Wednesday, January 30, 2008

The surprising success of naïve GDP forecasts

From John Faust. I am not surprised at this though.

How to Recession-Proof Your Career

Planning Ahead Can Boost Your Chances of Keeping, Finding a Job
By SARAH E. NEEDLEMAN January 29, 2008; WSJ. Page B6

Recession fears are causing more than just stock-market jitters this winter. They're also shaking some workers' confidence in their ability to continue earning a paycheck.
In December, overall worker confidence reached the lowest level recorded in 2007, according to a monthly report from Spherion Corp., a recruiting and staffing company. Roughly 2,800 workers were surveyed on their confidence in their personal employment situation and the broader employment environment.
Past economic downturns have led to layoffs throughout corporate America and, at least temporarily, a tighter labor market. But some industries tend to be more vulnerable than others when the economy is in a slump.
Even if there isn't an official recession, a number of areas are already seeing layoffs and hiring freezes. Industries affected by the recent mortgage crisis and home-building downturn, such as real estate, construction, banking and law, are among the hardest hit so far, say recruiters.
Some employers in struggling industries manage to do better than their peers during downturns, says Dale Winston, chairwoman and chief executive of Battalia Winston International, an executive-search firm in New York. She cites Goldman Sachs as a current example. "There are certain companies that are counter to their cycles and making a fortune because they're shorting the market," she says. "Even in the midst of the [1920s] there were people making money." But those were the exceptions.
While jobs in housing-related industries may be at most risk, a recession could reverberate to other parts of the labor market. Consumer-products manufacturers and retailers are usually the hardest hit in a downturn, along with travel and hospitality businesses, says Ms. Winston. Shoppers tend to cut back on their discretionary spending when finances are tight, she explains, and homeowners are currently grappling with high energy prices and mortgage payments. "People only have so many dollars to spread around," she says.
In contrast, hiring generally remains robust during a recession in industries that serve consumers' critical needs such as health care and energy, notes Ms. Winston. "We have an aging population in the U.S.," she says. Plus, she adds, "nobody's going to stop driving their cars or lighting their homes."
Employers in what recruiter Chris Morgan calls "sin and comfort" industries, such as alcohol makers and distributors, gambling institutions and cigarette manufacturers, also tend to fare well during economic slumps. In addition, wealth-management firms stay in favor as people often become more protective of their finances, says Mr. Morgan, managing partner and founder of Lantern Partners, an executive-search firm in Chicago.
The hiring outlook varies for industries that aren't characteristically durable or weak in a recession. Eighty-two percent of 1,400 chief information officers and 86% of 1,400 chief financial officers polled last month in separate surveys by Robert Half International said they foresaw no change in their staffing activity for the first quarter of 2008.
For people working in the industries that are most likely to be hit with economic woes, some strategic planning can boost the odds that they will stay employed or find new work, say career experts.
Here are some strategies for recession-proofing your career.
Stick around. If you work for a company in distress, your first instinct may be to jump ship. But if your new employer later decides to lay off workers, you'll likely be most at risk of getting a pink slip, warns Ms. Winston. In many cases, "it's last in, first out," she notes.
Be a good sport. Following layoffs, you may be asked to take on additional work that was part of a former employee's responsibilities. This may involve handling tasks that you dislike or are overqualified for. But expressing dismay could put your employment at risk should there be more layoffs, cautions Gary Rich, president of Rich Leadership, an executive-advisory firm in Pound Ridge, N.Y. Displaying a positive attitude is more likely to pay off in the long run. "Companies remember those who helped them out through a tough time," he says.
Haven't been asked to take on extra projects? Volunteer to help, advises Mr. Rich. You'll demonstrate that you're a team player committed to the company's success.
Work harder. Act the way you did when you were gunning for a promotion, says Lantern's Mr. Morgan. "Companies are less likely to get rid of star performers."
Work smarter. Look for ways to help your employer overcome the specific challenges it faces most in a recession, advises Mr. Morgan. "Think about your company's situation in the same fashion that your boss is thinking about it," he says. "You can be more useful by identifying ways to reduce costs, increase revenue or reposition a product or service."
Dust off your résumé. Prepare for the worst ahead of time by making sure your résumé is up to date, urges Shawn Graham, author of "Courting Your Career: Match Yourself With the Perfect Job" (Jist Publishing, 2007). If you rush to get it done following a sudden dismissal, the odds of making a typographical error or omitting important details will increase.
Network now. Don't wait until you need help finding a job, says Debra Feldman, a job-search consultant in Greenwich, Conn. Make a special effort to reconnect in a meaningful way with past bosses, former colleagues, academic advisers and other potential advocates. Reaching out to them only in times of distress can be a turnoff, she says. Also, make sure to offer yourself as a resource to your contacts as well. The gesture will provide an incentive for them to reciprocate.
Take a pay cut. If layoffs are rampant at your company, consider offering to accept a temporary salary reduction, suggests Mr. Morgan, who speaks from experience. During the dot-com bust in 2001, he voluntarily agreed to an 18% decrease in his base pay at a search firm specializing in technology recruiting. "I was the last one left," he recalls. The ploy helped him prolong his time at the beleaguered company while he began hunting for a new position, which he landed about six months later, he says.
Search internally. If you see a layoff coming in your division or department, it may be easier to search for another position at your firm because you've already proved yourself, says Mr. Graham. For example, if you work in media relations, you may qualify for a sales role because of your experience selling story ideas to news outlets, he says. Be sure to network with colleagues who work in those areas to learn about job openings before they're advertised publicly and to see if you can secure a referral, he adds.

Parsing the Fed Januuary 08

Original statement.
From WSJ.

Sunday, January 27, 2008

Siller On Confidence of Financial Market

A nice article from Robert Siller in NYT.

THE key to maintaining economic stability is well-placed confidence in the
markets. Bubbles, by contrast, result from misplaced confidence.
We are living in a post-bubble world, following the stock market bubble of the 1990s and the real estate bubble of the 2000s. That is the backdrop for the current crisis. We need to restore confidence in the markets’ basic ability to function, not in their presumed tendency to make us all rich by always going up.
Some short-term remedies are under way. President Bush has said that fiscal policy is urgently needed to address the current situation and has reached tentative agreement with Congress on a temporary tax cut of $150 billion. This might increase the official federal deficit from about 1 percent of gross domestic product to something like 2 percent, about where it was a couple of years ago. And on Tuesday, the Federal Reserve under its chairman, Ben S. Bernanke, made an emergency between-meetings cut of three-quarters of a percentage point in the federal funds rate. The move brought that benchmark rate down to its level midway into the 2001 recession, and the Fed has signaled that it stands ready to make further cuts.
While a temporary tax cut and interest rate cuts are good ideas, they don’t address the underlying crisis of confidence. If these measures succeed merely in making people consume more, running to the malls and making the already-negative personal saving rate even more negative, they won’t restore faith in the financial markets.
One main response to the Depression that helped prevent another from occurring was a set of tools that improved confidence by truly improving market security. One of these was the Federal Deposit Insurance Corporation, in 1933, but there were also a large number of others, especially the Securities and Exchange Commission the next year.
These were not obvious innovations and, in fact, were highly controversial at the time. Indeed, it is never obvious how the government should foster well-functioning markets. The fundamental role of governments in promoting markets is clear, but the design of their instruments must make creative use of a great deal of information about financial theory, human psychology and existing institutions and practices. The successful markets we have are a result of considerable inventive effort.
The F.D.I.C. was controversial because it was established amid the ruins of various state-level deposit insurance plans that had just gone bankrupt. Critics at the time also argued that federal deposit insurance would encourage unsound banking. But it turns out that the F.D.I.C. was a very good idea. It restored confidence in the banking system during the Depression, and with hardly any cost.
The S.E.C. was similarly controversial. Critics said it would hamstring or straitjacket the markets. But it is now the model for securities regulation around the world.
We need such inventive effort today. It won’t be easy, but the first step would be to set up a national study commission and to pay for serious creative research on how to adapt important ideas, like deposit insurance and securities regulation, to a modern financial world.
Mr. Bernanke certainly knows the importance of well-functioning markets. In his 2000 book, “Essays on the Great Depression,” he wrote persuasively that runs on the banks and extensive defaults on loans reduced the efficiency of the financial sector, prevented it from doing its normal job in allocating resources, and contributed to the Depression’s severity.
The Depression-era problems he studied are mirrored by similar issues today, and they need urgent attention. The very fact that many people feel they can no longer rely on some of our financial institutions may bring a self-fulfilling prophecy, which could then fundamentally harm economic activity.
The mortgage market is suffering. People are having a hard time getting mortgages, and mortgage originators are finding it harder to sell their mortgages to those who would repackage them in mortgage securities.
The commercial paper market is suffering, too. The amount of outstanding asset-backed commercial paper, which has become a main element of an unregulated, uninsured, shadow banking system, has fallen 30 percent since August.
Other credit markets are also having problems. For example, some municipal borrowers have already had the credit ratings of their debt lowered because of the downgrading of Ambac, a municipal bond insurer, by Fitch Ratings. Problems in the bond market are likely to multiply if there are further downgradings of Ambac, or downgradings of other insurers like MBIA.
CONFIDENCE in our brokerage firms is suffering. With every announcement of major losses, some people start to wonder whether they can rely on these companies.
The Bank of England’s bailout of the mortgage lender Northern Rock in September was truly urgent. The bank was experiencing a run, the first in Britain since 1866. The newspaper photographs of long lines of people waiting on the street to withdraw their money probably rekindled dormant fears. People tend to remember such dramatic stories because they remember when their own confidence has been shaken.
The Northern Rock bailout was needed because ordinary depositors had begun to worry about their saving accounts. It was necessary to show them that they didn’t have to be worried. Improvements in the deposit insurance system in Britain began immediately after this crisis.
In the United States, the very least we can do is to raise the F.D.I.C.’s limits on insured deposits. The limit of $5,000 in 1934 was 12 years’ worth of per capita personal income at the time. The limit was last raised in 1980, to $100,000, which was then 10 years’ income. But because of inflation and economic growth, that limit is less than three years’ income today.
The Federal Deposit Insurance Reform Act of 2005 did not raise that ceiling, though it will start indexing the limit to inflation in 2010. We have allowed deposit insurance to go three-quarters of the way to extinction.
The insurance limits of the Securities Investor Protection Corporation, which protects customers when brokerage firms fail, were also last raised in 1980 — to $100,000 in cash accounts and $500,000 in securities — and thus have suffered an equally drastic erosion in real value. Such erosion could suddenly matter if the crisis, or even just the psychology of the crisis, were to worsen.
But far beyond this, at a time when so many problems have arisen outside the limits of existing federal insurance programs, we need to do more than update the programs for inflation. We need to consider the fundamental principles on which they were based, stress-test them for today’s environment and consider extending them in creative ways.

Taxman Could Slow Stimulus Plan

A typical time lag problem from fiscal policy.
From WSJ.

We Are NOT In a Recession, Not Even Close

From Mark Perry.

Panel of Sovereign Wealth Funds

From Slate.

Wednesday, January 23, 2008

CBO Budget and Economic Outlook

Here is the big report and here is the summary.

Tuesday, January 22, 2008

Every Major U.S. Bank Was Profitable Last Year

An analysis from John Berry.

Fed's Big Move

The Fed cut the Fedeeral funds target rate by 0.75% to 3.5% this morning. Here is the statement.

Saturday, January 19, 2008

US States GDP

This is a cool and interesting map.

HT: Mike Wenz

Publishing FOMC Economic Forecasts

Here from FRBSF Economic Letter.

Rep. Marcy Kaptur vs Bernake

This is a very funny moment in Congress.
Critics of Federal Reserve Chairman Ben S. Bernanke argue that he is ill-served by not having experience on Wall Street. Rep. Marcy Kaptur (D-Ohio) apparently didn't share that concern.
At yesterday's House Budget Committee hearing, Kaptur, after criticizing the role banks played in the housing crisis, asked Bernanke to respond. After all, she said, he used to be chief executive of Goldman Sachs, the giant investment bank.
Kaptur had apparently confused him with Treasury Secretary Henry M. Paulson Jr., who was formerly chairman of Goldman.
"I got the wrong firm?" Kaptur asked, after Bernanke corrected her.
"I was CEO of the Princeton economics department," Bernanke clarified, referring to his time as department chairman at the university.

Fiscal Stimulus

1. Bush Proposing $145 Billion Fiscal Stimulus Plan to Spur Economy.
2. Economists Debate the Quickest Cure.
3. Commentary from Bruce Bartlett.
4. Martin Feldstein predicts the future pretty well. See here in September 07 and here December 07.
5. Alan Blinder has a nice paper on fiscal policy in 2004.

Thursday, January 17, 2008

Tax Competition

This video presents the benefit of the tax cut. There is always a disagreement on this issue.
A typical trade-off example of efficiency and equality.

Wednesday, January 16, 2008

The Education of Bernake

NYT says that Fed Chairman Bernake is in a difficult situation now. I think he will deal with these shocks (recession, inflation, and whatever) well in the long run.

Monday, January 14, 2008

Some Different Thoughts

Tyler Cowen has this interesting NYT article with different thoughts for events in 2007.

2008 January Economic Indicator

An analysis from Econbrowser.

Taiwan Legislative Election

An analysis after Taiwan Legislative Election from WSJ.

The opposition party's overwhelming victory in Taiwan's legislative elections brings the island closer to having a government intent on improving ties with China after years of worsening discord that have hampered its economy.
In Saturday's vote, the Kuomintang, or Nationalist Party, took 81 of 113 legislative seats, a larger-than-expected win that gives the party powerful momentum toward its goal of retaking the presidency in an election in March, after eight years as the opposition.
The results were a staggering blow for President Chen Shui-bian, who has championed the island's independence and defiantly rejected Beijing's claim that it is part of China's rightful territory. Mr. Chen's Democratic Progressive Party -- which had been the largest single party in the legislature -- won just 27 seats Saturday. Mr. Chen, who will leave office in May, resigned as DPP chairman to take responsibility for the setback.
The outcome seems certain to cheer investors, who have long complained that antipathy between Taiwan and China under Mr. Chen has constrained Taiwan's stock market and economy. Taiwan's benchmark stock index ended Friday at 8029.31, about 9% below its level when Mr. Chen first took office in May 2000.
Diana Wu, a trader at Capital Securities Corp., predicted the index could test highs of 8400 or more today. Analysts also predicted the New Taiwan dollar would strengthen.
Attention will focus on whether Ma Ying-jeou, the Harvard-educated former Taipei mayor running as the Kuomintang's candidate for president, can carry the momentum to victory March 22.
Polls show him with a healthy lead over DPP candidate Frank Hsieh, a former premier who is widely seen as more moderate than Mr. Chen on cross-strait policy. Mr. Hsieh said yesterday he would take over as DPP chairman.
While Mr. Ma doesn't favor near-term unification with China, he also rejects Mr. Chen's confrontational approach and has said he hopes to improve ties. As a result, a victory by the Kuomintang candidate could ease tension in the Taiwan Strait and reduce the chances of a military conflict there that could also embroil the U.S., Taiwan's most important backer.
Analysts say Beijing would also be far more willing to deal with Mr. Ma on issues such as ending a ban on direct flights between the two sides. The ban was put in place shortly after the Kuomintang fled to Taiwan in 1949 amid civil war with the Communists. "There would be progress in investments in China for the financial industry and a possible breakthrough regarding direct flights to China if Ma wins," said Ms. Wu.
China's government had no immediate reaction to Saturday's vote. Chinese analysts said the outcome could lead to improved ties. "We're very happy about the big failure of Chen Shui-bian," said Hou Ruoshi, an expert on foreign affairs at China's Zhejiang University. "It raises the possibility of a victory for Ma Ying-jeou."
The Kuomintang has its first outright majority in the legislature in more than a decade, though in recent years it has narrowly controlled the body through alliances with smaller parties. A victory for Mr. Ma in March would create a unified government and break the gridlock that has slowed policy making during Mr. Chen's tenure.
"With a unified government, it'd be easier for the government to push through reforms, including more fiscal-spending, cross-strait reforms," said Frederic Neumann, a Hong Kong-based economist for HSBC. He expects Taiwan's economic growth to slow to about 4% this year -- analysts estimate it grew by more than 5% in 2007 -- but says he will raise that forecast if Mr. Ma wins in March.
Saturday's vote represented a reversal for the DPP. For the first time in four elections since 1995, the party failed to increase its share of legislative seats. Mr. Chen and his party have in recent years made headway embedding a stronger sense of Taiwan's separate identity into its political culture.
That reversed Kuomintang efforts during most of its five-decade rule to inculcate the population with a mainland Chinese identity -- requiring people to speak Mandarin instead of the Fukienese dialect that residents commonly call "Taiwanese." Today, even Kuomintang politicians like Mr. Ma, who was born to parents from mainland China, must frequently speak Taiwanese at campaign rallies. Support for unification with China is tiny.
But many in Taiwan have tired of Mr. Chen's combative approach, and of his repeated efforts to use identity issues at election time. Perhaps more important, a series of corruption scandals involving people close to Mr. Chen has shattered his party's reputation for probity -- at a time when the Kuomintang has made progress cleaning up its image, long tainted by association with corrupt practices.
Mr. Chen accepted "full responsibility" for Saturday's defeat. "The results of this election are the worst setback in the history of the DPP," he told reporters. "I am truly apologetic and embarrassed by the election results."

A Primer on Fiscal Policy

If, When, How: A Primer on Fiscal Stimulus from Hamilton Project of Brookings Institution.
A good introduction and summary of fiscal policy.

Friday, January 11, 2008

Bernake's Speech in January

Title: "Financial Markets, the Economic Outlook, and Monetary Policy" on January 10, 2008.
Update: In Q&A, Bernake talks about recession.

Challenges for the world’s divided economy

By Martin Wolf.
Here is a related paper by Reinhart and Rogoff.


If you have read the best-selling book "Freakonomics," you will not be surprised at the author's new study on prostitution. The original paper is here. You can find more interesting and stunning research on Steven D. Levitt's website.
Update: This article provides good summary in related research.

Thursday, January 10, 2008


Everyone is talking the possibility of a recession. And NBER has an updated memo.
It says that they would watch the report from Macroeconomic Advisers, LLC.

Oil Hits $100

WSJ has a detailed analysis and graphic display on surging oil price.

Wednesday, January 9, 2008

Wal-Mart Effect

Is Wal-Mart a poison or antidote to local communities? See this article from Fedgazette.

Intrade Market

This article analyzes the Obama and Cliton's prices in the intrade on NH primary night.
I think the intrade futures (or spot) market's incorrect prediction is simply reflecting the fact that the product per se (primary) is unpredictable.

Friday, January 4, 2008

Hyperinflation in Zimbabwe

A serious hyperinflation problem long haunts Zimbabwe. And this fact proves a simple lesson from macroeconomics: government printing too much money will bring nothing but a davastation.

2008 New Year Reading

1. Stagflation Cometh by Joseph Stiglitz
2. A Recession Shoudn't Be in Your 2008 Forecast by John Berry
3. A New IMF Role: Global Stablizer by Harold James
4. Financial Globalization and US Current Account Deficit by Higgins and Klitgaard
5. World Top 10 Most Polluted Places from Scientific American