Category Archives: economics

Mars Recovers from First Recessionary Event

On 7 December 2022, we documented the birth of the Martian economy and estimated the planet's GDP. Six Earth months and just over one Martian quarter later, we're ready to revisit the Red Planet to find how things have changed.

And change they have, because in between then and now, Mars' economy experienced its first recession-like event. After collecting its sixth cored rock sample on 29 December 2022 and putting it into inventory, the Perseverance rover ran into a technical problem that prevented it from collecting more samples, effectively suspending economic activity on the planet. Here's the story from NASA's press release:

On Wednesday, Dec. 29 (sol 306) Perseverance successfully cored and extracted a sample from a Mars rock. Data downlinked after the sampling indicates that coring of the rock the science team nicknamed Issole went smoothly. However, during the transfer of the bit that contains the sample into the rover’s bit carousel (which stores bits and passes tubes to the tube processing hardware inside the rover), our sensors indicated an anomaly. The rover did as it was designed to do - halting the caching procedure and calling home for further instructions.

NASA subsequently determined that rocky debris from its latest core sample blocked the rover's drilling equipment from seating properly, taking it out of action until it might be cleared. Here's a photo of the debris, which you can see at the bottom of the rover's drilling bit carousel:

Debris in Perseverance's Bit Carousel: Pebble-sized debris can be seen in the bit carousel of NASA’s Perseverance Mars rover in this Jan. 7, 2022, image. Credits: NASA/JPL-Caltech/MSSS

It took almost a full Earth month to do it, but NASA's engineers succeeded in ejecting the debris from the bit carousel, allowing the rover to continue its rock core sample collecting mission. The rover would proceed to collect its seventh rock core sample on 8 March 2022 after traveling to its location in Mars' Jezero Crater. One week later, the rover collected its eighth sample that will someday be exported to Earth.

Since then, NASA engineers directed the Perseverance rover to travel to a new location in an ancient river delta within the crater to scout where it might collect additional rock samples. It has not collected more as of the end of the Martian quarter.

That brings us to the first revision of Mars GDP for its first quarter and the first estimate of its GDP in its second economic quarter.

We find our first estimate of Mars' quarterly GDP missed the collection of the fourth sample on 24 November 2021, so we need to adjust the estimate to account for it. We find Mars' GDP in its first economic quarter would fall in a range between $88,624 and $702,464. That range is up from the previously estimated range of $66,468 to $526,848.

Having added four samples to those original four in Mars' second quarter, we estimate the red planet's GDP will likewise fall between $88,624 and $702,464. With NASA engineers making a concerted effort to be more discriminating in selecting rock samples to core and store for future export to Earth, we think Mars' GDP will run to the higher end of that range.

We should also point out that had the debris issue not arisen and required a month to resolve, the Perseverance rover might have already collected its ninth rock sample. Martian GDP has fallen below its potential GDP for the first time.

If you're curious how Mars' future export economy will work, the following video explains what planetary scientists have in mind:

Back on Earth, NASA selected Lockheed Martin to develop the rockets that will be sent to Mars to collect the rock samples currently held in inventory by the Perseverance rover on the planet's surface on 7 February 2022.

Previously on Political Calculations

Postscript

Just because it's cool, here's video of a solar eclipse as seen from the surface of Mars involving its moon Phobos!

CO₂ Points to China Economy Rebound in May 2022

The rate at which carbon dioxide emitted by human activities accumulates in the Earth's atmosphere can tell us a lot about how the global economy is doing. Since the coronavirus pandemic took hold after December 2019, it has mostly had a lot to say about the relative health of China's economy. That's because China is, by a very wide margin, the world's biggest emitter of carbon dioxide.

Much of that decline has to do with the country's zero-COVID policy. The Chinese government imposes strict lockdowns that shut down economic activity to try to limit COVID outbreaks. The economic effects of those lockdowns subsequently show up in measurements of atmospheric carbon dioxide at the remote Mauna Loa Observatory in the Pacific Ocean. In March, China locked down large portions of Shanghai and surrounding regions, its largest economic center. Lauri Myllyvirta of Finland's Centre for Research on Energy and Clean Air describes the impact:

“Starting from late March … the main driver [of reduced emission] has been [the government’s] harsh Covid-19 control policies,” he wrote in a blog published by UK-based website Carbon Brief, which covers climate science and energy policy. “The second quarter of 2022 appears highly likely to extend the trend of falling emissions – even as the construction sector slowdown bottoms out – due to the impact of Covid lockdowns becoming much more pronounced.”

That impact has been very visible in our chart tracking the pace of CO₂ accumulation, which has been falling since China imposed its new lockdowns. But in May 2022, we find that recent decline has halted.

Trailing Twelve Month Average of Year-Over-Year Change in Parts per Million of Atmospheric Carbon Dioxide, January 2000 - May 2022

The change suggests some of the Chinese government's newest efforts to boost the country's economy are having their desired effect. But whether that boost will continue in the near term remains to be seen. On 8 June 2022, the Chinese government imposed new lockdown measures in places where they were just lifted.

Shanghai and Beijing went back on fresh COVID-19 alert on Thursday after parts of China's largest economic hub imposed new lockdown restriction and the city announced a round of mass testing for millions of residents....

Both cities had recently eased heavy COVID curbs, but the country has stuck with a "dynamic zero-COVID" policy aimed at shutting down transmission chains as soon as possible....

While China's infection rate is low by global standards, President Xi Jinping has doubled down on a zero-COVID policy that authorities say is needed to protect the elderly and the country's medical system, even as other countries try to live with the coronavirus.

Shanghai's two-month lockdown, the shuttering of many malls and venues across Beijing and movement curbs imposed in many cities in recent months have battered the Chinese economy, disrupted supply chains and slowed international trade.

Authorities have been keen to revive business and started to relax some curbs in May which helped China's exports that month to grow at a double-digit pace, beating expectations, but residents, businesses and investors are wary.

Exit question: What does the continuation of the zero-COVID policy say about the confidence of Chinese leaders in their country's medical system's ability to handle COVID?

References

National Oceanographic and Atmospheric Administration. Earth System Research Laboratory. Mauna Loa Observatory CO2 Data. [Text File]. Updated 3 June 2022. Accessed 3 June 2022.

After Inflation, Average Earned Incomes Fall in 2022

2022 is shaping up to be a very bad year for average Americans. President Biden's inflation is eating away at the incomes earned by average Americans.

Although the beginning of that inflation traces back to the passage of the American Rescue Plan Act of 2021 on 11 March 2021, the lifting of state and local COVID lockdowns throughout 2021 initially allowed the average of Americans per capita wage and salary income to increase faster than the inflation Biden's wasteful stimulus fueled. But in 2022, inflation has risen faster.

The following chart shows that effect playing out. Adjusted for inflation, the average earned income for Americans (shown as the blue line) peaked in December 2021, falling in each month since.

Average Individual Earned Income in the 21st Century, January 2000 - April 2022

One of the more interesting aspects of the inflation unleased in the U.S. is how different it is from what other nations are experiencing. The Financial Times' Robert Armstrong explains how its different in nature from what the Eurozone is experiencing (boldface emphasis ours):

After the eurozone printed record inflation yesterday, Tyler Cowen had some questions. Why, the economist asked at his excellent Marginal Revolution blog, is European services inflation, at 3.8 per cent in May, running so hot? In the absence of a jumbo-sized American fiscal stimulus package, the European inflation story so far has been about scarce energy. But why should that spell pricier services?

Good questions. So we put them to a few sharp minds on the eurozone. Here are some answers.

First and foremost, hot eurozone inflation is still about energy. Energy prices pass into other prices. This is plain to see in the spread between eurozone headline and core inflation. Pull out food and energy, and eurozone inflation drops four percentage points....

With energy stubbornly expensive, inflation in services categories such as transport and housing have picked up. But there is another piece to this. Prices in areas such as recreation, hotels and restaurants are rising fast too, as Europe enters its first post-Covid summer in several years. Supply is still clearly the dominant factor, but demand is starting to matter too.

This might look uncomfortably close to US inflation, where narrow pandemic-specific inflation gave way to broad price increases. But the comparison is imprecise. For instance, Europe is seeing some goods inflation in areas such as vehicle prices, but nothing like the American dash for used cars. Much of Europe's goods inflation is imported, while the US experience was all about roaring demand.

The biggest difference is in employment and wages. Tight US labour markets (alongside oodles of excess cash savings) are supporting high demand. Not so in Europe, where household consumption in the key eurozone economies has not recovered from the pandemic, as Tomas Hirst pointed out on Twitter yesterday. Hours worked are below pre-pandemic levels too, suggesting labour market slack. Wages aren't yet a big part of Europe's inflation story.

In sum, the big picture looks like demand-pull inflation in the US and cost-push inflation in Europe.

Which is to say that while the inflation rates now being recorded in the U.S. and the Eurozone may seem similar, that similarity is superficial. Conflating the two experiences is therefore a mistake. The paths taken to get to a similar amount of inflation in both regions result from very different causes.

For the U.S., the "tight US labour markets (alongside oodles of excess cash savings)" Armstrong notes are exactly what President Biden's March 2021 stimulus created. Its generous stimulus checks for millions of American households funded an outsized demand for goods and services at a time its especially generous unemployment benefits ensured the U.S. economy would be starved of productive labor to provide them. That proved to be a recipe for making inflation. The worst inflation in over four decades now eating away at the incomes earned by Americans didn't happen by accident.

Previously on Political Calculations

References

U.S. Bureau of Economic Analysis. Table 2.6. Personal Income and Its Disposition, Monthly, Personal Income and Outlays, Not Seasonally Adjusted, Monthly, Middle of Month. Population. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 30 July 2021. Accessed: 30 July 2021.

U.S. Bureau of Economic Analysis. Table 2.6. Personal Income and Its Disposition, Monthly, Personal Income and Outlays, Not Seasonally Adjusted, Monthly, Middle of Month. Compensation of Employees, Received: Wage and Salary Disbursements. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 27 May 2022. Accessed: 27 May 2022.

U.S. Department of Labor Bureau of Labor Statistics. Consumer Price Index, All Urban Consumers - (CPI-U), U.S. City Average, All Items, 1982-84=100. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 11 May 2022. Accessed: 11 May 2022.

Better Ways to Sort Out What the U.S. Treasury Yield Curve Is Saying

Part of the U.S. Treasury yield curve inverted and all we got was lousy analysis!

Examples of U.S. Treasury Yield Curve, Inverted and Normal

That's actually something of an understatement. There has been an explosion of reporting about the inversion of the U.S. treasury yield curve in recent weeks. If you read any of it, you likely found it leaves a lot to be desired. Here's a random selection of recent headlines:

It's not any better if you read what academic economists have been writing either, much of which has the intellectual consistency of muddled hash. In fact, if all that analysis were laid out end to end, the last thing you'd ever reach from reviewing it all is a conclusion. You'd think achieving some sort of clarity would be both desirable and a priority because the inversion of the Treasury yield curve is believed to portend recession in the future for the economy.

Part of the problem is because the U.S. Treasury yield curve has more than one part to it than can become inverted. A lot of people will focus on some select parts of it, without taking what's going on in the rest of it into account.

That realization lies behind some more interesting analysis by MetricT at r/dataisbeautiful that offers a path to reach the kind of conclusions you'd want to reach whenever the treasury yield curve becomes inverted. Here's that original analysis from 28 March 2022, which has been updated with charts showing yield curve data through 15 April 2022 (in addition to some other minor tweaks):

Mean Yield Spread across all US Treasury Maturities as a (slightly) better recession gauge than the 10y/2y and 10y/3m yield curve spreads

The US Treasury yield curve spread (most commonly the 10 yr/2 yr and 10 yr/3mo spreads) are popular gauges of incoming recession. But those measures aren't perfect. In particular:

  • There is a noticable false positive from Sep 1966 - Feb 1967 where the 10 yr/3 mo yield curve inverted but no recession followed.
  • A "is it or isn't it?" event in 1998 where the yield curve almost inverted before returning to normal. This caused a lot of consternation at the time until it was subsequently shown to be another false positive.
  • Another "is it or isn't it?" event in 2019 where the yield curve inverted, but pundits wondered if it "inverted enough" to trigger a recession. Narrator: It did...

I've been looking at ways to improve the traditional yield curve measures. A few months ago I posted R code to graph the percent of all yield curve spreads that are inverted, which made it much more obvious that a recession was the likely outcome in 2019.

So the idea occured to me: There are (at present) 55 different yield curve combinations. What would the average of all yield curve combinations look like? That should give us a better measure of how distorted the yield curve is than looking at a single pair of spreads.

As it turns out, the average does perform a bit more accurately than the 10y/2y and 10y/3m yield curves. In particular, it fails to invert in 1998, meaning our "is it or isn't it?" has a much clearer "no" answer. And it did invert during the similar "is it or isn't it?" event in 2019 and correctly predict a recession. So it sends a clearer signal than the better known 10y/2y and 10y/3m curves.

Graph 1:

Graph 1

Top: The US Treasury yield curve as of April 15 2022. A healthy yield curve should be upward sloping. Notice the obvious bear flattening between 3 yr <-> 10 yr Treasuries. There are already inversions between several longer-duration Treasuries (inverted points highlighted in red). There is currently a technical inversion in the 30yr/20yr curve due to a preference for 30 year Treasuries due to the relative newness of 20 yr Treasuries.

Middle: The usual 10y/2y and 10y/3m spread alongside the average yield spread for all maturity combinations. Notice that while the 10y/2y is rapidly nosediving (and getting a lot of press in doing so), the average is still relatively stable, though that may or may not last much longer. So keep an eye on things, but don't overreact just because the 10y/2y curve inverts.

Bottom: Shows the percent of all Treasury combinations that are inverted. It's graphed as a percent because the total number of maturities has changed over time (for instance, the Fed introduced 7 yr Treasuries in 2009), so graphing the percent allows you to do an apples-to-apples comparison. The color scheme is simply "blue if the average yield curve spread is < 0, red if it's > 0".

Graph 2:

Graph 2

Graphs the Federal Funds Rate since 1985 and highlights times when the average yield curve is inverted. As you can see, Fed tightening has come to a screeching halt almost immediately once the average YC is inverted, and quickly starts heading downward. It suggests the Fed is going to have great difficulty raising the Fed rate, as they probably only have a few months before the average inverts.

I'll clean the code up and eventually post it on my Github repo, though it will probably take a few days.

There are two bits of good news. First, MetricT's code is available! Second, through 15 April 2022, the average of all yield curve combinations hasn't changed the low probability of recession signal of MetricT's original analysis from 28 March 2022.

We're not the only ones who recognize there's a lot lacking in current day analysis of the treasury yield curve. For additional discussion, we'll recommend adding Scott Grannis' exploration of better measures of the yield curve to your reading list as well.

Previously on Political Calculations

Signs of Stalling Growth for Earth’s Economy

The pace at which carbon dioxide is increasing in the Earth's atmosphere slowed significantly according to data recorded at the remote Mauna Loa observatory for March 2022. The following chart shows the latest development for the trailing twelve month average of year-over-year change in the atmospheric concentration of carbon dioxide:

Trailing Twelve Month Average of Year-Over-Year Change in Parts per Million of Atmospheric Carbon Dioxide, January 2000 - March 2022

That change interrupts what had been a robust upturn in CO₂ emissions, driven primarily by China's record coal spree in recent months. The new change however coincides with indications that China's economic growth has sharply slowed in 2022, as indicated by its negative year-over-year growth rate for imports from the United States for December 2021 and January 2022.

Year Over Year Growth Rate of Exchange Rate Adjusted U.S.-China Trade in Goods and Services, January 1986 - January 2022

That reduction is attributable to China's ongoing struggle with COVID-19, which disrupted economic activity in the Earth's biggest emitter of carbon dioxide in both December 2021 and January 2021. Allowing for the lag in China's carbon dioxide emissions to diffuse into the Earth's air, we think that economic slowdown is now showing up in March 2022's atmospheric CO₂ measurements. With China's government still committed to its COVID-zero policies and still locking down millions of China's productive population for weeks at a time as coronavirus infections continue to spread in the country despite its measures, we anticipate reduced carbon dioxide emissions will show up in the Earth's air from the world's biggest carbon emitter over the next several months.

National Oceanographic and Atmospheric Administration. Earth System Research Laboratory. Mauna Loa Observatory CO2 Data. [Text File]. Updated 7 March 2022. Accessed 9 March 2022.