The New Economy
The recovery in America's labor market is so slow it's like a party where no one celebrates, except maybe Wall Street. Every time the labor market starts to show sustained momentum, along comes new evidence that even expected lackluster growth is sometimes too much to hope for.
Take Friday's jobs report. It showed the US economy created 162,000 jobs in July, fewer than expected, and that employees worked slightly fewer hours and for slightly less pay. If it weren't for the auto industry's dynamic recovery and strong gains in the wholesale and retail trade sector, the numbers would have been even worse.
The unemployment rate fell from 7.6 percent in June to 7.4 percent in July, but part of that improvement came because people were dropping out of the labor force.
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In one encouraging sign for the employment market, Amazon.com announced this week that it would be adding 7,000 jobs at its warehouses around the nation. The announcement came a day before President Obama visited an Amazon.com warehouse to deliver a major speech on how to accelerate economic growth. ( Continue… )
In offering Republicans a new "grand bargain," President Obama is hoping to reinvigorate his stalled domestic economic agenda. He is also putting the need for more middle class jobs at the center of his political message.
If this were 2009 or even 2010, when the unemployment rate was nearly 10 percent, the push for a jobs program would have broad appeal. Now, with the economy growing and unemployment falling, Mr. Obama may have to work harder to sell his ideas.
At an Amazon.com distribution center in Chattanooga, Tenn., Tuesday, he is set to agree to a cut in corporate tax rates – a long-cherished Republican goal – in exchange for a significant investment for some kind of job creation program. (The size and type of program are still vague. Up to now, the president's grand bargain was a cut in corporate tax rates in exchange for tax reform for individuals.)
The unemployment rate has fallen to 7.6 percent. For more than a year, the US has been adding jobs at a clip of nearly 200,000 a month. After losing 8.7 million jobs during the Great Recession, the economy has recovered three-quarters of them. ( Continue… )
As home prices accelerate and demand among real estate buyers ramps up, one aspect of the housing recovery has lagged: new home building. That continued in June, but there's at least one promising sign that the construction sector may be turing a corner.
Housing starts dipped 9.9 percent in June to an annualized pace of 836,000 homes. That's well below 960,000 annualized pace that analyst expected. May's housing starts pace, meanwhile, was revised upward, from 914,000 to 960,000 homes.
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Most of the decline came in construction of multi-family homes, a volatile sector month to month that plunged by 26.2 percent in June. Builders are now on pace to build 245,000 multi-family homes by the end of the year. But single-family starts edged down last month as well, decreasing 0.8 percent to an annualized rate of 591,000 units.
"This was a disappointing update," IHS Global Insight economists Patrick Newport and Stephanie Karol wrote in an e-mailed analysis. "Housing starts – both single-family and multifamily – dropped in June and both were down in the second quarter. And multifamily permits are slowing – indeed, the three-month moving average declined in June...Builders are still not putting up enough homes. Far from it. By our estimate, underlying demand is running close to 1.4 million." ( Continue… )
June’s retail sales report was a mixed bag, with one key category shining, one taking a huge step backward, and missed expectations in between.
Retail sales rose 0.4 percent last month, short of the 0.8 percent rise analysts expected. May’s gains were also revised downward, from a 0.6 percent gain to a 0.5 percent gain. June was the third month in a row for retail sales growth.
The gains were largely driven by a stellar month for auto sales, which grew 1.8 percent (after increasing by 1.4 percent in May). Gas prices also played a role – gasoline sales were up 0.7 percent, “likely reflecting the effect of higher prices,” Barclays Research economist Peter Newland wrote in an e-mailed analysis.
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Otherwise, the data was a bit of a downer. Core sales, a figure that excludes autos, gas, and building materials to align most closely with routine consumer spending, inched up 0.1 percent. Some economists suggest that this could mean the expiration of the payroll tax cut in back in January is finally having an effect on shoppers’ wallets. “The components of the report provided evidence of a household sector responding with some delay to the hike in tax rates at the start of the year,” Newland wrote. “For example, department store sales declined for the fifth consecutive month in June [by 1 percent], and restaurant sales were down 0.6 percent in May and a further 1.2 percent in June.” ( Continue… )
When pensions started giving way to 401(k) plans in the 1980s, baby boomers started saving for their own retirement. But younger workers aren't following through with the same verve. In the past decade, their participation in 401(k)s and other retirement savings programs has waned – and the drop-off is big enough that some in the finance industry are calling for the government to step in and force workers to save for retirement.
The idea is controversial, but not as far-fetched as it sounds. Social Security, after all, is a form of required retirement savings. England and Australia have their own forms of national retirement savings mandates.
"The current system is not working, and we need a comprehensive approach that includes some form of mandatory savings in addition to Social Security," said Larry Fink, chief executive of investment giant BlackRock Inc., in a speech in May. Growing life expectancy and underfunded retirement plans are threatening Americans’ retirement stability, he argued.
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Some of the latest evidence of a falloff in retirement savings comes from the Employee Benefit Research Institute in Washington. Its most recent survey found that among employees age 25 to 34, the percentage saving for retirement has fallen from 65 percent a decade ago to 56 percent now; in the 35-44 group, the percentage has dropped even more: 77 percent to 63 percent. ( Continue… )
Wall Street has been waiting for the June jobs report with particular interest, with federal actions and investor sentiment riding on how the labor market performs over the next few months. This time around, the news is a hopeful if tempered indicator of slow, steady growth.
The US economy added 195,000 jobs in June, and the unemployment rate remained unchanged at 7.6 percent. That was notably better than predicted: Analysts had expected about 165,000 jobs added. Additionally, the job totals for April and May were revised upward, by about 70,000 jobs combined.
“The June employment report showed solid job growth…The gain in nonfarm payrolls was much larger than we and [the] consensus were expecting,” Barclays Research economist Michael Gapen wrote in an e-mailed analysis. “Although the unemployment rate did not move lower, we see this report as signaling that labor markets are improving.”
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At the beginning of the year, analysts worried that the sweeping federal budget cuts known as the “sequester” would cause economic growth to falter. for the most part, that hasn’t happened. At least not yet.
“I would have expected that the fiscal headwinds would be doing a bit more damage, and expected 150,000 to 125,000 per month [in jobs added], ” Moody’s economist Mark Zandi said in a Wednesday conference call.“ We have seen some slowing in GDP, but the economy has been navigating it quite gracefully.” ( Continue… )
With their convincing 3-0 win over Spain in the Confederations Cup, Brazilians took to the streets to celebrate – for a change. But ongoing widespread street protests are likely to dissipate the positive glow of the soccer victory. Brazilians are angry about corruption, poor quality public services, and a feeling that money is being wasted on soccer stadiums. These are symptoms of a deeper cause: a Brazilian economic policy that has focused on the welfare of a few privileged producers at the expense of the wide swath of Brazilian consumers.
Having just returned from Brazil for presentations at a number of conferences (and being caught in a demonstration at the Sao Paulo airport), I think it’s clear that Brazilian economic policy is severely off track. Over the last decade Brazilian policymakers have resurrected the failed import substitution policies of the 1960s and '70s in the hopes of growing their economy by reducing imports and favoring national champions. But this policy has clearly failed.
Economic growth comes from raising productivity. Yet, compared to other developing nations (let alone developed ones), Brazil falls far behind. Over the last 15 years, productivity accounted for 84 percent of growth in a sample of 30 low- and middle-income nations (as measured by gross domestic product or GDP), but in Brazil it accounts for only 28 percent. This is a major reason why Brazilian productivity, and by definition incomes, is just 20 percent of US levels.
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This anemic performance was not because Brazil lacked high-productivity industries: Embraer makes jet aircraft while Petrobras is a leader in oil exploration. Indeed, as the McKinsey Global Institute has shown, while Brazilian GDP growth from 1995 to 2005 was just 38 percent of Chinese levels, Brazil should have had higher productivity growth given its higher share of high-productivity industries. Brazil lagged because it had low productivity growth across all its industries. ( Continue… )
The last trading day of the second quarter ended with stocks falling and gold rallying, one last hurrah for a volatile three months that saw investor sentiment sway dramatically and gold notch its biggest decline in at least 45 years.
For all the drama on Wall Street, however, the economy itself keeps sending signals of growth that's sluggish, even boring, but also steady. This week's economic reports fit into that picture of modest growth.
Once the haven for investors seeking safety from uncertain markets, gold has accelerated its long descent. From its 2011 high, the the glittery metal has lost about a third of its value, with more than half of that loss coming in the past three months. On Friday, gold rallied nearly 2 percent to close at $1,232.30 an ounce in New York, still far below its $1,900 high set in 2011. By contrast, the Dow Jones Industrial Average fell 114 points, or 0.76 percent, to close below the 15000 mark.
Much of the volatility has come in the wake of Federal Reserve statements suggesting that the US central bank would being to pare back its purchase of
Treasury securities, which have kept interest rates so low. Since May, bond rates have surged and prices (which move in the inverse direction) have tumbled. Mortgage rates, too, have surged about half a percentage point.
But none of these developments have stopped the broader economy's positive trajectory. This week's economic reports delivered upbeat signals:
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Consumers are feeling good: Americans continue to feel better and better about the direction of the economy. The Conference Board’s index of US consumer confidence rose to 81.4 in June, a post-recession high and well above the consensus prediction of 75. According to the index, consumers were increasingly hopeful about the labor market, and the proportion of respondents planning to buy a home or a car within the next six months ticked higher. ( Continue… )
Confidence in global economic recovery is wavering after a jolting one-two punch that has driven markets down around the world.
Stock prices fell and bond rates rose late last week after comments from Fed Chairman Ben Bernanke sparked concern that the US central bank would scale back its stimulus plans. On Monday, stock markets around the world moved down again sharply as reports circulated that the Chinese government may have decided to either allow or actually encourage a liquidity squeeze, which threatens to curb economic growth in China and throughout Asia.
One highly visible sign of the changing times came Monday when Chinese stock prices suffered their largest declines since August 2009. China’s CSI 300 Index, made up of the 300 biggest companies in the Shanghai and Shenzhen stock exchanges, lost 6.3 percent. This latest drop puts the index 22 percent below this year’s high and firmly in bear market territory.
Behind the Chinese market plunge is mounting fear that China’s central bank will respond not by easing credit but instead by extending new tighter credit standards. The result could be a worsening liquidity crunch that could affect markets and economies worldwide. According to analysts at Moody's Investors Service, the Chinese central bank may have made “a conscious decision” to curb credit growth in China by deliberately reining in the country’s shadow banking system. ( Continue… )
No taper … yet: The Federal Reserve released its statement from the May Federal Open Market Committee Wednesday, and Fed chief Ben Bernanke indicated that the central bank wouldn’t change its monetary policy of buying up bonds to keep interest rates low. At least not yet.
But Mr. Bernanke did hint that tapering could be on the horizon. He said bond buying could begin to slow later this year, and, if the unemployment rate falls below 7 percent, end entirely by mid-2014. Interest rates, Bernanke said, will stay low until the unemployment rate falls below 6.5 percent.
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“The Fed sent more tapering signals than we anticipated for this meeting,” Paul Edelstein, director of financial economics for IHS Global Insight, wrote in an e-mailed analysis. “But we maintain that the Fed is too optimistic on unemployment, and continue to believe that it won’t taper until 2014. Of course, this view is predicated on progress in the labor market. If the unemployment rate declines enough over the summer, we would likely expect a tapering as early as September.“
Bernanke's comments sent Wall Street into a tailspin, sending the Dow tumbling 353 points for its worst one-day loss of the year. ( Continue… )