Author: WSJ.com: Real Time Economics

Ben Bernanke’s speech at the Dallas Chamber of Commerce Wednesday afternoon is a coming-out for the Federal Reserve chairman after a grueling winter.

Mr. Bernanke had been keeping a low profile as he waited for the Senate to confirm him for a second four-year term at the helm of the Fed. He’s also been busy working the halls of Congress to convince lawmakers not to strip the Fed of its powers as a bank regulator.

With the confirmation complete and the Fed’s powers largely preserved as the overhaul bill comes into shape, Mr. Bernanke plans to look outward more often in the months ahead with speeches in Dallas, South Carolina and elsewhere. It is an extension of a PR campaign he initiated last year but put on hold while he was hunkered down in Washington. The idea is to spend more time explaining to the public how the Fed behaved during the crisis and how Mr. Bernanke sees a recovery unfolding.

As he restarts this campaign, he is likely to go beyond the dry mechanics of monetary policy and the Fed’s exit from market rescue programs. One issue on his agenda for the days ahead: Immense government budget deficits.

Mr. Bernanke has warned lawmakers in recent hearings at the House and Senate that U.S. deficits aren’t sustainable. Formulating a credible plan to gradually shrink them over time, he has noted, could help the economy now by bringing down long-term interest rates.

Yields on 10-year Treasury notes have risen to nearly 4% from under 3.25% in late November, in part because investors worry about the enormity of debt the government is selling to the public. That rise in rates doesn’t help the Fed, which is trying to keep interest rates low to spur a recovery.

Having made his pitch to Congress, Mr. Bernanke is now likely to make it to the public more broadly. Starting this afternoon.

The Federal Reserve could conceivably divest itself of mortgage securities in a matter of about half a decade with little financial or economic impact if it chooses to follow that path, a central bank official said Tuesday.

“It is likely that the Federal Reserve will have to sell a nontrivial amount of its [mortgage] holdings if it is to be able to normalize its balance sheet in the next two decades,” Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said. “I am optimistic that we will be able to normalize our balance sheet by the end of the teens” by way of a combination of active selling of assets, coupled with the passive process of allowing securities to mature.

Kocherlakota, who isn’t currently a voting member of the interest rate setting Federal Open Market Committee, was speaking before the Minnesota Chamber of Commerce, in Bloomington, Minn. His comments came from a text to be delivered before that group, and in his address he said he expects to see a modest recovery, low inflation and continued difficult circumstances for the labor market.

But the meat of his remarks centered on how the Fed can return its balance sheet, which has more than doubled to just north of $2 trillion, back to levels seen before the start of the financial crisis. A major driver of the balance sheet’s expansion has been a program, ended in March, that had the Fed buy some $1.25 trillion in mortgage securities, along with considerable amounts of agency securities and long term Treasurys.

The large size of the balance sheet has the potential to become an inflationary problem for the economy if not managed properly. Kocherlakota and other central bankers have been thinking about ways the Fed can start reducing the balance sheet in a way that doesn’t thwart the recovery and drive a big surge in rates. While Kocherlakota didn’t say much about the timing for starting the active sale of mortgage securities, he did say it would be an important piece of the puzzle.

Allowing a passive process suggests that by “as late as 2030, the Federal Reserve will still be holding something like $250 billion in mortgage-backed securities,” the official said. Fortunately, “our structure means too that the Federal Reserve can credibly commit to selling its (mortgage securities) slowly over time,” he said.

Kocherlakota speculated that if the Fed were to commit to selling between $15 billion to $25 billion in mortgage per month, it would, along with passive efforts, have all mortgages off the Fed’s books within five years from the start of the process. The official said the plan is doable: “I feel confident that this pace of sales would be sufficiently slow that it would have little or no impact on MBS prices and long-term interest rates.”

The central banker’s comments on the economy were guarded. “The economy is on the mend and should continue to recover over the next two years — in terms of both GDP and unemployment — but at slower rates than we would like,” he said.

Kocherlakota expects the U.S. economy to grow just a bit lower than consensus, expanding by about 3% over the next two years.

Calling current inflation levels “relatively tame,” Kocherlakota said “the outlook for inflation is basically promising, as long as the Federal Reserve and Congress work together appropriately.” He added “the Federal Reserve is keeping inflation at levels consistent with good long-run economic performance.”

Kocherlakota was downbeat on housing, saying the sector “will recover eventually.”

The official noted that in the wake of the March jobs data, it’s clear there’s been some “good news in labor markets.” But Kocherlakota said “the outlook for unemployment is not promising” and “I would be surprised if unemployment were below 9% by the end of 2010 or below 8% by the end of 2011.”

With gas prices going up again it might be worth it to consider public transportation instead.

In some cities, it’s a better exchange than others, according to the American Public Transportation Association’s monthly transit savings report.

The average price for regular fuel in the U.S. has risen to $2.83 a gallon — nine cents higher than a month ago and about 80 cents higher than a year ago. Factor in the cost of parking and New York City residents save the most by opting for mass transit: $1,149 a month and $13,784 a year.

Both Boston and San Francisco residents also, on average, save more than $1,000 a month by using public transportation, according to the report. Nationally, public transit riders save about $9,293 a year and about $774 each month.

There were some surprises in the list of top 20 cities for saving. Some relatively smaller cities, such as Cleveland, Minneapolis and Honolulu all ranked in the top 15, allowing citizens to save between $800 and $900 a month.

The more populated Washington, D.C., meanwhile, fell relatively low on the list in 15th place, with residents saving $757 a month. And in last place, Pittsburg, where locals could save $681 a month or $8,174 a year if they opt for mass transit instead.

To be sure, public transportation has its downsides, for example, crowded trains and buses, the lack of functioning escalators and no cell phone service underground. And the crowds are likely to be even worse — and the prices higher — this year as transit systems make cuts and raise fares to adjust for battered state and local budgets.

To calculate how much you would save, if any, here’s a handy tool from the public-transportation association.

Below are the top 20 cities for savings and how much a consumer can expect to save per month:

1. New York $1,149
2. Boston $1,032
3. San Francisco $1,015
4. Chicago $955
5. Seattle $938
6. Philadelphia $928
7. Honolulu $894
8. Los Angeles $839
9. San Diego $827
10. Minneapolis $826
11. Denver $804
12. Portland $803
13. Cleveland $803
14. Baltimore $786
15. Washington $757
16. Miami $754
17. Dallas $736
18. Atlanta $724
19. Las Vegas $719
20. Pittsburgh $681

Richard Fisher, president of the Federal Reserve Bank of Dallas, built a reputation as an outspoken inflation fighter in the summer of 2008, when he lobbied the Fed to push interest rates higher to combat rising consumer prices even though the financial crisis was still raging.

Today, inflation is low on his list of worries. In fact, he says there is small risk that deflation, or falling consumer prices, could become a bigger problem for the Fed in the months ahead than higher inflation. That puts him on the side of those who want to keep interest rates near zero for at least several more months — if not much longer — to help the recovery get on stronger footing.

In a wide-ranging interview, Mr. Fisher said the global economy is burdened by such large amounts of unused industrial capacity and idle labor that consumer prices face little risk of shooting higher. “Because of the enormous slack in the system, and as you know I tend to be very vigilant about inflation, we’re just not seeing price pressures right now,” Mr. Fisher said. “If anything, the tail risks are on the deflationary side.” (“Tail risk” is market-speak for nightmare scenarios, low probability events that can be very damaging to markets and the economy.)

Fed officials have been engaged in recent weeks in a deepening debate about whether inflation is slowing even as the economy recovers. Many measures of inflation are slowing, but some Fed officials dismiss these measures because they might be getting skewed by a sharp slowdown in housing costs. It is an important debate: If Fed officials come to the view that inflation is slowing a lot; it could push interest-rate increases further down the road, possibly into 2011.

Though he says he’s still worried about longer-term inflation risks tied to immense U.S. budget deficits, Mr. Fisher’s current view on inflation puts him close to others, like San Francisco Fed President Janet Yellen, who say inflation is not a risk and is still trending down.

“I don’t see the need to tighten monetary policy right now,” Mr. Fisher said. “We have other things to do,” he added, noting that the Fed has been intensely focused on unwinding many of its emergency lending programs in recent months.

The Dallas Fed produces its own inflation measures which weigh heavily on Mr. Fisher’s outlook. Its inflation gauge uses Commerce Department measures of price changes on a wide range of consumer purchases of goods and services and trims the most volatile components. It works something like judging in figure skating, where the highest and lowest scores get thrown out. The Dallas Fed’s “trimmed mean” approach shows that consumer price inflation was up 1.0% in February from a year ago, well below the Fed’s goal of annual inflation in the 1.5% to 2.0%, and much lower than a rate of nearly 3% in mid-2008, when Mr. Fisher was lobbying for tighter monetary policy.

“We examine all of the entrails [of inflation] and what the entrails are telling us right now is that we are not seeing significant price pressures,” he says. “That gives you a little bit of leeway… We’ve got to make sure that we do exit in a way that doesn’t create inflationary pressure, but I think that’s way down the road,” he added.

The Federal Reserve Bank of Cleveland produces a similar “trimmed mean” measure which strips out the most volatile components of the Labor Department’s consumer price index. It also has slowed sharply. In February, it was up 1.1% from a year earlier, compared to increases of more than 3.5% in mid-2008.

Federal Reserve officials have long argued that keeping inflation expectations under control allows them to control the actual level of inflation.

But new research Monday from the Federal Reserve Bank of Dallas argues that there isn’t any good way yet to derive from financial markets where long-run inflation expectations actually lie. This suggests that, when central-bank officials describe long-run inflation expectations as well contained, as they do these days, those conclusions are based more on art than on science.

The paper was written by Carlos E.J.M. Zarazaga. To reach his conclusion, the economist looked at the message offered by the “forward rates” method, which relies on government bond yields. Treasurys of all maturities are sensitive to inflation worries, but they are also sensitive to other types of risk. The problem is that the interplay of those factors is hard to disentangle.

“The disturbing property of risk premia that move around over time is that they can severely distort popular inflation-expectations indicators,” Zarazaga wrote. This means that market-based models “could give the wrong impression that long-run inflation expectations have switched dangerously to a deflationary mood when, in reality, that is a mirage produced by declining risk premia,” he wrote.

The economic profession hasn’t yet figured out how to deal with the problem. “Some time will pass before many of the remaining theoretical and empirical issues relevant to the construction of reliable long-run inflation-expectations indicators are sorted out,” Zarazaga noted. “Policymakers are well advised not to attribute the relatively ample fluctuations observed in popular long-run inflation expectations indicators to actual changes in those expectations,” he wrote.

The paper’s findings put the Fed in a bit of a pickle, especially now. Actual levels of inflation are low and have been trending lower for some time due to weak demand and high unemployment. Key Fed officials think that the gap between actual and potential inflation means the economy will continue to see low inflation.

What’s more, most believe the general public and investors aren’t expecting any break-out in inflation, either. The mid-March Federal Open Market Committee statement described inflation expectations as “stable.” New York Fed President William Dudley last week described inflation expectations as “well contained.”

How does the Fed reach this conclusion? Officials look at long-term bond yields and how investors are pricing inflation-indexed bonds. Officials can also look to surveys of consumer confidence such as the Reuters/University of Michigan consumer-sentiment index. All of those measures appear to back up the Fed’s view.

That could change, however. Long-term bond yields are on the rise. Much of that is attributable to heavy levels of government debt supply, but there is likely an inflation component in there, given the economic recovery and the chance that better demand and more hiring will eventually push prices higher.

The Fed’s massive balance sheet also presents an inflation risk. The central bank has more than doubled the size of its balance sheet over the course of the financial crisis, to more than $2 trillion. Officials count on their ability to pay interest on reserves to keep much of that money out of the economy, and thus blunt the inflationary impact of banks’ massive hoard of cash.

Much of the ability to control the inflation implications of that hoard rests on investor confidence that the Fed will do its job. Some Fed officials have already worried about the longer-run inflation risk of the balance sheet. Whatever clues Fed officials can get about inflation expectations has a lot to say about the success of managing the balance sheet.

The Dallas Fed paper suggests that this process may be harder than many now believe, given the difficulty of getting a meaningful signal on the outlook for inflation.

A roundup of economic news from around the Web.

Recession End: Harvard’s Jeff Frankel, who sits on the NBER’s recession-dating committee, says the final piece has fallen into place to call the end of the recession. “The recession is over. The last piece has fallen into place, with the BLS announcement that employment rose in March. Identifying the beginnings and ends of recessions has been difficult in recent decades because the two most important indicators, output and employment, have sometimes behaved differently from each other. Most notoriously, in the recovery that began in November 2001, employment lagged far behind economic growth. If one had gone by the labor market, one might have called it a three year recession. But if one had gone by GDP, one might have wondered whether there was a recession at all. This time around, the difficulty is not so great.”

Rising Oil Price: The Economist’s Ryan Avent notices the climb in oil prices and notes the risks. “As the global economy has continued to move away from the abyss, the price of crude has climbed back to near $90 a barrel. Increases much beyond that will begin to squeeze household budgets in places heavily dependent on oil. If those increases happen slowly, then they won’t be that damaging; households will have time to adjust commutes, buy more efficient vehicles, and find other ways to substitute away from petrol. If they happen rapidly, then the result will be enough damage to consumer spending to tip the American economy back toward, and perhaps into, recession. There’s really not much that can be done about this in the short term. Officials simply need to hope that households have continued to reduce their exposure to petroleum prices in the wake of the 2007-2008 spike in the cost of crude.”

Muni Troubles: Rick Bookstaber looks at where the next crisis may come from. “Well, guess where we have a market that is (1) leveraged and opaque, that is (2) very big and tied to the credit markets; and is (3) viewed by investors as being diversifiable by holding a geographically broad-based portfolio; with (4) huge portfolios where assets and liabilities are apparently matched; and with (5) questionable analysis by rating agencies; and where (6) there are many entities, entities that may not approach default with business-like dispatch, and that have already mortgaged sources of revenue that are thought to support their liabilities? Answer: The municipal market.”

Compiled by Phil Izzo

The more American middle class families understand personal finances, the less financially strapped they feel, a new survey shows.

First Command Financial Services Inc., an investment adviser firm, administered a financial literacy test in March to people with household incomes of $50,000 or more to gauge the financial knowledge of the middle class.

Of those who answered all of the questions correct, 63% said they didn’t feel financially strapped versus 48% who said the same but had answered one or more questions incorrectly.

Some 42% of people who got a perfect score on the test also said they were comfortable with their debt levels. Meanwhile, of those who answered questions wrong, 32% said they were comfortable with their debt.

Overall, the survey respondents scored pretty well on the tests: They answered 7.5 out of nine questions correctly, on average. And three out of 10 respondents earned a perfect score.

Despite higher levels of confidence among the most financially literate, even they didn’t feel comfortable with their savings or their ability to retire. Less than a quarter of those who answered all the questions correctly said they felt comfortable with their savings. A slightly higher 36% said they were very confident in their ability to retire comfortably.

Among those who answered at least one question incorrectly, just 15% felt good about their savings and 29% said they were sure they would be able to retire comfortably.

The test surveyed 659 people and has a margin of error of plus or minus 3.8 percentage points.

Traders have been huffing and puffing for several days now that the Federal Reserve might choose today to increase the rate it charges on emergency loans to banks, commonly known as the discount rate. The Fed didn’t do so. But this never should have been much of a worry to investors in the first place. Here is why:

• 1) Fed loans from its discount window were down to $7.6 billion in late March from more than $100 billion at the height of the crisis. At current levels, loans directly from the Fed to commercial banks amount to about 0.06% of the total liabilities of the commercial banking sector. If the Fed raises the interest rate it charges on these loans from the current charge of 0.75%, it won’t have much impact on broader credit market conditions because the Fed isn’t providing as much direct support to banks through these loans now that the crisis has waned. Fed officials have said this repeatedly in the past few months, but investors seem not to be paying much attention.
• 2) The Fed’s more important lever for managing interest rates is the federal funds rate, which is a rate banks charge each other on overnight loans. One might infer that an increase in the discount rate means an increase in the more-important federal funds rate, now near zero, is right around the corner. But Fed officials have said before that changes in the discount rate have no implications for their plans for the federal funds rate. They’ve said it very flatly. When the Fed raised the discount rate in February from 0.5% to 0.75%, it said the increase did “not signal any change in the outlook for the economy or for monetary policy.” Fed officials actually mean this when they say it. The only signal meant from a discount rate hike is that they want to make it a little less appetizing for banks to turn to Uncle Sam for emergency loans.
• 3) Fed officials are aware – and puzzled by – the bond market’s odd focus on the discount rate. They don’t want to surprise jumpy investors because they see the market and economy as fragile. That’s why they gave fair warning before their February discount rate increase. It was flagged in minutes from a Fed meeting that appeared a day before the hike, Fed Chairman Ben Bernanke said it was likely a few days before that, and other officials had been talking about it before Mr. Bernanke’s public comments about it. Officials are unlikely to try to sneak another one in there without given investors similar warnings.

The melodrama in markets about the discount rate, in other words, says a lot more about Wall Street’s fragile nerves and attention deficit issues than it does about the Fed’s own planning. The Fed will likely signal clearly before it wants to raise this rate again, and will likely again offer reminders that this is the wrong rate to obsess about.

The U.S. Federal Reserve on Monday said its Board of Governors met to discuss the interest rate it charges banks on emergency loans, but the Fed made no announcement of a discount-rate increase.

The Fed said on its Web site that Chairman Ben Bernanke and governors Kevin Warsh, Elizabeth Duke and Daniel Tarullo had met at 11:15am EDT to review the discount rate.

When the Fed at the end of last week said its board would discuss the discount rate at the regular meeting, some analysts speculated that an increase would be announced Monday. But the meeting likely wasn’t indicative of that, as the Fed holds many routine meetings to formally review the discount rate.

When the Fed last raised the discount rate, by a quarter-point to 0.75% on Feb. 18, it had prepared financial markets for what was coming. That hasn’t happened this time.

In a prepared speech, Fed Chairman Ben Bernanke said on Feb. 10 the central bank could soon charge more for backstop loans made directly to banks. Then on Feb. 17, a day before the rate increase was announced, the Fed released the minutes of the Jan. 26-27 meeting of its policy-setting body, which revealed that officials had mulled raising the discount rate.

To be sure, the Fed may yet raise the discount rate to bring the spread with the more broadly important federal-funds rate–or the rate banks charge each other for overnight loans–to a pre-crisis level. But it will have plenty of opportunities to signal any discount-rate moves to markets beforehand, including several this week.

Tuesday, the minutes of the March 16 Federal Open Market Committee meeting will be released, after the usual three-week lag. Also, Bernanke is scheduled to speak in Dallas on Wednesday and in Washington a day later.

But even if the Fed does increase the discount rate in the near future, markets should be cautious about reading too much into it. When the Fed raised the discount rate Feb. 18, it stressed the move was just an unwinding of its emergency lending facilities and not a step toward a broader tightening of credit.

As the Wall Street Journal reported today, the Federal Reserve is going through an intensifying debate about whether inflation is receding even as the economy recovers. Analysts at the San Francisco Fed and New York Fed jump into the fray today, with a rebuttal directed at officials who say inflation isn’t slowing down.

The researchers — Bart Hobijn, Stefano Eusepi and Andrea Tambalotti — say the inflation slowdown is widespread. They examine fifty goods and services tracked in the Fed’s preferred measure of inflation, the personal consumption expenditures price index excluding the volatile food and energy sectors, or core PCEPI.

This preferred inflation measure has slowed from a 12-month change of 2.7% in the summer of 2008 to a 12-month change of 1.3% in February. But skeptics say much of the change is being caused by housing and isn’t widespread.

The researchers find that the inflation rate has slowed in most of the fifty categories in the past year and a half, relative to the previous 3.5 years, with big slowdowns in jewelry, transportation, luggage, hotels and electronics equipment. In some of the categories where the inflation rate has picked up, including new card and used cars, they argue the pickup was likely influenced by the government’s cash-for-clunkers program and was thus transitory.

Disinflation — which is a slowdown in the inflation rate — “has been a widespread phenomenon,” they conclude. Deflation in some of these categories — like electronics — has deepened.

This isn’t likely to be the final word on the subject. By focusing on trends in the past year-and-a-half, as opposed to the past 12 months, the authors are picking up some of the disinflation that occurred in the very early stages of the recession, after the shock of Lehman Brothers’ failure hit the economy. But Mr. Hobijn says his result is similar using shorter time periods.

The researchers also try to rebut the argument that housing has been the main cause of a recent slowdown in the core PCEPI index, and a slowdown in comparable consumer price index measures which exclude food and energy. (Economists exclude food and energy because prices are very volatile in these sectors and thus can mask longer-term inflation trends.)

It is true that shelter costs have slowed sharply. Some of that is because rents and housing costs are down. Some of it is also because hotel prices (which are counted as shelter costs in some of the government’s measures) have fallen sharply. Mr. Hobijn finds that if you strip out the cost of renting or owning a home but not hotels from the core PCEPI index, it is up 1.55% from a year earlier, not much different than the change with housing costs included.

The inflation slowdown, in other words, is real, he says. Those words will please his boss, San Francisco Fed president Janet Yellen, one of the Fed’s leading proponents of the view that inflation is slowing and will continue to do so, reason to keep monetary policy easy.

The Hamilton Project, a think tank affiliated with the Brookings Institution that was created by former Treasury Secretary Robert Rubin and former Deputy Treasury Secretary Roger Altman to come up with new policies aimed at widely shared prosperity, named economist Michael Greenstone, a professor of environment economics at the Massachusetts Institution of Technology, to be its director.

The job has been a great career move for policy wonks who lean towards the Democrats. The founding director, Peter O. Orszag, left in the fall of 2007 to become the director of the Congressional Budget Office and is now director of the White House Office of Management and Budget. He was succeeded by Jason Furman, who left in June 2008 to direct economic policy for the Obama presidential campaign, and now works in the White House. And he was succeeded by Douglas Elmendorf, who became director of the CBO in January 2009. The Hamilton post has been empty since then.

For the past year, Greenstone has been chief economist on the staff of the White House Council of Economic Advisers. Greenstone received a PhD in economics from Princeton University in 1998 and a BA in economics with high honors from Swarthmore College in 1991.

His academic work is focused on identifying government’s appropriate role — through regulations, taxes, or spending — in a market economy. He is currently engaged in a project to estimate the economic costs of climate change and has worked extensively on the Clean Air Act. He argues that government environmental regulation has improved air quality, leading to reductions in infant mortality rates and higher housing values, while also imposing costs through reducing the scale of manufacturing activity. Greenstone also has done research on topics ranging from the beneficial impacts of mandatory disclosure laws on stock prices to the role of antidiscrimination laws in reducing African-American infant mortality rates.

A roundup of economic news from around the Web.

Debtor States:The New Yorker’s James Surowiecki looks at the comparison between debts in Greece and the states. “California and Greece share a fondness for dysfunctional politics and feckless budgeting. While American states are typically required to balance their budgets annually, that hasn’t stopped them from amassing a pile of long-term debt by issuing municipal bonds. And, like Greece and other E.U. countries, states have used accounting legerdemain to under-report the amount they owe, even while accumulating huge, unfunded pension obligations. Just as a default by Greece (whose bonds are held by many big European banks) would have nasty ripple effects across the European economy, a state-government default would have all sorts of unpleasant consequences, as state bonds have traditionally been considered a thoroughly safe investment. For all this, though, the comparison has been overblown. Our states’ debt burden, while sizable, is far more manageable than that of the PIIGS, which owe three times as much relative to G.D.P. as American state and local governments. And though states will certainly have to cut their budgets again this year, the cuts will be smaller (and therefore more politically palatable) than those of, say, Ireland, which is cutting government spending by almost nine per cent. Most important, the states have a fundamental advantage over euro-zone nations: they’re part of a country.”

Looking Up: On Econbrowser, James Hamilton see improvement in the economic numbers. “Perhaps the biggest news was the March employment report from the BLS, whose establishment survey estimated that U.S. employment increased by 162,000 workers in March on a seasonally adjusted basis. I was surprised that Mark Thoma, Dave Altig, and Dean Baker found this disappointing. Certainly it was better than ADP’s estimate that seasonally-adjusted private-sector employment had fallen by 23,000 in March, and received confirmation from the separate BLS household survey estimate that March employment grew by 264,000 workers, as well as from the 55.1 reading for the employment component of the ISM manufacturing report. True, 48,000 of the 162,000 new payroll jobs represented temporary Census positions. But those people are nevertheless now working rather than unemployed, and earning a salary with which they can buy goods and services or avoid bankruptcy and foreclosure. It’s also true that another 40,000 of the March gain came from temporary help services, but that’s often where employment growth first shows up. And I acknowledge that 162,000 isn’t enough to bring the unemployment rate down, which remained stuck at 9.7% for March. Even so, this is enough better than what we’ve been seeing and than we could have seen that I personally am quite relieved.”

Demographics and Stocks: On voxeu, Carlo Favero, Arie Gozluklu, Andrea Tamoni look at the connection between demographics and stock market fluctuations. “Are long run stock market returns predictable? This column shows that a forecasting model that uses a demographic variable – the ratio of middle-aged to young adults – as well as the dividend price ratio, performs “very well” in forecasting long-horizon stock market returns.”

China Wealth Gap: Visual Economics has a nice graphical look at the wealth gap in China.

Compiled by Phil Izzo

One provision of the health-care bill that is now law says that parents will be able to keep their dependent children on their health insurance policies up to age 26.

New work by a trio of economists, circulated by the National Bureau of Economic Research, suggests that could produce a significant increase in demand for health care from previously uninsured young adults. Using the National Health Interview Survey and records from hospital emergency and in-patient departments from seven states to track the habits of young adults who lose their insurance when they leave school or “age out,” the economists find that hospital visits by young people fall sharply when they fall off their parents’ insurance.

” ‘Aging out’ results in an abrupt 5 to 8 percentage point reduction in the probability of having health insurance,” Michael Anderson of the University of California at Berkeley, Carlos Dobkin of the University of California at Santa Cruz and Tal Gross of the University of Miami write. And “not having insurance leads to a 40% increase in emergency-department visits and a 61% reduction in inpatient hospital admissions.” (Put differently: a 10% decrease in the insurance-coverage rate reduces visits to emergency rooms by 4% and in-patient hospital visits by 6.1%.) The findings challenge the notion that the uninsured are getting care in emergency rooms because they can’t get it elsewhere.

The obvious implication: “Expanding health insurance coverage would result in a substantial increase in care provided to currently uninsured individuals.”

Young adults make up one of the biggest groups of the uninsured. About 45%of those between the ages of 19 and 29 were uninsured for at least part of 2009, according to a Commonwealth Fund survey last summer of 2,002 young adults. This is significantly higher than the 30% reported for 2008 by the Kaiser Family Foundation’s Commission on Medicaid and the Uninsured, and may be a result of the continuing economic downturn.

For details on this provision of the health-care law, which takes effect in September 2010, see: http://www.kaiserhealthnews.org/Stories/2010/April/02/Insurance-for-Adult-Children.aspx

On NBC’s “Meet the Press” on Sunday, host David Gregory initially appeared to be trying to make White House economic adviser Christina Romer the first senior administration official to mention Apple’s iPad publicly after its release Saturday. But he turned instead to a broader question about the economic recovery.

Said Gregory, against video of people waiting outside Apple stores: “I want to ask you about a phenomenon that people are talking about this weekend. It has to do with consumers, and that’s Apple’s new product, the iPad. There’s lines around the country of people. You know, commerce in action, right? People are buying these products. But it leads to a question as to whether you think, as an economist, that consumers can actually drive a recovery that is sustained?”

Ms. Romer, chair of the White House Council of Economic Advisers, didn’t mention the iPad in her response. But she made it clear that the administration isn’t counting on consumer spending, which drives 70% of economic output, to lead the recovery as it did after the 2001 recession.

“I think this is going to be a different kind of recovery. I think it’s not going to be one where consumers come roaring back as the engine of growth. They have been through a very rough two years. They’ve seen their house prices come down. So we see solid consumer growth. It’s definitely coming back. Their confidence is back up. But this is not going to be a recovery that’s fueled by people going out and maxing out their credit cards again.”

Instead, she said other smaller drivers would be critical. “It’s going to need to come from our exports. That’s why the president has been pushing his export initiative. It’s going to need to come from business investment, and that’s why measures like a zero capital gains for small businesses, or tax incentives for investment. I think those are the right policy to make sure we get a healthy kind of growth, going forward.”

The labor market may be tough for new college grads – but it’s not hopeless. Here are some of the popular tips university career experts offered for those who are still searching.

Don’t quit before you’ve started. Some students are so frustrated by the state of the economy they haven’t bothered to look for a job. “I tell them, ‘Look that’s a self-fulfilling prophesy,’” said Kitty McGrath, executive director of career services at Arizona State University. “If you don’t look then you know you won’t have a job.”

Prioritize. “Is it likely that you’re going to get your A, No. 1, first job and see lots of those? No,” said ASU’s McGrath. Decide in advance how much time you’ll spend pursuing your first choice — a month for example — and then expand the search to include other positions, McGrath said.

Search across industries. “The major doesn’t necessarily equal their career,” said Katharine Brooks, director of the career center for the Liberal Arts college at the University of Texas at Austin. “They really need to focus on the value of what they’ve learned and be able to articulate that to an employer.”

Rely on networking. “More and more of our employers are providing full-time job offers to their interns as a first choice,” Wayne Wallace, director of the career resources center at the University of Florida in Gainesville. So stay in touch with former internship employers and devote more time to expanding your professional network than searching online job sites.

Only opt for graduate school if you have a plan. “There are students who are, what I would say, punting and saying ‘Why don’t I get the graduate degree?’” said Matthew Berndt, director of career services for the Communications school at the University of Texas at Austin. But that only makes sense if students know what they’re going to study and how it will help them get a better position once they’re finished. If that’s not clear, then “you’re still not any more capable of telling an employer what you want to do and why you want to work for them,” Berndt said.

Be willing to relocate. “Those students who are willing to migrate and to take a chance on a new part of the country and take a chance on a brand new job have more options,” said Florida’s Wallace.

Do your research. If you’re meeting with an employer, be knowledgeable about the business and be able to articulate why you’re a good fit for the position and the company.

Remember: A new job is only the first step. “The first job they get out of college in almost every single case is just one step on the path to their eventual career,” said Rebecca Sparrow, director of career services at Cornell University. So don’t “try to think too much about this needing to be the perfect thing. Most people are not going to stay in that first job for 10 years,” Sparrow said.

There’s no escaping the launch of Apple’s iPad this weekend (you might even be reading this post on its glossy, seductive touch-screen). So for those who’d like to contribute something to the conversation beyond the increasingly tired “is there an app for that?” line, we’ve assembled a few interesting tidbits on what might be called (eye-roll please…) “iPad-onomics.”

Early Adopters and Moore’s Law: You want the iPad now, but you know if you wait its price will soon fall and its features improve. This principle of rapid technological advancement goes back to “Moore’s Law,” named after Gordon Moore, co-founder of Fairchild Semiconductor and Intel Corp., who back in 1965 predicted that the number of transistors on a chip would double each year (since updated to roughly every two years).  More broadly, the idea has been described, with no lack of controversy, as the law of accelerating returns or the “digital revolution,” similar if not greater in scope and magnitude to its industrial predecessor.

Back to the iPad. So should you wait to buy one? Probably. But if everyone waits, that’s a problem for Apple, which loses the revenues and publicity generated by record-breaking launch sales. Ultimately, a disappointing launch could be interpreted as a sign of low interest or demand for such a product, removing the incentive for further devices and innovations from Apple and its competitors that help to lower the costs and improve the quality for all users. (Those who haughtily skip the launch to wait for the better, cheaper version may want to keep that in mind).

It all helps explain why, back in 2007, Apple offered $100 credits to early iPhone adopters who were outraged when the company later cut the device’s price. The last thing the company wants is to dissuade early adopters. But then, of course, there’s the moral hazard that move created – for example, do those buying an iPad right now similarly assume they’ll be compensated when Apple cuts the iPad’s price? (This is no trivial matter. The problem of moral hazard in the U.S. banking system is at the heart of the current debate over financial regulation.)

So go ahead, buy your iPad, and feel the joy of technological advance (and the status it conveys). But think twice before whining when Apple inevitably introduces its faster, sleeker, less-expensive next generation of iPads. As economist Tyler Cowen, himself an early adopter, put it during the iPhone kerfuffle: “It is you people, who resent Coase (1972), you people who induce wage and price stickiness and widen the Okun gap. You people, who don’t know what it means to sit back and enjoy your consumer surplus. You beasts!”

Diminishing marginal utility of iPhone and iPad apps: The “app” model is one of Apple’s most innovative features, and the number of apps available for download is one of the company’s bragging points. But while the App Store “has certainly been a godsend to Apple,” says Northeastern University professor David Wesley, “for developers it has the potential to become a trap.” Why? With 140,000 apps to compete with, “even the most creative programs will have a hard time attracting the notice of potential customers…Consumers of Guitar Hero and Rock Band know they are going to receive a polished product, whereas iPhone [and iPad] users are left to wade through a sea of poorly thought-out applications.” As the App Store matures, users “will increasingly limit their purchases to popular titles from companies with large advertising budgets or apps that have been recommended by friends, TV personalities, and other influential people,” says Mr. Wesley.

Walled Gardens: The iPad is being hailed as a potential media-industry savior, but Felix Salmon over at Reuters identifies two key problems with the way the iPad walls off content and information. First, he notes the iPad’s “inability to multitask”: opening apps means closing the web browser, and vice versa. “The whole ethos is a magazine-like one of a closed system with lots of control – the exact opposite, really, of the internet, which is an open system…[it] marks a clear retreat back towards what were once known as walled gardens. You can’t link to an iPad app…an iPad app or story can never go viral, can never break out and achieve a life of its own, can never be remixed or reinvented.”

The other issue he raises gets to the heart of the media industry’s advertising-driven business model. Apple “jealously guards the demographic information of the people who download any given app from the iTunes music store, and publishers are hobbled if they don’t have a lot of detail on the demographics of their readers,” he points out. In other words, advertisers may be reluctant to pony up for a spot on a newspaper or magazine’s iPad app if they don’t really know what they’re getting in return.

The following is a statement from Treasury Secretary Timothy Geithner on the decision to delay the Report to Congress on International Economic and Exchange Rate Policies that would deal with China’s yuan policy.

I have decided to delay publication of the report to Congress on the international economic and exchange rate policies of our major trading partners due on April 15. There are a series of very important high-level meetings over the next three months that will be critical to bringing about policies that will help create a stronger, more sustainable, and more balanced global economy. Those meetings include a G-20 Finance Ministers and Central Bank Governors meeting in Washington later this month, the Strategic and Economic Dialogue (S&ED) with China in May, and the G-20 Finance Ministers and Leaders meetings in June. I believe these meetings are the best avenue for advancing U.S. interests at this time.

As part of the overall effort to rebalance global demand and sustain growth at a high level, policy adjustments are needed that measurably strengthen domestic demand in some countries and boost saving in others. These are also important to ensure robust job growth. In the United States, private savings has increased, the current account deficit has fallen, and the President has outlined a series of measures to reduce our fiscal deficit.

Countries with large external surpluses and floating exchange rates, such as Germany and Japan, face the challenge of encouraging more robust growth of domestic demand. Surplus economies with inflexible exchange rates should contribute to high and sustained global growth and rebalancing by combining policy efforts to strengthen domestic demand with greater exchange rate flexibility.

This is especially true in China. China’s strong fiscal and monetary response to the crisis enabled it to achieve economic growth of nearly 9 percent in 2009, contributing to global recovery. Now, however, China’s continued maintenance of a currency peg has required increasingly large volumes of currency intervention. Additionally, China’s inflexible exchange rate has made it difficult for other emerging market economies to let their currencies appreciate. A move by China to a more market-oriented exchange rate will make an essential contribution to global rebalancing.

Our objective is to use the opportunity presented by the G-20 and S&ED meetings with China to make material progress in the coming months.

Consumer bankruptcy filings hit their highest monthly peak in March since Congress overhauled the system in 2005.

The number of filings rose to 149,268, 34% higher than February’s filings, according to data from the National Bankruptcy Research Center. The March tally was also 23% higher than the same time a year ago.

March and April tend to have the largest number of consumer bankruptcies because people will wait for their tax refund check and then use the money for bankruptcy filing and attorney fees.

Congress revamped the bankruptcy system in 2005 to make it more difficult for consumers to shed their debts. That year bankruptcy filings soared as consumers rushed to file before the stricter rules were enacted. Following the change, filings plummeted.

But the lasting recession has led to a resurgence in filings as consumers — strained by tighter access to credit, job loss and mortgage problems — turn to bankruptcy as a last resort.

Starting today, credit-reporting bureaus will have to work harder to ensure consumers won’t get fooled.

As part of last year’s credit-card legislation, companies marketing free credit reports will have to add additional warning labels on their advertisements for “free” offers.

Such ads, including ones from Experian’s FreeCreditReport.com, have filled the radio and TV waves for years, causing confusion among consumers, advocates say. Complaints came when consumers signed up for the free scores, only to find they were then enrolled in a monthly, fee-based program. During the comment period for the rule last October, over 1,000 comments came in from consumers, credit-reporting agencies and consumer advocates, a Federal Trade Commission spokesperson says.

“[FreeCreditReport.com] wasn’t a free site,” Chi Chi Wu, a staff attorney at the National Consumer Law Center says. “It was a deceptive site.”

The FTC took legal action twice in 2005 and 2007 against Experian for its FreeCreditReport.com advertisements. As part of the settlement, the company offered refunds to impacted consumers.

“Experian has been, and will continue to be, in compliance with the FTC’s rules regarding the marketing of free credit reports,” Heather McLaughlin, Experian’s vice president of public affairs said in a statement. “We remain committed to clearly and conspicuously disclosing to consumers that the free report we offer is not the free annual credit file disclosure provided by federal law, and plan to comply with the FTC’s rules by April 1.”

Also gone starting today will be links from the credit reporting agencies — TransUnion, Equifax and Experian — on AnnualCreditReport.com homepage, the site where consumers can get their free credit report under the law. That site does provide consumers one free credit report from each of the three major credit reporting agencies, once a year. Companies will also be prohibited from advertising to consumers who receive their free credit reports on the FTC site until after they obtain their report.

“The [credit reporting agencies] will be ready as far as complying with the new rule is concerned,” Norm Magnuson, a spokesperson for the Washington-based Consumer Data Industry Association said in a statement.

Today, consumers noticed a change to freecreditreport.com. Now, it’s not free upfront. Consumers can’t get their Experian credit report without paying a $1 fee and getting enrolled in the company’s $14.95 monthly service. Once again, ANNUALcreditreport.com is the only place where people can order their credit reports, free and clear.

A 2003 federal law mandates that consumers can see their credit report for free on annualcreditreport.com, which is the blueprint for the three-digit score lenders look at. However, the credit score, unlike the credit report, is not available for free. There’s also a plethora of different scores available for purchase from the credit bureaus, even though the majority of lenders use versions of the FICO credit score, from FICO, formerly known as Fair Isaac Corp. “Not all credit reports and scores are alike,” says Craig Watts, a company spokesman.

During a recent hearing on Capitol Hill, lawmakers and industry representatives discussed the possibility of distributing free scores to consumers, in addition to the new regulations.

“I think we need to take the next step,” Evan Hendricks, editor of Privacy Times said at the hearing. “Consumers should be entitled to one free credit score per year.”

The bureaus — Experian, TransUnion and Equifax — counter that giving consumers free score would hurt their business models.

“A consumer pays a fee to have an appraiser assess the value of his or her home,” Stuart K. Pratt, president of the Consumer Data Industry Association, a trade group, said at the hearing. “Consumers will pay for a software program to produce a tax filing. No one is suggesting these services be offered for free.”

Sites like Credit.com and CreditKarma.com do provide free “educational” scores to consumers, but they’re not necessarily the same scores that lenders view.

Credit-card holders at Washington Mutual could see one of their TransUnion scores for free, but when the bank was purchased by J.P. Morgan Chase that feature disappeared. Sears offers free scores to its credit-cardholders. Industry experts say it’s likely that other financial institutions who purchase the scores may launch similar programs to share the scores with consumers.

This morning the Labor Department held its first live Web chat where experts answered questions from the public about BLS data. We’ve edited it down to a few of our favorites and we’ve corrected some questionable spelling and grammatical choices along the way. Here’s a taste of what you missed:

Q: …why is this report released on Good Friday?

A:…The BLS news release schedule for major economic indicators, including the Employment Situation, is announced prior to the beginning of the calendar year, allowing advance notice to all users, and is rarely subject to change. BLS schedules news releases any day the federal government is scheduled to be open, based on when data will become final.

Q: Does the BLS have an estimate of the extent to which disruptive weather in the mid-Atlantic affected payrolls in February and March?

A: …Severe winter weather in parts of the country during February may have affected payroll employment and hours; however, it is not possible to quantify precisely the net impact of the winter storms on CES employment measures. In the establishment survey, workers who do not receive any pay for the entire pay period are not counted as employed. Workers are counted as employed in the establishment survey if they are paid for a single hour during the reference pay period, whether they worked or not. We do not know how many workers may have been added to payrolls for snow removal, cleanup, and repairs due to the storms. Nor do we know how new hiring or separations were affected by the weather.

Q: Of the people that are going from unemployed to out of the labor force each month (looking at the labor force flows data), is there any data on what these people are doing? Are they retiring early? Going to school? Something else?

A: The BLS data on labor force flows does not provide information on what people who stopped looking for work are doing. The questions in the household survey are design to track labor market activity (employment and job search) but not other activities.

Q: Do you have data regarding individuals working beyond the age of retirement?

A: You might be interested to see a recent piece that Emy Sok published on older workers http://www.bls.gov/opub/ils/summary_10_04/older_workers.htm

Q: What percentage of respondents to the BLS’ Establishment Survey are small, medium, large companies? I understand that the responses are statistically adjusted to represent the small/medium/large makeup of employment in companies, but was curious as to how the actual survey is broken out.

A: … Table 2-Cc on http://www.bls.gov/web/empsit/cestntab.htm displays total private CES sample employment by size.

Q: Why is March selected as the bench mark month as opposed to other months?

A: … March is selected for the annual benchmark, because it has less seasonal variation than most months and no holidays.

Q: Do you think it’s fair that the unemployed who have fallen off the radar, those who have exhausted their 99 weeks, are NOT COUNTED amongst the unemployed because they can no longer certify? How are the numbers valid and accurate if hundreds of thousands this year are uncounted?

A: …The Unemployment Insurance (UI) program is completely separate from the survey used for our official unemployment statistics. The receipt of UI has NO bearing on whether a person is classified as unemployed, which is based on a person’s recent job search and availability to work. If you are not working, are available to work, and have actively looked for work in the past 4 weeks you are counted as unemployed in our measures.

Q: The commonly cited unemployment rate for the Great Depression is 25% – one quarter of people out of work. After doing some research of my own, there was not an “official” measure of unemployment during that period, and instead the rate had to be calculated using Census data. Was there any measure of discouraged workers during that time period? How would we measure Great Depression unemployment today?

A: You’re right…unemployment figures generally were not available during the 1930s. The source for the official unemployment statistics for the nation, the Current Population Survey, was not introduced until 1940. Unemployment estimates for the 1930s were backcast using available data sources for the era and approximate what the rate would have been had current concepts and methods been used. To the best of my knowledge, nobody has put together a data series on discouraged workers for the 1930s.