California Council on Economic Education Blog

Euro zone crisis

2010-04-28T12:48:00.000-07:00

These are 2 articles from the WSJ that serve as pretty good explanations of the Greek and Euro situation.

Crisis Poses European Central Bank Risk

Greek Rescue Plan May Top €100 Billion

Econ news

2010-04-28T12:00:00.000-07:00

Hi folks,

1. Time to travel to Europe!

S&P Downgrades Spain

Standard & Poor's downgraded Spain's long-term credit-rating just one day after roiling global markets with downgrades for both Greece and Portugal. The move hit stocks and sent the euro to one-year lows.

2. Home prices are up from a year ago, but down from last month! So what do you make of that?

Home Prices Remain Under Pressure

U.S. home prices fell for the fifth straight month in February amid pressure from foreclosures and high inventories, but prices rose from a year ago.

3. In a similar contradictory vein,

The Conference Board’s Consumer Confidence Index rose in April, but the University of Michigan’s Index of Consumer Sentiment remains weak.

4. From the (national) Council for Economic Education, a very thorough discussion of the labor market.

You'll find the new lesson titled, "Focus on Economic Data: U.S. Employment and the Unemployment Rate, April 2, 2010," at:

http://www.econedlink.org/lessons/index.php?lesson=906&page=teacher&utm_source=newLessons&utm_medium=email&utm_campaign=lessons20100428

This lesson examines the April 2, 2010, U.S. Department of Labor, Bureau of Labor Statistics, announcement of employment data and the unemployment rate for the month of March, 2010. This lesson introduces the basic concepts of the BLS employment and unemployment data. The meaning and importance of the data are discussed. Assessment exercises are included for reinforcing knowledge of the concepts.

Grade Level: 9-12

Key Economic Concepts: Business Cycles, Labor Force, Macroeconomic Indicators, Unemployment, Unemployment Rate

As always, you'll find even more free lessons at http://www.econedlink.org/. Thank you for making 'EconEdLink.org' a part of your classroom.

John LeFeber

EconEdLink.org Project Manager

Council for Economic Education

jlefeber@councilforeconed.org

402.438.6921

PS: Please try this lesson today, and share it with your fellow teachers tomorrow.

PPS: If you like this online lesson, you might want to check out a related resource, Virtual Economics, and preview the CD at http://store.councilforeconed.org/virtualeconomics.html

Please update your profile information so you only receive information about lessons that match your grade level. http://www.econedlink.org/updateInfo.php?Email=rcharkin@csusb.edu

EconEdLink respects your privacy, therefore you can unsubscribe from these emails. http://www.econedlink.org/unsubscribe.php?Email=rcharkin@csusb.edu

industrial output and sugar

2010-03-17T12:53:00.001-07:00

The industrial output numbers didn’t really surprise anyone. But I do think that the influence of weather on the economy helps students see that this is real stuff we’re talking about!

Weather Crimps Industrial Output

The sugar article is a great example of supply and demand, trade restrictions, and distribution of benefits and costs among sugar producers and sugar users. The difference between U.S. domestic sugar prices and world sugar prices also might be surprising to your students.

Price Gap Spices Sugar Fight

Hope all is well.

Housing starts sink, permits tumble

2010-03-17T12:52:00.001-07:00

Analysts blame the weather for housing starts but that may be a stretch given the news on permits which is less “weather sensitive.”
Housing Starts Sink

By the way, rumor has it that Janet Yellen, SF Fed President and CCEE Advisory Board Member is about to picked for the position of Vice Chair of the Fed by President Obama.

Core PPI falls, No change in rates at the Fed

2010-03-17T12:50:00.001-07:00

Good morning folks,

The Producer Price Index fell .06% while the Core CPI rose by .01%.

Wholesale Prices Fall

I have attached the WSJ’s explanation of the PPI with a couple of nice charts.

http://online.wsj.com/mdc/public/page/2_3063-economicCalendar.html?mod=econtracker?mod=wsj_econtracker

As expected yesterday, the Fed left rates unchanged. Of more interest is the fact that they will end their purchase of mortgage backed securities at the end of March, raising fears of higher interest rates.

From the WSJ
Some analysts have worried that the end to the Fed's mortgage buying could raise mortgage rates. So far that hasn't happened. Rates on 30-year mortgages have fallen to around 5.05% from 5.28% at the start of the year, according to research firm HSH Associates, even as Fed officials telegraphed the program would end soon.

Other long-term interest rates have been stable. Yields on 10-year Treasury notes have hovered between 3.6% and 3.8% this year.

"Mortgage rates won't move appreciably," said Scott Simon, a managing director at Pacific Investment Management Company, a big mortgage securities investor. He said private investors, who stepped aside when the Fed jumped into the market, are ready to return.

News Hub: Stocks End Higher After Fed Holds Steady

WSJ's Emma Moody joins the News Hub to discuss today's market reaction to the Federal Reserve's decision to end Mortgage Buys and to keep interest rates historically low for an extended period.

It is not as though credit is all of the sudden going to become much more difficult to get. The big problem for the housing market is unemployment," Mr. Simon said.

Look for the CPI tomorrow along with first claims for unemployment.

Jobless Claims Jump, Durable Goods Orders Up

2010-02-25T08:48:00.000-08:00

The durable goods news can be a teachable moment. While the aggregate is up, the adjusted figure excluding transportation is down.

Jobless Claims Jump Again

The number of U.S. workers filing new claims for jobless benefits unexpectedly surged last week to the highest level in over three months. Separately, durable-goods demand soared 3%.

CPI and Core CPI

2010-02-19T09:18:00.000-08:00

As expected, the markets didn’t seem to react to the Fed’s move to lower the discount rate yesterday.

Today’s news about the CORE CPI is a good opportunity to teach students about the difference between the rate of inflation and the core rate (the overall rate minus the volatile food and energy sectors).

From CCEE’s Teacher Guide to the Standards
With price data such as the CPI, an attempt to study long-term trends will be misleading if extremely volatile items are included in the survey. To minimize volatility, a “core” index which excludes the volatile food and energy sectors is calculated. Similarly, orders for durable goods are reported along with durable goods orders “excluding transportation and defense orders” since these components tend to “lumpy” and distort the trend.

From the Wall Street Journal
__________________________________
News Alert
from The Wall Street Journal

U.S. consumer prices rose 0.2% in January from the previous month, the same increase as in December 2009. But core prices, which strip out energy and food items and are more closely watched by the Federal Reserve, fell by a monthly 0.1% in January. The last time core prices fell was in December 1982. The drop leaves scope for the Fed to keep supporting the economy with record-low interest rates.

http://online.wsj.com/article/SB10001424052748703787304575075052818196106.html?mod=djemalertNEWS

This Just In!

2010-02-18T15:35:00.000-08:00

It will be interesting to see how the markets respond. Since this is a “widely expected” move, it shouldn’t have much effect. However, the January Consumer Price Index will also be announced tomorrow, so it could be difficult to separate the impact of the two events.

The Wall Street Journal

The U.S. Federal Reserve Thursday raised the rate it charges banks for emergency loans by a quarter percentage point, but emphasized that the step didn't represent a broader tightening of credit.

In a widely expected move, the U.S. central bank said the increase in the discount rate to 75 basis points from half a point was part of the Fed's steps away from its emergency-lending efforts. The increase will be effective from Friday.

"Like the closure of a number of extraordinary credit programs earlier this month, these changes are intended as a further normalization of the Federal Reserve's lending facilities," the Fed said in a statement.

http://online.wsj.com/home-page?mod=djemalertNEWS

Credit Tightening

2010-02-10T10:18:00.001-08:00

News Alert

from The Wall Street Journal

Timing could be everything for Bernanke’s “exit strategy.”

Jim

From the WSJ.

U.S. Federal Reserve Chairman Ben Bernanke outlined how the central bank may tighten credit once the economic recovery has taken root.

In prepared testimony, Bernanke said the interest rate paid to banks on excess reserves held at the Fed may for a time replace the federal-funds rate as the main policy target. Raising the excess-reserves rate, which currently sits at 0.25%, would give banks an incentive to park more funds at the Fed instead of lending to companies or households. That could help restrain an overheating economy and reduce the risk of inflation.

http://online.wsj.com/article/SB10001424052748704140104575057160496102900.html

Resources from EconEd Link

2010-02-09T10:16:00.000-08:00

You'll find the new lesson titled, "Focus on Economic Data: Federal Reserve and Monetary Policy, January 27, 2010," at:

http://www.econedlink.org/lessons/index.php?lesson=896&page=teacher&utm_source=newLessons&utm_medium=email&utm_campaign=lessons20100209

This lesson focuses on the January 27, 2010, press release by the Federal Reserve System's Federal Open Market Committee (FOMC) on the current Federal Reserve monetary policy actions and goals. This lesson is intended to guide students and teachers through an analysis of the actions the Federal Reserve is taking and can take in influencing prices, employment, and economic growth. Through this lesson, students will better understand the dynamics of the U.S. economy, current economic conditions and monetary policies.

Concepts you'll cover include Central Banking System, Federal Reserve, Federal Reserve Structure, Monetary Policy, Open Market Operations

As always, you'll find even more free lessons at http://www.econedlink.org/. Thank you for making 'EconEdLink.org' a part of your classroom.

2010-02-05T11:37:00.000-08:00

From the WSJ

U.S. Payrolls Slide;
Jobless Rate at 9.7%

http://online.wsj.com/public/page/news-economy.html

A great teachable moment. Because of the way that it is measured, the unemployment rate itself is not a great indicator of the strength of the labor market. The fact is that we lost 20,000 jobs last month. Some good news within the report however. Manufacturing employment increased, and average number of hours worked per week increased. This usually portends new hires.

Two other things to consider in evaluating the report.

“The January report was influenced by several special factors that may not be consistent with the underlying jobs trend. Temporary hiring for the U.S. 2010 census collection helped the employment picture in January, while the unusually cold weather probably hurt it.”

From CCEE’s Teacher Guide

The consensus is that everyone who is willing and able to work should be able to find a job. Next to the GDP, employment is the most watched report. The report is composed of two surveys, the Household Survey and the Establishment Survey. Together, these reports present a picture of the employment situation in the economy. Employment affects income, consumer spending, and wages; this information is essential in estimating where the economy is and where it is going. The unemployment rate is reported in the Household Survey. The Bureau of Labor Statistics call about 55,000 households and ask them specific questions to determine their employment status. Once the data is collected, the unemployment rate is calculates.

The labor force consists of all people between the ages of 16 and 65 who are either working or actively seeking work. To be counted in the labor force, a person must be 16 years or older, working, or available and actively seeking work. So the unemployment rate is simply:

number of people unemployed
total number of people in the labor force

[Caution: when talking about unemployment is important to emphasize that the calculations only include the number of people actively looking for work divided by the number of people in the labor force, not everyone in the population.]

There are many problems with using this measurement as an indicator of the strength or weakness of the labor market. A mother who wants to work but can’t afford daycare would not be considered part of the labor force. Part time workers who are looking for a full time job are considered employed. And there are many more idiosyncrasies that make the unemployment rate less than ideal as an indicator of how the economy is doing.

Another number that indicates the strength or weakness of the labor market is the change in nonfarm payroll employment. This information is taken from the Establishment Survey. Each month, about 300,000 establishments, employing about one third of all payroll workers, submit their reports to the Bureau of Labor Statistics. In addition to the change in employment, the report also includes average workweek, average hourly earnings, and overtime

When economists talk about full employment, they don’t mean that 100% of the labor force is employed. If this were the case, no one would be changing jobs. At any point in time, some people will be out of work because they are moving to a better job. This type of unemployment is called frictional unemployment and it is not considered a problem because it is an indicator of people moving to better jobs.

An activity to teach about the unemployment rate

Queen for a Day

You are a Migrant farm worker, and you usually don't have any trouble finding work in season. You worked last week, but this week and the next three weeks, you will be waiting for the strawberry crop to come in. You have some cash and no family so you'll be alright, but you'd sure like to earn some money. Trouble is, you don't know how to do much except to pick crops. (Not unemployed since non-work is a result of weather.)
I am an army officer leaving the service after 18 years. I have already secured a new job as a teacher, but it won't be starting for two months. In the meantime, I plan to take my family and tour the U.S. I have plenty in the bank. (Unemployed - frictional)
You are a discouraged worker, you have been looking for any type of work in all sections of the town for over 3/4 of the year. You have a wife and two kids and no job. Your home is filled with tension, anxiety and anger. Every time you walk in the door, your wife starts yelling at you "where is the food for the children?" You give up completely and decide to be a wine‑o for the rest of your life. Or maybe a beggar. You might stow away on a plane and fly off to a desolate island, where you don't have to find jobs ‑ you just pick bananas off the trees! (Not in the labor force, therefore, not unemployed)
You are twenty years old and zipped through high school the easiest way you possibly could. You never took a single class you didn't have to and you hardly ever went to the ones you did take. For the past two months you have been "thumbing" around the country. You once worked in your mother's office. She fired you after three months at your request. (Officially unemployed)
You are a house husband. Your wife is director of research for IBM making $400,000 per year. You are sick and tired of staying home, cooking, cleaning, washing and taking care of her every whim when she gets home at night. Although you can't type or take shorthand, you begin searching for a position as an executive secretary. You will settle for nothing less than $60,000 per year. After all, a man of your looks and personality is worth it! (Officially unemployed)
I am a part‑time maid who works only five hours a week. I really need full‑time work. My wife needs an operation to cure an eye condition which is preventing her from working. (Employed)
You are a sixty‑eight year old man and you desperately want to work. You are very healthy and your mind is still sharp. Your poor late wife is dead and your only child died at the ripe old age of ten from an exotic tropical disease. You hate soap operas and staying idly at home. Property taxes are going up and you have no one to take care of you as you get older. You have some savings but you'd like to earn some money. You know you could still do good work, if you could only find a job. Everywhere you go those young whipper snappers say "you are a little on the old side sir, we just don't have anything for you today; oh and by the way, don't call us, we'll call you." (You hate the youngsters now‑a‑days.) (Probably not in the labor force so not unemployed)
You are a widowed mother of four. Your husband left you with no assets and no insurance. Your children are all under five years old. You have never held a job, you have a high school education but don't know how to do much outside the home. Any job you found would have to pay enough for a pretty good babysitter. The rent is due in two days and you have no groceries. (Not in the labor force, not available for work, not unemployed.)

Econ news - big jump in GDP, Bernanke confirmed

2010-01-29T08:37:00.000-08:00

Good morning folks.

As expected, Chairman Bernanke was confirmed by the Senate. It wasn’t a close vote but it was the closest ever for a reconfirmation (70-30)

http://online.wsj.com/article/SB10001424052748704878904575031020105055604.html?mod=WSJ_economy_LeftTopHighlights

GDP rose much faster than expected due to (slower) inventory declines, not consumer spending.

From the WSJ
Gross domestic product rose a seasonally adjusted 5.7% annual rate October through December, the Commerce Department said Friday in its first estimate of fourth-quarter GDP.
Economists surveyed by Dow Jones Newswires had forecast 4.8% GDP growth during the fall.
GDP has gone up two straight quarters, rising 2.2% in the third quarter after a year of contraction. In all of 2009, GDP fell 2.4%, the biggest drop for an entire year since 10.9% in 1946. GDP rose 0.4% in 2008 and 2.1% in 2007.

"Household spending is expanding at a moderate rate but remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit," the Federal Open Market Committee of policymakers said this week.

http://online.wsj.com/article/SB10001424052748703389004575032893301414842.html?mod=WSJ_economy_LEADStoryTop

New Homes

2010-01-28T09:31:00.000-08:00

These two articles, combined with yesterday’s on sales of existing homes, (which seem to contradict each other)should be a good lesson for your students on the fact that markets are often difficult to read. The nice thing about the first of these articles is that it points our regional differences. Obviously, data for the national market hides these differences. Also, there is a different market for high end homes than for low end homes.

While this may be much more than you want to get into, it is a great lesson for a deeper understanding of markets and national data.

By the way, one of the reasons that analysts pay so much attention to the construction and auto industries is that, together, both directly and indirectly, they account for up to 40% of total employment in the nation.

Both articles are from the WSJ.

Housing Momentum Builds but Perils Persist

Low Inventories Spark Bidding Wars in Some Neighborhoods, but Job and Mortgage Woes Threaten New Foreclosure Wave

http://online.wsj.com/article/SB10001424052748704905604575027370647347644.html?mod=WSJ_article_LatestHeadlines

New-Home Sales Tumble

http://online.wsj.com/article/SB10001424052748704094304575029002109779516.html?mod=djemalertNEWS

Econ News of the Day

2010-01-28T09:29:00.000-08:00

Some observations:

This is a great time to be teaching macro. The focus of the State of the Union was on the economy and job creation.
It is no surprise that the Fed left rates unchanged yesterday.
Today’s initial claims for unemployment benefits was down slightly from last week but the decline had been expected to be greater. The four week moving average was up slightly. Not a particularly good sign, but also not a trend setter. http://online.wsj.com/article/SB10001424052748704878904575030884203210288.html?mod=WSJ_hps_LEFTWhatsNews
The Senate should vote today on Bernanke’s confirmation. If he makes it, expect the markets to express their satisfaction over policy stability. http://online.wsj.com/article/SB10001424052748704878904575031020105055604.html?mod=WSJ_hps_LEFTWhatsNews

2010-01-05T09:32:00.000-08:00

Hi folks, welcome back. I hope you had a wonderful holiday. We will soon be gearing up for our Capital Markets Contest and our MoneyWiseTeen contest. Please let Bernard know if you are interested in either or both. I will send info about both shortly.

Jim

A Purchasing Managers’ Index (PMI) of over 50% means expansion in manufacturing. This is a good sign. From our Teacher Guide to the California Economics Standards.

The Purchasing Managers’ Index

The very first indicator of economic conditions (because it is released on the first business day of the month) is the Purchasing Managers’ Index, calculated and announced by the Institute for Supply Management. Because it is the first glance that analysts have of the manufacturing sector, it is closely watched. Twenty industries are represented in the survey. The questionnaire includes questions on new orders, production, vendor deliveries, employment, inventories, imports, and commodity prices. Participants are asked whether these are higher, lower, or the same as last month. An index is then developed that is seasonally adjusted. In general, a PMI below 50 signifies that the manufacturing sector is shrinking and an index above 50 indicates that it is growing. An index of 40 or below suggests recession and worries analysts, while 60 or above suggest strong inflationary pressure and threatens higher interest rate pressure by the Federal Reserve.

From the Wall Street Journal
The global economic recovery is gaining traction, as manufacturing cranks up around the world.
A jump in new orders spurred U.S. factories to step up production, with manufacturing expanding in December at its fastest pace in more than three years, according to a survey of U.S. purchasing managers released Monday. Similar reports in Asia and Europe also showed the pace of expansion quickened last month.
The mounting evidence of a global manufacturing rebound gave world stock markets a boost on the first trading day of the new year. The Dow Jones Industrial Average rose 155.91 points, or 1.5%, to 10583.96.
"It's looking very good and not just in the U.S.," said Zach Pandl, an economist with Nomura Securities in New York. "The economy has a lot of momentum right now -- it's a good sign that we're turning a corner."

The Institute for Supply Management reported Monday that its purchasing managers index rose to 55.9 in December, the highest level since April 2006. Numbers greater than 50 indicate expansion in the U.S. manufacturing economy.
The report suggested the economy is growing quickly enough to avoid slipping into a double-dip recession: In the early 1980s, for example, the economy slipped back into recession after a brief recovery.
Monday's U.S. manufacturers report said the index of new orders rose to its highest level in five years, and an increase in its employment index showed manufacturers were hiring back workers to meet rising demand.
Manufacturing's share of the U.S. economy is much smaller than it was in the 1980s. But it remains an important bellwether, highly sensitive to changes in the economy. Many nonmanufacturing businesses -- from car dealers to long-haul truckers -- rely on its good health to survive.
"The odds of a double dip have gone from one-in-three to one-in-five," said Don Ratajczak, a consulting economist with Morgan Keegan.
The risk, however, remains. Big question marks hang over the U.S. economy, prompted by high levels of household debt and a still-stagnant housing market. Although U.S. manufacturing appears to be growing, activity is still down sharply from what it was before the recession. In November, according to the Federal Reserve, manufacturing production was 13.3% below its December 2007 level.
The strength of the U.S. economy will be tested when federal stimulus funds, homebuyer tax credits and other government supports end.
Industrial giant General Electric Co. in Fairfield, Conn., recently announced several big orders and partnerships in such businesses as avionics, wind turbines and power turbines. But it had said it was still planning layoffs by the end of 2009.

Associated Press

Kim Robinson puts labels on Playaway self-contained, battery-powered audio player books in December at the Findaway World headquarters in Solon, Ohio. Manufacturing activity grew in December at the fastest pace in more than three years.

"Unfortunately, construction-equipment manufacturing continues to be depressed. We have not seen an uptick," said Mike Bazinet, a spokesman for Terex Corp., which makes cranes and other heavy equipment and is based in Westport, Conn.
Mr. Bazinet said Terex continued to reduce locations and employees in the fourth quarter. While stimulus money was available, he said, "many states cut back on their construction funding. This makes it very hard for contractors to bid the work. Even if they are getting jobs, they tended to be shorter-term paving and shovel-ready projects."
The Labor Department will release the December jobs report on Friday, and economists will be looking for clues of when the U.S. will generate new jobs again. Economists polled by Dow Jones Newswires estimated 10,000 jobs were lost last month, which would be the fewest in two years.
But with a growing U.S. population, most economists estimate it will take employment growth of at least 100,000 jobs a month to bring down the unemployment rate, which stood at 10% in November.
The weak job market is still hampering the willingness of consumers to spend. In the U.S. economy, consumer purchases represent about two-thirds of total demand, and spending by Americans remains an important engine of economic growth around the world.
"Our customer base, they all seem to think that things are coming back," said Robert Mosey, owner of Moseys' Production Machinists in Anaheim, Calif. The company makes components for aerospace, laser, medical-technology and oil-drilling-equipment manufacturers. "Everyone's attitude is 2009 is past us now, we can look ahead and do business. It won't jump back up to 2008 levels, but we should start seeing some movement."
In Asia, where countries in large part weathered the downturn better than their Western counterparts, manufacturing is heating up inflation concerns.
The HSBC purchasing managers' index for India hit its highest level since May, and for China rose to the highest level in 20 months. The reports Monday came as Asian countries considered dialing back fiscal-stimulus efforts and easy monetary policies adopted during the crisis.
Australia's central bank was among the first to raise its key policy rate, and market watchers were waiting to see whether such recovering nations as India and South Korea would follow suit.
Purchasing managers' indexes for Germany, Italy and France also rose. In Britain, the manufacturing sector expanded at its fastest pace in more than two years, indicating the U.K. economy may have emerged from recession in the fourth quarter.
The positive economic data was a sharp contrast to the mood among economists at the annual conference of the American Economic Association in Atlanta. Many were subdued in their outlook for 2010.
"Strategic default on mortgages will grow substantially over the next year, among prime borrowers, and become identified as a serious problem," said Robert Shiller, an economist at Yale University. "It will grow because of a building backlash against the financial sector, growing populist rhetoric, declining sense of community with the business world. Some people will take another look at their mortgage contract, and note that nowhere did they swear on the Bible that they would repay."

—Paul Glader and Michael A. Arnold contributed to this article.

Retail Sales Surge

2009-11-18T09:06:00.000-08:00

Better surge than sag! Autos had a lot to do with the surge so the picture is still cloudy. Some say this predicts a better than expected holiday season, others disagree. Shocker!

Read more....CNNMONEY.COM

Data Point to Low Inflation, Slow Recovery

2009-11-18T09:03:00.000-08:00

NOVEMBER 17, 2009, 10:43 A.M. ET

Data Point to Low Inflation, Slow Recovery

Producer Prices Rose Less Than Expected in October

Take a look at this good article by LUCADI LEO and JEFF BATER

http://money.cnn.com/2009/10/16/news/economy/industrial_production/index.htm

Employment Data

2009-10-19T08:47:00.001-07:00

Interesting news. The employment data are particularly encouraging since there has been so little good news on that front. This clearly does not mean a turn around in the labor market, but it is nice to get some less bad news. The Industrial Production numbers also bode well for economic growth in the third quarter. The retails sales data are also encouraging. All in all, a pretty good couple of days.

Fed's Decision to Leave Rates Unchanged

2009-10-15T15:52:00.000-07:00

Interesting news. Not much fuss about the Fed’s decision to leave rates unchanged, initial claims for unemployment declined, surprising some analysts, resale home purchases are down but housing prices were up slightly earlier in the week. Oil prices declined in reaction to “over supply.” A great way to teach supply and demand is to have students follow oil prices over the semester and have them explain why they move the way they do.

http://money.cnn.com/news/briefing/index.html