Posts filed under “Data Analysis”

Will the US Economy Decelerate Rapidly as Boomers Retire?



Bloomberg reports that a "Revolutionary" Federal Reserve study is "shaking economists’ forecasts by suggesting the U.S. economy will have to decelerate much more over the next decade than most now expect."

The study won’t be out until July (we referenced it last week here) and was drafted by Stephanie Aaronson, Bruce
Fallick, Andrew Figura, Jonathan Pingle and William Wascher

What makes the study so controversial is that the "retirement of the Baby Boom generation will force far-reaching adjustments in the way the economy works. Forecasts for everything from growth and employment to corporate profits and interest rates will have to be recast."

From the Bloomberg column:

The study projects a slower pace of workforce growth than most economists now forecast, suggesting the economy can’t keep growing at the present-day pace without generating pressure for higher wages and inflation. To prevent that, the Fed will have to enforce a lower speed limit on the economy by pushing up interest rates.

The study suggests that growth over the next 10 years will average less than 3 percent, instead of the 3.3 percent of the last decade, economists said. A 0.3 percentage point difference in growth in the $12 trillion U.S. economy translates into $360 billion over 10 years, equal to the size of Switzerland’s economy. Payroll gains, which averaged 200,000 a month in the 1990s, may be half that.

“This is a very big story,” said Laurence Meyer, vice chairman of Macroeconomic Advisers LLC and a former Fed governor. “It makes the challenge for the Fed a little greater.”

The study also conservatively projects a "3 percentage-point decline over the next 10 years in the labor force participation rate." (We’ve been discussing the drop in the  the percentage of people working or looking for work for some time now).

As the participation rate drops, so to will the Growth Rate slow. Labor force growth will slow, as will hours worked.

What makes this so significant is the that the Fed Study estimates are "well below current government and private forecasts." This will impact everything from Federal Deficits to Social Security.




‘Revolutionary’ Fed Study Has Economists Rethinking Forecasts
Carlos Torres, Rich Miller
April 13, 2006 00:10 EDT

The Recent Decline in Labor Force Participation and its Implications for Potential Labor Supply
Stephanie Aaronson, Bruce Fallick, Andrew Figura, Jonathan Pingle, and William Wascher
Division of Research and Statistics, Board of Governors of the Federal Reserve System
March 2006, Preliminary Draft

Category: Data Analysis, Economy, Federal Reserve

Did the Yield Curve Send a “False Alarm?”

Category: Data Analysis, Economy, Federal Reserve, Fixed Income/Interest Rates, Inflation, Investing, Markets

Q1 Performance versus Q2-Q4: Any Correlation?

Category: Data Analysis, Markets, Trading

Fed Gets New Excuse to Keep Tightening Rates

Category: Data Analysis, Employment, Federal Reserve

Real Fed Fund Rates

Category: Data Analysis, Federal Reserve, Fixed Income/Interest Rates


Category: Data Analysis, Economy, Politics

Does the CPI Reflect Reality?

Category: Data Analysis, Federal Reserve, Inflation

Historical Fed Fund Ranges

Category: Data Analysis, Federal Reserve, Inflation

CEO Options: Luck — or something else?

The WSJ streak of taking very interesting columns and hiding them on Saturday continues.

Yesterday, they asked: Are some CEOs reaping millions by landing stock options when they are most valuable amatter of dumb luck — or something else?


"On a summer day in 2002, shares of
Affiliated Computer Services Inc. sank to their lowest level in a year.
Oddly, that was good news for Chief Executive Jeffrey Rich.

annual grant of stock options was dated that day, entitling him to buy
stock at that price for years. Had they been dated a week later, when
the stock was 27% higher, they’d have been far less rewarding. It was
the same through much of Mr. Rich’s tenure: In a striking pattern, all
six of his stock-option grants from 1995 to 2002 were dated just before
a rise in the stock price, often at the bottom of a steep drop.

lucky? A Wall Street Journal analysis suggests the odds of this
happening by chance are extraordinarily remote — around one in 300
billion. The odds of winning the multistate Powerball lottery with a $1
ticket are one in 146 million.

Suspecting such patterns aren’t
due to chance, the Securities and Exchange Commission is examining
whether some option grants carry favorable grant dates for a different
reason: They were backdated. The SEC is understood to be looking at
about a dozen companies’ option grants with this in mind.

Journal’s analysis of grant dates and stock movements suggests the
problem may be broader. It identified several companies with wildly
improbable option-grant patterns. While this doesn’t prove chicanery,
it shows something very odd: Year after year, some companies’ top
executives received options on unusually propitious dates.

analysis bolsters recent academic work suggesting that backdating was
widespread, particularly from the start of the tech-stock boom in the
1990s through the Sarbanes-Oxley corporate reform act of 2002. If so,
it was another way some executives enriched themselves during the boom
at shareholders’ expense. And because options grants are long-lived,
some executives holding backdated grants from the late 1990s could
still profit from them today."

The chart below implies that the odds against these being random are quite high. (I guess Sarbanes Oxley didn’t root out all the corporate corruption after all).

Last week it was the mortgage resets, and this week its CEO Options. Great stories, buried on the front page — of the Saturday edition . . .

The Perfect Payday
WSJ, March 18, 2006; Page A1

How the Journal Analyzed Stock-Option Grants
WSJ, March 18, 2006; Page A5

Read More

Category: Corporate Management, Data Analysis

February CPI Tame

Category: Data Analysis, Federal Reserve, Inflation, Investing