Download - Outlook for the Economy in 2009
Outlook for the Economy in 2009
Steven Kyle
Cornell University
December 2008
2008 $431 - 50%
2007 $859 - 5%
2006 $907 - 4%
2005 $942 - 6%
2004 $1,004 + 3%
2003 $976 - 6%
2002 $1,037 -1%
2001 $1,052 + 9%
2000 $968 + 3%
1999 $939 + 1%
1998 $928 + 34%
Christmas Spending Plans
Year Average Spending Percent Change
American Research Group Survey Nov10-13; Tel. Interview with 1,100 Adults
The Gap in Demand
• GDP = C + I + G + Net Exports
• C is down – People have rediscovered savings
• I is down – Why invest if nobody is buying?
• NX is down – The rest of the world is in recession also
• That leaves only G able to expand
What Kind of Stimulus?
• DO– Make it soon– Contribute directly to immediate spending
• Extend Unemployment• Aid to state government• Aid to already-in-the-pipeline projects• Try to promote long run growth where possible
• DON’T– Make it piecemeal– Think that tax cuts will necessarily be spent– Imagine that incentives to lend = actual lending– Implement permanent programs unless they contribute to long
run growth and productivity
How Much?
• Historical Context– WW2 is what got us out of the Great
Depression – Deficits ranged as high as 20% of GDP – That was likely more than enough but still, it was huge
– Chinese just announced stimulus of 20% of GDP
• Goldman Sachs estimate of current gap at around 10% of GDP
• Too much less dangerous than too little
J F M A M J J A S O N D
2001 52 58 60 59 58 59 57 59 55 46 48 55
2002 58 58 62 61 61 61 61 55 63 61 62 63
2003 62 63 56 55 60 63 65 67 67 69 68 69
2004 68 66 66 69 69 68 67 70 67 69 70 71
2005 70 69 70 67 70 72 70 67 65 68 61 57
2006 57 56 54 51 46 42 39 33 30 31 33 33
2007 35 39 36 33 30 28 24 22 20 19 19 18
2008 19 20 20 20 19 18 16 16 17 14 9
NAHB Housing Market Index – Builder Confidence
Source: Builders' Economic Council (BEC) Monthly Surveys
