Category Archives: Economy

NABE Survey Sees Trouble Looming in China

Economy, , , , ,
China economy boom or bust?
China economy boom or bust?

According to a new survey conducted by the National Association for Business Economics, a bit beyond half of US business economists believe that China marching towards a serious debt crisis in the next few years.

When asked whether they agreed that “China will face a debt crisis within the next few years,” 52 percent said yes, 25 percent said no, and 23 percent were undecided.

“The biggest concern that has been in discussion is the housing boom and bust in China,” said Jack Kleinhenz, NABE’s president and chief economist at the National Retail Federation. “I think it’s just an overexpansion like we’ve seen in other housing bubbles that have occurred, here in the United States and elsewhere.”

Problems brewing in the Chinese economy include a weakening housing market, expanding debt on the local government level, and a squeezing of supervision of shadow-banking services.

Not all agree with US economists however. Changyong Rhee of the International Monetary Fund said in April that he does not see a full-blown financial crisis for China on the horizon. Kleinhenz added that even if there were a housing bust in China it “shouldn’t have an impact globally” like the housing crisis in the US did. That housing crash helped ignite the 2008 global financial crisis.

The NABE survey was given to 47 member of NABE and was conducted from May 8-21. The economists were also asked about European economics. The vast majority, 84 percent, said that they believe the problems facing Russia and Ukraine “will hinder the economic recovery in Europe.” Whether the crisis will impact the US, however, only 34 percent think it will.

UNC’s Smith Looks Into His Crystal Ball Once Again

Economy, ,

James F. Smith, venerable economic forecaster from the University of North Carolina at Asheville, will be looking into his crystal ball for the 29th time at this week’s annual Crystal Ball Economic Forum held at UNC for the past 30 years. Joining him for the 27th consecutive year is David Berson, Nationwide Insurance’s chief economist.

These two have become an institution on campus: every April gazing into the future based on their knowledge and analysis of the past; giving investors a heads-up on what they can expect in the near, and not-so-near economic future.
Their batting average is not too bad, either. They predicted the Great Recession.

“What stands out in my mind is how these guys have been right on the big calls, not necessarily where the Dow Jones was going to stand in 12 months, but where the economy will be,” said Joe Sulock, UNCA’s Owen Professor in Economics and organizer of the Crystal Ball.

What Smith says he did not foresee was the depth and breadth of the Great Recession, which still has him somewhat stumped.

“No one alive has ever experienced such a slow rebound in the U.S. From 1921 through 2013, through the Great Depression and World War II, the gross national product on average has grown by about 3.2 percent a year. We haven’t had a year over 3 percent growth for almost a decade,” says Smith.

Smith says he is optimistic about the economic future in store. When he looks at the data over the long run, he says betting on the future is  simple logic. During the 20th century the US economy grew ten times more often than it contracted. The average length of the 11 recessions experienced from 1945 through 2001 was only 10 months.

“We should see many new economic records set in the U.S. and around the world in 2014 and 2015,” Smith said.

CEO Gorman Still Optimistic About US Economy

Economy

Morgan Stanley CEO James Gorman has examined the US economy, and likes what he

CEO James Gorman of Morgan Stanley
CEO James Gorman of Morgan Stanley

sees. Despite the challenges presented by emerging markets such as China and elsewhere, Gorman is continuing to invest in the US market.

“I think we are now recognizing the U.S. economy is strong and getting stronger. That’s obviously very positive for the markets,” Gorman stated to FOX Business’s Maria Bartiromo in an interview on ‘Opening Bell’ Monday.

The interview marked what has now been five years of bullish behavior on Wall Street which has recovered in spades since the low point in 2009, rising almost 10,000 points since those crisis-laden days.

“If you look at the macro environment, I remain very bullish. The upside risk is the U.S. economy. It’s taken a while for people to get comfortable with that,” said Gorman, who noted “scar tissue from the crisis” continues to linger.

Gorman based his assessment on several factors, including improved US economic expansion, increased confidence from business leaders, the lowering of consumer debt, strong corporate balance sheets and recapitalized banks.

“The system is working well. It doesn’t surprise me the markets are performing,” Gorman asserted.

November Jobs Report: Good Sign

Economy, ,

Julia-CoronadoAccording to the November Jobs Report, the US economy is looking good.  There has been a reported decrease in unemployment figures, with the economy up 2.1 million jobs in 2013, being the third consecutive year the economy has added 2 million jobs.  Still, this is just part of the picture. Indeed, irrespective of December figures, 2013 will still probably be the best year for hiring since the 2.5 million gain eight years ago.

In addition, the underemployment rate has improved, dropping from 14.4 percent last year to 13.2 percent today. However, even though this figure looks good for now, it’s not so great in the bigger picture considering it would have been a devastating number before the recession began.

Average weekly wages have increased slightly for November but analyzing that figure leads one to realize that it is because there has been an increase in hours worked with a slight escalation on the hourly wage.  Still, during 2013, weekly wages went up 2.3 percent.  As well, this has to be taken against inflation and since lower gas prices have rendered overall prices to a mere 1 percent yearly increase thorough October, this is significant.  If the US was on top of inflation, more hiring and additional business revenue is likely to occur.

And of course, this all has a positive impact on the stock market that increased by over a percentage following the November jobs report.  Traders used the figures to believe that there was a prospect of increased employment and economic growth which would negate the chance that the Federal Reserve would ease back on its stimulus efforts. Most feel however that officials from the fed want more consistency to the data before they begin tapering which will probably happen in the beginning of 2014.

Still, there is an air of caution.  Since the end of the recession and throughout this recovery, there have been quite a few false hopes, like in early 2011 and early 2012 when we witnessed encouraging monthly hiring gains which didn’t last. Indeed, according to chief economist for North America at BNP Paribas, Julia Coronado, “we still need more evidence that the economy is picking up momentum before we ring the victory bell.”

So there is good news for sure.  But it will pay to remember that we’ve been here before and the bubble has burst.  It would thus be advisable to wait a little before bringing out the champagne.

Treasury Declares Lowest Deficit Since 2008

Economy, ,
Treasury Secretary Jacob Lew
Treasury Secretary Jacob Lew

Increased revenue from taxes and reduced spending from budget cuts combined to give America’s lowest budget deficit figures since 2008, according to Treasury Department data published on Wednesday.

During the last month of the fiscal year, which goes from October to September, the government brought in $75.1 billion more than what it spent. This leaves the year’s deficit at $680 billion, down from $1.09 trillion in 2012.

For every dollar that the government spent last year it collected 80 cents. The downturn for the government was caused by the 2007-2009 economic crises, which lowered government revenues substantially while increasing spending due to large unemployment benefit payouts.

About 80 percent of the deficit’s reduction came from higher taxes collected, the Treasury said in a statement. Treasury Secretary Jack Lew said that the budget gap fell at its quickest pace since WW II during the past four years.

“Congress must build on this progress by crafting a pro-jobs and pro-growth budget agreement that strengthens the economy while maintaining fiscal discipline,” Lew said in the statement.