December’s payrolls were up 155,000 and the unemployment rate held steady at 7.8%.  Factories and construction sites added jobs—25,000 and 30,000 respectively—an improvement over recent months.  On the other hand, the public sector shed another 13,000 jobs, driven exclusively by local governments, the continuation of a longer-term negative trend as localities struggle with budget constraints.

Hourly wages and average weekly hours got a bit of a bump up as well, so weekly earnings are up 2.4% over the past year.  Since inflation recently has been tracking at around 2%, that’s a slight gain in real pay (important, because starting this month, most workers will take a 2% hit to their paychecks due to the expiration of the payroll tax break, a casualty of the fiscal cliff deal).  There was also some evidence of more folks moving from part-time into full-time jobs.

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Now that the House has passed the Senate compromise bill, the full spate of tax increases and spending cuts that went into effect yesterday will be shut off (though the sequester was just suspended for a couple of months).  Still, I don’t mean to be a downer, but any relief you feel should be analogized to how much better you feel when you stop banging a hammer on your head.  We’ve avoided, for the moment, a self-made trap.  Now, of course, we’re on to the next one—the debt ceiling, which really is a cliff in that to go over it (can you “go over” a ceiling?) is to default.

The resolution of the fiscal cliff was much as I and others predicted—a very short trip over the cliff—more of a bungee jump, really.  As we said, once House R’s could label a vote for the compromise a net tax cut, enough of them could vote for it.  In fact, one of their leaders, Dave Camp (R-MI) sold the measure to his caucus as the “largest tax cut in American history.”

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In fact, once Rep. Boehner turned away from the compromise he was hammering out with the president earlier in the week, the odds of going over the cliff significantly jumped. Plan B was nothing more than theatrics — designed to show the world that Leader Boehner could muster his troops, even if it was for a cliff solution that was going nowhere in the Senate or White House. Unfortunately for him, that little bit of theater turned out badly, and Boehner’s leadership is at risk.

Unfortunately for the rest of us, it’s impossible to imagine a plausible deal being made with these House Republicans. If Boehner decided to go for a compromise with a bunch of Democratic votes, he could likely get to 218 and passage. But John Boehner teaming up with Nancy Pelosi to pass a tax increase — even on just the top few percent — is not … um … a likely outcome.

So over the cliff we go. What happens next?

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The plan would extend all the Bush tax cuts up to $1 million and that’s pretty much it … no debt ceiling agreement, nothing on sequester, no “doc fix” (cuts Medicare reimbursements by almost 30 percent), no extended UI.

Relative to the president’s most recent offer, it’s actually a tax cut even for millionaires, because their income between $400k and $1 million would be taxed at lower rates.  According to a “preliminary estimate” by the White House, it would raise $300 billion in revenue over 10 years, way less than Boehner himself has offered in recent negotiations ($800 billion).

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Here’s the agenda:

…tax reform that goes way beyond individuals and rates; much deeper Social Security and Medicare changes than currently envisioned; quick movement on trade agreements, including a proposed one with Europe; an energy policy that exploits the oil and gas boom; and allowing foreign-born students with science expertise to stay here and start businesses.

Do this and there could be not an economic recovery — but a boom, many argue.

Really?  I gotta say, I don’t see it.  In fact, pretty much everything on that list is a) conventional wisdom in DC and b) largely a distraction from where I think the evidence is actually pointing, as I’ll stress in a moment.  To be clear, raising more tax revenues and slowing health care costs are critical in terms of getting our long-term debt situation under control, and immigration reform that provides a path for folks here to stay is also a great idea.  A domestic energy boom is already underway and trade agreements do squat for growth (which doesn’t mean they’re not worth it—but their growth potential is hugely overhyped).

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That doesn’t mean some changes, including cuts, shouldn’t be part of the cliff negotiations.  The president’s team, I think, could bring to the table around $400 billion in Medicare cuts over 10 years that largely come out of more efficient drug purchasing, other delivery side savings (paying for quality over quantity), and increase premiums on higher-income seniors.  Those look to me like smart savings and important negotiating material.

But bigger, structural changes, like raising the Medicare eligibility age or switching to the chained CPI, are more complex and deserve more discussion and debate.

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The Bureau of Labor Statistics reported that payrolls grew by 146,000 last month and unemployment ticked down to 7.7%, the lowest rate since late 2008.  That decline, however, was once again driven by labor force withdrawal, so it should not be taken as a sign of a tighter job market.

Analysts were expecting the impact of the storm on the most densely-packed labor markets in the country to significantly lower the job count.  But the Bureau reported that their survey response rates in the affected states were in the normal range, so they don’t believe Sandy is “substantively” distorting these numbers.

Construction data may, however, reveal some storm-related effects, with jobs off 20,000 in November after growing slightly in prior months as the housing market has begun to show signs of life (we’ll have to wait for the state data release later in the month to see if the losses were in affected states).

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Today’s ADP report provides a preliminary glance.  The payroll firm reported 118,000 jobs created in the private sector last month, down from 158,000 in October.

Moody’s.com guesstimated that Sandy led to 86,000 fewer jobs in November.  Since the ADP reports job gains by firm size, one indicator of Sandy’s impact can be seen in the sharper deceleration last month of job growth at smaller firms, which are more likely to be shut down by the storm than larger firms.

The BLS payroll survey–the official employment metric out Friday–asks employers to report their payrolls as of the middle of the month.   The fact that many businesses were closed due to the damage from the storm is expected to lower jobs numbers for November and possibly later months as well.  From the Bureau:

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The uptick in unemployment was expected after September’s 0.3 percentage point drop, but a few things are worth noting. First, the 0.1 point increase is statistically indistinguishable from no change at all -- the unemployment rate has to rise or fall about 0.2 points to be significant. At 7.9%, the jobless rate is down significantly -- by one full point -- from its rate one year ago. Second, one reason for the slight uptick was that more people came into the labor market seeking work. We’ll need to see how this development evolves in coming months, but we may be seeing early signs of an improving job market pulling more job seekers in from the sidelines.

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Full disclosure: as a member of the President’s economics team I strongly advocated for the rescue, as per both my principal (the Vice-President) and the view held by myself and others that the employment costs would be particularly steep in communities that comprised the relevant supply chains.  When you think about auto jobs, don’t just think about the factory at the end of the line where they assemble the cars and trucks.  Think about all the small and medium size manufacturers that make those parts.

That’s where many of the new jobs in Ohio are coming from and it’s an important piece of evidence for the bailout’s success.  Which makes it catnip for the Romney swiftboaters.

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Actually, I think it’s entirely fair to heavily discount blogs as evidence.  Obviously, quality varies widely and there are no gate keepers on the net, and nothing approaching rigorous peer review.  However, there’s room for nuance.

First, some blogs, like the ones at CBPP and EPI (not to leave anyone out, but those are places I’ve worked so I know how they operate), generally report shortened, reader-friendlier versions of their studies, so judging those blogs as evidence depends on your view of their studies.

Which gets to my larger point—I wouldn’t generally trust blogs as evidence but neither would I trust every think tank report.  The most reliable basis for trustworthy evidence in social science is peer review, a process by which experts of the established knowledge on the topic, along with rigorous application of the rules of statistical evidence, evaluate the claims in the study before it can be published.

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It is, of course, a much closer call now, but still, I doubt that Gov. Romney’s assault on the recovery in last night’s debate resonated as much as he’d like it to.  And I think Greg Sargent is right here: team Obama should continue to push back on this point, particularly regarding housing, which didn’t come up at all last night.

All three major home price indices are up and the 30-year mortgage rate is at an all-time low.  This combination of home price appreciation and low rates has allowed more homeowners to refinance, lowering average annual mortgage payments by around $2,200.  Housing starts got a big pop this AM, hitting their strongest stride since 2008, and while the monthly data are volatile, there are signs that the inventory overhang in housing is much diminished.

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That’s wrong simply in the sense that 7.8% is still an elevated unemployment rate (suppose the rate were 15%–would you feel better if someone pointed out the 85% are still at work? 100%-unemp is just not an elucidating metric).

But it’s more wrong in the sense that high unemployment has negative spillovers for most of those still at work.  In a labor market like ours, with low unionization rates, bargaining clout for many in the workforce is very much a function of the unemployment rate.  Excess labor supply over labor demand typically puts downward pressure on both nominal and real wages.

The figure below plots real hourly wages for non-supervisory workers—blue collar workers in manufacturing and non-managers in services (about 80% of the workforce).  It also plots yearly nominal growth rates of that same hourly wage (before accounting for inflation).

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Not unlike the President, they seemed deeply confused by the fact that he’s been running on a big tax cut but now seemed to saying…”not so much.”

The fact that you find this confusing is actually a good sign.  There’s solid math that says he can’t accomplish all three—more of that in a moment.  But here’s a revealing quote from Gov. Romney in last week’s debate:

“I will not reduce the taxes paid by high-income Americans.”

The group found this especially confusing.  When is a tax cut not a tax cut?

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The question of the impact of inequality on growth came up and that made me want to work out my thoughts on that relationship.  These issues are very usefully addressed in this recent paper by Boushey and Hersh (more on that below; see their page 8 for a short summary of the ineq/growth lit), but here, in an extended post, are some of my thoughts about it.

The classic theory on how growth affects inequality maintains that there’s an inverted U-shaped relationship over long periods of economic development.  As emerging economies grow they initially become less equal as the few with high financial endowments profit off of their ownership of key productive resources, like land.  Then, as industrialization evolves, much more of the population has the chance to participate in higher value-added work which reduces inequality.

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Unfortunately, it’s taken a terribly misguided, albeit revealing turn towards “makers versus takers.”

What’s misguided about it?  It misses the dynamics of real lives in America and instead, creates a false and divisive framework.  Were we to accept this framework and try to embed it in our economic policy, our nation would be the worse for it.

The implication is that one group—the makers—is supporting the well-being of another—the takers.  Moreover, since the takers don’t pay taxes—they just take government benefits—they are endlessly incentivized to support politicians who keep their Ponzi scheme going.  When conservatives say “we’re reaching a tipping point” they mean that the takers will soon be a larger electoral block than the makers, at which point the former only have to get up from their well-worn sofas once a year to vote for their facilitator-in-chief who pledges to keep the transfer checks coming.

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So let’s talk about the process of job creation, both in normal times and in times like these.

Demand for labor is so-called “derived demand” -- derived from the demand for goods and services that firms sell to consumers and investors. That can be anything from a Snickers bar (consumer good) to a steel bar (intermediate good) to barroom (investment good). As I explained in greater detail here, in normal times, job creation is a function of a virtuous cycle where growth generates income which drives consumption, signaling investors renew opportunities, generating more growth, etc.

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Their estimate for August is a higher-than-expected 201,000 jobs.  That’s an acceleration over their July number of 173K, revised up from 163K.

BTW, if that 163K sounds familiar to you it’s because that’s the same payroll number from the BLS report last month, though that number includes the public sector too (the comparable private sector number from the BLS payroll survey for July was 172K).

So, the question is: can you jump from the ADP to the BLS number on a monthly basis?

If you look at the correlation of the monthly changes in the series—0.95—you’d think so, but alas, while they move closely together (ergo the strong correlation), in any given month they can be quite different and the differences can go either way.

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If you were looking for Gentle Ben to announce that the Fed was going to apply more of its unconventional methods at a date certain, you were again disappointed.  But I didn’t expect that.  The committee is meeting is less than two weeks, and they’ll be another jobs report between now and then.

But I thought the subtext of the speech was: “our asset purchases and forward guidance (buying a lot of debt and saying they’ll keep rates low for a while) have worked pretty well, maybe increasing GDP by 3% and adding 2 million jobs.  Yes, these unusual moves by the Fed can turn out badly, but we’re aware of that potential and think we’re good.  And there’s just too many people stuck in unemployment.  Also, prices seem very stable to us.  So, unless there’s a clear acceleration in growth right around the corner, we’re going to rock some more unconventional easing real soon.”

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I and many others have argued to the contrary: that the high-end sunset was precisely the right place to start in terms of finally getting some new revenue in the picture, a position the White House and Senate Dems have also consistently embraced in recent months.  And that based on their wealth accumulation, their lack of income constraints relative to lower-income households, and known elasticities (high-income households’ response to tax changes),  job/growth impacts would be small.

After looking through the E&Y study, I didn’t find anything to convince me otherwise.  First off, E&Y quite conspicuously fail to simulate what it is the president is proposing, so their main findings shouldn’t be considered in evaluating his proposals.  Second, when they get a little closer to what he is proposing, they find it adds jobs.

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