I just think this would be a good place to post news on American Economics. We have a Nasa thread, so I wouldn't think this is stepping out of bounds.
The Economist explains
LESS than a year ago economists described America as the “
A few things have pushed down on growth. In the past year the dollar has appreciated rapidly: it is now one-fifth stronger against the euro. A labour dispute at West Coast ports has also made it more difficult for American firms to send their wares overseas. Thanks to all this, America’s exports have suffered: in March 2015, they were about 3% lower than a year earlier. In March the trade deficit was over $50 billion, an unusually large figure (the previous month it was $36 billion). Lower exports are bad news, because they drain demand from the domestic economy. They also hit the profits of many big companies: a third of the sales of companies in the S&P 500 come from abroad. Corporate profits fell by 1.6% in the fourth quarter of 2014, and were 6.4% lower than in the same quarter of 2013. Lower profits mean less investment. In the first quarter of this year gross private fixed investment fell by about 0.5% compared with the fourth quarter of last year.
Another thing pushing down on investment is falling oil prices. Until recently lots of money was being thrown at fancy equipment to extract oil from difficult places: from 2010 to 2014 investment in mining exploration, shafts and wells increased by 80%. Now firms are cutting back. Investment in mining structures shrank by 60% at an annualised rate in the first quarter of 2015, according to Capital Economics, a consultancy—enough to knock 0.8 percentage points off overall GDP growth. Economists had expected that American consumers would offset the impact of lower investment by spending lots more. After all, the average price of petrol in America has fallen by about 25% in the past year, meaning that the average family has a lot more to spend on other things. But that has not happened. A cold snap that hit much of America in the early part of this year may have something to do with that. The monthly growth rate of retail sales, not including those at petrol stations, has stumbled in the past few months.
For now, most economists are not too worried about the slowdown. Most think that second-quarter GDP growth will be more like 3%, as the effects of the port shutdown and weather dissipate. But some uneasiness may linger. The dollar’s strength will continue to be a drag on exporters. Meanwhile, wages are a serious concern. Month-on-month hourly earnings growth was just 0.1% in April. Unless earnings start to rise strongly, it will be difficult to sustain growth for long. And watching over everything is the Federal Reserve, which is keen to raise interest rates. Too keen, perhaps; the first quarter stumble—in investment especially—could have something to do with hawkish statements from the Fed, which looked eager to begin hiking rates as early as June before the recent nasty turn in the data. The American economy will probably regain its footing. But its difficulties sustaining fast growth this deep into the recovery are disconcerting.
Where Americans Spend Their Money
April’s retail sales report didn’t offer much in the way of bright spots.
Tepid spending by American consumers has been a puzzle for many economists. Employers are
“Forget ‘shop ‘till you drop’, let’s just hope consumers simply start shopping,” said Joel Naroff, chief economist at Naroff Economic Advisors.
Americans have gotten a windfall from cheaper gasoline prices. But so far, they appear to be saving some of that money rather than spending it.
It hasn’t been all doom and gloom. Some discretionary spending has been particularly strong. Restaurant and bar sales jumped 0.7% last month, suggesting Americans are willing to shell out money on nonessentials. That may be coming at the expense of grocery store sales, though.
And in another sign that many households are merely shifting expenses–and habits–rather than boosting spending, nonstore retailers (largely online sales but also those via infomercials, catalogs, door-to-door sales and vending machines) saw a healthy gain last month while department stores continued their long decline.
Are Americans saving too much of their money?
Photograph by Getty Images
The American economy, which is powered by consumer spending, is limping while those with money to spend hoard it instead.
Another month, another announcement of dismal retail sales from the Commerce Department.
The above chart, from Bianco Research, shows that year-over-year increases in retail sales are the worst they’ve been since October 2009. “Now that bad weather is no longer a viable excuse, these numbers are pointing to a very cautious consumer,” writes analyst Jim Bianco in a research note, adding, “whatever happened to the surge in spending because of the collapse on gas prices?”
This last question has confounded economists for several months. Employment growth has been generally strong, wage growth has been weak but ahead of inflation, and gas prices remain well below where they were last year. So why hasn’t the American consumer been spending the extra money slushing around the economy?
One explanation is that Americans are saving more–quite a bit more–than they have in recent years. The following chart shows the overall savings rate for American consumers since 1995:
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The most recent data, from March, shows that Americans saved 5.3% of their pre-tax income, down from 5.7% in February. But the average savings rate so far in 2015 is higher than it was last year and in 2013. Savings spiked following the recession, reflecting Americans’ fear about their economic future, but most economists expected the savings rate to eventually fall back to the pre-bubble rates of 3% or 4%. At least for now, that’s not happening.
So, what should we make of this increase in savings? If it keeps up, in the long run, it should be a good thing. As a recent report from Oxford Economics
The problem is, the U.S. economy is still operating below full capacity. Many economists would prefer to see consumers, and the government, forgo saving until the economy recovers and is growing at its full potential.
Personal savings behavior varies considerably based on an individual’s age. A recent analysis by Moody’s Analytics–
This is actually the opposite of what many economists
None of this bodes well for the future of the American economy. Low savings activity among today’s under-35 generation means that wealth inequality will continue to grow worse as time goes on. Meanwhile, the American economy, which is powered by consumer spending, limps along while those with money to spend hoard it instead.
So the Baby Boomers are saving more for their retirement, but the young are still racking up debts. Nothing changes in the end, and there will be more borrow-spend in the US and not less.
How The Millennial Generation Could Affect The Economy Over The Next Five Years
“Millennials are going to be making up half the workforce in just five years. They’re already the largest cohort of American workers,” said Bovino, to explain the importance of this generation. That’s why some of their characteristics — marrying and having children late, renting instead of buying a home, preferring to live in cities and not own cars — could disrupt the U.S. economy. “Two thirds of GDP is consumption, so we rely on people spending money,” says Bovino.
Comparison To The Silent Generation
Millennials exhibit some characteristics similar to those of the Silent Generation, who were born from the mid-1920s through the early 1940s, grew up during and after the Great Depression, but were too young to fight at the start of World War II. Both generations experienced major financial crises during their formative years.
Millennials now are quite fiscally conservative, holding more than half their assets in cash, less than a third in equities, and 15% in fixed-income assets.
The two generations differ in that upon finishing its education, the Silent Generation were able to enter a strong economy bolstered by New Deal programs. “By contrast, government spending on infrastructure projects as a percentage of U.S. GDP is now at a two-decade low, which Standard & Poor’s projects could significantly impact long-term competitiveness,” Bovino writes.
Historic Student Loan Debt
The biggest difference between the two generations is Millennials’ record student loan debt, which could depress their spending ability. Adjusting for inflation, current borrowers have to pay back about twice as much as borrowers from 20 years ago. In 1989, the bottom three-fifths of Americans aged 18-34 had an average net worth of $3,300. In 2013, that same group had a net debt of $7,700.
The debt burden can sometimes force members of this generation into taking jobs they don’t want, as they settle for jobs that they wouldn’t have considered in a better market. It takes at least 15 years for workers who start their careers in a recession to make up for the decrease in earnings that they experience at the start compared to people who enter the job market at a time of economic prosperity.
On the other hand, Millennials are the most educated generation, so Bovino believes that their career success has been delayed, not canceled. Wages are projected to pick up to 3% this year, which means pay for young workers will increase. Since workers with a college degree generally earn double what those with a high school degree make, Millennials may soon have more earning power.
The one nagging question is about the quality of the education Millennials have received. “A recent report by the Educational Testing Service (ETS) indicates that the country’s largest generation is at risk of losing its edge against international peers. The report found that despite having the highest levels of education of any generation in U.S. history, these young adults on average demonstrate comparatively weak skills in literacy, numeracy, and problem solving in technology-rich environments against their international peers,” writes Bovino.
Downside Scenario: The Key In Housing
If wages don’t pick up through the next decade, Bovino says Millennials would be forced to continue to avoid big purchases like homes and cars and delay starting families. Housing starts would also grow slowly. Altogether, Bovino estimates that a downside scenario could mean the U.S. would miss out on $49 billion a year through 2019.
Millennials are already forming households at a slower rate than previous generations. The number of 25- to 34-year-olds living in their parents homes jumped 17.5% from 2007 to 2010, whereas in 1960, three-quarters of women and two-thirds of men were financially independent, had married and had children by age 30. Even in 2003, a 30-year-old American was twice as likely to own his or her own home than to live with his or her parents.
Traditionally, homeownership rates have been higher for people with a history of student loan debt than those without. But for the first time in at least 10 years, 30-year-olds with no history of student loans are more likely to have a mortgage than those with that kind of history.
Another problem is that student loan defaults are worsening. Although Standard & Poor’s doesn’t expect widespread defaults, a significant number of defaults would hurt the country’s finances since the federal government backs more than 85% of student loans.
Despite these challenges, recent signals — job creation and hourly wages are up, with wage increases outpacing inflation.
“There’s some momentum in the jobs market and workers have more bargaining power. That’s a strength for millennials as they continue to participate in the market,” says Bovino.
And Millennials are starting to buy more new cars, having now surpassed Gen-Xers as the second-largest group of buyers. “We’re seeing Gen Yers start to buy more cars, which is a big-ticket item, and that means they’re feeling a bit more optimistic,” she says.
Bovino expects the economy to continue developing in a way that will allow this generation “to transition into the traditional definition of full adulthood–and, in a virtuous circle, begin to buy the houses, cars, and other big-ticket items that will further stimulate economic growth,” she writes.
Seeded With Tax Cuts, Kansas Harvests the Benefits
Unemployment has dropped to 4.2% from 5.5% in 2013, and wages and job growth are steadily climbing.
Kansas Gov. Sam Brownback Photo: Orlin Wagner/Associated Press
Andrew B. Wilson
May 15, 2015 6:42 p.m. ET
Liberals love to hate Sam Brownback, and for good reason. The Kansas governor threatens a central tenet of liberal orthodoxy: the belief that higher taxes are a price that must be paid for progress.
“If your objective is to grow the economy, would you rather put more money into government, or leave it in the hands of small business?” Mr. Brownback asks during a recent interview in his office at the state capitol. Three years ago Kansas enacted the biggest tax cut of any state, relative to the size of its economy, in recent history. Lawmakers reduced the top rate on the personal income tax to 4.9% from 6.45%. They also eliminated the income tax for small business owners who file as individuals, a broad group that includes sole proprietors, limited liability partnerships and S-corporations.
The governor declared that Kansas was “open for business” in such strong terms that he might as well have donned a sandwich board reading “Come to Kansas / Keep Everything You Earn.” He boasted: “Our new pro-growth tax policy will be like a shot of adrenaline into the heart of the Kansas economy.”
The comment was subsequently picked up by critics who wondered why the Kansas economy wasn’t suddenly leaping ahead at, say, 4%-5% growth annually. When Mr. Brownback ran for re-election last year, national reporters descended on the Sunflower State and quickly made Kansas the national symbol for the alleged depredations of “trickle-down economics.” A sampling of headlines includes: “How Tea Party tax cuts are turning Kansas into a smoking ruin,” L.A. Times, July 9; “Kansas’ Ruinous Tax Cuts,” the
Yet voters re-elected Mr. Brownback by a four-point margin. What the news coverage missed was that if Kansas hasn’t exactly catapulted into the front ranks in economic growth and employment, then it has at least moved a long way from the stagnation of recent decades. Consider:
• In March 2013, unemployment in Kansas stood at 5.5%. It has since
• From 1998-2012, Kansas ranked 38th in private-sector job growth, according Bureau of Labor Statistics data
• In the second half of 2014, hourly wages in Kansas grew 3.5%, according to BLS data, far faster than the national average of 1.9%.
Then there is the Kansas City metropolitan area, a living laboratory that straddles the border with Missouri. On Mr. Brownback’s side of the divide, the top personal income-tax rate is now 4.9%, beginning at $15,000 for single filers; in Missouri the top 6% rate starts at $9,000.
“I just think Kansas City is a great study,” the governor says. “This is an unusual place, where you’ve got a city virtually equally divided between two states.” The results? Over the past two calendar years, private-sector jobs
To Mr. Brownback, those kinds of statistics show the success of his tax cuts. He says a reporter recently asked whether he could “definitively say this wouldn’t have happened” without the reforms. “We don’t have the studies that say that,” he replies, “but we’re in terrain that we have not seen before—and it’s good terrain.”
Such results make intuitive sense. Patti Bossert, who owns two employment agencies in Topeka, estimates the tax cuts saved her firms $40,000 last year. Seeing a windfall on its way, she spent $375,000 to buy and remodel an old building for a new company headquarters. “Our business has been phenomenal,” she says. “Wages are going up, and the big problem now is that there are many more available job openings than there are qualified people to fill them.”
Critics contend that Mr. Brownback’s tax cuts have blown a hole in the state budget—$344 million in the 2015 fiscal year and $600 million in the next. The governor is filling those gaps by moving money from highway projects and delaying some public pension contributions. He has also
Even so, Ms. Bossert worries that budgetary issues could cause the legislature to roll back the tax cuts. “Kansas can’t afford to break the promise it made to small business in 2012,” she says. “We have to stay the course to reap the real long-term benefits of this reform.”
If Mr. Brownback has anything to do with it, Kansas will stand firm. The governor expresses mild regret that his use of “colorful language”—the shot of adrenaline line—became a distraction. But he’s still eager to take on liberal assumptions across a host of issues, including the best way to eliminate poverty.
“I love the debate on wage growth because the left wants to push mandatory minimum-wage growth,” he tells me. “They want to do it by statute, and we will do it by growth.”