June 2010 - Global Economic Watch


Global Economic Watch


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American Time Use Survey--2009

06-30-2010 2:26 AM with no comments

The Bureau of Labor Statistics has some interesting data on how, where, and when Americans spent time in 2009.  On average, employed persons spent 7.5 hours working on days they were on the job.  35 percent of Americans worked weekends.  And 24% of employed people worked from home.  

The American Time Use Survey also includes some telling data on leisure activities (we watch a lot of television), and household work (yes, women still do most of the work around the house).  Take a look here.  

Posted by Graham Griffith

A Call for Schools to Foster Entrepreneurial Skills

06-30-2010 1:58 AM with 1 comment(s)

Cameron Herold struggled in school.  But he's had a successful career as an entrepreneur and in coaching entrepreneurs around the globe.  And he argues that this was not coincidence.  Schools, Herold says, need to do a better job of recognizing and encouraging entrepreneurial skills.  Here he is speaking at a TEDxEdmonton:

Posted by Graham Griffith

Case-Shiller Index: Housing Prices Rose in April

06-30-2010 1:38 AM with no comments

Housing prices rose in April, according to the Standard & Poor's/Case-Shiller Home Price Indices.  And they didn't just grow overall.  Between March and April, prices went up in all 20 cities of the Case-Shiller 20-city composite index.  This means housing prices are at about the same level they were in the fall of 2003, Standard & Poor's shows.  Here's a look at the long term trend:

Of course, it is important to look at this data remembering that the federal government's first-time-home-buyer tax credit expired at the end of April.  Read the report here.  

Posted by Graham Griffith

Marketplace Whiteboard: Currency Pegs Explained

06-29-2010 4:22 AM with no comments

China's currency policy shift (see here and here) has provided an opportunity to look at just how currency decisions affect global economics.  For all the talk about the Chinese influence on the dollar over the last few years, it seems safe to say that most Americans had little understanding of how the pegging of the yuan (or renmibi) to the dollar really worked.  So Marketplace's Paddy Hirsch uses China's policy shift to explain:

Currency peg from Marketplace on Vimeo.

Posted by Graham Griffith

Ireland Gets Praise for Austerity Measures, Yet Still Struggling

06-29-2010 3:06 AM with no comments

While Ireland is often grouped with Greece in the all too convenient PIIGS acronym (Portugal, Ireland, Italy, Greece, Spain), it has handled its debt problems rather differently.  And the country is often put forward as a model for taking the proper austerity measures to right the economy.  And yet, for all the government's work, the country continues to struggle with low growth and high unemployment. Harvard Economist Kenneth Rogoff tells Liz Alderman of the New York Times that “If you want to escape default, the Irish path is the only way to go. But the Ireland experience points to the profound challenges that the current strategy implies.”

Alderman writes:

Politicians here have raised taxes and cut salaries for nurses, professors and other public workers by up to 20 percent. About 30 billion euros ($37 billion) is being poured into zombie banks like Anglo Irish, which was nationalized after lavishing loans on developers.

The budget went from surpluses in 2006 and 2007 to a staggering deficit of 14.3 percent of gross domestic product last year — worse than Greece. It continues to deteriorate. Drained of cash after an American-style housing boom went bust, Ireland has had to borrow billions; its once ultralow debt could rise to 77 percent of G.D.P. this year.

“Everybody’s feeling quite sick at what happened because things were going so well for Ireland,” said Patrick Honohan, the Irish central bank governor. “But we don’t have the flexibility to do a spending stimulus now. There’s no one who is even arguing for it.”

Mr. Honohan predicts growth could revive to a rate of about 3 percent by 2012. But that may be optimistic: Ireland, as one of the 16 nations in Europe that has adopted the euro as its common currency, is trying to shrink the deficit to 3 percent of G.D.P. by 2014, a commitment that could weaken its hopes for recovery.

Read In Ireland, a Picture of the High Cost of Austerity here.

Posted by Graham Griffith

State Governments' Lasting Struggle for Revenue

06-29-2010 1:46 AM with no comments

Jeremy Gerst and Daniel Wilson, both economists at the San Francisco Fed, have just published an Economic Letter in which they describe the struggles of state governments to make ends meet.  And they share two telling graphs.  First, a look at what happened to revenue when real GDP dropped:

And then a look at how spending changed (or rather, didn't) as revenue dropped:

The picture, Gerst and Wilson write, is not bound to look any prettier for some time:

All indications are that states will be struggling to move their budgets toward balance for quite some time. Recovery of state finances historically lags recovery of the national economy. Forecasters expect the national economy to recover gradually (see Weidner and Williams 2010). Thus, it will take quite a while before states see considerable improvement in their fiscal health. Indeed, estimates from the Center on Budget and Policy Priorities show significant state budget gaps persisting through at least 2012. And a recent Rockefeller Institute report noted that most states are uncertain when revenue will return to prerecession levels, indicating the problem could continue well beyond 2012 (see Boyd and Dadayan 2010).

In many respects, fiscal conditions are likely to get worse before they get better. Federal stimulus plan grants to state governments have helped states close budget gaps. However, federal stimulus funds are set to diminish in 2011 and all but disappear in 2012, leaving states to deal with their budget gaps without this federal support. Another factor that could worsen state budget problems is the depletion of rainy-day funds. At this point, even states that had rainy-day funds going into the recession have fully tapped them. Finally, some states have used accounting tricks to in effect kick the fiscal adjustment can down the road. Now these have largely been exhausted and the end of the road is in sight.

Read Fiscal Crises of the States: Causes and Consequences here.

Posted by Graham Griffith

Mankiw on Stimulus and the Obama Administration Diagnosis and Prescription for Economic Crisis

06-28-2010 4:39 AM with no comments

Greg Mankiw weighs in on the Obama administration's economic stimulus measures in the Summer 2010 issue of National Affairs.  And Mankiw cautions us to look at the macroeconomist models used to determine the state of the economy back at the beginning of 2009, rather than just the measures used to fight economic crisis.  Mankiw writes that the Obama administration saw "decline in aggregate demand" as the key problem.  Mankiw: 


So, inspired by the view that fiscal policy can prop up aggregate demand, Obama's advisors (and their congressional allies) began to design a stimulus plan heavy on direct government spending. A few days before President Obama's inauguration, his economic advisors released a document titled "The Job Impact of the American Recovery and Reinvestment Plan," in which they detailed some of their economic assumptions. They determined that the "government-purchases multiplier" — that is, the multiplier for direct spending — would be 1.57, while the tax-cut multiplier would be 0.99. In other words, every dollar spent by the government would yield $1.57 in aggregate demand, while every dollar in reduced taxes would yield only 99 cents in increased demand. And because 1.57 is larger than 0.99, the Obama team concluded it was better to increase spending than to cut taxes.

Obama and his advisors arrived at these numbers through a standard macroeconometric model of the sort economists have been using for years. Such models take various past relationships among economic variables (inflation and unemployment, for instance) and extrapolate them into the future. In essence, the economy is modeled as a system of equations, each describing how one variable responds to many others. University of Chicago economist (and Nobel laureate) Robert Lucas famously criticized these models for lacking an appreciation of people's changing expectations; many economists, however, still find such models valuable, and have continued to employ them for forecasting and policy analysis.

The question for economists now is whether the administration's assumptions, and the model based on them, were correct. After all, if we could be sure their model was right, we would know what to conclude when their stimulus plan was followed by 10% unemployment: The patient was sicker than they thought, and unemployment would surely have been higher still if not for the stimulus. (Indeed, since Obama's advisors do believe their model was right, this is the conclusion they have reached.)

The trouble is, we have no way of knowing for sure if the model was in fact correct. To react to a model's failure to predict events accurately by insisting that the model was nonetheless right — as Obama's economic advisors have done — is hardly the most obvious course. Careful economists should instead respond with humility. When their predictions fail — as they often do — they should not dig in their heels, but should instead be willing to go back to their starting assumptions and question their validity.

Read Crisis Economics here.  


Posted by Graham Griffith

Viet Nam Ranks Atop Global Business Optimism Survey

06-28-2010 3:12 AM with no comments

Viet Nam's GDP grew 5.3% last year.  And the government is projecting 7% growth this year.   Given the strains of the slow global economic recovery, this is a growth rate that most economies would welcome.  And so it is not surprising that Viet Nam's business leaders are highly optimistic.  According to a recent survey by Grant Thornton, 92% of Viet Nam's businesses are anticipating profits for 2010.  That is the highest rate of any country in the survey.  Business Week's Vanessa Wong reports on the survey:

The report was based on surveys of 7,400 managers of medium-to-large privately held companies in a broad range of sectors—mainly cleantech, food and beverage, construction and real estate, hospitality, transport, manufacturing, retail, financial services, health care, and technology—in 36 countries to gauge which holds the greatest upside potential for 2010. Vietnam scored highest in three forward-looking growth categories: employment, revenue, and profitability. Further categories included overall optimism (Chile ranked No. 1, with Vietnam fourth) as well as exports and research and development.

Of 150 companies surveyed by Grant Thornton in Vietnam, 95% expect higher revenues and 92% say profits will increase in 2010. The global average was 54% and 47%, respectively. A new survey by HSBC of small-to-midsized enterprises also puts Vietnam on top for business confidence in Asia.

Ken Atkinson, managing partner at Grant Thornton Vietnam in Ho Chi Minh City, says: "People are pretty optimistic about this year." Citing new roads and power plants under construction, Atkinson has noticed in recent months an increase in due diligence in mergers and acquisitions. "I expect more companies will be working at full capacity [this year] than previously."

Read the full article here.

And take a look at Business Week's Best Profit Outlook slide show, with some good country-specific detail, here.  

Details on the Grant Thornton survey are available here.  

Posted by Graham Griffith

Canadian Pride On Display at the G20 Meetings

06-28-2010 2:18 AM with no comments

With the G20 meetings in their city this weekend, many Torontonians demonstrated more frustration with the $1bn price tag for policing the conference than they did pride as hosts.  But Canadian politicians were another story.  They used the the talks between global powers on the need for austerity measures to tout their own success in the face of financial crisis.  At the beginning of the conference, Canadian Prime Minister Stephen Harper called Toronto "home to the world's soundest financial sector."  The Wall Street Journal's Christina Tsuei checked on the bold assertions of Canadian officials:

Posted by Graham Griffith

Dallas Fed International Economic Update: Industrial Production Strong in Emerging Economies

06-24-2010 6:06 AM with no comments

The Dallas Fed's latest International Economic Update contains positive economic readings from emerging economies and some advanced economies, but more bad news for Europe.  The most sharply positive news is in emerging economies, where industrial production keeps rising, and is now "close to or beyond the 2008 peak."

The picture for advanced economies is not as pleasant, but the recent positive growth in industrial production is reflective of an improving overall economic situation:

Read the full report here.  

Posted by Graham Griffith

Planet Money: The Tomato Mystery and Global Agriculture

06-24-2010 4:40 AM with no comments

Summer is officially here in the Northern Hemisphere.  One of the most important features of summer: tomatoes.  So with tomatoes on our minds, we suggest you listen to the latest Planet Money podcast.  Alex Blumberg takes us to Jamaica, where he speaks with a businessman about the "tomato mystery."  The mystery?  Why are imported tomatoes from Mexico cheaper than Jamaican tomatoes?  And why does a tropical country, with prime growing conditions, import most of its produce?  Take a listen:

Posted by Graham Griffith

IBM Student Survey on Future Leadership and Business Values

06-24-2010 4:15 AM with no comments

IBM has found one area in which CEOs and students agree.  Despite (or perhaps because of?)  the recent economic downturn, both groups believe creativity will be a key attribute for business leaders in the coming years, according to the results of a recent IBM Global CEO Study survey.  Otherwise, Ragna Bell, IBM associate partner, says that student opinion often varies greatly from how executives view the world.  She introduces the key findings of the survey in this short excerpt from a Carnegie Council event:

You can watch the full panel discussion on the IBM Student Survey at the Carnegie Council site, here.  

Posted by Graham Griffith

Car and Gas Spending from Bundle.com

06-24-2010 3:07 AM with no comments

Bundle has a new spending analysis available online.  This time they are looking specifically at the average annual spending on gas and car expenses by city and state.  And the data reveals some interesting trends.  First, gas and car spending is considerably higher west of the Mississippi.  Apart from the Research Triangle area in North Carolina, all the top ten cities in spending are west of the great river.  And Arizona residents spend a lot on driving--with four of the top spending cities in the states.  

On average, Americans spend $5,477 on gas and car expenses per year, Bundle found.  Read the article here.

And get detailed regional from this infographic. (Click here to download) 

(h/t Barry Ritholtz and Flowing Data)

Posted by Graham Griffith

University of Oregon Students Study the Power of the Business Plan

06-21-2010 2:54 AM with no comments

Tim Berry started off the year by announcing that a resurgence in business planning would help many small businesses experience a turnaround in 2010, and he's sticking to his guns.  Berry is founder of Palo Alto Software, and his company makes business planning software.  So he has more than a rooting interest in business plans.  But he points to a survey of nearly 3,000 users of his software as supporting his assertion about the importance of planning.  The survey was done as part of a research paper by two University of Oregon students--Eason Ding and Tim Hursey--under the supervision of professor of Economics Joe Stone.  And Berry summarizes the "bottom line" was:

...completing a business plan correlated with increased success in every one of the business objectives that came up in the study (which were: getting a loan, making a major purchase, getting investment, recruiting a new team member, thinking more strategically, and growing the company). In every one of these cases, well beyond the threshold of statistical validity, completing a business plan improved the proportion of respondents who achieved the goal.

Berry also provides this summary in chart form:

Read more about the study here.  

Posted by Graham Griffith

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