J. Bradford DeLong | November 3, 2003 | Berkeley Faculty Forum Lunch Talk | The State of the Business Cycle

The Current State of the Business Cycle: Production

 

--From the production side, a slightly slower-than-normal business cycle recovery.

--But then it was a weaker than normal recession: we might expect bounce-back to be less.

--And the gap is not large: since the production trough real GDP has risen by 6% compared to the 8% over 7 quarters that is the average of the past six recessions.

The Current State of the Business Cycle: Employment

 

--We havenÕt seen anything like this beforeÑnot since the Great Depression.

--This is the longest-lasting decline in employment since 1933.

 

The Usual Pattern

 

--Nine-quarter changes in production and hours to smooth out quarter-to-quarter measurement noise.

--A slope of greater than one: procyclical productivity.

--But recent performance is well outside the previous scatter.

--And will move still further outside this week when detailed third quarter estimates are released.

Procyclical Productivity the Result of Sticky Employment Demand in Cyclical Industries

 

--From Erica Groshen and Simon Potter at the New York Fed.

--The cyclical pattern that we were used to seeing.

The End of Procyclical Productivity

 

--A different pattern: no pattern of rehiring in industries that had lost the most jobs during the recession.

--We can no longer expect an automatic bounce-back of employment.

--Bad news for the short-run of quarters or of a couple of years: a slow employment growth economy is an unhappy economy.

How About in the Long Run?

--ÒSpikyÓ quarter-to-quarter series indicates lots of ÒnoiseÓ in the levelÑlook at moving averages.

--Overall productivity growth at a pace not seen in more than a generation.

--Red line about to jump up further with new dataÉ

--Debate in the late-1990s about whether there was anything exceptional about productivity growth given its standard procylical pattern.

--No debate today.

Sources of Our Productivity Growth Miracle I: Technology

--The price of computing: heroic estimates by William Nordhaus.

--What happens to the value in marginal uses as the price collapses?

Sources of Our Productivity Growth Miracle II: ÒRealÓ Investment

 

--The pace of investment in computers and peripherals today isÑin ÒrealÓ termsÑhalf again as great as at the height of the bubble.

--Do I believe the software numbers? No.

Implications

 

--If we could get demand growing fast enough, we could have a truly amazing economy right now.

 

--But we donÕt.

 

--Federal Reserve out of levers.

 

--Executive and Congress focused on long-run tax cuts for the $200,000+ a year crowd, and not on policies to boost spending now.

 

--Hence an extraordinary waste of opportunity.

 

--Not that things are bad (unless you are one of the unemployed, or fear that you are about to become one, but 6.1% is less than the 9.8% of October 1982).

 

--But things couldÑon the production, on the income, and on the employment sideÑbe much, much better.