Last Week's Highlights

U.S. growth in the first half of the year was aided by inventory rebuilding and benefited from various stimulus efforts — including "cash-for-clunkers" and tax breaks for first-time home buyers. Inventory rebuilding is likely to be much slower in the second half and the various stimulus programs are either ending or winding down. To this mix, add some potential uptick in household saving and some negative impact on U.S. exports due to the renewed strength of the dollar and the loss of strength in the Euro-zone. This is not a recipe for a double dip. But it does suggest less growth in the second half of the year.

THE SITUATION ABROAD

The European Central Bank (ECB) has begun to purchase securities in the open market. This is a kind of quantitative easing. Some of the economies have formulated austerity plans, designed to bring down deficits. Greece and Spain announced their tentative plans earlier. Hungary is the latest economy on the continent to announce its plan. These steps have helped in some sense: Credit spreads have not continued to widen. Market volatility has calmed a bit, though remains elevated. And the value of the euro is no longer falling sharply. Still, The Conference Board forecast of not more than 1 percent GDP growth for the euro-zone as a whole, for this year and next, suggests a very tough road ahead.

FACT OF THE WEEK

Ten to fourteen percent. The cost of imported food is expected to rise 11 percent worldwide this year, according to the UN Food and Agriculture Association, in part due to increased demand and higher transportation costs. The implication is that poor countries (defined by the UN as "Low Income Food Deficit" countries or LIFDCs) may have to pay 10-to-14 percent more for key food staples from abroad. Since it is very unlikely that incomes will rise by 10-to-14 percent, there is the potential for more social unrest even as the global economy continues to recover.

QUESTION OF THE WEEK

If the world population growth is slowing, doesn't that imply an aging workforce? And won't that exacerbate the fiscal stress across the globe?

Yes and yes. The rise in the number of older workers and retirees is already higher than the increase in the number of younger workers, in some cases much higher. For example, the U.S. total population growth is just under one percent. But as the accompanying chart shows, the older workforce is rising faster than the overall workforce. The younger workforce is actually declining.

In Japan, where the total population is already shrinking, the difference between the older and younger workforce is even more stark. And this puts added emphasis on already stressed fiscal budgets: more older workers will retire, draw pensions and need medical help, while fewer younger workers are paying taxes on their incomes. Calls for bringing public budgets closer to balance, and bringing down debt levels and debt services become all the more difficult to address given these demographic trends.