March 01, 2003

John Irons Tracks the Economy

John F. Irons tracks the economy...

ArgMax Economics Weblog: Tracking the Economy: This has been a busy week for economic news; I thought I would give an update for the week:

  • 2002Q4 GDP revised up to 1.4% (from a previously estimated 0.7%). Better, but not great.
  • Hubbard out, Mankiw in at the CEA. His nomination shouldn't have been controversial - he is an accomplished and respected academic macroeconomist (and a fellow MIT PhD), but some right-wing supply-side economists are unhappy about what he wrote in his Principles book about Reagan's policies.
  • Oil Prices are hitting 12-year highs and getting close to 40$ a barrel.
  • Consumer prices rose 0.3% in January and wholesale prices (the PPI) jumped 1.6%. The increases were due in part because of rising energy prices. The core CPI and PPI (which exclude food and energy) increased by 0.1% and 0.9%, respectively. If the PPI increases continue and make their way to consumer prices, it will cause the Fed to think twice before reducing interest rates in the case of a "double dig" recession. On the bright side, the increases should lessen deflation fears.
  • Consumer confidence fell to 9-year lows. The link between the Conference Boards' index and spending is weak, so we shouldn't be too worried; however, if consumer spending fails to hold up, expect a second recession.
  • On the bright side, it was announced that durable goods orders jumped 3.3% in January.

Posted by DeLong at March 1, 2003 05:49 PM | TrackBack


A quibble here -- gotta vent a pet peeve of mine. You say, "2002Q4 GDP revised up to 1.4%". Now I'm sure you mean GDP growth rate, and I know it's headline-style writing here, but even in this format, can't you say, "2002Q4 GDP growth revised up to 1.4%"?

A little more seriously, are you talking about a quarterly growth rate here, or an annual growth rate? I'm pretty sure you have to be talking an annual growth rate, because 1.4% quarterly growth rate would give you almost a 6% annual growth rate, which would be great. But even the article you link to in a related post doesn't make this clear. Furthermore, in other bullet points in this post, it looks like you are talking about quarterly or monthly rates of increase. Would it hurt to include one or two extra words in even a short description to clarify?

I shouldn't be picking on you -- I read your website because it is a heck of a lot clearer than most economic reporting. But I continually have to read between the lines when I read about these kinds of things in the press, and it drives me nuts, because it is so easily avoidable.

Posted by: Curt Wilson on March 1, 2003 10:18 PM

I agree with Curt on this. Statistics that show increases or decreases are great - clearly 1.4% is bigger than .7% - however a bit more perspective could be added to the understanding of people who read this stuff who are just 'part-time economists' if the explanations were sometimes more fulsome.

With respect to the main point of this post - it seems that the zig-zag US economy is just taking another slight upward zag. I wonder if this zag will be as strong as the previous one that led us to thinking the recession was behind us or will it zig to a double dip recession drawing us closer to a deflationary scenario.

Posted by: Harry Notaras on March 2, 2003 02:37 AM

This is economic news for those who do not care to think about economic news. What ever is the use? Good grief....

Posted by: anne on March 2, 2003 09:30 AM

I've modified the original to make clear that it is a 1.4% annual growth rate... Oh, and it's John *S.* Irons... :)

Posted by: John Irons on March 2, 2003 10:36 AM

John Irons -

Yes. Take back my grouse about the summary. The website is nicely set and useful. Will visit. Thanks.


Posted by: anne on March 2, 2003 10:50 AM

Just a thought from a student of political economy here, but I wouldn't be so quick to dismiss the inflationary effects of the oil prices in staving off fears of deflation as merely secondary consequences.

Mind you, I'm operating on a line of thought put forward by a prof of mine, but he is inclined to think that the inflationary trend isn't accidental.

I'm still not decided on the argument, but I do see where he is coming from.

Posted by: Lorenzo Dei Medici on March 2, 2003 12:09 PM

Well, obnoxious old Pierre Rinfret's latest post is relevant and, I think, clueless though I may be, typically insightful and useful. Last time I linked to him here I got flamed, for some reason, but what the hell.

Posted by: David on March 2, 2003 01:37 PM

From May 2002, Consumer Confidence has dropped an average of 5.14 every month. If you plot it out, it is a remarkably straight line. Extrapolating, Consumer Confidence should hit 0 in about a year. I have plotted the numbers since Nov-99 (they are very hard to get - I had to troll through press releases), and you have a golden era at the end of the Clinton administration where Consumer Confidence fluctuates around 140; then there is a tremendous loss of confidence when the Bush Administration comes in and it levels out between 110 and 120; then after September 11th it plunges to about 85; it gradually recovers back up to 110; then a steady nosedive. Yahoo currently has a story up, "Consumer Spending Falls Unexpectedly". What is really unexpected is that consumer spending has held up so well given the loss of consumer confidence.

Posted by: Unrelated Disney on March 3, 2003 09:21 AM

"I wouldn't be so quick to dismiss the inflationary effects of the oil prices in staving off fears of deflation."

Indeed, the bond market is telling us the economy is weakening and inflation is likely to "lessen" in spite or possibly because of the oil price shock. Bonds, from corporate to municipal and treasury, have been gradually rising in price. My sense is the economy has weakened in recent weeks. Watch the employment report this week.

Posted by: anne on March 3, 2003 09:39 AM

Like the CW quibble. Just letting the unschooled see reference to the fact, over and over, that there is a difference betwee rates of change and absolute levels could have some useful impact on understanding. The same could be said for other forms of what passes for short-hand but really constitutes inaccuracies. One reads over and over that holiday sales were the weakest in x years, when in fact, they were the strongest ever, in terms of simple magnitudes. By what measure were holiday sales weak?

As to Anne's post suggesting the bond market is pricing in a weaker economy, I can tell you what we hear from bond traders. The strong impression is that bond prices are directly reflecting perceptions of war risk. There is still a response to stronger or weaker than expected economic news, but war news matters more. To some extent, war risk is also a factor in the economic outlook, but that connection is very confused right now. Does war now mean a decline in uncertainty so more confidence economic actors, or is war less certain than such claims suggest?

The notion that the Fed is not worried about oil prices is powerful in the bond market. If oil prices are a tax (as Greenspan says), then equities should fall, bonds rise, when oil prices rise. That has been happening a good bit lately, though today's trade certainly shows this connection is not set in stone.

Underneath it all, surely expectations of the economy are a big part of bond yields, but it is tough to draw strong conclusions about the link between the economy and any recent shift in yields.

Posted by: K Harris on March 3, 2003 10:24 AM

K Harris

Thank you for the interesting comments. There is no doubt a war worry-bond price relation at present, and it may well grow stronger. The bond market may not be pointing to a weakening of the economy, but the economy does appear to be weakening. While the small gain in the GDP growth rate was applauded, the gain was an inventory accumulation and the rate of GDP growth is much below the potential growth rate.

We are growing too slowly and there is no reason to believe the labor market will see gains soon. My sense is the economy is weakening.

Posted by: anne on March 3, 2003 11:14 AM

Paul Krugman

The conventional wisdom among business forecasters now calls for growth of a bit more than 3 percent over the next year. Growth at that pace is barely enough to keep up with rising productivity and an expanding labor force, not enough to make a serious dent in unemployment. And a growing number of forecasters think the conventional wisdom is overoptimistic, that the pain is about to get even worse.

Posted by: jd on March 3, 2003 11:23 AM

Let me put in a kind word for Argmax: a useful
source for data reports and economic headlines.
But what disturbs me is the criticism that Irons
cites from the supply side "economists." I know
this blog has had some fun with the idea of who
or what is an economist (Ben Stein, for example,
may not be an economist but he did lecture on it
to bored high school students in Ferris Beuler's
Day Off). What is Martin Anderson's background?
I looked him up in google under martin anderson hoover economist and came up with blanks. Besides
being a concerned citizen, what gives him standing
to attack Greg Mankiw on the validity of supply side economics? Unless he can't prove that he's
not a charlatan trying to sell fad economics --
as Krugman put it, "a policy entrepeneur" in his
book Peddling Prosperity.

Posted by: Malcolm on March 3, 2003 02:21 PM

What happens to the depreciation of all of the automobiles purchased by consumers?

NNP = GNP - Depreciation

That depreciation is DEFINED as capital goods only. Consumers going into debt to buy stuff designed to become obsolete is good for whose economy?

Do a search on: "Economic Wargames"

Dal Timgar

Posted by: Dal Timgar on April 29, 2003 01:21 PM
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