The weakening dollar is having rippling effects around the world

See The Dollar Swoon Lifting U.S. Stocks Is Poised to Continue: Bets on the greenback’s weakness is increasing—a result that would benefit commodities, emerging markets by Ira Iosebashvili, Chelsey Dulaney and Riva Gold of The WSJ. Excerpts:

"weighed down by scant inflation and doubts whether the Federal Reserve will raise rates anytime soon."

"the WSJ Dollar Index remained down roughly 7% since the start of the year and has declined for five straight months."

"the index, . . . measures the dollar against a basket of 16 currencies"

"with gridlock in Washington putting those policies [tax cuts and infrastructure spending] in doubt—or at least on hold—many believe the dollar stands to fall further."

"A weaker dollar is typically good for shares of U.S. exporters, making their products cheaper for overseas buyers.

S&P 500 companies got about 43% of their sales abroad in 2016"

"A falling dollar helps commodities, too, which are priced in the U.S. currency and become more affordable to foreign investors when the dollar declines."

"Signs that central banks plan to wind down the easy-money policies that have helped boost risky investments hurt assets in developing countries last month, when flows into emerging market funds slowed or even turned negative.

But those fund flows have picked up again recently, analysts say, in part because of the weakening dollar. A weaker U.S. currency makes it easier for these countries to pay back their dollar-denominated debt."

See Trade Weighted U.S. Dollar Index: Major Currencies (DTWEXM) from the St. Louis Federal Reserve Bank. The dollar finished 2016 at 95.76 and was at 88.53 on Aug. 4.



Related posts:

Why Is The Dollar Down 5.6% This Year?

Why Did The Value Of The Dollar Rise More Than 20% From July 2014 To March 2015?

Rising brideprice—money or gifts provided to a woman’s family by the groom and his family as part of marriage arrangements—is a common if overlooked catalyst of violent conflict

See The economics of brideprice from Tyler Cowen.

"There is a newly published article on that topic, by Valerie M. Hudson and Hilary Matfess, here is the abstract:

Approximately seventy-five percent of the world’s population lives in countries where asset exchange upon marriage is obligatory. Rising brideprice—money or gifts provided to a woman’s family by the groom and his family as part of marriage arrangements—is a common if overlooked catalyst of violent conflict. In patrilineal (and some matrilineal) societies where brideprice is practiced, a man’s social status is directly connected to his marital status. Brideprice acts as a flat tax that is prone to sudden and swift increases. As a result, rising brideprice can create serious marriage market distortions that prevent young men, especially those who are poor or otherwise marginalized, from marrying. This phenomenon is especially evident in polygamous societies, where wealthy men can afford more than one bride. These distortions incentivize extra-legal asset accumulation, whether through ad hoc raiding or organized violence. In such situations, rebel and terror groups may offer to pay brideprice—or even provide brides—to recruit new members. Descriptive case studies of Boko Haram in Nigeria and various armed groups in South Sudan demonstrate these linkages, while an examination of Saudi Arabia’s cap on brideprice and its efforts to arrange low-cost mass weddings illustrates the ways in which governments can intervene in marriage markets to help prevent brideprice-related instability. The trajectory of brideprice is an important but neglected early indicator of societal instability and violent conflict, underscoring that the situation and security of women tangibly affect national security."

Nobel Prize Winning Economist Robert Shiller On The American Dream And Its Changing Meaning

See The Transformation of the ‘American Dream’. Excerpts:

"This drift in meaning is significant, because the American Dream . . . represents core values. In the United States, these values affect major government decisions on housing, regulation and mortgage guarantees, and millions of private choices regarding whether to start a business, buy an ostentatious home or rent an apartment."

"Conflating the American dream with expensive housing has had dangerous consequences: It may have even contributed to the last housing bubble"

"what the American Dream entailed when the writer James Truslow Adams popularized it in 1931, in his book “The Epic of America.”
 

Mr. Adams emphasized ideals rather than material goods, a “dream of a land in which life should be better and richer and fuller for every man, with opportunity for each according to his ability or achievement.” And he clarified, “It is not a dream of motor cars and high wages merely, but a dream of a social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and recognized by others for what they are.”"

"By 1950, shortly after World War II and the triumph against fascism, it was still about freedom and equality."

"In the 1970s and ’80s, home builders used it extensively in advertisements, perhaps to make conspicuous consumption seem patriotic. 

Thanks in part to the deluge of advertisements, many people came to associate the American Dream with homeownership, with some unfortunate results. Increasing home sales became public policy. In 2003, President George W. Bush signed the American Dream Downpayment Act, subsidizing home purchases during a period in which a housing bubble — the one that would lead to the 2008-9 financial crisis — was already growing at a 10 percent annual rate"

"This year, Forbes Magazine started what it calls the “American Dream Index.” It is based on seven statistical measures of material prosperity: bankruptcies, building permits, entrepreneurship, goods-producing employment, labor participation rate, layoffs and unemployment claims."

"Bringing back the fevered housing dream of a decade ago would not be in the public interest."

"But the last decade has shown that with a little encouragement, many can easily become excessively lustful about homeownership and wealth, to the detriment of our economy and society.

That’s the wrong way to go."

The percentage of 25-54 year-olds employed rose in July

One weakness of the unemployment rate is that if people drop out of the labor force they cannot be counted as an unemployed person and the unemployment rate goes down. They are no longer actively seeking work and it might be because they are discouraged workers. The lower unemployment rate can be misleading in this case. People dropping out of the labor force might indicate a weak labor market.

We could look at the employment to population ratio instead, since that includes those not in the labor force. But that includes everyone over 16 and that means that senior citizens are in the group but many of them have retired. The more that retire, the lower this ratio would be and that might be misleading. It would not necessarily mean the labor market is weak.

But we have this ratio for people age 25-54 (which also eliminates college age people who might not be looking for work)

The percentage of 25-54 year olds employed is 78.7% for July. It was 78.5% in June. It is still below the 79.7% in December 2007 when the recession started (it was 80.3% in January 2007).  Click here to see the BLS data. The unemployment rate was 4.3% in July (it was 4.4% in June). Click here to go to that data. The percentage of adults employed went up from 60.1% to 60.2%

Here is a good graph from the St. Louis Fed. It shows that there are about 125 million people in the 25-54 year old group. So since we are 1.0 percentage points below the 79.7% of December 2007, that is still 1.25 million fewer jobs (Hat tip: Vance Ginn of the Texas Public Policy Foundation).

Here is the timeline graph of the percentage of 25-54 year olds employed since 2007.

 

Here it is going all the way back to 1948

The Chronicle of Higher Education Posted My Letter To The Editor About Adam Smith And Jonathan Haidt

See The Ugly and Dangerous Side of Political Righteousness? Haidt is a social psychologist who works to reduce the political polarization and animosity in America today.

Evan Goldstein’s article ("Can Jonathan Haidt Calm the Culture Wars?" July 7) reminded me of a passage in The Theory of Moral Sentiments, by Adam Smith, on the "animosity of hostile factions." Smith says there are only a very few whose judgment is "untainted by the general contagion." Haidt seems to be one of those few today. But Smith says "such people are held in contempt" by "the furious zealots of both parties" due to their candor, which is anathema to the "true party-man." These zealots "impute all their own prejudices" and "all their own vindictive and implacable passions" to the "great Judge of the universe." We need people like Haidt to remind us of this ugly and dangerous side of political righteousness.

Cyril Morong
Associate Professor of Economics
San Antonio College
San Antonio

People say the president can control gas prices if the president belongs to the other party

See Can a president control gas prices? Depends on when you ask. By Rich Morin, a senior editor focusing on social and demographic trends at Pew Research Center. Excerpt:

"For example, when Republican George W. Bush was in the White House in May 2006, and gas prices were spiking, CBS News and the New York Times asked this poll question: “Is the price of gasoline something a president can do a lot about, or is that beyond any president’s control?”

About 71% of all Democrats said presidents could do a lot to rein in gas prices. Six years later Democrat Barack Obama was president, and CBS/New York Times repeated the same question in their March survey. This time, 42% of Democrats said the president had the power to influence the price of gasoline — fully 29 percentage points fewer than those holding that view when Bush was president.

The shift was not quite so big among Republicans: 54% in the Bush-era survey said the president had power over gas prices, while about 69% expressed this view in March of 2012, a 15-point difference.

“Our ability to perceive and interpret gas prices and presidential responsibility is the tool of our partisanship, not so much determined by our economic theories,” concluded a blog post by political scientist Charles Franklin of the University of Wisconsin, who is currently a visiting professor at Marquette University.

For serious students of politics like Franklin, such partisan flip-flops are not surprising. They call it the “partisan filter” effect. Partisan filters — some might call them blinders — shape the way that Republicans and Democrats see many aspects of the world.

Take, for example, views on the overall economy. Certainly the basic facts on the ground are the same: the unemployment rate, changes in the cost of living, the latest reading on the Gross Domestic Product. But the judgments based on the same data often are strikingly different.

For example, during Republican presidencies, GOP partisans give more favorable evaluations to the performance of the economy than do Democrats — and vice versa when a Democrat calls the shots from the White House.

In the latest Pew Research Center poll, Republicans were about twice as likely as Democrats to rate economic conditions as “poor” (49% vs. 26%).

But back in September 2007, with the country poised on the brink of the Great Recession and Republican Bush in the White House, just the opposite was true: Democrats were about twice as likely as GOP partisans to say the economy was on the ropes (34% vs. 17%)."

OPEC struggles to hold the line in a make-or-break fight to limit oil production

See OPEC Has a Crippling Problem: Its Members Can’t Stop Pumping: Eight months after a landmark deal to cut oil output to force prices up, big budget obligations drive members to keep producing by Benoit Faucon, Lynn Cook, Summer Said and Georgi Kantchev of The WSJ. Cartels always have problems keeping members from cheating. Also, if they drive the price up, that induces more producers to enter the market. There are links to related posts at the end and some quotes from the book Free to Choose by Milton & Rose Friedman, published in 1980 that hinted at OPEC's decline. Excerpts:

"Eight months after the Organization of the Petroleum Exporting Countries announced a plan for its 14 members and 10 allied countries to withhold almost 2% of the world’s oil every day to boost prices, seven of the 11 OPEC members that pledged to cut appear to be producing more oil than promised.

Crude prices have actually fallen, by 7.6% to $52.52 a barrel, since the beginning of the year—half what the cartel called a fair price just three years ago and a level that some say is here for the long term.

Previously, low production costs meant OPEC members profited even when oil prices fell. These days, members have ramped up government spending to keep populations happy and cover military expenses, and don’t have a cushion to let oil revenues slip. Their strained budgets can be covered only through increasingly high prices per barrel, and if prices are low they need to produce more."

"OPEC’s share of the global oil market has shrunk to 40% today from 55% in the early 1970s, when its embargo on sales to the West quadrupled oil prices in six months."

"The dynamic working against OPEC is that, collectively, its members need the highest oil prices of any industry player—more than companies such as Exxon Mobil Corp. , Royal Dutch Shell PLC and most U.S. shale producers, according to Goldman Sachs ."

"OPEC needs $10 to $20 a barrel more than Big Oil and U.S. exploration and production outfits"

"The U.A.E. spends only $12 to pump a barrel of oil but needs oil to sell at $67 to cover its government expenditures"

"The U.A.E. is among OPEC’s worst offenders in pumping too much oil. It has cut only about half the amount it promised"

"OPEC on Nov. 30 agreed to cut production by 1.2 million barrels a day"

"Instead, member exports in June were 120,000 barrels a day lower than October"

"Saudi and other OPEC officials once believed U.S. shale producers needed oil prices of $80 a barrel or higher to function."

"The continued production helped pay down debt while companies reorganized. When the producers emerged from bankruptcy, new owners had the old debt load wiped clean. With a clean slate, plumbing once expensive shale fields became more economical. Other companies on the ropes sold to stronger rivals that can manage the fields more effectively or issued new shares to raise capital."

"seven of the 11 OPEC members that pledged to cut were producing more than promised" 

Now passages from Free to Choose:

"Price controls on oil and other forms of energy by the U.S.
government in their turn prevented information about the effect
of the OPEC cartel from being transmitted accurately to users
of petroleum. The result both strengthened the OPEC cartel,
by preventing a higher price from leading U.S. consumers to
economize on the use of oil, and required the introduction of
major command elements in the United States in order to allocate
the scarce supply (by a Department of Energy spending in 1979
about $10 billion and employing 20,000 people)."

"A monopoly can seldom be established
within a country without overt and covert government assistance
in the form of a tariff or some other device. It is close to im-
possible to do so on a world scale. The De Beers diamond monopoly
is the only one we know of that appears to have succeeded.
We know of no other that has been able to exist for long without
the direct assistance of governments—the OPEC cartel and earlier
rubber and coffee cartels being perhaps the most prominent exam-
ples.

And most such government-sponsored cartels have not lasted
long. They have broken down under the pressure of international
competition—a fate that we believe awaits OPEC as well. In a
world of free trade, international cartels would disappear even
more quickly. Even in a world of trade restrictions, the United
States, by free trade, unilateral if necessary, could come close to
eliminating any danger of significant internal monopolies."

I should point out that De Beersonce had a 90% market share and it is now 31%.

Now links to related posts:

Oil companies have cut costs and can now profit at lower prices

OPEC Stumbles in Face of Oil Glut (example of how hard it is for cartels to achieve their objectives)

New Technologies Open Up Oil And Gas Reserves

Factors Influencing The Price Of Gas

Another Journalist Misunderstands Supply And Demand

Some Historical U.S. Gas Prices

Would You Pay $1,000 A Night To See The Aug. 21st Eclipse?

See Authorities are Treating August's Solar Eclipse, the First in 99 Years, Like it's the End of the World by Meredith Rutland Bauer of Newsweek. It looks like supply and demand is at work. Big demand for the date and fixed supply. Excerpts:

"The path of totality, the area where the sun is completely blocked out, stretches from Oregon to South Carolina."

All of those visitors are expected to clog interstates, along with state and local roads, for days before and after the eclipse, much like the rush during emergency evacuations, says Brad Kieserman, vice president of disaster operations and logistics for the American Red Cross. “Some of these places are never going to see traffic like this,” he says. In some areas, “the population will be double or triple.”

Once visitors arrive, they’ll need bottles of water, lodging and restrooms. And, of course, solar glasses. In Columbia, South Carolina, the city’s main museum has bought 5,000 bottles of water for thirsty eclipse viewers, and the city government plans to send out trucks to frequently refill planned water stations. In Wyoming, Grand Teton National Park staff have rented an extra 200 portable toilets to accommodate “their busiest day in history, meaning past or future,” says Kathryn Brackenridge, eclipse coordinator for the town of Jackson, Wyoming.

She was hired earlier this year to organize details regarding emergency preparedness and marketing related to the solar eclipse.

Merritt McNeely, director of marketing for the South Carolina State Museum, called a local portable toilet company six months ago to reserve its services. She’s worried about a national port-a-potty shortage.

National Construction Rentals, which rents portable toilets across the U.S., hasn’t seen a spike in demand, but “there most likely will be last-minute requests as the date approaches,” says the company’s sales and marketing director, Scott Barley. “We advise customers not to spend too much time in our portable toilets on the actual date of August 21, or they may miss this very brief but memorable event.”

And don’t expect lodging to be available, experts say. Hotel rooms along the eclipse route were mostly sold out as of June, and Airbnb rentals in the path of totality are reaching $1,000 a night in some cities."

Does The Law of Demand Explain The Increase In Fresh Produce Consumption?

See Eating Fresh Fruits and Veggies Is Easy When They’re Relatively Cheap by Sarah Chaney of The WSJ. If the price of a substitute rises (or rises more), the demand will increase for a good. This might be what is going on with fresh produce. But also, tastes may have changed based on the information given about younger consumers liking fresh produce more. Of course, younger people might have lower incomes, so they might be more price conscious. Excerpts:

"In the fresh versus processed food wars, fresh fruits and vegetables are winning, thanks in part to their relatively cheap price tags.

Since November 2008, the consumption of fresh fruits has grown 16.2%, while consumption of fresh vegetables is up 20.6%. Consumption of processed fruits and vegetables increased only 9.9% during the same time period, notes Eugenio J. Alemán, Wells Fargo senior economist, in a new report.

“Consumers have rationally reacted to much higher prices on the processed side in relation to the fresh side,” Mr. Alemán said in an interview. “In relative terms, fresh fruits and fresh vegetables are cheaper today than processed fruits and vegetables are.”

Processed fruits and veggies are in the “freezer aisle,” while fresh are not frozen, according to the Bureau of Economic Analysis.

Prices of fresh fruits and fresh vegetables were on an upward trajectory leading up to the 2008 recession, but have remained relatively stable since. The processed version of these goods carry higher prices today than they did at any time before the recession."

"Younger consumers, in particular, have largely shifted to fresh-food consumption. Those under age 40 increased their consumption of fresh vegetables by 52% over the last decade."

Where to Find a $35,000 Job—Without a Degree

More than 30 million jobs that pay $35,000 a year or more are open to noncollege graduates

By Lauren Weber of the WSJ. But maybe there are not as many of these jobs as there used to be. Then I have a link to another article that says there is a shortage of construction workers since they are aging and then another article that says employers are more willing now to hire ex-convicts. But, as I have pointed out before, the percentage of 25-54 year-olds employed is still below what it was when the recession started in Dec. 2007. See The percentage of 25-54 year-olds employed rose in June.

Excerpts from the Weber article:

"At a time when politicians and pundits decry the end of middle-class jobs, it may come as a surprise that there are 30 million jobs paying more than $35,000 a year for U.S. workers without four-year college degrees.

Now for the bad news: there are 75 million U.S. workers without college diplomas, or 2.5 workers for every one of those good jobs, meaning that high-school grads have far lower odds of winning the career lottery than they did 25 years ago, according to a new report from Georgetown University’s Center on Education and the Workforce. Good jobs, as defined by the report’s authors, pay more than $35,000 a year, or more than $45,000 for workers over the age of 45. The median wage for the jobs Georgetown examined was $55,000.

The number of good jobs for noncollege graduates rose to 30 million in 2015 from 27 million in 1991, but the labor market grew, too. By 2015, the share of all good jobs that went to noncollege graduates fell to 45% from 60% in 1991—leaving 45 million workers in low-paying, sometimes part-time roles that don’t offer a path to the middle class.

In the post-World War II era, jobs in manufacturing and production propelled millions of American workers into the middle class. Today, more middle-class jobs for nongraduates are in financial services and health care. A high-school diploma alone won’t cut it for a lot of those jobs, however.

Among noncollege degree holders, only workers with an associate degree had better odds of finding a good job in 2015 than they did 1991, Georgetown found. High-school graduates and dropouts, and people with some college, are all faring worse now than before, the report says."

"In 1991, 27% of good jobs open to noncollege workers were in manufacturing; by 2015, the proportion had fallen to 16%; that share may fall further as employers reduce labor costs through globalization and automation. The authors analyzed Census surveys from that period to draw their conclusions."

Then there is Labor Shortage Squeezes Home Builders: There are fewer construction workers and more gray hair on job sites today as younger workers snub industry from the WSJ.

"One of the reasons for the housing shortage that is gripping the U.S. is especially perplexing: the dearth of construction workers.

The size of the construction workforce in the U.S. declined to 10.4 million in 2015 from 10.6 million near the bottom of the market in 2010, according to a new analysis of U.S. Census data by Issi Romem, chief economist at BuildZoom, a website for contractors.

Contrast that with the period from 2000 to 2005 when the construction labor force—the sum of employed and unemployed workers—swelled to 11.5 million from 9.3 million.

A critical reason for the recent declines is the graying of the American construction workforce. While construction workers in 2000 were younger on average than workers overall, that trend has reversed, according to Mr. Romem. In 2000, the average construction worker was 7.5 months younger than the typical U.S. worker. By 2005, the gap widened to nearly 18 months.

But now the average construction worker is older than the average employee by 5.5 months."

The article also mentions that young workers want technology jobs or don't live where the housing boom is. Then there is Ex-Convicts Help Companies Fill Need for Skilled Labor: As jobless rate declines, employers increasingly find qualified workers among recently released prisoners by Jeffrey Sparshott of the WSJ. The article mentions the low U.S. unemployment rate, but as I said earlier, we should look at 25-54 year-olds. Excerpts:

"Erickson Cos., a Chandler, Ariz., based construction firm, has hired almost 30 former inmates from Arizona state prisons over the past year to build frames for new homes, an effort to cope with skilled-labor scarcity.

“We’re searching for every alternative avenue that we possibly can to help solve this labor shortage,” Rich Gallagher, Erickson’s chief executive, said in an interview.

Erickson is part of what appears to be a nationwide trend. As the jobless rate falls, employers in places including Arizona, Indiana and Maryland are scouring the fringes of the labor market for able-bodied workers, including ex-offenders.

Erickson, which has about 250 employees in Arizona and roughly 1,000 nationwide, has been recruiting directly from corrections department job fairs for prisoners nearing release. Karen Hellman, director of inmate programs and re-entry, said there has been a noticeable uptick in companies looking to hire inmates this year.

National data on hiring of ex-offenders isn’t available, but other state correctional systems across the U.S. and training programs for ex-offenders report similar experiences."

Are The Forces Of Supply And Demand Slowing College Tuition Increases?

See In Reversal, Colleges Rein In Tuition: Prices of higher education are rising in line with inflation as enrollment stagnates by Josh Mitchell of The WSJ. Excerpts:

"U.S. college tuition is growing at the slowest pace in decades, following a nearly 400% rise over the past three decades that fueled middle class anxieties and a surge in student debt.

Tuition at college and graduate school—after scholarships and grants are factored in—rose 1.9% in the year through June, broadly in line with overall inflation, Labor Department figures show. By contrast from 1990 through last year, tuition grew an average 6% a year, more than double the rate of inflation. In that time, the average annual cost for a four-year private college, including living expenses, rose 161% to about $27,500, according to the College Board.

Some schools are offering more discounts and cutting prices.

Abundant supply is running up against demand constraints. The number of two-year and four-year colleges increased 33% between 1990 and 2012 to 4,726, Education Department data show. But college enrollment is down more than 4% from a peak in 2010, partly because a healthy job market means fewer people are going back to school to learn new skills.

Longer-running economic and demographic shifts also are at play. Lower birthrates and the aging of baby boomer children have reduced the pool of traditional college-age Americans. The number of new high-school graduates grew 18% between 2000 and 2010 but only 2% in the first seven years of this decade, Education Department data show.

Another factor: Congress last increased the maximum amount undergraduates could borrow from the government in 2008. Some economists have concluded schools raise prices along with increases in federal financial aid. A clampdown on aid, in turn, could limit the ability of schools to charge more.

Some of these trends may persist. The number of high-school graduates is projected to remain flat through 2023, according to an analysis by the Western Interstate Commission for Higher Education. White graduates, the most likely among races to attend college, are expected to decline over this period.

“The competition is bigger now than it has been, and I think we have more informed consumers,” said Sarah Kottich, chief financial officer at College of Saint Mary in Omaha, Neb.

The small private women’s college cut out-of-pocket tuition 10% for the coming year, to an average $14,600 after aid, its first reduction in at least two decades. Officials made the move after analyzing research from SLM Corp.’s Sallie Mae, a private student lender, showing high prices are a major factor for students when they eliminate schools from their searches, Ms. Kottich said."

"many states are on track to experience budget crunches as the population ages and health-care and public pension costs rise. That could squeeze public support for schools.

Moreover, the number of schools is declining in response to oversupply, particularly among for-profit schools, a trend that could reduce competition and increase pricing leverage for schools that remain open."

Related posts:

As college costs rise, sticker shock eased by student aid


Are College Costs Actually Falling?

Is It Getting Too Expensive To Go College?