Update on the economy

I do a weekly radio segment on the economy on WREL, the local radio station. Here are my notes from the Aug 20th show. These are not necessarily the order in which I presented them, and I avoid numbers when I can – radio is not the medium for conveying data – but I like to have them in front of me.


Employment: I won’t talk details, but job growth has continued on trend somewhat above population growth, with no sign of acceleration. projecting out, we won’t return to normal levels of employment for at least 2 and likely 3 more years. I’ll return to that topic later in the fall.

New Residential Construction: out Tuesday. slow improvement, especially  of multifamily units. but still only level of Jan 1992 when the population was 20% smaller [321mil today vs 255mil]. so the adjusted rate is still below any point of the last 60 years – we’re at about the 1990 trough, but still below the level of the early 1980s housing bust. the recent peak was in Jan 2006, per capita starts are at 49% or less than half that level. times are good only relative to April 2009 – we’re now 2.4x that level.

the bottom line is that housing continues to be a big drag on the economy.

CPI:  headline CPI for July was 0.2%, and Jan-Jul [geometric avg of 0.09%] implies annual 1.0%. now there’s the drop in gas prices, while food prices are falling despite the California drought. those pull down the headline number; inflation less food & energy is higher at 2.3%, but past 3 months trend down. [query for students: how volatile are the data? do 3 months a trend make?]

the standout: services excluding energy-related rose at 2.8% and shelter at 3.5%. but “medical care commodities” rose only 1.9% and “medical care services” only 2.2% both below overall “core” rate and below the level for recent years, perhaps reflecting cost controls of medicare

too many numbers to discuss but: 16% trimmed-mean CPI and median CPI down a bit to 2%. sticky price CPI at 2.1%, up a bit. as noted, overall headline rate 0.2% from year ago, but headline inflation less food and energy at 1.8%. I calculate rates above using an annualized rate of a geometric average of 7 months data.

Energy: in California recently, gas prices over $4. now back here, approaching $2. huge impact – though CA has more taxes and due to smog issues a more expensive type of basic gasoline.

separately, drill rig count down 50% so far this year. now the 50% still drilling are the most productive, but well output drops quickly in places such as North Dakota and Oklahoma (falling by half over two years). so total output won’t keep rising, but neither will production collapse. meanwhile the weak global economy means demand isn’t strong.

is this collapse due to a Saudi conspiracy, to preserve their market share? that misses the arithmetic of what output changes do. the Saudis are now a smaller part of global market and have less impact. if they cut output 10% or about 1 mbd, it could – would! – drive up prices, but my back-of-the envelope calculations suggest by perhaps 5%, not by enough to increase their revenue. so their income would drop 5%. with a burgeoning population (and an ever-bigger royal family!) that has higher expectations, the Saudis need money to buy off their people. it’s made worse by Islamic fundamentalism that draws on the Wahhabi movement. but its the Wahhabis who helped the Saudis grab power, and the House of Saud supports them today, bankrolling Wahhabi schools around the world. the irony: our “good friends” the Saudis as a nation support the movement that feeds the ideology of terrorism (and some individual Saudis feed money to the terrorists). in contrast Iran’s Sunni fundamentalism is less violent, more nationalist than terrorist – indeed they are quite effective in fighting ISIS and el Qaida. why are they our enemies? that’s a topic for Mark Rush (W&L politics) and Pat Mayerchak (retired VMI Intl Studies) on their WREL radio segments, as both are more knowledgeable about the region than I am.

ACA:  In California I saw a video put together by a reporter who asked people on the street, most hated “socialist” Obamacare, but loved the Affordable Care Act. of course they are one in the same thing. so if the people on the street base what they say on experience they get it right, the policy has been a big success. but the average person is unable to translate that into what they hear on Fox news and the presumption that Obamacare can’t be very good that comes from “balanced” reporting that gives air to “the other side” (even when the facts show there is no other side!!)

This should serve as a caution as the Republican primary heats up. Most of what I’ve heard doesn’t make sense, and some of what is coherent is either wrong or would be bad policy. The primary is about putting together sound bites, not putting together policy. As we approach next year we’ll have platforms and position papers (speeches), but for the moment most of what is said on the hustings leaves me as an economist speechless, nothing to analyze.

Interest Rates: Fed already acting. Taper: $2.09 tril to $1.94 tril or -9%. most of the other special lending has been nil for 5 years. 30-year rates not as low as early this year, but have been falling since June and are under 3% so in fact didn’t lead to rising rates. now realistic expectations that the Fed will boost short-term rates by the end of the year. but remember rates are 0% and boosting will be to 0.5% at most, still low! in expectation 1-year rates have gradually risen to 0.4% and 3-year rates to 1%. the implication of a fairly flat yield curve is that a 1-year bond in 2018 will yield only 2.5%.

markets expect interest rates and inflation to remain very low.

China: lots of talk of depreciation, but it’s really a dollar appreciation, so overall the RMB (official name, yuan in common parlance) is stronger than a year ago given what’s happened in Europe, Japan, Korea and Southeast Asia as well as Canada and Mexico. the flip side is that it’s a great time to be an American tourist abroad. Japan is cheap – Airbnb at $50 a night – and Paris good. London less so, but they’re not on the Euro. anyway, to date the change is fairly small at 4% [update Thu afternoon: 5.6%], well within the range of volatility of major currencies.

that still leaves them with a strong yuan relative to a year ago, and certainly relative to 3 years ago.

furthermore China is doing what we’re asking, liberalizing their markets. Chinese savers (which includes lots of companies that can no longer find investments equal to their cash flow) don’t have diversified portfolios. all domestic, heavy on stocks and real estate and bank deposits that pay 0%. so foreign assets appear very, very attractive. now we’re poised to raise rates, while Chinese rates are falling. so if you were Chinese where would you park your savings? yes, in dollars!! so of course the dollar appreciates (the yuan falls) and that provides a trend that gives all the more encouragement for the large block of trend-driven Chinese investors to buy dollars while the getting is good.

[for students: Rudi Dornbush explored this in one of the early rational expectations macro models]

Fall 2015

I will add a schedule and syllabus in late August. This iteration will incorporate many changes, but you can look at the Winter 2015 Archive for an inkling of potential topics and content.

South Korea’s aging population

We have discussed the impact of aging population quite often now. The elderly depends heavily on savings for their expenditure especially after retirement. However, having already attained important assets such as housing and car, older people tend to spend less money than younger population does. In most developed countries, the proportion of older people has been expanding. This trend will seriously undermine these nations’ aggregate demand. South Korea is one of the countries currently experiencing this impact. The graph below shows the rapidly aging South Korean population.

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The Bank of Korea (BOK) has cut the interest rate three times since August 2014.Right now, the rate stands at an unprecedented 1.75 percent. However, there are few signs of strength in consumption. On the contrary, the household savings rate rose to the highest level in ten years in 2014.
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Economists believe that the record-low rates have not been effective in encouraging consumption because they have failed to encourage the elderly to borrow and spend or invest. The BOK governor Lee Ju Yeol acknowledges that Korea’s aging population has altered how monetary policy affects the economy. For South Korea, the biggest hurdle to economic recovery may be weak domestic demand with growing elderly population who are reluctant to spend their savings.

Source: http://www.bloomberg.com/news/articles/2015-04-06/retirees-who-cherish-savings-have-south-korea-in-a-bind

World’s Reserves are Now Shrinking

The long-term surge in foreign-currency reserves held by central banks is beginning to come to an end. Global foreign exchange reserves declined to $11.6 trillion in March, down from a record of $12.03 trillion in August of 2014. The upward trend in reserves globally began in 2004, according to Bloomberg Business data. Some suggest that the drop may be overstated due to the strengthening of the U.S. dollar reducing the value of other currencies, such as the Euro. This drop in reserves can be potentially problematic however. It could eventually make it harder for emerging-market countries to boost their money supply and secure economic growth. It could also add to the decline in the Euro and decrease demand for U.S. Treasury bonds.

It is estimated that these developing countries, which hold about 2/3 of global reserves, spent a net $54 billion in the fourth quarter of 2014. This was the largest amount since the global financial crisis in 2008. China, as the world’s largest holder of reserves, contributed to most of the decline, as central banks sold dollars to offset outflows. Chine cut its stock-pile of $4 trillion in June, to $3.8 trillion in December of last year. Russia and Japan, in similar nature with China, burned through large shares of reserves in 2014. Most economists believe that this trend will continue into 2015 in many of these developing countries.

Some McDonald’s Workers Not Satisfied by New Wages

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The recent announcement by McDonald’s that they would increase their minimum wage for restaurant employees was initially met with celebration by many. After years of protests and demonstrations arguing for higher pay, employees seemed to have finally won the battle with the golden arches and been awarded the higher pay they had been fighting for.

However, while “McDonald’s raises wages” makes an exciting headline for its employees to read, the fine print and details of the agreement are much less satisfying for many. The wage boost will only be in effect for employees of corporate-owned store locations. Those working for stores owned and operated by franchisees are not guaranteed the same raise. In addition, the raise itself amounts to $1 more per hour, whereas many employees were demanding a $2 per hour wage increase, or even wages exceeding $10 per hour. Julia Andino, a McDonald’s employee living and working in New York, is one of many employees who are calling for $15 an hour as the base wage for employees of McDonald’s and many other retailers.

Many retailers and restaurants have given in to the demands of protesters over the past several months, with many increasing their minimum wages to over $9 an hour compared to the federal minimum wage of $7.25 an hour. The raises made by McDonald’s are expected to only affect 90,000 of its employees nationwide, while 750,000 employees of franchisees will see no pay increase.

While many of the protesters adhere to the claim that they are not currently earning “livable wages,” it seems many employees fail to recognize the implications of their demands.  Many workers only have part-time employment and are calling for higher wages so that they are able to support themselves with their current hours. However, many fast food employees are also customers of fast food restaurants,  and unaware of the effect that higher wages will have on prices for themselves as consumers. While the record profits being earned by fast food restaurants are cited as justification for why workers should receive better pay, the reality is that consumers will most likely bear the brunt of the burden of increased wages.

While there are moral implications with the idea of a livable wage for fast food restaurant employees, I believe the issue boils down to a simple question: do you think that fast food restaurant employees deserve to be paid $15 an hour for their work?

http://www.nytimes.com/2015/04/06/nyregion/mcdonalds-pay-raises-are-too-little-for-too-few-workers-say.html?ref=business

Chinese Corn Stocks Given Enormous 15% Increase

Many recent forecasts have predicted that China’s corn stocks (an important crop for feeding livestock) would be significantly decreased in the upcoming months, resulting in a greater need for corn importation, much to the benefit of leading grain export nations such as the United States. However, the UN Food and Agriculture Organization has significantly revised previous estimates of China’s 2014-2015 corn stock by an increase of 15% to 95.4m tonnes. Many agricultural traders have been gearing up for an increase in China’s demand for grain and corn, so the FAO’s revision comes as a shock to many who were poised to capitalize on the situation. Some Chinese exporters claim that even the the 95.4m estimate is too low, and that the projected need for corn in China will be far below anyone had previously expected.

The unexpected revisions to China’s corn stock will have many U.S. agriculture exporters rethinking their original expectations for exportation. The exact impact this change will have on the health of the U.S. agricultural industry and overall amount of income from agricultural exports remains to be seen, but one can expect that this projection change will have a noticeable effect given the unprecedented magnitude of change from the original Chinese corn stock estimate.

http://www.ft.com/intl/cms/s/0/e7163cd2-d951-11e4-8ed9-00144feab7de.html#axzz3WUB2qKDj

Effect of Iran Agreement on Oil Prices

The recent tentatively agreed upon nuclear arms deal with Iran will impact oil prices in the global economyoil111614. Successful implementation of the agreement will result in the removal of current economic sanctions on Iran, and will allow the country to take advantage of its oil reserves and increase the supply available in the global market. Naturally, the supply increase will cause an overall drop of oil prices around the globe. The sanctions currently in place have reduced production to 2.8m barrels of oil per day and exports are at a level of 1.1m barrels per day, which is half of what export rates were in 2011. The prospect of an upcoming increase to oil supplies already decreased the price of crude oil by 3.8 percent to $54.95 a barrel.

The agreement may throw some prior predictions about the fate of oil prices for the rest of this year and next few years into flux. A recent Reuters post (presented on this blog by Matthew Moore) had analysts predicting oil prices to stabilize in 2015 and then rise in 2016 and 2017 due to an increase in consumer demand in response to low gas prices.  However, the Iranian agreement changes this story, as the demand shift will be met with a supply increase as well, perhaps lowering oil prices even further in the future. The effects of low oil prices have been felt by oil suppliers in the U.S., as oil and gas industries were two of the biggest losers in terms of employment in the recent March job report. While consumers may rejoice at gas prices being lowered below $2.00 a gallon once again, producers and suppliers in the U.S. will likely have to respond by laying off more workers. This certainly does not bode well for job outlook for the near-future in the energy sector, but perhaps the benefits to consumers and firms which will save with lower gas prices will be able to offset the job loss with increased consumption.

http://www.ft.com/intl/cms/s/0/77bfb8e4-d9fc-11e4-ab32-00144feab7de.html#axzz3WUB2qKDj

 

 

Oil and Gas Big Losers in Job Report

Continuing examination of the March jobs report, the energy sector was one of the biggest losers as oil and gas producers low oil prices resulted in a reduction of employment. Mining jobs fell by 11,000, marking a total loss of 30,000 jobs on the year after adding 41,000 jobs in 2014. These jobs have primarily been concentrated among support positions such as contract companies, and are the jobs most likely to be cut in periods which call for restraint.

The effects of low oil prices seem to be hitting hard in the U.S. labor market. While consumers have rejoiced, the consequences for oil and energy suppliers in the U.S. have started to become much more apparent. However, as oil prices have steadily begun to rise again, perhaps the worst effects of oil pricing on employment have already been felt and will improve in the upcoming months.

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http://blogs.wsj.com/economics/2015/04/03/oil-and-gas-jobs-take-a-hit-in-the-march-jobs-report/

 

The Pain of Paying

“The pain of paying” is a phrase behavioral economists use to talk about the differing levels of inhibition consumers feel when they pay in different ways. In this article, they use cash as a example of being a more painful transaction than a credit card, because you can see your money evaporating before you. Personally, I find using my debit card more painful than using cash, because of an iPhone app I use called Mint. It is linked to my brokerage account, and I check it daily (slightly compulsive) to see how much is in my account, and where I spend the most money. Cash transactions do not show up, so for me, cash transactions are less painful. But I digress…

Thanks to new payment technologies, specifically with mobile phones, we now have another way to  induce consumers into spending more, by directing their attention away from transactions. Dan Ariely, a behavioral economist at Duke University says, “I think that Apple Pay would have lower, the lowest, pain of paying. I think maybe initially it would have a higher one, but over time, people would basically stop thinking about it and it will create a low pain of paying, and therefore higher level of consumption.”

Do you all think that mobile payments are less painless than cash or credit card payments? How about apps like Venmo? Could apps like Apple Pay lead to a frenzy or excessive level of  spending?

Clash of the Titans: An Ongoing Online Debate

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An online debate between Larry Summers and Ben Bernanke about the state of the global economy and how to fix the United States’ low interest rate concerns is currently ongoing.

Summers previously presented a secular stagnation hypothesis as an explanation for current trends, which argued that the three primary goals for an economy of full employment, low and stable inflation rates, and financial stability are incredibly difficult to achieve simultaneously. The secular stagnation hypothesis presents the possibility that a slowdown in population growth and technological advances would cause firms to reduce investment, which in conjunction with reduced consumption by households, would cause full employment to be difficult to obtain. While the initial formulation of this hypothesis after the Great Depression seemed inaccurate, current conditions support the expected depression of consumption and investment, thereby restricting the growth potential of an economy. Summers suggests that fiscal policy be used to increase infrastructure spending as a means of realizing full employment.

Bernanke, however, is skeptical that the U.S. is currently facing secular stagnation. Rather than pointing to fiscal policy as the remedy for the Fed’s inability to achieve full employment with current interest rate levels, he contends that the issues driving Summers’ secular stagnation hypothesis is a result of international circumstances. Bernanke points out that an ongoing excess of savings by both people and governments outside of the U.S. has driven wages, GDP, and interest rates down, while causing unemployment to rise. This effect is ultimately attributed to a reduction of exports, as the money being saved internationally has caused spending flowing into the U.S. from other countries to fall. Thus, in Bernanke’s view, if other countries stop their high levels of saving in an effort to rectify their own growth slowdown, investment and spending on U.S. exports will cause the American economy to return to normal levels.

The problem with Bernanke’s solution is the difficulty for the U.S. to implement measures which can actively change conditions abroad and improve domestic situations as a result. Relying on other countries (especially those in Europe which are facing economic difficulties) to sort out their own situations before the global economy returns to normal levels would be a very inefficient solution for the U.S. While he disagrees with Summers’ attribution of the blame to secular stagnation, perhaps Summers’ proposal to focus on raising interest rates at home and taking an active role in developing a solution is the best stance after all.

http://www.nytimes.com/2015/04/03/upshot/bernanke-says-global-imbalances-bedevil-the-world-economy-discuss.html?ref=economy&abt=0002&abg=0

http://www.brookings.edu/blogs/ben-bernanke/posts/2015/04/01-larry-summers-response

http://www.brookings.edu/blogs/ben-bernanke/posts/2015/03/31-why-interest-rates-low-secular-stagnation

Dollar Falls for Third Straight Week

The recently released March job report and documented slowdown in hiring has had an affect on the strength of the dollar. The strength of the dollar fell for the third straight week, marking the longest loss streak in almost a year. Fewer jobs were added in March than any month since December 2013, and as a result the dollar fell in comparison to all but one of its 16 major currency counterparts. The dollar fell 0.8 percent to $1.0976 compared to the euro and 0.1 percent to 118.97 yen.

Slow first-quarter economic growth for the U.S. has lead many investors to conclude that the Fed will delay previously predicted interest-rate rises as a result. The 126,000 jobs added in March were less than even the most conservative estimates had previously predicted. However, interest rates are still expected to increase in August or September, even if to only momentarily rise above zero.

http://www.bloomberg.com/news/articles/2015-04-04/dollar-falls-third-week-as-jobs-data-clouds-u-s-rate-outlook

Robots and Productivity

In this age of technology, computers have been accepted as a powerful tool for maximizing productivity in offices and other workplaces around the world. While computers have become the emblem of the Information Age and the increased role technology has had in labor productivity, robots have largely remained only an object of science fiction fascination in the eyes of many, still just a fantastic, far-away threat to human safety. However, robots are already playing a major role in global productivity and are influential in shaping many economies around the world.

Robot IntegrationIndustrial robots (which are defined as machines that can be programmed to perform physical, production-related tasks without human input) have seen their prices reduced by almost 80% from the period of 1993 to 2007. In countries such as Denmark, Germany, and Italy (which have many producers of transportation equipment, chemicals, and metals) the ratio of robots to hours worked has increased by almost 150%. By matching current data on tasks performed by robots with those of U.S. workers in 1980 (before robots were in use), a conservative estimate of 0.37 percentage points was the calculated contribution of robots to GDP. This figure is on-par with the estimated contributions to labor productivity of railroads in the nineteenth century and highways in the twentieth century.

As robots become increasingly cheaper to produce and acquire while their productivity continues to also rise, human workers become a much less efficient investment for businesses around the world. Many industries (specifically those related to production and manufacturing) have already experienced the wide-scale takeover of robots and seen significant job loss for human employees. However, as technology improves, perhaps more industries will fall victim to automation as more tasks can be completed more effectively by robots than humans. While many consider the gains from technology to have significantly slowed down in recent years, the appeal of equal productivity at cheaper costs by means of replacing human workers with robots may become increasingly appealing to many businesses. Perhaps the real threat of robots in the future is not to human health and safety by means of an AI revolution, but rather to employment by simply being better than humans at their jobs.

http://www.voxeu.org/article/robots-productivity-and-jobs

U.S. College Degrees an Expensive Investment

College tuition rates have been rapidly increasing in the United States since the 1980s. As the costs of obtaining a college education continue to rise and increasingly require many students to take out loans and graduate with substantial debt, the question of whether or not college is really worth the price tag has begun to be discussed more frequently. A recent article on VoxEU presents estimates that a college degree has a risk-adjusted value between $225,000 and $600,000. While earnings for college grads have become more volatile over time, degree holders are are less likely to experience unemployment than their degree-less counterparts, and even conservative estimates for the returns to earnings for a college degree compared to its cost are still positive.

The merits of obtaining a college education have long been discussed, and the topic has been increasingly debated over the past decade, as college tuition rates continue to skyrocket and seem to indicate no signs of stopping. Student loans and the debt burden many students face upon exiting college continue to present a significant risk to graduates entering the work force with uncertain economic conditions. With the struggles of graduates during the Great Recession to find employment and maximize the return on their degrees, many have become wary of making a significant, costly investment in a college degree. However, with the significant return on investment and well-documented benefits of possessing a college degree, hopefully fewer and fewer students will start to view the prospect of spending on a college education as a risky investment.

http://www.voxeu.org/article/us-university-degrees-high-cost-high-reward

To the Victor go the Toils

A new article from The Economist covers the state of Nigeria’s economy after their recent presidential election.  The country is currently facing big problems because of its heavy reliance on oil as a source of income: the government receives two-thirds of its revenues from oil and 95 percent of foreign earnings come from the resource.  This has created a bad situation for the country since oil prices have fallen significantly since June.  This has led to a series of other bad side effects.

One is that Nigeria’s currency has fallen 18 percent against the dollar since October. This is exceptionally damaging since the country relies heavily on imports.  In response, the central bank increased interest rates to 13 percent, which is significant because it is the highest rate the country has ever seen and the chairman promised to lower interest rates just last year.  This move has been criticized because of Nigeria’s high inflation rate: it is over 8 percent now and some projections see it reaching 15 percent by December.

This has also compelled foreign investors to reduce their activity in the country, which was further exacerbated by the political uncertainty due to elections.  The prospect of overturned government policies reduced investor’s trust in the country’s institutions.  And the country’s credit rating was recently downgraded to a B+, which likely sparked more anxiety.  Another interesting point that the article brought up was that politicians may have unintentionally devalued the country’s currency: supposedly, politicians converted a lot of the local currency into dollars since it would take up less space and be less taxing to transport while on the campaign trail where they would ‘buy’ votes.

The article closes by looking at the country’s future, it will be forced to borrow more in order to compensate for lost oil revenues.  Improvements to government infrastructure will also likely be halted; specifically the country’s weak electrical facilities won’t see much improvement if any.  And lastly, the new president will also have to spend money on a campaign against Boko Haram that he promised before the election.

Wage Growth Remains Steady

Workers’ wages have picked up in March, but there is no sign of a large increase in their acceleration. Average hourly earnings in the private sector on average increased by 7 cents, to $24.86 according to the U.S. Labor Department. This was a 0.3% increase, which was up from the 0.1% rise in February. Hourly earnings were only up 2.1% from last year, which is little change compared to the 2% annual average of each of the past 5 years. Many economists have predicted that wage growth would accelerate with a tighter labor market and more competition amongst workers. Additionally, large corporations, such as Wal-Mart and Target and McDonald’s have announced large pay raises for their employees in recent months. Most economists say that these large-scale pay raises have not been fully felt by the economy yet, and for that reason, are not showing up as large effects in the data.

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Teen Unemployment

Teenage unemployment is triple the overall average, according to the U.S. Department of Labor. In February 2015, unemployment for those 16-19 was 17.1%, compared to the overall jobless rate of 5.5%. These numbers have improved from a year earlier, where the rate was 23.3% for teens, and 6.7% overall. Similarly, the age of the workforce is getting older. The percentage of those ages 14-18 who were working in 2014 fell from 2% of the overall workforce from 4% in 2001.

The MarketWatch article cites that slow population growth and a weak economic climate are the primary reason for this drop in teen employment. Additionally, millennials are taking on an increasing share of the jobs formerly held by teens. Specifically, 51% of employed class of 2014 college grads are in jobs that do not require a college degree, and 30% of employers are hiring more college-educated workers for roles primarily held by high school graduates.

This matters because of its potential long-term impact. Accordingly, 20 hours of part-time work per week during a senior year of high school can result in annual earnings 20% higher six to nine years after graduation, versus those who didn’t work.

The article also mentions that the drop in teen employment may be because teens are not bothering to look for jobs, and are spending an increasing amount of time on social media.

What do you all think? Do you think that the drop in teen employment is due to a weak economic climate, or simply that teens are more interested in playing on their cell phones/ a cultural issue? And even more importantly, do you all think that this statistic matters?

 

 

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The Job Report

To follow up on Christian’s post, the job report was released early this morning and there has been an abrupt slowdown in hiring in March. There was just 126,000 jobs were added in March, compared to the larger number add over the previous year. This slow down in hiring shows that the economy has slowed significantly over the winter. Some analysts want to blame some of this on the horrible weather the northeast experienced earlier this year coupled with the downturn in oil prices.

Carl Tannenbaum, an economist at Northern Trust, thinks that the American energy industry is trying to adjust to the lower oil prices, which has an impact of the rigs that are active, mining, other energy related industries. The lower oil prices are causing the energy sector to lose jobs, like Mary Benjamin’s project, but the consumers are able to save money. This slow down might have the Fed reconsidering raising the interest rate, the rate may stay near zero for a bit longer since this is showing the economy is not as strong as we once thought it was.

This reaffirms what Federal Reserve chairwoman Janet Yellen has been saying over the past few weeks. She has been more cautious in her assessment of how the economy is doing. She wanted to see “continued improvement in the economic conditions” especially in the labor market. Unemployment has held at the 5.5% and wages rose about 0.3%.

This past year the job market gained more than 200,000 jobs every month, and this month’s steep decline shows that we are losing some momentum. We saw trade decline due to the rise in the strong dollar. Retail sales were down, which is a shock since households have a larger disposable income due to the fall in oil prices, but others point that it could be due to the harsh winter months. However, there are positive economic reports that are coming out. The Labor Department says there will be a 15 year low of new claims filled. Consumer confidence also has started to recover.. House prices have continued their recovery as well, due to low mortgage rates, easy access to credit, and job and income gains. Which does prove the economy is starting to look up. If we look at the post on McDonald’s raising wages showing the strength of the labor market and needed to keep up with other low-wage workers.

However, the falling rate conceals persistent difficulties facing specific sets of laborers. The unemployment rate for blacks is usually twice as high as the rate for whites, but since the recession this rate has increased. The article states that white unemployment dropped to 4.5 percent in the last quarter but for blacks remained at 11 percent. Likewise the median hourly wage for black workers have dropped by 3.6 percent since the start of recession, which is more than double for whites. Unemployment for the older generation is still an issue as 45 percent of job seekers over 55 were out of work for 27 weeks or more. So clearly there is much more to look at than just the amount of jobs created and unemployment rate. Is there any way for us to tackle this issue of unemployment for different groups? Do we think the economy is back on track or are there more issues that we need to look at?

 

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http://www.nytimes.com/2015/04/04/business/economy/jobs-report-unemployment-march.html?ref=business&_r=0

U.S. Consumer Confidence Improves in March

The Conference Board, a private interest group, said that its index of consumer confidence increased to 101.3 in March, up from 98.8 in February. This demonstrates that consumers are more upbeat about the economy as spring begins. Overall, this is combined with an improved short-term outlook on employment and income prospects, despite that consumers have demonstrated that they were less upbeat about business success in recent months. Many economists have pointed out that consumers in recent weeks have enjoyed a windfall from the plunging gasoline prices nationwide.

The Conference Board’s survey found that 20.6% of consumers in March think jobs are “plentiful”, compared to 25.4% who thought jobs were “hard to get”. Additionally, 15.5% of those surveyed anticipated that more jobs to be created in the next six months and 18.4% of those surveyed expected that their incomes would rise in the next six months, while only 9.9% believed that their incomes would fall.

Questions Ahead of Tomorrow’s Job Report

American labor markets have been on a tear and all eyes are fixed on tomorrow’s job numbers.  Economists predict the Labor Department to announce a 245,000 rise in payrolls in March. That would come on the heels of a 295,000 jump in February. For the past 12 months, jobs have risen by at least 200,000 every single month, the largest stretch since 1995. Of course, this does not account for population growth – but it is nonetheless a serious hot streak.

Wages remain in focus as economists sift through the data to find any hint of wage growth – thus far a lagging component of the recovery, due in part to the slack created by folks leaving the workforce voluntarily (i.e. not retiring, getting sick, etc.).

Even with strong growth we might likely see the unemployment rate hold steady at 5.5%, a 5-year low. A strong hiring climate brings workers back into the labor force, mitigating the effect of higher numbers of employed people.

Questions over the effects of oil’s collapse, the subsiding of winter, and a strong dollar will all be in the spotlight. Of course, we will also be watching to see what sort of revisions the Labor Department will make on past reports – often times the biggest cause of major market moves. That said, tomorrow is also Good Friday, so it might be a little tougher to infer the market’s reaction to the announcement.

 

http://www.bloomberg.com/news/articles/2015-04-02/the-most-important-things-people-will-be-watching-for-in-tomorrow-s-jobs-report

US Trade Deficit Shrinks to 5 Year Low

Imports in February were stalled by labor negotiations at West Coast ports, bringing the US trade deficit to a more than 5 year low. This comes on the heels of more expensive American exports due to the dollar’s recent strength.

Imports will likely spike when we see a solution to the labor dispute and the holdup can be released. That said, energy imports have declined over the past couple of years, marking a more fundamental source for a shrinking trade deficit.

I wonder if there are any currency implications to the holdup. Does the market recognize that it is temporary? Or, could the due flood of imports ease the dollar’s strength?

 

 

http://www.bloomberg.com/news/articles/2015-04-02/trade-deficit-in-u-s-shrinks-to-five-year-low-as-imports-slump