Structural Unemployment

Prof. Mankiw gave us a nice reminder of structural unemployment on Monday. From his post…

As my colleague Erik Hurst and his co-authors have shown, states that had the largest rise in construction as a share of GDP in 2000-2006 tended to have had the greatest contraction in that industry in 2006-2009. These states also tended to have the largest rise in unemployment rates between 2006 and 2009.

[Later he points out...]

Hurst estimates that this “structural” unemployment may account for up to three percentage points of total unemployment. In other words, were it not for construction, the US unemployment rate would be 6.5% – a far healthier situation than today.

Structural unemployment speaks to changes in how people are employed – what industries are hiring, what skills are needed, and where the jobs are geographically.

Bernanke and Fed: Recovery Gaining Traction

The U.S. economy is hitting its stride and gaining traction. That summarized comments by Fed Officials as Chairman Bernanke testified to the Senate Budget Committee on Friday.

“We have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold,” said the Chairman.

Other Fed officials quickly echoed his tone.

Fed Board Governor Elizabeth Duke said in a separate speech that the recovery appeared to be revving up. “I am encouraged by signs that the recovery may have gained traction recently,” Duke said.

Chicago Fed President Charles Evans — a big proponent of keeping monetary accommodation in place — also reported, “More recent data have been coming in somewhat stronger.”

Although the recovery still is not as strong as many officials would like, the majority now point evidence of slow to moderate economic improvement in their districts.

In fact just recently several districts have introduced “stress indexes” to quantify the severity of economic shocks along with the associated rebound from such episodes. The measures are based on 11 financial market variables, each
of which captures one or more key features of financial stress.

Current readouts were recently release for the Kansas City and St. Louis Districts. Both show stress indexes that have now returned to historically “normal” levels.

Economic Events on January 12, 2011

The Mortgage Bankers’ Association purchase index was released at 7:00 AM EST, and there was a week to week decrease of 3.7% in the Purchase Index and a week to week increase of 4.9% in the Refinance Index.

At 8:30 AM EST, Secretary of the Treasury Tim Geithner will give a speech to John’s Hopkins SAIS in Washington.

Also at 8:30 AM EST, the Import and Export Prices index for December will be released, providing some data that can be used to monitor the threat of inflation.

At 10:30 AM EST, the weekly Energy Information Administration Petroleum Status Report will be released, giving investors an update on oil inventories in the United States.

At 2:00 PM EST, the Treasury budget for December will be released.  The consensus is a deficit of $84 billion, which is larger than the historical average, but about $7.6 billion less than last December.

Also at 2:00 PM EST, the Beige Book report will be released, giving us more information about economic conditions in each Federal Reserve district in advance of the next Fed meeting.

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