By Eldon Mast, on November 9th, 2009
Now that the US recovery is in full swing, many continue to asked “when will this newfound economic growth produce new jobs?”
This past week all eyes were on job numbers. And there were some encouraging signs.
First, Challenger, Gray & Christmas, Inc. announced on Wednesday that planned layoffs at U.S. firms fell for a third straight month in October to a 19-month low. Announced job cut rates are now at levels that are below average.
Then on Thursday Monster’s employment index was reported to rise an additional point in October to 120 indicating an ongoing improvement in job demand. The Monster Employment Index is a comprehensive monthly analysis of U.S. online job demand.
And finally, initial jobless claims are clearly on the decline, down 20,000 in the Oct. 31 week to 512,000 (prior week revised 2,000 higher to 532,000). The four-week average is down for the ninth straight week, 3,000 lower at 523,750 for a 25,000 decrease from late September.
So just when will this strong recovery start producing new jobs?
The answer is likely found in the significant decline in the number of jobs lost since March. As can be seen from the linear trending in the chart below, if the current economic climate stays intact, it is quite likely that we will actually see job growth starting sometime in December.
By Claus Vistesen, on October 13th, 2009
I know that I tend to harp quite a bit about the topic above, but I also trust that my readers by now will be well be used to this. One of the main interesting things about the notion that aging might be related to export dependency is that while it enjoys little, if any, support in the academic literature it seems to have gotten an increasingly amount of momentum in the context of the market discourse. But then again, perhaps this is not so odd after all in the sense that markets, analysts, and commentators would tend to pick up narratives and ideas quite a bit before they get assimilated into the sometimes arcane world of academia, especially in relation to economics and finance.
In any event, it is with an increasing regularity that we can now observe analysts and commentators alike invoke the idea that for example Germany and Japan are indeed dependent on exports to grow.
Personally and in the context of a more wonkish perspective of why we should expect ageing and export dependency to be related, I have had two gos here at Alpha.Sources to explain this. The first was a very wonkish piece taken, to some extent, from my upcoming master’s thesis and the second was a bit less difficult, I hope, and dealt with the specific case of Germany. To cap it off, I have even written a paper on the topic and I am presenting it this Wednesday in Barcelona; here is the abstract.
The primary manifestation of the demographic transition in a modern economic context is through ageing and the primary transmission from ageing to the macro economy is through its effect on saving and investment behavior. These two effects taken together suggest a strong impact from the continuing process of ageing on international capital flows and global macroeconomic imbalances. This paper explores the potential relationship between ageing on a macroeconomic level and the reliance, or outright dependency, on exports and foreign asset income to achieve economic growth. The paper’s argument is both theoretical and empirical. Using a standard overlapping generation framework (OLG) in an open economy context this paper discusses whether the proposed relationship between a transition into old age and dissaving is feasible and desirable (or even optimal?). Finally, an empirical analysis is presented on Germany and Japan to show how these two economies, as the oldest in the world, may exactly be in a state of export dependency.
It is still rough around the edges, but I do believe this to be an extraordinarily important topic and I will work long and hard to fine tune the theory as well as empirical strategy so that the message comes out as clear as possible.
More generally, I was also happy and honoured to read the recent monthly newsletter from the London based investment company Absolute Returns which included a thorough and fine review of my ideas and thoughts on the topic of how ageing affects capital flows. In fact, the author Niels C. Jensen elaborates in some detail on the obvious and relevant question surrounding the fact that while we may all become de-facto dependent on exports as a function of old age, we cannot all export at the same time. Niels rolls out a fine and thorough argument, but especially; I took note of the following in relation to Japan (my emphasis);
No other country is aging as quickly as Japan. Saddled with a large number of old age pensioners already (the dependency ratio is currently 35), the ratio will grow to an astonishing 76 over the next four decades. The Japanese economy has struggled to drag itself out of a slow growth environment for the past twenty years (give or take). The problems in Japan are well publicised and are often blamed on failed policy measures. I just wonder how big a role demographics have actually played in all of this and whether the Japanese mire is a sign of things to come for the rest of us?
I would never be so stupid to argue that policies, culture, as well as institutions don’t matter. They obviously do and are a big part of the picture. However, I also believe that when we come to look at the case of e.g. Japan the demographics, defined by an ongoing and relentless process of aging, tend to crowd out these other factors. This is especially the case when taken so far as it has been in Japan. But then you only need to realize that Niels is right here. Japan is essentially but one step ahead of the rest of the OECD (with a few exceptions), and it is worthwhile to think long and hard about what this means. I am not being a fatalist here, but simply trying to point in the direction of where the real issue is buried since I also believe, without I hope sounding to alarmist, that the stakes are quite high here, not least in the context of policy advice and guidance to the large batch of emerging economies who are destined to follow the same demographic transition as Japan, Germany et al. if we don’t arrive at narrating the issue in a proper way.
Ok, I shall leave it here. Needless to say, that for those of you who are mainly concerned with a P/L (be it yours personally or your clients’) I believe the discussion has relevance too since ultimately ageing is first and foremost transmitted through the flow of factors of which capital flows is, by far, the most important [1]. For that reason alone, Niels’ piece is worth more than a brief look.
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[1] – Migration holds huge potential here, but labour mobility across borders is a whole different ball game than capital.
By Eldon Mast, on September 16th, 2009
Fed Chief Ben Bernanke said Tuesday that indeed the recession of the past year is over. And positive economic data continues to punctuate assertions that the Q3 growth will be anything but lackluster:
1. On Tuesday, the popular ICSC-Goldman report’s year-on-year measure jumped into positive ground — 1.6 percent for the best showing in a year. The companion Redbook measure also showed sizable improvement in the Sept. 12 week, for the best reading since the spring.
2. A positive producer price report followed showing that the core rate of inflation continues to be quite tame at +0.2 percent, following a 0.1 percent decline in July.
3. More good news followed in the government’s retail sales report for August. Consumer spending made a healthy showing mostly boosted by the clunkermania and higher gas prices. But other retail segments also signaled general health. All said, retail sales jumped 2.7 percent in August.
4. Manufacturing activity in the NY region continues to bounce. On Tuesday the Empire State index was reported to rise nearly 7 points in September to 18.88. New orders rose 6-1/2 points to 19.84 continuing to point to significantly increasing activity in the second half of the year.
By Eldon Mast, on July 21st, 2009
Since early June we’ve been observing more and more markers that US economic recovery has started. Monday brought even more data to support that assertion.
A close look at the elements of Monday’s Conference Board report supports the view that the recession ended in June and recovery has indeed begun. The CB’s leading index posted a third month of consecutive gains rising 0.7 percent in June. Again the gain was much stronger than most economists had expected.
With reporting of the June data, several recession-ending items within the CB’s report are now in place. Most economists agree that these data need to be in place before a recession is officially considered over…
1. Three straight gains in the ratio of coincident-to-lagging indicators, (check)
2. Three months of 50-plus readings in the diffusion index, (check)
3. Three consecutive gains in the leading index along with an annualized reading over that period in excess of 10 percent. (The data shows a 12.8% annual rate — the best since Jan 2002) (check)
The three check boxes follow last week’s Economic Cycle Research Institute (ECRI) Weekly Leading Index which surged to an annualized five-year high of 7.0%.
This is just more data to support the claim that when NBER’s cycle-dating committee finally marks the official 2008-2009 recession end, it will point to June 2009.
You may recall a professor from Kansas make that recession-ending prediction back in November 2008.
Given the strength of the current ECRI growth indications and the CB’s LEI trends, those predicting a lackluster Q3 of growth are likely to be significantly surprised.
By Eldon Mast, on June 8th, 2009
Last year Wal-mart added close to 30,000 jobs to it’s domestic labor force. In 2009 it now predicts it will add another 22,000 positions nationwide. In fact in some hard hit states like California, Florida and Michigan, Wal-Mart plans to add over 1,000 jobs in each.
Wal-Mart is the largest private-sector employer in the US with a labor force of 1.45 million workers. Wal-Mart’s strong retail sales outlook for 2009 continues to highlight a significant rebound in from discount and value retailers since the dismal Q4 of last year.
Expect similar hiring metrics from 10 top retailers that have also experienced strong than expected Q1 results.
“We’re proud to be able to create quality jobs for thousands of Americans this year,” said Eduardo Castro-Wright, vice-chairman in a company statement.
New Wal-mart employees have found jobs this year in a wide swath of disciplines including pharmacists, human resource managers, and customer service associates.
Separately new data from Challenger, Gray & Christmas, shows that corporate layoffs in May have free fallen 55% from their January high. The reported levels are now close to rates that could almost be considered “normal.”
On Thursday the government reported that the number of continuing claims for state unemployment benefits has now started to decline. This is one of the last indicators to mark the stabilization of the labor market following a recessionary period. First-time claims also continued to fall, reaching the lowest level since early May.
Now that the recession has ended, the rate at which these labor level indicators continue to fall will be an additional indicator on how strong this new growth cycle will be.
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By Eldon Mast, on June 3rd, 2009
Pending home sales in April posted their largest monthly increase since Oct 2001, the National Association of Realtors said on Tuesday. The Pending Home Sales Index, jumped to 90.3 in April from 84.6 in March.
It was the third straight monthly increase this year. The index is also now 3.2% above its level a year ago.
The 6.7% month to month jump took all economists by surprise. Most had forecast only a paltry 0.5% rise.
Yesterday we reflected on three indices that marked the end of the recession just past. The pending homes sales report is perhaps one of the first indications of just how resilient this new growth cycle will be.
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By Eldon Mast, on June 2nd, 2009
We now have three very reputable markers that signal the recession’s end.
1. According to the U.S. Weekly Leading Index published by the Economic Cycle Research Institute (ECRI), that index growth has steadily risen to a 36-week high.
2. You’ve seen the pointer here for several weeks now that the “lagging peak” in new claims for unemployment is shown to be quite accurate in predicting past business cycle rebounds. With current continuing claims declining again last week, it is almost certain that we’ve now seen the lagging peak of this recession.
3. The ISM Manufacturing index that we’ve been following since the beginning of Feb, shows a likely return to GDP growth. The ISM reported that index at 42.8% on Monday. You may want to go back and check our trend-line from our March 2 post remembering that according to the ISM an index reading “in excess of 41.2 percent, over a period of time, generally indicates an expansion of the overall economy.”
It is increasingly obvious that the ‘green shoots’, have grown leaves, and no doubt will blossom this summer. Professor Hirschey got it just right.
By Ajay Shah, on May 22nd, 2009
riting in Business Standard today, Surjit Bhalla has a table of the vote share of the CPI and the CPI(M) put together. I thought it would be useful to see this data as a time-series, so here is the result.
Click on the graph to see it more clearly. Each circle is a data point. The dashed line is a (robust) regression with a shift in the intercept in 1991, reflecting the fall of communism. As we can see, the fall of communism seems to have gone along with a loss of vote share of 1.3 percentage points for the Left.
The latest result is a bit worse than the trend line might have suggested: tactical factors went a bit against the Left. At the same time, the CPI and CPI(M) leadership can take heart: the latest result is not all that far from the historic decline of the left, so this does not suggest that the leadership made particularly large tactical errors. What they are perhaps up against is historical forces.
The red coloured plus sign is the linear extrapolation for 2014; the slope implies losing roughly 0.13 percentage points of vote share each five years. (The statistical signifiance is weak; it’s a t stat of -1.52).
Here’s the R code which you can experiment with:
library(MASS)
dates <- c(57,62,67,71,77,80,84,89,91,96,98,99,104,109)+1900
vshare <- c(8.9,9.9,9.4,9.8,7.1,8.7,8.6,9.1,8.7,8.1,6.9,6.9,7.1,6.8)
post1991 <- dates > 1991
m <- rlm(vshare ~ -1 + dates + post1991)
summary(m)
m$coefficients[1]*5 # lose this much each gen. election
png(”ic.png”, width=550,height=550, pointsize=16)
par(mai=c(.8,1.1,.2,.2))
plot(dates, vshare, type=”p”, xlim=c(1957,2014), xlab=”", ylab=”Vote share of CPI + CPI(M)”)
lines(dates[1:9], fitted.values(m)[1:9], lty=2, lwd=2)
lines(dates[10:14], fitted.values(m)[10:14], lty=2, lwd=2)
abline(v=1991, col=”red”, lwd=2)
points(2014, m$coefficients %*% c(2014,0,1), cex=3, col=”red”, pch=3)
text(1966,9.1,”Regression line pre-1991″,cex=.7)
text(2003,7.3,”Regression line post-1991″, cex=.7)
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By Winton Bates, on May 15th, 2009
In the Australian federal budget delivered earlier this week, forward estimates of revenue and spending were based on Treasury projections of economic growth rates in excess of 4 percent coming out of the current recession. This projection has attracted attention because the projected growth rates are higher than those experienced in Australia during recent boom years.
It seems reasonable to me to suppose that growth rates might be somewhat above trend when an economy comes out of a recession. An economy that is not limited by capacity constraints obviously has potential to grow more rapidly than one approaching full employment.
However, the Treasury’s optimism about future economic growth prospects in Australia seems to me to sit oddly with their more guarded views about prospects for the world economy. In discussing the outlook for the world economy Treasury states: “Even when growth returns, the recession will leave a legacy of significant policy challenges across the world. The extraordinary measures being taken to combat the current crisis will have to be unwound carefully.” Governments will not find it easy to unwind these extraordinary measures. This means that commodity exporting countries like Australia should expect the world economy to give them a fairly bumpy ride in the years ahead.
Why is Treasury so optimistic about Australia’s growth prospects? The Treasury forecasters base their optimism on the growth rates experienced in Australia following recessions in the 1980s and 1990s. Their projected growth rate is about the same as that following the 1990s recession.
Even if it is reasonable to expect world economic growth in the 2010s to be as robust as in the 1990s, is it reasonable to expect that Australia’s productivity growth in the 2010s to be as high as in the 1990s? The 1990s was a period in which multifactor productivity growth in Australia was more than double the rate experienced in recent years. High rates of productivity growth in the 1990s stemmed to a large extent from productivity improvements in the services sector, which were associated with micro-economic reforms (neo-liberalism in the terminology favoured by Australia’s current Prime Minister).
Where will comparable productivity improvements come from during the 2010s? Perhaps the government has plans for extensive microeconomic reforms that it has yet to announce. But I wouldn’t bet on it!
By Cheryl Grey, on August 9th, 2008
U.S. retail Internet sales are expected to reach $146 billion in 2008, a 14.3% rise from 2007—and yes, that reckoning takes into account the economic downturn, which has actually boosted online sales because of high gas prices and reduced driving. While U.S. retail sales rose by 2.8% between the first quarter of 2007 and the first quarter of 2008, online sales rose by 13.6% during the same period. As for the shoppers who insist on buying from a brick-and-mortar establishment, eight out of ten first kick tires online.
In France, e-commerce is expected to reach US$32.4 billion this year, a 30% jump. In Brazil, the online retail market expanded by 43% in 2007, and 79% of all Brazilian Internet users have shopped online. In the UK, grocery shopping has moved online and 44% of the country’s Internet users have given it a go. In China, online shopping surged to US$8.2 billion in 2007, up 90% on the previous year.
If You’re Not Online . . .
These are staggering (and for retailers, mouthwatering) statistics. An even more astonishing one, however, comes from a January 2008 press release from The Nielsen Company: of the world’s population with Internet access, more than 85% have shopped online—approximately 40% of the total global population—and more than half of those online shoppers have made a purchase within the last month.
The fastest-growing segment of the global online marketplace is clothing, accessories and shoes with 36% of sales, but the most popular online purchase remains books with 41%. Other common purchases are movies, games, music, airline tickets and electronic equipment. Merchant trustworthiness is important to online shoppers, and many seek recommendations from friends or rating services or find a few sellers they trust and stick with them. The most popular payment method is a credit card (60%), with Visa the most often utilized, although 25% of buyers prefer Paypal, which may effect payment through a credit or debit card or through a direct bank transfer.
Many new buyers live within developing nations such as India, Brazil, Egypt and China and have such online payment services to thank for opening these new shopping horizons before them. When the goods these shoppers want can’t be found on the shelves of their local stores, they turn to the Internet and its international marketplace to fill that gap, and they’re often willing to pay a little more to a reliable seller or for shipment tracking.
The largest online retailer in 2007 wasn’t actually a single retailer but eBay, with a membership of over 83 million active buyers and sellers moving $60 billion worth of merchandise on website platforms in 28 countries around the world. As a comparison, Amazon.com had sales of $14.8 billion (both figures from 2007 annual reports). Because eBay sales are generally from individual to individual, international shipments are often marked as gifts to avoid customs duties, and the collection of state sales taxes on the Internet is notoriously difficult, leaving open the issue of lost governmental revenues worldwide. So are such individual purchases tracked as part of a nation’s balance of trade? If so, how?
. . . You’re Nowhere
A largely misunderstood aspect of the virtual marketplace is the foreign exchange, called the forex trading market. Although many people are only familiar with foreign exchange from traveling (or those money-making schemes advertised everywhere), the fact remains that sales across international borders generally involve crossing currencies as well. While credit cards and Paypal will exchange currencies for individuals for a fee, larger transactions must change through brokerages, which buy and sell currencies against each other on the open market.
The forex trading market is therefore comparable to those for stocks or commodities with one catch: it’s utterly virtual. There is no centralized exchange where brokers meet and bid against each other. Historically these deals were arranged via telephone, but often now they’re executed online with dedicated software trading platforms that track the prices of various currencies against each other to the fourth decimal place and graph the changes on a real-time basis. This increased efficiency has caused, well, a virtual explosion in forex trading, which by April 2007 had surged to an average daily turnover of $3.2 trillion dollars as tracked by the Bank for International Settlements.
There is much not yet understood about the economy of cyberspace, but it’s clear this is no longer a niche market, and retailers—and governments—will ignore it at their peril.
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