U.S. Economic Highlights
Kenneth Goldstein
Economist
27 May. 2013
Last week: In a slow week, heading into the first big holiday weekend of the summer, the view is that the U.S. economy is growing slowly right now but may perform better at some point in the second half of the year. That was the signal from The Conference Board Leading Economic Index® for the U.S. last week. The Purchasing Managers’ survey results indicate no quick return to more robust industrial activity. The main driver of growth right now is the housing market, in terms of both construction and pricing. If consumer sentiment and demand pick up, together with the impetus from the housing market, this economy could start to grow faster. The indicators suggest that is coming. The PMI data suggest that it’s not right away.
Tuesday, May 28
10:00am The Conference Board Consumer Confidence Index®, May
Job growth was strong through April, continuing a string of relatively good news from the labor market. How much impact does all of this have on sentiment?
Wednesday, May 29
5:00am The Conference Board Leading Economic Index® for the Euro Area
Even after contracting for more than two quarters, the euro-zone economy is still losing altitude. The results of purchasing manager surveys suggest industrial activity is still being trimmed, as consumption within the zone and exports from the zone remain weak. Odds are that the latest data on the Leading Economic Indicators will provide one more piece of evidence that any turnaround remains months away.
Thursday, May 30
6:00am EURO-AREA Economic Sentiment Index, May (European Commission)
Sentiment remains relatively low, with the industrial core of the euro-zone economy contracting and the service sector unable to offset this weakness. Yes, the financial markets are showing less volatility and the Cyprus crisis has passed. But sentiment remains low as a quick turnaround in economic conditions across the euro-zone seems unlikely.
8:30am Gross Domestic Product (1Q – 2013) (Bureau of Economic Analysis)
The initial estimate for GDP growth in the first quarter of 2013 came in below expectations. It was thought that the big inventory run up might even push growth above 3 percent (annualized). The initial estimate of 2.5 percent was somewhat disappointing and has led to guessing about how much of an upward revision would occur. That said, the relatively robust growth of the first quarter is generally thought not to be continuing in the current quarter. The latest data from The Conference Board Leading Economic Index, however, suggest another strong performance could develop in the second half of 2013.
Friday, May 31
6:00am EURO-AREA Inflation Rate May (HICP, Eurostat)
With the economy contracting, overall retail inflation is slow and possibly slowing further. At 1.2 percent in March, it was below the European Central Bank target of 2 percent – much as the current U.S. inflation rate is below the Federal Reserve’s 2 percent target. Energy prices have slowed in early spring while food prices have not been driven up as much as feared, given weather-impacted crop production. But with slow final demand, it is possible the “core” rate (which excludes food and energy), already lower than 1.2 percent in the Euro-zone, might have edged still lower in May. There are wide differences across the euro-zone. Greece is experiencing deflation right now while inflation tops 3 percent in the Netherlands.
8:30am Personal Income and Outlays, April (Bureau of Economic Analysis)
Income growth has been in a range of about 0.2 to 0.3 percent, and that likely continued in April. The larger point is whether spending will be in the same range or stronger. Consumers are releasing pent-up demand for vehicles (long-delayed purchasing pushed the average age of the car on the road to over 11 years). Consumers have yet to release pent-up demand on other big-ticket items. That is probably the story behind the April data. Releasing this pent-up demand may take another few months to develop. If the labor market and confidence show a rising trend between now and then, strong consumption will drive a stronger overall economic performance.
THE SITUATION ABROAD
Chinese industrial activity may be slowing. That’s the suggestion behind the latest data from the survey of purchasing managers. Financial markets across the globe reacted negatively to this news. Is this because they fear contagion? Or is it because stocks have been bid higher in strong market rallies? Either way, it would seem stock prices have run into some strong headwinds, making continued gains more problematic. The wrinkle in all this is that loan demand has remained weak because: 1) consumers have been saving more and borrowing less (and paying back more) – although the pace is anything but uniform across the globe; 2) business has been relatively slow to invest and expand, given the slow improvement in demand; 3) public spending has been subject to austerity – again, anything but uniform across the globe; 4) the banks, dealing with nonperformance issues, have stuck to tight lending conditions. So, if stock price increases are slower this spring and summer, it is likely to have less negative impact than if growth and loan demand were stronger.
FACT OF THE WEEK I
$35K
The average college graduate this spring is $35,000 in debt. With the job market likely to deliver under 200,000 new jobs a month (how much ‘under’ depends on how big a bit the sequester takes), many of these graduates will delay getting married, buying a home, and starting a family until they have made a big enough dent in this pile of debt. Still, this year’s crop of graduates may have a little easier time finding a job than last year, or the year before that.
FACT OF THE WEEK II
$6.6 billion
China exported $131 billion worth of goods and services to Latin America in 2012 while receiving $124.5 billion in imports. These IMF numbers imply that the trade deficit ballooned to almost $6.6 billion. Chinese exports to Venezuela shot up by 43 percent. That’s in sharp contrast with Chinese exports to Brazil rising by only 1.2 percent.
QUESTION OF THE WEEK
I keep hearing that it is worth going into debt to get a college degree? I wonder if those receiving diplomas this spring believe it.
Those graduates receiving their college diploma this spring are also leaving college with an average of $35,000 in debt. Finding a job, starting careers, and beginning to pay off these debts would make it all worthwhile, up to and including writing that paper at 1 AM while others are at a frat party. Consider one statistic: In 1977, the median wage of a college graduate was 140 percent of that earned by someone with a high school diploma. By 2010, based on census data (as calculated by the Cleveland Federal Reserve), the gap had grown to 180 percent.
Much also depends on what one studied in college. For example, the premium earned by a student majoring in economics was just under 2.0, while an English major earned a premium closer to 1.50. So why are colleges graduating more English majors than economics majors?
These data are for those students graduating with a bachelor’s degree. An economics major with a master’s degree earned a premium of 3.0 while an English major with a master’s earned a premium of 1.75. Electrical engineers earn the highest premium. Those who studied to become an elementary school teacher earned the smallest premium. No, I don’t know what the premium is for someone majoring in the history of philosophy.
