The U.S. economy may be fired up by a rush of household formation, unleashing pent-up demand for everything from homes to weddings.
So say economists at UBS AG, who have designed a model to gauge the potential for a revival in the creation of new households that could power the economy beyond the 2 percent growth pace recorded since the end of the 2009 recession.
The gap between actual and potential household formation appears large enough to support spurts of growth and underpin a durable expansion of around 3 percent in some years, the economists led by New York-based Maury N. Harris said in an April 11 report.
That outlook is based on the estimate that reducing the 2.3 million gap between the number of actual and potential U.S. households could boost annual consumer spending growth by almost one percentage point.
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Housing starts, for example, could improve to 1.10 million units next year and 1.35 million in 2014, said the UBS economists. Such developments are leading them to forecast the world’s largest economy will grow 3 percent in 2014, compared with the 2.7 percent median of economists surveyed by Bloomberg News.
Key to releasing this postponed demand will be how the labor market performs and the spending choices of those already employed, the economists said.
Housing and automobiles are the likely targets for increased spending, they said. Younger adults have the most room to spend after a period in which they often delayed normal living arrangements by living with their parents or friends.
Spending on weddings and children may also witness a surge in strength as couples find themselves financially secure enough to marry and have babies, they said.
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The death of U.S. productivity may be exaggerated.
That’s the conclusion of two studies in the Spring issue of the International Productivity Monitor, published by the Ottawa- based Centre for the Study of Living Standards.
Such optimism is based on the bet that technological opportunities remain strong for advanced manufacturing and that the energy revolution will spur new investment in fuel extraction and transportation. Industrial robotics, 3-D printing and the use of so-called Big Data are cited as areas for growth.
Another article, co-authored by Stephen D. Oliner of the Federal Reserve, argues that information technology has remained a significant contributor to U.S. productivity growth and that semiconductor technology continues to advance.
While the baseline prediction for growth in trend labor productivity among non-farm businesses is 1.75 percent per year, below the 2.25 percent long-run average, that’s better than recent history and there is a “reasonable prospect” it will regain ground, the authors say in the report.
“While the evidence is far from conclusive, we judge that ‘No, the IT revolution is not over.’”
The reports square with a Bank of America Merrill Lynch study, which notes the U.S. is the world leader in patents granted, and retains the lead in research and development, spending more on it than the next four countries combined.
Shares (SPX) of U.S. companies that spent on research have returned one to four percentage points more than the market average, the Bank of America strategists said. Returns were as high as 10 percentage point in sectors such as technology and health care.
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In a study contained in its World Economic Outlook, which was released on April 16, the Washington-based lender found a policy-uncertainty shock in the U.S. can temporarily reduce growth in other regions by as much as 0.5 percentage point in the following year. Questions about policy in Europe reduce expansions elsewhere by a smaller effect.
“Suggestive evidence indicates that a reduction in policy uncertainty in the United States and Europe in the near term may give an added fillip to global investment and output,” the IMF said.
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Azerbaijan was the fastest climber over the past decade on the list of economies as measured by output per head.
The IMF’s outlook report showed the largest country in the Caucasus region jumped 32 spots to 86th place since 2003. Belarus and China each climbed 24 places to 64th and 93rd place respectively, while Iraq rose to 106 from 131.
By contrast, Kiribati fell 23 notches to 118th and Jamaica dropped 21 spots to 97th.
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Instead of calculating the weighted average of all prices, as the consumer price index does, this measure looks at the median price change -- the movement for the item that’s right in the middle of changes for all the different goods and services.
A test run by Cleveland Fed economists Saeed Zaman and Guhan Venkatu and former colleague Brent Meyer discovered that not only does median CPI outperform other measures in predicting CPI inflation, it also does a better job of forecasting the core personal consumption expenditures price index, which the Fed identifies as its preferred inflation gauge.
Focusing on the price in the middle of the pack would also make it easier for the Fed to communicate the stance of underlying inflation pressure, the economists said in an April 11 report.
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There is little evidence that investors require much higher compensation for holding longer-dated U.S. Treasuries when monetary policy tightens.
That’s according to a study by three Federal Reserve Bank of New York economists who probed the last three periods of higher interest rates to see if so-called term premia jumped sharply. Term premia refers to the extra yield investors demand for bearing interest rate risk.
The results showed term premia typically don’t rise when rates are increased and that the jump in Treasury yields in 1994 was more driven by an upward shift in the expected path of future short-term interest rates, Tobias Adrian, Richard Crump and Emmanuel Moench said in an April 15 posting on the Liberty Street Economics blog.
Still, the economists said they couldn’t extrapolate from the past to say what will happen when the Fed next raises rates. The size and composition of the central bank’s balance sheet are different than in the past, so expectations about how they may change could affect term premia, they said.
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Changes to U.S. divorce laws in the 1970s explain more than a quarter of women securing a college education and 50 percent of the increase in the labor supply of married women, according to a paper published by the Federal Reserve Bank of Minneapolis.
In the study, published this month, economists Faith Guvenen and Michelle Rendall studied the role of education as “insurance against a bad marriage.” Historically, differences in earning power and education meant married women often found themselves having to choose between staying in a poor marriage and struggling with low income.
Education has provided a “route to emancipation for women,” said the economists. They found its value for preventing women being trapped in wedlock is especially important for those born after 1975.
“As women further their education, the earnings gap between spouses shrinks, leading to more unstable marriages and, in turn, further increasing demand for education,” said the Fed Bank of Minneapolis’s Guvenen and Rendall of the University of Zurich.
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A little knowledge may go a long way.
Tests conducted by Bank of Italy economists Angela Romagnoli and Maurizio Trifilidis found that incorporating financial education into school curriculum increases the money knowledge of pupils for longer than one year.
The finding was based on a program begun in 2008, in which teachers received training from central bank officials that they then passed along in the classroom.
By contrast, a study by Princeton University economics student Lauren Zumbach found the key to educational success may not be found in laptop computers.
Writing in the inaugural issue of the Yale Journal of Economics, which aims to publish work by undergraduate students, Zumbach said an initiative in Maine to provide schools with laptops resulted in lower test scores in all subjects, particularly in small schools in which classroom technology may inflict a financial burden.
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