Policy Points

03.11.2009 Policy Points Comments Off on The Outlook for Consumer Spending

The Outlook for Consumer Spending

Personal consumer spending is the largest single contributor to the nation’s gross domestic product. While personal spending typically declines during a recession, the eventual rebound helps lead the economy out of recession.

Yet in today’s economy, a variety of factors make a robust rebound in consumer spending unlikely. In recent congressional testimony, scholar Karen Dynan of the Brookings Institution outlined the reasons why consumer spending growth will be muted in coming months. One of the factors likely to depress spending is a weak labor market recovery. Says Dynan:

One factor that will probably restrain consumption will be tepid growth in households’ labor income. As you know, the sharp decline in aggregate demand for output has led to one of the largest percent declines in employment since the Second World War. Payroll employment has fallen by more than 7 million since the recession began, and, although the rate of decline has abated in recent months, we are unlikely to see substantial gains in employment in the near future. When labor demand picks up again, firms are likely to increase workers’ average hours – which fell noticeably during the downturn – before increasing the number of workers they employ. Firms tend to pursue this strategy because raising hours is less costly and easier to reverse than hiring new workers if the recovery proves transient. Of course, longer workweeks would increase workers’ earnings, but the magnitude of this response is also likely to be muted.

03.11.2009 Policy Points Comments Off on Slow Ride on the Information Superhighway

Slow Ride on the Information Superhighway

The technology blog Gizmodo has a nice graphic comparing internet speeds, costs, and availability among advanced industrial nations. Unfortunately, the United States fares poorly in all three areas.


02.11.2009 Policy Points Comments Off on Around the Dial – Nov. 2

Around the Dial – Nov. 2

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

02.11.2009 Policy Points Comments Off on Manufacturing Activity in the South Atlantic: Oct.

Manufacturing Activity in the South Atlantic: Oct.

From the Federal Reserve Bank of Richmond’s October survey of manufacturing activity in the South Atlantic (District of Columbia, Maryland, North Carolina, South Carolina, Virginia and West Virginia):

Manufacturing activity in the central Atlantic region expanded for the sixth straight month but at a more moderate pace in October, according to the Richmond Fed’s latest survey. All broad indicators — shipments, new orders and employment — continued to grow but at a rate below September’s pace. Other indicators were mixed, however. Capacity utilization continued to grow more slowly, while backlogs fell further into negative territory. Vendor delivery times were virtually unchanged, while manufacturers reported slower growth in finished goods inventories.

02.11.2009 Policy Points Comments Off on Is the Recovery Package Working?

Is the Recovery Package Working?

In a new analysis, economist Josh Bivens of the Economic Policy Institute looks at the newest GDP report and identifies the effects of the American Recovery and Reinvestment Act (ARRA). Concludes Bivens:

All in all, the combined evidence—the timing of ARRA in relation to subsequent economic performance; the strong influence of taxes and transfers since ARRA; and direct data from Recovery.gov on the timing and composition of ARRA expenditures and tax-cuts—suggests that the recovery package has substantially boosted economic growth and created or saved 1.1 to 1.5 million jobs since its passage.

More specifically, Bivens considers the timing of the recovery package, the impact of income transfers and tax reductions, and direct evidence of ARRA’s role in job creation. Writes Bivens:

… estimates indicate that the recovery package contributed 2.7 percentage points to annualized GDP growth in the third quarter and that it has cumulatively added a full 1.6% to GDP since it was passed. Given that hours have fallen 25% faster than employment since the recession began, if pre-recession levels of average hours worked are targeted, this should translate into a 1.3% (1.6*(1-.25)) increase in employment, or 1.5 million jobs. If one wants to be conservative and note that the last two recoveries following recessions have been accompanied by a 30% rise in the rate of productivity growth (which, all else equal means that less employment is required for a given rate of GDP growth), the 1.6% bump to GDP would translate into something closer to 1.1 million jobs (1.3*(1-.3)) created or saved by the recovery package.