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James Hamilton

James Hamilton

He is Professor of Economics at the University of California, San Diego

Articles by James Hamilton

The University of California gives back to the community

February 5, 2021

About 10% of the population in San Diego have now received the vaccine. A third of these — 100,000 people– were served by a single facility operated by the University of California at San Diego. What’s the secret to their success? Answer: logistics.
In pre-COVID days, a big theme park like Disneyland would welcome 50,000 visitors every day. The only way they could pull this off was by devoting tremendous planning and resources into the operational details of how and where the flow of people would go, anticipating where the bottlenecks would arise and mitigating them with advance planning. A constant stream of cars into Disneyland were directed by a small army of workers who would direct each car at each turn. The end result of this planning was that each car would seamlessly end up at its

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Flash-mob finance

February 1, 2021

Modern communication infrastructure can facilitate swift simultaneous action by a large number of people. If used to coordinate a surprise attack, an organized mob can overcome a store or even the capitol building. Is Wall Street the next target?
GameStop is a brick-and-mortar retail chain that was losing money even before the pandemic. Yet the price of its stock increased 1,900% in January on the basis of no particular improvement in fundamentals. The rocketing price seems to be a classic short squeeze, with a new twist: the grip of the squeeze came not from a deep-pocketed individual but by the internet-coordinated action of a large number of small investors.
GME price, Feb 5, 2016 to Jan 29, 2021. Source: Google Finance.
To understand what a short squeeze is all about, let’s start

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The COVID recession is over

January 28, 2021

The Bureau of Economic Analysis announced today that seasonally adjusted U.S. real GDP grew at a 4.0% annual rate in the fourth quarter. That’s well above the 3.1% average growth that the U.S. experienced over 1947-2019, and follows a 28.8% logarithmic annual growth rate seen in Q3.
Real GDP growth at an annual rate, 1947:Q2-2020:Q4, with the 1947-2019 historical average (3.1%) in blue. Calculated as 400 times the difference in the natural log of GDP from the previous quarter.
These numbers bring the Econbrowser recession indicator index down to 0.0% for Q3. As we’ve done every quarter for the last 15 years, the number posted today (0.0%) is an assessment of the situation of the economy in the previous quarter (namely 2020:Q3). According to our algorithm, there is zero probability that

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Record-breaking increase in GDP

October 29, 2020

The Bureau of Economic Analysis announced today that seasonally adjusted U.S. real GDP grew at a 33.1% annual rate in the third quarter. That’s the largest change ever recorded, even bigger than the -31.4% annual rate now reported for 2020:Q2. What do those numbers tell us?
The first thing to note is that “annual rate” refers to what the growth rate would be if growth were to continue for a full year at the pace observed in the third quarter. It’s often helpful to think in terms of those units. But in this case, there is zero possibility that growth will continue at this pace. Real GDP in Q3 was actually 1.074 times as big as real GDP in Q2. The calculation 1.0744 = 1.331 is where the reported 33.1% number comes from.
The second thing to note is that even if real GDP had fallen by 31% in

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Record-breaking drop in GDP

July 30, 2020

The Bureau of Economic Analysis announced today that seasonally adjusted U.S. real GDP was 9.5% lower in the second quarter than it had been in the first quarter, which they reported as a decline at an annual rate of 32.9% (0.9054 – 1 = -0.329). That is four times as large a quarterly decline as anything since the BEA began reporting quarterly GDP in 1947, and represents a 10 sigma (10 standard deviations) event.Real GDP growth at an annual rate, 1947:Q2-2020:Q2, with the 1947-2019 historical average (3.1%) in blue.
I’ve been reporting a GDP-based recession indicator index each quarter since we started the blog in 2005. What I’ve been doing up to this point is re-estimating the parameters of the model (the numbers that describe what happens in a typical expansion or a typical recession)

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Interpreting the unemployment numbers

June 8, 2020

The Bureau of Labor Statistics announced Friday that 2.5 million more Americans were working in May than in April. That’s the biggest monthly increase since 1946, both in terms of the number of workers and as a percentage of the workforce. The unemployment rate dropped from 14.7% in April to 13.3% in May, the biggest monthly drop since 1950. All this is very good news. But there are also indications that we are in a deeper hole than the headline numbers suggest. Here I explain why I believe the true unemployment rate in May was a number more like 19.8%.
Seasonally adjusted number of people on nonfarm payrolls, Jan 2018 to May 2020. Source: FRED.
The strong employment report shocked many observers, since so many other indicators had been very discouraging. Bill McBride, as always

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Economy in a nose dive

April 29, 2020

The Bureau of Economic Analysis announced today that U.S. real GDP fell at a 4.8% annual rate in the first quarter of 2020. That’s a rate of decline that we only see historically during the worst quarter of a recession.
Real GDP growth at an annual rate, 1947:Q2-2020:Q1, with the 1947-2019 historical average (3.1%) in blue and post-Great-Recession average (2.3%) in red.
The new data brought the Econbrowser Recession Indicator Index up to 32.5%, the highest it’s been since the Great Recession. This is not a forecasting tool, but rather is an assessment looking back at where the economy was in the fall quarter of 2019. Its pessimistic assessment of 2019:Q4 is based on the dismal initial GDP report for 2020:Q1 and the fact that expansions and recessions exhibit substantial inertia. We will

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Negative oil prices

April 21, 2020

First negative interest rates, and now negative oil prices. Is the world coming to an end?
The price of the May crude-oil futures contract closed yesterday at negative $37.63 a barrel. The buyer of that contract is entitled to receive 1000 barrels of oil in Cushing, Oklahoma in May and in addition the buyer is entitled to receive $37,630. Sound like a pretty good deal?
A month ago there were around a half million such contracts outstanding, promising delivery of half a billion barrels of oil to Cushing in May. That’s far more than could ever be physically delivered, and it’s perfectly normal. In the vast majority of those contracts, the buyer had no intention of receiving oil and the seller had no intention of delivering oil. The plan of the buyer was to sell the contract to somebody else

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Coping with the COVID-19 economic shock

March 23, 2020

Every recession is different. The recession of 2020 will not be an exception to that rule.
Spending on consumer services, which accounts for 47% of U.S. GDP, is normally quite stable over the business cycle. In a typical recession, service spending grows at a slower than normal rate but doesn’t actually fall. Not so this time. Restaurants, hotels, theaters, airlines, and so much more are devastated by the current environment.
Top panel: percent change in real personal consumption expenditures on services. Middle panel: percent change in real personal consumption expenditures on durables. Bottom panel: percent change in real investment spending. All growth rates are reported at an annual rate.
In typical recessions, most of the action is in investment spending and purchases of consumer

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Steady growth continues

January 31, 2020

The Bureau of Economic Analysis announced yesterday that U.S. real GDP grew at a 2.1% annual rate in the fourth quarter of 2019. That’s slightly below the 2.3% average rate since the recovery from the Great Recession began in 2009:Q3.
Real GDP growth at an annual rate, 1947:Q2-2019:Q4, with the 1947-2019 historical average (3.1%) in blue and post-Great-Recession average (2.3%) in red.
The new release kept the Econbrowser Recession Indicator Index nearly steady at 3.8%, consistent with the very low range it’s stayed in over the last two years. With the expansion now over ten years old, each quarter that economic growth continues sets a new record for the length of the longest expansion ever observed in the U.S.
GDP-based recession indicator index. The plotted value for each date is based

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The return of the Fed’s balance-sheet policies

December 20, 2019

The Federal Reserve has increased the size of its balance sheet by a third of a trillion dollars over the last 15 weeks, returning to tools that a short while ago we thought it had abandoned. But the Fed’s current goal in these operations is quite different from what we had seen earlier.
One of the factors causing the renewed growth of the Fed’s balance sheet is the Fed’s direct purchases of securities. By the end of 2014 the Fed held over $4 trillion in securities. At the end of 2017, it began to reduce those holdings gradually. But last summer the Fed returned to a policy of reinvesting maturing assets in order to keep its level of securities constant. And two months ago the Fed resumed net security purchases, causing its balance sheet to grow again.
Securities held outright by the

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Growing a little more slowly

October 30, 2019

The Bureau of Economic Analysis announced today that U.S. real GDP grew at a 1.9% annual rate in the third quarter of 2019. That’s a little below the 2.3% average rate since the recovery from the Great Recession began in 2009:Q3.Real GDP growth at an annual rate, 1947:Q2-2019:Q3, with the 1947-2019 historical average (3.1%) in blue and post-Great-Recession average (2.3%) in red.
Year-over-year growth rates have been slowing a little.
Quarterly GDP growth at an annual rate (top panel) and year-over-year growth (bottom panel), 2009:Q4 to 2019:Q3. Vertical lines denote first quarter of year.
The new release brought the Econbrowser Recession Indicator Index up to 3.9%, still keeping the index in the very low range we’ve seen over the last two years. That signals that the U.S. economic

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Economy still growing, but…

July 26, 2019

The Bureau of Economic Analysis announced today that U.S. real GDP grew at a 2.1% annual rate in the second quarter of 2019. That’s pretty near the 2.2% average rate since the recovery from the Great Recession began in 2009:Q3.Real GDP growth at an annual rate, 1947:Q2-2019:Q2, with the 1947-2019 historical average (3.1%) in blue and post-Great-Recession average (2.2%) in red.
That brought the Econbrowser Recession Indicator Index to 2.9%, consistent with the favorable low levels we’ve seen over the last two years. The U.S. economic expansion has now been under way for 10 years (2009:Q3-2019:Q2), matching the previous record for the longest expansion on record (1991:Q2-2001:Q1).
GDP-based recession indicator index. The plotted value for each date is based solely on information as it

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Libra: economics of Facebook’s cryptocurrency

June 24, 2019

Facebook last week announced plans for Libra, a new global cryptocurrency. The name seems to be a marriage of the words “livre”, the French currency throughout the Middle Ages based on a pound of silver, and “liber,” which is Latin for “free.” Facebook claims that Libra will give the freedom to easily transmit funds across borders to the 1.7 billion adults in the world without access to traditional banks.
Money is defined by three attributes. It is a unit of account (prices of most things you buy are quoted in dollars), a medium of exchange (you can deliver payment for those items by transferring your dollars to the seller), and a store of value (you can hold your wealth in the form of cash dollars until you want to spend it).
Why do the pieces of paper we call dollars have value? When

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Yield curve inversion

May 29, 2019

The gap between long-term and short-term interest rates has narrowed sharply over the last year and is now dipping into negative territory. Historically that’s often been a signal that slower economic growth or even an economic recession could lie ahead.
Gap between average interest rate on 10-year Treasury bond and 3-month Treasury bill during the last month of the quarter (1953:Q2 to 2019:Q1) and May 1-24 for 2019:Q2. NBER dates for U.S. recessions shown as shaded regions.
This relation is sometimes summarized with a regression that tries to predict average real GDP growth over the next year as a function of recent GDP growth rates and the current interest-rate spread (t-statistics in parentheses):
Here Yt is 100 times the natural log of real GDP in quarter t and i10y and i3m are the

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Tools of monetary policy

May 9, 2019

I just finished a new paper on current U.S. monetary policy operating procedures. Here’s the abstract:
The Federal Reserve characterizes its current policy decisions in terms of targets for the fed funds rate and the size of its balance sheet. The fed funds rate today is essentially an administered rate that is heavily influenced by regulatory arbitrage and divorced from its traditional role as a signal of liquidity in the banking system. The size of the Fed’s balance sheet is at best a very blunt instrument for influencing interest rates. In this paper I compare the current operating system with the historical U.S. system and the procedures of other central banks. I then examine strategies for transitioning from the current system to one that would give the Federal Reserve better tools

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U.S. economy keeps growing

April 26, 2019

The Bureau of Economic Analysis announced today that U.S. real GDP grew at a 3.2% annual rate in the first quarter of 2019. That’s better than the 2.2% average rate since the recovery from the Great Recession began in 2009:Q3, and even a little better than the average 3.1% growth over the last 70 years.
Real GDP growth at an annual rate, 1947:Q2-2019:Q1, with the 1947-2018 historical average (3.1%) in blue and post-Great-Recession average (2.2%) in red.
And year-over-year growth keeps climbing.Top panel: quarter-to-quarter real GDP growth, quoted at an annual rate, 2009:Q4 to 2019:Q1. Bottom panel: year-over-year real GDP growth. Vertical lines denote first-quarter observations.
That brings the Econbrowser Recession Indicator Index in at 2.4%, among the lowest levels we ever see. That

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Measuring unemployment and labor-force participation

March 29, 2019

The underlying data from which the U.S. unemployment rate and labor-force participation rate are calculated contain numerous inconsistencies– if one of the numbers economists use is correct, another must be wrong. I’ve recently completed a research paper with Hie Joo Ahn that summarizes these inconsistencies and proposes a reconciliation.
The data that everyone uses are based on a survey of selected addresses. An attempt is made to classify each adult living at that address as employed E, unemployed but actively looking for a job U, or not in the labor force N. The next month the surveyors try to contact the same address and ask the same questions. In any given month, some households are being asked the questions for the first time, others for the second time, and so on up to eight

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The long expansion continues

March 1, 2019

The Bureau of Economic Analysis announced yesterday that U.S. real GDP grew at a 2.6% annual rate in the fourth quarter of 2018. That’s below the 3.1% average for the U.S. economy over the last 70 years, but better than the 2.2% average rate since the recovery from the Great Recession began in 2009:Q3.
Real GDP growth at an annual rate, 1947:Q2-2018:Q4, with the 1947-2018 historical average (3.1%) in blue and post-Great-Recession average (2.2%) in red.
One can also look at the year-over-year growth rate, which smoothes out some of the measurement error in the quarterly growth numbers. This climbed throughout 2018, and we ended the year with the highest year-over-year growth rate since 2015:Q2.
Top panel: quarter-to-quarter real GDP growth, quoted at an annual rate, 2009:Q4 to 2018:Q4.

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Factors in Unemployment Dynamics

December 22, 2018

That’s the topic of a new FEDS Note that I just published with Hie Joo Ahn. Here’s what we discuss:

The U.S. unemployment rate averaged 8.4% during the first five years of recovery from the Great Recession of 2007-2009, the weakest recovery on record. But as the expansion continued, unemployment continued to decline and by 2018 reached the lowest levels in almost half a century. Why did unemployment remain so high for so long, and what factors contributed to the recent lows?

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Perspective on the stock market

December 9, 2018

Some people are getting a little spooked by recent stock market movements. Here I offer a few thoughts.
Although there has been a dramatic drop in the S&P500 since October, the market had been up pretty significantly from the start of the year up to that point. As of Friday, the net change between the start of the year and now has been inconsequential.
Cumulative change since start of year of U.S. S&P 500 (green), Shanghai composite (blue) and German DAX (purple). Source Yahoo Finance.
If somebody should be worried, it should be the Chinese or Europeans, where the drop in stock prices so far this year has been fairly painful. One interpretation is that bad news for them is finally catching up with the U.S.
It’s interesting that the rise and fall in U.S. equity prices this year paralleled

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Measuring monetary policy shocks

December 4, 2018

What are the effects on the economy when the Fed raises interest rates? This is a key question in empirical research, but is notoriously hard to answer. The reason is that when the Fed raises interest rates, it usually does so in anticipation of a stronger economy or rising inflation. If we look at what happens to inflation or output following an interest rate hike, it is impossible to distinguish the effect of the Fed’s actions from the effects of the changing fundamentals that led the Fed to act in the first place. New research by a graduate student at UCSD may have finally solved this problem.
A common approach that recent researchers have taken has been to focus on what happens to interest rates within a narrow window of time, say 30 minutes to one day, around a monetary policy

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Warren B. Hamilton, 1925-2018

November 2, 2018

From the Denver Post:
Warren Hamilton passed away at his home in Golden, Colorado on October 26, 2018 at age 93. His primary career was as a research scientist with the US Geological Survey in geologic, and later geophysical branches. He was a geologist known for integrating observed geology and geophysics into planetary-scale syntheses describing the evolution of Earth’s crust and mantle. After retirement in 1995, he became a Distinguished Senior Scientist in the Department of Geophysics, Colorado School of Mines where he taught classes through fall of 2017. Warren also taught classes through winter of 2017 with the Osher Lifelong Learning Institute. He was a member of the National Academy of Sciences, and a holder of the Penrose Medal, the highest honor of the Geological Society of

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Strong GDP growth, weak fundamentals

October 26, 2018

The Bureau of Economic Analysis announced today that U.S. real GDP grew at a 3.5% annual rate in the third quarter. That’s the second quarter in a row that the number has come in above the 3.1% average for the U.S. economy over the last 70 years, and is well above the 2.2% average rate since the recovery from the Great Recession began
Real GDP growth at an annual rate, 1947:Q2-2018:Q3, with the 1947-2018 historical average (3.1%) in blue and post-Great-Recession average (2.2%) in red.
This brings the Econbrowser Recession Indicator Index all the way down to 1.1%, among the lowest levels we ever see. The U.S. remains clearly in the expansion phase of the business cycle.
GDP-based recession indicator index. The plotted value for each date is based solely on information as it would have

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Comment policy

August 25, 2018

Econbrowser has always welcomed a wide range of opinions and spirited discussion from commenters, and will continue to do so. To preserve civility of the discussion, we have two rules. First, comments referring to someone’s racial or ethnic characteristics will not be published. Second, we will block comments that are pure insults with no intellectual arguments.

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Measuring global economic activity

August 15, 2018

Measuring the level of global economic activity is of key interest. But the measures we have on variables like industrial production don’t cover all countries and are only available with a significant lag. Michigan Professor Lutz Kilian suggested in an influential paper published in 2009 that we could get a useful timely indicator by looking at average shipping costs. I recently had a chance to look into the details of how that series is constructed and have some suggested improvements.
Kilian’s basic idea is that changes in world economic activity are the primary driver of the demand for shipping, and that this higher demand shows up in the short run as an increase in the real cost of shipping. Kilian calculated a nominal index of shipping costs (which I’ll denote by x) by starting with

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Great second-quarter GDP report

July 27, 2018

The Bureau of Economic Analysis announced today that U.S. real GDP grew at a 4.1% annual rate in the second quarter. That’s significantly better than the 2.2% average growth we’ve seen since the Great Recession ended in 2009, and is also a little above the 3.1% average for the U.S. economy over the last 70 years.Real GDP growth at an annual rate, 1947:Q2-2018:Q2, with the 1947-2018 historical average (3.1%) in blue and post-Great-Recession average (2.2%) in red.
Our latest reading for the Econbrowser Recession Indicator Index is 2.7%, staying at very low levels. The U.S. remains clearly in the expansion phase of the business cycle.
GDP-based recession indicator index. The plotted value for each date is based solely on information as it would have been publicly available and reported as

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