Yearly Archives: 2008

The Consumption Path under Certain Assumptions: Back of the Envelope Calculations

Suppose by 2009Q4, GDP is 0.13% below 2008Q3 levels, real equity wealth is 35.2% below end-June levels, and real nonequity wealth is 6% below end-June levels. Further assume that the real Fed Funds rate remains at 2008Q3 levels (-2.45%). Then, the conditional estimate of 2009Q4 consumption will be 2.16% below 2008Q3 levels. This implies a 3% y/y decline in consumption by 09Q3; the only comparable instance of such a decline is 1951Q3, when consumption declined y/y by 2.3% (all percent calculations in log terms).

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Some Consumption Trends Reviewed

There’s been a lot of talk about how consumption will fall in the future — some of it added by myself [0]. I’m trying to fit some regressions now, to make some guesses about how consumption will move in the future, based on guesses about GDP and net wealth. I haven’t got very far, but at the very least, I can share some interesting pictures. Figure 1 depicts nominal shares of services, services and nondurables, and total (i.e., adding in durables) consumption, over the 1967-2008 period.

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Update on FDIC guarantee fees

On Saturday I noted that details of the FDIC guarantees of fed funds implemented on October 14 could introduce a substantial wedge between the fed funds target and the effective fed funds rate. Rebecca Wilder argues that this could not be affecting the current effective fed funds rate due to details of the “opt out” provision. Here I provide some further discussion of this point.

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China Acts

From Bloomberg:


China Announces 4 Trillion Yuan Economic Stimulus (Update2)


By Li Yanping and Chia-Peck Wong

Nov. 9 (Bloomberg) — China announced a 4 trillion yuan ($586 billion) stimulus plan to spur expansion in the world’s fourth-largest economy, helping sustain global growth as the U.S., Europe and Japan teeter on the brink of recession.

The funds, equivalent to almost a fifth of China’s $3.3 trillion gross domestic product last year, will be used by the end of 2010, the Beijing-based State Council said today on its Web site. China will adopt a “pro-active fiscal policy” and pursue a “moderately loose” monetary policy, it said.

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Main Street Recession Watch: ADP Report on Employment

Further evidence that the small business segment of the economy is undergoing stress. From the ADP National Employment Report:

[Joel] Prakken added, “This month’s employment loss was driven by the goods-producing
sector which declined 126,000 during October, its twenty-third consecutive monthly
decline. The manufacturing sector marked its twenty-sixth consecutive monthly decline,
losing 85,000 jobs. These losses were compounded by an employment decline in the
service-providing sector of the economy which fell by 31,000, the first loss in the serviceproviding
sector recorded by the ADP Report since November of 2002.”

“Large businesses, defined as those with 500 or more workers, saw employment decline
41,000, while medium-size companies with between 50 and 499 workers declined
91,000. Employment among small-size businesses, defined as those with fewer than 50 workers, declined 25,000. This is the first outright decline in small business employment reported by the ADP Report since November of 2002, and the largest percentage decline
since the economy was emerging from recession in early 2002
,” said Prakken.

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