The US Economy

cicerone imposter wrote:

Scrat, The weaker dollar makes our products and services most competitive in the world markets. We are by far the strongest economy in the world, and not even Japan as the second strongest economy has any chance of challenging our number one spot. The world's economy is also in decline, so the relative strength of the US dollar is still number one. Can you imagine what would happen if all of a sudden the EU contries economies went into a nose dive? The Euro would be worthless, because there isn't enough assets, products and services to back it up. Don't forget, the two strongest economy of the Euro is Germany and France, and they're both running their governments on deficit budgets - over 15 percent. I don't understand why the world money markets are devaluing the dollar, but it's temporary - IMHO.

Good info... I openly admit not being well versed in the intricacies of currency markets and policy. Food for thought...

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Certainly, the higher euro could hurt growth in Europe by making exports more expensive against foreign competition; conversely, it helps U.S. exporters by give them a price advantage against producers whose costs are in other currencies.

The euro's rise is more a matter of weakening confidence in the dollar, most international economists say, rather than any new confidence in Europe's economy. Traders have sold off the U.S. currency amid fears that growing U.S. trade and budget deficits will undermine the greenback.

In addition to economic fundamentals, the dollar's fall is partly being driven by momentum, that is, traders selling it because they fear it will keep falling, said Marc Chandler, chief currency strategist at HSBC USA in New York.

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Walter, I think the 3 percent figure is a comparison to the GDP of each country. I was thinking more in terms of the 15 percent deficit in terms of expenses over revenues. I may be wrong, so please clarify.

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c.i. wrote:

One of the major weaknesses of the economic recovery is the slow growth in jobs. ...

and earlier, he wrote:

... because we still don't have job growth, and the retail sales can't keep up with less consumers with a net loss of three million jobs.

While Dys wrote:

NEW YORK (Reuters) - U.S. stocks were set to open lower on Monday as the dollar slid to record lows against the euro, deepening concerns that U.S. investments will lose some allure internationally ...

Today, the DOW rose 102.59 points, or 1.04 percent, to 9,965.27, its highest close since May 28, 2002, with congruent gains recorded by the NASDAQ and the S&P 500. As expected, trading on all US exchanges was light in advance of tomorrow's Fed announcement re rates; no rate increase is anticipated, but all eyes will be on the wording of the statement. The item of interest is the term "considerable period" ... if it is missing, that will signal the probability of a rate increase sometime in mid-Q1 to early Q2 '04, which no doubt will bring about a market pullback and likely also strengthen the dollar a bit, though both effects, should either or both occur, will be transitory.

While pessimists hammer on "disappointing" employment numbers, a few more relevant employment indicators are being broadly overlooked:

* First, of course, is the trend; after several quarters of decline, upward employment movement has been consistent over the past 4 months.

* Second, despite the effect of the grocery strikes, not only has the unemployment rate dropped to 5.9%, October and November factory layoffs were 14,000 and 17,000 respectively, as opposed to the average of 53,500 per month over the first 9 months of this year.

* Third, the Weekly Hours Worked figure has been trending up since its 33.6 reading in July to its November 33.9 report, with factory labor hours running well ahead of that despite a 9% increase in productivity. Historically, the workweek accellerates 1 or 2 quarters prior to wholesale hiring. Following a contraction of .7% in Q3, and contractions of 1% in Q2 and 1 to 2% in each of the preceeding 4 quarters, the November data points to a 3% Q4 increase in the workweek. A 0.1 hour move, one way or the other, equates to a payroll change of roughly 400,000 in terms of production, and productivity increase cannot be expected to much further take up the slack.

* Fourth, along with inevitable hiring necessary to keep up with increased orders and inventory replacement, wage growth, currently at an anemic 2% year-over-year rate, will see upward pressure, bringing focus onto inflation risk somewhere around Q2 '04, which should finally occasion a Fed rate increase, which, of course will strengthen both the dollar and the bond market, while having little if any damping effect on a by-then-cleary-evident upward-surging economy.

I know Q4 GDP growth of the magnitude of Q3 growth is improbable, but I'm confident, looking at a broad spectrum of indicators, that the current median projection of 4.3% is 30% to 50% too low; I really anticipate Q4 GDP expansion to be in the upper 5%-lower 6% range, with some room for further upward surprise.

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timber, I think the point being made is that the current state of the economy seems to be up in the air for those of us that know very little about economics and what we read in the papers does not give us much consistent information from which to reach any kind of rational understanding. Your opinions are fine as far as they go but we also read from purported expert economists anything from the economy is going thru the roof to hang on, this is just a bump in the road going nowhere. If this is what i read and I suppose I am no so much different than most folks, we are mostly confused about what is really happening and the political spin put on it by both sides does not provide much comfort.

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Timber

Maybe you can clear something up for me. There is some disturbing news that the Dollar is weakening especially against the Euro. They say this is good for our export figures. My question is ----should we maintain our stance on maintaining a strong dollar or should we allow it to weaken further. What is the risk of a "meltdown".

Asian currencies are artificially low I've heard which creates a favorable export situation for them----why shouldn't we allow our currency to to weaken?

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timber, A jump of 102 points in the DOW is nothing to celebrate when the fundamentals of the market doesn't justify it. The p/e ratios are still too high, and "speculating" that the economy is going to cotinually to improve when we still have three million jobless folks seems the very essense of irrational exuberance. How does consumption increase while there are less consumers to maintain the 70 of our economy? More debt is the only answer. The added jobs during the past three-four months have been at lower average salaries. Most economists also say that we need to add a minimum of 170,000 jobs a month to stabilize our economic growth. I don't see that happening any time soon - nor within the next year or two.

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Well, c.i., if you're that concerned about P/E ratios, you should probably put all your holdings into bonds and precious metals. US Corporate Earnings will surpass $1Trillion (by some accounting, they already have) for the first time ever this year. The same pessimistic arguments, including "jobless recovery", were rampant in '91-'92, and in '81-'82, while the trending then of indicators was markedly similar to current conditions. In fact, earnings growth over the past three quarters almost mirrors the growth in the same period relative to both of the immediately previous recessions.

perc, the "falling dollar" is really pretty much a matter of higher interest rates outside the US, particularly in the EU. It does indeed make US exports more competitive, while rendering the US market more difficult for imports to penetrate. However, as The US is far and away the largest importer on the planet, as the dollar declines, there is growing pressure on other central banks to reduce their own interest rates. Another factor is that of all the world's economies, The US is arguably the most self-sufficient, self-sustaining, best-resourced, and most broadly based, which itself provides a real foundation for dollar value. At a given point, the relative values of other currencies are actually pegged to the dollar as a standard. The major inconvenience to The US of a "weak dollar" is that interest-bearing US investments face stiffer competition from foreign interest-bearing investments, although it must be borne in mind that a key underlying value component of the foreign investments is capacity of foreign firms to export into the US market. As the dollar declines, the US GDP directly benefits, thus adding to the real value of the dollar, making it in effect a :bargain", and well worth buying at a given relative discount. Its sort of a "Catch-22" situation for those currencies strongest against the dollar: without US consumption of the goods and services underlying those currencies, those currencies surrender much of their real value. I anticipate other central banks will take steps to halt the appreciation of their currencies against the dollar well before The US central bank ("The Fed") sees any compelling reason to engage in vigorous support for the dollar. In short, I wouldn't worry too much about The Dollar; it can and will take care of itself.

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Timber

Thanks for concise explanation of the Dollar vs the Strong currencies-----how about Asian currencies-----I've heard that they are artificially low--Is this true and if it is true----why won't it work for us to allow the Dollar to decline. Seems like we must do something to level the export/import playing field.

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dyslexia wrote:

...we are mostly confused about what is really happening and the political spin put on it by both sides does not provide much comfort.

I think the spin is only confusing if you fail to pay attention--over time--to which sources gave you the straight scoop and which were spinning. It's pretty easy to look back a few months and see which media outlets were selling the economy short and which were reporting realistic and accurate numbers and trends. Don't assume that everyone spins simply because some do, and try to discern which is which and who is whom.

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Quote:

The U.S. Federal Reserve held interest rates at 45-year lows on December 9, 2003 as policy-makers renewed a vow to keep borrowing costs down for a long time. The rate-setting Federal Open Market Committee said the probability of an unwelcome fall in inflation had diminished and was now almost equal to the possibility inflation could pick up. Policy-makers voted unanimously to hold the federal funds rate charged on overnight loans between banks at 1 percent, the lowest since 1958. Photo by Reuters Graphic

Fed Sees U.S. Economy Picking Up
Tue December 09, 2003 03:57 PM ET

WASHINGTON (Reuters) - The U.S. Federal Reserve held interest rates at 45-year lows on Tuesday as policy-makers renewed a commitment to keep borrowing costs down for a lengthy period, but said the threat of falling prices had eased.

Analysts said the decision, and a Fed statement that risks of a drop in inflation now were balanced by chances of a pickup in price pressures, meant the central bank was preparing the ground for eventual interest-rate hikes ...

... "With inflation quite low and resource use slack, the committee believes that policy accommodation can be maintained for a considerable period," the Fed said, repeating language it initiated at its August meeting to assure financial markets it was willing to do whatever was necessary to spur growth ...

... The FOMC pointed to a definite improvement in the economic tenor in the six weeks since its last meeting on Oct. 28.

"The evidence accumulated over the intermeeting period confirms that output is expanding briskly, and the labor market appears to be improving modestly," the Fed said ...

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perception wrote:

Timber

Thanks for concise explanation of the Dollar vs the Strong currencies-----how about Asian currencies-----I've heard that they are artificially low--Is this true and if it is true----why won't it work for us to allow the Dollar to decline. Seems like we must do something to level the export/import playing field.

china's yuen is severly undervalued as it is pegged to the US dollar. they can't continue that policy forever but also long as they have it in place, devaluing the dollar will not not alleviate our trade deficit with china.

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timberlandko wrote:

the fact America has more people employed today than ever in history

do you have any sources?
we lost 2.7 million net jobs since march 2001. i don't see how we can possible have more people employed than ever in history?

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Statistics are ever so deceiving - actually Timber is correct as the gain of jobs in the 1990's brought employment levels to all time highs and the 2.7 million net lost jobs still leaves it higher than ever before. The trick is to balance that against increases in the working population and those who have fallen off the unemployment statistics.

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so basically the deficit in terms of both actual number and percentage of gdp is higher under bush than it was under clinton. and unemployment in terms of both actual number and percentage of the population is higher than it was under clinton.
but at least we are better off than than we were under bush sr in terms of percentages.

is that a correct analysis of the facts that timber presented?

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ye, Most rough estimates of 'actual' unemployed in the US is close to 9 million. Many long-term unemployed fall off the charts when they no long seek jobs after looking for over one year or more. It's difficult to impossible for those in their fifties to find jobs that will match their last job in both salary and benefits. That more people are employed today than there were five years ago can be read differently. The population of the US is increasing by more than job gains. Many skills that were in high demand only a few years ago are no longer in demand, and many are going back to school to learn new skills. Most of our college campuses now have older students. College grads are having more difficulty finding jobs. With all the news that our economy is growing does little to help those without jobs, and those that continue to lose jobs. We must hope that the devaluation of the US dollar against the Euro and Yen will help our factories fire up again. We still have over-capacity from the boom era of three years ago. Even Levi Strauss recently closed all their plants in the US.

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http://homepage.mac.com/benburch/images/employment-200311.gif

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PDid, It's more like "road to recovery" without knowing when the employment numbers will match the highest point in the graph. "Recovery" means having gained back something that's been lost, so in the context of jobs, we're still in the recovery mode.

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ye110man wrote:

timberlandko wrote:
the fact America has more people employed today than ever in history

do you have any sources?
we lost 2.7 million net jobs since march 2001. i don't see how we can possible have more people employed than ever in history?

and

Quote:

so basically the deficit in terms of both actual number and percentage of gdp is higher under bush than it was under clinton. and unemployment in terms of both actual number and percentage of the population is higher than it was under clinton.
but at least we are better off than than we were under bush sr in terms of percentages.

is that a correct analysis of the facts that timber presented?

OK ... here ya go:

Unemployment for January of 1993 was 7.3%, having been 5.9% or above since September of 1990, though it had steadily declined from its 7.8% June 1992 high. Not untill September of 1994 did the unemployment rate fall below 6%, and it remained above 5% through June of 1997, never dipping below 5.6% through Clinton's entire first term. Falling to 3.8% in July of 2000, the index began drifting up, standing at 4.1% when Bush the Younger took office in January of 2001, reaching 5.8% by the end of 2001, 6.0% at the end of 2002, peaking at 6.4% in June of 2003 before declining to its present rate of 5.9%, falling a half point in 5 months. In Clinton's first term, unemployment was 5.5% or above for 46 out of 48 months, and for 6 months out of his second term ... 52 out of 60 months. It was 8 months before Clinton achieved a half-point reduction.
Meanwhile, in January of 1993, 119,075,000 Americans were employed, with a number of 137,000,000 being surpassed for the first time in April of 2000, though it dipped below for the next 5 months. 138,000,000 was surpassed for the first time ever with this October's reading, and November's number is 138,603,000.
Source: Bureau of Labor Statistics The charts and tables at that link are not "From" BLS figures; they ARE the BLS figures.

The charts Here and Here show that US GDP for each of the years 2001, 2002, and 2003 has been consistently higher than the previous banner year, 2000.

Does that answer your questions?

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When I click on timber's link above for the BLS statistics, I get this message:

Quote:

Tuesday, December 9, 2003 7:49 PM

Sorry, survey does not exist. Please contact the data specialist listed below if you have any questions.

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