January 2012 - Global Economic Watch

Case-Shiller: Housing Prices Dropped in 19 of 20 Metros in November

01-31-2012 4:45 PM with no comments

Just as it was in October, Phoenix was the only city among the twenty top US metro areas where home prices went up in November, according to the latest S&P/Case-Shiller Home Price Indices release.  The indices showed a 1.3 percent drop in both the 10-city  and 20-city composites. Washington, DC and Detroit remain the only two metro areas where home prices for November 2011 were higher than November 2010. "Atlanta, Las Vegas, Seattle and Tampa all reached new lows in November," according to the Case-Shiller report, with Atlanta looking particularly bad with an annual drop of 11.8 percent.  Here's a look at the long term trend:

From the release:

““Despite continued low interest rates and better real GDP growth in the fourth quarter, home prices continue to fall. Weakness was seen as 19 of 20 cities saw average home prices decline in November over October,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “The only positive for the month was Phoenix, one of the hardest hit in recent years. Annual rates were little better as 18 cities and both Composites were negative. Nationally, home prices are lower than a year ago. The 10-City Composite was down 3.6% and the 20-City was down 3.7% compared to November 2010. The trend is down and there are few, if any, signs in the numbers that a turning point is close at hand.

The crisis low for the 10-City Composite was April 2009; for the 20-City Composite the more recent low was March 2011. The 10-City Composite is now about 1.0% above its low, and the 20-City Composite is only 0.6% above its low. From their 2006 peaks, both Composites are down close to 33% through November.

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

Carnegie Council Slide-show Raises Key Questions About the Revival of U.S. Manufacturing Sector

01-31-2012 9:44 AM with no comments

This Global Ethics Corner from the Carnegie Council does a nice job of laying out the core questions we should be asking about the bipartisan push in Washington for a revival of manufacturing in the U.S.:

"Is the rebirth of America's manufacturing industry necessarily a good thing?"

This, and the other questions raised in the slide-show about factories and innovation, should be good conversation starters for a class discussion on the role of manufacturing in the U.S. economy today.

Posted by Graham Griffith

SF Fed: A Closer Look at Unemployment Duration

01-31-2012 9:09 AM with no comments

In a new Economic Letter for the San Francisco Fed, Rob Valletta and Katherine Kuang take a look at unemployment duration, which has been much longer following the Great Recession than following previous recessions.  Factors like the changing demographics of the workforce (age, mainly), and the extension of unemployment benefits may be factors, but the authors note that they have had only a small impact:

The limited impact of workforce characteristics and extended UI suggests that other factors bear primary responsibility for the recent spike in unemployment duration. The most obvious one is the severity and persistence of employment losses compared with past recessions. Figure 2 shows employment patterns during and after the last four U.S. recessions, in each case measured relative to the pre-recession employment peak. At the recent employment trough in early 2010, employment was down 6.3%, compared with a cumulative decline of less than half that during the early 1980s. Moreover, employment has recovered little following the trough, growing on net by less than two percentage points through late 2011. That’s about 10 percentage points below the growth path from the early 1980s recession.

It is likely that the recent pattern of massive job losses and a weak jobs recovery is the primary explanation for elevated unemployment duration. The contribution of these elements can be examined more formally by performing a regression, a standard statistical technique for measuring the relationships among variable factors. We follow the approach of Aaronson et al. (2010), who calculate the extent to which rising duration can be explained by changes in characteristics of the workforce. We extend their approach by incorporating measures of cumulative employment losses. For each month of CPS data on individual unemployment duration, we calculate the percentage change in payroll employment relative to the pre-recession peak and include it as an explanatory variable in our statistical exercise. We use payroll employment for each individual’s state of residence for this calculation (see Valletta 2011). The data used are for periods covering the latest recession and its aftermath, and the corresponding periods from the early 1980s recession. These are matched by counting months forward from the pre-recession employment peak. The recent duration data are adjusted for the 1994 and 2011 changes in survey measurement.

Read Why Is Unemployment Duration So Long? here.

Posted by Graham Griffith

Personal Income, Savings Rate up in December

01-30-2012 10:47 AM with no comments

The Commerce Department just released more data on personal income from December.  Americans saw a nice uptick in their incomes last month, and then resisted the holiday urge to spend, saving more of their new gains.  Here is a look at personal income and spending moves during the final quarter of 2011:

From the Bureau of Economic Analysis release:

Private wage and salary disbursements increased $29.1 billion in December, in contrast to a decrease of $1.4 billion in November. Goods-producing industries' payrolls increased $10.8 billion, in contrast to a decrease of $6.5 billion; manufacturing payrolls increased $7.4 billion, in contrast to a decrease of $6.2 billion. Services-producing industries' payrolls increased $18.3 billion, compared with an increase of $5.1 billion. Government wage and salary disbursements increased $0.4 billion in December; government wages and salaries were unchanged in November.

The other big takeaway from the report is the savings rate:

Personal outlays -- PCE, personal interest payments, and personal current transfer payments -- decreased $5.2 billion in December, in contrast to an increase of $8.2 billion in November. PCE decreased $2.0 billion, in contrast to an increase of $11.4 billion.
Personal saving -- DPI less personal outlays -- was $460.1 billion in December, compared with $407.8 billion in November. The personal saving rate -- personal saving as a percentage of disposable income -- was 4.0 percent in December, compared with 3.5 percent in November.

Read the full release here.

Posted by Graham Griffith

The Importance of Collateral, or the Difference Between Secured and Unsecured Bonds

01-30-2012 10:24 AM with no comments

In the latest edition of the Marketplace Whiteboard, Paddy Hirsch explains the difference between secured and unsecured bonds.  It is a lesson that may be coming a little too late to Irish taxpayers:

Posted by Graham Griffith

Javier Solana Calls on EU Leaders to Make Economic Growth the Top Priority

01-30-2012 9:48 AM with no comments

With Europe's leaders meeting today to take on the difficult task of righting the EU economy, Javier Solana, former General Secretary of NATO and former EU High Representative for the Common Foreign and Security Policy, weighs in at Project Syndicate.  Solana argues that the devotion to austerity measures has proven to be a limited solution, at best, to the EU's problems.  "Austerity at all costs is a flawed strategy," Solana writes, and he believes that all efforts at this point should go into priming the pump for growth:

Public debt, moreover, should not be demonized. It makes financial sense for states to share the cost of public investments, such as infrastructure projects or public services, with future generations, which will also benefit from them. Debt is the mechanism by which we institutionalize intergenerational solidarity. The problem is not debt, but ensuring that it finances productive investment, that it is kept within reasonable limits, and that it can be serviced with little difficulty.

Yet, ominously, the same arguments that turned the 1929 financial crisis into the Great Depression are being used today in favor of austerity at all costs. We cannot allow history to repeat itself. Political leaders must take the initiative to avert an economically driven social crisis. Two actions are urgently needed.

At a global level, more must be done to address macroeconomic imbalances and generate demand in surplus countries, including developed economies like Germany. Surplus emerging-market economies must understand that a prolonged contraction in the developed world creates a real danger of a global downturn at a time when they no longer retain the room for maneuver that they had four years ago.

Within the eurozone, structural reforms and more efficient public spending, which are essential to sustainable long-term growth and debt levels, must be combined with policies to support demand and recovery in the short term. The steps taken in this direction by German Chancellor Angela Merkel and French President Nicolas Sarkozy are welcome but insufficient. What is needed is a grand bargain, with countries that lack policy credibility undertaking structural reforms without delay, in exchange for more room within the EU for growth-generating measures, even at the cost of higher short-term deficits.

The world is facing unprecedented challenges. Never before in recent history has a deep recession coincided with seismic geopolitical change. The temptation to favor misguided national priorities could lead to disaster for all.

Read Austerity vs. Europe here.

Posted by Graham Griffith

The Economist's Wooldridge on State Capitalism

01-30-2012 9:18 AM with no comments

For Adrian Wooldridge, management editor at The Economist, the top economic story of the early 21st Century is that of liberal capitalism "in crisis," and the emergence of a new model of capitalism in emerging economies.  Wooldridge calls this new model "state capitalism."  This is not, he points out, a return to the "bureaucratic" capitalism common in developed economies before the 1970s.  Rather, today's state capitalism is more of a hybrid model, where there are strong state controls but also great appreciation for market forces.  Wooldridge, better known to some of us as The Economist's Schumpeter columnist, discusses state capitalism here:

Read The Economist's special report on "state capitalism's global reach" here.

Posted by Graham Griffith

Real GDP Rose 2.8 Percent in 4th Quarter; 1.7 Percent for 2011

01-27-2012 8:45 AM with no comments

Real GDP increased 2.8 percent in the fourth quarter of 2011, according to a new report from the Bureau of Economic Analysis.  For the year, real GDP rose 1.7 percent.  From the report:

The increase in real GDP in the fourth quarter reflected positive contributions from private inventory investment, personal consumption expenditures (PCE), exports, residential fixed investment, and nonresidential fixed investment that were partly offset by negative contributions from federal government spending and state and local government spending.  Imports, which are a subtraction in the
calculation of GDP, increased.

The acceleration in real GDP in the fourth quarter primarily reflected an upturn in private inventory investment and accelerations in PCE and in residential fixed investment that were partly offset by a deceleration in nonresidential fixed investment, a downturn in federal government spending, an acceleration in imports, and a larger decrease in state and local government spending.

Here is a look at the ups and downs of real GDP over the last 4 years:

Real GDP increased 3.0 percent in 2010.  The BEA report lists drops in inventory investment and government spending--"the annual decline was the largest decline since 1971"--as primary reasons for the slowdown.

Read the full release from the BEA here.

Posted by Graham Griffith

The Takeaway: The State of Manufacturing

01-26-2012 10:00 AM with no comments

With President Obama making a strong push for a "rebirth for manufacturing" in his State of the Union address, there has been a fair bit of chatter about whether manufacturers can make a comeback.  This morning, our friends at The Takeaway had an interesting conversation with the head of a West Virginia company that makes marbles.  Peter Morici, professor of international business at the University of Maryland, also joined the conversation.  Take a listen:

Posted by Graham Griffith

NAR's Pending Home Sales Index Drops in December, But Remains Above December 2010 Level

01-26-2012 9:06 AM with no comments

The National Association of Realtors Pending Home Sales Index topped 100 in November.  That represented a 19-month-high for the index.  So while the index edged down in December, to 96.6, the big picture is still somewhat hopeful, says NAR chief economist Lawrence Yun:

While we are not likely to look to the NAR as a primary, objective source of analysis on the state of the housing market, Yun is certainly a credible source, and the index's ups and downs do provide a helpful read on one key aspect of the economy.  Read the NAR press release here.   

Posted by Graham Griffith

Shawn Parr on Workplace Culture: 'Authenticity and values always win'

01-26-2012 8:52 AM with no comments

In a compelling post for Fast Company, Shawn Parr tells us it is time for companies to stop looking at fostering a strong workplace culture as "touchy-feely," and recognize that the conditions that build a vibrant culture also build profit and sustainability.  He points to some of the usual standouts like Southwest Airlines, Costco, and Zappos as models:

A vibrant culture provides a cooperative and collaborative environment for a brand to thrive in. Your brand is the single most important asset to differentiate you consistently over time, and it needs to be nurtured, evolved, and invigorated by the people entrusted to keep it true and alive. Without a functional and relevant culture, the money invested in research and development, product differentiation, marketing, and human resources is never maximized and often wasted because it's not fueled by a sustaining and functional culture.

Look at Zappos, one of the fastest companies to reach $1 billion in recent years, fueled by an electric and eclectic culture, one that's inclusionary, encouraging, and empowering. It's well-documented, celebrated, and shared willingly with anyone who wants to learn from it. Compare that to American Apparel, the controversial and prolific fashion retailer with a well-documented and highly dysfunctional culture. Zappos is thriving and on its way to $2 billion, while American Apparel is mired in bankruptcy and controversy. Both companies are living out their missions--one is to create happiness, and the other is based on self-centered perversity. Authenticity and values always win. 

Read Culture Eats Strategy For Lunch here.

Posted by Graham Griffith

FOMC January Meeting: Majority of Participants Project Target Interest Rate Hike At Least Two Years Off

01-26-2012 8:15 AM with no comments

It looks as though interest rates will remain low for the next two years.  At their January meeting, members of the Federal Open Market Committee not only kept the target federal funds rate between 0 and 1/4 percent, they, as a group, projected the next rate increase would likely not come until 2014 at the earliest. They also set the inflation target at 2%.

Here is a look at the Fed's projections for GDP and unemployment:

At his press conference following the meeting, Ben Bernanke noted that the Fed needs to remain open to measures to "provide further stimulus" if the pace of recovery slows:

Read the FOMC January statement here.

Posted by Graham Griffith

Palmisano on his 40 Years at IBM

01-25-2012 7:22 AM with no comments

Earlier this month Sam Palmisano stepped down as CEO of IBM.  Palmisano has been with Big Blue for four decades, and while IBM may have seemed more dominant back when he started in 1973, the company's lasting power can be attributed in part to its ability to reinvent itself and adapt to shifts in the marketplace like few others its size.  Palmisano, who remains with IBM as chairman, spoke with Wharton School professor of management Michael Useem, and discussed his work at the company, some of his moves as CEO, and how a big company like IBM can foster innovation:

Posted by Graham Griffith

Karl Smith: 'The speed limit on the economy is extremely high'

01-24-2012 9:23 AM with no comments

At Modeled Behavior, Karl Smith shares two graphs.  He asks us to look at what happened to the output gap after 1983:

...and then at the output gap for now:

..and he asks us to consider whether we could see a rapid recovery over the next year.  Smith says it si possible.  Not likely, but possible.  Read How Fast, Recovery here.

(Hat tip, Mark Thoma)

Posted by Graham Griffith

Davidson: Declining Mobility and What it Says About Workers Skills and Industry in America

01-23-2012 11:27 AM with no comments

Adam Davidson's latest NYT Magazine column is a must read, and it highlights one of the topics we love to keep an eye on at The Watch: mobility.  Historically, a high level of economic mobility in the U.S. has often meant a lot of geographic mobility.  But today?  Not so much interstate migration, as this NYT graphic shows:

Davidson points out that mobility requires industries that are successful and creating jobs to pull people from one state to another.  And the industries that have that pull today are looking for workers with particular skills.

Part of the problem is that the country’s largest industries are in decline. In the past, it was perfectly clear where young people should go for work (Chicago in the 1870s, Detroit in the 1910s, Houston in the 1970s) and, more or less, what they’d be doing when they got there (killing steer, building cars, selling oil). And these industries were large enough to offer jobs to each class of worker, from unskilled laborer to manager or engineer. Today, the few bright spots in our economy are relatively small (though some promise future growth) and decentralized. There are great jobs in Silicon Valley, in the biotech research capitals of Boston and Raleigh-Durham and in advanced manufacturing plants along the southern I-85 corridor. These companies recruit all over the country and the globe for workers with specific abilities. (You don’t need to be the next Mark Zuckerberg to get a job in one of the microhubs, by the way. But you will almost certainly need at least a B.A. in computer science or a year or two at a technical school.) This newer, select job market is national, and it offers members of the mobile class competitive salaries and higher bargaining power.

Many members of the immobile class, on the other hand, live in the America of the grim headlines. If you have no specialized skills, there’s little reason to uproot to another state and be the last in line for a low-paying job at a new auto plant or a burgeoning green-energy cluster. The surprise in the census data, however, is that the immobile work force is not limited to unskilled workers. In fact, many have a college degree.

This column has sparked an ongoing online conversation at the Planet Money blog.  Read Davidson's column here.  And then go to responses from Brookings demographer William Frey, here, and Northwestern economist Joseph Ferrie, here.

Posted by Graham Griffith