pattern in recent years: of the past 11 recessions, 10 began with Republicans in the White House.
Despite what President Bush has said again and again, he did NOT inherit a country in recession. The recession of 2001 began five months after his election. It was also not caused by the attacks of 9/11: it began five months prior to that terrible day.
The years of President Bush have been particularly hard on working Americans. Although he will boast that three million jobs were created during his two terms, over 14 million jobs were needed just to keep up with our increasing population. This means that there was a “jobs deficit” of over 11 million during his Presidency. There has been a deficit in five of his eight years. In contrast, there were 23 million jobs created during President Clinton’s term in office, far more than the 13 million needed to keep up with growth in the work force. In every year of the Clinton Presidency, there were more jobs created than were needed to employ our growing population. In my lifetime, two Presidents have overseen periods of “jobs deficits”, and their names were Bush.
The Stock Market is also an indicator of economic growth, although it is not solely due to activities within our country: most large corporations do business around the world. During the past eight years, the Dow Jones Industrial Average has declined by 17%. In contrast, this value rose 229% during President Clinton’s years. The Market declined in each of President Bush’s terms. All of us are acutely aware of recent Market losses: it has dropped 40% in a little over a year. The last eight years represent the worst Stock market performance of a Presidential administration since that of President Herbert Hoover.
Perhaps of greatest consequence to the long term health of our country is the massive debt that has been accumulated during the past eight years. Today, the National Debt stands at $10.6 trillion. $4.9 trillion of that has been accumulated during the last eight years. 46% of the National Debt has been accumulated during the Presidency of George W. Bush. In fiscal year 2008, we spent $412 billion just on interest payments on our debt. Since half of that was accumulated during the past eight years, we can thank President Bush for saddling us with these interest payments. And they will be with us for years to come.
At this point, every American’s share of President Bush’s debt is over $16,000. Every year, each of us will have to pay an additional $630 in taxes just to pay interest on the debt he has accumulated. On average, we will each have to pay taxes totaling $16,000 to eliminate this debt accumulated under this President. Where will President Bush be when we have to make this sacrifice?
We can’t know what will happen during the Presidency of Barack Obama. But as we move into this next phase of our country’s history, let’s be crystal clear on what has happened over these past eight years. Economically, it has been a true disaster. Let us all hope that better days lie ahead economically, and in all of the other aspects in which this country has been tarnished of late.
Monday, January 12, 2009
Is There Any Good News in Recent Jobless Claims Numbers?
Last Thursday, the Jobless Claims numbers released by the Department of Labor were pretty grim. The weekly Initial Jobless Claims were 467,000 representing 0.35% of those workers covered by unemployment compensation (i.e., insured work force). These numbers are down a bit from those reached two weeks earlier (586,000 and 0.44%), which were the worst since 1992, late in the administration of President George H. W. Bush. The continuing unemployment claims came in at 4,611,000, the worst since 1982 during the second year of the administration of President Ronald Reagan. This number represents 3.4% of the insured work force. This is the worst since the fall of 1983, when this value had been dropping since a peak of 5.4% late in 1982.
So, the initial jobless claims have dropped for two weeks, while the continuing claims are still rising. Is there any room for optimism in these numbers? Based on recent historical patterns, is there any reason to believe that the current recession, now 14 months old, is at or nearing an end?
Let’s look at the initial claims first. Is a drop for two straight weeks indicative of the end of the recession? No. In fact, this has already happened six times in this recession. In fact, there is so much “noise” (short term up and down movement) in this number that any consistent change of even three or four weeks isn’t really a signal of anything. At the end of the recessions that have occurred since 1970, there is still a great deal of noise in the individual weekly numbers. This is why this number is often presented as a four-week running average. This has the effect of smoothing out some of this week-to-week volatility.
This four-week running average has now declined two weeks in a row. Is this good news? Not by itself – this has already happened seven times in this recession alone. In fact, we have seen four straight weeks of decline in this number early during the current recession.
What has happened historically in this value? The pattern has not been consistent. At the end of the last five recessions, the longest “runs” of consecutive weeks where the four-week running average of weekly initial claims declined were four weeks (in 2001) and six weeks (in 1970). During recent recessions, there have been runs of five, six and seven weeks that did not occur at the end of those downturns.
So, even a consistent decline in this four-week running average of initial claims doesn’t seem to provide much information about the end of recessions. Perhaps we need yet more “smoothing” of the data? Let’s look changes in this four-week running average over more than a one week period. I examined the historical patterns of the past six recessions (those since 1970) and found that only by looking at the eight-week change in four-week running average of initial claims was there a pattern at the end of recessions that was not found within them.
That was quite a mouthful! Let me explain what I did in a bit more detail. I created a data set of the four-week running average of the weekly initial jobless claims. I then looked at the change in this value each week compared to the value from a point in the past. Finally, I looked to see if there were consistent periods in which this difference was declining, and that these periods were longer at the end of recessions than at any time during but NOT at the end of recessions.
The critical time period over which to examine the change in four-week running average of initial claims turned out to be eight weeks. That is, lets’ look at the four-week running average now compared to what it was eight weeks ago. Let’s call this the 8-4 number. At the end of the last six recessions, there are consecutive periods where the 8-4 number declined at least 17 weeks in a row – the average was 21 weeks. During, but no at the end of, any of these recessions, the longest consecutive period where the 8-4 number declined was 11 weeks – usually, it occurred no more than five weeks in a row.
This means that we need to see the 8-4 number decline every week for about three or four months. So far, it has not declined even one week. To get the first decline in the 8-4 number, we’ll need to see initial jobless claims this Thursday of no greater than 483,000. Then we’ll need to see it continue to decline for three or four months.
Next, I’ll look to see what kind of “signals” might be deduced from the continuing claims numbers.
So, the initial jobless claims have dropped for two weeks, while the continuing claims are still rising. Is there any room for optimism in these numbers? Based on recent historical patterns, is there any reason to believe that the current recession, now 14 months old, is at or nearing an end?
Let’s look at the initial claims first. Is a drop for two straight weeks indicative of the end of the recession? No. In fact, this has already happened six times in this recession. In fact, there is so much “noise” (short term up and down movement) in this number that any consistent change of even three or four weeks isn’t really a signal of anything. At the end of the recessions that have occurred since 1970, there is still a great deal of noise in the individual weekly numbers. This is why this number is often presented as a four-week running average. This has the effect of smoothing out some of this week-to-week volatility.
This four-week running average has now declined two weeks in a row. Is this good news? Not by itself – this has already happened seven times in this recession alone. In fact, we have seen four straight weeks of decline in this number early during the current recession.
What has happened historically in this value? The pattern has not been consistent. At the end of the last five recessions, the longest “runs” of consecutive weeks where the four-week running average of weekly initial claims declined were four weeks (in 2001) and six weeks (in 1970). During recent recessions, there have been runs of five, six and seven weeks that did not occur at the end of those downturns.
So, even a consistent decline in this four-week running average of initial claims doesn’t seem to provide much information about the end of recessions. Perhaps we need yet more “smoothing” of the data? Let’s look changes in this four-week running average over more than a one week period. I examined the historical patterns of the past six recessions (those since 1970) and found that only by looking at the eight-week change in four-week running average of initial claims was there a pattern at the end of recessions that was not found within them.
That was quite a mouthful! Let me explain what I did in a bit more detail. I created a data set of the four-week running average of the weekly initial jobless claims. I then looked at the change in this value each week compared to the value from a point in the past. Finally, I looked to see if there were consistent periods in which this difference was declining, and that these periods were longer at the end of recessions than at any time during but NOT at the end of recessions.
The critical time period over which to examine the change in four-week running average of initial claims turned out to be eight weeks. That is, lets’ look at the four-week running average now compared to what it was eight weeks ago. Let’s call this the 8-4 number. At the end of the last six recessions, there are consecutive periods where the 8-4 number declined at least 17 weeks in a row – the average was 21 weeks. During, but no at the end of, any of these recessions, the longest consecutive period where the 8-4 number declined was 11 weeks – usually, it occurred no more than five weeks in a row.
This means that we need to see the 8-4 number decline every week for about three or four months. So far, it has not declined even one week. To get the first decline in the 8-4 number, we’ll need to see initial jobless claims this Thursday of no greater than 483,000. Then we’ll need to see it continue to decline for three or four months.
Next, I’ll look to see what kind of “signals” might be deduced from the continuing claims numbers.
Friday, January 9, 2009
December Jobs Report Bad – Revisions, Adjustments Make It Even Worse
The Employment Situation Summary, often called the Jobs Report, was released this morning by the Department of Labor (DOL). The numbers are bad for December. However, revisions to the two preceding month’s data make it even worse.
The headline jobs number was a loss of 524,000 jobs during December. These data are from the “Establishment Survey”, officially called the Current Employment Statistics survey, which is conducted on 150,000 businesses and government agencies. Last month, the DOL reported that 533,000 jobs were lost. However, this month’s report also includes a downward revision for each of the last two months totaling an additional 154,000 jobs. So in reality, there are now 678,000 fewer jobs that were indicated by last month’s report. During 2008, nearly 2.6 million jobs were lost.
This is the worst, by far, than any year since 1975 when the currently available data set begins. As bad as these numbers sound, in reality they are even worse. As I pointed out in an earlier post, the country needed almost 1.9 million jobs just to keep abreast of the growing population. In fact, this growing population should create this number of jobs due to increased demand. So, in fact, the “job deficit” for this calendar year is nearly 4.5 million. This is more than a million worse even than the severe recession of the Reagan Presidency.
The Unemployment Rate reported this morning was 7.2%, up from a revised 6.8% last month. The initial report from last month was 6.7%, so this month’s reading is actually 0.5% worse than last month. These data are from the Household Survey, or Current Population Survey, which is conducted on 50,000 households each month.
Many have argued that this official unemployment rate is a deceptively small number as it does not count those who have given up looking for work. A number of alternative numbers have been proposed to reflect a more accurate picture of our employment situation. In an earlier post, I explained one such alternative value, which I called the Adjusted Unemployment Rate. This now stands at 9.4%, which is again the worst since 1982 during the Reagan recession.
The headline jobs number was a loss of 524,000 jobs during December. These data are from the “Establishment Survey”, officially called the Current Employment Statistics survey, which is conducted on 150,000 businesses and government agencies. Last month, the DOL reported that 533,000 jobs were lost. However, this month’s report also includes a downward revision for each of the last two months totaling an additional 154,000 jobs. So in reality, there are now 678,000 fewer jobs that were indicated by last month’s report. During 2008, nearly 2.6 million jobs were lost.
This is the worst, by far, than any year since 1975 when the currently available data set begins. As bad as these numbers sound, in reality they are even worse. As I pointed out in an earlier post, the country needed almost 1.9 million jobs just to keep abreast of the growing population. In fact, this growing population should create this number of jobs due to increased demand. So, in fact, the “job deficit” for this calendar year is nearly 4.5 million. This is more than a million worse even than the severe recession of the Reagan Presidency.
The Unemployment Rate reported this morning was 7.2%, up from a revised 6.8% last month. The initial report from last month was 6.7%, so this month’s reading is actually 0.5% worse than last month. These data are from the Household Survey, or Current Population Survey, which is conducted on 50,000 households each month.
Many have argued that this official unemployment rate is a deceptively small number as it does not count those who have given up looking for work. A number of alternative numbers have been proposed to reflect a more accurate picture of our employment situation. In an earlier post, I explained one such alternative value, which I called the Adjusted Unemployment Rate. This now stands at 9.4%, which is again the worst since 1982 during the Reagan recession.
December Jobs Report – Unemployment Rate 7.2%, 524,000 Jobs Lost
The Department of Labor released the monthly Employment Situation Summary (often called “The Jobs Report”) at 8:30 EST this morning. In December, 524,000 jobs were lost. The Unemployment Rate stands at 7.2%, up from 6.8% last month
Thursday, January 8, 2009
Initial Jobless Claims – Week Ending 3 January 2009
At 8:30 EST this morning, the Department of Labor released the weekly initial jobless claims numbers, also called the unemployment initial claims. For the week ending 3 January 2009 on a seasonally-adjusted basis, there were 467,000 new claims for unemployment benefits. This was 24,000 lower than the revised number from last week, and was lower than most predictions. This represents 0.34% of the insured workforce (those eligible for unemployment compensation). That figure is down from the 0.44% reached a month ago, which was the highest since the administration of President George H. W. Bush.
Seasonally-adjusted continuing claims for the week ending 27 December 2008 came in at 4,611,000, which was 101,000 greater than a week earlier. This represents 3.4% of the insured workforce, and is the highest level since 1983 during the severe recession during the administration of President Reagan.
Seasonally-adjusted continuing claims for the week ending 27 December 2008 came in at 4,611,000, which was 101,000 greater than a week earlier. This represents 3.4% of the insured workforce, and is the highest level since 1983 during the severe recession during the administration of President Reagan.
Wednesday, January 7, 2009
Initial Jobless Claims
In earlier posts, I discussed two important indicators of the national economy in terms of employment. The first was the monthly “jobs number”, or the number of jobs created/lost. The second was the unemployment rate. Both of these are presented by the Department of Labor (DOL) on the first (or sometimes the second) Friday of the month. The December numbers will come out this Friday.
Today, I want to look at the “Initial Jobless Claims”. This number is presented by the DOL each week: the report on each Thursday represents the data for the preceding calendar week. Tomorrow, we’ll get data for the week ending on 3 January. The number represents the number of persons who first file for unemployment compensation.
Clearly, this has some relation to the jobs number (inversely) and the unemployment rate (presented as a percentage). However, these pieces of data come from three separate sources. The unemployment rate comes from the “Current Population Survey”, also referred to as the “Household Survey”. It represents data collected on a monthly basis by contacting homes directly and posing questions about the employment status of those in the home, and is conducted by the Bureau of the Census on behalf of the Bureau of Labor Statistics.
The jobs number is constructed from the “Current Employment Statistics” survey, often called the “Establishment Survey”. It is also compiled by the Bureau of Labor Statistics. These data are collected by contacting businesses directly and posing questions about their employment situation.
The initial jobless claims number, actually called the “Initial Unemployment Claims”, is the most current employment information available. It is certainly important in its own right – it represents a large fraction of the actual number of Americans who have recently become unemployed. It doesn’t really reflect the actual number because many who do not have work do not apply for benefits, and many who have lost their job do not qualify for unemployment compensation. Nonetheless, it is a useful indicator. However, for comparisons across time, it can be misleading because it is important to view this number in light of the size of the current population and workforce. Therefore, the BLS also presents the number of workers covered under the unemployment compensation system. Using this as a base, the current numbers can be computed as a percentage, aiding comparisons across time.
So, where are we? Over the past couple of months, the weekly initial jobless claims have exceeded a half million every week except last week when they came in at 492,000. These data are the worst in over 25 years: they are the highest since the recession that occurred during the early years of the Reagan administration. However, when taken as a percentage of the number of insured workers, the data are now reaching levels that were seen during the administration of Bush-41. The recent peak was 0.44% observed week before last. A value of 0.54% was seen in the middle of 1992.
We have no idea whether we have seen the worst numbers in this current downturn. Tomorrow we will get more information. At that time, I’ll provide some more historical information, and some insight into whether the initial jobless claims can give us any insight into whether this recession is nearing an end.
Today, I want to look at the “Initial Jobless Claims”. This number is presented by the DOL each week: the report on each Thursday represents the data for the preceding calendar week. Tomorrow, we’ll get data for the week ending on 3 January. The number represents the number of persons who first file for unemployment compensation.
Clearly, this has some relation to the jobs number (inversely) and the unemployment rate (presented as a percentage). However, these pieces of data come from three separate sources. The unemployment rate comes from the “Current Population Survey”, also referred to as the “Household Survey”. It represents data collected on a monthly basis by contacting homes directly and posing questions about the employment status of those in the home, and is conducted by the Bureau of the Census on behalf of the Bureau of Labor Statistics.
The jobs number is constructed from the “Current Employment Statistics” survey, often called the “Establishment Survey”. It is also compiled by the Bureau of Labor Statistics. These data are collected by contacting businesses directly and posing questions about their employment situation.
The initial jobless claims number, actually called the “Initial Unemployment Claims”, is the most current employment information available. It is certainly important in its own right – it represents a large fraction of the actual number of Americans who have recently become unemployed. It doesn’t really reflect the actual number because many who do not have work do not apply for benefits, and many who have lost their job do not qualify for unemployment compensation. Nonetheless, it is a useful indicator. However, for comparisons across time, it can be misleading because it is important to view this number in light of the size of the current population and workforce. Therefore, the BLS also presents the number of workers covered under the unemployment compensation system. Using this as a base, the current numbers can be computed as a percentage, aiding comparisons across time.
So, where are we? Over the past couple of months, the weekly initial jobless claims have exceeded a half million every week except last week when they came in at 492,000. These data are the worst in over 25 years: they are the highest since the recession that occurred during the early years of the Reagan administration. However, when taken as a percentage of the number of insured workers, the data are now reaching levels that were seen during the administration of Bush-41. The recent peak was 0.44% observed week before last. A value of 0.54% was seen in the middle of 1992.
We have no idea whether we have seen the worst numbers in this current downturn. Tomorrow we will get more information. At that time, I’ll provide some more historical information, and some insight into whether the initial jobless claims can give us any insight into whether this recession is nearing an end.
Monday, January 5, 2009
Happy New Year!
I hope everyone had a good break over the Holidays. I’ll be posting every day going forward. I wanted to start by giving you a couple of updates on what I’m doing. First, I’ve created a blog that will be devoted to the US Senate. It’s called “Senate Numbers”, and the URL is www.senatenumbers.blogspot.com. I’ll still post some things here of a more general nature, but will do most writing on the Senate there. I’ll put a brief post here every day or two telling you what I’m posting there, and vice versa. Second, as I imagine you noticed, I switched this to a 3-column layout. I’ll be putting some current information and numbers in the left sidebar. (I thank www.threecolumnblogger.com for the code. If you are interested specifically in this layout, which is “Rounders 3”, and the code to make it 3 columns wide, instructions can be found here.)
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