The New Economy
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… )
With the housing market ramping back up and buyer demand for homes increasing in certain parts of the United States, a key piece in the recovery’s puzzle might be moving into place: Builders seem poised to build again, but not quite at the pace many in the industry had hoped.
US housing starts rose 6.8 percent to an annual rate of 914,000 in May, and 28.6 percent from a year ago. It was a decent gain, but less than the 950,000 starts analysts expected. Most of the gains were in multifamily starts, which surged 21.6 percent to a rate of 315,000 for the year. (It’s a volatile measure: In April, multifamily starts plunged 32.2 percent.) Single-family starts, meanwhile, edged up just 0.3 percent, according to the Commerce Department.
All told, it’s not a terrible report: Construction is certainly picking up, and continuing low mortgage rates, price acceleration, and a need for increased inventory in several markets make it probable that the trend will continue. But the data is a bit deflating in light of the news, via a separate survey, that home builders are more optimistic about the state of the housing market than they’ve been in nearly seven years. ( Continue… )
Retail sales go big: Retail sales rose 0.6 percent in May and 4.3 percent since last year, beating analysts’ predictions and stoking optimism for more accelerated economic growth going forward. Auto sales ruled the report, jumping 1.2 percent for the month. Excluding auto sales, retail sales rose only 0.3 percent. Building materials also gained 0.9 percent in a strong showing.
The data prompted Barclays Research to revise upward – significantly – its predictions for second-quarter gross domestic product: from a 1.1 percent annual rate to 1.8 percent.
Wholesale prices rise sharply: For the first time in three months, the index moved up, rising 0.5 percent from April to May, but it was due almost entirely to higher food and gasoline costs. Core prices, which exclude those two volatile categories rose only 0.1 percent. That suggests that underlying inflation is still tame, a key indicator the Federal Reserve is watching as it prepares to meet next week and review the economy and its own interest-rate policies.
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Jobless claims fall: The number of people applying for initial unemployment benefits fell for the second week in a row last week, from 346,000 to 334,000 claims (a decline of 12,000), according to the Labor Department. It was the smallest number of applications since early May, and a hopeful sign that the job market is making further improvement. Job market performance will be a key factor in consumer spending and the growth of the US economy going forward, Josh Shapiro, chief US economist for MFR, Inc. in New York, wrote in an e-mailed analysis. “On a fundamental basis, labor market conditions will be the key factor for the consumer, and evidence concerning job growth therefore will remain the paramount economic variable for some time.” ( Continue… )
If you're selling a serpent, or rather a mythical serpent, how much spin is too much?
That seems to be gist of the latest Loch Ness monster spat.
Tourism is big business in the Scottish Highlands. And nothing draws folks to Scotland's second-longest lake like a good Loch Ness monster sighting.
But two local businessmen have set off a tempest in a serpent's teapot over how honest to be with tourists about whether there is – or isn't – a sea monster in Loch Ness.
George Edwards, who runs Loch Ness Cruises, complained that some of the other members of the Drumnadrochit, Scotland, Chamber of Commerce are leaving tourists - especially those visiting the Loch Ness Centre - with the impression that the Loch Ness monster is just a "myth."
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That, in his opinion, is bad for business.
"Just about every time that [Centre researcher Adrian] Shine appears in the media he talks about big fish and big waves," Mr Edwards said in a letter to the chamber of commerce. "I believe they are doing more harm than good in promoting Loch Ness tourism with their negative theories... How many people come here to see the Loch Ness Big Fish or the Loch Ness Big Wave?"
The Loch Ness Centre seems to be trying to walk the line between the sea monster "sightings" and sharing information on the scientific research that has been done at the Loch. "On one hand, the loch's famous "Jurassic Park" reputation, 1000 reliable eye-witnesses and some classic photography. On the other hand, hoaxes and illusions, Scotland's journey and the legacy of the ice, life in the abyss and a possible underlying truth," says the Centre's website.
The Daily Telegraph reports that Tony Harmsworth, the former boss of the Loch Ness Centre, responded to Mr. Edward's accusations with a letter of his own posted on the chamber of commerce website (since removed), and he accused Edward's of "palming his customers off with fake photographs."
The Scotsman reports that "The row has led to resignations from the Chamber of Commerce, including Debbie MacGregor of the Loch Ness Centre, and Tony Harmsworth, its former chairman, who has quit as editor of the chamber’s website."
But this is not the first time locals - or others - have haggled over how to promote Loch Ness. A BBC article recently posed this question: "Is Nessie just a tourist conspiracy?"
The article is based on the work of Dr. Charles Paxton, a research fellow and statistical ecologist at St Andrew's University, who has so far sifted through 800 of the 1,000 recorded sightings. Paxton observes: a sizeable number of 'Nessie' sightings came from cafe and hotel proprietors.
Skeptics have long questioned the veracity of the Loch Ness monster. In 1982, The Christian Science Monitor's Robert C. Cowen reported on a three-part series published in New Scientist that attributed many of the sightings to otters and old logs floated by methane gas. "Gases formed by slow decay would accumulate in the log until they made it buoyant enough to shoot to the surface." By examining photos of purported sightings, researchers noted that some folks were apparently taking pictures of otters, not sea serpents. "In Scotland, otters may grow to be six feet long with records of 7.5 to 8 feet. Large otters frolicking on the surface could look serpentlike. What is more, lines of otters could look like a long serpent when the lead otter rears up to look around."
The truth is out there. But are Loch Ness tourists willing to pay for it?
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Any month now, we keep hearing, consumers’ pocketbooks and outlooks will start to feel the pinch of the sweeping federal budget cuts, known as the sequester. It’s not a matter of “if,” economists say, it’s a matter of “when.”
“When,” was not last month. US consumers are still spending money, and they’re optimistic about the direction the economy is going.
Retail sales rose 0.6 percent in May and 4.3 percent from a year ago, beating analysts’ expectations of 0.5 percent growth. It was retail sales’ biggest jump in three months and points to potential economic growth for the year going forward. In April, there was only a 0.1 percent growth in sales.
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Barclay’s Research revised its growth forecast for second quarter gross domestic product up a substantial 0.7 percentage points to 1.8 percent on the news. ( Continue… )
Foreign competition and technological change might seem like twin juggernauts, destroying American manufacturing jobs in much the same way. In fact, they're quite different.
Foreign competition from China can be like a tornado, devastating US manufacturing in concentrated fashion but in limited areas around the country, according to a new study from the National Bureau of Economic Research (NBER). The winds of technological change blow much more broadly and less destructively, displacing typically middle-income jobs but creating more low-paying and high-paying positions.
There's another major difference: As of 2007, at least, the foreign competition tornado was growing bigger and threatening more manufacturing jobs; the winds of technological change are lessening in the manufacturing sector and have moved on to nonmanufacturing industries.
“Outside of manufacturing ... the impact of automation accelerates during the three decades of our sample, suggesting that computerization of information processing activities in knowledge-intensive industries continues to intensify," conclude economists David Autor of the Massachusetts Institute of Technology, David Dorn of Spain's graduate education institute CEMFI in Madrid, and Gordon Hanson of the University of California at San Diego, the authors of the NBER study. ( Continue… )
US adds jobs, but unemployment rate rises: The US economy added 175,000 jobs in May, but the unemployment rate ticked up slightly, to 7.6 percent. The number of jobs added was about what analysts expected, but employment needs to grow faster if the US expects to get its elevated unemployment rate back to more normal levels.
The jobs report, released Friday by the Department of Labor, answered several nagging questions about the economy. Will the Federal Reserve reduce the pace of its purchases of debt sooner than expected, pushing up interest rates? If job-creation doesn't pick up, the Fed's unlikely to reduce its program until next year, analysts say. Are federal budget cuts under the sequester hurting the labor market? They probably will, analysts say, but the national job numbers don't show much of an effect yet. Can the job market grow while the economy is in a soft patch? Yes, at a tepid pace.
A large segment of the jobs added in May were in the temporary sector, which tends to be a bellwether for the rest of the labor market. For more on the May jobs report, read Monitor reporter Ron Scherer's take.
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Manufacturing disappoints: The ISM-Manufacturing Index for May sank slightly, to its lowest level in four years. Many of the biggest activity declines were in the United States. Many economists expect that manufacturing growth will slow, but not disappear entirely. “Becalmed still beats sinking,” Michael Montgomery, US economist with IHS Global Insight wrote in an e-mailed analysis. "It looks like a long, cool summer in the manufacturing sector."
Despite the US decline, manufacturing’s global outlook remained positive, but still weak. ( Continue… )
The US economy may be 2.4 million jobs short of its prerecession peak, but there's one segment of the labor force that's riding high: temporary workers.
The ranks of on-call receptionists, customer service representatives, nurses, and others swelled to a new record in May, beating the pre-recession peak in 2006, the Department of Labor reported Friday. And the rate of growth in temp work is ticking up, after declining over the past three years. Temp jobs aren't necessarily well-paid, and their growth reflects an ongoing lack of confidence by businesses in the wake of the federal sequester and Europe's recession. Nevertheless, it represents a positive sign for future hiring, because temp jobs often turn into full-time work.
"Companies are busy. They want to hire, but they're still being cautious," says Scot Melland, president and chief executive of Dice Holdings, which runs specialized career websites in the technology, financial services, and health-care industries. "That's a pretty good indication of the tension that's out there," he adds in a telephone interview.
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Overall, hiring in May was in line with expectations for a continuing modest recovery in jobs. The economy added 175,000 nonfarm jobs, the Department of Labor reported. The unemployment rate also ticked up from 7.5 percent in April to 7.6 percent in May, but analysts didn't view it as a negative since it reflected an increase in the number of people actively looking for work. ( Continue… )
The noise emanating from the world’s factories, once humming with growth, sounds more like a flat kazoo these days.
Key manufacturing nations are reporting growth so tepid that it’s almost nonexistent. Nevertheless, the evidence so far suggests growth is slowing, not disappearing.
Some of the biggest declines are centered in the United States. In May, economic activity in the manufacturing sector contracted for the first time since November, according to a survey of manufacturers from the Institute for Supply Management in Tempe, Ariz. The ISM index for May declined to 49, its lowest level since June 2009 and far below analysts’ expectations.
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“We've definitely seen a pullback in activity over the past two or three months,” says Chad Moutray, chief economist for the National Association of Manufacturers in Washington. Technically, any reading below 50 signals a contraction. But he, like many economists, expect growth to slow, not disappear, in the months ahead. Mr. Moutray expects the sector’s growth to slow from 2.4 percent in the first quarter to 1.8 percent this quarter, before picking up again late in the year. ( Continue… )