The folks expecting a new recession have a new statistical challenge today. Initial jobless claims fell sharply last week, dropping 50,000 to a seasonally adjusted 352,000. The last time new filings for unemployment benefits were this low was nearly four years ago—April 2008. Last week’s large 50,000 tumble is impressive as well relative to history. Indeed, we just saw the largest weekly drop in more than three years.
Category Archives: Uncategorized
Golden Stump Speeches
Is Newt Gingrich now running on a hard money platform? During campaigning in South Carolina earlier this week for the state’s Republican primary on Saturday, January 21, the candidate recommended a “commission on gold to look at the whole concept of how do we get back to hard money,” CNNMoney reports. “We need to say to the Federal Reserve: Your only job is to maintain the stability of the dollar because we want a dollar to be worth thirty years from now what it is worth now,” he asserted. “Hard money is a discipline. It means you can’t inflate away your difficulties.”
Data Check: The Small-Cap & Value Factors
The academic case for using a multi-factor model to maximize the realized equity risk premium is old news, but documenting the empirical evidence is forever new. It’s been known since the 1970s that the single-factor model of CAPM doesn’t fully explain the risk-return relationship for stocks. The limitation of the one-beta model has inspired a range of nuanced approaches for modeling returns and looking for Mr. Market’s silver lining. The most popular framework is still the Fama-French 3-factor model that taps the broad market beta along with the small-cap and value factors. It’s useful every once in a while to ask: How’s the 3-factor recipe working out for ‘ya. As it turns out, quite well, or so recent history suggests.
An Optimist’s Optimist On The Economy
If you’re looking for a cheerleader on the outlook for the U.S. economy, Ed Yardeni’s your man. “The US economy may be on the verge of a big comeback,” this economist and founder of Yardeni Research predicts. “It could experience an unusual second recovery over the next three years following the weak initial recovery of the past three years. In the past, recessions were followed by one broad-based recovery in economic activity. The Naysayers have been predicting a ‘double dip’ recession for the US economy since it started to recover in 2009. I’m suggesting that a more likely scenario might be a double back-to-back recovery.”
Strategic Briefing | 1.17.2012 | Iran & The Proposed Oil Embargo
Oil Rises to Three-Day High as Saudi Arabia Is Seen Targeting $100 Crude
Bloomberg | Jan 17
Oil rose to the highest level in three days on speculation that China will intensify monetary stimulus, supporting fuel demand, and as France pushed for a ban on Iranian imports. France wants a European Union embargo delayed by no more than three months as members seek alternative supplies, an official with knowledge of the matter said yesterday. China’s economy expanded at the slowest pace in 10 quarters, sustaining pressure on Premier Wen Jiabao to ease monetary policy. Saudi Arabia aims to stabilize the average of crude prices worldwide at $100 a barrel in 2012, Oil Minister Ali al-Naimi said in an interview with CNN yesterday. “Everything is rising because of China,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. “It’s general market sentiment.”
Is The Yield Curve Still A Reliable Signal Of Recession Risk?
In the current debate about recession risk, some commentators have rolled out the yield curve argument or variations thereof. On first glance, this line of analysis looks like a slam-dunk refutation of the forecast by some that another economic contraction is now fate. But such arguments based heavily (or exclusively) on the yield curve risk overplaying their hand. It’s true that the yield curve has been a reliable predictor of recessions for half a century, as many studies assert. Indeed, the literature on this topic is now quite extensive and persuasive. But in the dark art of developing macro forecasts, one can never assume that a predictor’s track record—even one as strong as the yield curve’s—seals its fate for repeat performances. It’d be wonderful if we could point to one indicator as a dependable predictor, but macro’s just not that simple.
Book Bits For Saturday: 1.14.2012
● Broke: How Debt Bankrupts the Middle Class
Edited by Katherine Porter
Summary via publisher, Stanford University Press
While the recession that began in mid-2007 has widened the scope of the financial pain caused by over-indebtedness, the problem predated that large-scale economic meltdown. And by all indicators, consumer debt will be a defining feature of middle-class families for years to come. The staples of middle-class life—going to college, buying a house, starting a small business—carry with them more financial risk than ever before, requiring more borrowing and new riskier forms of borrowing. This book reveals the people behind the statistics, looking closely at how people get to the point of serious financial distress, the hardships of dealing with overwhelming debt, and the difficulty of righting one’s financial life. In telling the stories of financial failures, this book exposes an all-too-real part of middle-class life that is often lost in the success stories that dominate the American economic narrative. Authored by experts in several disciplines, including economics, law, political science, psychology, and sociology, Broke presents analyses from an original, proprietary data set of unprecedented scope and detail, the 2007 Consumer Bankruptcy Project. Topics include class status, home ownership, educational attainment, impacts of self-employment, gender differences, economic security, and the emotional costs of bankruptcy. The book makes judicious use of illustrations to present key findings and concludes with a discussion of the implications of the data for contemporary policy debates.
The Fed’s Undistinguished Macro Discussions Circa Jan 2006
Anticipating recessions is hard, especially the ones in the future. Just ask the Fed officials who attended the January 2006 FOMC meeting to discuss the outlook for the economy. The newly released transcripts from this meeting have attracted attention far and wide about Fed’s ability, or lack thereof, to see macro changes. Unfortunately for the central bank, the reviews are in and most pundits aren’t impressed (see news reports here and here, for example.) The Atlantic’s Derek Thompson finds the transcript “damning” in light of the “blithe ignorance in the face of impending doom.”
Jobless Claims Rise As Retail Sales Slow
There are two ways to interpret today’s economic updates on weekly jobless claims and retail sales for December. If you’re inclined to see a recession coming, a view that appeals to some analysts, the numbers du jour offer some marginally stronger support for expecting trouble. But the latest reports are hardly game changers and so it’s not obvious that a moderately optimistic outlook is suddenly indefensible.
Research Review | 1.12.2012 | Austerity Economics
The “Austerity Myth”: Gain without Pain?
Roberto Perotti (University of Bocconi) | November 2011
As governments around the world contemplate slashing budget deficits, the “expansionary fiscal consolidation hypothesis” is back in vogue. I argue that, as a statement about the short run, it should be taken with caution. Alesina and Perotti (1995) and Alesina and Ardagna (2010) (AAP) show that fiscal consolidations may be expansionary if implemented mainly by cutting government spending. IMF (2010) criticizes the data and methodology used by AAP, and reach opposite conclusions. I argue that because of the multi-year nature of the large fiscal consolidations, which are precisely the most informative ones, using yearly panels of fiscal policy is limiting. I present four detailed case studies, two — Denmark and Ireland — undertaken under fixed exchange rates (the most relevant case for many Eurozone countries today) and two — Finland and Sweden — after floating the currency. All four episodes were associated with an expansion; but only in Denmark the driver of growth was internal demand. However, after three years a long slump set in as the economy lost competitiveness. In all the others for a long time the main driver of growth was exports. In Ireland this occurred because the sterling coincidentally appreciated. In Finland and Sweden the currency experienced an extremely large depreciation after floating. In all consolidations interest rate fell fast, and wage moderation played a key role in generating a gain in competitiveness and a decline in interest rates. Wage moderation was facilitated by the direct intervention of the government in the wage negotiation process. In Finland and Sweden, the adoption of inflation targeting at the same time of the consolidation helped the decline in interest rates. These results cast doubt on at least some versions of the expansionary fiscal consolidations hypothesis, and on its applicability to many countries in the present circumstances. A depreciation is not available to EMU members today (except vis à vis countries outside the Eurozone). A net export boom is not feasible for the world as a whole. A further decline in interest rates is unlikely in the current situation. And incomes policies are not popular nowadays; moreover, international experience, and the Danish case, suggest that they are ineffective after a few years.