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Future Is Now for JPMorgan Global Growth Gauge: Cutting Research

Future Is Now for JPMorgan Global Growth Gauge
The gauge explains 85 percent of the variation in worldwide expansions from the start of 2000 to the second quarter, the economists said in a Sept. 5 report. Photographer: Scott Eells/Bloomberg

JPMorgan Chase & Co. economists are trying their hand at “nowcasting” to measure the health of the world economy.

A new index, produced by economists led by New York-based Bruce Kasman, calculates global growth by combining purchasing manager indicators, retail and auto sales, industrial production and capital goods shipments as data are published each month.

The gauge explains 85 percent of the variation in worldwide expansions from the start of 2000 to the second quarter, the economists said in a Sept. 5 report. A previous measure based on PMI data from multiple countries had a 67 percent success rate.

The index “is a remarkably good tracker of global real gross domestic product growth,” they wrote. “The addition of new information over the quarter yields a marked improvement in the forecasting accuracy.”

Their measure points to 2 percent global growth in the current quarter, about the same as JPMorgan Chase’s official estimate.

Embracing nowcasting, which Kasman and colleagues define as tracking current-quarter growth rather than forecasting future quarters, is a mounting trend, say economists including Marta Banbura of the European Central Bank and Lucrezia Reichlin of Now-Casting Economics Ltd.

“The traditional approach is limited since it does not provide a framework for the reading of the flow of data as they become available,” the two economists said in a paper published this month by the London-based Centre for Economic Policy Research.

* * *

The current floor for oil prices averaging about $90 a barrel may become a ceiling over the next decade as new sources of supply are tapped, according to Edward Morse, head of commodities research at Citigroup Global Markets in New York.

U.S. companies are now spending six times what they were a decade ago to find and develop oil and gas, while Canada has access to oil sands producing 2 million barrels a day. Like the U.S., Brazil, African nations and “perhaps” even China are probing deep-water resources, Morse wrote in a Sept. 12 report.

Taking advantage of such supplies becomes attractive when oil costs more than $75 a barrel, meaning so long as it does supply will outpace consumption on a sustained basis for the first time in more than 20 years, said Morse, a former U.S. State Department adviser.

* * *

Who let Eastern Europe be flooded with investment, helping create the region’s subsequent recession? That’s the subject of a study by International Monetary Fund economists.

Data from about 20 countries in the region show it received a capital inflow that at the 2007 peak equaled 15 percent of regional gross domestic product, IMF economists Ruben Atoyan, Albert Jaeger and Dustin Smith wrote in a Sept. 11 working paper. That was three times the relative size of flows into all other emerging economies combined.

Still “in a state of ferment” is the question of whether the subsequent asset bubbles were the fault of greedy investors, unfocused regulators or free-spending governments. In any case, tighter fiscal policies wouldn’t have stemmed inflows, the economists conclude.

“While forceful countercyclical fiscal policies could have slowed down capital inflows, this would not have been effective in countering inflows of the magnitude faced by some of the countries,” the researchers wrote.

* * *

The consumption choices of the poor may be doing little to lift them out of poverty.

That’s the finding of a study published this week in Economic Journal by Omer Moav of the Hebrew University of Jerusalem and Zvika Neeman of Tel Aviv University.

“Poor families around the world spend a large fraction of their income consuming goods that do not appear to alleviate poverty, while saving at low rates,” Moav and Neeman wrote.

They cited reports that found median spending on festivals runs as high as 10 percent of income in some regions of India and that black households in South Africa spend on average a year’s income on an adult’s funeral. At the same time, the very poor spend as little as 2 percent of their income on their children’s education and don’t eat well.

While cultures or social norms could influence spending decisions, Moav and Neeman concluded the people are committing “conspicuous consumption” by meeting their society’s expectations regardless of income.

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