to watch for now
In a poll by Bloomberg News, economists lifted their estimates for the third
quarter GDP by 1.2% compared with July, which would be the biggest boost in
surveys since May 2003. These projections followed better than expected reports
in manufacturing, employment and home construction. Consumer spending is
expected to rise about 1.5% from July to December. This was partially fueled by
strong demand thanks to the "cash for clunkers" car-rebate program.
Will this increase be temporary or have a ripple effect? The cash for clunkers
program was effective and made sense. Ditto for the tax credit for first-time
home buyers, this was an excellent targeted program that helped stimulate demand
for homes. The cash for clunkers program
is over, however, if the tax credit for first-time home buyers is extended, it
will bode well for the economy. It will also be interesting to see if the
momentum started by these two programs will last or dissipate.
Watch home prices
and sales figures:
Lower home prices and government tax breaks pushed many would-be home-buyers
off the fence and into the real-estate market, but will this trend continue?
July was the last month that builders can start new homes and have first-time
buyers qualify for a new tax credit. Buyers can save 10% on the price of a
home, up to $8,000 in taxes, if they complete the purchase by the end of
November. Builders and real estate agents are pressing Congress to extend that
credit, but if the tax credit expires, "We could see a fallback,"
said David Crowe, chief economist for the National Association of Home
Builders. This is absolutely something
to watch the news for.
Watch jobs: With the labor
force growing at an average 1% rate, the economy needs to grow
3% just to keep the current unemployment rate steady, which could mean another
jobless recovery. Again, an extension of the housing tax rebate would be a big
help in creating jobs. Where Americans
wind up on the spending vs. savings question will also determine job growth.
Watch the WTO-China conflict: Further job
creation may hinge on the conflict between the World Trade Organization and China.
Around Labor Day, China
is supposed to stop many illegal activities that protect their own domestic
market against imports, while ignoring rules meant to create free and fair
trade overseas. This fight is very important, and is worth understanding
because it may have wide ramifications.
The background is
this: The U.S. won a wide-ranging ruling against Chinese trade practices that
could provide massive market opportunities for American makers of everything
from CDs and DVDs to music downloads and books. A recent WTO ruling went
against China for forcing
American media producers to route their business in China through Chinese state-owned
companies. The China American Report by Adrian van Eck highlights the
developments in this way: "The WTO victory comes as President Barack Obama is
being pressed to be tough on trade rules with China, which many Democrats in
the U.S. Congress blame for America's soaring trade deficits and lost
manufacturing jobs. The case is sensitive also for the Chinese government,
which asserts the right to keep out content it finds objectionable. (An
industry insider we spoke to said that they sit on the releases a number of
months so that Chinese manufacturers have time to produce and sell pirate
copies.) The case goes to the heart of the larger dispute over China
and its rapid rise as a trade power and exporter, with some of its economic
partners believing it has achieved its position in part by protecting its own
companies who have a dog in this fight range from record labels such as EMI and
Sony BMG; publishers including McGraw Hill and Simon & Schuster; the major
Hollywood studios of Warner Bros., Disney, Paramount, Universal and 20th
Century Fox, Apple Inc.'s iTunes store, etc. (An iTunes-related example: the
ruling found that China was breaking trade rules by preventing companies
offering music downloads to computers and mobile phones from offering their
services directly to Chinese customers.)
Trade Representative Ron Kirk called the ruling a "significant victory to America's
creative industries." "These findings are an important step toward
ensuring market access for legitimate U.S.
products in the Chinese market, as well as ensuring market access for U.S.
exporters and distributors of those products," Kirk said in a statement.
"We will work tirelessly so that American companies and workers can fully
realize the market opening benefits that this decision signals."
Allen, CEO of the Association of American Publishers, called it a
"landmark ruling." "It protects legitimate creators of valuable
content and offers them fair access to this extremely important market,"
Allen said. "Both these long-standing market-access barriers and
widespread piracy and counterfeiting in China cause serious economic damage
Glickman, chairman of the Motion Picture Association of America, called China's rules for distributing American films
"among the most restrictive and burdensome in the world," but said he
hoped the ruling would provide a "pathway" for U.S. films to be treated more
says and what it does are often two different things. The intellectual property
case is important because in good times, the world could afford to look the
other way and put up with unfair trade practices. But in a global recession, governments
around the world are less likely to ignore the intentionally cheap currency in China
which takes jobs from other countries and intellectual property disputes which
rob their domestic companies of profits which ultimately translates to tax
revenues and jobs. A real resolution of these issues could help stem the flow
of jobs to China and maybe bring some jobs back as the cost advantage
specific fights are important both for their immediate impact and for what they
mean for the larger issue of fair trade with China. Watch the Obama administration and the news
closely on this. The Obama
administration will have to decide by late September whether to restrict
imports of Chinese tires in the United
States, at the risk of further upsetting the
Chinese government and many large corporate contributors to his campaign. In
our opinion, this will be a real test of his mettle as leader, so watch
closely! We should not fear trade disputes with China. What they produce can be
produced elsewhere if needed, but the demand for what we consume in America is not
replaceable at this time. In other words, our leadership needs to remind China
that they would not be able to replace us as customers.
Watch for Americans
to feel more secure in their jobs and start spending a little more: With the
aforementioned slowing in the pace of job losses, Americans may feel more
secure in their jobs and therefore find a happy median between the free
spending days before the "great recession" and the tight-fisted ways of today.
My guess is this is what will happen if the economy continues to right itself
and job losses continue to moderate.
Watch the progress
of stimulus money:
The stimulus money was planned to be released over a period of about two years.
That time frame was initially criticized because the economy needed immediate
help. Now it looks smart to have some of the stimulus rolling in as the Fed
ceases some of its policies that helped save the banking industry. That should
help keep the economy stable. As these issues resolve and unfold, the big test
for the Fed will be whether Bernanke can avoid raging inflation as he works
with the Obama administration to wind down the stimulus programs. All of this
hopefully comes at a time when spending finds a happy middle ground between the
old days of cash-and-carry and the overboard credit of recent years and, just
so happens, as the next presidential election cycle begins.