Jobless claims dip to 210,000. Layoffs show no sign of rising.

 The number of Americans who applied for unemployment benefits last week fell slightly to 210,000 and continued to show a surprisingly low level of layoffs in the economy.

Economists polled by the Wall Street Journal had forecast new claims to total 213,000 in the seven days ending March 16, based on seasonally adjusted figures.

New jobless claims have ranged from 194,000 to 225,000 a week in the first three and a half months of 2024, an extremely low level from a historical perspective.

The Dow Jones Industrial Average DJIA and S&P 500 SPX were set to open higher in Thursday trading.

The bank's monetary policy committee decided to raise the policy rate from 45 percent to 50 percent, with a statement citing "the deterioration in the inflation outlook".

The central bank had declared that its hike in January would be its last as the level was sufficient to start easing the cost-of-living crisis.

But annual inflation rose again in February, reaching 67.1 percent.

The bank had kept its interest rate unchanged in February after having raised it from 8.5 percent to 45 percent since June.

The central bank said Thursday that its "monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen".

"Hugely positive move" by the central bank hiking against expectations, emerging markets economist Timothy Ash remarked in emailed comments.

He said it showed the economy team led by Finance Minister Mehmet Simsek and the central bank has been given "a strong mandate to do whatever it takes to fight inflation."

"They are proving their independence now," Ash commented.

-'Encouraging signal'-

Economists say pressure on Turkish policymakers is building ahead of local elections on March 31 as capital inflows have slowed and foreign exchange reserves are falling again.

The economic crisis nearly cost Erdogan his re-election last May.

He won after showering his supporters with massive pay increases and introducing an early retirement program that cost the government billions of dollars.

Inflation is a thorn in the side of President Recep Tayyip Erdogan in the run-up to the elections as his ruling AKP party is seeking to win back control of major cities, especially Istanbul, currently held by the main opposition party.

In a public rally in western Turkey on Wednesday, Erdogan admitted that high inflation was a challenge for the government.

"Today we are tested by the high cost of living and as a result the loss of welfare of our people with fixed income," he said.

But he assured that as inflation slows down, employees and pensioners would benefit from the positive outlook in the economy.

"We will overcome all these," he said.

Liam Peach, senior emerging markets economist at Capital Economics, said Thursday's decision left open the possibility of another rate hike in April with the potential for a faster pace of lira depreciation after the local elections and strong inflation.

Peach suggested that the bank has burned through billions of dollars of foreign currency reserves in recent months to stabilize the lira.

"From that perspective, there are some question marks. But even so, the decision to respond so quickly to the recent strong inflation figures and hike rates before the local elections is clearly a very encouraging signal for the policy shift," he said.

I care about economic inequality. I teach a class on it. I wrote a book about it. Yet, recently, two different arguments have popped up with a seemingly similar conclusion: economic inequality hasn’t risen as much as conventional wisdom would suggest.

While these two arguments have the same implication, they look at vastly different ends of the income distribution. 

The first focuses on the bottom 20 percent of households by income and suggests an actual reduction in inequality. The point is that through increased government transfers, the bottom has actually caught up to the middle over the last 40 years. The second argument focuses on the top 1 percent of the income distribution. It argues that estimates of the top 1 percent’s share of income make assumptions that may overstate that share’s growth and thus the growth of inequality.

I don’t necessarily disagree with either of these arguments. Over the last 50 years, the social safety net has expanded in ways that reduce poverty and benefit the bottom 20 percent relative to the middle. And, because most surveys of household finances miss out on the top 1 percent, calculating their share of income is hard. It requires assumptions, and those assumptions will yield different estimates of growth. While I don’t profess to know which group is right — the one saying lots of growth or the one saying less — I know enough to admit that I don’t know.

So, if I don’t disagree with these arguments, then why am I writing this? Because I think a focus on the poles of income distribution distracts from the real story: the stagnation of the middle over the last 50 years. Sure, the bottom has caught up to the middle partially because of government programs. But, the other part of the story is the bottom has also caught up because the middle hasn’t seen much income growth at all.

The figure below illustrates this point. It shows how GDP per capita, the median earnings of female versus male full-time workers, and the median income of Black versus white households have grown since 1975. While per capita income in the U.S. nearly doubled over this period, the same can’t be said for anyone in the middle. 

The median working man saw his real income decline. And, while the median working women saw increases, this is largely because their education and work experience expanded rapidly. In any case, despite these gains, they still couldn’t keep up with the economy’s growth nor catch up completely to men — the gender wage gap today sits around 83 percent.

At the household level, things aren’t great either. Median income for white households grew about 25 percent. Black households saw even less growth. That’s right, since 1975, the Black-white household income gap has grown. And while those making the first argument above could fairly point out that my numbers do not account for non-cash safety net programs like food stamps or Medicaid, the median household isn’t getting these programs anyway.

All series are real and adjusted for inflation using the CPI-U relative to 2021. Earnings and household income focuses on those ages 25-54.

Source: Data on GDP Per Capita and on the CPI-U come from Federal Reserve Economic Data (FRED). Data on median household income and individual earnings are the author’s calculations from the University of Minnesota’s Integrated Public Use Microdata Series (IPUMS) version of the Current Population Survey.

These data contain questions about the economy that demand answers. Why aren’t labor markets providing any economic growth for middle-earning men? Why haven’t middle-earning women — despite massive increases in human capital — been able to outpace the economy? Why are households not seeing much growth despite large increases in women’s earnings and labor force participation? And why did Black households actually lose ground?

Economists know the answers to some of these questions. Technologytrade, and the increased power of large businesses all likely play some role in holding down median wages. Women have to trade pay for flexibility due to caregiving responsibilities. The decline of marriage in the middle — at least partially fueled by the economic performance of men — means fewer two-income households than would have occurred otherwise. Black households still face discrimination, a damaging human capital gap, and economic conditions that can make marriage tougher than it is for white households.

These issues demand some consideration. Should we plan for the impact of AI to prevent another four decades lost for middle earners? Would universal pre-K help kids do better and help moms work and earn more if they want? Do we want to change housing policy to improve opportunities for Black households to unstick the racial income gap? 

These conversations are worth having, but they won’t be had if people think incorrectly that the issue is settled.

When Hunter Morgan bought an optometry practice in Southern California three years ago, one of the first things he did was start seeing patients who use Medicaid — the government-funded health insurance program for low-income people.

The previous owners had not accepted patients on Medicaid, which covers roughly a third of California’s 39 million residents. But Morgan felt he had a responsibility to serve people in need.

Just five months later, Morgan said, he had to stop treating Medicaid patients because of the paltry pay. He charges $175 for eye exams, but the most he could get from Medicaid was about $40. That made it difficult to pay his staff and pricey rent in the upscale beach community of Encinitas, 25 miles (40 kilometers) north of San Diego.

“We couldn’t function that way,” he said.

California Gov. Gavin Newsom and his Democratic allies in the state Legislature have greatly increased the number of people on Medicaid, including all eligible adults in the state who are in the country without legal permission. But while California’s Medicaid now covers some 15 million people, the rates it pays to doctors have not kept up.

It has contributed to a crisis at some rural hospitals, some of which needed an emergency loan from the state Legislature last year to keep from closing. And it has made it harder for people enrolled in Medicaid to find doctors willing to treat them, forcing some to drive long distances to seek care.

Healthcare providers have been clamoring for California’s Medicaid program, known as Medi-Cal, to pay them more. But California doesn’t have extra money thanks to back-to-back multibillion-dollar budget deficits. To pay doctors more, Newsom and the state Legislature chose to raise taxes — but not in the way you might think.

Just about every state taxes things like hospitals, nursing homes, and ambulances to help pay for their share of Medicaid. Since 2005, California has taxed managed care organizations — the private companies that contract with the state to provide Medicaid benefits.

But unlike with most taxes, the companies don’t have to pay all of it. The state pays most of it for them, and then uses the money to trigger more federal payments for Medicaid. That means more money for everybody.

Last year Newsom signed a law that greatly increased this tax. It means the state will get $19.4 billion through 2026. On Thursday the Legislature is scheduled to vote to increase it again, generating an estimated $1.5 billion more.

“California is pulling every lever of government to increase access to affordable, high-quality health care across the state,” Newsom said in a statement to The Associated Press.

In the past, California has used that kind of surplus to balance its budget. But this time the state has vowed to use part of it to pay doctors more for treating Medicaid patients.

How much, and who will get it, will be fully decided this year. The first increases last year went to primary care doctors, maternity care, and some mental health services. This year’s increases, which have not yet been approved by the Legislature, would include things like obstetric, vaccine, and abortion services — and optometry.

For optometrists, Newsom is proposing to raise rates to match those paid by Medicare, the federal government’s health insurance program for people 65 and older. That could mean California’s roughly 8,000 licensed optometrists would get a lot more money for Medicaid patients — roughly $130 per exam instead of $47.

Healthcare providers have cheered these increases, but they’re still nervous. California’s budget deficits have only been growing.

“If things really did get bad, I think, they could use the money for other purposes,” said Kristine Schultz, executive director of the California Optometric Association.

Newsom already wants to change the tax increase he signed last year, which included $11 billion more to hike provider payments over five years. This year, because of the deficit, Newsom wants to use $8 billion for provider payments over four years. Providers would still get the same increase, but it would expire sooner.

Plus, the federal government must approve California’s tax on managed care organizations every three years. The Biden administration has signaled recently that it wants to reduce how much money states can collect, and that could force California to lower the tax in the future, cutting into its ability to continue paying doctors higher rates.

“It’s a real concern,” said Stuart Thompson, senior vice president for governmental affairs for the California Medical Association, during a recent public hearing before lawmakers. “We don’t want to create a scenario in which we have a program that goes for four years and then we reach the cliff.”

Republicans in the Legislature have criticized Newsom’s plan to raise the tax again. There is “no guarantee it stays in the health care space,” said Assemblymember Vince Fong, a a Republican and vice chair of the Assembly Budget Committee.

But Assembly Democrats appear to view the plan more favorably. Democrat Akilah Weber, chair of the budget subcommittee that oversees health care spending, said the deficit is requiring “some changes” but she remains committed to the rate increases.

An increase in optometrist payments would be good news for people in Fresno, a Central Valley city with a large population of low-income farm workers who are on Medicaid.

At one eye care practice in the city, Fogg Remington, Medicaid patients historically made up about 15% of clients. But it stopped accepting new Medicaid patients in January, citing low rates and a new law requiring healthcare workers to be paid at least $25 per hour.

Fogg Remington optometrist Dr. Anthony Chavez said that if California were to increase its rates, it would be a “no-brainer” to reverse that decision.

“We want to help these people,” Chavez said.

Britain's economy is "moving in the right direction" for the Bank of England to start cutting interest rates, Governor Andrew Bailey said as two of his colleagues dropped their vote for a rate hike.
The BoE's interest rate-setters voted 8-1 to keep borrowing costs at their 16-year high of 5.25% on Thursday as the two officials who had previously called for higher rates changed their stance.
Most economists polled by Reuters had expected one member of the Monetary Policy Committee to continue voting for an increase in Bank Rate.
But both Jonathan Haskel and Catherine Mann joined the majority in favor of no change. Swati Dhingra again cast the lone vote to cut the Bank Rate to 5.0%.
Governor Andrew Bailey said there had been "further encouraging signs that inflation is coming down" but he also said the BoE needed more certainty that price pressures in the economy were fully under control.
"We're not yet at the point where we can cut interest rates, but things are moving in the right direction," Bailey said in a statement.
The BoE decision follows the U.S. Federal Reserve's announcement on Wednesday that it remained on track for three interest rate cuts this year which sparked a global rally in stock markets.
The European Central Bank has tried to cool talk about a run of rate cuts for the eurozone that has gathered steam as investors increasingly consider the fight against global inflation to have been won.
The British central bank said in February it was putting its high borrowing costs "under review" - a phrase it kept on Thursday - but top officials have stressed they want to see more clear signs that inflation has been beaten.
Data on Wednesday showed consumer price growth fell to its lowest in almost two-and-a-half years.
However the BoE said key indicators of the persistence of inflation were still elevated. It also said Britain's labor market remained relatively tight despite some further loosening and signs that high borrowing costs were weighing on the economy.
Britain's headline inflation rate - which topped 11% in October 2022 and led to a historic living standards squeeze - remained the highest in the Group of Seven in February at 3.4%.
The BoE said it now expected inflation would drop below its 2% target in the second quarter due to the impact of Finance Minister Jeremy Hunt's decision this month to freeze fuel duty once again.
Overall, the measures in Hunt's March 6 budget statement were likely to increase economic output by about 0.25% over the coming years but would push up inflation by less, it said.
Most analysts and investors have said they think the BoE will only cut rates for the first time in the third quarter, probably at its August meeting.
But financial markets earlier on Thursday were putting a nearly 70% chance on the first cut in June with almost three quarter-point reductions priced in over 2024.
The central bank wants to see wage growth slowing further before making its move.
Britain's minimum wage will rise by nearly 10% next month, and retailers that often pay staff only slightly more have raised salaries ahead of the increase.
Employers overall have offered pay settlements of about 5% since the start of 2024. Average wage growth is about 6%, higher than about 4% in the United States and the eurozone.
As well as employers, mortgage-holders, and consumers, the ruling Conservative Party is also keen to see rates come down as it struggles to rein in the opposition Labour Party's strong lead in opinion polls with an election expected later this year.
Finance minister Jeremy Hunt took the unusual step of commenting on what Wednesday's inflation data might mean for the BoE, saying: "As inflation gets closer to its target that opens the door for the Bank of England to consider bringing down interest rates."
The BoE will not hold a press conference on Thursday as no new economic forecasts were due to be published.

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