We’re now 3 months into the Fed’s new asset purchase program that has been popularly described as a second round of quantitative easing, or QE2. I thought it would be useful to take a look at what has actually changed during the first 3 months of QE2.
Author Archives: James_Hamilton
Saudi oil reserves may be overstated by 40%
Stuart Staniford calls attention to this story from the Guardian:
The U.S. fears that Saudi Arabia, the world’s largest crude oil exporter, may not have enough reserves to prevent oil prices escalating, confidential cables from its embassy in Riyadh show.
The cables, released by WikiLeaks, urge Washington to take seriously a warning from a senior Saudi government oil executive that the kingdom’s crude oil reserves may have been overstated by as much as 300bn barrels– nearly 40%.
Stuart also notes that in his own independent forensic analysis conducted in May 2007 (to which we called the attention of Econbrowser readers at the time), he estimated that remaining reserves in Ghawar (by far the Saudis’ biggest and most important oil field) were overstated by 40%.
The employment news is good (I think)
The Bureau of Labor Statistics reported yesterday that the unemployment rate has fallen from 9.8% in November to 9.0% in January, as big a two-month drop as we’ve seen in the last 50 years (hooray!). But in the same report, BLS indicated that their seasonally adjusted estimate of the number of Americans employed on nonfarm payrolls increased in January by an anemic 36,000 (oh dear!). Reconciling the very contradictory claims is even harder than usual, but I’ll give it a try.
An improving economic outlook
Looking a little better each day.
Geopolitical unrest and world oil markets
Change is on the way in the Arab world, with Egypt the latest focal point. Here I review recent events and their implications for world oil markets.
A modestly brighter GDP report
The Bureau of Economic Analysis reported today that U.S. real GDP grew at an annual rate of 3.2% during the fourth quarter of 2010. That’s about the historically average growth rate. But we expect much better than average at this point in the cycle, and need much better than average to make real progress with the unemployment rate.
Real-time analysis of the Aruoba-Diebold-Scotti Business Conditions Index
One of the economic indicators to which we frequently call attention is the Aruoba-Diebold-Scotti Business Conditions Index that is maintained by the Federal Reserve Bank of Philadelphia. This uses a number of important economic indicators immediately upon release to get an updated view of the overall level of economic activity. One question that arises in using this index is that the raw data from which the index is constructed can be subject to considerable revision in subsequent data releases. A new analysis by the authors takes a look at this issue.
The Fed’s new policy tools
We had to throw out our textbook descriptions of how monetary policy is implemented after the fall of 2008, as the Fed turned from its traditional tools to active use of large-scale asset purchases. A number of studies have now been conducted of the potential efficacy of these new policy tools. I surveyed some of the new studies last October. Today I’d like to discuss three new papers that have come out since then.
How much are gasoline prices weighing on consumers?
On Friday Reuters reported:
Rising gasoline prices beat down U.S. consumer sentiment in early January, overshadowing an improved job outlook and passage of temporary federal tax breaks, a survey released on Friday showed. A year-end surge in gasoline prices ratcheted up consumer inflation expectations to their highest in more than two years, according to the latest data from Thomson Reuters and the University of Michigan. The surveys’ preliminary January reading on the overall consumer sentiment slipped to 72.7, below 74.5 in December. It fell short of a 75.4 reading predicted by economists polled recently by Reuters.
Oil shocks and economic recessions
I’ve just completed a new research paper that surveys the history of the oil industry with a particular focus on the events associated with significant changes in the price of oil. Here I report the paper’s summary of oil market disruptions and economic downturns since the Second World War. Every recession (with one exception) was preceded by an increase in oil prices, and every oil market disruption (with one exception) was followed by an economic recession.