What’s happening to the economy? Steven Deller Department of Agricultural and Applied Economics University of Wisconsin-Madison/Extension

Economics The Science of Explaining Tomorrow Why the Forecasts You Made Yesterday did Not Come True Today

What’s happening to the economy? 1.What’s happening at the national level? 2.What’s happening at the local level? 3.What are the strengths of the local economy?

Classic example of a “bubble” in the market

Bank Loan Delinquency Rates

9/11 Notice the scale

9/11

Retail banks writing mortgages: primary market. Secondary banks buying and “bundling” into investments. These “bundled” investments where then sold to investors. Insurance companies writing policies on these “bundled” investments. “Futures” market on these “bundles”   Credit rating agencies: Standard and Poor’s along with Moody’s: AAA credit rating!

How does an economist measure the performance of the economy? Gross Domestic Product (GDP) The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory. GDP = C + G + I + NX

Great Recession What is the Difference Between Nominal and Real?

How does an economist measure the performance of the economy? Measuring inflation is a difficult problem for government statisticians. To do this, a number of goods that are representative of the economy are put together into what is referred to as a "market basket." The cost of this basket is then compared over time. This results in a price index, which is the cost of the market basket today as a percentage of the cost of that identical basket in the starting year. In North America, there are two main price indexes that measure inflation: Consumer Price Index (CPI) - A measure of price changes in consumer goods and services such as gasoline, food, clothing and automobiles. The CPI measures price change from the perspective of the purchaser. U.S. The “weights” are predetermined by the BLS Consumer Price Index GDP Price DeflatorGDP Price Deflator (GDPPD) -the GDP deflator (implicit price deflator) is a measure of the level of prices of all new, domestically produced, final goods and services in an economy. The “weight” are allowed to vary depending on the contribution to GDP.

CPI much more volatile: energy and food

How does an economist measure the performance of the economy? Measures of Unemployment: U1:Percentage of labor force unemployed 15 weeks or longer. U2: Percentage of labor force who lost jobs or completed temporary work. U3: Official unemployment rate occurs when people are without jobs and they have actively looked for work within the past four weeks. U4: U3 + "discouraged workers", or those who have stopped looking for work because current economic conditions make them believe that no work is available for them. U5: U4 + other "marginally attached workers", or "loosely attached workers", or those who "would like" and are able to work, but have not looked for work recently. U6: U5 + Part-time workers who want to work full-time, but cannot due to economic reasons (underemployment).

Firms stop hiring.

How does an economist measure the performance of the economy? Measures of Employment: The payroll survey estimates the nation’s employment based on responses from a sample of about 400,000 business establishments, which account for about one-third of total nonfarm payroll employment. With a lag of about one year, the BLS revises the payroll estimate to an almost-complete count of U.S. payroll employment; this results in what is known as the “benchmark revision.” The household survey, in contrast, estimates the nation’s employment based on responses from interviews with approximately 60,000 households; the BLS then inflates the survey data by the most recent estimates of the population. Unlike the payroll survey, the raw household survey data are not revised, but the population estimates used to inflate them are occasionally updated to incorporate new information from censuses and new estimates of immigration.

How does an economist measure the performance of the economy? Measures of Employment: QCEW is the Quarterly Census of Employment and Wages. The program originated in the 1930s, and was known as the ES-202 program until 2003 when the current QCEW name was adopted. The primary economic product is the tabulation of employment and wages of establishments which report to the Unemployment Insurance (UI) programs of the United States. Employment covered by these UI programs represents about 99.7% of all wage and salary civilian employment in the country.

How does an economist measure the performance of the economy? Measures of Employment: What is included in the definition? “Non-farm” employment, “Civilian” employment “Private Sector” employment “Wage and Salary” employment How are the self-employed counted?

1990 Recession

Cluster Identification ∆LQ LQ Strength and Growing “Cluster” Strength but Declining “Threat” Weakness but Growing “Opportunity” Weakness and Declining “???”

Porter (2000, p254) “A cluster is a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementaries.” Rosenfeld (1997, p4) “A cluster is very simply used to represent concentration of firms that are able to produce synergy because of their geographic proximity and interdependence, even though their scale of employment may not be pronounced or prominent.” Feser (1998, p20) “Economic clusters are not just related and supporting industries and institutions, but rather related and supporting institutions that are more competitive by virtue of their relationships.” What is an Economic Cluster?

Cluster Analysis: 2002 to 2012 ∆LQ LQ Forestry Fishing, Related Activities Farming

Cluster Analysis: 2002 to 2012 ∆LQ LQ Health Care and Social Services Manufacturing

12% energy