The Eternal Sunshine of the Spotless Conscience…

– April 17, 2012

If you’re at a table full of politicians and you can’t find the scapegoat, it’s you.


There Are Two Ways to Fix Monetary Policy: the Fast Way, and the Right Way

– April 4, 2012

…and the government way. The expectations of modest growth in January by the Fed deflated to moderate growth in mid-March. The monetary policy that the Fed and the Treasury have followed have failed to have the desired effects. But that doesn’t stop …


Addition by Subtraction

– April 3, 2012

It is getting harder and harder justify not getting rid of the Fed. by Julie Borowski This week marks the conclusion of Federal Reserve Chairman Ben Bernanke’s four-part lecture series on how the central bank “saved the economy” to undergraduate studen …


The Fed, War, and Recession

– April 2, 2012

by Nathan Lewis This week we will look at a funny and little-known episode in the history of the U.S. dollar and Federal Reserve, notably the wartime years of WWI and the Recession of 1920 that immediately followed. The Federal Reserve was, of course, …


Skittishness Restrains the Recovery

– April 2, 2012

Business Cycle ConditionsApril, 2012Businesses and consumers are driving the expansion. But lessons learned from the financial crisis are holding the pace of growth in Polina Vlasenko, PhD, Research Fellow


Unexpected Expectations

– March 27, 2012

Expectations are a key concept in economics. If expectations are coordinated, then the economy is equilibrated and no accumulation of imbalances take place. Rational expectations, more particularly, sustain that even though errors are possible, they sh …


Recovery or Unsustainable Boom?

– March 21, 2012

When you can’t be sure, remember that whatever the government tells you… it’s the opposite. The Economist reports that: “THERE are tantalising signs of good news in the world economy. In America firms are hiring more and consumers are spending more. …


Would the Real Gold Standard Please Stand Up?

– March 5, 2012

“Bears are animals. Animals have four legs. Chairs have four legs. Therefore, chairs love honey.” What’s wrong with this logic? Don’t ask opponents of the Classical Gold Standard… The gold standard debate has seen a spike recently in different blogs …


Business-Cycle Conditions Indicators Glossary

– February 19, 2012

Leading Indicators  (All dollar-denominated series are adjusted for price inflation.) M1 money supply. An estimate of money balances (primarily currency and demand deposits). When M1 does not keep pace with inflation, bank lending may contract, and hence economic activity. Yield Curve Index. The cumulative total of the monthly spread between the 10-year Treasury note and the effective federal funds rate. When the yield on the 10-year note is lower than the effective federal funds rate, the index will turn downward (i.e., the yield curve inverts), a signal that interest rates and the economy are headed even lower in the future. Index of manufacturers’ supply prices.  The percentage of purchasing agents who report paying higher prices in the current month compared with the preceding month. A higher index indicates stronger demand for business inputs relative to their supply. New orders for consumer goods and materials. All new orders for goods and materials used primarily by consumers (less food and energy). The placing of such orders tends to precede production of consumer goods. New orders for core capital goods. The value of new orders received by manufacturers of nondefense and non-aircraft capital goods. The placing of such orders tends to lead machinery production and production of the goods that machinery later produces. New housing permits.  Tends to lead construction expenditures. Ratio of manufacturing and trade sales to inventories. The balance between sales and inventories. Faster inventory growth relative to sales suggests a structural imbalance within the manufacturing sector. Vendor performance. The percentage of purchasing agents who experience slower deliveries in the current month compared with the preceding month. Slower deliveries indicate a higher volume of business activity. Index of common stock prices.  Uses monthly averages of daily indexes of closing prices from Standard & Poor’s 500 stock composite index. Changes in stocks prices reflect changes in investors’ opinions of profit prospects. Index is adjusted for price inflation. Average workweek in manufacturing.  The total of paid labor-hours of manufacturing production workers divided by the number of such workers. Employers tend to reduce the workweek of their labor force before they reduce the size of their workforce. Initial claims for unemployment insurance.  Inverted for analysis. Measures the average number of persons who file first-time claims for unemployment compensation each week in a given month. A decline in general business activity leads to layoffs. Change in consumer debt.  Percent change in the amount of consumer debt outstanding during the month from the amount three months earlier. Consumer debt includes auto loans and credit card debt, but not home mortgages or home equity loans. Borrowing is a source of consumer purchasing power Coincident Indicators Nonagricultural employment. The number of persons on the payrolls of all establishments, except agriculture. Labor is used in the production of goods and services and employment is the main source of household income and purchasing power. Index of industrial production. The physical volume of goods produced by the manufacturing, mining, and electric utility sectors. Although the industries covered account for about 25 percent of GDP, they account for the bulk of the volatile movements in business activity. Personal income less transfer payments.  Derived by subtracting transfer payments, which are often counter cyclical, from total personal income. Personal income is the main component of consumer purchasing power. Personal income includes compensation for labor, proprietors’ income, rental income, and income from interest and dividends. Transfer payments include government payments for programs such as Social Security and Medicaid. Manufacturing and trade sales. The aggregate value of sales by the manufacturing, wholesale, and retail trade sectors of the economy. Ratio of civilian employment to population.  The number of persons 16 years of age or older who are employed in the nonfarm sector divided by the total non-institutional population 16 years of age or older. A rising ratio may indicate tightness in the labor market. Gross Domestic Product.  The market value of all final goods and services produced within the nation’s borders. This is the broadest measure of economic output, spending, and income. Lagging Indicators Average duration of unemployment.  The average number of weeks that unemployed persons have been looking for work. This is an indication of tightness in the labor market. Changes in this series are inversely related to business fluctuations. The series is inverted for analysis. Manufacturing and trade inventories. The aggregate dollar book value of inventories of materials, goods in process, and finished goods stocked by the manufacturing, wholesale, and retail sectors of the economy. It peaks after the economy begins to slow, as sales fall short of projections. Commercial and industrial loans. The amount of short-term business loans and commercial paper issued. Declining profits usually increase the demand for loans. Ratio of consumer debt to personal income.  The credit used to finance personal consumption (excluding home mortgages and home equity loans) relative to the aggregate value of incomes received by individuals, unincorporated businesses, and nonprofit institutions. This ratio is an indication of the willingness and ability of consumers to incur debt in relation to their income. Change in labor cost per unit of output, manufacturing.  The relationship between the volume of production of manufactured goods and the cost of the labor involved in that production. Rising labor costs signal a squeeze on profits. Composite of short-term interest rates. The monthly average of the 30-day commercial paper rate and the 3-month Treasury bill rate. Rising interest rates suggest a developing credit squeeze.


Housing Tests the Bottom

– February 6, 2012

Business Cycle ConditionsFebruary, 2012Thanks to an upswing in the building of multi-family structures, the construction slump may be over. If the trend continues, the industry may never be the Polina Vlasenko, PhD, Research Fellow 


What Does it Really Mean to “Peg” Money?

– January 24, 2012

For economics, money seems to be the exception to the rule, the thing that the market cannot provide by itself.  Therefore, it is said, the economist and the government must step into the market (in the form of a central banks and regulators) to manage …