Sunday, January 9, 2011

Selected Macroeconomic Highlights from the Week Ending January 8, 2011

A large fraction of displaced workers who have found new jobs have had to switch careers, and most of those career-changers have downgraded to a lower-paying job, according to a new report from Rutgers’s Heldrich Center for Workforce Development.---NYT


  • The Euro lost 353 basis points against the dollar.
  • Crude oil traded $1.38 per barrel lower.
  • Silver fell 6.7% for the week.
  • Gold lost 3.7% for the week.
  • The Goldman Sachs Commodity Index lost about 6 points to close at 616.75.
  • The blue chip index added 0.84%; the S&P 500 Index gained 1.10% and the NASDAQ climbed 1.90%.
  • Unemployment declined to 9.4% from 9.8% in November. This was partially because the participation rate declined to 64.3%.
  • The 103,000 payroll jobs added was below expectations of 140,000 jobs, however payroll for October payroll was revised up 38,000 and November was revised up 32,000 for a total of 70,000.
  • The Commerce Department reported factory orders rose 0.7 percent in November, as U.S. business responded to strong demand for household appliances, computers, and furniture. Excluding the volatile transportation sector, orders actually increased by 2.4 percent, marking the largest gain in eight months.
  • Light vehicle sales were at a 12.55 million SAAR in December, up 13.1% from December 2009, and up 2.7% from the November 2010 sales rate.
  • Federal Reserve Chairman Ben Bernanke predicted the economy would strengthen in 2011. But he said the Fed's $600 billion Treasury bond-buying program, known as Quantitative Easing 2, needs to continue because it will take years for unemployment to drop to more normal levels.
  • President Obama appointed Gene Sperling as his top economic advisor. Sperling served in the same capacity in the Clinton Administration.


The Republican-controlled House voted Thursday to trim members' office budgets by $35 million, a symbolic down payment on a promise to bring the budget deficit under control. That 5 percent cut is enough to keep the government running for about five minutes.

American politicians and citizens alike have no clear vision of the costs of a seemingly perpetual trillion-dollar annual deficit. Policy stimulus is focused on maintaining current consumption as opposed to making the United States more competitive in the global marketplace. Dollar depreciation will sap the purchasing power of U.S. consumers, as well as the global valuation of dollar denominated assets.
---Bill Gross

What's the outlook for (housing) stocks? (W)e estimate that it will take 44 months to clear the supply of distressed homes on the market in the U.S. as a whole, which is up from our second-quarter estimate of 40 months.
---Diane Westerback

Americans spent $2.5 trillion on health care in 2009, or $8,086 per person, said the new estimates by number crunchers at Medicare's Office of the Actuary.

As for currency collapse, the most prominent candidate has to be the euro. In an ideal world, Europe would deal with its excessive debt burdens through a restructuring of Greek, Irish, and Portuguese liabilities, as well as municipal and bank debt in Spain. At the same time, these countries would regain export competiveness through massive wage reductions....

The dollar, on the other hand, looks like a safer bet in 2011. For one thing, its purchasing power is already scraping along at a fairly low level globally – indeed, near an all-time low, according to the Fed’s broad dollar exchange-rate index. Thus, normal re-equilibration to “purchasing power parity” should give the dollar slight upward momentum....

As for China’s renminbi, it is still supported by a highly political exchange-rate regime. Eventually, China’s rapid growth will have to be reflected in a significant rise in its currency, its domestic price level, or in both. But, in 2011, most of the equilibration will likely take place through inflation.
---Ken Rogoff

Fears of a sovereign default are “manifest” in Europe and will soon spread to Japan and the U.S. as governments struggle to control deficits, according to Citigroup Inc. economists led by former Bank of England policy maker Willem Buiter. “Despite the recent drama, we believe we have only seen the opening and second act, with the rest of the plot still evolving,” London-based Buiter and colleagues wrote in a research note published today. “There is absolutely no safe” sovereign.

Federal Reserve Vice Chairman Janet Yellen defended the central bank’s asset purchases, saying they will add 3 million jobs to private payrolls and have prevented the country from slipping into deflation. “Inflation is currently a percentage point higher than would have been the case,” she said in a speech yesterday in Denver. “In the absence of such purchases, the economy would now be close to deflation.”
---Janet Yellen

But all we needed for a modest economic rebound was for construction to stop falling and saving to stop rising — and that seems to be happening. Forecasters have been marking up their predictions; growth as high as 4 percent this year now looks possible. Hooray! But then again, not so much. Jobs, not G.D.P. numbers, are what matter to American families. And when you start from an unemployment rate of almost 10 percent, the arithmetic of job creation — the amount of growth you need to get back to a tolerable jobs picture — is daunting.
---Paul Krugman

The CBO estimates that interest rates on 3-month bills and 10-year notes will reach 5.0% and 5.9%, respectively, by 2020. That, together with a rapidly rising debt load, would cause annual net interest payments to more than double by 2020 — to $778 billion, or a record 3.4% of GDP.

If you have a concrete proposal to raise tax revenue or cut spending, then put it on the table. But if you simply want to grandstand on the debt ceiling as if it were a stand-alone issue, it is clear that you have nothing but contempt for the voters. … And if so, then you deserve the same in return.
---James Hamilton