Why Are Workers Unhappy, With Only 5.0% Unemployed? Almost 5 Million Have “Opted Out” of the Labor Force

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Payroll employment peaked in December, and according to numbers released today had declined by 260,000 jobs as of April. (Source: BLS.) Since we have not yet seen a single negative number on GDP growth, this job loss is easily the most tangible statistical evidence we have so far that the much-heralded recession indeed may have started in the first quarter of 2008.

It has been noted that the unemployment rate started out from a low level — averaging 4.6 % in 2007 — so that even after a period of gradual increase, it remains relatively low by historical standards: 5.0% in April. This is still inside the range that has usually been considered by politicians as too low to generate serious discontent (and by central bankers as too low to put downward pressure on wages and prices). But why, then, is there so much popular dissatisfaction with the economy? read more

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Support the Free Trade Agreement with Colombia !

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Nicholas Kristof’s column in the New York Times today, “Better Roses than Cocaine,” says it all. There is no good reason for the US Congress to continue to hold up the free trade agreement that the Administration has negotiated with Colombia.

Free trade with Colombia can’t have anything to do with loss of US jobs: Colombia’s exports already enter the US duty-free. Rather, the Free Trade Agreement would reduce remaining Colombian barriers to imports from the US. It could contribute (a bit) to a surge in US exports worldwide, which in turn could once again become the engine of US growth that it was in the 1990s. read more

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LIBOR Becomes a Bit More Accurate, So Financial Crisis Becomes a Bit Worse

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Interbank borrowing rates updated to include mid-April restoration of LIBOR accuracy
[Source: Institute of International Finance, Washington, DC]

Continuing on the theme of the unusual spread that banks currently have to pay to borrow from each other since August (due to credit risk and liquidity concerns): a Wall Street Journal article on April 16, the day after my last post, explained that LIBOR had recently lost some of its reliability. The true spreads were even higher than what the panels of banks were reporting to the institution that calculates LIBOR, the British Bankers Association (BBA). Banks can have an incentive to act strategically in the interest rates that they report to the BBA. Even though the highest and lowest respondents are dropped from the computation, that was not enough of a correction. But the Wall Street Journal reported the next day that the banks had immediately reacted to this news by increasing the honesty of their interest rate numbers. The updated version of the LIBOR graph exhibits an upturn in the US interbank rate at the very end. read more

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