The U.S. Bureau of Economic Analysis (BEA) has issued the following news release today:
Real gross domestic product — the value of the production of goods and services in the United States, adjusted for price changes — increased at an annual rate of 2.2 percent in the fourth quarter of 2014, according to the “third” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 5.0 percent.
See figure below.
Read the release here.
The rise in the value of the U.S. dollar over the last few months is having a ripple effect. Once such effect is the relative decline of African currencies. See the chart below from the WSJ.
As African currencies decline relative to the dollar, African businesses are struggling to find enough U.S. dollars to buy imported goods. As a result, profit margins are shrinking because imported goods are becoming extraordinarily expensive. Local business are apparently struggling to find alternatives goods to sell and many store shelves are remain empty–highlighted in the picture below.
The Bureau of Labor Statistics (BLS) released its February 2015 Consumer Price Index (CPI) report. Click here to read the report.
The CPI was unchanged over the last 12 months (see the figure below). This reading remains well below the Fed’s inflation target of 2 percent.
Core CPI–which excludes food and energy prices–increased 1.7 percent over the last 12 months.
The following figure shows both CPI and Core CPI since February 2014.
The Federal Reserve concluded its latest Federal Open Market Committee (FOMC) meeting today.
The two most important paragraphs from the announcement are:
“Information received since the Federal Open Market Committee met in January suggests that economic growth has moderated somewhat. Labor market conditions have improved further, with strong job gains and a lower unemployment rate. A range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately; declines in energy prices have boosted household purchasing power. Business fixed investment is advancing, while the recovery in the housing sector remains slow and export growth has weakened. Inflation has declined further below the Committee’s longer-run objective, largely reflecting declines in energy prices. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.”
“To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. Consistent with its previous statement, the Committee judges that an increase in the target range for the federal funds rate remains unlikely at the April FOMC meeting. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. This change in the forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range.”
You may also read the complete announcement here.
The European Central Bank (ECB) began its long-anticipated government bond buying last week. The impact is that the 10-year German bond yield dipped under 0.2 percent and the 2-year German bond yield continues its fall into negative territory. See the figure below.
Discuss why an investor of German bonds might be willing to accept a negative yield over the short term.
The quit rate in the U.S. is on the rise. The quit rate is defined as the number of quits during the month divided by the number of employees who worked during or received pay for the pay period that includes the 12th of the month.
The quit rate fell 43 percent during the great recession. It has subsequently increased 54 percent.
Discussion question: Explain why a rising quit rate is a signal of a healthy labor market.
Melvyn Krauss has an interesting Op-Ed in the WSJ today titled QE Could Spur Reform in the Eurozone. Click here to read it.
Krauss writes about quantitative easing (QE) in the Eurozone and the so-called free-rider problem. The argument boils down to this: as the European Central Bank (ECB) President Mario Draghi does more of the heavy lifting, will European politicians do less to promote structural fiscal reforms?
Krauss argues that if the free-rider problem were correct, the severe economic pressure of the past several years from deflation and stagnation should have generated structural reforms in Portugal, Italy, Greece and Spain—the so-called PIGS. His point is that the pressure has been there, but the reforms have not. So why should taking pressure off (via QE by the ECB) stymie reforms, when putting pressure on hasn’t encouraged them? It is an excellent question.
The announcement of the ECB’s QE program has caused the value of the euro to drop to $1.08 from $1.40—a 32 percent decline. The open question is will this decline increase or decrease the likelihood of structural reforms in the PIGS? Only time will tell.
e Bureau of Labor Statistics (BLS) released its February 2015 jobs report on Friday. Read the BLS report here.
The U.S. added 295,000 jobs in February 2015, compared with an average monthly gain of 266,000 over the prior 12 months.
The unemployment rate declined in February to 5.5 percent.
Once again, the labor force participation rate in February increased slightly to 62.8 percent and the employment-population ratio was unchanged at 59.3 percent.
Here are other highlights from the February report:
The number of long-term unemployed (those jobless for 27 weeks or more) was 2.7 million persons. The number of long-term unemployed has decreased by 1.1 million over the last 12 months. They account for 31.1 percent of the unemployed.
Individuals working part time because their hours had been cut back or because they were unable to find a full-time job, at 6.6 million persons, decreased in February.
The number of discouraged workers in February 2015 was 732,000 persons, which was little changed from a year earlier. Discouraged workers are persons not currently looking for work because they believe no jobs are available for them.
The Organization for Economic Cooperation and Development (OECD) reported on Tuesday that the annual rate of inflation in its 34 members states fell to 0.5 percent in January, less than half of the January rate of 1.1 percent and the lowest level observed since October 2009.
Click the link below to see a figure of county-specific inflation rates and the overall OECD inflation rate.
OECD Chart: Inflation (CPI), Total, Annual growth rate (%), Monthly, Jan 2011 – Feb 2015