MacroScope

It’s something many people know intuitively but that makes the reality no less harsh when it is framed by concrete figures: the sluggish U.S. economy is squeezing black and Latino seniors even harder than their white counterparts.

The deep recession of 2008-2009 took a heavy toll on the retirement prospects of aging Americans. With so many retirement savings plans linked to employer-based stock market investments, the downturn took a steep toll on the holdings of those who were lucky enough to have savings.

A new study from the University of California, Berkeley’s Labor Center shows the extent of the difficulties facing elderly minorities. Here are some of the low-lights:

Elder poverty rates are twice as high among Blacks and Latinos compared to the U.S. population as a whole: 19.4 percent of Black seniors and 19.0 percent of Latino seniors have incomes below the federal poverty line, compared to 9.4 percent for the senior population overall.

Less than a third of employed Latinos and less than half of Black workers are covered by an employer sponsored retirement plan, a critical resource in ensuring adequate retirement income.  As a result, they are disproportionately reliant on the limited income provided by Social Security.

Ed Krudy contributed to this post

The Philadelphia Fed’s Mid-Atlantic manufacturing survey covers a pretty small chunk of an already shrunken U.S. factory sector. Still, analysts at Harris Bank have found that the survey’s employment component has been a pretty solid leading indicator of the monthly payrolls figures.

If the trend persists, then February’s report could be a bit of a letdown following a surprisingly robust gain of 243,000 jobs last month. The Philly Fed’s employment index dropped sharply in February to its lowest level since August.

According to Jack Ablin, Harris Bank’s chief investment officer:

For the last several months, the Business Outlook survey has been a keen predictor of the monthly change in the Bureau of Labor Statistics’ non-farm payroll. The survey came close to nailing last month’s 243,000 gain, even though economists expected a 140,000 pickup on average. Should the survey’s predictive power continue, investors could be disappointed with February’s BLS report. The Philly Fed survey implies roughly 50,000 net new non-farm payroll jobs added in February. Positive yes, but it would be a big momentum killer. Stay tuned. The payroll report is not due out until March 9th.

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.

Federal Reserve policymakers have long watched markets to gauge what investors think is in store for interest rates and the economy. Some – like former Fed Governor Kevin Warsh – have worried that the Fed’s unprecedented purchases of trillions of dollars of U.S. Treasuries and its long-term guidance on the future path of interest rates shuts off a key source of policy-guiding information. The Fed’s recent decision to publish policymakers’ interest-rate forecasts will make the problem worse, he predicted in a speech at Stanford University last month.

In some sense I have partially been made blind by these asset purchases. I, for one, consider financial markets an incredibly useful source of information. If the markets take the Fed’s projections and build that into their own, then the Fed won’t have a full set of gauges in front of them. The markets will simply be a mirror to what they say.

Now comes San Francisco Fed President John Williams with a research paper that argues, to put it bluntly, that Warsh is wrong – that markets are providing just as much information about expectations for Fed policy as they did in the days before the Fed had bought $2.3 trillion in long-term securities and began signaling short-term rates would stay low for years.

After the initial jubilance that followed last week’s employment report, Wall Street economists are having a second look at the data. Their conclusions are not quite as rosy.

The rapid decline in the U.S. jobless rate in recent months – from 9.1 percent last summer to 8.3  percent in January – has caught forecasters by surprise given the rather soft pace of underlying economic growth. Steve Ricchiuto, chief economist at Mizuho, says a shrinking U.S. labor force helps explain the apparent discrepancy.

The fact that the employment-to-population ratio has not moved since September even as the jobless rate has fallen by 0.7% suggests that this improvement is a statistical mirage. The fact that the labor force participation rate has also declined by 0.4% during this four month period is another warning that the jobless rate is improving for the wrong reasons. This more realistic look at the data suggests that over-thinking the jobs data will lead to investor disappointment in the months ahead.

Ask most economists why the distribution of wealth in the United States has become so unequal over the last three decades and they will likely offer a two word answer: skills gap. They point out that Americans with a college education have a lower jobless rate than those without one, and that better-educated workers make more money than their counterparts.

Yet as regional Federal Reserve presidents disclosed their personal asset holdings for the first time ever, the figures showed a gaping range: from the tens of thousands to the tens of millions.

The report showed the wealthiest officials, Richard Fisher and William Dudley of the Dallas and New York Feds respectively, made millions working the financial industry – Fisher running a hedge fund and Dudley as chief U.S. economist and partner at Goldman Sachs. It would be tough to argue that the two are any more skilled than the career PhD Fed economists who were at the bottom of the list.

Anyone worried that the U.S. Federal Reserve tied its policy hands with its announcement last month that  it is likely to keep short-term interest rates exceptionally low through late 2014 should take heart in the market reaction to Friday’s jobs report, which blew expectations out of the water.

Bond and interest-rate futures plunged after the report, which showed employers added 243,000 jobs in December, far more than the 150,000 economists had expected. Unemployment dropped to 8.3 percent in another encouraging sign. Fed fund futures contracts began pricing in a good chance of a rate hike by the second quarter of 2014. Before the report, bets were on a first rate hike at some point in the third quarter.

Some officials and analysts have publicly worried about the chilling effects of a Fed that signaled low rates for so long, a move they say threatens confidence just as the economy is showing signs of improvement and leaves the impression that the late-2014 date is a commitment.

Federal Reserve Chairman Ben Bernanke has made clear the central bank is considering another round of monetary stimulus. Fed officials have also suggested that if they were to embark on a third round of quantitative easing via bond purchases, or QE3, they could favor mortgage-backed securities in an effort to boost housing.

Not to read too much into anecdotal evidence, but it’s hard not to see some symbolism in Bernanke’s next public appearance, announced late on Thursday. On February 10, Bernanke will be in Orange County, California, one of the epicenters of the U.S. housing crisis. His chosen forum? The National Association of Homebuilders International Builders’ Show. The topic: Housing Markets in Transition.

Not that the battered U.S. labor market needs anymore bad news, but here it is: A new report that derives employment growth from tax data suggests recent strides have been even meeker than the official Labor Department data suggests.

The January jobs report is due out on Friday, and analysts in a Reuters poll are forecasting the jobless rate remained stuck at 8.5 percent while a median of 150,000 net new positions were created last month, down from 200,000 in December.

Not so fast, say analysts at investment research firm TrimTabs. They cull figures on tax withholding to generate what they say is a more accurate real-time reading of job market conditions. Their findings are grim:

Manufacturing activity picked up in January, an encouraging sign for U.S. growth prospects. Right? Perhaps not as much as it used to be. The shrinking role of factory production in the U.S. economy – now just over a tenth of the nation’s output – means the Institute for Supply Management’s closely watched survey is a less sturdy predictor of broader trends.

Neil Dutta, U.S. economist at Bank of America-Merrill Lynch, explains:

The ISM Manufacturing Index improved to 54.1 in January from 53.1 in December, the highest since June 2011 and broadly in line with market expectations. A level of 54.1 on ISM is consistent with roughly 3.5 percent real GDP growth. This tells you more about the state of the manufacturing sector than the broader economy, in our view. And, we are skeptical the pick-up in the ISM manufacturing index is a harbinger of a coming acceleration in economic growth.

A 3.5 percent rate looks lofty indeed: Current expectations according to Reuters polls are for a 2 percent GDP reading in the first quarter, with a number of analysts citing downside risks to their forecasts.