Wednesday, July 22, 2015

The Big Lesson of the Eurozone Crisis

Paul Krugman notes that Eurozone crisis is a vindication of that optimum currency area (OCA) theory. I agree but would note the crisis also sheds light on the specialization versus endogeneity debate surrounding the OCA criteria. Interestingly, Krugman himself wrote some of the literature in this debate back in the early-to-mid 1990s.

So what is the specialization versus endogeneity debate? To answer this question, first recall that the OCA theory says members of a currency union should share similar business cycles, have economic shock absorbers (fiscal transfers, labor mobility, and price flexibility) in place, or some combination of both. Similar business cycles among the members of a currency union mean a common monetary policy will be stabilizing for all regions. If, however, there are dissimilar business cycles among them a common monetary policy will be destabilizing unless these regions have in place economic shock absorbers. This understanding can be graphically represented as follows:

Regional economies in this figure need to be outside the OCA boundary to be a viable part of a currency union. There they have a sufficient combination of business cycle correlation with the rest of currency union and economic shock absorbers. Inside the OCA boundary they do not.  In terms of the Eurozone, Greece would be inside the boundary and Germany outside of it.

Okay, those are the basics of the OCA theory. A question that emerged from this theory is whether a country like Greece that did not originally meet the OCA criteria could eventually do so. There were two answers to this question which led to the specialization versus endogeneity debate in  the OCA literature as noted by Mongelli (2002):
[W]hat type of forces might monetary unification unleash? Looking ahead, we may be confronted with two distinct paradigms -- specialisation versus “endogeneity of OCA” -- which have different implications on the benefits and costs from a single currency... 
The first paradigm is the “Krugman specialisation hypothesis” that is based upon the “Lessons of Massachusetts” i.e., the economic developments experienced by the US over the last century (Krugman (1993) and Krugman and Venables (1996)). This hypothesis is rooted in trade theory and increasing returns to scale as the single currency removes some obstacles to trade and encourages economies of scale. It postulates that as countries become more integrated (and their reciprocal openness rises) they will also specialise in the production of those goods and services for which they have a comparative advantage... Members of a currency area would become less diversified and more vulnerable to supply shocks. Correspondingly their incomes will become less correlated...An increase in integration would move a country away from the OCA line... 
The second paradigm is the “endogeneity of OCA” hypothesis... The basic intuition behind this hypothesis is that... [if] countries join together and form a “union,” such as the European Union (EU), both trade integration and income correlation within the group will rise: i.e., they will gradually move to... the right of the OCA line. This point carries important implications. A country’s suitability for entry into a currency union may have to be reconsidered if satisfaction of OCA properties is endogenous or “countries which join EMU, no matter what their motivation may be, may satisfy OCA properties ex-post even if they do not ex-ante!” (Frankel and Rose 1997).
In terms of the above figure, these two competing views can be drawn as pushing Greece either toward the OCA boundary or away from it.

The endogenous view of the OCA criteria fed right into what Lars Christensen calls the fatal conceit of Eurozone planners. It provided an ex-ante justification for believing all would work out well in this grand monetary experiment. The specialization view, on the other hand, was par for course with the tendency among American economists to be pessimistic about its success.

We all know now which view was right. Greece did not over time become better suited to be a part of the Eurozone.  And relative to Germany, many of the periphery countries, including Greece, became more specialized as seen in the figure below. This figure is constructed by looking at the agricultural, industry, manufacturing, and service shares of Eurozone economies relative to Germany and seeing how this ratio change over time. 

More sophisticated evidence suggests that at a minimum the periphery economies failed to further diversify after joining the Eurozone. So the great hope of Eurozone countries like Greece endogenously conforming to OCA criteria never happened. If anything, joining the Eurozone pushed Greece and the periphery further away from the OCA boundary. So probably the biggest lesson of the Eurozone crisis is to take the OCA criteria seriously before joining a currency union.

Thursday, July 16, 2015

Who Predicted the Eurozone Crisis?

According to a recent Bloomberg article, nine people saw the Eurozone crisis coming years before anyone else. Wow, only nine people saw it coming? That is remarkable, these folks must be truly prescient if only they foresaw the crisis. 

Except that this claim is terribly wrong. There were many economists who saw the problems of a European monetary union before it formed. One prominent economist not on the Bloomberg list is Martin Feldstein who wrote a famous 1997 Foreign Affairs article that began as follows;
Monnet was mistaken... If EMU does come into existence, as now seems increasingly likely, it will change the political character of Europe in ways that could lead to conflicts in Europe...What are the reasons for such conflicts? In the beginning there would be important disagreements among the EMU member countries about the goals and methods of monetary policy. These would be exacerbated whenever the business cycle raised unemployment in a particular country or group of countries. These economic disagreements could contribute to a more general distrust among the European nations.
Feldstein was one among many American economists who doubted a currency union in Europe would work. In fact, an entire article in Econ Journal Watch provides a survey of the skeptical tendencies of most American economists over the Euro prior to its inception. The authors, both Europeans, went on to claim these skeptical Americans had been proved wrong by history:
The main finding of our survey is that US academic economists were mostly skeptical of the single currency in the 1990s. By now, the euro has existed for more than a decade. The pessimistic forecasts and scenarios of the U.S. academic economists in the 1990s have not materialized. The euro is well established. It has not created political turmoil in Europe, and it has fostered integration of financial, labor and commodity markets within the euro area. Trade within the euro area has increased, and so has business cycle synchronization. Inflation differentials within the euro area are presently of the same order of magnitude as in the United States.
Why were U.S. economists so skeptical towards European monetary integration prior to the physical existence of the euro? 
Ironically, the article was published in early 2010 just as the Eurozone crisis was unfolding. For our purposes the most interesting thing about this article is not its incredibly wrong Euro triumphalism, but its documentation of the many American economists who were skeptical of the Euro. The article looks at American economists in the 1990s both at the Federal Reserve and in academia. Below is the list of academics covered in this paper. 

Add to this list another 43 surveyed from the Federal Reserve. So yes, there were a few more than nine people who expressed some level of doubt and worry about the viability of the Eurozone. So next time you hear someone touting the few who saw the Eurozone crisis coming, understand there were actually many who foresaw it.

Update: Presumably most of the UK residents who were against the Maastricht Treaty in 1992 did so because they understood the problems of a European currency union. After all, they had just gone through the Exchange Rate Mechanism crisis. So add these folks to the list of people who saw the Eurozone crisis coming.

Monday, July 13, 2015

Did Monetary Policy Really Offset Fiscal Austerity in Canada?

The blogosphere is once again talking about Canada's successful fiscal austerity in the mid-to-late 1990s. Paul Krugman rekindled the conversation with this statement:
[L]ook at everyone's favorite example of successful austerity, Canada in the 1990s. Canada came in with gross debt of roughly 100 percent of GDP, roughly comparable to Greece on the eve of the financial crisis. It then proceeded to do a pretty big fiscal adjustment -- 6 percent of GDP according to the IMF's measure of the structural balance, which is about a third of what Greece has done but comparable to other European debtors. But unemployment fell steadily. What was Canada's secret?
Ramesh Ponnuru and I have argued numerous times that Canada's secret was a monetary policy offset. That is, monetary policy eased to offset the drag of fiscal tightening. Paul Krugman agrees in the above post. The evidence that we and others have pointed to in support of this view is the Bank of Canada cutting its target interest rate more than 500 basis points between 1995 and 1997.  

Some of our conservative and libertarian friends, however, are not convinced by this evidence. David Henderson and Robert Murphy, in particular, have pushed back against this view. They contend there was no monetary offset. Henderson questions how much influence the Bank of Canada actually has over interests rates. Murphy goes further and provides a list of data points that he claims show the Canadian success story did not rely on loose money. So are Henderson and Murphy's skepticism of the monetary offset warranted?

The answer is no. Let us start with the Henderson's claim, echoed by Murphy, that the Bank of Canada has little control over interest rates. This point is generally true for long-term interest rates, but not for short-term interest rates. Central banks intervene in money markets and peg short-term interest rates all the time. It is true that if a central bank cares about price stability its short-run interest rate adjustments will conform over time to an interest rate path determined by the fundamentals. For example, Canada being a small open economy has its interest rates determined in part by capital flows from large economies like the United States. But this is a long-run tendency that still leaves a lot of wiggle room in the short run for central banks to tinker with interest rates. 

But do not take my word for it. See the figure below. It plots the target interest rates for both the Bank of Canada and the Federal Reserve over the period in question. The 500 basis point cut by the Bank of Canada is evident and occurs against a relatively stable federal funds rate. If the Bank of Canada has no control over its short-term interest rates then why was it able to create such large deviations around the federal funds rate? If the Henderson-Murphy view were correct this should not be possible.

Again, over the long-run the fundamentals will kick in and cause these two interest rates to follow a similar path. Henderson and Murphy assume this long-run relationship will also hold in the short-run. But it does not as shown above. The evidence, then, points to the Bank of Canada exogenously lowering short-term interest rates during the period of fiscal tightening.

I must say I was surprised to see an Austrian like Murphy makes this argument. Any Austrian worth his salt believes central banks can and do manipulate short-term interest rates. To go from this traditional Austrian position to one above is hard to reconcile. Put it this way: Murphy's reasoning, if consistently applied, would lead one to accept Bernanke's saving glut theory for the low interest rates during the housing boom. But Murphy does not accept this view. So it is hard to understand why he would suddenly embrace this emasculated view of central banks.

Murphy does attempt to provide other evidence to support his view on the Canadian austerity experience. It is impossible, though, to draw conclusions from his evidence because he does not provide the proper context for evaluating it. For example, one cannot simply look at the growth rates over a few years of the monetary base and nominal GDP as Murphy does and conclude with certainty whether monetary policy was tight or loose. Instead, one has to evaluate them against what was expected by the public and or desired by the central bank. 

So let us do that for the monetary base and nominal GDP. Consider first the monetary base (excluding required reserves) as seen below. This figure shows both the monetary base and its pre-1995 trend. Note the one-time permanent increase in it that occurs in the mid-to-late 1990s. A permanent increase in the monetary base is a sure way to raise aggregate demand and offset fiscal austerity. The above trend growth strongly suggests explicit monetary easing during this time.

Next, let us look at nominal GDP in the figure below. It shows the nominal GDP relative to its trend path. 

Note that nominal GDP follows its trend path rather closely during the period of fiscal austerity. The Bank of Canada, in other words, did what was necessary to keep aggregate demand on a stable growth path during this time. Given the evidence shown above, the Bank of Canada offset the fiscal tightening via lower interest rates and a permanently higher monetary base path. This story is completely missed by Murphy's cursory look at nominal GDP growth rates over a few years. So yes, monetary policy did offset fiscal austerity in Canada in the mid-to-late 1990s. 

The policy implications from this experience are clear. Economies undertaking fiscal austerity are best served by expansionary monetary policy. It provides a viable path to obtaining a more sustainable debt level. The ECB, however, tightened monetary policy twice during the Eurozone crisis. Given the one-size-fits-all approach problems, this tightening proved excessive for the periphery countries and helped spawn the soveriegn debt crisis. Just imagine how different the Eurozone would be today had the ECB began its QE program back in 2008. 

Sunday, June 28, 2015

Was Grexit Invevitable?

So it appears the Eurozone crisis has finally crossed the rubicon. Greece is going to default on Monday and this likely will put in motion its departure from the currency union. The Eurozone as we know it may soon cease to exist.

Was this breakup inevitable? Many observers would say yes. The Eurozone, after all, is not an optimal currency area and therefore likely to create problems. Martin Feldstein, for example, in 1997 wrote this in Foreign Affairs:
Monnet was mistaken... If EMU does come into existence, as now seems increasingly likely, it will change the political character of Europe in ways that could lead to conflicts in Europe...What are the reasons for such conflicts? In the beginning there would be important disagreements among the EMU member countries about the goals and methods of monetary policy. These would be exacerbated whenever the business cycle raised unemployment in a particular country or group of countries. These economic disagreements could contribute to a more general distrust among the European nations.
This does seem prescient now as the tension between core and periphery countries in general and the Troika and Greece in particular have shown the inherent tension in the currency union. So maybe this path was preordained. Maybe 'Grexit' was inevitable. 

Or maybe not. Maybe the Eurozone crisis happened when it did because of colossal policy errors rather than being a necessary outcome of a flawed currency union. I make this argument in a new working paper and contend the policy errors were the ECB's two tightening cycles in 2008 and 2010-2011. These tightening cycles were a huge mistake and arguably what set in motion the Eurozone crisis. They helped precipitate the sovereign debt crisis and gave teeth to the austerity imposed on the periphery.

In early 2008 the Eurozone began contracting, as seen in the first panel of the figure below. The growth of total money spending, a broad indicator of monetary conditions, had started declining even earlier. With monetary conditions beginning to tighten and the economy slowing down most central banks would have cut interest rates. The ECB, however, did nothing and kept its target interest rate pegged at 4 percent. Moreover, as seen in the second panel below, the ECB was signalling a rate increase which further intensified the slowdown. Thus began the first tightening cycle of the ECB in early 2008. Finally, in July 2008 the ECB raised its target interest rate to 4.25 percent and kept it there for three months. This tightening cycle was arguably that shock the triggered the Eurozone crisis. 

The second monetary policy tightening cycle began in late 2010 when the ECB began signaling again that it would be raising its policy rate to stem the burgeoning inflation. This too can be seen in second panel of the figure above. This expectation began stemming total money spending growth in early  2011. The ECB followed through on these expectations by raising its policy rate from 1 percent to 1.25 percent in April and then to 1.50 percent in July where it stayed for four months. This second  tightening cycle occurred even though Eurozone was still recovering from the first recession and is  arguably the shock the intensified the crisis in 2011.

As I show in the paper, these tightening cycles preceded the financial panic of late 2008 and sovereign debt problems and appear to have given teeth the austerity programs. How different would the Eurozone look today had the ECB had instead cut rates in 2008 and started its QE program back then? I think the Eurozone would be a lot different. And no, Grexit would not be an inevitable outcome. There would still be problems for the currency union, but they would problems that could be sorted out in an economy not beset by a depression.

The ECB, in other words, bears a lot of the responsibility for the impending breakup of the Eurozone. Keep that in mind this week as the Grexit comes to fruition.

Update: Some observers question whether ECB monetary policy was really too tight during the crisis. The answer is yes. For evidence, see my paper or this earlier post that shows a tight relationship between Taylor Rule gaps--a measure of the stance of monetary policy--and economic growth in the Eurozone. Some are also reminding me that it was Jean Claude Trichet's ECB that made the mess, not Mario Draghi's ECB. Fair enough.

Other folks are pushing back against the monetary origin view altogether saying this crisis is really a balance of payment crisis or a creditor-debtor crisis. As a proximate cause, yes, but as an ultimate cause, no. Too see this, recall that the deflation experienced in the periphery has meant creditor countries like Germany are getting real wealth transfers from the periphery. The ECB could have prevented this outcome had it prevented deflation and the lower-than-expected inflation that followed. Also consider what would have happened had the ECB adopted a price level  target. It would have required a temporary period of higher-than-normal 'catch-up' inflation that would have further moderated the imbalance between creditor-debtor countries in the Eurozone.

Country-specific developments with the higher inflation growth would have further reinforced this rebalancing. Prices would first grow faster in the regions with the least excess capacity, the core countries. During this time, goods and services from the periphery countries would then become relatively cheaper. Consequently, even though the exchange rate among the regions would not change, there would be a relative change in their price levels making the periphery countries more competitive. 

The Trichet ECB could have done a lot more to prevent the creditor-debtor problems from reaching this tipping point. Instead they behaved like Sadomonetarists, as noted Paul Krugman. There is more on the creditor-debtor point in the paper.

Thursday, June 25, 2015

The Long Unwind of Excess Money Demand

Two years ago I was part of a panel discussion on Fed policy at the American Enterprise Institute. I talked about why money still matters as way to make the case that the economy was still being plagued by excess money demand. This problem occurs when desired money holdings exceed actual money holdings. This imbalance causes a rebalancing of portfolios toward safe assets away from riskier ones and in the process causes a decline in aggregate demand. This is one way to view the long slump.

My argument back then was that even though the excess money demand problem peaked in 2009 it still was being unwound in 2013 and therefore still a drag on the economy. Among other things, I showed as evidence a chart portraying the sharp rise in the share of household assets that were liquid and noted it was still elevated in 2013. You can see it in the video or slides from the panel, but I thought I would update the chart in this post to see how much progress we made on the excess money demand problem.

The figure  below shows the liquid share of household assets and plots it against the U6 unemployment rate. In both the 2001 and 2007-2007 recessions this measure leads unemployment. It appears there may still be some residual excess money demand, but a lot of progress has been made. The most striking observation for me, though, is how long it has taken for household portfolios to return to more normal levels of liquidity. It has taken six years and appears not completely done yet! Remember this the next time someone tells you that the aggregate demand shocks were all were worked out years ago.

This next figure plots the household liquid share against small businesses concerns about sales. The latter measure comes from the following question in the NFIB's Small Business Economic Trends: "What is the single most important problem facing your firm?"  There are nine answers firms can chose, but below I plot just the one about concerns over lack of demand. Here too you see a good fit, a non-surprising result.

The fact that a large portion of the liquid share of household assets has declined over the past six years shows that its elevated rise was not a structural development but a cyclical one. It also suggests that more could have been done to hasten its return to normal levels. That is, more could have been done to satiate the excess demand for money. It should not take this long for a business cycle to unwind.

P.S. This is not to say there were no structural problems over the past six years. There were plenty. But what the above analysis speaks to is that many observers grossly underestimated the size and duration of the aggregate demand shock.

Update: I count cash, checking, saving, time, money market mutual funds, treasuries, and agencies as the liquid portion of household assets. Here is the link to the data in FRED.

Tuesday, June 23, 2015

The Penske View of Macroeconomic Policy

You can learn a lot about macroeconomic policy by driving a Penske truck. I did three years ago when I moved from Texas to Tennessee. The trip began with me driving a 26-foot Penske truck and my wife following in our car. I quickly discovered that Penske had placed a governor on the engine that limited the truck's speed to around 65 miles per hour. This was well below its true potential and made for an incredibly frustrating trip. Hills proved to be especially challenging since I could never generate enough momentum to avoid slowing down as I began ascending them. After the hills it was impossible to make up for lost time because I was prevented from accelerating the truck into catchup speed. There were also the other drivers on the road who got annoyed with my relatively slow speed. One on of those annoyed drivers turned out to be my wife. She decided she could handle the truck better than me so we switched vehicles. She may have done a better job handling the hills and traffic, but only on the margin. Overall, she too faced the same constraint I did: a upper bound on the truck's speed. Reaching our final destination took far longer than we had planned.

There are a lot of similarities between this experience and the use of macroeconomic policy over the past seven years. The U.S. economy, like the truck, has been operating well below its potential. This has meant reaching the final destination of  full employment has taken far longer than anyone expected.

As with the truck, the output gap emerged once the U.S. economy hit a hill called the Great Recession. Unlike the truck, though, this hill was so tough it not only slowed the economy down but caused it to stall and start rolling back down the hill. Fortunately, the brakes were applied, the economy got started again, and the ascent up the hill was made. Since then, the big problem has been the failure of macroeconomic policy to create enough catch-up speed to make up for lost time. More precisely, macroeconomic policy failed to generate enough growth in total dollar spending to close the output gap. 

Macroeconomic policy should have a significant, if not perfect, influence on the growth of total dollar spending through the use of monetary and fiscal policy. The absence of temporarily faster-than-normal catch-up growth in aggregate demand indicates that like the Penske truck there has been a governor placed on macroeconomic policy.

So what is this governor? It is the Fed's 2 percent inflation target. It prevents monetary policy and fiscal policy from generating temporary periods of rapid catch-up growth in aggregate demand because doing so will raise inflation above its target.

For example, imagine that in the third quarter of 2009 the Fed had been able to raise and keep the annualized growth rate of total dollar spending at 7.5 percent until it reached its previous trend (which is near the CBO's full employment level for NGDP). That would be fairly rapid catch-up growth since total nominal expenditures grew on average around 5 percent during the Great Moderation period. Based on historical relationships, this temporary surge in aggregate demand growth would also translate into a temporary surge in inflation.1 As seen below, this inflation surge would last just over two years.

The temporary inflation surge can never occur with a 2 percent inflation target. Yet, as demonstrated by Israel, it was probably needed after the crisis. In terms of the truck analogy, the deceleration of speed on the hill needed to be offset by temporarily faster speed after the hill to maintain  a stable growth path for total dollar spending.

The Penske truck experience also sheds light on two questions that still vex many observers. The first question is why did the Fed's QE programs fail to spur a robust recovery? George Selgin, for example, recently raised this question. The answer is not that these programs are inherently unable to do so. Rather, they were subject to the inflation target governor. Just like I was limited to 65  miles per hour in the truck, the 2 percent inflation target put a limit on how much aggregate demand growth can be generated by the QE programs. Put differently, the 2 percent inflation target meant that the monetary injections created by the QE programs were expected to be temporary. What was needed to spur rapid total dollar spending growth, though, was an expectation that some portion of those monetary injections would be permanent.

To be clear, the inflation target was an upper bound on how much total dollar spending growth could be created by the QE programs. It did not prevent the Fed from using QE programs to prevent a slow down. In fact, it appears 2 percent is actually an upper bound on an inflation target range of 1-2 percent. If so, the QE programs put a floor under the economy even though they were muzzled from spurring rapid aggregate demand growth.

The second question is whether more aggressive fiscal policy could have made a meaningful difference since the crisis. This question is akin to asking whether my wife made a difference when she tried driving the truck. She may have made a difference on the margin, but was ultimately still bound by the governor. Fiscal policy, like monetary policy, is also bound by a governor. It can only create aggregate demand growth up to the point it pushes inflation to the Fed's 2% target. The Fed's preferred inflation measure, the PCE deflator, averaged 1.4% since 2009. That means fiscal policy would have had 60 basis points on average with which to work over the past seven years in closing the output gap. That is not much and nowhere near the two-year run of over 2 percent inflation required to create the catch-up growth in aggregate demand seen in the figure above.2

What policymakers needed after 2009 was a new governor that would have allowed temporary catch-up growth in aggregate demand. The easiest way to have done this is to have  introduced a NGDP level target. Doing so would be similar to replacing the governor on the Penske truck with cruise control. The growth path of total dollar spending would be set and any deviations around that path would be corrected as needed with slowdown or catch up growth in aggregate demand. No matter what your view of the optimal monetary-fiscal policy mix may be, it will be challenging to implement without a NGDP level target. Moving forward,then, this reform is sorely needed. 

I never again want to drive cross country in a truck that has the governor turned on. Similarly, we should never again want to encounter a sharp recession without a NGDP level target.3

1The historical relationship is estimated by regressing the current and two lagged values of nominal GDP growth on the GDP deflator growth.  
2  If you, like Paul Krugman, believe that the Fed actually targets a1-2 percent inflation range then fiscal policy is even more limited since the 60 basis points are gone. 
3There are other reasons to favor a NGDP level target including minimizing the change of hitting a sharp recession in the first place. 

Thursday, April 30, 2015

Why the Fed Will Raise Interest Rates This Year

Despite the apparent slow down of economic activity during the first quarter of this year, it is likely the Fed will still have to raise interest rates in the near future. This reason why is that households are increasingly expecting their nominal incomes to rise and this typically leads actual wage and salary growth. This can be seen in the figures below.

The first figure shows households' expected nominal income growth over the next year. It comes from the University of Michigan/Thompson Reuters Survey of Consumers where households are asked each month how much their dollar (i.e. nominal) family incomes are expected to change over the next 12 months. This measure averaged near 5 percent prior to the crisis, but then crashed and barely budged for several years. Finally in 2013 it acquired escape velocity. Since then it has been slowing trending up with a bit of a pick-up in the last year.

The next figure plots this series against the employment cost index, but now at a quarterly frequency. The figure suggests expected nominal income growth leads actual nominal income growth. This indicates  wage and salary growth is primed to start accelerating. 

Now the data only runs through March. A lot of disappointing economic news has come out since then. So it will be interesting to see whether this trend is sustained next month. If this New York Times article is any indication, we can expect the series to continue trending up and actual incomes to follow:
WASHINGTON — The number of Americans filing new claims for jobless benefits tumbled to a 15-year low last week and consumer spending rose in March, signs the economy was regaining momentum after stumbling badly in the first quarter.
The economic outlook was brightened further by another report on Thursday showing a solid increase in wages in the first quarter.

"This morning's reports all point to an economy that is doing a lot better than the near-stagnation in first-quarter G.D.P. suggests," said Paul Ashworth, chief United States economist at Capital Economics in Toronto.
So it appears the Fed may have no choice but to tighten by the end of the year.

P.S. Justin Wolfers observes that the Q1 slowdown in GDP has become a reoccurring development. Since this is seasonally-adjusted data it should not be happening. Consequently, Wolfers notes we should not put too much faith in the Q1 numbers. This is another reason to believe that wages are primed to take off.

Update: Here is the relationship between the U6 minus U3 unemployment rate spread and the expected nominal income growth series. I have used the 5-month centered moving average trend on expected nominal income growth to make the graph clearer: