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  • Closer Look at GDP Numbers, Stimulus Effect, and Consumption Details

    The rise in GDP during the third quarter prompted the Room for Debate blog of the New York Times to ask whether the Obama Administration's $787 billion stimulus plan worked. MIT and Baseline Scenario 's Simon Johnson says the stimulus package worked on both an economic front and a political front (which then led to larger stimulus effects globally). Harvard University Economist Jeffrey Miron says no, look to monetary policy. Russell Roberts , economist at George Mason University, is sekptical of the stimulus plans power and suggests the growth might have occurred without it. And Mark Thoma says that "the stimulus programs in place now are probably too small." Read the full "debate" here . Meanwhile, James Hamilton had one of the most instructive pieces on the GDP numbers at the Econbrowser blog. Hamilton feels very positive about the GDP growth, and he neatly breaks down, and illustrates, the various contributors to the growth: Consumption spending is the biggest component of GDP and the main contributor to third quarter growth, accounting by itself for 2.4 percentage points out of the 3.5% total, and with consumer purchases of motor vehicles and parts alone 3/5 of the contribution of consumption. Next in importance was inventory rebuilding, which added 0.9 percentage points to the total and could make a significant further contribution in the quarters ahead. Housing is finally making a positive rather than a negative contribution, and nonresidential fixed investment was a smaller drag than I had been expecting. Imports grew faster than exports, though I'm relieved that trade overall is coming back. The government sector made a smaller contribution than one might have thought given the fiscal stimulus, in part because lower state and local spending offset some of the increased federal spending. For a healthier long-run growth path I'd prefer to see business fixed investment and net exports adding rather than subtracting. But, compared with what we've been seeing recently, this overall is a quite welcome report. Hamilton and Menzie Chin n track recessions through their Econbrowser Recession Indicator Index --a pattern recognition algorithm for identifying recessions that waits one quarter for data revisions and clear trend identification before making an assessment. With the third quarter GDP numbers out they looked at the revised second quarter figures. And they conclude that the recession did not end during the second quarter. Read the full GDP analysis here .

  • Economists Continue Optimistic Streak in WSJ Forecasting Survey; Also Think the Government Should Not Have Let Lehman Collapse

    Most economists surveyed for the Wall Street Journal 's monthly forecast see a net job increase coming over the course of the next 12 months. The Journal's Phil Izzo points out that this is the first time in over a year that they have projected job growth. As a group, the economists still expect unemployment to top 10%--so that job growth is going to take a little while and things are going to get worse in the labor market before they get better. The survey shows relative optimism for growth in the coming months, with a prediction of 3% growth in the current quarter. Here's a look at the GDP projections over the course of the recession: Click here for interactive versions of the Journal's helpful graphics and charts associated with the forecasting survey. Given that we are at the one-year anniversary of the collapse of Lehman Brothers, one of the more interesting questions on the latest forecasting survey was whether the government should have saved the investment banking giant. Most of the economists who responded to that question thought the government made a mistake. Kelly Evans and Phil Izzo discuss that and other aspects of the survey in this video: Read the accompanying article on the survey here .

  • WSJ August Forecast: Most Economists Surveyed Say the Recession Has Ended

    The Wall Street Journal 's August forecasting survey shows most of the participating economists feel the economy stabilizing: After months of uncertainty, economists are finally seeing a break in the clouds. Forecasts were revised upward for every period, with 27 economists saying the recession had ended and 11 seeing a trough this month or next. Gross domestic product in the third quarter is now expected to show 2.4% growth at a seasonally adjusted annual rate amid signs of life in the manufacturing sector, partly spurred by inventory adjustments and strong demand for the "cash for clunkers" car-rebate program. Here's what the Journal's GDP forecasting trend looks like: This month the Journal asked economists to weigh in on Ben Bernanke. The Fed Chair has 6 months left in his current term, and the economists surveyed give him a 71% chance of being reappointed. Wall Street Journal news editor Phil Izzo discusses econiomists' views on Bernanke and the survey with Kelly Evans : Click here for full coverage of the survey, and here for the Journal's always useful interactive survey charts and graphs.

  • Martin Wolf: Economic Rehab Promises to be a Grind

    In the IMF 's latest World Economic Outlook update, projections for GDP growth increased across emerging, developing, and advanced economies: That is a good trend, to be sure, but as the Financial Times 's Martin Wolf warns, it will be a long time before it feels like the economy has turned around: The worst of the financial crisis may be behind us, but the financial system remains undercapitalised and weighed down with an as yet unknown burden of doubtful assets. It is also far from a truly “private” financial system. On the contrary, it is underpinned by massive explicit and implicit taxpayer support. The probability of mischief down the road is close to 100 per cent. But the current hope is that the road to any such mischief goes via a recovery. Equally, the expected economic “recovery” is not going to feel like much of one. The latest consensus forecasts for growth in the high-income countries for 2010 are well below potential. Yet this is also at a time when the admittedly uncertain estimates of “output gaps” (or excess capacity) are at extreme levels. For 2009 the OECD estimates these at 4.9 per cent of potential gross domestic product in the US, 5.4 per cent in the UK, 5.5 per cent in the eurozone and 6.1 per cent in Japan. Given the forecasts for modest growth, excess capacity will be greater at the end of 2010 than at the end of 2009. The risks to inflation – or rather risks of deflation – are self-evident. So are the chances of further jumps in unemployment. In keeping with this, the “breakeven rate” of inflation implied by inflation-indexed and conventional US treasury bonds has fallen again, to close to 1.5 per cent. June’s hysteria over rising yields on conventional bonds looks absurd. Read After the storm comes a hard climb here . And read the World Economic Outlook update here .

  • Visual Economics: Debt to GDP

    Visual Economics is a good site for graphics and maps that neatly synthesize economic data. Here, for example, is their map showing national debt as a percentage of GDP. Just as with any household or business, red is bad, black is good. Take a look :

  • Romer and Lessons from 1937

    Christina Romer , chair of the President's Council of Economic Advisers, has a guest article in the latest Economist. Romer, who has been bullish on the Obama Administration's economic recovery plan, writes that we need to look back to 1937 to understand why, in her view, the stimulus spending is the right antidote for this recession. During FDR's first four years in office, the economy rebounded from the Depression in "rapid" fashion--"annual GDP growth averaged 9%." Unemployment dropped significantly in that period. But come 1937, unemployment surged (see chart at right from the Economist), as the country went into a deeper downturn. Romer: ...The fundamental cause of this second recession was an unfortunate, and largely inadvertent, switch to contractionary fiscal and monetary policy. One source of the growth in 1936 was that Congress had overridden Mr Roosevelt’s veto and passed a large bonus for veterans of the first world war. In 1937, this fiscal stimulus disappeared. In addition, social-security taxes were collected for the first time. These factors reduced the deficit by roughly 2.5% of GDP, exerting significant contractionary pressure. Also important was an accidental switch to contractionary monetary policy. In 1936 the Federal Reserve began to worry about its “exit strategy”. After several years of relatively loose monetary policy, American banks were holding large quantities of reserves in excess of their legislated requirements. Monetary policymakers feared these excess reserves would make it difficult to tighten if inflation developed or if “speculative excess” began again on Wall Street. In July 1936 the Fed’s board of governors stated that existing excess reserves could “create an injurious credit expansion” and that it had “decided to lock up” those excess reserves “as a measure of prevention”. The Fed then doubled reserve requirements in a series of steps. Unfortunately it turned out that banks, still nervous after the financial panics of the early 1930s, wanted to hold excess reserves as a cushion. When that excess was legislated away, they scrambled to replace it by reducing lending. According to a classic study of the Depression by Milton Friedman and Anna Schwartz, the resulting monetary contraction was a central cause of the 1937-38 recession. Red the full article here .

  • WSJ: Three of Largest US Trade Partners Have Big GDP Drops in Qtr 1

    The Wall Street Journal leads today with the news that Mexico's economy saw significant contraction in the first quarter-- GDP dropped 8.2 percent from a year ago and 21.5 percent annualized quarter-on-quarter . The news came in a week when Germany and Japan also showed severe contraction. The four economies are tightly bound, and the Journal's Bob Davis says US consumers drove the decline: All three countries depend on exports to the U.S. But they have nose-dived as U.S. consumers cut back purchases of autos, electronics and other goods mass produced abroad. For the first three months of 2009, U.S. merchandise imports declined about 30% to $352.5 billion compared with the same period a year earlier. Mexico's ties to the U.S. are particularly strong because of the North American Free Trade Agreement, and Mexican auto production in the first quarter fell 41% from the year before. And bear in mind the H1Ni/swine flu fears didn't start to hit Mexico's tourism trade and overall economy until after the end of the first quarter. Read the full article here .

  • WSJ May Economists Forecast: End of Recession Sooner, Recovery Long and Slow

    Economists in the Wall Street Journal 's monthly forecasting survey seem to be growing a bit more optimistic--and on average they predict the recession to end in August. This is a month sooner than the April forecast . The survey was conducted before last week's reports of dropping retail sales and increased unemployment claims. But the economists were already anticipating Americans to consume less and save more, and, as Journal's Phil Izzo writes, that is why they project a slow recovery: A consumer retrenchment is one factor that is likely to make any recovery a long slog. The economists on average expect the unemployment rate to climb to 9.7% by the end of the year, with two million more jobs lost over the next 12 months, even as growth returns to the economy. The depth of the downturn means it will take years to eat up the slack created by the recession. Nearly half of the economists said it will take three to four years to close the output gap, while more than a quarter say it will take five to six years. Here's a look at the GDP projections for the forecast, in context ( click here for an interactive version of the graph ): The survey shows generally postive reactions from economists to the actions taken by the Obama administration, and storng support for Fed Chair Ben Bernanke in particular. Phil Izzo and Kelly Evans discuss the May forecast in this video: For the full May forecast, click here .

  • Bad GDP Numbers, But Many See Good Signs

    The Commerce Department released some bad numbers today. The department's estimated GDP showed the US economy contracted at a rate of 6.1% in the first quarter of 2009. It was the third straight quarter in which GDP went down--the first time that has happened since 1975. While the data showed a decline was not the least bit surprising, the rate was. The Wall Street Journal reports that economists surveyed by Dow Jones Newswires had predicted a 4.6% drop. And yet, as the Wall Street Journal 's Phil Izzo and Kelly Evans point out, it is possible to find silver linings in the Commerce Department's report. Christine Romer , chair of the Council of Economic Advisers, also makes a case that there are some good signs in the data. Here's what she told Reuters : "There's perhaps a little bit of a silver lining," Christina Romer, the head of the White House Council of Economic Advisers, told Reuters Financial Television in reaction to news the U.S. economy contracted at a 6.1 percent annual rate in the first quarter. "To the degree that that's a sign that firms are bringing down some of their inventories ... that combined with consumers coming back to life could mean we need to start to producing things again," she said. "It could put us in a position for perhaps a less dreary number going forward." Read the Wall Street Journal report on the GDP numbers here . And David Wessel's 12 Reasons to be (Economically) Optimistic here .

  • IMF Projects Global Growth of -1.3%

    The International Monetary Fund released its April World Economic Outlook report today, and economists and policy makers around the globe are squirming over its findings. The latest IMF projections show the global economy in its worst recession since World War II. The global economy is in a severe recession inflicted by a massive financial crisis and an acute loss of confidence. Wide-ranging and often unorthodox policy responses have made some progress in stabilizing financial markets but have not yet restored confidence nor arrested negative feedback between weakening activity and intense financial strains. While the rate of contraction is expected to moderate from the second quarter onward, global activity is projected to decline by 1.3 percent in 2009 as a whole before rising modestly during the course of 2010 (see right). This turnaround depends on financial authorities acting decisively to restore financial stability and fiscal and monetary policies in the world’s major economies providing sustained strong support for aggregate demand. The U.S. economy is projected to contract at a rate of 3.8% (-3.8% growth), while Britain is expected to see contraction of 4.1%. Japan is heading for growth of -6.2%. The Euro Area as a whole is projected to see -4.2% growth--Germany leading the way at -5.6%; -3.0% for France and Spain, and -4.4% for Italy. China and India are projected to see economic growth of 6.5% and 4.5%, respectively. The report does project global economic growth for 2010, but at a relatively slow rate of 1.9%. You can read the first chapter of the report here , or a summary from the IMF press office here . And watch Olivier Blanchard (at left), director of IMF's Research Department, introduce the report by clicking here .

  • WSJ: Economists Forecast Recession to End in September

    Economists polled in the April Wall Street Journal Forecasting Survey "expect the recession to end in September, though most say it won't be until the second half of 2010 that the economy recovers enough to bring down unemployment." More than a third of the economists expect unemployment to peak in the first half of 2010, as jobs lag economic recovery. Despite the grim news for jobs, economists are seeing more signs of a recovery in the broader economy this year. On average, the 53 economists surveyed expect the recession to end in September, compared with the October forecast last month. It marked the first time since the recession began that the economists didn't push the date of recovery further into the future. The survey was conducted April 3-6, before the release of trade data this week that led some forecasters to revise upward their outlook for the first quarter. The below chart shows the economists' GDP projections in historical context (a link to the intereactive version of the chart is available below): In explaining the April forecast, the Journal's Phil Izzo says not to look at this forecast as "optimistic," but to focus on the fact that this is the first time in months that the surveyed economists did not move their projection for the end of the recession forward. Here is Izzo with Kelly Evans : You can access all of the April Forecast's data in useful multimedia charts here .

  • GDP: 6.2% 4th Quarter Drop

    At the beginning of the month, the Commerce Department predicted that fourth quarter gross domestic product (GDP) figures for 2008 would show 3.8% drop . This seemed low to some economists, and it turns out it was. Today Commerce released a revised estimate. From October through December, GDP dropped at a seasonally adjusted annual rate of 6.2%--the biggest one quarter drop since 1982. This from the Bureau of Economic Analysis's news release : The decrease in real GDP in the fourth quarter primarily reflected negative contributions from exports, personal consumption expenditures, equipment and software, and residential fixed investment that were partly offset by a positive contribution from federal government spending. Imports, which are a subtraction in the calculation of GDP, decreased. Most of the major components contributed to the much larger decrease in real GDP in the fourth quarter than in the third. The largest contributors were a downturn in exports and a much larger decrease in equipment and software. The most notable offset was a much larger decrease in imports. Final sales of computers subtracted 0.01 percentage point from the fourth-quarter change in real GDP, the same contribution as in the third quarter. Motor vehicle output subtracted 2.04 percentage points from the fourth-quarter change in real GDP after adding 0.16 percentage point to the third-quarter change. Exports decreased 23.6 percent in the 4th quarter. They had risen 3% in the 3rd quarter. The one area with significant growth was government spending--up 6.7%. As noted above, the figures aren't a big surprise. As Barry Rithotlz writes in a short but clear post , " WHO THE HELL IS STILL SURPRISED BY THESE NUMBERS?!?" But Marketplace 's Steve Henn will have a report today on just how the Commerce Department got its estimates wrong. Local listings are here .
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  • Japan's Export Problem

    Hillary Clinton has landed in Japan --the first stop on her first diplomatic trip as Secretary of State--to find that nation's government under pressure after news its economy shrank 3.3% in the fourth quarter of 2008. It is the biggest drop in gross domestic product since 1974, and Japan's minister for economic and fiscal policy called it "the biggest economic crisis since the war." So why did Japan's economic struggles at the end of last year surpass those of the U.S. and Europe, when the country--and its banking system, which still hasn't been hit as hard--seemed on the outskirts of the meltdown last fall? The answer lies in Japan's dependence on exports. As The Economist points out : Export demand drove the longest post-war recovery, in 2002-08, when the country seemed to be putting its post-bubble “lost decade” well behind it. During the recovery, exports’ share of GDP rose by over half, from 10.6% to 16.5%. That strength is now a weakness as consumers around the world have cut their spending and global trade flows have shrunk: in December, for instance, the value of Japan’s exports fell by 35% compared with a year earlier, after falling by 27% in November. The export shock, it is now clear, is triggering others. A near vertical fall in Japan’s industrial production in a few short months has swiftly wiped out all the gains from six years of recovery (see chart). Economists reckon that by the end of February industrial output will be back to levels last seen around 1987. Japan's banks, as mentioned above, were not caught up in the sub-prime mortgage mess of last year, and its citizens have not carried the levels of debt that their counterparts in the US have, so there are signs that economic recovery could be relatively quick. But, it seems, Japan will not rise unless there is a global recovery. As consumer confidence in the West shows few, if any, signs of improving in the near future, the ripple effects of Japan's export problem bear watching. Clinton is off to China later in the week, another economy highly dependent on exports. It will be interesting to see what economic news she receives on arrival.
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  • WSJ February Forecast: 'Recovery Moving Further Away'

    The Wall Street Journal 's February Forecasting Survey is now available, and the economists surveyed have adjusted their projections. While most continue to expect growth to come in the third quarter of this year, they think economic recovery is farther off . As recently as September, economists on average thought the U.S. would see annualized GDP growth of 1.2% in the first three months of this year; now, they see a 4.6% decline. Forecasts for the April-through-June period have seen a similar shift, from a 1.9% growth forecast to now a 1.5% decline, based on the 52 economists who participated in the Journal's February survey. The average forecast is for growth in the third quarter at 0.7%, less than half the rate expected last fall. The fourth-quarter picture has also darkened, but just slightly, to growth of 1.9% from 2.1% seen in November. Only five economists see growth declining through the fourth quarter of 2009; but they insist the consensus outlook right now, which says the recession will end in August as GDP returns to growth, is far too optimistic. from WSJ.com The monthly forecast is a helpful online resource. You can access a whole set of interactive charts, from the GDP forecasts to unemployment projections, here . And watch Journal reporters discuss the findings here .
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  • Dating a Recession

    The Cleveland Fed has a short report on how to date a recession ( don't forget the flowers ), and predict its demise. The report is full of useful data, and helps illuminate why the National Bureau of Economic Research declared that the current recession started in December of 2007 when we didn't see negative GDP until the third quarter of 2008. The simple answer is that the committee's definition is both broader and less precise: "A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales." Read the report here .
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