GDP up 6.4% annual rate (it actually grew 1.6%) with large increases in consumption, biz fixed investment, housing & govt offset by a large reduction in inventories & increase in the trade deficit.

(US residents bought more stuff but a bunch came out of inventories and imports.)
As a result, U.S. GDP was 3.8% below it's pre-pandemic trend in Q1.

Note, this is not an estimate of the output gap, I would suspect the output gap was somewhat smaller because of some scarring from pandemic (less investment, R&D, early retirements, deaths).
The pattern of shortfalls from trend are wild:

Consumer durables 15% above trend in Q1 while services 8% below trend.

Business fixed investment still not recovered by residential investment booming.

Govt purchases below trend too (driven by S&L).
But the wildest number of all is the 67% increase in disposable personal income at an annual rate (more like a 14% actual increase in Q1). That is the stimulus checks and UI at work.

That should provide a lot of fuel for the next few months/quarters/years.
All of this data is for Q1 which is far in the rear-view mirror. The growth rate is a weighted avg of growth in Nov, Dec, Jan, Feb & Mar--capturing the COVID surge.

The 3.8% shortfall from trend was for Q1 as a whole. Likely more like a 2-3% shortfall in March and 1-2% in April.

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More from @jasonfurman

29 Apr
The general view is that labor market in February or March 2021 had a lot more slack than it did in 2019. That is probably right and if the only data you had was the unemployment rate, employment rate or jobs it would seem true. ImageImage
But if instead the only data you had was on labor market flows from JOLTS you would think the economy was much hotter in February 2021 than in 2019, in fact you might think it was the hottest in decades. (@nick_bunker) Image
Between these two, if all you had was the data on composition-adjusted wage growth from the Atlanta Fed you would note that wage growth was roughly the same as 2019 and was highest for the lowest-income workers. So labor market not much looser than 2019. atlantafed.org/chcs/wage-grow… Image
Read 11 tweets
28 Apr
People pointing to the lack of wage acceleration as evidence against job shortages. But I think the wage evidence is a stronger point for team tight labor market than team slack.

Wage growth remains high in the Atlanta Fed's composition-adjusted wage tracker. Image
Nominal wage growth at/above what it was in 2019, a year when slack was not huge. Data is for March, presumably the market tightened more since then and will continue to tighten. Wage growth tends to lag.

Huge contrast to low/falling wage growth in 2002 and 2010.
Good arguments for substantial slack: large net job loss & low epop, although less clarity on the relative importance of employers not offering jobs or people not taking them.

Also good arguments on the other side, like record or near record openings/quits.
Read 5 tweets
28 Apr
The American Families Plan is excellent, it would make a difference for tens of millions of families today--and expand incomes, opportunities and economic growth in the future. My main reaction is to want more of almost all of it. whitehouse.gov/briefing-room/…
Almost everything in the plan would directly benefit people, particularly children, particularly lower-income children. You can't go very wrong with these policies, they give $$$s to people with very high marginal utility.
Moreover lots and lots of evidence for LR benefits in the form of higher wages, more employment, better health, and more. Most importantly good for the families but also good for growth.
Read 13 tweets
8 Apr
Earlier today I had an exchange with @StephanieKelton. She referred me to a paper. I read the paper and it makes my point and contradicts her claim.

There is a broader lesson here about whether MMT is an alternative positive theory or normative frame. Thread.
As a positive prediction, I would say that higher interest rates reduce output and lower output reduces inflation. You can debate the magnitudes but I would use those signs.

That is separate from the normative question of whether one should raise rates, target inflation, etc.
@StephanieKelton appeared to have the opposite positive prediction: "Have you considered the possibility that raising rates might move inflation higher?"

I said "No" and she cited a paper with a theoretical model and empirical estimates that *contradict* her positive statement.
Read 12 tweets
6 Apr
@AnnieLowrey's story on index funds misses clearly making two first order important points:

1. You should invest in them

2. Even with the growth of index funds we still devote too many resources, not too little, to price discovery in financial markets.

theatlantic.com/ideas/archive/…
The merits of the "you should invest in them" advice is separable from the question of what would happen if everyone invested in them. Just like my recommendation that everyone should get their pizza from Armando's would not work if everyone actually took my recommendation.
This just doesn't scare me. Image
Read 7 tweets
31 Mar
Overall I quite like the American Jobs Plan. It is a serious proposal that would help increase economic growth, ensure growth was more fair, and raise additional revenue in a broadly reasonable manner.

Much that I would love to add, a bit I would subtract. A thread.
MACROECONOMIC/FISCAL. Given that interest rates are still too low & I'm worried about demand over the medium-term, $2T in *unpaid for* well-designed investments, some temporary, would be beneficial. As such I don't think this should all or even mostly be paid for.
As such, the decision about whether to keep the infrastructure proposals and corporate tax proposals together or to put them on different tracks should be more about legislative strategy than the perceived economic need to find offsets or pay for this particular bill.
Read 18 tweets

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