It has been interesting to me how much excited commentary has been elicited by my posts on output gaps. [0],
[1], [2], [3] I had thought the subject fairly uncontroversial, especially my reliance upon the CBO measure, which is calculated in a conventional manner, and is an object well-understood in mainstream macroeconomics (take your pick — from Hall and Papell to Mankiw). However, it’s clear that there is no such agreement in the blogosphere (which can be taken as an indicator of how dispersed beliefs are in that world). In any case, the reaction tells me that one’s belief in what determines potential GDP defines in large part how one thinks about the workings of the economy, and so I thought it useful to discuss alternative measures coming out of current academic work.
Deflation risk down but not out
While this week brought some pretty frightening numbers on industrial production and manufacturing surveys, I viewed Friday’s CPI release from the Bureau of Labor Statistics as slightly encouraging.
First Reading on (part of) Q1 GDP
Here’s a compilation of e-forecasting’s January GDP estimate, Macroeconomic Adviser’s December GDP estimate and forecast for 2009Q1. E-forecasting’s estimate is that January real GDP was declining at an 11.8% at annual rates.
Industrial Production and Manufacturing Output, Compared
One can get an idea of how bad this recession is compared to previous ones at the St. Louis Fed’s Recession Watch. They haven’t They’ve now updated the pictures to account for today’s industrial production release (-1.8% vs. Bloomberg consensus -1.5%)., so I will convey the situation in two graphs. To sum up, industrial production is lower than at the corresponding point in any previous post-War recession. For manufacturing output, the same is true back to the 1973 recession (as far back as this series goes).
Prospects for the U.S. banking system
Some thoughts on the extent of the problem and options for solution.
Recap: The Stimulus Bill and the Macro Impact
CBO has now released an analysis of spend rates of the final stimulus bill to be signed by the President on Tuesday. While the proportions of expenditures and tax cuts are changed, the time profile is little changed from the original House bill — wherein most of the stimulus takes place in the next 19.5 months.
Japanese GDP contracts 3.3% q/q in 2008Q4
Or, 12.7% on an annualized basis. From Reuters:
TOKYO (Reuters) – Japan’s economy shrank 3.3 percent in the fourth quarter, the biggest drop since 1974 and further confirmation that the world’s second-biggest economy is in a severe recession as the global economic crisis deepens.
Projected size of the deficit
It’s interesting that as we discuss the magnitude of the economic problems and proposed solutions, the units everything is quoted in have gone from billions to trillions.
Former Bernanke home in foreclosure
A couple of stories that provide some personal perspective on the scope of the current problems.
WSJ February Survey of Forecasters
The picture says it all. Based on data from the WSJ: