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from MacroScope:

Israel’s new-found jobless

Following on from Nigeria's rebasing of its GDP numbers, giving it a huge growth boost on paper, it is Israel's turn to tinker with the numbers.  This time, though, the end result was not positive.

The country's Central Bureau of Statistics said on Monday that the first-quarter jobless rate was 6.7 percent. This a good 1.3 percentage points higher than the announced fourth-quarter figure.

It does not, however, signal a sudden cull of workers across Israel. It is the result, rather, of Israel adopting a new way of counting employment designed to bring it in line with the way leading Western economies do it. So the equivalent fourth-quarter number would have been 6. 8 percent, slightly higher.

There were close to 40 changes made to the survey, according to our correspondent  Steven Scheer, from adding 100 more cities and towns to including soldiers. (The later, being 100 percent employed, should have lowered the rate, but apparently not enough).

Government and monetary officials were quick to point out that the unemployment rate is still pretty good compared with say 7.4 percent for the OECD as a whole. The finance ministry also said the increase was due to the new survey showing a higher employment participation..

Nonetheless, it has rather undermined some government claims that Israel is weathering the global economic storm far better than most.

And then, of course, if the new counting measure is better and more accurate, the number of jobless did jump above what was thought - only not just in the past quarter.

from MacroScope:

Europe in recession – an interactive map

Spain has become the latest European country to slip into recession joining the Belgium, Cyprus, The Czech Republic, Denmark, Greece, Italy, The Netherlands, Ireland, Portugal, Slovenia and the United Kingdom.

Click here to view an interactive map.

*Updated to include Romania and Bulgaria

from MacroScope:

Gimme a P, gimme an M, gimme an I

If you have ever wondered why financial markets and economists are interested in purchasing managers indexes, here is why:

from Global Investing:

Three snapshots for Tuesday

The German ZEW economic sentiment index for March smashed expectations, coming in at 22.3 against the Reuters poll of 10.0.  Over the last couple of years the German 10 year Bund yield has tended to track the ZEW, however this has broken down with yields staying below 2% despite the rebound in economic sentiment.

Improving earnings momentum has been backing up the rally in equities with fewer analysts taking the hatchet to earnings forecasts. The chart below shows that the 3-month average revisions ratio (the number of earnings  upgrades minus downgrades as a percent of the total) looks to have turned back towards positive - especially in Europe.

Are emerging markets joining the dividend race?.   As this chart of Datastream equity indices shows, the payout ratio for emerging market equities is now above that of the US. Traditionally seen as a growth-based investment, is this another sign of emerging market equities moving closer into line with developed?

from Global Investing:

Three snapshots for Friday

The U.S. economy probably created 210,000 jobs last month, according to a Reuters survey. If the forecasts are accurate, the government's jobs report on Friday would mark the first time since early 2011 that payrolls have grown by more than 200,000 for three months in a row. Refresh chart

China's annual consumer inflation slowed sharply to a 20-month low in February, and factory output and retail sales also cooled more than forecast, giving policymakers ample room to further loosen monetary policy to support flagging growth.

Greece averted the immediate risk of an uncontrolled default, winning strong acceptance from its private creditors for a bond swap deal which will ease its massive public debt and clear the way for a new international bailout.

from MacroScope:

Europe’s wobbly economy

Things are  looking a bit unsteady in the euro zone's economy.  Just ask Olli Rehn, the EU's top economic official, who warned this week of  "risky imbalances" in 12 of the European Union's 27 members. And that's doesn't include Greece, which is too wobbly for words. 

Rehn is looking longer term, trying to prevent the next crisis. But the here-and-now is just as wobbly. The euro zone's economy, which generates 16 percent of world output, shrunk at the end of 2011 and most economists expect the 17-nation currency area to wallow in recession this year and contract around 0.4 percent overall. Few would have been able to see it coming at the start of last year, when Europe's factories were driving a recovery from the 2008-2009 Great Recession. And it shows just how poisonous the sovereign debt saga has become.

Not everyone thinks things are so shaky.  Unicredit's chief euro zone economist, Marco Valli, is among the few who believe the euro zone will skirt a recession -- defined by two consecutive quarters of contraction -- in 2012. This year is "bound to witness a gradual but steady improvement in underlying growth momentum," Valli said, saying the fourth quarter was the low point in the euro zone business cycle.

That could still happen. Business surveys support the idea that the worst is behind us, while European Central Bank President Mario Draghi agrees that last year's collapse in confidence has now steadied, albeit at low levels. So far, the ECB has not given a strong signal on whether it will take interest rates below the 1 percent level for the first time, but the bigger risk is whether a disorderly Greek default or the threat of a severe credit freeze -- which the ECB's nearly 500 billion euros in loans has so far helped avoid --  come back to crush the green shoots of growth.

The ECB's latest lending survey showed for the last three months of 2011 reinforces the concerns of a credit crunch, as banks are still not passing the money on to the real economy. Thirty-five percent of banks reported they had tightened the standards they apply to loans to businesses, compared to only 16 percent in the third quarter. The ECB is set to make its second offer of three-year loans at the end of the month and that could ease credit risks, but may also discourage banks with bad loans on their books to reform.

So, in economist-speak, the risks are still on the downside and uncertainty remains high. Basically, things are still looking wobbly.

from Global Investing:

Sparring with Central Banks

Just one look at the whoosh higher in global markets in January and you'd be forgiven smug faith in the hoary old market adage of "Don't fight the Fed" -- or to update the phrase less pithily for the modern, globalised marketplace: "Don't fight the world's central banks". (or "Don't Battle the Banks", maybe?)

In tandem with this month's Federal Reserve forecast of near-zero U.S. official interest rates for the next two years, the European Central Bank provided its banking sector nearly half a trillion euros of cheap 3-year loans in late December (and may do almost as much again on Feb 29). Add to that ongoing bouts of money printing by the Bank of England, Swiss National Bank, Bank of Japan and more than 40 expected acts of monetary easing by central banks around the world in the first half of this year and that's a lot of additional central bank support behind the market rebound.  So is betting against this firepower a mug's game? Well, some investors caution against the chance that the Banks are firing duds.

According to giant bond fund manager Pimco, the post-credit crisis process of household, corporate and sovereign deleveraging is so intense and loaded with risk that central banks may just be keeping up with events and even then are doing so at very different speeds. What's more the solution to the problem is not a monetary one anyway and all they can do is ease the pain.

Low interest rates and liquidity schemes can't solve what ails the developed world. Societies must accept that in order to alter their current perilous course they must undergo great change, moving away from entitlements to which they have become accustomed. The alternative is weak economic growth, a loss of competitiveness and negative external balances -- a loss of face and place in the global hierarchy.

As if to reinforce the underlying point that the developed world faces a protracted reform period that tests political, economic and social priorities, credit rating firm Standard & Poors' -- not the most popular company in corridors of power over the past year -- warned on Tuesday  that it may downgrade the debt of "a number of highly-rated" Group of 20 countries from 2015 if their governments fail to enact reforms to curb rising healthcare spending and other costs related to ageing populations.

For Pimco, the political and social resistance to this sort of change is already showing itself to be significant both in Europe and the United States. People clearly don't want to see pensions and benefits cut but politicians have already grown government and sovereign indebtedness close to their maximum. Accommodative central banks that helped them get there only ended up fueling credit, consumption and housing bubbles and distorting the balance of the economy away from production and into an increasingly bloated financial sector. That, clearly, ended in tears as finance itself needed bailing out and compounded the sovereign debt burden.

So if harder, longer-term choices and reforms are now needed, central banks ability to continually  reflate the world economy by monetary means alone is at best uncertain, Pimco argues. The risk of major upheavals along the way in Europe, for example, has the potential for major market volatility and economic seizures.

from Amplifications:

Will we ever grow out of growth?

By Kenneth Rogoff

The views expressed are his own.

Modern macroeconomics often seems to treat rapid and stable economic growth as the be-all and end-all of policy. That message is echoed in political debates, central-bank boardrooms, and front-page headlines. But does it really make sense to take growth as the main social objective in perpetuity, as economics textbooks implicitly assume?

Certainly, many critiques of standard economic statistics have argued for broader measures of national welfare, such as life expectancy at birth, literacy, etc. Such appraisals include the United Nations Human Development Report, and, more recently, the French-sponsored Commission on the Measurement of Economic Performance and Social Progress, led by the economists Joseph Stiglitz, Amartya Sen, and Jean-Paul Fitoussi.

But there might be a problem even deeper than statistical narrowness: the failure of modern growth theory to emphasize adequately that people are fundamentally social creatures. They evaluate their welfare based on what they see around them, not just on some absolute standard.

The economist Richard Easterlin famously observed that surveys of “happiness” show surprisingly little evolution in the decades after World War II, despite significant trend income growth. Needless to say, Easterlin’s result seems less plausible for very poor countries, where rapidly rising incomes often allow societies to enjoy large life improvements, which presumably strongly correlate with any reasonable measure of overall well-being.

In advanced economies, however, benchmarking behavior is almost surely an important factor in how people assess their own well-being. If so, generalized income growth might well raise such assessments at a much slower pace than one might expect from looking at how a rise in an individual’s income relative to others affects her welfare. And, on a related note, benchmarking behavior may well imply a different calculus of the tradeoffs between growth and other economic challenges, such as environmental degradation, than conventional growth models suggest.

from MacroScope:

EU might treat itself to treaty change

By Robert-Jan Bartunek and Robin Emmott

French statesman Charles De Gaulle once famously said "Treaties are like roses and young girls -- they last while they last." Germany seems to have decided that the European Union's Lisbon Treaty, which only entered into force after a fair amount of upheaval in December 2009, has lost its perfumes and must be reworked to ensure the euro zone's debt crisis can never be repeated.

European Council President Herman Van Rompuy's proposal to modify the treaty via a little-known section called protocol 12 has so far been unable to convince German government officials, who warned against a "bad compromise" of small steps or "little tricks."

Van Rompuy's sense is that changes to the protocol, which would strengthen legislation to prevent countries running up big budget deficits, could be agreed quickly and send a message to investors that the euro zone is embarking along a path to bring back confidence and resolve its crisis.

from The Great Debate:

Should economists be “imagineers” of our future?

By Mark Thoma The opinions expressed are his own.

This essay is a response to Roger Martin's "The limits of the scientific method in economics and the world" (part one and part two), recently published on Retuers.com.

Roger Martin is unhappy with the state of economics. One charge is that:

[an economist] predicts a future that is based on the past.  And when it is anything but, he returns to the same tools to do it again, believing that in doing so he is being meritoriously scientific. ... Extrapolating the future to be a straight-line projection of the past is neither accurate, nor is it helpful in creating better understanding and newer ideas.

As I will discuss further below, I agree that macroeconomists need to fix their models. But I don't think that predicting the future based upon "a straight-line projection of the past" is the problem. Let me explain why, first in a relatively narrow sense, and then more broadly.

This year's Nobel prize award to Thomas Sargent and the previous award to Robert Lucas were partly in recognition of their development of the tools and techniques that economists need to go beyond simply trying to extrapolate the future from the past, a procedure that can lead forecasters astray.

Prior to Robert Lucas, economists analyzing policy interventions by monetary or fiscal authorities did exactly as charged above, they extrapolated based upon the past and an assumed unchanging future. But the (often false) assumption that the future would be like the past is at the heart of what is known as the Lucas critique.