Global Economic Watch


Global Economic Watch


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Nouriel Roubini on Economic Roots to 'New Nationalismm'

06-02-2014 8:20 AM with no comments

At Project Syndicate, Nouriel Roubini raises some concerns over the rising nationalism in Europe.  Rising economic populism is a logical result of slow recovery.  Policy makers must pick up the pace of recovery among poor Europeans, and especially among young workers, he argues.

This new nationalism takes different economic forms: trade barriers, asset protection, reaction against foreign direct investment, policies favoring domestic workers and firms, anti-immigration measures, state capitalism, and resource nationalism. In the political realm, populist, anti-globalization, anti-immigration, and in some cases outright racist and anti-Semitic parties are on the rise.

These forces loath the alphabet soup of supra-national governance institutions – the EU, the UN, the WTO, and the IMF, among others – that globalization requires. Even the Internet, the epitome of globalization for the past two decades, is at risk of being balkanized as more authoritarian countries – including China, Iran, Turkey, and Russia – seek to restrict access to social media and crack down on free expression.

The main causes of these trends are clear. Anemic economic recovery has provided an opening for populist parties, promoting protectionist policies, to blame foreign trade and foreign workers for the prolonged malaise. Add to this the rise in income and wealth inequality in most countries, and it is no wonder that the perception of a winner-take-all economy that benefits only elites and distorts the political system has become widespread. Nowadays, both advanced economies (like the United States, where unlimited financing of elected officials by financially powerful business interests is simply legalized corruption) and emerging markets (where oligarchs often dominate the economy and the political system) seem to be run for the few.

For the many, by contrast, there has been only secular stagnation, with depressed employment and stagnating wages. The resulting economic insecurity for the working and middle classes is most acute in Europe and the eurozone, where in many countries populist parties – mainly on the far right – outperformed mainstream forces in last weekend’s European Parliament election. As in the 1930’s, when the Great Depression gave rise to authoritarian governments in Italy, Germany, and Spain, a similar trend now may be underway.

Read The Great Backlash here.

Posted by Graham Griffith

Avoiding Crises in Fast Growing Companies

05-30-2014 9:37 AM with no comments

You want fast growth in today's economy?  Fine, but with the pressure of speed comes increased danger of missteps.  Kirk Dando covers a dozen mistakes that "derail growth hungry companies" in a new book, Predictive Leadership.  He shares some of his key findings with Sara Murray of the Wall Street Journal's NewsHub.

Posted by Graham Griffith

Personal Income Still Rising, But Consumer Spending Dropped in April

05-30-2014 9:09 AM with no comments

Personal income rose again in April, though not at the rate of previous months this year, while consumer spending dropped for the first time in 2014, according to the Commerce Department.  Real disposable personal income continued its steady climb rising 0.3%.  Real consumer spending dropped 0.3%.  The savings rate and prices also rose in April.

From the Bureau of Economic Analysis release:

Private wages and salaries increased $16.9 billion in April, compared with an increase of $44.6 billion in March. Goods producing industries' payrolls decreased $0.1 billion, in contrast to an increase of $10.2 billion; manufacturing payrolls decreased $1.2 billion, in contrast to an increase of $7.8 billion. Services-producing industries' payrolls increased $16.9 billion, compared with an increase of $34.5 billion. Government wages and salaries increased $1.4 billion, compared with an increase of $0.9 billion.

Read the BEA's full report here.

Posted by Graham Griffith

Marketplace Whiteboard: ETFs Explained

05-29-2014 7:27 AM with no comments

Paddy Hirsch says that investing in exchange-traded funds is relatively easy.  But their "simplicity" is what makes them so dangerous.  He explains ETFs at the Marketplace Whiteboard:

Posted by Graham Griffith

Banks Increasing Lending, But Not Necessarily Risk

05-29-2014 7:04 AM with no comments

It has taken some time to restart borrowing, and lending, after the Great Recession, but consumers are taking on more debt.  For three straight quarters, total consumer debt has risen, note at Liberty Street Economics.  But is this the result of banks now being less risk averse?  According to some recent work by the New York Fed's Basit Zafar, Max Livingston, and Wilbert van der Klaaw, that does not seem to be the case.  From Liberty Street Economics:

To assess the demand for credit and measure how much of that demand was met, we classify our respondents into four groups. In February 2014, 40 percent of respondents reported not applying for any type of credit over the past twelve months because they didn’t need it (satisfied consumers); 40 percent of respondents reported applying for some type of credit and being approved (accepted applicants); 13 percent reported applying for some type of credit and being rejected (rejected applicants); and 8 percent reported not applying for credit despite needing it because they believed they would not be approved. This last group represents latent demand for credit; we refer to them as discouraged consumers. The leftmost two bars in the chart below show that the distribution of respondents in February 2014 looked quite similar to that in May 2013 (the results of which we discussed in a previous post): we see a slight increase in satisfied consumers from May to February and a slight decrease in accepted applicants. Note that the SCE is a rotating panel, so the respondents in the two surveys will be different; however, we use weights to ensure that the statistics reported in this post remain representative of the population of U.S. household heads.

The picture, however, varies radically when split by credit score. The chart above shows that individuals with lower credit scores (those with credit scores below 680) were more likely to report that they were rejected, and much more likely to report that they were discouraged, than their more creditworthy counterparts. In February, 22 percent of respondents in the low-credit-score group were discouraged, versus 3 percent in the middle-credit-score group, and zero percent in the high-credit-score group (those with scores of above 760). Furthermore, the chart shows that credit experiences got markedly worse for the low-credit-score group in February 2014 compared with May 2013: 57 percent of this group reported either being denied credit or being too discouraged to apply in February this year, versus 47 percent in May of last year. This result contrasts with the experiences of their more creditworthy counterparts, which were largely unchanged since May 2013. These patterns suggest that although banks may be increasing their lending activity, they are not necessarily taking on more risk, as the risky population has not seen an improvement in its ability to obtain credit.

Read Rising Household Debt: Increasing Demand or Increasing Supply? here.

Posted by Graham Griffith

Dan Ariely at Games for Change 2014: 'Who put the monkey in the driver's seat?'

05-28-2014 9:32 AM with no comments

When things don't quite work out, we can always blame the operating system.  OUR operating system.  The brain is wonderful beyond words.  And yet, the more we learn about how it works, the more we realize there are some bugs. 

At the 2014 Games for Change Festival, Dan Ariely shared some fascinating findings from his research on decision-making.  And while it is discouraging to hear that humans are wired to make a lot of really bad decisions--even when their fiscal and physical well being is in danger--knowing about the weakness can help us figure out tools or games to protect ourselves from ourselves.

Posted by Graham Griffith

OECD: Obesity Rates and the Economy

05-28-2014 9:22 AM with no comments

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.

Posted by Graham Griffith

Trust, Safety, Leadership

05-27-2014 9:41 AM with no comments

"Leadership is a choice.  It is not a rank."

So says Simon Sinek in this recent Ted Talk.  Sinek studies leadership.  In this talk he shares some of what he learned in researching and writing Start With Why: How Great Leaders Inspire Everyone to Take Action.

Posted by Graham Griffith

Case Shiller: Home Prices Continue to Rise, But Gains Slow

05-27-2014 9:11 AM with no comments

Home prices continued to rise in March, but as has been the case all year, the rate of growth was rather modest.  According to the latest Case-Shiller Home Price Indices release, prices rose 0.8% in the 10-city composite, and 0.9% in the 20-city composite.  For the first quarter, the national index rose only 0.2%.  Year-over-year the 10-city composite index came in at 12.6% while the 20-city composite was at 12.4%.

From the release:

“The year-over-year changes suggest that prices are rising more slowly,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Annual price increases for the two Composites have slowed in the last four months and 13 cities saw annual price changes moderate in March. The National Index also showed decelerating gains in the last quarter. Among those markets seeing substantial slowdowns in price gains were some of the leading boom-bust markets including Las Vegas, Los Angeles, Phoenix, San Francisco and Tampa.

“Despite signs of decelerating prices, all cities were higher than a year ago and all but New York were higher in March than in February. However, only Denver and Dallas have set new post-crisis highs and they experienced relatively lower peak levels than other cities. Four locations are fairly close to their previous highs: Boston (8%), Charlotte (9%), Portland (13%) and San Francisco (15%).

“Housing indicators remain mixed. April housing starts recovered the drop in March but virtually all the gain was in apartment construction, not single family homes. New home sales also rebounded from recent weakness but remain soft. Mortgage rates are near a seven month low but recent comments from the Fed point to bank lending standards as a problem. Other comments include arguments that student loan debt is preventing many potential first time buyers from entering the housing market.”

Read the full release here.

Posted by Graham Griffith

Marketplace: The Curious Case of the Disappearing Gas Stations

05-26-2014 8:52 AM with no comments

Memorial Day is big business for gas stations.  But it turns out that in many areas of the country, people will have fewer places to stop for gas than in the past.  As Daniel Tucker reports for Marketplace, big gas stations with double digit numbers of pumps are guzzling market share.  Take a listen (and note how few gas stations are left in Manhattan):

Posted by Graham Griffith

The Cost of Economic Espionage

05-26-2014 8:26 AM with no comments

The Brookings Institution hosted a discussion with John Carlin, Assistant Attorney General for National Security.  The topic was not terrorism, but another threat to national security: economic espionage.  Carlin addressed the massive cost of economic espionage, and the efforts underway at the Justice Department to track and prevent intellectual property theft.  Here is an excerpt:

Watch the full talk here.

Posted by Graham Griffith

OECD: Fiscal Impact of Migration

05-23-2014 7:04 AM with no comments

As policy makers in advanced economies still struggle with immigration reform, the debate over the net economic impact continues.  A recent policy brief by researchers at the OECD tries to bring some clarity to the issue.  One key finding: migrants essentially have a "neutral fiscal impact," as the cost of the benefits they receive is balanced out by what they put back in in the form of taxes and other contributions.  And the employment rate of migrants matters.  A lot.  From the brief:

Labour migration brings greatest benefits. The rate of employment among migrants is the key factor in determining migration’s impact on the public purse. The biggest positive impact is found where an immigrant population includes large numbers of people who have arrived relatively recently to work. By contrast, the least positive impact is seen in countries where there is a longstanding migrant population and relatively little recent labour migration. But even where the impact is less favourable, the reasons have usually less to do with a greater dependence on social benefits and more to do with the fact that immigrants may be earning lower wages and thus paying lower taxes. Raising migrants’ employment rates to match those of locals is, where appropriate, an important consideration for public policy both for economic reasons and – in many cases – to help migrants meet their own goals.

Positive showing for low-educated migrants. The fiscal situation of low-educated migrants – in other words, the difference between the contributions they make and the benefits they receive – is stronger than that of their native-born peers, a finding that may run contrary to popular perceptions.

A boost to the labour force. Over the past 10 years, immigrants represented 47% of the increase in the workforce in the United States, and 70% in Europe. They play a major role in sectors of the economy witnessing great change. In Europe, new immigrants represented 15% of new hires in strongly growing occupations, such as in healthcare and in science and technology, and 22% in the United States. But migrants were also strongly present in declining occupations, taking up jobs that local workers may regard as unattractive. In Europe, migrants represented 24% of new hires in areas like machine operating and assembly; in the US, they represented about 28% of hires in production, installation and maintenance.

Read the report here.

Posted by Graham Griffith

Knowing: Now More Than Half the Battle

05-22-2014 2:11 PM with no comments

Knowledge is power.  We get that.  But that old statement may never have been more true than now.  As Fareed Zakaria explains in this Big Think video, knowledge is now the lifeblood for any worker in the global economy.  It is not an option, but essential.

Posted by Graham Griffith

Existing Home Sales Rose in April

05-22-2014 11:03 AM with no comments

For the first time this year, existing-home sales have increased.  Sales rose 1.3% in April, according to the National Association of Realtors.  Monthly sales were still 6.8% lower than April 2013.  From the release:

Lawrence Yun, NAR chief economist, expected the improvement. “Some growth was inevitable after sub-par housing activity in the first quarter, but improved inventory is expanding choices and sales should generally trend upward from this point,” he said. “Annual home sales, however, due to a sluggish first quarter, will likely be lower than last year.”

Total housing inventory2 at the end of April jumped 16.8 percent to 2.29 million existing homes available for sale, which represents a 5.9-month supply at the current sales pace, up from 5.1 months in March. Unsold inventory is 6.5 percent higher than a year ago, when there was a 5.2-month supply.

“We’ll continue to see a balancing act between housing inventory and price growth, which remains stronger than normal simply because there have not been enough sellers in many areas. More inventory and increased new-home construction will help to foster healthy market conditions,” Yun added.

The median existing-home price3 for all housing types in April was $201,700, which is 5.2 percent above April 2013; in the first quarter the median price was 8.6 percent above a year earlier. “Current price data suggests a trend of slower growth, which bodes well for preserving favorable affordability conditions in much of the country,” Yun said.

Sales may be flat, but that means prices continue to rise.  Read the full release here.

Posted by Graham Griffith

MoneyBeat: The Appeal of Junk Bonds

05-21-2014 7:45 AM with no comments

Apparently, the "junk" in junk bonds still is not deterring investors.  The memo to focus on long run growth rather than chasing the quick money did not reach everyone--or some people lost the memo over the last year.  With high returns difficult to find elsewhere, investors are tempted by the potential yields available in the junk bond marketTheir confidence may also be buoyed by feeling like their investments elsewhere are safer than in the past, so they can take a little risk, says the Wall Street Journal's Colin Barr.  From MoneyBeat:

Posted by Graham Griffith

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