Duke Research Advantage

“Only” 36,000 jobs lost in February. That is relatively good news. The storyline was the following. Given all the snow, we should have lost more jobs. 36,000 was a relatively good number because if there was no snow we would have seen growth. But we didn’t see growth. In addition, there is a lot riding on the March numbers which will be released April 2. Assuming no more snow, this argument predicts a big positive gain.

The real issue here is what the recovery will look like. Are we stuck in a quagmire of persistently high unemployment (the plank) or are we going to see a sharp rebound (the hockey stick).

I vote for the plank.

  Read the rest of this entry »

Using advanced tools to see the human brain at work, a new generation of marketing experts may be able to test a product’s appeal while it is still being designed, according to a new analysis by two researchers at Duke University and Emory University.

So-called “neuromarketing” takes the tools of modern brain science, like the functional MRI, and applies them to the somewhat abstract likes and dislikes of customer decision-making.

Though this raises the specter of marketers being able to read people’s minds (more than they already do), neuromarketing may prove to be an affordable way for marketers to gather information that was previously unobtainable, or that consumers themselves may not even be fully aware of, says Dan Ariely, the James B. Duke professor of psychology and behavioral economics at Duke.

In a perspective piece appearing online in the journal Nature Reviews Neuroscience , Ariely and Gregory S. Berns of Emory’s departments of psychiatry, economics and neuropolicy, offer tips on what to look for when hiring a neuromarketing firm, and what ethical considerations there might be for the new field. They also point to some words of caution in interpreting such data to form marketing decisions.

Neuromarketing may never be cheap enough to replace focus groups and other methods used to assess existing products and advertising, but it could have real promise in gauging the conscious and unconscious reactions of consumers in the design phase of such varied products as “food, entertainment, buildings and political candidates,” Ariely says.

“Neuromarketing: the hope and hype of neuroimaging in business,” Dan Ariely and Gregory S. Berns. Nature Reviews Neuroscience.

New work by Duke and University College London (UCL) researchers suggests that our response to disasters depends partly on the range of death tolls we are usually exposed to.

Millions of lives are lost around the world each year to accidents, terrorist attacks, wars, epidemics and natural disasters. What’s more, the prediction is that climate change will increase the number and intensity of some of these events.

Newly published research from suggests that the way people – whether members of the public or policymakers – react when faced with human fatalities is highly dependent on the distribution of death tolls they are typically exposed to.

The findings could have important implications for multi-lateral donors, national governments, aid agencies and the press in terms of planning for, fundraising for, reporting on and responding to such emergencies. Read the rest of this entry »

Risk has greatly increased this week. There are two reasons.

First, the Euro-bomb could explode anytime.

Second, the U.S. government dropped a bomb in telling us that the employment losses during the current recession are far worse than people had believed.

The Euro Bomb

The EU is in a lose-lose situation. If they rescue Greece, then other countries will have their hands out like Spain, Portugal, and Ireland. There could be others too. I doubt the main players (Germany and France) will have the stomach to bailout so many countries. The fundamental problem is that it is very difficult (near impossible) to have a currency union without a political union. While Euroland rules were established (size of deficit, government debt), they were (and are) routinely violated and there is no way to enforce – because of the lack of political union.

You create moral hazard problems. Countries will borrow and spend with the expectation that the system will bail them out. Sound familiar? If the large countries even marginally violate the rules (size of deficit, debt), then this energizes the smaller countries to brazenly violate the rules of the game.

If the EU does nothing, then the Euro will likely fall apart (or at least lose some member countries)

The real question is how deep Germany and France will want to reach into their pockets to keep the Euro going.

The Jobs Bomb

Unemployment dropped by 0.3% to 9.7%. Good news, right?

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Why don’t we just admit that the current financial and regulatory system is dysfunctional?

We face two fundamental problems.

First, we need to clean the financial system — close weak banks more aggressively, encourage bankruptcies/foreclosures, and free good assets held by poorly financed owners. Small and medium sized businesses with quality projects are not getting loans. This problem will not be solved by tax breaks or targeting some incentives. We need structural change.

Second, the current regulatory system failed us. It needs to change. Our system is comprised of three federal agencies: the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Reserve, as well as 50 state banking departments! I am not even including the Office of Thrift Supervision and all of the Savings and Loan Institutions nor the National Credit Union Administration which supervises all the credit unions.

There are state chartered banks as well as national chartered banks. As a result of the historical maze of changing regulations, we have over 7,000 banks. There is no economic reason for 7,000 banks. It is inefficient both for the bank in providing the lowest cost and highest quality services to their customers. It is a nightmare to regulate.

What is most alarming is that none of our leaders have stepped up with bold proposals to revamp our financial and regulatory system.

Read the rest of this entry »

The economy is in much more serious trouble than news reports, policy makers and pundits might lead you to believe.

The Spin

It is amazing that most jobs stories featured upfront the revision to November’s Non-Farm Payrolls. November was revised to +4,000 from the original -11,000. A net gain. However, October was revised downwards – a complete wash.

The fact is that we lost a surprising 85,000 Non-Farm Payroll jobs. A widely respected economic consulting group expected +50,000. The market expectation was about flat.

I am convinced the situation is much worse than we are led to believe.

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Professor Ralph Keeney is helping Freakonimics blog readers learn to make better decisions.  Check out the Freakonomics site for Keeney’s guidance on how to make good decisions and minimize regret.

There are two key questions: (1) is the improvement in the job picture sustainable and (2) if it is, how long will it take get back where we started in December 2007? While there is considerable disagreement in terms of general economic policies, most agree that jobs are the key to the economic recovery.

Summary of the release

In November, the Establishment Survey showed that only 11,000 jobs were lost. There were some favorable revisions to October and September data.

The BLS also reports Household Data and there can be big differences between the Household and Establishment Surveys. For example, October, the Establishment Survey showed a decrease in nonfarm payrolls of (revised) 111,000. However, the Household data suggested a staggering increase of 558,000 to the ranks of the unemployed. In November, the news was much better on the Household Survey. The Household Survey showed that unemployment decreased by 325,000.

To get the unemployment rate, you take the Household Survey unemployment (15.375 million) and divide by the civilian labor force (153.877 million) and you get 10.0% (actually, 9.9992% — so we technically lost the ten-handle!)

There was other good news. The all-in unemployment rate (U-6) dropped from 17.5% to 17.2%. Temporary hiring (a good leading indictator continued to increase (adding 52,400 to the rolls). Finally, the average work week increased by 0.2. This means more money in the pockets of consumers.

All of this is good. However, there are some issues (which I am sure you expect from me). Read the rest of this entry »

by Kevin Schulman

One of the most obscure organizations in the federal government is the U.S. Preventive Services Task Force which began in 1984. While convened by the government, the group is comprised of outside experts in medicine, health services research, and epidemiology.1 The task force’s job is to review the evidence around primary care services and to make recommendations to physicians about the quality of the evidence to support specific recommendations for what services should or should not be included as part of routine clinical practice.

The group’s efforts are very disciplined and scripted. Specific services are assessed on the basis of the risks and benefits to ascertain the potential “net benefit” to patients, with recommendations graded A through D (a grade of I means there is insignificant evidence to make a recommendation). A grade of A indicates high probability there is substantial benefit, B indicates high probability of moderate benefit or moderate probability of substantial benefit, C is a recommendation against a service with at least moderate evidence that the benefit is small, D is a recommendation against a service with a moderate or high evidence that there is no benefit or that the harms outweigh the benefits. The probability estimates in these statements are based on the quality of the evidence in the clinical literature on these topics.2

This group recently performed a periodic update of its 2002 recommendations for breast cancer screening.3 The task force conducted an evidence review to assess all of the new clinical studies on breast cancer screening since its last report, and it commissioned a decision analysis of different screening strategies for breast cancer to assess the net benefit or harm for each strategy.

Read the rest of this entry »

Amazing the difference one day makes in the employment outlook. Yesterday, the market shot up because “only” 512,000 applied for initial claims — down from 532,000 the previous week. We saw banners: “Employment Situation Improvement,” “We Have Turned the Corner”, and “Jobs Fuel Market Rally”.

Today we learn that 190,000 jobs were lost in October. That’s about 40,000 worse than widely expected. The unemployment rate rose to a 26 year high, 10.2%.

Understanding the numbers

For those of you that subscribe to my twitter, you know that I was critical of the analysis of the Initial Claims release on November 5. The media noted two pieces of good news. First, the level of claims decreased by 20,000. It is true that is good news. Second, Continuing Claims decreased by 68,000. It is not clear that is good news.

The reason is simple. Many people drop off the regular program not because they get a job — but because the program expires for them. These job-seekers then have a chance to apply for extended benefits or emergency benefits. Hence, you need to look a little deeper.

While the reporting of Extended Benefits and the Emergency program (EUC) is delayed, the recent numbers show an increase of 25,000 in Extended Benefits and a surprising 90,000 in the EUC.

The bottom line is that people are not getting jobs.

Let me give you some perspective on how serious this is. We have lost 7.3 million jobs in this recession. The last really bad recession began in 1981. Many don’t remember this was a time of considerable turmoil with some short term interest rates going above 20%! On a population adjusted basis, the jobs lost in the recession that began in 1981 was 4.3 million. At the time, that was really bad.

In addition, it is not over.

Yes, it is true that the rate of job loss is slowing. That is good news. However, we really need to get at least +100,000 in non-farm payrolls to stop the rate of unemployment from rising. We need about +200,000 to start recovering jobs. That is hugely different from where we are today.

Now, you are used to me saying negative things. I did see three pieces of good news in the employment report. First, temporary employment rose by 33,000. That is often a leading indictor of employment bottoming out. Second, the amount of overtime slightly increased. Again, this is a leading indictor. Finally, the revisions of the previous two months were also good news.

My guess is that the temp employment and the overtime are completely overlooked by market observers. Read the rest of this entry »