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Strategies: Elastic Numbers Make It Hard to Get a Handle on the Economy

August 3, 2013 by

A TORRENT of economic numbers rained down from Washington last week. They provided a sharper historical perspective on the economy back to 1929.

Yet the deluge of statistics did little to clarify an urgent question: How strong is the economy right now?

It’s a basic issue — one that affects the life of every American, the policy decisions of the Federal Reserve, the strategies of businesses and the performance of the markets. Unfortunately, the answer is by no means clear.

There are plenty of fresh numbers, though. On Friday morning, the Labor Department said the unemployment rate dropped in July to 7.4 percent, from 7.6 percent the previous month, and a total of 162,000 new nonfarm payroll jobs were created.

This is good news, but perhaps not as good as it seems. Even at 7.4 percent, unemployment remains uncomfortably high, and the government on Friday also revised downward job creation numbers for the previous two months, from 195,000 per month, to 176,000 for May and 188,000 for June. The Fed, acknowledging things are not as good as they could be four years after a major recession, reaffirmed its loose monetary policy. That policy, based on the assumption that the economy still needs emergency support, has helped hold interest rates to relatively low levels, and helped propel the stock market to new highs last week.

Gross domestic product numbers released on Wednesday also suggested that the economy was still ailing. In the second quarter of 2013, the Bureau of Economic Analysis said, the growth rate of G.D.P. was 1.7 percent, on a seasonally adjusted, annualized basis. That’s just a preliminary number, subject to extensive revision. For the first quarter, the bureau now says G.D.P. grew at a 1.1 percent rate — after a series of reductions from its initial estimate of 2.5 percent.

But how weak is the economy? The numbers don’t appear to fit a coherent pattern. Even with the downward revisions in the labor figures, the current level of job creation is greater than would typically be expected from a weak economy. The lackluster G.D.P. picture is hard to reconcile with the decline in the unemployment rate we’ve been seeing, said Joseph G. Carson, director of global economic research at AllianceBernstein. “During similar tepid growth environments in the past, unemployment has sometimes even increased rather than declined,” he said.

Something’s wrong with the numbers. “Growth in the private sector, which has been running at 3.3 percent, probably helps to explain the drop in the jobless rate,” he said. He believes the overall G.D.P. figures aren’t yet really capturing reality and that it’s likely that G.D.P. growth over the last two years has actually been stronger than reported. Mr. Carson is optimistic about the second half of this year. “I think the economy will be picking up, and the numbers will start to show that.”

The numbers are remarkably malleable, as the Bureau of Economic Analysis demonstrated last week.

In addition to the normal range of monthly and weekly economic reports, the bureau issued an ambitious revision of its statistics, adjusting a vast range of figures going back more than 80 years. Its revision showed that the recent recession was a little less severe than earlier reported, and the recovery has been a bit stronger. The economy shrank at an average annual pace of 2.9 percent, not 3.2 percent, in the recession that started in December 2007 and ended in June 2009. And from the recession’s end through 2012, the economy grew at an average annual rate of 2.2 percent, not 2.1 percent as previously published.

Those numbers would still classify the recession as the worst since World War II, and the recovery as the weakest. Further revisions will be made as needed, and, given the anomalies in the current data, it seemed likely that some future changes will be significant. Ben S. Bernanke, the Fed chairman, alluded to this possibility in Congressional testimony last month.

“We all should keep in mind that these are very rough estimates and they get revised,” Mr. Bernanke said. “For example, you get somewhat different numbers when you look at gross domestic income instead of gross domestic product.”

IN theory, G.D.I. and G.D.P. should be equal. One measures gross income, the other gross production, and as a matter of basic accounting they ought to match. But they don’t, not in real time, because they are collected from different sources using different deadlines and definitions. G.D.P., for example, depends heavily on sales receipts, while G.D.I. relies on data from paychecks, which are often issued well after sales are made, said J. Steven Landefeld, director of the bureau. “G.D.I. and G.D.P. are both the bureau’s children,” he said. “We’re proud of both, and we know they’re different.”

Early G.D.I. numbers have provided a better indicator of cyclical changes in the economy — of the onset and the end of the last recession, in particular — than have early readings of G.D.P., according to research by Jeremy J. Nalewaik, a Fed economist.

What are the G.D.I. numbers telling us now? It depends on how you look at them. The Economic Cycle Research Institute, an independent forecaster, said that the economy fell into another recession “sometime in the middle of 2012 and it is still in a recession now,” according to Lakshman Achuthan, the institute’s chief operations officer. He relied in part on G.D.I. data. But the vast majority of mainstream economists reject this interpretation, and Mr. Landefeld said G.D.I. numbers might sometimes exaggerate economic trends.

The G.D.P. and G.D.I. numbers available right now indicate that the economy is growing, but Mr. Achuthan said that the historical revisions made last week “are a reminder that these numbers are all a moving target, and that they will change.”

Mr. Carson of AllianceBernstein is far more sanguine, saying the economy appears to be growing modestly. But he agrees that the data isn’t allowing clear visibility. “We’ve gotten so many new numbers,” he said. “They help a bit. Now the past has become a little less foggy, but as for the present, there’s still plenty of fog to go around.”

Article source: http://www.nytimes.com/2013/08/04/your-money/elastic-numbers-make-it-hard-to-get-a-handle-on-the-economy.html?partner=rss&emc=rss

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Economix Blog: Implications for Monetary Policy

July 5, 2013 by Leave a Comment

Phillip Swagel is a professor at the School of Public Policy at the University of Maryland, and was assistant secretary for economic policy at the Treasury Department from 2006 to 2009.

Market watchers appear to have concluded from Friday’s better-than-expected jobs report that the Federal Reserve will soon start to taper its purchases of long-term assets.  I am heartened by the data showing an improving labor market, but am not so sure that the Fed is on the verge of backing away from its third round of quantitative easing. As I wrote last week, I see a pick-up in growth a year or two ahead.  But the near-term evolution of the economy remains uncertain, and it is this outcome on which monetary policy depends.

Today’s Economist

Perspectives from expert contributors.

Friday’s report was decent on the whole, with a total of 265,000 net new jobs, including 195,000 gained in June and 70,000 from upward revisions to April and May.  The unemployment rate held steady at 7.6 percent even as more people joined the labor force looking for work (and finding it).  Perhaps the most encouraging aspect of the report was that wages rose by 2.2 percent growth over the past year and finally appear to be outpacing inflation (we’ll find out for sure with the release of June inflation data on July 16). More jobs and higher wages together mean increased total labor income. This will support consumer spending, which was relatively anemic in 2012 and strengthened only modestly in the first quarter of 2013.

Other details of the report, however, are less positive.  While jobs were added, the average gain of just under 200,000 a month from April to June was a slight letdown from the pace of job creation in the first three months of 2013. Job creation in June tilted heavily to part-time employment, and average weekly hours for each worker did not expand as might be expected as a prelude to stronger hiring by employers who push their existing workers a bit harder before bringing on more employees. This was a good jobs report, but not amazing.

The Fed chairman, Ben S. Bernanke, said at his June 19 press conference that the tapering in quantitative easing would begin “if the incoming data are broadly consistent” with the Fed’s forecast. This includes not just labor market gains, but also accelerating growth in gross domestic product and a move of inflation back toward the Fed’s 2 percent target rate.  The key word here is “if.”

Market participants either missed the “if” or believe they know where the data are headed. Yields on 10-year Treasury notes jumped by 20 basis points to 2.7 percent following Friday’s jobs report, a full percentage point higher than the yield in early May.  Mr. Bernanke discussed the relationship between bond markets, monetary policy and the economy in a speech from March 2006 that is well worth reading today.  He explains that long-term bond yields reflect a variety of factors, including market participants’ beliefs regarding both the course of monetary policy and the strength of the economy (which in turn affects policies).  Higher Treasury yields since May might then be seen as indicating that investors expect a combination of less monetary accommodation and stronger economic growth. Lower supply of credit and more demand for it would both push up interest rates.

Data over the past three months of rising bond yields have suggested that the recovery is continuing, but are far from indicative of an economic breakout.  Rather, the bond market movement seems to reflect investors’ conclusions about the Fed’s intentions: that the start of the taper — the beginning of the end of quantitative easing — is nigh.

In evaluating this conclusion, it is useful to recall the Fed’s rationale for announcing the start of its third round of quantitative easing — QE3 for short — last September.  In his Aug. 31 speech at the Kansas City Fed’s annual Jackson Hole conference, Mr. Bernanke talked about his “grave concern” at “the enormous suffering and waste of human talent” associated with high unemployment, and the specter of long-lasting “structural damage” to the United States economy from its persistence.  With the weak labor market weighing heavily on his shoulders, the Fed chairman saw fiscal policy as moving in the wrong direction in both the short term (too much restraint) and on the longer horizon (with a lack of political will to contemplate a credible plan to address the fiscal imbalance over time).

The Fed could not have believed that QE3 would have more than a modest impact in bolstering the economy.  Indeed, Jeremy Stein, a Fed governor, said as much in evaluating long-term asset purchases in his initial speech in October 2012. The prospects for QE3 contrasted with the more meaningful impact found by research that examines the two earlier rounds of quantitative easing (especially the original round; QE2 was undertaken more as insurance against the possibility of deflation, which was seen as a risk in late 2010 when the second round of asset purchases was announced). With elevated unemployment posing a grave risk, inflationary pressures indiscernible, and the sequester about to kick in, the Fed saw itself as the only game in town for providing economic support.  Hence QE3.

Conditions have improved, but remain far from a robust recovery. With the unemployment rate still elevated, inflationary pressures will remain subdued. This is especially the case when there are 8.2 million people in part-time jobs who would prefer full-time work, on top of the discouraged workers who would be expected to rejoin the labor force as the economy strengthens.  Such a rebound in the labor force participation rate, incipient in Friday’s data, would keep the unemployment rate elevated and hold back wage gains and inflation.

G.D.P. growth in the second quarter of 2013 appears to have strengthened only modestly from the 1.8 percent first-quarter pace (the first estimate for the second quarter will be released on July 31).  An economic expansion 2 to 2.5 percent is certainly a recovery, but is not strong enough to drive a better pace of job creation and rapidly bring down the unemployment rate.  And inflation is unlikely to pick up absent a stronger job market that would sustain the wage gains seen in June.  A balanced view thus sees the Fed as still data-dependent and in the mode of wait-and-see.

Article source: http://economix.blogs.nytimes.com/2013/07/05/implications-for-monetary-policy/?partner=rss&emc=rss

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You’re the Boss Blog: This Week in Small Business: The Van Halen Principle

May 6, 2013 by Leave a Comment
Dashboard

A weekly roundup of small-business developments.

What’s affecting me, my clients and other small-business owners this week.

Must-Reads

Tom Chiarella says he believes that in business the little things are really the big things. Jordan Weissmann says America’s technology-talent shortage is a myth. And Ezra Klein explains how the Van Halen Principle applies to government.

Washington: Paying Down the Debt

The Treasury will pay down debt for the first time since 2007, and the Federal Reserve decides to keep its stimulus plan in place, saying recent tax increases and spending cuts have hurt the economy. These slides show why taxes should go up. In this video, Allan Madan explains how the federal budget affects your small business; these business owners have ideas for how Washington can help. Here are five sequestration cuts that have not happened. President Obama’s relationship with GOP congressional leaders hits a new low. Small-business contracts with the federal government worth more than $2 billion will open for competition in the coming months.

The Economy: Down, Flat, Surging

Small-business owners are more optimistic about their companies’ prospects and are picking up the hiring pace, according to one report. But the April 2013 SurePayroll Small Business Scorecard showed that month-over-month hiring was down 0.2 percent and the average paycheck was flat. Personal income and spending both increased, pending home sales reached a three-year high and home prices are surging. But home ownership fell to its lowest level since 1995. The University of Michigan said consumer sentiment fell to a three-month low, but the Conference Board’s index picked up. Positive same-store sales pushed the Restaurant Performance Index higher. Overall manufacturing activity declined last month. The unemployment rate fell and job-creation was solid in April. Heidi Shierholz reminds readers that adding 175,000 jobs a month won’t make us whole until 2020. The American auto industry has its best performance in 20 years.

Management: Don’t Be Available

An Office Depot study finds that nearly four in 10 business owners believe having a mentor would boost their business. Sharon Melnick, a business psychologist, offers five ways to be productive when the pressure is on, including “Don’t always be available.” Barbara Austin says you should shake things up if you’re stuck in a creative rut. Jaclyn Mullen believes you get back what you give. Here are five inspirational women business speakers. Brad Lomenick suggests six ways to be a more courageous leader. Here are seven outsourcing lessons. The chief executive of Liquidnet says goodbye to titles. Jason Matthews shares a gutsy story.

Cash Flow: He Won A Banana

Jose Pagliery explains what’s behind the all-cash legal marijuana business. Here are three ways that having working capital can spruce up your business. Even though it has enough cash to buy Facebook, Hewlett-Packard and Yahoo, Apple plans the biggest debt offering in corporate history. Small businesses cut borrowing for the third month in a row, and an online small-business lender has locked in $17 million more in financing for itself. Dun Bradstreet Credibility kicks off its 2013 Access to Capital Tour on May 22 in Chicago. A Fidelity small business analysis shows that balances for small-business retirement plans increased an average of 20 percent between 2007 and 2012. A man loses his life’s savings on a carnival game (but wins a banana), and here’s why professional liability insurance is helpful when collecting money from customers.

People: Get A Tattoo, Get A Raise

Richard Finger says American Airlines employees loathe their management. Alexandra Levit says there are six ways you may be sabotaging your company’s culture. Richard Branson offers tips for keeping your most valued employees happy. Heather Huhman suggests what to do when employees quit. Yahoo now offers 16 weeks of paid maternity leave, and a New York City real estate agent offers employees a pay raise for getting a tattoo (of the company logo). More employees are seeking training as they manage their careers, but 41 percent of college grads are overqualified for what they do. Here are a few steps to improve the way you give performance reviews. Here are the top 10 tech companies to work for, the 100 jobs that bring the highest salaries and the 23 signs that you’re the Stanley of your office.

Entrepreneurs: Do You Have What it Takes?

Mohul Ghosh says that “love for wealth” is one of nine unmistakable symptoms of entrepreneurship. In a radio interview, an author shares his entrepreneurial journey. Sinead says today’s geeks are the new rock stars. These are the top 10 billionaires who dropped out of school. Kenny Chesney explains why he’s a no-shoes entrepreneur with a taste for the rum business. And if you take this entrepreneurial quiz you might find out if you have what it takes to make it big.

Start-Up: Omaha

It appears the new must-attend start-up conference is in Omaha. This 18-slide pitch just landed a payment start-up $16.5 million, while another start-up creates a marketplace for the curious and those who teach. TechCrunch Disrupt discovers some exciting new companies in New York. Martin Zwilling suggests seven essentials to finding the right start-up mentor. Here are the top 10 reasons to start up in college. Sam Biddle shows what it looks like when you lose all of your start-up money.

Social Media: Do You Have a Policy?

Facebook is losing millions of users, and apps like this may be the reason. This is what the new YouTube layout and other Google updates mean for your small business. LinkedIn now lets you add photos, videos, and comments from others. A study finds mothers of young children are more likely than the general public to use social media. Kyle Nunes explains why you should consider blogging for your business. Debbie Thomson thinks your small business may need a social media policy. A Mexican restaurant’s privileged customer complains about the service and is the recipient of a social media firestorm. Twitter opens up a self-serve advertising platform to businesses, and according to Kealan Lennon, “what today’s social retailers are getting right is that the most compelling content to consumers is the media created by the consumers.” Living Social is hacked. A reporter’s Instagram photo reveals a “near-death” experience. According to an ATT study, two-thirds of small-business owners said they planned to spend as much or more as they did last year on digital marketing (including Web sites, social media and online advertising).

Customer Service: Loyalty And Lady Gaga

April was Customer Loyalty Month and Shep Hyken celebrated. This is how to make customers come back even after they return purchases. A study shows that spelling and grammar errors in shop signs lose customers. Here are seven customer-loyalty lessons you can learn from Lady Gaga. And now it’s May, which is National Salad Month.

Health Care: Surprise!

The Affordable Care Act application form is out, and it’s actually quite easy. A Stanford professor says the Act will cause millions of Americans to pay more for health insurance. Meanwhile, other experts propose $1 trillion in savings. Ron Present and Bill Goddard give advice for controlling your health care costs.

Around The Country: More Oil in North Dakota

A survey doubles the estimate of recoverable oil reserves in North Dakota. The Chamber of Commerce names these the most enterprising states. Local pawnshops in Daytona Beach, Fla., are unfazed by the recent drop in gold prices. The UPS Store introduces a Main Street franchise model. A small-business conference is scheduled for May 17 and 18 in New York, and Philadelphia announces its first Small Business Week.

Around The World: The Pirate Party

Euro-area economic confidence falls more than expected, and Spain sinks deeper into recession after suffering 33 consecutive months of falling retail sales. Europe’s youth employment levels are called “insane.” Germany accuses France of being “Europe’s biggest problem child,” and France wants to woo foreigners with entrepreneur visas. Meanwhile, Italy is facing a shortage of pizza makers. Churchill will be on a new bank note. Japan’s manufacturing and hiring rises. In this video, the Russian president meets with small-business owners. The Pirate Party wins three seats in the Icelandic parliament. Obama’s comedy is anything but routine for the Chinese. Micro-breweries are bubbling over in South Africa. A small business expo is planned for Jamaica.

Technology: Google Glass

Bob Cringely says things are looking up for Google Glass, and Robert Scoble says he will never again live a day without wearing it. Here’s how to use it. Bring-your-own-device adoption at small businesses increased in 2012 but be careful: lawsuits may be looming. Here are 10 little-known apps entrepreneurs can’t live without, 21 tips for super-charging your cloud storage and a few helpful tech upgrades for the home office. A report from National Public Radio explains why, when it comes to productivity, technology can hurt and help. This is what the voice of Alexander Graham Bell sounded like. Blackberry’s chief executive believes tablets are doomed. Square updates its mobile-payments software for small restaurants. Boy, what a difference 20 years has made. This simple trick turns commercial polymer into the world’s toughest fiber. Supermarkets of the future will track shopper eye movements. And this men’s suit will turn transparent when the wearer lies.

Tweet of the Week

@jayleno – A NH man says he was conned by a carnival, losing his entire life savings at the ball toss game. Well, now he knows how #Lakers fans feel!

The Week’s Best Quote

Jon Stow says that you must adapt and change, or your business will die: “I hope I do not seem unkind, but this week I had one of those online petition e-mails from some booksellers who were petitioning for Amazon to pay more tax. Yet I am sure the reason for their knocking Amazon was because Amazon is eating into their business. I feel sorry for the booksellers, but we cannot run our businesses as museum pieces because we will make no money.”

This Week’s Question: Will you be able to live without Google Glass?

Gene Marks owns the Marks Group, a Bala Cynwyd, Pa., consulting firm that helps clients with customer relationship management. You can follow him on Twitter.

Article source: http://boss.blogs.nytimes.com/2013/05/06/this-week-in-small-business-the-van-halen-principle/?partner=rss&emc=rss

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U.S. Adds 165,000 Jobs; Jobless Rate Falls to 7.5%

May 3, 2013 by Leave a Comment

The latest jobs figures from the Department of Labor paint a brighter picture of the overall economy than other recent data, which had been weaker and prompted economists to warn of a spring swoon for the third year in row. Those worries had been heightened after the March jobs report, which initially showed the economy to have added just 88,000 jobs, much fewer than had been expected.

On Friday, however, the government sharply revised upward its estimates for job creation in February and March, concluding that the economy actually generated 332,000 jobs in February and 138,000 in March. The unemployment rate, which is based on a separate survey, fell by 0.1 percentage point to 7.5 percent, from 7.6 percent in March.

“It’s back to normal for this cycle,” said Steve Blitz, chief economist at ITG. “This number is back to the mainstream of what we’ve seen in this recovery.”

Still, Mr. Blitz noted, many of the new jobs were in lower-paying sectors like retail and food services. Stores hired 30,000 workers, while restaurants added 38,000 employees.

“You’re hiring people, but you’re not generating high-income jobs,” he said. “But work is work. It’s honorable.”

Another positive sign was that the size of the labor force increased, while the total number of unemployed Americans dropped by 83,000 to 11,659,000.

The stock market reacted strongly to the better-than-expected figures, with the Standard Poor’s 500 index breaking through the 1,600-point level for the first time, rising almost 1 percent at the opening bell. The Dow Jones industrial average was up over 130 points, nearly 1 percent as well.

Economists have been warning that the economy — and job creation — will slow in the second-quarter, largely as a result of fiscal tightening in Washington. Payroll taxes increased in January, and across-the-board spending cuts mandated by Congress went into effect in March, and their impact is expected to be felt more broadly in the months ahead.

And while the private sector has clearly been on the upswing this year, the government continues to represent a drag on job creation, shedding 11,000 jobs during the month. Over all, April’s rate of job creation was still well below the 209,000 jobs added per month in the fourth quarter of 2012.

“In one line: Not bad, especially in the light of beaten-down expectations,” said Ian Shepherdson, chief economist with Pantheon Macroconomic Advisors. “This could have been much worse.”

The manufacturing sector, which is closely watched as a gauge of broader economic strength, was unchanged in April. Private sector job creation totaled 176,000.

With the unemployment rate still well above 6.5 percent, the Federal Reserve has promised to keep buying billions of dollars of bonds in an effort to help bolster growth. The Fed’s stimulus efforts have helped buoy the markets, but the job picture has remained weak.

Economists also noted that the number of hours worked fell in April, another sign that the economy is having trouble generating enough additional income and jobs to help lift spending.

The government could be the wild card in the coming months. Automatic, across-the-board spending cuts officially went into effect in March, and if the mandated spending cuts continue, layoffs could increase. Apart from the job figures, the economy has been showing signs of weakness of late. Several indicators beginning in March have pointed to much slower growth, with everything from retail sales to manufacturing looking soft recently.

“What’s the biggest drag on the economy? The government,” said Diane Swonk, chief economist for Mesirow Financial in Chicago. “If the government simply did no harm, we could be at escape velocity.”

Article source: http://www.nytimes.com/2013/05/04/business/economy/us-adds-165000-jobs-in-april.html?partner=rss&emc=rss

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Government Spending Cuts Contribute to Slower Growth

May 3, 2013 by Leave a Comment

As chief executive of a small Michigan military contractor, Nanocerox, he had already cut his work force by one-third. But it was not enough. And if the government spending cuts mandated by Congress continue, he said, more people will go in the coming months.

The squeeze Mr. Kelly is facing is one reason markets are jittery about what the Labor Department’s latest report on unemployment and job creation will reveal about the economy on Friday. After a strong start to the year, several economic indicators beginning in March have pointed to much slower growth, largely because of the fiscal headwinds from Washington, economists say.

Job cuts like the kind at Nanocerox remain the exception, rather than the rule. On Thursday, the government said weekly unemployment claims were at a five-year low.

The problem is that companies have not been hiring. This week, a survey of private sector hiring in April came in well below expectations, while indications for everything from retail sales to manufacturing have also been soft recently.

Whatever the data ultimately show for April, economists like Diane Swonk, chief economist for Mesirow Financial in Chicago, say the economy would be showing much more momentum if it were not for the combination of higher payroll taxes that went into effect in January, as well as the process of automatic spending cuts known as sequestration that began to bite last month.

“What’s the biggest drag on the economy? The government,” Ms. Swonk said. “If the government simply did no harm, we could be at escape velocity.”

Without the impact of federal cuts and higher taxes, Ms. Swonk estimates, annual economic growth would be close to 4 percent, above the 2.5 percent pace she is expecting in 2013.

Like most economists, Ms. Swonk says she does not think the economy will fall back into recession or experience a pronounced rise in unemployment. Instead, economists on Wall Street are looking for the economy to have created 140,000 jobs in April, below average compared with the monthly rate of 168,000 jobs added in the first quarter but better than the 88,000 jobs created in March. The unemployment rate is expected to remain at 7.6 percent.

That’s down considerably from the 10 percent peak in unemployment recorded in October 2009, but still well above where levels for joblessness should be this far into a recovery. Nearly 12 million Americans are unemployed and looking for work, according to the Labor Department, and almost 40 percent of them have been jobless for more than six months.

As long as the unemployment rate remains above 6.5 percent, the Federal Reserve has vowed to keep buying tens of billions of dollars worth of bonds each month to help stimulate growth. That has buoyed Wall Street, and helped the stock market reach record highs, but it has yet to translate into the kind of job gains the Fed wants to see.

Other central banks have been getting into the act, too. The European Central Bank cut rates on Thursday in a bid to restore growth, and the Bank of Japan recently started an aggressive stimulus effort.

In particular, economists will be watching Friday’s report to see if the manufacturing sector shed more jobs in April. The government is generally furloughing employees rather than laying them off, but private contractors that supply the Pentagon have been trimming their work forces outright.

Julia Coronado, chief North American economist at BNP Paribas, predicted the impact of the sequester would increase in the months ahead. “We’ve seen orders for defense-related goods really slow down,” she said. “There are definitely signs of a cooling.”

“We’re not in a free fall,” she added, “but it highlights the difficult nature of this recovery.”

Although sequestration did not officially go into effect until March, the Pentagon and some other agencies began cutting back last year. At Mr. Kelly’s company, Nanocerox, that has meant a sharp slowdown in orders for powder derived from rare-earth minerals that is used in a wide range of high-technology products, like advanced lasers and air-to-air missiles. With just $2.5 million in revenue, the company, based in Ann Arbor, Mich., had to react quickly as demand from the Pentagon and big contractors like Raytheon evaporated.

“It’s a tough, tough environment,” Mr. Kelly said. “We’re trying to sell the company. It’s sad because our technology is the next generation for the military.”

Article source: http://www.nytimes.com/2013/05/03/business/economy/government-spending-cuts-contribute-to-slower-growth.html?partner=rss&emc=rss

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In Effort to ‘Rebalance,’ Europe Appears Committed to Austerity Plan

April 9, 2013 by Leave a Comment

BRUSSELS — Jacob J. Lew, the United States Treasury secretary, urged European officials to adopt more growth-friendly policies on Monday. But there was little indication that the recession-plagued European Union was moving away from the austerity path it has pursued to deal with the debts and imbalances that emerged in the financial crisis of 2008-9.

At the outset of a joint news conference with Mr. Lew, Herman Van Rompuy, the president of the European Council, emphasized the difficult climate that both economies faced.

“We continue to rebalance and rebuild our economic potential to ensure strong, sustainable and inclusive growth and jobs going forward,” Mr. Van Rompuy said. “It is a long and difficult process, but one we stick to with determination on both sides of the Atlantic.”

But despite Mr. Van Rompuy’s reassuring words, it was clear that deep divisions remain between the American and European approaches to the crisis, which have contributed to the divergent paths the economies of Europe and the United States have followed in its wake.

“Our economic recovery is gathering strength,” Mr. Lew said. “The U.S. economy has expanded for 14 consecutive quarters, and although the pace of job creation is not as fast as we would like, the private sector has added jobs for 37 straight months.”

In contrast, the euro zone continues to struggle with shrinking economies and rising unemployment, with Germany, France and Spain all contracting in the fourth quarter of 2012. That has made meeting Europe’s goals of reducing fiscal deficits even harder.

The question that Mr. Lew came to Europe to raise is how to strengthen the European economy — for the Continent’s sake, as well as for the global economy’s. The United States has an investment in Europe’s growth, American officials have said repeatedly, because of the deep financial and trade ties between the countries.

“We have an immense stake in Europe’s health and stability,” Mr. Lew said. “I was particularly interested in our European partners’ plans to strengthen sources of demand at a time of rising unemployment.”

The Obama administration has urged countries with stronger economies, like Germany, to slow their pace of fiscal retrenchment and ease off on demands for tougher cutbacks in hard-hit countries like Greece, Spain and Portugal. In the last few years, such advice has often fallen on deaf ears, given the political constraints in Europe and many officials’ belief in budget balance as a prerequisite to growth.

Mr. Van Rompuy mentioned the “vivid debate” over “fiscal policy and the pace of fiscal consolidation” in his remarks. He pointed out that some countries have been given additional time to meet the euro zone’s deficit goals. But Mr. Van Rompuy reaffirmed the Continent’s strategy, rather than indicating a change in direction despite the rising unemployment and worse than expected contraction.

“The European economies face a high level of debt, deep structural medium-term challenges and short-term economic headwinds that we need to confront,” he added. “There is no room for complacency.”

The trip is Mr. Lew’s first to Europe as Treasury secretary. Earlier this year, he visited Beijing in his first trip abroad in the post. Though he worked for a time in the State Department in the Obama administration, Mr. Lew is primarily known as a domestic budget expert.

In contrast, his predecessor, Timothy F. Geithner, was an international finance specialist who had previously worked at the International Monetary Fund and as Treasury under secretary for international affairs. During his tenure, Mr. Geithner repeatedly pressed his counterparts in Europe to ease up on austerity, though without much success.

On Monday, the French government canceled a meeting between Mr. Lew and his counterpart, Finance Minister Pierre Moscovici, with a scandal over a former budget chief’s offshore accounts brewing. But late Monday evening, the meeting was rescheduled for Tuesday afternoon in Paris, the Treasury said.

Later on Monday, Mr. Lew also met in Frankfurt with Mario Draghi, president of the European Central Bank. He is scheduled to travel to Berlin on Tuesday to see Wolfgang Schäuble, the German finance minister.

Earlier on Monday, Mr. Lew met with other European officials, including José Manuel Barroso, the president of the European Commission, the executive arm of the European Union.

A Treasury official said they, too, discussed the need for Europe to generate more demand, as well as the situation in Cyprus, a cross-border banking union and a prospective free-trade agreement.

Article source: http://www.nytimes.com/2013/04/09/business/global/us-treasury-chief-talks-of-growth-in-europe.html?partner=rss&emc=rss

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U.S. Sees Big Gains in Hiring as Jobless Rate Falls to 7.7%

March 8, 2013 by Leave a Comment

The unemployment rate was 7.7 percent, the lowest since December 2008, compared with 7.9 percent in January. Economists had been expecting the economy to add 165,000 jobs in February, with no movement in the rate.

After peaking at 10 percent in October 2009, the unemployment rate fell steadily for three years but has been stuck at just below 8 percent since last September.

The latest unemployment report comes amid concerns that federal budget cuts set in motion by a Congressional impasse could increase the ranks of the jobless in the months ahead.

Those cuts went into effect March 1, so they are not reflected in the data for February. But pressure on government payrolls was evident, with the public sector losing 10,000 jobs last month. Private employers added 246,000 positions.

The pace of hiring represents an acceleration from the previous four months, when the economy added jobs at a monthly rate of 190,000.

While that represents an improvement over the rate of job creation last summer, it is still well below the level necessary to bring down the unemployment rate substantially or reduce the ranks of the long-term jobless.

The budget cuts in Washington are expected to reduce federal unemployment benefits by about 10 percent. State benefits, which cover the first 26 weeks of unemployment in most states, will not be affected by the federal budget squeeze.

Dan Haney has worked occasionally since he was laid off from his job as a customer service representative two years ago, but lately the hunt for work has proved fruitless, and he is concerned about what would happen if his unemployment benefits were reduced.

“At this point, I have to take what comes down the pike,” said Mr. Haney, who is 54 and lives in Philadelphia. “I’m on the computer every day looking for jobs.”

A high school graduate, Mr. Haney has some computer training but lacks a college degree, which has made finding a job all the more difficult.

“Some of these entry-level jobs say college is preferred,” Mr. Haney said. “Why do you need a college degree to answer a phone?”

Article source: http://www.nytimes.com/2013/03/09/business/economy/us-added-236000-jobs-in-february.html?partner=rss&emc=rss

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Euro Watch: European Commission Offers Grim Prediction for Economy

February 22, 2013 by Leave a Comment

BRUSSELS — A top European Union official warned Friday that worse-than-expected growth last year and weak prospects for 2013 will lead countries like France to miss deficit-reduction targets designed to ensure the stability of the euro.

“The ongoing rebalancing of the European economy is continuing to weigh on growth in the short term,” Olli Rehn, the European commissioner for economic and monetary affairs, said, according to a prepared statement ahead of a news conference.

But Mr. Rehn insisted that Europe’s belt-tightening policies were working and would lay the groundwork for a recovery.

“We must stay the course of reform and avoid any loss of momentum, which could undermine the turnaround in confidence that is underway, delaying the needed upswing in growth and job creation,” he said in the statement.

Mr. Rehn was presenting a so-called winter economic forecast that has taken on greater significance as his department at the European Commission, the Union’s administrative arm, gains greater responsibility for overseeing government budgets. In the coming months, Mr. Rehn must decide whether to recommend punishing countries for missing their targets, possibly leading to large fines, or to offer them leniency.

In a report, the commission forecast growth across the 27-nation European Union of just 0.1 percent in 2013 and a contraction of 0.3 percent in the 17-nation euro area over the same period. That downbeat assessment came a day after data showed a slump in business activity in the euro area worsened unexpectedly this month, especially in France.

Mr. Rehn said the economy should expand in 2014, with growth reaching 1.6 percent across the Union and 1.4 percent in the euro area.

One of the biggest test cases for Mr. Rehn will be France, the second largest economy in the euro area.

On Friday, the commission said low growth meant the French budget deficit was expected to be 3.7 percent of gross domestic product, down from an estimated 4.6 percent in 2012, but well above the government’s official target of 3 percent. The commission also warned that the deficit could rise again to 3.9 percent in 2014.

Jean-Marc Ayrault, the French prime minister, warned earlier this week that his government would need to seek leniency from the commission because the 3 percent target was still out of reach.

The commission said the French economy stagnated last year and that G.D.P. was projected to increase only by 0.1 percent in 2013. It attributed the stagnation on declining spending by households linked to rising unemployment — which was expected to reach 10.7 percent in 2013, from an estimated 10.3 percent in 2012, and 11 percent in 2014, according to the report — and to a drop in confidence among entrepreneurs.

In the case of Spain, the commission said tax increases and a slashing of year-end bonuses for public sector workers were responsible for a significant decline in the budget deficit, although that figure excluded the effects of spending to rescue the banking sector.

The commission estimated that the Spanish deficit would fall to 6.7 percent this year, down from 10.2 percent in 2012. But it warned that the deficit could rise again to 7.2 percent in 2014.

The European Union has vowed to show a new determination to enforce discipline after the failure to do so over the last decade was a factor in several debt crises that began with Greece and threatened to undermine the euro.

A “six pack” of rules approved in 2011 tightened E.U. scrutiny of national budgets and economic policies and introduced swift penalties for profligate states. Under rules agreed to this week, dubbed the “two pack,” the European Commission would gain new powers to request a redraft of euro states’ budget plans — although that would only apply as of the budget review procedure in 2014.

Europe’s insistence on austerity has been criticized by some economists who see it as creating a self-perpetuating cycle. As government spending is cut to meet deficit targets, they argue, overall demand is diminished, weakening tax revenue and further straining finances — even as the denominator of the deficit-to-G.D.P. equation shrinks.

Carsten Brzeski, a senior economist with ING in Belgium, said that Mr. Rehn was likely to be caught in coming months in a familiar bind between showing toughness and avoiding a political battle with a major member state like France over the wisdom of forcing more budget tightening in a downturn.

“The way forward will be a walk on a tightrope,” Mr. Brzeksi said. Mr. Rehn will need to weigh “strict application of the rules to regain credibility or softer, and for some smarter, application not to overburden the battered economies with additional austerity.”

David Jolly contributed reporting from Paris.

Article source: http://www.nytimes.com/2013/02/23/business/global/daily-euro-zone-watch.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Economix Blog: More Jobs Than We Knew

September 27, 2012 by Leave a Comment

The government’s estimates of job creation are not particularly accurate, a point that is often made and often ignored. On Thursday morning, the Bureau of Labor Statistics provided another reminder. The agency said it probably undercounted the extent of job creation between April 2011 and March 2012 by 20 percent.

The agency, which issues a much-discussed monthly estimate, also issues regular revisions of those estimates, which regularly receive much less attention. One of the most important revisions uses state unemployment insurance tax records – records filed by nearly all employers, which include actual counts of the numbers of people they employ — to check the accuracy of a full year of its monthly estimates.

In that revision, published Thursday, the agency concluded that an additional 386,000 jobs were created during the 12-month period, a 20 percent jump over its previous estimate that employment increased by about 1.94 million jobs. The revision is preliminary; a final version will not be published until February.

The new numbers would increase the monthly pace of job creation during that period to about 194,000 a month, up from a pace of 162,000 jobs a month.

The agency still estimates that job growth has since slowed to a pace of 87,000 jobs a month over the last five months. Those data won’t be revised until next September.

Article source: http://economix.blogs.nytimes.com/2012/09/27/more-jobs-than-we-knew/?partner=rss&emc=rss

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BUSINESS: Stimulating Job Growth

January 7, 2012 by Leave a Comment

Stephen Case, the co-founder of AOL, speaks with Catherine Rampell on job creation and entrepreneurship. Mr. Case serves on the President’s Council on Jobs and Competitiveness.


Article source: http://feeds.nytimes.com/click.phdo?i=2f32b6f993c8c8e301ae8787ee1d53ea

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