Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.
September 3, 2013 at 10:21 AM
Not so fast on “the rise of the rest.” The BRICS (Brazil, Russia, India, China and South Africa) — always a false construction — are not decoupling from the world economy to become independent powerhouses, as was fashionable thinking a few years ago. As the American economy strengthens and the Federal Reserve prepares to back off on the stimulus that provided so much “hot money” investment in developing nations, capital is exiting most developing markets. China may, or may not, be serious about creating a more balanced, consumer-based economy. India, the world’s second most populous nation and soon to be first, is in outright trouble. The rupee is in freefall, growth has slowed, inflation is a problem and foreign investment is headed for the door. It is also suffering from a persistent and growing current-account deficit.
Ashoka Mody of Princeton writes that India squandered an opportunity to make a leap forward:
Infrastructure did not keep pace with the economy’s needs. And, more deplorably, educational standards lagged. For a country positioning itself as a leader in the global knowledge economy, neglecting investment in education was a grave error, with other countries now staking a claim to the role to which India aspired. And, even when times were good, India never gained a foothold in the global manufactured-goods trade.
August 29, 2013 at 10:06 AM
The markets have stabilized for now. One thing is certain: It has more to do with the pause in America’s march to yet another Middle East war than today’s revision in gross domestic product. The Commerce Department said today that GDP grew at 2.5 percent in the second quarter, as opposed to the 1.7 percent originally reported. The initial number always seemed fishy since we were supposed to see the new ways of measuring national output, the broadest change in history, to reflect such things as intellectual property. That didn’t mean the economy would necessarily be doing better (“lies, damned lies and statistics”). And indeed, even at 2.5 percent, growth is below its historic norms.
This is likely as good as it gets this year. The Syria crisis is far from over. As it resumes, oil markets will be roiled and the economy, which is already held back by the new normal of higher energy prices, will start bumping against the ceiling of a potential spike in the cost of petroleum. Most of Asia is slowing down and nations such as India are facing big trouble as hot money pulls out and redeploys into investments in advanced nations. The federal sequester will become more of a drag on the economy. Things will get really “interesting” if the GOP forces a debt-ceiling showdown and threatens to push the nation into default. Meanwhile, 2.5 percent growth is too slow to do much to improve the job market. What it will do is increase pressure on the Federal Reserve to start backing off its bond buying, yet another worry in the markets worldwide.
And Don’t Miss: Regulators repeat exactly what they did during the housing boom | Baseline Scenario
Today’s Econ Haiku:
Bertha’s going slow
Reclaiming the waterfront
Has us in a hole
May 17, 2013 at 10:28 AM
The Dow is over 15,000, corporations are sitting on record amounts of cash, M&A activity is picking up, the deficit problem is on track to being solved, inflation is nearly non-existent and the U.S. economy is performing better than that of almost all other industrialized nations. Metropolitan Seattle, with 5.5 percent unemployment, is getting close to what economists would consider full employment. On the other hand, millions remain unemployed, wages are stagnant and inequality is the highest we’ve seen since the 1920s and perhaps even at a historic record. It’s a recovery, but one very different from those seen in the post World War II era.
Consider that a recession comes along around every seven years or so. Also, the banking industry is as dangerous as ever, and so politically powerful that it was most recently able to push back meaningful regulation of derivatives. Federal austerity is holding back a more robust recovery. Recession in the eurozone, a slowdown in China and political tensions in east Asia are among many concerns. What has you most worried?
Read on for the best links of the week and the haiku:
May 15, 2013 at 2:52 PM
The final toll of workers killed in the collapse of a garment factory in Bangladesh is 1,127. It is a staggering tally of loss. By contrast, the infamous 1911 Triangle Shirtwaist Factory fire in New York City killed 146. The Triangle fire, where factory managers had locked fire-escape doors, galvanized the Progressive movement in America, leading to new safety codes, labor laws and increased unionization. Such a favorable outcome in Bangladesh is much less likely.
As the Seattle Times’ Amy Martinez reports, officials at Nordstrom are scrutinizing the safety conditions at the three Bangladesh factories where some of its garments are made (none were made at the factory that collapsed). Benetton, H&M, Joe Fresh, Mango, Tesco and Zara are among the companies that are pushing a binding agreement that requires them to help pay for better safety conditions at Bangladeshi apparel factories. Gap, Sears, and J.C. Penney are among others who have yet to sign on. Gap, for example, has said it fears lawsuits from American lawyers. Wal-Mart, the biggest player, is drafting its own plan, but critics worry it won’t be enough to prevent further deaths.
In addition to the lack of a united front by Western retailers, the Bangladesh government is corrupt and deeply captured by the international garment industry. Ready made apparel is the poor country’s largest export. The government did say it would allow garment workers to unionize and raise the minimum wage, but it’s unlikely these reforms will do much good in such an environment.
March 22, 2013 at 10:31 AM
The stock market is up and housing sales are recovering. Unemployment remains stubbornly high and mandatory government cutbacks will be kicking in with the sequestration. Job openings increased slightly in January, but there are 3.3 job seekers for every position. The Seattle area is booming; the rest of Washington, not so much. Today’s poll asks how you are faring personally compared with six months ago:
Read on for the best links of the week and the haiku:
September 19, 2012 at 10:00 AM
Concern over the proposed Trans-Pacific Partnership is justified. We’ve come a long way from the NAFTA debate, where Al Gore, arguing for the agreement, demolished Ross Perot on national television. Back then, most Americans had been net winners from “free trade,” which was sold as all sides playing by the same rules, lowering barriers and liberalizing markets. What’s most memorable from the debate is Perot’s prediction of “a giant sucking sound” of U.S. jobs.
It’s happened, especially since China joined the World Trade Organization and plays by its own rules. Millions of jobs have been lost, not just in the industrial Midwest but in the devastated textile, apparel and furniture sectors of the Carolinas. There are only so many Wal-Mart greeter, call-center and server-farm janitor jobs to replace them. Washington is different, a net winner. But that might be different if not for Boeing, whose operations are subsidized by tax incentives and tax avoidance, military contracts and the U.S. government pushing hard to sell its airplanes abroad.
So it’s not really “free trade” we’ve seen the past 18 years but managed trade. And with the huge U.S. trade deficit — fixing it could go a long way to repairing high unemployment — we’re on the losing end. Our consumption mania, to be sure, is partly to blame. But so are the protectionist policies of countries such as China, and the eagerness of U.S. corporations to send jobs offshore. Not for nothing did America protect its industries with tariffs for most of the history of the republic.
July 2, 2012 at 9:44 AM
A month ago, it looked as if the economy was confronting its worst dangers since the collapse of 2007-2008. In the United States, job creation and GDP growth had slowed significantly. Washington, D.C., was paralyzed and unable to address the situation. Europe, already in another recession, was facing the breakup of the eurozone. And growth was decelerating at an alarming rate in China. Since then, the Dow Jones Industrial Average has rebounded, a euro-supporting government was elected in Greece and life goes on.
Have we dodged the bullet? Unfortunately, no.
Today, the Institute for Supply Management reported that its manufacturing index had contracted for the first time since 2009. Things are no better in Europe, and Germany’s manufacturing sector is now slipping fast. Yet another report showed China factory output fell in June. And, as the New York Times reported, Beijing manipulates data to conceal the real condition of China’s economy. Commodity prices are dropping because of fears of a worse slowdown.
June 19, 2012 at 10:15 AM
The Federal Reserve is beginning two days of its policy setting Federal Open Market Committee as the world economy is slowing, Europe is in recession and the tepid recovery in the United States could turn into a double-dip. The conventional wisdom ranges from the Fed doing nothing to extending Operation Twist, a mild effort to sell short-term bonds and buy longer-term securities. This will do little to help.
As a leading scholar on the central bank and the Great Depression, Chairman Ben Bernanke knows that inflation is not the big danger facing the economy, however much the Fed’s portfolio and the monetary base have expanded since 2007. But he faces a divided FOMC, something that Alan Greenspan never encountered as he was, say, helping keep the 1997 Asian financial crisis from becoming a global meltdown. Hawks on the board are against anything that would seem to invite future inflation.
Bernanke led the Fed in doing as Milton Friedman suggested, in his seminal work with Anna Schwartz, on what the central bank did wrong to help make the Great Depression so bad. Deflation was avoided. Unlike the Depression, however, the Fed also enabled saving the too-big-to-exist banks and other dangerous components of an over-financialized economy. And fiscal policy has not been a New Deal, to put it mildly. Since 2011, it has been paralyzed.
June 14, 2012 at 9:55 AM
How much can a country stand and still go on with daily life? Mexico is a prime example. An estimated 50,000 people have been killed since President Felipe Calderon began waging an aggressive fight against the drug cartels — which supply our appetites. At the same time, Mexico is building a middle class that is becoming its majority.
So it’s no surprise that Costco Wholesale is buying out its partner in its Mexican division for $760.4 million. With 112 million people becoming a middle-class nation, that’s plenty of customers. Wal-Mart thinks so, too — enough for the company to face allegations of corrupt business practices. Thus the enigma of Mexico: A rapidly developing country, not least thanks to NAFTA and its displacement of American workers, and yet much corruption in government and business.
Mexico accounted for nearly $1.4 billion in Washington exports in 2011 (It is the state’s 13th largest trading partner and America’s second largest, totaling $280 billion. The recession and anti-immigrant hysteria have slowed the illegal immigration rate; in many cases opportunities are greater at home. The U.S. still imports substantial Mexican oil, although the big fields there, especially Cantarell, are in decline.
June 1, 2012 at 10:00 AM
I read an economist comment that today’s report of only 69,000 net new jobs created in May is “what a jobless recovery looks like.” No, this is what an economy tipped on the edge of a new recession looks like.
China and India are slowing. Much of the eurozone is already in a recession and on the verge of a breakup and breakdown that will make Lehman Brothers look like a community bank failure. And the U.S. economy is rapidly decelerating. The job growth was half what’s needed just to keep up with the natural growth of the labor force, much less find new work for 12.7 million unemployed. Worse, all the new jobs came from part-time positions. With the decline in labor-force participation, the unemployment rate badly underestimates joblessness. Average hours and weekly wages fell. The share of people unemployed for longer than six months grew. (Here’s a quick briefing in charts).
In Europe, leadership is lacking; the big banks are in control and seem happy to take the continent down. The Federal Reserve has consigned itself to the sidelines. Unlike the Reagan administration, which expanded federal jobs amid the 1981 recession and after, the Obama White House has been cutting them. The demand hole mostly behind the jobs crisis was never adequately addressed. Yet no new stimulus will be forthcoming from a gridlocked, election-year D.C. Unless things get really scary. And they just might.
Read on for the best links of the week and the haiku: