July 22, 2017

Economix Blog: Labor Force Participation Is Not Coming Back

Don’t worry about labor force participation. It’s not coming back.

That’s the conclusion of a new piece of economic modeling by the respected St. Louis firm Macroeconomic Advisers. And, if true, it has important implications for the Federal Reserve’s conduct of monetary policy over the next few years. Specifically, it means the monthly pace of job creation so far this year is ample to push the unemployment rate below 6.5 percent by mid-2015.

Let’s take a step back. Lots of people lost jobs during the Great Recession. In the aftermath, the great surprise has been how few are looking for new jobs. Labor force participation, the share of adults working or trying to find work, has stagnated at about 63.5 percent, almost three percentage points below the pre-recession level.

The unemployment rate has dropped almost entirely because of this decline in labor force participation. In other words, it has not fallen because people are finding jobs. It has fallen because fewer people are looking for jobs.

The question is whether that’s a permanent condition. Some economists say that people who have stopped looking for jobs will start looking again as economic conditions improve. If that’s true, it probably means that the Fed should be trying harder to stimulate the economy, because the current pace of job growth would not suffice to return unemployment to normal levels any time soon. As people finding jobs poured out of the unemployment pool, others would be pouring into the pool, keeping the level of unemployment unacceptably high.

Macroeconomic Advisers says, however, that participation is unlikely to increase. Yes, some people will start looking for jobs. But it predicts that will be offset by other trends, like the aging of the population into retirement.

It also points to the growing popularity of federal disability benefits, a program many researchers say is functioning as a safety net for people who can’t find jobs – except that it tends to remove them from the workforce on a permanent basis.

In effect, the model suggests that the Fed is right to focus on the unemployment rate as it decides how long to pursue its various stimulus campaigns.

If the model is right, further declines in unemployment will reflect job growth, not declines in participation. It will mean that things are actually getting better.

At the same time, if the model is right, the recovery will only go so far. Participation is in long-term decline, and the Fed can do nothing about it.

If the economy adds an average of 170,000 jobs a month over the next two years – well below the 200,000 per month pace so far this year – the unemployment rate will fall to 6.5 percent by mid-2015. The Fed’s chairman, Ben S. Bernanke, said yesterday that he thought the rate should end up around 5.6 percent.

We’ll have less unemployment, and less employment, and that will be that.

Article source: http://economix.blogs.nytimes.com/2013/07/18/labor-force-participation-is-not-coming-back/?partner=rss&emc=rss

Home Prices Rise, Producing a Buying Mood

The latest sign emerged Tuesday as the Standard Poor’s Case-Shiller home price index posted the biggest gains in seven years. Housing prices rose in every one of the 20 cities tracked, continuing a trend that began three months ago. Similar strength has appeared in new and existing home sales and in building permits, as rising home prices are encouraging construction firms to accelerate building and hiring.

The broad-based housing improvements appear to be buoying consumer confidence and spending, countering fears earlier this year that many consumers would pull back in response to government austerity measures.

In January, the two-year-old payroll tax holiday ended, stripping about $700 from the average household’s annual income, according to the nonpartisan Tax Policy Center. Federal government spending cuts that started in March are also serving as a drag on economic growth, economists say. And some recent data on other parts of the economy, like manufacturing and exports, have also disappointed.

Yet consumer confidence reached a five-year high in May, according to a Conference Board report also released on Tuesday, with big improvements in Americans’ views about both the current economy and future economic conditions. Consumer spending has also been strikingly resilient so far this year, given the tax hikes.

“Five years after the start of the financial crisis in earnest, and four years and a week’s time from the beginning of the economic recovery, we’re finally starting to get more of a pickup,” said John Ryding, chief economist at RDQ Economics. “It’s been a very drawn-out process, but you have to remember what we’ve been digging our way out of.”

The recent decline in gas prices is probably helping, as are increases in the stock market even though only about half of Americans own any equities. Perhaps most important, economists say, the growth in the value of the existing housing stock means that homeowners around the country are finally feeling richer, and that so-called wealth effect is probably making consumers loosen their purse strings a bit.

The positive impact of rising home values and the appreciating stock market is expected to offset at least a third of the fiscal tightening, according to Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors.

The Case-Shiller 20-city composite index rose 10.9 percent over the last year, the biggest increase since April 2006. Several cities — Charlotte, N.C.; Los Angeles; Portland, Ore.; Seattle; and Tampa, Fla. — had their largest month-over-month gains in more than seven years.

Stock markets rose on the news, with the S. P. 500-stock index up 10.46, or 0.63 percent, at 1,660.06 and the Dow up 106.29, or 0.69 percent, at 15,409.39 at the close on Tuesday. The Nasdaq was up 29.74, or 0.86 percent, at 3,488.89. The 10-year Treasury yield surged to 2.17 percent, its highest level in over a year.

The double-digit housing price increase is being driven by a confluence of factors.

For one, employers have added jobs for 31 straight months, so families are willing to start buying again. At the same time, the inventory of homes available on the market remains unusually low, thanks to little new building in the last few years and the large number of homeowners who are still underwater on their mortgages, making them reluctant to sell at a cash loss.

Now there are signs that higher prices are beginning to encourage some would-be sellers to come off the sidelines and place their homes on the market. That could be healthy for the market, countering concerns that housing might become overvalued again.

“You’ve had this dynamic that has been favorable for price increases now, but it’s also favorable for supply to come back on market, so that will mean some moderation in the pace of price increases,” said Daniel Silver, an economist at JPMorgan Chase, who said that he expected home prices to continue growing but not necessarily at the double-digit rate seen in May.

Construction has been picking up, too, in response to the rise in home prices, but builders cannot bring homes to the market as quickly as buyers want them.

Victoria Shannon contributed reporting.

Article source: http://www.nytimes.com/2013/05/29/business/house-prices-show-largest-gain-in-years.html?partner=rss&emc=rss

Global Economy Is Looking Brighter, World Bank Says

WASHINGTON — Some of the darkest clouds threatening the global economy have started to lift, according the World Bank’s periodic update to its economic forecasts.

The latest version of the twice-yearly Global Economic Prospects report is one of the development bank’s least pessimistic in recent years, but hardly an exercise in optimism. It describes a “dramatic” easing of financial conditions around the world, stemming in part from policy changes to soothe the bond markets in Europe. Still, it warns that global growth will continue to be sluggish for years to come.

In the report, the World Bank estimates the world economy grew just 2.3 percent in 2012. It expects growth to pick up only modestly in the coming years, from 2.4 percent in 2013 to 3.3 percent in 2015.

Developing countries were responsible for more than half of global growth in 2012, the report said, and they will continue to be an engine of growth. The report estimates that developing countries grew 5.1 percent in 2012, and that the pace of growth will accelerate to 5.8 percent in 2015.

“Four years after the crisis, high-income countries are still struggling,” Andrew Burns, the report’s lead author, said in an interview. “Developing countries need to respond to that difficult environment not through fiscal and monetary stimulus, but rather by looking to reinforce their underlying growth potential in order to have sustainably stronger growth going forward.”

For the last four years, developing countries have remained in something of a defensive crouch, World Bank experts said. Their central banks and finance ministries have intently focused on managing the volatile financial and economic conditions emanating from the United States and Europe, and their policy making has focused on the short term.

But credit conditions have eased significantly in Europe, particularly since the European Central Bank, led by Mario Draghi, embarked on a major bond-buying program last year. Growth has started to pick up in the United States, after taking a hit in the second half of 2012 because of uncertainty stemming from the presidential election and the so-called fiscal cliff, a series of automatic spending cuts and tax increases that Congress mostly averted this month.

Now, developing economies need to focus more on their domestic economic troubles, bank economists said. That might mean making long-term investments in infrastructure, education, public health or regulation, rather than focusing on short-term stimulus measures to counteract economic fluctuations from elsewhere around the globe.

“They have spent the past four years reacting to what’s going on in high-income countries,” said Mr. Burns, noting that different developing countries faced significantly different development challenges. “As a result, almost necessarily, they’ve been paying less attention to some of these long-term growth-enhancing reforms that are so necessary.”

The report says that significant downside risks to global growth persist, including stalled progress in solving the European debt crisis, fiscal uncertainty in the United States, a decline in investment in China and spiking oil prices. However, the report said, “the likelihood of these risks and their potential impacts has diminished, and the possibility of a stronger-than-anticipated recovery in high-income countries has increased.”

Developing countries may start to reorient away from a crisis mind-set, the bank said. “The whole discussion has been dominated by the global crisis,” said Hans Timmer, the director of the development prospects group at the World Bank. “It’s logical that you are distracted, but there are several problems with that: If you don’t go back to the reform agenda, you don’t have that growth in the future.”

Weakness in large, wealthy countries continues to weigh on growth in the developing world, the report notes, hitting big exporters in South Asia, for instance. Political turmoil continues to rack the Middle East and North Africa, it said. But economic activity in East Asia has rebounded because of increasing regional trade and domestic demand in China.

In contrast, developed countries, like Germany, Japan and the United States, had growth of only 1.3 percent in 2012. The bank expects that growth to pick up starting in 2014, reaching 2.3 percent by 2015. The bank projects that the euro zone will continue to contract in 2013, reaching sluggish growth of 1.4 percent by 2015.

Global trade in goods and services is a bright spot in the report. Over all, such trade grew just 3.5 percent in 2012. The bank expects trade to jump 6 percent in 2013 and 7 percent by 2015, in no small part because of an accelerating demand from new consumers in big developing countries.

“From hopes for a U-shaped recovery, through a W-shaped one, the prognosis for global growth is getting alphabetically challenged,” Kaushik Basu, the World Bank chief economist, said in a statement. “With governments in high-income countries struggling to make fiscal policies more sustainable, developing counties should resist trying to anticipate every fluctuation in developed countries and instead ensure that their fiscal and monetary polices are robust and responsive to domestic conditions.”

Article source: http://www.nytimes.com/2013/01/16/business/global-economy-is-looking-brighter-world-bank-says.html?partner=rss&emc=rss

You’re the Boss: How to Run a Small Business

Once again, here at You’re the Boss, we spent the year in the small-business trenches. Unlike some publications, we don’t emphasize the stories of rock star entrepreneurs who never seem to struggle; instead, we emphasize the struggle.

Our journalists look for issues and trends that small businesses need to understand. And our bloggers – most of whom actually own and run businesses – write about their experiences on the front lines. They share the ups and downs, what’s working and what’s not, the lessons learned. And along the way, they benefit from the feedback of some of the smartest small-business readers around.

While a year of tough economic conditions and nasty politics produced some lowlights, here at You’re the Boss we had lots of highlights. A sampling:

Jay Goltz wrote about how to diagnose what’s wrong with your business. And the one task he can’t seem to delegate. And his moving conversation with the owner of a start-up who was trying to decide whether to give up. And his reaction to a commenter who said she was satisfied being a mediocre employee. And whether good bosses have to be cutthroat. And why it’s silly not to check references.

Paul Downs wrote about his desperate struggle to figure out what went wrong with his Google Adwords campaign. And why he’s looking for a new bank. And the mechanics of firing people. And trying to make an especially difficult customer happy. And how much money he takes out of his business. And how he decides how much to pay his employees.

Jessica Bruder wrote about how small businesses are using services like Fiverr, Yext, and TaskRabbit. And why a fast-growing flower business won’t hire anyone who has experience in the flower industry. And a Harvard professor’s theories on why start-ups fail.

Bruce Buschel wrote about his endless efforts to collect on his insurance claims. And a surprise offer from a generous gentleman.

Melinda F. Emerson wrote about a diner that has mastered social media. And how a business can struggle to make social media work. And how you can use social media to test an idea before you try to sell it.

Adriana Gardella wrote about the struggles of her She Owns It business group, including: one owner’s plans to redesign her Web site, the technologies that got the owners through Hurricane Sandy, one owner’s attempts to improve her business’s tag line, the perceptions that woman- and minority-owned businesses battle, why it’s so hard to find good job candidates, how the owners have been trying to make sense of health care.

Ami Kassar wrote about grading banks on their small-business lending. And about why one company passed up the opportunity to appear on “Shark Tank.” And the advantages of starting a company without outside financing. And what businesses need to know about merchant cash advances. And whether the big banks are keeping their commitments to small businesses. And the right way to think about the S.B.A. And why some businesses aren’t ready for bank lending. And why small-business lending is such a confusing mess.

Robb Mandelbaum wrote about the impact of health insurance reform on businesses in Massachusetts. And about Jon Stewart’s serious proposal to encourage entrepreneurship. And about Mitt Romney’s views on small businesses. And whether big businesses really want to help small businesses (or just get good publicity). And why the health care tax credit is eluding so many small businesses. And why one small-business owner is expecting the worst from the health care overhaul. And how the so-called Buffett rule would affect small businesses. And how some surprisingly large businesses — including one you may have heard of! — benefit from small-business set-asides.

Cliff Oxford wrote about how to handle the brilliant jerk. And an entrepreneurial doctor who isn’t afraid to shake things up.

Josh Patrick wrote about how the sale of a business can go terribly wrong. And the joys (and dangers) of running a microbusiness. And whether owning a business is likely to get you through retirement.

MP Mueller wrote about wondering just how honest you can be with certain clients. And how it’s possible to build a brand even if you can’t afford advertising. And a stunning new social media tactic. And her advertising agency’s struggle to attract new business.

Tom Szaky wrote about why his social business was eager to strike a deal with tobacco companies. And how he interviews job candidates. And his problem with performance reviews.

Barbara Taylor wrote about using your 401(k) to buy a business. And how to judge whether a business for sale is worth the asking price.

Ian Mount wrote about a nut retailer who spent hundreds of thousands of dollars to buy the perfect domain name – only to have it cost him more than 70 percent of his organic Web traffic. Darren Dahl wrote about the surprising number of products that businesses are trying to sell on a subscription basis, including dog food. He also wrote about how some small businesses are being priced out of using AdWords. Glenn Rifkin wrote about a restaurateur who used to deal drugs, once stole a municipal bus and now manages a company with nine businesses, more than 250 employees and more than $19 million in annual revenue. And Eilene Zimmerman wrote about a family farm that has had to try to explain to its customers why its rice contains arsenic.

And every week, Gene Marks scours the Web so that you don’t have to — looking for links to all of the stories that have the biggest impact on small-business owners. On Tuesday, he selected the best of those stories from the last year.

Happy New Year from the You’re the Boss team.

Article source: http://boss.blogs.nytimes.com/2013/01/02/how-to-run-a-small-business/?partner=rss&emc=rss

Fundamentally: The Economy and the Stock Market: A Big Disconnect

With only two weeks remaining in 2012, Congress and the White House have made little headway on a deal to avoid the spending cuts and tax increases that are set to kick in at the end of December — a jolt that economists say could send the economy into recession.

And even if this so-called fiscal cliff is averted, the economy is still expected to grow at only a tepid annual rate of 2 percent. Corporate earnings growth, meanwhile, has fallen from a rate of more than 17 percent in the third quarter of last year to just 2 percent today. And revenue among companies in the Standard Poor’s 500-stock index is essentially flat, a sign that the global economy is slowing.

Although all these trends would appear to bode poorly for stocks, on the theory that a weak economy reduces investor appetite for risk, there’s a problem with drawing that conclusion: History has shown that lousy economic conditions, or even dismal corporate results, don’t necessarily lead to disappointing stock market returns in any given year — or decade, for that matter.

When you buy stocks, you are ultimately buying a share in corporate profits, which are influenced by the overall economy. Nonetheless, the amount of growth in a country’s gross domestic product shouldn’t be confused with the prospects for its stock market, says Simon Hallett, chief investment officer at the asset management firm Harding Loevner. “I cannot emphasize that enough,” he says.

Investors need only look to the current year as an example. The domestic economy has grown at an annual pace only slightly above 2 percent, subpar by historical standards. Overseas, the picture is worse: Japan is teetering on the brink of yet another recession, large parts of Europe’s economy are contracting and China’s pace of growth has slowed uncomfortably.

Yet against this bleak backdrop, United States stocks have returned 15 percent, on average, this year, while those in Europe have gained 18 percent and Asian stocks are up more than 12 percent.

“If, at the beginning of 2012, you got a preview of all the headlines for the coming year, would you have believed the markets would be up this much?” asks Pat Dorsey, president of Sanibel Captiva Investment Advisers.

Roger Aliaga-Díaz, senior economist at the Vanguard Group, says investors shouldn’t be surprised about the seeming disconnect between basic economic variables and stock market performance.

He and his colleagues at Vanguard recently studied equities’ returns going back to 1926, looking specifically at the predictive power of important variables.

Those include market price-to-earnings ratios, growth in gross domestic product and corporate profits, consensus forecasts for gross domestic product and earnings growth, past stock market returns, dividend yields, interest rates on 10-year Treasury securities, and government debt as a percentage of G.D.P.

Their conclusion was that none of these factors — which investors often cite when explaining their moves — come remotely close to forecasting accurately how stocks will perform in the coming year. “One-year forecasts of the market are practically meaningless,” Mr. Aliaga-Díaz says.

Even over a 10-year time horizon, considered by many investors to be long term, only P/E ratios had a meaningful predictive quality.

Since 1926, those ratios, based on 10 years of averaged earnings — a gauge popularized by the Yale economist Robert J. Shiller — explained roughly 43 percent of stocks’ performance over the following decade. Of course, “that means about 55 percent of the ups and downs in the market can’t be explained by valuations,” Mr. Aliaga-Díaz says.

What about economic fundamentals like G.D.P. and corporate earnings growth? Over the course of a decade, those factors had even less predictive power over future returns.

Are investors simply ignoring economic conditions and fundamentals?

No, Mr. Aliaga-Díaz says. He notes that information about historical trends, like those for G.D.P. and earnings, is already widely known on Wall Street. That means these trends are priced into the market before stock prices start to move over the next year or decade.

As for earnings and economic growth projections, “those forecasts tend not to diverge too much from the consensus,” he says. “And consensus estimates for future growth are also already priced into the market.”

THAT may help explain why, despite all the storm clouds hanging over this economy, professional investors appear willing to look past the poor data. In fact, money managers say they are more bullish about domestic blue-chip stocks than about stocks in emerging markets or the rest of the developed world, according to a recent survey by Russell Investments.

John S. Osterweis, chairman and chief investment officer of Osterweis Capital Management, says that the economic head winds notwithstanding, several long-term trends could support a new leg to the bull market in domestic stocks.

Among them are a possible rebound in the housing sector, a potential revival of domestic manufacturing as wage growth accelerates in China, and the tail wind that could arise from the boom in domestic energy production.

Mr. Dorsey at Sanibel points to yet another possible tail wind. “Think about what uncertainty causes,” he said. “It causes low expectations. And when is typically a good time to buy an asset class? When expectations and valuations are low.”

Paul J. Lim is a senior editor at Money magazine. E-mail: fund@nytimes.com.

Article source: http://www.nytimes.com/2012/12/16/your-money/the-economy-and-the-stock-market-a-big-disconnect.html?partner=rss&emc=rss

DealBook: Goldman’s Profit Falls but Tops Estimates

Goldman Sachs stock was up more than 5 percent on Wednesday at the New York Stock Exchange.Richard Drew/Associated PressGoldman Sachs was up more than 5 percent on Wednesday at the New York Stock Exchange.

Goldman Sachs said on Wednesday that it earned $978 million in the fourth quarter, well below the $2.23 billion it posted in the period a year earlier, as it continued to struggle with lackluster economic conditions both here and abroad.

Still, the performance of $1.84 a share exceeded the expectations of analysts polled by Thomson Reuters, who were predicting Goldman would earn $1.24 a share.

And while the result is below that of a year ago and a world away from the earnings power Goldman was once known for, it is better than the showing in the third quarter, when Goldman posted a loss for only the second time since it went public in 1999.

“This past year was dominated by global macroeconomic concerns which significantly affected our clients’ risk tolerance and willingness to transact,” said Lloyd C. Blankfein, Goldman’s chairman and chief executive.

While Goldman’s profit number is always of note on Wall Street, this quarter investors will also be looking at the compensation number as the firm prepares to doll out billions of dollars in bonuses. Goldman disclosed that it had set aside $12.22 billion, or 42.4 percent, of its 2011 net revenue to pay compensation and benefits for its 33,300 employees. This is down from $15.38 billion in 2010, a decline reflecting the drop in Goldman’s net revenue in 2011.

Goldman’s compensation and benefit pool is enough to pay each of the firm’s employees $367,057. A year ago, its pool would have been enough to pay each employee $430,700.

Goldman produced net revenue of $6.05 billion in the fourth quarter, down 30 percent from the period a year earlier.

Goldman’s performance is not surprising. Some of its rivals, including JPMorgan Chase and Citigroup, have already weighed in with results, and they too are struggling to churn out big trading profits in this current environment.

As revenues on Wall Street fall, firms have laser focused on cutting expenses. Goldman’s headcount is down 2,400 over the past year and during a conference call with analysts to discuss the firm’s results, its chief financial officer, David Viniar, said that towards the end of the year Goldman increased its non-compensation cost-cutting goals by $200 million, to $1.4 billion, as previously reported by DealBook.

Goldman can’t cut its way to better results, but right now, facing a drop in revenue in all of the firm’s major divisions, it doesn’t have many other levers to play with. In a research report on the earnings, a Keefe Bruyette Woods analyst, David Konrad, noted that that lower expenses was a key factor in Goldman’s ability to beat analyst expectations.

“We are currently targeting $1.4 billion in savings and will closely monitor our expense run rate and make further adjustments as necessary,” Mr. Viniar said during the conference call.

Net revenue in Goldman’s division that trades bonds, currencies and commodities was $1.36 billion, down 17 percent from year-ago levels. The firm attributed the drop to lower results in mortgages and credit products “as continued global economic uncertainty contributed to difficult market-making conditions.” This division accounted for roughly 22 percent of the firm’s total revenue in the fourth quarter.

Net revenue from equities trading and commissions was $1.69 million, down 15 percent from year-ago levels. Goldman’s annualized return on equity, a crucial measure of profitability, was 5.8 in the quarter, compared with 13.1 percent in the period a year earlier. In 2006, it was 41.5 percent.

Article source: http://feeds.nytimes.com/click.phdo?i=1cd28a96d08d8e251bbb12a1f7737d6f

Economix: The Fed Splits

FLOYD NORRIS

FLOYD NORRIS

Notions on high and low finance.

There is more than meets the eye to the split at the Federal Reserve. There must be.

The Fed’s statement Tuesday afternoon says that the majority “currently anticipates that economic conditions — including low rates of resource utilization and a subdued outlook for inflation over the medium run — are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”

Three dissenters said that they “would have preferred to continue to describe economic conditions as likely to warrant exceptionally low levels for the federal funds rate for an extended period.”

Now there’s something to fight over. I say we need low rates “at least through mid-2013.” You say “an extended period.”

All this sounds like much ado about very little, but the Fed majority is all but promising that rates will stay low for nearly two years. We used to think “an extended period” could mean a few months.

In reality, the statement was an implicit invitation to traders to drive rates down further on the two-year Treasury note, and that happened immediately. Before the announcement the two-year rate was around 0.27 percent. Now it is 0.19 percent. That is a record low. Two weeks ago it was over 0.4 percent.

The initial stock market reaction was negative, presumably because there was some hope that the Fed would do more — like start another quantitative easing program, QE3. Instead there is a promise that the Fed “will maintain its existing policy of reinvesting principal payments from its securities holdings. The committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.”

In other words, they might do a QE3. Or they might not.

Perhaps the dissenters really want to essentially say something like “We’ve done all we can, and if the economy is still lousy, that is for someone else to deal with.” And the majority is unwilling to do that.

As it is, the Fed has signed on to the widespread perception that the economy is getting worse. But it is not doing a whole lot.

The fact that the Fed chairman, Ben S. Bernanke, now has three dissenters is a sign that the Fed, like one or two other Washington institutions you might be able to name, is less and less able to speak with one voice.

Article source: http://feeds.nytimes.com/click.phdo?i=61f732b352df3e35e5ee1d69d7cc0d86

Fed Officials Divided on Need for More Monetary Stimulus

“A few members noted that, depending on how economic conditions evolve, the committee might have to consider providing additional monetary stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run,” the Federal Open Market Committee said in the minutes of its June 21-22 meeting, released Tuesday in Washington.

“On the other hand, a few members viewed the increase in inflation risks as suggesting that economic conditions might well evolve in a way that would warrant the committee taking steps to begin removing policy accommodation sooner than currently anticipated.”

Policy makers cut their forecasts for growth this year before a July 8 government report showed that employers added jobs in June at the slowest rate in nine months. The Fed chairman, Ben S. Bernanke, said at a June 22 news conference that growth would pick up as energy prices subsided and disruptions of parts from Japanese factories eased, while also leaving the door open to additional stimulus. In their meeting, policy makers also agreed on a strategy for withdrawing record monetary stimulus and adopted a new set of communications guidelines.

A divided Federal Open Market Committee means officials are likely to prolong their low interest-rate policy, said Chris Low, chief economist at FTN Financial in New York.

“The majority view is that they can’t ease because inflation is rising, but at the same time they can’t tighten because the unemployment rate is too high, so they’re on hold,” Mr. Low said.

The minutes show some officials have doubts about whether their policy toolkit has anything more to offer. “A few participants expressed uncertainty about the efficacy of monetary policy in current circumstances but disagreed on the implications for future policy,” the minutes said.

Some members of the committee “saw the recent configuration of slower growth and higher inflation as suggesting that there might be less slack in labor and product markets than had been thought,” the minutes said. In that case, “the withdrawal of monetary accommodation may need to begin sooner than currently anticipated in financial markets.”

The Fed’s Washington-based governors and regional presidents agreed to complete their $600 billion bond-buying program, known as QE2 for the second round of quantitative easing, as scheduled at the end of June.

“The Fed will be watching and waiting to learn more about the economy,” said Michael Feroli, chief United States economist at JPMorgan Chase Company in New York. “One camp is worried about what happens if growth slows more than expected. The other camp is worried about what happens if the rise in inflation isn’t transitory.”

Policy makers also renewed their pledge to hold interest rates “exceptionally low” for an “extended period.” The Fed has kept its target rate in a range of zero to 0.25 percent since December 2008. Mr. Bernanke said at the June press conference the Fed would be “prepared to take additional action, obviously, if conditions warranted,” including the purchase of more Treasury securities.

“Most” committee members said the rise in inflation would “prove transitory” and that over the medium term inflation would “be subdued as long as commodity prices did not continue to rise rapidly and longer-term inflation expectations remained stable.”

Article source: http://feeds.nytimes.com/click.phdo?i=b443e0864036ca56b4f295882447991b

The Search: Talk About Pay Today, or Suffer Tomorrow

Many job seekers would be thrilled to be offered a job at all. How ungrateful and even risky, they may feel, to haggle over salary when the unemployment rate is so high.

And research shows that even when economic conditions are good, women tend to be more reluctant than men to negotiate for a salary higher than the one initially offered.

But failing to negotiate can be a mistake that reverberates for years, says Linda C. Babcock, an economics professor at Carnegie Mellon University who specializes in negotiation. Because most raises are based on percentage increases, she notes, all of your future raises — along with contributions to your retirement account — are likely to be lower than if you had negotiated a higher salary at the start.

Some people fear that a job offer will be rescinded if they dare ask for higher pay, and that the employer will move on to the next applicant, says Barbara Safani, owner of Career Solvers, a career management firm in New York. But she says that is very unlikely if you negotiate reasonably.

Still, it’s easy to understand why the thought of salary negotiation induces fear. That’s because the employer holds almost all the cards in this game, and may ask you to give up the few you hold by requesting that you reveal prematurely your past salary and your pay expectations.

Generally, if employers try to broach the salary issue early in the interview process, you should do everything possible to defer this discussion, and, if pressured to give numbers, be as vague as you can, Ms. Safani says.

And once you get an offer, don’t accept it on the spot, she suggests. It is perfectly acceptable to say that while you are excited about the job, you need a few days to think about it.

Use that time to clarify your priorities, Ms. Safani says. Is making a certain salary most important to you? Or is it the vacation time, the hours, the responsibilities or something else?

Gather as much salary intelligence as you can about the position, before the first interview and after the offer. Web sites like Salary.com, Glassdoor.com and PayScale.com list salary ranges within an industry, company and geographic location. Don’t rely on these sources completely, as they may depend on self-reporting, some of it anonymous. But they can give you a benchmark.

And talk to any people you know within that company, or other ones like it. You don’t have to ask them flat-out what their salaries are, Professor Babcock says. Instead, you might ask, “What do you think a good salary for this job would be?”

This research will help determine your true value in the marketplace and can provide the basis for deciding how hard you should negotiate — even if you are now unemployed.

In general, when you are ready to negotiate, “don’t ask for what you want, ask for more than you want,” Professor Babcock says. “You could typically ask for at least 10 percent more than they offer you.”

Once you have your number on the table, the employer might say, “Oh, we can’t possibly do that.” In many cases, that does not mean the negotiation is over, Professor Babcock stresses. “You say: ‘How close can you come to that figure?’ ”

If the company is reluctant to come closer, she says, you should consider asking, “Can we meet in the middle?” That’s often effective, she adds, “because it just seems fair.”

Sometimes, though, employers have a salary limit they cannot exceed, notes Rusty Rueff, a career and workplace expert for Glassdoor.com. Yet there may be ways to work around that so you still come out ahead. Suppose you’re offered $100,000, but you wanted $110,000 and the employer says no. You could seek a bonus at the end of the first year if you meet performance goals, he says, or, depending on the industry, try to arrange for an equity stake in the company.

You may also be able to negotiate a signing bonus, additional time off (paid or unpaid), parking privileges, expanded benefits, relocation expenses, work hours or job title and responsibilities.

Do not bluff by saying you won’t accept a certain salary when you actually will. But if you state honestly and politely that the pay isn’t enough, that may be a catalyst for the employer to offer more. Just be absolutely sure of where your “walk away” threshold lies.

Done correctly, negotiation can strengthen the relationship between applicant and employer. But too often, women are unwilling to try it at all. Men are much more likely to negotiate pay than women, Professor Babcock says.

That’s because of the way many girls are brought up, she says — resulting in the feeling that “there might be backlash against me if I negotiate in a very assertive way.”

“Women often think, ‘Well, this is my personality.’ No, it’s something that our society has done to you,” she says.

In encouraging negotiation, she reminds people that they don’t have to adopt an aggressive, confrontational style that is unnatural to them. In short, she says, you can still be yourself and win a higher salary.

E-mail: thesearch@nytimes.com.

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Economix: Keynesians Miss the Point, for Now

Today's Economist

Casey B. Mulligan is an economics professor at the University of Chicago.

Our labor market has long-term problems that are not addressed by Keynesian economic theory. New Keynesian economics is built on the assumption that employers charge too much for the products that their employees make and are too slow to cut their prices when demand falls. With prices too high, customers are discouraged from buying, especially during recessions, and there is not enough demand to maintain employment.

When the financial crisis hit in 2008, the New Keynesian “sticky price” story had some plausibility because economic conditions were, in fact, deflationary (although I have my doubts about other aspects of their theory). That is, the demand for safe assets surged in 2008, which means that those assets had to become expensive or, equivalently, goods had to get cheaper in order to clear the market.

Normally the Federal Reserve could expand the money supply to satisfy the extra demand for safe assets, so consumer prices wouldn’t have to fall to maintain employment. But the financial crisis was severe enough that the Fed’s best efforts would not be enough.

At the time, New Keynesian fears seem to have been realized: consumer prices had to fall to maintain employment, but too few employers were willing or able to make the price cuts quickly enough. The result was going to be a severe recession that could be partly cured, in the short term, by fiscal stimulus or, in the longer term, as more companies had the time needed to cut their prices.

The red line in the chart below shows the consumer price index that, according to New Keynesian theory, was needed to maintain employment. I have rescaled the index to be based in December 2007, when the recession began: a value of 96 means consumer prices were 4 percent below what they were in December 2007.

In theory, the index of consumer prices had to fall eight percentage points below its peak (of almost 104) in the summer of 2008 to maintain employment. (I measure all consumer prices here, not merely the “core” price index that excludes fuel and many other items, because the excluded items provide jobs, too.)

The blue line shows actual consumer prices. We readily see the “downward pressure” on consumer prices at the end of 2008, because, in fact, prices stopped rising and actually fell a couple of percent.

But New Keynesians say that with the drop needed to maintain employment, the blue line needed to fall as much as the red, and a drop that large would take more time. In the meantime, employment would be low and employers would enjoy cheap labor for a while, as so many unemployed people were desperate to work.

But the availability of cheap labor would eventually give employers room to cut their prices – in theory the blue and red series would converge and employment would eventually return to previous levels.

Early on, I thought the New Keynesian theory was wrong because I didn’t see that employers perceived labor to be cheap. Federal law had increased minimum wages three times in and around the recession. A number of other public policies made labor more expensive. My fellow blogger Nancy Folbre has written that American labor looks increasingly expensive compared with potential workers abroad.

The price chart above shows little or no tendency for the blue series to converge with the red one, because, contrary to the theory, high unemployment rates have not caused employers to perceive labor as cheap.

The low employment rates we have today are too persistent to be blamed on price adjustment lags (I have similar reservations about another business-cycle theory: “job search” theory says that jobs are there to be found, but that unemployed people have not been lucky enough to look in the right places).

Our labor-market problems may not disappear by themselves and are not addressed by New Keynesian theory.

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