A Fisherian Decomposition of the Recent Interest Rate Increase

How much of the increase in the 10 year constant maturity Treasury yield is from higher real rates, and from higher expected inflation?


Source: Federal Reserve Board via FRED.

Recalling the Fisherian identity:
  it = rt + πet

One can take the total differential:

  Δit = Δrt + Δπet

Hence, of the 0.49 percentage point change from December 15 to February 7 in ten year Treasury yields, 0.27 percentage points is accounted for by a real interest rate increase, and 0.22 percentage point by inflation expectations boost (abstracting from liquidity premia, etc.).

Over the five year horizon, of the 0.41 percentage point change, 0.28 percentage points is accounted for by the real rate change, and 0.21 percentage point from higher expected inflation.

All about why nominal rates are rising, in interview with Marketplace (Stan Collender comments too). We talk about the standard things — tax cuts, spending increases, Fed QE unwinding and rate increases, and (my contribution) the deceleration of foreign central bank Treasury purchases (graphical depiction here on page 6). Discussion of the last point with respect to China here.

California in Recession? (Part III)

Back in mid-December, Political Calculations asked if California was in recession. Data released by the Philadelphia Fed suggests the answer is no.


Figure 1: Coincident index for California (blue), and implied index value for June 2018 using leading index (light blue arrow, blue dot) against log scale. NBER defined national recession dates shaded gray. Red arrow at date of Political Calculations post. Source: Philadelphia Fed [1], [2], and author’s calculations.

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EconoFact: “Threats to U.S. Agriculture from U.S. Trade Policies”

Or, Does Mr. Trump feel lucky?

From EconoFact:

The agriculture sector in the United States depends upon exports for its vitality. Sales of U.S. agricultural products abroad are responsible for 20 percent of U.S. farm income, supporting more than one million American jobs on and off the farm, according to the U.S. Department of Agriculture. The three biggest buyers of American agricultural products are China, Canada, and Mexico. Yet trade with these three countries faces heightened uncertainty. The Trump Administration initiated a process of renegotiating the North American Free Trade Agreement (NAFTA) with Canada and Mexico, which includes the option of exiting the deal altogether. In addition, the United States has started a series of investigations of unfair practices leveled against China, some of which have already resulted in the imposition of new tariffs. These trade policy initiatives threaten agricultural exports both because of the potential increase of tariffs on exports to Canada and Mexico that would result from a withdrawal from NAFTA as well as the very real threat of retaliation in response to other proposed policies.


Figure 1: Share of total agricultural exports going to Mexico and Canada, by state. Agricultural exports defined as NAICS 111+112+311 (crops, livestock, and processed food). Source: Census via ITA and author’s calculations.

The entire article is here. More on agricultural sector fortunes here.

If NFP Employment Growth Had Grown in 2017 (and January 2018) Like It Did in 2016

we’d have had over 340,000 more jobs in December. And over 380,000 more jobs in January


Figure 1: Nonfarm payroll employment (blue), and 2016 linear deterministic exponential trend set to match 2017M01 value (red), in 000’s, seasonally adjusted, on log scale. Orange shading denotes 2017 data. Source: BLS December 2017 January 2018 release, author’s calculations. (updated 2/2)

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Median Real Weekly Earnings for Workers back to 2016Q4 Levels


Figure 1: Employed full time: Median usual weekly real earnings for Wage and salary workers, 16 years and over, 1982-84 CPI Adjusted Dollars, seasonally adjusted (blue), and Employed full time: Median usual weekly nominal earnings (second quartile)f or Wage and salary workers, High School graduates, no college, 25 years and over, seasonally adjusted, deflated by CPI, not seasonally adjusted (red). NBER defined recession dates shaded gray. Orange shading denotes Trump administration. Source: BLS via FRED, and author’s calculations. (updated 8:30PM Pacific)