Why Economists Are Confused

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- Jim

As you know, the crystal ball of all economists remains murky these days. This results in a wide range of opinions about the economy for the next year or two. The biggest issue is whether PCE will stay around 70.0 percent of GDP or decline as consumers return their debt-to-income ratios to the 90.0 percent or so that was ” normal” in the 1990s or if they’ll return to more recent spending patterns with debt ratios around 110.0 percent. If the former develops (Ian Shephardson is quite articulate in this camp), then consumers will save much more than in the last 3 decades and the US economy will be on a permanently lower growth path. Variations on this theme fuel the predictions of Nouriel Roubini, who is not in any forecasting panels, and Rajeev Dhawan, who is.

If consumers find a way to keep spending (drawing down assets or finding new ways to raise their incomes) then the recovery will be robust. No one knows how this will turn out, so the arguments are endless and occasionally, even interesting.

Perhaps more harrowing than the prospect of slow growth is the oncoming bankrupcty of the US. The Pete Peterson- and Rudy Penner- or Larry Kotlikoff-types keep talking about the $55-75 trillion net present value of the deficit. Click here to read the full post and comment (Insights subscribers) »

Shoppers Are Happier and Have More Money to Spend

On June 26 the BEA released their “Personal Income and Outlay Report: May 2009” and it had lots of good news. Total personal income leapt by 1.4 percent or $167.1 billion in May from April to a record SAAR of $12.3 trillion.

Disposable personal income shot up by 1.6 percent in May from April or $178.1 billion to a new record of $11.1 trillion. Personal savings shot up to 6.9 percent of disposable personal income, the highest ever recorded in the fifty-year history of the data series. Click here to read the full post and comment (Insights subscribers) »

ISM, Construction & Savings Rate Provide Good News

On June 1, the Institute of Supply Management (ISM) reported its manufacturing index rose to 42.8 percent in May from 40.1 in April. That’s the highest level since the 43.4 of September 2008.

This is very good news because the ISM states that an index above 41.2 is consistent with growth in real GDP. This is despite the fact that the index has to be above 50.0 to indicate that the manufacturing sector is growing. Click here to read the full post and comment (Insights subscribers) »

Really Good News on Trade and Possibly Even Better News on Unemployment

On April 9 the BEA told us that the trade deficit for February was only $26.0 billion, down from $36.2 billion in January and the smallest shortfall in trade since November 1999. Exports rose in February for the first time since July. This means that net exports will make a positive contribution to real GDP growth for the first quarter. The BEA will give us the first estimates of that on April 29. Click here to read the full post and comment (Insights subscribers) »

Some Good News on the Most Important Parts of the Economy

On March 2, BEA released some surprisingly good news on personal income and personal consumption expenditures (PCE) for January 2009. After four months of increasingly gloomy reports, the first data for 2009 looked much better.

Total disposable personal income, the raw material for PCE that accounts for over 70.0 percent of real GDP, rose to a record level of $8.9 trillion in January. That drove real PCE to $8.2 trillion, above the fourth quarter 2008 level.

Click here to read the full post and comment (Insights subscribers) »