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  • OECD: Obesity Rates and the Economy

    The good news: while obesity rates keep climbing in developed nations, the rate at which they are climbing has slowed down. This according to the latest OECD report on obesity among member nations. Rising obesity rates means rising costs to the economy. But there may also be a strong link from economic struggles to the rise in obesity. From the report: In 2008, the world economy entered one of the most severe crises ever. Many families, especially in the hardest hit countries, have been forced to cut their food expenditures, and tighter food budgets have provided incentives for consumers to switch to lower-priced and less healthy foods. During the 2008-09 economic slowdown, households in the United Kingdom decreased their food expenditure by 8.5% in real terms, with some evidence of an increase in calorie intake (the average calorie density of purchased foods increased by 4.8%). This change resulted in additional 0.08 g of saturated fat, 0.27 g of sugar and 0.11 g of protein per 100 g of purchased food (Institute for Fiscal Studies, Briefing Note No. 143). A similar trend was observed in Asian countries experiencing a recession in the late 1990s, with consumers switching to foods with a lower price per calorie (Block et al., 2005, Economics and Human Biology; World Bank, 2013, Working Paper No. 6538). Between 2008 and 2013, households in Greece, Ireland, Italy, Portugal, Spain and Slovenia decreased slightly their expenditure on fruits and vegetables, while households in other European OECD countries increased it at an average of 0.55% per year (OECD/ Imperial College analyses of passport data, Euromonitor International). Fruit and vegetable consumption was inversely related with unemployment in the United States, in the period 2007-09, and the effect was three times stronger in disadvantaged social groups at higher risk of unemployment (corresponding to a 5.6% decrease in fruit and vegetable consumption for each 1% increase in state-level unemployment). Given the size of job losses at the peak of the crisis, the most vulnerable groups may have reduced their consumption by as much as 20% (Dave and Kelly, 2012, Social Science and Medicine). Evidence from Germany, Finland and the United Kingdom shows a link between financial distress and obesity. Regardless of their income or wealth, people who experience periods of financial hardship are at increased risk of obesity, and the increase is greater for more severe and recurrent hardship (Munster et al., 2009, BMC Public Health; Conklin et al., 2013, BMC Public Health; Laaksonen et al., 2004, Obesity Research). An Australian study found that people who experienced financial distress in 2008-09 had a 20% higher risk of becoming obese than those who did not (Siahpush et al., 2014, Obesity). Financial hardship affects all household members. American children in families experiencing food insecurity are 22% more likely to become obese than children growing in other families (Metallinos-Katsaras et al., 2012, Journal of the Academy of Nutrition and Dietetics). While some evidence suggests that shorter working hours and lack of employment are associated with more recreational physical activity (Tekin et al., 2013, NBER Working Paper No. 19234), at times of increasing unemployment any gains are likely to be offset by reduced work-related physical activity. In the United States, in the aftermath of the economic crisis, leisure-time physical activity increased by three METs (metabolic equivalents – a measure capturing both duration and intensity of physical activity) but work-related physical activity decreased by 19 METs (Colman and Dave, 2013, NBER Working Paper No. 17406). In summary, the evidence of a possible impact of the economic crisis on obesity points rather consistently to a likely increase in body weight and obesity. Download the full report here .
  • The Lifespan of the Current Bull Market

    We're in a bull market, and it, as is the case every time we are in a bull market, we are spending a lot of time speculating about when it will end. RBC's Jonathan Golub says he knows when it will end. It will end, he says, when the next recession begins. Which begs the next question: will the markets marry the new realities of weather--life will now always seem to be about extremes? From the Wall Street Journal :
  • Planet Money: Greece's Economy May Stop Shrinking

    Greece's economy has a had a bad six years. At times, very very bad. But it may be getting better. The latest Planet Money podcast focuses on Greece, because the government there has put out a less-than-bad economic forecast. If the forecast is accurate, "the amazing shrinking economy will finally stop shrinking."
  • Economic Letter: 'Private Credit and Public Debt in Financial Crises'

    In a new San Francisco Fed Economic Letter , economists Òscar Jordà , Moritz Schularick , and Alan M. Taylor try to settle the debate over whether private credit or public debt was the bigger culprit in the global economic crisis. They award points to each. In short, their research seems to show that private credit booms put economies in difficult positions. And public debt makes it difficult for economies to recover. The narrative of the recent the global financial crisis in advanced economies falls into two camps. One camp emphasizes private-sector overconfidence, overleveraging, and overborrowing; the other highlights public-sector profligacy, especially with regard to countries in the periphery of the euro zone. One camp talks of rescue and reform of the financial sector. The other calls for government austerity, noting that public debt has reached levels last seen following the two world wars. Figure 1 Credit and debt since 1870: 17-country average Credit and debt since 1870: 17-country average Source: Jordà, Schularick, and Taylor (2013). Figure 1 displays the average ratio of bank lending and public debt to GDP for 17 industrialized economies (Australia, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom, and the United States). Although public debt ratios had grown from the 1970s to the mid-1990s, they had declined toward their peacetime average before the 2008 financial crisis. By contrast, private credit maintained a fairly stable relationship with GDP until the 1970s and then surged to unprecedented levels right up to the outbreak of the crisis. Spain provides an example of the woes in the euro zone periphery and the interplay of private credit and public debt. In 2007, Spain had a budget surplus of about 2% of GDP and government debt stood at 40% of GDP (OECD Country Statistical Profile). That was well below the level of debt in Germany, France, and the United States. But by 2012, Spain’s government debt had more than doubled, reaching nearly 90% of GDP, as the public sector assumed large losses from the banking sector and tax revenues collapsed. Thus, what began as a banking crisis driven by the collapse of a real estate bubble quickly turned into a sovereign debt crisis. In June 2012, Spanish 10-year bond rates reached 7% and, even at that rate, Spain had a hard time accessing bond markets. Once sovereign debt comes under attack in financial markets, banks themselves become vulnerable since many of them hold public debt as assets on their balance sheets. The new bout of weakness in the banking system feeds back again into the government’s future liabilities, setting in motion what some have called the “deadly embrace” or “doom loop.” The conundrum facing policymakers is this: Implement too much austerity and you risk choking off the nascent recovery, possibly delaying desired fiscal rebalancing. But, if austerity is delayed, bond markets may impose an even harsher correction by demanding higher interest rates on government debt. Matters are further complicated for countries in a monetary union, such as Spain. Such countries do not directly control monetary policy and therefore cannot offset fiscal policy adjustments through monetary stimulus by lowering domestic interest rates. In addition, central banks in these countries have limited capacity to stave off self-fulfilling panics since their lender-of-last-resort function evaporates. Fluctuations in fiscal balances over the business cycle are natural. As economic activity temporarily stalls, revenues decline and expenditures increase. With the recovery, fiscal balances typically improve. But the debate on what is a country’s appropriate level of public debt in the medium run continues to rage. It is unclear whether high debt is a cause or a consequence of low economic growth. That said, public debt is not a good predictor of financial crises. Read the full letter here .
  • Economics Lessons from Babysitting and Prison Camps

    Tim Harford says that we have a problem explaining how the economy works. It is too big. So we try to explain sections of it. But then the frame is too small and we misunderstand the way it all works. So Harford looks for smaller economies that behave enough like the economy at large that we can use them to make sense of recessions, inflation, and the like. In this Big Think interview, he discusses two such examples: a babysitting cooperative, and a prison camp:
  • Treasury Secretary Lew on the "End" of Too Big to Fail

    Treasury Secretary Jacob Lew is feeling good about the economy. In an interview with Charlie Rose last night, Lew expressed optimism that growth will pick up in 2014, and though he tended to remain cautious about his predictions, he suggested that our elected officials in Washington are making progress in economic policy around debt and immigration. Rose and Lew covered a lot of ground--from domestic issues to emerging markets and China. In this excerpt, Lew argued that banking rules are significantly stronger now than they were six years ago: We will post the full video when it becomes available. See also: Damian Paletta 's "12 Takeaways" from the interview at the Wall Street Journal Washington Wire blog, here .
  • State and Local Government Adding to GDP Again

    At Calculated Risk , Bill McBride shares passes along some good news from California and elsewhere that state and local payrolls are increasing, and state and local government employment "has bottomed." This "good news" is happening in many state and local areas (not all). This is a significant change from state and local governments being a headwind for the economy to becoming a slight tailwind. Here are two graphs that show the aggregate austerity is over. The first graph shows the contribution to percent change in GDP for residential investment and state and local governments since 2005. The blue bars are for residential investment (RI), and RI was a significant drag on GDP for several years. Now RI has been adding added to GDP growth. The red bars are the contribution from state and local governments. Although not as big a drag as the housing bust, there was an unprecedented period of state and local austerity (not seen since the Depression). Now state and local governments have added to GDP for two consecutive quarters, and I expect state and local governments to continue to make small positive contributions to GDP going forward. Click here for the second graph and the full article.
  • IMF Global Financial Stability Report and 'New Risks to Financial Stability'

    The latest Global Financial Stability Report is out from the IMF . The good news cited in the report is that most markets are changing for the (long-term) better, as the global financial system "under[goes] a series of transitions along the path toward greater financial stability." The bad news is that periods of transition can also be periods of vulnerability. And so the report focuses a bit on what will happen globally when (and we now know this is not happening in the next few months) the U.S. pulls back from its accommodative monetary policy. IMF Financial Counsellor José Viñals shares the good news/bad news thinking: Here's more from the report. Financial stability challenges are also prevalent in many emerging market economies. Bond markets are now more sensitive to changes in accommodative monetary policies in advanced economies because foreign investors have crowded into local markets and may withdraw. Emerging market fundamentals have weakened in recent years, after a protracted interval of credit expansion and rising corporate leverage. Managing the risks of the transition to a more balanced and sustainable financial sector, while maintaining robust growth and financial stability, will be a key undertaking confronting policymakers. As central banks elsewhere consider strategies for eventual exit from unconventional monetary policies, Japan is scaling up monetary stimulus under the Abenomics framework, aiming to pull the economy out of its deflationary rut. Successful implementation of a complete policy package that features fiscal and structural reforms would reinforce domestic financial stability, while likely boosting capital outflows. But substantial risks to financial stability could accompany the program if planned fiscal and structural reforms are not fully implemented. Failure to enact these reforms could lead to a return of deflation and increased bank holdings of government debt, further increasing the already-high sovereign-bank nexus. In a more disorderly scenario, with higher inflation and elevated risk premiums, the risks to both domestic and global financial stability could be greater still, including rapid rises in bond yields and volatility, and sharp increases in outflows. In the euro area, reforms implemented at the national level and important steps taken toward improving the architecture of the monetary union have helped reduce funding pressures on banks and sovereigns. However, in the stressed economies of Italy, Portugal, and Spain, heavy corporate sector debt loads and financial fragmentation remain challenging. Even if financial fragmentation is reversed over the medium term, this report estimates that a persistent debt overhang would remain, amounting to almost one-fifth of the combined corporate debt of Italy, Portugal, and Spain. Assuming no further improvement in economic and financial conditions which would correspond to a more adverse outcome than the cyclical improvement built into the October 2013 World Economic Outlook baseline scenario, some banks in these economies might need to further increase provisioning to address the potential deterioration in asset quality of corporate loan books. This could absorb a large portion of future bank profits. Recent efforts to assess asset quality and boost provisions and capital have helped to increase the loss-absorption capacity of banks, but further efforts to cleanse bank balance sheets and to move to full banking union are vital. These steps should be complemented by a comprehensive assessment and strategy to address the debt overhang in nonfinancial companies. Read the full report here .
  • IMF: 'More Fiscal Integration to Boost Euro Area Resilience'

    In a new paper out this week, IMF researchers call for "deeper fiscal integration" among euro area countries. In reading the paper, it appears IMF researchers view the euro experiment as incomplete. Despite struggles during the global economic crisis and global recession, there is confidence in the euro area, but no so much in its current "architecture." From the paper: Large country-specific shocks. While it was recognized that countries joining the euro area had significant structural differences, the launch of the common currency was expected to create the conditions for further real convergence among member countries. The benefits of the single market were to be reinforced by growing trade, and financial, links—making economies more similar and subject to more common shocks over time (Frankel and Rose, 1998). In that context, these common shocks would be best addressed through a common monetary policy. Instead, country-specific shocks have remained frequent and substantial (Pisani-Ferry, 2012; and Figure 1). Some countries experienced a specific shock through a dramatic decline in their borrowing costs at the launch of the euro, which created the conditions for localized credit booms and busts. The impact of globalization was also felt differently across the euro area, reflecting diverse trade specialization patterns and competitiveness levels (Carvalho, forthcoming). These country-specific shocks have had lasting effects on activity. And divergences in growth rates across countries have remained as sizeable after the creation of the euro as before (Figure 2). Deeper into the paper we start to see some proposed solutions: Long-term options for the euro area. Cooperative approaches to foster fiscal discipline have shown their limits in the first decade of EMU. On that basis, and in light of international experience, two options emerge to foster fiscal discipline in the euro area in the longer term. One could be to aim to restore the credibility of the no bailout clause, including through clear rules for the involvement of private creditors when support facilities are activated. But the transition to such a regime would have to be carefully managed and implemented in a gradual and coordinated fashion, so as to not trigger sharp readjustments in investors’ portfolios and abrupt moves in bond prices. Another option would be to rely extensively on a center-based approach and less on market price signals. This would, however, have to come at the expense of a permanent loss of fiscal sovereignty for euro area members. In practice, the steady state regime might have to embed elements of both options, with market discipline complementing stronger governance. Read a summary of the paper, and download the full paper, here .
  • Markit Economics: Euro Zone Business Activity Picks Up

    Business is picking up across the Euro Zone, according to the latest Purchasing Managers Index release from Markit Economics . An upturn in new business activity, combined with increased activity in both the service and manufacturing sector, drove PMI to its highest level in 27 months. In fact, the survey shows increases pretty much across the board, with one notable exception. Employment continues to lag. Here's a look a the trend: Comments from Chris Williamson , Chief Economist at Markit, in the release: “An upturn in the Eurozone PMI in September rounds off the best quarter for over two years, and adds to growing signs that the region is recovering from the longest recession in its history. “It is particularly encouraging to see the business situation improved across the region. Although the upturn continued to be led by Germany, France saw the first increase in business since early-2012 and elsewhere growth was the strongest since early-2011. “Employment continued to fall, though it is reassuring that the rate of job losses eased to only a very modest pace, suggesting that employment could start rising again soon. “The overall rate of growth signalled by the Eurozone PMI remains modest, however, consistent with gross domestic product rising by a meagre 0.2% in the third quarter. While rising inflows of new business bode well for a further upturn in the fourth quarter, policymakers at the ECB will no doubt view it as too early to change their stance on keeping policy on hold for an extended period.” Read the full release here .
  • BLS Jobs Report: Slow Decrease in Unemployment Rate Continues

    The jobs picture gets just a little better with each passing month. The U.S. economy added another 169,000 jobs in August, and the unemployment rate dropped another 0.1% to 7.3%, according to the Department of Labor . The labor force participation rate is at 63.2% (compared with 63.4 percent in July). Here's a look at the unemployment trends from the Bureau of Labor Statistics : Here are some of the key data from other areas we like to track in the monthly jobs report: The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) declined by 334,000 to 7.9 million in August. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job. In August, 2.3 million persons were marginally attached to the labor force, down by 219,000 from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Among the marginally attached, there were 866,000 discouraged workers in August, essentially unchanged from a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.5 million persons marginally attached to the labor force in August had not searched for work for reasons such as school attendance or family responsibilities. Read the full report from the BLS here .
  • Econbrowser Recession Indicator Index Jumps

    While Bureau of Economic Analysis estimated GDP growth for the 2nd quarter at an annual rate of 1.7%--a faster growth rate than the first quarter-- James Hamilton has become less optimistic about recovery. Note the jump in the Econbrowser Recession Indicator Index : Hamilton explains: The bare growth of the economy over 2012:Q4-2013:Q1 is the main reason that our Econbrowser Recession Indicator Index jumped up to 30.5%, a significant increase from the 9.2% figure that we released last quarter. This is one objective signal that the recent GDP numbers are even weaker than we've become accustomed to seeing since the economy began its disappointing recovery from the Great Recession in 2009:Q3. Note, however, that this does not mean the economy has entered recession territory. Our index would have to rise above 67% before we would issue such a declaration. Note also that in calculating the current value for the index we allow one quarter for data revision and trend recognition. Thus the latest value, although it uses today's released GDP numbers, is actually an assessment of the state of the economy as of the end of 2013:Q1. However, our index is never revised, so that the numbers plotted in the graph below since 2005 are exactly the values as they were reported one quarter after each indicated historical date on Econbrowser. Read the full post here .
  • McKinsey: Five "Game Changers" to Speed up Growth

    The recovery remains too slow for a lot of us. But what will it take for the rate of growth to speed up? McKinsey analysts have some ideas. In a new report, they put forward five "game changers" that could "deliver a substantial boost to GDP by 2020." Here's a short animated video outlining the challenges and opportunities: Download the full report here .
  • The Stickiness of Wages

    In a new Economic Letter , San Francisco Fed economists Mary Daly , Bart Hobjin , and Timothy Ni take a look at wage rigidity. In what may seem counter-intuitive, wage growth did not slow much during the Great Recession, even as unemployment climbed rapidly. And now wages are not rising much during the economic recovery and dropping unemployment. Apparently, this has happened in other recent recessions, though the extent to which wages have been slow to respond to overall economic change seems greater. Figure 1 clearly shows downward nominal wage rigidity in the distribution of wage changes among U.S. workers in 2006 and 2011. The data cover all workers and measure how their wages compared with their previous year’s wages, if they were employed. We use 2006 as an example of a typical wage change distribution and compare those numbers with the post-recession wage changes for 2011. The distribution of wage changes in 2006 and 2011 both spike at zero, suggesting that the wages of many workers did not change from year to year. In both years, the distribution is larger to the right of zero, that is, for wage increases, than to the left of zero, for wage cuts. Consistent with downward nominal rigidity, this suggests that a large fraction of wage cuts employers wanted to carry out were not actually made. Instead, those workers were swept into the zero-change group. What is more interesting in this figure is how 2006 and 2011 data differ. First, the fraction of workers whose wages were frozen jumped from 12% of the workforce in 2006 to 16% in 2011. Second, despite the severity of the Great Recession, very few workers experienced wage cuts. These numbers edged up only slightly from 2006 to 2011. Finally, and perhaps most interestingly, the percentage of workers who received wage increases dropped notably in 2011 compared with 2006. This compression of wage increases resulted in a larger spike at zero. Read The Path of Wage Growth and Unemployment here .
  • IMF Calls for 'Concerted Action' Among Eurozone Leaders

    The IMF released its latest assessment of the Euro Area economy this week. While IMF Managing Director Christine Lagarde commended EU leaders for taking strong action to stem the financial crisis, there is clearly a lot of work to be done before the Eurozone restarts growth. Here is an abbreviated version of the IMF assessment, taken from the headlines within the report: 1. Important actions at both the national and euro-wide levels have tackled the immediate threats to the single currency evident at this time last year. 2. Nevertheless, the centrifugal forces across the euro area remain serious and are pulling down growth everywhere. 3. In this setting, reviving growth and employment is imperative. 4. Stronger bank balance sheets are essential for economic recovery. 5. A credible assessment of bank balance sheets is necessary to lift confidence in the euro area financial system. 6. Full banking union is necessary to reduce financial fragmentation. 7. This calls for expediting the reforms in train. 8. A strong single resolution mechanism is critical to ensure timely and least-cost resolution of banks. 9. More support from the ECB could also help reduce fragmentation. 10. Given weak growth and subdued inflation, more monetary easing will likely be necessary to support demand. 12. The unfinished agenda here is large—but also promising. 13. The challenge to boost growth and create jobs calls for concerted policy action at the pan-European and national levels. IMF analysts proposed four key tasks for EU policymakers. You can read and them, and read beyond the headlines listed above, here .
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