A roundup of economic news from around the Web.
- Last Year: On the Big Picture, David Rosenberg compares last year to this year. “A year ago, China was embarking on a massive fiscal and credit stimulus plan that would send commodity prices and global exports surging. Today, the Peoples Bank of China (PBoC), along with other Asian central banks, is now withdrawing the stimulus (India as well). Is the near 10% correction in the Chinese stock market telling us something about the Chinese economic outlook? Something tells us the Reserve Bank of Australia was on to something when it didnt hike rates yesterday when the market was fully priced for another move — after all, China is Australias most important customer A year ago, the S&P 500 was undervalued by 18%, on a Shiller normalized P/E basis. Now, it is overvalued by 25%. A year ago, we were coming off a -6.4% real GDP print in the U.S. and a 35 ISM reading and only green shoots lay in our path. Today, we are coming off a +5.7% GDP headline and a 58.4 ISM index and the days of sequential improvement are clearly over.”
- Forecasts: Menzie Chinn of Econbrowser compares government and private forecasts. “The CBO’s forecast for 2011 is noticeably more pessimistic than either the Blue Chip or Administration forecast. The CBO’s forecasts of particularly sluggish growth are driven by the following three (familiar) points: *Economic growth will probably be restrained by the aftermath of the financial and economic turmoil. Experience in the United States and in other countries suggests that recovery from recessions triggered by financial crises and large declines in asset prices tends to be protracted. *Although aggressive action on the part of the Federal Reserve and the fiscal stimulus package enacted in early 2009 helped moderate the severity of the recession and shorten its duration, the support coming from those sources is expected to wane. In addition, under the assumption that current laws and policies remain unchanged — an assumption that is reflected in CBO’s forecast — tax rates will increase in 2011, further hampering growth. *Household spending is likely to be dampened by slow income growth, lost wealth, and constraints on households’ ability to borrow. Investment spending will be slowed by the large number of vacant homes and offices.”
- Payroll Taxes: On his Director’s blog, CBO’s Doug Elmendorf writes about how payroll-tax cuts can encourage employment. “The agency analyzed the effects on employment of several policy options, including giving employers a one-year, nonrefundable credit against their payroll tax liability for increasing their payrolls in 2010 from their 2009 levels. (To finance Social Security, employers and employees each pay 6.2 percent of an employees annual earnings up to a maximum.) Such a tax cut would lead to increased employment through a number of channels. For example, some firms would hire more people because hiring would be less expensive; others would lower prices to increase sales, thus spurring production and increasing the demand for labor; still others would increase compensation for employees, which would encourage more spending.”
Compiled by Phil Izzo