« The dramatic effect of a firm nudge (Sunstein and Thaler) | Main | Inflation prospect and Banxico's expected move »

It’s a terms-of-trade effect.

from WSJ RTE blog.

To be sure, “whether you’re selling to a domestic consumer or abroad, it’s still production,” Reinhart said. But differences between export versus domestic production still matter for consumers and their purchasing power. Even if the prices of many goods and services U.S. exporters produce are going up, they’re not keeping pace with the prices of things Americans import, due largely to the huge spike in energy prices. Indeed, according to government price data, prices of U.S. imports swelled 20.5% in the 12 months ending June, while export prices increased only 8.6%.

“It’s a terms-of-trade effect,” explained Bosworth. “When you measure (household) wages .. in terms of their output prices it looks good; when you measure it in terms of the things they want to buy, it looks bad,” he said.

“What we export buys less and less in terms of imports,” agreed Josh Bivens, economist at the Economic Policy Institute.

That’s “one reason why the economy maybe feels worse than headline GDP says,” Bivens said, since a reduction in purchasing power is offsetting the growth in GDP. That trend may persist as the economy goes through a necessary rebalancing brought on by the weaker dollar.

“We’re starting from a place where we’ve done far too little manufacturing production,” Bivens said. To reverse that “we’re going to have a couple of years where consumption drags behind GDP,” Bivens said.

|

« The dramatic effect of a firm nudge (Sunstein and Thaler) | Main | Inflation prospect and Banxico's expected move »

Economics」カテゴリの記事

Comments

Post a comment



(Not displayed with comment.)




« The dramatic effect of a firm nudge (Sunstein and Thaler) | Main | Inflation prospect and Banxico's expected move »