Consumer Spending Increases

Despite the expiration of the payroll tax cut and the increase on Social Security taxes that began on the start of the new year, The New York Times reports that consumer spending rose by about 0.2% in March. According to the federal government, the increase that took place between January and March marks the fastest increase in consumer spending for over two years. This increase is partially due to the fact that March was unusually cold, leading American’s to spend more for heating. Thus it is important to note that although an increase in consumer spending is typically good, an increase which is the result of spending more on utilities does not necessarily indicate higher consumer confidence. Spending on other things, such as clothes, cars, household goods, and furniture would be more indicate of this. However, there is some room for optimism. The Commerce Department claims that the economy grew by 2.5% during the January-March quarter. This was 6 times higher than the rate recorded for the fourth quarter. Although this grow rate would be considered optimal in an economy with low unemployment, during a struggling economy this growth rate is not high enough to diminish unemployment.

Although taxes have increased, many believe this uptick in consumer spending could continue since American’s have reduced their personal debt, their home values have likely risen, and their stocks enjoyed some success further adding to their household wealth.

Since the recession officially ended in June 2009, growth has been weaker than usual after a severe downturn. The economy expanded just 2.4 percent in 2010, 1.8 percent in 2011 and 2.2 percent in 2012.

Blame Demography for American's Weak Economic Growth

An article recently featured in The Economist explores the ways in which demographic changes have stifled economic growth. Many politicians have noticed the lagging economic growth rate following the greatest recession since WWII and are concerned that this may be the new norm. As The Economist explains, in the past three years the average growth rate stood at 2.2%, which is only slightly more than half the 4.2% averaged after the seven previous recessions. Part of the reason for the slower growth rate is that American's are facing unprecedented levels of debt and businesses are reluctant to spend, but changes in demography are also to blame for the slower recovery.
       The prime working ages are between 25 and 54 however the share of the population under 25 and above 54 continues to grow, causing a decline in overall labor-force participation rates. A few possible solutions are identified in the article to counteract this decline in labor force participation.  These include allowing more immigrants into America, reforming disability benefits to encourage those who are between the ages of 25 and 54 to go back to work, and raising the retirement age to keep workers in the labor force longer.

More Chinese Women in Labor Force than Indian Women

Recent findings released by Gallupindicate that China’s female labor force participation rate (70%) is significantly greater than India’s (25%).  Not only are Indian women less likely to be present in their country’s labor force than Chinese women, women in India’s labor force are three times more likely to be unemployed (with an unemployment rate of 15%) than their Chinese counterparts (with an unemployment rate of 5%). Furthermore, women in China are nearly twice as likely to be employed full-time than women in India (21% verses 11%).  In addition, 53% of highly educated Chinese women reportedly hold a “good job” whereas only 17% of Indian women who received tertiary education maintain a “good job”.  There are also significant discrepancies in the literacy rates of Chinese females (91%) and the Indian females (50%).   In sum, Chinese women are much more likely to receive even a basic education than Indian women, and, among Chinese and Indian women who receive higher education, Chinese women are much more likely to find full-time employment. While the Chinese economy (with a 9% growth rate) is currently out-performing India’s economy, (with a 6.8% growth rate) China’s growth is expected to stall due to low fertility rates and an aging population. On the other hand, India’s population of working-aged citizens is expected to steadily increase until about 2030 and this can lead to major economic growth if India encourages greater female labor force participation.  

Private Sector Workers Faring Better than Government Employees

According to Gallup’s recently released Job Creation Index for April, job growth appears to be up in the private sector with more workers reporting that their employers are hiring rather than firing, bringing the private sector index to +25. In contrast, more government employees report higher levels of firing than hiring, bringing its index down to -7. Regionally, the South is experiencing the best market conditions, with 38% of those surveyed reporting that their employers are hiring and only 15% reporting that their employers are laying off workers. The East is faring the worst. It has the lowest Job Creation Index in the U.S. with +16. In the East, only 34% report that their employers are hiring whereas 18% report that their employers are letting go of workers. Nationwide, the Job Creation Index is up from +18 in March to +20 as of April, with 36% reporting that their employers are hiring, the highest figure since August 2008.

Economic Implications of an Aging China

The Economist recently published an article exploring the economic implications of the declining fertility rate in China. The fertility rate in China has declined sharply in the past 30 years, from 2.6 to 1.56. Additionally, the elderly population continues to rise; it is projected that by 2050, 26% of China's population will be over 65. This trend will have broad and severe consequences for the country. Similar to the social security crisis happening in America (in which it is projected that there will not be enough individuals in the work force to pay for the pensions of elderly Americans), China will be facing a similar problem but on a much larger scale. Additionally, with China’s one-child policy, the country will face a “4-2-1-phenomenon”, in which one child must take care of four grandparents in addition to their two parents. With most individuals lacking the financial resources to shoulder this heavy burden, the elderly will have to rely on social security pensions, a system that is already in peril.

Looking for a Job? Try North Dakota

A recent Gallup survey shows that more employers in North Dakota were hiring rather than firing workers, and by a significant margin. This landed North Dakota a +34 score on Gallup’s Job Creation Index, with the District of Columbia trailing behind in second place with a +24 score. Rhode Island received the lowest score with a +4 and New Jersey placed second to last with +6. Though North Dakota may have the best job creation, Nevada appears to be making a turn around and had the strongest improvement in job creation. Michigan also improved significantly, adding 8 points to its job creation index in the past year.

U.S. Employers Did Not Add Jobs in August; Economists Blame Low Consumer Confidence, Political Impasse

A new report from the U.S. Bureau of Labor Statistics (BLS) indicated that job growth that began in 2010 has ended, bolstering potential claims that more needs to be done by the government to spur job creation. August marked the first time in the past eleven months that nonfarm payroll employment did not increase. Unemployment did not improve either, remaining at 9.1 percent.

According to the New York Times, "the report added to the pressure on the administration, on Republicans who have resisted any new stimulus spending, and on the Federal Reserve, which has been divided over the wisdom of using its limited arsenal of tools to get the economy moving again." Next week, President Obama will deliver the Administration's proposal to increase employment, and Secretary of Labor Hilda L. Solis claimed the President would appeal to the population directly if Congress was unreceptive to his plans. Republicans, however, were quick to blame President Obama's economic policy as the cause of the negative news, even dubbing him "President Zero." Economists had anticipated that 65,000 jobs would be added in August, less than the 85,000 jobs that were added as recently as July. But the report showed the situation was worse than expected. Economists took aim at low consumer demand and political inefficiency, suggesting that "both sluggish demand for goods and services and the heightened uncertainty over the economy’s direction...[led to] the slow pace of job creation," and "saying that political deadlock was creating economic paralysis."

Next up is the question of whether extended unemployment benefits and the payroll tax cut should be renewed for the upcoming year.

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