With all of the noise coming from general politics there’s hardly been any space left over for economic news. There’s nothing like a huge distraction to keep people’s minds off of how things are going in the areas which really matter the most.
So how are we doing?
One handy measure comes to us from what Barataria has taken to calling Yellen’s Dashboard. This is a list of the five most stubbornly bad indicators that were simply not turning around 3 years ago, despite many signs of improvement. With the Fed sending strong signals that rate hikes are assured in coming months they make a good place to start the conversation.
The measurements were boiled down into a simple scale, each of the five worth a total of 20 points. The scale is based on economic conditions at the start of this Managed Depression, in 2000 versus their bottom, at or around the start of 2010. All relative improvement off of that bottom is measured against the standard of the last truly strong economy.
Overall, they give us a net percentage of recover on these the most stubbornly bad figures.
A summary of their state nearly three years ago shows why they are important. Where unemployment has been falling steadily, long-term unemployment has been a lot slower to turn around. Wage growth has also lagged. Taken together, all of this forms the argument as to why the more traditional “Taylor Rule” or its highly simplified “Mankiw Rule” is not an adequate way or calculating the Fed Funds rate.
Here is a summary of Yellen’s Dashboard since its inception:
|Long Term Unemployment||3.5||3.6||5.1||6.5||6.5||5.9||8.3||8.7||9.2||10.4|
You can see that overall we are just over halfway to economic goodness. As we have said many times, the glass is half full, not exactly empty. In fact, we can make an argument that even by the most stubbornly bad measurements the glass is 54.8% full.
Two indicators which are still lagging stand out dramatically. The one which affects most people and is definitely an economic trend, not a social one, is the net growth in wages. It’s creeping upward slowly, but very slowly. At 2.3% annually it’s ahead of the 0.9% official inflation rate, but not by a lot. We’re not making up the ground lost during the worst part of the recession, but we are gaining ground.
The second figure which isn’t going anywhere fast is the Workforce Participation rate, here only for people aged 25 to 54 – essentially the prime working years. As a political football, this is often cited as proof that there just aren’t enough jobs to go around. That may not be the case, however, as young people might be more likely to either stay in school longer or take more time off not working at all to raise a family. It was never at full employment for everyone, peaking at 84% in 2000. That it is down in the 81% range may be more of a social phenomenon than an economic one.
It’s worth watching, however, to see if it stabilizes. It appears to be, which suggests that it’s not going to get any better for whatever reason.
Where do we stand economically? Clearly, the case to start raising interest rates is an easy one to make. The bond market is starting to respond as well, lifting consumer rates up and generally making money a little bit more expensive for everyone. Even this isn’t a bad thing overall, however, as higher rates mean a higher appetite for risk – and potentially more money for those who can put it to a good use right away.
How are we doing? Rather well by any measure. And it keeps getting better all the time. Rising rates are not only justified, they may wind up being a very good thing. But like any dashboard, it’s always better to keep your eyes on the road more than anything else.