Economic Outlook Symposium: 2021 Performance and 2022 Outlook by Caroline Beetz Fenske, Chicago Fed Insights, December 23, 2021.
The number one challenge in the manufacturing sector, Moutray said, is the higher cost of raw materials, but the sector is also facing issues related to labor shortages (especially for entry-level workers despite significant increases in their salaries in 2021), supply chain issues (including a semiconductor chip shortage, although that has subsided somewhat), and higher freight costs (especially for small- and medium-sized businesses). Manufacturing production is up 1.2% from when the pandemic started, “so we have bounced back pretty nicely from that,” he said. Moutray said he expects growth in the manufacturing sector to continue into 2022.
To sum up, Klier reiterated that the U.S. auto industry is facing an enormous transition. We know this by observing where companies are putting their money, and “there is a flood of billions of dollars” being allocated to electrification, Dziczek said. It remains to be seen which U.S. companies will be successful in introducing affordable electric vehicles and how much incentive the U.S. government is going to give people to buy them, Graham remarked. Auto producers, workers, and suppliers will have to make changes in order to meet demand for EVs. With effective policies in place to support EV infrastructure and buyers, the outcome for the Midwest region might depend on how fast and effectively firms and workers can reorient their production and ramp up scale, Klier concluded.
Next, the authors test the relationship between debt and output using a data-driven predictive technique (vector autoregression or VAR). They rely on data from 72 developed and developing countries for the period 1970–2014.9 With the understanding that “not all types of debt are created equal,” the VAR approach allows them to examine the connection between debt and output in particular sectors: households, firms, and government. They also study the debt-output association in terms of whether the debt is domestically or externally financed and how it relates to a country’s level of economic development and its exchange rate regime.
“The Increasing Importance of Services Expenditures and the Dampening Effect on Global Trade.” by Logan T. Lewis, Ryan Monarch, Michael Sposi, Jing Zhang, and Caroline Beetz Fenske, Chicago Fed Letter (April 2021).
In summary, while global trade as a fraction of GDP may have peaked, trade in goods and services will continue to provide a substantial source of economic growth and welfare gains for both developed and developing countries in the years ahead. The research by Lewis et al. highlights the importance of structural change in influencing global openness, a factor that has been little studied in the literature thus far. The authors provide the important finding that the reduction in openness that has occurred since the global recession of 2008 can be attributed in part to ongoing structural change and the difficulty in reducing trade costs of goods further. Given their finding, the leveling off of global openness seen in the data does not necessarily point to increased trade protectionism.
Chicago Fed President, Charlie Evans, provided opening remarks, explaining that the dual challenges of the Covid-19 pandemic and the recession have taken a particularly “heavy toll” on underserved communities in terms of job losses, business closures, and mortality. This has led to tremendous uncertainty, but also hope. To aid in the recovery early on, Evans said “the Fed moved aggressively to keep borrowing costs low for households and businesses and to keep markets functioning” through a variety of Fed measures. Despite improvements in the economy in recent months, Evans explained we are still far behind where we were at the start of the pandemic. Children and young adults have been significantly impacted at a vulnerable time in their lives, he added. “The longer these challenges remain, the greater the risk of widening many preexisting inequities in our most vulnerable communities,” remarked Evans. In response, he said we must ensure access to credit, jobs, education, and quality housing for our most vulnerable neighbors in Milwaukee. Evans concluded by saying that he hopes that this discussion will be the “beginning of a dialogue regarding how to promote and support a more inclusive recovery.”
Excerpt: “If we are not paper makers, what are we?” Gasch, asked rhetorically. The challenge facing displaced workers is significant with no quick fixes, and finding a new job can take up to a year, said Daniel Sullivan, executive vice president of the Chicago Fed. Losing jobs is hard on workers not just because of the need to find new employment but because, on average, earnings can be as much as 30% lower in the new positions, Sullivan added. The impact on earnings could continue ten years out, he noted. Younger workers are less affected as they have time to catch up, and those close to retirement are also less impacted because they have fewer working years left. It is the middle-aged folks, from ages 35 to 55, that take the hardest hit to earnings, he explained.”
Excerpt: “While the pandemic is affecting everyone, Evans said, significant economic disparities exist. Lower paid workers are being impacted the hardest, with those in restaurant, hotel, and entertainment industries experiencing the highest rates of job loss, and a number of these businesses have closed. Many of the newly unemployed have little personal savings to cushion the blow. At the same time, these workers have contracted the virus at disproportionately high rates. The manufacturing sector, Evans added, is faring better as they have successfully altered production methods to get employees back to work safely. Evans advised that if we do not properly address the challenges faced by the pandemic “we risk leaving long-lasting scars” that could adversely affect the economic well-being of vulnerable neighbors. He went on to emphasize the importance of implementing tailored initiatives to address diverse challenges, including those directed at reversing racial inequities that limit economic opportunities for all. Such interventions complement the numerous policies and programs already implemented by the Federal Reserve System.”
Excerpt: “This year, the Federal Reserve Bank of Philadelphia is celebrating the 50th anniversary of its monthly Manufacturing Business Outlook Survey (MBOS). The MBOS queries high-level business executives in the Third Federal Reserve District, covering eastern Pennsylvania, southern New Jersey, and Delaware, on the direction of change in business activity. It is the longest-running manufacturing survey compiled by a regional Federal Reserve Bank. Not only has the survey provided valuable information on business cycle swings regionally, it is quite sensitive to shifts in national activity. As such, it has been remarkably successful in providing current-period forecasts of key U.S. economic indicators before official quantitative statistics are published. Consequently, economists, investors, and the media carefully watch the survey. Historically, the MBOS has even moved markets, particularly in times of uncertainty when the stock market has been highly volatile.”
“The Export Performance of Latin America and East Asia in Technology-intensive Manufactures,” in The Handbook of Latin American Trade in Manufactures, Montague Lord, ed., 1998
Excerpt: “Technology-intensive manufactures are an important and growing component of manufacturing exports of Latin America, particularly in the larger economies of the region. Further expansion of these types of products are essential to the future economic health of the region, given the trend towards declining world prices for many of the region’s traditional primary commodity exports. Despite significant advances in technology-intensive goods, the region’s export performance is still well below that of the East Asian ‘miracle countries.’ Increases in human resource investment and other sources of technology transfer, and further integration of international business and technology networks would facilitate the region’s penetration into these profitable export markets. Governments can play an important role in promoting this sector by maintaining a stable macroeconomic environment and a competitive real exchange rate, and by providing industries with appropriate infrastructure.”
“Trade and Investment Flows Between Europe and Latin America and the Caribbean,” with Willy Van Ryckeghem in Latin America’s Competitive Position in the Enlarged European Market, Bernard Fischer/Albrecht Von Gleich/Wolf Grabendorff (eds.), 1994
Excerpt: “Largely successful stabilization and structural reforms implemented in Latin America and the Caribbean in recent years include trade liberation and measures to facilitate foreign direct investment (FDI). These reforms paved the way for an acceleration of trade and investment with Europe. The worldwide trend toward globalization of manufacturing activities and increased intra-industry trade also contribution to the rise of FDI into the region.”
“Economic Performance in Latin America and the Caribbean” in Development Policy, a publication on policy research by the Inter-American Development Bank, March 1993.
Excerpt: “The Latin American and Caribbean region continued its promising economic recovery in 1992 despite slow growth of the world economy and a further decline in the terms of trade. During the year, the countries of the region further opened their economies to world trade and greatly increased their integration with world capital markets. Gross domestic product (GDP) in the region grew by 2.6 percent in 1992 after a 3.2 percent rise in 1991….While a great deal remains to be accomplished to improve economic conditions throughout the region, the outlook for sustained recovery in 1993 and beyond remains favorable.”
“ NAFTA Negotiations Completed” in Development Policy, a publication on policy research by the Inter-American Development Bank, September 1992.
Excerpt: “Over time, as Mexico’s economy expands and the country accumulates greater human capital and technological resources, the sophistication of the country’s manufacturing exports is expected to increase. Improved access to the latest technology will be possible with the greater inflow of foreign direct investment and faster growth of imports embodying advanced technology. In addition, with the correct incentives put in place by the environmental authorities, Mexico is likely to adopt ‘cleaner’ as well as more efficient technologies.”
Doctoral Dissertation by Caroline Beetz Fenske:
C. Beetz, Determinants of International Comparative Advantage: A Case Study of the Computer Hardware Industry, June 1991.
Article on economist Robert Solow in the Martha’s Vineyard Times, July 16, 2009
Excerpt: “Robert Solow, who calls himself ‘the friendly up-Island economist,’ spoke at the Old Whaling Church early last week. Dr. Solow is a 1987 Nobel Prize winner and has been a professor of economics at MIT for the past 40 years. He talked about how the highly leveraged financial sector contributed to the financial crisis, with resulting declines in wealth and consumer spending leading to a downturn in the real economy. He praised his former student Ben Bernanke, Chairman of the Federal Reserve, for his unorthodox approach of lending to the commercial markets to mitigate the crisis. Dr. Solow jokingly compared Dr. Bernanke to Captain Kirk, ‘Daring to loan where no man has loaned before.’ Dr. Solow spoke about improving financial regulations to prevent a financial crisis from happening again. He said for the most part he likes the Obama Administration’s regulatory reform policies, although he would go further and give regulators discretion in setting policies. He suggests this because ‘financial engineers’ and their lawyers continually find ways to circumvent existing regulations. Dr. Solow, known for his theories of economic growth, does not expect the economy to start growing again until the end of this year or early next year, and predicts a recovery in the labor market to take even longer.”
2/8/17 Google Science Fair’s National Geographic Explorer Award Winner from Zambia Hopes for a U.S./Canadian College Scholarship Starting September, 2017
Excerpt: What are the odds that a young man from Central Africa would win a top spot in Google’s international science fair competition and score near perfect on his math and physics SATs? Undoubtedly, near impossible, but Mphatso Simbao from Zambia has accomplished just that.
At age 18, Mphatso designed a low cost solution for farmers to fertilize and control pests that yielded him the Google Science Fair’s National Geographic Explorer Award, which includes a $15,000 scholarship, a one-year mentorship, and a 10-day expedition to the Galapagos Archipelago. According to the Google Science Fair 2016 website “The National Geographic Explorer Award honors an outstanding project with an experimental approach to answering some of the greatest questions in our natural world.” Mphatso plans to use his scholarship money to attend a school in the U.S. or Canada.
Still, the odds of Mphatso fulfilling his dream of college in North America remain daunting. Ruth Slocum, College Advisor at Falmouth Academy, in Falmouth, Massachusetts, writes, “Most selective U.S. colleges have very, very small portions of their financial aid budgets set aside for the brightest of the bright from abroad.”
Consider where Mphatso has started from. His home country of Zambia, while making solid advancements in promoting human development over more than three decades, remains in the bottom quartile for its human development ranking globally (UNDP, 2016). The fact that Mphatso has been able to excel in his studies and receive global recognition for his science fair project under difficult economic circumstances at home is indicative of what this young man is capable of achieving, including in a college setting.