Policy Points

06.01.2010 Policy Points Comments Off on Understanding the GDP-ARRA Link

Understanding the GDP-ARRA Link

Many analyses of  the impact of the American Recovery and Reinvestment Act (ARRA) on the nation’s Gross Domestic Product (GDP) have confused GDP levels and GDP growth rates. Typically, the mistake is to say that two-thirds of ARRA funds are yet to be spent and when they are, they will boost GDP growth. That is not so. While the remaining ARRA funds will influence GDP levels, the package already has had its maximum impact on GDP growth. And as elements of ARRA and other forms of government aid are withdrawn in 2010, GDP growth rates will slow and likely turn negative in late 2010 and early 2011.
stimulus_timing

At his blog, economist Paul Krugman uses the following stylized example (right) to illustrate that pattern. In the chart, “rate” measure total ARRA spending in a quarter; “change” reflects the change in ARRA spending over the preceding quarter, and “cumulative” measures total ARRA spending to date.

Using this example, ARRA will exert its maximum impact on GDP levels in the third quarter of 2010, yet it had its maximum effect on GDP growth in the third quarter of 2009. As time passes and ARRA provisions expire, GDP growth rates will slow and then turn negative in late 2010 and remain negative into early 2011. (This example tracks forecasts by analysts at Deutsche Bank).

It is this trend that is causing some analysts to doubt the sustainability of the current recovery and to warn about a possible “double dip” recession in late 2010 or early 2011.

Yet this pattern does not mean that ARRA was ineffective. As economist Menzie Chinn writes at Econbrowser:

In other words, even as the stimulus subtracts from growth starting in the second half of 2010, the level of GDP is still higher than what would be the case in the absence of the stimulus package. Critics of the stimulus package often neglect to highlight that point.

06.01.2010 Policy Points Comments Off on Housing Price Indicies: Oct.

Housing Price Indicies: Oct.

In October, the seasonally-adjusted home prices of single-family units rose in 11 of the 20 metro areas tracked by the S&P/Case-Shiller Housing Price Indicies. Despite those increases, sales price levels in all 20 markets remain significantly lower than they were one year ago.graph

The graph (right) shows changes in price indices for selected metros. Data are shown for Charlotte, certain peer metros in the South Atlantic, and, for purposes of regional comparisons, San Diego and Cleveland. The composite measure for all 20 metros also is shown.

While Charlotte never experienced the same housing bubble seen in other metros, housing prices, as measured by the index, have fallen by 7.1 percent over the past year and by 10.9 percent since the start of the recession. And Charlotte was one of 11 metros tracked in the survey that recorded a month-to-month decline in prices. Although most of the price tracked by the S&P/Case-Shiller Indicies have risen over the past few months, those trends don’t necessarily mean that the housing bubble has fully deflated. Explains Calculated Risk:

The impact of the massive government effort to support house prices led to small increases in prices over the Summer, and the question is what happens to prices as these programs end over the next 6 months.

05.01.2010 Policy Points Comments Off on Around the Dial – Jan. 5

Around the Dial – Jan. 5

Economic policy reports, blog postings, and media stories of interest:

05.01.2010 Policy Points Comments Off on November Local Employment: North Carolina

November Local Employment: North Carolina

The local employment report for November detailed few positive changes in local employment conditions across North Carolina.

In November, every part of the state experienced weak labor markets. Unemployment rates exceeded 10 percent in 68 counties, and in 33 counties, at least 12 percent of the labor force was jobless and actively seeking work. County unemployment rates ranged  from 6.3 percent in Orange County to 16.6 percent in Edgecombe County. Altogether, unemployment in the state’s non-metropolitan counties was higher than in its metropolitan ones — 11.8 percent versus 10.2 percent.

Compared to one year ago, unemployment rates were higher in every North Carolina County and metro area. And compared to a year ago, 59 counties and 10 metro areas had smaller labor forces. Among metropolitan areas, Jacksonville posted the largest decline in the size of its labor force (-2.8 percent), followed by Hickory-Morganton-Lenoir (-1.2 percent) and Durham-Chapel Hill (-1 percent).

Click here to read South by North Strategies’ full analysis of the latest employment report.

05.01.2010 Policy Points Comments Off on Unemployment Claims in NC: Week of 12/12

Unemployment Claims in NC: Week of 12/12

For the benefit week ending on December 12th, 16,223 North Carolinians filed initial claims for state unemployment insurance benefits, and 192,297 individuals applied for state-funded continuing insurance benefits. Compared to the prior week, there were fewer initial and continuing claims. These figures come from data released today by the U.S. Department of Labor.

Averaging new and continuing claims over a four-week period — a process that helps adjust for seasonal fluctuations and better illustrates trends — shows that an average of 20,113 initial claims were filed over the last four weeks, along with an average of 192,006 continuing claims. Compared to the previous four-week period, initial claims were lower and continuing claims were higher.
graph

One year ago, the four-week average for initial claims stood at 27,210 and the four-week average of continuing claims equaled 154,790.

The graph (right) shows the changes in unemployment insurance claims (as a share of covered employment) in North Carolina since the recession’s start in December 2007.

Although new and continuing claims appear to have peaked for this business cycle, the claims levels remain elevated and point to a labor market that remains extremely weak. Especially troubling is the high level of continuing claims, which suggests that unemployed individuals are finding it extremely difficult to find new positions.