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Global Economic Watch


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Educating Workers For The 21st Century

04-18-2014 9:12 AM with no comments

It is all about the skills.  Workers need skills in order to be successful in an increasingly stratified global economy.  Companies need skilled workers to compete.  So says the OECD's Andreas Schleicher.  In this Big Think video, Schleicher argues that we need to rethink our approach to education.  Preparing global citizens for success in the 21st century depends on educating people for "jobs that have not been created" and new technologies that will arise, not just the ones we already have.

Posted by Graham Griffith

The Atlantic: Good Times for Retail Sales, Bad Times for Retail Workers

04-18-2014 8:56 AM with no comments

"The business of selling stuff is becoming much more efficient," writes The Atlantic's Derek Thompson.  Online retailers and mega-stores can move supply quickly and relatively cheaply.  That has turned out to be good news when we are buying things.  But not so good for the retail worker, as it turns out.  Thompson:

This isn't the end of retail. But it is the end of some retail.

According to data obtained by The Atlantic from EMSI, the retail industry gained about 49,000 jobs between 2001 and 2013, which means it grew by exactly 0.32 percent. Which means it didn't grow.

But the major action is at the bookends of this graph below, which shows employment growth in the largest retail subcategories. Department stores, like JCPenney, lost more than 200,000 jobs this century. But supercenters like Walmart, which operates in more than 3,200 domestic locations, added half a million (often lower-paying) jobs.

The death of the salesmen isn't a uniform trend. It's spiky. Supercenters nearly doubled their total employment this century. But music stores, photo stores, computer stores, and book stores have been crushed. These used to be services you needed a store to buy. Now they're apps.

Read The Sad, Slow Death of America's Workforce here.

Posted by Graham Griffith

Gallup: Americans Regaining Confidence in Real Estate

04-17-2014 9:06 AM with no comments

Does the bursting of the housing bubble seem like ages ago to you?  It doesn't to us.  Middle class families across the U.S. saw their primary investment channels--their homes and real estate in general--depreciate.  And yet, when Gallup asked Americans where they feel most confident putting their money, real estate topped the list. 

These results are from Gallup's April 3-6 Economy and Personal Finances poll that asked Americans to choose the best option for long-term investments: real estate, stocks and mutual funds, gold, savings accounts and CDs, or bonds. Prior to 2011, Gallup asked the same question, but did not include gold as an option.

Gold was the most popular long-term investment among Americans in 2011 -- a time when gold was at its highest market price and real estate and stock values were lower than they are today. Gold prices dropped significantly after that and it lost favor with Americans. The 24% of Americans who currently name gold as the best long-term investment ties with the 24% who choose stocks.

Bonds have been Americans' least favored investment option for as long as Gallup has been asking the question. Savings accounts and CDs, on the other hand, have been more popular in the past. In September 2008, before gold was an option and at a time when the real estate and stock markets were tanking, savings accounts were the most popular long-term investment among Americans.

This year, the housing market has been improving across the U.S., and home prices have recently been rising after a steep drop in 2007 during the subprime mortgage crisis. This current improvement in prices may be why more Americans now consider real estate the best option for long-term investments. In 2002, during the real estate boom that preceded the mortgage crisis and before gold was offered as an option in the question, half of Americans said real estate was the best investment choice.

Read more from the survey results here.

Posted by Graham Griffith

Bill and Melinda Gates on Charitable Giving, Global Health, and the Global Economy

04-17-2014 8:34 AM with no comments

Bill and Melinda Gates have taken their wealth and built the Gates Foundation, the largest private foundation in the world.  In this Ted Talk, they discuss the ideas, numbers, and intended impact behind what has become their life work.  While the interview, conducted by Ted's Chris Anderson, focuses on the Gates's views of how charitable giving can build a stronger world, but it also raises interesting questions about the impact of philanthropy on he global economy--and not just in emerging and under-developed nations.  Bill Gates even argues that "we can do better than venture capital" in some areas:

Posted by Graham Griffith

Time to Move to Angola; Or How Pay Varies Around the Globe

04-16-2014 9:12 AM with no comments

Having just filed your taxes, you probably have a very clear sense of what you earned in 2013.  Now, Mercer's MThink researchers want you to better understand how other people are paid in other countries.  In this infographic they share some top-line findings from their most recent global survey on salary differentials.  (Go to the full-size image at MThink here):

Posted by Graham Griffith

Measuring Spillover Effects of Hedge Funds

04-16-2014 8:58 AM with no comments

Understanding the impact of hedge funds on financial crises is, at best, complicated.  "Spillover effects" are difficult to measure.  But Reint Gropp--Chair of Sustainable Banking and Finance at Goethe University, Frankfurt, and visiting scholar at the Federal Reserve Bank of San Francisco--takes a crack at it in a new Economic Letter:

While most observers tend to agree that hedge funds have some systemic importance, there is little agreement on how large a role they play as transmitters of adverse financial shocks. Figures 1 and 2 summarize the model’s findings regarding the flow of shocks between different types of financial institutions. In the figures, red arrows correspond to spillover effects; the green arrow in Figure 2 shows positive effects from insurance companies, as mentioned earlier. The thickness of the arrows correspond to the strength of the effects: a thin arrow means that a spillover is statistically significant but economically small, while a bold arrow means it is both significant and economically important.

Figure 1 shows that during calm times the risks emanating from hedge funds are as small as those from other financial institutions. However, Figure 2 shows that during crisis times, spillover effects increase overall. In particular, hedge funds have economically large spillovers to the other three types of institutions.

Why are the spillovers from hedge funds during financial crises so much bigger, and why do they seem to increase more than those from other financial institutions? Hedge funds are opaque and highly leveraged. If highly leveraged hedge funds are forced to liquidate assets at fire-sale prices, these asset classes may sustain heavy losses. This can lead to further defaults or threaten systemically important institutions not only directly as counterparties or creditors, but also indirectly through asset price adjustments (Bernanke 2006). One channel for this risk is the so-called loss and margin spiral. In this scenario, a hedge fund is forced to liquidate assets to raise cash to meet margin calls. The sale of those assets increases the supply on the market, which drives prices lower, especially when market liquidity is low. This in turn leads to more margin calls on other financial institutions, creating a downward spiral. Another example is investment banks that hedge their corporate bond holdings using credit default swaps. If hedge funds take the other side of the swap and fund the investment by borrowing from the same bank, the spillover risk from the hedge fund to the bank increases. These types of interconnectedness may underlie some of the spillover effects in our study.

In percentage terms, during normal market conditions, a 1 percentage point increase in the risk of hedge funds is estimated to increase the risk of investment banks by 0.09 percentage point. During times of financial distress, however, the same shock increases the risk of the investment banking industry by 0.71 percentage point. It is interesting to compare this risk to spillovers from commercial banks to investment banks. During normal conditions, a 1 percentage point increase in the risk of commercial banks leads to a 0.01 percentage point increase in the risk of investment banks. During financial distress, spillovers from commercial banks to investment banks increase relatively modestly to 0.05 percentage point. Although somewhat higher, this increase from normal conditions to crisis times is much smaller than that for hedge funds. Spillovers from investment banks to other financial institutions show similar results, while insurance companies tend to exhibit small spillover effects, even in crisis times.

Read How Important Are Hedge Funds in a Crisis? here.

Posted by Graham Griffith

Consumer Price Index On The Rise

04-15-2014 9:12 PM with no comments

The Consumer Price Index for All Urban Consumers rose 0.2% in March, according to the Bureau of Labor Statistics.  0.2 doesn't look so big, but the news comes after two straight months of 0.1% growth.The CPI-U has grown in ten of the last eleven months.  The all items index has grown 1.5% over the last 12 months.  From the Bureau of Labor Statistics release:

Increases in the shelter and food indexes accounted for most of the seasonally adjusted all items increase. The food index increased 0.4 percent in March, with several major grocery store food groups increasing notably. The energy index, in contrast, declined slightly in March as decreases in the gasoline and fuel oil indexes more than offset increases in the indexes for electricity and natural gas.

The index for all items less food and energy also rose 0.2 percent in March. Besides the 0.3 percent increase in the shelter index, the indexes for medical care, for apparel, for used cars and trucks, and for airline fares also increased. The indexes for household furnishings and operations and for recreation both declined in March.

The all items index increased 1.5 percent over the last 12 months; this compares to a 1.1 percent increase for the 12 months ending February. The index for all items less food and energy has increased 1.7 percent over the last 12 months, as has the food index. The energy index has risen slightly over the span, advancing 0.4 percent.

Here's a look at the CPI for All Urban Consumers over the last year:

Read the full release here.

Posted by Graham Griffith

A New Primer on China From McKinsey

04-15-2014 8:28 AM with no comments

Do you have an hour for China?  That is, do you have an hour you can spare to understand the leading economic story of the century?  McKinsey's Jeffrey Towson and Jonathan Woetzel have written The One Hour China Book in an effort to bring us all up to speed on the key pieces to understanding what is happening in the world's most populous country and the impact of activity there on life everywhere.  If you can't spare an hour just yet, here are the "six big trends" from the book, as shared at McKinsey Insights:

Here's a little more on trend number 3:

The American middle class was the world economy’s growth engine throughout the 20th century. Now, the engine is the Asia–Pacific region, which will account for two-thirds of the world’s middle class by 2030. While Chinese consumers’ focus on “value for money” has driven the rise of companies such as apartment builder China Vanke and Tingyi Holding Company—the business behind China’s dominant instant-noodle brand—buying habits are changing. As urbanization accelerates, consumer spending is becoming more like that of the West’s middle class. Urban Chinese are shopping to meet emotional needs, driving a skyrocketing demand for middle-class goods, food, and entertainment.

As an example, China consumed more than 13 million tons of chicken in 2012—more than the United States. Tyson Foods’s China operations has facilities able to process more than three million chickens per week, and Chinese chicken consumption, which grew by 54 percent from 2005 to 2010, is expected to grow an additional 18 percent annually during the next five years. For additional evidence, look no further than the fact that the largest Chinese acquisition of a US company had nothing to do with technology, cars, or energy. In 2013, Chinese Shuanghui International spent $7.1 billion to buy American Smithfield, the world’s largest pork producer and processor. It’s not surprising, then, that agribusiness is one of China’s hottest new industries.

Almost every aspect needs to be improved, from land and water use to logistics and retail. Legend Holdings, the parent company of Lenovo, now lists modern agriculture as one of its five core areas, with a portfolio that includes kiwi and blueberry farming.

Read All you need to know about business in China here.

Posted by Graham Griffith

Raghuram Rajan on Global Impact Uncoventional Monetary Policies

04-14-2014 9:47 AM with no comments

The monetary policies of central banks in the world's largest economies have a significant impact not only on the residents of those nations, but on people and businesses around the world.  This is especially true of the Federal Reserve's monetary policy moves.  With the Fed looking to scale back its quantitative easing program, the Brookings Institution invited India's top central banker, Raghuram Rajan, to speak about the impact of the Fed's unconventional monetary policies on emerging economies.  Here are two excerpts from that speech, in which Rajan discusses his concern that central bankers in emerging and developed economies are not adapting quickly enough to a changing global economy:

Read more about Rajan's visit to Brookings here.

Posted by Graham Griffith

Dani Rodrik on 'Premature Deindustrialization' in Developing Economies

04-14-2014 8:52 AM with no comments

At Project Syndicate, Dani Rodrik tries to make sense of "an unexpectedly large gap in productivity between large firms and small firms," in Mexico and other developing economies.  This isn't what is supposed to happen.  At least it doesn't follow the industrialization model of the last century and a half.  "When economies develop the productivity gap between the traditional and modern parts of the economy shrinks, and dualism gradually diminishes, Rodrik writes.

Today, the picture is very different. Even in countries that are doing well, industrialization is running out of steam much faster than it did in previous episodes of catch-up growth – a phenomenon that I have called premature deindustrialization. Though young people are still flocking to the cities from the countryside, they end up not in factories but mostly in informal, low-productivity services.

Indeed, structural change has become increasingly perverse: from manufacturing to services (prematurely), tradable to non-tradable activities, organized sectors to informality, modern to traditional firms, and medium-size and large firms to small firms. Quantitative studies show that such patterns of structural change are exerting a substantial drag on economic growth in Latin America, Africa, and in many Asian countries.

There are two ways to close the gap between leading and lagging parts of the economy. One is to enable small and microenterprises to grow, enter the formal economy, and become more productive, all of which requires removing many barriers. The informal and traditional parts of the economy are typically not well served by government services and infrastructure, for example, and they are cut off from global markets, have little access to finance, and are filled by workers and managers with low skills and education.

Even though many governments exert considerable effort to empower their small enterprises, successful cases are rare. Support for small enterprises often serves social-policy goals – sustaining the incomes of the economy’s poorest and most excluded workers – instead of stimulating output and productivity growth.

The second strategy is to enlarge opportunities for modern, well-established firms so that they can expand and employ the workers that would otherwise end up in less productive parts of the economy. This may well be the more effective path.

Read The Growing Divide Within Developing Economies here.

Posted by Graham Griffith

IMF's Blanchard: Focus of Global Recovery Should Now Be On Supply Side

04-11-2014 8:27 AM with no comments

The global economy has a supply side problem.  That is, the global marketplace needs more buyers.  IMF director of research Olivier Blanchard notes that while he and his team are projecting 3.6 percent growth this year, and 3.9 percent growth next year, it all depends on a "broader" recovery.

First, potential growth in many advanced economies is very low. This is bad on its own, but it also makes fiscal adjustment more difficult. In this context, measures to increase potential growth are becoming more important—from rethinking the shape of some labor market institutions, to increasing competition and productivity in a number of non-tradable sectors, to rethinking the size of the government, to reexamining the role of public investment.

Second, although the evidence is not yet clear, potential growth in many emerging market economies also appears to have decreased. In some countries, such as China, lower growth may be in part a desirable byproduct of more balanced growth. In others, there is clearly scope for some structural reforms to improve the outcome.

Finally, as the effects of the financial crisis slowly diminish, another trend may come to dominate the scene, namely rising inequality. Though inequality has always been perceived to be a central issue, until recently it was not seen as having major implications for macroeconomic developments. This belief is increasingly called into question. How inequality affects both the macroeconomy, and the design of macroeconomic policy, will likely be increasingly important items on our agenda for a long time to come.

Read the full post here.  And watch Blanchard discuss the global recovery below:

Posted by Graham Griffith

China's Premier Says No to Stimulus Measures

04-10-2014 10:50 AM with no comments

If you are waiting on China's government to make some policy moves to jump-start growth, you may want to find something to do with your time.  As Aileen Wang and Adam Rose report for Reuters, Chinese Premier Li Keqiang has quashed any rumors of pending fiscal and/or monetary policy shifts.

The almost unabated run of disappointing data this year has fuelled investor speculation the government would loosen fiscal or monetary policy more dramatically to shore up activity.

But authorities so far have resisted broad stimulus measures. On Wednesday, the top economic planning agency said the government had less room to underpin growth because it did not want to inflate local debt risks.

Still, authorities have take some steps to bolster growth. Earlier this month, they announced tax breaks for small firms and plans to speed up some infrastructure spending, including the building of rail lines.

The national railway operator now plans to raise its annual investment by 20 billion yuan (1.9 billion pounds) to 720 billion yuan in 2014.

There have also been moves to cut down on bureaucracy and to open up state-dominated sectors to private investors.

In his speech, Li said China was positioned to sustain a reasonable level of growth over the long term.

"We have set our annual economic growth target at around 7.5 percent," he said. "It means there is room for fluctuation. It does not matter if economic growth is a little bit higher than 7.5 percent, or a little bit lower than that."

Read the full article here.

Posted by Graham Griffith

Federal Open Market Committee Minutes Show Measured Positive Outlook

04-10-2014 7:51 AM with no comments

The Federal Reserve has released the minutes from the Federal Open Market Committee's March meetings, and they read as measured, but also somewhat optimistic that slow, steady improvement will continue.  Here is a key excerpt:

In their discussion of monetary policy in the period ahead, members agreed that there was sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, members decided that it would be appropriate to make a further measured reduction in the pace of its asset purchases at this meeting. Members again judged that, if the economy continued to develop as anticipated, the Committee would likely reduce the pace of asset purchases in further measured steps at future meetings. Members also underscored that the pace of asset purchases was not on a preset course and would remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of purchases. Accordingly, the Committee agreed that, beginning in April, it would add to its holdings of agency mortgage-backed securities at a pace of $25 billion per month rather than $30 billion per month, and would add to its holdings of longer-term Treasury securities at a pace of $30 billion per month rather than $35 billion per month. While making a further measured reduction in its pace of purchases, the Committee emphasized that its holdings of longer-term securities were sizable and would still be increasing, which would promote a stronger economic recovery by maintaining downward pressure on longer-term interest rates, supporting mortgage markets, and helping to make broader financial conditions more accommodative. The Committee also reiterated that it would continue its asset purchases, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. One member, while concurring with this policy action, suggested that in future statements the Committee might provide further information about the trajectory of the Federal Reserve's balance sheet, including information about when the Committee might discontinue its policy of reinvesting principal payments on all agency debt and agency mortgage-backed securities in agency mortgage-backed securities.

With respect to forward guidance about the federal funds rate, all members judged that, as the unemployment rate was likely to fall below 6-1/2 percent before long, it was appropriate to replace the existing quantitative thresholds at this meeting. Almost all members judged that the new language should be qualitative in nature and should indicate that, in determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee would assess progress, both realized and expected, toward its objectives of maximum employment and 2 percent inflation. However, a couple of members preferred to include language in the statement indicating that the Committee would keep rates low if projected inflation remained persistently below the Committee's 2 percent longer-run objective. One of these members argued that the Committee should continue to provide quantitative thresholds for both the unemployment rate and inflation.

Members also considered statement language that would provide information about the anticipated behavior of the federal funds rate once it is raised above its effective lower bound. The Committee decided that it was appropriate to add language indicating that the Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run. In discussing this addition, a couple of members suggested that language along these lines might better be introduced at a later meeting. However, another member indicated that adding the new language at this stage could be beneficial for the effectiveness of policy because financial conditions depend on both the length of time that the federal funds rate is at the effective lower bound and on the expected path that the federal funds rate will follow once policy firming begins. It was also noted that the postmeeting statements, rather than the SEP, provide the public with information on the Committee's monetary policy decisions and that it was therefore appropriate for the postmeeting statement to convey the Committee's position on the likely future behavior of the federal funds rate.

You can read the minutes here.

Wall Street Journal reporter Victoria McGrane was looking forward to seeing the minutes after Fed officials seemed to reveal concern over how Janet Yellen's comments immediately following the meeting were received.  In this interview on the News Hub, McGrane shares her takeaways from the minutes:


Posted by Graham Griffith

Benefits of EU Membership for Poorer Nations

04-09-2014 9:32 AM with no comments

Yesterday, European economists Nauro Campos, Fabrizio Coricelli, and Luigi Moretti posted some of their findings on the benefits of EU membership to rich nations.  Today, they share some of their findings--again at Vox--on the benefits to poorer nations.  They focus on two periods of enlargement: the 1980s and 2004.  And they find that there are clear benefits to every nation except one.

This column presents new estimates of the economic (monetary) benefits from EU membership. The main finding is that of substantial and positive pay-offs, with approximately 12% gain in per capita GDP. Despite substantial differences across countries, there are clear indications that the benefits of EU membership have significantly outweighed the costs (except for Greece). An important question is to identify factors that allow countries to better exploit EU entry. Campos et al. (2014) began investigating this issue and their preliminary findings highlight the role of financial development (i.e., more financially developed countries growing significantly faster after EU membership) and, somewhat less surprisingly, trade openness.

Read How much do countries benefit from membership in the European Union? here.

Posted by Graham Griffith

Pew Research Center: Pay Gap Has 'Narrowed But Persisted'

04-09-2014 9:15 AM with no comments

That pesky pay gap. 

For Equal Pay Day, the Pew Research Center's Eileen Patten put together some key statistics about the gender pay gap.  Clearly, there has been some progress.  The gap has narrowed, but is still significant.

Posted by Graham Griffith

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