Blogs: Kathleen M. Packard
Britain is turning into this year’s European success story – albeit without much competition. “Britain's growth forecasts have been upgraded by the European Commission in another boost for Chancellor George Osborne’s economic policy,” wrote James Salmon of the London Mail.
In its latest health check of the 28 members of the European Union, it said growth in the UK was ‘broadening’ and becoming ‘firmly established’.
It now expects Britain’s economy to grow by 2.7 per cent this year, compared with a forecast of 2.5 per cent in February and 2.2 per cent in November.
Unemployment is expected to continue to fall from 6.9 per cent to 6.3 per cent by 2015, while an increase in confidence among firms will boost investment, the EC said.
The London Telegraph’s Szu Ping Chan noted, however: “The Government and Bank of England must act to curb mortgage lending or the recent surge in demand could see house prices spiral out of control, the Organisation for Economic Co-operation and Development has warned.
Earlier, after the British government released figures that the economy had grown 0.8% in the first quarter, Chancellor Osborne had said: “"Today's figures show that Britain is coming back – but we can't take that for granted. We have to carry on working through our long term economic plan...The impact of the great recession is still being felt, but the foundations for a broad based recovery are now in place."
The Financial Times’ Chris Giles had written back in February that “revisions to the UK national counts showed investment contributing more to the recovery that previously thought, but the trade side of the accounts barely improved. With a current account deficit of roughly 4 per cent of national income for the past two years, net trade contributed just 0.1 percentage points to the 1.8 per cent expansion in 2013, having removed 0.7 percentage points from growth in 2012.”
Still, Britain’s investment rate remains low compared to the rest of Europe.
In a review of Britain’s recent economic performance, the Guardian observed: “Britain's export performance improved during the downturn and subsequent recovery. Net trade – exports minus imports – was a drag on UK growth between 1997 and 2007, but that trend was reversed during the downturn and subsequently as the economy recovers, partly as a sharp fall in the pound between 2007 and 2009 made UK goods cheaper abroad.”
It further noted: ““Financial services are a key part of UK exports. Britain has the highest ratio of services exports to GDP in the G7, at 13%. It also has the biggest share of financial services exports by some way, at 29% in 2012. The second is the US at 15%, with Japan exporting the least at 3%.”
The Guardian noted: “UK household spending suffered the biggest fall in the G7 in 2008-09. Household spending in Britain fell 5.7% between the first quarter of 2008 and the third quarter of 2009. The ONS challenges the assumption that the UK recovery has been particularly reliant on consumer spending.”
Young people are not working – at least they aren’t working enough. But low-wage jobs are the foundation of the recent U.S. jobs recovery. The New York Times’ Annie Lowery observed: “The deep recession wiped out primarily high-wage and middle-wage jobs. Yet the strongest employment growth during the sluggish recovery has been in low-wage work, at places like strip malls and fast-food restaurants.
In essence, the poor economy has replaced good jobs with bad ones. That is the conclusion of a new report from the National Employment Law Project, a research and advocacy group, analyzing employment trends four years into the recovery.
The report National Employment Law Project concluded “that during the labor market downturn (measured from January 2008 to February 2010), employment losses occurred throughout the economy, but were concentrated in mid-wage and higher-wage industries. By contrast, during the recovery (measured from February 2010 to February 2014), employment gains have been concentrated in lower-wage industries. Specifically:
The recent spurt in Americans dropping out of the work force is no cause for celebration. The New York Times Nelson D. Schwarz wrote in early April: “Experts with the Hamilton Project, a research group that is associated with the Brookings Institution in Washington, estimate that at the current rate it will take until early 2019 for the economy to accommodate new entrants into the work force and get back to where it was before the recession. While the Labor Department data showed that private payrolls in March stood at 116.09 million — compared with 115.98 million as the recession began in January 2008 — the size of the American work force has jumped by more than two million over the same period.
Moreover, even as people joined the work force, millions of other Americans dropped out of it entirely in the last five years, having given up the search for work, and the question of just how many of them will ever return to full- or even part-time jobs is now being hotly debated in economic circles.
Young people have been particularly disadvantaged by the job-poor recovery. Gene Budig and Alan Heaps wrote in USAToday that:
So, a little soul-searching may be needed at the Federal Reserve: Why hasn’t Quantitative Easing eased the way for young workers?
Argentina’s economic growth has stalled. Argentine President Cristina Kirchner’s populist power rests on a coalition that includes the nation’s labor movement. Now the labor movement is challenging the heir to the Peronist tradition; it called a general strike in mid-April. “We’ve arrived at this crisis situation – and that’s what it is, a crisis – because of this way of governing without accepting any ideas, contributions or help from others to solve the crisis,” labor leader Hug Moyano told the Wall Street Journal’s Taos Turner. “Mr. Moyano argues that Mrs. Kirchner’s government and that of her predecessor, her late husband Néstor, have fueled inflation through profligate spending, hurting workers.”
Kirchner’s policies are to blame for Kirchner’s problems as inflation and unemployment rise. MNI reported: “Argentina is expected to fall into recession this year, contracting about 3%, after more than a decade of robust growth, as high inflation, a weaker currency, shrinking consumer-spending power and poor business conditions deter consumption and investment.
Automakers were the first to put on the brakes after the government in January introduced a 30-50% luxury tax on mid- and high-end cars, which had driven the surge in production and sales over the past decade.
President Cristina Fernandez de Kirchner took the move to reduce sales of imported vehicles, part of a wider effort to curb a three-year decline in foreign currency reserves. Her administration is trying to protect the reserves to use for debt payments and cover rising energy imports until it can return to borrowing on global financial markets.
With the new tax coupled with rising inflation and interest rates, vehicle sales tumbled 25% in the first quarter of 2014 compared with the year-earlier period, causing output to decline 16%, according to the Argentine Automakers Association (Adefa).
The auto sector responded last week by suspending 3,500 workers for up to a week. Most of the workers will return to the factories this week.
The IMF is also raising alarms about Argentina. MercoPress reported: “ International Monetary Fund (IMF) Director for the Western Hemisphere Department Alejandro Werner has once again called for the region to embark upon economic reforms, claiming that the “least difficult” phase of economic growth is now over.
The IMF most recently forecast a 2.5 percent Gross Domestic Product (GDP) growth rate for the region this year, which it has termed “modest,” to be followed by three percent growth in 2015 and Werner attributed the lower growth rates to the of the commodities boom, instability in international capital markets and the region pushing up against the upper limits of its current production capacity.
Speaking to Agence France-Presse, Werner differentiated between Latin American countries closely-linked to the US economy, which he predicted will have a marginally better year, and those more dependent on commodities, which is the case of Argentina, for example.
There will be no short-term solution to Argentina’s problems. Reuters predicted: “Argentine President Cristina Fernandez is reversing some of the populist policies that defined her first six years in power and will have little choice but to stick to the new, more pragmatic path over the remaining 20 months of her final term.
Confronted by falling dollar reserves, a weak economy and high inflation, Fernandez has in the past three months cut heating gas subsidies and let the peso devalue by 18 percent.
Jobs growth leaped to 288,000 in April. Unemployment fell from 6.7 to 6.3 percent. Economists were cheered that the American winter blahs were over. That was the good news.
But also in the Labor Department statistics were some storm clouds.
“The jobs report contained at least one ominous note,” noted the Washington Post’s Ylan Q. Mui. “The nation's workforce shrank by more than 800,000 workers in April, sending the labor force participation rate plummeting 0.4 percentage points to 62.8 percent. The Labor Department said most of that decline was due to fewer people joining the workforce.
“People are not giving up in the labor force," U.S. Labor Secretary Thomas E. Perez said in an interview. “That would be a fundamentally different diagnosis of where we are now.”
The London Telegraph’s Ambrose Evans-Pritchard observed: “The US economy has delivered two minor shocks in a week, prompting concerns that bond tapering by the Federal Reserve may be doing more damage than expected.
Non-Farm Payrolls data released on Friday shows that the workforce shed 806,000 jobs in April, a stunning drop that cannot plausibly be blamed on the weather. Wage growth and hours worked were both flat and the manufacturing hours per week fell.
This follows news earlier in the week that the economy to a halt in the first quarter. Growth plummeted to 0.1pc and is now well below the Fed’s “stall speed” indicator. Analysts blamed this on the freezing polar vortex over the winter.
Yet the jobs data confirm a disturbingly weak picture. The headline unemployment rate fell to 6.3pc but that was only because the labour “participation rate” plummeted back to a modern-era low of 62.8pc, last seen in 1978 when there were far fewer women in the workforce. The rate for males is the lowest ever recorded at 69.1pc.
The Wall Street Journal’s Phil Izzo argued: “No one should read too much into one month’s moves in the labor force. Much of this month’s changes could be recalibrating after a couple of months of increases in the labor force participation rate, and some of it could be reversed next month. Meanwhile, while the details suggest the trend is worth watching, it’s not likely that this month represents a return to discouraged workers giving up and dropping out of the labor market.”
Many segments of the labor market continue to struggle. The Associated Press reported: “The unemployment rate plunged for adult high school drop-outs to 8.9 percent from 9.6 percent. But April was a cruel period for them: The number of employed high school drop-outs fell to 9.9 million from 10.1 million. More than 200,000 of them lost jobs.”
The sales tax is going up in Japan.>But faith in the financial and monetary policies of the government of Prime Minister Shinzo Abe is going down. But Abe remains optimistic, writing in the Philadelphia Inquirer shortly before President Barack Obama visited Japan that “Japan no longer considers itself the ‘Far’ East; rather, we are at the very center of the Pacific Rim, and a neighbor to the world’s growth center stretching from Southeast Asia to India.
There can be little doubt that this growth center will continue to propel Japan’s economy for the foreseeable future. Japanese direct investment is expanding in Vietnam and India, for example, which will boost demand for Japanese machine tools and capital goods.
But, to maximize its opportunities, Japan must open its economy further and become a country that actively incorporates capital, human resources, and wisdom from abroad. Japan must be a country capable of growing by channeling the vitality of a growing Asia.
The New York Times’ Hiroko Tabuchi noted: “Just as Europe’s investors are getting nervous because of the rising possibility of deflation, more people are dodetgubting Japan’s much-trumped fight to escape it. These concerns have been heightened by recent data suggesting unexpectedly weak economic growth in the fourth quarter.” Weak consumer spending has hurt the Abe recovery. Tabuchi noted that Abe thought the threat of higher prices later would get Japanese consumers more inclined to spend now. But first the Japanese had to believe that inflation was a reality and that their penchant for saving was unwise. That hasn’t happened.
The Financial Times’ Jonathan Soble and Jennifer Thompson noted: “The increase in the consumption tax – the first in 17 years – is testing companies’ pricing strategies and their confidence in the economic recovery fostered by Shinzo Abe, prime minister. After nearly two decades of deflation, Japanese consumers are unaccustomed to rising prices and the recovery has so far done little to raise their incomes, making many businesses afrad to charge more for fear of losing sales.”
Soble and Thompson wrote: “The tax rise is a big risk for the economy and Mr Abe. The last time Japan raised the consumption tax, from 3 to 5 per cent in 1997, the economy fell into a deep recession, voters punished the ruling party and the prime minister of the day resigned. Pessimists fear a repeat, while optimists counter that Japan is better prepared this time around – last time, it also had to contend with the Asian financial crisis and a domestic banking crunch.”
Bank of Japan officials remain optimistic – that the economy and inflation are on target – and that the tax increase will not set back their plans for economic growth. Reuters’ Leika Kihara has written “the BOJ has maintained its view Japan's economy will recover moderately despite the pain from the sales tax increase, suggesting that no immediate easing was on the horizon.
Many market players expect the BOJ to ease policy around July on the view economic growth will not be strong enough to push inflation to 2 percent any time soon.
The BOJ now expects core consumer inflation to accelerate to 1.9 percent in the fiscal year ending March 2016 from 1.3 percent in the current business year to March 2015, excluding the impact of the sales tax hike.
BY KATHLEEN M. PACKARD: