Kamis, 26 September 2013

The private sector is ready to go

Labor market conditions have improved significantly in the past month or so. Combine this with the dramatic improvement in households' finances this year, and one is forced to ask: why is there still so much pessimism in regards to the economy? To be sure, there are lots of things that could be better (e.g., the labor force participation rate, the unemployment rate), but there are important labor market metrics that are now almost as good as they get. 

In the past six months, initial claims for unemployment have declined at a 27% annualized pace. They have rarely been this low. Labor market conditions have improved significantly; the chances of a worker being fired today are almost as low as they have ever been.

The number of people receiving unemployment insurance has declined 24% in the past year, and is now down almost to pre-recession levels.

With labor market conditions about as tight as they get, and with corporate profits at record levels, the economy is primed for a burst of hiring and stronger growth IF business confidence improves. This is not such a bad problem to have, since there are any number of things that can be done to unleash the economy's pent-up potential: for example, we could cut tax burdens, reduce regulatory burdens, improve confidence in monetary policy (e.g., start tapering, start raising short-term interest rates), and simplify the tax code.

The private sector is ready to go; now we just need to get government out of the way.

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