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Hutchins Roundup: Unions, Inflation Dynamics, and More

What’s the latest thinking in fiscal and monetary policy? The Hutchins Roundup keeps you informed of the latest research, charts, and speeches. Want…

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By Lorena Hernandez Barcena, Eric Milstein, David Wessel

What’s the latest thinking in fiscal and monetary policy? The Hutchins Roundup keeps you informed of the latest research, charts, and speeches. Want to receive the Hutchins Roundup as an email? Sign up here to get it in your inbox every Thursday.

Unions and the Phillips curve

Declines in worker bargaining power since the 1980s may have contributed to the weakening of the Phillips curve relationship between inflation and unemployment, find David Ratner and Jae Sim of the Federal Reserve Board. A theoretical model in which trade unions seek to increase their wages and share of production rents through collective bargaining predicts that reduced worker bargaining power leads to a flatter Phillips curve, lower inflation volatility, and a decline in the labor share of income. Estimating their model using U.S. and U.K. data, the authors find that worker bargaining power declined significantly in the post-Reagan and post-Thatcher eras.  They also find that inflation is less sensitive to unemployment in U.S. cities and states with lower union density. The authors argue that the view that monetary policy is the primary driver of the decline in the Phillips curve may not sufficiently account for structural changes in the labor market.

Inflation dynamics differ from the 1960s

The 1960s carry few lessons for the current inflation situation because the economic environment was so different, explains Jeremy Rudd of the Federal Reserve Board. For example, one-time shocks to inflation and labor costs were highly persistent during the 60s, dynamics which are no longer present. He also notes that the Phillips curve relationship – the link between unemployment and inflation – was strong prior to the mid-1960s inflation surge but has since weakened. Rudd proposes several reasons why the Fed was behind the curve in the 60s, including its overreliance on model forecasts and unobservable variables, its belief that tightening could be achieved through fiscal policy, its aversion to inducing economic hardship, and its lack of institutional independence. However, he is skeptical of traditional explanations that point to a regime change in the behavior of inflation in the mid-1960s, instead arguing that the above factors were already in place at the beginning of the decade. While Rudd is optimistic that such features are no longer present, he says, “our understanding of how the economy works—as well as our ability to predict the effects of shocks and policy actions—is in my view no better today than it was in the 1960s.”

UK firms incorporated during COVID more likely to dissolve within a year

During the COVID-19 recession, there was an increase in new firms in the U,K. and many other advanced economies, a highly atypical occurrence during recessions. Saleem Bahaj and Sophie Piton of the Bank of England and Anthony Savagar of the University of Kent find that in the U.K. these new firms were more likely than preexisting firms to be online retailers and to be founded by solo entrepreneurs starting their first business, and were quicker to post job vacancies following their creation. However, they also find that firms established during the pandemic are almost twice as likely to dissolve within a year than firms that entered pre-COVID. The rate of dissolution is smaller for firms with shareholders and higher for solo entrepreneur firms. The authors warn that the rising number of dissolutions could wipe out the positive effects of firm entry on job creation.

Chart of the Week: CBO releases new projections

Quote of the week:

[T]he environment facing monetary policy today has changed significantly from that which we confronted before the pandemic. The tools we were deploying at that time, aimed at combating persistent too-low inflation, are no longer appropriate. But we are also not facing a straightforward situation of excess aggregate demand: in fact, supply shocks are raising inflation and slowing growth in the near term. This means that policy normalization has to be carefully calibrated to the conditions we face,” says Christine Lagarde, President of the European Central Bank.

“The next step in rate normalization will involve following through with our forward guidance on ending net asset purchases and on rate lift-off. If we see inflation stabilizing at 2% over the medium term, a progressive further normalization of interest rates towards the neutral rate will be appropriate. But the speed of policy adjustment, and its end point, will depend on how the shocks develop and how the medium-term inflation outlook evolves as we move forward.”

 

 

The Brookings Institution is financed through the support of a diverse array of foundations, corporations, governments, individuals, as well as an endowment. A list of donors can be found in our annual reports published online here. The findings, interpretations, and conclusions in this report are solely those of its author(s) and are not influenced by any donation.

 

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Economics

Expert on Bath & Body Works: ‘an easy double the next three years’

Bath & Body Works Inc (NYSE: BBWI) might have been painful for the shareholders this year, but the road ahead will likely be a rewarding one, says…

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Bath & Body Works Inc (NYSE: BBWI) might have been painful for the shareholders this year, but the road ahead will likely be a rewarding one, says the Senior Vice President and Portfolio Manager at Westwood Group.

BBWI separated from Victoria’s Secret

The retail chain separated from Victoria’s Secret in 2021, which, as per Lauren Hill, clears the way for a 100% increase in the stock price in the coming years. On CNBC’s “Closing Bell: Overtime”, she said:

[Bath & Body Works] has really strong pricing power. They have 85% of their supply chain in the United States and with the Victoria’s Secret brand now gone, I think it’s a wonderful buy; an easy double the next three years.

Last month, the Columbus-headquartered company reported results for its fiscal first quarter that topped Wall Street expectations.

Bath & Body Works is a reopening play

The stock currently trades at a PE multiple of 6.64. Hill is convinced Bath & Body works is a reopening name and will perform so much better as the world continues to pull out of the pandemic. She noted:

Customers have missed buying their scented products in store and as their social occasion calendars fill up, they are getting back out there and buying more gifts, including Bath & Body Works products.

Hill also dubbed BBWI a great pick amidst the ongoing inflationary pressures because of its reasonably priced products. Shares are down more than 50% versus the start of 2022.

The post Expert on Bath & Body Works: ‘an easy double the next three years’ appeared first on Invezz.

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Economics

Majority Of C-Suite Execs Thinking Of Quitting, 40% Overwhelmed At Work: Deloitte Survey

Majority Of C-Suite Execs Thinking Of Quitting, 40% Overwhelmed At Work: Deloitte Survey

Authored by Naveen Anthrapully via The Epoch Times,

A…

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Majority Of C-Suite Execs Thinking Of Quitting, 40% Overwhelmed At Work: Deloitte Survey

Authored by Naveen Anthrapully via The Epoch Times,

A majority of C-suite executives are considering leaving their jobs, according to a Deloitte survey of 2,100 employees and C-level executives from the United States, Canada, the UK, and Australia.

Almost 70 percent of executives admitted that they are seriously thinking of quitting their jobs for a better opportunity that supports their well-being, according to the survey report published on June 22. Over three-quarters of executives said that the COVID-19 pandemic had negatively affected their well-being.

Roughly one in three employees and C-suite executives admitted to constantly struggling with poor mental health and fatigue. While 41 percent of executives “always” or “often” felt stressed, 40 percent were overwhelmed, 36 percent were exhausted, 30 percent felt lonely, and 26 percent were depressed.

“Most employees (83 percent) and executives (74 percent) say they’re facing obstacles when it comes to achieving their well-being goals—and these are largely tied to their job,” the report says. “In fact, the top two hurdles that people cited were a heavy workload or stressful job (30 percent), and not having enough time because of long work hours (27 percent).”

While 70 percent of C-suite execs admitted to considering quitting, this number was at only 57 percent among other employees. The report speculated that a reason for such a wide gap might be the fact that top-level executives are often in a “stronger financial position,” due to which they can afford to seek new career opportunities.

Interestingly, while only 56 percent of employees think their company executives care about their well-being, a much higher 91 percent of C-suite administrators were of the opinion that their employees believe their leaders took care of them. The report called this a “notable gap.”

Resignation Rates

The Deloitte report comes amid a debate about resignation rates in the U.S. workforce. Over 4.4 million Americans quit their jobs in April, with job openings hitting 11.9 million, according to the U.S. Department of Labor. In the period from January 2021 to February 2022, almost 57 million Americans left their jobs.

Though some are terming it the “Great Resignation,” giving it a negative connotation, the implication is not entirely true since most of those who quit jobs did so for other opportunities. In the same 14 months, almost 89 million people were hired. There are almost two jobs open for every unemployed person in the United States, according to MarketWatch.

In an Economic Letter from the Federal Reserve Bank of San Francisco published in April, economics professor Bart Hobijn points out that high waves of resignations were common during rapid economic recoveries in the postwar period prior to 2000.

“The quits waves in manufacturing in 1948, 1951, 1953, 1966, 1969, and 1973 are of the same order of magnitude as the current wave,” he wrote. “All of these waves coincide with periods when payroll employment grew very fast, both in the manufacturing sector and the total nonfarm sector.”

Tyler Durden Sat, 06/25/2022 - 20:30

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Spread & Containment

Optimism Slowly Returns To The Tourism Sector

Optimism Slowly Returns To The Tourism Sector

Coming off the worst year in tourism history, 2021 wasn’t much of an improvement, as travel…

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Optimism Slowly Returns To The Tourism Sector

Coming off the worst year in tourism history, 2021 wasn't much of an improvement, as travel remained subdued in the face of the persistent threat posed by Covid-19.

According to the United Nations World Tourism Organization (UNWTO), export revenues from tourism (including passenger transport receipts) remained more than $1 trillion below pre-pandemic levels in 2021, marking the second trillion-dollar loss for the tourism industry in as many years.

As Statista's Felix Richter details below, while the brief rebound in the summer months of 2020 had fueled hopes of a quick recovery for the tourism sector, those hopes were dashed with each subsequent wave of the pandemic.

And despite a record-breaking global vaccine rollout, travel experts struggled to stay optimistic in 2021, as governments kept many restrictions in place in their effort to curb the spread of new, potentially more dangerous variants of the coronavirus.

Halfway through 2022, optimism has returned to the industry, however, as travel demand is ticking up in many regions.

You will find more infographics at Statista

According to UNWTO's latest Tourism Barometer, industry experts are now considerably more confident than they were at the beginning of the year, with 48 percent of expert panel participants expecting a full recovery of the tourism sector in 2023, up from just 32 percent in January. 44 percent of surveyed industry insiders still think it'll take until 2024 or longer for tourism to return to pre-pandemic levels, another notable improvement from 64 percent in January.

Tyler Durden Sat, 06/25/2022 - 21:00

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