IMF warns of global economic "storm" as growth undershoots

The International Monetary Fund (IMF) lowered their global economic growth forecast from 3.7% to 3.5%. Managing Director Christine Lagarde explained that there might be an economic storm coming due to the economy growing slower than they expected. She cited “four clouds”; trade tensions/tariff escalations, Federal Reserve financial tightening, and the uncertainty of the Brexit outcome along with the slowdown already adversely affected the Chinese economy. Due to the tariff war between China and US we are already also seeing an impact on the growth of the global economy. US-China “spat” is not only having an impact on trade but eroding confidence and being reflected in volatility in the markets. Additionally, increasing borrowing costs by governments, firms and households are adding to the concern.

Lagarde summed up, "When there are too many clouds, it takes one lightning (bolt) to start the storm,".

Source: https://economictimes.indiatimes.com/news/international/business/imf-warns-of-global-economic-storm-as-growth-undershoots/articleshow/67931691.cms

Visa, Mastercard mull increasing fees for processing transactions

The two biggest card networks are considering raising certain fees pertaining to transaction processing. One of the fees considering being changed is the interchange fee, the fee charged to merchants when consumers use a card at their business. Visa has said that these fees would only effect merchant banks such as JPMorgan, Bank of America, and Citigroup. The question then is whether or not this cost will be pushed on to the consumer. Logically, when fees are increased, companies then have to charge more for lost revenue. My question is if these fees are pushed on to everyday consumers, will it make people spend less money. The card companies have claimed that businesses that use their services get more business. Their justification for the fee increase is that they have increased their anti-fraud/ security measures significantly.

https://www.reuters.com/article/us-paymentprocessors-fees-idUSKCN1Q41ME

"U.S. Retail Sales Unexpectedly Show Steep Drop In December"

According to the Commerce Department, the newly released late economic data on retail sales in the U.S. showed a significant decrease in December 2018. Instead of increasing by 0.2% as predicted, overall sales unexpectedly declined by 1.2%. Eleven of the thirteen largest retail categories experienced a decline of 3.9%. Amongst various specified samples of industries all showing declines in sales, the auto industry was one of the few that did experience an increase of 1%. Along with these statistics, the Commerce Department also stated that the annual growth rate of retail sales dipped to 2.3% in December, coming down from 4.1% in the month prior. This is most likely due in part to the lengthy government shutdown that began in the latter portion of December. This drop in overall sales could also be an early indicator of the U.S. economy finally slowing down from previous periods’ successes. While this is not a huge cause for concern at the moment given the (hopefully) temporary effects of the shutdown, it’s definitely something to pay attention to in the near future.

   

https://www.rttnews.com/story.aspx?Id=2979275

https://www.latimes.com/business/la-fi-retail-sales-20190214-story.html

Trump Plans National Emergency to Build Border Wall as Senate Passes Spending Bill

This Thursday President Trump was signing a seven-part spending bill that would keep the government open till the end of September, but his mind was on other things. He announced that he would place the country in a state of national emergency in order to “stop the national security and humanitarian crisis at the border.”

The bills’ border security compromise only placed $1.375 billion for 55 miles of steel-post fencing, which is less than the $5.7 billion for 200 miles of steel or concrete that he had previously asked for. By declaring a state of national emergency, Trump’s main objective would be to gain funds that Congress had not granted for building the wall. There was quite a lot of controversy and opposition over this method from both parties, the article calling it “presidential overreach.” Many Democrats have begun to create legislation in the hopes of stopping the President from using money from other sources such as the disaster relief fund. Some also say that although the wall may be the President priority, perhaps declaring it as a national emergency is too much. Supporters say that it will “give him that flexibility that he wants and needs,” and since Mr. Trump could not get what he wanted before the shutdown, then this is just a way to get done what “needs to happen.” It was mentioned as well that this could lead to future presidents taking this approach to other prominent issues.

Mr. Trump sees this as the only way to get the border wall without another shutdown like the last one where 800,000 employees did not have paychecks. The article discussed two laws that would probably have a hand in justifying the President actions. One allows the secretary of the Army to construct developments “that are essential to the national defense,” while the second permits the secretary of defense, in support of the armed forces and in an emergency, to allow military construction projects. It will be an experience to see how Trump justifies using other funds and the aftereffects of his decision to put the country into a state of national emergency.

https://www.nytimes.com/2019/02/14/us/politics/trump-national-emergency-border.html

German economy narrowly avoids recession

Article: https://www.bbc.com/news/business-47236841

Germany's economy narrowly avoided a recession in 2018. During the third quarter, their economy experienced a 0.2% contraction, followed by a 0% growth in the fourth quarter. Per the definition of a recession, at least two consecutive quarters of contraction, they missed the mark.

This does not paint a good picture for their future. Their slow, or lack of growth last year could be explained by a slowdown in the global economy. Moreover, the car industry has had a significant impact as new regulations are punishing firms and discouraging consumers from buying.

However, German unemployment is very low (around 3%), thus consumers may begin to spend more as they see economic surveys improve with time. An increase in spending could help Germany's production and boost growth.

Amazon backs out of New York

Amazon, citing local opposition is backing out of having a New York headquarters.  New York City had previously offered substantial amounts of money and other incentives to Amazon to bring their HQ2 to their city.  However Amazon has now backed out of the deal.  This is an extremely interesting idea as we are seeing how the public sector sought to stimulate private enterprise but is now seeing the company back out of a deal where they would have gotten free money.

https://www.reuters.com/article/us-amazon-new-york-idUSKCN1Q32F9

Technology and the impact it has on the labor force

As technology continues to advance production in economies across the world, in the United States this is having a negative impact on workers in certain industries. Businesses are becoming more and more automated each year, replacing manual labor with various types of artificial intelligence. Because of this, the job market is becoming significantly more competitive and workers without a college degree are being pushed into the lower skill, lower production industries. Now not only are workers being pushed into new industries, but their wages remain low as well. Really, what automation has done is divide the American workforce into two parts. At the top, there is a small group of individuals who are highly educated and make good money at top firms such as Intel. However, a majority of workers find themselves on the other side of this equation; stuck in places such as the service industry, where wages remain low and have shown limited growth.

An interesting point raised in the article is the economic paradox that comes from automation and technological advancement; overall productivity and growth have remained low. It appears that now when someone enters the workforce they will have to look at the lower production side of the economy, as someone's chances of landing at the top remain relatively small.

Moving forward, I am interested to see how jobs in industries such as social services and health care are impacted, not only in the number of jobs but in wages too. As technology continues to push forward and drive workers out of their jobs, will their wages ever be able to catch up?

https://www.nytimes.com/2019/02/04/business/economy/productivity-inequality-wages.html

Record Number of Americans Behind on Car Payments

According to CNBC, as the auto loan debt has continued to increase, so has the amount of Americans who cannot pay their car payments. Recently, the New York Fed has released a record number of 7 million people who are at least 90 days behind on their car payments at the end of 2018. This number is a little more than 1 million more than the previous record, which took place in 2010.

This rise in the people unable to pay their car loans suggests that not everyone has benefited from the strong labor market and warrants. There is one bright side, as the overall level of credit has actually improved and rose by about 8% which suggests that auto loan stock is continuing to increase and becoming more high quality than it has in past years.

There have been more and more debt that continues to pile on. As the household debt has increased by $32 billion in the fourth quarter and student loan debts have risen to $1.46 trillion. But as credit inquiries fell to a record low in the recent Fed survey, it seems that Americans feel as though they do not need to bring on more debt. It will be interesting in the coming months to see if this survey will actually apply, or if we will see more and more debt continue to increase in the future.


Source: https://www.cnbc.com/2019/02/12/a-record-number-of-americans-are-90-days-behind-on-their-car-payments.html

Steel Lobbying in Washington Reaches 20 Year High

In "Big Steel, a Tariff Winner, Steps Up its Spending in Washington," author William Mauldin outlines the increase in lobbying by steel producers in the broader landscape of the protective tariffs put in place by Trump. A key statistic is that lobbying spending by these steel producers reached $12.2MM this year, a 20% increase from 2017 numbers and also the highest spending in twenty years. Out of all of the steel producers, Nucor Corp, spent the most with $2.23MM and also lobbied in connection to Trump's nomination of trade officials with strong ties to the Steel Industry. The President of the American Iron and Steel Inst. believes that tariffs and quotas have helped the steel industry "rebound" but is wary that these gains could "evaporate" if tariffs are lifted prematurely.

A concern of the tariffs means that producers are forced to pass on these price increases to their consumers. In terms of the broader understanding of economic systems, where relative prices reflect relative costs, efficient manufacturers are becoming less efficient due to trade policies, and consumers may start flocking to cheaper alternatives.

Moreover, lobbying to this extent reminds me of the idea of public failure, where small interest groups utilize collective action to create advantageous laws and practices. The revolving door of regulators is also at play here, since key trade officials clearly have close ties to the Steel Industry and will draft policies that are beneficial to this sector, undoubtedly.

This article makes me wonder if there is a solution to this spending which could be more efficiently utilized in the production arena instead of the political one, or if lobbying is so entrenched in our political system that we would need to dig deeper in order to find a solution that does not put so much power into the hands of people with specific agendas.

Article Link: https://www.wsj.com/articles/big-steel-a-tariff-winner-steps-up-its-spending-in-washington-11549987962

Boom: Best economic optimism in 16 years, 50% ‘better off’ under Trump

https://www.washingtonexaminer.com/washington-secrets/boom-best-economic-optimism-in-16-years-50-better-off-under-trump



Most firms and politicians agreed upon that they feel better off than a few years ago. Financial optimism reached 50 percent, which was never achieved since 2007. 69 percent of the people that participated in the survey believed their financial situations would improve in the near future.
It seems that consumer confidence is at a positive level, and unemployment rate is at a relatively healthy rate as well. Among politicians, despite the difference in parties, the majority of them agreed that the States would be better off in the future.
Whether or not the evaluation towards Trump varies among people, the economy itself seems very positive to the United States. If the economic indicators such as growth rate, unemployment rate, etc. are maintained properly, the economy would be in great shape for a longer time.

US-China trade war: UN warns of 'massive' impact of tariff hike

As the trade war between China and the US continues, many people are predicting large negative impacts on the global economy. If a trade deal is not met by March 1st, the US will raise tariffs from 10% to 25% on Chinese goods. The UN Conference on Trade and Development has spoken out about the negative impacts this will have. The entire international trading system will see huge effects. Smaller less developed countries will feel a huge set back as aftershocks go through the global economy. Companies will shift away from Asian producers and supply chains and look elsewhere. They also warn that the US should not be expecting much business to come from this; only 6% are predicted to come and produce in the US. There is also worry that this trade war may trigger other trade wars in response and cause more damage to the global economy. Despite all these negative impacts, there are some countries who are expected to benefit. Countries like India, Brazil, Australia, the Phillippines, and Vietnam are expected to have a huge economic boom as companies may choose these areas to produce in.

It will definitely be interesting to see the effects on different economies as this trade war commences. China has such a large economy that such negative damage will definitely be felt around the world.
I also think it will be interesting to see the effects on the US economy and whether we will end up benefiting from this after all. No matter what happens, there will be both short term and long term effects from this.

Link:  https://www.bbc.com/news/business-47126114