Some observations on the employment situation and other economic indicators: (1) Not only is nonfarm payroll employment slowing its rate of descent, so is private employment; (2) but perhaps more dramatically the decline of aggregate hours halted last month; (3) the rate of decrease has diminished even faster for civilian employment measured by the household survey, and indeed; (4) the household (research) series adjusted to conform to the payroll series is now improving; and (5) a first “estimate” of July GDP supports the case for stabilization of output.
Author Archives: Menzie Chinn
China’s Impact on the Global Economy: A Symposium
As attested to by the large amount of coverage of the recent US-China Strategic and Economic Dialog [0] [1], [2], [3], [4],[5] China looms large in any discussion of the world economy. One of the most important contributors to the informed discussion on this subject was Brad Setser, at the Council on Foreign Affairs and before that at RGE Monitor. Unfortunately, Dr. Setser will be leaving the blogosphere, so his insights will be missed (although fortunately for us, he’ll be adding his input at the NEC, where we all wish him well).
So now, there’ll be even a greater need for reasoned analysis. One addition to the discussion is a Symposium on China’s impact on the global economy just published in Pacific Economic Review (August 2009). From my introductory chapter to the symposium:
Over the past decade, China’s presence in the global economy has grown
increasingly large. Along many dimensions, China is, rightly or wrongly,
perceived to have an enormous impact. In the trade arena, China is now widely
considered to be the world’s workshop, displacing some traditional exporters
of labour-intensive goods, even as its economy is ever more closely woven into
the fabric of the increasingly fragmented chain of production….
Comparing the Current Recession and the “1980-82 Recession”
At least one observer has argued that the current recession is not as bad as that of the 1980-82 recession, when those two separate recessions (1980Q1-1980Q3; 1981Q3-1982Q4) are considered as one (see [1] [2]). Here is my interpretation of this assertion, updated to use the latest GDP data, and normalizing (log) GDP on the recession start dates.
Multipliers, under Differing Monetary Regimes
Here’s another installment in a series attempting to move the discussion from “my estimate vs. your estimate” (or “prior”, as the case may be) [1] [2] [3] [4] [5] [6] to something more constructive (and hopefully more nuanced). From the conclusion to “Expectations and Fiscal Stimulus” by Troy Davig and Eric M. Leeper:
This paper has embedded estimated Markov-switching rules for U.S. monetary and fiscal policy into an otherwise conventional calibrated DSGE model with nominal rigidities to deliver some quantitative predictions of the impacts of government
spending increases. When monetary and fiscal policy regimes vary — from active monetary/passive fiscal to passive monetary/active fiscal to doubly passive to doubly active — government spending multipliers can vary widely. An increase in government spending of $1 in present value raises output by $0.80 in present value under
[Active Money/Passive Fiscal] AM/PF, while it raises output by as much as $1.80 in present value when monetary policy is passive. In our simple model, this translates into a decrease in consumption of $0.20 in present value under AM/PF, but an increase in consumption of about $0.80 in present value under passive monetary policy.
Good News and Bad News from the GDP release
Some additional observations (see Jim Hamilton’s take, as well as others) on the GDP release: (1) the five year revision indicates that GDP was larger than we thought, but it also declined faster in 2009Q1; (2) GDP growth was lower throughout 2008 than earlier estimated; (3) GDP growth in 2008Q2 at 1.5% SAAR would have likely been at zero or negative in the absence of the January 2008 stimulus package in which case; (4) GDP q/q growth would have been negative from 2008Q1 to 2009Q2; (5) the case that ARRA directly affected 2009Q2 GDP is limited, in a mechanical sense since most of the increase in government spending is accounted for by defense spending; and (6) the US ex-oil ex-agricultural net exports to GDP ratio is back to where it was in 1998Q1.
Fiscal Policy and Banking Sector Repair Synergies
From the conclusion to “How Effective is Fiscal Policy Response in Systemic Banking Crises?”, by E. Baldacci, S. Gupta, and C. Mulas-Granados:
This paper assessed the effects of fiscal policy responses during 118 episodes of systemic
banking crises in advanced and emerging market economies. The results indicate that timely
countercyclical fiscal responses (both due to discretionary measures and automatic
stabilizers), accompanied by actions to deal with financial sector weaknesses, contribute to
shortening the length of crisis episodes. During crisis caused by financial sector distress,
fiscal expansions increase the likelihood of earlier exit from a shock episode. Expansionary
fiscal policies reduced the crisis duration by almost one year. These results hold for different
definitions of crisis duration and alternative specification and estimation methods. The
findings are consistent with recent studies that highlight the importance of countercyclical
policy in response to recessions associated with financial sector problems (Classens, Kose,
and Terrones, 2008; IMF, 2009b; IMF, 2009c).
Three Pictures: China’s Exchange Rate and Trade Balances
There’s plenty of commentary on the ongoing China-US Strategic and Economic Dialog, from the Economist [1], Reuters [2], [3], and Bloomberg [4] [5]. Here are three pictures to place some of the issues in perspective.
My first observation is while the nominal USD/CNY had stabilized in recent months, the exchange rate that matters most for global imbalances, the Chinese real trade weighted CNY, has moved around a bit, as the dollar has appreciated and depreciated.
Are Unemployment Statistics Meaningless? Are Spillover Effects Zero?
Casey Mulligan rebuts my post asserting slack in the economy by posing the scenario “Construction Workers Teaching Kindergarten” (Note: Mulligan’s blog is down; here is an alternative link currently working – 8/2/09). He writes:
Econbrowser now claims* that the stimulus bill can be effective, because unemployment rates are high (whatever that means) in health care and education. Let’s take a look at employment changes Dec 2007 – June 2009 (millions) by industry:
Total nonfarm payrolls: -6.5
Construction: -1.3
Manufacturering: -1.9
Education and Health: +0.7
How exactly is fiscal policy going to create 3.5 million jobs by primarily hiring people in education and health? I see only two scenarios, both absurd and/or dishonest:
He argues these two scenarios are: (1) “The construction workers become kindergarten teachers” or (2) “The people in construction and manufacturing stay unemployed.”
Output Gap Measurement and Prospects in the Wake of the Crisis
Different concepts of potential GDP
For serious macroeconomists, the magnitude (or existence) of the output gap is a central factor for determining the appropriate policy actions (see for instance Weidner and Williams). In several recent posts, I’ve discussed the variety of approaches to estimating the output gap [0] [1]. A recent symposium on Projecting Potential Growth published by the Federal Reserve Bank of St. Louis is an excellent resource for anybody who wants to think seriously and carefully about the challenges in estimating this variable. In the lead article entitled “What Do We Know (And Not Know) About Potential Output?”, the authors Susanto Basu and John Fernald write:
The Failure of Macroeconomics?
This must be the period of soul searching, with the Economist engaging upon multi-article exegeses on where mainstream macro went wrong [1], [2], [3]. Alternatively, I think this is a happy time for some economists outside the (perceived) mainstream, who can now chortle “I told you so”. One recent example is by Mario Rizzo.