• Lessons in Business from Artists

    That artwork around the office may have more to teach you than you think.  Gianpiero Petriglieri studies organizational behavior at INSEAD, and he says the idea of the "corporate ladder" is outdated.  "Today's careers," he says, "are more like works of arts."  

  • Case-Shiller: Home Prices Continued Rebound in July

    **Correction.  We previously posted that "On an annual basis, prices dropped 0.6% for the 10-city composite index and 1.2% for the 20-city composite."  Prices rose 0.6% and 1.2%**


    Average home prices rose 1.6% in July, according to the latest S&P/Case-Shiller Home Price Indices release.  Home prices rose in 15 of the 20 metro areas that make up the 20-city composite index.  Prices dropped in Cleveland, Detroit and New York.  On an annual basis, prices rose 0.6% for the 10-city composite index and 1.2% for the 20-city composite. Here's a look at the long term trend:

    From the release, quoting David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices.

    “The news on home prices in this report confirm recent good news about housing. Single family housing starts are well ahead of last year’s pace, existing home sales are up, the inventory of homes for sale is down and foreclosure activity is slowing. All in all, we are more optimistic about housing. Upbeat trends continue. For the third time in a row, all 20 cities and both Composites had monthly gains. Stronger housing numbers are a positive factor for other measures including consumer confidence.

    “Among the cities, Miami and Phoenix are both well off their bottoms with positive monthly gains since the end of 2011. Many of the markets we follow have seen some decent recovery from their respective lows – San Francisco up 20.4%, Detroit up 19.7%, Phoenix up 17.0% and Minneapolis up 16.5%, to name the top few. These were some of the markets that were hit the hardest when the housing bubble burst in 2006. The 10-City has increased 7.4% and the 20-City 7.8% since their recent lows. The positive news in both the monthly and annual rates of change in home prices over the past few months signals a possible recovery in the housing market.”

    Read the full release here.

  • Charles Evans Makes the Case for Active Monetary Policy

    Chicago Fed president Charles Evans is not pulling any punches when it comes to monetary policy action.  He is a firm supporter of the Federal Open Market Committee's decision to open up another round of quantitative easing.  And he believes the Fed should be pursuing "strongly accommodative monetary policy measures."

    In a speech yesterday at the Lakeshore Chamber of Commerce Business Expo in Hammond, IN, Evans gave his view of the economy.  Evans outlined the key forces slowing economic growth, and offered a strong defense of an active Fed:

    In many venues over the past couple years I have laid out my preferred way to provide additional accommodation. Specifically, I believe we should adopt an explicit state-contingent policy rule that commits the Fed to providing accommodation at least as long as the unemployment rate remains above 7 percent and the outlook for inflation over the medium term is under 3 percent. If our progress toward this unemployment marker falters, then we should expand our balance sheet to increase the degree of monetary support. Indeed, we took such an action. Note the importance of the inflation trigger — it is a safeguard against unacceptable outcomes with regard to price stability. I also believe we should be more explicit about what it means for the inflation target to be symmetric, as Chairman Bernanke has stated. Namely, symmetry means that the costs of an inflation rate above our 2 percent goal are the same as the costs of equal-sized miss in inflation below 2 percent. Its implication is that we should not be resistant to policies that could move the unemployment rate closer its longer-run level, but run the risk of inflation running only a few tenths above our 2 percent goal. Such accommodative polices could further improve the employment picture, even beyond our recent highly beneficial actions.

    While our policy actions earlier this month don’t exactly match my preferred policy structure, I support them wholeheartedly. Tying the period of time over which we will purchase assets to the achievement of significant improvement in the labor market is a strong step towards economic conditionality — that is, it conditions our actions to the economy’s performance instead of a calendar date. And stating that we expect to keep a highly accommodative stance for policy for a considerable time after the recovery strengthens is an important reassurance to households and businesses that Fed policy will not tighten prematurely. A large body of economic research says that committing to such a delay is a key feature of optimal policies during periods when policy rates are constrained to be zero, such as we have experienced in the U.S. since late 2008.

    Let me be clear. This was the time to act. With the problems we face and the potential dangers lying ahead, it is essential to do as much as we can now to bolster the resiliency and vibrancy of the economy. We cannot be complacent and assume that the economy is not being damaged if no action is taken. I am optimistic that we can achieve better outcomes through more monetary policy accommodation.

    Some have argued that the circumstances we find ourselves in today are so different from the way in which monetary policy normally operates that we must tread cautiously. They argue that more monetary policy accommodation may lead to unintended consequences. Yet, being timid and unduly passive can also lead to unintended consequences. If we continue to take only modest, cautious, safe policy actions, we risk suffering a lost decade similar to that which Japan experienced in the 1990s. Underestimating the enormity of our problems and the negative forces holding back growth itself exposes the economy to other potentially more serious unintended consequences. That type of passivity is a gamble that is not worth taking.

    Read the full speech here.

  • Regus Report: Worker Stress is Up Around the World, but Moreso in China

    Workers around the globe are feeling pretty stressed out.  Half of workers globally say their stress levels have risen in the last year, according to a survey commissioned by the workspace provider Regus.  In this interview with the Wall Street Journal's Deborah Kan, Regus Communications Manager Jon Walsh says that workers in the finance sector are especially stressed out these days.  And in China, the stress rate is higher than elsewhere:

  • Kauffman Foundation Map Plots America's Fastest Growing Companies

    The Kauffman Foundation has a new interactive map available that plots fast growing companies across the U.S.  The map comes out of data that Kauffman researchers released earlier this month, tracking the fastest growing Inc. 500 firms over 30 years. We have a snapshot of the map below, but we suggest going to Kauffman to use the interactive map.  Some of the counties with the highest concentration of high growth firms are not so surprising (NYC, Boston, Northern California).  But others are.  Click here to use the interactive map.

    Read the full report, The Ascent of America's High Growth Companies here.

  • QE3, 'Fat Fingers,' and the Price of Oil

    At Econbrowser, James Hamilton has yet another instructive post on oil prices.  Last week, he noticed this dip in the price of West Texas Intermediate crude oil:

    Hamilton wondered to what extent this drop could have to do with supply and demand.  He writes:

    Those who doubt that oil prices are determined solely by fundamentals would naturally ask, what aspect of the supply or demand for oil could have possibly changed in the course of less than a minute last Monday? The obvious and correct answer is, there was no change in either the supply or the demand for physical oil over the course of that minute. The minute-by-minute price of a NYMEX contract is determined by how many people are wanting to buy that financial contract and at what price, not by how much gasoline motorists burned in their cars that minute. But since changes in the price of crude oil are the key determinant of the price consumers pay for gasoline, doesn't that establish pretty clearly that the whims or fat fingers of financial traders are ultimately determining the price we all pay at the pump?

    In one sense, the answer to that question is yes-- last week's decline in the price of crude oil will soon show up as a lower price Americans pay for gasoline. But here's the problem you run into if you try to carry that theory too far. There are at the end of this chain real people who burn real gasoline when they drive real cars. And how much gasoline they burn depends in part on the price they pay-- with a higher price, some people use a little bit less. Not a lot less-- the price of gasoline could change quite a lot and it would take some time before you could be sure you see a response in the data. That small (and often sluggish) response is why the price of oil can and does move quite a bit on a minute-by-minute basis, seemingly driven by forces having nothing to do with the final users of the product.

    But if the price of oil that emerges from that process turns out to be one at which the quantity of the physical product that is consumed is a different amount from the physical quantity produced, something has to give. Indeed, the bigger price drops we saw on Wednesday followed news that U.S. inventories of crude were significantly higher than expected.

    Read Fat fingers and the price of oil here.

  • Lagarde Implores Policymakers to Follow Central Bankers' Lead and Push Recovery

    IMF Managing Director Christine Lagarde was at the Peterson Institute in Washington yesterday, where she urged policymakers to put their feet on the gas pedal.  Lagarde argued that recent monetary policy moves have presented an opportunity to build momentum (and, in turn, growth). 

    Let me begin by saying that many of the right decisions have been taken. Most recently, initiatives by major central banks—the European Central Bank’s OMT bond-purchasing program, QE3 by the U.S. Federal Reserve, the Bank of Japan’s expanded Asset Purchase Program—are big policy signals in the right direction.

    They point the way forward and create an opportunity to build on what has been done; an opportunity to make a decisive turn in the crisis. Just as the Central Banks were misguided during the Great Depression and accelerated that crisis, it may well be that Central Banks will have played a significant role in pulling the global economy out of this great recession.

    But we should not get ahead of ourselves. The global economy is still fraught with uncertainty, still far from where it needs to be. The situation is a bit like a jig-saw puzzle. Some of the pieces are in place and we know what the picture should look like. But, to complete the picture, we need all the pieces to come together.

    That will depend on delivering on the policy commitments that have been made and in that respect, there is still a long way to go.

    You can read the full speech here.  And watch Lagarde's address below:

  • Daniel Gross on Economic Stimulus and the new iPhone

    The iPhone 5 was a big seller this weekend.  Some 5 million phones were sold (maybe not as high as some expected, but still, 5 million...). 

    Some top business minds have suggested that this is more than just a product release for Apple.  As we noted earlier this month, some analysts argued that iPhone sales could have an important stimulus effect for the U.S. economy.

    Daniel Gross may be buying the phone, but he isn't buying the economic impact hype.  At Daily Beast, Gross writes:

    Of course, it has been a huge financial hit. And Apple—one of the most valuable companies in the world and a commercial ecosystem unto itself—is a huge and vital economic force. In fact, some iFans have been touting the iPhone as a form of stimulus on the scale of the Tennessee Valley Authority. It’s poised to sell 10 million units in the next few months. Let’s say the average consumer buys a $299 iPhone 5, that’s about $3 billion in sales.

    The utility of stimulus is that it gets capital that would otherwise lie fallow, resting in a bank somewhere, and puts it to work in the economy. And by that measure, the iPhone 5 is stimulative. The billions of dollars in sales that the iPhone generates will translate into more hours for Apple’s employees, more work for the people who ship and deliver the goods, and more work for the already overworked, underpaid employees at Apple contractors in China. Since the iPhone5 is slightly bigger than the iPhone 4 and requires a different adapter, it also will bring about a flood of sales for accessory makers.

    But as stimulus goes, the I-stimulus strikes me as a pretty narcissistic and ephemeral one. It would be one thing if the iPhone 5 allowed people to work or communicate in a fundamentally different way. But as all the reviewers have noted, the iPhone 5 represents incremental change rather than a revolutionary one. Will all the people who have them be more productive now that they’ve upgraded? It’s doubtful.

    Read The Annoying iPhone 5 Frenzy: Don’t Believe the Economic Stimulus Hype here.

  • Gallup: Blue Collar Workers Most Pessimistic About Job Prospects

    Workers around the world on not very optimistic about their job prospects.  And blue collar workers are especially pessimistic.  According to a Gallup survey conducted globally last year but released this week, 33% of blue collar workers worldwide thought that it was a good time to look for a job.  38% of white collar workers thought it was a good time to look for a job.  Not surprisingly then, there is a strong correlation between education levels and optimism.  Workers around the world who did not complete secondary school are the least optimistic--with the notable exception of the Americas:

    From the survey release:

    The global recession continued to affect many economies throughout the world in 2011. However, the economic downturn has not always influenced global residents' perceptions of their ability to find a job in their local city or area. Women have historically been less positive than men about the local job market, and those with more education are more likely to find sustainable employment than those with less. With the exception of Latin America, white-collar workers have fared better worldwide than blue-collar workers.

    In 2011, residents in the Americas -- except in the U.S. -- have generally remained more positive about the job market because of lower unemployment, economies driven by a growing middle class, natural resource exports, minerals and commodities, and less integration of their financial sectors with those of the recession-hit U.S. and Europe.

    Despite generally more positive perceptions in selected regions and countries, world residents have historically struggled to be more positive than negative when it comes to local job prospects. Economic uncertainty and rigid policies, systemic unemployment, political unrest, and corruption contribute to negative perceptions. However, these negative perceptions might also be an indicator of something positive -- that global residents are not satisfied with the status quo and continue to strive to make better lives for themselves and their families through good jobs.

    Read the full release here.

  • The Rise of Collaborative Consumption

    If you are among those consumers who have eschewed hotels while traveling and chosen the 21st century, luxury version of couch hopping and booked stays in people's homes via AirBnB, then you have been participating in what Rachel Botsman calls collaborative consumption.  The digital age has made collaborative consumption a path to some very successful businesses.  And to a global consumer-to-consumer economy.  In this TedTalk, Botsman (a welcome update to a previous TedTalk in 2010) explains how trust has become the key factor in successful networked economies, and what that means for global business:

  • McKinsey Quarterly: Word-of-Mouth and Reaching the Rising Consumer Class in Emerging Markets

    As global companies work to connect with consumers in emerging economies, they have to be more cognizant of different buyer behavior in countries like India and Brazil.  At McKinsey Quarterly, Yuval Atsmon, Jean-Frederic Kuentz, and Jeongmin Seong point to a few areas where these companies may need to shift their approach.  The emerging consumer classes in the BRIC nations, for example, are influenced much more widely, the author's argue, by word of mouth:

    An important explanation for word of mouth’s outsized role is that in a land of consumer “firsts”—more than 60 percent of Chinese auto purchasers are buying their first car, and the comparable figure for laptops is 30 to 40 percent—few brands have been around long enough to ensure loyalty. Seeing a friend use a product is reassuring. Indeed, the less a consumer knows about a product and the more conspicuous the choice, the more the consumer is likely to care about the opinions of others. “The more people I know who are using a product,” consumers reason, “the more confident I can be that it will not fall apart, malfunction, or otherwise embarrass me.” The presence (or absence) of that confidence shapes the group of brands that consumers choose to evaluate. It is particularly influenced by the postpurchase experience of friends and family, along with their loyalty to a brand.

    Often, word of mouth is a local phenomenon in emerging markets, partly because of the simple reality that emerging-market consumers generally live close to friends and family. In addition, word of mouth’s digital forms, which transcend geography and are growing rapidly in emerging markets, still have more limited reach and credibility there than in developed ones. According to our annual survey of Chinese consumers, just 53 percent found online recommendations credible—a far cry from the 93 percent who trusted recommendations from friends and family. That same survey showed that only 23 percent of Chinese consumers acquired information from the Internet about products they bought. For food, beverage, and consumer electronics consumers in the United States and the United Kingdom, that figure is around 60 percent.

    Word of mouth’s relatively local nature means that companies in emerging markets are likely to reap higher returns if they pursue a strategy of geographic focus than if they spread marketing resources around thinly (targeting all big cities nationwide, for example). By attaining substantial market share in a cluster of cities in close proximity, a company can unleash a virtuous cycle: once a brand reaches a tipping point—usually at least a 10 to 15 percent market share—word of mouth from additional users quickly boosts its reputation, helping it to win yet more market share, without necessarily requiring higher marketing expenditures.

    The authors go on to outline two other key factors in emerging market consumers' behavior.  Here is a look at how they interact:

    Read Building brands in emerging markets here.

  • Next Punch: Where the Jobs Are Coming

    It stands to reason, with Baby Boomers reaching retirement age, that we will be seeing unprecedented growth in the need for health care services in the coming years.  NextPunch nicely illustrates the growth of health care in this new infographic.  The theme of the graphic is jobs, as NextPunch's Vladik Richter projects where we will see job growth over the coming 8 years.  As Richter notes, much of the growth happens to be in low-paying jobs.  Take a look (click here for the full size version at NextPunch):

    Hat tip Barry Ritholtz.

  • Looking to Jazz for Lessons in Leadership

    The world is a messy place. We think some of the most interesting, successful people are the ones who can navigate complicated, even chaotic situations and make sense of the mess. Frank Barrett, associate professor of business at the Naval Postgraduate School, says that these people are key to any creative team and any successful workplace.  And he looks to the world of jazz for role models.  He shares some notable examples in his book, Yes to the Mess: Surprising Leadership Lessons from Jazz, and in this short interview with Harvard Business Publishing:

  • Online Growth in India

    We understand that economic growth in this century depends on digital commerce to some extent. It is less clear to us how important the online marketplace is for nations that are still showing growth in manufacturing and other very hands-on sectors. But some new data from eMarketer on Internet use in India catches the eye. With a 41% increase in “growth in unique website visitors between 2011 and 2012,” India, much more than its fellow BRIC nations, is experiencing tremendous growth in online activity. The percentage of Indians currently online is still quite small (8.9%), so that rate of growth may turn out to be small compared to a year or two from now. Here is a look at the growth in Internet use among BRIC nations:

    So where do Indians go when they go online? News sites, with Yahoo, Times of India, and the New York Times at the top of the list but followed by many growing domestic news sources. And for actual online transactions, travel sites rule the day.

    Read No Sign of Slowing Web Uptake in India here.

  • Impact of Uncertainty on Unemployment

    In a new Economic Letter, San Francisco Fed researchers Sylvain Leduc and Zheng Liu, look at the impact of uncertainty on economic activity.  As they display in the following figure, uncertainty is countercyclical (this figure shows perceived uncertainty and "VIX index, a measure of the volatility of the Standard & Poor’s 500 Index."

    Leduc and Liu conclude that uncertainty has had a significant effect in at least one area: unemployment.

    Our statistical model suggests that uncertainty has pushed the unemployment rate up at least one percentage point in the past three years. By contrast, uncertainty was not an important factor in the unemployment surge during the deep downturn of 1981–82. One possible reason why uncertainty has weighed more heavily on the economy in the recent recession and recovery is that monetary policy has been limited by the zero lower bound on nominal interest rates. Because nominal rates cannot go significantly lower than their current near-zero level, policy is less able to counteract uncertainty’s negative economic effects.

    Read Uncertainty, Unemployment, and Inflation here.

  • NAHB: Home Builder Confidence Reaches Highest Level in 6 Years

    Home builders continue to feel better about the state of the housing market.  The NAHB/Wells Fargo Housing Market Index has reached its highest level in over six years.  The index is now at 40 after rising for the fifth month in a row (the index was at 25 in January), according to the National Association of Home Builders.  From the NAHB release:

    “Builders across the country are expressing a more positive outlook on current sales conditions, future sales prospects and the amount of consumer traffic they are seeing through model homes than they have in more than five years,” noted NAHB Chief Economist David Crowe. “However, against the improving demand for new homes, concerns are now rising about the lack of building lots in certain markets and the rising cost of building materials. Given the fragile nature of the housing and economic recovery, these are significant red flags.”

    Derived from a monthly survey that NAHB has been conducting for the past 25 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.

    All three HMI components posted gains in September. While the component gauging current sales conditions increased four points to 42, the component gauging sales prospects in the next six months rose eight points to 51 and the component measuring traffic of prospective buyers edged up one point to 31.

    Read the full release here.

  • Reconsidering the Approach to Measuring Poverty

    Following the release of the Census Bureau's report on poverty in the U.S. last week, the Brookings Institution's Center on Children and Families held a thought-provoking and informative discussion among economists and non-profit leaders about poverty and the poverty rate.  Video of the discussion is now available online, here.  We were struck by Cornell University professor Richard Burkhauser's comments on the poverty rate.  Burkhauser argues that the Census bureau's approach to measuring poverty is not a reliable, complete measure of poverty in America.  And there is some good news hidden in the poverty rate:

    This leads us to some other work put out by Brookings recently: a working paper by Bruce Meyer of the University of Chicago and NBER, and James X. Sullivan of the University of Notre Dame.  Meyer and Sullivan look beyond the poverty rate as measured by the Census Bureau and they introduce other key factors in assessing the state of the poorest Americans. One key measure they would like to see used is consumption:

    Consumption provides a measure of household well-being that is theoretically superior to income given that households face expected and unexpected variation in income and that consumption may differ from income because households may borrow and save. Moreover, the evidence suggests consumption is better reported than income for families with few resources. Thus, there are reasons to think poverty measured using consumption may give us a different picture of who is poor and how poverty changes over time. In this paper we have examined how our understanding of how and why poverty has changed over the past five decades differs when we use more theoretically based concepts that are better measured.

    Consumption based poverty measures and improved income measures—ones that account for taxes and noncash benefits and reflect consensus estimates of bias in price indices— provide a different set of facts to explain. Official poverty statistics suggest that poverty has increased over the past forty years. This claim is inconsistent with our results which show substantial improvements in income based poverty over the past forty years and even larger improvements in consumption based poverty, especially in the last decade. These poverty results are corroborated by other indicators of well-being for those with low income such as increases in car ownership and evidence of improved living conditions including larger living units that are more likely to have air conditioning and other features. While the deficiencies in the official poverty measure have been the subject of much previous research, most poverty scholars still rely on the official measure as the definitive measure of trends in poverty and draw important conclusions based upon it.

    Here is a look at the trend-line of some other measures of the rate of poverty, compared to the official measure:

    Read Dimensions of Progress: Poverty from the Great Society to the Great Recession here.

  • Richmond Fed: Implications of the U.S.'s Low Labor Force Participation Rate

    While it may not be declining as quickly as many would like (especially those holding office and running for re-election), the unemployment rate has dropped over the last year.  But an often overlooked factor is the number of Americans who drop out of the labor force (and then do not count toward the unemployment rate).  Jesse Romero of the Federal Reserve Bank of Richmond unpacks some of the data over labor force participation, which now stands at 63.7%. 

    Whatever the research eventually shows, the fact remains that millions of people who would like to be working have given up trying to find a job. According to the monthly Current Population Survey (CPS) conducted by the BLS, the share of workers not in the labor force who report that they want a job now increased from 5.5 percent prior to the recession to 8.4 percent in mid-2011, and remains elevated at 7.9 percent today — a total of 6.8 million workers. “There’s a large group of people who are counted as out of the labor force who we should be trying to find jobs for, and who would want jobs if they were available,” says Rothstein.

    Of the workers who want a job, 2.5 million are considered “marginally attached” to the labor force; they have searched for a job within the past year, but not within the past four weeks, and are available to work now. (The remaining workers who want a job either have not searched within the past year or are not available to work.) More than 800,000 marginally attached workers are considered “discouraged workers” — they have stopped looking for work because they do not believe that any jobs are available for them. Other reasons for not looking for work include family responsibilities, attending school or a training program, ill health or disability, or “other,” such as a lack of transportation or child care.

    Between 1994 and the end of 2007, discouraged workers made up about 8 percent of workers who want a job, with a high of 11 percent following the 2001 recession. (The BLS made substantial changes to the CPS in 1994 so comparisons to prior years’ data are not possible.) From the beginning of the most recent recession until the end of 2010, the share increased from 8.25 percent to 22 percent. Since then, discouraged workers have remained about 15 percent of workers who want a job.

    The official number probably understates the true amount of discouragement in the labor market. To be defined as a discouraged worker — a subset of the marginally attached — a worker must have searched for a job within the past year. More than 3.2 million workers say that they do want a job but that they stopped looking more than a year ago. These workers are not counted as discouraged by the CPS, but it’s likely that some of them originally quit the labor force because they were pessimistic about job opportunities.


  • Nissan's Carlos Ghosn on the Bumpy Road Ahead for Automakers

    We may need to be prepared to see a decrease in production from automakers, and the economic impact on the economy from those cutbacks.  In the following interview with The Wall Street Journal's Chester Dawson, Nissan and Renault CEO Carlos Ghosn says that the ongoing struggles in the EU are forcing Nissan and its competitors to reconsider their output.  Ghosn also discusses other key factors for Nissan's economic outlook--such as growth in China.  And while he is focused on his own company, there are lessons in his outlook for all global companies:

  • Consumer Sentiment Takes a Big Jump

    The summer rise in consumer sentiment did not end at Labor Day.  According to the University of Michigan/Thomson Reuters consumer sentiment survey, American consumers are far more bullish about the economy than we would have expected.  From Reuters:

    The Thomson Reuters/University of Michigan's preliminary September consumer sentiment index rose to 79.2 from 74.3 in August. That topped expectations for a decline to 74.0, according to a Reuters poll.

    The gauge of consumer expectations climbed to 73.4 from 65.1, though the barometer of current economic conditions nudged down to 88.3 from 88.7. Both the sentiment and expectations measures were at their highest levels since May.

    The key factor in the jump from last month, according to Reuters, is the relatively small percentage of consumers who expect unemployment to increase:

    Just 12 percent of those surveyed expected the unemployment rate to rise, down sharply from the 25 percent who anticipated an increase in August's survey. This month's proportion was the lowest recorded since 1966.

    Read the full release from Reuters here.

  • European Central Bank's Bond Buying Program: Solution to Weight of Massive Debt or "Printing Money' with Little Impact?

    While the Federal Reserve is embarking on additional quantitative easing, the European Central Bank has started its Outright Monetary Transactions bond-buying program. Wharton School professor of finance Franklin Allen is not a fan.  Allen sees the plan as little more than "printing money," and he sees such action as having little long-term impact on Europe's problems:

  • FOMC September Meeting: Another Round of Quantitative Easing

    The Federal Reserve will be keeping the federal funds rate at or near zero for a few more years, and it will continue to use quantitative easing as a tool to battle the effects of a slow recovery.  In June, Fed chair Ben Bernanke held the door open for more Fed monetary policy action, and now it appears to be coming.  From the Fed's release following the Federal Open Market Committee's September meetings this week:

    To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

    The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

    Here are the projections for overall GDP growth, unemployment, and inflation released at the conclusion of the Federal Open Market Committee September meetings:

    Read the full FOMC release here.

  • Marketplace Whiteboard: QE3 Explained

    While we are all waiting to see whether the Fed pumps more money into the economy via another round of quantitative easing, Paddy Hirsch comes up with another metaphor to explain what quantitative easing is and how it works.  This time he invokes images of kiddie pools and hoses.  Here he is, at the Marketplace Whiteboard:

  • Census Bureau: Overall U.S. Poverty Rate Little Changes From 2010 to 2011

    After climbing over the first three years of the Great Recession, the overall poverty rate flattened out in 2011, according to the Census Bureau's annual report on income, poverty and health insurance coverage.  There is a lot in the report, but the poverty figures stood out as we had become accustomed to seeing them rise.  Here's a look at the trend:

    From the report:

    • The 2011 poverty rates for most demographic groups examined were not statistically different from their 2010 rates. Poverty rates were lower in 2011 than in 2010 for six groups: Hispanics, males, the foreign-born, noncitizens, people living in the South, and people living inside metropolitan statistical areas but outside principal cities. Poverty rates went up between 2010 and 2011 for naturalized citizens.

    • For most groups, the number of people in poverty either decreased or did not show a statistically significant change. The number of people in poverty decreased for noncitizens, people living in the South, and people living inside metropolitan statistical areas but outside principal cities between 2010 and 2011. The number of naturalized citizens in poverty increased.

    • The poverty rate in 2011 for children under age 18 was 21.9 percent. The poverty rate for people aged 18 to 64 was 13.7 percent, while the rate for people aged 65 and older was 8.7 percent. None of the rates for these age groups were statistically different from their 2010 estimates.

    The report, as Sabrina Tavernise writes about more extensively in the New York Times, also shows a decline in household median income and an increase in income inequality from 2010 to 2011.  Read the full report here.

  • Planet Money Graphic: Government Bailouts

    If you want to keep track of where the Treasury Department's bailout dollars went, and to what extent they (we) have been paid back, Pro Publica is the place to turnLam Thuy Vuo and Jacob Goldstein provide a nice synthesis of the data from Pro Publica in a new post at Planet Money.  This graphic almost says it all:

    For more, read the full post, here.