- Supreme Court Decision Tree
- Discrepancies Between National Income and GDP
- Links for 2012-03-31
- "Are Unemployed Construction Workers Really Doing Better?"
- Fed Watch: Slow and Steady
- Fed Watch: Inflation: Still Nothing to See Here
Posted: 31 Mar 2012 12:33 AM PDT
Posted: 31 Mar 2012 12:24 AM PDT
Discrepancies Between National Income and GDP, by Dean Baker: Binyamin Appelbaum has a NYT blogpost suggesting that the economy may be growing more rapidly than the GDP imply based on the fact that national income has grown more rapidly in recent quarters. ...
Appelbaum's ... points to a new paper that suggests that we should be taking an average of GDP growth and income growth as our actual measure of economic growth. If we go this route, then it implies that the recovery has been somewhat stronger (and the recession steeper) than the standard measure of GDP growth.
There is an alternative story. David Rosnick and I analyzed the movement of the statistical discrepancy and found a strong inverse correlation between the size of the statistical discrepancy and capital gains in the stock market and housing. This meant, for example there was a large negative statistical discrepancy in 1999 and 2000 at the peak of the stock bubble (i.e. income exceeded output) which disappeared after the bubble burst.
The same thing happened in the peak years of the housing bubble, 2004-2007. In that case also, the large gap between the income side measure and the output side measure disappeared after the bubble burst.
The logic is simple. Some amount of capital gains will get misclassified in the national accounts as ordinary income. (Capital gains should not count as income for GDP purposes.) While this may always be true, when we have more capital gains, the amount of capital gains misclassified in this way will be greater.
This story fits the data pretty well. If our analysis is correct, then we are better off sticking with our old friend GDP as the best measure of economic growth.
Posted: 31 Mar 2012 12:06 AM PDT
Posted: 30 Mar 2012 02:11 PM PDT
I've been trying to get the Federal Reserve banks to engage more with the public through blogs, with economics bloggers in particular. We'll see how that goes, but it's encouraging to see that they are starting to converse and debate among themselves:
Are unemployed construction workers really doing better?, Pedro Silos and Lei Feng, macroblog: Two New York Fed economists, Richard Crump and Ayşegül Şahin, writing in Liberty Street Economics, have shared some interesting findings regarding developments in the labor market during the ongoing recovery. Their conclusion is that unemployed construction workers, according to several indicators, seem to be doing better than workers who lost jobs in other sectors. ...
These facts, according to the authors, provide support to the hypothesis that problems in the labor market cannot be blamed on the degree of mismatch between displaced construction workers and job vacancies in other sectors.
In this post, we present an alternative view of the fate of unemployed construction workers...Hope to see more of this.
Posted: 30 Mar 2012 10:42 AM PDT
Slow and Steady, by Tim Duy: Looking at the spending component of this morning's Personal Income and Outlays report for February, it still pays to focus on the path of spending rather than to become terribly hopeful or despondent about the twists and turns along that path:
The 0.5% gain in February compensated for some earlier weakness in the numbers, while the overall trend holds - spending is rising about 0.18 percent per month compared to 0.24 percent prior to the recession. Spending was supported by a drop in the saving rate, down to 3.7% from 4.3% the previous month. This likely reflects borrowing for new auto purchases - note the stronger trend in durable goods spending:
The acceleration in auto sales is clearly supporting this trend since the middle of last year. Apparently, what's good for Detroit is still good for America. The importance of autos in sustaining spending begs the question of what will occur when pent up demand is satisfied? Obviously, auto sales will stop contributing positively to growth as sales level off at some point in what I would expect to be the not to distant future. This is especially the case considering the anemic pace of personal income growth:
Hopefully, income growth will accelerate as the labor market improves. Otherwise, households will need to take on additional debt or running down saving rates to hold the current trend in place.
Bottom Line: Consumer spending continues to rise, although the sustainability is still called into question because of the reliance of pent-up demand and falling saving rates to support underlying trends. That said, for all the ups and downs in the monthly data, the trend has generally been upward at a pace that is disappointing compared to pre-recession trends. Slow and steady has been the best bet.
Posted: 30 Mar 2012 07:29 AM PDT
Inflation: Still Nothing to See Here, By Tim Duy: The Februrary Personal Income and Outlays report came out this morning, and with it a fresh read on the Federal Reserve's preferred inflation measure, the PCE price index. On a year-over-year basis, headline inflation is trending down to the 2% target, while core is settling in just below that target.
As a reminder, the Fed targets headline over the longer run, but watches core as a signal to where headline is headed. Headline is trending down to core, as expected. The Fed was right to dismiss last year's energy-induced headline increase as a temporary phenomenon. Is there any near term trends to be concerned about? The three-month core trend edged down a notch to just above 2%:
Still less than the rise experienced in the first part of 2011. What about the path of prices? Still tracking along a trend below that of prior to the recession:
Opportunistic disinflation at work.
Bottom Line: Inflation remains contained - by itself, price trends provide no reason for the Fed to turn hawkish. Moreover, there is nothing here to stop Federal Reserve Chairman Ben Bernanke from easing policy should the US recovery falter.
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