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Are Things Finally Looking Up?

According to a recent NY Times article the United States ended the 2012 year with factory output up and low inflation. This year’s tax increases, aimed to reduce the deficit, may put a damper on consumer spending. However, the NY Times has interpreted the low rate of inflation, which lifted consumer purchasing power, as a signal “that the economy may weather this year’s higher taxes.” Millan Mulraine, an economist at TD Securities, believes that the increase in factory and manufacturing output we have observed at the end of 2012 could be “a reflection of a broader pickup in overall economic activity.”

In fact, Mulraine is not the only one to have noticed this pickup in economic activity. The Fed’s most recent Beige Book reported, “Economic activity has expanded since the previous Beige Book report, with all 12 districts characterizing the pace of growth as either modest or moderate.” While the US economy has in fact improved over the last month, primarily due to home and auto sales, labor market conditions remained unchanged and unemployment showed few signs of improvement. Bloomberg’s “Fed Sees Economy Picking Up Across U.S. in Beige Book Survey” hopes the report, prepared for the Jan. 29 FOMC meeting, will inspire policy makers to continue with the Fed’s proposed $85 billion in monthly bond purchases until a substantial improvement in the labor market occurs.  In a telephone interview with Bloomberg News, Boston Fed President Eric Rosengren said the Fed could expand its $85 billion monthly bond buying should record easing not make progress in achieving full employment and stable prices.

With the economic pickup reported in the most recent beige book, with the central bank’s most recent meeting where policy makers debated when it would be appropriate to stop purchases, and with the proposed $85 billion in monthly bond purchases to stimulate the labor market, it may be time to ask ourselves: “Are things finally looking up for our economy?”


  1. We’ll continue to follow indicators of change. Why don’t you look at the Beige Book content for your home district, to get a sense for the sort of picture it provides — the approach may be rather different than you expect.

    You (or a classmate) might look at today’s (Thur 17 Jan) housing data release. The series “New Privately Owned Housing Units Started” (see FRED) shows a gradual increase, all good. However, the level has only just breached the trough of the 1990 recession — and our population has grown roughly 20% since then. (New house price data are released on the 23rd.)

    In class we looked at the “misery index” (U-6) and in particular the improvement in workers with involuntary short hours. Again, the numbers remain high, but the change is in the right direction and exceeds population growth (as weighted by age-related employment/population levels).

  2. zhang zhang

    What would Gordon attribute to this increase in economic growth? Is there a difference between movement along the growth function and economic recovery? (besides the obvious movement along the line and a shift in the line)When will the state of the labor market reflect the increase in consumption?

  3. Will Hatfield Will Hatfield

    Pending a bounce back, I will be curious to see how much and for how long our generation will have to payback the crisis of 2008. The young generation of the 1920’s spent many of their years making up for the Great Depression, I am curious if that will continue with us. The amount of hours worked and years until retirement has been steadily declining over the past generations but I am curious if this trend will stop and maybe even reverse in the coming years.

    • You need to specify the question in more detail — consumption [utility] foregone is forever gone. But unemployment hastens the depreciation of human and social capital, recessions depress the accumulation of physical capital, and the drop in revenue (and, less important, the rise in expenditures) adds to debt.

      Your more specific query is on labor force participation. See an October 2012 post on this blog on employment/population for different age brackets.

      • perkins perkins

        Another thing to consider in terms of the depreciation of human and social capital is the effects unemployment has on the mental health of individuals. In my Economics of Social Issues class, we learned and discussed the many different effects that unemployment can have on mental health and how these effects can lead to a cycle of human capital depreciation.

        Aside from the slew of mental health problems (anxiety, depression, etc) stemming from the stress of being unemployed, finding a job, and trying to provide for a family, physical health also decreases (high blood pressure, obesity, exhaustion, etc.). Not only do these many problems lower the productivity of workers when and if they do finally find a job, but the “contagion” effect stemming from the societal view that there are no jobs to be had leads to many people dropping out of the work force and relying on government payments from their mental/physical health conditions to get them through to next month.

        It is important that rather than providing a check at the end of each month, that the government effectively allocates money towards the treatment of these debilitating effects of unemployment as well as raises awareness for these problems in society as a whole.

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