Section 1 Extra Credit Sources for Fall 2022

For September 27

GDP data is released at the end of each month in the U.S. The next release is Thursday before class. 

GDP is measured quarterly in the U.S. After the quarter ends, they spend a month counting things up, and release their first draft on the last Thursday of the next month. A month later, they release a revision, and a month after that the final version. So the news on Thursday morning will be the final revision for 2022 II.

So we won't get official information on the current quarter until the end of October. But, for now, economists working for various institutions have been releasing their forecasts about how this quarter looks to them. Calculated Risk has 3 of those in this post. They are actually forecasts for the rate of growth of real GDP, not the actual number.

A typical/good rate of growth is 3%/yr. The range is about -2%/yr to about +8%/yr. So these forecasts are not good, but they are positive, indicating that the economy is growing.

Generally speaking, you and I can feel a difference of about 1%/yr in real GDP growth. And, our threshold for feeling good about the economy is usually +2%/yr or better. So, you could think of 2%/yr growth as a step down that's big enough to notice that it's below normal, but it's still OK. That makes 1% two steps down, both noticeable and not so good.

Economic growth is always good, and necessary. The reason for this is that our population is always growing. If economic growth doesn't keep up with population growth we will be getting poorer. For the U.S., population growth is hard to measure (because we intentionally don't address our illegal immigration problem very well), but a good guess is that it's about 1.75% per year.

Do note that we can be in a recession even with some positive growth. The key is low growth sustained over 2 or more quarters. This is our third lousy one in a row (-1.6% in 2022 I, and -0.6% in 2022 II).

For September 22

As expected, it was announced on Wednesday that the FOMC voted to raise their target rate by 0.75%.

If you have note already activated the subscription to the online version of The Wall Street Journal that the School of Business has paid for, now is the time to go to Module 0 and take care of that.

The article initially entitled "Fed Raises Interest Rates by 0.75 Percentage Point for Third Straight Meeting" has a good graph showing the history of this rate. 

Two points are worth noting: 1) when they change rates, they usually go in the same direction several times in a row, and 2) the last 3 steps have all been bigger than is normal. 

One point to avoid focusing on is that the Fed raises interest rates and then recessions happen. This is commonly believed but not correct (to see this note that it would mean that the Fed's actions in 2016 caused the lockdown recession in 2020). Instead, what is happening is that once the Fed recognizes weakness in the economy it starts dropping rates from whatever level they're at.

For September 20

It's early in the semester, and we won't get to policies to address recessions or inflation until after the exam, and monetary policy specifically until Section 3. 

Even so, there's an important monetary policy decision being made today and tomorrow. I'll mention this now (as it happens) and return to it again in about a month.

In the U.S., our central bank (called the Federal Reserve or Fed) sets a target for a particular interest rate. The committee that makes this decision is called the Federal Open Market Committee (FOMC).

The FOMC is in a period where they are expected to raise their interest rate target several times in a row. Figuratively, this is like "tapping on the brakes" to slow spending down. They are fighting inflation, and that tends to be a result of spending growing faster than production. They are expected to raise their interest rate target by 0.75% (sometimes called 75 basis points in finance).

Bonus: by the time you take the exam, we'll know for sure how much the FOMC did raise their target rate, and that's also a possible short answer question.

For September 15

I was not particularly concerned about a specific link this day. Instead, I first went to Google and typed in inflation to show you that there's a lot of information out there.

Then I clicked on the "News" link under that. I did that because I knew that there'd been a new piece of data announced earlier in the morning. This was the Consumer Price Index (CPI) for August. From there I just clicked on the first link, and made the points below.

I then explained that the CPI is a weighted average of prices on a variety of goods. The inflation rate is the rate of change of an index like the CPI.

For August, the inflation rate was expected to go down by 0.1% that month. Instead it went up by 0.1%. That may not seem like a lot, but it compounds to a lot more over the course of a year. Probably more important is the fact that -0.1% was what was expected, so the 0.2% bump up was unexpected.

I then showed a version of this chart:

This shows the inflation rate since just before the pandemic hit. Any moderation that has occurred recently is that small downturn on the far right. I also noted that, while it's tempting to blame the Biden administration for this, the data shows inflation cranking up several months before the election.

FWIW: I made the chart on the website of the Bureau of Labor Statistics (BLS). They are the ones who keep track of the CPI, and they have a very good website. Here's the actual announcement.

For September 13

I wasn't going to post about this  again, but then I found more good charts on a different site. (Excuse the blurriness: Calculated Risk does his own charts, while this site copies them from other sources).

The red line on this chart is the same thing I showed in class on 9/8. The time scale is much shorter though. Note that it uses the scale on the right hand side.

To that is added the green line, which is now at its highest in 5 months. Recall that the red line is new claims for unemployment benefits. The green line is for continuing claims. So the red one is people who were working and are now unemployed, and the green one is people who were and still are unemployed). 

Recessions are not evenly bad across regions. This chart shows states that are getting worse (at the top), and ones that are getting better (at the bottom). Do note that getting worse doesn't always mean that things are bad yet, and that getting better doesn't always mean that they are good yet. And I know no particular reason why places like Massachusetts and Oklahoma are getting worse faster. Also note that this is not scaled for the size of the states' populations, so yes California got worse last week, but it's a big place, so Indiana (just below it) is probably getting worse a lot faster. Lastly, it's not unusual for some states to be doing better and some worse: but there's more doing worse, and the bars are a bit longer.

For September 8

Are we in a recession? Yes. 

Want to know why that is? Listen to a macroeconomist. Don't listen to a politician (very few people running the White House are economists, and to everyone there "recession" is like a swear word).

But, cut them a break too. Their job is also to be an optimistic cheerleader about the economy.

Anyway, here's a little piece of data to look at. Recessions have to start somewhere, and if you think they start out huge you've made your first mistake. This chart shows the new claims for unemployment benefits that come in every week. See that uptick on the far right? Every recession to the left started out with a little uptick just like that.

For September 6

What is this a picture of? It shows that there are one sort of big pattern in economic activity, called geographic correlation.

(I don't really care much about "light vehicle sales" — basically, new cars — but I like the graph for this class today because it has no shading)†. What are the two dips? What do those dips say about our macroeconomic situation over the last year or so? This shows that there's another sort of big pattern in economic activity, called temporal correlation (see the 4th definition here)‡. Note that if the graph is going up, it's very likely to stay going up. If it's going down, it still likely to stay going down, but not quite as often. This graph looks at "heavy truck sales" over a much longer period, and it shades the bad times.

Geographic and temporal correlation are why we study macroeconomics: there are patterns in economic activity that are a lot bigger than us, and they may influence our well-being.

I showed this chart on light vehicles sales in class, but I forgot to link to it before.

For Exam 1

The "first lecture" with the big timeline is barely covered over the first few pages of the chapter. There will be regular questions on Exam 1 drawn from those pages. But I go more into depth in class, and there may be short-answer extra credit questions drawn from that material.

† During the semester, I draw a lot of current events stuff from a blog called Calculated Risk. I don't do this because it's great reading, but because it's all data all the time that I can use in class. And it's free and mostly uncluttered with ads.

‡ This is college. When you see a word you don't know, go to Google and type "define ____" and fill in the blank with the word. Personally, I like Wordnik even better, because it gets into more detail ... which was important for the word temporal which has a lot of homonyms.