Sunday, July 31, 2005

Really scary numbers

The July employment report arrives on Friday and these things often move markets. They also move policy makers. Then there is all of the speculation of how markets guess policy makers will respond -- and vice-versa.

In all of the talk of Alan Greenspan's succession, one WSJ op-ed ended by posing the rhetorical question: when Greenspan leaves, would we rather have his computer or his frontal lobe? The writer preferred the latter.

Who processes which tea leaves and how do they do it? Rote reactions to low unemployment as signaling "overheating" have often been blamed for an overeagerness by the FOMC to "step on the brakes".

This week's Economist shows OECD data on long-term unemployment, the proportion of those unemployed for 12 months or longer as a percent of total unemployment in 2004. The U.S. is near the bottom (top) with a proportion that appears to be just over 10%; only Norway, Canada, Iceland and New Zealand have lower proportions. It is the other tail that is revealing. Japan, Ireland, Spain, France, Hungary, Belgium, Italy, Germany and Greece all had proportions over one-third.

Of all the things that should get policy makers' (and market participants') attention, this index should be high on the list.