Full economic recovery may require vaccine

The US Federal Reserve Chairman  says that a full economic recovery may take well over a year, and it may be dependent on a Covid019 virus becoming available.

That isn’t a surprising prediction, as a return to unrestricted international travel is likely to also depend on a vaccine. Travel affects business, especially tourism. Airlines that survive may it difficult to get back previous levels of business if social distancing remains required.

Reuters: Fed’s Powell says full economic recovery may require coronavirus vaccine

Federal Reserve Chairman Jerome Powell said a U.S. economic recovery may stretch deep into next year and a full comeback may depend on a coronavirus vaccine.

“This economy will recover. It may take a while … It could stretch through the end of next year. We really don’t know,” Powell said in remarks aired on CBS’s “Face the Nation”.

“Assuming there is not a second wave of the coronavirus, I think you will see the economy recover steadily through the second half of this year. For the economy to fully recover people will have to be fully confident and that may have to await the arrival of a vaccine.”

Like governments a lot of businesses will need to rely on borrowing to survive, and that could be a burden for years.

The world economy is in part reliant on the US economy, as is New Zealand’s economy. We have done a lot of travel to and through the US, and a lot of business with them.

Covid deaths have now passed 90,000 in the US, with trends indicating that wil reach well over 100k by the end of May and still climbing into June – see Where The Latest COVID-19 Models Think We’re Headed 

Reuters: So far, no spike in coronavirus in places reopening, U.S. health secretary says.

U.S. authorities are not yet seeing spikes in coronavirus cases in places that are reopening but it was still too early to determine such trends, health secretary Alex Azar said on Sunday.

“We are seeing that in places that are opening, we’re not seeing this spike in cases,” Azar said on CNN’s “State of the Union” program. “We still see spikes in some areas that are, in fact, closed.”

However, Azar said identifying and reporting new cases takes time. A critical part of reopening will be surveillance of flu-like symptoms in the population and other hospital admissions data, as well as testing of asymptomatic individuals, he said.

“It’s still early days,” Azar cautioned in an interview with CBS’ “Face the Nation.” He said data will take some time to come in from states that reopened early such as Georgia and Florida.

There are now 315,000 deaths currently recorded world wide. It is difficult to predict what the trends are going to be over the next few months as US states as well as countries start to cautiously reopen.

Some countries have increasing problems, like Brazil and Mexico, and Russia is now second to the US in number of cases, but with an extraordinarily low number of deaths recorded.

Two of the worst hit countries are at lowering rates – Spain and Italy record lower death tolls

Spain has recorded its lowest death toll in two months with 87 deaths in 24 hours, while Italy recorded its lowest daily toll, 145, since lockdown was declared.

It was the first time that Spain announced under 100 deaths in a day since mid-March, which could be due to a delay in reporting over the weekend, the health emergency coordinator said.

Prime Minister Pedro Sanchez said on Saturday that the government would request to extend the state of emergency for another month as the country continues to phase out restrictions on movement amid the coronavirus pandemic.

The state of emergency was set to end on May 24.

Declaring the lowest number of daily deaths since 9 March, Italy is now looking to bring forward the reopening of some commercial activity in the country, with retailers, hairdressers, salons, restaurants and cake shops authorised to open from tomorrow.

Spain has been relaxing stringent restrictions over the lats week. But weekend numbers are lower then weekday numbers.

DW: Brazil overtakes Spain, Italy in COVID-19 cases

Brazil overtook Spain and Italy in the number of confirmed COVID-19 cases on Saturday, making it the fourth-largest outbreak in the world.

The country’s total number of cases rose to 233,142 after authorities logged 14,919 new cases, according to data form Brazil’s Health Ministry.

A total of 15,633 people have died due to the coronavirus in the country so far, with the country registering 816 new fatalities over the past 24 hours.

Experts have warned that due to under-testing, the actual figures could be as much as 15 times higher, cautioning that the worst could be yet to come.

Despite the rising case numbers and fatalities, Brazilian President Jair Bolsonaro has repeatedly downplayed the seriousness of the outbreak, dismissing the virus as a “little flu.”

He has also continued to attack lockdown measures implemented by some governors to contain the spread of the virus, and calling for businesses to reopen

“Unemployment, hunger and misery will be the future of those who support the tyranny of total isolation,” the far-right president tweeted.

RNZ: Brazil’s Bolsonaro sees second health minister quit

Brazil’s health minister has resigned after less than a month in the job following disagreements over of the government’s handling of the country’s escalating coronavirus crisis.

At his news conference, Teich did not reveal why he had stepped down. He just thanked President Bolsonaro for giving him the chance to serve as a minister and praised healthcare workers.

But he has clashed with the president over several aspects of how the government has dealt with the spiralling epidemic.

He disagreed with the president’s desire to widely use chloroquine as a treatment. The drug has gained widespread attention although the World Health Organisation (WHO) says there’s no definitive evidence it works.

Teich also butted heads with the president over plans to open up the economy, saying last week that he was not consulted ahead of an order that paved the way for gyms, beauty salons and hairdressers to reopen.

Case and death rates are increasing in Brazil.

A study comparing Denmark and Sweden claims that most of the drop in consumer spending is due to the virus itself and not the lockdowns. Newsroom: New paper calls into question benefits of Swedish strategy

Economists at the University of Copenhagen have found lockdowns have had little impact on consumer spending habits and that the true dampener of purchasing activity is the coronavirus itself.

The findings of the preprint paper, which may not have been peer-reviewed, call into question the premise of the much-touted Swedish strategy, in which the Nordic country has shied away from entering lockdown, suffering thousands of deaths as a result, in order to preserve the economy.

Transaction data for 830,000 Danes and Swedes from the second-largest Scandinavian bank found aggregate spending dropped by 25 percent in Sweden and 29 percent in neighbouring Denmark, which instituted a lockdown. Denmark has had 10,713 cases of Covid-19 and 537 deaths, while Sweden has seen 28,582 cases and 3529 deaths.

“In Denmark, spending drops sharply around the shutdown on 11 March 2020 and remains below the level in the reference period,” the researchers write.

“In Sweden, spending drops sharply at almost the exact same time although no significant restrictions were imposed. Presumably, this is no coincidence but reflects that the Danish shutdown responded to an escalating pandemic, similar in the two countries, with its own strong effect on spending. This highlights the empirical difficulty of separating the effects of social distancing laws and the pandemic they are designed to contain.”

In their conclusion, the economists argue that the lockdown resulted in just a 4 percent decrease in spending and that the virus itself was to blame for the vast bulk of the economic slump.

With no sign of a vaccine keeping the virus in check and getting economies back in action may be a long slow process.

The need to address both health and economic issues and also for stability

Some of the Covid debate has tended towards health versus economy, but it can’t be an either/or argument. Good health of the population is important for the economy, and a good economy is important for health and wellbeing – “there are many dimensions to health and well-being, many of which build fundamentally on economic stability”.

We had to go into some degree of lockdown, and we have to come out of lockdown. The big challenge is to do this as safely as possible as far as Covid health is concerned, but taking into account the importance of the economy in general, but also specifically in relation to individual and community health.

Many of us have kept a close eye on Covid data, numbers and rates of cases, deaths, tests and more.

Economic signals have been much more mixed, for example share markets plummeted, but have since recovered a lot of the lost ground.

But there’s a key difference – Covid proved to be able to spread fast, and deaths started to surge within a month of an outbreak. Containment has been observable. In contrast a lot of the economic effects are spread over many things, and are likely to lag somewhat. Some companies and jobs will survive, and while some have already been lost the economic impact will take months (at least) to play out.

One of the go to websites for data has been the Johns Hopkins University Covid map.  Caitlin Rivers is an assistant professor in Outbreak science + epidemiology + health security, but she acknowledges the importance of considering both health and the economy,

I’ve been noticing a dangerous polarization in our discussions around navigating our way through the pandemic.

She’s in the US were polarisation has been a growing problem since well before Covid struck.

Reopening is said to be playing games with people’s lives. Continuing stay at home measures is said to be without regard for the economy. This is a false choice.

We were the first group to put out detailed reopening guidance back in March, the same week that many states were issuing stay at home orders. The goal is and has always been to reopen – the question is how to do it safely

Staying home was always meant to be temporary, to prevent the healthcare system from being overwhelmed and to put in place capacities to enable a transition to case-based management. The question is how and when we will reopen. It was never about if we will reopen.

I’ve written about the answers to these questions extensively. The ‘how’ is through test-trace-isolate. The ‘when’ is as soon as we have that in place. The ‘then what’ is by re-introducing low risk activities, waiting to see what happens, and moving up from there. 

As I’ve said many times, what we want to avoid in the reopening process is creating the conditions that led to us having to stay home in the first place. The conditions of NYC, Lombardy, Wuhan. And yes, those places are all urban centers, but rural areas are vulnerable, too.

In April an average of ~2,000 people died of coronavirus in the US each day. That is more than daily average from cancer or heart disease. I fear there is growing complacency that this level of loss is a new normal. Are we really ready to add a new leading cause of death?

My answer to Q’s about whether x, y, z place is ready to reopen is to ask whether those places have the capacities, and if not, how do we build them. Yes, it’s a big lift, but (my current fav phrase) we have done hard things before. We can do this too.

But – and I’ve said this before too – there are many dimensions to health and well-being, many of which build fundamentally on economic stability. I worry as much as anyone about secondary consequences of e.g. poverty and other gaps in care of chronic conditions.

My job is to provide public health counsel, and so that’s what I do. It’s a missed opportunity to have a deeper discussion when I or other experts are set up in an either-or, economy-public health discussion. It’s about how we do both, safely

Again I’ll quote “ there are many dimensions to health and well-being, many of which build fundamentally on economic stability” – this suggests that now is not the time to launch into radical economic or social change, which would be certain to result in instability.

Questions on “safe economic activity” at lowered Covid-19 alert levels

Questions were asked at today’s Epidemic Response Committee about what different alert levels will mean to businesses wanting to restart. There seems to be a focus on “what constitutes safe economic activity”.

From Stuff Live:

Simon Bridges probing the “levels” in relation to the economy. Treasury’s modeling shows the lower the level, the better the economy. He said businesses are telling him they want to go to level 2. “Level 3 is a bit of a no man’s land”.

Grant Robertson is saying the detail of the lockdown coming this week will give business some clear guidance of what’s permitted. He’s saying it will show us “what constitutes safe economic activity”.

“I don’t share your view around level 3,” Robertson says level 3 will allow us to increase economic activity.

He says he’s been working with the construction sector to work out what safe economic activity looks like.

Robertson is saying the enthusiasm for coming out of lockdown early can actually mean yo-yo-ing between levels, which isn’t good for economic activity either.

Paul Goldsmith asking about “what sort of pragmatism” will be brought to the health regulations that will determine how businesses work under levels 2 and 3.

Robertson said work is underway on those issues, so there would be real clarity.

Contact tracing will be important too. “Knowing who is in your workplace, knowing where they are and what they’re doing”. This will help us manage flare ups as they come.

Responding to Marama Davidson, “the best economic response is a strong public health response”.

Sounds like a patsy.

University of Otago epidemiologist, Professor David Skegg, said countries that had not succeeded in controlling this disease, their economies were not going to flourish.

“I’m not an economist, but I would be very surprised if we’re going to do worse economically because of the measures we’re taking in the medium term.”

He stressed that the country should get to level 2.

“We need some careful planning this week on what level 3 or level 3.5 would look like.

“It’s not just a health issue and it’s not just an economic issue,” Skegg said.

From RNZ Live:

Simon Bridges said level 3 was akin to no man’s land with the downsides of level 4.

Finance Minister Grant Robertson said when deciding on moving to level 2 and 3, his focus was on “what constitutes safe economic activity?”

“Level 4 is doing exactly what we wanted it to do for New Zealand and New Zealanders. The last thing we want is to come out level 4 and create a situation where we have to yo-yo between levels.”

Meanwhile, Paul Goldsmith said businesses needed clarity on returning to work and how social distancing would look like in the working environment.

“There’s a shared desire among industry workers, government to get people back to work as soon as possible. Health and safety is a very important part of the workplace,” Robertson said.

“The best economic response is a strong public health response and that has to be underpinned by an investment in our health system.”

Stuff:

Michael Woodhouse asking whether the “principles approach” is sector based or risk based.

The question is really whether or not the businesses that open will be determined by the kind of business they are (for example cafes) or the kind of measures that are put in place by any business, so cafes that follow those guidelines could reopen, whereas the one’s that don’t implement the guidelines don’t reopen.

Robertson said it will be mainly the latter (so not sector-based) BUT you can’t completely detach sectors from the guidelines.

Bridges asking whether level 3 is therefore significantly more permissive than level 4.

No response given.

Robertson saying that in the case of the media, “the patient had pre-existing conditions”.

Media just about had comorbidity.

 

 

 

Business and the economy versus the ill, elderly and others

There’s no doubt that Covid-19 will have a very large impact on businesses and employment and livelihoods in New Zealand, and our economy will take a big hit. This will have happened regardless of the actions taken by the Government. It’s debatable what would be worse, doing more or doing less to limit the spread and infection rates.

It is also likely there will be deaths here. There are currently 368 confirmed and probably cases. Many of those will be mild to moderate and are being treated at home. Some are more serious and require hospitalisation.

Even with the relatively stringent lockdown cases are expected to rise for the next 7-10 days (or more if people flout the restrictions on movement away from home).

There is no doubt that without the level 4 lock down there would be a lot more spread, many more people catching the virus, and a real risk of quite a few deaths.  This shows how easily it can spread even with restrictions:

Marist College, Auckland – 18 confirmed cases, 1 probable
Private wedding, Wellington – 10 confirmed cases, 2 probable
Rest home, Hamilton – 11 confirmed cases

Older people and people with existing medical conditions (especially lung or heart) are particularly susceptible to Covid-19, but this is hardly surprising, they are also more susceptible to other viruses and illnesses. Younger people seem to generally have milder symptoms – but they can still spread the virus.

There have been suggestions that the virus should be left to take it’s course, to build ‘herd immunity’. This must accept an inevitable casualty rate – people would die, possible quite a few people.

It has been suggested elsewhere and also here that it isn’t a big deal that old people and people with illnesses might die of Covid-19. They die of other things anyway, Covid will just knock them off a bit sooner.

From Australia Victoria’s first two coronavirus deaths were cancer patients caught in Alfred hospital outbreak

Victoria’s first two coronavirus deaths were cancer patients at The Alfred hospital, and a further five cases of COVID-19 have been confirmed among patients and staff.

Duker commented on this:

Bingo! It seems like northern Italy all over again, the sick people get sicker and the elderly have less chance to recover.
It’s a fact of life and one day it will be my turn.

I’m quite disturbed by this attitude.

It’s a fundamental fact of life that we will all die, eventually.

But it is also a fundamental facet of a decent society that we don’t just do nothing to prevent old and ill people dying of any new virus or disease, treating them as expendable.

We put huge budgets and resources into health care to try to keep everyone alive as long as reasonably possible.

People who get old often live to get quite a bit older after having illnesses.

My father had most of his stomach removed in the 1980s, had a bowel cancer operation in the early 1990s, his lungs were fag fucked with emphysema, but he still had a fairly good life up until 2000.

In the mid-90s he was given a choice of having chemotherapy which would give him a 60% chance of not dying of cancer, or doing nothing and lowering his chances to 40%. He chose not to have chemo because he didn’t want to suffer through the treatment with a close to 50/50 chance it wouldn’t save him anyway. But this was his choice, and I think a sensible one.

If a Covid-like virus had hot the country then and I was given a choice of saving my business (I was a sole trader than) or saving his life I would have chosen his life. I had already changed jobs and moved so I could support him as his health problems increased (just after he had a mild stroke).

I’m sure there are many people who would put people before money in this way.

I think it would be terrible to let Covid-19 spread freely in New Zealand to try to reduce the impact on business and the economy.

I also think it would be misguided. If we didn’t have a lockdown and Covid-19 ran rampant here, as it almost certainly would, there would likely be hundreds if not thousands of deaths and many more hospitalisations. That in itself would be expensive.

If our hospitals were swamped with Covid cases – I presume no one things they should be left to suffer and die untreated – it would increase deaths by other causes because of lack of resources and treatment.

And if New Zealand was ravaged by Covid-19 there is no chance of tourism  recovering, no one would want to come here. New Zealanders would be banned from travelling to many countries. It’s likely exports would also be affected, air and sea transport would be badly compromised, and New Zealand would be an unpopular source of goods.

Internally if the virus was uncontrolled it would also have a major impact on travel and business. Many people would willingly keep away from places and businesses that were a risk to their health and life.

The main difference would not be economic impact, it would be whether the economic and employment was in a well controlled situation or chaotic and uncontrolled.

It’s debatable (and impossible to know) which would be economically worse, doing a lot to limit Covid-19 as we are, or doing much less or nothing.

Regardless of the economic factors and effects, we can’t just treat the elderly and the ill as expendable to try to save a few jobs and possibly (but probably not) keep the economy healthy.

“But the flu’ is trotted out by Trump and some here – but we have a choice of vaccinating against the flu and minimising our risks. We can’t do that with Covid. And because we could potentially die of something else, the flu (more often of complications), of cancer, of heart disease, is a very poor reason to not protect against a new threat.

If I was in a decision making position I certainly would put the health of citizens – especially the old and the ill – ahead of the economy. I back and applaud our Government and unanimous Parliament doing this.

No matter what the financial impact of Covid-19 measures, businesses will survive, new businesses will fill gaps, the economy will recover.

No one recovers from death.

 

Recession imminent? Economic indicators to watch this year

The world is overdue a recession, or worse. US sharemarkets ended the year dropping a lot from earlier record highs and then recovering a bit, but still well off the highs. So what is likely to happen this year?

Reuters: Breakingviews – Three key indicators to watch like a hawk in 2019

Want to know whether there’s going to be a U.S. recession, a flare-up in the trade war, or a spate of corporate implosions?

…just stay focused on these three proxy indicators.

Soybeans. American farmers have been early victims of the escalating response to President Donald Trump’s import levies. When crops from other countries like Brazil are relatively more valuable, it suggests traders are more worried tariff barriers will persist.

U.S. yield curve. Different experts pick different comparisons, but in the past when the yield on 10-year Treasury bonds has dipped below the return on two-year government paper, a recession has followed. As 2018 draws to a close, the gap is once again very thin.

Corporate health. One hint at sentiment comes from indexes that track how many stocks in given markets are in bear territory, meaning they have fallen 20 percent or more in value from their peak prices in the last 12 months. About half are in that zone in developed markets and more in emerging economies. That might mean shares are cheap. Or it might signify negative sentiment and an accelerating slide in 2019.

This is very US-centric, but the health of the US economy has a major effect on the rest of the world, including us.

It is difficult to predict when recessions will occur, but one near certainty is that they will keep occurring. The world is overdue from an economic setback.

The New Zealand economy is in good shape, but can be easily impacted by overseas markets.

Fortunately Minister of Finance Grant Robertson took a prudent approach to his first budget in 2018. However there is pressure on the Government to deliver on it’s social promises – or at least on expectations on what a kinder more progressive government should be doing.

The best time for significant tax and social reform is when there is money available to do it, like now when our books are in surplus.

If major measures are not put in place before the next recession it will get a lot harder.

And back to the US – tax changes there have substantially increased US debt, so they are not in a good position to weather a recession. This could make an economic hiccup worse.

‘Green’ carbon-neutral transition investment fund launched

A $100 million fund has been launched to promote growth in low-carbon business to help “transition to a clean, green, carbon-neutral New Zealand”.  It is called New Zealand Green Investment Finance Ltd so the Greens get to promote their name along with the business orientated fund.

This has come from the Labour-Green Confidence & Supply Agreement, which included:

4. Stimulate up to $1 billion of new investment in low carbon industries by 2020, kick-started by a Government-backed Green Investment Fund of $100 million.

It is a one-off sum that is intended to “operate independently from Government and work in a market responsive and commercially focused way” in contrast to NZ First’s much larger $1 billion per year Provincial Growth Fund that Shane Jones keeps dishing out as he promotes himself as a champion of the provinces.

It is a sizeable amount of money, but is probably a worthwhile trial to see if James Shaw’s aim of a establishing a ‘green’ economy.

Jacinda Ardern, James Shaw: $100 million investment fund launched to invest in reducing emissions

Business and the Government will jointly tackle climate change with the launch of New Zealand Green Investment Finance Ltd; a $100 million fund to reduce New Zealand’s greenhouse gas emissions, Prime Minister, Jacinda Ardern, and Climate Change Minister, James Shaw, announced today.

The fund is a central plank in the Government’s plan to transition to a clean, green, carbon-neutral New Zealand and it delivers on a Green Party Confidence and Supply Agreement commitment.

“Tackling climate change is a priority for this Government and business involvement is crucial to our success. No one can opt out of the impacts of climate change. This fund helps business to opt in to the solution,” Jacinda Arden said.

“Lowering emissions will require innovation and action from all sectors.

“This fund means the Government is bringing cash and know-how to the table to partner with business to deliver a clean, green future for everyone.

“This new investment fund is an important component of New Zealand’s plan to build a clean, sustainable, low-carbon economy that has both lower emissions and profitable enterprises,” Jacinda Ardern said.

“New Zealand Green Investment Finance will be a commercially focused investment company which will work to invest with business to reduce emissions while making a profit,” said James Shaw.

“The Government’s $100 million start-up capital injection is intended to stimulate new private sector investment in low-emissions industries; with returns over subsequent years expected to pay back the Government’s investment and see  NZ Green Investment Finance stand on its own commercial footing.

“More and more investment dollars are looking for clean, sustainable ventures to invest in. Establishing this fund positions New Zealand to attract its share of that investment capital.

“New Zealand faces a big job in upgrading our economy and infrastructure. New Zealand Green Investment Finance will help deliver financial backing to help ensure that the upgrade is fit for purpose,” Mr Shaw says.

FAQs:

What will NZ Green Investment Finance Ltd do?

NZGIF will bring financial and technical emission reduction expertise together into one organisation with the sole aim of increasing investment into low-emissions projects.

It will act as a bridge between investors and key industries and sectors, and identify low emissions projects ready for upscaling, commercialisation and use.

Why is NZ Green Investment Finance Ltd being established as an independent entity?

NZ Green Investment Finance Ltd is being established as a company under Schedule 4A of the Public Finance Act 1989 so that it can operate independently from Government and work in a market responsive and commercially focused way.

What will NZGIF finance?

NZGreen Investment Finance Ltd will have the flexibility and mandate to focus on sectors and industries where the greatest impact on emissions reductions can be made.

Potential opportunities include things like electric vehicles, manufacturing processes, energy efficient commercial buildings and low-emissions farming practices.

With New Zealand’s electricity supply already using around 85 per cent renewable sources, NZGIF will focus on tackling other sectors.  However, there may be opportunities to back smaller scale renewable energy projects; where they are smart and can contribute to making our electricity supply more sustainable as demand for electricity rises.

As a commercial entity, NZGIFwill likely focus on solutions that already exist; for example, knowledge and technology being used internationally where there is scope for use in New Zealand.

The Budget 2018 announcement referred to the NZ Green Investment Fund. Why has it changed to Green Investment Finance Ltd?

Use of the word ‘Finance’ is a more accurate reflection of the purpose and market-leading role NZGIF will play.

Why isn’t the private sector financing these sorts of investments?

New investment markets take time to develop and investors rely on good information to assess viability and risk.

They also need financial products which are structured in a way that fits the market.

As a result, there is limited activity initiating and funding low emissions or ‘green’ investment deals here.

The establishment of NZ Green Investment Finance Limited, which will focus on accelerating private sector investment into emissions lowering projects, will fill this gap.

More details about NZ Green Investment Finance Ltd are available here.

The government funded company may take a few years to prove if there is good business in low-carbon initiatives.

 

 

Meanwhile the US economy continues to thrive

Despite all the political turmoil and President Trump’s confrontational and divisory approach the US economy continues to do very well, but there are some warning signs

The US share market is easing off record highs – the boom there may be a good sign, but could also pose future risks of a big bust.

Market Watch:  Job creation, wages slip in September as unemployment falls to 48-year low

The U.S. unemployment rate sank to a 48-year low of 3.7% in September as the economy added 134,000 new jobs, setting the stage for a strong holiday season to finish out what’s been stellar year for the U.S. economy.

The increase in hiring was the smallest in 12 months and below the recent trend, perhaps reflecting the effects of Hurricane Florence. Economists polled by MarketWatch had forecast a 168,000 increase.

Yet the increase in new jobs was enough to lower the unemployment rate to 3.7% from 3.9%. The last time the jobless rate was lower was in December 1969 — when the first man walked on the moon.

Many economists predict the jobless rate will fall even further in the months ahead.

Reuters:  U.S. job growth cools; unemployment rate drops to 3.7 percent

U.S. job growth slowed sharply in September likely as Hurricane Florence depressed restaurant and retail payrolls, but the unemployment rate fell to near a 49-year low of 3.7 percent, pointing to a further tightening in labor market conditions.

“The weaker gain in payrolls in September may partly reflect some hit from Hurricane Florence,” said Michael Pearce, senior U.S. economist at Capital Economics in New York. “There is little in this report to stop the Fed continuing to raise interest rates gradually.”

Fed Chairman Jerome Powell said on Tuesday that the economy’s outlook was “remarkably positive” and he believed it was on the cusp of a “historically rare” era of ultra-low unemployment and tame inflation.

Bloomberg:  Powell Heaps Trump-Like Praise on Economy as Rate Hikes Loom

In what Fed watchers say was unprecedented four public appearances over the past week, Powell repeatedly lauded the economy’s performance, calling it “remarkably positive,” “extraordinary” and “particularly bright.” And he said he expected the good times to continue.

“Interest rates are still accommodative, but we’re gradually moving to a place where they’ll be neutral,” neither holding back nor spurring economic growth, Powell said. “We may go past neutral. But we’re a long way from neutral at this point, probably,” he added.

The Fed raised its interest-rate target range last week to 2 percent to 2.25 percent.

Breaking with decades of presidential precedence, Trump has repeatedly criticized the Fed in recent months for raising rates. His latest salvo came on Sept. 26, just hours after Powell and his colleagues boosted rates for the third time this year.

Asked by veteran television anchor Judy Woodruff for his response to Trump’s outbursts, Powell replied, “My focus is essentially on controlling the controllable”.

The current economic expansion is already the second-longest in history, trailing only the 10-year period of the 1990s. If it continues, it will surpass that upturn next year.

But one trend should be of concern, US Government Debt:

Today the Federal Debt is about $21,605,363,414,469.16.

The amount is the gross outstanding debt issued by the United States Department of the Treasury since 1790 and reported here.

But, it doesn’t include state and local debt.

And, it doesn’t include so-called “agency debt.”

And, it doesn’t include the so-called unfunded liabilities of entitlement programs like Social Security and Medicare.

Forbes: Why The Federal Deficit Isn’t Cause For Panic… Yet

If you’re reading this, then it probably means you have also watched pundits scream at the top of their lungs about the impending doom brought about by the US deficit. Numbers like $20 Trillion are enough to scare anyone, so concern is warranted, however, panic is not.

The federal government is projected to add $985 billion to the federal deficit during fiscal year 2019. That’s because the government plans to spend over $4.4 trillion dollars, while bringing in only $3.42 trillion dollars. Nearly $400 Billion of the spending will go to service debt that’s already accrued over the years and that figure will only rise as interest rates increase.

While those numbers are astonishing and difficult to really wrap your mind around, it’s not as bad as it sounds. According to the non-partisan Congressional Budget Office’s (CBO’s) Budget and Economic Outlook: 2018 to 2028, “In CBO’s baseline projections, which incorporate the assumption that current laws governing taxes and spending generally remain unchanged, the federal budget deficit grows substantially over the next few years. Later on, between 2023 and 2028, it stabilizes in relation to the size of the economy, though at a high level by historical standards.”

Now I said not to panic earlier, because there are a number of adjustments and scenarios that will let the U.S. keep borrowing and spending long after any individual would have had their credit cards canceled. That said, at some point time will run out and our options to fix the situation will be less and less friendly. It’s the equivalent of waiting until you’re in the hospital to make lifestyle adjustments. By then, it might be too late.

The Baltimore Sun: U.S. debt addiction threatens national security

Arising China. An emboldened Russia. A nuclear Iran. Cyberwarfare. Ask a defense expert to name America’s biggest security concerns, and one of these will likely top the list.

These threats are real, of course. But one of the biggest dangers to our nation isn’t a hostile foreign actor. It’s a domestic one — our leaders’ addiction to debt.

The U.S. national debt is rising unsustainably. The Pentagon recently has been asking for more money, and Congress has been inclined to give it to them. Absent dramatic reform, national security will soon take a back seat to mandatory debt service.

The Hill: Congress approved $2.4 trillion in additional debt during fiscal year 2018: Watchdog

Congress approved $2.4 trillion in debt during fiscal year 2018, according to an analysis published this week by the watchdog group Committee for a Responsible Federal Budget (CFRB).

Trump administration officials have insisted that the tax law will ultimately bring down the deficit due to economic growth, a conclusion that’s been rejected by many budget watchers as well as some official bodies.

“At a time when debt is already at record-high levels and growing unsustainably, the $2.4 trillion added to the projected debt over the past year is incredibly irresponsible,” CFRB wrong in a blog post. “These changes alone will increase projected debt from 86 percent of GDP to 94 percent.”

Trump is used to taking big financial risks in business, but the financial health of the United States as well as the world are at stake. If things crash it won’t be as easy to walk away as it has been from his business failures.

If the New Zealand Government was increasing debt here to anything like 86% or 94% of GDP they would be strongly and widely criticised, for good reason. But for some reason business leaning pundits don’t seem to care about those levels of debt in the US, they hail the economy there as great.

Bridges versus Ardern in Parliament

The return of Prime Minister Jacinda Ardern to Question Time in Parliament yesterday seemed to pass largely unnoticed as most attention was on the Brash speech ban at Massey.

Simon Bridges holding Ardern to account wasn’t very newsworthy anyway, but here it goes.

2. Hon SIMON BRIDGES (Leader of the Opposition) to the Prime Minister: Does she stand by all her Government’s policies and actions?

Rt Hon JACINDA ARDERN (Prime Minister): I’m nothing if not consistent: yes.

Hon Simon Bridges: Some things don’t change.

Mr SPEAKER: Order! I think that’s sort of now 2-1 in the out-of-order comments. We’ll just get back to the questions.

Hon Simon Bridges: When she dismissed business confidence yesterday as “perceptions” and said, “I’m interested in the reality of what our economy is doing and how it is performing.”, had she then seen yesterday’s report from Treasury that stated, “… weaker confidence, in conjunction with other data, highlight the risk that growth over the coming fiscal year may be weaker-than-forecast in the Budget …”?

Rt Hon JACINDA ARDERN: I would not characterise that as dismissal at all. I hear what business is saying in the same way I hear what nurses have said, what teachers have said, what anyone who works in the well-being space has said around the need to rebuild confidence in New Zealand’s social well-being outcomes as much as our economic outcomes. What I will say is that I also have to acknowledge the international environment, which is having an effect here in New Zealand, which is why we need to diversify our economy and make sure that we are not vulnerable, which is exactly the place that last Government left us in.

Mr SPEAKER: Before I call the member, I am going to ask David Bennett to go the rest of this question and the series of supplementaries and answers without interjecting.

Hon Simon Bridges: On the international environment, why is it, then, that New Zealand’s the only country to have gone from near the top of the OECD in business confidence to right near the bottom?

Rt Hon JACINDA ARDERN: We’re actually a fraction away from the long-term average, and I have to say, when you look at the OECD comparisons around our growth forecast, actually we stand up pretty well.

Hon Simon Bridges: Does she accept the weaker growth talked of now by Treasury is the reality, as is a decline in GDP per capita in just the last quarter?

Rt Hon JACINDA ARDERN: If we’re going to quote what Treasury have said, let’s share the entire picture. They’ve said that the housing market was cooling faster than expected. And actually, the housing market was overheated under that last Government, and we need to stand up and fully confront that and the harm that it was doing New Zealand’s people. Secondly, we need to acknowledge the international environment, which Treasury has, as well. And, at the same time, they’ve said that labour income—wages—are growing strongly, that employment growth is solid, and that we have issued things like more building consents. If you’re going to talk about the economy, let’s talk about all of the indicators, not just some of them.

Hon Simon Bridges: On her discussion, once again, of the international environment and Treasury’s view on it, does she not accept that they’ve said, “The international environment remains broadly stable.”—nothing’s changed?

Rt Hon JACINDA ARDERN: If the member is reading the voice of business—like, for instance, I would imagine he would look at the KPMG survey, which has highlighted that that is, in fact, having an impact. So if the member thinks the KPMG survey is babble, does he think that what John Key has said was babble as well? Because he’s raised it, too.

David Seymour: Does the Prime Minister stand by education Minister Chris Hipkins’ statement that the Tertiary Education Commission will have new powers under the Act to monitor the tertiary sector and hold providers to account for their use of public funding?

Rt Hon JACINDA ARDERN: If he’s asserting that the Minister of Education is saying that we should strive for high-quality tertiary education, then that is no bad thing.

David Seymour: Would it be a bad thing if a university failed to use its public funding in alignment with section 161 of the Education Act 1989 to uphold academic freedom, such as by refusing to allow speakers to speak on university campuses because of their political views?

Rt Hon JACINDA ARDERN: Ultimately, institutions have their own freedom on a day-to-day basis, but if he’s asking me for a personal opinion, the example I think that he is pointing to I would characterise as an overreaction on the part of the institution.

Hon Chris Hipkins: Does the Prime Minister think it is tenable for the Government to threaten to cut funding for universities when they make decisions that the Government disagrees with?

Rt Hon JACINDA ARDERN: Absolutely not. We continue to hold a personal view, and, as I say, there are a number of examples where politicians and ex-politicians have caused a stir on university campuses. I think the reaction we’ve seen has been an overreaction. Will we retaliate? Of course not.

Hon Dr David Clark: Ha, ha!

Hon Simon Bridges: Does she accept—

Mr SPEAKER: Order! Who made that noise?

Hon Dr David Clark: Mr Speaker, if you’re referring to the laugh—that was me.

Mr SPEAKER: Right, OK. Thank you.

Hon Simon Bridges: Does she accept the weaker growth foreshadowed by Treasury and the decline in GDP per capita in just the last quarter to be a reality?

Rt Hon JACINDA ARDERN: Of course Treasury has put out its forecasts, and I acknowledge that, yes, the housing market has cooled. International tensions have had an effect. But on the flip side, if I’m going to accept that, I’m also going to accept the wage growth, which is benefiting New Zealanders; high employment, which is also benefiting New Zealanders; and the fact that we have seen, for instance, a decrease in the number of young people in unemployment. I accept that we have challenges in front of us. That’s why we’re investing in boosting productivity, it’s why we’re investing in diversifying our trade, and it’s why we’re investing in R & D. I’m not shying away from those challenges.

Rt Hon Winston Peters: Regarding the international influence upon New Zealand’s economy, is the Prime Minister encouraged by all of a sudden the number of highly-placed European Union officials and representations with respect to a free-trade deal with the European Union?

Rt Hon JACINDA ARDERN: Absolutely. We have a visit today which only helps us further our relationships and New Zealand’s interests. I also applaud the work that the Minister for Trade and Export Growth is doing on our Trade for All, alongside negotiating the Pacific Agreement on Closer Economic Relations, the Regional Comprehensive Economic Partnership, and the EU free-trade agreement. We are moving at pace, because growing exports grows jobs.

Hon Simon Bridges: Does she accept a 60 percent decline in job growth since her Government came into office is a reality for the thousands of New Zealanders who didn’t get a job as a result?

Rt Hon JACINDA ARDERN: We have 94,000 more people employed at the end of June 2018 than there were in June 2017. Our unemployment rate has decreased. So the member is picking a figure and interpreting it in the way that he chooses, but I am proud of the fact that we are putting people into jobs.

Hon Simon Bridges: Does she accept a 4,000-person increase in unemployment in just three months to be a reality for those families?

Rt Hon JACINDA ARDERN: It’s down from 4.8 percent, I would first point out. The second point that I would make is that we have seen a rise in participation—more people moving into the job market. I would interpret that to be that they see hope that there are jobs and work available for them. The ANZ Job Ads indicates that that is indeed the case.

Hon Simon Bridges: Does she accept more industrial strikes in the last nine months than in the last nine years to be a reality for those businesses and workers?

Rt Hon JACINDA ARDERN: I just want to highlight today we’ve also concluded the nurses’ pay agreement, which is something that I would like to celebrate—and you’re welcome. We concluded that after inheriting it halfway through. We concluded it because we doubled the offer, we addressed the safety concerns, and, just as we have with teachers, we’ve already scrapped national standards. We’ve brought in more funding for teacher aides and for those with learning needs, and we have increased their operational funding. There is more to do, but we’ve done more in nine months than that Government did in nine years.

Hon Simon Bridges: Does she accept the collapse of multiple construction companies to be a reality for those businesses, their workers, and their customers?

Rt Hon JACINDA ARDERN: Look, absolutely we’ve acknowledged that’s happened. That’s why we sat down with the vertical construction industry yesterday. I acknowledge that it’s a very different case for residential and those working in infrastructure, because they are seeing a huge boost in investment out of this Government in those sectors. When it comes to vertical construction, 18 percent of the work for that industry comes from Government. Even though we represent only 18 percent, we are fronting up and saying that if we can play a leadership role to ensure that we do not have a further collapse in this sector, we will play it. That’s what this Government has done. We hadn’t gone far enough with the reforms of the last Government, and we are, again, happy to pick up the pieces.

Hon Simon Bridges: Does she think there will be real impacts for New Zealanders from us having the lowest business confidence since the global financial crisis, while in Australia it’s at a 30-year high?

Rt Hon JACINDA ARDERN: Australia’s at a 30-year high, and yet we’re outperforming them on things like the employment rate.

Hon Simon Bridges: No, we’re not—not on anything.

Rt Hon JACINDA ARDERN: On things like the employment rate, we absolutely are. We have the third-highest rate of employment in the OECD. We have steady economic growth and, according to the OECD, at 3 percent, the same as Australia going into 2019. Where we don’t sit on the same page as Australia is our low wages, and we’re doing something about that, too.

Hon Simon Bridges: Is the Prime Minister seriously denying that in Australia right now they are growing faster than us for the first time in several years, that their business confidence is at a 30-year high while ours is at a 10-year low, and that there are more New Zealanders leaving for Australia than there have been for some quite considerable time?

Rt Hon JACINDA ARDERN: What I am arguing is that if we’re going to look at the health of our economy, then we should look at a range of indicators. Employee confidence is up. Job ads are up. Consents are up. Unemployment—we have incredibly low unemployment in this country. We have 94,000 more people in work and—and—we have, on average, over $70 going into the back pockets of working New Zealanders and those in need, which, of course, is stimulating our economy. I’m proud of the changes we’re making. We need to modernise our economy and we are working hard on doing just that, as well.

Hon Simon Bridges: Does she accept any responsibility in terms of her Government’s policies such as industrial relations reform, shutting down the oil and gas sectors in terms of new exploration, higher taxes, and banning foreign investment, and the hurt they’re causing business confidence, and therefore the direct impact they’re having for families all around New Zealand?

Rt Hon JACINDA ARDERN: Look, as I’ve said, I absolutely acknowledge that businesses have shared with us via the confidence surveys that there are issues they wish us to work on. I’ve heard that. When you ask business what it is, they say to us it is the skills gap, so we’ve invested in training and educating our workforce, and business can access that just as much as anyone else. They’ve told us that it’s our productivity challenge. They’ve told us that it’s that we’re not investing in R & D. They’ve told us that we’ve underinvested in the regions, which is why we have the Provincial Growth Fund. They’ve told us it’s because we need to modernise our economy and because of the challenges of climate change, which is why we have the Green Investment Fund. I acknowledge that as with any Labour-led Government in the past, this coalition Government needs to challenge the perception that exists. I’m not shying away from that challenge, and that’s why I’m fronting it head-on.

Hon Simon Bridges: Isn’t the Prime Minister in complete denial about our economy’s reality and any number that any of us could pick in her Government policies’ impact, and doesn’t she need to start listening to businesses, small and large, around New Zealand and make some serious changes?

Rt Hon JACINDA ARDERN: As I’ve said, I’ve acknowledged every single economic indicator that tells us we have a lot to be proud of, and I also acknowledge 94,000 more New Zealanders in work—something to be proud of. If that member wants to go around dissing our economy and the potential that exists in this country, that, I have to say, is a damn shame.

Ardern needs to urgently address declining business confidence

Ex acting Prime Minister Winston Peters tried to make a joke out of concerns raised in Parliament about worsening trends in business confidence on Tuesday – see Bridges versus Peters – a surprise conclusion.

But this is something Jacinda Ardern will have to put some priority on addressing when she returns to Parliament next Monday. This was pre-empted in an interview given yesterday.

Stuff:  Jacinda Ardern faces mounting problem in business confidence on her return

When Ardern returns to Parliament on Monday she is set to walk into a building storm over plummeting business confidence that threatens to shake the economy in real terms.

In an interview with Stuff, ahead of her returnArdern gave assurances that her Government’s agenda did not come at the expense of economic growth.

“I absolutely believe that our agenda will grow the economy, will make sure businesses are in a position to grow and prosper, because I need that economic growth to be able to lift the wellbeing of all New Zealanders.

“These are not two separate agendas – they absolutely work hand-in-hand. I think New Zealanders absolutely see my emphasis on the wellbeing of New Zealanders. Now what I’m hoping they’ll also see is the agenda that’s always existed for us around growing the economy”.

That is just vague waffle. She will need to be far more decisive than that. Strong sounding comments ‘absolutely believe(which means little more than ‘I think’ or “I want to convey’) are already overused by Ardern and pretty much meaningless.

Apart from business confidence trending downwards to levels not seen since the Global Financial crisis economic signs are mixed.

Her comments come at the same time figures showed a slight rise in unemployment – the first since December 2016 – though unemployment remained low. Job creation had slowed, two major construction company had collapsed in recent weeks and more industrial action was in the offing.

But while economic growth had slowed, the overall picture remained positive. Migration was strong, the Government accounts were solid and spending was up. Despite farmers registering low levels of confidence, commodity prices were strong and the dollar was down, benefiting exporters.

Despite that, New Zealand had dropped from near the top of one OECD table on business confidence, to second from bottom, and that threatened to slow investment and growth.

Confidence may bounce back, but if it stays relatively low that will, in time, flow through to economic activity with lower employment and less investment in business development likely.

Ardern:

“What I intend to do is, within a month at least, bring together some of the work we’ve been doing in earnest around working together with the business community, to make sure that we are tackling some of the challenges that we’re facing collectively”.

“But what I’m really proud of is that we know and recognise some of the challenges that businesses are saying to us they have. Finding and attracting skilled labour, making sure that we grow our exports, diversifying our economy beyond housing and dairy – those are challenges we’re tackling head on.”

“We have incredibly low levels of unemployment relative to the OECD in particular. We have good solid growth forecast for the future. We have a surplus and, relative to other countries, our debt’s in pretty good shape too”.

“When you tackle challenges that creates a level of uncertainty. Because you’re creating change. We are modernising our economy, but we need to bring everyone with us.

“Within the month, I’m committed to bringing those strands together and doing a significant speech on the economy and we’re very much focused on addressing some of those concerns I’ve heard. But I feel absolutely confident we’re tackling this head on and we can bring business with us.”

Flowery and exaggerated language aside, that doesn’t say very much that is likely to turn confidence around. I think that people who make decisions in business would like to hear something far more substantive.

And beyond New Zealand there is a lot of international uncertainty as Donald Trump ramps up his trade war with China. That could be mostly bluster, but it could also get very messy, and New Zealand would not be immune from the effects.

Both the domestic and international economies pose major challenges for Ardern. A baby photo won’t cut it.

 

Economic boom, or bust? Or both?

Two contrasting views on economic prospects in the US. Given it’s size the economy in the US will impact on the rest of the world, including New Zealand.

Kevin Brady, Republican member of Congress and chairman of the House Ways and Means Committee writes (WSJ): Six Months After Tax Reform, Something Big Is Happening

Six months ago, Republicans in Congress joined with President Trump to redesign America’s tax code and enact sweeping tax cuts. We were determined to let families and local businesses keep more of what they earn. The new tax code was built to help American companies and workers compete and win anywhere in the world.

Now something big is happening to America’s economy. Since January, more than one million jobs have been created.

In only six months, the economy has been reinvigorated—and the best is yet to come. That’s because the new tax code leapfrogs America’s competitors abroad. The U.S. is now at the head of the pack—one of the best places on the planet to find that next job, to build that new manufacturing plant, or to set up company headquarters.

As a result, businesses of all sizes are now investing in American workers and communities. They are bringing back their dollars from overseas and investing at home again. It’s no coincidence that small-business optimism has hit its highest reported level in 35 years.

There is a new hope and a new optimism that wasn’t here before

Given the choice between keeping taxes high and allowing families to keep more of their money, Republicans chose—and continue to choose—the American people. Empowering families to run their own lives is at the heart of the American Dream. It’s the key to our nation’s economic success, and it’s the reason that, six months into tax reform, Americans are more hopeful about their future.

But domestic tax rates aren’t the only thing that affects the US and world economies. Not everyone is this hopeful about the economic future.

Nomi Prins (The Nation): Donald Trump’s Trade Wars Could Lead to the Next Great Depression

Leaders are routinely confronted with philosophical dilemmas. Here’s a classic one for our Trumptopian times: If you make enemies out of your friends and friends out of your enemies, where does that leave you?

Let’s cut through all of this for the moment and ask one crucial question about our present cult-of-personality era in American politics: Other than accumulating more wealth and influence for himself, his children, and the Trump family empire, what’s Donald J. Trump’s end game as president?

If his goal is to keep this country from being, as he likes to complain, “the world’s piggy bank,” then his words, threats, and actions are concerning. However bombastic and disdainful of a history he appears to know little about, he is already making the world a less stable, less affordable, and more fear-driven place.

Trump’s approach may force the world into sorting out some shortcomings of current trade arrangements, but it has major risks.

What the American working and the middle classes will see (sooner than anyone imagines) is that actions of his sort have unexpected global consequences. They could cost the United States and the rest of the world big-time.

Could.

So far, President Trump has only taken America out of trade deals or threatened to do so if other countries don’t behave in a way that satisfies him. On his third day in the White House, he honored his campaign promise to remove the United States from the Trans-Pacific Partnership, a decision that opened space for our allies and competitors, China in particular, to negotiate deals without us. Since that grand exit, there has, in fact, been a boom in side deals involving China and other Pacific Rim countries that has weakened, not strengthened, Washington’s global bargaining position.

Meanwhile, closer to home, the Trump administration has engaged in a barrage of NAFTA-baiting that is isolating us from our regional partners, Canada and Mexico.

Trump is also annoying Britan and the EU over his trade barrages.

In the past four months, Trump has imposed tariffs, exempting certain countries, only to reimpose them at his whim. If trust were a coveted commodity, when it came to the present White House, it would now be trading at zero.

His supporters undoubtedly see this approach as the fulfillment of his many campaign promises and part of his classic method of keeping both friends and enemies guessing until he’s ready to go in for the kill. At the heart of this approach, however, lies a certain global madness, for he now is sparking a set of trade wars that could, in the end, cost millions of American jobs.

“Could, in the end, cost millions of American jobs” contrasts with Brady’s “more than one million jobs have been created”.  In fact both could be correct. Short term gains could disappear if Trump tirades turn trade into a turkey and the economy goes bad.

As the explosive Group of Seven, or G7, summit in Quebec showed, the Trump administration is increasingly isolating itself from its allies in palpable ways and, in the process, significantly impairing the country’s negotiating power.

If you combine the economies of what might now be thought of as the G6 and add in the rest of the EU, its economic power is collectively larger than that of the United States. Under the circumstances, even a small diversion of trade thanks to Trump-induced tariff wars could have costly consequences.

Good international relations generally means better outcomes. Wars of any kind are likely to make things worse.

A recent report by Andy Stoeckel and Warwick McKibbin for the Brookings Institution analyzed just such a future trade-war scenario and found that, if global tariffs were to rise just 10 percent, the gross national product (GDP) of most countries would fall by between 1 percent and 4.5 percent—the US GDP by 1.3 percent, China’s by 4.3 percent. A 40 percent rise in tariffs would ensure a deep global recession or depression.

In the 1930s, it was the punitive US Smoot-Hawley tariff that helped spark the devastating cocktail of nationalism and economic collapse that culminated in World War II.

The current incipient trade war was actually launched by the Trump administration in March in the name of American “national security.”

Using “national security” as a loose excuse for abuse is bad enough, but it has some disturbing parallels.

From the United States Holocaust Memorial Museum:

As an absolute principle of national security, Nazi ideology called for the elimination of “racially inferior” peoples (such as Jews and Roma) and implacable political enemies (such as communists) from regions in which Germans lived.

Back to Prins:

The global economic system first put in place after World War II was no longer working particularly well even before President Trump’s trade wars began. The problem now is that its flaws are being exacerbated.

Once it becomes too expensive for certain companies to continue operating as their profits go to tariffs or tariffs deflect their customers elsewhere (or nowhere), one thing is certain: It will get worse.

I don’t think that’s a certainty, but it is a real possibility if Trump’s ‘negotiations’ turn trade to custard.

Is the US headed for boom, or bust?

It could easily be both. Busts often follow booms.