the focus of almost the entire economics blogosphere this past week was on an Excel coding error in an influential 2010 economics paper by Carmen Reinhart & Kenneth Rogoff; the paper alleged that once the ratio of debt to GDP for a country reaches 90%, economic growth for said country slows considerably; these findings, now shown to be incorrect, were one of the essential underpinnings of austerity policies pursued in europe and the contractionary cuts to government deficits in the US; now that the recomputed results show no economic benefits to cutting government debt levels, several economists have come to the realization that a simple error in spreadsheet data led to millions being unemployed unnecessarily; we might however ask where the hell was the rest of the profession while such an illogical correlation was allowed to influence policy around the world...one might think that one academic paper couldn't possibly have so great an influence as to condemn the entire civilized world to a deep and prolonged recession because policy makers were handcuffed into not using fiscal policy remedies known to be corrective and stimulative; but testament to the pervasiveness of it's influence was evident just this week; in an exclusive document released to Reuters just last Saturday (4/13) a working group representing financial ministers of the G-20 nations, who together account for more than 80% of the world GDP, propsoed that they would all cut their debt levels to well below 90% of GDP, the exact prescription advocated by Rogoff-Reinhart; however, by the end of the G-20 meeting on Thursday, 3 days after the dismantling of the Rogoff-Reinhart thesis was made public, the G-20 was in disarray, backpedaling from their plan to reduce international sovereign debt; with financial and monetary authorities both expressing "uncertainty about the way economies work and how to influence recoveries with policy”.
the key economic release of the past week was on March Industrial production and Capacity Utilization from the Fed; although seasonally adjusted industrial production for March was 0.4% above February's level, the better than expected increase was entirely driven by the 5.3% increase in output from utilities as a result of a colder than normal March; manufacturing output was down 0.1% for the month while production from mining was off 0.2%; the Fed does not give output dollar values in this report; rather, indexes are calculated on a basis of 2007=100; their index for total industrial production is now at 99.5, up from 98.1 in December, a gain for the 1st quarter at an annual rate of 5.0%; the manufacturing index is at 95.7, up from 95.3 at year end and up 2.5% from a year ago; the mining index (which includes drilling) is at 115.9, down a bit from December's 116.1 but still up 3.8% from last March, while the utilities index is at a record 105.8, up from 95.5 in December and up 10.5% from a year ago....our FRED graph shows shows the production index for all industry in black, the manufacturing production index in blue, the utility production index in green, and the mining production index in red from the beginning of the index year of 2007; the unusual spike in utility usage in March is quite obvious...within the alternate reporting methodology of market groups, the production of consumer goods increased 1.1% in March and increased at an annual rate of 6.2% over the first quarter, it fastest growth rate since the end of 1999; the output of durable consumer goods rose 0.8% mostly on the strength of near record car production; the indexes for appliances, furniture, and carpeting and for miscellaneous durable goods declined; meanwhile, production of nondurable consumer goods was up 1.2%, largely due to gains in consumer energy products, which were up 4.8% for the month; the index for non-energy consumer nondurables was unchanged...the production of business equipment, which was up 1.9% in February, was up just 0.1% in March; a 1.8% gain in the production of transit equipment offset a 1.6% decrease in the output of information processing equipment and a 0.1% decline in industrial and other equipment, while the index for defense equipment fell 0.1% in March as was declining at an annual rate of 5.5% in the first quarter, likely as a result of the sequester...within production of nonindustrial supplies, output of construction supplies was off 1.3%, falling back from larger output gains earlier in the year, while production of business supplies rose 0.6%...except for the 1.3% jump in energy materials, the output of materials generally declined, with consumer inputs off 0.2%, equipment parts off 0.2%, paper production down 1.1%, chemicals production down 0.4% and other inputs down 1.1%...textiles production, up 1.2% in March, was still 3.0% below a year ago...this report also covers capacity utilization, which you can think of as the percentage of plant and equipment in use during the month; capacity utilization for total industry in March was at 78.5%, up from 78.3% in February and 1.9% higher than a year ago; capacity utilization for manufacturing declined 0.2% to 76.4%, but it's still 1.6% above the level from a year ago; meanwhile, gas & electric utilities were running at 82.9% of capacity in March, up 4.2% from February but still only 1.5% above a year ago, while capacity utilization for mining, which includes gas & oil extraction, decreased 0.4 percentage points to 87.5%, but it remained 4.2% higher than a year ago...
earlier this week, the BLS released the CPI (Consumer Price Index) data for March; partially reversing the large jump in February prices caused by higher gasoline costs, the seasonally adjusted March CPI-U decreased by 0.2% as a 4.4% decline in the gasoline index led the energy index to a drop of 2.6%; the price of fuel oil was also down 2.1%, electricity was 0.6% cheaper, while utility gas showed a 1.0% increase...with food at home down 0.1% and dining out up 0.2%, the food index was essentially unchanged, while the core CPI, which includes prices of all items except food and energy, was up 0.1% for the month...of the major core components, the cost of shelter rose 0.2% in March as rents rose 0.2% and owners' equivalent rent rose 0.1%; the cost of medical services rose 0.3% as doctor's fees rose 0.2% and hospital costs rose 0.4%; the cost of transportation service rose 0.2% mostly due to a 0.6% hike in airline fares; clothing prices were down 1.0%, new car prices rose 0.1%, but average used car prices were up 1.2% for March...like industrial production, each component of the CPI is gauged by an index, in the case of the CPI that index was set to 100 for the prices of the 1982 to 1984 period...our adjacent FRED graph has the track of the recent price indices for 6 of the CPI-U components; the volatile gasoline index is in blue, and is at 319.523 as of March; the food at home index is in red, and it was at 233.777 as of March; the shelter index, shown in green, was at 261.330; the private transportation index, shown in violet, was at 216.167; the medical care services index, shown in orange, was at 452.596, and the index for tuition, fees and childcare is shown in black, is at 638.546 (FRED does not graph tuition separately); price indices for other components and subcomponents can be viewed here and here; and the weighting for each of the components can be viewed in the first column here…
on Friday, the BLS released the Regional and State Employment and Unemployment Summary for March; this is a further breakdown of the data gleaned from the weak March unemployment report we covered two weeks ago; from the establishment survey, BLS found that seasonally adjusted payroll employment increased in 23 states, decreased in 26 states and DC, and was unchanged in New Mexico; states gaining the most jobs were Florida with 32,700 and California with 25,500 jobs added; on the other hand, Ohio lost 20,400 payroll jobs and Illinois had 17,800 less so employed; other states that had statistically significant changes in payroll jobs included Georgia, where 13,600 jobs were added, Utah, which gained 6,800, Indiana, which lost 12,400, Iowa, which lost 5,500, Kentucky, which lost 8,400, Kansas, which had 5,900 less payroll jobs in March, and Delaware, where 3,100 jobs were lost; on a year over year basis, every state except for Pennsylvania saw job gains, and gains in 29 states were large enough to be considered statistically significant; the greatest job gains were in Texas with 329,500, California with 285,900, and Florida with 141,300...the BLS tables with the complete breakdown by of payroll jobs by state and industry sector are here...in data from the March household survey, BLS found that 26 states and DC had seasonally adjusted unemployment rate decreases, 7 states had increases, and rates in 17 states were unchanged; North Dakota again had the lowest unemployment rate with 3.3% of their participating labor force unemployed; states with the highest jobless rates were Nevada with 9.7%, Illinois, with 9.5%, California with 9.4% and Mississippi also with 9.4%... among the 9 geographic divisions, the Pacific had the highest jobless rate at 8.8% while the North Central states unemployment rate was at 5.4%...the BLS table with the seasonally adjusted labor force and unemployment rates by state and selected large metro areas is here; the unadjusted raw data is here; the WSJ has an interactive graphic map whereby you can track changes in unemployment by state from 2009 till the present, and also graph unemployment changes for up to 5 states at a time; we are going to include Bill McBride's bar graph showing current unemployment rates by state in red, with the worst unemployment rate for each state included as a appendage to that in blue...if you click on the graph, you'll see that Michigan and Nevada have seen the most improvement, while New York and New Jersey have unemployment rates still pretty close to their worst...
(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)