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: