Archive for February, 2015

THE LAST few weeks have seen a flurry of good data about the America economy. Firms added more than 1m new jobs, in net terms, in the three months to January, the best showing since 1997. At 5.7%, America’s unemployment rate is now one of the lowest in the OECD, a club of mostly rich countries. GDP data, released this morning, shows that the economy expanded at an annual rate of 2.2% in the fourth quarter of 2014—one of the fastest growth rates in the OECD. All this is welcome, of course; but this recovery is still a fragile one.

The pessimists have plenty to point to. For instance, by historical standards the rate of GDP growth is actually not great. In the 1990s it averaged around 4% a year. And it is getting cooler (see first chart). Some industries, like manufacturing, have been touted as economic saviours, but have actually been doing quite badly.  

The other big worry is prices. Figures released on February 26th show that America now has deflation. Thanks to a 19% year-on-year fall in energy prices, inflation is now -0.1%. Sustained deflation is bad. America’s bout is likely to be short-lived, say economists at Capital Economics, a consultancy: after all, petrol prices have already rebounded by 30 cents from their trough a month ago. Nonetheless, inflation is way below the Federal Reserve’s target of 2%. Even “core” inflation—a measure that …<div class="og_rss_groups"></div>

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UK Only Article:&nbsp;
standard article

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Planet of the phones

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The economic recovery

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Talk of a renaissance in American manufacturing is overblown

Location:&nbsp;

CHICAGO AND INDIANAPOLIS

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AT A gleaming Rolls-Royce factory in Indianapolis (pictured), a team of workers produces “LiftFans”, gadgets that help fighter planes take off and land without needing much of a runway. This plant is a far cry from the hot, smelly, noisy places that people normally associate with manufacturing. Workers in goggles hand-build the LiftFans, which sell for millions of dollars, with the help of state-of-the-art machinery. Computers quietly hum. The atmosphere is disarmingly serene.
America has some of the world’s most impressive manufacturing facilities. But talk of a “renaissance” is certainly overblown. Growth is being driven by a small number of industries, which are hiring few new workers. And even …<div class="og_rss_groups"></div>

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Planet of the phones

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Buttonwood

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Voters face constraints on their economic choices

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THE row about whether to modify Greece’s bail-out has provoked claims that democracy is being ignored. The electoral mandate of the Syriza party, it is said, is being overridden by Greece’s creditors.
In fact, there have always been limits on voters’ freedom to pursue their desired economic policies. The first is on the ability of the majority to tax the minority, be it high-earning individuals or companies. Clearly there is some point beyond which higher taxes lead to lower revenues, as effort is discouraged. There is no general agreement over the point at which diminishing returns set in, but in an age of mobile people and firms, the threshold is probably lower than it used to be.

The second limit occurs when countries become dependent on international creditors for finance. They cannot force those creditors to roll …<div class="og_rss_groups"></div>

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UK article only

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Planet of the phones

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Male suicide

Official suicide statistics released on February 19th contain disturbing news: suicide rates rose by 4% between 2012 and 2013, and the rise was due mainly to one group: men over 30. Rates were broadly flat among women, and among young men—often thought to be particularly at risk—suicide rates fell.
Why are middle-aged men so susceptible? The recession hit working-age men especially hard in Western countries, where social and employment status are closely linked. A recent study in the Lancet, a journal, found strong ties between unemployment and suicide. Roger Webb and Navneet Kapur of the University of Manchester say unemployment is only one contributing factor, however. Other aspects of the recession, such as falling income, “zero-hour” contracting and debt, may also be important.

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Fannie Mae and Freddie Mac

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America's mortgage-insurance giants are making bigger profits than before the crisis

Byline:&nbsp;

C.R. &amp; T.E.

Location:&nbsp;

LONDON AND NEW YORK

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FANNIE Mae and Freddie Mac may sound like a couple living in suburban America but they are in fact two of the country’s more unusual listed companies. With&nbsp;a government-backed guarantee, Fannie and&nbsp;its sibling Freddie buys mortgages from lenders and packages them for resale.
Looking at the headlines, it may seem that both Fannie and Freddie are in financial trouble again. On February 19th, Freddie Mac reported a sharp decline in its net income last year, which fell from $48.7 billion to $7.7 billion. The next day, on February 20th, Fannie Mae also announced a big fall in earnings. Falling market interest rates forced the pair to declare losses from their …<div class="og_rss_groups"></div>

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The great fracturing

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Deflation

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Deflation can be a good thing. But today’s version is pernicious

FALLING prices sound like something to cheer. In 1950 talk was not cheap. It cost $3.70 to place a five-minute call between New York and San Francisco—or $36.35 in today’s money. Now that same call costs you nothing. The emergence of the sharing economy is driving down the price of a taxi ride and a bed for the night. More recently tumbling prices for natural resources, especially oil, have boosted the spending power of consumers from Detroit to Delhi. Mark Carney, the governor of the Bank of England, reckons that falling energy prices are “unambiguously good” for the British economy. Mr Carney is not wrong. Nonetheless, the world is grievously underestimating the danger of deflation.
The problem is that aggregate prices are dipping in so many places at once. Deflationary pressures are visible far beyond food and energy, and in countries that cannot claim to be leading the charge towards the new economy. In …<div class="og_rss_groups"></div>

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ECONOMISTS said it could not (or at least should not) happen. Yet rich-world central banks are starting to impose negative interest rates. In June 2014 the European Central Bank (ECB) began paying -0.1% on deposits held in its vault, before lowering the rate to -0.2% in September. Denmark and Switzerland have negative rates, as well. And on February 12th the Swedes joined the party: the Riksbank cut its benchmark interest rate to -0.1%. Central bankers hope that moving into negative territory will boost their economies in a number of ways. Will it?When an economy is struggling, it is standard practice for a central bank to cut interest rates. That makes saving less attractive and borrowing more so, boosting the amount of money being spent and kick-starting an economic recovery. But very low inflation can make a central bank's life harder. Many big economies are now experiencing “deflation”, where prices are falling. In the euro zone, for instance, the main interest rate is at 0.05% but the "real" (or adjusted for inflation) interest rate is considerably higher, at 0.65%, because euro-area inflation has dropped into negative territory at -0.6%. If deflation gets worse then real interest rates will rise even more, choking off recovery rather than giving it a lift. Desperate to avoid this trap, ever more European central bankers have waded into the unfamiliar territory of …<div class="og_rss_groups"></div>

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