"Kee" Points with Jim Kee, Ph.D.

Global Growth Lowered for 2015
The big global economic organizations, like the OECD (Organization for Economic Co-operation and Development), The World Bank, and the International Monetary Fund (IMF), have revised their 2015 global growth forecasts downward. Most expect growth to improve somewhat through the end of the year and into 2016, but they are giving the overall global economy something akin to “B minus” (Financial Times). I am not sure if you had a chance to attend one of our client updates at the beginning of the year, or to listen to our beginning of the-year webcast, but one of the things we highlighted - one of the key characteristics of this recovery - has been the fact that analysts have consistently overestimated economic growth every year, resulting in mid-year downgrades. So the recent growth downgrades from international agencies are right on cue!


My view, which I’ve discussed before, is that the main reason economic growth has been underwhelming is that the primary policy response to the financial crisis world-wide has been monetary rather than fiscal. That continues to be true in 2015. Economists often simplify policy discussions by demarcating a “policy mix” between monetary (central bank) policy and fiscal (tax, spending, regulation) policy. Monetary policy is easier to implement than fiscal policy because you don’t have to go through the political process like you do with fiscal policy changes like tax changes, spending/appropriations, and regulatory reform. There is also less disagreement as to what constitutes stimulative monetary policy than there is regarding fiscal policy. Perhaps more importantly, many economists (myself included) believe that monetary policy is best suited to managing inflation and credit availability, while fiscal policy is best suited to managing the incentive structure in the economy that most influences economic growth. “Monetary policy for inflation, fiscal policy for growth” is how this is often most simply put. I think the experience of the world’s economies since the 2007-09 financial crisis lends some credence to this view.


Strong Job Growth and Week Economic Growth?

The US had a great payroll report on Friday as the economy created 280,000 jobs during the month of May. March and April numbers were also revised upwards, and this has added to analysts’ convictions that the negative first quarter GDP growth was a transient soft patch. About 99% of the GDP forecasts that I see for the US in 2015 fall in the 2%-3% range. An interesting puzzle has been the continued divergence between jobs numbers, which have tended to be fairly strong, and economic growth numbers, which have tended to be fairly weak. Here’s my stab at solving that puzzle. One fact, forgotten by many in the press, is that the number of jobs lost during the recession was greater – even relative to the decline in GDP – than in previous recessions. Firings overshot on the downside, and companies were operating very lean with respect to employee count, probably unsustainably so. I think a lot of the hiring that we’ve seen since has been a “re-normalizing” from this overshot on the downside. In fact, the total number of people (nonfarm) employed in the US didn’t bounce back from its 2007 peak until about a year ago. But GDP had bounced back from its peak back in 2010, so companies have been operating fairly lean with respect to employee count. Productivity numbers, or “output per worker or worker hour,” actually reflect this, as productivity growth rose out of the recession and into 2010 (when firings peaked) and since has been declining. Overall, labor productivity growth peaked in 2001 and has been slowly declining for about 15 years. Productivity stats and conversations have a lot of problems, and I will perhaps discuss them in more detail in a future Kee Points.

Greece and Europe

The intransigence of 40 year-old Greece Prime Minister Alexis Tsipras is probably surprising even his most ardent followers at this point, including some of his own members of Parliament. I sense that it is starting to work to his detriment. Tsipras is fighting for further debt restructuring (writing off some of the $350bb that Greece owes) and currently rejects things creditors want, like pension cuts, VAT (value-added tax) hikes on electricity, wage bargaining, and tight budget targets. Greece needs about $8bb in bailout funds by the end of June ($330 million due this Friday) in order to avoid defaulting on debt payments. A default could mean a Greek exit from the Eurozone, something the people of Greece don’t want, so Tsipras is walking a tight line right now between being a shrewd negotiator and brinksman on the one hand, and losing support from the people who elected him on the other. The next 10 days will be telling.


I am pleased to announce that in last week’s issue of Barron’s Magazine, our CEO & Chief Investment Officer, Jeanie Wyatt, was named to the magazine's national list of Top 100 Women Financial Advisors.