U.S Consumers Suspicion in Spending

      Last month was the first time consumers spending dropped since January. This past month was only the third time consumers cut spending since the end of the recession in mid-2009. The spending cut was unpredicted by economists and  expresses Americans raising doubts about the economy's ability to continue at the growth rate it has been experiencing the past few months, especially over the summer. Overall household spending dropped 0.2% from August, which may not seem like a lot but in the grand scheme of things has a large impact on the economy and consumers confidence in their wallet. The drop reflected a big decline in elastic, or expensive non-necessities, such as cars.

     These reports offered red flags on the economy's stability, just a day after a strong reading on third-quarter economic growth. On Thursday, October 30th, the government released a report saying that GDP grew at a 3.5% annual rate from July to September. The report also expressed that the inflation rate is below the desired 2% by the Federal Reserve's annual target. Consumer spending is the biggest component of GDP growth, around 70%, so if people do not spend, America as a whole cannot expand. The report also showed that Americans saving rate increased to 5.6%. Obviously is spending goes down, saving will naturally increase. So is the economy experiencing a drop again, or do you believe it is just the American citizens inability to believe in their economy?

Sources: http://online.wsj.com/articles/u-s-consumers-cut-spending-1414758842

Frictional Unemployment in action in the United States

John Wainwright

http://www.economist.com/news/finance-and-economics/21627628-difficulty-people-have-getting-jobs-makes-unemployment-unnecessarily

      This article is a discussion on whether or not the location of the nation' s impoverished and unemployed members of the labor force is the reason that they have a longer period of finding work. Often these long stretches of unemployment are chalked up to those who take advantage of welfare or to the fact that workers are simply not qualified for the jobs at hand. THe author reviews the perspective that while jobs are leaving the inner-city, the lower income black population was discriminated against when it came to moving into better neighborhoods or faced discrimination when pursuing jobs in these new areas. 

    The most tricky part of this equation to work out is whether or not people who live in bad areas had trouble finding jobs because they are from impoverished areas or that they live in bad areas due to not finding jobs. This cause and effect relationship can not be explained via macroeconomics. Discussions like this take place on a case by case basis and can hardly be described numerically. However one such study attempts to do so and is highly lauded by economists. A new paper published by the National Bureau of Economic Research avoids all the issues that have been noted in its contemporary studies. The paper encompasses 250,000 poor Americans in 9 different cities over a period of 6 years. The purpose of this paper was to create an index of accessibility of unemployed workers to the jobs they are seeking. In general the authors of this study found that jobs are moving away from where the unemployed are located, in fact the persons of the study who did not travel far to reach their job took 7% longer to find a new job. One factor that does detract from this study is that crime and poor public education is very prevalent in these areas, deterring people from reaching their workplace potential.

If you worked in the government (local or state) that represents these areas what policies would you seek to push forth and what would you address first?



  

Canada Stocks Fall as Gold Producers Tumble After Fed Decision

http://washpost.bloomberg.com/Story?docId=1376-NE7LMV6TTDSF01-5TIR916L4K42849A9FJKH3NPTP

After a three week high, Canadian stocks fell. This is due to the slippage of financial shares and gold producers after the US Federal Reserve ended its asset-purchase program. Financial institutions that experienced losses due to this phenomenon include the Royal Bank of Canada, Barrick Gold Corp., and Teck Resources Ltd.; among others. In fact, 8 of the 10 industries in the benchmark Canadian equity gauge declined due to this. However, the Fed reiterated that its pledge to keep interest rates low for a "considerable time" while it ended its quantitative easing program. This program added $1.66 trillion to its balance sheet. Interestingly, the Fed predicts that inflation rates will be kept low due to lower energy prices in the short run. While this isn't necessarily a good thing, the concern that interest rates will drop below 2% have seemingly diminished. Financial institutions agree that the recent drop in prices does not indicate an imbalance between supply and demand in this market.

US Fed ends QE stimulus programme

http://www.bbc.com/news/business-29823798

The Fed Chief, Janet Yellen, has announced that the US Fed will end the Quantitative Easing (QE) program that was started in 2008.

The program has slowly been cutting back on the program recently but the recent success of the US economy has led to this decision. Mrs. Yellen and the Fed have assured the public that the interest rates will remain low for a "considerable time". The job market is strengthening but is not strong enough to have the interest rates raised. The Fed has chosen to guide the economy through stability but wants to know how the inflation prices will react.

Without quantitative easing, I'm interested to see how the US economy responds. I'm sure that the US economy will bounce back and surpass the levels from 2008. However, the world economy needs to start heading into the right direction as well.

Bah Humbug: Sears is closing 77 more stores

Source: http://money.cnn.com/2014/10/23/news/companies/sears-store-closings/index.html?iid=SF_BN_River

       

      A spokesman for Sears recently announced that they will be closing 46 Kmart locations, 31 Sears stores, and cutting about 5,300 jobs. This announcement came after they stated in their second quarter earnings that they would be closing any unprofitable stores. The company currently has about 1,900 U.S. Kmart and Sears locations, 166 stores less than October of last year.

      The article mentions the fact that most of the stores will be closing before Christmas, the most profitable time of year for retailers. The stores that won't close until after Christmas are holding going out of business sales rather than preparing holiday promotions. The author suggests that this is the company's equivalent of "raising a white flag", or giving up. Many are not expecting Sears to be around long-term. Sears Holdings were lowered to just above default status. This suggests that the company might not have enough cash to continue operations after 2016.

      The fact that Sears is closing so many stores before the holiday season instead of keeping them open to generate extra revenue shows just how poorly they are doing. I don't think it's really news to many people that the company hasn't been doing well, but it may surprise some that they may not have enough money to stay open past 2016. It will be interesting to see if Sears makes any effort to turn their sales around.

Pensions in Nigeria

http://www.economist.com/news/finance-and-economics/21627721-after-unpromising-start-nigeria-beginning-encourage-local-saving-and

Nigeria has had a country-wide unfunded pension issue. Retirees often went unpaid and even private companies refused their obligation to pay. Nigeria changed their pension schemes in 2004 and since then, the fund has grown by 25% in assets every year. Nigeria has a large portion of the population that is involved in informal jobs. This sector does not have a system to fund workers into retirement, and many go without funds for the latter part of their life. Out of 80 million people, only 6 million are involved in a formal pension scheme. The reform also states that investments must remain in Nigeria, giving much needed aid to railroads, bridges, etc.

What do you think about the solution to this issue in Nigeria?

World Bank: 'Now is the time to prepare for next crisis'

          This article talks about the World Bank's take on preparing for the next financial crisis from now, so that if a crisis is to occur, they are prepared. The World Bank has has downgraded its global growth estimates for this year to 2.8 percent from 3.2% in January. 
          Developing countries such as Ghana, India and Malaysia among others are being given more attention. The World Bank plans on doing so by a slow tightening of the fiscal policy and structural reforms. 
          China is expected to grow by 7.6 percent this year, it added, but said this would depend on the success of re-balancing efforts by its government. The president of the World Bank said "
"Growth rates in the developing world remain far too modest to create the kind of jobs we need to improve the lives of the poorest 40 percent." This basically means that to end extreme poverty, developing countries need to focus more on economic growth.
        Currently the only downside dispute seems to be between Russia and Ukraine, over the pricing of gas.  

http://www.cnbc.com/id/101749088#.

It's Great to be a Woman in California, Unless You're Hispanic

http://www.npr.org/blogs/money/2014/02/13/275280854/its-great-to-be-a-woman-in-california-unless-youre-hispanic

When judged against 14 key measures, California currently ranks as the second place for a woman to achieve economic security. Most women are able to find paid family leave, paid sick leave and great early childhood education. While this may sound like an ideal situation, not all women benefit from the state of California.

Hispanic women, making up 17% of the state or roughly 6.6 million individuals, make only 44 cents to every dollar a white man makes. Non-Hispanic women in California as a whole make 84 cents to every white man’s dollar, which is well above the national average for women at 77 cents to the dollar. Hispanic women are the lowest paid population, of any race, in any state. This is a problem as the number of Latinos in California surpassed non-Hispanic whites this March.

One reason for such a discrepancy is that the types of jobs Hispanic women are working are not in high paying industries nor are they known for lucrative earning potential. Another reason is the legal status of these women. Unfortunately, because these women are illegal immigrants, they are working in the shadows, agreeing to work at any rate they are offered because they are undocumented.

Apple addresses labor violations at Quanta Chinese factories after 2013 audit

http://my.chicagotribune.com/#section/553/article/p2p-81095742/

Apple Inc has worked with supplier Quanta over the past year to improve working conditions after a 2013 audit, published on Friday, uncovered a profusion of violations, including excessive overtime and health hazards. 

This report exposed the poor working conditions in two facilities in Shanghai and Changshu. The report found that both factories fell short of local requirements for indoor air quality testing, and that 80 percent of workers interviewed in Shanghai claimed to have been charged a hiring fee by a broker or agent. Moreover, workers were not paid due wages for sick leave, and during the busiest periods of the year, facilities regularly exceeded legal limits on working hours. In addition, over 100 Changshu workers age 16 and 17 said they had worked overtime. But those young workers were transferred from Apple's production lines by the end of July 2013, according to the report. 

It will be interesting to see how this news will be perceived by the public and investors in the near future and if it will have any effect on their sales. 

The human driven driverless car

http://www.economist.com/blogs/freeexchange/2014/10/technology-and-productivity

A driverless car is crazy to think about right now.  But Google and Audi have made great strides in the right direction for this to happen.  Even though we may not see a driverless car on the road for the next decade or two.  With the use of Google maps and cameras on the car the driverless car can eliminate human errors like driving more cautiously than humans in dangerous conditions.

A big problem for the driverless car though ironically is the advancement in technology.  A recent report says that advancement in technology has pushed millions of workers out of middle waged jobs and now they are in a fight with others for low wage jobs.  Now with an abundant supply of low paying labor companies don't want to upgrade their technology to push out low wage workers.  Also companies like Uber have made pre-hired cars cheaper and more convenient and that's making households less likely to buy a car.  So with these obstacles in the way it could slow down the process for the driverless car.  

Should CEOs really be paid less?

http://www.economist.com/news/business-books-quarterly/21627553-should-ceos-really-be-paid-less-moneybags

This article talks about how in recent generations the pay rate that CEOs have received on average has increased.  It states in the 1970s CEOs were paid about 25 times as much as a normal employee, compared to today they are paid on average about 300 times as much as the normal employees.  The article mentions the fact that this was not always the case.  It wasn't until large companies started providing CEOs with performance based pay that they started to earn these exorbitant salaries.  Around the 1970s a few companies introduced these performance based salaries and it quickly took off.  Their view was that the best way to make sure that CEOs performed best for their bosses (stockholders) was to give them large numbers of options and shares of stock.  According to the article if CEOs were to be paid with salaries, like they once were,  then companies/shareholders would be better off.  This has to do with the fact that since the CEOs own so much stock it takes away from profits that can be reinvested in the company or given out to more shareholders.  While I do agree with the fact that paying CEOs salaries would be better for the companies profits, I don't think there is a better way to encourage these CEOs to try and perform better than before than the performance based salaries.  If the CEOs know there will be more of a reward if they increase overall performance at the company they will be willing to work harder.

Amazon buys Twitch TV for $970 million.

On August 25, Amazon agreed to pay $970 million for Twitch. Twitch is a live video game streaming site with more than 55 million users that's like YouTube for video games.

As of July, Twitch achieved 15 billion minutes of content, and users spent more than 100 minutes a day on the site, on average. Each user has a broadcast channel, which comes with a built-in chat room where viewers can chat. Viewers can subscribe to a channel for $4.99/month, a small portion of which goes to Twitch. With 55 million users, the profits are huge.

Twitch has become a huge part of the internet, which accounts for nearly 2% of all internet traffic in the U.S, ranking after only Netflix, Google and Apple.


http://money.cnn.com/2014/08/25/technology/amazon-twitch-acquisition/

Seniors in almost every state are struggling to afford retirement

http://money.cnn.com/2014/10/09/retirement/retirement-income-gap/index.html?iid=SF_E_River

In this article, CNN money elaborates on how seniors across the nation are struggling with their retirement, which has caused an unsecured future for them. The basis of this article elaborates on how those who are now retired are mainly living off of an average annual salary of about $37,847, which is about 60% of their working counterparts aged 45-64. This annual salary is significantly lower than that of the pre-retirement salary of 70% which is strongly recommended for retirees.

The proposed issue for these retirees is how, with the cost of living going up as well as the price of goods and services, with their low fixed annual income, it's harder for these seniors to be competing in the market place of goods and services due to their lower income when compared to that of those still working.  The article broke everything down by state to show why and how there is such disparity amongst states, and why some states are better off than others. 

Overall the main emphasis of the article as well as the related videos was how people need to start saving earlier on in life, and to do so in different ways to ensure a comfortable and safe retirement.

Raise UK interest rates now...

This article discusses how the Bank of England has lowered interest rates to a low of 0.9% in 2009 during financial crisis, but continued to keep it at that rate when the economy began to progress.  But Britain's economy has been recovering fast and are being urged by the banks to raise the interest rates because the capacity within the economy could be used up soon as it adds to inflation rising.  Because of the interest rates being kept low for so long, an abundant amount of the economy was already used up and is only getting smaller.  Despite all of this, MPC members are very against raising the interest rates now because of weak inflation which effects their export market. While I can see why the banks are right in encouraging the rise in interest rates, MPC members of the UK are right, as they want to keep a trade surplus and not fall into a possible deficit making things worse.  This means keeping their export market stable.

Website: http://www.theguardian.com/business/2014/oct/26/raise-interest-rates-bank-england-mpc-ian-mccafferty

Is the U.S. holding too much oil in reserve?

                          According to the article, The U.S. has the largest emergency stockpile of oil in the world. And now that the country's oil production is booming, there's questions if America needs to hold so much crude in reserve.

                            The talk of shrinking the oil reserve is a major shift from the political debates of the past years, when Americans were being squeezed by high gas prices.

               For now, the oil prices in the United States have stumbled to the lowest levels since 2012, and gas prices have fallen below $3 a gallon in many parts of the country.

                             Currently, there's enough oil in storage to meet the nation's needs for 106 days. In contrast, most oil consuming nations have 90 days of oil supply in storage.

                         

               http://money.cnn.com/2014/10/24/news/u-s-oil-reserve/index.html?iid=H_E_News

Slave labor in America today

This article speaks mostly about immigrants who are 'victims of forced labor', sucked into the world of labor trafficking. These workers often enter the United States legally. About 71% of them enter with visas. About half of those who are smuggled in and those who enter legally often pay recruitment fees that can leave them in debt for years. While the International Labor Organization estimates that there are around 21 million victims of forced labor, there are no official estimates of how prevalent it is in the United States.
However, research has found systems in place to facilitate labor trafficking and exploitation. Sometimes, employers don't pay attention to how workers are being recruited but others they are directly involved in fraud and exploitation and coercion of workers.
Workers often hear about jobs in America from people in their own country and are then set up with a recruiter who speaks about the unique experience of working in America and the better life they could provide for their family. However, almost always a key part of the job is misrepresented. Wages and benefits are portrayed as more generous than they are and the nature of the work is either misrepresented or severely exaggerated.
For recruitment, victims pay an average of $6,000. However, fees can run up to around $25,000. These fees are often paid by selling possessions, taking out mortgages or high interest loans.
For those who came to the U.S. legally, workers are taken to the embassy or consulate to get a visa. Victims were coached on what to say and were often not told of worker's rights. If they were interviewed at all, often times a trafficker was present.
These victims are subject to all kinds of abuse, especially mental and financial. They are often paid less than promised or not paid at all, threatened with violence, forced to work excessive hours, and have all their movements controlled. They are also forced to live at their workplace.
Money is deducted from their paychecks for a myriad of things including made up fees and never received health care. They are never able to repay their debts.
This severely affects the personal finance and life of around 21 million people annually. I think it's terrifying. I had no idea how prevalent forced labor is in today's society and how it affects not only the victims and their families, but everyone around them as well. It's affecting our economy and our general well being. We as a people need to invest in the prevention of this practice and rehabilitating and aiding all those affected by it.

http://money.cnn.com/2014/10/21/pf/labor-trafficking/index.html?iid=SF_PF_River

http://money.cnn.com/2014/10/21/news/economy/wealth-income-growth-ratio/index.html?iid=SF_E_River

Wealth is growing faster than income and recently broke a record for the growing gap. The current wealth to income ration is 6.5. For the past 100 years its been between 4 and 5.  Economists say this could be a foreshadowing of another recession.

Economist Tim Yeager explains that an "asset bubble" can be created because people become over optimistic about the stock market and pour their money in, causing a bubble in the market. He goes on to say that this has been happening more frequently and is causing financial instability.

It safe to say, however, that the increase in job growth could bring in an increase in wages. If this happens, which has already started in some States and cities across the US, then I wouldn't expect to see another recession.

Eurozone bank stress tests

http://www.economist.com/news/business-and-finance/21628422-europes-banks-have-been-probed-some-have-been-found-wanting-who-stressful-tests

Europe recently executed a new plan to stress test it's banks to detect potential failures of the system.
In Italy 9 such banks failed and 16 others across southern Europe also failed. As a result of this test these banks will have to reclassify loans and raise more money. They are still trying to figure out exactly how the markets will react to potential lack of trust in some banks.

Currently the entirety of the European union is being held up in value by Germany's productivity, so it is good to see that (as far as I can tell from the article) no banks in Germany failed the stress test.
Hopefully the next time stress testing occurs less failures will arise.

China’s future growth Even dragons tire

The announcement this previous week regarding China’s Economy indicated a 7.3% growth rate in the third quarter year on year. This rate was widely considered as the economy coinciding with what is described as its new “Normal slower rate”. It is significantly lower than China’s 10% growth rate up until two years ago. The article goes into detail regarding the slower growth rate and how in the future it can be predicted that China’s growth rate is bound to be even lower.

According to the IMF China’s growth rate will go down drastically by the end of the decade, it would further shoot down from 7.3% to 6.3% by the end of the decade (still just an extrapolation). The article points out the theory of “regression to the mean” which is about 2% growth per year based on real GDP per person globally.  It further points out that economy’s that grow rapidly tend to drop quite drastically, judging from past patterns of growth. For example Brazil in 1980 and Japan in 1991, seemed very sound but barely managed any growth for the next 20 years in terms of real GDP per person. However, this may not be a sign of failure but rather a sign of successful policy or good fortune.

In China due to these regressions markets have become more liberal over the years. The article also argues that richer countries than China are democratic and ( if there is a transition) if China were to have a democratic change it would lead to a period of falling growth as indicated by previous cases. The article also predicts that in terms of market exchanges it would be a safe bet to say that China’s economy would still be smaller than America’s.

There is a detailed graph regarding the above made assumptions presented in the article as well.  

source link: http://www.economist.com/news/finance-and-economics/21627627-new-study-asks-how-long-chinese-economy-can-defy-odds-even-dragons-tire