Why US inflation stays ultra-low while job growth is surging

WASHINGTON, United States (AP) — This isn’t explained in Econ 101.

Month after month, US hiring keeps rising, and unemployment keeps falling. Eventually, pay and inflation are supposed to start surging in response.

They’re not happening.

Last month, employers added a healthy 252,000 jobs, ending the best year of hiring since 1999 and the unemployment rate sank to 5.6 per cent from 5.8 per cent. Yet inflation isn’t managing to reach even the Federal Reserve’s two per cent target rate.

And paycheques are barely budging. In December, average hourly pay actually fell.

Economists are struggling to explain the phenomenon.

“I can’t find a plausible empirical or theoretical explanation for why hourly wages would drop when for nine months we’ve been adding jobs at a robust pace,” said Patrick O’Keefe, chief economist at consulting firm CohnReznick.

Normally, with unemployment this low, the Fed would raise its benchmark interest rate to prevent inflation from spiking and the economy from overheating. Not this time. Though the Fed’s record-low rates have helped support the economy since the 2008 financial crisis, those low rates haven’t met their other goal of raising wages and inflation to normal levels.

As long as inflation stays consistently below its target, the Fed might feel pressure to delay a rate increase beyond midyear, when most economists have predicted a hike. Thanks in part to plunging oil prices, many economists now envision even less inflation this year than in 2014.

When the US economy last enjoyed a similar hiring binge, in 1999, average wages climbed 3.6 per cent, compared with 1.6 per cent last year, according to the government.

So what explains consistently solid job growth without inflation? Here are four crucial factors:

RECESSION’S LINGERING DAMAGE

Though the unemployment rate is back to a nearly healthy level, many other measures of the job market remain subpar.

There are still 6.8 million people working part-time who can’t find full-time jobs, up from 4.1 million before the recession. Each of those workers potentially competes with the unemployed for full-time work, thereby holding down wages.

And there are 2.3 million people who have recently stopped looking for work, some of them because they grew discouraged about their prospects. Others chose to return to school or to care for relatives. That’s up from 1.3 million before the recession.

BLAME THE ROBOTS

What’s happened in the auto industry reveals much about how the economy has been transformed and why a nearly normal 5.6 per cent unemployment isn’t igniting wages.

Sales of new cars last year reached 16.5 million, the best performance since 2006. But the gains have yet to restore every auto job lost to the recession let alone expand the industry’s employment over the past eight years. The number of autoworkers remains about 160,000 shy of pre-recession levels of more than one million.

The reason: Companies fear returning to the days when they had too much factory capacity. So they’re squeezing more production out of less capacity. Emerging from the recession, automakers reconfigured factory floors and added robots to produce more vehicles from fewer plants and fewer workers.

What’s more, the United Auto Workers union agreed to wage cuts in an effort to help General Motors, Ford and Chrysler. New hires started at around US$16 an hour, about half of what long-time workers earn.

Roughly a quarter of Detroit’s factory workers now make the entry-level wage.

CHECK THE DEMOGRAPHICS

Since the start of graduation season in May, employers have hired an additional 1.67 million college graduates — nearly 60 per cent of all jobs added last year. In the past year, the number of 25-to-34 year-olds with jobs has climbed a solid 2.5 per cent.

Dig a bit deeper and you find other age-based pressures: The number of workers older than 55 climbed an impressive 3.4 per cent last year. But those employees likely maxed out their salary potential years ago and are unlikely to enjoy sharp pay hikes. The number of employed 35-to-54-year-olds — the age group most likely to be in their peak earnings period — rose less than one percentage point in the past year.

GLOBAL REALITY BITES

No matter how much the US economy improves, American workers still face competition from billions of workers in China, India, Eastern Europe and elsewhere who weren’t part of the global economy a decade or two ago.

That most of those economies, as well as Japan and the rest of Europe, are stumbling only intensifies the competition for jobs. Weak growth overseas has lowered interest rates and inflation — and therefore tempered pay growth — in many of the United States’ competitors. That means US workers face continued low-wage competition.

At the same time, the dollar’s value is rising against other currencies, thereby making US goods costlier overseas. This limits the ability of U.S. workers to secure higher pay. Many US companies can move operations overseas.

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Why US inflation stays ultra-low while job growth is surging

Barbados economy on growth path, says finance minister

BRIDGETOWN, Barbados (CMC) — The Barbados Government says the local economy is on a growth path once more and that the fiscal deficit is now on a “downward trajectory”.

Over the past months, the Freundel Stuart Government has implemented a number of stringent policies including laying off thousands of public servants in a bid to turn around the ailing economy.

Finance Minister Chris Sinckler told legislators that the island’s fiscal consolidation programme had been effective in restoring balance to the foreign exchange market and securing the value of the Barbados dollar.

“Our foreign exchange reserves have stabilised, our fiscal deficit is on a downward trajectory and the economic growth is returning. By any objective standard the programme is working.”

But he warned that “we now have to stay the course with the fiscal consolidation programme and do what is necessary to protect the gains we have made over the last 16 months”.

Sinckler said that based on information up to the end of last month, the expenditure targets set out in the fiscal consolidation programme had been achieved and that the Government was on track to record savings of BDS$68.5 million (BDS$1 = US$0.50 cents) from reductions in salaries and wages and BDS$229 million from reductions in transfers and subsidies.

“The expenditure reductions are now projected to generate total savings of BDS$290.8 million, or approximately 3.4 per cent of GDP (gross domestic prouct), over half of the proposed fiscal adjustment. The new revenue measures, (namely the) Consolidation Tax, Municipal Solid Waste Tax and Bank Assets Tax, are now projected to yield BDS$91.2 million or 1.07 per cent of GDP, and a special dividend from the sale of BNTCL another BDS$70 million or 0.82 per cent of GDP.

“Therefore, the fiscal adjustment measures currently in place are now projected to yield a reduction of BDS$452 million in the deficit or a reduction of 5.3 per cent of GDP,” Sinckler said, adding he was also confident that the targets set out by the Government would be met in 2014.

Sinckler added that Government had decided to delay the introduction of any major new tax reform measures until the budget presentation next year.

He said that while a tax study done by the International Monetary Fund (IMF) had provided a comprehensive basis for reviewing the island’s tax system, Government was not satisfied that the necessary impact analyses of any proposed adjustments to key growth sectors and vulnerable groups in society had been completed.

“The economy is showing its strongest signs of recovery since 2009, and we want to exercise an abundance of care in introducing new measures that may derail a return to sustainable growth.

“In light of this, and together with the discipline which we intend to place on supplementary budget allocations, we have determined that additional smaller expenditure cuts across the board, and more efficient targeted collection of existing taxes to effect gains of BDS$32.8 million will be sufficient to get us close to our deficit reduction target,” he said.

The finance minister also announced a short-term amnesty to all taxpayers across all tax categories on the interest and penalty accrued on taxes owed at December 31, 2014, to assist the Barbados Revenue Authority in its tax administration and collection efforts.

He said access to this facility would be on the basis that the taxpayers paid their total outstanding principal on or before March 15, 2015.

Sinckler said the Government was also extending the existing revenue measures that formed part of the 19-month programme until April 2016.

However, he noted, the Government would be reviewing the Municipal Solid Waste Tax with a view to determining whether its continued existence in its present form was justified.

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Barbados economy on growth path, says finance minister

Top finance officials grapple with weak growth

WASHINGTON, DC, USA (AP) — World financial leaders yesterday promised “bold and ambitious” action to boost a global recovery that has shown recent disturbing signs of weakness.

That pledge from the International Monetary Fund’s (IMF’s) policy-setting committee comes after a week of stomach-churning swings in the financial markets triggered by growing fears that parts of Europe could be in danger of slipping into another recession.

The 188-nation IMF called increasing economic growth an “utmost priority” and pledged to make the necessary structural changes that would stimulate greater growth.

But finance leaders have made similar promises in the past, only to fall short when trying to follow through.

The commitments came in a closing statement from the IMF’s steering committee at the fall meeting of the IMF and World Bank.

Officials also endorsed the IMF’s efforts to support three West African countries battling the Ebola crisis.

IMF Managing Director Christine Lagarde said at a news conference that the IMF has made US$130 million available to Guinea, Liberia and Sierra Leone, and that the IMF and other international agencies stood ready to do more.

“If more is needed, it will be there,” Lagarde said.

Speaking earlier yesterday to the IMF policy-setting committee, British Chancellor of the Exchequer George Osborne took note of the recent downgrades to global growth forecasts and said there was a need “for further progress by policymakers to deliver a strong and sustainable global recovery”.

Brazil’s Finance Minister Guido Mantega, told the IMF group that the global recovery “continues to create a sense of disillusionment”, and the IMF had demonstrated “an entrenched propensity to overstate prospects” for growth in the world’s largest economies.

The IMF and World Bank meetings were preceded by talks among finance ministers and central bank presidents of the Group of 20 nations, which comprise 85 per cent of the global economy. Those discussions focused on the recent growth slowdown and troubling signs that some countries in Europe could be close to another recession.

In a comment clearly aimed at Germany, US Treasury Secretary Jacob Lew told finance ministers on Friday that European countries with “external surpluses and fiscal flexibility” needed to do more to address weakness in demand that was holding back growth.

Germany, Europe’s largest economy, ran a large trade surplus last year.

Lew also called on China, now the world’s second largest economy, and Japan, number three, to make the necessary policy adjustments to increase their own growth.

A string of weak reports on economic activity in Germany, the largest economy in Europe, jolted financial markets this past week.

US stocks ended their worst week since May 2012, and the market turbulence served as a backdrop for the finance meetings.

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Top finance officials grapple with weak growth

Growth in business confidence continues

Businesses continue to show confidence in the Jamaican economy.
According to the third quarter business and consumer confidence indices released on Wednesday, firms viewed prospects for the economy more favourably than any time since the start of  2012.
The results suggest that businesses believe that the Government’s economic policies are having a favourable impact. More firms are also willing to increase exports and expand production to reduce imports.
On the other hand,  consumer confidence continues to decline as persons have become increasingly concerned about their job and income prospects.
The survey however revealed that consumers recognize that the economy has begun to improve, although their personal gains have been small.
When asked about satisfaction with the quality of  their lives, Jamaicans indicated that they were satisfied.

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Growth in business confidence continues

IMF revises growth projections

The International Monetary Fund (IMF),  has revised growth projections for Jamaica this year.

The IMF previously said the country would have grown by 1.3 percent, but now growth is projected at one percent.

In its Economic Outlook for 2014 released Tuesday, the IMF said the reason for the revised projection is the impact of  the recent dry spell on agricultural production, particularly fruits and vegetables.

However, the lending agency says based on the fact that these produce have a short turn around time, it has increased the growth forecast for next year.

It is expected that agricultural production will rebound as drought conditions dissipate.

 The previous projection was 1.7 percent but that has now been revised to two percent.

Meanwhile, the IMF says economic growth in Latin America and the Caribbean continued to slow early this year even as it predicted that regional growth will pick up to 2.2 per cent in 2015.

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IMF revises growth projections

IMF revises growth projections

The International Monetary Fund (IMF),  has revised growth projections for Jamaica this year.

The IMF previously said the country would have grown by 1.3 percent, but now growth is projected at one percent.

In its Economic Outlook for 2014 released Tuesday, the IMF said the reason for the revised projection is the impact of  the recent dry spell on agricultural production, particularly fruits and vegetables.

However, the lending agency says based on the fact that these produce have a short turn around time, it has increased the growth forecast for next year.

It is expected that agricultural production will rebound as drought conditions dissipate.

 The previous projection was 1.7 percent but that has now been revised to two percent.

Meanwhile, the IMF says economic growth in Latin America and the Caribbean continued to slow early this year even as it predicted that regional growth will pick up to 2.2 per cent in 2015.

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IMF revises growth projections

Growth in business confidence continues

Businesses continue to show confidence in the Jamaican economy.
According to the third quarter business and consumer confidence indices released on Wednesday, firms viewed prospects for the economy more favourably than any time since the start of  2012.
The results suggest that businesses believe that the Government’s economic policies are having a favourable impact. More firms are also willing to increase exports and expand production to reduce imports.
On the other hand,  consumer confidence continues to decline as persons have become increasingly concerned about their job and income prospects.
The survey however revealed that consumers recognize that the economy has begun to improve, although their personal gains have been small.
When asked about satisfaction with the quality of  their lives, Jamaicans indicated that they were satisfied.

View the original article here

Growth in business confidence continues

Four per cent growth in Jamaican manufacturing

The Statistical Institute of Jamaica (Statin) has revised the performance of  the country’s manufacturing sector, saying it grew four per cent, as against earlier estimates that it declined by one per cent.      
Statin says the performance was due to the sector benefiting from strong growth in sugar production and petroleum refining.      
Sugar production in the second quarter was more than double its output last year, while petroleum refining was up 26 per cent. 

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Four per cent growth in Jamaican manufacturing

Four per cent growth in Jamaican manufacturing

The Statistical Institute of Jamaica (Statin) has revised the performance of  the country’s manufacturing sector, saying it grew four per cent, as against earlier estimates that it declined by one per cent.      
Statin says the performance was due to the sector benefiting from strong growth in sugar production and petroleum refining.      
Sugar production in the second quarter was more than double its output last year, while petroleum refining was up 26 per cent. 

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Four per cent growth in Jamaican manufacturing

More robust growth predicted for UK economy

An influential report has forecast the UK economy to grow faster in 2014 than any other G7 economy. It said low wage rises will ensure interest rates do not increase until next year.
The EY Item Club said the UK’s Gross Domestic Product will hit 3.1% this year (up from a previouys forecast of 2.9%), spurred by strong capital investment by businesses. It said this was due to an expected 12.5% jump in business investment.     

This compares with the forecast of  2% GDP growth in Canada and 1.8% in Germany.    

Official figures show that UK GDP rose by 0.8 percent in the first three months of  the year, the fifth consecutive quarter of  positive growth.

This represents the longest positive run since the financial crisis.

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More robust growth predicted for UK economy

Hurricane Sandy disrupts Jamaica's growth projections

The International Monetary Fund (IMF) has declared that the model currently being used to predict Jamaica’s economic growth has not been giving accurate outcomes.      
The Fund, in its latest report on Jamaica, said the problem had arisen largely because of the effects of  Hurricane Sandy. The Hurricane, which hit Jamaica in October 2012, led to major economic disruptions, particularly in agriculture and mining.      
The multi-lateral agency revealed that the economic growth indicator over projected growth in the aftermath of  the hurricane and under projected the rebound which occurred at the end of  last year.       
It said the model had predicted zero per cent growth for the end of  December, but the actual out turn was 1.8 per cent.     
It suggested that there may be a number of  reasons for the failure to accurately predict growth, including the implementation of  the IMF programme and the ongoing depreciation of  the currency.

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Hurricane Sandy disrupts Jamaica"s growth projections

World Bank commits US$10.2 billion to boost Caribbean economic growth

WASHINGTON D.C., United States, Friday July 4, 2014, CMC – The World Bank says it has committed US$10.2 billion this year to support Latin America and the Caribbean efforts to boost economic growth and maintain historic social gains.

The Washington-based financial institution said that the amount included resources from its International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA).

The World Bank’s IBRD and IDA “maintained its strong support for the region” by approving more than US$5.1 billion in new loans in fiscal year 2014, US$4.6 billion from IBRD and US$455 million from IDA, the bank’s fund for the poorest countries, the statement said.

“Support was aimed at generating opportunities for all through public and private sector projects that expand public services, improve regional productivity, competitiveness and integration, create new quality jobs and assist those most in need,” said the bank, adding that Haiti received US$103 million in IDA grants.

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Transportation, fiscal management and education received the most IBRD funding, said the World Bank, with the region receiving one fourth of IBRD’s total global new lending.

The bank said that this fiscal year, IFC, the private sector arm of the World Bank Group, identified infrastructure as one of the most urgent priorities to help boost competitiveness and job creation, especially for the region’s growing urban population.

WASHINGTON D.C., United States, Friday July 4, 2014, CMC – The World Bank says it has committed US$10.2 billion this year to support Latin America and the Caribbean efforts to boost economic growth and maintain historic social gains.

The Washington-based financial institution said that the amount included resources from its International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA).

The World Bank’s IBRD and IDA “maintained its strong support for the region” by approving more than US$5.1 billion in new loans in fiscal year 2014, US$4.6 billion from IBRD and US$455 million from IDA, the bank’s fund for the poorest countries, the statement said.

“Support was aimed at generating opportunities for all through public and private sector projects that expand public services, improve regional productivity, competitiveness and integration, create new quality jobs and assist those most in need,” said the bank, adding that Haiti received US$103 million in IDA grants.

Transportation, fiscal management and education received the most IBRD funding, said the World Bank, with the region receiving one fourth of IBRD’s total global new lending.

The bank said that this fiscal year, IFC, the private sector arm of the World Bank Group, identified infrastructure as one of the most urgent priorities to help boost competitiveness and job creation, especially for the region’s growing urban population.

In fiscal year 2014, the World Bank said IFC invested US$1.7 billion in 34 infrastructure projects, including energy, ports, telecom and more.

In total, the World Bank said IFC supported 148 projects in Latin America and the Caribbean this fiscal year with US$5.1 billion in investments, including US$1.1 billion mobilized from other financial institutions.

It said IFC clients help support jobs for more than 1,580,000 people and provide over 25 million people with connections to power, water and telephone services.

In fiscal year 2014, the World Bank said IFC invested US$1.7 billion in 34 infrastructure projects, including energy, ports, telecom and more.

In total, the World Bank said IFC supported 148 projects in Latin America and the Caribbean this fiscal year with US$5.1 billion in investments, including US$1.1 billion mobilized from other financial institutions.

It said IFC clients help support jobs for more than 1,580,000 people and provide over 25 million people with connections to power, water and telephone services.

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World Bank commits US$10.2 billion to boost Caribbean economic growth

Statin confirms economic growth

The Statistical Institute of Jamaica (Statin) has revealed that the economy expanded by 1.6% in the first quarter of this year, confirming previous estimates by the Planning Institute of  Jamaica.    
This  convergence of  the estimate and the actual data are rare.    
Statin said the growth was led by expansion in agriculture, mining and quarrying, as well as construction. On the other hand, manufacturing recorded a decline.  

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Statin confirms economic growth

BPO sector growth squeezed - Epstein

BY HORACE HINES Observer staff reporter

Friday, June 20, 2014    

MONTEGO BAY, St James – YONI Epstein is concerned about apparent stagnation experienced by the business process outsourcing (BPO) sector since the start of the year.

The sector recorded an 18 per cent growth last year, but the chairman of the Business Process Industry Association of Jamaica (BPIAJ) is fearful that this year’s growth is sluggish.

This, he attributes to the country’s lack of competitiveness which he claims is the result of the high “cost of doing business in general”.

“We have seen stagnant or have had no growth in the first six months of this calendar year. This is basically saying to me that we are uncompetitive, there are better places to go to outsource work to,” he told the Business Observer. “It’s been stagnant, very minimal. It is questionable to see if we are going to see double-digit growth again this year.

“Jamaica is becoming more and more uncompetitive due to the high business cost; electricity, tax and telecoms, which is a very bad thing for a sector that grew by double digits last year.”

The BPIAJ chairman bemoaned that the imposition of GCT on telecoms and electricity is having a debilitating effect on BPO operators.

He did note that the tax is reimbursable, but that it has had a severe effect on the cash flow of players in the industry.

Epstein, who is also CEO of Island Outsourcers/itel-BPO Solutions, is calling for a return what existed in the industry prior to 2013, where under the Frezone Act, all goods and services were zero rated, including utilities similar to competitors in the region.

“It is not that we are looking something that is unfair, it is something that we have had, it is something that makes us uncompetitive. We are calling to be exactly where we were in 2012,” Epstein declared.

He added: “No other country in the region charges consumption tax on procured goods and services because it is written into their Freezone Act, similar to ours. So what that does it has basically made Jamaica uncompetitive.”

He also called for a speed up of the 360-megawatt project which would bring cheap electricity to the Jamaican people.

“If you look at Honduras, you look at Canada and you look at other places in the Caribbean and Latin America, their cost of electricity is significantly less than ours,” the BPIA chair argued.

During a recent signing of an agreement for a strategic alliance between the University of the West Indies (UWI) and Barnett Limited, for the sale of land to establish a western campus of the university in Montego Bay held at Bellefield Great House and Gardens, Peter Phillips, minister of finance and planning pointed to the need to nurture the business process outsourcing (BPO) sector, which he described as the island’s looming economy.

Currently, more than 12,000 people are employed in 30 companies in the sector.

Dr Phillips noted that the Development Bank of Jamaica (DBJ) has approved six of eight applications for the provision of US$22 million to fund 334,000 square-feet of additional BPO space, which will provide between 7,000 and 10,000 additional jobs.

Meanwhile, the BPIAJ chairman said government has always supported the industry.

“Government is in support of the industry and they have been meeting with us and working with us,” Epstein said.

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BPO sector growth squeezed - Epstein

Economic growth in Caribbean declined in 2013

UNITED NATIONS (CMC) — A new United Nations report says economic growth in Latin America and the Caribbean declined this year but is predicted to improve over the next two years.

According to the UN’s World Economic Situation and Prospects 2014 to be launched in January, growth in Latin America and the Caribbean decelerated in 2013, to a pace of 2.6 per cent.The report, however, forecast growth in the region to improve to 3.6 and 4.1 per cent in 2014 and 2015, respectively.“Growth in the Caribbean has been hampered by weak external demand, for the tourism sector in particular, and weaker commodity prices, but is expected to strengthen in the outlook,” it said.The report said the regional fiscal position “slightly deteriorated” last year, adding that public debt “remains high in the Caribbean countries”.However, it said many countries retain space for countercyclical policies.The UN report said inflation outlook was “fairly stable, although inflation is expected to accelerate somewhat in 2013 amid more accommodative monetary policies in some countries”.Sergio Vieira, a UN economic affairs officer, who monitors the region, urged that Latin American and Caribbean countries address violence and insecurity that affect potential investors.“Violence has an impact on economic growth through several channels,” he told the Miami Herald, adding “instead of channelling private and public spending to aspects of development, they are investing in security”.Last month, a UN panel of development experts cited regional violence as a “major hindrance to growth” that could, if not addressed, cause tremendous economic decline.The UN has called for international coordination of policies to address job recovery and world debt levels.Like our Facebook page https://www.facebook.com/jamaicaobserverFollow us on Twitter https://twitter.com/JamaicaObserver

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Economic growth in Caribbean declined in 2013

Economic growth in Caribbean declined in 2013

News

Monday, December 30, 2013 | 10:01 AM

UNITED NATIONS (CMC) — A new United Nations report says economic growth in Latin America and the Caribbean declined this year but is predicted to improve over the next two years.According to the UN’s World Economic Situation and Prospects 2014 to be launched in January, growth in Latin America and the Caribbean decelerated in 2013, to a pace of 2.6 per cent.The report, however, forecast growth in the region to improve to 3.6 and 4.1 per cent in 2014 and 2015, respectively.“Growth in the Caribbean has been hampered by weak external demand, for the tourism sector in particular, and weaker commodity prices, but is expected to strengthen in the outlook,” it said.The report said the regional fiscal position “slightly deteriorated” last year, adding that public debt “remains high in the Caribbean countries”.However, it said many countries retain space for countercyclical policies.The UN report said inflation outlook was “fairly stable, although inflation is expected to accelerate somewhat in 2013 amid more accommodative monetary policies in some countries”.Sergio Vieira, a UN economic affairs officer, who monitors the region, urged that Latin American and Caribbean countries address violence and insecurity that affect potential investors.“Violence has an impact on economic growth through several channels,” he told the Miami Herald, adding “instead of channelling private and public spending to aspects of development, they are investing in security”.Last month, a UN panel of development experts cited regional violence as a “major hindrance to growth” that could, if not addressed, cause tremendous economic decline.The UN has called for international coordination of policies to address job recovery and world debt levels.

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Economic growth in Caribbean declined in 2013

Third quarter growth of 0.5% to 1.5% expected — PIOJ

Latest News

Wednesday, August 28, 2013 | 4:57 PM

KINGSTON, Jamaica — The Jamaican economy is expected to record growth ranging between 0.5 and 1.5 per cent over the July to September quarter according to Director General of the Planning Institute of Jamaica (PIOJ) Colin Bullock. He was addressing the PIOJ’s quarterly media briefing on Tuesday August 27 at the institute’s office in Kingston.Bullock said the growth should be spurred by a number of factors, including the continued rollout of several capital projects approved in the 2013/14 budget. He said that the gradual restoration of investor confidence, contingent on Jamaica passing of the first quarterly International Monetary Fund (IMF) performance review, and continued global economic recovery, will also drive economic activity.Bullock also pointed to the anticipated return to positive performance for most industries reflecting resurgence in output following the impact of Hurricane Sandy. Meanwhile, mining and quarrying, and construction were the key performers during the April to June quarter, where the economy contracted by 0.4 per cent.Mining and quarrying recorded growth of five per cent, while the building component of the construction sector grew by 1.5 per cent.Bullock said the figure for mining and quarrying reflected increased production of alumina, “as crude bauxite production declined.”“Alumina production increased by 8.6 per cent, reflecting an increase of 1.1 percentage points in the alumina capacity utilisation rate, reflecting higher output from a major producer,” he explained.Like our Facebook page https://www.facebook.com/jamaicaobserverFollow us on Twitter https://twitter.com/JamaicaObserver

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Third quarter growth of 0.5% to 1.5% expected — PIOJ

FX study predicts 1.7% growth due to dollar slide

JAMAICA needs to boost exports to gain from a dollar projected to lose more than one-quarter of its value in 2013, says economist Dr Vanus James.

James made the observation while launching his report on the exchange rate on Wednesday. The study noted that depreciation of the projected amount, 28 per cent, would result in growth of some 1.79 per cent. That equates to the highest growth in years, but James indicated that it needs to be supported by real sector production.“The data is saying that you have to set an exchange rate that facilitates what you have to do on the real side,” he indicated in his address at the Edward Seaga Research Institute at the University of the West Indies.James, a University of Technology professor, is known for his landmark 2007 study on the size of the local copyright industry.“When you have a real exchange rate that is appreciating, that is going to bite you on the exports side. You have to be careful to allow some depreciation to discipline the market.”The 85-page technical report, entitled “Exchange Rate, Economic Structure and Economic Performance in Jamaica”, answered three main questions on the exchange rate, but always returned to the issue of production.“The story is right here,” he stated, pointing to a letter strewn within several stacks of equations on the effect of the dollar slide on the economy over decades. It was a symbol indicating the importance of production.“The problem you have here is on the real side. You have to solve that problem of how to industrialise,” he said.Currency depreciation cheapens exports and thereby increases the global competitiveness of products.But the report found that the real exchange rate actually “appreciated” at a rate of 1.5 per cent per annum since 2000 (presumably factoring in US inflation).Fast-forward to this current round of depreciation, the study found that the dollar nominally dipped seven per cent in 2012, with projections that it could dip by multiples by year-end.“The current path of depreciation will lead to about 28 per cent depreciation over 2013,” indicated the study, on page 76. However, importantly, the research found that the “net gain from a one per cent depreciation is growth of 0.064 per cent”, which would translate to 1.9 per cent growth.“Thus, while significant, both effects are highly inelastic and so very small compared to the effects of sound monetary policy and the industrialisation of the economy based on rising exports of output, especially from the domestic capital sector,” he continued on page 76.The currency surpassed the symbolic $100 to US$1 earlier this year, following a rapid double-digit depreciation over 12 months.The study was commissioned by the Edward Seaga Research Institute and sponsored by a grant from PanJamaica Investment Trust and Jamaica National Building Society, and the ICWI Group Foundation.The report, according to its author, examines the relationship between the exchange rate regime and economic performance such as inflation, restructuring and growth in Jamaica. It considers whether there is a performance cost of varying rather than fixing the exchange rate and seeks estimates of the cost. The report also seeks to determine an optimal exchange rate regime for Jamaica — whether a floating rate or a fixed rate. It also finds that instead of a crawling peg, the economic dynamics favour a fairly strict-managed float, complemented by solution of the real-sector problems of high energy and other import costs and structural change.

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FX study predicts 1.7% growth due to dollar slide

Smaller US trade gap could lift growth

WASHINGTON DC, USA — A sharp decline in the trade deficit with other nations suggests the US economy grew this spring at a faster pace than previously estimated, helped by a record level of exports.

The Commerce Department said that the US trade gap fell more than 22 per cent in June from May to US$34.2 billion, yesterday. That’s the lowest level since October 2009.American companies shipped more aircraft engines, telecommunications equipment, heavy machinery and farm goods. As a result, exports rose 2.2 per cent to an all-time high of US$191.2 billion.Imports declined 2.2 per cent to US$225.4 billion, in part because oil imports fell to the lowest level in more than two years.Economists said the steep drop in the trade deficit will likely lead the government to revise its economic growth estimate for the April-June quarter.“We could see a sizeable upward revision,” said Jennifer Lee, senior economist at BMO Capital Markets.Last week the government said the economy grew at a lacklustre 1.7 per cent annual rate in the second quarter, in part because trade cut nearly a full percentage point from growth.But after seeing the June trade figures — which were not factored into last month’s growth estimate — some economists said growth could be closer to a 2.5 per cent annual rate. The government reports its second estimate of growth for the April-June quarter on August 29.A smaller trade deficit lifts economic growth because it means consumers and businesses are spending less on foreign goods than companies are taking in from overseas sales.Many economists think overall growth has started to rebound in the July-September quarter. Some say growth could near a three per cent annual rate. A key reason is that several export markets, including Europe, are seeing improvement.For June, US exports to the 27-nation European Union rose 1.5 per cent. That helped shrink the deficit with the region to US$7.1 billion.The deficit with China fell 4.3 per cent to US$26.6 billion, while America’s deficit with Japan rose 2.2 per cent to US$5.5 billion in June.Gregory Daco, senior economist at IHS Global Insight, said he still thinks trade will drag on the economy in the second half of the year. That’s because he expects imports will increase at a faster pace than exports, reflecting the health of the US consumer and weaker growth overseas.“We still have relatively modest global growth which will constrain US exports,” Daco said.Still, Joel Naroff, chief economist at Naroff Economic Advisors, said the rise in exports underscored the importance that manufacturing plays in the US economy.“A number of companies are doing whatever they can to bring back as much production as they can to the United States,” Naroff said. “They are facing rising wages in countries such as China and other problems of doing business there.”US factories are already starting to show more strength after slumping earlier this year, helped by increases in business spending and less drag from government cuts.Activity at US factories increased in July at the fastest pace in two years in July, according to the Institute for Supply Management’s closely watched manufacturing index.And US factories added 6,000 jobs in July, the Labour Department said Friday. That was the first month of manufacturing job growth since February.The container ship Baghira (foreground) and the oil tanker Seabulk Arctic (rear) are anchored off shore as they wait to enter Port Everglades in Fort Lauderdale, Florida. (Photo: AP)

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Smaller US trade gap could lift growth

Why private sector-led growth is central to development

LAST week I wrote about what the pillars of growth are. Today I want to answer a question, often asked in a roundabout way, by persons who say that the private sector has not done what is necessary to grow the economy, so why should they be accomodated with a more business-friendly environment. This is a question asked often by persons who I don’t think truly understand how markets work.

It is very important to understand, as I have often said, that sustainable growth cannot, and will not, happen without private sector prosperity. This concept is sometimes elusive in the Jamaican society, where it is often felt that the “big” man just wants to exploit the “small” man and so must be doing something unethical or illegal to make his money.There were similar sentiments against the banks in the US, after the 2008 financial crisis, but this emotion soon gave way to the practical knowledge that the poor cannot improve their lot without the growth of the “greedy” private sector. The problem we have is that this feeling is not only restricted to the so-called small man but is oftentimes perpetuated by some politicians and intellectuals in their quest to explain why market economies are bad, and instead proffer state intervention and more brimstone and fire on the rich through taxation.Ironically, these same persons who find it convenient to put down the “capitalists” are usually very persistent in seeking charitable contributions from them, or support in some other financial matter. In fact, much of the charitable spending that happens in the society is not from government, but rather from private companies and individuals.But why do I say that private sector-led growth is critical to sustainable economic growth?We can answer this question by first understanding what drives economic growth. Economic growth is measured by the growth in the Gross Domestic Product (GDP), which is simply the increase in real productive value from period to period, that is adjusted for inflation. GDP growth involves private sector production and spending, as well as government spending. So one may say that government spending is a part of GDP, and therefore, why is the private sector necessary? And it is for this reason that government can play a role in stimulating economic growth, such as during a recession, as they also contribute to GDP.The problem is that government spending is not sustainable with a stagnant, or struggling private sector. And this has been the experience in Jamaica, and we have seen a similar example in the US model coming out of the recession, as opposed to the European approach, which did not emphasise market growth. The reason why government spending is not sustainable without private sector growth is that government spending depends significantly on private sector income, through taxes. So the income taxes, customs duties, corporate tax, and consumption tax depends on activity in the private sector. Therefore, if the private sector is stagnant, or declining, then it is logical that there can be no increase in government spending.Thus, in the final analysis, GDP growth at every level depends on private sector activity. Therefore, the logical conclusion is that if we want to see robust growth in the economy, then we need to have robust private sector growth.It would seem logical, then, that fiscal and monetary policy should have as its primary goal, the facilitation of growth in the private sector. Put another way, which Obama and Bernanke understands very well: the role of government policy must not only be full employment, but also high- value employment through constant innovation. On the contrary in Europe, and particularly Greece, the focus of policy was not on private sector facilitation but rather, fiscal consolidation. The result of both scenarios is there for all to see.This is important for us to understand, not just in Jamaica, but also the Caribbean. This is because the Caribbean has a tendency towards a government dependency syndrome. Add to that the culture of a lack of embracing of private sector success, and you have a compounded negative effect.The market economy may not be a perfect system, but the truth is that it’s the best. If we want to improve the quality of life for everyone, including the most vulnerable in society, then it is essential that private sector growth be robust.So as we continue the implementation of the IMF agreement and structural policies, we need to continue to bear in mind that at the heart of it must be the facilitation of a business environment that encourages private and corporate prosperity. So, as an example, the concepts companies of lower tax rates for PAYE and companies, lower energy rates, more efficient government bureaucracy, and improved law, order, and justice system are all critical to supporting that private sector growth.Our focus of policy must be on encouraging investment and spending through competitive return on investments or feeling secure about one’s future. Our focus must be on businesses and individuals feeling safe, and respected by the justice system. It is this focus that will make Jamaica experience robust growth and become the place to live, work, and raise families.Dennis Chung is a chartered accountant and the author of the books Charting Jamaica’s Economic and Social Development AND Achieving Life’s Equilibrium. His blog is dcjottings.blogspot.comE-mail: dra_chung@hotmail.com

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Why private sector-led growth is central to development