(Warning: Might be considered "wonky" by some) In many economic analyses, one wants to isolate the "business cycle" component of macroeconomic series. Here is one such series, which has had a detrending technique applied to it. Try to guess what it is.

Figure 1

The above series is the Hodrick-Prescott filtered net exports to GDP series for the United States. (I've discussed the HP filter in the context of output gaps before [1].) If one believes that the HP filter properly identifies the cyclical versus trend components, then the plot shows the cyclical component of net exports; hence in this context cyclical net exports were in rough balance in 2007.

Of course, this series is much different than the one we are accustomed to. I plot the filtered and actual series in Figure 2.

Figure 2: Net exports to GDP ratio ...

The U.S. recovery is underway. But so far it doesn't look as strong as we had been hoping.

Data source: Wardsauto.com <

U.S. light vehicle sales last month were up slightly from September and about the same as October 2008. Given how dismal those comparison months were, that's not saying much. Last month's sales were 3.5% below the average level of April through June, which, because sales usually decline a bit more than that in the fall, counts as a modest seasonally-adjusted improvement. We seem to be past the bottom for autos, but climbing back painfully slowly at this point.

Source: Calculated Risk

The same might be said of new home sales, which despite a slight setback in the most recently reported month (September), have definitely been gaining from the lows reached in March. But there's

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Well, it is not as if I relish rubbing salt into old wounds, but this quote from the a href="http://www.ft.com/cms/s/0/8bb0da5a-c7dc-11de-8ba8-00144feab49a.html"latest piece by Ben Hall in Paris and Ralph Atkins in today's Financial Times/a is just too good to resist.br /br /blockquoteFrench manufacturing output rose at its fastest rate for nine years, according to a survey on Monday, confirming that France has become the economic powerhouse of continental Europe. Purchasing managers’ indices for manufacturing showed France performing significantly better than the continent’s other main economies – thanks to robust domestic demand./blockquotebr /br /a href="http://1.bp.blogspot.com/_ngczZkrw340/SvASaIFOk2I/AAAAAAAAPjI/Xa0wjOVFc3A/s1600-h/france+manufacturing.png"img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 400px; DISPLAY: block; HEIGHT: 213px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5399836193272533858" border="0" alt="" src="http://1.bp.blogspot.com/_ngczZkrw340/SvASaIFOk2I/AAAAAAAAPjI/Xa0wjOVFc3A/s400/france+manufacturing.png" //abr /br /Plenty of food for thought in this paragraph it seems to me. As a href="http://spaineconomy.blogspot.com/2009/10/french-rebound-continues-in-october.html"foreshadowed in this earlier post/a, it is the French economy - and not the German one - which is rebounding sharply, and this ...

Most economists are projecting a slow recovery in terms of employment. What do historical correlations imply?

In order to investigate this question, I examine the relationship between GDP and nonfarm payroll employment over the 1986-2009 period, which encompasses the "Great Moderation". Figure 1 illustrates the log GDP and log nonfarm payroll employment series.

Figure 1: Log nonfarm payroll employment (blue, left scale) and log real GDP (red, right scale). NBER defined recession dates shaded gray, assumes last recession ends at 2009Q2. Source: BEA 2009Q3 advance release, and BLS via FREDII.

I estimate the following error correction specification, which includes 4 lags of first differences, using OLS:

Δ nfpt = 0.54 - 0.069 nfpt-1 + 0.026 y t-1 + 0.60 Δ nfpt-1 + 0.173 Δ y t-1 + ... + 0.00046 time - 0.0000017 time 2

Adj. R2 = 0.85 SER = 0.0018, n = 95, DW = 2.02. Breusch-Godfrey LM

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Both have to be "handled with care".

Revisions

We're all tempted to make predictions on the basis of the last data point. And even more difficult to resist is the temptation to make definitive statements on the basis of data that are sure to be revised. For instance, we see this question from Casey Mulligan, "Where's the GDP Disaster?".

Last October, when we were told that spending and incomes were about to collapse, I predicted that "real GDP will not drop below $11 trillion (chained 2000 $)."

Professor Mulligan provides this graph.

Figure from Mulligan, "Where's the GDP Disaster?"

I think this is an excellent time to recapitulate the hazards of making definitive assessments on the basis of data that are sure to be revised [0] [1]. To illustrate this point, I go back to the last recession, which according to the NBER extended from

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A spectre is haunting Europe, but this time it is not the spectre of revolt by the popular masses, or even one of yet another wave of bank bailouts. No, the spectre which is currently stalking the corridors of Europe's most prestigous institutions is one of a Spanish economy which stays on a flatline while Europe's other economies, one by one, start to struggle back to life. And the main reason that this particular ghostly image is giving everyone so many sleepless nights is because Europe's current institutional structures, and especially the monetary policy tools available at the ECB are scarcely prepared for such a nighmare eventuality.br /br /br /strongFrance Is Recovering, And The Rebound Is Robust/strongbr /br /First it was just a rumour, then it was a possibility, and now it has become a reality - some of Europe’s economies are springing back into life. But only some. It ...

The Commerce Department reported today that the seasonally adjusted real value of the nation's production of goods and services grew at a 3.5% annual rate during the third quarter, a little better than the 3.2% average seen since 1947.

Rate of growth of real GDP (annual rates), 1947:Q2 to 2009:Q3. Shaded regions represent dates of recessions as declared by NBER.

Consumption spending is the biggest component of GDP and the main contributor to third quarter growth, accounting by itself for 2.4 percentage points out of the 3.5% total, and with consumer purchases of motor vehicles and parts alone 3/5 of the contribution of consumption. Next in importance was inventory rebuilding, which added 0.9 percentage points to the total and could make a significant further contribution in the quarters ahead. Housing is finally making a positive rather than a negative

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The 3.5% growth rate was, in my view, in large part attributable to direct measures to stimulate the economy, including direct spending on goods and services by the government (Federal, state and local), as well as tax measures. First, let's take a look at how each category of final demand accounted for total growth, in the context of a mechanical decomposition, in Figure 1.

Figure 1: GDP growth and contributions to growth of GDP, in ppts; GDP (black), consumpion (red), fixed investment (green), inventory investment (orange), government consumption (purple), and net exports (light brown). Non-shaded area denotes 2009Q3 advance release. Source: BEA, 2009Q3 advance release, October 29, 2009.

Figure 1 breaks down the contributions of overall growth into the broad national income accounting components (overall investment decomposed into fixed and inventory investment). Interestingly, the contribution of government is fairly modest in Q3 (Note change of vertical axis

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As commodity prices start rising again -- at least some -- the question of whether futures are useful indicators seems relevant. Figure 1 shows the IMF commodity price indices, as reported in the October World Economic Outlook:

Figure 1: Commodity price indices for energy (blue), food (red), agricultural raw materials (green), metals (black) and beverages (teal). NBER defined recession shaded gray, assuming recession ends in 2009M06. Source: IMF, World Economic Outlook (October 2009), data for Chart 1.16.

In a previous set of papers, Oli Coibion, Michael LeBlanc and I examined the predictive power of energy futures post and paper.

In a new paper, Oli Coibion and I update our results regarding energy futures, and metal and agricultural commodities as well, through the end of August 2008, just before the financial crisis broke out in full force. From the paper:

This paper examines

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There were some other very interesting presentations at the conference hosted by the Federal Reserve Bank of Boston last week. Fed Chair Ben Bernanke spoke on Financial Regulation and Supervision after the Crisis while Princeton Professor Alan Blinder's message was

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