Empire
Economists
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nouriel
roubini
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china economics blog China Economics Blog: China, the collapsing dollar and independence |
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| Joseph Stiglitz |
Economists
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Knowledge @ wharton | |
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Stephen Roach
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Economists Update A Beginner's Guide to Economic Indicators
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UPDATES FOR THE MONTH
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| 2010 | COMING SOON |
| 5 Sep 2009 | THE STORM - by Dr Vince Cable |
| 4 Aug 2009 |
Stiglitz: America at "Serious Risk of Extended Malaise" |
| 29 Jul 2009 |
Nouriel
Roubini raises growth forecasts for Asia |
| Jun 2007 |
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THE STORM - by Dr Vince Cable : and here is an excerpt from
his article in TODAY on 7 Sep 2009:
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Stiglitz: America at "Serious Risk of Extended Malaise"Posted Aug 04, 2009
Day by day, the
"the
recession is over" crowd continues to get
larger and louder.
But the U.S. faces "serious risk of an extended malaise" after the bursting of the credit bubble, says Nobel Prize-winning economist Joseph Stiglitz of Columbia University. Today's optimistic policymakers (current and former) and economists risk confusing the technical end of recession with a robust recovery, he says. "It would be a mistake to say ‘because we're out of a sense of freefall and may have turned a corner [that] we're on the road to recovery.'" In the short term, there is a "very remote likelihood" the job market will turn around anytime soon, the famed economist says. Therefore, it will still feel like a recession for many Americans even if GDP does produce positive readings. Stiglitz also cited a number of potential negative speed bumps the recovery may hit, including:
In fact, Stiglitz says the next few years may be characterized by weak growth and false starts on the road to recovery, not unlike Japan in the past 20 years or America during the Great Depression. As a result, he says the government should plan on additional stimulus packages focused on improving technology, education and infrastructure. While lamenting "there's no appetite" for additional government spending, he says these investments provide a better long-term return than tax cuts or rebates. Best to get these plans ready to go for when the current stimulus package, which Stiglitz called "too small and badly designed" last spring, starts to wane. In sum, Stiglitz believes we should hope for the best, but plan for the worse.
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Nouriel Roubini raises growth forecasts for Asia
By Sameera Anand | 29 July 2009 |
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Roach's last report as chief economist
"As I look back on the journey, I am struck by three macro milestones: At the top of my list is the extraordinary disinflation of the past 25 years. When I began working at Morgan Stanley, the ravages of America’s double-digit inflation were just starting to recede. Following nearly a 12% average annual increase in the CPI in 1980-81, the 6% increase that was unfolding in 1982 came as welcome relief. Interestingly enough, no one at the time really believed it would stick. The shock was that it did. US inflation settled down to a 3.5% trajectory over the balance of the 1980s and memories of the Great Inflation eventually started to fade. This was the defining development for the greatest bull-run in modern financial-market history. On the back of sharply receding inflation, yields on 30-year US Treasuries (the bond market benchmark at the time) were literally cut in half — falling from 11% in early 1983 to around 5% at present — and the S&P 500 went up about fifteen-fold over the same 25-year period. "During the second half of the 1970s and the early 1980s, we agonised endlessly on how to arrest the Great Inflation. In retrospect, the cure was painfully simple — a wrenching monetary tightening. It took the vision and courage of Paul Volcker to pull it off — at one point in 1981 pushing the federal funds rate up to 19%. Ironically, central banks may be better equipped to fight high inflation than they are to preserve the gains of low inflation. While the new religion of monetary discipline succeeded in keeping inflation and inflationary expectations in check, the confluence of two powerful structural forces — the IT revolution and globalisation — took a secular disinflation to the brink of an unwelcome deflation. Japan fell into that trap in the 1990s and the US came dangerously close a decade later — occurrences that in both cases were unmistakable outgrowths of the bursting of major asset bubbles. As the multiple-bubble syndrome of the past several years suggests, the authorities still have a lot to learn in managing low-inflation economies — and in avoiding the liquidity-driven pitfalls that come from exceedingly low nominal interest rates. "America’s productivity revival stands out as a second milestone of the past 25 years. When I started at Morgan Stanley, trend productivity growth in the US was around 1%. Today the underlying trend is closer to 2˝%. The explanation of the difference between now and then is still a subject of hot debate. The productivity bulls wax eloquently on America’s innate attributes of flexibility, innovation, de-regulation, and risk taking. The sceptics focus on “capital deepening” and cost-cutting — in effect, the substitution of capital for labour and the concomitant transformation from one technology platform to another that drove the IT revolution in the 1990s. “I’ve been on both sides of this debate — as one of the first productivity bulls of the early 1990s and then, unfortunately, as one of the first to abandon this view in the mid-1990s. In retrospect, this about-face was one of the biggest mistakes of my forecasting career. My concern was that Corporate America had taken its penchant for cost-cutting too far — running the risk of a 'hollowing out' that might compromise its ability to maintain market share in a rapidly expanding US and global economy. I failed to appreciate the breadth, depth, and duration of the IT-enabled transformation of the US economy — as well as the broader productivity leverage that ultimately would flow from the new technologies of the Information Age. "The US productivity revival of the 1990s turned the global competitive sweepstakes inside out. At the end of the 1980s, conventional wisdom had it that America was “over” — in effect, beaten into submission by the world’s new competitive behemoths, Japan and Germany. In retrospect, of course, nothing could have been further from the truth. At the dawn of the 1990s, Japan and Germany were peaking out and, courtesy of a wrenching restructuring, the United States was about to emerge from its long slumber. Fast forward to mid2007, and the debate has come full circle. America’s productivity growth has slowed to 1%, and the jury is out on whether this is a cyclical or structural development. While the recent downshift in US economic growth underscores the apparent cyclicality of this development, the culmination of capital deepening — an IT share of total equipment spending that peaked at around 51% in 2000-03 — raises the distinct possibility that IT-enabled productivity acceleration may have finally run its course. Meanwhile, there are encouraging signs of a long overdue revival in German and Japanese productivity growth. Recent history tells us that the pendulum of competitive prowess can change much more quickly than we might think. That’s something to keep in mind in the years immediately ahead. "Globalisation is certainly on a par with the other two milestones of the past 25 years. In this case, the comparison between 1982 and 2007 is like day and night. I walked into this job when global trade stood at just 18% of world GDP; this year, that ratio is likely to hit a record 32%. The problem with globalisation is that we have done a lousy job in understanding and explaining it. And by 'we' I mean my fellow economists, policy makers, politicians, business leaders, and other pundits. Far from the nirvana promised by the imagery of a “flat world” and the ecstasy of the 'win-win' mantra, the road to globalisation has led to saving and current-account imbalances, income disparities, and trade tensions — all having the potential to spark a very destabilising backlash. The threat of just such a backlash remains a clear risk in today’s environment. "Notwithstanding those concerns, globalisation has been a huge success — at least on one level. Despite persistent and devastating poverty in many poor countries, there has been a doubling of per capita GDP growth in the developing world over the past decade. Yet a key element of sustainability is still missing in this newfound prosperity — the emergence of consumer-driven growth models in these still largely export- and investment-led economies. At the same time, in the rich countries, the benefits of globalisation have accrued far more to the owners of capital than to the providers of labour; labour shares of national income in the major developed economies are at record lows, whereas the shares going to capital are at record highs. Moreover, the distribution of gains within the labour share of the developed world has become increasingly skewed toward the very few at the upper end of the income distribution — at the expense of those in the middle and at the lower end. Therein lie the seeds for a potentially powerful backlash: As the pendulum of economic power has swung from labour to capital, the pendulum of political power is now in the process of swinging back from a pro-capital stance to that which provides support for labour. The case for trade protectionism — especially in the US — is alarmingly high as a result. Sadly, this is antithetical to the global stewardship that is so desperately needed in today’s world. "In one important sense, these past 25 years have been an era of powerful transitions — transitions from high to low inflation, from stagnant to rapid productivity growth, and from closed to open economies. Transitions, by definition, have a finite duration. A key challenge for the global economy and world financial markets is what happens after these transitions have run their course — when disinflation comes to an end, when the productivity revival has crested, and when globalisation hits its structural limits in terms of import penetration in the developed world and investment-led growth in the developing world. Don’t get me wrong — a post-transition climate need not be characterised as a return to rapid inflation, stagnant productivity growth, or trade protectionism. The endgame could be considerably more benign — modest inflation, “adequate” productivity growth, and a levelling out of the global trade share of world GDP. While these outcomes offer less dynamism to the global economy than we have seen in recent years, they do not represent relapses to more problematic macro climates. At the same time, such post-transition scenarios may well deny world financial markets the high-octane fuel that has produced the truly spectacular results of the past 25 years. "The jury is obviously out on these important questions — as well as on the inevitable transitions to come. My favourite candidates in that regard: productivity catch-ups in the developed world, consumer-led growth in the developing world, a world coming to grips with climate change, and financial solutions to the demographics of aging. There can be no mistaking the world’s increasingly robust coping mechanisms in dealing with recent and prospective challenges. In fact, as I look back on the past quarter century, what astonishes me the most is speed — how quickly the world has come to grips with structural issues like productivity and globalisation and how equally quickly the Great Inflation was brought to an end. All this underscores the one lesson from economic history that rings truer than ever — the axiom of an ever-accelerating pace of change. Just like Moore’s Law, it’s always hard to envision the next wave of time compression — even though it never fails to occur. "The world today is obviously a very different place than it was 25 years ago. But let me assure you that back in 1982 there was no inkling of what was to come. I have been privileged to bear witness to an utterly astonishing period in the transformation of the global economy. I have relished the financial-market debate that has arisen out of this transformation. I wouldn’t trade that experience for anything. And now it’s off to Asia — the epicentre of the Next Wave. My role will change, but I can assure you the lens won’t. Stay tuned."
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A Beginner's Guide to Economic Indicators
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What are Economic Indicators? From Mike Moffatt, former About.com Guide Q: I'm constantly hearing about economic indicators in the news, but I'm never sure what they're talking about. What are economic indicators and why are they important? A: An economic indicator is simply any economic statistic, such as the unemployment rate, GDP, or the inflation rate, which indicate how well the economy is doing and how well the economy is going to do in the future. As shown in the article "How Markets Use Information To Set Prices" investors use all the information at their disposal to make decisions. If a set of economic indicators suggest that the economy is going to do better or worse in the future than they had previously expected, they may decide to change their investing strategy. To understand economic indicators, we must understand the ways in which economic indicators differ. There are three major attributes each economic indicator has: Three Attributes of Economic Indicators 1. Relation to the Business Cycle / Economy Economic Indicators can have one of three different relationships to the economy: 1. Procyclic: A procyclic (or procyclical) economic indicator is one that moves in the same direction as the economy. So if the economy is doing well, this number is usually increasing, whereas if we're in a recession this indicator is decreasing. The Gross Domestic Product (GDP) is an example of a procyclic economic indicator. 2. Countercyclic: A countercyclic (or countercyclical) economic indicator is one that moves in the opposite direction as the economy. The unemployment rate gets larger as the economy gets worse so it is a countercyclic economic indicator. 3. Acyclic: An acyclic economic indicator is one that has no relation to the health of the economy and is generally of little use. The number of home runs the Montreal Expos hit in a year generally has no relationship to the health of the economy, so we could say it is an acyclic economic indicator. 2. Frequency of the Data In most countries GDP figures are released quarterly (every three months) while the unemployment rate is released monthly. Some economic indicators, such as the Dow Jones Index, are available immediately and change every minute. 3. Timing Economic Indicators can be leading, lagging, or coincident which indicates the timing of their changes relative to how the economy as a whole changes. Three Timing Types of Economic Indicators 1. Leading: Leading economic indicators are indicators which change before the economy changes. Stock market returns are a leading indicator, as the stock market usually begins to decline before the economy declines and they improve before the economy begins to pull out of a recession. Leading economic indicators are the most important type for investors as they help predict what the economy will be like in the future. 2. Lagged: A lagged economic indicator is one that does not change direction until a few quarters after the economy does. The unemployment rate is a lagged economic indicator as unemployment tends to increase for 2 or 3 quarters after the economy starts to improve. 3. Coincident: A coincident economic indicator is one that simply moves at the same time the economy does. The Gross Domestic Product is a coincident indicator.
In the next section we will look at some economic indicators distributed by the U.S. Government. Many different groups collect and publish economic indicators, but the most important American collection of economic indicators is published by The United States Congress. Their Economic Indicators are published monthly and are available for download in PDF and TEXT formats. The indicators fall into seven broad categories: 1. Total Output, Income, and Spending 2. Employment, Unemployment, and Wages 3. Production and Business Activity 4. Prices 5. Money, Credit, and Security Markets 6. Federal Finance 7. International Statistics Each of the statistics in these categories helps create a picture of the performance of the economy and how the economy is likely to do in the future. Total Output, Income, and Spending These tend to be the most broad measures of economic performance and include such statistics as: · Gross Domestic Product (GDP) [quarterly] · Real GDP [quarterly] · Implicit Price Deflator for GDP [quarterly] · Business Output [quarterly] · National Income [quarterly] · Consumption Expenditure [quarterly] · Corporate Profits[quarterly] · Real Gross Private Domestic Investment[quarterly] The Gross Domestic Product is used to measure economic activity and thus is both procyclical and a coincident economic indicator. The Implicit Price Deflator is a measure of inflation. Inflation is procyclical as it tends to rise during booms and falls during periods of economic weakness. Measures of inflation are also coincident indicators. Consumption and consumer spending are also procyclical and coincident. Employment, Unemployment, and Wages These statistics cover how strong the labor market is and they include the following: · The Unemployment Rate [monthly] · Level of Civilian Employment[monthly] · Average Weekly Hours, Hourly Earnings, and Weekly Earnings[monthly] · Labor Productivity [quarterly] The unemployment rate is a lagged, countercyclical statistic. The level of civilian employment measures how many people are working so it is procyclic. Unlike the unemployment rate it is a coincident economic indicator. Production and Business Activity These statistics cover how much businesses are producing and the level of new construction in the economy: · Industrial Production and Capacity Utilization [monthly] · New Construction [monthly] · New Private Housing and Vacancy Rates [monthly] · Business Sales and Inventories [monthly] · Manufacturers' Shipments, Inventories, and Orders [monthly] Changes in business inventories is an important leading economic indicator as they indicate changes in consumer demand. New construction including new home construction is another procyclical leading indicator which is watched closely by investors. A slowdown in the housing market during a boom often indicates that a recession is coming, whereas a rise in the new housing market during a recession usually means that there are better times ahead. Prices This category includes both the prices consumers pay as well as the prices businesses pay for raw materials and include: · Producer Prices [monthly] · Consumer Prices [monthly] · Prices Received And Paid By Farmers [monthly] These measures are all measures of changes in the price level and thus measure inflation. Inflation is procyclical and a coincident economic indicator. Money, Credit, and Security Markets These statistics measure the amount of money in the economy as well as interest rates and include: · Money Stock (M1, M2, and M3) [monthly] · Bank Credit at All Commercial Banks [monthly] · Consumer Credit [monthly] · Interest Rates and Bond Yields [weekly and monthly] · Stock Prices and Yields [weekly and monthly] Nominal interest rates are influenced by inflation, so like inflation they tend to be procyclical and a coincident economic indicator.
Stock market returns are also procyclical but they are a leading indicator of economic performance. Federal Finance These are measures of government spending and government deficits and debts: · Federal Receipts (Revenue)[yearly] · Federal Outlays (Expenses) [yearly] · Federal Debt [yearly] Governments generally try to stimulate the economy during recessions and to do so they increase spending without raising taxes. This causes both government spending and government debt to rise during a recession, so they are countercyclical economic indicators. They tend to be coincident to the business cycle. International Trade These are measure of how much the country is exporting and how much they are importing: · Industrial Production and Consumer Prices of Major Industrial Countries · U.S. International Trade In Goods and Services · U.S. International Transactions When times are good people tend to spend more money on both domestic and imported goods. The level of exports tends not to change much during the business cycle. So the balance of trade (or net exports) is countercyclical as imports outweigh exports during boom periods. Measures of international trade tend to be coincident economic indicators. While we cannot predict the future perfectly, economic indicators help us understand where we are and where we are going. In the upcoming weeks I will be looking at individual economic indicators to show how they interact with the economy and why they move in the direction they do. See More About:
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