MacroScope

It used to be the low-end stuff like shoes, clothes and furniture that displaced American manufacturing, then cars and consumer electronics.  A new report by Alan Tonelson, a researcher at the U.S. Business and Industry Council which represents 1,500 American companies, now shows that high-end U.S. industry is facing ever tougher foreign competition in its own backyard.

Tonelson has crunched the numbers since 1997 on high-value, advanced manufacturing – the crown jewel of American industry that is capital intensive and depends on technological superiority such as turbines, pharmaceuticals and electrical engineering. He finds that imported products had captured 38 percent of the $1.63 trillion U.S. market for advanced manufactured products by 2010, up from 24.5 percent when the government started collected the data in 1997.  Only six U.S.-based advanced manufacturers have gained market share in the United States in the 13-year period.  Sectors that are more than 50 percent dominated by foreign producers have risen from eight in 1997 to 32 by 2010, he said.

The high-value core of America’s domestic manufacturing sector is suffering chronic and significant weaknesses. They strongly indicate that advanced U.S.-based manufacturing industries as a whole are failing a basic test of competitiveness – thriving in a market that is not only the world’s largest single market for such goods, but the market that they should know far better than their overseas counterparts.

Industries that have lost their U.S.-market dominance  include metal-cutting machine tools, broadcast and wireless communication equipment, mining equipment, heavy-duty trucks and chassis, turbines and turbines generator sets – to name a few.  None of the data are consistent with a smartly recovering, healthy domestic manufacturing sector, he said.

Interestingly, it has occurred even though the U.S. dollar on a trade weighted basis has declined in value by 10 percent over that time, making imports more expensive.  His report throws a different light on 2010 as a banner trade year for the United States when exports increased by $85.6 billion, and on U.S. manufacturers adding jobs last year at the fastest pace since 1997.  It’s the kind of data that has trade and industry groups in Washington talking of the U.S. needing an industrial policy. Remember Rolls Royce and Great Britain’s manufacturing slide?

The Fed is being more transparent. Any questions? Lots, apparently. Wall Street economists have published a flurry of research notes speculating about just how much new information the U.S. central bank will release along with its federal funds forecasts on Wednesday, and what form it will be presented in.

Even Vincent Reinhart, a former Fed economist now at Morgan Stanley, doesn’t know what to make of it:

Many market participants admit to being somewhat confused about the new disclosure policy. The exercise should be viewed as incremental in nature, limited by design flaws, and as likely to cloud as to clarify the public’s understanding of policy intent, at least at the outset. And the mission statement, if one appears, may amount to little more than a strong commitment to motherhood and apple pie among central bankers – i.e., the importance of price stability in the long run – but provide no practical guidance as to near-term policy choices.

Rising income inequality in rich nations has cast doubt on the old adage, often upheld by the economics profession, that a rising tide lifts all boats. A new report from Oxfam reinforces the notion that wealth does not trickle down of its own accord. The anti-poverty advocacy group says sometimes actively redistributive policies may be needed to address huge income gaps. It also says that, contrary to conventional economic thinking, such policies will directly contribute to better growth rather than impede it.

Inequality, often viewed as an inevitable result of economic progress, in fact acts as a brake on growth. Among the best ways to assure inclusive, sustainable growth and fight poverty, finds the study, are policies that reduce inequality. […]

Inequality erodes the social fabric, and severely limits individuals’opportunities to escape poverty. Where income inequality is high or growing, the evidence is clear that economic growth has significantly less impact on poverty: a trickle-down approach does not work.

The Federal Reserve could announce an official inflation target as early as its January 24-25 meeting, part of an ongoing effort to boost transparency.

Most analysts expect the central bank will stick with the target previously pronounced by Fed Chairman Ben Bernanke of 2 percent or a bit lower.

What exactly is an inflation target and what are its purposes? What are the downsides of publicly stating an inflation goal? Here are some questions and answers.

At the epicenter of Europe’s financial crisis, Greece has taken a lot of heat for setting off the panic that now threatens to engulf the rest of the continent. One common story line is that inefficient Southern European states are dragging down a more industrious North, a theme we have previously questioned on this blog.

A research note from Marc Chandler, head of currency strategy at Brown Brothers Harriman, highlights the disconnect between a negative perception of Greek workers with actual readings of hours worked from the Organization for Economic Cooperation and Development.

We’ll start with the picture, which pretty much tells the story:

Chandler suggests prejudice has gotten in the way of sound economic analysis:

The conventional narrative about the European debt crisis largely accepts the contention that the periphery of Europe have different work habits and these account to a large extent the economic and financial problems. Yet often time the discussion takes on such ethnocentric dimensions that sometimes it is difficult to see what is real.

Forecasting hard data can be difficult enough. Estimating the forecasts of individual Federal Reserve policymakers is even tougher. But, in advance of the Fed’s latest effort at policy transparency, that’s just what Goldman Sachs economists have attempted to do.

The Fed announced last week it would begin publishing policymakers’ own forecasts for the path of interest rates, in addition to the growth, inflation and employment projections they already release on a quarterly basis. Goldman uses the Taylor rule of monetary policy, which governs the relationship between economic slack and inflation, to estimate when individual policymakers would likely perceive the timing of an eventual interest rate hike.

The findings are interesting, particularly because they find that, contrary to the view chronicled in this post, the publication of Fed officials’ forecasts might actually have the effect of tightening financial market conditions.

Protests against Wall Street and the U.S. financial system are hanging over an annual gathering of economists and social scientists in Chicago. Yale economist Robert Shiller offered two cheers for capitalist finance, saying that while the U.S. free market system has contributed to higher living standards, the vehemence of the recent public outcry points to a need for greater democratization. This is how he put it in a speech:

Occupy Wall Street … was something that in some sense you could see coming. I think we have increasing concerns about inequality, which is getting worse, about the distribution of power.

But rather than throw the financial system out, Shiller called for tinkering. Financial institutions and structures such as insurance or mortgage securitization have a role in improving social and human welfare, Shiller argued. U.S. economic success is due to a financial system that has evolved over centuries and helped improve the quality of life, he added.  A shortcoming of the Occupy Wall Street movement is that it doesn’t accept those contributions, he said.

It has become a common refrain in both politics and finance: intrusive regulations, an overreaction to Wall Street’s 2008 crisis, are generating uncertainty and preventing employment from bouncing back. Some top Federal Reserve officials have joined the chorus. Dallas Fed President Richard Fisher made the argument to business executives in Austin, Texas last month to justify his lack of support for additional monetary stimulus.

I maintain that no matter how much cash you have on your balance sheet, or how compliant your banker might be, or how cheap the cost of money, you will not commit substantial capital to expanding your payroll or investing significant amounts to expand plant and equipment until you know what it will cost you to run your business; until you know how much you will be taxed; until you know how federal spending will impact your customer base; until you know the cost of employee health insurance; until you are reassured that regulations that affect your business will be structured so as to incentivize rather than discourage expansion; until you have concrete assurance that the fiscal “fix” the nation so desperately needs will be crafted to stimulate the economy rather than depress it and incentivize job creation rather than discourage it.

Jeffrey Lacker, head of the Richmond Fed, also gives credence to the view that regulations are a burden on hiring:

A new survey from job placement firm Challenger, Gray & Christmas offers good news and bad news for U.S. job seekers. While some Americans have become more optimistic about their employment prospects, others have grown even more frustrated at their inability to find work.

The results were based on a random sample of 600 callers to Challenger’s yearly job-search advice hotline. Here are some key findings:

- Over the two-day event, the firm’s professional counselors helped more than 1,000 job seekers, 77 percent of whom were unemployed. That is down only slightly from the previous two years, when 81 percent of callers were out of work.

7,231,514. That was the real number of Americans receiving jobless benefits on last count – not the 381,000 new weekly applications that made the headlines.

It’s always heartening to get good news on the job market. Still, it’s easy for fully employed Wall Street analysts to get carried away with optimism after relatively minor improvements in the data.

Jobless claims figures are a case in point. True, new weekly applications for unemployment benefits fell to a 3-1/2-year low earlier this month, even if the latest report showed a larger-than-expected rise to 381,000. The trend, coupled with a moderately positive run in payroll employment growth, is encouraging. Yet it is important to remember that fewer layoffs do not necessarily imply more jobs are being created, as Eric Green at TD Securities notes: