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What Can the Employment Report Tell Us?

By and ·September 2, 2019
Harvard University and EconoFact

The Issue:

Slowing growth abroad, particularly in Germany and China, as well as ongoing trade disputes have spurred much recent discussion about the extent to which these factors might hurt the American economy. But how can we gauge how these factors and other developments are reverberating across the U.S. economy? Are we entering a recession? The monthly Employment Situation report, released by the Bureau of Labor Statistics might be one of the first places where we see hard evidence of their effect.

The Facts:

  • The Employment Situation report provides information on the total number of people working, their hours and their earnings, as well as information on people who are not currently employed. 
  • The change in nonfarm payroll employment is generally the figure that gets the most attention as a fast summary of employment trends. Total nonfarm employment numbers can vary quite a bit from month to month. Looking at averages over time gives a better sense of the trend (see chart). Moreover, early estimates of nonfarm payroll growth for a given month need to be taken with a grain of salt because they are subject to revision. 
  • The unemployment rate has traditionally been viewed as the single best way to capture the tightness of the labor market, but, in the last few years, many economists have been looking at a broader suite of indicators to gauge how much “slack” is left in the labor market. 
  • Looking directly at wage growth can also provide information about whether the economy is overheating. It took wages a long time to start picking up in the wake of the Great Recession. The higher wage growth associated with the “hot” labor markets of the mid-2010s has been a welcome development for workers. However, if wages were to accelerate markedly further on a sustained basis, it might be a sign that pick-up in inflation beyond desirable levels is on the way.

What this Means:

Taking an accurate pulse of the economy in real time is difficult because information is incomplete and often arrives with a lag. Turning points, such as when a recession hits, are most often pinpointed in hindsight. Nonetheless, the employment report provides a key source of information to those who are intent on figuring out what is going on in the economy in real time. The sooner policymakers and investors are aware of changing conditions, the sooner they are able to take appropriate action.

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Could Expanding Access to Contraception Improve Economic Outcomes?

By , and ·August 20, 2019
Texas A&M University and Vanderbilt University

The Issue:

Long-acting reversible contraceptives (LARCs) are showing great potential for reducing unplanned births, especially among teenagers. While there are several large-scale programs focusing on expanding access, a new rule change to Title X from the Trump administration could decrease funding to LARC providers. What do we know about the short- and long-term impacts of wider access to LARCs?

The Facts:

  • Though the United States has one of the highest teen birth rates in the developed world, teen childbearing is on the decline. It is likely that long-acting reversible contraceptives — which include intrauterine devices and subdermal implants — are playing a role. These contraceptives are more effective than the Pill at preventing pregnancy because of their “set it and forget it” nature, but they can also be more expensive, have side effects, and require a trained provider for insertion and removal. 
  • The Colorado Family Planning Initiative allowed family planning clinics across Colorado to substantially expand the provision of LARCs to their low-income clients — so much so that LARC use grew from roughly 5% to 30% from 2008 to 2015 among women 15-29 years old visiting these clinics. In our research, we find that this initiative significantly reduced birth rates, by approximately 20 percent for 15-17 year olds and 18-19 year olds living within 7 miles of participating clinics. There is also evidence of effects on older women and women living farther from clinics after the initiative garnered extensive media coverage in 2014. 
  • Our findings suggest that the Colorado initiative also improved newborn health. We estimate the initiative reduced the number of low birthweight infants by 11.9% and of very low birthweight infants by 9% born to women living near participating clinics. On the basis of this we estimate that around 480 fewer infants required extra hospital care per year in Colorado.
  • Contraceptives allow women greater control of whether and when to become mothers. As a result, they improve women’s ability to invest in their education and careers, which can have a positive impact on life-long earnings. Past research supports the idea that reducing unintended pregnancy will improve economic outcomes, but updated research is necessary.

What this Means:

Long-acting reversible contraceptives have costs and benefits. While there is evidence of their effectiveness in reducing unplanned pregnancy, there are also concerns that not all women who are given assistance with LARC insertion will have access to a provider for removal. A better understanding of the long-term effects of improved access to LARCs on women's outcomes could help inform the impact of funding decisions for such programs. The effectiveness of the Colorado Family Planning Initiative in reducing teen birth rates, together with the existing research on expanded access to contraception and improvements to women's educational and career outcomes, provide a solid basis for optimism about the potential effects of recent efforts to expand access to LARCs. However, updated research is necessary.

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Should the United States Try to Weaken the Dollar?

By and ·August 5, 2019
The Fletcher School, Tufts University and University of California, Berkeley

The Issue:

Political leaders from President Trump to Democratic presidential candidate Elizabeth Warren see the dollar’s current strength as a drag on the American economy. Is a strong dollar a barrier to growth? What are the options open for U.S. policies to manage the dollar’s value and what are their costs?

The Facts:

  • The U.S. dollar appreciated by 25 percent between July of 2011 and July 2019. Dollar strength makes U.S. exports more expensive for foreigners, and imports cheaper for U.S. residents, diverting some of the benefits from growth away from manufacturing and other sectors engaged in international trade. Firms that do most of their business abroad, or that face intense competition from imports, may actually suffer on balance. At the same time, cheaper imports help manufacturers that import inputs used in their own production. On balance, it is hard to see any consistent relationship between dollar strength and manufacturing employment (see chart). 
  • If the exchange rate becomes the target of policy, how would the government go about weakening a strong dollar? The U.S. fiscal stimulus owing to the December 2017 tax cuts and subsequent increased government spending contributed to the strength of the economy and the strong dollar. Tapering this stimulus, as the IMF has recommended, would weaken the dollar, but this seems unlikely any time soon. 
  • Alternatively, dollar assets would become less attractive if the Federal Reserve lowered interest rates. But the Federal Reserve sets monetary policy to achieve its dual mandate of low inflation and high employment, and the exchange rate’s value is a result of that monetary policy setting, not its main determining factor. Cutting interest rates systematically when the economy is strong in an effort to weaken the dollar would risk higher inflation, which, just like a strong dollar, would raise the foreign prices of U.S. goods and work to undermine the U.S. competitive position in global markets. 
  • Direct intervention by the U.S. Treasury in the foreign exchange market offers another possibility. In such operations, the Treasury would sell dollar bonds and use the dollar proceeds to buy foreign currency bonds, bidding up the relative prices of foreign currencies and weakening the dollar. Given the size of international bond markets, would another few billions (the maximum size of past interventions) make a difference?
  • New bipartisan legislation proposed by Senators Tammy Baldwin (D-WI) and Josh Hawley (R-MO) proposes imposing taxes on the foreign purchase of U.S. assets as a way of weakening the dollar and reducing the trade deficit. Using investment inflow taxes to achieve balanced trade would lead to collapsed investment and a sharply higher government debt burden, given the U.S. economy’s high dependence on foreign financing.

What this Means:

The general reason the dollar has been strong recently is that the United States economy is growing rapidly relative to many major economies abroad, also leading the Federal Reserve to maintain a higher level of interest rates as a brake on inflation. Shifting monetary policy to target a weaker exchange rate would let the tail wag the dog, inflicting collateral damage on the economy over the longer term in the form of higher inflation and reduced central-bank credibility. More limited actions to affect the exchange rate, such as intervention led by the U.S. Treasury, are unlikely to be sustainably effective unless carried out on a very large scale, or in coordination with trade partners. But the United States has long pledged, along with other major countries, to avoid intervening in foreign exchange to attain a competitive advantage. Thus, far from supporting the United States in its efforts, U.S. trade partners might deliver a further offset to its attempted weakening of the dollar in the form of retaliation in kind – a “currency war” likely to roil world financial markets.

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Who Would Be Affected by Proposed Changes to SNAP?

By ·August 1, 2019
School of Education & Social Policy and Institute for Policy Research, Northwestern University

The Issue:

The U.S. Department of Agriculture (USDA) proposed new rules for the Supplemental Nutrition Assistance Program (SNAP) that terminate SNAP eligibility for more than 3 million people who currently qualify under Broad-Based Categorical Eligibility (BBCE). These are mostly working families, people with disabilities, and the elderly. The CBO estimates this change will reduce spending by $5.1 billion on SNAP and school meals over the next 5 years.

The Facts:

  • The Supplemental Nutrition Assistance Program (SNAP) provides benefits that help low-income families afford the food that they need. In 2018, 39.6 million people or a little over 1 in 10 Americans participated in SNAP, and $60.4 billion was spent on benefits. The average person received about $127 in benefits per month in 2018.
  • To be eligible for SNAP under federal rules households must pass income and assets tests. But states have had the option to loosen these rules under Broad-Based Categorical Eligibility (BBCE). Since 1996, states have been able to deem households receiving non-cash benefits funded under the Temporary Assistance for Needy Families (TANF) block grant as categorically eligible, thus subjecting a larger share of families to higher cutoffs under the gross income or asset tests. Over 40 states use BBCE to raise the gross income or asset tests (see map).
  • Families with gross incomes above 130 percent of the poverty threshold made up approximately 5 percent of the households receiving SNAP in 2017. They are disproportionately families that have earnings; have child, elderly, or disabled members; or both. When the gross income test is binding, a small increase in earnings leaves a family worse off because it leads them to lose SNAP benefits.
  • Eliminating waivers to the asset test in SNAP would increase the administrative cost burden associated with collecting asset data, which would offset potential savings from reducing participation in SNAP.

What this Means:

Eliminating BBCE under SNAP would remove 3 million individuals from the program, largely working families with children, and households containing elderly and disabled members. We expect that their spending will decrease, and measures of hardship such as food insecurity will increase. This will impact the local economy. In addition, fewer children will participate in free or subsidized school meals programs.

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