Archive for the ‘Economic Outlook’ Category
Demography may explain the weakness of America’s recovery
Mar 23rd 2013 |From the print edition
[Greg Ip] MILTON FRIEDMAN once compared the business cycle to an elastic string stretched on a board. How far the string is plucked determines how much it springs back; similarly, the depth of a recession decides the strength of recovery. America’s recent experience has not been kind to the plucking model. Although the recession was the deepest since the second world war, the recovery has been a disappointment. In the three years since the end of the recession in mid-2009, growth averaged 2.2%, barely half the 4.2% average of the seven previous recoveries.
In part, this is because recoveries from financial crises face greater difficulties. Consumers are too much in debt; businesses cannot or will not spend; a damaged banking system stifles credit. But in its annual economic report, issued on March 15th, Barack Obama’s Council of Economic Advisers argues that this is not the whole story. The plucking model presumes that after a recession, the economy returns to an underlying trend rate of growth that is determined by the supply of workers, capital and technology. Mr Obama’s economists argue that the trend is now much lower than in the past. The recovery, then, is not nearly as disappointing as it is often portrayed; Americans have set their sights too high.
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Some risks, but less fear, as the second term gets under way
Jan 26th 2013 | WASHINGTON, DC |From the print edition
[Greg Ip] WHEN Barack Obama took office four years ago, the economic figures were terrifying. A financial crisis and a savage recession were in full swing, and house foreclosures were soaring. As he was sworn in, panic about the banks sent the Dow Jones Industrial Average down more than 300 points. At the start of his second term, by contrast, the Dow hit a five-year high, while a widely followed index of investor fear called the VIX reached a near-six-year low (see table).
This change in mood is understandable. The financial crisis and recession ended more than three years ago. The housing market is firmly on the mend. Employment is growing. The euro zone, though feeble, is no longer about to collapse. And the threat of home-grown crisis appeared to recede when Republicans in the House forbore to use the threat of default to extract spending cuts. This week they voted to raise the Treasury’s statutory ceiling until May 18th; previously, the Treasury had expected to run out of borrowing authority as early as mid-February.
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Dec 17th 2012, 22:13 by G.I. | WASHINGTON
Quantifying the effect of political uncertainty on the global economy
Jun 16th 2012 | WASHINGTON, DC | from the print edition
[Greg Ip] EUROPE teeters at the edge of an economic abyss, its fate in the hands of political leaders at odds over how to solve the continent’s twin debt and bank crises. America may be pushed over a “fiscal cliff” at the end of the year by political dysfunction. And even China, although unlikely to take a deep dive, is hostage to the will and ability of its government to stimulate growth. More than at any point in recent history, the global economy’s fate is tied to the capriciousness of policymakers. How much does such uncertainty cost?
Anecdotal evidence suggests that it costs a lot. Customers of Cisco Systems, the world’s biggest maker of internet gear, are taking longer to make decisions, according to John Chambers, the company’s boss. Their orders tend to be smaller than before, and to require more in-house approvals. They say they are planning to buy more stuff later this year, reported Mr Chambers recently, but “then in the very next breath they say it depends on what happens on a global and macro scale.”
In Europe firms must reckon not only with recession but also with the risk that their investments may be redenominated in a different currency or locked in by capital controls. Robert Bergqvist of SEB, a Swedish bank, says that several Swedish corporate customers have put investment projects on hold because they don’t know how the euro crisis will unfold.
If America falls over the “fiscal cliff”, it would suffer a fiscal squeeze of 5% of GDP, easily enough to push the economy into recession. Last summer, as America’s government came perilously close to exhausting its legal authority to borrow, Barack Obama and Republicans in Congress could not resolve their fiscal differences. Instead, they kicked the can down the road, agreeing on huge automatic spending cuts that would start on January 2nd, just as all of George Bush’s tax cuts are due to expire, along with a separate temporary payroll tax cut. Read the rest of this entry »
Mar 15th 2012, 21:08 by G.I. | WASHINGTON
Nov 17th 2011 | WASHINGTON, DC | from The World In 2012 print edition
If these were normal times, America’s economy would be on track for a reasonable, if restrained, expansion in 2012. Consumers and businesses are well on the way to rebuilding their finances, and the usual imbalances that presage a downturn are absent. But these are not normal times. The economy is hostage to policymakers in America and Europe who are all too capable of the wrong decision at the worst possible time. The resulting outlook is binary: either the economy beats the 2% consensus of private forecasters, nudging unemployment below 9% and Barack Obama to victory in the November election; or, less likely, bad luck and bad politics tip the economy back into recession and doom Mr Obama’s chances.
Recoveries after financial crises are typically subdued as banks, households and firms pay down the debts accumulated during the boom years (“deleveraging”). Even so, that permits many possibilities. Carmen and Vincent Reinhart, two economists, found that median per-head growth in the decade following five major crises was only about 2%. But the range was considerable: in Norway growth averaged 2.7%, in Japan just 0.6%..
The economy makes headway. So do efforts to renew stimulus
[Greg Ip] Dec 10th 2011 | WASHINGTON, DC | from the print edition
THREE months ago Barack Obama was firmly in the dock over news that no net jobs were created in August. Some gloomy people even saw a double-dip recession on the way.
America, it turns out, was not on the verge of recession, and it still isn’t. Subsequent revisions show that 104,000 jobs were in fact created in August. Later months have also been revised upwards, and in November payrolls grew by 120,000, or 0.1%. On December 2nd the government also reported that the unemployment rate had declined sharply to 8.6%, the lowest figure for two-and-a-half years, down from 9%.
November, it seems, was a very good month. Retailers reported solid sales on and after “black Friday”, the day after Thanksgiving on November 24th that marks the traditional start of the Christmas shopping season. Car sales were at their strongest since the days of the cash-for-clunkers subsidy programme, back in August 2009. Mortgage applications also ticked sharply higher.
The American economy is looking up in large part because it has been down for so long. The recent run of good economic data suggests that the economy is growing at around a 2.5% rate, roughly its long-term trend. That is fast enough to create jobs for a growing population, but not fast enough to reduce unemployment. Instead, the unemployment rate fell in November thanks to two unusual factors. First, the household survey, used to calculate the unemployment rate, has lately been recording stronger growth than the separate, better-known payroll survey; why, is unclear. Second, and more gloomy, a lot of people have left the labour force, reducing the number who are counted as unemployed. The share of working-age people in the labour market has fallen since the recession ended, holding the unemployment rate down for the wrong reasons. Read the rest of this entry »