David Wessel--now with the Brookings Institution--is one of the best at explaining the way our economic system works. And he's good in any medium. Even animation.
This is a good start-of-the-semester explainer on the federal debt (and a good reminder for journalists who need to do a better job of understanding how debt works so that they can help us through political debates over federal spending rather than just repeat what politicians say).
Personal income rose 0.2% in July according to the Commerce Department. That followed a big jump in June of 0.5%. Real consumer spending, meanwhile, dropped 0.2% (after a 0.2% increase in June). The savings rate and prices both rose slightly.
From the Bureau of Economic Analysis release:
Private wages and salaries increased $12.9 billion in July, compared with an increase of $25.6 billion in June. Goods-producing industries' payrolls increased $0.7 billion, compared with an increase of $8.8 billion; manufacturing payrolls were unchanged in July and increased $5.1 billion in June. Services-producing industries' payrolls increased $12.3 billion in July, compared with an increase of $16.8 billion in June. Government wages and salaries increased $1.7 billion, compared with an increase of $1.8 billion.
Read the BEA's full report here.
For some companies, it doesn't matter how angry their shareholders get about executive pay, they are staying the course and continuing to offer very very very very lucrative pay packages to CEOs and other top execs. Emily Chasan, editor of the CFO Journal, names names and talks about a couple dozen companies that "say 'no way' to 'say on pay'" with MoneyBeat's Paul Vigna:
Read Chasan's article here.
In a lot of the country, highways are in need of repair. Wasn't federal spending on infrastructure following the economic earthquake of 2008 supposed to help with that? In a new Economic Letter, San Francisco Fed economists Sylvain Leduc and Dan Wilson find that while total highway spending from 2008-2011 was "flat," the Recovery Act did increase spending.
As in medical studies of treatment effects, in the ideal experiment the treatment dosage would be assigned randomly to different patients (states). Of course, in the real world, countercyclical fiscal policy is not conducted randomly and so it might raise some concerns if the funds had been disproportionately distributed to states that would have spent less (or more) on highways anyway. For example, the federal government may have channeled more highway grants to states experiencing deeper recessions and more severe budgetary crises, that is, states likely to cut government spending sharply—on highways and everything else—regardless of the grants. In this case, any difference-in-differences correlation we observe would not reflect the true casual effect of the ARRA grants.
It turns out, however, that the distribution of the ARRA highway grants was essentially independent of states’ economic conditions. To speed up disbursement of funds and to minimize the role of political influence, the Recovery Act was designed to channel the majority of funds to states through pre-existing transportation programs. For instance, the ARRA highway funds were partly distributed according to long-standing formulas that have historically been used to apportion highway grants to states under the Federal-Aid Highway Program (see Leduc and Wilson 2013). These formulas are based on information about road factors in each state that change very little over time. For instance, one key factor in these formulas is each state’s share of the nation’s highway lane-miles, a factor that has changed little since the initial planning of the Interstate Highway System in the early 1940s.
Rather remarkably, we find that the distribution of highway lane-miles across states in the initial proposal for the national highway system, which was produced in 1944 by the Franklin D. Roosevelt Administration, strongly predicts the distribution of ARRA grants to states some 65 years later. In our difference-in-differences analysis, we can use the predicted distribution of ARRA grants from these initial drafts in place of the actual distribution to ensure that our results do not reflect any relation between grants and states’ economic conditions in 2009.
Our results indicate that each dollar of ARRA highway grants received increased states’ road spending by about 50 cents in 2009 and by about 75 cents in both 2010 and 2011. Thus, over the course of three years, the cumulative effect of one dollar of grants was nearly two dollars in higher state road spending. This greater than dollar-for-dollar response suggests that federally funded road projects may encourage complimentary state-funded road projects. For instance, new or expanded highways and bridges often spur new nearby commercial and residential development, creating demand for new local roads around that development. As we document in more detail in Leduc and Wilson (2014), these results are very robust to changes in the simple specification described above.
Read the full article here.
We wish there were a study about economists and Legos (If there has been one, please let us know). We surmise that such a study would find a strong correlation between playing with Legos and becoming an economist. No, probably not as high a correlation as with architects, but there is something about puzzles, problem solving, building elegant solutions, and maybe even colorful bar graphs that leads us to this hypothesis.
Surely Brookings Fellow Richard Reeves appreciates the Lego as medium. He's still using them. In this video, he uses them to talk about economic inequality and social mobility (or lack thereof) in the U.S.:
Let's be very clear: home prices are not going down. In fact, they are increasing. But they are increasing at a slower rate all over the country than either the rate of increase a year ago or the rate a month ago, according to the latest Case-Shiller Home Price Indices release. Year-over-year growth in the 10-city and 20-city composites came in at 8.1% in June. Growth was 9.4% for the 10-city composite and 9.3% for the 20-city composite in May.
From the release:
“Home price gains continue to ease as they have since last fall,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “For the first time since February 2008, all cities showed lower annual rates than the previous month. Other housing indicators – starts, existing home sales and builders’ sentiment – are positive. Taken together, these point to a more normal housing sector.
“The monthly National Index rose 0.9% in June. While all 20 cities saw higher home prices over the last 12 months, all experienced slower gains. In San Francisco, the pace of price increases halved since late last summer. The Sun Belt cities – Las Vegas, Phoenix, Miami and Tampa – all remain a third or more below their peak prices set almost a decade ago.
“Bargain basement mortgage rates won’t continue forever; recent improvements in the labor markets and comments from Fed chair Janet Yellen and others hint that interest rates could rise as soon as the first quarter of 2015. Rising mortgage rates won’t send housing into a tailspin, but will further dampen price gains.”
Read the full release here.
Everything costs more in Switzerland. Including employees. But then, that is how Swiss workers are able to afford things at Swiss prices.
Mercer's MThink has put together a helpful infographic on employment costs around the world. The Swiss stand out, well above even oil-rich Norway, on average base salary. But additional costs for employees can be much higher in other economies. Take a look (full size graphic is here).
Next week will be a four-day workweek for many U.S. workers. With all the new data gathered recently on how people work and on productivity, there is some thinking that every week should be a four day workweek. At The Atlantic, Philip Sopher shares some of the recent research into the length of work days and potentially more optimal ways of structuring the week for the benefit of organizations, workers, and, ultimately, the economy as a whole:
The five-day workweek might be limiting productivity. A study in the American Journal of Epidemiology found that those who worked 55 hours per week performed more poorly on some mental tasks than those who worked 40 hours per week. And Tony Schwartz, the author of Be Excellent at Anything, told Harvard Business Review that people work best in intense 90-minute bursts followed by periods of recovery. Taken together, these findings suggest that with the right scheduling of bursts and rests, workers could get a similar amount of work done over a shorter period of time.
Moreover, there’s some anecdotal evidence that a four-day workweek might increase productivity. Google’s Larry Page has praised the idea, even if he hasn’t implemented it. And Jason Fried, the CEO of Basecamp, has his employees work four-day, 32-hour weeks for half of the year. “When you have a compressed workweek, you tend to focus on what’s important. Constraining time encourages quality time, ” he wrote an op-ed in The New York Times. “Better work gets done in four days than in five,” he concluded.
Beyond working more efficiently, a four-day workweek appears to improve morale and well-being. The president of the U.K. Faculty of Public Health told the Daily Mail that a four-day workweek could help lower blood pressure and increase mental health among employees. Jay Love of Slingshot SEO saw his employee-retention rate shoot up when he phased in three-day weekends. Following this line of thought, TreeHouse, an online education platform, implemented a four-day week to attract workers, which has contributed to the company's growth.
That said, the five-day workweek might already have so much cultural intertia that it can’t be changed. Most companies can’t just tell employees not to come in on Fridays, because they'd be at a disadvantage in a world that favors the five-day workweek.
Richard Marston is worried about us. All of us. The Wharton finance professor is worried that baby boomers will not be able to spend as much in retirement as they expected. He is worried that their children have no idea how much money they need to save. And for those of us in between, well, the economic landscape may make retirement itself just a dream.
Marston's new book is titled Investing for a Lifetime, and it is his effort to wake us all up to what he calls "the new normal" of equities, investing, and saving. He speaks about the economic landscape with Knowledge@Wharton's Stephen Sherretta:
Existing-home sales increased 2.4% in July, according to the National Association of Realtors. Monthly sales were 4.3% lower than July 2013. From the release:
Lawrence Yun, NAR chief economist, says sales momentum is slowly building behind stronger job growth and improving inventory conditions. “The number of houses for sale is higher than a year ago and tamer price increases are giving prospective buyers less hesitation about entering the market,” he said. “More people are buying homes compared to earlier in the year and this trend should continue with interest rates remaining low and apartment rents on the rise.”
Yun does warn that affordability is likely to decline in upcoming years. “Although interest rates have fallen in recent months, median family incomes are still lagging behind price gains, and mortgage rates will inevitably rise with the upcoming changes in monetary policy,” he said.
The median existing-home price2 for all housing types in July was $222,900, which is 4.9 percent above July 2013. This marks the 29th consecutive month of year-over-year price gains.
Perhaps the most positive piece of news from the NAR monthly report has to do with distressed homes, which now make up a much smaller percentage of overall home sales
Distressed homes4 – foreclosures and short sales – accounted for 9 percent of July sales, down from 15 percent a year ago and the first time they were in the single-digits since NAR started tracking the category in October 2008. Six percent of July sales were foreclosures and 3 percent were short sales. Foreclosures sold for an average discount of 20 percent below market value in July, while short sales were discounted 14 percent.
When it comes to the value of franchises in the most valuable sports league in the country, location matters a lot more than performance on the field. How else to explain the Cowboys topping the list (and being the top non-soccer sports franchise globally, for that matter), and several other non-playoff teams joining them in Forbes' top ten valuations of NFL teams? While shared revenue from lucrative television deals helps the value of all the league's franchises, the big brands tend to be in markets that allow them to charge a lot for tickets and personal seat licenses. Mike Oznian writes:
For the eighth consecutive year the Dallas Cowboys, worth $3.2 billion, are the league’s most valuable team. The only sports team worth more is Real Madrid, valued at $3.4 billion, while another Spanish soccer team, Barcelona, is tied with the Cowboys. Despite making only three postseason appearances over past decade, the Cowboys posted the NFL’s highest revenue ($560 million) and operating income ($246 million) in 2013. The Cowboys are a marketing juggernaut that is launching two new deals this season that will align the blue star with global luxury watch and cruise line brands, two categories NFL teams have previously ignored or have been unable to tap. The Cowboys’ deals with Hublot and Carnival will pay the team in the low seven figures combined annually over five years.
Rounding out the top four are the New England Patriots, worth $2.6 billion, Washington Redskins, worth $2.4 billion and New York Giants, valued at $2.1 billion. Short explanation: the Cowboys, Patriots, Redskins and Giants were the only NFL teams that were among the league’s top five in both premium seating revenue (at least $55 million) and stadium sponsorship revenue (over $40 million) in 2013. Each of these four teams also saw their values climb by 39% or more the past year.
There is a widening wealth gap in the NFL due to the piles of cash big market teams generate from modern stadiums and the premium a buyer would be willing to pay for entry into the most elite U.S. sports league in a big city. The value of the New York Jets, Philadelphia Eagles, Chicago Bears, and San Francisco 49ers each rose by at least 30% during the past year.
To be sure, it is a great time to own an NFL team regardless of market. For the 2013 season, the average NFL team generated record revenue (net of proceeds used to pay off stadium debt) and record operating income (earnings before interest, taxes, depreciation and amortization) of $299 million and $53 million, respectively. Each of the NFL’s 32 teams took in a record $170 million of national revenue, mainly from league-wide broadcasting and licensing fees.
Read more here, and see the full rankings here.
We all prefer that the children around us practice patience. At least every now and then. We appreciate their patience because it gives us a chance to think or actually do our work. But the long term benefits of them practicing patience are for them, and those benefits are becoming clearer and clearer with new research. At VoxEU, Bart Golsteyn and Hans Grönqvist highlight some of the recent findings about the economic benefits of patience:
Earlier studies have documented that impatience among adults is a strong predictor of outcomes such as occupational choice and credit card borrowing (Burks et al. 2009, Meier and Sprenger 2010). Sutter et al. (2011), and Castillo et al. (2011) studied the consequences of impatience among children. Sutter et al. use a sample of 661 children aged 10 to 18 to show that impatience correlates with their Body Mass Index (BMI), savings, and spending on alcohol and tobacco. Castillo et al. (2011) report that children aged 13 to 15 who were less patient are more likely to get a disciplinary referral in the following school year.
Few previous studies have been able to follow subjects over a longer period of time. The seminal work by Walter Mischel and co-authors1 revealed that children aged four who could wait a longer time for a larger treat (rather than accepting a smaller immediate treat) scored higher on achievement tests around one decade later. More recently, Moffitt et al. (2011) followed around 1,000 children from age three to 32, and find substantial positive effects of self-control on health and wealth. Using data from the National Longitudinal Survey of Youth (NLSY), Cadena and Keys (2011) report that individuals perceived as restless by an interviewer performed worse in terms of educational attainment and labor supply in young adulthood.
Our research contributes to these findings by showing that patience among adolescents matters in the very long run and for a wider variety of outcomes. In Golsteyn, Grönqvist and Lindahl (2013), we document the relationship between time preference during adolescence and long-run social and economic outcomes. We asked 13,606 Swedish children aged 13 whether they would prefer to receive $140 now or $1,400 in five years. There were five possible answers, the two extremes being “certainly now” and “certainly in five years”. Using administrative data, we were able to trace outcomes of the children throughout life, observing their completed education, results on military enlistment tests, fertility decisions, indicators of health, labor market success, and lifetime income.
Our results indicate that time preferences are strongly associated with lifetime outcomes. Impatient children perform worse in compulsory and secondary school. The difference in school performance between more and less future-oriented children is substantial and similar to the gender gap in school performance. Additionally, impatient children earn less lifetime income, are more often unemployed, and take up more welfare. Our results also show that people who are impatient as a child are more prone to die young, to become obese, or to become a teenage mother. Males and high ability children gain significantly more from being future-oriented.
Read The economic fruits of patience here.
The U.S. economy still depends in part on a healthy auto-manufacturing sector. The automakers depend more and more each year on the massive generation of millenials who, as a group, have enormous buying power already and, as individuals, are increasing their spending each year as they move through their early professional years. So the automakers may want to watch this video from Deloitte, which reports that members of Gen Y look at automobiles the same way they look at refrigerators and washing machines:
(Click Here to watch the video)
The Consumer Price Index for All Urban Consumers rose 0.1% in July (seasonally adjusted), according to the Bureau of Labor Statistics. While this was the smallest monthly increase since February, the CPI-U has been growing all year. Food prices were up, but energy prices declined.
The all items index has grown 2.0% (not seasonally adjusted) over the last 12 months. From the Bureau of Labor Statistics release:
The all items index posted its smallest seasonally adjusted increase since February; the indexes for shelter and food rose, but were partially offset by declines in the energy index and the index for airline fares. The food index rose 0.4 percent in July, with the food at home index also rising 0.4 percent after being unchanged in June. The decrease in the energy index was its first since March and featured declines in the indexes of all the major energy components.
The index for all items less food and energy increased 0.1 percent in July, the same increase as in June. Along with the shelter index, the indexes for medical care, new vehicles, personal care, and apparel all increased in July. Along with the index for airline fares, the indexes for recreation, for used cars and trucks, for household furnishings and operations, and for tobacco all declined in July.
Here's a look at the CPI for All Urban Consumers over the last year:
From Marketplace's Wealth and Poverty desk, Noel King reminds us that we can't begin to understand the events in Ferguson, Missouri without spending some time understanding the economic challenges that the St. Louis suburb has been facing, and will be facing in the months and years to come:
Lisa Bodell doesn't really want you to kill your company, but she does want you to kill off things that are not working. And fast. Or else your company will not make it, because others will innovate you out of market share.
In this Big Think interview, Bodell shares some of the key insights from her book, Kill the Company: End the Status Quo, Start and Innovation Revolution, and gives her take on where real innovation is going to come from:
When we look at maps of the world, what do we notice? Certainly we notice land masses and the oceans. But we also notice borders. Borders between nations frame our thinking. And this may be giving us a limited--or perhaps even wrong--sense of how global trade has worked historically. A new report from the World Economic Forum wants us to focus a little more on cities. Here is an excerpt from The Competitiveness of Cities:
Throughout history, the most intensive cross-border economic transactions have been between cities – mostly those located on coastlines. Phoenician, Venetian, Genoese, Baltic and Arab merchants linked port cities within and across continents through sea- and ocean-going trade. Today, the bulk of international trade by volume still passes over the oceans between coastal cities, only now transported by huge container ships.
What does this mean for the “competitiveness of cities” and the “wealth of nations”? Two contemporaneous historical examples provide some clues.
The development of cities drove the early economic advance of Europe – a veritable “European miracle”. Competition among cities in late medieval and early modern Europe enabled many European regions to catch up with and overtake other parts of the world as commercial centres well before the Industrial Revolution. Starting with Venice and Genoa in Italy, and moving on to north-west Europe and the Hanseatic League, cities vied with each other for commercial advantage. They eased restrictions on merchants and opened doors to skilled artisans, many of them dissidents fleeing religious persecution.
Cities were magnets for the freethinking, the creative and the entrepreneurial, who brought their talents to these open urban areas to escape repressive hinterlands. Hence, the popular German saying Stadtluft macht frei – “city air makes you free”. Such decentralized political competition spawned a commercial revolution and paved the way for subsequent scientific, agricultural and industrial revolutions.
Early Asian prosperity was also driven by cities -- a pre-modern "Asian miracle". Cities dotted around the Indian Ocean enjoyed a golden age of trade in the two centuries before the Portuguese and Dutch moved in with extreme violence and imposed very restrictive commercial practices. Before they did, Arab and other trading diasporas roamed the seas freely, stopping off in city states along India’s Malabar and Coromandel coastlines and across South-East Asia. “Port-polities” such as Cambay and Calicut of India, and Malacca (of modern-day Malaysia) and Macassar (of today’s Indonesia), were cosmopolitan, lightly governed and tolerant of religion. They attracted traders from all over the world with low taxes and free trade policies. This enabled commerce to flourish from the Chinese coastline all the way to the Middle East.
Fast-forward to 2014: Most productive policy innovation is happening in cities and subnational regions, not at the level of national governments, let alone in international forums such as the United Nations (UN), the European Union (EU) and the Group of Twenty (G20). Policy-making is more flexible and practical the closer it is to the citizen, and is thus more conducive to policy experimentation, all-round learning and adaptation. Cities emulate each other and often adopt best international practice better than nations do. Policies are “initiated from below and diffused by example”, as the historian David Landes puts it.
The report goes on to outline different policy priorities for cities, share interesting case studies for cities, and puts forward a taxonomy "of drivers of competitiveness," as seen in this "City Competitiveness Map":
Download the full report here.
You may have seen this popular article at Politico earlier this summer. It is the one in which Nick Hanauer--capitalist supreme and self-proclaimed proud member of the top .01%--calls on his fellow business leaders to wake up to the new economic reality before the "pitchforks" show up at their mansion gates. He recently gave a Ted Talk on the same subject. It is a provocative conversation starter on issues like the minimum wage and rising income inequality. Take a look:
Retail sales were stable in July, nearly matching June figures. Sales came in at $439.8 billion for the month, a 0.1 percent decrease from June sales (which had increased 0.2% over May), according to the Commerce Department. Auto sales were down 2% from June, but up 6% over last July. Overall sales were up 3.4% over July 2013. From the Census Bureau:
In terms of monthly growth, this was the worst report in half a year, but Reuters' Lucia Mutikani reports that there are signs that sales will pick up again. Read the release here.
It is the middle of August and it feels like all of Europe is on vacation (except in the Nordic countries where July is the preferred month of holiday). Scoff at them all you want, but just as we know the human operating system (the brain, that is) needs some down-time in order to be most effective, companies may need workers to tune out in order to increase productivity. In this appropriately named 'Lunch Break' video, The Wall Street Journal's Sue Shellenbarger speaks with Sara Murray about some of the problems offices have when employees don't take their vacations:
We are learning more and more about the behavior of people seeking jobs since the recession. Cleveland Fed researchers have spent some time looking into how much time unemployed persons spent looking for jobs during the post recession years compared to pre-recession years. The short answer: it depends.
The proportion of unemployed persons spending time job searching varied dramatically by level of educational attainment over the past decade. Between 2008 and 2012, for example, 17 percent of those unemployed who were high school dropouts spent some of their day searching for a job, while for those with high school diplomas or associate’s degrees the figure is 23 percent, and for those holding at least a bachelor’s degree it is 35 percent.
Although time spent by the unemployed on job searching increased across all educational attainment levels after the Great Recession, the increase was largest at the extremes. For unemployed high school graduates and those with an associate’s degree, the average time spent searching increased from 32 minutes to 37 minutes a day. However, for unemployed high school dropouts the average search time increased from 17 minutes to 28 minutes, and for those with at least a bachelor’s degree it increased by almost 50 percent from 46 minutes to 67.
For nearly all age categories, unemployed males with at least a bachelor’s degree spent much more time searching for a job after the recession than before it. For males between 20 and 30 the average search time more than tripled, and for males between 30 and 40, and 40 and 50 the average search time increased by 65 and 76 percent, respectively. For males over 50, average job search time actually decreased slightly over this period.
Read the full article here.
It was on a mid-August day in 1935 that Franklin Delano Roosevelt signed the Social Security Act. It likely would have surprised some of FDR's biggest critics of the time that the program has lasted and become such an integral part of the American economy and culture. The Atlantic's Derek Thompson says it has also been enormously successful, and still hated.
Economic projections of the last few years remind Ashoka Mody of the movie Groundhog Day. Particularly those of the IMF, where growth seems to fall short the first half of every year, forcing a revision and explanations for slower-than-projected growth like bad weather. Maybe, Rody argues, we need to adjust to a different sort of growth model. From Project Syndicate:
Consider the mid-year update of the International Monetary Fund’s World Economic Outlook, which has told the same story every year since 2011: “Oops! The world economy did not perform as well as we expected.” The reports go on to blame unanticipated factors – such as the Tōhoku earthquake and tsunami in Japan, uncertainty about America’s exit from expansionary monetary policy, a “one-time” re-pricing of risk, and severe weather in the United States – for the inaccuracies.
Emphasizing the temporary nature of these factors, the reports insist that, though world GDP growth amounted to roughly 3% during the first half of the year, it will pick up in the second half. Driven by this new momentum, growth will finally reach the long-elusive 4% rate next year. When it does not, the IMF publishes another rendition of the same claims.
This serial misjudgment highlights the need to think differently. Perhaps the focus on the disruptions caused by the global financial crisis is obscuring a natural shift in developed economies to a lower gear following years of pumped-up growth. Moreover, though emerging economies are also experiencing acute growth slowdowns, their share of the global economic pie will continue to grow. In short, tougher economic competition, slower growth, and low inflation may be here to stay.
Read the full article here.
Any visitor to London knows the city is expensive. But if you really want to feel the pinch, try opening an office there. It doesn't matter how pricey your city is, London has it beat. Even New York based companies have to pay a significant markup.
In this video, The Economist explains why London is the world's most expensive city when it comes to building new buildings, and how that affects overall commercial real estate:
Yes, US manufacturing is on the decline, when looking long term. But Theodore Moran and Lindsay Oldkenski, economists at Georgetown University and fellows at the Peterson Institute, take issue with the recent coverage. They argue that manufacturing in the U.S. is "surprisingly strong." In a policy brief for the Peterson Institute they focus on four areas of strength. They summarized the brief at VoxEU. Here's a look at the four key findings in their research:
•Our research shows that the overall size of the US industrial base – real value-added in manufacturing – has been growing rapidly for more than four decades, and is on track to surpass the all-time 2006-7 high before the end of 2014.
•In contrast to other researchers, we show that US manufacturing growth is broad-based and includes subsectors such as transportation equipment, medical equipment, machinery, semiconductors, communications equipment, and motor vehicles, as well as computers and electronics.
•Moreover, contrary to widespread hand-wringing about weakening competitive performance on the part of US firms and workers, productivity in the manufacturing sector has been growing, both absolutely and relative to other sectors of the US economy.
•Finally, our research shows clearly that increased offshoring of manufacturing operations by US multinationals is associated with increases in the size and strength of their manufacturing activities in the US.
Read the VoxEU article here.
Read the full policy brief here.