What stimulus? Government is holding us back
Rex Nutting (MarketWatch) | May 4
Everyone’s worried that the economy may go over a “fiscal cliff” next year, but they’re missing something essential: We’ve been falling down a “fiscal hill” for two years already. After giving the economy a huge boost in 2009 and 2010, fiscal policy has become contractionary. Now that the private sector is on the mend, the lack of government spending is the biggest factor holding back the economy. And it could get worse.
Jobless Claims Fell Sharply Last Week
Suddenly the sun came out… again. New filings for jobless benefits dropped a hefty 27,000 last week to a seasonally adjusted 365,000. It appears that the downward trend in new claims is intact after all. The last several weeks had raised new doubts, courtesy of a modest rise in new claims, but today’s news takes the edge off the worst fears. As always, caution is required for reading too much into any one number for this volatile series. But the trend is far less prone to short-term noise and on that score there’s cheery news in today’s update, as the following charts show.
A New Old Explanation For Recessions & Financial Crises
Edward Conard, a retired executive of Bain Capital and a major donor to Mitt Romney’s presidential campaign, tells us that the precipitating cause of the 2008 financial crisis was a surge in demand for liquidity. He’s right, of course. The appetite for safety went into overdrive in the final months of that fateful year. This may be a controversial explanation in some circles, but it shouldn’t be. Divisive or not, Conard’s accounting of how the economy nearly melted down is an excuse to consider how far we’ve come (or not) in dissecting the business cycle when it goes negative in the extreme. It’s also an opportunity for a refresher course on considering the practical policy responses.
ADP Reports Sharply Slower Job Growth In April
The April update of the ADP Employment Report is a clear signal for keeping expectations low for Friday’s influential payrolls report from the U.S. Labor Department. Employment in the private sector grew by only 119,000 last month, according to ADP’s estimate. That’s a 41% drop in the pace of job growth vs. March’s 201,000 gain and is the slowest rate of increase since last September.
Manufacturing Activity Strengthens In April
The first major economic report for April brings encouraging news. Economic activity in the manufacturing sector expanded last month, the Institute for Supply Management reports. One update must be taken in context with the broader trend, of course. Indeed, a single report can’t wipe away the recent worries about another spring slowdown. Still, today’s ISM news offers a timely burst of optimism that promotes the idea that the weak economic news in some corners over the past several weeks isn’t necessarily the last word on what’s ahead.
Major Asset Classes | April 2012 | Performance Review
REITs and bonds stole the performance show last month among the major asset classes. As stocks around the world retreated slightly in April, REITs forged ahead for the second straight month, rising 2.9%, according to MSCI REIT. Meanwhile, the crowd resumed its love affair with bonds. U.S. fixed income gained 1.1% last month, based on the Barclays Aggregate Bond Index (its best month since last August), while inflation-indexed Treasuries surged 2.0% as per Barclays Treasuries Tips Index.
Strategic Briefing | 5.1.12 | The Macro Pain In Spain
Europe, in Slump, Rethinks Austerity
The Wall Street Journal | May 1
Spain has joined seven other euro-zone nations in recession, according to data released Monday, providing new evidence that austerity policies are failing to spark confidence in the region’s economies ahead of a week of expected anti-austerity protests and a string of important national elections.
Is Personal Income Growth (Finally) Stabilizing?
For the second month in a row, personal disposable income (DPI) grew at a faster rate, advancing 0.4% in March—the best pace so far this year, according to today’s update from the U.S. Bureau of Economic Analysis. It’s also the first month since December that DPI growth exceeded the increase in personal consumption expenditures, which gained 0.3% last month.
Strategic Briefing | 4.30.12 | U.S. Recession Risk
Sluggish U.S. growth continues
James Hamilton (Econobrowser) | April 27
The slow pace of GDP growth continues to disappoint, particularly for the 12.7 million Americans actively looking for jobs and still unable to find them. On the other hand, the U.S. is unquestionably better off than would be the case had the September prediction of the Economic Cycle Research Institute that the U.S. was about to enter another recession proved to be accurate. The latest GDP report brings our Econbrowser Recession Indicator Index down to 4.0%. For purposes of calculating this number, we allow one quarter for data revision and trend recognition, so the latest value, although it uses today’s released GDP numbers, is actually an assessment of where the economy was as of the end of the last quarter of 2011. The index would have to rise above 67% before our algorithm would declare that the U.S. had entered a new recession.
Book Bits | 4.28.2012
● End This Depression Now!
By Paul Krugman
Adapted excerpt via The New York Times
When the financial crisis struck in 2008, many economists took comfort in at least one aspect of the situation: the best possible person, Ben Bernanke, was in place as chairman of the Federal Reserve. Bernanke was and is a fine economist. More than that, before joining the Fed, he wrote extensively, in academic studies of both the Great Depression and modern Japan, about the exact problems he would confront at the end of 2008. He argued forcefully for an aggressive response, castigating the Bank of Japan, the Fed’s counterpart, for its passivity. Presumably, the Fed under his leadership would be different. Instead, while the Fed went to great lengths to rescue the financial system, it has done far less to rescue workers. The U.S. economy remains deeply depressed, with long-term unemployment in particular still disastrously high, a point Bernanke himself has recently emphasized. Yet the Fed isn’t taking strong action to rectify the situation.
