North Dakota is in the middle of something the rest of the country can only dream of: an economic boom. The state has become a massive success story over the last five years, with unemployment at 2.6 percent and its population growing rapidly to fill demand for oil jobs. “The state’s modern history has been rewritten by the energy industry in just four short years,” writes Bloomberg’s Nicholas Kusnetz. But is it sustainable? Thanks to the shale boom, the state is currently producing as much oil in a month as it did in all of 2004, and production is growing at an exponential rate. That kind of growth can’t go on forever, says Fivethirtyeight’s Ben Casselman. Eventually it’s going to have to flatten out, and that has major implications for the economic stability of a state that has been very suddenly made rich (and just as suddenly dependent on this oil production).
Predictably, Katie Brown, at Energy In Depth (which is funded by the Independent Petroleum Association of America) says Casselman is wrong. It’s not just about recoverable oil, but about changing technology, she says. The U.S. Geological Surveyrecently doubled its estimate of the amount of recoverable oil in North Dakota, an estimate which is up 25-fold since 1995, according to Brown. Better technology is going to mean more oil, essentially. “It’s important not to get trapped by assumptions of static technology, especially in an industry like oil and gas, where innovators have proved over and over … that the recoverability of resources increases over time,” Brown writes.
The White House wants to help you move out of your parents’ basement. That was the message from Jason Furman, the chairman of the White House’s Council of Economic Advisers, at the Zillow Housing Forum in Washington yesterday.
Here are the basics: housing is a big driver in the U.S. economy. Young people aren’t buying houses during the recovery at as high a rate as they did historically, which is at least part of the reason that the housing recovery (and thus the great economic recovery) from the Great Recession has been sluggish. The question is why, and to what extent will this trend become permanent?
The two giants of the beverage empire reported earnings this week, with PepsiCo outperforming estimates and Coca-Cola missing them.
For Coke, global sales volume rose 3 percent, but beverage sales were flat in North America. This is partly because Americans are drinking fewer diet sodas, Reuters reports. Interestingly, sales of regular Coke rose 1 percent in North America, which the company attributes to “demand for smaller packages of the product, which Coke has found to have generated more ‘brand love.’”
The Herbalife saga continues. Yesterday, Bill Ackman made what he claimed would be the most important presentation of his career: a three-and-a-half-hour slideshow detailing how the company’s nutrition clubs prove it is a pyramid scheme. If you put “three-and-a-half hours” and “power point” together and guessed that many felt Ackman’s event failed to live up to the hype, you would be correct. David Gaffen spent most of the time during the presentation tracking the steady rise in Herbalife’s share price. At one point yesterday it was up 25 percent over where it had opened.
Herbalife’s statement on the presentation seized on this: “Once again, Bill Ackman has over-promised and under-delivered on his $1 billion bet against our company.” John Hempton at Bronte Capital (long a supporter on the Herbalife side) didn’t find Ackman that convincing. He says he too has done a lot of research on the company and its nutrition companies. “This is not a pyramid. There are plenty of real sales to real people … Its a lousy business but it is a business in which people have integrated their lives and their families,” he writes.
The latest inflation numbers are out. According to the Bureau of Labor Statistics, the consumer price index rose 0.3 percent in June, following a 0.4 percent rise in May, mostly thanks to high gasoline prices. However, core CPI — which ignores volatile food and gas prices — was only 0.1 percent. CPI year-over-year, which is the number commonly referred to when talking about inflation, now sits at 2.1 percent (1.9 percent without food and gas).
At the Upshot over the weekend, Tyler Cowen writes that Americans’ view of income inequality is too narrowly nationalistic. Instead, he says, we should “preface all discussions of inequality with a reminder that global inequality has been falling and that, in this regard, the world is headed in a fundamentally better direction.” Basically, rising incomes in growing economies like China and India should outweigh the inequality concerns of countries (like the U.S.) where increasing exports are causing incomes at the top to rise. “While Chinese growth has added to income inequality in the United States, it has also increased prosperity and income equality globally,” he says.
A global reduction in income inequality is great, says Ryan Avent, but Cowen’s piece misrepresents the heart of the American argument against income inequality. It isn’t about globalization; instead, it’s about lax financial regulation, subsidies to big banks, low tax rates for the rich, and the appearance that political persuasion can be bought. Further, he says, even if American inequality is benefiting the poor in other parts of the world, “few voters are content to have their economies run as charities.”
The US has a child immigrant crisis. The number of unaccompanied minors sneaking across the border has soared in the last year. From Reuters:
More than 52,000 unaccompanied minors from Guatemala, El Salvador and Honduras have been caught trying to sneak over the U.S.-Mexico border since October, double the number from the same period the year before. Thousands more have been apprehended with parents or other adults.
The U.S. is poised to lose a cigarette company. One of America’s largest tobacco companies, Reynolds American, struck a deal to buy rival Lorillard this week. The deal is for $25 billion excluding debt (which adds about $2 billion more) — although the WSJreports it’s so complex it is unlikely to be finalized before next year. If the deal clears antitrust hurdles, Reynolds-Lorillard together would control somewhere between 35 and 40 percent of the American tobacco market.
Americans on average still smoke 1,300 cigarettes per year, says Roberto Ferdman, but tobacco consumption has been on the decline since the 1960s. “Acquiring Lorillard, the U.S. industry’s third-largest competitor, would help Reynolds cope with the slowdown and give it the Newport menthol line, which is popular in urban areas,” writesBloomberg. Susan Cameron, the CEO of Reynolds, told Dealbook after the merger was announced: “This is about Newport and new synergies.”
Today, Janet Yellen appeared before the Senate Banking Committee to give her semi-annual monetary policy report to Congress. Her basic message, laid out in a prepared statement, hasn’t changed: the economy is slowly improving, but certain measures of the labor market still worry her. Since her last report to Congress in February,“important progress has been made in restoring the economy to health and in strengthening the financial system. Yet too many Americans remain unemployed, inflation remains below our longer-run objective, and not all of the necessary financial reform initiatives have been completed.”
“Yellen’s testimony is likely to reinforce a sense of complacency among investors who regard the Fed as convinced of its forecast and committed to its policy course,” writesBinyamin Appelbaum. He continues that, with regard to the future of monetary policy, “uncertainty about the future is actually contributing to the sense of stability, by making the Fed more cautious about retreating.” Ylan Mui summarizes Yellen’s comments generally: “Move too fast or too abruptly, and the fragile recovery could falter.”
Abenomics grinds on. Bloomberg has just put out a new report on the state of Japanese prime minister Shinzo Abe’s project to revive his country’s economy and concludes that “the record is mixed.” “Inflation is up, though import prices rather than wages account for the bulk of the increase. A skeptical public remains unconvinced that long-term prospects are brighter.” Japan is a little over 18 months into Abenomics, and two of the three “arrows” — fiscal stimulus and monetary easing — have been deployed. Barry Ritholz thinks they’ve already been pretty successful so far: “deflation is being replaced by inflation; profits and investments are both increasing for Japanese companies; and the Nikkei 225 is up considerably.”
However, there’s plenty to be worried about. Back in April, Japan raised the consumption tax to 8% from 5% — the first hike since 1997 (which threw the economy into a tailspin). It was supposed to be “the fatal flaw in Abenomics,” according to theEconomist, but “the early signs are that a preternaturally lucky Mr Abe has got away with it.” However, the Japan Times writes today that the economy has taken a significant hit after the tax hike: average household consumption is down, wage growth is below inflation, corporate capital investment hasn’t made up for the fall in household consumption, and export growth is sluggish.