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US growth slows to 2.6% in fourth quarter

Personal spending rose to the highest level since 2006 in the first quarter America’s growth lost momentum at the end of 2014 as weak exports highlighted the risks the US recovery faces from sagging overseas demand. Gross domestic product rose by an annualised 2.6 per cent in the fourth quarter — sharply below Wall Street expectations for an increase of at least 3 per cent and a marked slowdown from the 5 per cent pace set in the third quarter. More On this story On this topic IN US Economy While consumer spending — the main driver of America’s economy — surged at its fastest pace since 2006, overall growth was dragged down by poor trade numbers and falling government spending. Stocks slipped on Wall Street in response and bond traders pushed back expectations of interest-rate increases by the Federal Reserve’s Federal Open Market Committee. Separate data showed US […]

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Falling oil prices prompt central bankers to reconsider

World Bank expects global inflation to fall 0.4-0.9 percentage points this year The Federal Reserve O nly a few months ago, the 2015 outlook for monetary policy could be summarised in two words: “great divergence”. This was the year in which the US Federal Reserve and the Bank of England would finally raise rates after years of ultra-low borrowing costs, while the Bank of Japan and the European Central Bank would continue to loosen monetary policy. More On this topic Global Insight Fast forward to the start of this year and the picture is completely different: from India and Turkey to Canada , monetary policy makers are all busy slashing borrowing costs. Brazil, where the central bank raised rates last week, is the one big exception to the rule. But its move pales against the ECB’s decision last Thursday to launch a massive €1.1tn programme of quantitative easing. And […]

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Fossil Fuel Subsidies Fall in Gain for Renewables

(Bloomberg) — Countries from Mexico to Germany and Malaysia are increasingly taking advantage of cheap oil by trimming fossil-fuel subsidies, easing the way for renewable power that can help the environment, according to the chief economist of the International Energy Agency. With the global cost of crude cut by more than half, Fatih Birol said the IEA has scrapped a forecast that had subsidies reaching $660 billion by 2020. In the group’s latest report, fossil fuel producers were paid $548 billion in 2013, a $26.5 billion decline that was the first drop in four years. At least 27 nations are decreasing or ending the subsidies that hold down costs for fuels used to generate electricity, including coal and natural gas, the IEA reported in November. That’s adding momentum to global efforts to limit greenhouse gases by increasing the use of clean energy. “In the absence of subsidies, all of […]

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Euro’s Big Drop Puts U.S. Economy, Federal Reserve to the Test

European Central Bank President Mario Draghi. ENLARGE Photo: Associated Press The European Central Bank’s launch of an aggressive program this week to buy more than €1 trillion in bonds poses important tests for the U.S. economy and the Federal Reserve. Europe’s new program of money printing—and the resulting fall in the euro—means the U.S. economy must deal with a rapidly strengthening dollar that will make American goods more expensive abroad. The stronger dollar could slow both U.S. growth and inflation, giving the Fed some incentive to hold off on its plan to raise short-term interest rates later this year from near zero. U.S. officials have been playing down that scenario, and, more broadly, resisting talk of a global currency war—competitive devaluations by countries eager to keep their currencies as low as possible to protect exports. The U.S. dollar has already soared in the wake of the ECB announcement Thursday […]

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IMF Cuts Global Economic-Growth Outlook

ENLARGE Olivier Blanchard speaks in Mexico City in July. The IMF’s chief economist called the price of oil a shot in the arm, but said that ‘there is clearly a state of weakness in the world economy and this shot is not enough.’ Susana Gonzalez/Bloomberg News Sliding oil prices will give global growth a brief jolt, but the benefits won’t be strong enough to keep the world economy out of a deepening long-term rut, the International Monetary Fund said. In new forecasts, the IMF downgraded its outlook for more than a dozen of the world’s largest economies, including markedly slower growth in China. The fund said global growth would be 0.3 percentage point lower this year and next than it had previously expected. It now expects the world economy to expand 3.5% this year and 3.7% in 2016. “The price of oil is a shot in the arm,” IMF […]

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IMF cuts forecasts for global economic growth

Christine Lagarde, the IMF managing director, says the outlook is ‘too low, too brittle and too lopsided’ Low oil prices will not provide a sufficient updraught to dispel the clouds hanging over the global economy, the International Monetary Fund said on Tuesday. In a sign of its increasing gloom about the medium-term economic outlook, the IMF cut its global economic growth forecasts by 0.3 percentage points for both 2015 and 2016 despite believing cheaper oil represents a “shot in the arm”. Its 2015 forecast for the UK was unchanged at 2.7 per cent and cut by 0.1 percentage point for next year to 2.4 per cent compared with its previous forecast in its World Economic Outlook last October. Its outlook for the UK is broadly favourable despite uncertainty about the general election, with the faltering eurozone economy likely to prove the biggest brake on growth. Last year the IMF described […]

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Fed’s Beige Book: Continued Growth, but Some Slowing in Oil-Producing Areas

ENLARGE The U.S. Federal Reserve, housed in Washington’s Federal Reserve Board building, Wednesday released its ‘beige book’ report on regional economic conditions. Gary Cameron/Reuters Energy-rich regions of the U.S. are seeing signs of slower growth due to the plunge in oil prices, though the national economy continued to expand in late 2014, the Federal Reserve said in its latest survey of regional economic conditions. The Fed found “modest” or “moderate” growth across most of its 12 districts in mid-November through late December, according to the “beige book” report released Wednesday. Payrolls “expanded moderately” across “a variety of sectors,” the report said, though pay remained stagnant for most workers. “Significant wage pressures were largely limited to workers with specialized technical skills,” it said. In areas where energy production has boomed in recent years, the sharp decline in oil prices since mid-2014 is generating worries about a slowdown. The Dallas district […]

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Earnings Pessimism Jumps as Oil Threatens S&P 500 Growth

While stock investors wait for the benefits of cheaper oil to seep into the economy, all they can see lately is downside. Forecasts for first-quarter profits in the Standard & Poor’s 500 Index have fallen by 6.4 percentage points from three months ago, the biggest decrease since 2009, according to more than 6,000 analyst estimates compiled by Bloomberg. Reductions spread across nine of 10 industry groups and energy companies saw the biggest cut . Earnings pessimism is growing just as the best three-year rally since the technology boom pushed equity valuations to the highest level since 2010. At the same time, volatility has surged in the American stock market as oil’s 55 percent drop since June to below $49 a barrel raises speculation that companies will cancel investment and credit markets and banks will suffer from debt defaults. “Either there is nothing to worry about and crude is going […]

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Oil to Put Chill on U.S. Earnings Season

As fourth-quarter earnings season gets under way, investors are bracing for the softest U.S. profit growth in years, pinched by collapsing oil prices and a strong dollar. That double whammy, coupled with the highest valuations for stocks since the financial crisis, will test the market’s ability to prolong its extended bull run and will likely make for continued bumpy trading in the weeks ahead. Over the past few months, the Dow Jones Industrial Average and S&P 500 have carved out new record highs, while suffering frequent setbacks. Both indexes hit fresh peaks in the final sessions of last year but have since experienced two straight weeks of declines. Some prominent hedge funds are cutting back their exposure to stocks and reducing their use of borrowed money to amplify their bets, according to fund managers and a confidential memo Morgan Stanley sent to clients last week that was viewed by […]

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Oil-Price Drop Takes Shine Off Steel Town

ENLARGE Lorain, Ohio, is starting to feel pressure from the sharp drop in oil prices. Above, Republic Steel’s plant along Black River in Lorain supplies metal used to make oil pipes and tubing. Steve Manheim/The Chronicle-Telegram LORAIN, Ohio—The collapse of oil prices in the last six months is threatening to end a recent industrial revival in manufacturing centers like this town of 64,000 on the banks of Lake Erie. The U.S. shale drilling boom lifted Midwest manufacturing economies, enriched property owners with mineral rights and even brought back the fat blue-collar paychecks that once were harder to find. But as drilling and exploration for new oil and gas slow with the drop in energy prices, cutbacks at heavy-industry companies are cropping up. The U.S. Steel Corp. plant here, which depends heavily on oil and gas companies to buy its steel pipe and tubes, warned on Monday it might have […]

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Eurozone falls into deflation for first time since October 2009

Eurozone Inflation Prices in the eurozone are falling for the first time in more than five years, strengthening the case for the European Central Bank to unveil a full-scale package of government bond purchases later this month, despite Germany’s disapproval. The collapse in the cost of oil dragged eurozone consumer prices down 0.2 per cent in the year to December 2014, Eurostat, the commission’s statistics bureau, said on Wednesday. The figure was slightly worse than the 0.1 per cent decline that economists had expected. More On this story On this topic IN Europe The last time the currency area was in deflation was October 2009. Prices are expected to drop again in January as more recent falls in crude lower the cost of consumer goods. The latest fall, from a 0.3 per cent increase in November, will bolster calls for more aggressive action from the ECB, where top officials […]

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Will Oil Continue to Fuel the Jobs Market?

ByJeffrey Sparshott The U.S. energy boom fueled jobs such as construction work on this pipeline outside Waford City, N.D. Getty Images Friday’s jobs report may offer some early hints about the impact of falling oil prices on jobs in the oil and gas industry. The U.S. energy boom has been an engine of growth through a lackluster economic recovery, creating thousands of jobs that pay above-average wages, spawning demand for a broad array of services and supporting local economic booms from North Dakota to Texas. But with oil prices dipping below $50 a barrel , exploration and production companies are slashing budgets and squeezing suppliers . Among recent examples: Houston-based Civeo Corp. , a lodging company for oilfield workers , at the end of December said it reduced U.S. payrolls by 45% from the level at the beginning of 2014 in response to falling demand, prompting its largest stakeholder […]

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Global factory growth ends 2014 on low note: PMI

LONDON (Reuters) – Global manufacturing activity expanded at its weakest pace in more than a year at the end of 2014, even though factories cut their prices at the steepest rate for nine months, a business survey showed on Friday. JPMorgan’s Global Manufacturing Purchasing Managers’ Index (PMI), produced with Markit, fell to 51.6 in December from November’s 51.8. That was its lowest reading since August 2013. Even so, it has now been above the 50 mark that separates growth from contraction for two years. However, a PMI covering output prices slid below the break-even mark, coming in at 49.3 compared with November’s 50.1. The PMI combines survey data from countries including the United States, Japan, Germany, France, Britain, China and Russia. (Reporting by Jonathan Cable ; Editing by Larry King)

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The “Unequivocally ‘Not’ Good” Reality Of Lower Oil Prices & Jobs

The drop in oil prices is certain to cause some incremental unemployment in the U.S. energy industry; the question is simply how much and what that means for the American economy as a whole. To begin the search for answer, you have to go to the wellhead and consider how many individuals work in American oilfields, as well as those workers that directly support those activities.  The answer here, courtesy of the Bureau of Labor Statistics, is 812,000 as of March 2014 (the most current data available).   That may not sound like a lot, but at average annual wages of $99,854/worker, this small group receives $81 billion in estimated annual compensation.  How bad can things get if oil prices stay low? We actually have a recent case study in the 2008 experience, the last great crash in oil prices.  The answer is a 20% headcount reduction from October 2008 […]

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Oil Prices as an Indicator of Global Economic Conditions

West Texas Intermediate sold for $105 a barrel at the start of July, but ended last week at $58. The most important factor has been surging U.S. production . But another reason oil prices have slid so much is weakness in demand for the product, which may be related to a slowdown of overall world economic growth. Here I comment on the importance of that second factor. Price of crude oil (West Texas Intermediate, dollars per barrel). Source: FRED. For example, the price of copper fell from $3.27/pound to $2.93, a 10% drop over those same six months. This of course has nothing to do with the success of people in getting more oil out of rocks in Texas. Softness in demand for commodities like copper and oil may be one indicator of new weakness in the world economy. Price of copper (NYMEX, dollars per pound). Source: Investing.com. The […]

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China to revise 2013 GDP by about 3 pct

BEIJING, Dec. 16 (Xinhua) — China’s statistics authority will revise its gross domestic product (GDP) figure for 2013 by about 3 percent after a latest national economic census. Ma Jiantang, chief of the National Bureau of Statistics (NBS), told a press conference Tuesday that the revision is made as more detailed data became available after the third economic census conducted this year. The adjustment will be around 3 percent, lower than that for the previous two censuses, Ma said, adding that the revised figures will be released on Friday. After the second census in 2009, the NBS revised up the 2008 GDP figure by 4.5 percent. Preliminary data showed that China’s GDP stood at 56.88 trillion yuan (9.3 trillion U.S. dollars) in 2013, up 7.7 percent year on year.

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Risks for the 2015 economy? Oil prices, interest rates

Felix Sotelo of Dallas filled up his vehicle Friday at Fuel City off Riverfront Boulevard near downtown, where regular unleaded gas was $1.99 per gallon as part of an anniversary promotion by the station. Gas prices have fallen nearly 27 percent to an average of $2.30 a gallon in Dallas in the last year, according to GasBuddy.com. Will 2015 be a better year for you? Probably so — if you don’t work in the energy industry. Texas has diversified its economy significantly in the last 20 years, but oil is still king. So when oil prices plunge, it has a big effect on the state’s economy. How big? Next year may answer that question. The Texas economic engine is likely to move at a slower speed next year, even as the U.S. economy picks up steam. Texans — and all Americans — face an unprecedented time of economic transition […]

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Rapid fall in oil prices may portend global recession

Rapid fall in oil prices may portend global recession thumbnail Cratering crude-oil prices may be a blessing to cash-strapped American consumers, but it’s a double-edged sword when it comes to the overall economy. The problem for the overall economy is not so much the drop in oil prices as it is the velocity at which oil prices have fallen. The plunge from a peak of just over $100 per barrel in the early summer to today’s $58 — a massive 42 percent drop in just a few short months, most of which has come in the last 90 days — could make anyone’s head spin. The rapid fall in crude prices is a telling sign to some Wall Street analysts and economists that there may be a global recession taking hold and the slowing growth is pushing oil lower. Remember, at the height of the financial crisis, crude got […]

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Cheap Natural Gas Lures Private Equity to Power Industry

The companies most bullish on U.S. power aren’t from the energy industry . They are private equity firms, and here’s why: natural gas. Firms from Panda Power Funds to Energy Investors Funds are financing about 10 gigawatts of new gas-fired plants over the next five years in the 13-state mid-Atlantic grid. That’s enough power to run New York City on all but the hottest summer days. Traditional power companies are building less than 4 gigawatts. Part of the electric grid sits atop the Marcellus shale formation in Pennsylvania , which supplies 18 percent of U.S. gas production, up from 1.8 percent in 2007. Gas from the Marcellus shale deposit is helping boost U.S. production to a record for a fourth year. Growing supplies have cut gas prices in half over the past six years, double the drop in power, leaving investors with a healthy profit margin. Gas plants will […]

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Where U.S. Factories Have the Most to Gain From Cheap Oil

ByTimothy Aeppel Steel plants use lots of petroleum-derived raw materials and are already counting big savings from this year’s rapid fall in oil prices. Getty Images Anyone who drives a car or truck that isn’t a plug-in electric benefits from cheaper oil every time they pull up to the gas pump. But for manufacturers, the benefits are far more unevenly distributed. Consider tiremakers and steel plants . Both use lots of petroleum-derived raw materials and are already counting big savings from this year’s rapid fall in oil prices. U.S. oil prices continued to swoon on Thursday, nearing $60 a barrel for the first time in five years. The slide is driven by a glut of supply that’s expected to endure well into next year. Cheaper oil is usually good for the economy —and for domestic manufacturers. But not everyone gets the same boost and some are outright burned when […]

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Lew Cheers Plummeting Oil Prices as ’Tax Cut’ for U.S. Economy

U.S. Treasury Secretary Jacob J. Lew said plunging oil prices are like a beneficial tax cut for the nation’s consumers while having negative consequences for Russia, where energy is a vital source of revenue. “It is a great success story that we are now producing oil in the quantity that we are,” Lew said today in an interview in New York broadcast by CNBC. “The independence that we’ve developed in the energy sector, it is a clear positive if you look at the impact on our economy.” Lew’s comments came after Brent crude fell below $65 yesterday for the first time in five years. The shale boom has driven U.S. output to the highest on a weekly basis since 1983, with oil production up 65 percent in just five years and the country supplying 89 percent of its own energy in 2014. While Lew said the U.S. needs to […]

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Oil slide hits European stocks, safe-haven assets sought

LONDON (Reuters) – A relentless slide in crude prices put energy stocks and currencies exposed to oil exports under pressure on Friday, dampening appetite for riskier assets and underpinning flows into the safety of core government bonds. Brent crude dropped to a 5-1/2-year low of $63 a barrel and was set for a weekly loss of more than 8 percent. Falling oil prices have sparked weakness in U.S. high yield markets and pushed up volatility across asset classes. The STOXX Europe 600 Oil & Gas Index fell nearly 1 percent in early trade, dragging down the pan-European FTSEurofirst 300 index to 1,347.45 points. The euro zone’s blue-chip Euro STOXX 50 index declined by 0.8 percent to 3,133.36 points with political concerns over Greece also hurting European stocks. Currencies strongly linked to oil export revenues like the Canadian dollar slumped to a 5-1/2 year trough against the dollar, while the […]

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Oil’s Decline Is Far From Confined

So far, few outside the energy sector have been hurt by this year’s oil rout. But the ripples likely have only begun to be felt. Falling oil prices are on balance positive for energy consumers such as the U.S., and with the Dow Jones Industrial Average hitting a new record Friday, investor confidence appears intact. Yet some analysts and investors say a 39% plunge in crude futures since June could lay the groundwork for unpredictable market shifts and increasing price swings, or volatility. In a worst-case scenario, oil’s selloff could ultimately result in a shock akin to the Asian currency crisis of 1997-98. That episode—which started with a devaluation by Thailand—rattled markets and economies around the globe after many traders initially misjudged it as minor and inconsequential. Most investors expect the U.S. economy and global markets to avoid such a fate this time. But the great lesson of the […]

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Oil markets search for traction

Oil markets see modest gains, though traction still uncertain following OPEC decision to keep production static in the bear market for crude. (UPI Photo/Monika Graff) NEW YORK, Dec. 3 (UPI) — Good economic data Wednesday helped push oil markets slightly higher, though prices still reflected uncertainty following OPEC’s production decision. Oil markets plummeted last week after the Organization of Petroleum Exporting Countries decided to keep output steady despite a 30 percent loss in crude oil prices since June. In response to the decision, analysis firm Wood Mackenzie said it saw "only marginally higher" demand growth emerging next year, with Chinese growth behind most of the optimism. A string of good economic data from leading economies spurred some recent rallies in oil prices, though the general trend continues to support a bear market. West Texas Intermediate, the U.S. benchmark price, gained about 70 cents to trade near the $68 per […]

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Flow of Opec petrodollars set to dry up

Arab man standing next to gas burning off from oil well The flow of Opec petrodollars into global financial markets is set to dry up as the collapse in the oil price delivers a $316bn hit to the cartel’s revenues. Big oil producers have pumped the windfall they enjoyed from soaring oil prices over the last decade into a huge range of global assets, from US Treasuries and high-grade corporate bonds to equities and real estate. More On this story On this topic IN Commodities Qatar , for example, bought the Harrods department store and Paris Saint-Germain , France’s top football club, while Abu Dhabi’s sovereign wealth fund bought a stake in the glitzy Time Warner building in New York. The flow of petrodollars into the global financial system boosted liquidity, spurred asset prices and helped to keep borrowing costs down. But the 40 per cent fall in Brent […]

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Lower Oil Prices Will Help Boost Global Economy, IMF’s Lagarde Says

Managing director of the International Monetary Fund Christine Lagarde speaks with Gerard Baker at The… ENLARGE Managing director of the International Monetary Fund Christine Lagarde speaks with Gerard Baker at The Wall Street Journal CEO Council Monday. Ralph Alswang for The Wall Street Journal WASHINGTON—International Monetary Fund chief Christine Lagarde on Monday said falling oil prices will help boost economies in the U.S. and across much of the globe, a net positive for a world struggling with slowing growth. “It is good news for the global economy,” Ms. Lagarde said at The Wall Street Journal CEO Council annual meeting. Oil prices tumbled to multiyear lows last week after the Organization of the Petroleum Exporting Countries decided to maintain its production quotas, rather than lowering its output target. Lower oil prices are good for most consumers, who pay less for gasoline, but could squeeze energy companies and the economies of […]

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Fed’s Dudley Says Oil Price Decline Will Strengthen U.S. Economic Recovery

The sharp drop in oil prices will support U.S. growth by boosting spending, two top Federal Reserve officials said, playing down the risk that plunging energy costs could push inflation further below the Fed’s goal. Fed Vice Chairman Stanley Fischer and New York Fed President William C. Dudley, speaking at separate events today in New York, both stressed the positive impact on the U.S. economy from the steepest decline in oil prices for five years. “I’m not very worried,” Fischer told an audience at the Council on Foreign Relations . “The lower inflation that we’ll get from the lower price of oil is going to be temporary.” Oil prices have slumped after OPEC’s failure last week to curb production, although the market rebounded today. The Fed’s preferred gauge of price pressures facing U.S. consumers rose 1.4 percent in October from the same period a year ago and has not […]

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Oil and currency markets reflect expectations for lower global economic growth

Source: U.S. Energy Information Administration, based on Bloomberg Note: The U.S. dollar index measures the value of the U.S. dollar against a basket of six currencies’ exchange rates: the euro, Japanese yen, British pound, Canadian dollar, Swiss franc, and Swedish krona. An increase in the index means the dollar is appreciating against these currencies. March 1973=100. Front month = the near-month contract for Brent crude oil energy futures prices. Since August, both crude oil and currency markets have been influenced by lower economic growth expectations in countries outside the United States . Prices in both markets recently broke out of established trading ranges, driven by concerns about weaker future global demand. The current situation, with the dollar index and oil prices moving in opposite directions, presents a sharp contrast to one in which crude oil supply disruptions or geopolitical risks would cause both the dollar index and crude prices […]

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The Cost of Fossil Fuels to an Economy Is Not Reduced by Subsidies; It Is Just Redistributed

4721 Votes Countries around the globe have committed to reducing subsidies for fossil fuels, primarily oil and gas. But that commitment is not being put into practice quickly enough for cleaner energy solutions to gain a competitive edge in some regions, according to the 2014 World Energy Outlook from the International Energy Agency. Global subsidies for fossil fuels totaled nearly $550 billion in 2013. That figure is $25 billion lower than that of the previous year, but the IEA notes that is still not enough of a shift to make renewable energy competitive in the countries with the highest subsidies. More than half of the world’s fossil-fuel subsidies go to oil, and many of the subsidies are concentrated in oil- and gas-producing countries in the Middle East and North Africa. The subsidies that go to fossil fuels dwarf the subsidies for renewable energies, which the IEA put at $120 […]

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European Union Lowers Growth Forecasts as Business Confidence Sags

BRUSSELS — European Union officials on Tuesday sharply lowered growth forecasts as member states like France, Germany and Italy showed weak economic performance, and as business confidence suffered from heightened geopolitical risks. Growth is expected to be a meager 1.3 percent in the 28-member bloc this year, instead of the 1.6 percent predicted in the spring, said the European Commission, the union’s executive arm. And the economy is not expected to get much better in 2015, when growth in Germany, the region’s economic engine, is expected to grind down to about 1 percent. “The economic and employment situation is not improving fast enough,” Jyrki Katainen, the European Commission vice president for jobs and growth, said in a statement accompanying the closely watched economic forecast. Unless there are additional signs of growth and job creation in the next five years, “people could despair of the European project,” Pierre Moscovici, the […]

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US shakes off torpor with 3.5% growth

US real GDP growth The US economy expanded at an annualised rate of 3.5 per cent in the third quarter of 2014, ending years of mediocre domestic growth and shaking off the more recent weakness in other major global economies. The figure came in well ahead of analysts’ expectations of 3 per cent growth – supporting the US Federal Reserve’s decision to end its third round of quantitative easing on Wednesday. But the details portray an economy that is steady, not accelerating. They suggest the US economy is ploughing forward, despite drag from the eurozone and emerging markets, but not rapidly enough to become the engine of global growth. “The growth in household consumption was disappointing, and business investment grew only moderately,” said Gad Levanon at the business organisation the Conference Board. “We expect the US economy to grow at about a 2.5 per cent rate on average in […]

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Shale Boom Helping American Consumers Like Never Before

Oil traders might see the 27 percent slide in global prices as a bear market . For U.S. consumers, it’s more like an early holiday gift. The drop in crude has pulled retail gasoline down more than 50 cents a gallon from the year’s high in April. That means annual savings of $500 for the average U.S. household, which consumes about 1,000 gallons of fuel a year, according to data from the Federal Highway Administration and Energy Information Administration. “That’s like somebody putting dollars right in your pocket,” David Hackett , the president of Stillwater Associates, an energy consultant in Irvine , California , said by phone on Oct. 14. “That sounds like Christmas presents, going out to dinner, being able to do something.” Gasoline’s slide represents the biggest benefit that U.S. consumers have seen to date from a record boom in domestic oil production, a surge that’s contributing […]

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IMF sees risk of new eurozone recession

The outlook for the global economy has darkened, the International Monetary Fund warned on Tuesday, as it estimated there is now a four in 10 chance the eurozone will slide into a third recession since the financial crisis. The Fund’s estimates of weaker growth in its twice-yearly World Economic Outlook reflect the continued hangover from the 2008 slump, alongside fears that the world may have entered a new phase of mediocre growth . More On this topic IN Global Economy Olivier Blanchard, IMF chief economist, said the challenge for policy makers was “to re-establish confidence by articulating a clear plan to deal with both the legacy of the crisis and the challenges of low potential growth”. The WEO noted that the pattern of global recovery was becoming “more country-specific”, with a few nations bucking the wider gloomy trend, and others hit by local political or economic difficulties. Overall, the […]

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World population growing, not slowing

The possibility that the world’s population will climb to 11 billion by the end of the century is gaining traction now that demographers are using probability methods for their projections. A paper published online on Thursday in the journal  Science details new methodology that shows that most of the world’s anticipated growth is in Africa, where population is projected to quadruple from about 1 billion today to 4 billion by 2100. “For the last 20 years, prevailing opinion was that world population would go up to 9 billion and level off in the middle of the century and maybe decline,” said Adrian Raftery, one of the paper’s lead authors and a professor of statistics and sociology at the University of Washington. “Population is going to keep growing. We can say that with confidence.” Not only with confidence but with an exact percentage. There is a 70 percent probability that world […]

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API: Energy boosting U.S. economy

WASHINGTON, Sept. 10 (UPI) — A study conducted by the U.S. energy industry’s American Petroleum Institute finds the sector is supporting around 8 percent of the nation’s economy. "Oil and natural gas companies are only one part of a much larger economic success story that is creating job growth up and down the supply chain," API Upstream Group Director Erik Milito said in a statement. API published a vendor survey listing more than 30,000 segments across the country tied to U.S. energy sector. As of 2011, API said the oil and gas industry has supported 9.8 million full- and part-time jobs and 8 percent of the U.S. economy. Its study found benefits across the board , with the No. 1 state, Texas, boasting 1.9 million energy jobs to the bottom, the District of Columbia, with 13,700 jobs. API credited the growth to horizontal drilling and hydraulic fracturing in shale […]

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Is the World at ‘Peak Gold’?

This week, Chuck Jeannes told  The Wall Street Journal that either this year or next, miners will have reached “peak gold.” Peak gold means that the amount of gold being pulled out of the earth will begin to shrink every year, rather than increase, which has been the case since the 1970s. Jeannes is the chief executive of the world’s largest gold mining company, Goldcorp, so it’s probably safe to assume he knows a thing or two about mining the yellow metal. Let’s put this into context. Central banks continue to stockpile gold ( even Scotland is wondering how much of the United Kingdom’s gold it will get if it becomes an independent country). Nobody knows how much gold China is hoarding, but pretty much everyone assumes it’s a lot more than the official reports. Smart economists like Peter Schiff and Jim Rickards have been pointing out for a year now that gold buyers […]

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On The Brink Of A Major Crisis: “This Will Be A Literal Collapse of the Entire Global Monetary System”

Discussions of the possible collapse of the U.S. dollar often center around how such an event will affect the domestic economy. But the dollar doesn’t just operate inside of a bubble. It is the world’s reserve currency for a reason. Some sixty-six countries world-wide either utilize it as their primary currency or peg their own currencies to its exchange rate. What this means, as noted by Future Money Trends in the micro documentary below, is that if and when the dollar does come under attack the fallout will be everywhere. The collapse will happen simultaneously and affect billions of people worldwide. This is 33% of the nations of the world all submitting their currency sovereignty to the US Federal Reserve. If and when the U.S. loses its currency status this will be a literal collapse of the entire global monetary system… A system that is built on lies, fraud and […]

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Can an Economy Develop Without Coal?

While all fossil fuels are contributing to the accumulation of carbon dioxide in the atmosphere, coal stands apart as really problematic, not just because of its CO2 emissions today (see chart, global emissions in millions of tonnes CO2 vs. time), but because of the vast reserves waiting to be used and the tendency for an emerging economy to lock its energy system into it. Global energy emissions I recently came across data relating to the potential coal resource base in just one country, Botswana, which is estimated at some 200 billion tonnes. Current recoverable reserves are of course a fraction of this amount, but just for some perspective, 200 billion tonnes of coal once used would add well over 100 billion tonnes of carbon to the atmosphere and therefore shift the cumulative total from the current 580 billion tonnes carbon to nearly 700 billion tonnes carbon; and that is just from Botswana. […]

Posted On : Published By : Tom Whipple
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IMF Cuts 2014 Global Forecast After Slowdowns in China, U.S.

The International Monetary Fund lowered its outlook for global growth this year as expansions weaken from China to the U.S. and military conflicts raise the risk of a surge in oil prices . The world economy will advance 3.4 percent in 2014, the IMF said, less than its 3.6 percent prediction in April and stronger than last year’s 3.2 percent. Next year growth will be 4 percent, compared with an April forecast for 3.9 percent, the fund said. “Global growth could be weaker for longer, given the lack of robust momentum in advanced economies” even as interest rates stay low, the IMF said in an update to its World Economic Outlook report. “ Monetary policy should thus remain accommodative in all major advanced economies.” The IMF report reflected a world rattled by geopolitical risks that have risen since April, including the potential for “sharply higher oil prices” because of […]

Posted On : Published By : Tom Whipple
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What Is Power Consumption Telling Us About The US Economy?

We track US power consumption on a weekly basis as reported by Barron’s, as we believe this information provides insightful – albeit sometimes “noisy” and seasonally unadjusted – clues about the performance of the economy over time. The expectation is that a more robust economic environment requires more power, although factors like colder winters and warmer summers relative to the norm can greatly skew the analysis. With that in mind, let’s have a look at the weekly historical performance of this indicator going back to 1995 (in MM kWhs): Many peaks and bottoms can be observed as power demand changes seasonally over the year. We have used polynomial smoothing to extract a trend line (in black). Some quick observations: US power consumption peaked in 2006 (red line), approximately in line with the peak in the US housing market, and the trend line has flatlined since. By definition a peak […]

Posted On : Published By : Tom Whipple
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The deteriorating economic outlook

The third and final estimate (until the annual GDP revisions) of first quarter 2014 real GDP growth released June 25 by the US Bureau of Economic Analysis was a 2.9% contraction in GDP growth, a 5.5 percentage point difference from the January forecast of 2.6% growth. Apparently, the first quarter contraction was dismissed by those speculating in equities as weather related, as stock averages rose with the bad news. Stock market participants might be in for a second quarter surprise. The result of many years of changes made to the official inflation measures is a substantially understated inflation rate. John Williams ( www.shadowstats.com ) provides inflation estimates based on previous official methodology when the Consumer Price Index still represented the cost of a constant standard of living. The 1.26% inflation measure used to deflate first quarter nominal GDP is unrealistic, as Americans who make purchases are aware. A reasonable […]

Posted On : Published By : Tom Whipple
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Debt: Eight Reasons This Time is Different

In today’s world, we have a huge amount of debt outstanding. Academic researchers Carmen Reinhart and Kenneth Rogoff have become famous for their book This Time is Different: Eight Centuries of Financial Folly and their earlier paper This Time is Different: A Panoramic View of Eight Centuries of Financial Crises . Their point, of course, is that the same thing happens over and over again. We can learn from past crises to solve our current problems. Part of their story is of course correct. Governments have gotten themselves into problems with debt, time after time. This is happening again now. In fact, the same two authors recently prepared a working paper for the International Monetary Fund called Financial and Sovereign Debt Crises: Some Lessons Learned and Some Lessons Forgotten , talking about ideas such as governments inflating their way out of debt problems and pushing problems off to insurance […]

Posted On : Published By : Tom Whipple
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Why Standard Economic Models Don’t Work–Our Economy is a Network

The story of energy and the economy seems to be an obvious common sense one: some sources of energy are becoming scarce or overly polluting, so we need to develop new ones. The new ones may be more expensive, but the world will adapt. Prices will rise and people will learn to do more with less. Everything will work out in the end. It is only a matter of time and a little faith. In fact, the Financial Times published an article recently called “ Looking Past the Death of Peak Oil ” that pretty much followed this line of reasoning. Energy Common Sense Doesn’t Work Because the World is Finite  The main reason such common sense doesn’t work is because in a finite world, every action we take has many direct and indirect effects. This chain of effects produces connectedness that makes the economy operate as a network. This network […]

Posted On : Published By : Tom Whipple
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Renminbi use surges in home of US dollar

It is the monetary equivalent of what Chairman Mao called “bombarding the headquarters”. China’s renminbi is rapidly displacing the US dollar as a trading currency not only in Asia and Europe but now also in the US home market. The value of renminbi payments between the US and the rest of the world rose by 327 per cent in April this year from the same month a year ago (see chart) as more US corporations switched to using the Chinese currency to pay for imports from China, according to data from SWIFT, the international currency settlement firm. The reasons driving the upsurge are structural and long-term, said Debra Lodge, a managing director at HSBC in New York. First, US importers can slash the cost of imports from China by agreeing to trade in renminbi rather than US dollars, Lodge said. Second, a recent surge in the popularity of a […]

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Europe Struggles to Avoid Deflation’s Grip

ATHENS — In her upscale three-story beauty salon in a middle-class suburb of Athens, Doria Tsirigotis used to charge 30 euros for a haircut. But when a wrenching recession set in, her competitors started cutting their prices, first to 20 euros, then to 10 and even as low as 5 — or less than $7. Ms. Tsirigotis tried to resist discounting her prices. But as her clients lost jobs or had their wages cut, she eventually lowered her rates. Soon, revenues dwindled and her debts mounted, and she had to let go of all but two of her 13 employees. Last month, she downsized to a tiny salon across the street, renamed Cheap ‘N’ Chic — more fitting to the times. “When prices fall so much, you can’t not follow the trend,” Ms. Tsirigotis said, gazing at the now-darkened beauty boutique she ran for 20 years. “But in such […]

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China’s PMI rises to highest level in 2014

Growth in China’s manufacturing sector continued to accelerate in May, rising to the highest level for this year and adding to signs of a stabilizing economy, official data showed on Sunday. The purchasing managers’ index (PMI) increased to 50.8 in May, up from 50.4 in April, according to data released by the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing (CFLP). The reading, which inched further above the 50-point level separating a monthly expansion in factories’ activity from a contraction, indicated a pickup in China’s manufacturing sector and the economy as a whole. This is the third consecutive monthly uptick of the widely watched data. The index, seen as one of the key indicators of how the economy performs, began to climb in March after three months of declines. Zhang Liqun, a researcher at the Development Research Center of […]

Posted On : Published By : Tom Whipple
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China's PMI rises to highest level in 2014

Growth in China’s manufacturing sector continued to accelerate in May, rising to the highest level for this year and adding to signs of a stabilizing economy, official data showed on Sunday. The purchasing managers’ index (PMI) increased to 50.8 in May, up from 50.4 in April, according to data released by the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing (CFLP). The reading, which inched further above the 50-point level separating a monthly expansion in factories’ activity from a contraction, indicated a pickup in China’s manufacturing sector and the economy as a whole. This is the third consecutive monthly uptick of the widely watched data. The index, seen as one of the key indicators of how the economy performs, began to climb in March after three months of declines. Zhang Liqun, a researcher at the Development Research Center of […]

Posted On : Published By : Tom Whipple
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Converging Energy Crises – And How our Current Situation Differs from the Past

At the Age of Limits Conference , I gave a talk called Converging Crises  (PDF), talking about the crises facing us as we reach energy limits. In this post, I discuss some highlights from a fairly long talk. A related topic is how our current situation is different from past collapses. John Michael Greer talked about prior collapses, but because both of our talks were late in the conference and because I was leaving to catch a plane, we never had a chance to discuss how “this time is different.” To fill this gap, I have included some comments on this subject at the end of this post. The Nature of our Current Crisis The first three crises are the basic ones: population growth, resource depletion, and environmental degradation. The other crises are not as basic, but still may act to bring the system down. Humans have found a series […]

Posted On : Published By : Tom Whipple