http://consultingbyrpm.com/blog/2013/04/sumner-responds.html#comments
However, yesterday Scott says by all means hold him to this prediction.
Scott is making the point that this prediction on NGDP and GDP is falsifiable. This is interesting in that he's basically admitting that QE Infinity may not be sufficient to make up for the sequester hit. Regarding GDP, some analysts argue that GDP will already have to be revised down for the year.
"U.S. employers hired at the slowest pace in nine months in March, adding just 88,000, while the unemployment rate notched lower to 7.6 percent, largely due to people dropping out of the work force, according to the Labor Department. The unemployment rate is the lowest since December 2008, while the labor force participation rate is at the lowest since 1979. Analysts polled by Reuters had expected a gain of 200,000."
"Earlier this week, private sector employment and jobless claims data indicated weakness in the labor market. Reports on the manufacturing and services sectors also disappointed."
"This jobs number is going to have to revise GDP lower—at the end of the day, if people aren't making money, they're not spending. So this number has huge ramifications," said Alan Valdes, director of floor operations at DME Securities. "More striking is the fact that this may be the new norm."
" there is some evidence that sequestration is hitting the labor market. New unemployment claims are rising. Is that inconsistent with “monetary offset?” Of course not. Monetary offset can’t perform miracles. If the Fed did enough stimulus late last year to offset expected fiscal austerity in 2013, the high frequency data would still show variation from month to month, depending on exactly when the Federal layoffs actually occurred."
" Thus if the Fed was determined to keep RGDP rising at 2% despite austerity, you might see 3% RGDP growth in a quarter with no federal layoffs, and 1% RGDP growth in a quarter with layoffs. The Fed’s policy changes tend to occur about once per year, and hence cannot offset month-by-month real GDP growth rates. Monetary offset by the Fed will have failed (which is certainly possible) if RGDP growth for all of 2013 comes in under the 2% seen in recent years."
Last night, he reiterated that we should absolutely hold him to this prediction:
"Just so that you don’t think I always cop out on past predictions, post this one on your wall:
If NGDP growth during 2013 is less than 4%, or if RGDP growth is less than 2%, then I believe fiscal austerity will have reduced growth somewhat. In other words, I believe the Fed will have failed to offset the expected fiscal austerity with its QE3 policy of late 2013.
"Hold me to it."
Current forecasts may soon have GDP less than 2%. So in any case, Sumner is not blase about this which another indicator that to be so is certainly not in order. So when will the media stop arguing about cancelled White House tours?
Krugman puts up a chart that shows that the deficit as a percentage of GDP is scheduled to drop from 6.6% in 2011 to 3.5% in 2014.
"That deficit has declined from 5.6 percent of potential GDP in 2011 to 2.5 percent in 2013 — that’s 3 percent of GDP, which is a lot of austerity. Not all of that cut has even hit yet — the sequester isn’t in the macro numbers yet — but the rise in the payroll tax is very clearly driving the latest bad numbers, which show big declines in retail."
"This is really stupid; as long as we’re at the zero lower bound, austerity is a huge mistake. Yet for what, the third time since 2009, all discussion in Washington has turned away from job creation to deficits (even though the debt problem has largely faded away) and the need for an early Fed exit from stimulus (even though unemployment remains high and inflation low)."
"Clearly, the answer is to cut Social Security!"
These numbers are prior to the sequester. Who says the Tea Party hasn't been successful? Regarding Social Security that's our next topic. I know people are going to kill the President over that one. That's my next post.
The 3.5% deficit number is the same as it was in 2004. In the first three years of the President's term the deficit numbers were 9.4%, 8.4%, and 8.2% respectively. In the last three years-2014 is projected-it's 6.6%, 5.0%, 3.5%. So we see the legacy of the Tea Party clearly in the numbers.
I said I'll litigate Obama's Grand Bargain in the next post. I know the knock on him will be with these numbers do we need any more deficit cutting? No question the answer is no. However, these numbers and his GB proposal-may put the GOP back on the defensive. The GB will again underscore the narrative that he's willing to compromise and the GOP isn't. Yes, there is the worry that he's now given them cover by being the one to propose a SS cut, and yes Jane Hamsher and Yves Smith have been hammering him on this all week. I did say next post right? Let me end the litigation for now.
Yesterday, Greg Sargent had worried that the Democrats' sequester strategy was not working as they had hoped. There was a poll that showed less people thought that cuts were hurting the economy now than a month ago. One worry real worry that he expressed is that the cuts while having a negative impact on various communities across the country, may nevertheless be too diffuse in its impact to put the kind of political pressure needed to force the GOP back to the negotiating table:
"It’s certainly possible that the sequester will begin doing economic damage that will change public perceptions of what’s happening. We are already seeing widespread reporting in local papers and on local newscasts around the country on all the ways the cuts are hurting local economies and communities. But if this poll is to be believed, public opinion is trending away from the idea that the sequester is doing economic damage. It’s possible that its impact could prove too diffuse and scattered to impact opinion the way Democrats have anticipated."
These numbers have the result that diffuseness will no longer be a worry. We're sort of in the position of when market drops on bad economic data and then rallies on the hope the Fed will come to the rescue or falls on good data as it means it will give the Fed an excuse not to do anything. Bad news is almost good news at times, then. I wouldn't say this is good news-at all. It's real human, social and economic pain and one should never take a page out of the GOP book and cheer-lead bad economic news because you think it helps you in the next election cycle. However, good news would have meant more White House tour talk and psychoanalytic bunk about whether the President exaggerated the pain of the cuts for political reasons. This makes it real again.
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