Thursday, October 30, 2014

US Economy Grows at 3.5 Percent in Q3 2014 for Best Six-Month Run of Recovery

The Bureau of Economic Analysis reported today that US GDP grew at a 3.5 percent annual rate in
the third quarter of 2014. Combined with the strong 4.6 percent showing in Q2, the six-month average of 4.05 percent is the best half-year performance of the recovery. Even including the 2.1 percent annual rate of decrease for Q1, growth over the past full year was better than the average since the recession bottomed out in mid-2009.

Net exports were one of the biggest contributors to growth in the quarter. Net exports, which had been a negative factor in the otherwise strong second quarter, accounted for 1.32 percentage points of growth—more than a third of overall GDP growth for Q3. Export performance remained strong, as it has through most of the recovery, but the big turnaround was in imports. Imports have a negative sign in the national accounts, so the -1.77 percentage points for Q2 reflected an increase in imports for that quarter, while the +.29 percentage points for Q3 indicates a decrease in imports.

Another source of growth in Q3 was a .83 percentage point contribution by the government sector. Most of that was an unusual .69 percentage point growth of national defense consumption expenditure. Defense expenditures tend not to be spread evenly from quarter to quarter. They can account for abrupt jumps in the contribution of the federal government to GDP growth, as they also did in Q4 of 2012 (see the following chart). A recovering state and local government sector again made a positive contribution to GDP growth in Q3, as it has for six of the past seven quarters.>>>Read more

Follow this link to view or download a short slideshow with additional charts based on the latest US GDP release

Monday, October 20, 2014

Why Should Europe (or Anyone) Fear Deflation?

Europe is fearful as it teeters on the brink of deflation. As the chart shows, September consumer prices in the eurozone were just 0.3 percent higher than in the same month a year earlier. That is far below the 2 percent inflation target set by the European Central Bank (ECB). Five countries were already experiencing deflation, and inflation was at zero in three others.
 
Still, despite all the gloomy deflation headlines, the most common question I get about deflation is, “So what?” If inflation is bad, why isn’t deflation  good?  Why should we do anything but celebrate if the prices of goods and services fall steadily year after year, and the value of our money rises accordingly? In this post, the first of two parts, I will try to explain just why a majority of economists think deflation is bad. In the second part, I will look at the views of a minority who think that deflation is actually a good thing, at least sometimes. >>>Read more

Tuesday, October 7, 2014

The Economic Future of Eastern Ukraine ("Novorossiya")

Last May, I posted an item on the economic situation in the rebellious regions of Eastern Ukraine, or
“Novorossiya” (New Russia), to use the term increasingly favored by separatists and  their Russian sponsors. Novorossiya was the name of a province of Tsarist Russia that occupied much of the southern part of present-day Ukraine, stretching all the way to Odessa. At present, the separatist “Federal State of Novorossiya,” consisting of parts of Donetsk and Luhansk oblasts, lays claim to only a small slice of historical Novorossiya. As the map shows, expansion of the separatist-held territory toward the south-west would provide Russia with an overland route to Crimea.
 
In that earlier post, I outlined three possible outcomes of the conflict in Ukrainian Donbas, the heavily industrialized area around the cities of Donetsk and Luhansk that is the only part of historical Novorossiya that the separatists control as of early October. One was that Kiev would re-establish full control over the region with minimal concessions to local autonomy. The second was full Russian annexation, as of Crimea. The third was the emergence of yet another zone of frozen conflict like those of Transdniestria, Abkhazia, South Ossetia, and Nagorno-Karabakh.

Although the fighting has not yet entirely stopped, the conflict is rapidly congealing, making the third variant the most likely. It is time for an update, giving closer attention to that outcome. What would be the economic implications of a frozen conflict for the region itself, for the rest of Ukraine, and for Russia? >>>Read more

Sunday, October 5, 2014

US Unemployment Rate Falls to 5.9 Percent on Strong Job Gains

The US unemployment rate fell to 5.9 percent in September, dropping below 6 percent for the first
time in more than six years. The decrease was powered, in part, by strong growth of payroll jobs. Payroll jobs increased by 248,000 in September, well above the average for the year to date. In the same report, the BLS revised the weak August job gain upward from 142,000 to 180,000, and the July gain from 212,000 to 243,000.

In addition to the standard unemployment rate, the BLS also publishes a broader measure of labor market distress known as U-6. That measure takes into account discouraged workers, others who are marginally attached to the labor force, and people who are working part time but would prefer full-time work. U-6 decreased to 11.8 percent in September, also a six-year low. The unemployment rates are based on a survey of households that differs in several respects from the survey of employers from which payroll job numbers are drawn. According to the household survey, total employed workers increased by 232,000 in September while the number of unemployed decreased by 329,000. The civilian labor force decreased by 97,000, and the employment population ratio was unchanged. >>>Read more

Follow this link to view or download a brief slideshow with charts of the latest employment data

Friday, September 26, 2014

As Exports Soar, US Economy Closes in on Fed's Targets

Revised data released today by the Bureau of Economic Analysis show that the US economy grew at a 4.6 percent annual rate in the second quarter of 2014, even faster than the 4.2 percent previously
estimated. That was the most rapid quarterly growth since Q4 2010.

Much of the upward revision was due to the growth of exports, which also turned in their best performance in four years. The strong performance of the export sector is especially noteworthy in view of slow growth or recession in many US trading partners and the strong dollar, which had not yet begun to weaken in Q2. The BEA also made an upward revision, but not as large, to the growth of imports.

Personal consumption expenditures also grew faster than previously reported, with durable goods accounting for more than half of total growth for that sector. Fixed investment was also significantly stronger than previously reported. The contribution to GDP growth from government consumption expenditures and gross investment was a little stronger than in the second estimate. All of the growth of the government sector came at the state and local levels. The contribution to growth from the federal level was negative, as it has been in 11 of the past 12 quarters. >>>Read more

Follow this link to view or download a slideshow with additional charts of the latest GDP data

Monday, September 22, 2014

One Chart that Shows What's Wrong with US Corporate Tax

Last week the Tax Foundation released its annual International Tax Competitiveness Index for 2014.

The United States ranked 32 out of 34 OECD countries surveyed. Only Portugal and France got lower competitiveness scores, and not by much. As if that were not bad enough, the competitiveness score is only half the story. When you put it together with other data, the US tax system looks like even more of a mess.

First a bit about the Tax Foundation and its competitiveness index. The foundation invites  journalists to describe it as “a non-partisan research think tank, based in Washington, DC,” but not all agree. For example, Dan Crawford, writing for Angry Bear, says, “Its work is aimed at one purpose–convincing Americans that they pay too much in taxes and that government is too big.” Others point out contributions from the Koch Family foundations and ties to other conservative groups as signs of partisan bias. Paul Krugman says flat-out that “knowledgeable people don’t trust the Tax Foundation.”

In an important way, though, the Tax Foundation’s conservative ties only reinforce its credibility as a monitor of tax system features that are perceived as burdensome by its corporate friends. The foundation is entirely up front about what the Tax Competitiveness Index tries to measure:
A competitive tax code is a code that limits the taxation of businesses and investment. In today’s globalized world, capital is highly mobile. Businesses can choose to invest in any number of countries throughout the world in order to find the highest rate of return. This means that businesses will look for countries with lower tax rates on investments in order to maximize their after-tax rate of return. If a country’s tax rate is too high, it will drive investment elsewhere, leading to slower economic growth.
When the foundation gives the United States a low competitiveness score, then, it is simply saying that there are a lot of things about our tax system that corporate businesses don’t like—the kinds of things they consider when they decide where to locate, how to operate, and where to find funds for their investments.

What really strikes me, though, is not just how uncompetitive the US tax system is (in the Tax Institute’s sense of the word), but that it manages to be so uncompetitive while raising so little revenue.>>>Read more

Wednesday, September 17, 2014

Ask Me Anything about Universal Basic Income Today on Reddit

Today at 1 p.m. Eastern (10 a.m. Pacific), I will be doing an "Ask Me Anything" session on Reddit on the topic of universal basic income (UBI). Here is the general link to the page where my discussion will appear. I will post an exact link to the discussion itself when the time comes.

video
The IAMA sub-Reddit requires that people provide "proof" of who they are by posting something that no imposter could easily do. My "proof" is this little video clip inviting you to join me today on Reddit. Sorry for the poor quality--I'm not very good at videos, but you can match the image in the video to the one posted in my profile. I guess that will constitute "proof."

As readers of this blog will know, I have posted lots of stuff about a universal basic income over the past year. Here is a partial list:

For more, you might check numerous contributions I made to the recent discussion of basic income on Cato Unbound, which starts here  or this short piece posted on Real Clear Markets  or this brief summary of my arguments in the Milken Review.

So please join me, and I look forward to answering your questions!