Dear ChatGPT: How do we measure the state of the American economy?

Measuring the state of the American economy involves tracking a range of indicators that reflect various aspects of economic performance, such as growth, employment, inflation, and financial stability. Some of the key measures include:

1. Gross Domestic Product (GDP)

What it measures: GDP represents the total value of all goods and services produced within the U.S. economy over a specific time period (usually quarterly or annually).

Why it's important: It serves as the broadest indicator of economic activity. A growing GDP typically signals a healthy, expanding economy, while a shrinking GDP suggests economic contraction or recession.

2. Unemployment Rate

What it measures: The percentage of people in the labor force who are actively seeking work but are unable to find employment.

Why it's important: High unemployment can indicate economic distress, while low unemployment suggests a healthy, robust labor market. However, it’s essential to look at other labor force metrics, such as participation rate and underemployment, to get a fuller picture.

3. Inflation Rate

What it measures: The rate at which the general price level of goods and services in the economy is rising, typically measured by the Consumer Price Index (CPI) or the Producer Price Index (PPI).

Why it's important: Moderate inflation is considered normal in a growing economy, but high inflation can erode purchasing power and signal overheating, while deflation can signal a stagnating economy.

4. Federal Reserve's Interest Rates

What it measures: The Federal Reserve (Fed) sets short-term interest rates to influence economic activity. The most common rate is the federal funds rate.

Why it's important: Interest rates directly affect borrowing costs for consumers and businesses. Lower rates stimulate economic activity by making borrowing cheaper, while higher rates are used to cool down an overheating economy and control inflation.

5. Stock Market Performance

What it measures: The performance of major stock indices like the S&P 500, Dow Jones Industrial Average, and NASDAQ can provide insight into the confidence of investors and the broader economy.

Why it's important: Stock market performance can reflect expectations of future economic growth or contraction. While it can be volatile, a strong, upward-moving stock market is generally a sign of investor optimism.

6. Consumer Confidence Index (CCI)

What it measures: This index, produced by the Conference Board, gauges consumer optimism regarding the economy, personal finances, and future spending habits.

Why it's important: High consumer confidence typically correlates with increased consumer spending, which is a significant driver of economic growth. Conversely, low confidence can signal potential slowdowns in demand.

7. Housing Market

What it measures: Data on housing starts, home prices, and sales volume are commonly used to assess the health of the housing market.

Why it's important: The housing market is a key component of economic activity, affecting construction, real estate, and consumer wealth. Rising home prices and new construction often indicate a growing economy, while a housing downturn can be a warning sign.

8. Trade Balance

What it measures: The difference between a country's exports and imports. A trade deficit occurs when imports exceed exports, and a trade surplus occurs when exports exceed imports.

Why it's important: Persistent trade deficits can indicate structural economic problems or dependence on foreign goods. On the other hand, a strong export economy can be a sign of global competitiveness and economic strength.

9. Wage Growth

What it measures: The rate at which wages for workers are increasing over time.

Why it's important: Rising wages are typically a sign of strong demand for labor and a healthy labor market, while stagnant wages may indicate economic challenges, particularly for lower-income workers.

10. Debt Levels (National Debt and Consumer Debt)

What it measures: The total amount of debt held by the government (national debt) and households (consumer debt).

Why it's important: High national debt can limit the government’s ability to respond to future crises and affect long-term fiscal sustainability. High consumer debt can indicate financial stress or signal overleveraging in the economy.

11. Business Investment (Capital Expenditures)

What it measures: Business spending on equipment, infrastructure, and other capital projects.

Why it's important: Increased business investment suggests confidence in the future and may lead to increased productivity and economic growth.

12. Productivity

What it measures: Productivity measures the output of goods and services per hour worked.

Why it's important: Higher productivity can lead to higher living standards and economic growth, as it means more is being produced with fewer resources.

13. Government Fiscal Health

What it measures: Government spending and tax revenue, as well as budget deficits or surpluses.

Why it's important: High government debt or persistent budget deficits can create long-term economic challenges, such as inflation or interest rate hikes, which can affect economic stability.

14. Regional Economic Conditions

What it measures: Economic performance can vary by region, and regional indicators like unemployment rates, housing data, and local GDP can provide a more localized view.

Why it's important: Economic conditions can differ greatly by state or metropolitan area. A national overview may mask significant disparities between regions.

15. Global Economic Factors

What it measures: External factors like global trade patterns, commodity prices (e.g., oil), and international economic conditions can impact the U.S. economy.

Why it's important: The U.S. economy is interconnected with the rest of the world. International trends like recessions in major trading partners or geopolitical events (e.g., war, trade wars) can affect U.S. economic growth.

Combining Data for a Holistic View

No single indicator can offer a complete picture of the U.S. economy. Instead, economists and policymakers analyze a combination of these measures to gauge the economy’s health and anticipate future trends. For instance:If GDP is growing, unemployment is low, and inflation is stable, the economy is typically considered strong.

If GDP is shrinking, unemployment is rising, and inflation is high, the economy might be heading into a recession or stagflation.

In short, measuring the state of the economy requires a multidimensional approach, using a variety of economic indicators to provide insight into both the current and future performance of the economy.

From the NYT: On Trade, Donald Trump Breaks With 200 Years of Economic Orthodoxy

The author sees evidence that he wants the US to adopt mercantilism - the economic system that Britain used way back in colonial days. This marks a radical change in economic policy. It would also drastically increase governmental control of the economy.

- Click here for the article.

. . . Mr. Trump is bringing mercantilism back. The New York billionaire is challenging the last 200 years of economic orthodoxy that trade among nations is good, and that more is better.

He is well on his way to becoming the first Republican nominee in nearly a century who has called for higher tariffs, or import taxes, as a broad defense against low-cost imports. And there is a good chance he would face a Democratic opponent, Hillary Clinton, who has expressed fewer reservations about trade, inverting a longstanding political dynamic.

Among Republican standard-bearers, “There’s nobody since Hoover who talked this way about trade,” said I. M. Destler, a public policy professor at the University of Maryland and the author of “American Trade Politics,” a history. For most of the last century, Mr. Destler said, such skepticism about trade had been relegated to the fringes of the Republican Party.Continue reading the main story

Mr. Trump’s mercantilism is among his oldest and steadiest public positions. Since at least the 1980s, he has described trade as a zero-sum game in which countries lose by paying for imports. The trade deficit with China, which reached $366 billion last year, makes America the biggest loser. “Our trade deficit with China is like having a business that continues to lose money every single year,” Mr. Trump told The Daily News in August. “Who would do business like that?”

Today's Chart

Lower and middle classes have done worse in the United States than in comparable countries.

From the Congressional Budget Office: The Budget and Economic Outlook: 2014 to 2024

Prior to the presentation of the president's budget to Congress, the Congressional Budget Office is required to release a document projecting the budget 10 years into the future - which also requires that it estimate what the economy is likely to be like during that period of time.

Here is a link to the recently released document:

- The Budget and Economic Outlook: 2014 to 2024


Here the two key graphs in the report:




 


Here's what they have to say about projected revenues:

Federal revenues are expected to grow by about 9 percent this year, to $3.0 trillion, or 17.5 percent of GDP—just above their average percentage of the past 40 years (see the figure below). Revenues were well below that average in recent years, both because the income of individuals and corporations fell during the recession and because policymakers reduced some taxes. The expiration of various tax provisions and the improving economy underlie CBO’s projection that revenues will rise sharply this year. Those factors will increase revenues further in 2015, with CBO’s baseline showing another 9 percent rise. After 2015, revenues are projected to grow at about the same pace as output and to average 18.1 percent of GDP under the current-law assumptions of CBO’s baseline.

And here's what they have to say about projected spending:

Federal outlays are expected to increase by 2.6 percent this year, to $3.5 trillion, or 20.5 percent of GDP—their average percentage over the past 40 years. CBO projects that under current law, outlays will grow faster than the economy during the next decade and will equal 22.4 percent of GDP in 2024. With no changes in the applicable laws, spending for Social Security, Medicare (including offsetting receipts), Medicaid, the Children’s Health Insurance Program, and subsidies for health insurance purchased through exchanges will rise from 9.7 percent of GDP in 2014 to 11.7 percent in 2024, CBO estimates. Net interest payments by the federal government are also projected to grow rapidly, climbing from 1.3 percent of GDP in 2014 to 3.3 percent in 2024, mostly because of the return of interest rates to more typical levels. However, the rest of the government’s noninterest spending—for defense, benefit programs other than those mentioned above, and all other nondefense activities—is projected to drop from 9.4 percent of GDP this year to 7.3 percent in 2024 under current law.

The report contains some controversial predictions about the impact of the ACA on the number of jobs in the economy. It argues that a variety of responses to the law's requirements will lead to a reduction of over 2 million jobs by 2012. The White House and congressional Republicans are arguing over what this means for the laws merits.

- see this Washington Post story for greater detail.

Is Houston America's next great global city?

Yes, according to the authors of this analysis of the regional economies in the US. They argue that the US contains seven distinct regions and three city states" Los Angeles, New York and Miami.

Houston it the capital of the Third Coast. Click here for a map. 

Once a sleepy, semitropical backwater, the Third Coast, which stretches along the Gulf of Mexico from south Texas to western Florida, has come out of the recession stronger than virtually any other region. Since 2001, its job base has expanded 7%, and it is projected to grow another 18% the coming decade.

The energy industry and burgeoning trade with Latin America are powering the Third Coast, combined with a relatively low cost, business-friendly climate. By 2023 its capital–Houston–will be widely acknowledged as America’s next great global city. Many other cities across the Gulf, including New Orleans and Corpus Christi, are also major energy hubs. The Third Coast has a concentration of energy jobs five times the national rate, and those jobs have an average annual salary of $100,000, according to EMSI.

As the area gets wealthier, The Third Coast’s economy will continue to diversify. Houston, which is now the country’s most racially and ethnically diverse metro area, according to a recent Rice study, is home to the world’s largest medical center and has dethroned New York City as the nation’s leading exporter. Mobile, Ala., seems poised to become an industrial center and locus for trade with Latin America, and New Orleans has made a dramatic comeback as a cultural and business destination since Katrina.

Which technologies that will rive the future?

I offer this as a public service to my students. In case you are considering different careers.

The New Unemployables

I'll post a few items that try to help explain why the unemployment rate is so high, especially since corporate profits are up, and the stock market returned to record territory once again.

Older workers - those in their 50s and above - "were less likely to lose their jobs during the recession, but those who were laid off are facing far tougher conditions than their younger colleagues. Workers in their fifties are about 20% less likely than workers ages 25 to 34 to become re-employed."

Reports show they are actively seeking work, but find themselves less employable than younger, recent graduates.

Is age discrimination a factor?

Older workers also have the longest bouts of unemployment. The average duration of unemployment for workers ages 55 to 64 was 11 months as recently as January, according to the Labor Department. That's three months longer than the average for 25- to 36-year-olds.
Given these circumstances, many workers can't help but think age discrimination is a factor. AARP's Public Policy Institute surveyed unemployed baby boomers in 2010 and 2011. While 71% blamed their unemployment on the bad economy, almost half also said they believed age discrimination was also at play.
About 23,000 age discrimination complaints were filed with the Equal Employment Opportunity Commission in fiscal 2012, 20% more than in 2007.
Proving discrimination is next to impossible, though, unless it's blatant.
"It's very difficult to prove hiring discrimination, because unless somebody says, 'you're too old for this job,' you don't know why you weren't hired," said Michael Harper, a law professor at Boston University.

Here are two studies that try to get to the bottom of what;s driving this:

- The New Unemployables.
- Age Disparity in Unemployment and Reemployment During the Great Recession and Recovery.

March unemployment report is out: 88,000 jobs created, labor force shrinks, 7.6% unemployment rate

The Dish runs through the commentary. The numbers are actually below what is necessary to keep up with population growth. Almost half a million people dropped out of the labor force, and fewer people are actually working now than a month ago.

Many point out that this is the first report out since both the sequester and the increase in the payroll tax. Government jobs - in addition to private sector jobs based on government contracts are being shred, and this is just the beginning of the process, so some fear the numbers might get worse.

David Stockman thinks the economy is doomed, but not everyone is convinced

Stockman was once Ronald Reagan's head of the Office of Management and Budget and became a firece critic of the administration - along with most others - after he left office.

He recently wrote an opinion piece in the NYT where he lays out his multiple issues with the US's economic history since the early 1930s. He thinks the current - limited - recovery will end in a crash, and this time there will be little we can do to dig ourselves out of it.

There's been quite the backlash against it however, which allows us a preliminary look at debate over the state of the economy - and our economic policies in general - prior to digging into it later this semester.

Some of the commentary:

- 'David Stockman Goes Way, Way Over the Top'

- The nihilism of David Stockman.
- David Stockman's Delusions:
- It Wasn't David Stockman Who Wrecked the Economy

Did a reduction in Defense Spending lead to a contraction in the economy?

This might end up being a lesson in the danger of quickly cutting spending. It sounds nice, but it has consequences. By the way - most, ok all, of this was stolen from Wonkblog.

The GDP shrank 0.1 % in the last quarter of 2012 even though the private sector grew.

Here's the breakdown in chart form:



And some commentary:

- Yikes! Economy shrank in fourth quarter for the first time since ’09.
- Economy shrinks as federal spending cuts trump private sector’s growth.
- Government is hurting the economy — by spending too little
- GDP Report Is Less Negative Than It Looks

And one more chart that compares the private and public components of ther economy.

From the Atlantic: The U.S. Recovery Has Been Spectacular*

This builds on the point made in a post below. The caveat here is that the US recovery only looks good compared to the recovery of other nations.

American policymakers have simply done less harm than their counterparts abroad. Not that our policy has been perfect. Austerity at the state and local level and not aggressive enough monetary policy have put too low a speed limit on our recovery. But at least we've avoided British-style austerity and Japanese-style tight money -- or both, like Europe.

If you want to feel even better about our subpar recovery, just look at how it compares to other recoveries from financial recoveries. As Ken Rogoff and Carmen Reinhart have famously demonstrated with eight centuries of data, these recoveries are almost always frustratingly slow. The chart below, from my colleague Derek Thompson, shows just how much better we're doing this time around compared to the other big crises of the past century.

The Recovery in the US beats that in Europe.

The Dish and Paul Krugman point out that the economy in the US has outpaced Europe's since the recession. They use this to argue against austerity. They offer some graphs to back up their points. Unemployment and GDP are better in the US than elsewhere:

The last jobs report before the election

171,000 new jobs. The unemployment rate ticks up to 7.9%.



- Andrew Sullivan compiles reactions.
- Story in the NYT.

Opinions on the environment inverserly related to those on the economy

Why do people change their opinions about what sorts of problems are important years after year?

Currently, very few people tell pollsters that the environment is a top concerns for them, but this has not always been the case. In 2000, a high percentage of people claimed to be worried about the environment, but not now. What's changed is the economy. When the economy does well, people tend to worry about other things - like the environment. When it isn't, the more immediate pressing concerns drive out those that won't materialize until sometime in the future.

Federal Reserve Study Reveals that U.S. Wealth Fell 38.8% in 2007-2010 on Housing

The information comes from a report issued by the Federal Reserve. Bloomberg outlines it here. This complicates recovery since less wealth means less purchasing power and less demand for goods and services.

Is the private sector doing fine?

The president seemed to step into a mine field when he suggested it was, and he backed away from his comments, but the episode raises a question addressed here and here. What is the evidence that the private sector is doing weel - or not - as opposed to the private sector?

Halftime?

Another depressing read. Some economists have argued that the 2007-2009 recession was a financial in nature, and these tend to be especially nasty. The last was the Great Depression and that took over a decade and the massive federal spending necessary to fight WW2. Japan is still digging out of its financial crash 20 years ago. We might only be in the middle of ours.

But according to the author, there are other factors at play which will delay recovery. These include an aging population, debt, and the economy's ongoing transition to a digital environment.

This should help guide us we approach discussions of public policy. What types of polices can alleviate this? Assuming any can, and we just have to wait it out.

Michael Lind on the federal government's ongoing involvement in the economy

A great extended interview in Salon. The author blows away some assumptions about what factors led to the development of the American economy.

The Two Economies and the Two Parties

David Brooks points to an article written by Tyler Cowen which predicts that the export sectors will drive the American economy forward, but do so by creating two fundamentally different economies.

Brooks argues that these two economies have partisan characteristics - which might be worth pondering as we consider the differences between the two parties:

His work leaves the impression that there are two interrelated American economies. On the one hand, there is the globalized tradable sector — companies that have to compete with everybody everywhere. These companies, with the sword of foreign competition hanging over them, have become relentlessly dynamic and very (sometimes brutally) efficient.

On the other hand, there is a large sector of the economy that does not face this global competition — health care, education and government. Leaders in this economy try to improve productivity and use new technologies, but they are not compelled by do-or-die pressure, and their pace of change is slower.

A rift is opening up. The first, globalized sector is producing a lot of the productivity gains, but it is not producing a lot of the jobs. The second more protected sector is producing more jobs, but not as many productivity gains. The hypercompetitive globalized economy generates enormous profits, while the second, less tradable economy is where more Americans actually live.

In politics, we are beginning to see conflicts between those who live in Economy I and those who live in Economy II. Republicans often live in and love the efficient globalized sector and believe it should be a model for the entire society. They want to use private health care markets and choice-oriented education reforms to make society as dynamic, creative and efficient as Economy I.

Democrats are more likely to live in and respect the values of the second sector. They emphasize the destructive side of Economy I streamlining — the huge profits at the top and the stagnant wages at the middle. They want to tamp down some of the streamlining in the global economy sector and protect health care, education and government from its remorseless logic.

Republicans believe the globalized sector is racing far out in front of government, adapting in ways inevitable and proper. If given enough freedom, Economy I entrepreneurs will create the future jobs we need. Government should prepare people to enter that sector but get out of its way as much as possible.

Democrats are more optimistic that government can enhance the productivity of the global sectors of the economy while redirecting their benefits. They want to use Economy I to subsidize Economy II.

I don’t know which coalition will gain the upper hand. But I do think today’s arguments are rooted in growing structural rifts. There’s an urgent need to understand the interplay between the two different sectors. I’d also add that it’s not always easy to be in one of those pockets — including the media and higher education — that are making the bumpy transition from Economy II to Economy I.

From the NYT: How Is the Payroll Tax Cut Doing?

An NYT columnist argues that the payroll tax cut - which was extended earlier this semester - is having a positive impact on the economy, but this impact is likely to be reversed once the tax cut expires:

My calculations last year, based on the proposed cut of 3.1 percentage points, suggested that the payroll tax cut “could raise employment by at least a million, albeit the duration of job creation is related to how long the tax cut lasts.”