DIY on the Rise

It’s no surprise that Americans have been cutting back in the face of job losses, pay reductions, and shrunken retirement accounts. One result has been a sharp increase in the saving rate, which has averaged more than 4.5% this year after flirting with 0% in recent years.

A second result is a rebound in doing-it-yourself.  Home-cooking has replaced some restaurant visits, for example, and more Americans are picking up a hammer rather than calling a handyman.

This morning’s Washington Post provides another example of such rising home production — a boom in vegetable gardening:

Seed producers and merchants across the United States are reporting the same phenomenon of crazy demand and even some shortages, especially of staples like beans, potatoes and lettuces. Sales of seed packets picked up last year and have grown significantly again this season, which runs from January to June.

Industry observers attribute the boost in sales to a concern for food safety following outbreaks of E. coli and salmonella poisonings and a desire by consumers to be a part of the local food movement. Michelle Obama’s new vegetable garden at the White House may also be inspiring people, they said.

But the primary reasons, they speculate, are the recession, income loss and the need for people to lower their grocery bills by growing their own. (my emphasis)

Anecdotes like this have a number of larger implications:

Continue reading “DIY on the Rise”

Better GDP Data

Every five years, the fine people at the Bureau of Economic Analysis update the way that they measure the U.S. economy.  Yesterday, the BEA released a helpful document that outlines some of the upcoming improvements.  Among the things that caught my eye:

  • BEA will employ plain English, rather than bureaucratese, to describe the three vintages of GDP estimates, which are reported one, two, and three months after the end of each quarter. Those vintages are currently known as the Advance estimate, the Preliminary Estimate, and Final estimate. The latter two names always struck me as nonsensical: “Preliminary” sounds like it should come before “Advance,” and “Final” estimates aren’t really final. Hence the new names: the Advance Estimate, the Second Estimate, and the Third Estimate.  A definite improvement.

Continue reading “Better GDP Data”

Tracking the TARP

The TARP continues to grab headlines, so I thought it would be useful to summarize how the TARP money has been used to date.

As you may recall, the Troubled Asset Relief Program (TARP) created a pool of $700 billion that the Treasury Secretary could use to stabilize the financial sector.  The following chart summarizes the TARP transactions that have already occurred (dark blue) and any additional funds that Treasury has announced for each program (grayish):

Tracking the TARP

As the chart illustrates, Treasury has announced plans for about $645 billion of the TARP money, of which $435 billion has been committed to specific transactions.  But the most interesting facts involve the specific programs:

Continue reading “Tracking the TARP”

Venture Capital Declining

An article in this morning’s Wall Street Journal documents a decline in venture capitalists.  Both the number of VC firms and their capital under management have declined sharply:

A large number of individual VCs are also departing their firms.  And, the Journal notes:

The actual number of exits might be even higher than the trade group’s figures indicate. Venture-capital funds are typically 10-year investment vehicles. That means even if a venture capitalist no longer actively invests, he or she can remain on a firm’s masthead because they have to wind up their investments in older funds.

The article is worth reading in full for its discussion of the factors — weak economy, reduced investment capital, natural turnover, etc. — that are contributing to the decline in venture activity and the departure of individual VCs.

I don’t know how much this generalizes (readers please chime in) but one VC friend of mine reports two other factors that may be driving him and some other successful VCs from the business:

Continue reading “Venture Capital Declining”

Cloudy Jobs Data

Markets greeted this morning’s jobs reports with enthusiasm, as the headline measure of job losses in May — 345,000 — came in significantly lower than expected.  Under normal circumstances, losing more than 300,000 jobs would be bad news.  Of course, these aren’t normal circumstances.

The unemployment rate in May was much less welcome, rising to 9.4% from 8.9% in April.  Part of the increase was due to the labor force expanding — a positive sign — but most was due to an increased number of people being unemployed.

These figures all refer to the headline measure of unemployment (U-3, in the lingo), which focuses on workers who have lost a job and are looking for a new one.  The government also publishes several broader measures of unemployment that account for other ways in which workers may be less employed than they desire.  The broadest of these, known as U-6, adds two groups to the regular measure: those who are marginally attached to the labor force (people who are willing to work and have worked in the past, but aren’t actively looking; this includes discouraged workers) and those who are working part-time even though they want to work full-time.

As shown in the following chart, the U-6 paints a grimmer picture of the U.S. labor market:

Unemployment

Continue reading “Cloudy Jobs Data”

Growing Government Transfers

I’ve received several emails today about a story posted last night by USA Today.  The story points out that government transfers now make up more than one-sixth of American incomes, the highest ever.  Naturally, some observers welcome this development, while others denounce it.

I thought it would be useful to side-step that debate and instead provide some historical context.  To begin, the following chart shows the ratio of government transfers to personal income from January 1959 through April 2009 (the most recent data):

Government Transfers 0 Continue reading “Growing Government Transfers”

The Long U

Like many economists, I do not expect the U.S. economy to rebound briskly from its current troubles. The economy may well return to positive growth in the third or fourth quarter, as many forecasters anticipate, but that doesn’t mean that the suffering is over. In short, I don’t expect the recovery to be a V, with recent declines offset by a rapid recovery. Nor, for that matter, do I expect a Japan-like L, in which the economy flattens at its new low level. Instead, I expect a Long U, in which the economy heals slowly before eventually returning to solid growth.

My recent post comparing the magnitude of economic downturns certainly generated lots of feedback.  Some comments were constructive and inspired edits to the original post, some comments were constructive but didn’t lead me to change anything, and some were, er, less than constructive.

Taken together, the comments did inspire me to think through the issues again, and I realized that there is one significant limitation to my analysis that is worth emphasizing: the Long U problem.

Like many economists, I do not expect the U.S. economy to rebound briskly from its current troubles.  The economy may well return to positive growth in the third or fourth quarter, as many forecasters anticipate, but that doesn’t mean that the suffering is over.

In short, I don’t expect the recovery to be a V, with recent declines offset by a rapid recovery.  Nor, for that matter, do I expect a Japan-like L, in which the economy flattens at its new low level.  Instead, I expect a Long U, in which the economy heals slowly before eventually returning to solid growth.

Continue reading “The Long U”

What a Strange Round Trip It Has Been

In the months after Lehman’s fall, yields on regular Treasuries plummeted in a massive flight to liquidity, while yields on less-liquid inflation-indexed bonds rose sharply. Those moves have reversed in recent months bringing both 10-year Treasury yields back to where they started.

Treasury yields have been surging.  The yield on 10-year Treasuries, for example, closed at 3.71 percent on Wednesday, up more than 60 basis points over the past two weeks.  That’s a big move.

Economic commentators are grappling to understand the causes and implications of this increase.  Is it the return of bond vigilantes worrying about the grim U.S. fiscal situation?  Concern that aggressive policy actions will ignite inflationary pressures?  Or, perhaps, just a sign of healing in the financial markets?

I don’t have an answer for you today.  But I did find one tidbit that suggests that there’s something to the healing hypothesis.  Treasury yields – on both regular 10-year bonds and their inflation-indexed equivalents – are almost exactly where they were before the fall of Lehman:

                                    9/12/2008                           5/27/2009

     Regular                      3.74%                                      3.71%                                   

     Inflation-Indexed       1.79%                                      1.83%

In the months after Lehman’s fall, yields on regular Treasuries plummeted in a massive flight to liquidity, while yields on less-liquid inflation-indexed bonds rose sharply.

Those moves have reversed in recent months bringing both 10-year Treasury yields back to where they started.

Source: Federal Reserve Board, Release H.15