Showing posts with label Business Cycle. Show all posts
Showing posts with label Business Cycle. Show all posts
Monday, October 03, 2016
For the Record: Harris Commented on the Auto Bailout.
Alex Johnson, "For Dealers, Auto bailout Can't Come Too Soon." NBC News 12/4/2008, quoted Malcolm Harris, an economics professor at Friends University in Wichita,
said: “If you have a half a million or a million people out of work,
with retail sales in real terms already down 5 percent over a year ago,
you’re taking what’s becoming a significant recession and making it a
lot nastier.”
Wednesday, December 30, 2015
Was 1945 a Recession Year?
On EconTalk, Russ Roberts, debated Noah Smith on whether economics is a science. It was a fun discussion well worth listening to.
At one point Russ brought claimed Paul Samuelson predicted a return to the massive employment of the Great Depression when military spending fell after World War II. Noah Smith replied there was a recession. I wrote a brief comment, although it turns out that Russ already posted Geoffrey Moore's note on business cycle chronology which treated the 1945 downturn as sui generis.
My analysis:
The NBER indicates a cyclical peak on February, 1945 with a trough 8 months later. Germany surrendered May 8th and Japan August 15th. Japan's formal surrender was on September 2nd aboard the U.S.S. Missouri. General MacArthur's boss was the former senator form Missouri. Missouri is also the only state with two Federal Reserve Banks.
The unemployment rate was 1.1% at the NBER cyclical peak. The highest it rose to in 1946 was 4.26%. Apparently someone predicted 8 million unemployed in 1946. Some predictions were even wilder.
Yes there was a downturn as the U.S. economy ramped down from its most fevered war pace. Looking at key series from their peaks to troughs, industrial production declined 35.5% from August, 1944 through February 1946. Payroll employment dropped by 3.3 million jobs from November, 1943 through September, 1945. Almost two million of that drop was in September, 1945, more or less VJ Day. The cyclical trough (October, 1945) corresponds to the first post war month. The 37 month expansion that followed ended in November, 1948.
Do you want to call the 1945 cyclical episode a recession, a peacetime adjustment, or a preliminary ramp-down of the state driven economy? Geoffrey Moore wrote, "There remains the brief contraction after World War II, February—October 1945, which marked the transition from a wartime to a peacetime economy, and which is the most difficult of all to characterize because different measures yield such different results. However, in terms of its impact upon the well-being of the population it must surely be classed among the more modest of those in our list." Interestingly, Moore chooses his criterion of severity as welfare not aggregate demand or production, the more Keynesian categories.
i did not get interested in the business cycle until maybe the 1973-75 recession, on which I wrote my dissertation. My first memory of economics would have been the copy of Samuelson's Economics which I studied to prepare for high school debate. I do not remember a discussions of business cycle history that talked about either the 1945 downturn or the 1945-48 recovery. They would have either ignored it or refereed to it as a wartime transition or demobilization. Indeed, I do not remember the textbooks of my youth (Keynesian all) dwelling on either the 1945 contraction nor the 1945-48 expansion. One excuse for their silence is that quarterly GDP data starts in 1947. Still the widespread prediction of a return to the Great Depression by the secular stagnationists was not mentioned in polite company.
At one point Russ brought claimed Paul Samuelson predicted a return to the massive employment of the Great Depression when military spending fell after World War II. Noah Smith replied there was a recession. I wrote a brief comment, although it turns out that Russ already posted Geoffrey Moore's note on business cycle chronology which treated the 1945 downturn as sui generis.
My analysis:
The NBER indicates a cyclical peak on February, 1945 with a trough 8 months later. Germany surrendered May 8th and Japan August 15th. Japan's formal surrender was on September 2nd aboard the U.S.S. Missouri. General MacArthur's boss was the former senator form Missouri. Missouri is also the only state with two Federal Reserve Banks.
The unemployment rate was 1.1% at the NBER cyclical peak. The highest it rose to in 1946 was 4.26%. Apparently someone predicted 8 million unemployed in 1946. Some predictions were even wilder.
Yes there was a downturn as the U.S. economy ramped down from its most fevered war pace. Looking at key series from their peaks to troughs, industrial production declined 35.5% from August, 1944 through February 1946. Payroll employment dropped by 3.3 million jobs from November, 1943 through September, 1945. Almost two million of that drop was in September, 1945, more or less VJ Day. The cyclical trough (October, 1945) corresponds to the first post war month. The 37 month expansion that followed ended in November, 1948.
Do you want to call the 1945 cyclical episode a recession, a peacetime adjustment, or a preliminary ramp-down of the state driven economy? Geoffrey Moore wrote, "There remains the brief contraction after World War II, February—October 1945, which marked the transition from a wartime to a peacetime economy, and which is the most difficult of all to characterize because different measures yield such different results. However, in terms of its impact upon the well-being of the population it must surely be classed among the more modest of those in our list." Interestingly, Moore chooses his criterion of severity as welfare not aggregate demand or production, the more Keynesian categories.
i did not get interested in the business cycle until maybe the 1973-75 recession, on which I wrote my dissertation. My first memory of economics would have been the copy of Samuelson's Economics which I studied to prepare for high school debate. I do not remember a discussions of business cycle history that talked about either the 1945 downturn or the 1945-48 recovery. They would have either ignored it or refereed to it as a wartime transition or demobilization. Indeed, I do not remember the textbooks of my youth (Keynesian all) dwelling on either the 1945 contraction nor the 1945-48 expansion. One excuse for their silence is that quarterly GDP data starts in 1947. Still the widespread prediction of a return to the Great Depression by the secular stagnationists was not mentioned in polite company.
Monday, September 02, 2013
Cheap Or Dear?
The FT's John Authers squares Robert Shiller off against Jeremy Siegel in a debate over whether stocks are over priced or under priced.
I met Robert Shiller when he was first attacking the Efficient Market Hypothesis, a dogma that commanded stronger belief among finance professors than the Real Presence did from Catholics at the time. He showed statistically that if stocks represent the present value of future earnings and/or dividends, stock prices are much too volatile to be correctly valued. Later he took the profession on using the Cyclically Adjusted Price Earnings Ratio as his lance. You can link to his data online.
Market strategists and the like have tried to use it to guage when the market as a whole is too dear or too cheap. Shiller's measure is signalling stock prices are too rich in Great Britain and the U.S.
Jeremy Siegel, like Shiller a student of long data trends, argues against this conclusion and, specifically, that "The ratio’s pessimistic predictions are based on biased data." The problem with any P/E ratio is measuring the denominator. Earnings reflect accounting and even adjusted for inflation, as Shiller does, may not be the proper measure. Earnings are affected by companies' use of leverage and the growth in earnings is affected by firms dividend payout practices. Faster earnings growth should be associated with higher valuations.
One factor neither seems to address is my observation that the business cycle is now a ten year cycle in the image of the nineteenth century British trade cycle. This is a departure from the immediate postwar cycle which was a five year inventory cycle.
As an investor, you still have to choose whether to buy and hold or make timly entries into and out of the market: "The fault, dear Brutus, is not in our stars, But in ourselves, that we are underlings."
Wednesday, October 27, 2010
Business Jets and Elections
Molly Mullins reports on a talk by Michael Scheeringa of Signature Flight Support, which operates 103 fixed base operations around the world. At the today’s Wichita Aero Club meeting, Scheeringa reassured her that “It’s a very resilient industry.” She blogs, "The good news is that the market has begun to recover, although recovery has been muted.
"But Fortune 200 companies are flying as much today as they did in 2008, he said. It’s the small business owners who are not using business aviation as much."
That sounds like good news, but we need to see the orders before we know the rebound is truely here. Wichita needs a business jet revival.
Furthermore, she relates his judgement that "The political climate has caused uncertainty in the tax structure of smaller businesses. And that leads to uncertainty about income and generates a lack of confidence." Moreover, "That lack of confidence impacts the business aviation industry in Wichita and elsewhere."
Which brings us to the mid-term elections. The pundits are predicting big Republican gains, perhaps recapturing the House, picking up a half dozen Senate seats, and assorted governorships and state ledgislative seats. The latter is especially important given the redistricting that follows the decinimal census.
The economy hit bottom in June, 2009, but the unemployment rate is actually above where it was at the trough. Economic growth ahs resumed, but Americans are still mired in misery.
Comes November 2nd, the President will be blamed.
But is it just?
President Obama campaigned on the need to fix the economy. That created expectations among the voters. Not surprisingly, the voters wanted those expectations to be met.
What happened?
The nation's economic problems were essentially long term in nature (huge and chronic trade imbalances, lack of domestic saving, misallocated resources from the credit boom.) Yet the President focused on short term solutions: fiscal stimulus. Worse, he delegated the job of designing the solution to Congress.
Then, with the economy being far from fixed, the President switched his priority to changing the health care system and its financing. Reallocating resources for a sector equivalent to 17% of the whole economy (four times the size of the auto industry) predictably set off a debilitating dog fight between the winners and the losers. To make matters worse, the President delegated the design to Congress. Will Rodgers once predicted that "no one's wallet is safe when congress is in session."
If voters are angry with the President's economic policies, their anger is understandable.
After they express that anger on November 2nd, the President should address the source of that anger and ask the American people for a second chance. He should warn them that our problems are long term and there are no quick fixes. We must realistically face America's secular economic decline before it is too late and put forth the painful policies that will reverse our strategic decline. The tea party activists who are focusing on the size of the federal deficits have unwittingly brought to fore a very real problem. The U.S. can only use deficits to attack weakness of demand if the dollar remains the world's reserve currency. And the more it uses the deficits to stimulate the economy the closer we are to losing the dollar's reserve status. When foreigners stop taking our dollars, our options close and we start looking more like Greece and Spain.
Moreover, without significant policy changes there is a very real threat in the medium term. The perceived erosion of the rule of law (think of the treatment of GM's bondholders), the costs of the healthcare system reengineering, and the prospect of tax hikes if the Bush tax cuts expire have eerily recreated the conditions of 1936. These set the stage for the Roosevelt recession of 1937. We avoided the financial collapse that trasformed the recession of 1929 into the Great Depression. Now we have recreated the conditions for the 1937 recession, a recession whose severity was exceeded only by the contractions of 1929-33 and 1920.
President Obama should take advantage of his party's upcoming defeat to embark on a new program of economic leadership.
"But Fortune 200 companies are flying as much today as they did in 2008, he said. It’s the small business owners who are not using business aviation as much."
That sounds like good news, but we need to see the orders before we know the rebound is truely here. Wichita needs a business jet revival.
Furthermore, she relates his judgement that "The political climate has caused uncertainty in the tax structure of smaller businesses. And that leads to uncertainty about income and generates a lack of confidence." Moreover, "That lack of confidence impacts the business aviation industry in Wichita and elsewhere."
Which brings us to the mid-term elections. The pundits are predicting big Republican gains, perhaps recapturing the House, picking up a half dozen Senate seats, and assorted governorships and state ledgislative seats. The latter is especially important given the redistricting that follows the decinimal census.
The economy hit bottom in June, 2009, but the unemployment rate is actually above where it was at the trough. Economic growth ahs resumed, but Americans are still mired in misery.
Comes November 2nd, the President will be blamed.
But is it just?
President Obama campaigned on the need to fix the economy. That created expectations among the voters. Not surprisingly, the voters wanted those expectations to be met.
What happened?
The nation's economic problems were essentially long term in nature (huge and chronic trade imbalances, lack of domestic saving, misallocated resources from the credit boom.) Yet the President focused on short term solutions: fiscal stimulus. Worse, he delegated the job of designing the solution to Congress.
Then, with the economy being far from fixed, the President switched his priority to changing the health care system and its financing. Reallocating resources for a sector equivalent to 17% of the whole economy (four times the size of the auto industry) predictably set off a debilitating dog fight between the winners and the losers. To make matters worse, the President delegated the design to Congress. Will Rodgers once predicted that "no one's wallet is safe when congress is in session."
If voters are angry with the President's economic policies, their anger is understandable.
After they express that anger on November 2nd, the President should address the source of that anger and ask the American people for a second chance. He should warn them that our problems are long term and there are no quick fixes. We must realistically face America's secular economic decline before it is too late and put forth the painful policies that will reverse our strategic decline. The tea party activists who are focusing on the size of the federal deficits have unwittingly brought to fore a very real problem. The U.S. can only use deficits to attack weakness of demand if the dollar remains the world's reserve currency. And the more it uses the deficits to stimulate the economy the closer we are to losing the dollar's reserve status. When foreigners stop taking our dollars, our options close and we start looking more like Greece and Spain.
Moreover, without significant policy changes there is a very real threat in the medium term. The perceived erosion of the rule of law (think of the treatment of GM's bondholders), the costs of the healthcare system reengineering, and the prospect of tax hikes if the Bush tax cuts expire have eerily recreated the conditions of 1936. These set the stage for the Roosevelt recession of 1937. We avoided the financial collapse that trasformed the recession of 1929 into the Great Depression. Now we have recreated the conditions for the 1937 recession, a recession whose severity was exceeded only by the contractions of 1929-33 and 1920.
President Obama should take advantage of his party's upcoming defeat to embark on a new program of economic leadership.
Tuesday, April 13, 2010
The Economy Hit Bottom, But It Is Still Not Official
June, 2009?
Here at Mammon Among Friends, you have been reading for some time that the recession of 2007-2009 ended last June (i.e., June, 2009.) The Business Cycle Dating Committee of the National Bureau of Economic Research (the NBER) ducked the issue, although it looks like a consensus agrees with me. Their caution flows from a fear that we might have a repeat of 1980 and 1982 when we had either back to back recessions or one double dip recession. The committee's decision was for the former.
I have no doubt we are well into a recovery and that the trough was June 2009.
Robert Gordon agrees: "It is obvious that the recession is over. Real GDP has recovered strongly from a trough in 2009:Q2 and by 2010:Q2 (the current quarter) will have reached (or be very close to) its value reached in the peak NBER quarter of 2007:Q4...The traditional measure of production used by the committee is the Federal Reserve Board Index of Industrial Production (IIP), which reached a well-defined trough in June 2009. For those who object that the IIP refers only to about 15 percent of the economy, the broader monthly measure real manufacturing and trade sales also reached its trough in June 2009. The private firm Macro Advisers has constructed a measure of monthly GDP that is available back to 1992, and this also indicates a cyclical trough in June 2009. While real GDI is flat across 2009:Q2 and 2009:Q3, quarterly real GDP reaches its trough in 2009:Q2, as does the average of quarterly real GDP and real GDI. Thus we have three monthly measures that reach a trough in June, the average of two measures of aggregate economic activity which reach their trough in 2009:Q2, and no clearly defined troughs occurring later than that in any series other than the traditional lagging data on aggregate hours of work and total employment."
Gordon is the senior guy on the committee now that Victor Zarnowitz is dead. I'm in good company!
Jeffrey Frankel seems to be in the same camp. On April 5th, he blogged, "The recession is over."
A recession is a broad, sustained decline in a wide range of economic indicators. The committee has put increasing stress on GDP over the years , although not as much as they did in 1966. Still the monthly indicators are decisive and most of the coincident indicators are measures of private activity: e.g., real retail sales, industrial production, personal income minus transfer payments.
The committee's actual statement was:
"The Business Cycle Dating Committee of the National Bureau of Economic Research met at the organization’s headquarters in Cambridge, Massachusetts, on April 8, 2010. The committee reviewed the most recent data for all indicators relevant to the determination of a possible date of the trough in economic activity marking the end of the recession that began in December 2007. The trough date would identify the end of contraction and the beginning of expansion. Although most indicators have turned up, the committee decided that the determination of the trough date on the basis of current data would be premature. Many indicators are quite preliminary at this time and will be revised in coming months. The committee acts only on the basis of actual indicators and does not rely on forecasts in making its determination of the dates of peaks and troughs in economic activity. The committee did review data relating to the date of the peak, previously determined to have occurred in December 2007, marking the onset of the recent recession. The committee reaffirmed that peak date."
Here at Mammon Among Friends, you have been reading for some time that the recession of 2007-2009 ended last June (i.e., June, 2009.) The Business Cycle Dating Committee of the National Bureau of Economic Research (the NBER) ducked the issue, although it looks like a consensus agrees with me. Their caution flows from a fear that we might have a repeat of 1980 and 1982 when we had either back to back recessions or one double dip recession. The committee's decision was for the former.
I have no doubt we are well into a recovery and that the trough was June 2009.
Robert Gordon agrees: "It is obvious that the recession is over. Real GDP has recovered strongly from a trough in 2009:Q2 and by 2010:Q2 (the current quarter) will have reached (or be very close to) its value reached in the peak NBER quarter of 2007:Q4...The traditional measure of production used by the committee is the Federal Reserve Board Index of Industrial Production (IIP), which reached a well-defined trough in June 2009. For those who object that the IIP refers only to about 15 percent of the economy, the broader monthly measure real manufacturing and trade sales also reached its trough in June 2009. The private firm Macro Advisers has constructed a measure of monthly GDP that is available back to 1992, and this also indicates a cyclical trough in June 2009. While real GDI is flat across 2009:Q2 and 2009:Q3, quarterly real GDP reaches its trough in 2009:Q2, as does the average of quarterly real GDP and real GDI. Thus we have three monthly measures that reach a trough in June, the average of two measures of aggregate economic activity which reach their trough in 2009:Q2, and no clearly defined troughs occurring later than that in any series other than the traditional lagging data on aggregate hours of work and total employment."
Gordon is the senior guy on the committee now that Victor Zarnowitz is dead. I'm in good company!
Jeffrey Frankel seems to be in the same camp. On April 5th, he blogged, "The recession is over."
What is a Recession?
A recession is a broad, sustained decline in a wide range of economic indicators. The committee has put increasing stress on GDP over the years , although not as much as they did in 1966. Still the monthly indicators are decisive and most of the coincident indicators are measures of private activity: e.g., real retail sales, industrial production, personal income minus transfer payments.
The committee's actual statement was:
"The Business Cycle Dating Committee of the National Bureau of Economic Research met at the organization’s headquarters in Cambridge, Massachusetts, on April 8, 2010. The committee reviewed the most recent data for all indicators relevant to the determination of a possible date of the trough in economic activity marking the end of the recession that began in December 2007. The trough date would identify the end of contraction and the beginning of expansion. Although most indicators have turned up, the committee decided that the determination of the trough date on the basis of current data would be premature. Many indicators are quite preliminary at this time and will be revised in coming months. The committee acts only on the basis of actual indicators and does not rely on forecasts in making its determination of the dates of peaks and troughs in economic activity. The committee did review data relating to the date of the peak, previously determined to have occurred in December 2007, marking the onset of the recent recession. The committee reaffirmed that peak date."
Where Are We At? Where Are We Going?
We certainly should have a strong recovery given how far the economy fell. The first part of a recovery is when things are at their worst. Places where the housing bubble was the worst will recover more slowly.
My greater concern is that the administration's health care payment "reform" and taxing will create a second recession much like the very severe Roosevelt recession of 1937-8. That would not be pretty.
Saturday, April 03, 2010
Three Imbalances Threaten Long-Term Economic Stability
You can may have read the following commentary in the Wichita Eagle(3/25/2010):
We are emerging from a financial and economic crisis of historic dimensions. Unemployment reached levels not seen since 1982. America suffered the largest falls in industrial output and housing starts since the "Roosevelt Recession" of 1937-38
However deep the recession, the recovery is well under way. A long list of indicators hit bottom last year and are rising: auto sales (February), durable goods orders (March), real retail sales (April), housing starts (April), and industrial production (June). The fall in global industrial production ended in March as did world trade's in May.
Most economists are sanguine about the long term but judge the current recovery to be fragile and weak. The consensus is wrong. This recovery is solid and broad-based.
Emerging economies (particularly Brazil, China and India) are leading a worldwide expansion. America's longer-term prospects are the real worry.
Three major imbalances threaten the country's long-run economic stability and prosperity. We went into this crisis with a trade deficit equal to 5 percent of GDP and savings rates near zero. Government deficits equaled 1.2 percent of GDP when unemployment was still only at 4.6 percent. We could finance these imbalances only because the rest of the world was willing to lend us trillions of dollars. That dependence is neither in our long-term economic nor geopolitical interests.
This overdependence on foreign credit led to massive misallocations of America's resources. The housing bubble grew from 2003 and peaked in August 2006. Over that time period, home-building sucked an extra $900 billion in real resources away from the rest of the economy.
Finance and real estate grew to over 20 percent of the economy. Our brightest young graduates found it more attractive to become financial engineers rather than build planes and invent new products. We will be paying for this deadweight loss in higher unemployment and lower economic growth for many years.
The Future
Correcting the imbalances means we must save more and use less of what we produce for ourselves. In other words, Americans face lower living standards
Lower standards of living and a falling dollar will translate into higher domestic prices. If policymakers misinterpret those rising prices and continue to fight structural change with the wrong tools, they will start a vicious policy cycle culminating in the loss of the dollar as the world's reserve currency and unpredictable turmoil.
Where are our policies now? This recession was global and induced a global response. Many nations including America have disinterred the theories of John Maynard Keynes to justify massive government spending programs ("fiscal stimulus") to fight the recent economic recession. Central banks have used the ideas of Keynes' nemesis, Milton Friedman, to justify vanishingly low interest rates ("monetary stimulus") and unprecedented financial market interventions ("quantitative easing") toward the same end. This focus on the short term is crowding out the need for correcting the economy's imbalances. I doubt either Keynes or Friedman would wholly approve of the sins being committed in their names.
And in the Long Run...
What makes a great statesman? Historian J. Rufus Fears found three essential elements. A great statesman clearheadedly identifies and analyzes a major problem. Then he implements a solution that works both in the short run and in the long run. Focusing on the immediate problems of the 1930s, Keynes dismissed "the long run, (when) we are all dead."
Yet in the 1940s, Keynes turned around and engineered a remarkably resilient postwar monetary system. That act of statesmanship produced peace and prosperity for generations. Contrast that with current economic policy, where "in the long run, we are all in the soup."
The Economic Recovery
We are emerging from a financial and economic crisis of historic dimensions. Unemployment reached levels not seen since 1982. America suffered the largest falls in industrial output and housing starts since the "Roosevelt Recession" of 1937-38
However deep the recession, the recovery is well under way. A long list of indicators hit bottom last year and are rising: auto sales (February), durable goods orders (March), real retail sales (April), housing starts (April), and industrial production (June). The fall in global industrial production ended in March as did world trade's in May.
Most economists are sanguine about the long term but judge the current recovery to be fragile and weak. The consensus is wrong. This recovery is solid and broad-based.
Emerging economies (particularly Brazil, China and India) are leading a worldwide expansion. America's longer-term prospects are the real worry.
The Reckoning
Three major imbalances threaten the country's long-run economic stability and prosperity. We went into this crisis with a trade deficit equal to 5 percent of GDP and savings rates near zero. Government deficits equaled 1.2 percent of GDP when unemployment was still only at 4.6 percent. We could finance these imbalances only because the rest of the world was willing to lend us trillions of dollars. That dependence is neither in our long-term economic nor geopolitical interests.
This overdependence on foreign credit led to massive misallocations of America's resources. The housing bubble grew from 2003 and peaked in August 2006. Over that time period, home-building sucked an extra $900 billion in real resources away from the rest of the economy.
Finance and real estate grew to over 20 percent of the economy. Our brightest young graduates found it more attractive to become financial engineers rather than build planes and invent new products. We will be paying for this deadweight loss in higher unemployment and lower economic growth for many years.
The Future
Correcting the imbalances means we must save more and use less of what we produce for ourselves. In other words, Americans face lower living standards
Lower standards of living and a falling dollar will translate into higher domestic prices. If policymakers misinterpret those rising prices and continue to fight structural change with the wrong tools, they will start a vicious policy cycle culminating in the loss of the dollar as the world's reserve currency and unpredictable turmoil.
Where are our policies now? This recession was global and induced a global response. Many nations including America have disinterred the theories of John Maynard Keynes to justify massive government spending programs ("fiscal stimulus") to fight the recent economic recession. Central banks have used the ideas of Keynes' nemesis, Milton Friedman, to justify vanishingly low interest rates ("monetary stimulus") and unprecedented financial market interventions ("quantitative easing") toward the same end. This focus on the short term is crowding out the need for correcting the economy's imbalances. I doubt either Keynes or Friedman would wholly approve of the sins being committed in their names.
And in the Long Run...
What makes a great statesman? Historian J. Rufus Fears found three essential elements. A great statesman clearheadedly identifies and analyzes a major problem. Then he implements a solution that works both in the short run and in the long run. Focusing on the immediate problems of the 1930s, Keynes dismissed "the long run, (when) we are all dead."
Yet in the 1940s, Keynes turned around and engineered a remarkably resilient postwar monetary system. That act of statesmanship produced peace and prosperity for generations. Contrast that with current economic policy, where "in the long run, we are all in the soup."
Friday, March 05, 2010
Jobs
The Bureau of Labor Statistics released its Monthly Employment Report for February. Reading the tea leaves, we find confirmation that the economic recovery is underway. I stick by the judgment that June, 2009 was the trough.
There was little agreement among economists anticipating the reports. Snow had dampened construction activity and retail sales particularly in the east. The "Consensus" estimates were a drop of 50,000 jobs and a rise in the unemployment rate from 9.7 percent to 9.8 percent. The unemployment rate actually stayed at 9.7 percent and jobs dropped by 36,000. According to American households, employment increased by more than popul;ation for the second straight month and it looks like the employment population ratio hit bottom in December.
If you strip out auto sales from the BLS's estimate of transportation equipment employment, we find jobs fell by a thousand. This gives us some evidence that aircraft industry jobs are not growing.
There was little agreement among economists anticipating the reports. Snow had dampened construction activity and retail sales particularly in the east. The "Consensus" estimates were a drop of 50,000 jobs and a rise in the unemployment rate from 9.7 percent to 9.8 percent. The unemployment rate actually stayed at 9.7 percent and jobs dropped by 36,000. According to American households, employment increased by more than popul;ation for the second straight month and it looks like the employment population ratio hit bottom in December.
If you strip out auto sales from the BLS's estimate of transportation equipment employment, we find jobs fell by a thousand. This gives us some evidence that aircraft industry jobs are not growing.
Tuesday, January 26, 2010
Do You Care a Rap About the Business Cycle?
John Maynard Keynes was perhaps the most imposing economist of the Twentieth Century. He is the father of macroeconomics (John Hicks might be called the midwife: indeed Hicks is probably the most influential, although his influence across the board in modern economic theory is so pervasive he is seldom cited.)
Friedrich von Hayek developed the ideas of Wicksell and the Austrian School theory of capital based on Boehm-Bawerk and von Mises into a coherent theory of the business cycle which does much to explain the mess we are in.
Keynesian economics justifies the use of stimulus programs such as are being used around the world to revive the world economy. Nations around the world are following President Richard Nixon when he said, "We are all Keynesians now."
One should not assume Keynes would approve of current economic policy. At a meeting of American economists shortly before he died, Keynes remarked "Perhaps I am the only non-Keynesian in the room." (as quoted in Bran Domitrovic's Econonoclasts: the History of the Supply-Side Revolution.)
Many thanks to both Ryan Pendleton and the Kansas Policy Institute who alerted me to this.
Friedrich von Hayek developed the ideas of Wicksell and the Austrian School theory of capital based on Boehm-Bawerk and von Mises into a coherent theory of the business cycle which does much to explain the mess we are in.
Keynesian economics justifies the use of stimulus programs such as are being used around the world to revive the world economy. Nations around the world are following President Richard Nixon when he said, "We are all Keynesians now."
One should not assume Keynes would approve of current economic policy. At a meeting of American economists shortly before he died, Keynes remarked "Perhaps I am the only non-Keynesian in the room." (as quoted in Bran Domitrovic's Econonoclasts: the History of the Supply-Side Revolution.)
Many thanks to both Ryan Pendleton and the Kansas Policy Institute who alerted me to this.
Wednesday, June 03, 2009
The Recovery Is On! Fair Dinkum!
By MarketWatch's Myra P. Saefong reports Australia's gross domestic product is up in the first quarter and in comparison with last year's first quarter.
She writes, "The nation's GDP expanded by seasonally adjusted 0.4% in the first quarter, both in comparison with the same quarter a year ago and with the fourth quarter," citing the Australian Bureau of Statistics.
The All Ordinaries gained 62 points going over 4,000 for the first time since November. Hallelujah!
The Aussie dollar is also up. Ms. Saefong reports "The Australian dollar also strengthened, with one Australian dollar buying 82.26 U.S. cents, up from the previous close of 82.07 U.S. cents."
In the fourth-quarter, Australia's GDP dropped 0.6%, the first drop in eight years. Apparently the Aussie national income accountants do not report growth rates in seasonally adjusted annual rates annualized. It makes the numbers less dramatic.
"The bureau said that growth on the expenditure side over the past four quarters was driven by household spending and by exports, offset by a fall in inventories."
Disclosure: your correspondent has shares in an Aussie closed end fund.
What does it mean?
Australia's economy is tied to Asia. When the Chinese dragon stokes up its furnace, Australia and Brazil feed the beast the inputs that fuel its exuberance. Thus Australia's economic growth and the Aussie dollar are leading indicators of the globalized economy.
This implies that the world economy is recovering. Further dramatic confirmation can be found in the Baltic Dry Index, an indicator of shipping prices. As trade picks up, it costs more to hire a ship to transport it. The index has increased four-fold since December returning to the boom levels of 2004-6 and soaring toward the bubble levels of mid-2008.
She writes, "The nation's GDP expanded by seasonally adjusted 0.4% in the first quarter, both in comparison with the same quarter a year ago and with the fourth quarter," citing the Australian Bureau of Statistics.
The All Ordinaries gained 62 points going over 4,000 for the first time since November. Hallelujah!
The Aussie dollar is also up. Ms. Saefong reports "The Australian dollar also strengthened, with one Australian dollar buying 82.26 U.S. cents, up from the previous close of 82.07 U.S. cents."
In the fourth-quarter, Australia's GDP dropped 0.6%, the first drop in eight years. Apparently the Aussie national income accountants do not report growth rates in seasonally adjusted annual rates annualized. It makes the numbers less dramatic.
"The bureau said that growth on the expenditure side over the past four quarters was driven by household spending and by exports, offset by a fall in inventories."
Disclosure: your correspondent has shares in an Aussie closed end fund.
What does it mean?
Australia's economy is tied to Asia. When the Chinese dragon stokes up its furnace, Australia and Brazil feed the beast the inputs that fuel its exuberance. Thus Australia's economic growth and the Aussie dollar are leading indicators of the globalized economy.
This implies that the world economy is recovering. Further dramatic confirmation can be found in the Baltic Dry Index, an indicator of shipping prices. As trade picks up, it costs more to hire a ship to transport it. The index has increased four-fold since December returning to the boom levels of 2004-6 and soaring toward the bubble levels of mid-2008.
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