American Economy News & Updates

[Solomon2]

Opinion: Why the U.S.’s debt is no longer such a big deal

Published: Dec 4, 2014 6:10 a.m. ET

A growing economy means the federal deficit is now a manageable 2.9% of GDP

By

HOWARD GOLD
COLUMNIST

Shhh! Don’t tell anyone, but over the past couple of years, the U.S.’s debt burden, the big issue that swept Tea Party-led Republicans into control of the House of Representatives in 2010, has quietly improved.

According to the Congressional Budget Office, the federal budget deficit was $506 billion for fiscal 2014, which ended in October. That’s about a third the size of the deficit in 2009, in the depths of the Great Recession.

The deficit also has fallen from more than 10% of GDP in fiscal 2009 to only 2.9% of GDP in fiscal 2014. (See the chart below, courtesy of A. Gary Shilling & Co.) That would put the U.S. below the 3% limit at which the European Union requires member countries to take corrective action. The CBO expects us to stay around that level for the next five years.

And although federal debt held by the public should reach 74% of GDP this year — the highest percentage since 1950 — the CBO projects it, too, will remain steady for the rest of the decade.

The big improvement in the federal debt should be a boon to the U.S., which has been a magnet for global capital over the last couple of years.

Still, if we don’t address long-term obligations like Social Security and Medicare, the decade of the 2010s may turn out to be a quiet respite before the retirement of millions of Baby Boomers puts us back in the fiscal soup.

But for now, the improvement is impressive even to economist A. Gary Shilling, one of the few to warn about a housing bubble and impending debt storm long before the financial crisis hit.

“The federal government is recovering faster than the household sector,” he told me, mainly because of the economic rebound.

“You’ve had stronger tax collections, especially in the corporate area,” he explained. “When you’ve had any kind of economic growth, you really have a big jump in tax revenues. Economic growth covers a multitude of sins, and a lack of growth exposes them.”

The other big factor, of course, is that the epic August 2011 debt-ceiling battle between Congressional Republicans and President Obama ultimately led to $1 trillion in cuts in discretionary domestic and defense spending over nearly a decade. The “sequestration” process was legislative sausage making at its ugliest, resulting in a credit rating downgrade and later, a government shutdown. But it did the job: Few other developed countries have been able to cut so much without slowing growth dramatically.

Meanwhile, state and local governments have cut more than 600,000 jobs, which along with higher tax revenues have markedly improved the fiscal condition of even big spending states like New York and California.

Unfortunately, Shilling told me, U.S. households are recovering much more slowly.

Because of the housing and credit bubbles, total household debt (including car loans, credit cards, student loans and home mortgages) doubled from 65% of disposable personal income (DPI) in 1980 to a mind-boggling 130% in 2007. (The chart below was provided by A. Gary Shilling & Co.)

Similarly, the savings rate dropped from 12% of DPI to a minuscule 2% in 2005. Who needed to save money when you could refinance your mortgage and spend your home equity?

The savings rate is up to 5%, and total household debt has fallen to 103% of DPI, Shilling said. Usually it takes a decade for consumers to work off the debt they racked up during a boom.

But now, he said, “you’ve been at this process for six years. At this rate, it would take a lot longer than four years to complete. ... It’s a long way from where I think it’s going.”

Consumers’ deleveraging and stagnant middle-class incomes have depressed consumer spending for all but the affluent. “You no longer have the consumer spending like a drunken sailor,” said Shilling.

But there’s a silver lining. The weak U.S. consumer recovery, combined with another recession in Japan and near-recession in Europe, has helped subdue inflation here. (Read about falling oil and commodity prices.)

That could take the pressure off the Federal Reserve to raise interest rates soon and may improve the federal debt situation even more.

Why? The CBO is projecting 3% Treasury bill rates by 2017 and a 5% 10-year Treasury note by 2018.

Shilling, however, expects the yield on the 10-year to fall to 1%. (Germany, Japan, and Switzerland’s 10-year notes all yield much less than 1%.) But even if rates stayed around current levels, it would mean billions of dollars in additional budgetary relief over what the CBO projects.

The vastly improved fiscal situation may last only a few years, but it’s a big plus for U.S. markets and the U.S. dollar — and another nail in the coffin for the gold bugsand doom-and-gloomers who can add one more item to the long list of things they got really, really wrong.

Howard R. Gold is a MarketWatch columnist and founder and editor of GoldenEgg Investing, which offers free market commentary and simple, low-cost, low-risk retirement investing plans. Follow him on Twitter @howardrgold.

 

[Echo_419]

Opinion: Why the U.S.’s debt is no longer such a big deal

Published: Dec 4, 2014 6:10 a.m. ET

A growing economy means the federal deficit is now a manageable 2.9% of GDP

By

HOWARD GOLD
COLUMNIST

Shhh! Don’t tell anyone, but over the past couple of years, the U.S.’s debt burden, the big issue that swept Tea Party-led Republicans into control of the House of Representatives in 2010, has quietly improved.

According to the Congressional Budget Office, the federal budget deficit was $506 billion for fiscal 2014, which ended in October. That’s about a third the size of the deficit in 2009, in the depths of the Great Recession.

The deficit also has fallen from more than 10% of GDP in fiscal 2009 to only 2.9% of GDP in fiscal 2014. (See the chart below, courtesy of A. Gary Shilling & Co.) That would put the U.S. below the 3% limit at which the European Union requires member countries to take corrective action. The CBO expects us to stay around that level for the next five years.

And although federal debt held by the public should reach 74% of GDP this year — the highest percentage since 1950 — the CBO projects it, too, will remain steady for the rest of the decade.

The big improvement in the federal debt should be a boon to the U.S., which has been a magnet for global capital over the last couple of years.

Still, if we don’t address long-term obligations like Social Security and Medicare, the decade of the 2010s may turn out to be a quiet respite before the retirement of millions of Baby Boomers puts us back in the fiscal soup.

But for now, the improvement is impressive even to economist A. Gary Shilling, one of the few to warn about a housing bubble and impending debt storm long before the financial crisis hit.

“The federal government is recovering faster than the household sector,” he told me, mainly because of the economic rebound.

“You’ve had stronger tax collections, especially in the corporate area,” he explained. “When you’ve had any kind of economic growth, you really have a big jump in tax revenues. Economic growth covers a multitude of sins, and a lack of growth exposes them.”

The other big factor, of course, is that the epic August 2011 debt-ceiling battle between Congressional Republicans and President Obama ultimately led to $1 trillion in cuts in discretionary domestic and defense spending over nearly a decade. The “sequestration” process was legislative sausage making at its ugliest, resulting in a credit rating downgrade and later, a government shutdown. But it did the job: Few other developed countries have been able to cut so much without slowing growth dramatically.

Meanwhile, state and local governments have cut more than 600,000 jobs, which along with higher tax revenues have markedly improved the fiscal condition of even big spending states like New York and California.

Unfortunately, Shilling told me, U.S. households are recovering much more slowly.

Because of the housing and credit bubbles, total household debt (including car loans, credit cards, student loans and home mortgages) doubled from 65% of disposable personal income (DPI) in 1980 to a mind-boggling 130% in 2007. (The chart below was provided by A. Gary Shilling & Co.)

Similarly, the savings rate dropped from 12% of DPI to a minuscule 2% in 2005. Who needed to save money when you could refinance your mortgage and spend your home equity?

The savings rate is up to 5%, and total household debt has fallen to 103% of DPI, Shilling said. Usually it takes a decade for consumers to work off the debt they racked up during a boom.

But now, he said, “you’ve been at this process for six years. At this rate, it would take a lot longer than four years to complete. ... It’s a long way from where I think it’s going.”

Consumers’ deleveraging and stagnant middle-class incomes have depressed consumer spending for all but the affluent. “You no longer have the consumer spending like a drunken sailor,” said Shilling.

But there’s a silver lining. The weak U.S. consumer recovery, combined with another recession in Japan and near-recession in Europe, has helped subdue inflation here. (Read about falling oil and commodity prices.)

That could take the pressure off the Federal Reserve to raise interest rates soon and may improve the federal debt situation even more.

Why? The CBO is projecting 3% Treasury bill rates by 2017 and a 5% 10-year Treasury note by 2018.

Shilling, however, expects the yield on the 10-year to fall to 1%. (Germany, Japan, and Switzerland’s 10-year notes all yield much less than 1%.) But even if rates stayed around current levels, it would mean billions of dollars in additional budgetary relief over what the CBO projects.

The vastly improved fiscal situation may last only a few years, but it’s a big plus for U.S. markets and the U.S. dollar — and another nail in the coffin for the gold bugsand doom-and-gloomers who can add one more item to the long list of things they got really, really wrong.

Howard R. Gold is a MarketWatch columnist and founder and editor of GoldenEgg Investing, which offers free market commentary and simple, low-cost, low-risk retirement investing plans. Follow him on Twitter @howardrgold.

Great news for our American Friends

 

[F-22Raptor]

Economy Grows Most Since ’03 on U.S. Consumer-Spending Gains - Bloomberg

Q3 growth has been revised upwards to 5%. This is the highest growth rate since 2003.

 

[Luca1]

Economy Grows Most Since ’03 on U.S. Consumer-Spending Gains - Bloomberg

Q3 growth has been revised upwards to 5%. This is the highest growth rate since 2003.

This means that US has greater absolute growth than China in Q3

 

[Providence]

This means that US has greater absolute growth than China in Q3

Not sure. In nominal terms it might be less.

For example, if the nominal interest rate offered on a three-year deposit is 4% and the inflation rate over this period is 3%, the investor’s real rate of return would be 1%. While the real rate is low, at least it will preserve the investor’s purchasing power. On the other hand, if the nominal interest rate is, say, 2% in an environment of 3% inflation, the investor’s purchasing power would erode by 1% per annum.

 

[Echo_419]

Not sure. In nominal terms it might be less.

For example, if the nominal interest rate offered on a three-year deposit is 4% and the inflation rate over this period is 3%, the investor’s real rate of return would be 1%. While the real rate is low, at least it will preserve the investor’s purchasing power. On the other hand, if the nominal interest rate is, say, 2% in an environment of 3% inflation, the investor’s purchasing power would erode by 1% per annum.

The Important thing is America is back

 

[Providence]

The Important thing is America is back

Contrary to what internet warriors would have you believe, the american dream is intact and our economy has very strong fundamentals. The core inflation and headline inflation for last couple of decades have shown very little variation which has helped our policymakers a lot of elbow room to tackle the short term setbacks.

 

[Echo_419]

Contrary to what internet warriors would have you believe, the american dream is intact and our economy has very strong fundamentals. The core inflation and headline inflation for last couple of decades have shown very little variation which has helped our policymakers a lot of elbow room to tackle the short term setbacks.

Indeed to watching to Much RT does that

 

[Providence]

Check the inflation rate after 1990. It has been decently low and see the variance except probably for 2009.

This stable inflation rate have let us enjoy several benefits :

• When inflation is low, consumers and businesses are better able to make long-range plans because they know that the purchasing power of their money will hold and will not be steadily eroded year after year.

• Low inflation also means lower nominal and real (inflation-adjusted) interest rates. Lower real interest rates reduce the cost of borrowing. This encourages households to buy durable goods, such as houses and autos. It also encourages businesses to invest in order to improve productivity so that they can stay competitive and prosper without steadily having to raise prices.

• Sustained low inflation is self-reinforcing. If businesses and individuals are confident that inflation is under long-term control, they do not react as quickly to short-term price pressures by seeking to raise prices and wages. This helps to keep inflation low.

 

[RabzonKhan]

Sorry haters for ruining your day.


US economy adds 257,000 jobs in biggest increase since November 2008 | Business | The Guardian

Marks 11th straight month to top 200,000 jobs
Revised November figures show 423,000 jobs created, most since May 2010

Rupert Neate in New York
Friday 6 February 2015

The US economy added 257,000 jobs in January, beating expectations of 230,000 jobs and giving the market renewed confidence in the health of the nation’s economy.

The Labor Department also revised jobs data from for November and December to show 147,000 more jobs were created than previously estimated. The revised figures for November show 423,000 jobs were created – the most since May 2010.


“With today’s strong employment report, we have now seen eleven straight months of job gains above 200,000 – the first time that has happened in nearly two decades,” wrote Jason Furman, chairman of the White House’s council of economic advisers.

The private sector has now added 11.8m jobs over 59 straight months of job growth, extending the longest streak on record.

“We keep trying to tell everyone that the US economy is enjoying a period of unusual strength; maybe now people will believe us,” said Paul Ashworth, chief US economist at thinktank Capital Economics. “The economy is doing so well that it has created more than 1 million additional jobs in the last three months alone. That’s the strongest pace of job growth we’ve seen since 1997.”

January’s increase was the biggest since November 2008, and the 11th straight month that more than 200,000 new jobs were created – the longest consecutive streak since 1994.

Despite the increase in new jobs, the unemployment rate increased slightly from 5.6% to 5.7%.

Wages also increased, with average hourly earnings for all employees on private nonfarm payrolls up 12 cents to $24.75, following a decrease of 5 cents in December. Over the last 12 month average wages have increased by 2.2%, up from a previous estimate of 1.9%.

David Lamb, senior dealer at the foreign exchange specialists Fexco, said: “Seldom do economists get everything they want. Yet today might just be one of those days.

“America’s straight-A jobs report sent the markets and the dollar soaring – with the Greenback spiking 1% against the euro within minutes. With wages rising and the rate of job creation kicking into overdrive, even the most bearish will struggle to find fault with this latest snapshot of the US economy.”
This strong jobs report raises the probability that the US Federal Reserve may start to raise interest rates, which have been kept near zero since 2008.

“[The] very strong labour market report has put a June rate hike by the Fed back into the picture after a month of rather disappointing data,” Rob Carnell, chief international economist at ING, said. “With wages turning higher, the Fed can justify ignoring the plummeting headline inflation rate, and instead, focus more on core inflation and wages. A little bit of more positive activity data would also help the Fed hawks.
“About the only fly in the ointment in this release was the unemployment rate, and even this is really evidence more of the huge surge in the labour force [up by more than 1m] ... Such a rise is probably statistical noise, but it could also be evidence of greater optimism about the chances of gaining work, and a return to the labour market by marginally inactive people.”

Ashworth added: “Employment growth is clearly on fire and its beginning to put upward pressure on wage growth. The Fed can’t wait much longer in that environment, particularly not when interest rates are starting at near-zero.”

 

[RabzonKhan]

Repeal the decades-old oil export ban to help energy renaissance

By George Baker
March 11, 2015

The ongoing shale oil renaissance and the United States’ abundant natural resources has transformed our energy landscape, allowing American consumers access to affordable fuel supplies and spurring significant investment and job growth across our economy.

But in order for this renaissance to continue, it is critical that lawmakers ensure that U.S. policy keeps pace so that our energy resources are being leveraged to provide the maximum benefit to the nation’s economy and international geopolitical interests.

This point was made clear at a recent House Energy and Commerce subcommittee hearing, where witnesses emphasized the enormous value that the changing dynamics in the global energy markets offered for the U.S. economy and America’s energy security.

The hearing highlighted the fact that all this historic promise is jeopardized by a little known provision of law that was enacted 40 years ago in the wake of the Arab oil embargo, which restricts the export of domestically produced crude oil. And whatever the merits of this policy may have been then, in this new age of energy abundance, prohibiting the export of America’s excess supply of crude oil no longer makes any practical or political sense.

Here’s why.

As the global leader in oil and natural gas production – recently surpassing both Russia and Saudi Arabia – the U.S. has turned global energy markets upside down. According to the U.S. Energy Information Administration, we now produce 9.2 million barrels of crude oil each day – the highest annual average in over three decades. Much of this growth is attributed to shale development and the production of light crude oil.

However, because much of our domestic crude oil refining capacity is configured to refine heavy grades of crude oil which are largely imported, we now find ourselves in a position where there’s a growing “mismatch” between the oil we produce (light) and the type of oil we can refine (heavy).

Domestically produced light oil has already reduced the volume of imported light oil by three million barrels per day. However, given the lack of refining capacity to handle the increased production, crude oil inventories are swelling to record levels, creating a glut of light oil that is depressing domestic crude oil prices. This is causing the spread between international (Brent) and domestic (WTI) crude oil prices to widen.

With the restriction on crude oil exports preventing U.S. producers from accessing global markets – while refiners have the ability to buy and sell freely – drilling rigs are being idled, jobs along the supply chain are being lost and the continued growth of the American shale oil renaissance is at risk.

As for concerns related to gasoline prices, the Subcommittee hearing last week made it quite clear that the reduced cost of domestic crude oil does not translate into lower gasoline prices for U.S. consumers. In fact, every analysis, thought leader and think tank that has weighed-in on this issue acknowledges that the price consumers pay for gasoline here in the U.S. is determined by the higher international crude oil benchmark.
According to ICF International, lifting the ban “could save American consumers up to $5.8 billion per year, on average, over the 2015-2035 period.” Moreover, while the domestic benefits to modernizing our nation’s energy policy are clear, the influx of U.S. crude oil to the global market would better enable our trading partners and allies to reduce their dependence on less reliable and unfriendly sources of energy.

This point was made clear by the White House last month in their National Security Strategy, which noted: “The challenges faced by Ukrainian and European dependence on Russian energy supplies puts a spotlight on the need for an expanded view of energy security.”

Our transformation from a period of perceived energy scarcity to one of energy abundance has been nothing short of a game changer for the United States. It has turned global energy markets upside down and positioned the U.S. to become a global energy superpower. For us to take full advantage of this opportunity, however, we first need to repeal the decades old oil export prohibition standing in our way.

 

[Hamartia Antidote]

Repeal the decades-old oil export ban to help energy renaissance

By George Baker
March 11, 2015

The ongoing shale oil renaissance and the United States’ abundant natural resources has transformed our energy landscape, allowing American consumers access to affordable fuel supplies and spurring significant investment and job growth across our economy.

But in order for this renaissance to continue, it is critical that lawmakers ensure that U.S. policy keeps pace so that our energy resources are being leveraged to provide the maximum benefit to the nation’s economy and international geopolitical interests.

This point was made clear at a recent House Energy and Commerce subcommittee hearing, where witnesses emphasized the enormous value that the changing dynamics in the global energy markets offered for the U.S. economy and America’s energy security.

The hearing highlighted the fact that all this historic promise is jeopardized by a little known provision of law that was enacted 40 years ago in the wake of the Arab oil embargo, which restricts the export of domestically produced crude oil. And whatever the merits of this policy may have been then, in this new age of energy abundance, prohibiting the export of America’s excess supply of crude oil no longer makes any practical or political sense.

Here’s why.

As the global leader in oil and natural gas production – recently surpassing both Russia and Saudi Arabia – the U.S. has turned global energy markets upside down. According to the U.S. Energy Information Administration, we now produce 9.2 million barrels of crude oil each day – the highest annual average in over three decades. Much of this growth is attributed to shale development and the production of light crude oil.

However, because much of our domestic crude oil refining capacity is configured to refine heavy grades of crude oil which are largely imported, we now find ourselves in a position where there’s a growing “mismatch” between the oil we produce (light) and the type of oil we can refine (heavy).

Domestically produced light oil has already reduced the volume of imported light oil by three million barrels per day. However, given the lack of refining capacity to handle the increased production, crude oil inventories are swelling to record levels, creating a glut of light oil that is depressing domestic crude oil prices. This is causing the spread between international (Brent) and domestic (WTI) crude oil prices to widen.

With the restriction on crude oil exports preventing U.S. producers from accessing global markets – while refiners have the ability to buy and sell freely – drilling rigs are being idled, jobs along the supply chain are being lost and the continued growth of the American shale oil renaissance is at risk.

As for concerns related to gasoline prices, the Subcommittee hearing last week made it quite clear that the reduced cost of domestic crude oil does not translate into lower gasoline prices for U.S. consumers. In fact, every analysis, thought leader and think tank that has weighed-in on this issue acknowledges that the price consumers pay for gasoline here in the U.S. is determined by the higher international crude oil benchmark.
According to ICF International, lifting the ban “could save American consumers up to $5.8 billion per year, on average, over the 2015-2035 period.” Moreover, while the domestic benefits to modernizing our nation’s energy policy are clear, the influx of U.S. crude oil to the global market would better enable our trading partners and allies to reduce their dependence on less reliable and unfriendly sources of energy.

This point was made clear by the White House last month in their National Security Strategy, which noted: “The challenges faced by Ukrainian and European dependence on Russian energy supplies puts a spotlight on the need for an expanded view of energy security.”

Our transformation from a period of perceived energy scarcity to one of energy abundance has been nothing short of a game changer for the United States. It has turned global energy markets upside down and positioned the U.S. to become a global energy superpower. For us to take full advantage of this opportunity, however, we first need to repeal the decades old oil export prohibition standing in our way.

No bleepin way. It was exporting our oil which caused our fields to go dry in the first place. Which is why we ended up needing to import oil. This writer should be shot.

 

[RabzonKhan]

No bleepin way. It was exporting our oil which caused our fields to go dry in the first place. Which is why we ended up needing to import oil. This writer should be shot.

I am focusing more on the good news. We are producing more crude oil than the Russian and Saudi Arabia.

 

[SvenSvensonov]

Surge in R&D Spending Burnishes U.S. Image as Innovation Nation

Companies in the U.S. are again putting money where their competitive advantage lies: in uncovering the products that will one day change how you work and play.

Corporate spending on research and development rose 6.7 percent in 2014, almost twice the previous year’s gain and the biggest advance since 1996, according to Commerce Department data. The pickup was capped by a 14 percent fourth-quarter surge that signals additional increases are on the way.

The spending could extend the momentum of an era of growth-inducing innovation that produced smartphones and tablet computers, 3-D printers, cloud software that delivers services via the Internet and hydraulic fracturing that is making the U.S. more energy self-sufficient. Combined with what’s still on the drawing board, such initiatives raise the odds productivity will rebound, boosting the standard of living.


“CEOs wouldn’t be paying all these researchers -- which is where the R&D budget primarily flows to -- unless they thought that there was something really interesting going on,” Jason Cummins, chief U.S. economist and head of research in Washington for hedge fund Brevan Howard Inc. “R&D surges like this sow the portents of better productivity growth three, five, 10 years later.”

The U.S. could benefit from such a boost. Employee output per hour has climbed 0.7 percent a year on average since 2011, compared with gains of 2.5 percent from 1990 through 2005, a period encompassing what some economists have called a “productivity miracle.”

Productivity’s Benefits
Productivity measures the overall efficiency of the economy and governs how fast it can expand, how much companies can earn and pay their workers, and how much the government can increase its budget.

More research may help rekindle business investment in equipment that has been bogged down since late last year. Orders for non-military capital goods excluding aircraft, a proxy for future spending on new gear, slumped 1.4 percent in February, Commerce Department data showed Wednesday. It marked the sixth straight decrease, the longest stretch since mid-2012.

The pickup in R&D spending last year was paced by well-known names, as 18 companies in the Standard & Poor’s 500 Index boosted such investment by 25 percent or more from 2013, according to data compiled by Bloomberg. The list includes drug-makers such as Pfizer Inc., travel-booking firms Priceline Group Inc. and TripAdvisor Inc., and Apple Inc. and Google Inc.

Industry Breakdown
Pharmaceutical companies were some of the biggest spenders on R&D in 2012, running up a $48.1 billion tab, according to the latest data from a survey by the National Science Foundation. The information industry -- including publishing, telecommunications and data processing -- shelled out $46.8 billion, while transportation-equipment makers spent about $42.3 billion.

Caterpillar Inc., the world’s biggest maker of construction machinery, plans to boost R&D spending in 2015 for a third year even as sales probably will decline, Richard Moore, director of investor relations, said at a March 3 industrial conference.

“To remain the leader in the industry, there are some things we need to invest in and make progress on,” Moore said. Such spending will rise about 10 percent from 2014 levels, almost to the $2.5 billion that marked the Peoria, Illinois-based company’s peak in 2012, even as business slips by about 9 percent, he said.

Investors are now rewarding companies looking to the future rather than those using their horde of cash to buy back shares, said Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America Merrill Lynch in New York.

Company Out-performance
Shares of the 190 companies in the S&P 500 that disclosed R&D spending in 2014 outperformed the overall index by 6.1 percentage points, according to Factset data compiled by Bank of America Merrill Lynch analysts.

“Companies are starting to feel maybe a wee bit better about the future, so they are unleashing the purse strings,” said Subramanian. “We hadn’t seen company spending on much of anything until 2014.”

Part of that investment is going toward hiring staff with the skills needed to develop new products, which is contributing to the general improvement in the job market.

Employment at testing laboratories climbed by 4.8 percent in the 12 months ended in January. That’s twice the 2.4 increase in total payrolls over the same period, according to Labor Department figures. Hiring of research and development staff at science and engineering companies rose 2.1 percent in the 12 months through January, the biggest year-to-year gain since January 2009.

R&D Leader
The U.S. is a leader in R&D spending in part because some 70 percent of venture capital money is based here, said Subramanian. This is “another good barometer of how innovation-oriented a particular region is,” and shows that America is “hyper-focused” on that investment, even if some of the venture capital money ends up in foreign companies, she said.

The benefits of increased spending on R&D also are likely to help spur sluggish wage growth, Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, wrote in a March 19 research note.

More investment in intellectual property -- which includes software and entertainment in addition to R&D -- should prompt acceleration in incomes in the next couple years, he wrote.

Spending on computer software, which is tallied separately from the government’s R&D category, also has shown a revival. It increased at a 10.1 percent pace in the fourth quarter, its best gain since 2011. That bodes well for productivity as work is streamlined, Sweet wrote.

Leading Skeptic
Not everyone is convinced that the U.S. economy has the capability to become more efficient. Robert Gordon, a professor at Northwestern University in Evanston, Illinois, is a leading skeptic that growth has room to run via innovation.

“Diminishing returns have set in,” as the workforce shrinks because of the retirement of baby boomers, educational attainment remains low, inequality widens and federal debt balloons due to entitlement programs, Gordon wrote in a February 2014 research paper titled “The Demise of U.S. Economic Growth.”

Loretta Mester, president of the Federal Reserve Bank of Cleveland, disagrees. She said at a March 9 conference hosted by the National Association for Business Economics in Washington that she’s “not a structural-stagnation kind of person,” citing the theory which argues the economy is trapped in a prolonged period of sub-par growth.

“Productivity growth is low now, but I think it’s going to come back,” Mester said. “It’s hard for me to believe that all of the things going on in the technology realm and the biotechnology realm are not going to lead to stronger productivity and better standards of living for us.”

Capital Spending
More research may help rekindle business investment in equipment that has been bogged down since late last year. Orders for non-military capital goods excluding aircraft slumped 1.4 percent in February, according to the Commerce Department. It marked the sixth straight decrease, the longest stretch since mid-2012.

Multinational companies aren’t the only ones looking to grow. About 26 percent of firms with fewer than 500 workers said in February that they planned to boost capital spending in the next three to six months, according to a National Federation of Independent Business survey that included 716 responses. That matched the prior month’s reading for the third-strongest since the last recession ended in December 2007.

“I don’t think all the gains from technology have been exhausted,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York. “The fact that R&D spending is rising is a sign that firms are willing to take risks and all the good things have yet to be invented.”

From Surge in R&D Spending Burnishes U.S. Image as Innovation Nation - Bloomberg Business

 

[Víðarr]

California Just Had a Stunning Increase in Solar

The Golden State produces more utility-scale solar than all the other states combined

California is now the first U.S. state to get 5 percent of its annual utility-scale electricity from the sun. But that's really understating what just happened.

The chart above, released this week by the U.S. Energy Information Administration, shows that in just one year, big solar jumped from 1.9 percent to 5 percent of the state's total power generation. California isn't just producing the most utility-scale solar electricity of any state; it's producing more than all the other states combined.

And that's only what the major electricity producers are generating—it doesn't include rooftop solar, in which California is also leading the nation. In small-scale solar, capacity for another 2.3 gigawatts has been installed, according to the California Public Utilities Commission.

Renewable energy, including hydro power and rooftop solar, now constitutes about a third of California's electricity, a remarkable feat accomplished through renewable requirements for utilities and incentives for homeowners.

But even that understates California's recent gains in renewable energy, because even as solar has bloomed, hydroelectric power has been slashed by more than half, by what's been called the state's worst drought in at least 1,200 years.

In California, water has become scarce, but sunshine remains plentiful.

From California Just Had a Stunning Increase in Solar - Bloomberg Business