In January AIER introduced our updated Business-Cycle Conditions model. The purpose of AIER’s model is to identify turning points—peaks and troughs—in the economy. It combines a set of economic indicators in a way that anticipates these turning points and enables us to statistically analyze their significance.
Small businesses are an important part of our economy and communities, but often we incorrectly assume that their small size is necessarily a competitive disadvantage. Numerous articles have proclaimed the end of Main Street, arguing that “mom and pop” shops cannot compete with the low prices and one-stop shopping of big-box chains. Others have touted the benefits of small business to local economies, emphasizing our duty to support small firms in our communities. In both lines of discussion, small businesses are seen as passive entities, handicapped by their size in our large and increasingly global economy.
What is inflation?
What comes to mind when you think of inflation? It might be higher prices, less affordability, and something bad that we want to avoid. Yet more expensive goods, which would be seen as a negative for consumers, can be a plus for sellers, as they can charge higher prices.
As job hunting follows years of preparation involving college essays, acceptance letters, sophomore slump, internships, finals, and commencement, the question on every new graduate’s mind is: Where do I go from here? AIER’s Employment Destinations Index aims to help college graduates and young professionals as they make the pivotal life decision of where to call home.
Since its enactment in 1935, Social Security has become an important feature of the retirement landscape for all Americans. But its finances are in need of repair. Despite the significant taxes already paid into the Social Security system, future benefit payments are expected to both outrun future tax revenues and consume any accumulated surplus (Chart 1).
Internal migration has always been an important feature of the United States labor market. The ability to move between labor markets to find work or a better job can help promote national economic growth and protect people from downturns in their local economy. But people today—regardless of their age or marital status—are moving far less often than they did in the 1980s and 1990s. Our research shows that overall, internal migration rates in 2015 were half of what they had been in the 1980s. As many as 10 million fewer Americans are moving each year than moved 30 years ago.
With energy prices and a strong dollar keeping inflation low, the average American’s cost of living did not rise in 2015 and in fact fell relative to wages. As this research brief shows, however, some Americans are spending large amounts on services such as education and health care and have seen their cost of living continue to rise.
It’s been said that the only constant in life is change. That idea certainly holds true for economies. Research at AIER is based on sound economic theory and backed by empirical analysis. The same combination of theory and empirical study is the foundation of our Business-Cycle Conditions model. In simple terms, our model is a set of economic indicators combined in a way that anticipates turning points in a business cycle. We stress that our use of the statistical indicators is only one of the tools available to help forecast the near-future, cyclical trend of business activity.
As you approach retirement, you’ll likely spend countless hours thinking about how and where to invest after you stop working. Should you get more conservative with your investments? What amount of risk can you tolerate at this stage of life? Should you buy an annuity? These are all important questions about how to finance retirement, but they ignore a critical component of success: How should you withdraw your money from savings?
AIER’s annual College Destinations Index analyzes 269 urban areas around the country and ranks them as college destinations based on two categories: the quality of student life and opportunities to prepare for the world of work. Just as the college experience is different at small liberal arts colleges and large state universities, off-campus life offers different experiences in small and large cities. We sorted urban areas by size and analyzed 11 attributes in two categories (Table 1). We learned that in the large and midsize metro areas, most of our highest-ranking places—regardless of city size—earned their spot because of their prep-for-work opportunities. Most of our highest-ranking small cities and college towns earned their rankings for their social and cultural offerings that enhance the quality of student life.
The annual cost-of-living adjustment (COLA) will be announced on Oct. 15, when the last data required to compute it becomes available. But the data already suggest that prices have fallen over the past 12 months, removing the need for an adjustment. If prices have fallen but the COLA is zero, the purchasing power of Social Security benefits would increase.
Changes in everyday prices—the prices that people pay for the goods and services they purchase frequently—can differ dramatically from price changes shown in the Consumer Price Index, which is published monthly by the Bureau of Labor Statistics and widely reported. The CPI is a broad index, covering all goods and services purchased by urban consumers. But some prices are more important to people’s everyday lives than others. People may rightly feel that their “personal inflation” is not reflected in the CPI numbers.
For many women, domestic violence is often associated with economic instability. In some cases, economic dependency is a tool of the abuser, and abused women are forbidden to spend money or make financial decisions or are shamed when they do. Yet leaving an abusive relationship can also expose a woman to financial hardship. Besides losing a home, survivors of domestic violence often do not have their own bank account, credit in their own name, or knowledge of how the financial system works.
Workers who are saving for retirement through IRAs and 401(k)s probably have been asked about asset allocation—how much they want to invest in stocks, bonds, or other investments, and the level of risk they are willing to tolerate with their retirement savings. Those who are already in retirement face a new challenge: how to allocate their investments to generate the income they will need for the rest of their life.
Do changes in the economy affect the stock and bond markets?
From day to day, fluctuating prices in the financial markets are of great interest for high-frequency traders. But daily market movement is so volatile that economists call it a “random walk” whose next steps are unpredictable. To date, no clear pattern of daily movement has been found by researchers.
Applying economic concepts to daily life
The Teach-the-Teachers Initiative (TTI) is a five-day residential program for high school teachers that combines AIER’s expertise in economics with best practices in pedagogy and assessment. The goal is to help teachers gain an understanding of economic concepts and to improve pedagogy. Active engagement and varied instructional strategies are introduced, as well as contemporary assessment methods and ways to apply the concepts to daily life.
Facing the Facts
How the federal government collects and spends money has changed substantially over the years. Policy decisions made many years ago influence federal outlays today in important ways. Because of changes in the structure of the budget, the annual appropriations process is constrained, and therefore, is a less powerful tool for addressing fiscal challenges than it used to be.
Since the summer of 2014, the precipitous decline in oil prices brought down the prices of many energy-related items. This decline influenced consumer prices and producer prices, as well as consumers’ purchasing power. The strong U.S. dollar put additional downward pressure on domestic prices. But in the recovering economy, growing demand has served to push up prices that are not related to energy costs. As a result, the overall price level posted only mild decreases in the last quarter of 2014.
AIER’s Summer Fellowship program has long been a core component of the Institute’s mission to inform and educate the public. The program has been a part of AIER since the organization’s post-World War II move to the Berkshires in 1946. From the beginning, the goal has been to introduce the next generation of economists to the nonpartisan, scientific methods of data analysis that are AIER’s trademark.