From a paper by Michele Andreolli, Natalie S. Rickard, and Paolo Surico (offered at NBER Summer season Institute Financial Economics periods):
Utilizing newly constructed time sequence of consumption, costs and earnings in important and non-essential sectors, we doc three predominant empirical regularities on post-WWII U.S. information: (i) spending on non-essentials is extra delicate to the business-cycle than spending on necessities; (ii) earnings in non-essential sectors are extra cyclical than in important sectors; (iii) low-earners usually tend to work in non-essential industries. We develop and estimate a structural mannequin with non-homothetic preferences over two expenditure items, hand-to-mouth customers and heterogeneity in labour productiveness that’s per these findings. We use the mannequin to revisit the transmission of financial coverage and discover that the interplay of cyclical product demand composition and cyclical labour demand composition significantly amplifies business-cycle fluctuations.
Listed here are two key photos.
Supply: Andreolli et al (2024).
Observe that the non-essential share was lowering earlier than the pandemic (whilst consumption total was rising). Impulse responses capabilities for a 100 bp financial shock present that disaggregation is essential in seeing what parts of consumption (and therefore the combination financial system) reply.
Supply: Andreolli et al (2024).
What’s a non-essential? The authors outline objects with demand elasticities better than one (in absolute worth) as non-essential. Some apparent objects: meals away from dwelling, leisure, public transit.
The implication: Non-essentials reply way more strongly the contractionary financial coverage than do necessities. Meaning catching early the contractionary results of financial coverage requires consumption at a disaggregate stage, and ideally at greater frequency than the same old month-to-month sequence. What do these indicators seem like?
Right here’s bank card expenditure progress, courtesy of Torsten Slok et al. Eating places and accommodations (proxy for pleasure journey) and leisure are nonetheless rising, even maintaining in thoughts inflation.
Supply: Slok, Shah, Galwankar, “Daily and weekly indicators for the US economy,” Apollo, 17 August 2024.
From Slok’s communication at the moment, relating to these non-essential greater frequency indicators:
Wanting on the newest each day and weekly information exhibits that … restaurant bookings are robust, air journey is robust, resort occupancy charges are excessive, … and Broadway present attendance and field workplace grosses are robust. …The underside line is that there aren’t any indicators of a recession within the incoming information…
That is contra Michaillat-Saez based mostly on month-to-month information by July, mentioned on this publish, in addition to people on this checklist.
