Chart of the Day

– The Congressional Budget Office released its assessment of the Senate Gang of Eight’s immigration reform bill, including this chart showing that the proposal would boost gross domestic product by 3.3% in 2023 and by 5.4% in 2033.

Matthew Yglesias: “In the next ten years you’d have about a $700 billion decrease in deficits. And that’s all without raising taxes or cutting spending on useful programs… This is not, I think, remotely on the political agenda but it occurs to me that in principle this could be the non-tax-hiking, non-welfare-state-gutting sequestration replacement America has been waiting for.”

Chart of the Day

– Gavyn Davies looks at the recent surge in “short rates” 3 to 5 years our (in green, purple, and light blue), arguing that “the Fed has lost control of the ‘instantaneous’ rates which are built into the shape of the yield curve.”

“The problem is that, once the market starts to believe that the Fed is ‘done’, it will inevitably start to build into the yield curve a rising probability that the FOMC will embark on a normal path of tightening before too long… The Fed has of course said that it will keep short rates at near zero until the unemployment rate has fallen to 6.5 per cent, subject to projected inflation remaining under 2.5 per cent. One way of forcing home the message that this will not happen soon would be to reduce the unemployment threshold to 6.0 per cent.”

Cullen Roche pushes back against recent reporting on “surging” interest rates: “People who don’t understand the monetary system are still making the same old tired ‘bond vigilante’ argument… Stop panicking.  Things aren’t nearly as bad as they want you to think.”

Chart of the Day

– The New York Times charts the spike in college graduates in the US in the wake of the Great Recession, after “more than two decades of slow growth in college completion, which caused the United States to fall behind other countries.”

“The increases appear to be driven both by a sharp rise in college enrollment and by an improvement among colleges in graduating students.”

Matthew Yglesias: “This brings a more precise datapoint to bear on an argument I made last year about why I don’t agree with people who say we’ve had stagnating living standards for the past 40 years… And it’s true that published inflation-adjusted wage and income series appear to show substantial stagnation. But if you look at actual quantities consumed it’s very hard to see where this stagnation is happening.”

“We’ve increased our consumption of goods and services, men work fewer hours per year than they used to, and women have more career opportunities. There are a lot of problems, but the trajectory is positive even in the ‘technological frontier’ countries.”

Chart of the Day

– Jordan Weissman highlights a chart from an Economic Policy Institute report showing that the ratio of unemployed people to job openings — 3.1 to 1 — is still higher than the ratio’s peak after the last recession.

“There are a couple of broader points about these numbers… First: Even if there are jobs to be had, there are still far, far more job hunters vying for them than is normal. Pre-recession, the ratio of jobless to job openings was less than 2-to-1.”

“Second: As of now, there are more job hunters than job openings in every single major industry sector… the across the board surplus suggests that ‘the main problem the labor market is a broad-based lack of demand for workers,’ not a lack of able applicants.”

Chart of the Day

– Matthew Boesler charts the recent spike in the yield for 10-year Treasury Inflation-Protected Securities (TIPS), which have entered positive territory for the first time since January 2012 and represent the rapid rise in inflation-adjusted interest rates in the US.

“For the first time in years, real interest rates are rising rapidly in America, leading to strength in the U.S. dollar – which is causing currencies around the world to crumble… Bond markets across both the developed and the emerging worlds are selling off as rising interest rates in the U.S. make American government debt a more attractive investment.”

“And while the rise in real rates is likely a sign of good things to come, right now, it’s causing jitters over the prospect of the removal of monetary stimulus from the market by the Federal Reserve.”

Karl Smith believes this represents a “large expected decrease in household savings presumably as consumption rises.”

“This would be an increase in domestic consumption. However, not a an increase that’s strong enough to raise inflation expectations… we may be seeing a supply-side boost from easing commodity prices. A casual look across the board at energy, primary metals, petrochemicals and agricultural yields suggests that such a boost is a upon us… In that scenario we would expect to see the labor force rise and unit labor costs to accelerate, but overall cost growth to be mild because declining materials costs.”

Chart of the Day

– Walter Kurtz looks at the effects of the recent spike in mortgage interest rates, as they reach highs last seen in early 2012.

“So far the only effect we are seeing is a decline in refinance activity – which has always been volatile. The Purchase Index however continues to show elevated mortgage activity that results from house purchases. The markets are also not anticipating the mortgage rate increases to have a major impact on the housing sector. Homebuilder shares, having taken a bit of a beating in recent days, are still massively outperforming the broader indices.”

“Some analysts are warning however that if the 30-year mortgage rate rises above 4.5%, all bets are off and the housing market will begin to feel the effects.”

Chart of the Day

– Walter Kurtz maps the various assets that the Federal Reserve has acquired since August 2007 in its efforts to prop up the US economy and spur an economic recovery.

Some of the key moments labeled in the graph:

“4. All hell breaks loose as the Fed is forced to ramp up TAF and the Central Bank Liquidity Swap Facility (as foreign banks desperately need dollars). The Fed also launches the Commercial Paper Funding Facility (CPFF). Among other reasons, CPFF was meant to help corporations like GE Capital, who relied heavily on commercial paper funding and were beginning to have trouble rolling debt.”

“6. QE1 (treasuries and agency MBS). Shortly after, the TALF program was launched (relatively small impact to the balance sheet).”

“7. QE2 (treasuries).”

“9. QE3 (treasuries and agency MBS).”

Chart of the Day

– Matthew Yglesias pulls out these charts from a report by the Center for American Progress “showing that the medium-term debt and deficit projects look very different in the spring of 2013 than they did back in 2010 when the ‘pivot’ to deficits began.”

“But the point is that the actual deficit and debt situation is totally different from the situation that obtained at the time the Simpson-Bowles Crew was first unleashed upon the universe, and yet the political dialogue on the subject doesn’t seem to have changed at all… because the elites steering the discourse don’t care, even slightly, about deficits or debt.”

“And guess what we haven’t done during this era of changing projections? We haven’t cut Social Security benefits. We haven’t raised the age at which people become eligible for Medicare. We’ve done things to reduce budget deficits, in other words, but we haven’t really acted to make it tougher for people to retire.”

Chart of the Day

– USA Today looks at the continued efforts to implement the Dodd-Frank financial reform law, as regulators gradually finalize regulations to curb the abuses that led to the financial crisis, often well past the deadline in the law.

“Nearly 63% of those deadlines were missed, while just over 37% were met with finalized rules… The update also showed regulators haven’t issued proposals for 64 of the 175 rules with missed deadlines.”

“The White House and Congress didn’t streamline or consolidate the regulatory agencies in charge of Dodd-Frank rule-making. Some provisions require approval of multiple agencies, whose members at times disagree on legal points and nuances. Some of the disagreements have delayed changes for weeks or months.”

Chart of the Day

– Felix Salmon observes that while banks’ overdraft fee revenue has declined since the passage of the Dodd-Frank financial reform law in 2010, which included a provision preventing banks from automatically signing up account-holders for large overdraft fees, “the drop-off in overdraft income was relatively modest.”

“This, it seems to me, is a clear failure of behavioral economics — or, to put it another way, shows the degree to which a determined corporation can circumvent rules designed to prevent fee-gouging… it looks like all of the reforms did little more than to force a temporary  setback in terms of banks’ overdraft-fee income. The regulators, it seems, have lost again.”

Chart of the Day

– Matthew Yglesias calls this chart of private spending on health care-related construction his “favorite datapoint to indicate that the health spending slowdown of the past few years is likely to persist into the future.”

“The reason isn’t that construction spending is such a high portion of where health care dollars go. It’s that in just about any industry, expansion and the acquisition of real estate go hand in hand… If investors were anticipating an accelerating pace of health care spending, they’d be increasing their level of spending on building the facilities to service those clients. Instead things are basically flat.”

Chart of the Day

– Pawel Morski provides a humorous, yet insightful flow chart explaining why all roads leads to quantitative easing, even if it isn’t the optimal policy solution.

“Politics suddenly looks pretty primary here: fiscal stimulation and liquidating the banks are apparently off the table, to the symmetrical disgust of Keynesians and Austrians. It’s easy for those close to the financial system to lose sight of this, and fail to ask the big question of why. So mysteriously we’re left with the only stimulus route which as a design feature favours those who already own assets, and even more those who own those assets via leverage.”

“There’s plenty to object to about QE… But, absent a revolutionary political change, QE (and its lesser cousins, OMT and LTRO)  are the only game in town… given a choice between zombies with and without QE, I beleive evidence strongly supports the former.”

Chart of the Day

– The Wall Street Journal points out that while rising home prices “have already ignited new talk of a housing bubble. Don’t believe it.”

“Some regions are seeing a surge of housing demand amid extremely low interest rates and investors searching for opportunities. And it is true that some regions are up more than 25% from their bottom. But…none of the 20 cities tracked by the Standard & Poor’s Case-Shiller home-price indexes is back to its peak level.”

Chart of the Day

– Bill McBride shows how public sector employment has differed across the last five presidents, showing that government jobs have declined more under President Obama (in blue) than even under former President Ronald Reagan.

“A few months into Mr. Obama’s second term, there are now 2,582,000 more private sector jobs than when he took office… However the public sector has declined significantly since Mr. Obama took office (down 739,000 jobs). These job losses have mostly been at the state and local level, but they are still a significant drag on overall employment.”

“A big question is when the public sector layoffs will end.  It appears the cutbacks are mostly over at the state and local levels, but there are ongoing cutbacks at the Federal level.”

Chart of the Day

– With the recent collapse of the I-5 bridge in Washington state, Brad Plumer highlights the rise and fall of infrastructure spending on US roads and highways, noting that “States and local governments are the biggest part of the story here.”

“They’ve historically provided the vast majority of spending for roads, highways and bridges, and they’ve been pulling back on spending since 2008 as a result of the economic downturn and requirements to balance their budgets… At the same time, Congress hasn’t filled in the gap.”

“The big question is whether Congress should be spending more — and if so, how much? We’ve seen various reports arguing that America’s infrastructure is in dire need of an upgrade… These estimates don’t always take a full account of costs and benefits, but the I-5 collapse will no doubt give these groups more ammo.”

Chart of the Day

– FT Alphaville has this chart from Credit Suisse showing that according to just about any standard measure of inflation, the year-over-year rate of inflation is slowing down.

“Inflation is low and, according to every recent measure, it’s been falling. That’s pretty much all there is to it. As to the question of how much (or even whether) this disinflationary trend will influence policy, it’s hard to say.”

“Bernanke suggested…that he wasn’t so worried about it because inflation expectations have remained stable.”

Bonus Chart of the Day

– Joe Weisenthal notes an interesting similarity between the decline in the labor force participation rate (in blue) and the fall in per capita vehicle miles driven (in red).

“As you can see, per capita miles driven peaked just before the recession, and hasn’t recovered at all… It reminds us of the chart of the Labor-Force Participation Rate (the share of workers working or looking or work), which also started sliding before the recession, and hasn’t stopped sliding at all during the recovery.”

“There’s a logical connection between the two. Not in the workforce? You’re less inclined to drive.”

Chart of the Day

– Walter Kurtz charts the difference between total corporate debt (in black) and total net corporate debt (in gray) to demonstrate how low risk tolerance and low interest rates are combining for potential future instability.

“Corporate treasurers’ risk tolerance remains low as they prefer to hold record amounts of cash on their balance sheets… This is taking place at the time when companies have issued record amounts of debt to take advantage of ridiculously low rates. Increasingly however the proceeds of those bond sales and other borrowings sit in cash. The difference between total and net debt…is cash.”

“Markets are betting that some of this cash will ultimately turn into stock buybacks or dividends. Shareholders are certainly demanding it. Over time that will leave some of these firms more leveraged, and unless they ‘grow into’ this debt, more vulnerable to downturns.”

Chart of the Day

– The Los Angeles Times looks at how the national divide over the Medicaid expansion in President Obama’s health care reform law will exacerbate disparities in health care results.

“With nearly every GOP-leaning state on track to reject an expansion of the government health plan for the poor, the healthcare law’s goal of guaranteed insurance will become a reality next year mostly in traditionally liberal and moderate states. These states already have higher rates of health coverage.”

Chart of the Day

– Karl Smith charts just how decent the recovery in private employment (in blue) has actually been in the wake of the Great Recession.

“To beat a dead horse for just a second, there is a good chance, that the notch you see just after 2012 will be straightened out after the benchmark revision and total employment in the US will be revised higher. More importantly, this nearly V-shaped recovery in jobs is a heck of a lot better than what you saw after the Dot-Com bust.”

“The problem is three-fold. 1) This ression was just really, really bad. So, even a sharp recovery doesn’t make everything feel ok. 2) The private sector barely recovered from Dot-Com before it got whacked. So part of what you feel is the suckage of going on 12 years of sub-par job growth. 3) The public sector is a total different story.”

Chart of the Day

– Cullen Roche charts the large de-leveraging effort by households in the wake of the Great Recession, pointing out that the Federal Reserve Bank of New York’s latest quarterly report on household debt shows that de-leveraging is about to end.

“Technically, it’s still a de-leveraging, but this is a story about gradual improvement. And this de-leveraging has essentially slowed to a trickle at this point and is likely to turn positive in the coming quarters. I wouldn’t declare the Balance Sheet Recession in the USA over, but its impact is certainly waning.”

Chart of the Day

– Bill McBride revises his famous chart of percent job losses in all post-World War II recessions and recoveries, including the Great Recession (in red) with projected growth based on the current rate of hiring.

“This suggests that employment will exceed the pre-recession peak around July 2014 (Private employment will reach a new high around March of 2014). Of course…this doesn’t include adjusting for population growth – but this will still be a major milestone… about 78 months after the previous high.”

Chart of the Day

– Mark Perry charts the rise in US oil production over the past two years, calling it “one of the strongest reasons to be optimistic about the US economy.”

“In just the last two years, oil production in “Saudi America” has increased by almost 1.8 million barrels per day (and by 37.5%), from about 5.6 million bpd in May 2011 to 7.37 million bpd last week, and has completely reversed several decades of declining US oil output.”

FT Alphaville has a note of caution: “That said, the analysts are still cautious. For one, Opec does have the capacity to cut production. Secondly, the US cannot export its crude oil and Canada has few alternative options for its heavy bitumen supply other than the US market. There are also potential issues with maintaining those production rates… The message being… North America may find it harder to benefit from the supply boom than you might expect.”

Chart of the Day

– Matthew Yglesias pulls this chart out of a presentation by Congressional Budget Office Director Doug Elmendorf showing the breakdown of federal spending (in shades of blue) and revenue (in green) as a percentage of gross domestic product (GDP) in the 40-year average, in 2012, and projected in 2023.

“As you can see, we’re set for a large increase in spending on the elderly and a substantial increase in spending on debt service. But this isn’t going to crowd out the government’s other domestic functions. It’s going to lead to slightly higher taxes.”

“But this is the thing that keeps not getting focused on in budgetary debates… one of the biggest sources of short-term and medium-term austerity in the pipeline comes from reduced military spending… If the sequestration cuts to the Pentagon budget are really harming national security, then it’s truly perverse of Republicans to be so opposed to a tax component to sequester repeal.”

Chart of the Day

– The New York Times shows how the recent economic growth and positive jobs report actually masks a much different picture for anyone who doesn’t have a college degree.

“Among all segments of workers sorted by educational attainment, college graduates are the only group that has more people employed today than when the recession started… In some cases, employers are specifically requiring four-year degrees for jobs that previously did not need them, since companies realize that in a relatively poor job market college graduates will be willing to take whatever they can find.”

“In other words, workers with four-year degrees have gobbled up all of the net job gains. In fact, there are more employed college graduates today than employed high school graduates and high school dropouts put together.”