Weekly Economic Highlights

Last week: The latest data point to continued slow job and economic growth right through the holiday season and into the winter months. The industrial core of the economy is moderating, with slower gains in industrial production and little life in residential construction. The problems in commercial real estate have yet to reach bottom. The bigger problem is that the much larger service sector has shown virtually no forward momentum all year and is not developing any strength now. The Federal Reserve will probably try more quantitative easing (essentially buying more treasury notes). This probably won’t lower long-term interest rates very much and therefore is unlikely to have a strong impact. As to fiscal policy, no new stimulus plans are on offer, while states and municipalities are busy slashing services in order to close budget gaps. In short, slow expansion continues. While this is not indefinite, no sign of change appear to be on the horizon.

The economy grew by 1.7 percent (annualized) in the second quarter of 2010. The economy probably grew a little more slowly in the third quarter as business investment in equipment and software, inventory accumulation, and exports all experienced smaller gains than in the first half of this year. The big news however, could be in the form of significantly slower profit growth. And in turn, that would be a signal that investment and inventory could remain soft right into the first half of 2011. The real problem, however, is that with weak consumer attitudes, soft job and income growth, along with less discounting after the holidays, the overall economy might slow to less than a 1 percent pace in the first half of next year. To be sure, it is much easier to envisage a negative surprise going forward than any positive development.

THE SITUATION ABROAD

The latest IMF forecast, released this week, estimates that Latin America is growing by 5.7 percent this year, compared with about 3.5 percent for the entire global economy. The commodity producing sectors (driven by higher commodity prices) of Peru, Argentina, and Brazil are spearheading this spurt in growth. Despite its crude oil production, Venezuela is mired in recession. Indeed, one concern is that higher commodity prices and sharp growth could release inflationary pressure. But with industrial production moderating across the industrialized world (as signaled by The Conference Board Leading Economic Indexes), commodity prices could begin to moderate, reducing the risk of an outbreak of inflation.

FACT OF THE WEEK

1.8 percent. The recession officially ended in June 2009, but many local governments are facing a fourth straight year of declining sales tax revenues. That’s not all. It takes time for property appraisal to catch up with the long steep slide in home values. That is beginning to take effect now. The National League of Cities estimates that the downward assessment of property values could result in a 1.8 percent decline in property tax revenue, to go with the continued slide in sales tax revenue. Meanwhile, programs like unemployment insurance, food stamps, and other assistance have increased, for obvious reasons. While the debate on fiscal policy will be renewed in the next congress, after the election, the problems at the state and especially at the local level have yet to begin to turn around, a full year after the official end of recession.

FACT OF THE WEEK II

9 percent. The Association of American Publishers estimates that 9 percent of books purchased are e-books, read on electronic devices. Who reads them? An estimated 4 million households have an e-book reader. But the really amazing fact is that in this economy, which is growing now by more than 1.5 percent, sales of e-books are up 193 percent from one year ago. That’s impressive. Who says so? Stephen King for one.

QUESTION OF THE WEEK

As the world’s economy grows, will there be enough water for agriculture, energy, business, and consumer use?

Right now much of the focus around the globe is on getting the global economy back on track. But yes, even when that is accomplished, questions about natural resources remain. Some of these questions revolve around energy supply. Water supply is yet another question going forward. Food supply is the third major concern. And these three — energy, water, and food — are inextricably connected.

Clearly, it takes water to turn raw energy materials into useful fuels. It takes water to produce crops, and crops to feed livestock. For example, it required 250 tons of water to generate one ton of sugar cane. It takes a lot of energy to generate a ton of wheat. It should be obvious that producing meat is even more water intensive, as the cattle need to feed on grain. One big problem is that economic growth produces rising living standards. In short, more people are eating more meat. And that means there is more call for water resources.

Finally, it does not require water to produce energy fuel, but it requires water to get energy and food to the factory, office building, or home. Again, rising living standards increase demand for water — for cooking, heating, or cooling. And an increase in the population living in colder or hotter regions further strains already stretched.