Showing posts with label economy. Show all posts
Showing posts with label economy. Show all posts

Monday, November 7, 2011

Economic Bloggers More Pessimistic

Optimism is out; pessimism is in among the country's top economics bloggers as they look to 2012 and beyond, particularly regarding jobs. 


A new Ewing Marion Kauffman Foundation survey released today shows that only 50 percent of respondents anticipate employment growth, a decrease of 20 percent from second quarter.


Fully 95 percent of respondents view current economic conditions as "mixed" or "facing recession," an increase of 10 percent from second quarter, and a third predict a double-dip recession during 2012. 


"Uncertain" is once again the top adjective economics bloggers use to describe the economy, and respondents shared expectations of higher annual deficits and the top marginal tax rate. Kauffman Economic Outlook

Tuesday, September 20, 2011

Businesses Struggle to Keep Up with Change

Most business executives these days know they operate in volatile, fast-moving conditions and also know they are struggling to keep up with the pace of change. In fact, the volatile economic environment is seen as a bigger challenge than competition.

Tuesday, October 19, 2010

A Whale of a Problem

The stage now is set for huge conflict between state public-sector workers and taxpayers, and the reason is pension obligations.

Because almost all states are required to balance their budgets, general fund monies must be used to pay pension obligations if the pension funds come up short. They certainly will do that. The funds are generally underfunded, and make assumptions about fund returns that simply are not credible.

Utah has calculated it will have to commit 10 percent of its general fund for 25 years just to pay for the effects of the 2008 stockmarket crash, for example.

States use the expected return on the assets in their pension funds as a discount rate. This is often around eight percent, and reflects the performance of the past 20 to 30 years.

However, such returns will be hard to come by in future. Given current bond yields of two percent and a typical portfolio with 60 percent  in equities and 40 percent in bonds, a total return of eight requires a return of 12 percent on equities.

With American equities yielding just two percent to 2.5 percent, that in turn would require dividends to grow by nine percent to 10 percent a year.

That simply is not plausible. In a state such as Colorado, nearly 55 percent of all funds will have to be spent on pension obligations, effectively reducing the amount of money available to fund on-going operations by fully half....IF investment returns come in at an overall eight percent.

That isn't going to happen. Nor do these forecasts take into account financial "black swan" events that destroy huge amounts of equity.

Who would bet that between now and 2022  there will not have been at least one major financial event that wipes out huge chunks of pension plan equity?

These forecasts are not realistic. Colorado will wind up spending most of its general fund revenues to pay pensions, unless something quite dramatic happens, and quite soon. That is not a "political" issue. It is a simple mater of public finance getting severely out of whack. Something will have to be done, and it won't be pleasant.

Either we get an unpleasant fix, or we decide now that in 12 years there is no money to fund on-going state government services.

California's $500-billion pension time bomb

The state of California's real unfunded pension debt clocks in at more than $500 billion, nearly eight times greater than officially reported.

That's the finding from a study released by Stanford University's public policy program, confirming a recent report with similar, stunning findings from Northwestern University and the University of Chicago, the Los Angeles Times reports.

Why should Californians care? Because this year's unfunded pension liability is next year's budget cut. For a glimpse of California's budgetary future, look no further than the $5.5 billion diverted this year from higher education, transit, parks and other programs in order to pay just a tiny bit toward current unfunded pension and healthcare promises.

That figure is set to triple within 10 years and, absent reform, to continue to grow, crowding out funding for many programs vital to the overwhelming majority of Californians.

In other words, at some point, virtually all the money in the educastion budget will go towards paying pension obligations, and zero for educating children. Most states have some version of the problem.

Economists talk about government spending crowding out private investment. Now we've got pension obligations crowding out on-going programs. If we aren't careful, we'll relatively soon have virtually all tax collections supporting debt service and pensions. 

Monday, October 11, 2010

Lies, Damn Lies and Statistics


There has been lots of chatter about the degree of job creation over the past two or so years, with some observers commenting that the current administration is doing much better than the former presidential administration at creating jobs.

click on images for larger view.

The old adage--that there are lies, damn lies and statistics--applies here, for the careful. All the first graph shows is that there has been a steep and deep recession.


The claim that the current administration already has created more jobs than the former administration clearly is false. That would require foreknowledge of the actual rate of net job creation (new jobs minus lost jobs) for the entire year of 2010, and all we have now are projections.


If one assumes the current rate of job creation--290,000 net new jobs for the remainder of 2010--the net job loss since the start of January 2009 would be 1.8 million, the sum of 4.7 million lost jobs in 2009 and 2.9 million potential jobs created in 2010.

In other words, the number of net jobs during the current presidency during the period 2009 to 2010 would be a loss of 1.8 million.

The other Bureau of Labor Statistics shows job creation over a wider period of time. The years 2000 to 2008 were no picnic,showing a rate of job growth far lower than we had seen in prior decades. That suggests a structural change of some sort. But the data also suggest why the "jobs created" claims have to be seen over a broader time span.

link

What is Different About the Past 2 Decades of Job Recovery?

Looking back several decades at job recovery from a recession, you would note that job growth, particularly in the foundational private sector, was robust in the 1970s and 1980s. Since then, private sector job growth has been anemic in recoveries. When you have a two-decade pattern such as that developing, one has to ask structural questions. What has changed in the last two decades, compared to the previous decades?

And, oh by the way, since we are looking at a two-decade sort of problem, it would be naive to suggest we can magically remedy the underlying problem or problems in a short period of time. Something other than "just a recession" seems to be happening. The issue is "what is happening?"

Thursday, September 30, 2010

20% of AMericans Have Reduced Spending on Cable?

In a short piece on how Americans are economizing during the recession, sponsored by the Harris Poll, brief mention was made of the fact that 20 percent of Americans have cut back someplace on their "cable" spending. If so, that would presumably include cutting back on HBO subscriptions, disconnecting an outlet and therefore saving a monthly cable decoder rental, or other actions that keep the basic cable subscription in place.

If true, though, such data would show the important role the economy, housing crisis and joblessness are having on fixed-line service providers. Significant percentages of people also claim they cut off a mobile phone subscription or fixed-line voice subscription as well.

What Americans say they gave up in 2009

Monday, September 13, 2010

Goulsby Cannot Say When Unemployment Will Fall Appreciably



Austan Goolsbee, Chairman of the Council of Economic Advisors, has no idea, or "won't say" when unemployment will move appreciably below 10 percent.

Wednesday, June 30, 2010

Looks Like Your Starbucks Purchases are a Coincident Economic Indicator

Your spending at Starbucks and Dunkin' Donuts looks like a coincident economic indicator, meaning coffee purchases at the two outlets track the economy.

The Christmas season spike, when people are buying gifts, rather than coffee, appears to be the only anamoly.

Too bad Starbucks is not a leading indicator.

Friday, June 25, 2010

Debt Now is THE Economic Problem

The debt-financed model has reached its limit, says the Economist. Most of the options for dealing with the debt overhang are unpalatable, but each government will have to find its own way of reducing the burden.

The battle between borrowers and creditors may be the defining struggle of the next generation. If you have children or grandchildren, this is why "debt" suddenly has exploded as a major political issue in all developed economies, though it typically has been a "snoozer" of a voter issue.

Friday, May 28, 2010

Leading Indicator Falls to 39-Week Low

A measure of future U.S. economic growth fell to a 39-week low in the latest week, pointing to a slowdown in economic growth, The Economic Cycle Research Institute, a New York-based independent forecasting group, says.

As reported by Reuters, the ECRI's "Weekly Leading Index" fell to 125.6 in the week ended May 21, down from a revised 127.2 the previous week, originally reported as 127.3, the lowest level since Aug. 21, 2009, when the index stood at 125.3.

The index's annualized growth rate tumbled to a 47-week low of 5.1 percent from 9.0 percent a week ago. That's the worst level since June 26, 2009, when it stood at 4.6 percent.

'The downturn in WLI growth evident since early 2010 has recently intensified, so it should be no surprise when U.S. economic growth slows noticeably in the months ahead,' says Lakshman Achuthan, managing director of ECRI."

That doesn't necessarily mean we are headed for the dreaded double-dip recession, but it is not good news. Drat.

Thursday, May 20, 2010

It's Inevitable: US is Going to be Greece

Structural financial problems at the state and local government level are inevitable, and have been for some time. Forget all the old arguments about the size of government or the appropriate level of taxes. There now are obvious structural problems that must be addressed, and are not matters of political preference. Local governments face similar problems as state governments do with unfunded pension obligations.

This can cannot be "kicked down the road."

Kellogg Management School analysis of State pension obligations

Thursday, May 6, 2010

In Case You Missed the Market Craziness Today

It was a crazy day today, with a violent, sudden drop in U.S. equities, a swift 700-point retrace, and worries that what is happening in Greece will be happening in the United States in the future.

Tuesday, April 6, 2010

Small Business, Consumer Portions of Economy Still Struggling

Virtually all observers now say the U.S. economy has past the bottom of the recent economic recession. The common understanding in financial markets also is that the markets climb a wall of worry. And in the small business and consumer segments of the economy, there is plenty of worry.

The National Federation of Independent Business Index of Small Business Optimism lost 1.3 points in February, falling back to the December 2009 reading of 88.0 (1986=100), only seven points higher than the survey’s second
lowest reading reached in March 2009 (the lowest reading was 80.1 in 1980:2).

Separately, analysts at Deloitte say rising tax rates, combined with declines in real wages and median home prices, drove the third straight monthly decline in the Deloitte Consumer Spending Index during February 2010.

To emphasize what that means, consider that "the persistence of Index readings below 90 is unprecedented in survey history," says NFIB Chief Economist William C. Dunkelberg. "Unprecedented."

The new NFIB survey confirms what other surveys suggest: there is a recovery under way, but it is painful. Employment per firm, seasonally adjusted, fell 0.13 workers, an improvement over the 0.5 workers per firm that had been lost every month for the previous fourteen months.

About 10 percent of the owners increased employment by an average of 5.0 workers per firm, but 19 percent reduced employment an average of 3.2 workers per firm, seasonally adjusted.

Over the next three months, eight percent plan to reduce employment and 13 percent plan to create new jobs, yielding a seasonally adjusted net negative one percent of owners planning to create new jobs.

The frequency of reported capital outlays over the past six months was unchanged at 47 percent of all firms, barely ahead of December’s record low reading. Capital spending is on the sidelines as is the demand for loans to finance these activities.

A revival of capital spending will require a significantly improved business outlook and some support from reluctant
customers. Plans to make capital expenditures over the next few months were unchanged at 20 percent, four points above the 35 year record low.

Four percent characterized the current period as a good time to expand facilities, down one point from January. A net negative nine percent expect business conditions to improve over the next six months, down 10 points from January.

Deloitte points out that real wages, exacerbated by rising energy costs, have been serving as a drag on consumer spending since December 2009. However, in February 2010, state and local tax increases and possibly weather-related weakness in home prices also contributed to a 7.8 percent dip in the consumer spending index.

Despite this recent downward trend, Deloitte still advises retailers to be prepared for an increase in consumer spending in the near future, though.

“Consumers have been resilient in the face of adversity and have gradually shown they are regaining their willingness to spend,” says Stacy Janiak, vice chairman and Deloitte’s US retail leader. “In the coming months, retailers should be prepared to respond to a potential uptick in activity, or risk having empty shelves when consumers are ready to replenish. Retailers that have systems in place to quickly analyze and respond to customer data may be better prepared to replenish inventory and stock the right assortment to capitalize on a release of pent-up demand.”

Unemployment claims have come down sharply during the past nine months, which historically has been a reliable signal of economic recovery. In the past month, however, claims have gone back up slightly.

Real wage growth, the biggest contributor to the Index until recent months, is down slightly compared to a year ago as energy prices are pushing up the price level and hurting the real purchasing power of modest wage growth.

The housing market deteriorated in the most recent month, possibly due to weather. Mortgage applications are declining sharply. The weakness in home prices could be a weather-related phenomena or it could be a sign that the economy is deteriorating after a brief second half bounce in 2009.

As we are a couple of weeks away from the start of the first quarter financial reporting season, observers will be looking for signs that sales and earnings are increasing at most reporting firms, especially as the year-over-year comparables should be favorable.

Sunday, April 4, 2010

How Long to Post-Recession Job Levels? Expect Huge Merger Wave in Any Case

So what does this chart showing job recoveries after recessions since World War II suggest to you (Click on image for larger view)?

Obviously, the immediate past recession was more costly in terms of jobs than any comparable recession since WWII.

The discouraging question is whether the job recovery curve looks more like the shallow "U" shape of the 2001 recession or all the others, which are "V" shaped.

You can make your own decision about which curve will manifest itself this time. But logic suggests the recovery will take a while, simply because the curve already looks more like 2001 than any of the other curves. Also, none of the other recoveries had to face the financial headwinds imposed by our shocking, and growing, deficits, which will crowd out private capital that is the fuel for business growth.

A rough guess, given the depth of losses, which are twice that of the 2001 recession, suggests it might take twice as long for the economy to return to the level of jobs it had when the recession started. That would be 40 months, or roughly 3.3 years from today.

But that assumes no additional fiscal drag from the deficits, and nobody seems to think that is reasonable. So some believe it might take six to eight years. As one might assume, this will make for sluggish sales growth.

In a business such as telecommunications, which irrespective of the recession was in the throes of a massive transformation of its core business model, which will in any case require replacement of perhaps 50 percent of its existing current revenue by new sources over a 10-year period, and perhaps another 50 percent of revenue over perhaps a 20-year period.

Those would challenges enough for virtually any industry, without the pressure of sluggish job and housing growth and high structural deficits. Normally, sluggish growth in the telecommunications business has lead to mergers and acquisitions, since one way to obtain growth in a sluggish market is to buy that growth in the form of acquired customer bases, revenues and assets.

One has to expect quite a lot of that in this environment.

Friday, March 19, 2010

Get Ready for a Test of Social Cohesion, Says Moody's

It isn't immediately clear how soon debt service will become a major business issue in the United States, but it is clear it will be. Moody's analysts, looking at sovereign debt loads in the United States, say there is no way to "grow" our way out of the problem.

“Growth alone will not resolve an increasingly complicated debt equation,” Moody’s says. “Preserving debt affordability” (the ratio of interest payments to government revenue) “at levels consistent with Aaa ratings will invariably require fiscal adjustments of a magnitude that, in some cases, will test social cohesion.”

Note the phrase "at levels that will test social cohesion." What Moody's means is that, to keep its credit rating, given the fact that economic growth, even robust growth, would not grow tax revenues enough to take care of the problem, the federal government likely will have to cut spending, though it also will try to raise taxes.

And that is going to lead to protests, anger and unrest.

But there will not be a choice. If the United States does not act to preserve its credit rating, it will be more costly to borrow money, driving the debt burden even higher and threating yet another round of downgrades.

Such a downgrade also would force an immediate reduction in debt-financed spending. And that is precisely what the United States currently is doing: spending more than it raises in taxes and borrowing to support the shortfall.

Moody’s says the United States and other major Western nations, particularly Britain, have moved “substantially” closer to losing their current ratings. The ratings are “stable,” but “their ‘distance-to-downgrade’ has in all cases substantially diminished,” Moody's says.

source

Tuesday, February 9, 2010

Which Growth Pattern Emerges as Recession Ends?

Many economists and market watchers think consumers eventually will return to spending patterns as they existed prior to the recent recession, and on the growth pattern of the 20 years before the recession.

Others warn that growth patterns are more likely to revert to patterns of the 1945 to 1970s, when annual growth in consumer spending was much more restrained.

So the question for many might be, which view is right? For application and service providers, the question might not be as germane. The reason is that consumer spending on network-delivered services and applications was stable over the entire period, and in fact has shown a slow, steady growth.

In other words, people are shifting more of their available entertainment budget to network-based products. Communications spending likewise has slowly grown its percentage of overall discretionary spending, not fluctuating wildly from one year to the next.

Of course, lots of other background factors have changed. There are more products, more applications, more services and providers to choose from.

The value of many products has taken on an increasing "network services" character as well. Consider the value of a PC without Internet access, for example.

The point is that whichever forecast proves correct--either a return to the growth trend of the past two decades, or a reversion to the lower spending growth of the years 1945 to 1979, network-based products are likely to continue a slow, steady, upward growth trend. That may not be true for other industries.

Wednesday, February 3, 2010

"The Perils of Prosperity: The Story Behind the Economic Crisis"

This essay is by noted U.S. economist Robert Samuelson. Those of you who studied economics in college read his books. It's a great piece. Having lived through bubbles, this is starting to make much more sense to me. Perhaps it will make sense to you, as well.

WASHINGTON -- We need to get the story straight. Already, a crude consensus has formed over what caused the financial crisis. We were victimized by dishonest mortgage brokers, greedy bankers and inept regulators. Easy credit from the Federal Reserve probably made matters worse. True, debate continues over details. Fed Chairman Ben Bernanke recently gave a speech denying that it had loosened credit too much, though he admitted to lax bank regulation. A congressionally created commission opened hearings on the causes of the crisis. Still, the basic consensus seems well-established and highly reassuring. It suggests that if we toughen regulation, suppress outrageous avarice and improve the Fed's policies, we can prevent anything like this from ever occurring again.

There's only one problem: The consensus is wrong -- or at least vastly simplified.

Viewed historically, what we experienced was a classic boom and bust. Prolonged prosperity dulled people's sense of risk. With hindsight, we know that investors, mortgage brokers and bankers engaged in reckless behavior that created economic havoc. We know that regulators turned a blind eye to practices that, in retrospect, were ruinous, unethical and sometimes criminal. We know that the Fed kept interest rates low for a long period (the overnight Fed funds rate fell to 1 percent in June 2003). But the crucial question is: Why? Greed and shortsightedness didn't suddenly burst forth seven or eight years ago; they are constants of human nature.

One answer is this: Speculation and complacency flourished, because the prevailing view was that the economy and financial system had become safer. For a quarter-century, from 1983 to 2007, the United States enjoyed what was arguably the greatest prosperity in its history. The boom was triggered by the conquest of high inflation, which had destabilized the economy since the late 1960s. From 1970 to 1984, inflation dropped from almost 13 percent to 4 percent. By 2001, it was 1.6 percent. As inflation fell, interest rates followed -- though the relationship was loose -- and as interest rates fell, the stock market and housing prices soared. From 1980 to 2000, the value of household stocks and mutual funds increased from about $1 trillion to nearly $11 trillion. The median price for existing homes rose from $62,200 in 1980 to $143,600 in 2000; by 2006, it was $221,900.

Feeling enriched by higher home values and stock portfolios, many Americans skimped on savings or borrowed more. The personal saving rate dropped from 10 percent of disposable income in 1980 to about 2 percent 20 years later. The parallel surge in consumer spending, housing construction and renovation propelled the economy and created jobs, 36 million of them from 1983 to 2001. There were only two recessions in these years, both historically mild: those of 1990-91 and 2001. Monthly unemployment peaked at 7.8 percent in mid-1992.

The hard-won triumph over double-digit inflation in the early 1980s, engineered by then-Fed Chairman Paul Volcker and backed by newly elected President Ronald Reagan, qualifies as one of the great achievements of economic policy since World War II. The temptation is to portray it as a pleasing morality tale. The economic theories that led to higher inflation were bad; the theories that subdued higher inflation were good. Superior ideas displaced inferior ones, and the reward was the increased prosperity and economic stability of the 1980s and later. But that, unfortunately, is only half the story.

Success also planted the seeds of disaster by creating self-defeating expectations and behaviors. The huge profits made in these decades by both professional and amateur investors conditioned many to believe in the underlying benevolence of financial markets. Although they might periodically go to excess, they would ultimately self-correct without too much collateral damage. The greater stability of the real economy -- by contrast, there had been four recessions of growing severity from the late 1960s to the early 1980s -- provided an anchor. The Fed was also a backstop: Under Alan Greenspan, it was lionized for averting deep downturns after the stock market crash of 1987 and the burst "tech bubble" in 2000. Money managers, regulators, economists and the general public all succumbed to these seductive beliefs.

The explosion of the subprime-mortgage market early in the new century may now appear insane, but it had a logic. Housing prices would continue rising, because they had consistently risen for two decades. Consumers could borrow and spend more because their wealth was constantly expanding and they were less threatened by recession. That justified relaxed lending standards. Similarly, investment banks could take on more "leverage." Homeowners with weak credit histories could refinance loans on more favorable terms in two or three years, because the value of their houses would have risen. If borrowers defaulted, lenders could recover their money because the underlying homes would be worth more.

The paradox is that, thinking the world less risky, people took actions that made it more risky. The pleasures of prosperity backfired. They bred carelessness and complacency. If regulation was lax, the main reason was that regulators -- like the lenders, investors and borrowers they regulated -- shared the conventional wisdom. Markets seemed to be working. Why interfere? That was the lesson of experience, not an abstract devotion to the theory of "efficient markets," as is now increasingly argued. Euphoria, or something close to it, was considered realism.

Unless we get the story of the crisis right, we may be disappointed by the sequel. The boom-bust explanation does not exonerate greed, shortsightedness or misguided government policies. But it does help explain them. It doesn't mean that we can't -- or shouldn't -- take steps to curb dangerous risk-taking. Some of the Obama administration's proposals for "financial reform" make sense. Greater capital requirements would protect banks from losses; the ability to control the shutdown of large, failing financial institutions might avoid the chaos of the Lehman Brothers collapse; moving the trading of many "derivatives" (such as "credit-default swaps") to exchanges would create more transparency in financial markets. Because the government ultimately stands behind financial markets, regulation is justified to limit taxpayer expense and to prevent catastrophic economic instability.

But it's neither possible -- nor desirable -- to regulate away all risk. Every "bubble" is not a potential Depression. Popped bubbles and losses must occur to deter speculation and compel investors and borrowers to evaluate risk. The overregulation of finance may discourage useful innovation and clog the channels for capital on which an expanding economy depends. Finally, a single-minded focus on the blunders of Wall Street may also distract us from other possible sources of future crises, including excessive government debt and borrowing.

The larger lesson of the recent crisis is sobering. Modern, advanced democracies strive to deliver as much prosperity as possible to as many people as possible for as long as possible. They are in the business of creating perpetual booms. The cruel contradiction is that this promise itself may become a source of instability, because the more it is attained, the more people begin acting in ways that ultimately invite its destruction. Booms often have unintended and nasty side effects. Even anticipated side effects that are ultimately unsustainable -- stock market "bubbles," excessively tight labor markets -- can be hard to police, because they're initially popular and pleasurable.

The quest for ever-more and ever-better prosperity subverts itself. It might be better to tolerate more frequent, milder recessions and financial setbacks than to strive for a sustained prosperity that, though superficially more appealing, is unattainable and ends in a devastating bust. That's a central implication of the crisis, but it poses hard political and economic questions that haven't yet been asked, let alone answered.

This essay is adapted from the paperback edition of "The Great Inflation and Its Aftermath: the Past and Future of American Affluence" by Robert J. Samuelson, published by Random House at the end of January.

Can These Economic Growth and Unemployment Forecasts be Right?

As part of the annual budget, the Obama White House assumes real gross domestic product growth of 2.7 percent in 2010, followed by 3.8 percent, 4.3 percent and 4.2 percent in 2013.

At the same time, the forecast assumes unemployment of 10 percent in 2010, with a decline to 9.2 percent in 2011, 8.2 percent in 2012 and 7.3 percent in 2013.



I'm no economist, but at least some trained economists have to be wondering how growth can occur at those accelerating rates if unemployment remains so stubbornly high. 


There are some obvious answers, including the possibility that the White House does not actually believe both sets of assumptions are congruent, but have some other compelling political motivations for claiming the figures. 


Other forecasts suggest that we will not recover the lost jobs of the recent recession until 2014 or even later. As consumer spending drives 70 percent of GDP, it is hard to see strong growth and high unemployment at the same time.  


Perhaps growth will be higher, and unemployment less bad, than these numbers suggest. As somebody who believes in the vitality of the U.S. workforce and economy, I would not bet against the United States, if impediments are not thrown in its way. 


But then, I'm not a professional economist. 

"Tokens" are the New "FLOPS," "MIPS" or "Gbps"

Modern computing has some virtually-universal reference metrics. For Gemini 1.5 and other large language models, tokens are a basic measure...