The Secret behind China's GDP

China's GDP growth as steadily declined within the last two years, falling from 7.2 percent at the beginning of 2015 to 6.8 in 2016. While 6.8 GDP annual growth is still high, its been part of a decline that has led to raised eyebrows from politicians. The article notes an unusual occurrence in China's GDP growth in that China has a negative GDP deflator of -0.8 percent but GDP growth above 5 meaning there is a lot of demand for products and services putting pressure on prices thus lowering them. But because China has invested so much into production capacity the falling prices could be seen along with high growth rates. In the end, the article relates this occurrence to growth being overstated due to the GDP deflator tracking PPI(Producer Price Index) in China which has been falling since 2012 while consumer prices have risen which represent a much larger portion of China's economy. The author concludes that the GDP of the fourth quarter of 2015 is lower than 6 percent which would account for the unusual measurements and more realistically represents China's most recent GDP measurements.

http://seekingalpha.com/article/3823186-odd-thing-chinas-gdp-growth?page=2

Eduardo Porter of The New York Times argues that “America’s Best Days May Be Behind it” due to slowed increase in technological process. The idea comes from Robert J. Gordon, a professor of economics at Northwestern University who has developed this proposition in a series of research papers culminating into the book, “The Rise and Fall of American Growth”.  In the past fifty years, America has experienced a slowed increase in life expectancy, and home technology, other than the internet, has not improved as dramatically. Despite the internet, total factor productivity rose only at about one third the pace of the previous five decades. Many other economists are also forecasting slower progress, suggesting that the burst of innovation from 1920-1970 was a one-time phenomenon. Business dynamism, measured by the role of new companies in the economy, along with the size of the work force as baby boomers grow too old, both seem to be decreasing. The article as whole suggests a decrease in growth in the upcoming years, and a stagnancy in regards to the standard of living.

The introduction of several measures of economic growth that I wasn’t familiar with, the factors of the work force that we discussed in class, and brief discussion of the future of American growth made this an article that related well to the class and was also thought-provoking.

http://www.nytimes.com/2016/01/20/business/economy/a-somber-view-of-americas-pace-of-progress.html?ref=economy

BANK OF AMERICA: It's 'capitulation' in the bond market

According to Bank of America Merrill Lynch strategist Michael Hartnett, there huge inflows of $5.1 billion into Treasury and government bond funds within seven days that ended this Wednesday.

Hartnett said that that is "capitulation" if funds flow out of the riskier high-yield market to the lower-yielding government bonds, which means bond market is acting as a recession.

However, the equity market is acting differently as the bond market does. In the past three weeks, $24 billion outflows from the equity market, which equivalent to just 0.3% assets under management.

http://www.businessinsider.com/bank-of-america-on-the-bond-market-2016-1

Behind the decline in China's GDP growth

China’s gross domestic product growth dropped to 6.9 percent last year from 7.3 percent the previous year, the National Bureau of Statistics of China reported. And at the same time,  GDP growth fell to 1.6 percent in the fourth quarter from 1.8 percent in the third quarter, the bureau said in Beijing Tuesday. 

   Behind these numbers there are a lot more going on. Most of these declines were limited to the manufacturing and heavy industry. Which is actually a good thing, China has been known as “the world’s factory” for a long time. Manufacturing companies from all over the world are attracted by extremely low labor cost and lack of intellectual property related regulations, and build up factories in China. On one hand, these low-cost manufacturing is not creating much value, and in the long run the manufacturing industry will reach the saturation point.

  China has been trying to change the focus from manufacturing to adding value to goods and services.  To achieve this goal, government encourages startup companies within the high-tech and innovative industry in different ways. And the ‘internet plus’ concept is a good example; related policies have generated a wave of technology revolution among Chinese traditional industries. These changes are pushing the economy into a better direction.

    Recently, government pays more “attention” to firms in information technology industry, by practice more strict enforcement to the law. Right now, several companies are having trouble because of allowing people to watch free unauthorized films, TV series. Personally I hate these policies. But deep down I know: in order to successfully transform from a manufacturing economy to value adding economy, technology improvement is necessary.  And in the long run, these enforcements will actually help to create a healthy and more regulated environment for the possible technology improvement.

http://www.ibtimes.com/chinas-gdp-growth-rate-declines-69-2015-73-2014-lowest-annual-growth-rate-1990-2270108

More Indians believe normal growth can be 9% plus

India wants to help other countries’ and their own economy grow. The Finance Minister Arun Jaitley says that everyone just relies on China, but India could give a push to growth rates, too.  The India growth rate has increased, which Arun Jaitley claims they can do a little better.  To other countries, one problem of credibility though is their taxation issues.  India is trying to fix the aggressive taxation by bringing it to 25 per cent flat corporate tax by a judicial process.  Arun Jaitley also points out that inflation is broadly under control and India is on track to meet their fiscal deficit goal.  He believes if India has their own fundamental aspects of their economy under control, more countries will want to make deals with them, such as the U.S.  India has now realized that they can't be so isolated as they were in the past and they have to start getting involved with the other countries for their own economy to grow.   

http://www.firstpost.com/business/economy/more-indians-believe-normal-growth-can-be-9-plus-fm-arun-jaitley-2456886.html

Smart Robots Could Soon Steal Your Job

As of today, robots perform about 10% of manufacturing tasks in businesses, which could potentially rise to 45% in 2025. Experts at Oxford University expect almost half of all U.S. jobs to be at high risk of being replaced by computers/robots. With an increasing supply of robots, prices of robots are dropping, causing the idea to be more intriguing to companies. Countries such as China and Japan have been paving the way for the increased use of technology. According to the study, firefighters, clergy, photographers, and physicians have the lowest risk of losing their jobs to robots. On the other hand, sports umpires, telemarketers, and paralegals have the highest risk. If this study were to correctly predict the increase in the use of robots, the unemployment rate could potentially have a drastic increase. With an increase in unemployment, the economy could be put in a very tough spot. The total income of American households would decrease, causing a reduction in consumer spending, which could potentially lead to a lower nominal GDP in the future.

http://money.cnn.com/2016/01/15/news/economy/smart-robots-stealing-jobs-davos/index.html?iid=EL

Do Falling Markets Mean Recession is on the Horizon?

The future state of the economy is constantly being debated over and questioned if there are implications of a nearby recession.  Some economists believe that people are over reacting to small signs while others disagree believing that there are many out of the ordinary trends which are very concerning.  This article relays that a huge indication that almost always occurs before a recession is a steep decline in growth in payment employment, in which America has not seen recently.  However, recessions are many times not predicted until the beginning stages have already occurred.  Whether or not the worrisome signs are normal trends the economy faces, there is still instability in the market and worried consumers are cutting back their expenditure.  According to the author, "a recession, after all, is nothing more than a rut of self-ratifying pessimism," so perhaps the media's intimidating headlines are partially the source of falling markets.  In the past, there has been room for consumers lack of confidence and the government has been able to intervene and reassure the consumers with cutting rates, however now it is uncertain the government will be able to step in and we can only hope consumers regain their confidence.

http://www.economist.com/blogs/freeexchange/2016/01/doom-and-gloom

How Stories Drive the Stock Market

The reason why I choose this article is because of the recent declining of stock market has caused a lot of frustrations. The article basically talked about the effects caused by stories using China's stock market as an example to illustrate the overall U.S economy.

http://www.nytimes.com/2016/01/24/upshot/how-stories-drive-the-stock-market.html?ref=business&_r=0

Why oil and stocks are trading in lockstep

This article talks about how the price of oil and the stock market are acting the same, when the price of oil decreases so does the stock market. it talks about how the price of oil fell to $26.55 a barrel and that same day the S&P 500 slumped 1.17%. then the fallowing day oil increased to $29.53 and the S&P closed at a higher price. I chose this article because oil prices have been in the news a lot the last couple of weeks and i thought the connection between oil prices and the stock market was interesting.

Link:   http://finance.yahoo.com/news/why-oil-and-stocks-are-trading-in-lockstep-134657492.html

Ohio's unemployment rate rose in December for the second straight month even as the state's employers added 15,200 jobs, according to state figures released today.

The state's unemployment rate climbed to 4.7 percent in December from 4.5 percent in November, the Ohio Department of Job and Family Services said. The unemployment rate hit a 14-year low of 4.4 percent in October.

Ohio's unemployment report consists of two surveys: one of households that determines the unemployment rate and a second one of employers that shows how many employees they are hiring and firing, and the surveys don't always move in the same direction.

The household survey showed a large 16,000 people joined the labor force in December, but only 2,000 found work, and that bumped up the unemployment rate.

The employer survey showed job increases in a broad number of sectors: 6,300 jobs in the trade, transportation and utilities sector; 4,900 jobs in private education and health care; 3,200 jobs in manufacturing; and 2,200 jobs in professional and business services.

The financial sector reported a loss of 1,600 jobs and the leisure and hospitality sector cut 1,200 jobs last month.

Ohio has now added 82,700 jobs over the past year. Meanwhile, the number of unemployed workers has fallen by 23,000 to 269,000 during that period.

http://www.dispatch.com/content/stories/business/2016/01/22/0122-ohio-unemployment-rate-rises.html

The reason i chose this article is because I live in Ohio and wanted to see more about what our professor was talking about in class in relation to an increase in unemployment rates in Ohio. This is a recent trend but Because of the large inflow of jobs in the early part of the year we can see a sharp fall of unemployment. Now Ohio is regulating itself to a normal unemployment rate meaning there isn't much to worry about along those lines. It also has seasonal effects because some workers were found to be employed on a national scale but do not work during the winter months, thus causing the unemployment rates to rise.

Iran Expects Annual Foreign Investments of 50 Billion USD

Viliyana Strenford, chief editor at EBF News, illustrates the potential investment into Iran's economy as a result of the lifted sanctions that were originally placed on the country and its economy over ten years ago. Strenford writes that Iran could see "annual foreign investments of 50 billion USD in the country, which will be used for recovery of the economy and development. Yet some analysts warn that the opaque bureaucracy and lengthy political stigmas will force companies to enter more cautiously." Iran's oil revenues amount to roughly 34 billion USD and will "probably be used for the purchase of raw materials” said the Governor of Central Bank of Iran, Valiollah Seif.

It is also important to note that The prospect of increasing Iranian production of crude oil further suppress oil prices, which have fallen by about 75% since mid-2014. This will limit economic growth in Iran for the year, according to the Iranian calendar which ends this March. "According to the forecasts the growth of economy should be less than 3%, but expected to accelerate to 5-6% during the next Iranian year to March 2017."

This Time, Cheaper Oil Does Little for the U.S. Economy

       It has been a trend in U.S. history that when oil prices decrease, the economy grows. Vice versa, when oil prices increase, the U.S. economy typically suffers. However, in the past two years, while the price of oil has continued to fall, the economy has failed to experience the usual benefits that it receives from the decline. Economists believe that this is because "the losses from lower prices are larger and quicker than expected...while the gains are smaller and slower to materialize."

       A part of the reason why the U.S. economy is suffering with the lower gas prices is because the U.S. has shifted from importing a majority of its oil to increasing its own production of oil and gas. In fact, the amount of imported oil and gas is at a low not seen since 1985 with only 27 percent of petroleum being imported in 2014. Thus, domestic oil and gas producers are suffering, offsetting the benefits experienced from increased consumption. 

       One issue with the decline of crude oil prices is that inflation expectations may not be met. The Federal Reserve aims to keep inflation at about 2 percent each year. The decreasing prices are causing most people to believe that the Fed will not meet the inflation goal in 2016 which is important because public expectations are important in the determination of the pace of inflation.

       While many Americans benefit from the lower prices at the pump, it is important to consider the domestic oil and gas producers who are forced to lay workers off and the other consequences of a decline in crude oil prices.

http://www.nytimes.com/2016/01/22/business/energy-environment/this-time-cheaper-oil-does-little-for-the-us-economy.html?_r=0

Inside the Fight Over Productivity and Wages

 How do we measure wages and productivity? Productivity and compensation are both adjusted for inflation over time—but by different measures. The measure of productivity, or output, is converted based on the components of America’s national output (gross domestic product, or GDP).  Adjustments for wages use an index that tracks the prices of things workers consume, to give a sense of how far each earned dollar goes towards paying for life’s essentials. Prices have risen faster for consumer goods and services than for the prices of things that workers produce (such as machinery or airplanes), creating what Mssrs. Bivens and Mishel call the “terms-of-trade gap.” This gap accounts for a little less than one-third of the overall gap between pay and productivity.

Then how productive is the average worker anyway? Robert Lawrence, an economist at Harvard University, suggests the higher return to some workers could reflect the fact that they truly are more productive than other workers. Who are these high performers? Surprisingly, they’re not only Mensa members or people with ironclad work ethics. They’re workers in mining, energy and manufacturing, all sectors that have seen innovations in what Mr. Lawrence calls “labor-augmenting” machinery that makes each worker capable of producing more widgets (or cars or oil) in a given period.

 So where does all the money go?  Even if a small number of firms (or the top 1% of American earners) are responsible for the bulk of productivity gains, if worker pay has not risen in recent decades, it raises the question of whether the channels through which those rising wages might normally spread through the economy are blocked. In other words, why is this economy somewhat immune to Baumol’s cost disease?


From： http://blogs.wsj.com/economics/2015/09/08/inside-the-fight-over-productivity-and-wages/

"Russia's Economy: Phase Two"

   Even though Putin believes the Russian economy is on the climb, there is still a lot to worry about.   The ruble is dropping, 85 to a dollar (a record low).Russia’s exports and government revenues collapsed, which caused, GDP to shrink 4% especially when considering GDP is (C+I+NX+G). Unlikely to be the same problems they saw in 2014 since Russian business have healthier finances. Foreign debt decreased. Improvements to the banking sector due to a greater forbearance on souring debts. Help from lower taxes, and they pay employees in rubles but the large oil companies get paid by dollars. The government based their budget on higher oil prices so face a 3% deficit, which led to the government cuts. Suggestions also include government bonds, privatizing state assets, and printing rubles (which would only increase inflation and lower the value of the ruble. In addition, consumer spending is down as is travel. It is now cheaper for companies to manufacture products in Russia than China, but the instability is still too wary for many investors. 

http://www.economist.com/news/finance-and-economics/21688932-russias-economic-problems-move-acute-chronic-phase-two

Money is rushing out of Emerging Markets. Blame China. 

This article takes a look at the emerging markets and what effect they are going through due to the economic panic of the world. Since 2015 the emerging markets have lost $735 billion of capital investment from stronger economies. But China alone has pulled out $676 billion. This is a heavy blow to emerging markets because they cannot compete in the international markets without foreign investment. As their overall GDP declines their currencies get weaker and weaker. With a weaker currency the overall quality of life decreases with it.

With the recent oil crisis the Emerging markets will get hit even harder. I am concerned about these markets and I think the global leaders should take a stand and get some stability back for all the markets.

http://foreignpolicy.com/2016/01/20/davos-diary-money-is-rushing-out-of-emerging-markets-blame-china/

Why low oil prices hurt the stock market – but won't lead to a US recession

Being a large part of the S&P 500, the energy company sector of the index has decreased by 13%, and has brought the entire index down by 9%. The changes in prices of oil have led to these decreases, and they have also led to the stock market having its worst start to a year ever recorded. However, the writer insists that while it may seem that the American economy as a whole is struggling, this is not necessarily the case under the surface. He makes the point that when including energy companies in the S&P 500, companies' profits on a whole are down 5.8% from last year. Although when energy companies are removed from this analysis, it can be seen that S&P profits are up 5.7%. It can be argued that the immediate concern is not with the US economy, but rather with the global economy; which may ultimately effect the US economy in the long run.

As a result of new techniques to mine for oil, the US has provided more output of oil than any Opec country other than Saudi Arabia, and with such an increase in oil, the demand is by far exceeding the supply. At the same time, economic growth in China, the number one oil consumer, has been rapidly slowing, which does not pair well with the increasing surplus with oil.

Overall, Bruce Kasman, chief economist at JPMorgan Chase, explains that, from history, it can be concluded that steep drops in oil prices have been a sign of a weakening global economy. Julian Jessop, head of commodities research with London-based researchers Capital Economics gives a solution that I agree with when he says, "$60 a barrel would do the trick. High enough to keep the main producers in business but low enough to provide a real boost to the incomes of consumers.”

http://www.theguardian.com/business/2016/jan/21/oil-prices-stock-market-us-recession-economy

Increase in Interest Rates Doubtful

It is doubtful that the Federal Reserve will raise interests rate in March as the price of food and energy goods dipped in December. In addition, housing starts and new building permits declined in December. The Labor Department confirmed that the CPI dropped to 0.1 percent from November. This drop can be attributed to increased housing and healthcare costs. Consumer prices increased by a mere 0.7% in 2015, the smallest annual increase in the last 50 years. Gas prices also fell by 3.9% in December. Inventories increased in December as well helped to decrease prices of core goods. 

"Faltering rent inflation ... signals the loss of economic momentum. That momentum moved millennials off of their parents' couch and onto their own, but momentum may no longer be strong enough to put the same upward pressure on rents," said Steve Blitz, chief economist at ITG Investment Research in New York.

http://in.reuters.com/article/us-usa-economy-inflation-idINKCN0UY1LH

Canadian Vegetable Prices Soar as Currency Falls

In Canada, the low prices of oil and other commodities are causing the value of the Canadian dollar to drop. Two years ago, the Canadian dollar was worth 93 American cents and as of Wednesday, it is now worth only 69 American cents. Factors that have contributed to this sudden fall of the Canadian dollar are listed as: reversing commodity prices and the oversupply of oil. In some ways, the weaker currency is helpful to the Canadian economy because the United States is the largest market for Canadian exports and those exports have become less expensive since the fall of the currency. Service sectors such as Canada's tourism industry are experiencing gains from the fall in currency value. However, food is more price sensitive than the service sector. In grocery stores, changes in currency are more quickly reflected, so grocery stores are less able and willing to take in the losses. The closing of 140 food processing plants in the last couple years is evidence of that.
Savings from lower oil prices seem to disguise the increasing prices for imported goods. Fishermen are now sending their harvest to the United States and restaurant owners must buy their fish back from the United States. This can also be seen in the beef industry. Canadians are trying to find ways to adapt to this new situation seen in the example of Sal Howell, owner of two restaurants who is now focusing on using locally available produce rather than importing produce.
New York Times, Ian Austen, 1/21/16

Full Employment Is A Workers' Best Friend, Not The Minimum Wage

This Forbes article discusses how full employment in the economy is more beneficial for workers than adjusting the minimum wage rate. More so, if the goal is to raise the wages of the workers, then we should be arguing for policies that create full employment and not for any more of that minimum wage silliness. A Walmart located in Washington D.C. noted they might need to downsize depending on the possibility of a minimum wage increase. The minimum wage there is currently $11.50 an hour, but this could possibly increase to $15.00 an hour if a proposed ballot measure is successful in November. When trying to raise workers wages through the minimum wage, it successfully increases wages, however, other workers end up with no wages as a result. Therefore, a better solution would be to reach full employment in the economy to raise wages.

If there’s unemployment around then companies don’t have to pay workers high value because if anyone gets asks for a pay rise, the employer can just fire them and hire some of the reserve army of the unemployed. However, this power arrangement entirely changes when there’s no unemployment. In order to find workers, the employer is now in competition with other capitalists for the profit. That competition means that they have to raise wages to get the workers they want. If we’re at full employment then wages (more properly, total compensation, including things like paid time off, pension contributions, healthcare insurance and yes, taxes on employment) will rise with productivity in real terms and productivity plus inflation in nominal terms. Which is, actually, what we would like to be happening. Thus we’d like the economy to be at full employment.

http://www.forbes.com/sites/timworstall/2016/01/21/walmart-and-karl-marx-full-employment-is-the-workers-best-friend-not-the-minimum-wage/#2715e4857a0b6e1f459b5393 

‘Noon Swoon,’ Then Recovery That May Signal Market Turnaround

Soon after midday on Wednesday, panic selling seemed to be seizing the United States stock market.

The Dow Jones industrial average was down more than 500 points, and all the fears that have driven this year’s declines — including concerns that the world economy is slowing — seemed as potent as ever.

Then investors’ mood changed.

Buyers rushed in, sending the Dow up over 400 points. What could have been a rout ended up being just the sort of down day that investors have had to get used to this year.

The Dow closed off 249 points, or 1.56 percent, to 15,766.74. The Standard & Poor’s 500-stock index, a broader benchmark, fell 22 points, or 1.17 percent, to 1,859.33. The Nasdaq composite index ended barely changed, 5.26 points lower, or 0.12 percent.

And after spiking, the Vix index, which measures investors’ expectations of volatility and is known as Wall Street’s fear gauge, tumbled.

Continue reading the main stor

To some, the turnaround felt a little like the sort of cathartic turning point that can signal a bottom on the markets — at least for a time.

“The noon swoon today looked to me to be consistent with sort of important lows that I’ve seen over the years,” said Douglas A. Kass, a founder of Seabreeze Partners Management. “You had panic, fear and immobility on the part of many investors.”

The main reason that the analysts gave for their tempered optimism is that the global economy does not appear to be in as poor a shape as the stock market is suggesting. In other words, while many countries, including China and its $10 trillion economy, still face stiff challenges, the United States stock market now appears to already reflect such risks, these analysts say.

“It feels like we are discounting too much bad news ahead,” said Chris Rupkey, chief financial economist at MUFG Union Bank in New York. “On these sort of days, you want to go and look at how the economy is doing, and it appears that the financial markets are overreacting.”

In recent years, global stocks have at times sold off sharply without a clear, cataclysmic trigger. Instead, the cause has been concern that the global economy is faltering. In 2011 and 2012, Europe was the source of most fears. Then last year, China started to unsettle global markets, especially after its shock currency devaluation in August.

Still, investors have in recent years jumped back into the market after they have concluded that the world economy is not sliding into recession and that the global financial system is not about seize up as it did in 2008.

The markets, however, will have to rise by quite a lot to recover their recent losses.

The S.&P. 500 has slid 9.03 percent so far this year and is now 12.74 percent below the nominal high that it reached last year. After adjusting for inflation, the stock market is lower than it was in 1999.

And some markets are still flashing warning signals.

On Wednesday, for instance, investors sought the safety of government bonds. The yield on the 10-year Treasury note, which falls as its price rises, slipped to 1.99 percent, from 2.06 percent, the first time it has closed below the 2 percent threshold since October.

Advertisement

Continue reading the main story

Advertisement

Continue reading the main story

The tumbling price of oil has also persuaded investors to be cautious. Cheaper oil reduces costs for companies and consumers. But a falling oil price could also be a signal that companies require less oil, which in turn could be an early signal that the world economy is on the verge of decelerating.

Continue reading the main story

And on Wednesday, oil prices resumed their slide; the price of a barrel of crude oil reached the lowest level since May 2003. Crude oil was down 6.7 percent, to settle at $26.55 a barrel in trading for February futures on the New York Mercantile Exchange.

Royal Dutch Shell warned on Wednesday that it expected its profit for the fourth quarter of 2015 to be about half of what it was in the comparable period a year earlier. In addition, traders see no signs of the oil glut easing, as Iran has permission to sell into the world markets now that sanctions have been lifted as part of a nuclear deal.

European stocks ended sharply lower on Wednesday. The Euro Stoxx 50 index was down 3.3 percent. The FTSE 100 in London closed the day down 3.46 percent. London stocks are now down more than 20 percent from their April high: a level analysts generally regard as a bear market. 

In addition to worries about China, investors have also grown concerned that economic overhauls in Japan championed by Prime Minister Shinzo Abe, called Abenomics, are faltering. Despite Mr. Abe’s pledges to increase economic growth, which were accompanied by a huge program of monetary easing carried out by the central bank, the Japanese economy continues to dip in and out of recession.

The trading action in the United States stock market contained some unexpected moves. Shares of Twitter, which have plunged in recent weeks, surged on takeover rumors, leaving the stock up 4.13 percent for the day.

Article online: http://www.nytimes.com/2016/01/21/business/international/us-stock-markets-dow-sp-global-indexes.html