The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.

August 26, 2011

Lots of ground to cover: An update

If you have to discuss a difficult circumstance, I guess Jackson Hole, Wyo., is as nice as place as any to do so. This morning, as most folks know by now, Federal Reserve Chairman Bernanke reiterated the reason that most Federal Open Market Committee (FOMC) members support the expectation that policy rates will remain low for the next couple of years:

"In light of its current outlook, the Committee recently decided to provide more specific forward guidance about its expectations for the future path of the federal funds rate. In particular, in the statement following our meeting earlier this month, we indicated that economic conditions—including low rates of resource utilization and a subdued outlook for inflation over the medium run—are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. That is, in what the Committee judges to be the most likely scenarios for resource utilization and inflation in the medium term, the target for the federal funds rate would be held at its current low levels for at least two more years."

There are two pieces of information that emphasize the economy's recent weakness and potential slow growth going forward. The first is this week's revised forecasts and potential for gross domestic product (GDP) from the Congressional Budget Office (CBO), and the second is today's revision of second quarter GDP from the U.S. Bureau of Economic Analysis (BEA). Though estimates of potential GDP have not greatly changed, the CBO's downgrade in forecasts and BEA's report of much lower than potential growth in the second quarter have the current and prospective rates of resource utilization lower than when macroblog covered the issue just about a month ago.

Key to the CBO's estimates is a reasonably good outlook for GDP growth after we get past 2012:

"For the 2013–2016 period, CBO projects that real GDP will grow by an average of 3.6 percent a year, considerably faster than potential output. That growth will bring the economy to a high rate of resource use (that is, completely close the gap between the economy's actual and potential output) by 2017."

The margin for slippage, though, is not great. Assuming that GDP ends 2011 having grown by about 2.3 percent—as projected by the CBO—here's a look at gaps between actual and potential GDP for different, seemingly plausible growth rates:

Attaining 3.5 percent growth by next year moves the CBO's date for closing the output gap up by about a year. On the other hand, a fall in output growth to an average of 3 percent per year moves the date for eliminating resource slack back to 2020. If growth remains below that—well, let's hope it doesn't.

David Altig By Dave Altig, senior vice president and research director at the Atlanta Fed


August 26, 2011 in Business Cycles, Economic Growth and Development, Employment, Forecasts, Saving, Capital, and Investment | Permalink


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«economic conditions—including low rates of resource utilization and a subdued outlook for inflation over the medium run—are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.»

The exceptionally low funding rates to financial intermediaries are not resulting in equally low rates for customers of those intermediaries, because the Fed has repeatedly hinted that they want to rebuild the balance sheet of the finance sector boosting their profits by granting them a huge spread (and hoping that at least half of those profits go into capital instead of bonuses).

Bernanke's statement then may be interpreted as saying that the Fed does expects the financial sector to need another several years of extra profits resulting from the Fed "subsidy" because the finance sector seem unlikely to be able to make any profit if market conditions prevailed, and indeed it seems that the capital position of many finance sector "national champions" is still weak considering the cosmetically hidden capital losses they have.

As to inflation, wage inflation is indeed well contained (wages are declining in real terms) even if cost of living inflation seems pretty rampant; in a similar country like the UK where indices are less "massaged" the RPI has been running at over 5% and on an increasing trend:


Posted by: Blissex | August 26, 2011 at 05:28 PM

Why can't the Federal Reserve tell the public the obvious: Growth will only come about by hiring people with livable wages.

If we don't raise incomes nationally we will be forced to liquidate on a massive scale. It doesn't matter who does the hiring, just that it is done.

It isn't the deficit. It isn't the debt. It's the incomes, stupid.

Posted by: beezer | August 27, 2011 at 06:10 AM

Ken Rogoff says 3-5 years of 1-2% GDP and Carmen Reinhart thinks 5-6 years of 2%. =(

Posted by: DarkLayers | August 27, 2011 at 11:19 PM

In terms of econometrics, annual increment of real GDP per capita is constant over time http://mechonomic.blogspot.com/2011/08/revised-gdp-estimates-support-model-of.html . Therefore, the rate of real GDP per capita growth has to decay as a reciprocal function of the attained level of GDP per capita. The exponential component in the overall GDP is fully related to population growth which has been around 1% per year in the U.S. Currently, the rate of population growth falls and the trajectory of the overall GDP lags behind the projection which includes 1% population growth. If to look at the per head estimates, there is no gap between "potential" and observed levels.
In no case should an economist mix the growth in population and real economic growth.

Posted by: kio | August 28, 2011 at 04:03 AM

It's going to be a long time. Do you know how hard it will be for a person to live in the same town for 30 years?

Our money game will need new rules because 30 years at the same job/house/town is over.

But once that issue is fixed, watch out. Technologically America is so far ahead that earning a 100k(todays $$) salary can be done in 6 months.

To keep the NYC banks from leeching on it will be a task.

Posted by: FormerSSResident | August 31, 2011 at 07:00 PM

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August 15, 2011

The GDP revisions: What changed?

Prior to the U.S. Bureau of Economic Analysis's (BEA) benchmark gross domestic product (GDP) revisions announced three Fridays ago, we were devoting a fair amount of space—here, in particular—to picking apart some of the patterns in the data over the course of the recovery. Ahh, the best-laid plans. As noted in a speech today from Atlanta Fed President Dennis Lockhart:

"It's been an eventful two weeks, to say the least. Let's now look ahead. The $64,000 question is what's the outlook from here?...

"Whether we're seeing a temporary soft patch in an otherwise gradually improving growth picture or a deeper and more persistent slowdown, most of the arriving economic data lately have caused forecasters to write down their projections. Also, and importantly, the Bureau of Economic Analysis in the Department of Commerce has revised earlier economic growth numbers. These revisions paint a different picture of the depth of the recession and the relative strength of the recovery."

Beyond keeping the record straight, revisiting the charts from our previous posts in light of the new GDP data is a key input into answering President Lockhart's $64,000 question. Here, then, is that story, at least in part.

1. Even ignoring the depth of the recession, the first two years of this recovery have been slow relative to the early phases of the past two recoveries.

I wasn't so sure this was the case to be made prior to the new statistics from the BEA, but the revisions made clear that, while still broadly similar to the slower growth pattern of the prior two recoveries, the GDP performance has been pretty easily the slowest of all.

Real GDP

2. Consumption growth has been especially weak in this recovery, and the pattern of consumer spending has been more concentrated in consumer durables than has been the case in prior business cycles.

Change in consumption expenditures

The consumer spending piece of this puzzle has President Lockhart's attention:

"I'm most concerned about the effect of the wild stock market on consumer spending. Volatility alone could have a negative impact on consumer psychology at a time of already weakening spending. Last Friday, it was reported that the University of Michigan's Survey of Consumer Sentiment fell sharply in early August to its lowest level in more than 30 years. Furthermore, if the loss of stock market value persists, the effect from the loss of investment value could combine with the loss of value in home prices to discourage consumers more and longer."

On the bright side, the GDP revisions did not of themselves alter the household spending picture. Though the benchmark revisions contained significant changes in consumer spending, those changes were concentrated during the recession in 2008 and 2009. Personal consumption expenditures were actually revised upward from 2009 on, with the big negative changes coming in net exports and government spending:

GDP revisions

Are there other rays of hope? I might add this:

3. The revisions show that the momentum that seemed to fade through 2010 was more apparent in total GDP than in final demand. In other words, the basic storyline—a good start to 2010 with a soft patch in the middle and a stronger finish—still emerges if you look through changes in inventories.

Pattern of final demand

That observation does not, of course, help salve the pain of the very anemic first half of this year. Nonetheless (from Lockhart, again):

"At the Atlanta Fed, we have revised down our near and intermediate gross domestic product (GDP) growth forecast, but we are holding to the view that the economy will continue to grow at a very modest pace. In other words, we do not expect the onset of outright contraction—a recession—but I have to say the risk of recession is higher than we perceived a month or two ago...

"The rapid-fire developments of the last several days, along with some troubling data releases, have shaken confidence. People are worried. Investors, Main Street businessmen and women, and consumers are wondering which way things will tip. The public—and for that matter, policymakers—are operating in a fog of uncertainty that is thicker than normal."

That fog of uncertainty was made thicker by the GDP revisions, and thicker yet by the volatility that followed. But I would still pass along this advice from President Lockhart:

"At this juncture, we should not jump to conclusions. A clearer picture of economic reality will be revealed in time as immediate uncertainties dissipate. It's premature, in my view, to declare these important questions relating to our economic future settled."

David Altig By Dave Altig, senior vice president and research director at the Atlanta Fed

August 15, 2011 in Business Cycles, Economic Growth and Development, Forecasts, Saving, Capital, and Investment | Permalink


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I think it is important to remember that the BEA only has comprehensive data on income and consumer spending in 2009 and earlier. With this annual revision they folded in mandatory census like surveys on retail trade and services. On the income side they incorporated IRS tax return data which led to substantially lower estimates of asset income. Data from the Michigan survey suggests that the current estimates of personal income in 2010 and later might be overstated. The BEA does a very important job as best they can, but the source data is slow to roll in. We probably have a good picture of the recession now, but the recovery is still a work in progress in the NIPAs. In my opinion, if you want to understand the slow recovery in consumer spending...look at the income expectations (or lack thereof) in the Michigan survey.

Posted by: Claudia Sahm | August 16, 2011 at 04:48 AM

Interesting, as always. I'd like to see point 2 done for fixed investment, too.

Posted by: Dave Backus | August 16, 2011 at 05:37 PM

I think we should not begin to accept the pace of recovery in the last two recessions as a "new normal." The last two recessions have featured very little fiscal stimulus, and increasing emphasis on monetary means. Also, what fiscal stimulus there has been is of dubious value, particularly some of the tax policy measures.

These observations reflect a transition from a political economic theory that government spending should fill the gap created by falling consumer and business spending during times of recession to a political economic theory based accounting (i.e., that spending should not exceed revenues). The latter is leading to larger and larger output gaps, and will eventually lead to permanent recession.

This is why it should not be accepted as the "new normal."

Posted by: Charles | August 17, 2011 at 11:02 AM

Looks like the market is now firmly the master. Everybody has become an economist, we elect an Economist for Governors and Presidents, because we have lost control. The Tea Party is a reaction to this, a desperate one.

If the Fed/America can't re-gain control, someone else will.

Posted by: FormerSSresident | August 17, 2011 at 01:43 PM

Inventories are no longer helping and government will be a drag. It is difficult to see where growth comes from in this environment.
We should measure private sector GDP (without Government) as it is the engine that must support the economy and the government.
The economy has been off track for some 15 years as consumer debt has been the engine and that source is over. Debt is a burden and it should not be used for basic consumption or stimulus. All it does is remove future growth. We are in for a sustained period of slow growth.

Posted by: GASinclair | August 19, 2011 at 06:25 PM

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August 01, 2011

Is the economy hitting stall speed?

The news that the U.S. economy is not only growing slowly but has grown more slowly than anyone even knew has justifiably rattled some nerves. The sentiment is captured well enough by this article from Bloomberg:

"The world's largest economy has yet to regain the ground it lost during the recession and may be vulnerable to a relapse.

"Gross domestic product [GDP] expanded at a 1.3 percent annual rate in the second quarter, after a 0.4 percent pace in the prior period, the worst six months since the recovery began in June 2009, Commerce Department figures showed yesterday. Economists said the slowdown leaves the recovery susceptible to being knocked off course by shocks at home or abroad."

At Reuters, James Pethokoukis makes those concerns quantitative:

"...we're in the danger zone for another recession. Research from the Federal Reserve finds that that since 1947, when two-quarter annualized real GDP growth falls below 2 percent, recession follows within a year 48 percent of the time. (And when year-over-year real GDP growth falls below 2 percent, recession follows within a year 70 percent of the time.")

The research being referred to is work done by the Federal Reserve Board's Jeremy Nalewaik, a careful researcher who is clear that the results should be read with, well, care.

"The dynamics at play in the early part of the 1990s and 2000s expansions may have been different than the dynamics at play in the more-mature part of those and other expansions, and our stall speed models may have omitted an additional phase of the business cycle that has appeared in recent decades, namely the sluggish, jobless recovery phase. If so, the applicability of these stall speed models may be somewhat limited at certain times, such as in the middle of 2010 when the economy evidently slowed while still in the early stages of recovery from the 2007-9 recession."

With caveats like that in mind, Dennis Lockhart, the president of the Atlanta Fed, counseled patience in a speech he delivered on Friday:

"My staff and I have recently been pondering the following questions: Are we experiencing a temporary slowdown—a soft patch—on a recovery path that should return to a rate of 3 to 4 percent GDP growth? Or, instead, are we dealing with an inherently slower pace of economic growth that, because of some combination of persistent economic headwinds and deeper structural adjustment requirements, has the potential to be of much longer duration and more intractable?"

Lockhart said his base case forecast is in line with the greater-strength view.

"I am expecting greater strength in the second half of 2011 and into 2012, accompanied by inflation numbers that converge to around 2 percent. But, as I said, I don't dismiss the possibility that we're in the alternative, more problematic world I described of low and slow growth improving only very gradually. At this juncture, I think we have to wait and see what the incoming data indicate...

"But to try to put some time limit on indecision, I think a continuing flow of weak numbers through the third quarter and into the fourth will call for a serious reconsideration of the situation. The weight of cumulative data could point to a different order of problem—that is, different than just a passing slowdown—if indicators show continued weakness much past year's end."

Of course, Nalewaik's research shows that things could become considerably less comfortable if the 2 percent threshold persists, or the yield curve flattens, or the housing market tanks again. At that point, history is on the side of the recessionists. While Lockhart and our Reserve Bank don't believe we're there yet, it's fair to say we'd feel more comfortable if the incoming third quarter data were a little more positive. And on that count, this morning's Institute for Supply Management report for manufacturing isn't a very promising first step.

David Altig By Dave Altig, senior vice president and research director, and

Mike Bryan Mike Bryan, vice president and senior economist, both of the Atlanta Fed

August 1, 2011 in Business Cycles, Data Releases, Economic Growth and Development, Employment | Permalink


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I think a problem with the US economy these days is the amount of debt and leverage involved in all markets. Even if you're not highly leveraged yourself, you can bet most of the other market participants will be, and that makes for an unstable investment (through no fault of your own) when the global economy has another dip and all asset classes get the jitters.

My biggest fear as an investor right now would be China. A drop in Chinese asset values would not only shake confidence in China's economic vitality, but it would also open debate about whether or not the global economy is over-leveraged and over-reliant on the success of China (it is).

Excessive leverage is partly what made the property bubble aftermath so devastating for Japan, America and Ireland. There's a lot of talk about the Chinese economic bubble and it's potential impact on the global economy. Several months ago, so-called Chinese 'expert' Nick Lardy dismissed worries about what he called the "so-called property bubble" - this was during a conference held at Peterson Institute in DC. However, he now concedes that says a real estate downturn may cause a significant in China, and this is an opinion shared by many other mainstream economic analysts.......

So what changed his opinion? I would suggest a dawning realisation that most of the massive Chinese stimulus, lending and spending during 2009/10 just ended up in property purchases, which drove real estate prices in an alarming and totally unsustainable manner. Also, a realisation that China's economic system frequently produces bubbles, and that's not very likely to change in the near future!!

To understand why excessive debt and leverage is going to have a hugely negative impact on all asset classes going forward, read up on some of the work by Professor Steve Keen (see http://australianpropertyforum.com/blog/main/3567572 ). He's the Australian guy who predicted the GFC, and he has also shown that unsustainable debt to GDP ratios in a country (which you definitely have in the USA, and we have in Australia too) will always result in deflation or depression.

Charles B.

Posted by: Charles Bandridge | August 02, 2011 at 08:26 PM

Hi Dave & Mike, I pop in occasionally but haven't felt the need to kibitz, but I'm lost over what the FED has left in its bag. But first, the working world, at least those in the private sector are way beyond needing to know why "excessive debt & leverage is going to have a hugely negative impact on them". They've been living it for five years, since their spiggots were closed.
My question is, has the FED been largely rendered helpless to turn the mess around that it was so much involved in creating? I'll be the first to admit, I don't know a lot (although I spent many months barking warnings of the impending mortgage implosion), but my guesses are: a QE3 will be toothless & the housing bear market has years to go. So, what's left to encourage Banks to lend & buyers to borrow?

Posted by: bailey | August 10, 2011 at 10:30 PM

Let me toss out what the FED can do to encourage Banks to lend - make it more costly for them NOT to lend. Unfortunately, that raises a better question - if the FED works for the Banks, is it really in its best interest to act to constrain Banks profit?
So, maybe the question is best left to Congress? Oops, isn't that what got us here.

Posted by: bailey | August 14, 2011 at 08:42 AM

Understanding that when all you have is a hammer, everything looks like a nail, I still find it mystifying how monetary policy can be expected to alter business fundamentals by anyone with an ounce of sense, except in illusory ways such as via inflation.

I've never seen an answer to the question whether the US economy can grow at what is considered "reasonable" rates without the aid of a housing bubble, an internet bubble, a finance bubble, or some new kind of bubble, when US wages are being driven down by globalization and costs of production are being driven up by global growth in oil consumption. Unless we can accelerate conversion to natural gas and ultimately renewable energy, this contraction seems likely to last for a long time.

Posted by: George McKee | August 14, 2011 at 07:21 PM

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July 28, 2011

Lots of ground to cover

In my last post I noted that the pace of the recovery, now two years old, is in broad terms similar to that of the first two years of the previous two recoveries. The set-up included this observation:

"Though we have grown used to thinking of the rebound from the most recent recession as being spectacularly substandard, that impression (which I share) is driven more by the depth of the downturn than the actual speed of the recovery."

The context of the depth of the downturn is not, of course, irrelevant. One way of quantifying that context is to look at measures of the "output gap," that is, the difference between the level of real gross domestic product (GDP) and the economy's "potential." An informal way to think about whether or not a recovery is complete is to mark the time when the output gap returns to zero, or when the level of GDP returns to its potential.

There are several ways to estimate potential GDP, but for my money the one constructed by the Congressional Budget Office (CBO) is as good as any. And it does not tell a pretty story:

Real GDP-Real Potential GDP

It is worth noting that the CBO's measure is not a just a simple extrapolation of a constant trend, but a calculation based on historical relationships among labor hours, productivity growth, unemployment, and inflation. Their trend in potential GDP growth rates implied by this methodology, described here, is anything but linear:

Real Potential GDP

Note that the output gaps in the first chart are at historical lows (by a lot) despite the fact that potential GDP growth is at historical lows as well.

These estimates provide one way to assess the pace of the recovery. For example, the midpoints of the Federal Open Market Committee's (FOMC) most recent consensus forecasts for GDP growth are 2.8 percent (2011), 3.5 percent (2012), and 3.85 percent (2013). If those forecasts come to pass, approximately 60 percent of the CBO-implied gap will be closed. This would still leave, in real terms, more resource slack than existed at the lowest point in the past two recessions.

Put another way, if the economy grows at 4 percent from 2012 forward, the output gap won't be closed until sometime in 2015. At a growth rate of 3.5 percent—the lower end of FOMC participants' projections for the next two years—the "full recovery" date gets pushed back to 2016. If, however, the FOMC projections are too optimistic and the economy can only manage to grow at an annual pace of 3 percent (which is currently the consensus view of private forecasters for 2012) output gaps persist until 2020.

The conventional view of the macroeconomy that motivates the CBO estimates of potential GDP (and hence output gaps) at least implicitly embeds the assumption that time heals all wound. But the healing won't necessarily be fast.

David Altig By Dave Altig, senior vice president and research director at the Atlanta Fed

July 28, 2011 in Business Cycles, Economic Growth and Development, Employment, Forecasts, Saving, Capital, and Investment | Permalink


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July 20, 2011

Is consumer spending the problem?

In answer to the question posed in the title to this post, The New York Times's David Leonhardt says absolutely:

"There is no shortage of explanations for the economy's maddening inability to leave behind the Great Recession and start adding large numbers of jobs…

"But the real culprit—or at least the main one—has been hiding in plain sight. We are living through a tremendous bust. It isn't simply a housing bust. It's a fizzling of the great consumer bubble that was decades in the making…

"If you're looking for one overarching explanation for the still-terrible job market, it is this great consumer bust."

Tempting story, but is the explanation for "the still-terrible job market" that simple?

First, some perspective on the pace of the current recovery. Though we have grown used to thinking of the rebound from the most recent recession as being spectacularly substandard, that impression (which I share) is driven more by the depth of the downturn than the actual speed of the recovery. The following chart traces the path of real gross domestic product (GDP) from the trough of the last three recessions:

In the first two years following the 1990–91 and 2001 recessions, output grew by about 6 percent. Assuming that GDP grew at annual rate of 1.5 percent in the second quarter just ended—a not-unreasonable guess at this point—the economy will have expanded by about 5.3 percent since the end of the last recession in July 2009. That's not a difference that jumps off the page at me.

Directly to the point of consumption spending, it is certainly true that consumer spending has expanded at a slower pace in the expansion to this point than was the case at the same point in the recoveries following the previous two recessions. From the end of the recession in the second quarter of 2009 through the first quarter of this year (we won't have the first official look at this year's second quarter until next week), personal consumption expenditures grew in real terms by just under 4 percent. That growth compares to 4.8 percent in the first seven quarters following the end of the 2001 recession and 5.9 percent in the first seven quarters following the end of the 1990–91 recession.

That difference in the growth of consumption across the early quarters of recovery after the 1990–91 and 2001 recessions with little discernible difference in GDP growth across those episodes illustrates the pitfalls of mechanically focusing on specific categories of spending. In fact, the relatively slower pace of consumer spending in this expansion has in part been compensated by a relatively high pace of business spending on equipment and software:

If you throw consumer durables into the general notion of "investment" (investment in this case for home production) the story of this recovery is the relative boom in capital spending compared to recent recoveries:

And what about that "still-terrible job market"? You won't get much argument from me about that description, but here again the reality is complicated. Focusing once more on the period since the end of the recession, the pace of job creation is not out of sync in comparison to recent expansions (though job creation after the last two recessions was meager as well, and we are, of course, starting from a much bigger hole in terms of jobs lost):

So, relative to recent experience, at this point in the recovery GDP growth and employment growth are about average (if we ignore the size of the recession in both measures). The undeniable (and relevant) human toll aside, the current recovery seems so disappointing because we expect the pace of the recovery to bear some relationship to the depth of the downturn. That expectation, in turn, comes from a view of the world in which potential output proceeds in a more or less linear fashion, up and to the right. But what if that view is wrong and our potential is a sequence of more or less permanent "jumps" up and down, some of which are small and some of which are big?

In addition, investment growth to date has been strong relative to recent recoveries and, as Leonhardt suggests, consumption growth has been somewhat weak. So here's a question: Would we have had more job creation and stronger GDP growth had businesses been more inclined to add workers instead of capital? And if that had occurred, might the consumption numbers have been considerably stronger?

David Altig By Dave Altig, senior vice president and research director at the Atlanta Fed


July 20, 2011 in Business Cycles, Economic Growth and Development, Employment, Forecasts, Saving, Capital, and Investment | Permalink


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This is an excellent contribution to elevating the quality of commentary on the current expansion. It is time to recognize the cycles experienced in the 60s, 70s, and early 80s were fundamentally different from those since. Because of this, the earlier cycles are not part of the relevant benchmark for making comparisons to current behavior. Three cheers for taking them out of the baseline used for comparisons.

Posted by: Douglas Lee | July 21, 2011 at 10:22 AM

Let me ask a supplemental question. Following the '91 recession, the US created something like 20mm jobs. Following the '01 recession, perhaps 8.5mm jobs were created. How many jobs will be created in this decade?

Posted by: stewart sprague | July 21, 2011 at 10:40 AM

The payroll employment chart suggests that just looking at the path for the level of employment from the end of a recession is not the relevant metric. How about looking at net jobs lost during the recession versus net jobs regained during the recovery? Then, the metric captures the essence of what the graph should indicate -- and what the blog offers in words. That the immense job loss of the recent recession is the big difference, and the recent sluggish job creation is akin to recoveries in 1991 and 2001. From this perspective, we have a problem that has been around for a few business cycles.

Posted by: ET_OC | July 21, 2011 at 02:44 PM

The obvious deficiencies in GDP this time have been net exports and government spending.

While the Fed has done its best to promote both, the politicians in Washington have done their best in the opposite direction by promoting an over-valued dollar and reduced federal spending, despite interest rates on the federal debt that are universally lower than during the years of the federal budget surplus.

Posted by: Paul | July 21, 2011 at 04:19 PM

I find it highly annoying that the the obvious is invisible to everyone.


Households were pulling $1.2T/yr of new mortgage debt during the boom 2004-2006. This was all cut off in 2007-2008.

Corporate debt take-on was another $800B/yr during this time, for a $2T/yr stimulus to the economy.


Previous recessions in my life were all prompted by the Fed raising interest rates to throttle debt growth. What killed debt growth this time was the collapse of the ponzi lending structure and the bubble machine it was powering.

Posted by: Troy | July 22, 2011 at 01:58 AM

If you look at percent job losses since peak employment (not only since end of recession), then you can see how bad this recession is. At this point of the cycle after all prior recessions since WWII, the employment has recovered to pre-recession levels. In this recession, we are still 5% down.

Posted by: Nino | July 22, 2011 at 05:29 PM

I look at PAYEMS (see below) and what do I see ? I see PAYEMS moving sideways since 2000/2001 so that after a decade of nonsense we find ourselves with 29,502.4 (Thousands (!)) less jobs than we would have had had the pre-2000/2001 trend continued to date.


Posted by: In Hell's Kitchen (NYC) | July 23, 2011 at 09:04 AM

Of course the comparison matter. your comparison against the 1990-91 and 2001 make 2007 look average. When comparing against all post WWII recession/recoveries all three of those recoveries look below average (with all recoveries since 1990 looking very weak indeed). Even then the down-turn was the worst putting the starting point at a very, very low level.

Posted by: RangerHondo | July 26, 2011 at 08:48 AM

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July 13, 2011

One more sign of struggles on the job creation front

Hot on the heels of the bleak employment report for June, the U.S. Bureau of Labor Statistics yesterday released another important bit of labor market information: the May Job Openings and Labor Turnover Survey, commonly known as JOLTS. Calculated Risk accentuated the positive:

"In general job openings (yellow) has been trending up—and job openings increased slightly again in May—and are up about 7% year-over-year compared to May 2010.

"Overall turnover is increasing too, but remains low. Quits increased again and have been trending up—and quits are now up about 10% year-over-year (usually a sign of more confidence in the labor market)."

The hires and quits angle was noted at Modeled Behavior as well, but at Zero Hedge Tyler Durden isn't in the mood for even muted optimism:

"There was nothing to smile about in today's May JOLTS release from the BLS."

Durden focuses first on the job openings piece of JOLTS:

"Those expecting a pick up in job openings (traditionally the key requirement for an [sic] sustained increase in NFP) will have to wait some more, after the May number came at 3.0 million, the same as April."

Longtime readers of macroblog know that the job openings data are favorites of ours, which we like to view through the prism of the Beveridge curve. This curve plots the relationship between job openings and unemployment. In past posts—here and here, for example—I have noted that:

  • The Beveridge curve appears to have shifted out over time, meaning that the amount of unemployment relative to the number of job openings has increased over the past several years relative to the patterns of the decade or so prior to the beginning of this recovery.
  • This shift in the Beveridge curve is usually interpreted as representing a change in the efficiency with which workers looking for jobs are matched with employers looking to fill jobs (though the source of the inefficiency is not completely obvious).
  • There is a debate about whether the recent shift in the Beveridge curve is a normal cyclical feature of recoveries—in which case the pace at which the unemployed are placed in open jobs ought to pick up over time—or a symptom of deeper structural problems that are likely to persist for, forgive me, an extended period of time.

For most of this year, it did appear that the Beveridge curve was moving back in the direction of its 2000–9. That progress was interrupted in May:

I don't think that resolves the cyclical-versus-structural debate, but it certainly is not good news. And at this point it is awfully hard to believe that things are going to look better in the June version of JOLTS.

Update: Another way to view the problem, from Steve Davis.

David Altig By Dave Altig, senior vice president and research director at the Atlanta Fed

July 13, 2011 in Business Cycles, Labor Markets | Permalink


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"The Beveridge curve appears to have shifted out over time, meaning that the amount of unemployment relative to the number of job openings has increased over the past several years relative to the patterns of the decade or so prior to the beginning of this recovery. "

"This shift in the Beveridge curve is usually interpreted as representing a change in the efficiency with which workers looking for jobs are matched with employers looking to fill jobs "

what ????

we have a huge imbalance
a horrid B ratio
and its not effective demand driving it ???

its inefficiency ???
and or
poor job to skill match ups ??

what's in the water cooler down there hoss ???

"There is a debate about whether the recent shift in the Beveridge curve is a normal cyclical feature of recoveries"

debate ???

why the sentence makes no sense

are you saying over the employment cycle
the ratio oughta stay constant ???

simply bob up and down along some line ???

what is it about thses numbers
you find worthy of debate ???

now one might look at employment cycles versus employment cycles
to see how the change in the ratios over the cycle compare

cycle versus cycle

but you ain't got a cycle here yet pard

the hot house agonizing over
is this huge jobless army structural ??

pure misdirection
plain and simple
its hard to imagine you take it seriously

Posted by: paine | July 14, 2011 at 08:39 PM

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November 09, 2010

Entrepreneurs of necessity

On October 26–27, the Atlanta Fed's Community and Economic Development team, in partnership with the Bank's Center for Human Capital Studies, the Ewing Marion Kauffman Foundation, and the Federal Reserve Bank of Dallas, sponsored a conference titled "Small Business, Entrepreneurship, and Economic Recovery: A Focus on Job Creation and Economic Stabilization." The conference covered a large range of topics including employment, financing, and public policy issues, and material summarizing the findings from the conference and related information will be published in the coming weeks. (You can find the conference papers here.)

One of the things that struck me during the conference is the challenge of simply defining and measuring entrepreneurial activity. For instance, a paper presented by Leora Klapper from the World Bank described recent World Bank efforts to systematically collect country-level data on business formation using data on the number of new domestic corporations—private companies with limited liability each year.

Klapper presented a cross-country chart of this measure, by which countries are grouped into relative income buckets, with the United States being in the "high income" bucket. What chart 1 shows is that entrepreneurial activity declined in all categories of countries in 2009. For high-income countries (including the United States), entrepreneurial activity came to a standstill in 2008 and declined 10 percent in 2009.

This evidence is consistent with measures of job creation from opening employer firms (firms with a payroll) in the United States, such as those contained in the Business Employment Dynamics data. These data are from government administrative unemployment insurance records. On the first day of the conference, John Haltiwanger from the University of Maryland gave a fascinating presentation using the data on firms with a payroll and longitudinally linked versions of these data (the Business Dynamics Statistics) to illustrate a decline in job creation in recent years at businesses that have payrolls and, importantly, a decline in job creation at opening employer firms.

However, another paper at the conference by Robert Fairlie from UC-Santa Cruz showed a measure of entrepreneurial activity that has been on a rapid increase in recent years. Chart 2 shows a picture of Fairlie's measure, which is also published by the Kauffman Foundation as the Index of Entrepreneurial Activity.

This measure is based on the Current Population Statistics survey, which among other things asks respondents the question "Do you have a business?" Dr. Fairlie matches this response with the response in the previous month to identify the number of new businesses created (subject to meeting criteria, such as devoting at least 15 hours per week to this business, and restrictions, such as the exclusion of adults over age 65). Importantly, Fairlie's measure of new businesses picks up new nonemployer businesses, many of which are not incorporated.

What is particularly interesting about Fairlie's research is that he shows not only that this measure of entrepreneurial activity has surged, but that it is closely related to movements in local unemployment rates. That is, he has potentially uncovered an "entrepreneur of necessity" effect caused by high unemployment. For many unemployed workers, the benefits of starting a business during a weak economic environment outweigh the costs. It is noteworthy that the largest proportionate increase in this measure of entrepreneurial activity is by people with less than a high school diploma. This group has been especially hard hit by the recession and weak recovery, and it appears that many have responded by starting their own business.

If entrepreneurial activity is a source of economic growth generally, then a surge in entrepreneurial activity is good news for the economic outlook, right? Indeed, Fairlie cites a 2009 Kauffman Foundation study by Dane Stangler that finds over half of the current Fortune 500 firms started during recessions or bear markets. Also, a 2010 Kauffman study by Michael Horrell and Robert Litan find that, on average, start-ups are not affected in the long term if they start in a recession. However, Horrell and Litan also find negative impacts when the recession is prolonged. To the extent that historical patterns are repeated, one implication of the latter finding is that cohorts starting businesses right before or at the start of the 2007–09 recession may have worse outcomes relative to firms starting more recently.

More generally, this study raises questions about the current economic recovery. For example, if the number of new firms with payrolls is down but the number of nonemployer businesses is up, then what could be expected to happen over time? At what rate do new businesses with no employees become employers, and how fast do they tend to grow? This question is especially important because a new business with no employees generates fewer jobs than a new business with employees unless the nonemployer is purchasing labor services through some other means. As noted here, some researchers are skeptical of the economic importance of growth in nonemployer businesses without controlling for possibly important factors such as the industry they are in or their revenues. According to the U.S. Census Bureau, most nonemployers are self-employed individuals operating very small unincorporated businesses. It also seems reasonable to think that many of them are independent contractors providing labor services to other firms. Clearly, there is no shortage of need for more research on these topics.

By John Robertson, a vice president and senior economist in the Atlanta Fed's research department


November 9, 2010 in Business Cycles, Employment, Small Business | Permalink


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I am not an "Entrepreneur of Necessity" but an Entrepreneur of Opportunity. I recently started my own Consulting LLC company. Having worked 17 years as an Architect and for a national home builder. I refuse to stay home and collect an Unemployment Check from my layoff of over a year.

I created my own consulting service that can: work for less fee than my competition (I have little overhead), I have a quicker turn around than my competition (working long nights and weekends). Because of my education and experience I provide bundled/specialized services that would require several companies instead of just me. I don't want to rub it in the national homebuilder's face, but it's their loss and my family's gain.

Don't get me wrong, I have never hustled more in my entire life. I am opportunistic and entrepreneurial. I find that people are interested in working with me because as the saying goes "If you want to get something done, ask a busy person to do it".

I do wish there was help with reducing the taxes, cost for health care and insurance. These costs make it difficult for me to keep what I am struggling to earn. If the costs were not so onerous, I would hire one or two employees.

Joe from Jersey

Posted by: Joe from Jersey | November 10, 2010 at 11:37 AM

This is what Americans do- they can survive. I'm sure thousands of folks have their own company, and the trend has been sometime in the making. Many people simply do not want to buy into the game, which appears grossly unfair, as an employee.

I have to think a rational case could be made that many people are better off with three acres and some seeds than a vast majority of jobs.

I think some of these business ventures are also driven by a rejection of corporate America and the domination and exploitation that is perceived now by our population. Instead of rising up to a skillbase for IBM or GE, it's better to work part time at some job and do your own thing on the side. And they are likely right to do this in my estimation.

Posted by: FormerSSresident | November 11, 2010 at 09:51 PM

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August 18, 2010

Just how curious is that Beveridge curve?

A few weeks back I made note of the following:

"Since the second quarter of last year, the unemployment rate has far exceeded the level that would be predicted by the average correlation between unemployment and job vacancies over the past decade."

The focal point of that comment was the so-called Beveridge curve described by the Cleveland Fed's Murat Tasci and John Lindner as follows:

"The Beveridge curve is an empirical relationship between job openings (vacancies) and unemployment. It serves as a simple representation of how efficient labor markets are in terms of matching unemployed workers to available job openings in the aggregate economy."

Since my last post, the U.S. Bureau of Labor Statistics (BLS) published the June edition of its Job Openings and Labor Turnover Survey (JOLTS). Just as not much changed in June relative to May, either with respect to job openings or the unemployment rate, not much changed with the Beveridge curve:


(A monthly version of this picture can be found in the JOLTS graphs and highlights published on the BLS Web site.)

One of the observations made in my previous post was that the apparent shifting of the Beveridge curve—in other words, the observation that given recent experience the number of unemployed individuals seems high relative to the number of available jobs—might be explained by extended unemployment benefits, but only if you are willing to accept estimates of the policy's impact that are on the high end. I referenced a few Federal Reserve papers—here and here—but they only included estimates on the lower end. Several people have asked (in the comments section of my earlier post and in private e-mails) where the higher-end estimates come from. One of these is from an article titled "The Economic Effects of Unemployment Insurance" by Shigeru Fujita, which is forthcoming (but not yet published) in the Philadelphia Fed's Business Review. (Shigeru estimates that extended unemployment benefits raise the unemployment rate by 1.5 percentage points, enough to explain the lion's share of the Beveridge curve shift.)

Tasci and Lindner, in the article mentioned earlier, offer up a few other observations. First, in the last several months labor market statistics have in general been distorted by the entry and exit of significant numbers of temporary Census workers. Second, it does appear to be the case that the current rise in the unemployment relative to job openings is just a standard characteristic of the early phases of a recovery. On this point they provide this chart …


… along with this explanation:

"One important observation is that a longer-term look at the Beveridge curve shows that the dynamics we have seen recently are not an exception, but are common during the recovery phase of business cycles. As the economy starts improving, it takes time to deplete unemployment, even though job openings are relatively quick to adjust.

"Hence, cyclical changes may not necessarily present themselves as… a neat movement along the curve. During and after recessions in the postwar period, the Beveridge curve has generally followed a pattern of shifting to the right during a recovery. One potential reason for this could be that even though some unemployed workers start filling the available job openings, workers who had left the labor force might get encouraged by the recovery and start looking for a job, thereby keeping the unemployment high. While the Census may have skewed the data for this recovery, the path of the curve going forward looks poised to follow in the footsteps of previous recessionary periods."

Those sentiments have been echoed more informally by Robert Waldmann, by Andy Harless, and at Free Exchange. And they may prove to be exactly right. But as Tasci and Lindner conclude:

"Firm conclusions will only be able to be drawn as more data are generated."

By Dave Altig, senior vice president and research director at the Atlanta Fed

August 18, 2010 in Business Cycles, Labor Markets | Permalink


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oh yes! "the economy starts improving, it takes time to deplete unemployment" however, no one know how much time it will take to overcome that.

Posted by: Crude John | August 18, 2010 at 11:11 PM

Does this have anything to do with structural unemployment?
Or the argument here is this seeming anomaly is entirely related to extended benefits ?
The latter seems a bit optimistic to me

Posted by: C Jones | August 19, 2010 at 09:20 AM

With all due respect your observation is pure BS. The idea that unemployment benefits lead to higher unemployment statistics is searching for an anomaly where none exist.

I've been unemployed for 2 years now, I owned my own business so I receive no unemployment benefits and am not counted in the unemployment surveys. Maybe I'm counted in the U6 numbers but not sure how they would capture my data or categorize me.

In plain English, the unemployment statistics, like most current government statistics, are woefully inadequate to capture the real employment picture in the USA.

Looking for a statistical anomaly in the unemployment data is like checking a sandbag next to the breach in the levee to see if it's adding to the problem.

Posted by: OrganicGeorge | August 19, 2010 at 10:59 AM

Mr. Altig, with all due respect, I am pretty sure all these observations by experts and highly intelectual people are a bit too narrow.

"It serves as a simple representation of how efficient labor markets are..."

Right there is the fallacy. There is no such a thing as "efficient labor markets". I know at least one case of job demand for a wind turbine producer who hasn't been able to cover his needs regarding his workforce because in the area there are no individuals with the right specialized skills. Similarly, I know of another individual who welds special steel pipes for x-ray machines and can't find a job in Miami, even when there are probably no more than 3 others that can do such job in all South Florida. Plenty of work for him in New York, though.

So the point is, jobs are localized in the vast majority of cases and that makes for an inefficient market. It is not like buyers and sellers are all in the same market and have all the information available. The mismatch is compounded now because a large number of jobs lost are of the lower skills type (say retail service) all the while the economy is moving towards a revival of manufacturing with strength in exports. Now, how long will it take to add new specialized skills to the unemployed before we may start to see a match between those have no jobs and those who are offering one?

In the long run, everything becomes efficient by force of nature. But we need to eat today and everyday.

Posted by: Boy Plunger | August 24, 2010 at 01:37 AM

Firms have also pared back on employees over the last 2 years and reorganized for efficiency. Those that are working find themselves doing the work of more than 1 person. Those with hiring authority are in no different a position. Sure, they may have job openings. But, they will only hire those that have done the exact same job recently, so as to add business value quickly. Managers today do not have adequate time to mentor a new employee. Skills that two years ago were close enough are now not enough. This may explain part of the Beveridge curve variation.

Posted by: CD | August 24, 2010 at 01:43 PM

It's hard to accept Economists refuse to tie inflation measurements to population samplings & will not explain how we are to continually grow GDP from a number reached only by years of leveraged gambling.

Posted by: bailey | August 25, 2010 at 10:58 AM

You say:

"Second, it does appear to be the case that the current rise in the unemployment relative to job openings is just a standard characteristic of the early phases of a recovery."

This is true and is indeed fairly obvious when one thinks about it. But that doesn't mean that the BC hasn't shifted out more than in past recessions.

One way to measure this is by estimating a Cobb-Douglas matching function and then looking at the Solow residual to get the matching function's "productivity." Stephen Williamson provides a graph of this residual for 2001 - 2010:


He doesn't show earlier recessions, but the shift for the current recession certainly looks much larger than the 2001 recession.

Posted by: Jon | August 29, 2010 at 09:46 PM

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August 03, 2010

What makes forecasting tough

Bloomberg's Caroline Baum recounts her recent conversation with the Atlanta Fed's own Mike Bryan under the headline For Good Economic Forecasts, Try Flipping a Coin:

"How do economists fare when it comes to real forecasting, to predicting [gross domestic product] GDP growth and inflation one year out? About as good as a coin toss, according to Bryan's research. Less than half the economists did better than the naive forecast, which is based on no understanding of the economy and merely assumes next year's outcome will be the same as this year's. It's what you'd expect if the results were purely random."

A case in point could be found yesterday on Bloomberg, which featured a "chart of the day" that looked something like the one below (though I've updated the data for manufacturing inventories, given today's factory orders report):


The chart was accompanied by this commentary:

"U.S. business inventories are so low relative to demand that any increase may act as a catalyst for larger companies to add workers, according to Nicholas Colas, chief market strategist at BNY ConvergEx Group."

A few days back, in The Wall Street Journal, you could find this:

"Until recently, businesses had helped supercharge economic growth by restocking inventories. Now the oomph from inventories is waning.

"In the second quarter, the change in private inventories added slightly more than one percentage point to the 2.4% increase in gross domestic product from the first quarter, measured at a seasonally adjusted annual rate, the Commerce Department said Friday.

"That is a big change from the first quarter, when inventory-building contributed 2.6 percentage points to GDP growth of 3.7%, and the fourth quarter of last year, when it contributed 2.8 percentage points to GDP growth of 5%....

"But Friday's report suggests companies are nearly done restocking their shelves.

" 'Our sense is current inventories are about where they need to be globally, both in industrial distribution and with the large North American retailers,' John Lundgren, chief executive of Stanley Black & Decker Inc., said in a July 21 call with analysts discussing the tool and hardware maker's second-quarter results."

But, on the same topic, Seeking Alpha opined:

"Inventory increases added 1.05% to second quarter GDP. Based on the annual revision, they added 2.64% to first quarter GDP or 71% of the total increase. Inventories were also responsible for approximately two-thirds of the GDP increase in the fourth quarter of 2009. The entire economic 'recovery' has essentially been an inventory adjustment [emphasis theirs]. This does not bode well for the future."

So one analysis suggests that the latest readings on inventories portend a boost to GDP, one foresees a drag on GDP, and yet another divines that inventories are basically played out as an economic story for the balance of the year.

Again from the Baum piece:

"Bryan said it's not just about getting the number right. 'It's about the narrative.' "


For comparison, it's also useful to take a longer look at what effect inventories have on GDP growth coming out of a recession; see the graph below. It charts the percentage point contributions of various components to real GDP growth in the first four quarters following the end of a recession (the current recession is assumed to have ended in second quarter of 2009). I've shown on the graph the percentage contribution of inventories to the last seven recoveries, beginning with the one in 1971.


Regarding the point made in Seeking Alpha, inventories have contributed around 70 percent to the economic recovery recently, but in the recovery that began in 2002 inventories contributed 75 percent in the first four quarters. So the last two recovery periods stand out for large inventory components. But looking across the data, it's hard to say what an ordinary inventory contribution would be. Regardless of whether inventories are an unusually large part of this recovery, in absolute levels the scale of the recent inventory cycle—the initial liquidation and the subsequent restocking—has been unprecedented.

By Andrew Flowers, senior economic research analyst in the Atlanta Fed's research department

August 3, 2010 in Business Cycles, Forecasts | Permalink


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I remember around December 2007, when economists gave something like a 20% chance of recession, there was a Bloomberg poll that showed the public felt we were already in one.

Interestingly, most people would say the recession has never ended, though economists confidently point to the turn to positive GDP one year ago. What if there is another downturn already starting, and the NBER committee decides it is really one large event?

Posted by: Bob_in_MA | August 03, 2010 at 05:14 PM

Regardless of whether inventories are an unusually large part of this recovery, in absolute levels the scale of the recent inventory cycle—the initial liquidation and the subsequent restocking—has been unprecedented.

Posted by: GHD Straighteners | August 04, 2010 at 02:39 AM

I remember around December 2007, when economists gave something like a 20% chance of recession, there was a Bloomberg poll that showed the public felt we were already in one.

Posted by: links of london | August 04, 2010 at 02:40 AM

If we can't forecast, surely this makes the case for analysis of effective design of automatic stabilisers into an interesting question?

Posted by: rjw | August 04, 2010 at 02:55 PM

My predcition for AAA corporate bond yields in 1981 was 15.48%. AAA corporate yields hit 15.49%. I was off by .01%.

It is a scientific fact that economic forecasts are mathematically infallible. All you need is the G.6 debit and deposit turnover release.

Posted by: flow5 | August 05, 2010 at 12:56 AM

The transactions concept of money velocity (Vt) has its roots in Irving Fischer’s equation of exchange (PT = MV), where (1) M equals the volume of means-of-payment money; (2) V, the transactions rate of turnover of this money; (3) T, the volume of transactions units; and (4) P, the average price of all transactions units.

The “econometric” people don’t like the equation because it is impossible to calculate P and T. Presumably therefore the equation lacks validity. Actually the equation is a truism – to sell 100 bushels of wheat (T) at $4 a bushel (P) requires the exchange of $400 (M) once (V), or $200 twice, etc.

The real impact of monetary demand on the prices of goods and serves requires the analysis of “monetary flows”, and the only valid velocity figure in calculating monetary flows is Vt. Income velocity (Vi) is a contrived figure (Vi = Nominal GDP/M).

The product of MVI is obviously nominal GDP. So where does that leave us? In an economic sea without a rudder or an anchor. A rise in nominal GDP can be the result of (1) an increased rate of monetary flows (MVt) (which by definition the Keynesians have excluded from their analysis), (2) an increase in real GDP, (3) an increasing number of housewives selling their labor in the marketplace, etc. The income velocity approach obviously provides no tool by which we can dissect and explain the inflation process.

To the Keynesians, aggregate demand is nominal GDP, the demand for services (human) and final goods. This concept excludes the common sense conclusion that the inflation process begins at the beginning (with raw material prices and processing costs at all stages of production) and continues through to the end.

The Fed first calculated deposit turnover in 1919. It reported weekly until 1941 (like M3, the series was also discontinued, in Sept. 1996). The figure “other banks’’ was used until 1996. Prior to this revision Vt included all banks located in 232 SMSA’s excluding N.Y. City. This was the best that could be done to eliminate the influence on prices of purely financial and speculative transactions. Obviously funds used for short selling do not contribute to a rise in prices.

The Fed calculates these velocity figures by dividing the aggregate volume of debits of these banks against their demand deposits.

We do know that to ignore the aggregate effect of money flows on prices is to ignore the inflation process. And to dismiss the concept of Vt by saying it is meaningless (that people can only spend their income once) is to ignore the fact that Vt is a function of three factors: (1) the number of transactions; (2) the prices of goods and services; (3) the volume of M.
Inflation analysis cannot be limited to the volume of wages and salaries spent.

To do so is to overlook the principal "engine" of inflation - which is of course, the volume of credit (new money) created by the Reserve and the commercial banks, plus the expenditure rate (velocity) of these funds. Also overlooked is the effect of the expenditure of the savings of the non-bank public on prices.

The (MVt) figure encompasses the total effect of all these monetary flows (MVt).

Posted by: flow5 | August 05, 2010 at 01:02 AM

Economist still try to conjure up learned interpretations. Now its the yield curve and its associated long term contractions and expansions of business activity, prices, etc.

“Double-Dippers Are All Wet Ignoring Yield Curve” Caroline Baum - Bloomberg – July 12 2010:

“It’s just that the yield curve, or what it represents, is possibly the best leading indicator of the business cycle”

Everyone on the FED's technical staff that thinks the money supply can be managed by using interest rates should lose their job and their pension.

Posted by: flow5 | August 05, 2010 at 11:43 AM

yes forecasting is tought. But that is why we are willing to pay lots of money for them. Trouble is, we (ie everyone) pays lots of money for those which are wrong.

Posted by: chris | August 11, 2010 at 08:27 AM

People are just people. Sometimes they are right in their forecasts, sometimes not. The most important point is to be able to acknowledge mistakes that we make. Perfection comes with practice.

Posted by: Monklet | August 16, 2010 at 08:09 AM

there are two papers one has to mention when discussing inflation forecasts.
The naive approach was first tested by Atkeson and Ohanian.
Stock and Watson published results of a comprehensive quantitative comparison of existing models.

Atkeson, A., Ohanian, L.E., (2001). “Are Phillips curves useful for forecasting inflation?”, Federal Reserve Bank of Minneapolis Quarterly Review 25, 2-11.
Bureau of Labor Statistics, (2003). “Revisions in the CPS effective January 2003”, http://www.bls.gov/cps/rvcps03.pdf

Stock, J., Watson, M. (2007). Why Has Inflation Become Harder to Forecast? Journal of Money, Credit and Banking, 39(3), 3-33.

Posted by: kio | August 19, 2010 at 02:41 AM

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June 25, 2010

Increasing hours worked versus increasing hiring

The current recovery has been characterized by increasing production and sales without an associated expansion in employment. Part of the explanation for the lack of hiring has to do with increased productivity of workers (output per hour worked)—either by improved production methods or simply requiring more effort from staff per hour worked. Another reason why firms have been relatively slow to hire is that, in addition to slashing payrolls during the recession, many firms also cut the work hours of the remaining staff to levels well below prerecessionary norms. As a result, these firms have some scope to increase the hours worked by their current staff before hiring additional workers. This fact is evident in the often-cited increase during the recession in the number of people working part time for economic reasons (see here and here, for example). That number has remained relatively stable at around nine million people over the last year, but it is still more than twice its prerecessionary average.

Another perspective on the part-time issue can be gleaned from data on average work week obtained from the U.S. Bureau of Labor Statistics (BLS) Current Population Survey. Chart 1 shows the pattern of average weekly hours (not seasonally adjusted) for all nonfarm wage and salary workers during the period of January 2008 through May 2010. For ease of comparison, the chart is scaled to be relative to the 2002–07 average. Compared with prerecession levels, average hours worked declined during the recession although they really didn't begin falling until the second half of 2008. As of May 2010, average hours worked were still about 1.5 percent below the prerecession average but have been trending higher in recent months. (Note that the sharp drop in September 2009 is a quirk of Labor Day falling during the survey week and hence cutting the work week one day shorter than usual.) The fact that average hours worked has moved higher is an encouraging sign for employment growth going forward if the historical norm is any guide. Of course, a firm may need to hire new workers even when hours per worker are below average. For example, the decision to start an additional manufacturing production line will probably require hiring new staff even if existing staff on other lines are working fewer hours than usual.


The aggregate picture in Chart 1 masks considerable variation across industries. For example, Chart 2 shows the normalized average weekly hours reported by workers in the education and health services industries and in the financial industry. For these workers, although average hours worked per week declined mildly during the second half of 2009 weekly hours worked have since returned to prerecessionary levels. This performance suggests that, other things equal, additional demand for hours of work in these industries is likely to be met by additional hiring.


Chart 3 shows the evolution of average weekly hours reported by workers in the manufacturing and transportation/warehouse industries. In these industries, average hours worked began to decline in the fall of 2008, but they have recovered much of the decline in recent months and are now about 1 percent below their prerecession averages. As with the aggregate picture, the fact that average hours worked has been trending higher recently is encouraging news for future employment growth in these industries.


In contrast, Chart 4 shows the pattern of average hours reported by workers in the construction industry, the wholesale and retail trade industry, and the leisure and hospitality industry. For these workers, average weekly hours started to decline in the fall of 2008 and have shown no clear signs of recovery—still sitting some 3 percent to 4 percent below their prerecession averages and not trending higher. Thus, there appears to be more scope for firms in these industries to increase hours without necessarily having to hire additional workers.


This analysis does have some caveats. For one thing, it is based on worker-reported data about hours worked drawn from the BLS's Current Population Survey. An alternative would be the employer-reported measurements in the BLS's Establishment Survey.

Probably more importantly, this analysis uses the prerecession history as a guide to what is "normal." If, for example, firms decide to keep average weekly hours lower by increasing the use of part-time workers, then the fact that average hours are below prerecession levels does not imply that firms won't hire when demand increases. Some industries already make heavy use of part-time employment. For example, in May 2010 the reported average weekly hours by workers in the leisure and hospitality industry was 33.3 hours compared to 42 hours in manufacturing. Absent an offsetting increase in wage rates, a permanent shift toward increased part-time employment would lower a worker's income relative to full-time employment and probably result in an increased propensity for multiple job-holding by individuals and households.

By Amy Ellingson, economic analyst at the Atlanta Fed

June 25, 2010 in Business Cycles, Employment, Labor Markets | Permalink


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great post. informative-interesting that corporate spending has been made in the software areas. New software will make existing workers more productive, leading to more slack in the job market.

the question should be "what do you do to incent hiring?". My answer would be change tax policy to incent entrepreneurial activity-which would cause workers to form small companies to try and make profits.

Posted by: Jeff | June 30, 2010 at 11:26 AM

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