No recession, yet..

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  • No Recession, yet..

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  • Demand drop of 1% of GDP began over a year ago when home buying by subprime borrowers ceased..

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  • And exports picked up the slack.
    And with housing as low as it is, further reductions, if any, will have minimal macro effects.
  • Losses not that large so far, only about $100 billion in write offs have been announced and with at least some prospects of recovery.
    Far less than the 1998 (inflation adjusted) losses, for example, when $100 billion was lost in just the first day when Russia defaulted August 17 with no prospects of recovery.
  • Financial sector looses are not direct reductions of aggregate demand, just the ‘rearranging of financial assets.’
  • Falling demand due to supply side credit issues and capital constraints are primarily fixed exchange rate phenomena and are rare and brief with floating exchange rate policy and a non convertible currency.
    Even in Japan with a floating exchange rate, when most bank capital was lost, credit expansion was a function of demand, while with fixed exchange rates, supply side issues dominated – Argentina, Russia, Mexico, the US in the 30s (gold standard), and the panic of 1907 Governor Mishkin referenced in his speech.

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  • Government spending has been ‘moved forward’ from 2007 to 2008. Friday reported up over 8% year over year (NOTE: graph not updated for this last data point.)
  • Alt minimum tax capped helps demand some in 2008.

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  • Personal income and spending not falling.
  • No econometric evidence of a significant ‘wealth effect’ from asset prices on the way up or on the way down. Income is better correlated.
  • Government employees and pensioners got GPI pay increases. This ‘half’ of the demand side keeps growing at 5% + nominal rates so to go into recession, the other half has to go down more than that.

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  • Government tax receipts still rising.

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  • Jobless claims remain too low for a recession.

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  • Labor force participation rate climbing even as demographics suggest natural drift lower.

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  • World and domestic demand is strong enough to support elevating prices of food, energy, and rising US imports and export prices.

♥

NYC Tourism

Dollar weak enough to support exports:

NYC hits tourism record

by Samantha Gross

NEW YORK (AP) – With a falling dollar sweetening the deal for international travelers, a record-setting number of tourists visited
the city last year, spending an estimated $28 billion, tourism officials said Sunday.

With a final count still pending, the city’s tourism office said an estimated 46 million people had visited the city in 2007 — up 5
percent from 2006. The jump was largely due to visitors from other countries, who numbered an estimated 8.5 million — a growth of 17 percent.

George Fertitta, chief executive of city tourism office NYC & Company, said the visitors were drawn by more than a favorable exchange rate and the city’s international marketing efforts.

“The city is more vibrant, cleaner and safer — and it’s just more exciting than ever before,” he said.

The portion of the city’s tourists who were from other countries had dwindled since the Sept. 11 attacks, and last year’s growth returned the ratio to pre-2001 levels.

The city has been working to draw such international visitors, who stay longer and spend more money. NYC & Company has launched an overseas television, print and billboard campaign, and in 2007 it more than doubled its marketing offices overseas, targeting countries including China, Brazil and Canada.

New York is one of only a few U.S. urban centers that did not see a drop in the number of overseas visitors between 2000 and 2006.

Mayor Michael Bloomberg has said he wants the city to attract 50 million travelers each year by 2015. Last year, visitors to New York spent $4 billion more than they had the year before.


Indexing French wages

A bit of structural inflation being introduced:

Sarkozy Plans to Index Civil Servants’ Salaries to Inflation

by Helene Fouquet and Francois de Beaupuy

(Bloomberg) French President Nicolas Sarkozy said he’d index civil servants’ salaries to inflation and make good on unpaid overtime hours to improve their purchasing power.

“It’s a fact that some civil servants have lost some purchasing power in recent years,” Sarkozy said today in a speech to civil servants in the northern city of Lille. “We’re going to introduce a purchasing power guarantee” to ensure that pay increases match “at least the inflation rate.”

He reiterated that he wants to reduce the number of civil servants and to use half of the savings for pay raises.