Economic Slowdown in Q1 of 2015

America’s economy was relatively stagnant the last quarter as the nation experienced a meager .2 percent growth in GDP according to data recently released by the Commerce Department. Economists attribute this to severe winter weather and energy companies dealing with low prices.

Chair of the Fed, Janet Yellen

Chair of the Fed, Janet Yellen

The US economy ended 2014 on a strong note as the country’s Gross Domestic Product rose more than two percent in the final quarter. This marks the slowest growth rate since 2013.

The Commerce Department also attributes the slowdown to a particularly strong dollar, as well as a labor dispute that halted activity as usual for some ports on the western coast.

Many economists expect that these numbers will delay the Feds move to increase interest rates for the time being even though there are indications that the US economy may rebound in the second quarter of 2015.

Diane Swonk, a prominent economist out of Chicago, note stat the American economy has prove that it can be self-sustaining before the Fed implements any hikes. Previously, many believed such a move would occur in June, but it will surely be delayed until some point later in 2015 according to Swonk.

Some economists such as Scott Anderson are still optimistic for 2015 as he believes the slowdown is due to fleeting issues, and is not truly indicative of the health of the American economy. Economists are estimating that the rough winter weather knocked down the quarterly GDP growth by as much as .3 percentage points. This is evident in the downturn of consumer speeding, which generally accounts for around 66% of activity in the American economy. This growth rate of consumer spending in Q1 dropped to 1.9% percent, a steep step down from the 4.4 percent posted in the previous quarter.

The construction sector also performed poorly, as did domestic oil producers. Let’s see if the US economy can make a robust rebound going forward.

American Auto Producers Enter Consumer Report’s Top Ten

According to Jeff Plungis from Bloomberg, three American automobiles have been selected to Consumer Reports Top Ten list for the first time since the late 1990’s.

Tesla’s Model S, which costs 90,000,  was the number one pick for the second consecutive year. The Buick Regal from General Motors was chosen as Consumer Reports’ best sports sedan, and the Impala from Chevrolet was ranked as the top luxury sedan. Jake Fisher from Consumer Reports notes that for more than a decade American car producers focused on building cheaper and lesser quality automobiles compared to their foreign competitors. However, those are the days of the past. A lot of these American made cars are quite comparable, if not superior, than their European and Asian counterparts.

The independent product-test magazine evaluates these automobiles in a number of different categories including the safety, quality of the interior finish, reliability, and how well they drive. The American carmakers are hoping that these rankings will help boost sales.  The news provides some much need good news for General Motors, which dealt with the aftermath of its ignition switch defect.

Elon Musk, CEO of Tesla Motors

Elon Musk, CEO of Tesla Motors

Tesla, the youngest public carmaker in the U.S.,will have to find some way to increase its capacity for production if it hopes to increase sales.  In fact, the Elon Musk led car maker is the only unprofitable company of the Industry’s twenty biggest corporations.  Although Tesla sold less than 10,000 units in Q4 of 2014, the company boasts a market capitalization of more than $25 billion.  Comparatively, General Motors has a $60 billion market value, and sold nearly 10 million vehicles in 2014.  Although GM’s Buick may not attract as much hype as Musk’s Tesla, Buick did become the first American lineup to enter the Consumer Report’s top 10 list for overall brand quality.

 

 

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Oil Expected to Continue Plunge

The U.S. benchmark for crude oil price, which is down more than 25% in the last sixth months, fell below %45 dollars this week. Analysts from Wall Street are expecting the price point to drop to $40 or below.

It comes down to simple economic theory.  The global supply increase has engendered a drop in price. This plunge will continue until it reaches equilibrium.  As the prices will continue to drop in the coming months, American Shale drillers may have difficulty maintaining production levels.

Suhail Al Mazrouei, the Energy Minister of the UAE

Suhail Al Mazrouei, the Energy Minister of the UAE

OPEC is hoping that it can maintain its share of the world’s oil market as American output has increased recently. Suhail Al Mazrouei, the Energy Minister of the UAE, stated recently that he steadfastly believes that the US shale producers will yield to the pressure of the lower prices, and will cut the number of operating rigs. Gulf members of OPEC have reiterated Mazrouei’s statement saying OPEC will not be the ones cutting production, thus bolstering the price, any time soon. Back in November, OPEC announced that will continue to target 30 million barrels per day.

Some experts believe that oil prices could drop as low as $35 a barrel very soon as both demand and supply lag behind, as they are responsive to, dropping prices. American output is at its highest level in more than thirty years. This increase is largely attributed to drilling the shale formations in Texas and North Dakota. US production went to more than 9 million barrels a day at the beginning of december, the highest level since 1983.

As OPEC is no longer closely controlling the world’s oil supply, the collapse will be greater, and the road to recovery will take much longer than prior downturns according to Jeffrey Currie, head of commodities research at Goldman Sachs.  Additionally, a drop in demand has only exacerbated the situation for oil producers.  Experts are confident that rig counts will start decreasing, but it will just take a few months to begin to see the impact.

Putin in New Territroy as Russia Faces Looming Economic Downturn

In recent years, Putin’s popularity has risen dramatically due to his promises to restore Russia to the level of international prowess it held for much of the twentieth century. However, this support may soon wane as recent reports coming out of Moscow have predicted an economic recession next year.

A nine percent increase in inflation, low oil prices, and a depreciation in the Ruble are all to blame for stumbling economy. Capital flight out of the nation could be more than $100 billion.

In response to the gloomy economic predictions, Vladimir Putin has halted several projects the government was planned to undertake this year such as the South Stream Pipeline, which would ship gas to directly to southern European countries, and a high speed railway from Kazan to Moscow.

Putin faces significant political obstacles as the Russian economy is expected to enter a recession this upcoming year.

Putin faces significant political obstacles as the Russian economy is expected to enter a recession this upcoming year.

Some experts are expecting Putin to soften his anti-Western rhetoric. However, some believe that the president, in an effort to remove attention from the woeful economy, may actually ramp up his his “patriotic” endeavors.  Moscow may try to divert the blame away from policy decisions to American and Western domination.   The famous economist, Sergei Guriev, who fled Russia recently, notes that Putin is in new territory as he has been the beneficiary of good economic luck with regards to oil prices in the past.

The Russian economy is quite dependent on oil. In fact, this natural resource accounts for more than half of the nation’s exports. Despite the plummeting price, Russia’s oil dependency is not the most pressing issue facing the nation.  Russia owes almost $700 billion to banks in the West. Unfortunately, the sanctions by much of Europe and the United States due to Russia’s aggressive behavior has cut off access to western financing. Chinese banks simply do not have the capacity to serve as a viable alternative.

It seems that Putin’s popularity is already in jeopardy in some circles in Russia. A popular business newspaper published an article last week comparing the president to the infamous Robert Mugabe of Zimbabwe due to their lack of response to currency devaluation. Mugabe did nothing as the value of his currency plummeted to the ludicrous rate of four trillion Zimbabwe dollars to a single American dollar.   Regardless, the Russian economy is quite sick. Only time will tell if Putin’s future policy decisions will end up helping or act as detriment to the nation’s economic well being.


 Check out Carl Koenemann’s other blogs about health and fitness, and music to learn more.

The Economic Impact of Lebron’s Homecoming

The city of Cleveland and its citizens were elated when the “King,” Lebron James, decided to return his hometown team four years after he infamously departed to showcase his talents in South beach.  In fact, it was the polar opposite reaction to Lebron’s Decision. Instead of rioting and burning his jersey, the citizens of this Ohio city paraded around in jubilation praising their hometown basketball product. Their joy did not only stem from Lebron’s dominance on the basketball court, but also from the boost he will provide the city and state’s economy. The question is how robust is this boost. Some experts estimate that Lebron’s return will engender an increase of more than half a billion dollars in one year alone. The “Return of the King” will also help bring a return in jobs and a lower unemployment rate.  The Cavaliers will easily cover his twenty million dollar salary with the increase in ticket sales. If Lebron’s previous tenure with the team is an indicator, the Cavaliers will most likely sell out every regular season home game.  Cleveland fans bought out all the available season tickets within twenty four hours after he made the decision to return home. In fact, demand is so large that the organization has begun to create a raffling system to give everybody in the city a relatively fair chance of procuring a ticket to watch their golden boy.

Lebron's return could bring $500 million to the Cleveland economy.

Lebron’s return could bring $500 million to the Cleveland economy.

Varying estimates are out there regarding just how large the “Lebron stimulus” is, but they range between $250 million and $500 million. In order to achieve the upper limit, it must be assumed that all the people who make money off Lebron will spend the extra-cash in Cleveland, thus providing a high multiplier effect. If this estimate is realized, more than 500 jobs will be created. Sometimes, certain individuals such as John D. Rockefeller, Bill Gates, and Andrew Carnegie have helped spur economic growth within a region or city. However, James differs from these men as he is not an entrepreneur, but instead an entertainer. A highly valuable and immensely popular entertainer, but an entertainer nonetheless.  Instead of producing electronics and manufacturing steel, he is a slam-dunk machine engineering fourth quarter comebacks.

Some argue that estimate is wildly over-estimated as it is only displacing economic activity out of the suburbs into the city center. However, what these type of estimates don’t account for is that Lebron is acting as an ambassador for the city of Cleveland. Keynes famously noted how “animal spirits – a spontaneous urge to action rather than inaction” are an integral driver of economic growth.  The return of their beloved king, Lebron James, might suffice to satisfy these animals, spurring growth within Cleveland and beyond.

 

The Future of E-Finance

There are a number of applications, websites and online services that make today’s money management a much simpler process than even 10 years ago. It’s these services that encompass the industry of e-finance, and they have already dramatically changed the way we deal with and think about money.

Here are some of the most influential and game-changing e-finance services:

Paym: Paym is the UK banks’ way of pushing back against PayPal. Until now, PayPal has been the dominant force in mobile payment services, allowing people to pay friends using their email addresses backlinked to bank accounts. Paym is a free service that uses mobile numbers instead of email addresses and allows people to pay up to 250 euros a day without releasing bank details.

Osper

Osper

Osper: Osper is another service from the UK that is aiming to teach children quality money management skills and independence. Parents give their child a pre-paid debit Osper card which links back to the Osper app. The child gets independence and control while the parents get to track charges and teach their children how to make better financial decisions.

Mint: Mint makes it easy to glance at your total amount of money. It’s a budgeting and finance app that consolidates your investments, bank accounts, and loans all into one neat and centralized location. You can also use the app to stick to a budget plan, to set goals and strategies, or just to remind yourself to pay off certain bills.

Acorns: For those who prefer a gradual and seamless approach to investing, Acorns is likely the perfect app. It collects the spare change from all your everyday purchases and then invests that money into a diversified portfolio based on your personal goals and risks. There are no trade commissions, no balance requirements, no transfer fees, but it does cost $1 a month plus a 1 percent management fee.


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China Mired in Economic Downturn

Recent economic indicators coming out of the second largest Economy on the globe have demonstrated that the nation’s economic growth has stagnated.  This economic draught can be linked to China’s steep decline in industrial production growth, and a troubling downturn in the real estate market.  The economic growth is just 6.9% for the last year, which is the lowest rate of growth for the Economy since the recession in 2009. Major financial institutions such as Barclays and RBS expect the Chinese economy to come short of its targeted growth by as much as 0.3 % point for this year.

This deceleration in the Chinese economy is occurring at an unfortunate time as the rest of the world’s economy is also stumbling.  The US recovery has not been nearly as robust as expected, and the European economy is mired in economic turmoil.  The world is desperately searching for growth somewhere, and China is no longer capable of being the sole provider.  Many experts are predicting that the Chinese authorities will have to make the decision whether or not to take stimulus measures to promote growth or try to simply survive the downturn.

Chinese Economy Carl Koenneman

Small and large Chinese owners are complaining that the current economic conditions are the worst they have seen in decades.  Particularly,Sun Suqjong of Beijing talks about how his workers sit in his shop with nothing to do as his customers have dwindled recently, and holds uncertain expectation on the future of his country’s economy.

The economic data from August only corroborates Suqjong and other business owners’ worrisome observations.  The real estate drought that has plagued China in the last few quarters has begun to spread to other sectors of the economy.  Housing sales and construction decreased almost 11% in the month of August alone. Additionally, industrial activity has fallen as the demand for Chinese-made goods from the international community has slowed down recently. The world’s eyes currently rest on Chinese leadership hoping they make sound enough decisions to weather the turbulence and to return the nation’s to it’s position as the world’s fastest growing economy. Experts aren’t expecting China’s Gross Domestic Product to grow at an incredible 10% per year, but the world is hoping that they continue to experience robust economic growth going forward.  Such growth may be necessary to help maintain the world’s slow recovery from the financial crisis of a few years ago.


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Large Companies Continue Moving Overseas

A recent article featured in The Economist discussed how the United States has gone from a place for corporations to thrive to a financial burden; here is a recap of that article.

The Economist starts off by talking about how “economic refugees” in the past have been banging on America’s doors, trying to get in. In the last decade, companies have been begging to leave; in the last few months, more than a handful of large corporations have begun mergers with foreign partners, moving their corporations abroad.

They note that corporate taxes are significantly lower in almost any country besides America (most notably Ireland and Britain).

President Obama has proposed a reform, cutting corporate tax rates back to 28 percent; however, it would keep a worldwide reach.

President Obama has proposed a reform, cutting corporate tax rates back to 28 percent; however, it would keep a worldwide reach.

The response from Jack Lew, the treasury secretary, has been to call the companies’ patriotism into question and is pushing for Congress to outlaw such transactions.

The Economist, however, discusses how misguided these proposals are – noting that by cracking down on corporate inversions, the American government is doing nothing to ease the problem — a dysfunctional corporate-tax system. The Economist calls for a fundamental reform of this system.

The flaws are very evident. First, the tax rate (which sits at 35 percent) is the highest among the 34 richest countries in the Organization for Economic Co-Operation and Development; however, the United States is raising less revenue than the OECD average. This is due to a plethora of loopholes and tax breaks – combining for over $150 billion in lost revenue. The other flaw is that tax levies placed on a company’s income are based on TOTAL income, not just the amount earned in the United States.

Both of these impose a huge impact on the economy. They discourage investment and impose distortions; a varying tax rate means that some companies pay close to zero while others are at the full 35 percent.

Over two decades ago, this was almost unheard of in the United States. However, others decreased their tax rates for corporations while America still held on to its high percentage and varying rates.

The Economist proposes a solution – lowering the corporate tax rate, eliminating tax breaks and moving America from a worldwide system to a territorial one. Obama is already on board with some of this; he has proposed a reform that would cut the rate to 28 percent. However, this rate still has a worldwide reach. Dave Camp has asked for the rate to go down to 25 percent and turn into a territorial system.

While this is progress, both Obama and Camp have tied the subject to other issues. Obama wants the tax reform to raise money for public infrastructure. Republicans, however, want the corporate cuts to be joined with cuts in personal tax rates.

We’ll see where this conversation is headed. One thing is clear: large companies will continue heading overseas until the issue is resolved.

 

How to Eliminate Unnecessary Spending

While many feel that they simply aren’t making enough money, others recognize that they simply have bad spending habits that are eating up all of their money. Here are a bunch of tips to get your bank account pointed in the right direction.

Before you start — Identify problems

It is necessary to prioritize your spending before you jump into ways to save. Some people enjoy going to the movies, taking someone out to dinner or catching a baseball game. I’m not going to tell you what you should or should not spend your money on – that’s for you to decide. But you must identify where your money is going before you can seek solutions to help you save.

One great way to do this is by using an app such as Mint. This finance app will help you create budgets (and alert you when you exceed your budget), create goals for yourself and visualize where all of your money is going. It does this by grouping your spending into different categories — such as restaurants, transportation costs, and groceries.

Take a look at how you’re spending your money before going to the next step.

Decide how much cash you need

You’ve identified your problem areas – now, let’s find a way to fix them. The first step is taking only the cash that you are willing to spend. Say you’re going to a baseball game – take out $50 and leave your credit and debit cards at home. This will eliminate the urge to keep spending money because you cannot get access to that money anyways!

Just be cautious, however; you don’t have an emergency fund on you.

Finding ways to cut back on spending can be difficult. Create budgets & goals, and take a look at your spending triggers.

Finding ways to cut back on spending can be difficult. Create budgets & goals, and take a look at your spending triggers.

Figure out what your spending triggers are

Spending triggers are subconsciously affecting where your money is going. When you start splurging on things, write down how you were feeling at the time. Were you mad? Bored? Tired? Find out what it is that makes you spend more money than you should.

List your goals

Create goals for yourself each week and try to meet them. I create a spreadsheet that breaks down where my money should go. For example, I’ll create a goal to eat dinner at home 5 times this week. I vary my spreadsheet each week so that I do not get bored with it.

If you meet all of your goals, find a way to reward yourself.

Let it be

If you’re thinking of buying something, make sure that it’s not an impulsive decision. I’ve always found that internet shopping is troublesome for people because you can quickly order an item and you don’t even physically have the item in front of you.

If you’re someone that buys impulsively, let the item sit in your shopping cart for a few days. Next time you visit the website, decide if that’s an item that you’d still like to purchase.

Alert others of your decisions

One thing that I’ve been trying to cut back on is spending money on drinks. I’ve let the other people I work with know about this decision.

Now, whenever I come back to the office with a drink in my hand, my friends always give me a look as if they’re saying you shouldn’t have done that…

I’ve found that letting my best friends know about my spending goals has helped me drastically reduce my problem areas. It’s a constant reminder that I need to be more careful when pulling out my credit card.