Holiday Blues

PG has a gloomy picture of seasonal hiring; based mostly it seems on some national punditry.  Never fear, regional seasonal trends in retail employment look awfully metronomic (see below).  Seasonal spikes of between 6 and 9K jobs spikes from September to December are pretty consistent, even during the worst of the recession here a couple years ago.

The more interesting and more important trend is not the seasonal cycle, but the unabated decline of retail employment overall.  Since we really are consuming as much as we used to if not more, the trend looks like the continued evisceration of main street retail.  Generally there are more of the largest retail establishments and for sure a lot fewer of the smallest retail establishments than just a decade ago. The exception being the one 1000+ retail establishment that was showing up in 1998, but not there in 2009.  I should know what that was, but can’t quite place it?  I think it must be the Macy’s regional HQ jobs that were the vestige of Kaufmanns.  I would have coded them as the industry Management of Companies and Enterprises, but if they were still coded as retail that would be a thousand or so jobs lost at one location.

At the smaller end of the spectrum, in just over a decade over a thousand retail establishments with fewer than 10 employees went away across the region.

Retail Establishments in the Pittsburgh MSA by Establishment Size
Number of Employees
Total Establishments 1-4 5-9 10-19 20-49 50-99 100-249 250-499 500-999 1000 or more
2009 8,447 3,276 2,284 1,577 812 262 198 31 7 0
1998 9,493 3,949 2,657 1,620 750 301 172 38 5 1

Are the inflationary fires subsiding?

On 25 October, Dr. Subbarao announced a 25 basis point hike in the policy rate. Alongside this, he made statements that were widely interpreted as being dovish:

Keeping in view the domestic demand-supply balance, the global trends in commodity prices and the likely demand scenario, the baseline projection for WPI inflation for March 2012 is kept unchanged at 7 per cent. Elevated inflationary pressures are expected to ease from December 2011, though uncertainties about sudden adverse developments remain.

Inflation is broad-based and above the comfort level of the Reserve Bank. Further, these levels are expected to persist for two more months. … However, reassuringly, momentum indicators, particularly the de-seasonalised quarter-on-quarter headline and core inflation measures indicate moderation, consistent with the projection that inflation will begin to decline beginning December 2011.

The projected inflation trajectory indicates that the inflation rate will begin falling in December 2011 (January 2012 release) and then continue down a steady path to 7 per cent by March 2012. It is expected to moderate further in the first half of 2012-13. This reflects a combination of commodity price movements and the cumulative impact of monetary tightening. Further, moderating inflation rates are likely to impact expectations favourably. These expected outcomes provide some room for monetary policy to address growth risks in the short run. With this in mind, notwithstanding current rates of inflation persisting till November (December release), the likelihood of a rate action in the December mid-quarter review is relatively low. Beyond that, if the inflation trajectory conforms to projections, further rate hikes may not be warranted.

WPI inflation is not interesting in thinking about monetary policy. The WPI basket is not consumed by any household. The right measure of inflation that all of us should focus on is the CPI.

We just released an updated batch of seasonally adjusted data, and the news for inflation, for September 2011, is bad. CPI-IW grew at an annualised (seasonally adjusted) rate of 20.15% in September 2011. As a consequence, the 3-month moving average inflation went up from 8% in August to 11.77% in September.  If we compute the policy rate as the halfway mark (8%) and subtract out this latest value of the 3-month moving average inflation rate (11.77%), the policy rate expressed in real terms is -377 basis points.

Here’s the picture of what’s been going on with point-on-point seasonally adjusted CPI-IW inflation:

The key fact about India’s inflation crisis is: “Headline inflation”, which I would define as the year-on-year rise of CPI-IW, has been outside the target range of 4-5 percent in every single month from February 2006 onwards. High inflationary expectations have now set in. Given what is happening on prices of both tradeables and non-tradeables, I find myself skeptical about the sanguine picture on inflation that was painted on 25 October.

The bottom line: Headline inflation (year-on-year rise of CPI-IW) went up from 8.99% in August to 10.06% in September. This is inconsistent with a sanguine analysis of inflation on 25 October.

Or perhaps the econometricians at RBI have some aces up their sleeves. Will point-on-point seasonally adjusted inflation, under the benign influence of a strongly negative real rate, veer back into the 4-5 per cent range by December 2011? Stay tuned. So far, the score is: September 2011, 20.15%.

Cheap Labor Is Not The Solution

The only significant impact that immigrants have on the labor market is to increase the supply of labor, which tends to put downward pressure on wages. Everything else equal, the only way an immigrant will be hired over a native worker is if he is willing to accept lower wages. In order to maximize profits, business owners look to pay the lowest wage possible without affecting marginal productivity. If an immigrant is willing to work for less, and he is productive enough, it only makes sense to choose the lower-cost labor. Billions of people the world over make this same decision on a daily basis while shopping for goods and services — it’s called bargain hunting.

Here’s the problem: the government mandates a minimum wage for citizens. The government requires that people be paid a certain amount of money per hour, and the government also mandates payroll taxes, some of which the employer must match. Toss in regulatory compliance for employers, and the cost of employment has a somewhat high floor.

Now, illegal immigrants, who can offer their labor under the table, are more than able to compete with this price because employers don’t have to pay them a minimum wage. Citizens are prevented by law from competing with illegal labor on price. As such, increasing the size of the labor market will have the adverse effect of causing citizens to be in a position where they will lose their jobs because they are forced to keep their wages high.

The proper solution to this problem, then, is the deregulation of the labor market. Allowing an increase in the labor market without allowing citizens to compete on price is cruel and unjust, and therefore migrant workers should be prevented from coming to the United States until the federal government has removed the fetters binding American labor.

Economic Events on November 7, 2011

At 3:00 PM Eastern time, the Consumer Credit report for September will be released.  The consensus estimate is that there will be an increase of $5.0 billion in the consumer credit available in September, after a decrease of $9.5 billion in the previous month.

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