US Unemployment Rate Falls to 7.4 Percent in July, a New Low for the Recovery

The latest data released by the Bureau of Labor Statistics show the US labor market continuing to recover. The unemployment rate fell to 7.4 percent, a new low for the recovery. Payroll jobs increased by a moderate 162,000, as shown in the following chart. May and June job gains were revised downward.


Payroll job increases were concentrated in service sectors, with retail trade, leisure and hospitality, and business services all showing strong growth. Goods producing industries gained slightly, with job losses in construction more than offset by gains in manufacturing. The government sector showed a rare increase in jobs, most of them in at the local level. Federal and state governments employed fewer workers in July. As the following chart shows, the long decline in total government employment appears to be tapering off. >>Read more

Follow this link to view or download a classroom-ready slideshow with charts of the latest employment situation

How GDP Revisions Change Our Picture of the Great Recession: The Story in Charts

On July 31, the Bureau of Economic Analysis released revised data for US national income accounts. The revised data give us a new view of the Great Recession that began at the end of 2007. It still merits its name as the most severe economic downturn since the Great Depression of the 1930s, but the contraction now looks a little shallower than previously thought and the recovery a little more robust.

The following chart compares the old and revised real GDP data over the past six years. The old and new data series are not directly comparable. Not only was the old series stated in 2005 dollars and the new in 2009 dollars, but there are numerous statistical and methodological differences as well, as discussed below. For easier comparison, then, the chart displays both the old and new data in the form of an index with the peak of the previous cycle, Q4 2007, equal to 100.

Several features stand out in the chart. First, the contraction from peak to trough was not quite as deep as reported earlier. Instead of falling by 4.7 percent, real output fell by 4.3 percent. Beginning from the trough, which came in Q2 2009 in both series, the expansion is somewhat stronger according to the new data, especially in 2011. From Q1 2011 to Q1 2012, the economy is now seen to have grown by 3.3 percent rather than the previously reported 2.5 percent. By Q1 2013, real GDP was 3.9 percent above the previous peak, rather than just 3 percent, as reported earlier. >>>Read more and view the rest of the charts

US GDP Grows 1.7 Percent in Q2, Beating Expectations, Major Revision to Earlier Quarters

The Bureau of Economic Analysis today released its much anticipated advance estimate of second quarter GDP growth, along with rebenchmarked data for earlier quarters. Q2 growth was reported as 1.7 percent, hardly scintillating, but better than some analysts had expected. However, growth for Q1 was revised down from 1.8 percent to just 1.1 percent, and Q4 2012 was revised down from a feeble 0.4 percent to a near standstill at 0.1 percent. All the numbers are quarterly data stated at annual rates.
The best way to see what has been going on since the first of the year is to look at the old, the rebenchmarked, and the newly revised data on a sector-by-sector basis, as in the following table:



The first thing we see in this table is that the contribution of consumption to real GDP growth slowed from  1.54 percentage points in Q1 2013 to 1.22 percentage points in Q2. Q1 consumption, in turn, was revised downward from a contribution of 1.83 percentage points. Consumption of durable goods picked up slightly in Q2. The slowdown was about evenly divided between services and nondurable goods.>>>Read more

Follow this link to view or download a classroom-ready slideshow with charts of the latest GDP data

The Dubious Economics of Crop Insurance

Insurance is an essential part of the financial infrastructure of a market economy. By spreading losses among members of a group with similar exposure, insurance encourages people to take prudent risks while protecting individuals from ruin in case they are the unlucky ones. Not all risks are insurable, however. Attempts to insure the uninsurable create incentives to take excessive risks and burden the economy with costs to the many that exceed the gains to a few. So-called “crop insurance,” which has become a central feature of U.S. farm policy, is a case in point.

Why crop losses are not insurable

Over time, insurers have developed rules that identify which risks are insurable and which are not. Crop insurance violates at least three of them.

Not a pure loss.  Insurance is normally limited to situations in which people face a pure loss. For example, if I insure my house against fire, I either experience a fire, in which case I suffer a loss, or I do not, in which case I have neither a loss nor a gain. In contrast, if I build a house for resale, I may suffer a loss if no one likes it or if the market declines, or make a profit if someone falls in love with it and pays me a premium price. The risk of fire is a pure loss, and is insurable; the risk of a business venture that carries the possibility of gain as well as of loss is not.

Insurance against crop risks, especially in the popular form of crop revenue insurance, departs from the pure loss principle. Crop revenue insurance does not just protect farmers against bad harvests due to natural causes like drought or floods. It also protects their profits against the economic risk of low prices, even when a good harvest is the cause of the low price. In fact, if the premium is low enough and the benchmark price is high enough, crop revenue insurance provides a guaranteed profit no matter what happens. >>>Read more

Will Peak Phosphate Doom Humanity, or will Supply and Demand Save Us?

Although climate change catches the headlines, it is not the only doomsday scenario out there. A smaller but no less fervent band of worriers think that peak phosphate—a catastrophic decline in output of an essential fertilizer—will get us first.

One of the worriers is Jeremy Grantham of the global investment management firm GMO. Grantham foresees a coming crash of the earth’s population from a projected 10 billion to no more than 1.5 billion. He thinks the rest of humanity will starve to death because we are running out of phosphate fertilizer.  This post on Business Insider from late last year provides an array of alarming charts to back up his warning.

Foreign Policy agrees that phosphate shortages are a potential threat. “If we fail to meet this challenge,” write contributors James Elser and Stuart White, “humanity faces a Malthusian trap of widespread famine on a scale that we have not yet experienced. The geopolitical impacts of such disruptions will be severe, as an increasing number of states fail to provide their citizens with a sufficient food supply.”

What is going on here? Is this really “the biggest problem we’ve never heard of,” as Elser puts it? Or are phosphate shortages something that global markets can cope with? Let’s take a closer look. >>>Read more

Follow this link to view or download a classroom-ready slideshow that features peak phosphate as a case study in supply and demand.

US CPI Inflation Rose Sharply in June. How Concerned Should We Be?

U.S. consumer price inflation jumped to a seasonally adjusted annual rate of over 5.9 percent in June, according data released today by the Bureau of Labor Statistics. That was up from an inflation rate of just 1.8 percent in May. In March and April, the CPI actually decreased. How much do we need to worry about the sharp increase in inflation, or the increasing volatility of inflation over the past year, both of which are evident in the following chart? Here are some points to consider.



First, the jump in the monthly inflation rate and the volatility of recent months are almost completely due to ups and downs in the seasonally adjusted price of gasoline. It rose 6.1 percent in the month of June alone after no change in May and decreases of 8.1 percent in April and 4.4 percent in March (all monthly changes, not annualized). The price of gasoline is notoriously volatile. It depends not only on world oil prices, but also on the dynamics of domestic refining and on driving habits.>>>Read more

Follow this link to view or download a classroom-ready slideshow with complete charts of the latest consumer inflation data

Why Progressives Should Love a Carbon Tax—Although Not All of Them Do

Progressives should love a carbon tax. Most progressives love the environment and believe that carbon emissions cause environmental harm. Unlike conservatives, whose attitudes toward carbon taxes were the subject of my last post, progressives have no generalized aversion to taxes. Carbon taxes should be a natural for progressives, then, if they can accept the power of economic incentives to slow the destruction of the planet.

To be sure, many progressives do express strong support for carbon taxes. Here are just three of many examples:

• The Center for American Progress has put out a position paper titled “A Progressive Carbon Tax Will Fight Climate Change and Stimulate the Economy.” It argues that climate change, economic growth, and fiscal responsibility are intimately linked, and that a price on carbon should be part of a policy to deal with each of these issues.
• Gernot Wagner, an economist at the Environmental Defense Fund, argues that it makes eminent sense to tax what you want less of in his excellent book, But Will the Planet Notice: How Smart Economics Can Save the World.
• In Green Illusions: The Limits of Alternative Energy Ozzie Zehner argues against the wishful thinking that solar, wind, or other technological fixes will bring a future of cheap, clean, and abundant energy. Insisting that a strong push for energy conservation has to be part of the mix, he advocates carbon taxes to counteract what he calls “the boomerang effect”—the tendency for subsidies for clean energy to make energy in general cheaper, therefore discouraging conservation.

Yet, not all progressives are convinced. Many are skeptical on principle of our capitalist economic system and instinctively distrust market-based environmental policy. Others fear that a carbon tax would disproportionately harm the poor. Still others have ethical objections to the whole idea of bribing people to do things they ought to choose voluntarily, out of love and respect for the planet. Let’s look at each of these objections in turn. >>>Read more