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Personal Income increased 0.3% in September, Spending increased 0.5%
// Calculated Risk
The BEA released the Personal Income and Outlays report for September:
Personal income increased $46.7 billion (0.3 percent) in September according to estimates released today by the Bureau of Economic Analysis ... Personal consumption expenditures (PCE) increased $61.0 billion (0.5 percent).
...
Real PCE increased 0.3 percent. The PCE price index increased 0.2 percent. Excluding food and energy, the PCE price index increased 0.1 percent.
On inflation: The PCE price index increased 1.2 percent year-over-year due to the sharp decline in oil prices (This was up from 1.0% year-over-year in August). The core PCE price index (excluding food and energy) increased 1.7 percent year-over-year in September (the same as in August).
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When The Trade Data Does Not Add Up
// Economist's View
Anyone have the answer? This is from Brad Setser:
When The Trade Data Does Not Add Up: This is ... about a rather puzzling thing that I only noticed as a result of the Brexit debate. ...
A big part of the non-EU surplus in services comes from the United States. In 2015, the UK reported a 27 billion GBP (just over $40 billion) surplus in services trade with the U.S. and an overall surplus in goods and services with the United States.
The funny thing? The U.S. also thinks it runs a surplus in services trade with the UK. A $14 billion surplus in 2015...
It is pretty hard to square those two data points. UK data is from the Office of National Statistics' Pink Book, U.S. data is from the Bureau of Economic Analysis (BEA), table 1.3 of the "International Transactions" data set.
It turns out that the U.S. thinks it sells more services to the UK than the UK thinks it buys...
And the UK thinks it sells more services to the U.S. than the U.S. thinks it buys. ...
My guess is that such discrepancies are actually common in the services trade numbers. Goods trade is calculated by customs bureaus. Lots of the numbers on services trade come from surveys, estimates, and the like.
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Brexit and neoliberalism
// mainly macro
In a recent postI talked about the "neoliberal fantasists who voted Leave". Hereis Ryan Bourne from the influential Institute of Economic Affairs. He notes that "the mood music from the post-referendum Conservative party — with former Remain backers in No 10 and the Home Office overcompensating with a caricatured view of what voters want — is not a good sign for the short-term". But he still believes that Brexit can be transformed into some kind of neoliberal wet dream, with a bonfire of regulations and a unilateral abolition of UK tariffs on trade.
The economics of this was always fantasy, as John Van Reenen and colleagues painstakingly demonstrate here, but it also seems politically naive. After all the Leave campaign was a success largely because it promised to control immigration as a result of leaving the EU, controls which are distinctly anti-neoliberal. Controlling immigration is not a caricature of what the majority of Leave voters wanted, but instead what most were voting for. It does seem naive to believe that a government after Brexit would try and quietly forget about this, particularly when led by someone who had spent the previous 6 years trying and failing to control immigration. It also seems naive to imagine that this turn against neoliberalism would not go beyond immigration.
And yet, the 'southern strategy' was highly successful for the Republican party in the US. This combined an economic policy that favoured finance and corporates, increased inequality and free markets with an identity politics that appealed to race, religion and cultural identity. (I could perhaps add geographical identity here as well: see this articleby David Wong.) Perhaps the UK party of the right could follow a similar course, using immigration as a substitute (and for some a proxy) for race, whilst pursuing an otherwise neoliberal agenda?
Is this what the Conservative party tried to do under Cameron and Osborne? Actually I think that is the wrong question, for reasons I will come to shortly. In terms of what the Coalition government actually did, Jonathan Portes summarisesit thus:
"The promise to cut net migration to the "tens of thousands" was generally regarded by immigration policy experts as unachievable, or achievable only at an economic cost no sensible government was willing to pay. In practice, the latter course was never tested: resistance from within government from the Department of Business, supported to a greater or lesser extent by the Treasury, meant that even non-EU migration was only reduced very substantially for non-HE students; for most other routes it has stabilised. Non-EU net migration is currently about 150,000 a year, slightly higher than EU net migration
This does not mean the policy changes had no impact: the increase in the regulatory burden on business and the education sector has been substantial, and has certainly resulted in some reduction in skilled and student migration. The most damaging single decision was probably the closing of the Post-Study Work Route. However, overall, any economic damage was considerably mitigated."
Of course that resistance from the Department of Business came from a Liberal Democrat, Vince Cable, and not a Conservative. Which leaves open the possibility that the economic damage from attempts to hit the immigration target might have been greater if just the Conservatives had been in power. So it is not clear that the Conservative focus on immigration was just so they could win elections with zero cost to their more neoliberal objectives. It still remains the case that, just as Trump exposed the flawin the Republican's southern strategy, so Brexit was the critical flaw in Cameron's emphasis on the problem of immigration and his failure to meet his own targets.
I said it was the wrong question, because I think in this case it was not a political party that was calling the shots but a section of the print media: the right wing tabloids. As Andy Beckett writes in thiscomprehensive history of this part of the UK media:
"[Brexit] was an outcome for which the tabloids had campaigned doggedly for decades, but never more intensely – or with less factual scrupulousness – than this spring and summer, when the front pages of the Sun, Mail and Express bellowed for Brexit, talking up Britain's prospects afterwards, in deafening unison, day after day. Two days before the referendum, the Sun gave over its first 10 pages to pro-Brexit coverage."
And the principle means the tabloids used to obtain this result was the "endless xenophobic nudges of its immigration coverage." Of course these newspapers will say they were just expressing their readers fears, but when they are reduced to making up stories to encourage this fear any claim to innocence becomes very hollow. Fueling anti-immigration feeling was their version of a southern strategy, and Brexit saw its culmination.
Having achieved this objective, will the tabloids start ignoring the immigration issue, enabling the greater immigration and zero tariffs that Mr. Bourne desires? Or will the influence of these tabloids, perhaps now greater than it has ever been, start to fade away? To the extent that these seem silly questions reveals the political naivety of the neoliberal Leavers. It is highly unlikely that Theresa May will become squeamish about damaging business through immigration controls to enable her to meet her immigration target. The best hope of those who do not want to go down this path is that, as Jonathan Portes expects, the Brexit vote itself starts to reduce the immigration numbers.
Brexit will also put other pressures on May which are likely to move her away from neoliberal policies, as the assurances given to Nissan indicate. As Bourne writesin a recent blog: "if this is a commitment to permanent or semi-permanent support to almost 'make up for' changed trade arrangements then it is hugely misguided." Misguided it may be, but that is the direction the politics will push a Prime Minister determined to be seen as making a success of Brexit. Just as Republican's have agonisedover how to deal with Donald Trump, so it will become clear to UK neoliberals the damage to their cause that Brexit will generate.
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A "New Normal" for the Oil Market
// iMFdirect – The IMF Blog
By Rabah Arezki and Akito Matsumoto
Versions in 中文 (Chinese), Français (French), Русский (Russian), and Español (Spanish)
While oil prices have stabilized somewhat in recent months, there are good reasons to believe they won't return to the high levels that preceded their historic collapse two years ago. For one thing, shale oil production has permanently added to supply at lower prices. For another, demand will be curtailed by slower growth in emerging markets and global efforts to cut down on carbon emissions. It all adds up to a "new normal" for oil.
The "new" oil supply
Shale has been a game changer. Unexpectedly strong shale-oil production of 5 million barrels per day contributed to the global supply glut. That, along with the surprising decision by the Organization of the Petroleum Exporting Countries (OPEC) to keep production unchanged, contributed to the oil price collapse that started in June 2014.
Although the price collapse led to a massive cut in oil investment, production was slow to respond, keeping supply in excess. What's more, the resilience of shale production to lower prices again surprised market participants, leading to even lower prices in 2015. Shale drillers significantly cut costs by improving efficiency, allowing major players to avoid bankruptcy. While reduced investment is expected to result in lower production by non-OPEC countries in 2016, production still exceeds consumption. Many experts expect oil markets to balance in 2017, albeit with high level of inventory (Chart 1). That said, there is uncertainty regarding supply, especially regarding the cost associated with extraction as well as production from so-called shale "fracklog"—drilled but uncompleted wells. The latter can add to production flows in a matter of weeks and hence considerably change the dynamics of production compared to conventional oil—that features long lead times between investment and production.
Against that backdrop, OPEC countries and Russia have been increasing output, and Iran's return to markets has added even more supply. (While OPEC members have recently agreed to cut production, that agreement is yet to be finalized.) There are other factors at play. Recent data suggest that shale-oil production may be once again more resilient than expected. And the anticipation of an OPEC production cut in cooperation with other exporters has boosted prices to the level that will further stimulate output by many shale producers.
The "new" oil demand
Falling prices spurred oil-demand growth, which rose to a record high of about 1.8 million barrels per day in 2015. That's expected to slow to the trend level of 1.2 million barrels per day in 2016 and 2017. Using basic estimates for demand elasticity with respect to price suggests the "price effect" accounts for a 0.8 million-barrel per day increase in demand. A sizable share of oil demand growth is attributable to the price drop rather than income gains. With limited scope for further declines in prices in dollar terms, increases in oil demand will depend largely on prospects for global economic growth.
The outlook for demand growth isn't encouraging. In the past couple of years, oil demand has been driven by China and other emerging-market and developing countries. While China accounts for just 15 percent of world oil consumption, its contribution to oil demand growth is significant (Chart 2) because its economy is growing much faster than those of advanced nations (the same is true of some other developing nations). Further slowdowns in emerging and advanced economies can change the demand picture significantly. Structural shifts in emerging economies, especially China's effort to shift from an investment and export led growth model to a domestic demand led growth model, can also potentially have major implications.
Over the medium to long run, the transition away from oil and other fossil fuels further clouds the outlook for oil demand albeit lower prices may delay the transition. Energy policies will have to be altered significantly to meet the goals set at the December 2015 Paris Climate Conference (COP21), and a significant portion of oil reserves will have to remain under the ground and unburned. Lack of clarity about the specific actions needed to achieve those goals only adds to uncertainty about the oil-demand outlook.
Granted, futures markets point to slight gains in oil prices. But a glance at shifts in futures-price curves in the past few months suggests that the prospects for higher prices have been worsening (see Chart 3). That shouldn't come as a surprise. Downward revisions to global growth forecasts, especially for emerging markets, offset supporting factors, such as the growth in oil demand buoyed by lower prices in the past year. Turmoil in financial markets, plus a strong dollar, has put downward pressure on oil prices. These trends, along with the secular drop in petroleum consumption in advanced economies and the growth of shale, all point to a "lower for longer" scenario for oil prices.
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Cheaper, Quicker, Safer: Green Transportation for All
// Dollars & Sense Blog
By Liz Stanton
Cross-posted from Liz Stanton Consulting's Public Goods Blog.
Getting ourselves, our kids, and all of the material goods of our economy from point A to point B resulted in 1.9 billion metric tons of carbon dioxide released into the atmosphere in 2015. That's 35 percent of all U.S. carbon pollution and 6 percent of global carbon emissions—just from U.S. transportation. Worldwide, transportation is responsible for one-seventh of all greenhouse gas emissions. To keep global temperature rise below 2°C (or even below 3 or 4°C) we'll need a vast, all-encompassing transformation. Incremental changes—a little bit better gas mileage, a few more people taking public transit—aren't going to cut it. Staying below 2°C, and thereby avoided a climate catastrophe, will require us to completely reimagine our way of getting around.
A new report from the Frontier Group does a good job laying out a detailed agenda for decarbonizing the U.S. transportation sector. The report discusses not just the policy reforms needed to achieve the basics—electrification of all vehicles paired with decarbonization of the electric grid—but also the more transformative, and therefore more difficult and more amorphous, changes that will be needed. Here are the parts that we don't talk about enough:
· Changing the way we design our cities and towns: Much of the U.S. urban and suburban landscape can be difficult, if not impossible, to navigate without a car. Walkable cities, safe paths and dedicated lanes for biking, and public transportation that makes sense in a suburban setting are all essential to decarbonizing transportation.
· Changing our choices and behavior: Harder still, it won't be enough to change the built environment. Car travel is the norm in most neighborhoods. Building safe reliable alternatives is a start but getting people to make different choices will require a societal shift in expectations.
Change is under weigh. Today, the cost of an electric vehicle is on par with that of a gasoline-power vehicle, and powering an electric vehicle costs less per mile than paying for gasoline. In a few states, non-profit groups are helping electric vehicle buyers to band together to get significant discounts from car dealers to make these vehicles even more affordable, like Refuel Colorado and the soon-to-be released Drive Green for Massachusetts and Rhode Island. (Stay tuned! Mass Energy's Drive Green program is slated to begin in early November.)
Changing middle-class families' vehicle purchases from gasoline to electric is a first critical step of many. To really make a difference in reducing our greenhouse gas emissions electric-vehicle adoption needs work in concert with the other shifts discussed in the Frontier Group report—greening the electric grid, smart urban and municipal planning, and changes in norms and expectations—and also resolve a few thorny issues.
First, to achieve total decarbonization of transportation public policy and technical innovation need to reach beyond cities and towns into rural America. We need solutions that fit the needs and constraints of rural families and businesses. Lower transportation costs would be a tremendous boon to rural communities. But the technologies that work for urban dwellers simply cannot accommodate transportation needs in sparsely populated areas.
The second challenge for decarbonizing transportation is making greener options available to low-income families. Public transportation systems need to reach all neighborhoods, operate consistently and efficiently, and be affordable. Poor communities clustered nearby to highways or industrial sites are some of the least walkable urban neighborhoods, and public transportation systems are rarely designed with the aim of connecting low-income housing with jobs, schools, and shopping. Whether living in the city or the country, driving is often the only or best option for many families, and buying a new car on credit is a privilege reserved for the middle class.
Making public transit and electric vehicles accessible to low-income families is no small task. But it's a challenge that—if met—holds tremendous opportunity for reducing poverty in the United States. With good policy design, green transportation has the potential to be cheaper, quicker, and safer for all families.
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