Jobless Rates for Young Adults The Worst in 64 Years (video)
Eurozone Manufacturing Contracts for a Seventh Consecutive Month
“(Reuters) – The euro zone’s manufacturing sector contracted for the seventh straight month in February, with factories in the bloc’s struggling indebted states facing some of the toughest conditions on record, a business survey showed on Thursday.
It looks increasingly possible that the 17-member euro zone is stuck in a mild recession, as new orders continued to fall and backlogs of work dry up, even in the region’s most healthy economy Germany.
Markit’s Eurozone Manufacturing Purchasing Managers’ Index (PMI) rose to 49.0 last month from January’s 48.8, in line with a flash reading but has now been below the 50 mark that divides growth from contraction since July.
“Whether the euro zone will sink back into recession in the first quarter remains highly uncertain. The periphery remains the major concern,” said Chris Williamson, chief economist at data provider Markit.
The data comes a day after the European Central Bank’s latest half-trillion euro cash injection into the euro zone’s banks.
The funds have helped stabilize sovereign bond markets in countries such as Italy and Spain but accompanying austerity programs appear to have delivered a further blow to growth….”
Comments »Can the Consumer Keep Chugging Along ?
Martin Feldstein Says Not To Expect More Rosy GDP Prints Such as What Was Had Today
The U.S. economy grew 3 percent in the fourth quarter of 2011, faster than expected although don’t expect such pleasant surprises to continue in 2012, says Harvard economist Martin Feldstein.
“My personal view is that we’re not going to see the kind of 3 percent GDP growth that some people are calling for. I think we’ll be lucky if we have 2 percent,” Feldstein tells CNBC.
“There are strong headwinds. It’s going to be hard to maintain exports,” said Feldstein, chairman of the Council of Economic Advisers under President Ronald Reagan.
“Consumption got boosted last year because people cut their saving rate sharply. I don’t think that’s going to happen again. We’ve got higher oil prices, so it’s going to be a tough year.”
The country should consider itself lucky if it breaks 2 percent growth in 2012.
“Being under 2 percent, which is where we were last year, I think is more likely then higher rates,” Feldstein says.
The Federal Reserve has said that interest rates will likely stay low through 2014, which suggests the economy will not come roaring back anytime soon.
Unemployment rates currently stand at 8.3 percent, figures that Feldstein and many others say don’t reflect the true weakness of the labor market in that those who give up searching for jobs are not factored into that number.
Students graduating from school who put off looking for work aren’t counted either.
“The unemployment rate has come down by more than a full percentage point. But about half of that is because people have stopped looking for work or haven’t even started looking for work,” Feldstein says.
“So we haven’t seen the improvements in the labor market that the unemployment rate suggests.”
The one bright spot is that a weak economy means inflation rates will remain under control.
“I don’t see any short-term inflation problems. By short-term, I mean this year, next year. It’s hard to believe that in this economy, we’re going to see significant inflation problems.”
Some point out that the economy is likely stuck in a depression, which is marked by recessions followed by periods of weak growth that dip back into recession again.
Credit booms and busts as well as extended periods of deleveraging mark depressions.
A typical recession not associated with depression is normally marked by a short contraction and then a pronounced rebound.
Corrections in the business cycle tend to mark these garden-variety recessions.
“The Great Depression featured a double-dip of its own. Within the start and end dates of the Great Depression, there were two recessions, 1929 to 1933, and 1937 to 1938,” James Rickards, a hedge fund manager and the author of “Currency Wars: The Making of the Next Global Crisis,” writes in a U.S. News & World Report column.
“Recessions inside a depression are completely different phenomena than typical business and credit cycle recessions. They are the result of behavioral shifts in a larger wave of deflation and deleveraging,” Rickards says.
Comments »Oil May Pose Demand Destruction Without Further Price Increases
World Bank warns China of impending collapse
Read here:
Comments »The World Bank and a Chinese think tank have a stern warning for China’s government: transition to a freer market system, or else face an economic crisis.
The “China 2030” report, released by the World Bank on Monday, recommends China enact reforms promoting a freer economy. Those reforms include a major overhaul turning China’s powerful state-owned companies into commercial enterprises.
“China could postpone reforms and risk the possibility of an economic crisis in the future — or it could implement reforms proactively. Clearly, the latter approach is preferable,” the report said.
The report is compiled by the World Bank and the Development Research Center, a research group that reports directly to China’s State Council. It encourages China to promote innovation, competition and entrepreneurship as means of economic growth, rather than allowing growth to be primarily government engineered.
The world’s second-largest economy has been rising rapidly, averaging around 10% growth a year for the last three decades. Much of that momentum has come as China’s rural population moves into the cities and as the government has funded massive infrastructure projects and retained a powerful influence over the country’s biggest companies.
State-owned companies dominate China’s banking, energy, telecom, health care and technology sectors. Overall, they account for about 40% of the country’s gross domestic product, according to Andrew Szamosszegi and Cole Kyle, who have researched the topic for the U.S.-China Economic and Security Review Commission.
Their latest report to the commission puts it bluntly: The Chinese government has not “expressed an interest in becoming a bastion of free market capitalism.”
Nat. Realtors: Pending home sales highest in two years
Comments »WASHINGTON (AP) — The number of Americans who signed contracts to buy homes rose in January to the highest level in nearly two years, supporting the view that the housing market is gradually coming back.
The National Association of Realtors said Monday that its index of sales agreements rose 2 percent last month to a reading of 97. That’s the highest reading since April 2010, the last month that buyers could qualify for a federal home-buying tax credit and the last time the reading was above 100.
A reading of 100 is considered healthy.
The Realtors’ group also released revised data for 2011. That lowered November’s initial 19-month high of 100.1 to 96.9. But contracts have been markedly up since the summer when some feared a second recession loomed.
Will High Oil Prices Crush The U.S. Economy?
by Michael Levi
February 24, 2012
Rising gasoline prices have a way of bringing out the hidden energy pundit in all of us. Most speculation tends to focus on why oil prices might be rising and on how high they might go. But a second strand of questioning is probably even more important: What do rising prices mean for the world? There’s a lot of wisdom that’s accumulated over the past few decades in attempts to answer that question. But I have to wonder whether there aren’t some fundamental changes that might render a lot of it obsolete.
One of the main ways that economists have tried to cut through this complication is by distinguishing between high oil prices that result from demand spikes and ones that follow supply cuts. Demand driven oil shocks should be relatively benign. Supply driven ones, in contrast, should be far more devastating. For many observers, that explains why the 1970s oil shocks were so damaging, and why many subsequent ones were far less severe.
I suspect, though, that something has changed in the world economy to throw a wrench in all of this. We now live in a world where U.S. economic health doesn’t drive global oil demand and prices the same way that it used to. Once upon a time, if the U.S. economy was flagging, the only way to generate a oil big price increase was to have a supply shock. That meant that oil spikes were rare in periods where the U.S. economy was shaky; for the most part, oil shocks hit when the U.S. economy was relatively strong, probably blunting their effects.
But we now live in a multispeed world. Western economies can be on their knees, but oil demand can still be on the upswing due to healthy growth in China, India, and other emerging economies (not least those that also export oil). It’s become far more likely that we’ll have price spikes during periods where the U.S. economy is already weak. That makes historical precedent harder to go by.
There’s another way to think about this. I mentioned that economists like to split oil spikes into ones driven by low supply and ones spurred by high demand. Casual analysis would put a price spike driven by economic growth in the developing world in the latter category. But what seems like a demand shock if you’re sitting in Shanghai looks a lot more like a supply shock if you live in San Francisco. Surging demand in the developing world takes barrels off the market in the same way that falling production in Iraq or Nigeria would. My guess is that these new “demand” shocks will hit the U.S. economy much more like supply shocks have in the past.
That’s bad news. So is there anything the United States can do beyond getting its energy policy right? I’ll throw one idea out there: it could work on boosting export relationships with those countries that are driving economic growth. If an economic boom in the developing world rasies oil prices, and that slows the U.S. economy down, strong export relationships with the sources of that growth will tend to provide a countercyclical balance. There’s some evidence that Japan benefits from a similar sort of arrangement with oil exporters: the Japanese current account balance tends to improve, rather than weaken, when oil prices jump. Perhaps the United States could ultimately do the same?
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Why College Aid Makes College More Expensive
Hough: New research shows how federal spending on higher education can backfire.
Federal aid for students has increased 164% over the past decade, adjusted for inflation, according to the College Board. Yet three-quarters of Americans and even a majority of college presidents see college as unaffordable for most, and that sentiment has been steadily spreading, the Pew Research Center reports.
Two new studies offer clues on why. One measures the degree to which some colleges reduce their own aid in response to increased federal aid. The other suggests federal aid is helping to push college costs higher.
Recipients of federal Pell Grants have, by definition, limited means to pay for college, so they are likely to qualify for grants and price breaks given out by schools, too. But schools view a student’s sources of federal aid before deciding how much to give on their own, rather than the other way around. The result is a crowding out effect, where some schools give less as the government gives more.
Lesley Turner, a PhD candidate at Columbia University, looked at data on aid from 1996 to 2008 and calculated that, on average, schools increased Pell Grant recipients’ prices by $17 in response to every $100 of Pell Grant aid. More selective nonprofit schools’ response was largest and these schools raised prices by $66 for every $100 of Pell Grant aid.
Aid from schools over the past decade has increased about half as fast as federal aid, according to the College Board.
Perhaps worse for students than a crowding out effect is the Bennett Effect, named for William Bennett, who 25 years ago as Secretary of Education wrote for the New York Times, “Increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions.”
If subsidies puff up buying power and shift prices higher, as economics courses teach, could federal aid for college help create an affordability problem? After all, the federal government began spending more on college aid with the Higher Education Act of 1965 and the full funding of Pell Grants in 1975. Since 1979, tuition and fees have tripled after adjusting for inflation. That’s much faster than the increase for real estate and teacher pay.
There have been mixed findings on the Bennett Effect in recent decades, with some studies finding a dollar-for-dollar relationship and others, none at all. Determining why college costs are rising is a difficult task, after all. Stephanie Riegg Cellini of George Washington University and Claudia Golden of Harvard take a new approach, focusing on for-profit schools. Some of these are eligible to participate in so-called Title IV aid programs (named for a portion of the aforementioned Act) and some not.
After adjusting for differences among schools, the authors find that Title IV-eligible schools charge tuition that is 75% higher than the others. That’s roughly equal to the amount of the aid received by students at these schools.
Studies like these suggest that if one goal of government is to make college affordable, aid should become more thoughtful instead of merely more plentiful. And the total cost of federal spending on college isn’t fully known. That’s because spending on loans dwarfs that on grants. Student loans recently eclipsed credit card debt.
Read the rest here.
Comments »TOUGH TIMES: Man Walks Into Denny’s And Cooks Himself Dinner H/T @kcbill
There’s no such thing as a free lunch, or dinner. James Summers learned that lesson on Tuesday afternoon, police say, when he strolled into a Madison, Wis., Denny’s with a briefcase, claimed that he was the new general manager, cooked up his own cheeseburger and fries, and grabbed a soda
Even when police arrived, he stood his ground, and insisted there must have been a paperwork mixup,
reports Channel3000, a south-central Wisconsin news site.
Here’s what police say was the sequence of events: The gray-haired 52-year-old (pictured at left) entered the restaurant around 4.30 p.m. in a maroon tie and long black trenchcoat. He went to the office door of the current general manager, insisted that he was a three-decade veteran of the fast food chain, and had been sent from the corporate offices to immediately start his job as general manager.
The current manager told Summers that he must have gotten the wrong restaurant, and the interaction turned into a “nose on nose,” in her words. He left and told her that he was going to start work. His first task: cooking himself dinner.
The current manager started called her supervisors, and ignored the knocks on the doors from the bemused kitchen staff. The intruder was chowing down when she told him that he was definitely not who he said was. He continued eating, and said she just hadn’t got the memo.
By the time the police arrived, Summers was leaving the scene. He agreed to return, insisted again that he was the general manager, and although the police couldn’t confirm the facts, they arrested him. An officer discovered a stun gun in his belt, and when he asked Summers if he had a permit, he replied, “it’s in the pipeline.”
Summers now faces charges of fraud hotel or restaurant keeper, possession of electric weapon, disorderly conduct, and possession of drug paraphernalia. As he was taken away from the restaurant by police, Summers allegedly shouted out: “This is why you don’t dine and dash kiddies.” A good lesson for us all.
Comments »The Truth: There Was Nothing Special About The Reagan Economic Growth Era Compared to the Rest of the World
Warning: Rail Traffic Falls 5.6%
Cheap Natty Gas Luring Manufacturing Back to America
Your Fucking Dead Chart Porn
More and more we’re hearing about how 2012 is similar to 2007.
For example, yesterday Albert Edwards put out this chart of stalled earnings momentum, comparing the current scene to 2007.
And just now on CNBC, ECRI’s Lakshman Achutchan hinted at the comparison in defending his recession call.
And then of course, there’s the growing oil price doom drumbeat. Just like 2007, prices are shooting up.
But basically, that’s where the comparisons stop.
In 2006-2007, initial jobless claims were steadily drifting higher. Now they’re dropping like a rock.
In 2006-2007, housing starts were dropping like a rock. Now they’re rising.
Along the same lines, total employment growth was decelerating on an annual basis in 2006-2007, whereas now it’s accelerating.
In 2006-2007 car sales were declining precipitously. Now they’re surging.
So the comparison to 2007 is pretty thin. Sure there are some superficial similarities regarding oil prices, but when you look at the sharply different direction in car sales, home sales, and housing starts, it’s really not even that close.
Read more: http://trade.cc/apdg#ixzz1nJ4CRGSx
Comments »Germany’s GDP Falls 0.2% as Exports Drop 0.8%
How Capitalism Kills Companies
Felix Salmon
As Mitt Romney cruises to his inevitable coronation as the Republican presidential candidate, increasing amounts of attention are being focused on his history at Bain Capital, where he made his fortune. Did he create 100,000 jobs, as he claims? Or is he a vulture and asset stripper?
Glenn Kessler has the definitive take on the job-creation claim, which he says is “untenable”; as he says, Romney’s method of counting jobs created when he wasn’t at Bain or when Bain wasn’t managing the companies in question doesn’t even pass the laugh test. Meanwhile, as Mark Maremont documents, Bain-run companies — even the successful ones — have an alarming tendency to end up in bankruptcy. And I think it’s fair to say that bankruptcy never creates jobs, except perhaps among bankruptcy lawyers.
The reality is that Romney would have been in violation of his fiduciary duty to his investors had he concentrated on creating jobs, rather than extracting as much money as he possibly could from the companies he bought. For instance, Worldwide Grinding Systems was a win for Bain, where it made $12 million on its initial $8 million investment, plus another $4.5 million in consulting fees. But the firm ended up in bankruptcy, 750 people lost their jobs, and the US government had to bail out the company’s pension plan to the tune of $44 million. There’s no sense in which that is just.
Romney’s company, Bain Capital, was a “private equity” firm — the friendly, focus-grouped phrase which replaced “leveraged buy-outs” after Mike Milken blew up. But at heart it’s the same thing: you buy companies with an enormous amount of borrowed money, and then dividend as much money out of them as you can. If they still manage to grow, you can make a fortune; if they don’t grow, they’ll likely fail, but even then you might well have made a profit anyway.
Private equity companies need growth, because they’re built on the idea of buying, restructuring, and then selling. They’re never in any business for the long haul: instead, they want to make as much money as they can as quickly as possible, sell out, and keep all the profits for themselves and their investors. When you sell, you want to maximize the price you can ask — and the way to do that is to show healthy growth. No one will pay top dollar for a company which isn’t growing.
Read the rest here.
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