Thursday, August 31, 2017

Productivity and Economic Growth

"Productivity growth averaged 0.53 percent per year in the 2011-2016 period, far below the earlier norm of 2 percent to 2.5 percent. Reasons for the slowdown are many, but some economists suggest that such growth is being significantly understated. Mobile phones and other high-tech gadgets probably enhance efficiency of doing business far beyond their cost. Consider the value of time saved by shopping online, which is not captured in the statistics. The costs of new wonder drugs, high as they are, probably do not measure their value in saving lives.

The output in service industries is hard to measure, especially since quality can vary widely. One lawyer may bill twice as much time for reviewing a contract as another but make twice as many mistakes. The problem of measuring output in services only grows as services become an ever-greater share of spending.

Another explanation for slow U.S. productivity growth is that American multinationals have moved intangible assets such as patents and other intellectual property overseas in order to avoid paying taxes. Such actions slowed reported U.S. productivity gains by an estimated 0.25 percentage point per year between 2004 and 2008.

Although new technologies that enhance productivity are mushrooming, they often take decades before becoming big enough to move the overall productivity needle. The Industrial Revolution began in England and New England in the late 1700's, but only after the Civil War had it expanded to the point of hyping nationwide productivity. Ditto for railroads. As a result, between 1869 and 1898, real GDP per capita leaped at a 2.11 percent annual rate. It’s now rising around 1 percent annually.

Other forces may well push productivity, such as significant tax reform, education reform, deregulation, unifying state licensing requirements that now often impede labor mobility and reforming entitlements to encourage people to work. Also, there’s nothing like a stronger economy to create labor demand and the resulting high employment and wages."

Tuesday, August 29, 2017

Loss of Union Jobs could indicate lower worker pay in USA

"With globalization devastating U.S. manufacturing jobs and cost-cutting putting pressure on those that remained, union membership in the private sector has collapsed from a quarter of the total workforce in 1973 to 6.4 percent last year. 

This has had tremendous depressing effects on wages, since private union jobs on average offer 19 percent more in base pay than non-union positions, and over 50 percent more when health care, retirement and other benefits are included.

State and local government employees have enjoyed much higher pay and even more lush benefits than private-sector workers. Nevertheless, municipal employee compensation is under fire from many states and local governments with strained budgets and vastly underfunded pension plans. At the same time, municipal union membership is slipping.

Many employees are reluctant to demand higher pay because memories of the recession are still fresh. There also is an understanding among those who quit in the hope of getting a higher-paying job that they will probably end up with lower pay. On the other side, most employers, in the face of foreign and domestic competition, don’t believe they can pass on increased labor costs by boosting prices. The only alternative is increased productivity so higher costs can be paid without cutting into business profits. But miserable productivity growth has not provided the value added to justify higher wages."

via bloombergquint

Sunday, August 27, 2017

Movement from higher paid jobs to lower paid jobs

"In this economic recovery, the jobs that are being created are mainly in low-paid work. It’s been in sectors such as retail trade, where real wages have risen just 0.9 percent in total since the beginning of 2007. Similarly, the 3 million increase in hotel clerks, waiters and other leisure and hospitality jobs in this recovery has far outstripped the 900,000 gain in manufacturing. 

In June, manufacturing employees were paid $26.51 per hour, compared with the $15.43 per hour earned by leisure and hospitality workers. In addition, manufacturing employees worked 1.56 times as many hours, so their weekly pay of $1,081.61 was 2.69 times the $402.72 paid to the average leisure and hospitality employee. Even within industrial sectors, wages have been restrained as postwar babies at the top of their pay scales retire and are replaced by lower-paid new recruits."

via bloombergquint

Thursday, August 24, 2017

Peak Index Investing ?

"I think you are getting more and more of this feeling that you can buy anything, their all going up. This passive investment is over done, I think we probably swing back to Active Management and maybe it will take a big market decline to convince people......"

Monday, August 21, 2017

For every buyer there is a seller and for every seller there is a buyer.

"I think you got to be very cautious right now on stocks. Tech stocks have had a big run. You take out a few of the high fliers out of the NASDAQ and you don't have the performance. 

I have been a fan on long term treasury bonds since 1981 when the yield was 15.2 percent. Now its down to 3 percent, I think it could go to 2 percent on the 30 year bond and 1 percent on the 10 year treasury note. I think that's a good area. 

Commodities are probably going to continue to be weak, particularly oil.

Dollar has gotten beat up since the initial Trump rally. Long term I think the Dollar will probably be strong as a safe haven."

-Goldseek radio interview

Monday, August 7, 2017

US labor over supply

The Fed worries that the current 4.4 percent unemployment rate means that labor markets are too tight, but it also worried about a much higher rate back in December 2012. The central bank stated then that the federal funds rate, then in the zero-to-0.25-percent range, would be “appropriate at least as long as the unemployment rate remains above 6.5 percent, inflation one and two years ahead is projected to be no more than a half percentage point above the [policy] Committee’s 2 percent long run goal and long-term inflation expectations continue to be well anchored.”

But the Fed had to abandon that unemployment target as this very poor measure of labor market conditions fell, not so much due to increased employment but mainly because fewer people were looking for work. Youths stayed in school in hopes that more education would improve their job prospects, and many middle-aged people, discouraged over poor job prospects, discontinued their search for employment.

The many dropouts may well be drawn back to work as opportunities expand. Indeed, the labor force of those age 20 to 29 has been growing since 2012. At the same time, people over 65 who are employed or actively looking has been rising since the early 1990s. Many seniors are in good health and prefer active work to vegetating in front of the TV. Others, among them many postwar babies born in the 1946-1964 years, have been notoriously poor savers throughout their lives and need to keep working due to a lack of retirement assets.

As a result, the total labor participation rate appears to have bottomed. From September 2015 to this June, it rose from 62.4 percent to 62.8 percent. The growth in the working-age population will provide ample people to fill available jobs, even if economic growth accelerates from the recent average of 2.1 percent to my forecast of 3 percent to 3.5 percent -- assuming they have the needed skills.

Also, keep in mind that, like capacity utilization data measures of labor market slack on a global basis aren’t available. It certainly appears, however, to be ample, and the skills of workers in Asia are rising rapidly, not only in the production of goods but in services as well.

via bloomberg

Friday, August 4, 2017

Plenty of world labor supply putting pressures on worker wages

Some policy makers fret that the output gap - the percentage of un-utilized output in the U.S. economy - is shrinking fast. This is debatable since the economy’s output potential isn’t a fixed number but depends on speed of growth, which influences the economy’s flexibility. Business can adapt much better to slow growth, as proven in this recovery.

Also, capacity is sensitive to wages and prices. Higher pay attracts new workers who otherwise are comfortable drawing welfare, unemployment and disability benefits. By the same token, high selling prices can make otherwise obsolete machinery profitable to utilize in times of increased demand for their output and rising prices. In any event, the current overall operating rate remains muted and definitely below the levels that in the past have initiated capital spending surges.

More important, in today’s world, supplies of labor and productivity capacity need to be considered on a global basis. By all accounts, such supplies are ample and will remain so, barring all-out protectionist wars and tariff walls in advanced countries that could drastically chop imports.

via bloomberg

Wednesday, August 2, 2017

Manufacturing industry in Developed countries under pressure

Manufacturing employment in the West has seen a dramatic drop as production in the last three decades shifted from developed countries in Europe and North America to developing economies in Asia, where costs are much lower. 

There’s also downward pressure on jobs and compensation in the service sector due to legal, accounting, medical billing and other services being outsourced abroad. That trend will only intensify as economies expand and services become a bigger share of spending at the expense of goods. There’s only room for so many cars in the driveway, but opportunities to spend on recreation and travel, health care and other services are almost limitless.

Note that with globalization, many U.S. goods prices continue to deflate. But domestic and international downward pressure is also being felt on services as diverse as education, health care, retailing and financial service fees and commissions.

Tuesday, August 1, 2017

Real wages in developed countries have been under pressure

Wages have been either stagnant or declining in the U.S. and other developed economies for more than a decade once inflation is taken into account. Yet, the Federal Reserve and other major central banks remain convinced labor markets are tight, and that a surge in employee costs and inflation are just around the corner. Hence, their recent shift toward credit restraint.

But inexplicably, policy makers are failing to take into account the many significant economic changes in recent decades that are holding down wage growth.