Econ Paper

Paper 106.doc

Eco 106 Principles of Macroeconomics

TOPIC: Recent US Macroeconomic Performance and Prospects

A short paper that sets out your view of recent US macroeconomic performance and the prospects for the US economy looking forward. The paper should be five pages in length, not counting any graphs or tables you attach.

I) Topic and Generic Outline

In this paper you systematically summarize the material you have been reading in the newspapers and online about the US economy. You will have read different authors, banks and blogs all of which present a particular view of the near-term prospects (or outlook) for the US economy.  Which factors and policies seem like they will be the most important determinants of the future course of the economy?

You should note carefully the two quarter period that will be your “forecast period”.

Course Paper Forecast Sources. These sources all have tables that you can use to build your own forecast table. Many of these sources also have short discussions of the outlook for the US economy, although a few of them are just tables of predictions. Remember to put your own forecast numbers in your table!

Links:

(BMO Capital Markets Forecast Table

https://economics.bmocapitalmarkets.com/economics/forecast

https://economics.bmocapitalmarkets.com/economics/forecast/us/usmodel.pdf

RBC Economic Research (look for Quarterly Economic Update)

http://www.rbc.com/economics/

Northern Trust US Economic & Interest Rate Outlook

https://www.northerntrust.com/insights-research/market-economic-commentary/us-economic-outlook

Wall Street Journal: Economic Forecasting Survey (Updated Monthly)

http://projects.wsj.com/econforecast/#ind=gdp&r=20

Philadelphia FRB Survey of Professional Forecasters. Quarterly.

http://www.phil.frb.org/research-and-data/real-time-center/survey-of-professional-forecasters/

Philadelphia FRB Livingston Survey. Twice a year. June and December

http://www.philadelphiafed.org/research-and-data/real-time-center/livingston-survey/

US Government:

FRB Summary of Economic Projections, part of the FOMC minutes, four times a year

http://federalreserve.gov/monetarypolicy/

There is a link to the “Meeting Calendar” page that indicates which meeting minutes have the Summary of Economic Projections. This is the FRB’s forecast.

CBO Congressional Budget Office, Budget and Economic Projections

http://cbo.gov go to /topics/economy/economic-projections

Sources below are more specialized

Conference Board Forecast Table

http://www.conference-board.org/data/usforecast.cfm

(Do not let them trick you into paying for anything.)

Wells Fargo (Weekly) Macro Strategy Economy https://www.wellsfargoadvisors.com/market-economy/economic-market-reports/weekly-economic-analysis.htm

RSEQ Forecast Summary Memo (U of Michigan) Executive Summary ONLY.

http://rsqe.econ.lsa.umich.edu/?page=forecasts&name=US

NAHB National Association of Home Builders (homebuilding and its impact on the economy) https://www.nahb.org/en/research/housing-economics.aspx )

This is a generic outline. It is typical for the economic outlook papers written by banks and other institutions year in and year out. You should deviate from it in order to emphasize issues that are especially important right now or to accommodate one or two issues that caught your interest and you want to emphasize. You could reorder the material and insert a section or two. You obviously can’t write about everything that I mention in the generic outline, but you should say something that speaks to the major headings: Labor, Demand, Financial Markets, Supply and International.

I) Introduction: Where is the US economy in the cycle? (Starting an expansion? Ending an expansion? When was the last “turning point” of the US economy?) Are the forecasts for the US economy split between optimists and pessimists, or do they all seem to say pretty much the same thing? What growth rate do you think is likely for the US economy in the forecast period? (This will be based on your reading and synthesis of professional forecasts.) What are the key issues that you want to draw special attention to in the sections that follow?

II) Labor Market Developments: What has been happening to the growth of jobs and wages? (Strong? Weak?) What are forecasters expecting? What about unemployment and participation rates? Are there some other important things about the labor market you encountered that you want to note?

III) Demand. The GDP report, especially table two “Contributions to GDP growth”, will tell you exactly which sources of demand have accounted for recent growth. The Atlanta FRB GDPNow forecast (or Nowcast) will tell you what seems to happening right now. The Dismal Scientist will also do this and forecast into the future. Have you read anything about why particular components of spending (C, I, G, NX) have been weak or strong? You may want to say that you will come back to some of them later. (For instance, NX net exports reappear later in this generic outline.) Fiscal Policy affects spending directly through G and affects consumption via taxes.

IV) Financial Markets and the FRB. What has FRB monetary policy been and what is it expected to be in the near future? What have some important interest rates been and how are they expected to change? Have stock prices been rising or falling recently? Have you read anything about whether changes in the stock market have affected consumption or investment? Do you happen to have a strong opinion on what direction stock markets are headed?

V) Supply Side and International Linkages. Does the economy appear to be near or away from its potential output? How fast is potential output growing (due to the growth of productivity as well as labor and capital)? US exports and imports can be important influences on the economy. Have they been large recently? Is the US dollar expected to get stronger, weaker, or stay about the same in the near future?

VI) Conclusion. Which of the aspect of the economy you discussed above seem to be most important or interesting to you and why?

VII) References. A good mix of a few government reports, some economic outlooks from financial institutions, and newspaper articles you cited in the paper.

VIII) Tables and Figures. The first thing here should be your forecast table. Your forecast table should have updated forecasts of some important variables from several sources. At the top of your table should be your forecast clearly labeled as yours. Your forecast could be an average of the forecasts you copied from professional sources, or you may have a forecast that is remarkably different than the consensus.

You should attach at least a few additional graphs or tables. These should be numbered (Figure One, Figure Two, etc.). Each figure should be discussed in the paper and should have had an important influence in shaping your thoughts or the argument of the paper. Attaching random material will significantly reduce your grade. Be selective and thoughtful.

II Evaluation Criteria

1. Clarity of Forecast and Cyclical Positioning

a. Is there a clear forecast table in the appendix and does the paper make good use of it?

b. Has the economy been expanding/contracting?

c. What are the chances that it is presently at a turning point?

2. Range and Depth of Sources

a. Is there a mix of sources from i) original gov. releases, ii) short articles and commentary from the press, iii) longer forecasts and outlooks from financial institutions?

3. Coverage of Sectors

a. Is there coverage of:

i. leading-coincident indicators

ii. labor market conditions

iii. GDP growth and its components

iv. indicators of inflation and borrowing costs

v. productivity and profitability measures

vi. exchange rates and their importance for US imports and exports

b. Does the paper explain how these parts of the economy are interrelated?

4. Style

a. Is it clearly written and easy to follow?

b. Are sources acknowledged and properly cited? Do the citations and list of references coherently and consistently document these sources?

5. Cohesion and Consideration: Do the parts of the paper reinforce each other and work towards a cohesive, thoughtful, overview of the economy?

III) Length and Proper References

The paper should contain 5-10 pages of text, double spaced.   You may either insert or attach at the end a variety of tables and graphs you think important.  Never attach or insert an object which you do not talk about in the paper!  Do remember that I expect a list of references at the end of the paper, and proper citation of material throughout.   I am not greatly concerned about which style of references you use so long as it is a well-respected standard and consistently used. An easy style of references is Turabian Author Date. Click the Author Date Tab on the following page: http://www.press.uchicago.edu/books/turabian/turabian_citationguide.html

In this assignment you GAIN points by citing a wide range of authors and sources.

IV) Some really good professional versions of the paper you are writing These sources try to give their readers a professional overview of where the economy is headed and have numerical forecasts of the important variables.

1. Delloit University Press. Updated quarterly. Annual data forecasted.

http://dupress.com/periodical/u-s-economic-forecast/

2. PNC Bank, PNC's National Economic Outlook

Scroll down to National Economic Outlook. Updated Monthly. Quarterly forecasts.

https://www.pnc.com/en/about-pnc/media/economic-reports.html

3. Kiplinger Economic Forecasts

http://www.kiplinger.com/fronts/special-report/economic-forecasts/index.html

4. FT’s one-stop overview of key US economic data and trends, including GDP, inflation, unemployment, consumer indicators, and the outlook for US interest and mortgage rates

https://ig.ft.com/sites/numbers/economies/us

5. Brown Brothers Harriman, Exchange Rate (Forex) Specialists

https://www.bbh.com/en-us/insights

See their FX Quarterly Outlook

Here are some more—but the ones above should be plenty.

Morgan Stanley Search “Morgan Stanley” and “outlook”

The title of Morgan Sanley’s Outlooks varies, see their ideas page:

https://www.morganstanley.com/ideas/us-economic-stock-market-fed-policy-outlook-2017

https://www.morganstanley.com/ideas/

Kantar Retail, Retail Sales Specialists

http://www.kriq.com/macro/overview.aspx

Royal Bank of Canada

http://www.rbc.com/RBC:Qx2htY71A8YAAK3qbro/economics/index.html

look for the Quarterly Economic Update covering USA and Canada

Prudential, for a bond centric quarterly outlook

http://www3.prudential.com/fi/publications-commentary.shtml

Manufacturers Alliance for Productivity and Innovation (MAPI)

Quarterly Forecast for U.S. Economic and Manufacturing Growth

https://www.mapi.net/forecasts-data/quarterly-forecast-us-economic-and-manufacturing-growth

Investco. Look for most recent Quarterly Economic Outlook

https://www.invesco.com/portal/site/us/investors/insights/

FRED The Federal Reserve Board's Economic Data Base.   http://www.research.stlouisfed.org/fred2/ Super popular source for making graphs of and downloading nearly all macro economic data for the USA. CBO http://www.cbo.gov/ For the Government's Economic Forecast for the next 10 years see the CBO.  The Congressional Budget Office prepares the forecasts of the NAIRU, Y potential and Y the underlie the President's Budget. Their current forecast for the US economy is available from their home page.  The methodology behind these forecasts is discussed in some detail in documents found in the "Budget and Economic Outlook" section of their publications.  Of particular interest are "CBO's Method for Estimating Potential Output: An Update, August 2001  " and "Description of Economic Models, November 1998" . BEA http://www.bea.gov/ The Bureau of Economic Analysis generates the GDP report.   The Keynesian FairModel: There is a very well-known Keynesian model of the US economy that traces its intellectual roots back to the Keynesian heydays of the 1950's and 60's at Yale University.  It is Ray Fair's FairModel at  http://fairmodel.econ.yale.edu/ .  We will discuss it in class towards the end of the course.

IVB) Some Issues and Variables by Paper Section

Leading Indicators Review the behavior of the leading, lagging and coincident indicators. Source: The Conference Board

https://www.conference-board.org/data/bcicountry.cfm?cid=1

look for “Download related PDFs” about 2/3 down page. This is free.

Tricky site, never pay anything! The Labor Market For the unemployment rate, employment rate, and labor participation rate see: "THE EMPLOYMENT SITUATION" monthly by the Bureau of Labor Statistics (BLS http://www.bls.gov/ ).  Also available via Dismal Scientist US Economic Indicators. Productivity :The Bureau of Labor Statistics (BLS) has excellent resources on productivity. For labor productivity and labor costs see www.bls.gov/bls/productivity.htm . For “multifactor productivity” see

The San Francisco FRB http://www.frbsf.org/economic-research/indicators-data/total-factor-productivity-tfp/ for real time estimates of total productivity growth. The Bureau of Labor Statistics is more authoritative but tracks it with a longer lag www.bls.gov/mfp/home.htm Output/Demand Components Review the growth of output and its components: C, I, G, (X-IM). Sources: The all-important "GROSS DOMESTIC PRODUCT" report from the Bureau of Economic Analysis (BEA http://www.bea.gov/ ). Also available via Dismal Scientist US Economic Indicators. Table 2 of the GDP report tells us where growth has come from and the Dismal Scientist forecasts this table into the future. (It is found at the very bottom of the Dismal Scientist forecasts table.) The Atlanta FRB “now casts” this table for the current quarter as GDPNow. https://www.frbatlanta.org/cqer/research/gdpnow.aspx?panel=1

The New York Fed also has a GDP ‘now cast’ but with less detail than the Atlanta Fed

https://www.newyorkfed.org/research/policy/nowcast

Fiscal Policy Review the contribution of G (government spending) growth to the growth of output. See the GDP reports table 2 which tells us the contributions of different types of spending to GDP growth. To look at the issue of the Full Employment Budget Deficit and the effect of automatic stabilizers go to the Congressional Budget Office www.cbo.gov . Look for their ‘Update to the Budget and Economic Outlook’ it has a section examining the “Deficit or Surplus With and Without CBO’s Estimate of Automatic Stabilizers, and

Related Estimates, as a Percentage of Potential Gross Domestic Product”.

The most influential think tank following fiscal policy is Brookings:

https://www.brookings.edu/topic/federal-fiscal-policy/

Inflation Review the movement of the GDP deflator and Personal Consumption Expenditure deflator found in the "GROSS DOMESTIC PRODUCT" report and more easily in FRED. Review the movement of the "Consumer Price Index". Also available via Dismal Scientist US Economic Indicators. Review the movement of the "Employment Cost Index" from the BLS. Also available via Dismal Scientist US Economic Indicators.

Interest rates and Monetary Policy Review the movement of the FRB's Discount Rate and "Selected Interest Rates".   You may wish to consult the "Summary of Commentary on Current Economic Conditions (Beige Book)" and "Federal Open Market Committee Meeting Minutes".

(See http://www.federalreserve.gov/monetarypolicy/default.htm )

The Brookings also follows monetary policy

https://www.brookings.edu/topic/monetary-policy/

Exchange Rates and International Payments For the US Current Account see the BEA's "Balance of Payments" report (BEA http://www.bea.gov/ ). For the movement of US $ exchange rates see The FRED data base under exchange rates, especially the Trade Weighted Exchange Rates found at the end of the list.