Wednesday, September 2, 2009

Why credit the ephemeral? Two Gripes:

One gripe...
There is no doubt that cash for clunkers ($4C) has helped the economy. Just look at the auto sales.

And in selling cars, inventories were drawn and will be rebuilt spurring production, putting people back to work, stimulating income growth. Amen.

Finally a plan that worked...but for whom?

Some of these people going back to work will be Americans. You see, a lot of Japanese-made and Koerean-made cars were bought in the $4C program. That will come out imports eventually and that will blunt the impact on GDP while putting Koreans and Japanese back to work.

As for the big stimulus plan (Obama-nomics) its impact has just begun to uncoil. It will make its big strike in 2010. Our data are barely from mid-year 2009.

But the WSJ and others want to chalk the progrss up to stimulus.

Yet stimulus is not the only reason for a rebound. All recessions -even severe ones- end. We have offered several different calculations on how they end. We have shown/argued that when recessions are severe and job losses are severe recoveries tend to be strong ('recovery' refers to the first 12 months or so after recession ends). Separately we have shown that if we look at job losses per se in business cycles but not tied to the cycle timing itself, job gains tend to follow about as rapidly as the losses that had preceded them. That finding is independent of stimulus.
It is the automatic self-correcting aspect of the economy at work. And we do not deny that government might play a role in getting the economy to make that turn. But once the turn gets in gear natural forces are at work.

A second gripe...
Treating indicators as fact...
I also wonder about the ADP. I see it being reported as though Moses brought its number to market on stone tablets. I'd sure prefer to hold my judgement on job growth until I see the real figures. We know that the purveyors of the ADP survery are 'full of themselves' and have even spoken of how their survey is better than the one conducted by the Labor Dept. Sorry if I don't sign on for that Kool Aid-drinking fest. Last month ADP was well off the mark. This month the ADP shows continued improvement compared to is error-laden report of last month. Unlike the WSJ, I will reserve comment on how fast job improvement is coming along until I see real numbers from the Labor Dept.

However, on the positive side, the ISM MFG report did show a turn to growth in its survey and its employment gauge improved in August. Well, ADP says it is better than the ISM results but (big BUTT) that boasting all comes from in-sample observation-hitting. In real time ADP is missing the diminishing job losses and it it really missed the slip to outsized job losses as the recesssion became intense.

I'd reallly caution the Journal to speak speculatively of what the ADP indicates instead of treating it like manna from heaven. It's been more like Manny from Brooklyn.

I remain optimistic that improvement continues at a rapid pace and look forward to seeing that view borne out in the Friday jobs report.

1 comment:


Excessive credit is at the root of all the current financial problems here and abroad.