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.
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
Thanks for comments – Will update with Romania and Bulgaria
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:
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.
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 Jeremy Gaunt:
Why is the euro still strong?
One of the more bizarre aspects of the euro zone crisis is that the currency in question -- the euro -- has actually not had that bad a year, certainly against the dollar. Even with Greece on the brink and Italy sending ripples of fear across financial markets, the single currency is still up 1.4 percent against the greenback for the year to date.
There are lots of reasons for this. The dollar is subject to its country's own debt crisis, negligible interest rates and various forms of quantitative easing money printing -- all of which weaken FX demand. There is also some evidence that euro investors are bring their money home, as the super-low yields on 10-year German bonds attest.
Finally -- and this is a bit of a stretch -- some investors reckon that if a hard core euro emerges from the current debacle, it could be a buy. Thanos Papasavvas, head of currency management at Investec Asset Management, says:
Let's assume there is some sort of breakup ... if the euro is the currency of a potentially core set of economies, then it would be an incredibly strong currency
Of course, there is the question of whether $1.36 or thereabouts represents a strong euro against the dollar. Lots of people, for example, tend to judge it by the $1.17 rate at which the euro was introduced. But the following graph suggests that if you give the euro a longer historical life, it is not all that much above its average value. Still higher than some might have expected give the crisis that is threatening it entire survival.
Fed’s Plosser on default risk, inflation, and more
The following are highlights from a Reuters interview with Philadelphia Federal Reserve Bank President Charles Plosser on Wednesday.
FED AS LENDER OF LAST RESORT IF DEFAULT OCCURS:
“Clearly if something were to happen and financial markets were to seize up, and there were liquidity problems or financial market disruptions, I think the Fed would feel like it had the responsibility to go in and keep markets functioning, as a lender of last resort.”
“We have to be very careful that we don’t become, that we don’t conduct fiscal policy in this context. That we don’t substitute for the inability of the Treasury to borrow in some circumstances. That would be a bad policy decision from my perspective.”
TREASURIES AS COLLATERAL IN EVENT OF DEFAULT:
“There are other issues: how do you think about collateral. Banks borrow at the discount window against good collateral. How do we treat collateral if it happens to be Treasuries and they’ve defaulted? Do we treat them as if they didn’t default, in which case we would be saying we are pretending it never happened? Or do we treat them as if they defaulted and don’t lend against them?”
“Those types of questions — as opposed to just how you manage the Treasury’s checkbook — thinking about how we think about valuing defaulted securities or securities whose interest payments have been missed, there is a really difficult … those are more policy questions than operational.”
Talk is cheaper
The Federal Reserve is hinting that if it should come to further monetary easing to stimulate growth, it might prefer to talk the talk rather than walk the walk.
Fed Chairman Ben Bernanke said last week the central bank is “ready to respond” if the recovery stalls. While such a move isn’t imminent, he made clear that even with interest rates near zero, the Fed has plenty of options to spur growth if it needs to. When Bernanke in August 2010 spelled out alternative policy measures before launching the Fed’s second round of quantitative easing — $600 billion worth of Treasuries purchases — he listed bond buying first.
But in testimony to Congress last week, communications steps topped the list:
One option would be to provide more explicit guidance about the period over which the federal funds rate and the balance sheet would remain at their current levels.
In his press conference after the Fed’s June meeting, Bernanke offered several other communications menu items, saying the Fed could give guidance on how long it plans to keep buying securities to hold its balance sheet at its current expanded level, or give a fixed date for how long it plans to keep interest rates exceptionally low.
Is Bernanke’s re-ordering of Fed policy tools evidence of preference?
“This may be over-analysis,” wrote J.P.Morgan economist Michael Feroli, who nevertheless believes the Fed will lean toward communications as its next method to loosen monetary policy further should conditions warrant.
Give me liberty and give me cash!
Come back Mr Fukuyama, all is forgiven.
In his 1992 book “The End of History and the Last Man”, American political scientist Francis Fukuyama famously argued that all states were moving inexorably towards liberal democracy. His thesis that democracy is the pinnacle of political evolution has since been challenged by the violent eruption of radical Islam as well as the economic success of authoritarian countries such as China and Russia.
Now a study by Russian investment bank Renaissance Capital into the link between economic wealth and democracy seems to back Fukuyama.
Looking at 150 countries and over 60 years of history, RenCap found that countries are likely to become more democratic as they enjoyed rising levels of income with democracy virtually ‘immortal’ in countries with a GDP per capita above $10,000.
” Only five democracies above the $6,000 income level have died. Even democracies above the $6,000 level have a 99 percent chance of sustaining their political system each year. The only exceptions were the military coups in Greece in 1967 ($9,800), Argentina in 1976 ($8,180) and Thailand in 2006 ($7,440), and the events in Venezuela in 2009 ($9,115), as well as Iran in 2004 ($8,475),” RenCap global chief economist Charles Robertson writes.
The $6,000 per capita GDP seems to be a crucial level, marking the point where a country is likely to shift to democracy. Tunisia, which early this year triggered the wave of uprisings against autocracy across the Arab world, recently crossed that threshold.
Conversely, democracy is most fragile at the lowest income levels and when incomes are shrinking. The world’s populous democracy, India, is a notable exception as its per capita income was under $800 from 1950-1967, and only exceeded $2,000 in 2003.
The iPod – the iCon of Chinese capitalism
Walking past Apple’s sleek shop along London’s Regent Street on Sunday, my wife asked me what I wanted for Father’s Day.
“An iPad?” I ventured, half-jokingly.
“Are you sure you want one? Don’t you care how they’re made?” came her disapproving reply.
She was, of course, referring to the rash of suicides among Chinese workers at Foxconn, the Taiwanese manufacturer of Apple’s much desired iPads and iPhones.
The deaths prompted the company to raise salaries and cut working hours but lingering concerns over conditions for its over 1 million workers in China were underscored by a plant explosion last month that killed at least 3 people.
Workers like those who live and work in Foxconn’s sprawling Chinese facilities have long been the backbone of the country’s vast manufacturing sector which churns out a torrent of consumer goods for export.
But the recent labour unrest that has erupted in parts of China suggests that this low-cost export-fuelled growth model may be wheezing towards its expiry date.
As the wages and inflation rise in China – it will force some businesses to relocate to poorer areas, but also some will return to the USA.
