Wednesday, August 3, 2016

Bonddad's Wednesday Linkfest

Around the world, governments are planning fresh spending to boost growth and support wages, heeding the advice of the Harvard University economist and others who have argued that economies need the jolt as society ages and productivity sags. That’s signaling the ascendancy of energizers like Japanese Prime Minister Shinzo Abe, and the firing of austerity advocates such as former U.K. Chancellor George Osborne.

The shift away from budget rigor and reliance on monetary policy has been subtle and isn’t universal. So while countries like Canada and South Korea are among those rolling out fiscal stimulus, others such as Germany are still holding firm. Borrowing heavily to support growth in the euro area is still out of favor.

Nevertheless, the global mood music now is different from most of the period since the last financial crisis. Instead of the doctrine of belt-tightening and spending cuts, today’s political narrative talks about higher-quality jobs, investment, or the dangers of inequality. In few economies is this more obvious than in America. Where once the government shut down during a spat over spending, now neither candidate in the U.S. presidential election is talking much about the deficit.

At least $384 billion of improvements are needed to maintain and replace essential parts of the country’s water infrastructure through 2030, according to the U.S. Environmental Protection Agency. The Waterkeeper Alliance, an environmental watchdog, estimates that about $1.4 billion is being spent annually, meaning the country should be all caught up by the year 2290.

The latest Fulcrum nowcasts for global economic activity have identified a broad pick-up in growth in many major regions, both in the advanced economies and the emerging markets. The latest estimate shows global activity expanding at an annualised rate of 4.1 per cent, a marked improvement compared to the low point of 2.2 per cent recorded in March, 2016.

The synchronised nature of this improvement in growth is notable. Not only have the risks of a global recession in the forthcoming months fallen sharply, there are now some early indications that the world economy could be moving into a period of above trend expansion for the first time since early 2015.

If this improvement continues, it might suggest that the global economy is achieving “escape velocity”, in which the recovery becomes self-propelled, without needing repeated doses of monetary and fiscal policy support to prevent a renewed slowdown.

Real inventories were a big negative last quarter, reducing the top-line number by 1.2 ppts. Inventories are by far the most volatile component of GDP growth, and over the long term tend to balance out around zero. You can see what I mean in the figure below, which looks like an EKG from someone who’s consumed a few too many grande lattes. Why are inventories such a noisy component of GDP? Because unlike all the other components, the underlying inventory measure is already a “delta”—a change, i.e., an inventory build-up or draw-down—so the quarterly change is a “change-in-a-change,” which is invariably more variable and thus indubitably more doubtable in any given quarter.)

Personal income increased $29.3 billion (0.2 percent) in June according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $24.6 billion (0.2 percent) and personal consumption expenditures (PCE) increased $53.0 billion (0.4 percent).