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Policy Hub: Macroblog provides concise commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues for a broad audience.

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April 4, 2007

No Relief At The Pump -- For Now

If you read Lynne Kiesling today you will receive some very good advice to go pay the Wall Street Journal's Energy Roundup blog a visit. And if you follow that advice, you will find yet more good advice, this time in the form of a link to a item on "This Week in Petroleum" at R-Squared Energy Blog. And from there you will be informed of this story, from CNN Money:

... the Energy Information Administration said gasoline stocks, closely watched ahead of the summer driving season, plummeted by 5 million barrels. Analysts were looking for a small drop of just 300,000 barrels, according to Reuters.

The fall in gasoline supplies pushed gasoline stocks to the lower end of their average range, the first time in several months the supplies have dipped below average...

"We're nowhere near where we should be in terms of inventories," said John Kilduff, an energy analyst at Fimat in New York, who also pointed to strong gasoline demand numbers in the report. "We're seeing the kind of numbers we only see during the peak summer season."

Kilduff also noted the relatively low rate of refinery operation, which EIA said was at 87 percent capacity last week.

"The failure of the refinery rate to go to 90 percent is spelling lots of trouble for us," he said.

From the Energy Information Administration report:

For years, the typical summer driving season was considered to occur between the Memorial Day and Labor Day holidays, with peak summer gasoline demand occurring sometime after the Fourth-of-July holiday. While this characterization still holds, in recent years, demand patterns have shifted somewhat to include more robust levels of gasoline demand earlier in the season with a pre-summer peak in gasoline prices.

Add it up and what do we get?  One more stress point for the economy in the near-term, and hopeful thinking about what the rest of the year will bring:

Consequently, as gasoline demand began to grow in earnest in April, gasoline supply has failed to keep pace, resulting in continued significant stock declines and sharp upward pressure on gasoline prices in recent weeks. Nevertheless, while the short term outlook for gasoline markets appears to be tight, the longer term outlook remains unclear. Thus, spring breakers will most likely notice higher gasoline prices during April, compared with last year. Following spring break, however, Memorial Day, Independence Day, and Labor Day vacationers may face different, possibly softer, markets.

Somehow I just dont find an "unclear" outlook and "possibly softer, markets" all that comforting.

Side note:  For a discussion of new research on the historical effect of oil price changes on economic growth, check out Econbrowser.   

January 8, 2007

Are We Really Less Dependent On Oil?

Austin Goolsbee made a little noise last week, writing in the New York Times that the answer is yes:

... the data shows that much has changed since the wrenching days of the 1970s, for American industry at least. The energy used for each dollar of gross domestic product in 1980 was almost 70 percent greater than it is today. While we have collectively wrung our hands over the decline of manufacturing in the country, it has also reduced the relationship between energy prices and growth.

Greg Mankiw accepts the claim that

... energy prices have a smaller impact today than they did in the past.

... and Mike Moffatt was prompted to muse:

The relationship between the decline of manufacturing in the United States and the reliance on foreign oil is an interesting one.

The facts are the facts on the fairly dramatic increase in energy efficiency in US production, but if there has been a declining impact on economic activity, that looks like a fairly recent development:




The shaded bars in that picture are NBER recession dates. You only have to go back a few years -- to the 2001 recession -- to find a significant energy shock looking for all the world like the partner of an economic downturn.  Just like the four recessions that preceded it.

Of course, as I have noted here before, it's possible that the correlation of energy price spikes and recessions in the 70's, 80s, and 90s was just a coincidence. But it's also possible that the run up in energy prices over the past five years has indeed had a significant negative impact on economic activity, despite the fact that the tipping point into recession has not yet arrived.  Let's call the effect of energy shocks on the economy an open question. 

As for a decline in dependence on foreign oil, it hasn't happened.  Here's an updated version of a picture I showed some time ago, capturing energy consumption relative to GDP versus production relative to GDP:




As I wrote in my earlier post:

As we entered the latest series of oil shocks in 2002, energy efficiency -- measured by the quantity of energy usage per inflation-adjusted dollar of GDP -- had fallen significantly from 1970s levels.  Energy dependence -- measured by the gap between consumption and production per unit of GDP -- has, on the other hand, remained remarkably constant.  That says to me we should not be so quick to dismiss analogies with the situation in the 1970s.

The headline to Professor Goolsbee's article was "A Country Less Dependent on Oil is Free to Make Other New Year's Resolutions."  I think maybe we shouldn't change that resolution just yet.

UPDATE: Mark J. Perry and Lynne Kiesling found the Times piece more convincing than I did.

September 13, 2006

A Warning Sign In The Deficit Report?

I guess how you feel about today's news on the August federal deficit report depends on your perspective.  Reuters led with the observation that the ink was a little redder than expected...

The U.S. government posted a larger-than-expected $64.61 billion federal budget deficit in August as outlays for the month were at a record high, a Treasury Department report showed on Wednesday.

The August deficit compared with a $51.33 billion deficit in August 2005.

Wall Street economists polled by Reuters were expecting a $61.15 billion deficit for the month.

... while AFX News Limited (via Forbes) kicked off with a cheerier perspective:

The federal deficit through August held below last year's level and continued on its course for a smaller yearly deficit this year than last, the Treasury Department said.

The government posted a budget deficit of 64.6 bln usd in August, compared to expectations of a 67 bln usd monthly deficit.

Through the first 11 months of the budget year, the deficit was 304.3 bln usd, down 14 pct from the same period in 2005, when it totaled 354.1 bln usd.

I don't doubt that someone out there in blogland will point out that, in the even longer run, the federal budget remains in a state of some disrepair.  But, for the moment, I am decidedly focused on the short run, and trying to figure out exactly how the economic outlook is evolving.  From that perspective, this detail from Action Economics (subscription required) is not encouraging:

Receipts were weak, declining 1.0% or $1.6 bln to $153.9 bln.  Weakness was led by a drop in individual income.  This marks the first time since April of 2004 that receipt growth has been negative.

OK, I'll remind myself that one month does not a trend make, and maybe encourage myself with this report, from Greg Ip and Christopher Conkey at The Wall Street Journal Online:

The recent drop in oil prices could provide a welcome and surprising boost to consumer pocketbooks this fall, cushioning the economy from a falloff in home prices and construction while venting an important source of inflation pressure.

The easing of energy prices is an unexpected -- and little-noted -- positive amid economic anxiety over falling housing activity, previous energy-price increases and the possibility of recession.

Crude oil was at $77 a barrel as recently as early August. Yesterday, the price of the October crude-oil future contract settled at $63.76, a near six month low, down $1.85 from Monday, on the New York Mercantile Exchange.

Ahh.  I feel better already.

UPDATE: Jim Hamilton surveys the prospects for oil and gas prices and comes up with a happy face.  And Felix Salmon shows Jim is not alone!

July 22, 2006

Odds And Ends -- July 22 Edition

A rainy morning in Cleveland, and an opportunity to do some quality blog-surfing.

The confluence of Chairman Bernanke's Congressional testimony and the release of the June FOMC meeting minutes got lots of people thinking about what is next for U.S. monetary policy. Brad Delong is "surprised that there hasn't been a pause yet" and thinks that we haven't seen one because "the Fed is scared of the 'soft on inflation' headlines that a pause would generate."  The Capital Spectator offers a terrific round-up of the week's economic news, and claims that "In theory, a slowing economy makes it easier for the Federal Reserve to cease and desist with its current round of interest rate hikes. In practice, life's more difficult, thanks to the worrisome rise in core CPI in June..."  Tim Duy also thinks that "although the Bernanke sounded soothing relative to expectations, the incoming data argue for another rate hike in August."  Toni Straka believes the "rate trend will stay the same and probably accelerate." At Hypothetical Bias, the opinion is "Once more and done (for a bit, at least)". William Polley is leaning that way tooBarry Ritholtz reiterates: The Bernanke bounce in the stock market is a "sucker bet".

Speaking of the Chairman -- more specifically his ideas about the global savings and investment and their relationship with interest rates -- Mark Thoma has a legitimate beef with the use of the word "glut."

Other summaries of, and commentary on, the week's economic news: From Dr. John John Rutledge (here and here). Calculated Risk provides a nice graphical look at where housing inventories are building, replicated from the Wall Street Journal. The Nattering Naybob Chronicles has its usual rundown of the week in bond and equity markets. MacroMouse contemplates the end of quantitative easing in Japan, and sees lessons for U.S. policymakers.  Tim Iacono has plenty of this and that, as does The Skeptical Speculator.

On my exchange with Nouriel Roubini on Chinese currency reform, Kash agrees "it does not feel like we're getting closer to some sort of crisis" but wonders "what should we expect it to feel like?"  Paul at Truck and Barter gets right to the substance of our exchange, while Brad Setser adds his own, ever insightful, thoughts at RGE Monitor. The Skeptical Speculator notes that "China has taken additional steps to cool its economy." Though not about the Chinese case specifically, Daniel Gross addresses a related and really important question: Is the end of American dominance in capital markets done?

Russell Roberts echoes an argument made this week by Ben Bernanke: In dealing with low-wage workers, an earned-income credit is preferable to a minimum wage.  He also takes on Paul Krugman's position on both the minimum wage and the inequality statistics that Krugman argues support a minimum wage policy.

Brad DeLong highlights an interesting column by Hal Varian on luck and taxation.  (Bottom line: If luck -- as opposed to hard work and risk-taking -- is a big part of being rich  progressive taxation makes good economic sense.  The intuition would be that luck is not sensitive to prices, and so won't be diminished by relatively high taxes.) 

Mark Thoma noticed the Varian piece too, and has several links to others opining on the inequality debate more generally. I'd also check out Greg Mankiw's ruminations, Tom McGuire's recent "Stalking Points", and, if you have the time, everything in the Cafe Hayek archive on inequality.

Taking a more global perspective on poverty and inequality, J.S. at Environmental Economics shares some thoughts on "Rethinking Development Aid For The 21st Century" (thoughts which sound pretty darn sensible to me).  Also, NEI Nuclear Notes asks "Should Developing Nations Embrace Nuclear Energy?"  In the category of excellent advice, The New Economist quite rightly commends your attention to the Private Sector Development Blog. (So do I.)

A colorful picture of who gets what from oil revenues across the G7 is available at Contango.

John Irons documents the continuing, and puzzling, mix of profits versus labor compensation in overall income.  As I've noted before, however, there may be more to this story than meets the eye.

Hat tip to Captain Capitalism for the link to this article about a county in Oregon that is running its own monetary systemMark Thoma comments intelligently on a proposal to implement a commodity-based monetary system backed by "local renewable energy" (whatever that might mean).

Daniel Drezner links to an interesting article in the Economist on the value (or lack thereof?) of large quantitative trade models.