Sunday, June 23, 2019

Sometimes I feel like I don't see the data

Sometimes I feel like my only friend.

I've seen links to this nymag article floating around the interwebs that purports to examine labor market data for evidence that the Fed rate hike of 2015 was some sort of ominous thing:
But refrain they did not. 
Instead, the Federal Reserve began raising interest rates in 2015 ...
Scott Lemieux (a poli sci lecturer at the local university) puts it this way:
But the 2015 Fed Rate hike was based on false premises and had disastrous consequences, not only because of the direct infliction of unnecessary misery on many Americans, but because it may well have been responsible for both President Trump and the Republican takeover of the Senate, with a large amount of resultant damage that will be difficult or impossible to reverse. 
Are we looking at the same data? Literally nothing happened in major labor market measures in December of 2015 (here: prime age labor force participation, JOLTS hires, unemployment rate, wage growth from ATL Fed):

There were literally no consequences from the Fed rate hike in terms of labor markets. All of these time series continued along their merry log-linear equilibrium paths. It didn't even end the 2014 mini-boom (possibly triggered by Obamacare going into effect) which was already ending.

But it's a good opportunity to plug my book which says that the Fed is largely irrelevant (although it can make a recession worse). The current political situation is about changing alliances and identity politics amid the backdrop of institutions that under-weight urban voters.


Update + 30 minutes

Before someone mentions something about the way the BLS and CPS count unemployment, let me add that nothing happened in long term unemployment either:

The mini-boom was already fading. Long term unemployment has changed, but the change (like the changes in many measures) came in the 90s.


  1. The NYMag article seems to be prompted by this analysis by Ernie Tedeschi. He at least has some graphs in his article. The shape varies depending on how much data massaging he's doing, but each of his graphs shows a bend in entry and exit flows at the beginning of 2015. The numbers are 12-month moving averages (!), so it's not clear if those actually changed then or there's some lag from the moving average. But it is broadly consistent with your first CLF participation graph showing a minimum sometime in 2014-2015. Still way off the timing of the Fed hike though.

    Regarding the current political situation, I can't really follow it, but Peter Turchin has been writing about some interesting macroeconomic and demographic trends, most recently about the UK but if you haven't read his two series on structural-demographic dynamics they're also worth a read.

    1. Yeah, I regularly interact with Ernie on Twitter and I think the NY mag article might be taking Ernie's conclusions a bit too far. And definitely looking at timing where 12 month averages are involved is ... problematic.

      And thanks for the links — I will check them out!


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