Economy

That Bubbling Sound Coming From U.S. Factories May Be Inflation

4 Jan 2017   Economy, USA

Champagne wasn’t the only thing bubbling at the start of 2017 for U.S. manufacturers: So was inflation, a potential warning sign in an otherwise broadly positive report on American factories. The Institute for Supply Management said Tuesday that its index of manufacturing increased for a fourth straight month, reaching a two-year high of 54.7 as new orders surged by the most since the summer of 2009 on stronger overseas and domestic demand. Percolating sales were evident in the group’s gauge of prices paid for raw materials, which advanced to 65.5, the highest level since June 2011. While the ISM sub-indexes can be volatile, the jump in prices caught the eye of factory managers and analysts, with survey chairman Bradley Holcomb noting it was “clearly something to watch” at the beginning of the year. A broad-based increase in costs of inputs for production corroborates signs of higher consumer inflation. The […]

Sovereign-Wealth Funds Threatened by Government Spending

26 Dec 2016   Economy

Kazakh President Nursultan Nazarbayev says the country’s sovereign-wealth fund has the money to help wean the central Asian nation off its dependence on oil revenues and build an economy of entrepreneurs. The 76-year-old president, who led Kazakhstan to independence from the Soviet Union 25 years ago, earlier this year told visitors to the new capital city he built that “Kazakhs have never lived as well as they live today” and the nation’s savings help maintain living standards. But since Mr. Nazarbayev created the so-called National Fund in 2000, his government has withdrawn $83 billion from it, according to a Wall Street Journal analysis of data from Kazakhstan’s central bank that was corroborated by the International Monetary Fund. The National Fund has a balance of $61 billion as of Nov. 30, down 21% from its peak in August 2014. The Bayterek tower in Astana, Kazakhstan’s new capital city, with the […]

What Has Gone Wrong With Oil Prices, Debt, & GDP Growth?

9 Dec 2016   Economy

Our economy is a mystery to almost everyone, including economists. Let me explain the way I see the situation: (1) The big thing that pulls the economy forward is the time-shifting nature of debt and debt-like instruments . If we want any kind of specialization, we need some sort of long-term obligation that will make that specialization worthwhile. If one hunter-gatherer specializes in finding flints that will start fires, that hunter-gatherer needs some sort of guarantee that others, who are finding food, will share some of their food with him, so that the group, as a whole, can prosper. Others, who specialize in gathering firewood, or in childcare, also need some kind of guarantee that their efforts will be rewarded. At first, these obligations were enforced by social norms such as, “If you don’t follow the rules of the group, we will throw you out.” Gradually, reciprocal obligations became […]

How to Boost the Global Economy? Higher Oil Prices, Goldman Says

24 Nov 2016   Economy, Prices

Forget the stagflation of the 1970s. Higher oil prices would be a boon for the global economy, according to Goldman Sachs Group Inc. Pricey crude means economies such as Saudi Arabia take in more money than they can spend, which financial markets help distribute through the rest of the world, boosting asset values and consumer confidence, the bank’s analysts Jeff Currie and Mikhail Sprogis wrote in a Nov. 22 research note. It’s a counter-intuitive notion, especially for anyone who lived through the 1970s, when Middle East turmoil hiked oil prices and pushed much of the developed world into recession. Back then, high oil prices meant money flowed from developed economies where consumption was high to emerging economies where consumption was low, taking money out of circulation and stagnating the economy. Things changed in the 2000s, Currie and Sprogis wrote. Modern financial systems took savings that were building up in […]

J.D. Power, LMC: new vehicle sales in US slide again, 6th time this year

24 Nov 2016   Economy, USA

For the second time in three months and the sixth time this year, new-vehicle retail sales in November are expected to slip from year-ago levels, according to a monthly sales forecast developed jointly by J.D. Power and LMC Automotive. US new-vehicle retail sales in November are projected to reach 1,128,900 units, a 2.0% decrease from November 2015 on a selling-day adjusted basis, while total new-vehicle sales are expected to drop 3.4% to 1,381,800. While the presidential election had the potential to disrupt vehicle sales in the first half of the month, in reality, the impact was minimal, the companies said. This is consistent with past elections when a small suppression of sales during […]

Where oil-rich Texas sees economic gains

22 Nov 2016   Economy, USA

 Some semblance of stabilization in the energy sector has resulted in a net positive for the state of the Texas economy, a regional banker said. The Federal Reserve Bank of Dallas reported unemployment fell in all nine major metropolitan areas in the state last month. Keith R. Phillips, a senior economist at the bank, said there were broad indicators showing modest growth was likely in the months ahead. “With the stabilization of the energy sector and some recent improvement in the manufacturing sector, the Texas economy is on solid ground and will likely improve moderately in 2017,” he said in a statement. Crude oil prices have leveled off in the mid- to upper-$40 per barrel range for much of the latter quarter of 2016, after falling below $30 per barrel during […]

Why energy prices are ultimately headed lower; what the IMF missed

12 Oct 2016   Economy, IMF

We have been hearing a great deal about IMF concerns recently, after the release of its October 2016 World Economic Outlook and its Annual Meeting October 7-9. The concerns mentioned include the following: Too much growth in debt, with China particularly mentioned as a problem World economic growth seems to have slowed on a long-term basis Central bank intervention required to produce artificially low interest rates, to produce even this low growth Global international trade is no longer growing rapidly Economic stagnation could lead to protectionist calls These issues are very much related to issues that I have been writing about: It takes energy to make goods and services. It takes an increasing amount of energy consumption to create a growing amount of goods and services –in other words, growing GDP. This energy must be inexpensive, if it is to operate in the historical way: the economy produces good […]

IMF Cuts 2017 GDP Growth Outlook for Africa’s Largest Economies

5 Oct 2016   Africa, Economy, IMF

Low commodity prices, weak confidence drag down growth Nigeria’s economy forecast to contract 1.7% this year The International Monetary Fund has cut its 2017 economic growth forecasts for Africa’s two largest economies as low commodity prices, policy uncertainty and weak investor confidence weigh on output. Gross domestic product in South Africa will probably expand 0.8 percent next year, compared with the 1 percent forecast in July, the Washington-based lender said in its World Economic Outlook Report Tuesday. Nigeria’s economy will contract 1.7 percent this year and expand 0.6 percent in 2017, less than the 1.1 percent the IMF earlier forecast. The two nations make up more than half of the sub-Saharan Africa’s GDP. The fall in global commodity prices has hindered economic growth in the continent’s biggest producers of oil and minerals like platinum and gold, and led to a slump in foreign-currency earnings. In Nigeria, electricity shortages and […]

Dollar Rises on Fed Hawks as Pound Slumps; European Stocks Gain

4 Oct 2016   Economy, USA

Commodities drop as oil retreats from three-month high India’s rupee advances after the RBI cuts interest rates The dollar strengthened as hawkish comments from a Federal Reserve official spurred wagers that U.S. interest rates will rise before the end of the year. The pound slumped to its weakest level since 1985, while stocks in Europe rallied. The greenback extended its winning run versus the yen to a sixth day as a Bank of Japan survey showed companies trimmed their inflation forecasts. Sterling tumbled on mounting investor concern that the U.K. is heading for a so-called hard Brexit. European stocks headed for their longest run without losses in a year, fueled by a recovery in banks. Italy’s longer-dated bonds underperformed before the country sells 50-year securities for the first time. The Bloomberg Commodity Index fell as crude oil retreated from a three-month high. The dollar got a boost as futures […]

Rising US incomes defy election narrative

14 Sep 2016   Economy, USA

Household incomes surged last year in the US, suggesting American middle class fortunes are improving in defiance of the dark rhetoric that has dominated the presidential election campaign. A strengthening labour market, higher wages and persistently subdued inflation pushed real median household income up 5.2 percent between 2014 and 2015 to $56,516, the Census Bureau said on Tuesday. This marked the first gain since the eve of the global financial crisis in 2007 and the first time that inflation-adjusted growth exceeded 5 per cent since the bureau’s records began in 1967.  But the increase in 2015 still brought incomes to just 1.6 per cent below the levels they were hovering at the year before the recession started and they remain 2.4 percent below their peak, hit in 1999. Income gains were largest at the bottom and middle of the income scale relative to the top, reducing income inequality. The US election debate has been dominated by the story of long-term income stagnation, with analysts attributing the rise of Donald Trump in part to the shrinking ranks of America’s middle class, rising inequality and the impact of globalisation on household incomes. Tuesday’s strong numbers, which cover the year in which the Republican candidate launched his campaign, cast that narrative in a new light.

Strong Job Gains, for Second Month, Reframe Economic Outlook

6 Aug 2016   Economy, USA

After months of conflicting signals and economic uncertainty, it became clear on Friday that the American jobs machine has moved back into high gear. A report from the Labor Department that said employers added 255,000 jobs in July had been eagerly anticipated on Wall Street, in Washington and on the campaign trail, and the much-better-than-expected showing immediately rippled through all three arenas. Stocks surged, experts expressed more confidence that the Federal Reserve was likely to raise interest rates at least once this year, and it was evident that long-stagnant wages for ordinary workers were advancing at a more robust pace. “This was everything you could have asked for, maybe more,” said Michelle Meyer, head of United States economics at Bank of America Merrill Lynch. “We’re seeing new entrants into the labor market, which implies a longer runway for the business cycle.” And with the political conventions completed, the buoyant […]

Post-Brexit dollar surge presents Fed with new conundrum

27 Jun 2016   Economy, USA

As Federal Reserve officials anxiously scan the aftershocks of the Brexit vote in the coming days, the reaction of the US dollar in currency markets will be front and centre of their attention.   The dollar rose sharply on Friday in response to the UK’s vote to leave the EU, as money flowed into perceived havens. But a further surge would inject a destabilising element into already unsettled markets and add pressure on the Fed to delay any future rate rises.  Lewis Alexander, US economist at Nomura, said the dollar would be “the first order of business” for the central bank as it examines the markets, followed by gyrations in credit and equities.

The dollar has been a main driver of Fed policy for the past two years because of the drag that a strong currency has imposed on US exports, inflation and corporate earnings. Nearly half of sales by S&P 500 companies in 2014 were generated overseas, according to UniCredit research.   The strong dollar has also injected financial volatility into emerging markets — as seen in January and February this year. It could pose a particular threat to China by rekindling worries about capital outflows and currency devaluation. It is also a potential menace to other emerging markets because of their large stocks of dollar-denominated debts.

Houston facing recessionary strains from low oil price

18 Jun 2016   Economy, USA

Lingering strains for a weak oil economy means the Texas city of Houston may be on the brink of recession, a report from a federal reserve bank said. Houston hosts the headquarters of dozens of national and international energy companies. Early this year, when crude oil prices were trading below $40 per barrel, Danish energy company Maersk Oil shut down its office in the city, laying off about 60 people. The Federal Reserve Bank of Dallas said in a regular review of the regional economy the pressure from low oil prices was spilling over to other parts of the economy, with banks in southern U.S. states facing increasing risk. While outperforming its peers elsewhere […]

Fed expected to hold rates steady as Brexit vote clouds outlook

16 Jun 2016   Economy, USA

The Federal Reserve is expected to keep interest rates unchanged on Wednesday and signal if it still plans to raise rates twice in 2016 amid concerns about a U.S. hiring slowdown and Britain’s possible exit from the European Union. The Fed raised its key overnight lending rate in December for the first time in nearly a decade, but it has backed away from further monetary policy tightening this year largely due to a global economic slowdown and financial market volatility. The U.S. central bank is scheduled to issue its latest policy statement and updated economic projections following a two-day meeting at 2 p.m. EDT (1800 GMT). Fed Chair Janet Yellen will hold a news conference half an hour […]

Oklahoma’s economy pressured, but holding steady

16 Jun 2016   Economy, Shale Oil, USA

The economic outlook for the state of Oklahoma is negative as the revenue stream ebbs as a result of lower oil prices, Moody’s Investors Service says. Moody’s said Oklahoma’s credit rating was strong as conservative fiscal policies offset a broad contraction in the energy sector. “The outlook is negative,” the ratings agency added. Oklahoma is one of the largest oil producers in the United States, hosting some of the more lucrative shale basins in the country. Last week, oil services company Baker Hughes recorded 58 rigs in service in the state. Rig numbers serve as a loose barometer to gauge the health of the energy sector and, for Oklahoma, the number of rigs in service is 45 percent lower […]

US business leaders lower growth forecast for American economy

16 Jun 2016   Economy, USA

US business leaders have offered a bleak view of the American economy, lowering their growth forecast for this year and urging the Federal Reserve to be cautious about raising interest rates.  The Washington-based Business Roundtable, which represents the chief executives of large companies, said on Wednesday that its members expected the US economy to grow by 2.1 per cent in 2016, down from a forecast of 2.2 per cent in the first quarter, according to the group’s latest survey.  The US economy, the world’s largest, grew at an annual rate of just 0.8 per cent in the first quarter, according to official figures, but most economists expect this to accelerate in the coming months.

View full article at www.ft.com

During the Next Crisis, Entire Countries Will Go Bust

16 Jun 2016   Economy, Peak Oil

For seven years, the world has operated under a complete delusion that Central Banks somehow fixed the 2008 Crisis. All of the arguments claiming this defied common sense. A 5 th grader would tell you that you cannot solve a debt problem by issuing more debt. Similarly, anyone with a functioning brain could tell you that a bunch of academics with no real-world experience, none of whom have ever started a business or created a single job can’t “save” the economy. However, there is an AWFUL lot of money at stake in believing these lies. So the media and the banks and the politicians were happy to promote them. Indeed, one could very easily argue that nearly all of the wealth and power held by those at the top of the economy stem from this fiction. So it’s little surprise that no one would admit the facts: that the […]

Wall St. down sharply on oil drop, global growth worries

11 Jun 2016   Economy

A sharp drop in oil prices and global growth worries sent jitters through Wall Street, leading the three major U.S. indexes lower for the second straight day in volatile trading on Friday. After three days of gains, losses in the past two sessions have pushed the Nasdaq into the red for the week, while the S&P 500 and the Dow are roughly flat. Oil prices fell 2.5 percent as traders booked profits after a rally earlier this week pushed prices to their highest in 2016, and as the dollar regained lost ground. [O/R] Financial stocks came under pressure again as global issues, including uncertainty over interest rate hikes and the impending vote on Britain’s membership in the European Union, sent investors flocking to safe haven […]

World Bank downgrades its forecast for 2016 global economy

8 Jun 2016   Economy

WASHINGTON (AP) — The World Bank is reducing its forecast for the global economy this year – again. The aid agency now predicts that growth will reach 2.4 percent this year, down from the 2.9 percent it had foreseen in January and unchanged from a tepid 2015. A big problem is that commodity-exporting countries are struggling with low prices for raw materials. The U.S. economy is forecast to grow 1.9 percent, down from 2.4 percent in 2015. The eurozone is expected to grow 1.6 percent, the same as last year. The World Bank slashed its forecast for Japan’s growth to 0.5 percent from the 1.3 percent it expected in January. Its forecast for China remained 6.7 percent. In recent years, the World Bank and International Monetary Fund have consistently downgraded their initial forecasts.

Yellen Says Latest Jobs Report Raises Questions About Economic Outlook

7 Jun 2016   Economy, USA

Janet Yellen speaks at a World Affairs Council of Philadelphia event on Monday. Federal Reserve Chairwoman Janet Yellen affirmed Monday that the central bank won’t be raising short-term interest rates until new uncertainties about the economic outlook are resolved. Her comments, delivered at the World Affairs Council of Philadelphia, echoed conclusions investors drew Friday after the release of disappointing job market data . Ms. Yellen and other officials still believe they will be gradually lifting rates because they expect the economy to improve. However, a rate increase at the Fed’s policy meeting next week is now effectively off the table. An increase in July is possible but has become less likely, and a September move is possible if economic data show the economy is rebounding by then. Her comments represented a shift from less than two weeks ago, when she confidently said a strengthening meant the Fed likely would […]

US job growth slowest since 2010

4 Jun 2016   Economy, USA

Hiring by US employers slowed last month to the weakest pace since 2010, clouding the economic picture and dealing a blow to the prospects for a Federal Reserve rate increase this month.  Non-farm payrolls rose by a seasonally adjusted 38,000 in May, below a revised 123,000 figure for April and well below expectations for growth of about 160,000. Employers took on 59,000 fewer workers in March and April than previously reported.  The unemployment rate slid to 4.7 per cent from 5 per cent but the declines were driven by people quitting the labour force, rather than buoyant hiring. In a worrying signal, the number of people working part-time because they could not find a full-time post rose by 468,000.

Stocks sold off and the dollar fell on the report, which also sent 10-year bond yields sliding from 1.7938 per cent to 1.728 per cent. The DXY dollar index fell 0.8 per cent. The latest payrolls numbers were affected by a strike by 35,000 Verizon Communications workers that began in late April and stretched through May. But even excluding that effect, the jobs report was poor and contrasted sharply with the robust gains that have been seen for much of the decade.  “This is a smack in the face for the US economy,” said Diane Swonk of DS Economics. “They [the Fed] need to see a much better June number to keep July on the table … When you are losing momentum going into the meeting, that is not when you raise rates.”

View full article at www.ft.com

U.S. job gains in May likely dented by Verizon strike

4 Jun 2016   Economy, USA

People enter the Nassau County Mega Job Fair at Nassau Veterans Memorial Coliseum in Uniondale, New York October 7, 2014. A strike by Verizon workers likely crimped U.S. job gains in May, but employment growth should still be strong enough to confirm a tightening labor market and push the Federal Reserve closer to raising interest rates soon. Nonfarm payrolls probably increased by 164,000 jobs in May after rising by 160,000 in April, according to a Reuters survey of economists ahead of Friday’s closely watched employment report. The jobless rate is forecast slipping one-tenth of a percentage point to 4.9 percent. A government report last week suggested a month-long strike by Verizon workers could slice 35,100 jobs from payrolls in May. The striking workers, who returned to their jobs on Wednesday, were regarded as unemployed because they did not receive a salary during the payrolls survey week. Without the strike, […]

U.S. First-Quarter GDP Growth Revised Higher; Corporate Profits Rose

27 May 2016   Economy, USA

U.S. corporate profits, hit hard last year by the energy downturn and strong dollar, show signs of stabilizing as oil prices dance around $50 a barrel and economic growth appears to be picking up. But American companies still face earnings pressure due to rising wage growth and a still-weak global economic expansion. A key measure of corporate profits—after taxes, without inventory valuation and capital consumption adjustments—rose at a 1.9% pace in the first three months of 2016, the Commerce Department said Friday. That was after dropping at an 8.1% pace in the fourth quarter and a 3.3% decline in the third quarter. “At least it’s not negative,” said Christine Short, senior vice president at analytics firm Estimize, though she added that the profit bounce was “still nothing to write home about.” The broader economy seems on track to rebound after a weak performance over the past few quarters. Gross […]

Auto, Mortgage Delinquencies Climb in Energy Regions

25 May 2016   Economy, USA

Mortgage delinquencies have climbed in the U.S. counties whose employment rates were hardest-hit by the… The year-and-a-half-long spell of low oil prices is making it hard for households to pay the bills in energy-producing regions, an ominous localized trend that comes as the rest of the country returns to pre-recession levels of health. Delinquencies on auto loans have spiked in the U.S. counties that had the highest employment in the oil-and-gas industry, according to the Federal Reserve Bank of New York’s quarterly report on household debt and credit. Mortgage delinquencies have also climbed, though not as dramatically. Tuesday’s report underscores that although the decline in oil prices has saved many Americans money at the pump, it has caused significant economic fallout for those who were working in the energy industry during the boom. So far, the increase in delinquencies and deterioration of credit appears to be concentrated only within […]

Fed signals interest rate hike firmly on the table for June

19 May 2016   Economy

Federal Reserve officials felt the U.S. economy could be ready for another interest rate increase in June, according to the minutes from the central bank’s April policy meeting released on Wednesday. Most participants in the policy-setting committee’s April 26-27 meeting said they wanted to see signs that economic growth was picking up in the second quarter and that employment and inflation were firming, the minutes showed. “Then it likely would be appropriate for the committee to increase the target range for the federal funds rate in June,” according to the minutes. The suggestion that a rate increase in June is firmly on the table suggests the Fed is closer to tightening monetary policy again than Wall Street had expected. The Fed lifted rates in December for the first time in nearly a decade. Prices for futures contracts on the Fed’s […]

The Real Economy Is Already In Recession

19 May 2016   Economy, USA

You are about to see a chart that is undeniable evidence that we have already entered a major economic slowdown. In the “real economy”, stuff is bought and sold and shipped around the country by trucks, railroads and planes. When more stuff is being bought and sold and shipped around the country, the “real economy” is growing, and when less stuff is being bought and sold and shipped around the country, the “real economy” is shrinking. I know that might sound really basic, but I want everyone to be on the same page as we proceed in this article. Just because stock prices are artificially high right now does not mean that the U.S. economy is in good shape. In fact, there was a stock rally at this exact time of the year in 2008 even though the underlying economic fundamentals were rapidly deteriorating. We all remember what happened […]

Debt: The Key Factor Connecting Energy and the Economy

7 May 2016   Economy

There are many who believe that the use of energy is critical to the growth of the economy. In fact, I am among these people. The thing that is not as apparent is that growth in energy consumption is dependent on the growth of debt . Both energy and debt have characteristics that are close to “magic” with respect to the growth of the economy. Economic growth can only take place when growing debt (or a very close substitute, such as company stock) is available to enable the use of energy products. The reason why debt is important is because energy products enable the creation of many kinds of capital goods, and these goods are often bought with debt. Commercial examples would include metal tools, factories, refineries, pipelines, electricity generation plants, electricity transmission lines, schools, hospitals, roads, gold coins, and commercial vehicles. Consumers also benefit because energy products allow […]

Debt: The Key Factor Connecting Energy and the Economy

3 May 2016   Economy, Shale Oil

There are many who believe that the use of energy is critical to the growth of the economy. In fact, I am among these people. The thing that is not as apparent is that growth in energy consumption is dependent on the growth of debt . Both energy and debt have characteristics that are close to “magic,” with respect to the growth of the economy. Economic growth can only take place when growing debt (or a very close substitute, such as company stock) is available to enable the use of energy products. The reason why debt is important is because energy products enable the creation of many kinds of capital goods, and these goods are often bought with debt. Commercial examples would include metal tools, factories, refineries, pipelines, electricity generation plants, electricity transmission lines, schools, hospitals, roads, gold coins, and commercial vehicles. Consumers also benefit because energy products allow […]

U.S. economy stalls in first quarter as activity weakens broadly

29 Apr 2016   Economy, USA

U.S. economic growth braked sharply in the first quarter to its slowest pace in two years as consumer spending softened and a strong dollar continued to undercut exports, but a pick-up in activity is anticipated given a buoyant labor market. Gross domestic product increased at a 0.5 percent annual rate, the weakest since the first quarter of 2014, the Labor Department said on Thursday in its advance estimate, also as businesses stepped up efforts to reduce unwanted merchandise clogging up warehouses. The economy was also blindsided by cheap oil, which has hurt the profits of oil field companies like Schlumberger ( SLB.N ) and Halliburton ( HAL.N ), resulting in business spending contracting at its fastest pace since the second quarter of 2009, when the recession was ending. “Although […]

Dollar Sinks to 11-Month Low Boosting Commodities as Stocks Drop

29 Apr 2016   Economy, USA

The dollar headed for its lowest close in almost a year as signs of slowing growth in the U.S. dimmed prospects for a Federal Reserve interest-rate increase. Stocks fell and commodities extended gains in their best month since 2010. The U.S. currency weakened against 13 of its 16 major peers, while the yen headed for its biggest weekly jump since 2008. Declines in the greenback are proving a boon for raw materials, helping lift gold and silver to 15-month highs. Crude oil has jumped 21 percent this month to more than $46 a barrel in New York. European equities trimmed their biggest monthly advance since November. The dollar’s third straight monthly drop and the prospects for the Fed moving gradually on interest rates are spurring the outlook for inflation, with the 10-year U.S. break-even rate at the highest since July. Reports today on consumer confidence and personal spending will […]

Bill Clinton Predicts Global “Crisis”

14 Apr 2016   Economy

Former President Bill Clinton is worried that a “crisis” of global proportions is around the corner, but that presumptive president Hillary Clinton will “know what to do” when it happens. During a speech yesterday, Clinton asserted that Hillary was better qualified to be president than him when he first ran “because of the trouble around the world”. “The world’s in tough shape,” said Clinton. “And one of the things that could stop us from rising together is a crisis around the world.” “I want somebody there that doesn’t have to figure it out, I want somebody there that will instinctively know what to do,” he added. Some will question Hillary’s proficiency in knowing “what to do” during a crisis given that she was Secretary of State during the attack on a United States outpost in Benghazi, Libya, that left four Americans dead. What Bill Clinton is referring to when […]

Why Low Oil Prices Haven’t Helped The Economy

13 Apr 2016   Economy, Prices, USA

Many analysts had anticipated that a dramatic drop in oil prices such as we’ve seen since the summer of 2014 could provide a big stimulus to the economy of a net oil importer like the United States. That doesn’t seem to be what we’ve observed in the data. There is no question that lower oil prices have been a big windfall for consumers. Americans today are spending $180 B less each year on energy goods and services than we were in July of 2014, which corresponds to about 1 percent of GDP. A year and a half ago, energy expenses constituted 5.4 percent of total consumer spending. Today that share is down to 3.7 percent. (Click to enlarge) Consumer purchases of energy goods and services as a percentage of total consumption spending , monthly 1959:M1 to 2016:M2. Blue horizontal line corresponds to an energy expenditure share of 6 percent. […]

How The Oil Crisis Has Impacted Military Spending

11 Apr 2016   Economy

A report by the Stockholm International Peace Research Institute has revealed that most of the world’s nations hiked their military budgets last year, marking the first increase in spending since the 2008 crisis. It seems that the only ones not taking part in this military spending hike are some of the world’s biggest oil producers. While the United States is still the country with the largest military budget at $596 billion spent in 2015, this figure was actually a decline on the previous year. Saudi Arabia, according to Bloomberg , would also have cut its military budget if not for the war in Yemen. Russia, the world’s top oil producer, shrank military outlays in 2015 to $66.4 billion. Oil is the most abundant commodity in the world. It fuels all economies, even those firmly on the path to a green future. It is a strategic commodity in every single […]

U.S. banks’ dismal first quarter may spell trouble for 2016

11 Apr 2016   Economy, USA

It is only April, but some on Wall Street are already predicting a rotten 2016 for U.S. banks. Analysts say it has been the worst start to the year since the financial crisis in 2007-2008 and expect poor first-quarter results when reporting begins this week. Concerns about economic growth in China, the impact of persistently low oil prices on the energy sector, and near-zero interest rates are weighing on capital markets activity as well as loan growth. Analysts forecast a 20 percent decline on average in earnings from the six biggest U.S. banks, according to Thomson Reuters I/B/E/S data. Some banks, including Goldman Sachs Group Inc ( GS.N ), are expected to report the worst results in over ten […]

Cheap Gasoline Creates Illusion of Abundance for American Motorists and Policymakers

11 Apr 2016   Economy, Prices

The U.S. saw average retail gasoline prices drop below $2 per gallon in early January, the lowest prices observed since 2009 during the depths of the global financial crisis. Cheap gas is fueling a driving boom in the United States, with consumption well above the five-year average for this time of year. It is still early, but the U.S. is on course to set a new record in gasoline consumption in 2016, breaking the previous high set in 2007. The EIA releases weekly estimates on gasoline consumption, which are less precise than the retrospective monthly surveys, but assuming the latest data is accurate, the U.S. is currently consuming gasoline at a rate typically seen at peak driving season in the summer months. As a result, the upcoming summer could be a blockbuster for American gasoline demand. Fuel efficiency gains secured? In 2009, U.S. President Barack Obama issued new standards […]

Economies Rise as Emissions Fall? Yes, It Can Work

7 Apr 2016   Climate, Economy

England, birthplace of the Industrial Revolution, has been moving away from industry, shutting factories and steel mills. Throughout the 20th century, the global economy was fueled by burning coal to run factories and power plants, and burning oil to move planes, trains and automobiles. The more coal and oil countries burned — and the more planet-warming carbon dioxide they emitted — the higher the economic growth. And so it seemed logical that any policy to reduce emissions would also push countries into economic decline. Now there are signs that G.D.P. growth and carbon emissions need not rise in tandem, and that the era of decoupling could be starting. Last year, for the first time in the 40 years since both metrics have been recorded, a study by the International Energy Agency found that in 2014, as global G.D.P. grew, global carbon emissions […]

U.S. Trade Deficit Rises to a Six-Month High of $47.1 Billion

6 Apr 2016   Economy, Prices

America’s trade deficit widened in February to a six-month high as an increase in imports exceeded a more modest pickup in shipments overseas. The gap increased 2.6 percent to $47.1 billion from a revised $45.9 billion in January, the Commerce Department reported Tuesday. The median forecast in a Bloomberg survey called for a $46.2 billion February shortfall. The gain in exports was just the first in five months and highlights the squeeze on American manufacturers from a stronger dollar that’s made U.S.-made goods less attractive in a weaker global marketplace. A third straight increase in the deficit indicates trade will weigh on first-quarter growth. “American economic demand is stronger than abroad,” said David Sloan, senior economist at 4Cast Inc. in New York. Still-weak overseas growth in the months to come will mean a “slow and steady gradual increase in the deficit, which will be a modest drag on growth […]

Goldman Sachs: Why $30 Oil is ‘Too Much of a Good Thing’ for the U.S. Economy

5 Apr 2016   Economy, Prices, USA

Federal Reserve Chair Janet Yellen raised more than a few eyebrows in a Mar. 29 speech by highlighting oil prices at less than $30 per barrel as a development that “would tend to restrain U.S. economic activity.” While lower oil prices bring about a front-loaded hit to growth — as energy-producing firms respond by curtailing investment and employment — the net effect of lower oil prices was expected to be positive, with a lag. After all, cheaper fuel prices are considered a form of stimulus for the U.S. consumer, the largest segment of the economy. And despite the shale revolution, the U.S. remains an oil-importing nation. Yellen later clarified that lower oil prices “likely will boost spending and economic activity over the next few years,” explaining that the downside risks of low prices potentially reflected “market concern that the price of oil […]

Economy Chugs On Despite Fears

2 Apr 2016   Economy, USA

The U.S. economy continued to shrug off fears of a global economic downturn on the back of consistent job gains, wage growth and resilient consumer spending. After entering the year under a cloud of worry, American businesses and consumers appear to be overcoming many of the fears gripping financial markets and economies overseas in recent months. U.S. employers added 215,000 jobs in March, the Labor Department said Friday, with growth in just about every domestically oriented sector. The unemployment rate, obtained from a separate survey of U.S. households, edged up to 5% in March, but that was largely due more Americans joining the labor force. The gains suggest parts of the economy powered by consumer spending, such as retail, housing and autos, are keeping the U.S. stable despite headwinds from abroad. “Any company facing the consumer is probably feeling pretty good about things right now,” said Stephen Stanley, chief […]

Oil economy of Texas shows mixed success

30 Mar 2016   Economy, USA

 Construction tied to the natural gas and renewable energy sectors helped add to contract values in Texas, a report from the Dallas Federal Reserve found. A report last week from the bank suggested the oil-rich economy in Texas was facing headwinds because of pressure from lower crude oil prices. “Declines in energy prices early this year and continued strength in the dollar loom large on recent and future growth in the Texas economy,” Keith Phillips, Dallas Fed assistant vice president and senior economist, said in a statement. “Over the past three months there was a broad-based decrease in the leading index components suggesting weakness in the Texas economy going forward.” Labor markets, the Dallas […]

IMF Says Cheap Oil Slow to Deliver Boost to Global Growth

24 Mar 2016   Economy

International Monetary Fund researchers said the benefits from cheap oil may not materialize until demand in the global economy picks up and central banks in advanced nations move away from near-zero interest rates. Despite a significant drop in oil prices since June 2014, economists are still looking for the positive effects of cheaper oil. While the main reason why prices have fallen has been an increase in global supplies, a new IMF report shows that domestic demand has been weaker than forecast in oil-exporting countries last year, while falling short of expectations in oil importers such as the U.S. and Europe. Researchers argued that in an environment where oil prices are low and central banks cannot reduce policy interest rates further, “the decline in inflation owing to lower production costs raises the real rate of interest,” making it more expensive to borrow and stifling demand, the paper said. Conversely, […]

US job growth accelerates but wages slip

5 Mar 2016   Economy, USA

The US economy added significantly more jobs than expected in February, but wages continued to stagnate, highlighting the dilemma facing the Federal Reserve over when next to raise rates.  Friday’s jobs report, which saw 242,000 more positions created in February, indicated the world’s most important economy was continuing its recovery even amid rising concerns about global growth. The unemployment rate remained at 4.9 per cent.  But a 0.1 per cent fall in average hourly earnings in February also highlighted one of the main worries facing the US economy: that many Americans are still failing to see the benefits of the recovery and growing increasingly frustrated about it, a concern that is having an impact on the political debate and this year’s presidential campaign.  The slowdown in hourly wages — they were up 2.2 per cent on a year ago — is also likely to weigh on Fed policymakers when they gather this month to consider their next move on monetary policy after raising rates for the first time in almost a decade in December. Economists said the strong jobs growth meant any fears of a US recession should be put to rest and that the weak wages data also meant concerns about a bounce in inflation above the Fed’s 2 per cent target rate were premature.

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Oil weakness catching up with Texas

4 Mar 2016   Economy, USA

Oil price weakness is finally catching up with Texas oil producers and contraction is now expected throughout 2016, an industry economist said. Oil field services company Baker Hughes estimates 305 rigs were active in Texas in January, down 60 percent from the previous year. Karr Ingham, an economist who created the Texas Petro Index, said last time markets were this weak, there were about 100,000 fewer jobs than the estimated 230,000 in the exploration and production sector for January. Without any sort of meaningful recovery, he said in an emailed report that the “bloodletting in Texas’ upstream oil and gas industry will continue as the year progresses.” The Texas Petro Index, a metric developed by Ingham to gauge the […]

Why Globalization Reaches Limits

4 Mar 2016   Economy

We have been living in a world of rapid globalization, but this is not a condition that we can expect to continue indefinitely. Figure 1. Ratio of Imported Goods and Services to GDP. Based in FRED data for IMPGS. Each time imported goods and services start to surge as a percentage of GDP, these imports seem to be cut back, generally in a recession. The rising cost of the imports seems to have an adverse impact on the economy. (The imports I am showing are gross imports, rather than imports net of exports. I am using gross imports, because US exports tend to be of a different nature than US imports. US imports include many labor-intensive products, while exports tend to be goods such as agricultural goods and movie films that do not require much US labor.) Recently, US imports seem to be down. Part of this reflects the […]

Why Big U.S. Banks Can Ride Out the Oil Bust

3 Mar 2016   Economy, USA

The energy meltdown has taken bank stocks hostage. Investors should cut them free. Fear that oil’s crash will spawn losses that blow holes in big-bank balance sheets are somewhat understandable. It is tough to gauge exactly how exposed banks may be if oil-related firms start going belly up, and the information available isn’t initially comforting. This mainly refers to lines of credit extended to clients that haven’t been tapped. Including these, total exposure is more than 2.5 times as large, or $186 billion in aggregate, for the big four. Fortunately for bank investors, this doesn’t have to be such a big problem, especially considering the big banks’ strengthened capital positions. Oil companies facing lean times have every incentive to draw on credit lines before resorting to more drastic measures like restructuring their debt. However, borrowers can’t use up these loans automatically. Credit-line agreements typically come with covenants that allow […]

US first-quarter earnings outlook dims on falling oil

29 Feb 2016   Economy, USA

Wall Street analysts have slashed expectations for US earnings in the first quarter as companies grapple with plummeting oil prices and slow economic growth.  The growing pessimism comes amid a brutal start to the year for the stock market during which the S&P 500 has been marked by volatility as the outlook for global economic growth darkens, led by uncertainty over the slowdown in China.  At the outset of the year, analysts had forecast a return to growth of 0.6 per cent in US first-quarter earnings per share on a year-on-year basis, according to FactSet. They have since marked estimates down to a decline of 7.4 percent.  “It does appear that companies are having difficulty gaining traction in this low-growth environment and that is putting downward pressure on earnings,” said Alan Gayle, director of asset allocation at RidgeWorth Investments.  The potential quarter of shrinking profits follows the worst earnings season since the aftermath of the financial crisis during which earnings have fallen for three consecutive quarters and revenues have fallen for four.

Mansion sales and discount dining: oil rout hits Houston’s rich

26 Feb 2016   Economy, USA

Prices for mansions in Houston’s swankiest neighborhood have tumbled in lock step with crude prices. The Houston Opera has offered free season tickets to patrons who lost their jobs in the oil bust. A fancy restaurant offers cut-price dinners. Twenty months into the worst oil price crash since the 1980s, well-heeled residents of the world’s oil capital are among the hardest hit largely because tanking energy firm shares make up much of oil and gas executives’ compensation. In River Oaks, a neighborhood of palatial mansions and lush gardens, the average sales price of a home has tumbled to $1.3 million from $2 million in the middle of 2014 when oil began its more than 70 percent slide, according to data from the Houston Association of Realtors and Keller Williams. Median property prices in the area have already fallen further in this downturn, which is not yet over, than the […]

Sovereign Wealth Funds May Sell $404 Billion of Equities

23 Feb 2016   Economy

Sovereign wealth funds may withdraw $404.3 billion from global stock markets this year if crude prices stay between $30 to $40 per barrel as oil-rich nations seek to shore up their finances, according to the Sovereign Wealth Fund Institute. The value of listed equities held by the world’s largest wealth funds will probably drop to $2.64 trillion this year, from about $3.04 trillion at the end of 2015, the Las Vegas-based SWFI said in an e-mailed report sent Monday. Withdrawals are set to approximately double from last year, when sovereign funds sold about $213.4 billion of equities, it said. “The era of petrodollar-filled wheelbarrows being dumped into giant vats seems to be numbered,” according to the Institute. “Commodity wealth funds have to be concerned about the state of their country’s finances, since many were created to either be stabilization funds, intergenerational savings vehicles or a combination thereof.” Sovereign funds […]

Oil prices tumble after Fed testimony

12 Feb 2016   Economy, Prices

Despite upbeat U.S. and European labor reports, lingering concerns over U.S. economic momentum throttled crude oil prices in early Thursday trading. Data from the U.S. Labor Department showed seasonally adjusted first-time claims for unemployment dipped 16,000 from the previous week to 269,000 for the week ending Feb. 6. The less volatile four-week moving average declined 3,500 to 281,250. Labor is one of the lingering bright spots for a U.S. economy that showed signs of slowing down. Inflation in the United States is below a federal target of 2 percent. U.S. Federal Reserve Chairwoman Janet Yellen continues two days of testimony on Capitol Hill, addressing lawmaker concerns about the pace of economy growth. She […]

Hidden Dangers of the Oil-Price Shock

12 Feb 2016   Economy

Many observers, from the International Monetary Fund to Virgin’s Richard Branson, say the stock market is overreacting to the oil-price shock. (Crude closed at $26.21 on Wednesday.) The basic argument is that the energy sector (oil and gas are about 2% of GDP) is too small to drag down the overall economy. We’ve heard this kind of argument before. When house prices and new home construction began to tank in 2006, some observers told…