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Economic News, Data and Analysis

15 minutes of Fame

Did you watch the NewsHour tonight?
If so, you saw me at a meeting of DC area bloggers. You can check out the audio, or the video.
The segment is about 10 minutes long and is summarized as follows:

Weblogging
Web logs, or “blogs,” are personal, online journals – and one of the fastest growing trends on the Internet. Terence Smith explores the motivation behind blogging and whether blogs represent the future of journalism.

There goes 2 1/2 minutes of my fame….
Online NewsHour: Media Watch

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Filed under: Economics, Metro DC, Website

Slow Posting

It’s been slow posting around here, because:
1. Wedding shower in New York City (my own).
2. Wedding in Texas (my fiance’s bother)
3. Tree pollen in DC has set off my allergies – hard to think – uuggh.
I promise to get back soon – in the meantime visit Argmax Economics News, or better yet, buy a book.
If you’re in the DC area and sneezing as much as I am, be sure to visit Allergy and Asthma of North Bethesda – tell them John Jr. sent you.

Filed under: Website

Recession: Two Year Anniversary

This past month (March) marked the two-year anniversary of the recession that began in 2001.
Some observations…
* If the economy were still in recession, April would be the 25th month of the contraction, making it the longest recession in 100 years (save for the great depression); and more than twice the average duration. See Recession dates and durations. The NBER has not yet made a determination as to whether the recession has ended, or, additionally, if a second one has started.
* Despite a stable 5.8% unemployment rate, employment is still very week. A recent data analysis by the Economic Policy Institute shows that the current recession has an unusually large the decline in private sector jobs two years after the recession began. (See graph below…)
* Overall, the recession is/was rather mild as measured by output reductions. GDP has been slow but positive over the past year. Industrial production has improved significantly from its trough, and real manufacturing and wholesale-retail sales has more than surpassed the March 2001 level. (See NBER’s memo.)
* People in the know are suggesting that the first quarter of this year was particularly weak. Industrial production fell by 0.6% in the past two months after a 0.8% gain in January. However, the relatively quick end of the Iraq war is likely to improve consumer and business confidence – and hopefully this will be reflected in increased consumer spending and higher businesses investment.
* One potentially significant drag on the economy is still the continuing fiscal crisis at the state level which, at the very least, is likely to further harm the employment situation.
* Turning points in the macroeconomic situation are notoriously hard to predict, but I think, despite the current weakness, there is a strong possibility that economy may start to improve in the near future. However, I am fully aware that the lovely spring weather might be biasing me in this regard!

(Click for large version)

How Deep Is the Current Recession?: Archive Entry From Brad DeLong’s Webjournal
The Economic Policy Institute has found a measure according to which the current recession is actually the deepest and most severe of post-WWII recessions. The measure? The percentage by which private employment is below its peak level two years after the recession began: “In the two years since the recession began in March 2001, total payrolls have fallen by 2.1 million and private sector payrolls are down by 2.6 million.”
This is, of course, only part of the story: the current recession is very shallow insofar as production is concerned (in large part because of the rapid underlying productivity growth trend), moderate as far as the unemployment rate is concerned (in part because lots of people have dropped out of the labor force during this recession), and deep as far as private-sector employment is concerned.
Which is the “right” measure? Well, it depends on what you are interested in, of course. A balanced picture of the perhaps-still-ongoing recession needs to comprehend all three…

Filed under: Data, Economics, Economy, Recession, State Economy

Homer’s Budget

[Update 6pm: The House passed the not-quite-reconciled budget by 5 votes, and passed the Senate by the tie-breaking vote of VP Cheney.]
The Congress is today voting on two version of a $2.27 trillion federal budget. For those not familiar with the usual process (and the unusual trick employed this week), I though I would illustrate with a quick example: The case of the Simpsons (Father Homer, wife Marge, son Bart, and daughters Lisa and Maggie).
The basics of their budgeting go something like this. Suppose that, for several years, the Simpsons have been running up credit card bills. One night they sit down and decide that they should really get their finances in order to start to pay-off their credit cards (or at least try to stop the debt explosion).
So, in an effort to restrain the family budgetary excess, Homer and Marge get together to try to come up with a budget. They lay out generally how much will be spent spend on things like food, allowances to the kids, car payments, slushies at Apu’s, etc., and agree to stick to the overall plan. They often have different ideas about how much to spend on various items, but they compromise and come up with a solution they can both agree to.
Makes sense so far, right? The federal government (usually) does roughly the same thing every year by passing a budget “resolution” which lays out the general overall budget amounts for spending and taxes. (Actual spending on specific areas is done via various appropriations bills).
Now, just like Homer and Marge sometimes differ initially, the House and Senate often pass different versions of bills. When this happens, representatives from each group get together in a “conference” to write a final version of the bill, which is often (but not always) a compromise between the house and senate version. This final version is then voted by the House and Senate before being sent to the President’s desk.
Now here’s where it gets weird. Suppose Homer and Marge, when making up thier budget, each have their own idea about how much to earn and spend. Most years, they get together to agree on a single number. This year, however, they can’t agree on a compromise and go about making their decisions separately, each using their own numbers!
Congress is playing some similar games with the current budget. The House of Representatives initially passed over $700 billion in cuts, primarily in the form of a dividend tax cut, white the Senate passed $350 billion. These bills went to conference, and what came out was… well… not so much of a compromise.
The “reconciled” bill gave a $550 billion figure to the House, and a $350 billion figure to the Senate. Huh?
It looks like the reason for the strange hybrid was a bid to delay the tough decisions until moderate Republicans (who are balking at greater revenue reductions) can be convinced to change their votes. (Attached were also a set of rules to make it likely that the final result would be closer to the $550 billion number.)
Now, I realize that this kind of a procedural maneuver is primarily the concern of inside-the-beltway types (like myself!), but what should be clear to everyone is that there are a lot of gimmicks being employed to try and force through a controversial budget. (See article below)
[Update: 4/12 12pm. The NYTimes is reporting that the budget passed only “…when Senator Charles E. Grassley, the Iowa Republican who is chairman of the Finance Committee … promised on the Senate floor that he would not permit, under any circumstances, a law this year that would reduce taxes by more than $350 billion over 10 years.”]
Now back to the Simpsons.
Suppose both that, this year, Homer and Marge decide it’s ok to run up some extra credit card debt – say because Homer has worked fewer overtime hours at the power plant recently, plus Bart got into a fight with Nelson, the local bully, and there were some unexpected medical bills to pay.
Sounds reasonable. When the economy goes into recession, overall tax revenue is lower, and expenditures are higher, so it makes sense to run a temporary deficit.
Now here’s where it gets weird again. In typical Homer fashion, he decides the best strategy is to work less and thus take in less income – for the next 10 years and beyond, with the hope that perhaps they might spend less money in the future. However, they know that there are going to be additional expenses coming up soon (Bart needs braces, Lisa keeps talking about going to college, and Maggie’s eating more everyday).
What will be the result of this action on the Simpson’s household budget? At best, huge credit card debts probably delaying Homer’s retirement. At worst, a repossessed car, no college for Lisa, and Bart’s overbite stays.
What about the economy? While a temporary deficit is OK in times of recession, current policies will drag the budget into deficit into the distant future. These deficits caused by revenue reductions, measured in the hundreds of billions, are especially concerning since there are important and necessary expenses on the horizon. Iraqi war and reconstruction costs, prescription drug benefits, and social security reform, to name a few, will cost many hundreds of billions. In addition, the deficit itself is a drag on private investment.
(A recent NYTimes editorial by Concord Coalition members Bob Kerrey, Sam Nunn, Warren B. Rudman, Peter G. Peterson, Robert E. Rubin, Paul A. Volcker: No New Tax Cuts provides a better summary ot these arguments.)
I’m afraid Homer would be proud of the current budget!

GOP Leaders Strive for Unusual Deal On Budget (washingtonpost.com)

Under the proposed deal, the House and Senate would pass a $2.2 trillion budget resolution by week’s end calling for a $350 billion tax cut in the Senate and $626 billion in the House. Late last night, however, GOP leaders were warned that the Senate parliamentarian might not allow the unorthodox deal to go through as planned, two GOP aides said. A senior House GOP leadership aide said it could fall apart at an emergency meeting of top Republicans this morning.
A final decision is expected today. Never before has Congress passed a budget resolution with different tax numbers for the two chambers.
House and Senate members must settle on one number before they can send a tax cut bill to Bush for his signature. The easiest way for Republicans to achieve a big tax cut is to approve a budget resolution, which would set the parameters for spending and tax cuts for 2004. Under Congress’s budget rules, Republicans would need 50 votes in the 100-member Senate for a tax cut if a budget resolution has been passed. Without a resolution, they would need 60 votes, a dubious proposition in the narrowly divided chamber.
Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) accused his GOP colleagues of simply “passing the buck” because budget writers couldn’t “figure out” a compromise between conservatives who want large tax cuts to spur economic growth, and liberals and moderates who want smaller tax reductions to keep a lid on budget deficits.
Most Democrats oppose the GOP’s unorthodox solution. “There will be an uproar of some magnitude if somebody tries to do this,” said Senate Minority Leader Thomas A. Daschle (D-S.D.). The Republicans’ strategy is twofold: They want to appear fiscally responsible by passing a budget resolution by the April 15 statutory deadline and providing Bush more time to woo four Senate Republican opponents of his tax cut plan. It now will take Congress weeks, if not months, to settle on a final tax number.

Filed under: Economy, Fiscal Policy, Policy, Politics, Recession

NET Institute

I just got this email from Prof. N. Economides at NYU. It looks like he is starting an interesting new institute.
Networks, Electronic Commerce, and Telecommunications,(“NET”) Institute
Dear Colleague,
I am writing to announce the creation of NET Institute, the Networks, Electronic Commerce and Telecommunications Institute. The NET Institute is a non-profit institution devoted to research on network industries, electronic commerce, telecommunications, the Internet, “virtual networks” comprised of computers that share the same technical standard or operating system, and on network issues in general. The NET Institute will function as a world-wide focal point for research and open exchange and dissemination of ideas in these areas. The NET Institute will competitively fund cutting edge research projects in these areas, and it will organize conferences and seminars on these issues. See http://www.NETinst.org.
The NET Institute will fund a number of scientific research projects in the areas of network industries, including wired and wireless networks, “virtual networks,” electronic commerce, telecommunications, and the Internet. Proposed research may be either theoretical or empirical, and may also analyze issues of public policy and antitrust. The deadline for proposals is May 5, 2003. Details on the requirements are at http://www.NETinst.org . Please distribute this information to researchers who may be interested to get funding for their research in these subjects.
Thank you.
Best regards,
Prof. Nicholas Economides
Director, NET Institute

Filed under: Economics, Economists, Economy, Microeconomics, Teaching, Technology

The Employment Situation

The employment situation remains poor. Data released by the Bureau of Labor Statistics shows that the unemployment rate for March remains unchanged at 5.8%, and, in addition, total nonfarm payroll employment declined by 108,000 after seasonal adjustment.
Overall, these numbers again point to the idea that the economy is in somewhat of a holding pattern. Overall growth appears to be weak, leading to the decline in employment, yet the unemployment rate has been holding steady at just under 6% for the past year (see graphs below).
unemployment040403.jpg
employment040403.jpg

Employment Situation
Total nonfarm payroll employment declined by 108,000 in March, while the unemployment rate was unchanged at 5.8 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Employment continued to decline in manufacturing, retail trade, and transportation. Government employment also was down over the month.

Filed under: Data, Economy, Recession

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