Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. 4Q GDP Up 5.7%, Wages/Benes At Record LowBrad DeLong thinks that the GDP reading suggests that next week's productivity numbers will be around 7%, adding yet another astonishing number to that series. This is not good news for employment; it suggests that workers can continue to be squeezed, notwithstanding all the sweat and tears of the last year.On the GDP numbers, here's Calculated Risk: Any analysis of the Q4 GDP report has to start with the change in private inventories. This change contributed a majority of the increase in GDP, and annualized Q4 GDP growth would have been 2.3% without the transitory increase from inventory changes. Unfortunately - although expected - the two leading sectors, residential investment (RI) and personal consumption expenditures (PCE), both slowed in Q4. PCE slowed from 2.8% annualized growth in Q3 to 2.0% in Q4. RI slowed from 18.9% in Q3 to just 5.7% in Q4. Note: for more on leading and lagging sectors, see Business Cycle: Temporal Order and Q1 GDP Report: The Good News. It is not a surprise that both key leading sectors are struggling. The personal saving rate increased slightly to 4.6% in Q4, and I expect the saving rate to increase over the next year or two to around 8% - as households repair their balance sheets - and that will be a constant drag on PCE. And there is no reason to expect a sustained increase in RI until the excess housing inventory is absorbed. In fact, based on recent reports of housing starts and new home sales, there is a good chance that residential investment will be a slight drag on GDP in Q1 2010. Read the rest of the post The Wages/benefits story is from the Wall Street Journal JANUARY 29, 2010, 4:16 P.M. ET Wage and Benefit Growth Hits Historic Low Staff Reporter of The Wall Street Journal Wage and benefit costs, both before and after adjusting for inflation, grew more slowly in 2009 than in any year since the U.S. government began tracking data in 1982, as double-digit unemployment weakened workers' ability to command higher pay. In the past 12 months, the cost of wages and benefits received by workers other than those employed by the federal government rose 1.5%, according to the Labor Department's employment cost index. In the same period, consumer prices rose 2.7%. Adjusted for inflation, wages and benefits fell 1.3%, after rising by 2.8% in 2008, the first year of the recession. The inflation-adjusted cost of wages and benefits at the end of 2009 stood just 1.1% higher than at the end of the previous recession in 2001, the Labor Department said. The Employment Cost Index measures the cost of labor independent of the influence of changes in compensation caused when high-wage sectors grow more or less rapidly than low-wage sectors. Unlike widely cited data on wages, the index includes the cost of benefits, which account for about 30% of total compensation costs. Before adjusting for inflation, the index rose 0.5% in the fourth quarter, slightly higher than the 0.4% increase in third quarter. "The weak labor market will help keep inflationary pressures benign," said economist Anika Khan of Wells Fargo Securities. "As such, the Federal Reserve continues to have the flexibility to keep short-term interest rates at the current level." State and local government workers' compensation in 2009 grew 2.4%, twice the pace of the 1.2% increases in the private sector. State and local government employees' compensation has outpaced private-sector increases for the past several years. Private employers' health-insurance costs rose 4.4% in 2009, after increasing 3.5% the year before. The 2009 increase, though, was the second-lowest rate of increase in more than a decade, according to the survey. The Labor Department noted that this reflects, in part, employers' reducing their contributions to employees' health insurance or switching to lower-cost health plans. It added that the data in this part of its quarterly survey weren't as reliable as the rest of the report. Labels: Brad DeLong, Calculated Risk, economic indicators, employment cost index, GDP, health insurance, productivity, wages and benefits Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Tuesday's IndicatorsCanada grew in June for the first time in a year, but 2Q GDP fell by 3.4%In the US, manufacturing grew in August for the first time in close to 2 years: autos and homebuilders, which had vastly supported any upward momentum in this sector during the boom years, and whose job losses have accounted for half those lost since December 2007, kept things going with cash-for-clunkers and tax credits for first time homeowners. And in fact, pending sales of existing homes grew faster than expected in July. In the Eurozone, unemployment numbers weighed on stocks, as July figures rose their highest level in ten years, reaching an expected 9.5% from 9.4% in June. Also, eurozone prices fell for the third straight month, though the pace of the drop is starting to level off. China's manufacturing grew at its fastest pace since 2008 in August. And South Korea's exports fell for the 10th month in a row, at a 20.6% rate, in July, from a year earlier. All in all, today's figures give a boost to the slow, weak but co-ordinated worldwide recovery scenario, with the troubling exception of the Chinese and South Korean figures. The latter attest (regading China, the key question concerns how much of the uptick in manufacturing is a result of overcapacity enabled by veritable torrents of bank lending which may be abruptly cut off, something that caused Shanghai shares to drop much deeped into bear--20% loss from height--territory on Monday) to the persistence of vast imbalances in the international economic and financial systems that could upend recovery--especially of such a uniquely fragile sort as we seem to be witnessing. Labels: Canada, China, consumer prices, economic indicators, eurozone, GDP, manufacturing, South Korea, unemployment, United States Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). US Personal Consumption/GDP NOT 70% GDPOr so Michael Mandel insists. From his Economics Unbound/World Economy Blog:Economics Unbound Get It Straight: Consumer Spending is *not* 70% of GDP Posted by: Michael Mandel on August 29 Ok, now I'm getting aggravated. On the front page of the NYT this morning, Peter Goodman wrote Given that consumer spending has in recent years accounted for 70 percent of the nation's economic activity, a marginal shrinking could significantly depress demand for goods and services, discouraging businesses from hiring more workers. And Martin Crutsinger of the Associated Press wrote Especially in the U.S., consumer spending is essential: It drives about 70 percent of economic activity--more than for most European nations and well above the rates in developing countries such as China. Both of these fine economics writers have fallen into a subtle but very important trap. They look at the category of GDP which the BEA calls 'personal consumption expenditures' and assume that it means what it sounds like: The money that persons, like you and me, spend on consumption. But in fact, 'personal consumption expenditures' in the U.S. is a grab-bag category which includes all sorts of money--like Medicare spending by the government--which never passes through the hands of households. PCE also includes all the consumer goods imported into the U.S.--cars, computers, clothing, and the like--which create very little economic activity in this country. In fact, by my very rough calculations, the money that people actually pull out of their paychecks and bank accounts to pay for domestically-produced goods and services drives about 40% of economic activity in this country. That's still large--but the U.S. is nowhere near as dependent on consumer spending as people think. Okay. Let's look under the hood... Read the rest of the post Labels: economic indicators, GDP, Michael Mandel, Personal consumption Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Thursday's IndicatorsWeekly new jobless claims in the US fell 15,000 to 565,000, and continuing claims dropped by 80,000 to finish the week ending 15 August at 6.133 million. How many unemployed workers exhausting benefits, thereby contributing to the fall in existing claims, must be considered here, however.US 2Q GDP was revised upwards to minus one percent. In the longest recession since 1947, real GDP has fallen for four straight quarters. Corporate profits, though, rose 2.9 percent in 2Q, following a return to positive territory in 1Q of 1.3 per cent. Inventories were cut by more than anticipated during the quarter, but this was offset somewhat by stronger consumer spending (a part of that as a result of higher gas prices and the now-expired cash-for-clunkers--After posting this I remembered that the program didn't go into effect until July, so this had no impact on second-quarter purchases; sorry for the mistake). Tomorrow's personal income number will no doubt add definitively to the picture of the consumer's health. Wall Street opened by shrugging off these data, which seem to confirm long-awaited indications that consumer spending has at least some legs to stand on. Some may be puzzled by this--it wasn't too long ago that negative readings were routinely ignored by the Street. And there are some mighty strange things happening on the markets. Today's FT noted that AIG, Fannie Mae and Freddie Mac put in the most improved performance on the New York Stock Exchange since early August. All three have vaulted more than 150%, with the terrible government-sponsored entity twins posting gains of 250%. And there's more at work here than positive news on the homebuilding front: it seems short sellers have been betting against the trio, and have been caughtm, well, short: so some of the buying was of the panic sort, to buy back shares of the three that speculators had shorted which gained in price. Also, readers may recall a post from last week in which Arindrajit Dube showed how the shares of big insurers reacted to the demise of the public option in July. I don't follow individual stocks or sectors that much, so I'm guessing here, but I imagine that insurers are still racking up gains. To see so such upward activity suppported by such movements, which can only be regarded as neutral or harmful in an economic sense, would mitigate against the simple recovery story. And retail investors remain close to the sidelines. The FT also had a longer piece on the very weird upward movement of stocks, bonds and commodities recently (usually bonds move opposite to stocks, and commodities, especially oil, are used as a hedge against inflation--and hence, often-times, stock performance). Add in currencies, in which a movement away from the dollar as a safe haven has been proposed (and the dollar usually moves counter to commodity prices), and you have a very confusing situation, indeed. Labels: bond market, commodity prices, corporate profits, dollar, economic indicators, GDP, stock market, weekly initial claims Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Economists' Poll: US 3Q GDP To Rise 2.4%That's a big number, and these people are also predicting a 2.2% uptick in the fourth-quarter. It's all due to the unprecedented stimulus and bank recapitalization programs: consumer consumption is very weak, as is business investment. With continuned deleveraging dampening both, and the government spigot starting to close (under the watchful eye of Congressional masochists), it will be a fragile recovery, indeed. Across the Curve has some interesting observations on the outlook today, particluarly as it affects sentiment in the bond marketFrom Reuters: U.S. starts long, gradual and fragile recovery Thu Aug 20, 2009 3:18pm EDT By Burton Frierson NEW YORK (Reuters) The U.S. economy is recovering more strongly than expected from its worst recession in decades, but next year will be lackluster and risks of a double-dip downturn remain, economists said in a Reuters poll. After shrinking by 1.0 percent in the second quarter on an annualized basis, U.S. gross domestic product will grow 2.4 percent in the current quarter and 2.2 percent in the final three months of the year, according to a sample of around 70 economists. This would make the recession that many say ended in the second quarter the longest since World War Two. The recovery is now expected to be more robust than economists predicted last month, when they saw growth of 0.8 and 1.8 percent in the third and fourth quarters, respectively. The broad U.S. stock market is up 50 percent from March lows. High unemployment, which the poll showed topping out at 10 percent, and a massive debt load on the shoulders of consumers will hamstring the economy after the initial rebound. This will keep inflation largely in check and official interest rates low, while economists still see a 25 percent chance of a double-dip recession. "Recent data suggest that the economy is near a bottom, but the recovery is likely to prove to be lengthy, gradual, and fragile," said Scott Brown, chief economist with Raymond James & Associates in St Petersburg, Florida. "Fiscal stimulus should provide support through the end of the year and in 2010. Fed policy will remain supportive." The government and Fed have pumped trillions of dollars into the economy in economic stimulus spending and intensive care measures meant to revive the moribund financial system, which appeared on the verge of collapse late last year. The consensus prediction of a peak unemployment rate of 10 percent compares with 10.2 percent in the July poll. A government report earlier this month showed the U.S. unemployment rate fell in July for the first time in 15 months as employers cut far fewer jobs than expected. Read the rest of the article Labels: Across the Curve, bailout, economic indicators, financial crisis, GDP Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Germany and Japan Return To Growth (For Now)From Bloomberg:Euro-Area Economy Contracted 0.1% in Second Quarter (Update4) Bloomberg By Simone Meier Aug. 13 (Bloomberg) The euro-region economy barely contracted in the second quarter as Germany and France unexpectedly returned to growth, suggesting Europe's worst recession since World War II is coming to an end. Gross domestic product fell 0.1 percent from the first quarter, when it plunged 2.5 percent, the most since the euro- area data were first compiled in 1995, the European Union's statistics office in Luxembourg said today. Economists had estimated GDP declined 0.5 percent in the three months through June, the median of 32forecasts in a Bloomberg survey showed. Stocks rose and the euro climbed after today's figures added to evidence the worst of the global slump has passed. Demand for European exports is improving just as government rescue packages and lower interest rates support spending at home. While the data suggest the European Central Bank won’t need to add to stimulus measures, rising unemployment across the region may still stifle consumer spending. Read the rest of of the article Labels: bailout, Bank of Japan, Eastern Europe, economic indicators, financial crisis, GDP, Germany Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). G.D.P. R.I.P. (NYT)Nice op-ed in yesterday's New York Times; hat-tip to J.B.:IF there's a silver lining to our current economic downturn, it's this: With it comes what the economist Joseph Schumpeter called "creative destruction," the failure of outmoded economic structures and their replacement by new, more suitable structures. Downturns have often given a last, fatality-inducing nudge to dying industries and technologies. Very few buggy manufacturers made it through the Great Depression. Creative destruction can apply to economic concepts as well. And this downturn offers an excellent opportunity to get rid of one that has long outlived its usefulness: gross domestic product. G.D.P. is one measure of national income, of how much wealth Americans make, and it's a deeply foolish indicator of how the economy is doing. It ought to join buggy whips and VCRs on the dust-heap of history. The first official attempt to determine our national income was made in 1934; the goal was to measure all economic production involving Americans whether they were at home or abroad. In 1991, the Bureau of Economic Analysis switched from gross national product to gross domestic product to reflect a changed economic reality—as trade increased, and as foreign companies built factories here, it became apparent that we ought to measure what gets made in the United States, no matter who makes it or where it goes after it's made. Since then it has become probably our most commonly cited economic indicator, the basic number that we take as a measure of how well we're doing economically from year to year and quarter to quarter. But it is a miserable failure at representing our economic reality. To begin with, gross domestic product excludes a great deal of production that has economic value. Neither volunteer work nor unpaid domestic services (housework, child rearing, do-it-yourself home improvement) make it into the accounts, and our standard of living, our general level of economic well-being, benefits mightily from both. Nor does it include the huge economic benefit that we get directly, outside of any market, from nature. A mundane example: If you let the sun dry your clothes, the service is free and doesn't show up in our domestic product; if you throw your laundry in the dryer, you burn fossil fuel, increase your carbon footprint, make the economy more unsustainable—and give G.D.P. a bit of a bump. Read the rest of the article. Labels: GDP, growth, growth consensus Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). 2Q GDP Fall Less Than Expected...but consumption falls more. And 1Q revised downward. From Bloomberg:U.S. Economy: Contraction Eases as Recovery Beckons By Shobhana Chandra July 31 (Bloomberg) The worst U.S. economic slump since the Great Depression abated in the second quarter as government spending programs started to kick in, while the deepest retrenchment by consumers since 1980 augured a muted recovery. Gross domestic product shrank at a better-than-forecast 1 percent annual pace after a 6.4 percent drop the prior three months, Commerce Department figures showed today in Washington. A survey of purchasing managers showed separately that business contracted less than estimated this month. Stabilization in homebuilding and the liquidation of unsold goods sets the stage for gains in GDP starting this quarter, analysts said. At the same time, rising unemployment and weakening income growth threaten to erode household finances; the International Monetary Fund today said policy makers must be ready to employ further stimulus if needed. "We're heading to a sluggish recovery," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. "We'll get more support from government programs in the second half, but if you want a strong recovery you need a strong consumer, and we are not seeing that." Stocks and Treasuries gained and the dollar remained lower against the euro after the report. The Standard & Poor's 500 Stock Index rose 0.1 percent to 987.48 in New York, the highest closing level since Nov. 4. Benchmark 10-year note yields fell to 3.48 percent at 4:33 p.m., from 3.61 percent late yesterday, and the dollar dropped 1.3 percent to $1.4257 per euro. Read the rest of the article Labels: bailout, economic indicators, financial crisis, GDP Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Eurozone Moves into Deflation for First TimeFrom The Financial Times:Eurozone inflation turns negative By Ralph Atkins in Frankfurt Financial Times Published: June 30 2009 11:03 | Last updated: June 30 2009 18:16 Eurozone annual inflation has turned negative for the first time since records began, creating a headache for the European Central Bank as it seeks to draw a line under emergency measures to tackle continental Europe's recession. Consumer prices in the 16-country eurozone were 0.1 per cent lower in June than the same month a year before, according to Eurostat, the European Union's statistical office. It was the first time eurozone annual inflation had fallen below zero since comparable records began in 1991. The fall in prices reflects sharply lower energy costs and the effects of the region's worst economic downturn since the second world war. Annual inflation is hugely undershooting the ECB's target of "below but close" to 2 per cent. Read the rest of the article Labels: bailout, European Union, financial crisis, GDP Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Optimism...They keep saying the UK should emerge faster and stronger than other economies (and that may still turn out to be the case, give horrible performances elsewhere) from the recession--or whatever it is--but the carnage continues to get worse:Economy suffers steepest fall in 50 years The Independent By Russell Lynch, Press Association Tuesday, 30 June 2009 The UK economy recorded its sharpest decline in more than 50 years during the first quarter of 2009, figures showed today. And revisions to figures revealed the current recession began earlier than first thought, with a 0.1 per cent decline seen between April and June last year compared with previous estimates of zero growth. Output fell 2.4 per cent in the first three months of the year - the fastest rate since 1958, the Office for National Statistics (ONS) said. The economy also showed an annual decline of 4.9 per cent - the biggest fall since ONS records began in 1948. The first-quarter decline of 2.4 per cent is much worse than the 1.9 per cent first estimated and comes after bigger-than-expected falls in construction and the UK's key services sector. The plummet in activity between January and March was almost equal to the 2.5 per cent fall suffered during the whole of the recession in the 1990s, Investec's David Page said. He warned: "The economy is now likely to undergo a peak to trough adjustment in excess of 5 per cent, nearly as big as the overall 5.9 per cent collapse seen from 1979-1981." The scale of the decline could put pressure on Chancellor Alistair Darling's forecasts for the public finances this year. Read the rest of the article Labels: bailout, economic indicators, financial crisis, GDP, United Kingdom Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Yes, Things Are Really BadAnother fabulously depressing economic snapshot from the Economic Policy Institute (EPI): Unusually bad and getting worse Labels: economic meltdown, Economic Policy Institute, EPI, GDP Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). US 4Q GDP Falls 6.2%, Biggest Drop Since '82From Reuters:U.S. fourth-quarter GDP drop biggest since 1982 Fri Feb 27, 2009 12:29pm EST Reuters By Lucia Mutikani WASHINGTON (Reuters) The U.S. economy suffered its deepest contraction since early 1982 in the fourth quarter, shrinking at a much worse-than-expected 6.2 percent annual rate as exports plunged and consumers slashed spending. A month ago, the Commerce Department had estimated the economy shrank at a 3.8 percent pace in the October-December quarter. But downward revisions to inventories, exports and spending led it to issue a much weaker figure on Friday. "It's just doom all over. There's nothing good to take away from this report. I think there's a few more bad quarters to come," said Boris Schlossberg, director of currency research at GFT Forex in New York. The grim data shocked Wall Street, which had braced for a downward revision, but not one nearly so deep. The consensus was for a decline of 5.4 percent. U.S. stocks fell, with the Standard & Poor's 500 Index hitting a fresh bear market low, weighed down by the data and news the government could take a large common equity share in troubled financial firm Citigroup. Government bond prices rallied. A separate report showed mounting job losses turned consumers gloomier in February, evidence the U.S. recession continues to deepen. The final Reuters/University of Michigan consumer sentiment index fell to 56.3 from January's 61.2. Read the rest of the article Labels: bailout, financial crisis, GDP Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). 2009 Global Economic Picture BleakThe latest economic snapshot from the Economic Policy Institute (EPI):Economies of major developed countries will shrink in 2009 The full post (including their nifty chart) is here. Labels: Economic Policy Institute, EPI, GDP, global downturn Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). GDP Sees Biggest Drop in 27 YearsJust in from Reuters:By Lucia Mutikani |Fri Jan 30, 2009 10:33am EST WASHINGTON (Reuters) - The economy shrank at its fastest pace in nearly 27 years in the fourth quarter, government data showed on Friday, sinking deeper into recession as consumers and business cut spending. In a report that showed a broad-based contraction nearly across all sectors, the Commerce Department said gross domestic product, which measures total goods and services output within U.S. borders, plummeted at a 3.8 percent annual rate. That was the biggest drop since the first quarter of 1982, when output contracted 6.4 percent, and highlighted that the housing-led recession, which started in December 2007, was gathering momentum. These were the first consecutive declines in GDP since the fourth quarter of 1990 and the first three months of 1991. Read the rest of the article. Labels: financial crisis, GDP, recession Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
