In our previous post, we looked at which sectors of the US economy tend to be responsible for contractions in real output. After toiling away in table 1.5.2 of the National Income and Product Accounts, we produced this chart:
Despite accounting for less than a fifth of economic activity on the eve of the last downturn, changes in spending on residential construction, business investment in equipment, and household consumption of durable goods accounted for basically all of the decline in real GDP, just as they did in 1973, 1980, and 1990. Read more
Stocks and corporate bonds haven’t been doing so well lately, while the market-implied probability of four Fed rate hikes by the end of this year — the median expectation of policymakers as of December — has plunged below 1 per cent (according to Bloomberg’s WIRP function, anyway). Reasonable people are now starting to wonder whether another downturn is imminent.
Changes in prices could be signalling weakness yet to be captured by the official statistics on employment, output, and incomes. Even if you don’t believe asset prices contain useful information, it’s possible the hit to net wealth could encourage households and businesses to cut spending, thereby leading to recession and job losses.
We can’t answer whether a recession is around the corner, although the probability of another downturn necessarily rises with time since the last one. Instead, we want to lay out some of the main arguments and think through what various downside scenarios might look like. Read more
Spend too much time with people of a certain social class in certain cities, and you get the impression the tech industry is taking over the entire economy. Technology firms are certainly among the world’s most valuable — Alphabet, Amazon, and Apple are just the ones starting with A — but their impact on the aggregate US economy is actually quite small, at least according to the official statistics.
We were reminded of this after reading an interesting feature in today’s FT on the Israeli tech sector’s growing ambitions. (The country has been successful at producing small companies that get bought by larger American and European firms, and is host to research labs and offices for multinationals keen on employing local talent, but is now keen on creating some industrial champions of its own.) One passage from the article was particularly striking: Read more
One common explanation why Europe had a worse crisis and weaker recovery than America: its companies depend far more on banks for financing than the capital markets.
Those banks have been in perpetually worse shape than US lenders, mostly because of bad decisions from officials in national governments and the European Central Bank.
The critics point hammer home their point with charts like this:
After a considerable period of boredom, trying to figure out America’s central bank has gotten interesting again.
For months, the mid-September meeting of the Federal Open Market Committee was being telegraphed as the most likely start date of the “normalisation” process. Or, to use another bit of central banker-ese, the day when short-term interest rates would begin “liftoff” from the current range of zero to 25 basis points. Read more
It’s amazing what you can find when you spend some time in table 2.1 of America’s National Income and Product Accounts.
As anyone following the debates about inequality has surely heard, income from owning capital has fluctuated dramatically as a share of total personal income:
Zoltan Pozsar — who will be at Camp Alphaville, so buy your ticket now! — has a fascinating new slide deck illustrating the changing landscape of US household debt, which, thankfully, is easier to read than his incredibly detailed map of the shadow banking system.
While the total stock of household obligations is only slightly lower than it was at the peak in 2008, the composition of the lenders has changed dramatically. The government, which for our purposes includes Fannie and Freddie as well as the Federal Reserve, has become far more important, while so-called “shadow banks”, private-label securitisation, and foreigners have all become less important. On the whole, this is probably good for financial stability. Read more
There’s been much gnashing of teeth in the past few weeks regarding the health of the US economy. The government’s initial estimate GDP growth in the first quarter looked weak on the surface, and private forecasters now expect downward revisions based on unfavourable changes to the trade balance. But, as we noted a few weeks ago, quarterly data are noisy, while the underlying trends are broadly positive.
So it was interesting to read a new note from economists at Barclays (h/t George Pearkes) suggesting that most of the disappointment in the first quarter’s data can be explained by a statistical artifact that disproportionately affects the figures for non-oil construction, exports, and defence procurement. Ever since the start of 2010, spending in these categories has consistently collapsed in the first three months of the year only to rebound in the subsequent nine months. The difference in average annualised growth rates is a whopping 20 percentage points. Read more
At first glance, America’s latest growth figures don’t look so good. We generally refrain from commenting on quarterly GDP data because, among other reasons, the numbers are naturally noisy and they’re often revised by large amounts. (Or as the Fed says, “transitory factors,” although probably not the weather.) Those caveats out of the way, there are a few interesting points in this report that are worth noting.
Let’s start with a theoretical exercise. Imagine it were one year ago today, and someone told you that, between then and the end of this past March, the price of oil would fall by about half and that the real, trade-weighted dollar would appreciate by more than 10 per cent. A reasonable person would expect two things: big cutbacks in domestic oil investment that wouldn’t initially have been offset by higher investment elsewhere, and a hit to net exports.
None of this would have told you anything about would happen to total spending, but it would have provided guidance on how the composition of spending would change. Read more
In a previous post we looked at which US states were the best for job growth in 2014. (North Dakota was best overall, followed closely by Utah, which has the advantage of not being reliant on energy extraction, as well as one of the highest median incomes in the US.) In this post we’re going to take a longer view of how the distribution of employment has shifted across the most populous US metro areas since 1990, when the data begin.
The first thing to note is that the share of Americans employed in one of the major metro areas in our sample* has stayed relatively constant since 1990, although there have been some interesting trends over the period: Read more
We want to share a few highlights of the new state-level data on employment and unemployment from the US Bureau of Labor Statistics.
Our first chart compares the growth rate in the number of workers by state against the US as a whole: Read more
The straightforward ranking of US states by personal income per person has Washington DC, Connecticut, Massachusetts, New Jersey, North Dakota, Maryland, and New York on top, and Mississippi, Idaho, South Carolina, West Virginia, Utah, Arkansas, and Kentucky on the bottom.
With the exception of Utah, which has the sixth-highest median household income in the country, none of this should be terribly surprising. (We suspect the discrepancy can be explained by the large size of the typical Utah household.)
Among metro areas, it similarly shouldn’t be surprising that the oil town of Midland, TX tops the list, followed by the hedge fund mecca of greater Stamford, CT, followed by Silicon Valley and San Francisco. The lowest-income metro areas are mostly populated by towns and cities along the Mexican border, Indian reservations, and particularly deprived pockets of the old Confederacy.
But the problem with these straightforward rankings is that they ignore the wide variation in living costs across the country. Someone who wanted to buy a modern 1-bedroom apartment in Queens, NY, would have to pay far more than someone who wanted to buy a 4-bedroom house in a nice area of Chicago, for example. Read more
Eric Rosengren, the President of the Federal Reserve Bank of Boston, gave a speech in Frankfurt on Thursday arguing that the Fed’s full employment mandate gave the central bank more flexibility to be aggressive earlier, and that open-ended programmes that are tied to economic targets are more effective than purchases of predetermined size and duration.
Nothing novel there. But his speech also contained, perhaps inadvertently, some interesting arguments that the rounds of bond-buying after the acute phase of the financial crisis did little for the real economy. (We covered the tenuous relationship between asset purchase programmes and inflation here.) Read more
We recently had the chance to attend a fascinating presentation given by Erik Hurst at the Booth economic outlook in New York. He discussed the divergent employment outcomes of those with college educations compared to those without them, which featured a chart that looked something like this:
(Source: Bureau of Labor Statistics, author’s calculations)
The implication is that the economy is booming for people with college degrees but hasn’t recovered at all for people who never got past high school. Read more
The Congressional Budget Office has just come out with its latest ten-year projections on spending, revenue, and debt. As has been the case for a while, the boffins estimate that the deficit will continue to shrink for a few years and then gradually widen, eventually raising the government debt to GDP ratio.
The actual arguments in the body of the report contradict elements of this forecast, however. It’s quite possible that, for at least a few years before the next recession, the combination of strong growth and previous austerity measures will combine to produce a budget surplus and an associated scarcity of safe assets. Read more
It’s no secret that spending cuts (and tax hikes) have retarded America’s growth for the past four years. But data from the Bureau of Economic Analysis suggests that the era of austerity may finally have ended.
The following chart shows the contribution of government and private spending to annual GDP growth, since the start of 2005:
Americans bought 5.4 per cent more light vehicles in the first nine months of the year than in the same period in 2013.
What’s striking is a whopping 92 per cent of this increase is due to higher purchases of sport utility vehicles, crossovers, pickup trucks, and vans. Traditional cars contributed a measly 8 per cent to the total increase in units sold. Here’s a full breakdown, courtesy of CreditSights: Read more
The Federal Reserve’s latest flow of funds data shows that US households have rediscovered their credit cards, and lenders are eager to oblige them. Just look at this:
The US Census Bureau has just released its latest data on median incomes by state, which can be found here in table H-8. We looked at these data and would like to share a few interesting charts.
First, look at the gap between the states with the highest and lowest median incomes. Read more
Everyone knows that Americans spend more on healthcare than many other rich nations yet often end up with worse outcomes. The interesting question is why.
There are certainly big inefficiencies in the way health care is provided and how it is paid for. Consider the following chart (via Harvard’s Amitabh Chandra):
The latest Canadian jobs data certainly make it seem so. Perhaps the better question is: has the Canadian economy already hit its peak for this cycle?
Some highlights we dug out from the guts of the report: Read more
The Federal Reserve has just released its Survey of Consumer Finances for the year 2013.
These surveys occur every three years, so this is the first comprehensive update we have gotten about the distribution of income and wealth in the US since the economy hit bottom four years ago.
The most striking finding is that the median American family earned 5 per cent less in 2013 than in 2010 after inflation even though the average American family took home 4 per cent more.
An observation from Credit Suisse economists about wages, emphasis ours:
The 2008 negative shock on prices was so large and, more importantly, so unexpected that sticky nominal wages were unable to react timely to deflation, causing real labor costs to rise sharply. Read more
Excessive US household borrowing of the 2000s was not evenly distributed.
During the peak of the bubble, the average Nevadan carried about two-and-a-half times as much mortgage and consumer debt as the average Texan, according to the Federal Reserve Bank of New York:
What’s striking to us, from a new research note published by the Federal Reserve Bank of Cleveland, is that the amount of variation within metro areas was often as big as, if not greater than, the variation between them. Read more
As a brief follow-up to yesterday’s post on the impact of US trade with China on US employment and incomes, we thought it would be useful to visualize a few interesting facts about the evolution of the bilateral trade balance over time.
First, look at how the deficit in the trade of goods swamps the modest surplus in the trade of services. Whilst the data on services are annual and stop in 2012, the general picture would probably not look much different even if it were more up to date: Read more
Polled in March 2012, top academic economists overwhelmingly agreed that “freer trade improves productive efficiency and offers consumers better choices, and in the long run these gains are much larger than any effects on employment.”
This academic consensus has penetrated popular opinion to the extent that some people believe increasing cross-border trade flows is unambiguously good for everyone. Likewise, there is a relatively common — and wrong — belief that the Hawley-Smoot tariffs were a significant factor in the severity of the Great Depression.
We don’t want to suggest that trade is bad, but it is worth highlighting that the actual views of the experts who study these issues are much more nuanced than what the “pop internationalists” often spew out.
For example, a new paper by Daron Acemoglu, David Autor, David Dorn, Gordon H Hanson, and Brendan Price estimates that the sharp increase in bilateral trade between China and the US cost somewhere between 2 and 2.4 million jobs between 1999 and 2011 — about 1 percent of the entire civilian population in 2011. Less than half of those jobs were in manufacturing sectors that directly competed with Chinese businesses. Read more
Janet Yellen’s thoughtful speech on labor markets last week has already received a lot of attention. One passage, which highlighted some recent research from her former colleagues at the Federal Reserve Bank of San Francisco, was particularly noteworthy, in part for its implications about the path of future wage growth:
The sluggish pace of nominal and real wage growth in recent years may reflect the phenomenon of “pent-up wage deflation.” The evidence suggests that many firms faced significant constraints in lowering compensation during the recession and the earlier part of the recovery because of “downward nominal wage rigidity”– namely, an inability or unwillingness on the part of firms to cut nominal wages.
Credit Suisse’s global demographics research team came out with a new note on Friday featuring some enlightening charts about the US economy. It provides a handy way of evaluating the country’s lackluster performance since 2000, as well as a few longer-term trends.
As the CS team notes, GDP growth can be decomposed into three distinct forces: growth in the population of working-age people, growth in the number of hours worked by each working-aged person, and productivity growth. Read more
Does the secular deflation of computers and related equipment skew the macroeconomic data on investment in the direction of irrelevance? Read more