Over there … Real GDP in selected regions (percent change from four quarters earlier) Sources: US Department of Commerce; JPMorgan Chase & Co.
… and over here US real GDP (annualized percent change from the previous quarter) Source: US Department of Commerce
Layoffs are ending … Real GDP (% ch from four quarters earlier) Initial claims for unemployment benefits (thousands weekly) Sources: US Department of Labor; US Department of Commerce
… they’re normal … it’s now up to hiring Layoffs and new hires (percent of private employment) Source: US Department of Labor
Jobs are coming back … Real GDP and nonfarm payrolls (% ch from 3 months earlier, annual rate*) * Based on the 3-month average of the most recent three months. Sources: US Department of Labor; US Department of Commerce
… but jobs are only part of the picture … Real GDP, nonfarm payrolls and total private hours worked (% ch from 3 months earlier, annual rate*) * Based on the 3-month average of the most recent three months. Sources: US Department of Labor; US Department of Commerce
… in fact, it’s what’s in the paycheck that counts … Real GDP, payrolls total private hours, and compensation (% ch from 3 months earlier, annual rate*) * Based on the 3-month average of the most recent three months. Sources: US Department of Labor; US Department of Commerce
… for consumers Real consumer spending, disposable income, and wages and salaries (% change from 12 months earlier) Source: US Department of Commerce
Profits have lots of stories to tell … After-tax GDP profits (percent of nominal Gross Domestic Income) Source: US Department of Commerce
… and one of them is about the world … Global and US real GDP (2000 dollars) Sources: US Department of Commerce; JPMorgan Chase & Co.
… cap X is another Business investment for capital goods and software (percent change from a year earlier) Sources: US Department of Commerce; Federal Reserve Board
“ Low levels of resource utilization”, the big idea US unemployment rate (percent of the labor force) ¹ Range of FOMC members’ views Sources: NBER recession bars; US Department of Labor; Federal Reserve Board
Unemployment … but what you don’t see counts too … Ratio of selected worker status to the population Source: US Department of Labor
… deviations from a normal economy Status of selected people in the labor pool (thousands) Source: US Department of Labor
Remember how recessions work on inflation … slowly Core chain PCE inflation (annualized percent change) Source: US Department of Commerce
Working with the cycle, the Fed’s long-run strategy Core chain PCE inflation (annualized percent change) Actual unemployment less Nairu Source: US Department of Commerce
Wanted … a new conversation about fiscal issues The airwaves are full of nonsense (like global warming, it’s not about the seasonal shifts) Tedious … we don’t need you to repeat the front pages Pointless … we’re not going to cut the deficit in recession Misdirected focus … the $1.5 trillion – $1 trillion due to recession – isn’t the issue It’s the underlying (long-term) issue Left on auto pilot, spending doubles as a share of the economy (CBO) Five options: (1) Double the tax burden … not happening (2) Deficit finance … over the market’s (and economy’s) dead body (3) Defer to an outsider (the government) to continually whittle health care spending (4) Incentivize the industry to find the best solution … users need to be more involved (5) Change the conversation about economics (raise economic literacy): * Endogenize the retirement decision * Spur national saving (eliminate the tax on saving, consumption-based income tax) * Eliminate the corporate income tax (people pay taxes) * Eliminate the employer deductibility of health care expenses * Tort reform
Bonds to pundits: it’s not about today’s red ink … Federal budget balance (percent of GDP) 10-year Treasury yield (percent) Sources: NBER recession bars; Congressional Budget Office; Federal Reserve Board
The red ink, scary of course, in absolute terms … Federal budget balance (billions of dollars over the most recent 12 months) Sources: NBER recession bars; NBER Macroeconomic database
… up close Federal budget balance (billions of dollars over the most recent 12 months) Sources: NBER recession bars; NBER Macroeconomic database
Scaled to the size economy … Federal budget balance (percent of GDP) Sources: NBER recession bars; NBER Macroeconomic database
… up close Federal budget balance (percent of GDP) Sources: NBER recession bars; NBER Macroeconomic database
… here’s how much … Actual budget balance and excluding the impact of the recession (percent of GDP) Sources: NBER recession bars; Congressional Budget Office; JPMorgan Chase & Co.
… or, if you want the numbers Cyclical (temporary) factors boosting the federal deficit (billions of dollars, fiscal year basis) Sources: Congressional Budget Office; JPMorgan Chase & Co.
The health care expansion isn’t the real issue <ul><li>PPACA morphs an inhumane, dysfunctional system to merely a dysfunctional one </li></ul><ul><li>Agnostic about the net impact of the health initiative on the amount of national resources consumed by health care: </li></ul><ul><ul><li>Shifting from the ER model, a private/public-subsidized system to a federal-subsidized system, will raise the government’s health care costs by 8-10%, but could in theory lower the stealth private subsidy </li></ul></ul><ul><ul><li>Validating the present government/employer-provided health insurance model disengages users from health care decisions. A system that is financed by the public purse or taxes on investment income with users not accountable is economically dysfunctional (lesson of the ethanol mandate) </li></ul></ul><ul><li>Most employers offer benefits and shouldn’t be affected. 70% of employees are at firms that employ 26 or more people and 87-98% of those firms offer benefits. 55-65% of employees are covered by those company plans, implying some take coverage in other (spousal) systems. Small businesses will benefit some. </li></ul><ul><li>Firms will continue to offer health care benefits, even if penalties are less than the cost of benefits, for the same reason they now offer benefits despite no penalty if not. The competitive advantage and federal subsidy remains. </li></ul><ul><li>85% of typical health care outlays for the average person occur after 65 years of age, implying that Medicare and Medicaid are the elephant in the room </li></ul>
CBO gives you the starting point … CBO’s government spending projections (billions of dollars, fiscal year basis) Source: Congressional Budget Office
… and they say spending will outstrip revenues* Long-term projections (billions of dollars, fiscal year basis) Source: Congressional Budget Office
The electorate won’t accept (1) a doubled tax burden … Long-term projections (percent of GDP) Source: Congressional Budget Office
The bond market won’t accept (2) a mounting debt service … Long-term projections (billions of dollars, fiscal year basis) Source: Congressional Budget Office
The (3.5%) growth* option … Long-term projections (billions of dollars, fiscal year basis) Source: Congressional Budget Office
… keeps the spending share in line with revenues Long-term projections (billions of dollars, fiscal year basis) Source: Congressional Budget Office
The growth* option … why it’s an issue Long-term projections (billions of dollars, fiscal year basis) Source: Congressional Budget Office
It’s a political (not a market) issue … <ul><li>Deficit financing would be economic suicide </li></ul><ul><li>Two political choices </li></ul><ul><ul><li>Allow federal spending to grow and come up with the revenues (hence the talk about a Value Added Tax) </li></ul></ul><ul><ul><li>Control government health care spending and enhance incentives to grow </li></ul></ul>
New realities spur a quiet revolution for transportation Prices of petroleum and natural gas (dollars per barrel, thermally-equivalent basis) Sources: American Petroleum Institute; Bloomberg
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