December 2011 - Global Economic Watch

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Looking Out for Our 'Future Financial Selves'

12-29-2011 10:37 AM with no comments

Battles between your present self and your future self are not fair.  Your present self holds advantages and is always poised for victory.  So says Daniel Goldstein in this illuminating Ted Talk.  And Goldstein, Principal Research Scientist at Yahoo! Research, is working on developing some ways of making the battle more even.  Because if we don't find ways of helping our future selves win, then we are setting ourselves up for financial struggle.  (Spoiler alert: yes, this is about saving.)

Posted by Graham Griffith

Marketplace Morning Report: Gold's Dropping Value

12-29-2011 10:05 AM with no comments

The value of gold has dropped more than 400 dollars per ounce since an August 2011 high of $1900, Marketplace reports.  This appears to be the result of growing confidence in the US economy, and the dollar gaining strength.  Marketplace's Steve Chiotakis and Stephen Beard discussed the iconic metal's drop in this report.

Posted by Graham Griffith

Stephen Roach: 'Odds of a hard landing in China and India remain low'

12-29-2011 9:48 AM with no comments

We find it hard to talk about China without talking about India.  Sometimes, for the sake of economic comparison, we pit the two against each other.  Other times we pit the two, often along with South American kindred spirit Brazil, against the developed economies of the West.  india and China seemed to zag while the rest of the world zigged during the global economic crisis, and were able to grow while the US, China, and Europe stagnated.  But as 2011 ends, the two growing powerhouse economies are showing some vulnerability. 

At Project Syndicate, Stephen Roach warns us not to carried away by concerns that China and India will struggle in the coming year.  He is a little worried about India's ability to avert crisis.  As for China, Roach says not to expect a "hard landing," as China's policymakers have taken necessary action to ward off any major downfall:

That is particularly evident in Chinese officials’ successful campaign against inflation. Administrative measures in the agricultural sector, aimed at alleviating supply bottlenecks for pork, cooking oil, fresh vegetables, and fertilizer, have pushed food-price inflation lower. This is the main reason why the headline consumer inflation rate receded from 6.5% in July 2011 to 4.2% in November.

Meanwhile, the People’s Bank of China, which hiked benchmark one-year lending rates five times in the 12 months ending this October, to 6.5%, now has plenty of scope for monetary easing should economic conditions deteriorate. The same is true with mandatory reserves in the banking sector, where the government has already pruned 50 basis points off the record 21.5% required-reserve ratio. Relatively small fiscal deficits – only around 2% of GDP in 2010 – leave China with an added dimension of policy flexibility should circumstances dictate.

India, however, "is more problematic," Roach notes:

India is more problematic. As the only economy in Asia with a current-account deficit, its external funding problems can hardly be taken lightly. Like China, India’s economic-growth momentum is ebbing. But unlike China, the downshift is more pronounced – GDP growth fell through the 7% threshold in the third calendar-year quarter of 2011, and annual industrial output actually fell by 5.1% in October.

But the real problem is that, in contrast to China, Indian authorities have far less policy leeway. For starters, the rupee is in near free-fall. That means that the Reserve Bank of India – which has hiked its benchmark policy rate 13 times since the start of 2010 to deal with a still-serious inflation problem – can ill afford to ease monetary policy. Moreover, an outsize consolidated government budget deficit of around 9% of GDP limits India’s fiscal-policy discretion.

Read Why India is Riskier than China here.

Posted by Graham Griffith

Case-Shiller: Housing Market off to Poor Start in Fourth Quarter

12-27-2011 2:28 PM with no comments

Only one of the twenty top US metro areas saw an increase in home prices from September to October, according to the latest S&P/Case-Shiller Home Price Indices release.  That market was Phoenix, where the Case-Shiller price index rose a paltry 0.3 percent.  The indices for Washington, DC and Detroit are up compared to October, 2010, while the other 18 markets are all down in year-to-year data.  Here's a look at the long term trend:

From the release:

“There was weakness in the monthly statistics, as 19 of the cities posted price declines in October over September,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “Eleven of the cities and both composites fell by 1.0% or more during the month. And even though some of the annual rates are improving, 18 cities and both Composites are still negative. Nationally, home prices are still below where they were a year ago. The 10-City Composite is down 3.0% and the 20-City is down 3.4% compared to October 2010.

“In the October data, the only good news is some improvement in the annual rates of change in home prices, with 14 of 20 cities and both Composites seeing their annual rates of change improve. The crisis low for the 10-City Composite was back in April 2009; whereas it was a more recent March 2011 for the 20-City Composite. The 10-City Composite is about 2.4% above its relative low, and the 20-City Composite is about 1.9%.”

Multi-family homes are showing more positive signs than single family homes.  Otherwise there just isn't much positive coming through in these Case-Shiller reports of late.  Read the full release here.

Posted by Graham Griffith

World Giving Index: Most Nations More Charitable in 2011

12-27-2011 10:54 AM with no comments

People around the world were more charitable in 2011, according to the UK-based Charities Aid Foundation.  CAF's World Giving Index measures giving in three areas: donating money, volunteering time to an organisation, and helping a stranger or "someone you didn't know who needed help."  While charitable giving of money dipped slightly from 2010 to 2011, more people volunteered and/or helped strangers this past year.  The United States topped the list with a World Giving Index score of 60.  Ireland is a close second with a score of 59, while last year's top countries, Australia and New Zealand, remain near the top with scores of 58 and 57, respectively. 

Regionally, Southern Asia stands out for a significant increase in giving from 2010 to 2011.  Here is a look at the regional breakdown:

Read the full report here.

Posted by Graham Griffith

When Giving Money is not Enough

12-23-2011 9:07 AM with no comments

In this season of giving, Mary Ellen Iskenderian wants us to recognize that giving money in itself "is just not sufficient."  As President and CEO of Women's World Banking, Iskenderian has found that she and her organization need to look closely at how that money is spent, and where it reaches.  For Women's World Banking, this means measuring the impact on women in need globally.  But the lesson is one that works across other target groups.  The key point for Iskenderian is that giving without measuring impact is simply not enough:

Posted by Graham Griffith

Business Executives Hopeful, But Levels of Optimism Vary Regionally

12-22-2011 11:41 AM with no comments

As bleak as things may seem from our vantage point in the US, North American business leaders are trending much more optimistic than their counterparts elsewhere.  December responses to the McKinsey Global Survey of Business Executives reveal some sharp regional deviations in expectations, especially in developing powerhouses China and India:

From the report:

Respondents in the eurozone have become slightly less worried. Even larger shifts have taken place in the views of respondents in developed Asia, far more of whom now expect stability rather than improvement in their nations’ economies over the next six months—though they’re more hopeful about the global economy than they were in September. Among respondents in North America, there has been a marked swing from expecting worse to expecting better. Overall, though, respondents are still far gloomier about their countries’ prospects than they were in June, when nearly half expected their economies to improve in the next six months; now, 29 percent expect improved conditions.

Overall, business executives as a whole are expecting corporate profits to rise in the coming months, so the latest survey results paint a generally positive picture for global business.  Read the full survey results here.

Posted by Graham Griffith

Inc.: 'The 5 Hardest Jobs to Fill in 2012'

12-22-2011 10:19 AM with no comments

Keith Cline, a "start-up headhunter" and founder of VentureFizz, is trumpeting start-ups in the tech sector as key drivers of economic growth in 2012.  He thinks there will be jobs in the sector--maybe even more jobs than workers who are qualified for those particular jobs.  So while the job-seekers to jobs ratio overall remains high and foreboding for most workers, Cline says top candidates in these five areas will have strong bargaining power:

Software Engineers and Web Developers

Creative Design and User Experience

Product Management

Marketing

Analytics

Read Cline's full analysis at Inc., here.

Posted by Graham Griffith

Job Seekers to Available Jobs Ratio

12-22-2011 9:52 AM with no comments

December has brought a small wave of positive news on the unemployment front--though much of it is better described as "less negative news."  Lest we get carried away by dips in the unemployment rate and jobless claims, Economic Policy Institute economist Heidi Shierholz reminds us that the conditions are not ripe for a major shift.  Shierholz points to the ratio of job seekers to available jobs, which remains above 4:1.

Shierholz:

To put this figure in context, it’s useful to note that the highest this ratio ever got in the early 2000s downturn was 2.8-to-1, and in December 2000, the month the JOLTS survey began, the ratio was 1.1-to-1. While the job-seekers ratio has been generally slowly improving since its peak of 6.9-to-1 in the summer of 2009, today’s data release marks two years and 10 months—147 weeks—that the ratio has been above 4-to-1. A job-seekers ratio of more than 4-to-1 means that for more than three out of four unemployed workers, there simply are no jobs. In October, there were 10.6 million more unemployed workers than job openings. Furthermore, the lack of job openings relative to unemployed workers is in no way limited to particular industries such as construction—unemployed workers dramatically outnumber job openings across the board, in every major industry.

Read the full post here.

Posted by Graham Griffith

Giving Inventiveness its Due

12-21-2011 1:57 PM with no comments

There are those who think that GDP is limited as a measure of a nation's progress.  Bhutan, for example, has its GNH: Gross National Happiness.  Could there be a way to measure inventiveness?  If there were, Nathan Myhrvold would surely get on board and push that measure as a way to forecast future economic health.  In a column for Bloomberg, Myhrvold--former chief strategist and chief technology officer at Microsoft, and founder and chief executive officer of Intellectual Ventures--argues that inventiveness and innovation are difficult to measure, and therefore get short shrift by economists.  

The economy of the world is not based on the simple interplay of capital and labor. Sure, these are involved. But they are secondary characteristics, not fundamental ones. Macroeconomists are often said to have their fingers on the pulse of the economy, and that’s an apt analogy. A pulse is a decent secondary indicator of life because blood flow is one prerequisite for the body’s survival. But the pulse is a weak and incomplete measure of life. A brain-dead patient, after all, may have a pulse even though the person’s life is over. Conversely, a machine can drive a pulse without giving life.

So while it’s all well and good to measure the flow of capital and the markets for labor, don’t mistake this data for the forces that really drive growth, which are inventions (or, if you prefer, ideas) and the ways that they are made real. In response to these forces, capital is deployed and labor is expended.

Physics is obsessed with conservation laws; mass and energy can be neither created nor destroyed. Economics, on the other hand, obsesses about growth and recession, in which economic value is explicitly created and destroyed. Invention is, directly or indirectly, a primary source of the value we call growth.

Yet economists give invention short shrift. That is partly because they are still hazy about the origin of inventions. I find talking to economists about invention’s role in the economy a bit like talking to fourth graders about where children come from. A smart fourth grader can tell you all about how kids progress through elementary school. They can even tell you about infants, and that mommy’s belly gets big before one appears. But how and why the spark of conception occurs may be a mystery.

Read Invention Is the Mother of Economic Growth here.

Posted by Graham Griffith

Marketplace Whiteboard: What Makes a Junk Bond Junky?

12-21-2011 10:19 AM with no comments

If junk bonds have become so popular--beating out equities for the last five years, for example--are they still "junk"?  Marketplace's Paddy Hirsch says that while the moniker isn't quite accurate, these bonds do have a certain "trash or treasure" way about them:

What is a junk bond? from Marketplace on Vimeo.

Posted by Graham Griffith

Adam Davidson: Shopping-Based Indicators and the State of Saving Among American Consumers

12-20-2011 2:21 PM with no comments

In his most recent New York Times Magazine column, Adam Davidson writes about how he and his Planet Money colleagues surveyed the shopping indicator scene to see what Americans' shopping patterns might tell us about the state of the economy.  From lipstick (once a strong indicator, now not so much) to Champagne sales ("consistently accurate"), there is no shortage of goods that are extolled as strong indicators.  But in the end, the big takeaway is that consumers seem to remain consumers, and have yet to transition into savers.  Davidson:

Of all the indicators we looked at, one of the most consistently accurate was Champagne sales. The amount of French Champagne that Americans consume has predicted — with nearly 90 percent accuracy — the average American income one year later. Apparently, when we pop a Champagne cork, we know that good times are ahead (see chart). Champagne sales hurtled upward twice in recent history — at the peak of the Internet bubble in 1999 and during the heyday of the housing bubble in 2007. These were both followed by slowdowns as fewer people found reason to celebrate.

There are so many indicators to choose from that you could glean just about anything regarding our economic future. In fact, the most telling indicator appears to be the sheer number of indicators themselves. Americans now have so many seductive things they can buy that there are ample consumer options no matter what we feel. Partly as a result, savings — known in economics as deferred consumption — have fallen steadily for more than 30 years, from a high of nearly 12 percent of income. It kissed zero before a tiny uptick in the past couple years.

The decline of the savings rate is particularly troubling because it is consistent through busts and booms. During the fast growth of the late 1990s and mid-2000s, and the dark times that followed, people have been choosing to spend more and save less than ever before. Paradoxically, this happened just as pensions have been disappearing and life spans have been increasing. It suggests that Americans are so caught up in every short-term enthusiasm or agony that they haven't thought enough about long-term fiscal health.

Read What Nail Polish Sales Tell Us About the Economy here.

Posted by Graham Griffith

Carl Walter on Risk Buildup in China

12-20-2011 9:10 AM with no comments

Carl Walter, author of Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Rise, is concerned about the prospects for China's economy in the coming years.  Speaking at The Economist'sThe World in 2012 Festival, Walter warned of a "risk buildup" in the banking sector that spells trouble down the road.  Walter shared his concerns in this interview with The Economist's Tom Easton:

For more on The World in 2012 Festival, click here.

Posted by Graham Griffith

Mark Thoma on Prospects for Economic Recovery in 2012

12-20-2011 8:15 AM with no comments

In his CBS Moneywatch column, Mark Thoma writes that while things may be looking up a bit, it does not seem that real economic recovery is happening anytime soon.  He points to these graphs to remind us where we stand:

Thoma:

The problem we face is that the sectors that generally lead us out of a recession are the sectors that were most damaged from the collapse of the housing bubble and the subsequent recession. Housing construction is unlikely to increase anytime soon, and households are still struggling to pay off their debt, debt that was made worse by the unemployment, stock crash, and housing price crash that came with the recession. (The automobile sector is also important in recoveries, but the signs there aren't any better.)

Recessions have different causes, and some types of recessions are easier to recover from than others. An increase in oil prices or an interest-rate hike by the Federal Reserve can be reversed quickly, and the recovery time is generally relatively fast. But as Carmen Reinhart and Kenneth Rogoff explain in their book This Time is Different, recessions that are caused by financial collapses are among the most difficult to recover from. When this type of a recession hits an economy, lost decades are not at all unusual.

Unfortunately for us, both housing markets and household balance sheets were severely damaged by the recession, and repairing them will take time. Housing values remain depressed with no sign of a robust recovery in sight, and households continue with the debt deleveraging process. Neither sector seems poised to lift us out of the doldrums in the near future.

Read Will the economy turn around in 2012? here.

Posted by Graham Griffith

Jeffrey Sachs Calls on Nations to Pay Down Debt, AND Strengthen Public Policy Apparatus

12-19-2011 11:31 AM with no comments

In his latest book, The Price of Civilization: Reawakening American Virtue and Prosperity, Jeffrey Sachs calls on Americans to recognize that we are connected to other countries' problems in direct ways, and that our behavior as consumers and citizens have a significant impact on global development.  And he offers up his prescription for working toward a cure to the global economic crisis.  He discussed the state of the global economy, and specifically the euro-zone debt crisis, in an interview with Parminder Bahra of the Wall Street Journal:

Posted by Graham Griffith

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