Posted by: Peter Coy on July 02
Guest blog from Economics Editor Peter Coy
Ouch. Merrill Lynch didn't pick the best time to upgrade its outlook for the U.S. economy. The research note on the upgrade hit my email inbox at 8:12 a.m.--minutes before the Labor Dept. announced a worse-than-expected decline of 467,000 jobs in June.
To be fair, Merrill wasn't completely taken by surprise. It had been expecting a loss of 375,000 jobs, which was slightly above the Street consensus, and it was looking for a jobless rate of 9.6%, higher than the actual rate of 9.5%. So it's more a matter of appearances than reality.
The more important question is whether Merrill's new call will prove correct. It said it expects GDP to grow at an annual rate of 2.6% in the third quarter and 2.8% in the fourth quarter, for a second-half average of 2.7%, up dramatically from its previous forecast of 1.4% growth. It attributed the upgrade to stimulus-boosted consumer spending; an upturn in homebuilding; improvement in net exports from stronger growth overseas; and a decrease in inventory draw-downs.
Interestingly, Merrill's U.S. economics team has gotten more bullish since the departure of David Rosenberg, who moved to Toronto earlier this year to serve as chief economist and strategist at wealth manager Gluskin Sheff & Associates. Rosenberg remains an irascible bear in his new position.
I sent an email to Merrill asking about the timing of the upgrade and got this eminently reasonable response from U.S. Economist Drew Matus (my questions in italics):
1. Does this jobs report cause you to lower your newly upgraded forecast for the U.S. economy?
No, it does not. Our new forecast includes the unemployment rate moving up to 10.5% at its peak. Any one month's worth of job losses which have a standard error of more than 100,000 and missed our estimate by less than that amount is not cause for regret or rethinking of a well thought out forecast.
2. Are you wishing you had waited a day to issue your new forecast, until after you had the jobs data?
No. Our consumer spending outlook is weak and our unemployment rate forecast is for a continued rise in unemployment. The near term outlook is driven by consumption related to stimulus which is still occurring; inventory adjustments which have not been impact by this data; housing, which is unrelated; and net trade.
Posted by: Michael Mandel on July 02
Guest blogger Peter Coy will be filling in for me for the next two weeks while I am taking a vacation (at home and in Scotland). You may know Peter as the writer of many of BW's economics cover stories and as a main contributor to the Hot Property blog. He's a great guy as well. Please be nice to him...
Posted by: Michael Mandel on July 02
After this morning's report, here are four unfortunate facts about the job market.
1) Manufacturing jobs are falling at their fastest rate since 1946, down -12.2% over the past year.
2) Private sector jobs outside of manufacturing are also falling at their fastest rate since 1946, down -4.0% over the past year.
3) Manufacturing jobs are falling much faster than the rest of the private sector. In fact, the 'excess' job decline in manufacturing (the difference between -12.2% and -4.0%) is the largest since 1975.
4) The ten-year job growth in the private sector is down to only 559K jobs. At this rate, we will hit zero ten-year private job growth next month or the month after.
One important question is whether there is a 'floor' for manufacturing jobs. So far, we haven't seen one. Over the past three months, manufacturing jobs have been falling at a -13.6% annual rate.
I would say that the evisceration of U.S. manufacturing may be our single biggest nonfinancial problem right now. I'm currently examining the extent to which this can be tied to trade.
Posted by: Michael Mandel on June 30
Amity Shlaes has a very interesting commentary on Bloomberg. Shlaes responds to the Sanford scandal this way:
...instead of blowing up their marriages, Republicans might try blowing up their party platform.
The single most-profitable franchise for the Republican Party is growth, the kind of growth that sustains the relative competitiveness of the U.S. Instead of being the GOP, the Republicans should become the POG, the Party of Growth.
This growth franchise is Republicans’ for the taking because the Democratic Party leadership is in hot pursuit of other franchises -- the green biz, civil rights and their dearest goal, more government health care.
The growth franchise is also valuable because a lot of people, including many Democrats, recognize that a growth agenda is the only way to preclude a crisis worse than the current one. That crisis is the currency crisis that will occur if the world no longer wants to invest here.
Shlaes has four suggestions for making "the GOP a POG."
-- Junk the social conservatism.
-- Take budget-balancing seriously.
-- Push for growth-oriented tax cuts, the kind that make foreign businesses want to expand here.
-- Stand up for property rights.
Leaving aside the specifics of her proposals, I think Shlaes raises an important question: Will the Republicans or the Democrats become the Party of Growth? Right now, it's up for grabs.
Posted by: Michael Mandel on June 27
I'm going to make a forecast: Over the next couple of years, U.S-based companies will begin to realize that they made a big mistake relying so heavily on off-shoring.
Ironically--or perhaps not so ironically--it may be GE leading the way, just as GE and Jack Welch led the massive offshoring wave to India. Here are excerpts from a speech by Jeff Immelt, GE's CEO, in Detroit last Friday: (Thanks to my regular commenter LAO for pointing this out)
Throughout my career, America has seen so much economic growth that it was easy to take it as a given. We prospered from the productivity of the information age. But, we started to forget the fundamentals and lost sight of the core competencies of a successful modern economy. Many bought into the idea that America could go from a technology-based, export-oriented powerhouse to a services-led, consumption-based economy – and somehow still expect to prosper.
That idea was flat wrong. And what did we get in the bargain? We've seen a great vanishing of wealth. Our competitive edge has slipped away, and this has hit the middle class hard.
As a nation, we've been consuming more than we earn, saved too little and taken on far too much debt. Growth in research and development has slowed. Our country has made too little progress on some of the defining challenges of our time – like clean energy and affordable health care. Our budget and trade deficits have reached levels that are clearly not sustainable.
While some of America's competitors were throttling up on manufacturing and R&D, we deemphasized technology. Our economy tilted instead toward the quicker profits of financial services. While our financial services business has performed well, I can't tell you that we were entirely free of these errors. We weren't.
Leaders missed many opportunities to add to the capabilities of America. In 2000, the U.S. had a positive trade balance of high-tech products. By 2007, our trade deficit of the same products reached $50 billion. We have already lost our leadership in many growth industries, and other new opportunities are at risk. Trust in business is badly shaken, and it is going to take awhile to get it back.
Third: We must make a serious commitment to manufacturing and exports. This is a national imperative. We all know that the American consumer cannot lead our recovery. This economy must be driven by business investment and exports.
We should set a national goal to create high value added jobs and have manufacturing jobs be no less than 20 percent of total employment, about twice what it is today. And we should commit ourselves to compete and win with American exports.
