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Nashua;24.0;http://forecast.weather.gov/images/wtf/small/few.png;2014-11-28 18:58:50
Sunday, June 8, 2014

As the weather heats up, methods to help economic growth become wackier

Tony Paradiso

On the heels of the announcement that we experienced half of an official recession in the first quarter came encouraging news: Warmer weather has resulted in hotter retail sales.

For the third straight month, the Thomson
Reuters index of mall traffic exceeded expectations. Overall, the eight retailers tracked reported a 4.6 percent increase in May. That handily beat expectations for 3.6 percent growth. ...

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On the heels of the announcement that we experienced half of an official recession in the first quarter came encouraging news: Warmer weather has resulted in hotter retail sales.

For the third straight month, the Thomson
Reuters index of mall traffic exceeded expectations. Overall, the eight retailers tracked reported a 4.6 percent increase in May. That handily beat expectations for 3.6 percent growth.

The news is hopeful, but the data is incomplete. Many retailers, including the big department stores and big-box retailers, stopped reporting monthly sales some time ago, and that includes Wal-Mart.

Car dealers also enjoyed a merry month of May, with U.S. auto sales rising 11 percent. Here again, winter auto sales were underwhelming. Ford was the only automaker to record an increase, with sales up a lackluster 3 percent. Despite its recall du jour strategy, GM increased its sales 13 percent.

The improved sales environment might be the result of Americans becoming wealthier than ever. The net worth of U.S. households and nonprofit organizations hit $81.8 trillion in the first quarter. According to the Federal Reserve, that is the highest level on record. The figures are not adjusted for inflation or population growth, nor do they factor in the larger share of the pie controlled by the 1 percent. So there’s no need to fret if you don’t feel wealthier. You’re far from alone.

Even Wall Street’s own are compelled to tell the truth. J.P. Morgan Chase economist Michael Feroli said rising stock and real estate prices aren’t translating into economic growth primarily because the gains are going to affluent Americans who tend to save.

Oh, Michael, you might want to dust off your resume. Something tells me your superiors might not appreciate reading such an accurate description of how the country’s newfound wealth is divvied up.

Another encouraging data point is that total U.S. household debt has dropped to 108 percent of disposable income. Why would owing more than you have be encouraging? Because in 2007, our average debt peaked at roughly 135 percent of disposable income. As I said, 108 percent looks pretty good.

Across the pond, the European Central Bank cut interest rates in the hope that it will boost inflation. You read that right: A central bank wants to juice inflation. That’s because the ECB is more concerned with the potential adverse effect deflation could have on economic growth.

Like Wall Street, European investors are fond of cheap money. European stocks hit their highest level since late 2007.

The ECB “has thrown in the kitchen sink to signal this is an empathic response,” said Ken Wattret, economist at BNP Paribas. Still, he added, “I’m not convinced this will be sufficient to alter the trajectory of inflation.”

Hey, Mr. Feroli – pay attention to Kenny boy. You can learn something from him. It’s comments such as this that get you promoted. Always ask for more.

If Wattret was asked to comment on the disparity of wealth between the 1 percent and everyone else, he would undoubtedly say it isn’t large enough. I can hear him now: If only the 1 percent had additional funds, they would dash into a phone booth and emerge as “super job creators.”

That’s how you become a chief economist on Wall Street.

The ECB’s moves haven’t exactly created a groundswell of optimism. The strategy isn’t new, nor have previous moves had much success. It isn’t unlike our Federal Reserve repeatedly going to the quantitative easing well.

The ECB also has resorted to charging commercial banks for parking money. And you thought getting a paltry percent on your savings was a bad deal. If a European bank decides to keep money sitting in an ECB account, it will cost them 0.1 percent for the pleasure. The ECB is the largest central bank to resort to negative deposit rates.

Previous ECB attempts to spur lending have met with less than stellar results. And something tells me the only thing the latest maneuver will spur is mattress sales. It will be cheaper than using the ECB’s vaults.

Let’s close on a final marginally encouraging note: employment.

The economy added 217,000 jobs last month. The April data was revised down by 6,000 jobs, and March remained unchanged. Thus, average monthly job creation over the last three months totals 234,000, and that is progress.

The unemployment rate stayed steady at 6.3 percent, mostly because the labor force participation rate also remained unchanged. To be counted in the participation rate, an individual must be looking for work. Theoretically, as the jobs market heats up, more people re-engage in looking for work. That in turn increases the participation rate. Unfortunately, we haven’t reached that point, and the participation rate continues to hover around the lowest levels since the late 1970s.

One of my favorite indicators of the true strength of the jobs market is average hourly wages. Wages are up a lackluster 2.1 percent from last year. And the average workweek was unchanged at 34½ hours. To sum it up: On a monthly basis, we’re creating more jobs, but in general, the jobs market is still best described as mediocre.

Tony Paradiso, an author, professor, entrepreneur, and radio and TV commentator, can be reached at tparadiso@tds.net.