U.S. Economy
World Economy Seems Trapped in “Death Spiral”
"The world appears to be trapped in a circular reference death spiral," wrote Citi strategists, led by Jonathan Stubbs said in a research note. "Stronger U.S. dollar, weaker oil/commodity prices, weaker world trade/petrodollar liquidity, weaker EM (and global growth)... and repeat. Ad infinitum, this would lead to Oilmageddon, a 'significant and synchronized' global recession and a proper modern-day equity bear market... The death spiral is in nobody's interest. Rational behavior, most likely, will prevail.”
Policymakers would likely attempt to “regain credibility” in the near term, according to the Citi analysts. “This is fundamental to avoiding a proper/full global recession and dangerous disorder across financial markets. The stakes are high, perhaps higher than they have ever been in the post-World War II era."
Oil Market Decline May Prick Global Debt Bubble
$100 Trillion Up in Smoke
“We aren’t addicted to oil, but our cars are.”
– James Woolsey
“The greatest asset, even in this country, is not oil and gas. It’s integrity.”
– George Foreman
So This Is What “Full Employment” Look Like?
“Labor unions, meanwhile, remain a powerful force for shared prosperity, a fact confirmed once again by the release last week of the annual Bureau of Labor Statistics report on union membership,” said Labor Secretary Tom Perez. “Median weekly earnings of full-time union workers ($975) were more than 25 percent higher than those of non-union workers ($776) in 2015. That amounts to more than $10,000 a year for hardworking Americans, and it puts upward pressure on wages and standards throughout the economy.”
“[Government numbers] don't show the quality of the jobs,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. “They don't obviously pick up the anxiety that workers are feeling. [Concerns over job security] may also be adding to economic jitters and uncertainties.”
"The problem with the optimist narrative is that so much of total private sector gains are in low-wage industries — hardly the broadening of employment the Fed is looking for," wrote Steve Blitz, chief economist for ITG Investment Research, in a research note. "Most industry sectors still employ fewer people than they did when the recession began."
Source:
CNBC.com
Jeff Cox
February 5, 2016
Productivity Is the Missing Ingredient.
We've know for years that this recovery is the weakest post-war recovery on record, and the chart above makes the case. If this had been a typical recovery, national income (GDP) would be about $2.8 trillion higher than it is today. That's like saying that average wages and salaries would be 17% higher. For a family earning $60,000, that's over $10,000 more income per year that has failed to materialize despite all their hard efforts.
What's been lacking is productivity (the additional output that each unit of labor produces), because productivity is the key to rising prosperity. We can only earn more if we work and produce more. We've had about the same rate of jobs growth during this recovery as we had in the 2001-2007 recovery, but GDP growth has been much weaker. The reason? Very low productivity growth, as seen in the chart above. I use a 2-yr rolling annualized growth rate to measure productivity, since it is quite volatile on a quarter-to-quarter basis. Over a 2-year period I think the quarterly volatility tends to wash out and a truer picture is revealed. Note that the productivity readings we've had in the past several years have always been associated in the past with recessions. It's no wonder that everyone keeps complaining about the economy. It's as if we've been living in recessionary conditions even though things have been slowly improving. Put another way, we've had to work unusually hard just to enjoy very modest improvements in our standard of living.
The chart above uses the same data, but instead of a two-year rolling period, it uses a 5-yr rolling period. This, I believe, captures the effect of policies put in place by different presidential administrations. It can take years for policies to be put into effect and then have an impact on the economy, and good policies can have effects that last even after they have been reversed.
The colored bars correspond to different presidential terms, with the red bars reflecting a sustained period of declining productivity growth and the green bars a sustained period of very strong and/or rising productivity growth. I would be quick to note that Republican administrations have yielded three periods of declining productivity (Eisenhower, Nixon, and Bush II), while Democratic administrations have only yielded two periods of declining productivity (Carter and Obama). No political party can lay a claim to implementing policies that consistently lead to sustained rises in prosperity.
One thing that stands out is that the Obama years have seen productivity growth that rivals the malaise that characterized the Carter administration. For the five-year period ending last December, non-farm productivity rose at a miserably slow 0.3% annualized rate. In all of post-war history, only the five-year period ending in mid-1982 was worse (small footnote: Reagan's tax cuts did not take effect for almost two years, so his faulty implementation of tax cuts only served to prolong the declining productivity of the Carter years).
There are many factors that contribute to the slow growth of productivity, such as rising regulatory burdens that increase the cost of economic activity, high marginal tax rates that reduce the incentive to work and invest and take risk, and transfer payments that create a culture of dependency and a reluctance to seek out work.
The charts above show that a significant increase in transfer payments (money the government gives to people for a variety of reasons) beginning in late 2008 corresponded to the beginnings of a significant decline in the labor force participation rate. Many millions of workers have left the workforce, and it could be due at least in part to the fact that the benefits that accrue to those not working (e.g., food stamps, disability payments, welfare, earned income credits, assistance to single-parent families) are greater than the net benefits of working, especially on an after-tax basis. Transfer payments now equal almost 20% of disposable income, and that is a big number that currently totals $2.7 trillion and consumes fully 72.5% of all federal government spending. Yikes! Maybe it's simply the case that our government has grown to the point where it is now suffocating the private sector. Too few people are working and too many are on the receiving end of federal largesse. And for those who are still working, the burden of complying with regulations and the burden of taxes is simply inhibiting their ability to work and invest more.
We are not going to see significant improvement in productivity and living standards unless and until we adopt policies that are more conducive to work, investment, and risk-taking. It's that simple. Unfortunately, the proposals being discussed on the left (e.g., Sanders and Clinton) are only going to exacerbate the current situation. Can the right produce a candidate capable of winning and turning the policy ship around? That is the key question this year.
Source:
Calafia Beach Pundit
Scott Grannis
February 4, 2016
On Calafia Beach Pundit, Scott Grannis wrote:
Creative Indestruction
Read Full Article »