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Industrial Production Release


In March industrial production in the American economy grew by 0.7%. At the pace of growth of the first three months of 2002, industrial production next December would be fully 6% higher than industrial production last December. This industrial production rise is the latest in a series of pieces of news that the U.S. economic recovery is on track, and that when the National Bureau of Economic Research's Business Cycle Dating Committee makes its decision, it will call the end of the recession as coming last December, only a month after they met to decide that the recession had begun in March of 2001.

Of the four key indicators of the state of the business cycle--incomes, sales, production, and employment--only employment is still signalling a possible continuation of the recession. Incomes never went through a period of decline at all. Sales growth since 911 has been strong. And the past three months have seen industrial production reverse the slide it began in June of 2000. Only employment continues to be flat, refusing to grow.

Why is employment sending a different signal? Because just recently, after stalling throughout the entire year of 2001 as the unemployment rate rose, President George W. Bush agreed to extend the duration of unemployment benefits for 13 weeks to cushion the impact of the recession on those among the unemployed who are having difficulty finding jobs. But whenever you extend unemployment benefits, you virtually guarantee yourself a half-a-percentage-point rise in the unemployment rate relative to its underlying trend: with longer benefits, people will take more time to find their next job. This may be a good thing (producing better matches between firms and workers) and this may be a bad thing (reducing total social welfare). But it is definitely a thing. President George H. W. Bush, after stalling throughout the entire year of 1991 as the unemployment rate rose, finally agreed to extend unemployment benefits at the start of 1992. He thus guaranteed himself bad unemployment news throughout the presidential primary season in spite of what appeared then and appears now to be a healthy recovery otherwise.

So why did President George W. Bush stall on extending unemployment benefits throughout 2001? Why did he agree to extend them only after what looks like the trough of the recession has passed? I can't understand it.

Previous Handouts

2002-04-24: Productivity Discrepancies
2002-04-17: The Course of the Recession and What It Tells Us About the New Economy
2002-04-10: Productivity Growth
2002-03-27: America's Rebound from Recession
2002-03-20: World Economic Forecasts
2002-03-13: Population Growth (Chapter 5: Growth Facts)
2002-03-06: Capacity Utilization (Chapter 2: Economic Data)
2002-02-27: U.S. Household Incomes (Chapter 2: Economic Data; Chapter 5: Growth Facts)
2002-02-20: Unemployment in the 1990s (Chapter 2: Economic Data)
2002-02-06: U.S. Monetary Policy (Chapter 13: Stabilization Policy)
2002-01-28: GDP in 2000 and 2001 (Chapter 13: Stabilization Policy. Chapter 2: Economic Data)
2002-01-21: The Course of the U.S. Recession (Chapter 13: Stabilization Policy)
2002-01-07: Argentina's Crisis (Chapter 15: Exchange Rate Regimes)
2001-12-10: The U.S. Recession (Chapter 2: Principal Macroeconomic Variables)
2001-12-03: The Overvalued Euro (Chapter 3: Exchange Rates; Chapter 15: Exchange Rate Regimes)
2001-11-26: Net Exports, the Exchange Rate, and an IS-Led Boom (Chapter 11: Balance of Payments; Chapter 15: Exchange Rate Regimes)
2001-11-19: The European Central Bank and Its Monetary Policy (Chapter 13: Stabilization Policy)
2001-11-12: Central Banks Worldwide Cut Interest Rates Again (Chapter 13: Stabilization Policy)
2001-11-05: Effects of the Collapse in Spending on Durables (Chapter 9: Income-Expenditure and the Multiplier.)
2001-10-28: What Kind of Stimulus (Chapter 13: Stabilization Policy. Chapter 9: Income-Expenditure and the Multiplier.)
2001-10-21: Federal Reserve Reaction to the Terror Attack on the World Trade Center (Chapter 13: Stabilization Policy. Chapter 10: The IS Curve.)
2001-10-14: Why a Stimulus Package Might Be Desireable (Chapter 13: Stabilization Policy. Chapter 10: The IS Curve.)

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