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).
Author Archives: Menzie Chinn
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.
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.
The Economic Situation: Some Random Snapshots
The latest employment release was stunning, insofar as the NFP employment figure was far below consensus [0]. Net job loss was 240K, rather than 200K; moreover, September job loss was revised upward by 125K. In addition to Jim’s assessment, some reaction is summarized here. The acceleration in net job loss is depicted in Figure 1.
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.
Fiscal Implications of the Candidates’ Plans
I think now is the time to consider the fiscal implications of the candidates’ budget — and particularly tax — plans, especially considering the revenue declines and outlays that will confront the next President. Indeed, I would say imminent revenue declines will place an even greater premium on sensible tax plans, and efficient use of Federal dollars. Figure 1 displays the budget surplus to GDP ratio, both actual and CBO baseline.
More on Defense Spending
In my last post on the 08Q3 GDP release, I noted the remarkable contribution of defense spending. Here is a little more detail on the growth rates of defense spending on goods and services on a NIPA basis.
Some Additional Observations on the 2008Q3 Advance GDP Release
If you went no further than noticing that the q/q annualized growth rate of -0.3% was faster than the -0.5 in the Bloomberg consensus, you might have taken this as good news. I’m not going to say it wasn’t good news (relatively speaking), although negative growth makes the case for recession pretty good according to Jeff Frankel (who is on the NBER BCDC); see also RealTime Economics. However, there are some pretty interesting things that merit additional discussion.
Pocketful of Multipliers (II): Options for Stimulus Packages
As the debate over the nature and size of a stimulus package wends its way through the Congress [0], [1], [2], I thought it would be useful to bring numbers into the debate, especially as we are considering fiscal stimulus in a time when the Bush Administration has constrained, by dint of previous profligacy, our options. In particular, I want to return to the issue of multipliers, discussed in nearly a year ago. Here, I want to provide a little more specificity, regarding the impact depending upon the type of outlays.
Yikes! Euro Area Edition
From the FT today:
Survey underlines grim outlook for eurozone
By Ralph Atkins in Frankfurt, Published: October 24 2008 11:23 | Last updated: October 24 2008 18:37The eurozone economy contracted sharply in October as the global bank crisis slammed the brakes on business activity and blackened the outlook for the 15-country region, a closely watched survey indicated on Friday.