U.S. by the Numbers – Recovery Still a Mixed Bag

U.S. by the Numbers – Recovery Still a Mixed Bag

A torrent of headlines came out today on the latest U.S. jobs numbers. Unemployment fell to 7.8%, below the psychologically important magic number eight. Hitting a four year low this certainly marks a change in the right direction, but we’re still talking baby steps (hand holding a toddler comes to mind.)

To have a substantial impact on the millions still unemployed this really needs to be closer to five or six percent. With only 114,000 jobs created we’re a far cry away from solid recovery. Numbers like 250,000 per month bring back better times from the abyss.

Still, current figures often underestimate the number of new jobs created (note the upward revisions of late) and the situation might be better than reported. We won’t know until after the November presidential election so whatever right direction/wrong direction spin the candidates want to put on these figures now’s their chance. Here’s what it looks like without the spin.

Bureau of Labor Statistics – Non-Farm Payrolls 2002 – 2012).

The gauge for recovery can’t really be measured solely by pre-financial meltdown levels anyway. Many jobs, especially in real estate and construction were unsustainably inflated by easy money sloshing around and unscrupulous mortgage lenders, traders and quantitative charlatans, but that’s another story.

What’s new is the housing slump appears to be in tentative recovery. The National Association of Home Builders/Wells Fargo Housing Market Index has been climbing for several months running now, albeit from a very low base and below even 1990’s levels. There’s ample room for improvement.  Considering the flack the U.S. economy has been hit with since 2008, especially among proponents of the inevitable decline meme (and the dozens of books it spawned) let’s stick with the glass half full version. That same glass used to be cracked, leaking and irreparable.

Other data points show that the economy as a whole can be about as undecided as some American voters with only four weeks to go. The Institute for Supply Manufacturers gauge hit a four month high of 51.5 indicating expansion had returned to the economy.  Alas, the Markit Index of Manufacturers fell slightly to 51.1 (still expanding but at a slower rate), from 51.5 in August.

These pesky social sciences. Conflicting data sometimes relegates the field more to a numbers running racket than say the mechanical precision of physics. Getting billions of electrons marching in single file across a TV screen remains far easier than accurately predicting the hiring and purchasing activity of a few hundred million people.

Since about 70% of the U.S. economy is driven by consumption and the holiday season represents a significant portion of consumer purchases for the year, perhaps better numbers are inventories and retail sales for October and November.

Wherever they end up, we still have a long slog ahead of us until the engines of American prosperity kick into high gear. On the bright side, innovation and ingenuity in the material sciences, biotech, information services and healthcare are expanding at tremendous rates. Once these go mainstream they’ll power an American renaissance sometime down the line. Just don’t ask for a firm date yet.

 

Photo: Depression Era Soup Kitchen, Wikimedia Commons

The Presidential Debate We Needed, but Never Saw

The Presidential Debate We Needed, but Never Saw

One question for the undecided voters of America – are you better off now than you were 90 minutes ago?

Despite a Romney landslide 67% “win” among CNN debate watchers and pundits parsing the candidates words in excruciating detail (worse than the actual number-laded debate itself), undecided voters remained decidedly, undecided.

What voters needed from the debate, a clear idea of the candidates’ plans for American renewal, remained lost in the thicket of questionable facts, long-winded replies, and tired rhetoric.

The debates did little to address the most pressing issues facing the U.S. economy. What can government actually do, in the short-term, to help increase employment, get the deficit under control, and ensure the social safety remains intact.

There was no clear vision for America, no soaring oratory, no sense of mission or purpose. Just two men, talking past each other through volleys of competing accounts of their opponents’ views and saccharine human touch stories. Remember the Denver woman with child in hand whose husband hasn’t had a full-time job in years? Or was it a man in (insert name of swing state here) who lost his insurance coverage and can’t get the operation he needs?

What seemed to get the most rise out of Colorado undecideds were phrases like “stop shipping jobs to China” and discussions on the importance of education. Old wine, new bottles.

How much do the candidates’ facts even matter? Probably not as much as we’d like to believe. Who is going to remember whether the Romney plan (with or without details) will actually add $5 trillion to the deficit. Did green energy companies really receive $80 billion in tax breaks and oil companies only a few billion? How many licks does it take to get to the center of that tootsie pop … no one really cares.

The fact checking cycle will run for the next few days and when the October truths come out they’ll be forgotten by November 6th. One zinger worth holding onto — Romney loves Big Bird, but won’t use taxpayer money to fund PBS.

Moving on to the next debate a youthful Paul Ryan faces off against the seasoned and outspoken Vice President Biden. In this match-up will an elder statesman school his less experienced upstart or does a Gen X politician goad the VP into saying something outlandish and damaging to the Obama campaign? It’s reality television on sedatives.

For the most expensive election in U.S. history one would have expected a better show. Maybe in the third and last debate the gloves will finally come off and we’ll get to see a real battle of ideas that make a difference.

Asia by the Numbers

Asia by the Numbers

(UPDATE 10/8/12: Both the World Bank and Asian Development Bank have lowered 2012 growth forecasts for China and Asia.)

Remember those halcyon days of unending Asia growth and the re-birth of a Silk Road century? Cherish the memories.

Nothing but negative news keeps flowing out of regional giants these days. Expert debates rage on about China’s hard vs soft landing while recent data just keep disappointing. HSBC China Manufacturing Purchasing Manager’s Index wallowed below the critical 50 threshold again. Political intrigue aside, China’s next generation of leaders are facing significant economic headwinds and challenges unknown to their predecessors.

From the September 29th HSBC Purchasing Manager’s IndexTM:

 

“Data in September signalled a stronger decline in Chinese manufacturing output, as the volume of new orders fell for the eleventh consecutive month. New export orders declined at the sharpest rate in 42 months amid reports of weak international demand…”

 

 

Historical numbers show a long decline since late 2010 (and a wild ride starting with the 2008 U.S.-led financial crisis).

Japan’s Tankan business sentiment survey showed more general weakness (negative views of business for the past 12 months and worsening in the last quarter). Unsurprising considering the weak overseas demand, yen troubles making exports more expensive and now troubles with China over the East China Sea. ANA airlines reported 40,000 cancelled flight reservations for September through November sparked by dueling territorial claims and violence on the mainland targeting Japanese factories, stores and restaurants.

Add to that Australia’s struggles with shrinking exports and a surprise Reserve Bank of Australia rate cut to 3.25% (Philippine’s central bank has cut rates as well), Vietnam’s slowdown, and rising South Korean consumer debt.

With the U.S. caught in a “slow-growth” trap of its own making and greater Europe still flirting with renewed recession, trade is now a back seat driver for most of Asia. The slowdown in China is especially concerning for southeast Asia’s and Australia’s resource-intensive exports since China became their main market over the past several years.

Prospects aren’t all negative of course, though finding bright spots in an increasingly overcast night’s sky is tough. Indonesia keeps generating solid six plus percent growth. High investment and sustained consumer demand (accounting for over 32.9% of GDP last quarter ending in June) are driving economic expansion.

Jakarta has so far managed to avoid the massive over-building in China which will drag down the middle kingdom for some time to come. The infrastructure needs throughout the island nation of over 200 million people, if well managed, might provide sustained growth for a while.

Prognosis: Substantial western growth isn’t coming back anytime soon. For Asia to prosper domestic demand (read: consumers) has to expand and that means further market liberalization and access to capital that has often been denied, mainly for political reasons.

The China model of controlled growth and U.S.-style unchecked market excess both have their discontents, but policies favoring middle class growth and expansion remain key. Balance will be the buzzword going into 2013.

For updates on new posts connect with Twitter, Facebook or email (above).

Related posts:

 

Iran’s Economy at the Edge

Iran’s Economy at the Edge

(UPDATE: 10/3/12 – BBC reporting protests in Tehran.)

Months of tightening U.S. sanctions appear to be taking their toll on Iran’s economy. The rial plunged against the dollar (losing 25% in street value in the past week and down some 80% since 2011). Imports, paid for in dollars, have become increasingly expensive. Inflation approached 24% in August alone. Oil exports, a major revenue earner for the regime have plummeted as well. Shrinking dollar reserves make financing whatever remaining trade even more difficult.

These extensive sanctions include all imports, exports and financial transactions with U.S. entities. With Europe’s participation Iran can now barely function in the international banking system.

The main goal, however remain stopping Iran’s nuclear enrichment activities, not destroying the livelihoods of the general population.

Here’s the gambit: Ratchet up non-lethal economic force on Iran while avoiding a military conflict (including keeping Israeli jets on the ground and averting a regional war). This in turn should cause a political crisis that either forces Ahmadinejad to capitulate or a new leader to replace him ready to negotiate. Regime change a la an “Iranian Autumn” of popular discontent might follow, but seems unlikely at the moment and has not been a core objective. Then again stranger things have happened in the Middle East since 2011.

Iran’s nominally “elected” ruler, Ahmadinejad would carry the full blame of his country’s increasing isolation, not the behind-the-scenes clerics who really run the country. His decidedly more sedate tone in a recent UN speech (no tirades against the U.S. and calls for the end of Israel) suggest his popularity has taken a hit. With barely nine months left in his final term of office he might be more ready to negotiate. The deal on the table before this latest round of provocation still gave Iran access to nuclear material for fuel and medical-grade uses.

Unintended consequences in international affairs are a constant risk. Influencing extremely complicated systems, including tens of millions of people reacting to sudden economic hardship and political machinations of theocratic leaders chief among them.

The flip-side of this strategy could include a backlash against the West for causing economic harm, a more radicalized government, and nuclear enrichment accelerating as a result. No one said this was going to be easy. Still since Iran’s economy already faces home-grown problems from years of serious mismanagement current troubles probably won’t radicalize secular Iranians while hard-liners gain one more reason to run riot.

Either way results should be in soon. Israeli Prime Minister Netanyahu, complete with an almost comical bomb illustration during his UN speech, continued to warn of a point of no return and Israel’s readiness to strike. The U.S. meanwhile re-affirmed its commitment to never allow Iran to possess a nuclear bomb, which could take less than a year once a decision to pursue weaponizing had been made. Iran’s economy gets closer to breaking point by the day and sanctions won’t be lifted without a deal while its nuclear race continues. The specter of destruction (economic, political or military) is coming to head in the not-so-distant future. Let’s hope the sanctions gambit pays off.

 

Photo: Wikimedia Commons

 

 

 

 

 

 

 

Foxconn Riots and the Limits of China’s Middle Class

Foxconn Riots and the Limits of China’s Middle Class

Several thousand rioting workers in Foxconn’s Taiyuan factory this week highlighted the inherent limits on China’s emerging middle class. Questions about the causes of the violence continue to circulate, either a dispute sparked by a security guard beating a worker or a fight in one of the privately contracted dormitories that went awry. (Jennifer Preston of the New York Times’ “The Lede” summarizes the blogosphere’s accounts versus official government pronouncements here.) In either case the life of your average manufacturing worker revolves around 10-12 hour days, sleeping in dormitories and eating in massive cafeterias. Room and board are deducted from their pay, when they’re paid on time and accurately.

With some 79,000 workers at this particular plant Foxconn runs the equivalent of a small-sized U.S. town. Workers often self-segregate based on their hometowns or provinces giving rise to rivalries and sometimes conflict. But why hasn’t the sheer size of this workforce spawned a private housing boom, new neighborhoods, and the freedom to congregate and eat where one pleases?

Back in the 1950’s and ’60’s U.S. factory workers fueled a booming middle class. Many were young (in their 20‘s). After several years they got married, bought homes, cars and appliances. Restaurants, hair salons, bowling alleys and movie theaters sprang up nearby. For most of Asia, including Japan, Taiwan, and South Korea which used to assemble similar goods, the story was much the same. Workers salaries rose to the point were they could afford mortgages and banks were eager to lend to workers with stable incomes. Public infrastructure connected new communities to the factory gates. Their children spurred a rise in school construction. Personal and corporate income taxes fueled public infrastructure projects.

The factory model in China, however remains largely stuck in an almost feudalistic past where the company provides, or more accurately controls, what workers can and can’t do, even in their off time. The hukou or residency permit system restricts workers from buying apartments near where they work unless they are already a resident (most are not). Their children can’t attend local schools so many must be left behind in villages with grandparents (see Alexandra Harney’s “The China Price” for the affects of low cost manufacturing on workers.) The state-controlled union can operate, but it mostly supports the interests of the government rather than the workers they’re meant to represent.

The basis for this manufacturing system isn’t strictly a socialist ethos or “manufacturing with Chinese characteristics”. Early industrial U.S. company towns often ran the local store (charging ridiculously high prices) and provided housing (at a cost). When workers tried to organize they brought in local thugs or police to impose force. Those days are long gone primarily because workers could and did organize for better pay, regular hours, and safety. Present day working life in China remains more a matter of control than culture. While the Foxconn riots weren’t directed at management worker’s inability to organize can lead to explosions of pent up anger elsewhere.

Labor advocating for its interests and securing freedom of choice in where to live, eat, and enjoy their spare time forms one of the most basic tenants of middle class growth.  Reasonable hours and significantly higher overtime pay increases personal income and domestic consumption. Company co-sponsored health insurance plans lowers the need to pile away current savings for future medical needs. Rising wages for middle class workers increases social stability. While incomes have been going up some 10% for Chinese workers the income gap is widening and basic healthcare and housing remain out of reach for many.)

Without structural changes China’s economic transition from state and investment-led growth to consumer-driven demand will remain stunted. When tens of thousands of employees stuffed into cramped dormitories and shuffled like cattle through stadium-sized cafeterias finally gain more economic freedom, China’s middle class will flourish. Until then pent up frustrations that erupted in the Foxconn riots suggest more turbulent times ahead.

 

Photo: Youtube video.

The Decline of the Rest

The Decline of the Rest

A popular economic theme made the rounds not so long ago that featured prominently in a series of “end of the west, rise of the rest” predictions. It went something like this.

Emerging Asia, now an independent source of world growth driven by their expanding middle class no longer relied on the collective “west” for their economic well being. These countries had struck domestic “gold” freeing them from economic cycles in the rest of the world. It was called decoupling and it was wrong.

The fascination with the idea, if not the fact, of independent economic growth grew from a series of statistics. China had become the world’s second largest economy (by GDP), eclipsing the tech giant nation to their east, Japan. Decades of near double-digit growth meant China would overtake the U.S, and ostensibly the world, in 2020, 2030 or 2040 depending on the study. No end to high-rises, malls and luxury cars was on the horizon. China had become the perpetual growth machine for the ages.

India too was ramping up to break-neck speed. Its tech sector dominated outsourcing and was aiming for indigenous innovation with chip design and software. Bangalore was the new Silicon Valley. Largely untouched by the 2008 financial crisis that sent the U.S. reeling into recession, India’s massive population, natural resources, and increasingly business-minded politicians were about to unleash the second great consumer wave of the 21st century.

Ideologically the rising Asia theme also satisfied nationalistic tendencies that saw in their growing wealth, and the supposed decline of the U.S., an historic reversal of fortune. Decades if not centuries of perceived second-nation status had ended. Even capitalism itself had been rendered mute to the alternate, more socialist common cause of Chinese and Indian inspired growth.

In the last several weeks another set of statistics have appeared. Slowing growth is no longer just for the U.S. with a disappointing 1.7% in Q2, along with recession-hit Europe and now Japan. China too has seen a dramatic fall in consumer demand. Overall growth, as a manufactured number itself, will likely fall somewhere between 7.6% – 8.0% for the year, but data out on electricity production, warehouses overflowing with commodities including steel and coal, and a glut of other goods strongly suggest greater slowing, even if not officially admitted.

India’s leading figures are ratcheting down as well, currently to a sub 6.0%. Even in vibrant southeast Asian countries including Vietnam and Thailand face stronger headwinds (though Malaysia and Indonesia continue to buck the trend). The slowdown has now turned truly global. Commodity prices for copper, a key input for any advanced economy, test yearly lows as broad-based demand wanes.

Asia hadn’t built a world-leading growth engine after-all because the middle class continued to face severe restrictions. Income gaps widened and while certainly new consumerism did emerge, it can no longer be maintained absent the institutions of reliable government. That means protecting intellectual property, enforcing tax collection and limiting the corrosive effects of corruption.

In the end emerging Asia isn’t driving world growth, and the collective fortunes of the “west and the rest” are more intertwined than ever. Both developed and developing economies face constrained opportunity going forward. When recovery returns, and eventually it will, both may feel the rising tide together. Until then it’s a long slog through tough economic times.

South China Sea First Test for U.S. Shift – Business Insider Article

Tensions are rising again in Southeast Asia as competing claims over the resource rich South China Sea push closer to boiling point. One would hope that countries in the region would take concerted action. That hope would be misplaced.

An increasingly militarized land and sea grab continues despite calls for peaceful resolution. With the U.S. in full Asian tilt, the South China Sea dispute is shaping up to be the first major test of its Pacific re-engagement. What the U.S. can or should do remains woefully undefined.

Full article available here.

What Really Ails America This Election Season

The internet is abuzz with criticism of Niall Ferguson’s factually-challenged rebuke of President Obama’s performance in the latest Newsweek cover story. His views include a steady stream of slanted statistics circulating these days (which is not to say there aren’t reasonable criticisms out there). But that’s nothing new for the historian turned pundit.

Consider his January 16, 2012 Newsweek article “Rich America, Poor America” in which he uses Charles Murray’s book “Coming Apart” as evidence for the uneducated, lazy and irreligious poor in America essentially being the cause of their own misfortune. After all educated people simply self-segregate themselves, have smarter children, go to church more, and work harder than the poor (his assessment). By the end of the article he recommends Romney read the book as a guide to fixing the country (article here).

In “The Cure for Our Economy’s Stationary State”, 7/16/12, he focuses on rising disability claims and people not moving around the country as much as they purportedly did in the past to find jobs as reasons for U.S. economic stagnation. Again it’s the “lazy” poor abusing the system or just not working hard enough.

Disability claims have been rising. Yet he doesn’t bother to address precisely how much is due to an increase of the aging population and other factors or exactly how much fraud is occurring (or its cost on economic growth). Instead he leans on overly general statistics and insinuation. Here’s a certainty, something definitely happened back in 2008 on Wall Street that stinks like abuse. Maybe that was a plot by overnight janitors to sneak derivative trading schemes into the computers at night and pad their retirement accounts, maybe not.

Then he uses the overplayed China card saying:

“It is Westerners who are in the stationary state, while China is growing faster than any other major economy in the world.”

As economists and well informed historians know all too well countries in different stages of economic development grow at different rates. That China is in a growth spurt coming out of a very low developmental base starting in the late 1980’s is a well studied phenomenon. Rwanda, Indonesia and Lithuania have all been growing (and outpacing the U.S.) lately as well. Good for them. That says absolutely nothing about what ails America.

And finally he says:

“The mood disorder is especially bad for investors. Only seven out of 47 national stock markets around the world have posted gains in the last 12 months.”

Is he suggesting that U.S. markets are among those without gains and U.S. investors have fallen on hard times? Fact check: The Dow Jones Industrial (DJI) is up over 22% from 12 months ago. Maybe he meant since January, 2012. Um, nope. Still up. Here’s the chart.

Okay, okay, maybe he was referring to NASDAQ. Wrong again. A gain of almost 24% since a year ago, and up since January too. Take a look here. These two data points took all of five minutes and basic math to figure out.

Mislead and misdirect appear to be the commentary tricks of the trade these days rather than fact-based opinion. Maybe this is what you get when a historian tries to play economist, except that he isn’t even playing economist but simply an information-twisting partisan hack.

As we go into election season what America really needs is informed debate. There are plenty of thinkers who take the future of this country very seriously and have good arguments to support their positions (conservative and liberal alike). Ferguson is not among them.

World Politics Review Article on the Global Middle Class – Part II

World Politics Review Article on the Global Middle Class – Part II

The damage done to the global middle class, while significant, is not irreparable. The solutions are as varied as the countries themselves, but they all share several key features that influence whether a consumer-driven economy will flourish or not.

First and foremost is access to capital for small and medium-sized enterprises. In developed and developing economies alike, funding all but dried up during the economic crisis that began in U.S. and quickly spread around the world. Especially during recessionary periods, start-ups are critical job creators compared to existing firms, which tend to shed employees. During the 1991 and 2002 U.S. recessions, start-ups added nearly 3 million new jobs, while established firms laid off 4 million to 5 million people, according to a Kaufmann Foundation report.

Misguided government regulations have also been thwarting the return of the middle class. Breaking up the excessive influence of conglomerates in emerging economies is another way to create room for the middle class, but doing so often proves to be difficult and controversial. Policymakers, no matter where they are, need to shift their fixation from top-line statistics like GDP growth, which can obscure wealth-gap and purchasing-power problems, and focus more on the health and size of their middle class. Until the world’s middle class recovers, there will be no global recovery.

Full article is available on the World Politics Review website.

Photo: President Barack Obama signs the Middle Class Tax Relief and Job Creation Act of 2012 in the Oval Office, Feb. 22, 2012 (White House photo by Pete Souza).

World Politics Review Article: The Crisis of the Global Middle Class

World Politics Review Article: The Crisis of the Global Middle Class

The Arab Spring uprisings were fueled by the rising expectations of a nascent middle class in the face of opportunity that for too long had been denied. Tunisia’s uprising was in essence a middle class awakening, with the fight for economic opportunity replacing political ideology as the principal force shaping the future of fragile nations. It is a problem that even industrialized countries now face.

If nothing is done to build up the fragile middle class, we run the risk of greater social, economic and political polarization that, at its worst, could lead to a rise in nationalism, xenophobia and a breakdown of a tenuous global order. Historically speaking, that generally does not end well. Fortunately, such an outcome is not inevitable.

Full article is available on the World Politics Review website.

Photo by Wikimedia user Ghassen Bradai, licensed under the Creative Commons Universal Public Domain Dedication.