Tag Archives: U.S. Economy

The problem for Obama is that America isn’t working

The Telegraph, Jun 6, 2016

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Falling levels of unemployment. A return to growth. House prices recovering. And, perhaps most significantly of all, a central bank that has felt so convinced the economy is on the mend that it has actually raised interest rates once in the past year and may do so again before Christmas comes around.

The American President Barack Obama had some fair points to make as he defended his economic record over the last eight years.

As he prepares to start writing his memoirs, Obama has started what is usually the final lap of any term in the White House – securing his legacy, and doing what he can to make sure his own party, no matter how much he may dislike the nominee,  keeps the keys to the Oval Office.

And yet while Obama undoubtedly has steadied what was a very rocky ship, in reality his economic record has been a dismal one.

Labour participation rates have been terrible, wages have been weak, corporate taxes have become ridiculously high compared with the rest of the world  and, worst of all, the United States has lost much of the entrepreneurial drive that made it so rich in the first place. He has done nothing to turn any of that around – and in many ways has made it worse.

With the fluency and intelligence that marks all his speeches, Obama made a powerful defence of his economic record when he spoke in Elkhart, Indiana, last week. “America’s economy is not just better than it was eight years ago – it is the strongest, most durable economy in the world,” he said. He went on to argue that “we’ve seen the first sustained manufacturing growth since the 1990s” amid a broad based recovery from the financial crisis he inherited from the Republicans.

“The trouble is, when you dig into the detail, there are some long-term trends that suggest an alarming decline in the competitiveness of the US – and Obama has done nothing to reverse them” (Matthew Lynn)


W
ell, up to a point. True, no one would deny that the American economy is in better shape now than it was when Obama took office. It is growing at a respectable rate, wages are increasing, it has avoided deflation, and the stock market, while hardly exciting, has kept one of the longest bull markets in history going. The trouble is, when you dig into the detail, there are some long-term trends that suggest an alarming decline in the competitiveness of the US – and Obama has done nothing to reverse them.

Such as? First, the US has witnessed a terrifying drop in labour participation rates. In simple terms, it is not that unemployment is that high – it is that people don’t bother looking for work. America used to lead the world in the numbers of people with jobs, but the overall participation rate has fallen from 67pc in 2000 to 62pc now. It is still two percentage points below where it was before the last recession. By contrast, in this country, the rate has climbed past 70pc to hit all time highs. True, a lot of those jobs are not terribly well paid, but an economy can’t grow without lots of people working – and that is not true of the US any more.

Next, for all his boasts,  wages have been stagnant under Obama. The shale boom has created a few centres of prosperity – indeed all of the ten towns with fastest growing earning are energy producers, led by places such as Midland, Texas, and Bismarck, North Dakota  (the two places where earnings growth has been strongest in the last decade). With the oil price under pressure, that probably won’t keep going – and once you strip those few booming cities out, wages have hardly grown at all under this Presidency.

Thirdly, corporate tax rates have been allowed to drift upwards. As other countries have cut their rates of corporation tax, Obama has kept the American rate stubbornly high, preferring to punish companies that want to escape, rather than the rather more obvious solution of simply cutting it. In the US, the corporate tax rate is 35pc, and state taxes levied on top of that mean it is often closer to 40pc.

By contrast, our rate is coming down to 17pc, half what American companies pay. Heck, even the French rate is lower than the American one. Globally, only the United Arab Emirates, at 55pc, and Chad, at 40pc, now levy more. The result? American companies have started to move abroad, and even though Obama has threatened to slap extra taxes on them for doing so, more and more are likely conclude that they have little choice but to locate somewhere more competitive.

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Fourthly, he has presided over a mountain of new regulations. According to a Heritage Foundation study, new rules imposed on business last year cost $22bn, and the total since Obama became President has gone past  $100bn. A total of 20,000 regulations have been imposed since 2008. In the last year alone, there have been costly new rules micro-managing overtime, clean air, and financial advice. Even by European standards, where markets are far from liberal,  much of the American economy is now ridiculously bound up in meddlesome red tape. One example: in Tennessee, you now need a state licence, involving 300 hours of training, just to shampoo hair in a barber shop. How is that meant to help people start businesses or get jobs?

Finally, and perhaps more worryingly of all, the US now has a lamentable rate of start-ups. The number of new companies being formed  every year barely exceeds the number that close down, and in several of the last eight years it has actually seen a net rate of closures. According to a report this month by the Economic Innovation Group, this recovery has seen a net 165,000 new enterprises, compared with more than 400,000 in the 1990s and 2000s. By contrast, this country, even though it is only a fifth of the size of the US, has a million more companies than it did before the crash, and the total has hit an all-time high  (on average, we now create more than 250,000 new enterprises a year). Our image of the US is shaped by its history, and by the huge success of Silicon Valley. But that is a unique economic eco-system, and if you strip that out, the US is not a nation of entrepreneurs any more.

In reality, the American economy has lost much of its appetite for innovation and its dynamism. A few giants such as Google and Amazon, and a booming energy industry, have helped to mask that, but the underlying trends show a relentless decline in competitiveness. It is too early to describe the US as the new France – but the comparison is not as ridiculous as it once would have been.

It has taken about four decades longer than it took Europe, but in many ways America has started to turn into a continental social democracy, with all the sluggishness and slow growth that implies. With his emphasis on subsidies, heath care and regulation, Obama has accelerated that process – and Hilary Clinton would do so even more. America may be losing global economic leadership because countries such as China are growing. But it is also losing it because it has abandoned many of the qualities that made it so prosperous in the first place – and Obama showed no sign of wanting to recover them.

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U.S. Economy Projected to Expand This Year by Least Since 2012

Bloomberg, Jun 6, 2016

* Some 60% of economists say election doubts will weigh on GDP
* NABE survey also forecasts first decline in profits since 2011

Economic growth will slacken in 2016 to its slowest pace in four years as uncertainty about the presidential election weighs on the outlook, according to a survey of forecasters by the National Association for Business Economics.

They see gross domestic product expanding 1.9 percent this year on a fourth quarter-to- fourth quarter basis. That’s down from a projected 2.5 percent gain in the last quarterly survey released in March and compares with growth last year of 2 percent.

Almost 60 percent of forecasters say uncertainty surrounding the November presidential election will hurt the economy, the association said.

“If I’m an owner of a medium-sized business and I’m hearing very rattling news about the election, on the margin I’ll be a little more cautious about hiring or making an investment,” said Lisa Emsbo-Mattingly, president of NABE.

Emsbo-Mattingly, who is also director of research for asset allocation for Fidelity Investments in Boston, said the biggest factor behind the markdown in the 2016 outlook is weak business investment. Spending on equipment, structures and intellectual property is projected to stall in 2016, after expanding 2.8 percent last year.

Corporate profits are forecast to fall this year for the first time since 2011, when they declined 2.9 percent, according to the survey. The NABE panel sees a 2 percent drop in after-tax profits without inventory valuation and capital consumption adjustments after a 3.3 percent advance last year.

The survey of 48 economists was conducted from May 2 to May 17, before last week’s release of the monthly jobs report that saw payrolls rise at their slowest pace in almost six years.

The NABE panel projects the economy will gain ground in 2017, with GDP climbing 2.3 percent, according to the median forecast. Profits are also projected to recover and rise by 3.9 percent next year.

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Three Charts From Friday’s Jobs Report That Are Ominous for the U.S. Economy

Bloomberg, Jun 6, 2016

Signs of weakness abound.

Three Charts From Friday’s Jobs Report That Are Ominous for the U.S. Economy – Bloombergclick

The net addition of just 38,000 jobs in May wasn’t the only underwhelming aspect of the non-farm employment report released Friday morning.

During an interview on What’d You Miss?, Bloomberg’s Matthew Boesler highlighted three charts showing some of the details from this report were just as poor as the headline figure.

Construction employment losing momentum

The annual rate of job growth in the construction sector is slipping:

As housing is a non-tradable good, activity and employment in the sector offer a particularly clean read on the state of the domestic economy. This now marks back-to-back months of job declines in the construction industry following revisions to April’s report.

Full-time work losing ground

The share of workers employed full-time fell on an annual basis for the first time in three years:

This comes as the amount of people working part-time for economic reasons experienced its largest one-month percentage gain since 2012.

Temporary job growth flatlines

Another piece of the jobs picture heading in the wrong direction is temporary employment. The rate of growth of temporary employment decelerated to 0.6 percent year-over-year, its lowest level since 2010:

If one presumes that temporary workers is a leading indicator — in the sense that employers tend to shy away from the use of this more flexible source of labor before handing out pink slips — then this chart paints a particularly disquieting picture.

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U.S. Economy Expands to 0.5% Pace, Weakest in Two Years

Bloomberg, Apr 28, 2016

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* Business investment slumps most in since second quarter 2009
* GDP figures mark third straight sluggish start to a year

The U.S. economy expanded in the first quarter at the slowest pace in two years as American consumers reined in spending and companies tightened their belts in response to weak global financial conditions and a plunge in oil prices.

Gross domestic product rose at a 0.5 percent annualized rate after a 1.4 percent fourth-quarter advance, Commerce Department data showed Thursday. The increase was less than the 0.7 percent median projection in a Bloomberg survey and marked the third straight disappointing start to a year.

Shaky global markets and oil’s tumble resulted in the biggest business-investment slump in almost seven years, and household purchases climbed the least since early 2015, the data showed. While Federal Reserve officials on Wednesday acknowledged the softness, they also indicated strong hiring and income gains have the potential to reignite consumer spending and propel economic growth.

“The fact that personal consumption is a bit on the soft side is a disappointment, especially in light of the low gasoline prices,” said Thomas Costerg, senior economist at Standard Chartered Bank in New York, who correctly projected first-quarter growth. “Consumption seems to be stuck in a low gear.”

Economists’ projections for GDP, the value of all goods and services produced in the U.S., ranged from gains of 0.1 percent to a 1.5 percent. This is the government’s first of three estimates for the quarter before annual revisions in July.

Consumer Spending

Household purchases, which account for almost 70 percent of the economy, rose at a 1.9 percent annual pace last quarter, compared with 2.4 percent in the final three months of last year.

Spending, while slightly better than the 1.7 percent median forecast, was a disappointment in light of the consumer-friendly fundamentals including low gasoline prices, cheap borrowing costs, increased hiring and warmer-than-usual winter weather.

“The first quarter is going to be the worst quarter for consumption for all of 2016,” said Jacob Oubina, a senior U.S. economist at RBC Capital Markets LLC in New York. “With financial markets calming down and retracing all of their losses, the fundamental factors that have driven consumption will continue to do so.”

Jobless Claims

Americans have more job security. A separate report from the Labor Department showed filings for unemployment benefits held last week around four-decade lows. Jobless claims rose to 257,000 from the prior week’s revised 248,000 that were the fewest since 1973.

The GDP report showed disposable income adjusted for inflation climbed 2.9 percent in the first quarter, an improvement from the 2.3 percent gain in final three months of 2015. The saving rate ticked up to 5.2 percent from 5 percent.

The biggest factor weighing on the economy last quarter came from companies. Nonresidential fixed investment, or spending on equipment, structures and intellectual property, dropped at a 5.9 percent annualized pace, the biggest decline since the second quarter of 2009.

Last year’s slump in oil prices that extended into early 2016 led to an 86 percent annualized plunge in capital spending on wells and shafts, the most in records back to 1958.

Investment is also languishing as corporations struggle to boost profits against a backdrop of weak overseas demand and restrained domestic purchases.

Customers in the U.S. also limited orders as companies trim stockpiles to bring them more in line with sales. Inventories subtracted 0.33 percentage point from growth after a 0.22 percentage-point drag in the three months ended in December.

Progress in trimming inventories, along with receding headwinds from abroad and a comeback in the prices of oil and other commodities, may keep investment from deteriorating further.

A dearth of eager overseas customers led to a drop in exports in the first quarter. Trade subtracted 0.34 percentage point from overall growth, the most in a year.

Final Sales

Stripping out unsold goods and trade, the two most volatile components of GDP, as well as government expenditures, so-called final sales to private domestic purchasers increased at a 1.2 percent rate, the weakest advance since the third quarter of 2012.

Government spending rose at a 1.2 percent pace, led by states and municipalities.

If the past two years are any guide, the economy will shake off the first-quarter softness. In 2015, GDP rose 0.6 percent before rebounding to a 3.9 percent pace in the second quarter. A year earlier, the economy shrank at a 0.9 percent rate and then advanced 4.6 percent in the April-June period.

Fed policy makers, after skipping an interest-rate hike for a third straight meeting on Wednesday, suggested they remain upbeat about the underpinnings of U.S. growth. Central bankers also said they will continue to “closely monitor” inflation.

The GDP price index rose 0.7 percent in the first quarter. A measure of inflation tied to personal spending and excluding volatile food and fuel costs climbed 2.1 percent, the most in four years and in line with policy makers’ target.

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U.S. economy grew at a better pace than expected

CNN Money, Nov 24, 2015

U.S. economy grew at a better pace than expected

The U.S. economy got some good news Tuesday.

The economy grew by 2.1% between July and September, according to the Commerce Department. That’s better than its first estimate of 1.5%.

The revision is a sign that the economy is weathering the global economic slowdown better than some had previously expected. It also comes just weeks after the best report on jobs growth of the year in October.

The improved figure is another indication the U.S. consumer — the main engine of economic growth — has shown resiliency this year.

verall, U.S. retail sales were up a bit in October even though there’s been mixed signs about consumer spending recently. Big retailers like Nordstrom (JWN) and Walmart (WMT) have warned they are not expecting great holiday sales.

Yet home improvement companies like Home Depot (HD) and Lowe’s (LOW) have seen a healthy increase in big-ticket purchases for things like roofs and kitchen counter tops.

The fear was that the global economic slowdown and strong U.S. dollar were weighing down U.S. trade and exports.

Those headwinds are still present but they may be abating going into 2016.

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