● Scarcity: Why Having Too Little Means So Much
By Sendhil Mullainathan and Eldar Shafir
Audio interview with co-author Sendhil Mullainathan via Marketplace
At first blush, there is little in common between a Harvard economics professor who’s very busy and a poor person from India, struggling to simply put food on the table. But according to Sendhil Mullainathan, the Harvard economist, what they have in common is an idea: Of scarcity. “Both of us are touching on the exact same psychology,” Mullainathan says. “There is actually something primitive that happens to the human brain when experiencing very little.” In a book he’s written, with Eldar Shafir, about this topic, called “Scarcity: Why Having Too Little Means So Much,” Mullainathan says that scarcity can focus the mind. “Everyone has had the experience of two weeks left to do something, and you doddle,” he adds. “One day left to do something, wow, you are focused.” He says this same focus applies to people with limited money. “They become incredibly focused on every little dollar, every little penny,” he says.
An Unexpectedly Weak Jobs Report For August, But Moderate Growth Trend Still Prevails
Private payrolls increased in August by 152,000 vs. the previous month, a gain that was unexpectedly low. Once again the latest macro data point dispensed a surprise, which is typical. This time it disappointed the crowd, and by more than a trivial degree. Some analysts will jump on the news as a dark sign. It may prove to be… in time. But the fact remains that private payrolls continued to rise by 2%-plus on a year-over-year-basis through last month. That’s in line with the annual pace we’ve seen in recent months. In fact, each of the last three monthly updates for private payrolls show annual growth rates of 2% or better—the best consecutive trio of annual changes since last year’s fourth quarter. In other words, nothing much has changed. The private sector is still creating jobs on a net basis and at the rate that’s prevailed for much of this year. If anything, the rate has improved a touch.
The Past-Performance-Is-Bunk Warning Isn’t Quite Right
The topic of past performance, and how to think about it, requires some clarification. There are a lot of folks who advise us that we should ignore historical performance. It’s worthless, they argue. Case closed. I understand the motivation to embrace this extreme form of skepticism since it springs from a crucial problem in the wider world. Indeed, many investors look at a hot hand for a mutual fund manager, for instance, and blindly assume that they can easily join the party and reap the rewards. All too often that’s an assumption that’s destined for disappointment. But that’s not the same thing as saying that historical returns provide no value for projecting, analyzing and modeling expected returns.
US Nonfarm Private Payrolls: August 2013 Preview
Private nonfarm payrolls in the US are projected to increase by 207,000 (seasonally adjusted) in tomorrow’s August update from the Labor Department, according to The Capital Spectator’s average econometric point forecast. The projected gain is substantially higher than the reported increase of 161,000 for July. Meanwhile, The Capital Spectator’s average August projection is well above a pair of consensus forecasts, based on surveys of economists.
More Of The Same For Private Payrolls: Moderate Growth
Private payrolls increased at a relatively slow pace last month, rising by a net 176,000 in August vs. the previous month, according to the ADP Employment Report. As expected, the August gain was below July’s revised 198,000 increase. Meanwhile, the Labor Department’s latest weekly update on initial jobless claims brings better news: new filings for unemployment benefits dropped 9,000, falling to 323,000 in seasonally adjusted terms, which is near a 5-year-plus low. Yes, it looks like a mixed bag for updates on the labor market today. In fact, the news is a bit better than it appears once we focus on year-over-year trends.
Mr. Market Reconsiders Disinflation/Deflation Risk
Inflation expectations have fallen moderately this year, but the stock market has trended higher. Is this a sign that the new abnormal is history?
Macro-Markets Risk Index | 9.4.2013
The US economic trend has weakened a bit in recent weeks, but remains well above levels that signal imminent danger, based on a markets-based profile of macro conditions. The Macro-Markets Risk Index (MMRI) closed at 9.7% on Tuesday, September 3—a level that suggests that business cycle risk remains low. Although the latest 9.7% value is near the lowest readings of the year so far, it’s still well above the danger zone of 0%. If MMRI falls under 0%, that would be a sign that recession risk is elevated. By comparison, readings above 0% imply a bias for economic growth.
August ISM Index: Mfg. Expands At Fastest Pace In 2 Years
The US economic profile for August is still largely a mystery, but today’s update on the ISM Manufacturing Index offers an early clue for thinking that last month will remain firmly in the growth camp. The composite value for this widely followed benchmark inched higher last month to 55.7, the highest in more than two years. Although the gain surprised many analysts, my econometric modeling left room for thinking that we could see another decent report, as last week’s ISM preview noted. Surprising or not, today’s ISM news implies that the upbeat macro trend in July will roll on in August once all the numbers are published.
Major Asset Classes | August 2013 | Performance Review
August was a rough month for the major asset classes, with one key exception: commodities. The DJ-UBS Commodity Index popped 3.4% last month. Otherwise, red ink was the dominant theme. In fact, positive performance has become scarce on a year-to-date basis as well. US stocks are still bucking the trend, however, with a strong 17% rise in 2013 through the end of last month, based on the Russell 3000. Meanwhile, the Global Market Index (GMI), a markets-weighted, unmanaged mix of all the major asset classes, retreated 1.6% in August, which trimmed its year-to-date gain to a middling 4.9%.
Labor Market Trends As Of Labor Day
It’s Labor Day in the US, which means that the financial markets are closed and employment activity is at a minimum on the first Monday of September. The lull is the perfect excuse to briefly review where we stand on several key indicators for the labor force before retiring for the rest of the day with some R&R.