Here’s an update on some economics-related news making headlines this week:
- The 2014 Climate Summit at the United Nations brought the potential economic ramifications of global climate change into the news headlines this week. In a Wall Street Journal op-ed, U.N. Secretary General Ban Ki-Moon opined that the event was a success, paving the way for a global climate agreement next year and getting the finance and business committees involved in the effort. Among the private-sector initiatives announced, nearly 40 companies signed an agreement to slow deforestation, and the Rockefeller Brothers Fund, a philanthropic organization fueled by John D. Rockefeller’s Standard Oil wealth, announced that it will divest of assets tied to fossil fuel companies. On the government side, the European Union committed to push greenhouse gas emissions 40 percent below 1990 levels by 2030, and France contributed $1 billion to a fund that helps developing countries adapt to climate change. As for the U.S. contribution, Politico described President Obama’s Summit speech as “forceful but largely detail-free,” with no firm commitments on green house gas emissions but a mandate to promote environmental sustainability as part of international development initiatives. The Wonkblog notes that most countries are missing their targets for reducing green house gas emissions, and the progress that has been made is widely seen as inadequate. The perception that such efforts are costly and hinder economic growth are at least partly to blame, but a new study suggests those perceptions may be misguided. The Economist has the full rundown here. The Guardian has an interactive map illustrating which countries are most responsible for fossil fuel extraction and emission, and which leave the biggest carbon footprint with their consumption.
Three economic events that were widely expected to be bombshells landed with a thud this week. Here’s what you need to know:
- “Hawks squawk but Fed stays course.” That headline from Forbes is a fair assessment of this week’s FOMC meeting and forecast update. Some analysts expected a more hawkish tone to the Fed’s policy statement in light of the continued strengthening of the labor market data. In the end, Fed Chair Yellen stuck by her dovish tone and the FOMC majority stuck with her, though two members dissented, both leaning toward an earlier tightening of monetary conditions. Just when are rates finally going to go up? According to the Fed’s latest economic and policy projections, only one member thinks rates should be raised this year. For next year, the midpoint of the projections for the Fed’s key policy rate fall around 1.375%, which is not much of a change from 1.125% at the time of the last forecast round, in June. Some think that is too low, but markets are pricing in even less tightening than the Fed is signaling. That means rates on consumer and mortgage loans are staying low for now, but many people are already bracing for the inevitable rise.
Looking for some stories from the week’s economic news to sink your teeth into? Read on.
- Children raised by married parents typically have better social and economic outcomes, but why? A new study from Brookings looks at whether the “marriage gap” is a function of parenting or income. In short, the answer is both. But there is nothing intrinsic to marriage that promises better outcomes for children, the study notes. The Wonkblog points out that people who marry tend to be better educated and have higher incomes from the get go. While higher incomes provide more resources for parenting, a two-parent household also provides more time for parenting. Does this mean policymakers should encourage marriage to give a boost to U.S. children, who lag behind other developed nations in educational attainment? That may be futile—the Brookings study notes that marriage rates are “immune” to the efforts of policymakers. Indeed, Bloomberg reported this week that more than half of the adult U.S. population is single. That number looks set to rise, as Pew has shown that marriage rates are declining for each new generation, with Millennials tying the knot at just a 26 percent rate.
It’s back to work and back to school after the summer holidays. This week, we bring you a jobs-themed update on the latest economic news:
- Strikes by fast food workers hit over 100 cities on Thursday, with sit-ins prompting arrests in multiple locations. The National Council of Chain Restaurants dismissed the action, calling it “choreographed” and “illegal.” The demonstrations are part of a two-year-long battle for a bump in pay to $15 per hour and union representation. NBC reports a consensus among “labor experts” that the movement is unlikely to yield higher wages in the near-term, but it has focused the nation’s attention on the plight of low-wage workers. The Guardian must be talking to different labor experts. It reports that the fast-food strikes are working, prompting a revitalization of labor unions and ballot initiatives to hike the minimum wage in Seattle, Nevada, and elsewhere.
Here’s your guide to some of the key economic stories in the news this week…
- Like Presidents Day and Columbus Day, Labor Day has morphed from an occasion to honor the achievements of American workers to an excuse for a shopping spree. MarketWatch reports that 65 percent of Americans plan to shop this weekend, up from 59 percent last year. It advises that Labor Day is a good time to buy a car, summer clothes, and housewares at deep discount, but avoid higher-priced fall fashions and electronics. If you do hit the mall this weekend, ruminate on this story from NPR about a mall in California where two different minimum wages prevail: One side of the building is in Santa Clara, where the minimum wage is $9 per hour, while the other side is in San Jose, where the rate is $10.15. Echoing the findings of a 2010 study, the shops holding fast to the lower wage are struggling to hire and retain workers, while the shops paying the higher rate have raised prices a bit but have not reduced their workforces.
The summer doldrums may be upon us, but that’s no reason not to keep up with the economic news:
- “Gross domestic product alone cannot alone measure quality of life,” says NPR in its report on the OECD’s Better Life Index. The four-year-old measure of well-being tracks four million respondents in 180 countries, asking questions about 11 hard-to-quantify concepts such as “work-life balance” and “life satisfaction.” Others topics, such as jobs, income, education, and health, are more straightforward. At the website for the index, users can see how 36 countries stack up with all 11 topics ranked equally—Australia comes out on top—or set their own rankings. The United States is top-ranked for income but earns low marks for work-life balance, life satisfaction, and civic engagement. The U.S. is middling in the jobs department, where the rating is affected by job security and the long-term unemployment rate as well as overall employment and earnings. In past years, the Economist has reworked the OECD data to create rankings for the top and bottom 10 percent of the population for each nation. In that measurement, the top decile in the U.S. had the highest ranking of all nations in 2013, but the U.S. also had the widest gap between the top and bottom deciles.
Check out these stories from the week’s economic news:
- FICO is changing the way it calculates credit scores. The Wall Street Journal reports that about 64 million U.S. consumers have unpaid medical bills on their credit report. Those collections will no longer impact FICO scores. Neither will formerly past-due accounts that have no remaining balance. That will affect about nine million consumers. The Consumer Finance Protection Bureau studied repayment patterns of five million people over two years and found that those with medical debt repaid other obligations at the same rate as those without. They concluded that medical debt was biasing credit scores lower by 10 to 22 points. VantageScore, a competitor to FICO, already excludes paid medical debt from its scores. The Los Angeles Times reports that higher credit scores will lower borrowing costs for many, though the changes will likely take a while to be felt. Higher scores will also increase the pool of potential borrowers without increasing the risk rating on lenders’ stock of loans. The latest loan officer survey from the Federal Reserve shows that banks continue to ease standards for all types of loans, unwinding the massive tightening that followed the recession. Mortgages saw the most significant easing of standards yet. Demand for consumer loans is up, too, after a soft start to the year. The Economist says that the consumer deleveraging that has prevailed since the recession appears to be over.
Money Talks Illustration by Oliver Munday, The New Yorker
GDP grew more than expected last quarter, jobless claims remain low, and one survey-based index says manufacturing activity hit a three-year high in July. Here are a few other stories from the week’s economic news:
- The verdict on the July jobs report is that it was a “mild disappointment.” Non-farm payroll employment rose by 209,000 last month, below gains of 298,000 in June and 229,000 in May. Since the start of the year, the labor force has grown by an average of 126,000 people per month. Over the same period, job gains have averaged 230,000 per month. If sustained, that difference is enough to keep the unemployment rate falling by more than 0.1 point per month. The unemployment rate did nudge up a bit in July, to 6.2 percent from 6.1 percent, but that follows an outsized 0.6-point drop between March to June. While unemployment is down from a peak of 10.0 percent during the recession, Justin Wolfers, writing for the Upshot, says it is still way too high. Wolfers observes that if you were to line up all the unemployed people in the country, they would stretch from New York to San Francisco. That is a striking visual, but what does it mean for the economy? Following the recession, unemployment peaked at 15 million people. That number is down to 9.7 million now, but it is still higher than the low of 6.8 million prior to the recession. AIER’s Business-Cycle Conditions analysis suggests the economy will strengthen in the second half of the year, which should keep the employment picture improving.
Read on to get up-to-date on some of the key economic news this week:
- Perhaps money can buy happiness… to a point. A 2010 study by psychologist Daniel Kahneman, who won the Nobel prize for economics in 2002, and economist Angus Deaton found that emotional well being increased with income, but only up to $75,000 per year. Now Doug Short of Advisor Perspectives has adjusted that benchmark for cost of living by state. Huffington Post has mapped out the findings, revealing that the threshold for happiness is higher in the Northeast and West Coast but lower in the heartland. Mississippi has the lowest threshold, at $65,850, while Hawaii has the highest, at $122,175. That statewide high is surpassed by the steep cost of living in Manhattan, where the cost-adjusted happiness benchmark is $162,500. But do higher incomes really have no impact on happiness? A 2013 study by SpectremGroup revealed that 84 percent of “affluent investors” surveyed said “being rich in America” meant more security, not necessarily more happiness.
- “Congress punts shamefully on highway funding.” That was the headline in Washington State’s Olympian this week. The Highway Trust Fund (HTF) is on the verge of going broke, so the House of Representatives has passed a 10-month “patch” that relies on $11 billion from the government’s general revenue fund. But the San Francisco Chronicle says that is just a “kick-the-can move”—Congress needs to find a long-term funding solution. The federal gas tax, which has historically funded the HTF, has not been raised from 18.4 cents since 1993. In Alabama, The Tuscaloosa News opined, “Congress must ignore politics, solve highway issue.” It reports that dozens of highway projects are on the bubble in that state, where “35,000 jobs depend on road contracts that have an economic impact of $1 billion.” MSNBC says that Arkansas, Kentucky, and Missouri have already delayed highway projects in anticipation of a shortfall of federal funding. West Virginia’s MetroNews reports that 203 highway projects in that state are federally funded. According to the Laramie Boomerang, in the absence of federal funding Wisconsin would have to find an additional $64 million per year just to maintain its highway system in the current condition. The Senate will consider legislation on a short-term fix for the HFT on Tuesday. Longer-term solutions remain off the table.
- Why aren’t higher corporate earnings translating into more jobs? Marketplace dug into that question this week and found a number of possible answers. Perhaps business are still “hung-over” from the Great Recession and would rather hold cash than hire new workers. Or perhaps investment in new technology is destroying old jobs but not creating offsetting jobs in new industries. But the Upshot points out that businesses aren’t actually doing much investing. Nonresidential fixed investment has not regained pre-recession highs, as a share of GDP. The Upshot contends, “If firms increased their spending enough to close that gap, it would mean an extra $220 billion in annual economic activity and perhaps a couple of million more jobs.” The Wall Street Journal says that weak capital spending has kept productivity low, and that can be bad for profit margins: “As efficiency gains dwindle, costs can rise more rapidly than revenue.” So far there has been enough labor market slack to keep wage gains low, but the Journal says companies may soon be “facing the day they have to pay up to hire and retain employees.”
The summer doldrums have not yet hit the economic news. Here are some of the top stories this week:
- The Congressional Budget Office this week lowered its projections for spending by Medicare, Medicaid, and other government health care programs, with an estimated $250 billion per year in savings through 2039. What role do cost controls instituted by the Affordable Care Act play in these savings? Perhaps not much, according to Margot Sanger-Katz, writing for the Upshot blog. She sites a number of studies showing that health-care costs are slowing globally, suggesting that factors other than national policies may be at work. Of course, in the U.S. that slowdown in prices is happening from a much higher starting point. The latest Comparative Price Report from the International Federation of Health Plans shows that prices for prescription medications and medical procedures are consistently higher in the U.S. than in other developed countries. According to IFHP, the average hospital cost per day in the U.S. last year was $4,293. The next highest costs were in New Zealand, at $2,491, and Australia, at $1,308. In the U.S., depression drug Cymbalta costs $194, while in England it costs just $46. According to the Wonkblog, the divergence in prices stems from the fact that in the U.S. sellers of health-care services have much more power to set prices, “and they set them quite high.”