Here’s Louis Woodhill in Forbes:
So, how is this QE3 thing working for us?
During three months of QE3, 4Q2012, nominal GDP (NGDP), which is precisely the variable that QE3 is supposed to stimulate, hit a wall. Annualized NGDP growth slowed sharply, falling from 5.78% in 3Q2012 to only 0.46% in 4Q2012. This was the lowest quarterly NGDP growth rate since the recession ended in 2Q2009.
Strike one.
The growth of total employment, which was 526,000 during 3Q2012, fell to 331,000 in 4Q2012.
Strike two.
Let me remind readers that I much prefer NGDPLT to QE3, but I did predict that QE3 would have a very small but positive impact on growth, certainly enough to offset fiscal contraction. The evidence so far suggests that there is no reason to reject that prediction. Let’s start with Woodhill’s jobs numbers, which are incorrect. Job growth was larger during the 4th quarter than the 3rd quarter. Indeed the five months since QE3 have seen the creation of an average of 196,200 jobs per month. During the preceding 5 months the average monthly increase was only 133,600. I certainly don’t view that acceleration as being statistically significant, but if Woodhill thinks jobs are the right measure, will he will now change his mind and declare QE3 a success? Here’s the link in case anyone wants to check my math.
The GDP number was very low in the fourth quarter, but recall that NGDI is a much more accurate estimate of NGDP, than NGDP itself. And the NGDI number won’t be announced for a few more weeks. I’ll go on record predicting it will show much higher growth than the NGDP estimate. The biggest and most important components of NGDP are total wages and salaries, plus profits. The jobs numbers suggest total wages are growing (and indeed 4th quarter wage data is already in, and confirms that fact.) Profits in Q4 would have to be horrible to offset the wage gains.
I don’t think macro data tells us very much about QE. Even my previous post says little more than “no reason to move away from my theory-based prior of a zero multiplier.” You really need to look at market reactions to QE rumors, where the data is overwhelming clear to anyone who pays the slightest attention to the financial markets. But if people insist on using macro data, they need to get it right.
Woodhill has done some great work on the folly of interest on reserves. But monetary policy is very complex and I believe he puts too much weight on that single factor.
PS. Lars Christensen recently commented on my Canadian AS shock post. Here’s my reply:
Lars, Just to be clear, I claimed it was BOTH a supply shock and a demand shock. I relied on Nick’s claim that core inflation was stable, in which case both curves shifted left. I also relied on introspection. It defies common sense that unemployed auto workers in Ontario would be immediately rehired as construction workers in Vancouver—it takes a while to move and to be retrained.
I did blame the BOC for also allowing a negative demand shock, which increased unemployment.
The fact that a drop in demand for Canadian exports SEEMS like a demand shock is Keynesian reasoning–mixing micro and macro perspectives. It might be true, but in this case the evidence suggests that Canadian AS declined—presumably for reallocation reasons.
BTW, I believe the same applies to the US. Under NGDP targeting we would have had stagflation in 2008-10; perhaps 1% RGDP growth and 4% inflation.