Investing Curiouscatblog

Tag: economic data

  • Government Debt as a Percentage of GDP

    Government debt as percent of GDPChart showing government debt as a percentage of GDP by Curious Cat Investing Economics Blog, Creative Commons Attribution, data from OECD, March 2009.

    The USA federal government debt is far too large, in my opinion. We have been raising taxes on future taxpayers for several decades, to finance our current spending. Within reason deficit spending is fine. What that reasonable level is however, is not easy to know. One big problem with the past few decades is that during very prosperous economic times we spent money that we didn’t have, choosing to raise taxes on the future (instead of either not spending as much or paying for what we were spending by raising taxes to pay for current spending).

    By not even paying for what we are spending when times were prosperous we put ourselves in a bad situation when we have poor economic conditions – like today. If we were responsible during good economic times (and at least paid for what we spent) we could have reduced our debt as a percentage of GDP. Even if we did not pay down debt, just by not increasing the outstanding debt while the economy grew the ratio of debt to GDP would decline. Then when times were bad, we could afford to run deficits and perhaps bring the debt level up to some reasonable level (maybe 40% of GDP – though it is hard to know what the target should be, 40% seems within the realm of reason to me, for now).

    There is at least one more point to remember, the figures in the chart are based on reported debt. The USA has huge liabilities that are not accounted for. So you must remember that the actually debt is much higher than reported in the official debt calculation.

    Now on to the good news. As bad as the USA has been at spending tomorrows increases in taxes today, compared to the OECD countries we are actually better than average. The OECD is made up of countries in Europe, the USA, Japan, Korea, Australia, New Zealand and Canada. The chart shows the percentage of GDP that government debt represents for various countries. The USA ended 2006 at 62% while the overall OECD total is 77%. In 1990 the USA was at 63% and the OECD was at 57%. Japan is the line way at the top with a 2006 total of 180% (that is a big problem for them). Korea is in the best shape at just a 28% total in 2006 but that is an increase from just 8% in 1990.

    Related: Federal Deficit To Double This Year – Politicians Again Raising Taxes On Your Children – True Level of USA Federal Deficit – Who Will Buy All the USA’s Debt? – Top 12 Manufacturing Countries in 2007 – Oil Consumption by Country
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  • Data Shows Subprime Mortgages Were Failing Years Before the Crisis Hit

    Here is a very interesting paper showing real analysis of the data to illustrate that the deteriorating condition of loans should have been caught by those financing such loans years before the mortgage crisis erupted. Understanding the Subprime Mortgage Crisis by Yuliya Demyanyk, Federal Reserve Bank of Cleveland and Otto Van Hemert, New York University.

    Using loan-level data, we analyze the quality of subprime mortgage loans by adjusting their performance for differences in borrower characteristics, loan characteristics, and macroeconomic conditions. We find that the quality of loans deteriorated for six consecutive years before the crisis and that securitizers were, to some extent, aware of it. We provide evidence that the rise and fall of the subprime mortgage market follows a classic lending boom-bust scenario, in which unsustainable growth leads to the collapse of the market. Problems could have been detected long before the crisis, but they were masked by high house price appreciation between 2003 and 2005.
    …
    In many respects, the subprime market experienced a classic lending boom-bust scenario with rapid market growth, loosening underwriting standards, deteriorating loan performance, and decreasing risk premiums.30 Argentina in 1980, Chile in 1982, Sweden, Norway, and Finland in 1992, Mexico in 1994, Thailand, Indonesia, and Korea in 1997 all experienced the culmination of a boom-bust scenario, albeit in different economic settings.
    Were problems in the subprime mortgage market apparent before the actual crisis erupted in 2007? Our answer is yes, at least by the end of 2005. Using the data available only at the end of 2005, we show that the monotonic degradation of the subprime market was already apparent. Loan quality had been worsening for five years in a row at that point. Rapid appreciation in housing prices masked the deterioration in the subprime mortgage market and thus the true riskiness of subprime mortgage loans. When housing prices stopped climbing, the risk in the market became apparent.

    Related: Nearly 10% of Mortgages Delinquent or in Foreclosure – How Much Worse Can the Mortgage Crisis Get? – Homes Entering Foreclosure at Record – Articles on Real Estate

  • USA Spent $2.2 Trillion, 16.2% of GDP, on Health Care in 2007

    Health spending in the United States grew 6.1 percent in 2007, to $2.2 trillion or $7,421 per person.
    For comparison the total GDP per person in China is $6,100. This continues the trend of health care spending taking an every increasing portion of the economic output (the economy grew by 4.8 percent in 2007). This brings health care spending to 16.2% of GDP (which is yet another, in a string of record high percentages of GDP spent on health care). In 2003 the total health care spending was 15.3 of GDP.

    With the exception of prescription drugs (which grew at 1.4% in 2007, compared to the 3.5% in 2006), spending for most other health care services grew at about the same rate or faster than in 2006. Hospital spending, which accounts for about 30 percent of total health care spending, grew 7.3 percent in 2007, compared to 6.9 percent in 2006.

    Spending growth for both nursing home and home health services accelerated in 2007 (4.8% v. 4.0%). Spending growth for freestanding home health care services increased to 11.3 percent. Total health care spending by public programs, such as Medicare and Medicaid, grew 6.4% in 2007 v. 8.2% in 2006. In comparison, health care spending by private sources grew 5.8% compared to 5.4%.

    Private health insurance premiums grew 6.0 percent in 2007, the same rate as in 2006. Out-of-pocket spending grew 5.3 percent in 2007, an acceleration from 3.3 percent growth in 2006. Out-of-pocket spending accounted for 12.0 percent of national health spending in 2007. This share has been steadily declining both recently and over the long-run; in 1998, it accounted for 14.7 percent of health spending and, in 1968, out-of-pocket spending accounted for 34.8 percent of all health spending.

    The costs for health services and supplies for 2007 were distributed among businesses (25%), households (31%), other private sponsors (4%), and governments (40%).

    Decades ago Dr. Deming included excessive health care costs as one of the seven deadly diseases of western management. We have only seen the problem get worse. Finally it seems that a significant number of people are in agreement that the system is broken. Still, admitting the system is broken is not the same as agreeing on how to fix it. The way forward to workable solutions still seems very difficult.

    Full press release from the United States Department of Health and Human Services.

    Related: International Health Care System Performance – Personal Finance Basics: Health Insurance – Many Experts Say Health-Care System Inefficient, Wasteful – How to Improve the Health Care System

  • California Unemployment Rate Climbs to 10.5 Percent

    California jobless rate climbs to 10.5 percent

    The state unemployment rate jumped to 10.5 percent in February, a level not seen since 1983. All told, the recent economic slide has left 1.95 million Californians scrambling for work. Friday’s report from the Employment Development Department charts a sharp rise from January’s 10.1 percent rate and brings the state closer to its modern peak of 11 percent, which occurred in late 1982 and early 1983.
    …
    Back then, unemployment remained above 10 percent for a year and briefly hit 11 percent. This time Levy said unemployment probably will break 11 percent and stay there for months, until the housing market hits bottom and starts to recover, healing the state’s biggest economic wound.
    …
    Metropolitan San Francisco, consisting of San Francisco, San Mateo and Marin counties, had a jobless rate of 7.8 percent in February, better than the state or the nation.

    Official unemployment rates above 10% are a huge problem. And the impacts of such high unemployment rates grow over time, so staying above that rate for long is a huge problem. And the odds favor that happening in California and such a result for the USA overall is high. It likely true that the falling housing prices will stop before the economy really starts regaining the ground it has lost recently. But the real key, in my opinion, will be when job losses stop and the economy grows jobs. If we can do that by early 2010 I think we will be lucky.

    Look for an improving unemployment rate, but even more important is for the total jobs to be growing faster than 100,000 per month. Long term it needs to grow faster than that but beating that target for several months should be a strong indication we may be reaching a bottom. There are plenty of other factors to look at also: average hours worked per week, increasing average pay, GDP growth, improving consumer confidence, reduction in consumer debt…

    Related: USA Unemployment Rate Rises to 8.1%, Highest Level Since 1983 – Bad News on Jobs – What Do Unemployment Stats Mean? – Over 500,000 Jobs Disappeared in November

  • Over Half of 2008 Foreclosures From Just 35 Counties

    More than half of the nation’s foreclosures last year took place in 35 counties

    Those counties, spread over a dozen states, accounted for more than 1.5 million foreclosure actions last year, a USA TODAY analysis of figures compiled by the real estate listing firm RealtyTrac shows — more than were recorded in the entire United States just two years earlier.
    …
    A few of the 35 counties leading the foreclosure boom are in already-distressed areas around Detroit and Cleveland. But most are clustered in places such as Southern California, Las Vegas, Phoenix, South Florida and Washington, where home values shot up dramatically in the first half of the decade, then began to crumble.
    …
    The worst-hit counties are home to about 20% of U.S. households, but accounted for just over 50% of the nation’s foreclosure actions last year, driving most of the national increase. And even among those places, a few stand out: Eight counties in Arizona, California, Florida and Nevada were the source of about a quarter of the nation’s foreclosures last year.

    In more than 650 other counties – about a fifth of the nation – the number of foreclosure actions actually dropped since 2006.

    Related: Freezing Mortgage Rates – Nearly 10% of Mortgages Delinquent or in Foreclosure – Jumbo Loan Defaults Rise at Fast Pace – Ignorance of Many Mortgage Holders

  • USA Unemployment Rate Rises to 8.1%, Highest Level Since 1983

    The employment news in the USA continues to be very bad. We knew the news on job was going to be bad in 2009; still the actual news confirming those beliefs is not welcome. Of all the economic statistics for the health of the economy, employment is about the most important.

    U.S. Unemployment Rate Jumps to 8.1 Percent by Debbi Wilgoren

    The Bureau of Labor Statistics said the jobless rate rose from 7.6 percent in January to 8.1 percent in February, the highest rate in more than 25 years. An estimated 12.5 million Americans were unemployed in February, the data show, an increase of 851,000 since January. More than 4.4 million people have lost their jobs since the recession began in December 2007, U.S. Labor Secretary Hilda Solis said.

    The government revised sharply upward the number of jobs the economy lost in December and January, showing a staggering 1.99 million jobs disappearing in the past three months. More jobs were lost in each of those months than in any single month since October 1949
    …
    The February data showed profound losses in the professional and business services sector, with 180,000 jobs gone. Some 168,000 jobs were lost in the manufacturing industry, with most of the decline in the durable goods sector. There were 104,000 construction jobs lost as projects stalled due to the collapse of the real estate industry and the ongoing credit crisis. The financial sector shed 44,000 jobs, retail lost 40,000 jobs and the leisure and hospitality industry reported 33,000 fewer jobs. Job growth continued, however, in the health-care sector.

    Analysts say the pace of job cuts is likely to remain brisk for at least a few more months
    …
    The number of people working part time because they cannot find full-time employment rose by 767,000 in February to 8.6 million, the government said. The unemployment rate does not reflect people who say they would like to work full-time, but can only find part-time job

    Related: Over 500,000 Jobs Disappeared in November – What Do Unemployment Stats Mean? – Bad News on Jobs – Poll: 60% say Depression Likely

  • Manufacturing Contracting Globally

    Global manufacturing recession continued in February. From the Institute for Supply Management, the USA is in the 13th consecutive month of contraction:

    Manufacturing contracted in February as the PMI registered 35.8 percent, which is 0.2 percentage point higher than the 35.6 percent reported in January. This is the 13th consecutive month of contraction in the manufacturing sector. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

    Japanese Factory Output Posts Record Drop in January

    Japan says its industrial output plunged a record 10 percent in January, another sign the world’s second-largest economy is facing its worst economic recession since the end of World War II. January’s bad numbers break the previous record of 9.8 percent set just the month before.

    European Manufacturing Contracts at Record Pace

    A gauge of manufacturing activity declined to 33.5 from 34.4 in January, lower than an initial estimate of 33.6 published on Feb. 20. The index is based on a survey of purchasing managers by Markit Economics and a reading below 50 indicates contraction.
    …
    The manufacturing index for Germany, Europe’s largest economy, was at 32.1 in February, lower than the initially reported 32.2, according to a separate report. Italy’s dropped to 35 from 36.1 and the French gauge declined to 34.8 from 37.9, less than the initial estimate.
    …
    The International Monetary Fund predicts the euro area economy will contract 2 percent this year.

    In Korea, industrial output shark 26% in January, the largest decline even (statistics available since 1970). A one month period is not very significant but with a 26% decline that is still huge. And the December decline was 19%

    China appears to be slowing the least of any sizable manufacturer:

    The CLSA China Purchasing Managers Index, produced by U.K.-based research firm Markit Group Ltd., came in at 45.1 in February, compared with 42.2 in January. The index registered a record low of 40.9 in November. A PMI reading below 50 indicates contraction.

    It was the third straight month that the PMI came in higher than the month before, which provided some hope that China’s economy, which grew at its slowest pace in seven years in the fourth quarter of 2008, might be starting to stabilize. But economists are far from declaring an economic rebound.

    Related: Manufacturing Employment Data from 1979 to 2007 – Top 12 Manufacturing Countries in 2007 – The Economy is in Serious Trouble – Japanese Economy Shrinks 12.7% – USA Job Growth (2007)

  • Credit Card Charge-offs Increase to Over 7% of Accounts

    Punctual Payers Face Higher Rates From Card Companies

    His reward for paying on time was an interest rate increase to 19 percent from 12 percent.
    …
    The average interest rate charged on credit-card balances decreased to 13.4 percent in November from 14.4 percent a year earlier, according to the Federal Reserve’s December G19 report, which tracks rates for credit-card accounts. The prime rate has decreased to 3.25 percent from 6 percent last February. Most variable credit-card rates are linked to the prime rate, which follows the federal funds rate.

    Rate changes announced by New York-based Citigroup Inc., the biggest U.S. credit-card issuer, American Express Co. and Charlotte, North Carolina-based Bank of America Corp. are intended to raise revenue, said Woolsey, who is based in Austin, Texas.

    Citigroup’s charge-off rates of loans increased by 88 percent, climbing to 7.81 percent in December from 4.16 percent a year earlier, according to data compiled by Bloomberg. Charge- offs are loans the banks don’t expect to be repaid. American Express’s charge-off rates more than doubled to 7.23 percent from 3.32 percent while Bank of America’s rates increased to 8.45 percent from 5.24 percent, a 61 percent jump.

    You can avoid worries about credit card companies increase your interest rates by taking sensible financial precautions and avoiding credit card debt.

    Related: posts on credit cards – Don’t Let the Credit Card Companies Play You for a Fool – Legislation to Address the Worst Credit Card Fee Abuse – Incredibly Bad Customer Service from Discover Card

  • Japanese Economy Shrinks 12.7%

    The Japanese economy shrank an amazing 12.7% in the fourth quarter of 2008. for comparison, the US economy fell by 3.8% in the quarter. Japan Economy Shrinks 12.7%, Steepest Drop Since 1974 Oil Shock

    The world’s second-largest economy shrank 3.3 percent from the third quarter, today’s report showed. That compared with the U.S.’s 1 percent contraction and the euro-zone’s 1.5 percent decline, which was the sharpest in at least 13 years.

    “There’s no doubt that the economy is in its worst state in the postwar period,” Economic and Fiscal Policy Minister Kaoru Yosano said in Tokyo. “The Japanese economy, which is heavily dependent on exports of autos, electronics and capital goods, has been severely hit by the global slowdown.”
    …
    Capital investment fell 5.3 percent. Manufacturers cut production by a record 11.9 percent in the quarter, indicating they have little need to buy equipment as factories lay idle. Consumer spending, which accounts for more than half of the economy, dropped 0.4 percent, as exporters fired workers.
    …
    The jobless rate surged to 4.4 percent in December from 3.9 percent, the biggest jump in four decades.

    The decline is huge. Economies shrinking 2% is a large and fairly rare event. Shrinking over 10% is dramatically bad. The drop appears to be largely due to falling exports as consumer spending only dropped by .4 percent. Since 1930 the US economy has only fallen over 10% in a year 1932 and 1946. And real GDP has fallen over 2% only 5 times, the most recent time close to that large a fall was in 1982 with a 1.9% decline). Data from the United States Bureau of Economic Analysis. There is a good chance the US GDP will decline between 2-3% in 2009.

    Related: Dreadful economic results in Japan suggest that things will only get gloomier – Over 500,000 Jobs Disappeared in November – Economic Fault: Income Inequality – Goldman Sachs Rakes In Profit in Credit Crisis (2007)

  • China and USA Exports and Imports Drop Sharply

    China and USA exports and imports have been dropping sharply. The USA has decreased the excess consumption over production by $20 billion a month (from $60B to $40B monthly deficit). China maintains a trade surplus and as imports drop faster than export this is actually increasing on a percentage basis.

    Can the improvement in the US trade balance continue?

    The US trade deficit — which is a good proxy for the current account balance (the income surplus offsets a transfers deficit) — is now around $40b a month. At its peak it was more like around $60b a month. That implies, if nothing changes, the 2009 current account deficit would be around $500b, down from a peak of $700b.
    …
    Deficits and surpluses are shrinking globally now that the price of oil is at levels that roughly cover the oil exporters imports.* Right now China’s (growing) surplus is clearly the main counterpart to the United States’ (shrinking) deficit.

    It is hard to put lipstick on a pig (or even an ox):

    The sharp fall in China’s exports (down 17.5% y/y) and imports (down 43% y/y) shouldn’t have been a complete surprise. Korean and Taiwanese exports are down far more than China’s exports, in large part because of sharp falls in their exports to China. And, given the intra-Asian supply chain, that has long augered bad news for China.

    Related: The Budget Deficit, the Current Account Deficit and the Saving Deficit – Top 12 Manufacturing Countries in 2007 – Personal Saving and Personal Debt in the USA – Charge It to My Kids