Brad DeLong's Semi-Daily Journal (2004)

"That the U.S. economy's output can grow at 4.2% per year without providing any upward pressure on the employment-to-population ratio is remarkable, a result of the amazing underlying productivity growth of our economy."

...and spurred by the brilliant Bush fiscal policy.

Adrian the common-sense economist

Adrian Spidle writes:
> "That the U.S. economy's output can grow at 4.2% per year
> without providing any upward pressure on the employment-
> to-population ratio is remarkable, a result of the amazing
> underlying productivity growth of our economy."
>
> ...and spurred by the brilliant Bush fiscal policy.

So the goal was to prevent as many people as possible from getting jobs during an economic upswing?

Seriously, Adrian, you could say that Brad DeLong was being a bit dour about 2 pieces of good news (strong GDP growth and an [imputed] high productivity growth), but if you read what you just said, you were congratulating the administration for the one weak point of the current economy: a nearly total lack of strength in labor markets. And you claim that this was spurred by their policy.

OK, so back I go to grading undergraduate writing.

"So the goal was to prevent as many people as possible from getting jobs during an economic upswing? "

YOU GOT ME. I just learned to read more carefully before posting.

My bad,

Adrian

The figure is inflated by under-reported CPI and PPI. No figure can be published by the government and not be suspect anymore. Especially now that everyone knows we're in a war economy and what this means for inflation.

If productitivity is so good and the GDP is so good, why is everything I need costing more, and why haven't incomes gone up?

Another government release that doesn't pass the smell test.

The GDP report was essentially just like the 1st quarter report. Moreover, the consensus expected 5% plus just like last quarter.

The 5% expectation was build of the assumption that inventories would provide a big pop. But this appear to ignore one of the structural changes from the IT revolution of the 1990s --
just in time inventories and a whole host of other changes that imply much better inventory management. So the exdpectations of higher inventories contributing to growth seem to be unrealistic.

The GDP report imples productivity will also be about same as in 1st quarter. Meanwhile the employment compensation shows no change in trends. Very high healthcare and other fringe benefit costs means strong compensations costs
as viewed by the employeer but weak wage & salary gains as viewed by the employee.

Meanwhile the market seems to be worried about 2 conflicting views. On the one hand fears of strong growth & inflation and a fed tightening are generating a rise in rates and a fall in the PE enough to offset the very strong earnings.
But investors are starting to worry that the lack of employment growth will lead to a very weak consumer in the 2nd half and a sharp slowdown in the economy. Consequently, they are selling cyclical stocks like basic materials and high tech and buying defensive stocks like healthcare and consumer staples.

how this basic conflict in the outlook plays out will be of great interest.

Adrian -- I think Brad's comment about productivity was simply an understated swipe at the administration forecasts for employment, which relied on projections of very low productivity gains for 2004.

Jonathan, in a roundabout way was basically reflecting that point (perhaps).

Spencer,

The structures data were also on the soft side (along with inventories). Both involve guesses about March (as you know). The March housing numbers may well offer a lift - all the March data so far point that way. Construction activity in the first two months of Q1 was the weakest since Q2 of last year - very odd, given what else is going on.

I wonder about the inventory figures. My impression is that the March inventory plug "gives back" some of what was added in February (February business inventories up 0.7%). If, instead, there is inventory building in March, and some structure building as well, we may end up close to the 5.0%-5.2% median estimate.

I recall reading something about GDP being artificially inflated because of some obscure way of counting imports.

Anyone else read this? (IIRC, it was on Political Animal or Matthew Yglesias)

Is this a real issue, or just around the edges academic BS?

Note that Federal government spending went up 10.1% in the first quarter, compared with a 0.7% climb in the fourth. State and local government spending fell 2.6%.

Even with that massive Fed deficit spending, job growth remains anemic.

When you have a massive stimulus driven economy, just because you can make it to twitch and dance doesn't mean its organically creating new jobs . . .

Matthew -- there is an issue that the data may not be capturing services imports from outsourcing. If a firm outsources a physical component it is imported through a port of entry and captured in the data as an import and substracted from GDP. But if a service import show up in your office electronically each mornings -- back office operations for example--
the data may not be capturing it as an import and so is overstating GDP and productivity.

I looked into this possiblility back in Feb and came to conclusion that it is probably true, but it probably is not large enough to significanly impact the GDP data. But the data on outsourcing is so poor and suspect that I can not have a lot of confidence in that conclusion.

Harris -- you may be right about the data, I do not look at the GDP data that closely and do not forecast gdp. But you comments are exactly what we were hearing after the 4th Q came in at 4%
rather than the expected 5%.

In March auto sales were up while auto production were down, so in March auto inventories should have fallen.

The thing I want to look at but have not yet is the question of the relationship between business fixed investment and profits. The best single deteminate of investment is profits.
But it looks to me like investment is actually weak given the very strong rebound in profits
but I have not looked at the question that closely.

I understand that the GDP figures are part of the apolitical civil service, but given that at the end of an administration many of the political hacks try to bail to civil service jobs, and there have been 15 years of Republicans over the past 24, how likely is it that some politically motivated massaging of the data is going on?

Even if you could get a .1% delta, if you pushed the number down since January of 200y, and are pushing up now, you could create numbers looking like significant growth.

Kind of the reverse of what Fannie Mae was doing with profits.

Despite such a respectable GNP number, Wall street seems unimpressed. spencer in his 8:03AM post gives us a plausible view of why the markets are worried. I would add that crude oil prices are still a factor in higher costs. The data suggests that real wages declined for the period so the consumer has less buying power and no refi to help. Will the tax rebates be enough? I'm not sure that consumer staples and healthcare are good bets, but I am increasingly of the view that things ( not the stockbroker's) will be damn interesting shortly.

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