Around the Globe 06.07.2013

Fed on Track to Ease Up on Bond Buying Later This Year –

Markets might have gone too far on taper talk: Fed’s Plosser | Reuters.

Greenspan: Taper Now, Even If Economy Isn’t Ready.

Fed Seen Reducing Asset Buying by Smaller Amount – Bloomberg.

Fed QE versus SP500

Everyone is a Fed prognosticator today.  It appears that a change in Fed policy is coming judging from its communications including a Hilsenrath special, but watch how fast the Fed changes its mind when market volatility begins rising.

Germany Cuts Growth Outlook –

Bundesbank dampens optimism over German economy | Reuters.

Eurozone PMI 05.2013

The Bundesbank cut its economic growth forecast for Germany based on weak demand from the Eurozone.  While the ECB sticks to its recovery-right-around-the-corner position, the realistic BuBa realizes that a broad Eurozone recovery is unlikely to occur this year.  With European demand falling, exports are the supposed salvation of the Eurozone.  However, worldwide demand is softening at the worst possible time.  Look for the pace of contraction to accelerate in the third quarter.

Five Takeaways From Jobs Report – Real Time Economics – WSJ.

U.S. Adds 175,000 Jobs, Beating Expectations –

Hiring points to resilience in economy | Reuters.

Payrolls in U.S. Rose 175,000 in May, Unemployment 7.6% – Bloomberg.

US Nonfarm Payrolls

Reading the articles about the jobs report and their headlines, you would believe that the U.S. is in the midst of a booming economic recovery, but it’s not.  The economy needs to create about 400,000 jobs for the next few years just to return to the pre-recession employment situation.  The chart shows just how severe the country’s job loss during the recession was.  Currently, the labor market is not contracting, but it is not growing quickly enough either.  That is what 175,000 new jobs means.

Retailers’ sales rise in May, spending stays moderate | Reuters.

US Retail Sales 06.2013

After the recession ended, people began spending money on purchases that they had delayed due to economic uncertainty.  Since then, retail sales growth has slowed markedly as seen in the chart above.  Real, sustainable increases in consumer spending, which accounts for 70% of the U.S. economy, must be preceded by increases in employment and wages.  As long as the labor market remains tepid, economic growth will continue to disappoint.

Draghi Disappoints as Firepower Becomes Fig Leaf – Bloomberg.

ECB Benchmark Rate 06.07.2013

The problem with the Eurozone is the euro, and no ECB policy can change that.  The alphabet soup of thinly disguised money printing programs will maintain the status quo until it doesn’t, but they will not cure the Continent of its malaise.  A radical freeing of European internal and external markets will stoke growth, but this is a political nonstarter.  Europe will not change until a crisis forces it to.

Mexico Holds Key Rate as Inflation Clashes With Slower Growth – Bloomberg.

Mexico CPI Mexico GDP Performance

The U.S. purchases 80% of Mexico’s exports.  Its slowing economy shows the true state of the American “recovery:” slowing and approaching stall speed.  Mexico’s decreasing GDP growth argues for a rate cut, but persistently high inflation argues against.  The Bank of Mexico is doing the wise thing and maintaining its current interest rate posture to attract foreign capital and maintain the value of the peso.


6 thoughts on “Around the Globe 06.07.2013

  1. ” Real, sustainable increases in consumer spending, which accounts for 70% of the U.S. economy, must be preceded by increases in employment and wages. ”

    If you increase wages, you reduce employment. It is bad enough we have the Obama care, and its increase on the cost of employment. The proof is in the part time employment numbers verse the full time employment numbers.

    Example, I understand all of the employees at our local A&P were cut to 21 hours a week. They were forced to go find another part time job. And of course they do not get benefits at the A&P – well at least that is what I was told by one employee. 21 hours a week is the maximum she can work at the store.

    Lets look at a hypothetical, in very simple terms ( figures my one for the point ) —
    — you pay workers in China $ 5 an hour, India 3 an hour, Vietnam $ 2 an hour,
    Korea $ 1 an hour, Bangladesh $ .5 an hour.

    And you want to pay US $ 9 an hour; and give them benefits.

    Hey, I would love to make it $ 25 an hour with benefits, and free education, IF I COULD, I would.

    But then I am certain nothing would be made here so there would be absolutely no jobs.

    CRIPPLE THE US —- make it so there are no jobs here —–
    make it so there is no employment.

    See article

    ” For example, just check out the impact that the recent free trade agreement that Obama negotiated with South Korea is having on us…

    –A 10 percent decline of U.S. exports to Korea
    –The U.S. trade deficit with Korea has climbed 37 percent
    –U.S. auto industry has been crippled
    –Loss of U.S. control where international trade, banking and finance is concerned
    –A projected 159,000 jobs will be lost

    When NAFTA was pushed through Congress in 1993, the United States actually had a trade surplus with Mexico of 1.6 billion dollars. By 2010, we had a trade deficit with Mexico of 61.6 billion dollars.

    Back in 1985, our trade deficit with China was approximately 6 million dollars (million with a little “m”) for the entire year.

    In 2012, our trade deficit with China was 315 billion dollars. That was the largest trade deficit that one nation has had with another nation in the history of the world.

    But instead of learning from the mistakes of the past, Barack Obama is pressing for more “free trade” agreements. ”


    • It is an interesting article (here is an additional portion)

      -The United States has lost more than 56,000 manufacturing facilities since 2001.

      -Back in the year 2000, there were more than 17 million Americans working in manufacturing. Now there are less than 12 million.

      -There are less Americans working in manufacturing today than there was in 1950 even though the population of the country has more than doubled since then.

      -According to the Economic Policy Institute, America is losing half a million jobs to China every single year.

      -According to Professor Alan Blinder of Princeton University, 40 million more U.S. jobs could be sent offshore over the next two decades if current trends continue.

      -Today, corporate profits as a percentage of U.S. GDP are at an all-time high, but wages as a percentage of U.S. GDP are near an all-time low.

      -Without enough good jobs, more Americans are becoming dependent on the government. If you can believe it, the number of Americans on food stamps has gone from about 17 million in the year 2000 to more than 47 million today.

      -Overall, the United States has run a trade deficit of more than 8 trillion dollars with the rest of the world since 1975.

      And things continue to get even worse. The Institute for Supply Management manufacturing index declined to 49.0 in May. Any reading below 50 indicates contraction.

      That was the lowest reading that we have seen since June 2009. Just like most of the rest of the world, we are rapidly heading toward another major economic downturn.

      And if you want a perfect visual example of what deindustrialization is doing to America, just look atthe city of Detroit.

      It was once one of the greatest manufacturing cities in the history of the world, but now it is a rotting, decaying, festering hellhole.

      According to the New York Times, there are now approximately 70,000 abandoned buildings in Detroit, and at this point the city is so broke that there is talk that the female giraffe at the Detroit Zoo could be sold off to help pay the bills.

  2. “If you increase wages, you reduce employment. ” Do not know…maybe it is a relative issue depending on view you take.In my country wages are stripped to the bone – result – most of ppl refuses to work – they transfer valid knowledge in use of black market.”It is better to sit and earn nothing than work for nothing”

  3. My point is – when i had high salary,working for others,i was able to give a job to hire other ppl because i have surplus money due to the high salary…today i’m running my own business (beacuse of previous higher salary i was able to put aside some money)and i supose have to ask from my employes to work for minimal wages demanding best quality and i’m talking about medicine since this business i run.

  4. The more i read this sentence ““If you increase wages, you reduce employment. ” it becomes more illogical to me.Since logic is a only idea not absolute value this is my idea (logic) : If we take standpoint and analogy that ppl who seek jobs are like cattle – so if you press them more the more they produce – statement above have sense,but even that is not true since for a good production you need wast amount and quality food (money).

    • If we increase the price of a good, then we reduce its demand holding the supply constant. Sure, if you raise wages, more people will be willing to work at that price point, but that does not mean that there will be more jobs for them to fill.

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