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Tag: USA

  • The Relative Economic Position of the USA is Likely to Decline

    The economic clout of the USA has been huge since the end of World War II. The relative position has been decreasing recently with the rise of not only Europe and Japan but Korea, China, India, Brazil and many more. This means the risks to the USA of failing to deal with perennial problems (the most costly but not most effective health care system, spending beyond our means, weak diplomacy, excessive legal costs, poor management practices…) is higher today than it has been.

    Fareed Zakaria’s Post American World is a good explanation of some of the current global economic forces in play. He comes to the same conclusion I do that the USA is still in the strongest position today. But the world is changing and the relative position of the United States is declining. The new world requires working with others and the USA needs to adjust to this reality. Too many think the USA can continue to act as though the rest of the world must comply with the wishes of the USA.

    Foreign students and immigrants account for 50 percent of the science researchers in the country and, in 2006, received 40 percent of the doctorates in science and engineering and 65 percent fo the doctorates in computer science. by 2010, foreign students will get more than 50 percent of all Ph.D’s awarded in every subject in the United States. I n the sciences, that figure will be closer to 75 percent. Half of all Silicon Valley start-ups have one founder who is an immigrant or first-generation American.
    …
    The litigation system is now routinely referred to as a huge cost of doing business, but no one dares propose any reform of it. Our mortgage deduction for housing costs a staggering $80 billion a year, and we are told it is crucial to support home ownership. Except that Margaret Thatcher eliminated it in Britain, and yet that country has the same rate of home ownership as the United States. We rarely look around and notice other options and alternatives, convinced that “we’re number one.”
    …
    America has become a nation consumed by anxiety, worried about terrorist and rouge nations, Muslims and Mexicans, foreign companies and free trade, immigrants and international organizations. The strongest nation in the history of the world now sees itself as besieged by forces beyond its control.

    The book focuses quite a bit on the USA, China and India and provides good overviews of the economic strength and weaknesses of those countries. The USA is in a leadership position but the future requires an understanding that others deserve to be treated as partners not allies to be dictated to. If not they will just partially disengage with the USA and create stronger relationships with others. That would not be in the interests of the USA.

    Related: Best Research University Rankings (2008) – Dr. Deming’s 7 Deadly Diseases of Western Management – Science leadership and economic growth – Easiest Countries for Doing Business (2008) – Top 12 Manufacturing Countries in 2007 – Why America Needs an Economic Strategy – Country H-index Rank for Science Publications – USA Spent $2.2 Trillion, 16.2% of GDP, on Health Care in 2007

  • USA Unemployment Rate Jumps to 9.4%

    Nonfarm payroll employment fell by 345,000 in May, about half the average monthly decline for the prior 6 months, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The unemployment rate continued to rise, increasing from 8.9 to 9.4 percent. Steep job losses continued in manufacturing, while declines moderated in construction and several service-providing industries.

    According to the Household Survey Data, the number of unemployed persons increased by 787,000 to 14.5 million in May, and the unemployment rate rose to 9.4 percent. Since the start of the recession in December 2007, the number of unemployed persons has risen by 7.0 million, and the unemployment rate has increased by 450 basis points.

    Unemployment rates rose in May for adult men (to 9.8%), adult women (7.5%). Among the unemployed, the number of job losers and persons who completed temporary jobs rose by 732,000 in May to 9.5 million. This group has increased by 5.8 million since the start of the recession.

    The number of long-term unemployed (those jobless for 27 weeks or more) increased by 268,000 over the month to 3.9 million and has tripled since the start of the recession.

    The civilian labor force at the end of May, 2009 stood at 155,081,000 (at the end of April was 154,731,000) growing by 350,000, employment stood at 140,570,000 down from 141,007,000 the month before. The ranks of unemployed grew to 14,511,000 from 13,724,000.

    Related: Unemployment Rate Increased to 8.9% – USA Unemployment Rate Rises to 8.1%, Highest Level Since 1983 – Bad News on Jobs

  • Manufacturing Cars in the USA

    The current economic climate is very bad and all car manufacturing in the USA has declined in the last 2 years. But the longer term trend is that foreign companies are manufacturing more and more here while the USA companies fail to. This year it is likely the “big three” will manufacture fewer than 50% of the cars manufactured in the USA (the “big three” have more production in Canada and Mexico than the “foreign” companies do).

    They Can Build Them; Why Can’t We?

    non-U.S. automakers are still building U.S. factories. Volkswagen is erecting an assembly plant in Tennessee, Kia Motors has a plant going up in Georgia, and Toyota Motor is putting one up in Mississippi, although it has delayed opening there because of the slump in auto sales. Foreign auto manufacturers and suppliers already have a massive presence in the U.S.
    …
    This transplant industry is replacing Detroit’s manufacturing. Through mid May, all North American assembly plants (including Canada and Mexico) have built 2.77 million cars and light trucks, half the production level of the year-earlier period. Of these, Detroit’s Big Three have built only 1.5 million of these vehicles, just 268,000 more than the transplants.
    …
    Toyota took over a badly managed GM plant in California; it was a joint venture, but the Japanese ran the plant. GM sent young executives to work there and learn Toyota’s manufacturing and quality techniques. They learned, but when they came back to GM, the GM bureaucracy would not change its ways.

    Read about the joint Toyota – GM plant: Remembering NUMMI. The problems of GM, Ford and Chrysler are due mainly to long term failures or management. It is not impossible to manufacture in the USA. But it is difficult to maintain poor management systems, without overpaid executives when others manage better and don’t take so much of the profits into their own pockets.

    Related: posts on manufacturing – Big Failed Three, Meet the Successful Eight – Leading Manufacturing Countries in 2007 – Honda has Never had Layoffs and has been Profitable Every Year – People: Team Members or Costs

  • Unemployment Rate Increased to 8.9%

    Nonfarm payroll employment continued to decline in April, and the unemployment rate rose from 8.5 to 8.9 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Since the recession began in December 2007, 5.7 million jobs have been lost. In April, job losses were large and widespread across nearly all major private-sector industries. Overall, private-sector employment fell by 611,000.

    The number of unemployed persons increased by 563,000 to 13.7 million. Unemployment rates for April for adult men reached 9.4% and for adult women 7.1%. The number of long-term unemployed (those jobless for 27 weeks or more) increased by 498,000 to 3.7 million over the month and has risen by 2.4 million since the start of the recession in December 2007.

    The civilian labor force participation rate rose in April to 65.8 percent, and the employment-population ratio was unchanged at 59.9 percent. The employment-population ratios for adult men and women showed little or no change over the month. However, since December 2007, the men’s ratio was down by 440 basis points, while the women’s ratio was down by 130 basis points. Since those that stop looking for work (retire or just stop actively looking) are not counted as unemployed the participation rate is a useful statistic to examine in conjunction with the unemployment rate.

    Much of the commentary on the April job losses have been that the decrease in the number of job losses from previous months shows the economy is stabilizing. While it is true losing 611,000 jobs is better than losing 700,000 jobs, losing 611,000 is still very bad. The unemployment rate increased to 8.9% and long term unemployment is increasing drastically. This is hardly good economic news. It is true that there is hope that the economy is turning around, but the employment data we have so far is hardly positive (employment data is a lagging economic indicator so it is not surprising employment data does not recover before other signs point to improvement).

    Related: Another 663,000 Jobs Lost in March in the USA – USA Unemployment Rate Rises to 8.1%, Highest Level Since 1983 – Over 500,000 Jobs Disappeared in November – What Do Unemployment Stats Mean?

  • Huge New Natural Gas Discoveries in the USA

    U.S. Gas Fields Go From Bust to Boom

    Even conservative estimates suggest the Louisiana discovery — known as the Haynesville Shale, for the dense rock formation that contains the gas — could hold some 200 trillion cubic feet of natural gas. That’s the equivalent of 33 billion barrels of oil, or 18 years’ worth of current U.S. oil production. Some industry executives think the field could be several times that size.
    …
    Huge new fields also have been found in Texas, Arkansas and Pennsylvania. One industry-backed study estimates the U.S. has more than 2,200 trillion cubic feet of gas waiting to be pumped, enough to satisfy nearly 100 years of current U.S. natural-gas demand.

    The discoveries have spurred energy experts and policy makers to start looking to natural gas in their pursuit of a wide range of goals: easing the impact of energy-price spikes, reducing dependence on foreign oil, lowering “greenhouse gas” emissions and speeding the transition to renewable fuels.
    …
    new technologies and a drilling boom have helped production rise 11% in the past two years. Now there’s a glut, which has driven prices down to a six-year low and prompted producers to temporarily cut back drilling and search for new demand.

    The natural-gas discoveries come as oil has become harder to find and more expensive to produce. The U.S. is increasingly reliant on supplies imported from the Middle East and other politically unstable regions. In contrast, 98% of the natural gas consumed in the U.S. is produced in North America.

    Related: Oil Consumption by Country – posts on energy economics – Forecasting Oil Prices – South Korea To Invest $22 Billion in Overseas Energy Projects – Wind Power Provided Over 1% of Global Electricity in 2007

  • It’s Now a Renter’s Market

    It’s Now a Renter’s Market by Prashant Gopal

    Effective rents fell in 64 of 79 markets that Reis tracks. Effective rents in San Francisco dropped 2.8% in the first quarter of this year, compared with the previous quarter—the nation’s largest quarterly decline. Rents fell 2.6% in New York City (all five boroughs), 1.3% in Charlotte, 2.5% in San Jose, 0.9% in San Antonio, 0.9% in Cleveland, 1.2% in Chicago, and 2.3% on Long Island.
    …
    Oklahoma City, where people spent just 12% of their income on rent, was the most affordable. Other cheap markets included Indianapolis, Denver, Fort Worth, and Cleveland. The least affordable market was New York, where people spent 57% of their income on rent.

    Rental markets are driven largely by 2 factors, vacancy rates and jobs. If jobs in a metropolitan area are increasing rents usually increase. If more new apartments are added to the market than jobs (which then increases vacancy rates) this will push down rates. Other factors influence vacancy rates (such as people moving back in with parent, people sharing apartments…). Those factors often are largely influenced by losing jobs in an area.

    D.C. apartment market remains strong

    The D.C. area continues to boast one of the best apartment markets in the U.S., with a vacancy rate well below the national number
    …
    Rent increases over the past 12 months for all investment grade apartments kept under the long-term average of 4.2 percent per annum, at 0.5 percent since March 2008.

    Related: Housing Rents Falling in the USA – Home Values and Rental Rates – Real estate investing articles – Urban Planning – Longer Commutes Translate to Larger Housing Price Declines
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  • Another 663,000 Jobs Lost in March in the USA

    663,000 jobs were lost in the USA in March and the unemployment rate rose from 8.1 to 8.5 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Since the recession began in December 2007, 5.1 million jobs have been lost, with almost two-thirds (3.3 million) of the decrease occurring in the last 5 months. In March, job losses were large and widespread across the major industry sectors.

    In March, the number of unemployed persons increased by 694,000 to 13.2 million, and the unemployment rate rose to 8.5 percent. Why is that different than the numbers above? The numbers are from different sources of data, the first from BLS surveys of businesses and the 694,000 from household surveys. This reminds us that this data is approximate, not exact. Undoubtedly the figures will be revised as more data is analyzed.

    Over the past 12 months, the number of unemployed persons has grown by about 5.3 million, and the unemployment rate has risen by 3.4 percentage points. Half of the increase in both the number of unemployed and the unemployment rate occurred in the last 4 months.

    The unemployment rates continued to trend upward in March for adult men, 8.8%, adult women 7.0%, whites 7.9% and Hispanics 11.4%. The jobless rates for African Americans, 13.3% and teenagers 21.7% were little changed over the month. The unemployment rate for Asians was 6.4% in March, not seasonally adjusted, up from 3.6% a year earlier.

    Related: Over 500,000 Jobs Disappeared in November – Manufacturing Employment Data – 1979 to 2007 – What Do Unemployment Stats Mean?

  • 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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  • 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)

  • Who Will Buy All the USA’s Debt?

    Who Will Buy All the USA’s Debt? That is a question worth thinking about. The USA is a huge net borrower. The government can’t borrow from consumers because they are hugely in debt themselves. Over the last few decades huge investments from Japan, China and the Middle East in USA government debt have allowed the huge amount of federal debt to continue to grow rapidly. But who is going to buy the increasing amounts of debt; in the next few years, and the next few decades?

    China is right to have doubts about who will buy all America’s debt

    Chinese doubts about the value of US Treasury bonds highlight a crucial question: who will buy the estimated $2.7 trillion (£1.9 trillion) to $4.2 trillion of debt expected to be issued over the next two years?
    …
    The other area of concern for China is the value of its Treasuries. Given the US borrowing requirement and its lax monetary policy, Treasury bond yields could well rise sharply, causing a corresponding price decline. If China’s holdings match Treasuries’ average 48-month duration, then a 5pc rise in yields, from 1.72pc on the 5-year note to 6.72pc, would lose China 17.5pc of its holdings’ value, or $119bn.

    Foreign buyers have absorbed a little over $200bn of Treasuries annually, a useful contribution to financing the $459bn 2008 deficit, but only a modest help towards the $1.35 trillion minimum average deficit forecast for 2009 and 2010.

    Unless that changes substantially, there will be $1 trillion annually to be raised by the Treasury from domestic sources, more than double the previous record from domestic and foreign sources together, plus whatever is needed to bail out the banks.

    Even if the US savings rate were to rise from zero to its long-term average of 8% of disposable personal income, that would create only an additional $830bn of savings — not enough to fund the domestic share of the deficit. Interest rates would probably have to rise substantially to pull in more foreign investors.

    Very true. Anyone buying government debt at these rates has reason to question the wisdom of doing so. Exporters to the USA have macro-economic reasons for buying debt (to keep the value of the dollar from collapsing) but the investing reasons for buying USA debt I find very questionable (I wouldn’t be buying it as an investment, if I were them).

    Related: Personal Saving and Personal Debt in the USA – Americans are Drowning in Debt – USA Federal Debt Now $516,348 Per Household – Is the USA Broke?