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Wednesday 02.08.2017

Kashkari Says Economy Still Needs Low Rates as Inflation Lags

Federal Reserve Bank of Minneapolis President Neel Kashkari justified his vote last week to leave interest rates unchanged by saying inflation is in check and the U.S. job market seems to have more room to improve.

“We are still coming up somewhat short on our inflation mandate, and we may not have yet reached maximum employment,” Kashkari said Tuesday in an essay posted on the bank’s website to explain his decision. “That suggests that somewhat accommodative monetary policy would still be appropriate to close those gaps.”

Kashkari, who took office at the beginning of 2016 and votes this year on the U.S. central bank’s rate-setting Federal Open Market Committee, took the unusual step of publishing an essay “to enhance transparency into my decision-making regarding monetary policy without adding to the cacophony.”

Typically, Fed officials use public speeches to explain their decisions, but Kashkari isn’t your typical policy maker. A former Goldman Sachs banker who managed the U.S. Treasury’s $700 billion rescue of banks in the 2008 crisis, he had a failed run for governor of California in 2014 before joining the Fed, and often taken an alternative approach to communicating.

Monthly jobs openings were little changed in December

Monthly jobs openings — a gauge of the U.S. economy that's closely watched by Fed chair Janet Yellen — were little changed in December, the Bureau of Labor Statistics said on Tuesday.

Monthly job openings were at 5.5 million on the last business day of December, according to the Bureau of Labor Statistics' Job Openings and Labor Turnover Summary (JOLTS).

That figure is in line with what economist expected, according to a consensus estimate from Thomson Reuters. Job openings were at 5.5 million in the previous month.

Over the month, hires and separations were little changed at 5.3 million and 5 million, respectively. The quits rate was little changed at 2 percent as well as the layoffs and discharges rate at 1.1 percent.

San Francisco announces free community college for all residents

San Francisco’s mayor announced Monday that the city would make college education free to all of its residents through the City College of San Francisco.

The agreement, made possible through a tax on properties sold for at least $5 million, is expected to begin next fall.

"To California residents who are living in San Francisco, your community college is now free," Mayor Ed Lee said. Any San Franciscan who's lived in the city for at least a full year will be eligible, regardless of income, the San Francisco Chronicle reported. Supervisor Jane Kim likened the agreement to public schooling for K-12 students, saying that City College would be free to all, too.

“Even the children of the founders of Facebook,” Kim said. Here's how the deal works: San Francisco voters approved a transfer tax last November. Through that, the city plans to provide $5.4 million annually for qualified students to cover the $46-per-credit fees they typically pay, according to the Chronicle. Both full- and part-time eligible students can qualify.

Was Trump’s travel ban implemented too quickly?

China, India to Overtake U.S. Economy by 2050

Though the size of the global economy is expected to more than double by 2050, a new report from PricewaterhouseCoopers suggests America will no longer be king of the hill a few decades from now. That title instead will go to China, which currently plays second fiddle to the U.S. in terms of gross domestic product but which is expected to overtake the American economy by 2030.

But if PwC's projections play out, the U.S. won't even lock down a silver medal a few decades from now. On a purchasing-power-parity basis – which looks at GDP adjusted for international exchange rates and costs associated with local purchases – India will come in second to China, with the U.S. rounding out the top three.

"After a year of major political shocks with the Brexit vote and the election of President [Donald] Trump, it might seem brave to opine on economic prospects for 2017, let alone 2050," John Hawksworth, chief economist at PwC U.K., said in a statement Thursday accompanying the report. "By 2050 we project China will be the largest economy in the world by a significant margin, while India could have edged past the US into second place and Indonesia have risen to fourth place."

GDP purchasing-power-parity calculations aren't the gold standard for most U.S. macroeconomists but offer an alternative look at economic growth focused on, as the name suggests, a particular country's purchasing power.

Gallup: Americans' Confidence in Economy Reaches Monthly High in January

Americans' confidence in the U.S. economy reached a nine-year high in January.

Gallup's U.S. Economic Confidence Index averaged +11 in January, the highest monthly average in Gallup's nine-year trend, the pollster reported on Tuesday.

In fact, Gallup said some of the three-day averages in January "marked new highs in Gallup's tracking," which began in 2008. The index peaked at +19 for the Jan. 21-23 three-day average after President Donald Trump's inauguration and shortly before the Dow Jones industrial average hit a new high.

Since then, Gallup notes, the three-day averages have dropped to smaller single-digit scores, including a +8 average for Feb. 3-5. According to Gallup, "January's +11 score marks the third consecutive month the index has been in positive territory. This is a new feat for an index that has had mostly negative monthly measures since its inception, except for January and February 2015."

Silver Market Set Up For Much Higher Price Move Than Gold

When the paper markets finally collapse, the silver market is set up for much higher price gains than gold. Why? Because the fundamentals show that precious metals investment demand has put a great deal more pressure on the silver supply than gold… and by a long shot.

There are three crucial reasons why the silver price will outperform the gold price when the highly inflated paper markets disintegrate under the weight of massive debt and derivatives. While many precious metals investors are frustrated by the ability of the Fed and Central Banks to continue to prop up the markets, the longer they postpone the day of reckoning, the worse the collapse.

This chart shows that the U.S. relied upon 72% of its domestic silver demand from foreign sources in 2015. Thus, U.S. silver supply reliance (72%) is double that of copper (36%), while U.S. gold demand enjoyed a 48% surplus versus its domestic supply.

Robots 'could replace 250,000 UK public sector workers'

Almost 250,000 public sector workers could lose their jobs to robots over the next 15 years, according to a new report which claims machines would be more efficient and save billions of pounds.

Reform, a right-of-centre thinktank, says websites and artificial intelligence “chat bots” could replace up to 90% of Whitehall’s administrators, as well as tens of thousands in the NHS and GPs’ surgeries, by 2030 – saving as much as £4bn a year.

Even nurses and doctors could fall victim to the march of the machines, which the report says can outperform humans at some diagnoses and routine surgical procedures, and are more efficient at collecting information. The report argues that public services should become more flexible by embracing a gig economy where workers support themselves through a variety of flexible jobs acquired through online platforms.

In remarks that seem set to infuriate unions, a Reform press release says: “Public services can become the next Uber, using the gig economy to employ locum doctors and supply teachers.” Few complex roles, it suggests, will be able to resist the move towards automation, with the aim that public services will eventually become “diamond-shaped”, as both frontline and strategic roles are replaced by computers.

Fed's Harker: March 'Should be Considered' for Next Rate Hike

Philadelphia Federal Reserve Bank President Patrick Harker on Monday said he would be open to raising interest rates again at the U.S. central bank's March meeting if growth in jobs and wages continues.

"I still am supportive of three rate hikes this year, of course with a major caveat, depending on how the economy evolves and policy, fiscal policy, evolves," Harker told reporters after a speech on the regulation of fintech firms." I think March should be considered as a potential for another 25-basis point increase."

The Fed raised rates for only the second time since the financial crisis in December, and most Fed policymakers agree with Harker that three more rate hikes this year would be appropriate. Wall Street banks and interest-rate futures traders are betting the Fed will only lift borrowing costs twice this year, starting in June.

Harker, one of 10 voters this year on the Fed's rate-setting panel, said that to support a rate hike he would need to see further GDP growth and continued strengthening of the labor market, "not just in terms of the job numbers but also seeing continued wage growth and income growth because that will ultimately feed into inflation."

Revealed: The Average American's Taxable Income, And Why It Could Fall in 2017

Already, millions of Americans are starting to file their tax returns, hoping to get refunds back from the IRS as early as possible. One of the last steps in your tax preparation is calculating your taxable income, from which you'll determine your final tax bill. The federal government regularly releases data on American taxpayers on a delayed basis, and its most recent numbers show quite clearly what the average American taxpayer's taxable income is. Yet there's reason to believe that if proposed tax reforms become law, some taxpayers could see that number drop, leading to possible tax savings.

More than 112 million American households reported their taxable income on their tax returns during 2014, the most recent year for which the IRS has released data. In total, the numbers they reported on their 1040 tax returns added up to almost $7 trillion in taxable income. When you do the math using the precise figures that the federal government released, the average American household reported taxable income of $62,116.

There are a couple things to note with respect to this number. First, it represents taxable households rather than individual Americans, because couples who file jointly will combine their income on a single return. When you take into account the tens of millions of joint returns that got filed and adjust accordingly, the estimate for the average American's taxable income goes down to $45,575.

In addition, this figure leaves out a substantial number of Americans. If your income is low enough that you don't have to file a tax return at all, then the IRS data doesn't reflect that. In addition, if you filed a return but your taxable income was zero or negative, then the IRS data doesn't include the return in its count of taxpayers. It's difficult to estimate precisely for that effect, but what it suggests is that the true average would be lower still if it included all of those who would have no taxable income at all.

Something that 'usually only happens in recessions' is popping up in the US economy

The Federal Reserve's latest quarterly survey of lending conditions showed a tightening of standards in some sectors that suggests banks are already retrenching, even as the central bank considers additional interest-rate increases.

Banks also reported weaker demand for most types of mortgage loans over the fourth quarter, the Fed said, perhaps reflecting higher borrowing costs in the wake of Donald Trump's presidential victory.

The most worrisome sign, however, was a pattern seen among large and medium companies. "Although modest over the past couple of quarters, it is still worth noting that this is now the sixth quarter in succession that standards have tightened for large and medium sized firms," Deutsche Bank economist Jim Reid wrote in a research note to clients.

"This usually only happens in recessions." Domestic banks that tightened standards or terms on commercial and industrial loans cited "a less favorable or more uncertain economic outlook." "The most notable tightening in standards though was in consumer loans," the Fed said. "During the quarter, banks reported an 8.3% net tightening in credit standards for credit cards and 11.6% net tightening for auto loans."

U.S. autoworkers score record bonuses

GM said Tuesday that it will distribute a record profit sharing payment to its 52,000 U.S. factory workers. This year's maximum payout for eligible workers is $12,000.

The bonuses "reward our members' dedication and commitment to building some of the most popular and high-quality vehicles in the world," said United Auto Workers union Vice President Cindy Estrada. "They deserve every penny."

About 40,0000 workers at Fiat Chrysler will get an average payment of $5,000, a record there and up 25% from a year ago. Ford will pay an average of $9,000 to 56,000 workers. That's the second highest bonus the company has ever paid.

The UAW reached four-year labor deals with all three of the automakers a year ago. Profit sharing payments tie worker pay more closely to the company's success rather than just hours worked. The union also got promises from the automakers to invest more in their U.S. plants and to build certain new products at certain plants. Those commitments are a form of job protections for workers.

Confused Nancy Pelosi refers to President Trump as 'President Bush'

Goldman Sachs automated trading replaces 600 traders with 200 engineers

At its height back in 2000, the U.S. cash equities trading desk at Goldman Sachs’s New York headquarters employed 600 traders, buying and selling stock on the orders of the investment bank’s large clients. Today there are just two equity traders left.

Automated trading programs have taken over the rest of the work, supported by 200 computer engineers. Marty Chavez, the company’s deputy chief financial officer and former chief information officer, explained all this to attendees at a symposium on computing’s impact on economic activity held by Harvard’s Institute for Applied Computational Science last month.

The experience of its New York traders is just one early example of a transformation of Goldman Sachs, and increasingly other Wall Street firms, that began with the rise in computerized trading, but has accelerated over the past five years, moving into more fields of finance that humans once dominated. Chavez, who will become chief financial officer in April, says areas of trading like currencies and even parts of business lines like investment banking are moving in the same automated direction that equities have already traveled.

Today, nearly 45 percent of trading is done electronically, according to Coalition, a U.K. firm that tracks the industry. In addition to back-office clerical workers, on Wall Street machines are replacing a lot of highly paid people, too.

Made in USA: Growing Panes for a High-Tech Window Company

SageGlass invented dynamic glass—“tint on demand” windows that use special coatings and low voltages of electricity to filter out varying degrees of light. The small company started in 1989 in New York, but eventually moved to Faribault, Minnesota, 50 miles south of Minneapolis, because the area was developing a reputation for its innovation in window manufacturing.

Then in 2012, French building materials manufacturer Saint-Gobain acquired SageGlass. Although the unmet demand for dynamic glass was mainly in Europe, Saint-Gobain chose to keep production in Minnesota, build a new plant there, and convert the old plant to a research and development facility. The new facility can coat panes of glass that are more than twice the size of the old ones.

David Pender, director of operations at SageGlass (who previously spent 11 years in Germany working for Saint Gobain), talked about the challenges and advantages of keeping SageGlass’s manufacturing and R&D in the United States:

Western Europe is a little further along than the U.S. in building codes. What’s considered extremely exotic here … is considered almost normal in Europe. Getting the supply chain right to be able to produce everything from what’s acceptable in the U.S. to what’s expected in Europe poses a certain amount of challenge. We’ve got to be sourcing some things from Europe, to make the products here and then shift them back to Europe. That doesn’t make too much sense at the moment, but we are trying to grow this market worldwide. Europe is growing very, very quickly because the Saint-Gobain name in Europe is a big plus.

Minimum-Wage Hikes Will Not Solve Poverty in America

Last July, the Democratic party pledged to lead the fight for a federally mandated $15 minimum wage. “The current minimum wage is a starvation wage and must be increased to a living wage,” the party’s platform contended. “No one who works full time should have to raise a family in poverty.”

Other champions of the movement to increase the minimum wage — such as “Fight for $15” and the Service Employees International Union — have called attention to the same concern. And sometimes, their voices have been heard: This year, 14 states and Washington, D.C., elected to increase their minimum wages, some through bills in the legislature and others through referenda. (Eight other states raised their minimum wage, too, but solely to adjust for inflation.)

Unfortunately, proponents of minimum-wage hikes have neglected to consider the unintended consequences of such drastic changes to state labor laws. According to a report published last week by American Action Forum, a center-right think tank in Washington, D.C., the minimum-wage hikes implemented in 2017 (some laws went into effect January 1 and others will go into effect in July) will result in a loss of 383,000 jobs by 2020.

Of the 14 states, four of them — Arizona, Maine, New York, and Washington — are expected to host at least a one-percent reduction in employment by 2020. In Arizona, for example, American Action Forum predicts a 1.7 percent reduction in employment, resulting in 52,000 lost jobs. Similarly, the think tank projects a 1.1 percent reduction in employment in New York (109,000 lost jobs); New York City alone will lose 72,000 jobs. “In 2020,” the report states, “employment in these 14 states and DC combined will be 0.7 percent lower than if the minimum wages did not change.”

US government’s 2016 net loss “more than doubled” to Negative $1 trillion

Every year around this time the US federal government releases an annual financial report to the public. It would be hilarious if the numbers weren’t actually true. Just like Apple or Exxon, the government’s annual report contains several important financial statements and detailed commentary about their finances and operations.

But unlike Apple, Exxon, the government can’t manage to turn a profit. Ever. According to this year’s report, the government’s net loss “more than doubled, increasing $533.2 billion (103.7%) during [Fiscal Year] 2016 to $1.0 trillion.” It’s extraordinary that they lost $533 billion in 2015, let alone a full trillion in 2016.

Bear in mind, there was no major wars, recessions, or crises to fight. What did you really receive in exchange for that trillion-dollar loss? Brand new highway system? Giant tax rebate? Nope. None of the above.

The sad reality is that it now costs the government so much to run itself, along with paying massive interest on the debt and supporting all of its entitlement obligations, that they lose $1 trillion even in a “normal” year. What will happen in a bad year? Then there’s the issue of the government’s “net worth”. After adding up all of its assets (like tanks, aircraft carriers, government buildings, etc.) and subtracting liabilities (the national debt), the government’s “net worth” was MINUS $19.3 trillion at the close of the 2016 fiscal year. That’s worse than 2015’s NEGATIVE $18.2 trillion, which was worse than 2014’s NEGATIVE $17.7 trillion, which was worse than 2013’s NEGATIVE $16.9 trillion.

Obamacare debate pushing off Trump’s tax cuts?

Cutting jobs, street repairs, library books to keep up with pension costs

When the state auditor gauged the fiscal health of California cities in 2015, this port community on the eastern shore of San Francisco Bay made a short list of six distressed municipalities at risk of bankruptcy.

Richmond has cut about 200 jobs — roughly 20% of its workforce — since 2008. Its credit rating is at junk status. And in November, voters rejected a tax increase that city leaders had hoped would help close a chronic budget deficit. “I don’t think there’s any chance we can avoid it,” said former City Councilman Vinay Pimple, referring to bankruptcy.

A major cause of Richmond’s problems: relentless growth in pension costs. Payments for employee pensions, pension-related debt and retiree healthcare have climbed from $25 million to $44 million in the last five years, outpacing all other expenses. By 2021, retirement expenses could exceed $70 million — 41% of the city’s general fund.

Richmond is a stark example of how pension costs are causing fiscal stress in cities across California. Four municipalities — Vallejo, Stockton, San Bernardino and Mammoth Lakes — have filed for bankruptcy protection since 2008. Others are on the brink. “The truth is that there are cities all over the state that just aren’t owning up to all their problems,” said San Bernardino City Manager Mark Scott.

Malls Using Empty Spaces To Get Into The Party Venue Business

Maybe you’re horrified by the idea of getting married or having your family reunion inside a mall, but the huge spaces left vacant by the recent spate of store closures may just be the perfect venue for your next big party.

After all, there are positives to hosting a big event at the local mall. There should be ample parking (especially near Sears), and it’s a lot easier to give out-of-town visitors directions to a huge mall than it is to point them to a rented venue on a private road somewhere.

Some mall operators are aleady beginning to cash in on their unoccupied retail spaces. The Dallas Morning News points to a handful of area spots –– like a former Pier One, an empty restaurant, and a movie theater that hasn’t shown a film in ages –– that have begun a new life as event spaces.

The mall vacancies are coming at a time when the hospitality industry appears to be moving away from providing event venues. Some newer hotels are now built without the ballrooms and conference spaces that have long played home to events like weddings, proms, bar mitzvahs, quinceañeras, and even mundane business meetings.

Here Come The Robots – And They Are Going To Take Almost All Of Our Jobs

What is going to happen to society when robots are able to do just about everything better, faster and cheaper than human workers can? We live at a time when technology is increasing at an exponential pace. Incredible advancements in robotics, computer science and artificial intelligence are certainly making our lives more comfortable, but they are also bringing fundamental changes to the workplace. For employers, there are a lot of advantages to replacing human workers with robots. Robots don’t surf around on Facebook when they are supposed to be working. Robots don’t need Obamacare, lunch breaks or vacation days. Robots never steal from the company and they never complain. Up until fairly recently, human workers could generally perform many tasks more cheaply than robots could, but now that is rapidly changing.

For example, a coffee shop has just opened up in San Francisco that is manned by a robot instead of a human…

Tired of your barista misspelling your name on your morning cup of joe? Perhaps a robot could do better. On Monday, Cafe X opened its very first robotic cafe in San Francisco’s Metreon shopping center. Promising “precision crafted specialty coffee in seconds, the way the roaster intended,” Cafe X thinks that anything a human can do, its machines can do better.

Specifically, one very special machine. Nicknamed Gordon, after a Cafe X employee, this robot mans, or robots, two standard professional coffee machines in order to serve up espressos and lattes. In the San Francisco location, customers can grab a cup of coffee with beans from AKA Coffee, Verve Coffee Roasters, or Peet’s. While the coffee itself may not make Cafe X stand out from the competition, the startup hopes that the robot’s efficiency will.

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