Last Thursday, I had the opportunity to participate in a panel on Global Economic Crisis: The Untold Stories, sponsored by the Center for World Affairs and the Global Economy (WAGE). I was tasked with surveying the impact on the economy outside the borders of the United States — in 20 minutes.
Author Archives: Menzie Chinn
The Progress of the Financial Crisis in One Picture: Mortgages, Flight to Safety, Credit Lock
Markus Brunnermeier provides an excellent summary graph of the financial crisis, told in “spreads”.
Triple “Ut-Oh”: September Trade Release and the End of the Consumer of Last Resort
Brad Setser says “Ut-Oh”, beating me to the punch on the September trade release, which showed US exports plunging. It’s a post that Paul Krugman rightly expresses some angst upon reading. And now I’m going to add two more reasons to worry (not that I think Setser and Krugman aren’t aware of these points).
Real Retail Sales
Here’s a picture of 12-month percentage changes in real retail sales. Certainly unprecedented for the current series, not so much when including the previous (more volatile) discontinued series — although you do have to go back to 1980 to see a bigger 12-month drop.
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).
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.