TIME Japan

Japan Sinks Into Recession (Again)

A man holding a shopping bag walks on a street at Tokyo's Ginza shopping district
A man holding a shopping bag walks on a street at Tokyo's Ginza shopping district on Nov. 16, 2014 Yuya Shino—Reuters

An unexpected contraction in quarterly GDP shows that Prime Minister Shinzo Abe’s radical economic program is badly broken

If anyone is still holding out hope that Abenomics — the unorthodox slate of economic policies named after their inspiration, Japanese Prime Minister Shinzo Abe — could rescue Japan from its two-decade slump, the news on Monday should dash it. The troubled economy surprised analysts by (once again) tumbling into recession. GDP in the quarter ended September shrank by an annualized 1.6% — far, far worse than the consensus forecasts. That followed a disastrous 7.3% contraction in the previous quarter. Speculation in Japan is that the bad results will push Abe to call a snap election only two years after taking office.

What’s going on in Japan is important for all of us. Since the economy is still the world’s third largest (after the U.S. and China), a healthy Japan could provide a much needed pillar to growth in a struggling global economy.

The current downturn is being blamed on a hike in the consumption tax, implemented in April to try to stabilize the government’s feeble finances, which slammed consumer spending. It is now expected that Abe will delay a further increase in that tax scheduled for next October. But the real causes lie much deeper — in the failings of Abe’s economic agenda.

The idea behind Abenomics was to boost the economy with massive stimulus from the Bank of Japan (BOJ) and the government combined with structural reform of the economy, or what has been called the third arrow. The problem is that we got the first two arrows, but not the third. While the BOJ kept its printing presses rolling, dramatically weakening the value of the yen, badly needed deregulation and market-opening has come extremely slowly. Some critical changes, like a loosening of labor laws, seem to be off the menu entirely. The result is that the actual potential of the economy has not been enhanced. Meanwhile, the welfare of the average Japanese family hasn’t improved either. Wages haven’t advanced much, while prices have increased.

If Japan’s situation proves anything, it is the limits of central bank policy to fix economies. Despite a torrent of cash infused into the economy through the BOJ’s “quantitative easing” or QE, Japan’s economy remains mired in slow growth and stagnant household welfare. That’s why it is hard to imagine that the BOJ’s October decision to increase its QE program will make a major difference. So that’s the takeaway for policymakers in the U.S. and especially a stumbling Europe: If you’re going to rely too much on central bankers to revive growth, you’re going to fail.

The question facing Abe is whether he can press ahead more quickly with important reforms, either in his current administration or after a fresh election, which his party will still mostly likely win. Based on his recent track record, we don’t have reason to be confident. But maybe one day Japan will give us a surprise — in a good way.

Read next: It May Be Too Late for Japan’s PM to Fix the World’s Third Largest Economy

TIME Economy

2 in 5 Young Americans Don’t Want a Job

Mid adult man sitting on sofa using computer game control
Kathleen Finlay—Image Source/Getty Images

Analysis shows increase in the percentage of teenagers and twenty-somethings outside the labor force

Nearly 40% of people in the United States ages 16 to 24 say that they don’t want a job, accounting for a sizable portion of the 92 million Americans who are currently outside the labor force, according to a new analysis of labor statistics.

The figures do not include young people who aren’t working, but are actively seeking employment. About 10% of Americans aged 20 to 24 and 19% of those aged 16 to 19 are considered unemployed, which means they are actively seeking work.

According to Pew Research Center analysis of Bureau of Labor Statistics data, 39.4% of men and women aged 16 to 24 are outside the labor force over the first 10 months of 2014. That’s up from 29.5% in 2000, the steepest rise of any age group and one that pre-dates the recent financial crisis.

The U.S. unemployment hit 5.8% last month, the lowest number since 2008.

TIME Economy

These Are the Poorest Cities in America

Chicago Blackhawks v Detroit Red Wings
The Detroit city skyline viewed from Windsor after the Detroit Red Wings NHL game against the Chicago Blackhawks at Joe Louis Arena on March 31, 2013 in Detroit, Michigan. Tom Szczerbowski—Getty Images

Detroit tops the list

Poverty—like the creation of wealth—is a fact of city life.

Here at FindTheBest, we recently examined the most current Five-Year American Community Survey (ACS) data released by the U.S. Census Bureau in 2013 to find the wealthiest cities in America. To fill out the picture of many of these cities, we picked apart the same data set and turned our lens on the places with the highest percentages of households making less than $25,000 a year.

Listed in descending order by the percentage of households with annual incomes below $25,000, here are how the 34 American cities with more than 500,000 residents compare. You can explore each city in greater detail by clicking into the table:

As of 2012—the last year considered in the most recent five-year ACS data—the poverty threshold for a four-person household was $23,492. This amount is a weighted average based on the range of income increases each additional related child necessitates (for a household of four, that’s a maximum of three children). This is according to data from the U.S. Census Bureau.

In the six major U.S. cities with the highest percentages of poverty, at least one in three households make less than $25,000 per year. In Milwaukee and Philadelphia, the proportion is higher at 37.8 percent and 37.6 percent, respectively, and in Detroit, it approaches one in two (49.2 percent). The average across all 34 cities is 28.6 percent.

What’s remarkable is that San Jose is the only city profiled where less than 20 percent of households have a yearly income below $25,000 (in San Jose, 15.6 percent of households make less than $25,000). San Diego and Seattle come close at 20.2 percent each. Put another way: in 33 of America’s 34 biggest cities, at least one in five households makes less than $25,000 per year.

Taking a step back, Detroit—which is getting ready to emerge from the largest municipal bankruptcy in U.S. history—has by far the highest percentage of households earning less than $25,000 per year (49.2 percent).

Moving down the list, cities in the west tend to have fewer households under this $25,000 threshold compared with cities in the midwest and east. Four of the five cities with the lowest percentages of households making under $25,000 per year are on the west coast.

One potential reason for this geographic split could be the role public transportation plays in bringing poorer people to city centers, which is exactly what Edward Glaeser, Matthew Kahn, and Jordan Rappaport argued in 2000 in a working paper for the National Bureau of Economic Research. (the paper was later published in The Journal of Urban Economics in January 2008.) In their view, it isn’t the city itself that creates poverty. Rather, increased levels of mobility and opportunity provided by the central city encourage poorer people to congregate there. Cities in the east and midwest tend to have more public transit options, whereas the car is a central part of sprawling cities in the west — a situation that could lead more poorer people to eastern cities than their western counterparts. More favorable city governments also could play a role.

Municipal management aside, once again, it’s also hard to discount the role of education in creating wealth through information spillovers. While Boston’s 30.8 percent clearly complicates this notion, given that it has solid bachelor’s and graduate degree metrics, the observation remains largely the same — cities situated near world-class research institutions or else with larger numbers of bachelor’s or graduate degree holders tend to fare better.

This article was written for TIME by Ryan Chiles of FindTheBest. More from FindTheBest:

The 10 Most Diverse Colleges in America

America’s Most Dangerous Cities

The 11 Most Capable AWD Sedans for the Adventurous

TIME Economy

Hurray! Americans Are Quitting Their Jobs

US Federal Reserve Chair Janet Yellen attends a conference of central bankers hosted by the Bank of France in Paris
U.S. Federal Reserve Chair Janet Yellen attends a conference of central bankers hosted by the Bank of France in Paris Nov. 7, 2014 Charles Platiau—Reuters

Highest quitting rate since 2008 is a key indicator of rosier economic times

In good news for the U.S. economy, the Labor Department reported that 2.8 million workers, or 2% of U.S. employees, voluntarily left their jobs in September — the fastest rate since 2008.

It might sound strange, but Janet Yellen, Federal Reserve Chair, has zeroed in on the quits rate as a progress marker for returning to a healthy labor market, reports Reuters.

The 2007-09 recessions saw a decrease in the quits rate, with most workers not optimistic enough about the economy to seek opportunities elsewhere. Analysts feared that this had created wage stagnation.

Although joblessness has been decreasing, the lack of worker turnover meant employers had no reason to increase salaries. But according to this latest report, hiring rates are now increasing, giving people more employment options.

The report also highlighted that the job openings rate has fallen, but still remained above pre-recession levels. In the first week of November, the Labor Department reported 278,000 claims for unemployment benefits from the state.

However, “this increase is nothing to worry about,” Ian Shepherdson, a Pantheon Macroeconomic economist, told Reuters, explaining that the claim figure has remained under 300,000 for nine consecutive weeks.

[Reuters]

TIME Japan

It May Be Too Late for Japan’s PM to Fix the World’s Third Largest Economy

Shinzo Abe
Japan's Prime Minister Shinzo Abe visits the Santa Lucia Hill Japanese Gardens in Santiago, Chile, on July 31, 2014 Luis Hidalgo—AP

Shinzo Abe is desperate to rescue his failing economic program, but he still hasn't done what's necessary

Tokyo is abuzz with speculation that Prime Minister Shinzo Abe is about to dissolve the Diet, as the country’s legislature is known, and call a snap election.

He by no means has to take such action. It has only been two years since his Liberal Democratic Party, or LDP, swept to power in a massive landslide, and the opposition is in such disarray that there is little doubt Abe would be returned to office in a new election. Nevertheless, Abe apparently feels the need for another vote of confidence from the public, likely in part to bolster support for his radical program to revive Japan’s economy, nicknamed Abenomics.

The problem is that it could already be too late. Abenomics is a failure, and Abe isn’t likely to fix it, no matter how many seats his party holds in parliament.

When Abe first introduced Abenomics, many economists — most notably, Nobel laureate Paul Krugman — believed the unconventional program would finally end the economy’s two-decade slump. The plan: the Bank of Japan (BOJ), the country’s central bank, would churn out yen on a biblical scale to smash through the economy’s endemic and destructive cycle of deflation, while Abe’s government would pump up fiscal spending and implement long-overdue reforms to the structure of the economy. Advocates argued that Abenomics was just the sort of bold action to jump-start growth and fix a broken Japan, and we all had reason to hope that it would work. Japan is still the world’s third largest economy, and a revival there would add another much-needed pillar to hold up sagging global economic growth.

However, I had my concerns from the very beginning. In my view, Japan’s economy doesn’t grow because there is a lack of demand. Pumping more cash into the economy, therefore, will not restart growth. Only deep reform to raise the potential of the economy can do that — by improving productivity and unleashing new economic energies. Unless Abe changed the way Japan’s economy works — and I doubted he would — all of the largesse from the BOJ would at best come to nothing. In a worst-case scenario, Abe’s program could turn Japan into an even bigger economic mess than it already is.

So far, Abenomics has disappointed. GDP shrank a hope-dashing annualized 7.1% in the quarter ending June. Inflation, meanwhile, is nowhere near the BOJ target of 2%, and is slowing. Nor has Abenomics brought significant benefits to the general populace. Job creation and wage increases are sluggish and, with prices increases, the welfare of the average salaried worker has suffered. Meanwhile, an increase in consumption tax earlier this year — made necessary by the need to shore up the government’s shaky finances — further burdened Japanese households and led to a drastic decline in consumer spending.

The response of policymakers has been to double down on Abenomics. On Oct. 31, the BOJ surprised markets by greatly expanding its unorthodox stimulus program, known as quantitative easing, or QE. As part of that, the BOJ will increase its annual purchases of Japanese government bonds by 60% to a staggering $700 billion. More of the same, however, will just have the same result: a short-term boost to sentiment with little lasting effect. In fact, the program is only perpetuating Japan’s bad habits. The extra BOJ cash is weakening the yen — the Japanese currency has tumbled by nearly 7% against the dollar just since the bank’s announcement — which hands Japan Inc. companies more competitiveness without forcing them to undertake any actual improvements.

The problem with Abenomics, therefore, remains the same. More yen printed by the BOJ can’t fix Japan on its own, and can’t replace the fundamental changes necessary to raise the economy’s potential growth. If anything, the BOJ’s latest action only buys Abe a bit more time to implement his pledged reform program, known at the “third arrow” of Abenomics.

So far, though, the third arrow has remained in his quiver. In June, Abe unveiled the latest elements of the plan, which included everything from lowering the corporate-tax rate to spur investment, to enlisting more women into the male-dominated workforce, and bringing further change to an unproductive and outdated agricultural sector. It would be unfair to say that Abe has made no progress on his promises. The number of working women, for instance, has been on the rise under his administration. But many important reforms remain stalled. Abe had announced the formation of “special economic zones,” which would be crucibles of experimentation with the deep deregulation necessary to spark entrepreneurship and investment, but their implementation has crept along at a glacial pace. Serious reform of the country’s distorted labor market seems to have slipped off the table. Abe is also foot-dragging on opening the economy to more competition by holding up the completion of the U.S.-sponsored Trans-Pacific Partnership free-trade pact over an unwillingness to expose Japan’s overly protected farmers to imports.

The big question is whether another election will somehow lead to faster reform. In theory, a fresh mandate could give Abe the added political clout he needs to press ahead more boldly. However, Abe already controls both houses of the Diet, so if he wanted to move more quickly on reform, he could. That has left some analysts wondering what difference an election may make. “A snap election could have the virtue of giving the government a stronger mandate as it struggles to push ahead with structural reform,” commented Mark Williams and Marcel Thieliant of research outfit Capital Economics. But since Abe’s party has already been in a strong position, “an election would not make much practical difference to his ability to get things done.”

Abe continues to insist he is a reformer and will follow through on his grand pronouncements. “Make no mistake, Japan will emerge from economic contraction and advance into new fields and engage in fresh challenges,” Abe recently wrote in the Wall Street Journal. “There is no reason for alarm.”

Alarm bells should be ringing in Tokyo, however. Even if Abe gets the “third arrow” in the air, it could still miss its target. Many of the reforms Japan needs will take years to implement. Meanwhile, the other two arrows of Abenomics may already be running their course. There was opposition within the BOJ to its latest decision to boost QE — an indication that the bank can’t be counted upon to keep the printing presses rolling forever. Nor can Abe dodge the need to stabilize the government’s debt and deficits indefinitely. The government’s debt is 240% of the country’s GDP — the largest among major advanced economies. He’s right now weighing whether or not to hike the consumption tax yet again. Imposing it could deal another blow to growth; postponing it would undermine what little credibility Abe had as a fixer of the nation’s finances.

In the end, repairing Japan requires more political will than Abe has shown. Maybe a new election will help him find it. But don’t hold your breath.

TIME The Vatican

Pope Francis Warns G20 of Effect of ‘Unbridled Consumerism’

Pope attends His Weekly Audience St. Peter's Square
Pope Francis speaks during his weekly audience in St. Peter's square on November 12, 2014 in Vatican City, Vatican. During the event, the Pope asked the clergy to be humble, urging them to be understanding towards their communities and to avoid an authoritarian attitude. Franco Origlia—Getty Images

"Responsibility for the poor and the marginalized must therefore be an essential element of any political decision"

Pope Francis warned heads of states attending the annual G20 meeting in Australia about the effects of “unbridled consumerism” and called on them to take concrete steps to alleviate unemployment.

In a letter addressed to Australia Prime Minister Tony Abbott, who is chairing this year’s G20 Leaders’ Summit which begins Sunday, the Pontiff called for its participants to consider that “many lives are at stake.”

“It would indeed be regrettable if such discussions were to remain purely on the level of declarations of principle,” Pope Francis wrote in the letter.

Pope Francis, who has made a habit of addressing the leaders of the G20 meetings, has often raised his concerns with the global economy. Last year, in lengthy report airing the views of the Vatican, he criticized the “idolatry of money” and denounced the unfettered free market as the “new tyranny.”

In the letter published Tuesday, he said that, like attacks on human rights in the Middle East, abuses in the financial system are among the “forms of aggression that are less evident but equally real and serious.”

“Responsibility for the poor and the marginalized must therefore be an essential element of any political decision, whether on the national or the international level,” he wrote.

TIME Economy

U.S. Asks IMF to Write-Off Ebola-Hit Countries’ Debt

US Treasury Secretary Jacob Lew gives a joint press conferece with Egyptian finance minister Hany Dimian (unseen) at the Egyptian Ministry of Finance in Cairo on Oct. 27, 2014.
US Treasury Secretary Jacob Lew gives a joint press conferece with Egyptian finance minister Hany Dimian (unseen) at the Egyptian Ministry of Finance in Cairo on Oct. 27, 2014. Hassan Ammar—AFP/Getty Images

A debt cancellation twice as large was approved by the IMF for Haiti in 2010

The Feds proposed Tuesday that the International Monetary Fund (IMF) cancel roughly $100 million in debt owed by Liberia, Sierra Leone and Guinea, which have been hit hardest in the current Ebola outbreak.

Collectively, the three countries owe $372 million to the IMF. U.S. Treasury Secretary Jack Lew said in a statement to Reuters that eliminating $100 million of that would strengthen the nations’ economies as they struggle to recover from the devastating effects of the virus, which has killed thousands.

“The International Monetary Fund has already played a critical role as a first responder, providing economic support to countries hardest hit by Ebola,” Lew wrote. “Today we are asking the IMF to expand that support by providing debt relief for Sierra Leone, Liberia, and Guinea.”

Treasury officials said the $100 million may be drawn from the IMF’s natural disaster debt relief fund. The fund was first used to cancel Haiti’s outstanding $268 million of debt owed to the IMF after the 2010 Haitian earthquake, the IMF said.

Without significant intervention in the Ebola outbreak, West Africa could lose up to 4% of annual growth and $25.2 billion of GDP by 2015, according to the World Bank.

[Reuters]

TIME ebola

Ebola’s Other Toll: Food On the Table

People draw water in the West Point neighborhood, where many people have died from Ebola, in Monrovia, Liberia on Oct. 17, 2014.
People draw water in the West Point neighborhood, where many people have died from Ebola, in Monrovia, Liberia on Oct. 17, 2014. John Moore—Getty Images

Liberian families are feeling the pressures of food insecurity, and are eating less.

Eighty-five percent of households in Liberia are eating fewer meals a day as a way to deal with lower incomes and higher prices related to the Ebola epidemic, according to a new report from the global humanitarian agency Mercy Corps.

Most households are also reducing the amount they’re eating at each meal, and report supplementing with lower-quality and cheaper food. When asked in surveys about household priorities, Liberians listed food as their most urgent need even before health care and clothing. A variety of factors are playing into Liberian families’ inability to get food on the table, including restrictions on transportation and lack of quality products at local markets.

One of the major industries hit by the Ebola outbreak in the three countries affected by the outbreak is agriculture, which is a dominating industry in Liberia. Other Liberians lost incomes due to protocols put in place to contain the virus, like closing schools. Teachers employed by the government still receive salaries, but private school teachers do not.

Decrease in number of household income earners MercyCorps

About 63% of households also reported an increase in expenses since a state of emergency was declared in August. Liberians used to rely on cross-border trade with Guinea and Sierra Leone, but the epicenter of the outbreak was the very area around shared borders. Now, all imports have shifted to Monrovia, putting pressure on supply chains and prices. But vendors in local markets estimate a 52% reduction in their number of customers each day, since large gathering of people has been discouraged.

“If attention is not paid to the economic impact of the crisis, the situation will continue to deteriorate over the coming months,” the report reads.

Mercy Corps says it plans to help farmers by offering cash transfers, emergency food assistance, and aid in goods transport. Working with the local government to improve transportation conditions while maintaining tight Ebola protocols is another way to increase both incomes and food availability. However, bigger initiatives have to start now in order to ensure the current food crisis is temporary. For instance, the upcoming planting season needs to continue on schedule and there needs to be a greater assessment of the whole region’s transportation system.

If action isn’t taken soon, the impact on the country’s economy and food system after the outbreak could be devastating.

TIME India

Indian PM Narendra Modi Greatly Expands His Cabinet

India's President Mukherjee, PM Modi, new cabinet ministers Manohar Parrikar and Suresh Prabhu pose after a swearing-in ceremony in New Delhi
India's President Pranab Mukherjee, Prime Minister Narendra Modi, new cabinet ministers Manohar Parrikar and Suresh Prabhu pose after a swearing-in ceremony at the presidential palace in New Delhi November 9, 2014. Prakash Singh—Pool/Reuters

The dividing of the defense and finance portfolios, previously united in the person of Arun Jaitley, is the main change

Indian Prime Minister Narendra Modi moved to give fresh focus to the country’s economic growth on Sunday, with a cabinet reshuffle that added 21 new ministers to his government.

The major change came in the portfolios of finance and defense, both previously held by Arun Jaitley — a senior leader in Modi’s Bharatiya Janata Party (BJP). Modi’s original decision to place Jaitley at the helm of the two vital ministries had been slammed by critics and opponents, who said Jaitley wouldn’t be able to do justice to either.

Jaitley has now been relieved of the defense portfolio, enabling him to devote more time to the Finance Ministry and help fulfill Modi’s planned economic turnaround.

Former Goa chief minister Manohar Parrikar, a 58-year-old widower with a no-nonsense reputation, has been named India’s new defense minister.

The cabinet expansion now means Modi’s council of ministers numbers 65 instead of 44, according to Reuters.

During his election campaign, Modi laid an emphasis on a more streamlined decision-making machinery at the top in order to function more efficiently and effectively, in a strategy called “minimum government, maximum governance.” But some media point out that the new council of ministers is not that much smaller than that of the previous government.

Nevertheless, India’s business leaders by-and-large expressed their approval at the changes.

“The cabinet expansion sends out a strong signal that the government under Prime Minister Modi is serious about accelerating the reforms process,” said Ajay Shriram, president of the Confederation of Indian Industry.

MONEY Jobs

The U.S. Added 214,000 Jobs In October, Unemployment Down Slightly to 5.8%

commuters at rush hour
iStock

The results beat expectations, but didn't quite match September's employment growth.

The economy added 214,000 jobs in October, according to the Bureau of Labor Statistics, meeting expectations of continued healthy job growth.

Today’s nonfarm payroll report also showed the unemployment rate declining slightly to 5.8%, down almost a full percentage point since the beginning of the year. That’s the lowest level since 2008, but is still well above its pre-crisis low of 4.4%.

The labor force participation rate — the percentage of the workforce that is either employed or actively looking for work — remained around 62.8%, reflecting older Americans dropping out of the workforce roughly as fast as new workers enter.

Once again, increased employment did not significantly raise average hourly earnings, which increased by three cents since last month’s report and by just 2% since the beginning of the year. Despite relatively stagnant wage growth, economists are optimistic the economic recovery will soon be felt in workers’ wallets. “If unemployment continues to fall, wage growth should pick up,” says Mark Hamrick, Washington bureau chief for Bankrate. “It’s like waiting for a bus that hasn’t arrived yet.”

While today’s news is good, it doesn’t quite match up with September’s employment growt, when the economy added almost 250,000 jobs.

This week’s midterm elections, in which Republicans took over both houses of Congress, could have an effect on future employment growth, but any impact won’t be immediate. The G.O.P. has been critical of the Federal Reserve’s low interest rates, and may now be more vocal its opposition to loose monetary policy. Fed chair Janet Yellen, however, a vocal supporter of using low interest rates to help promote job growth, acknowledged the improving labor market after the latest Fed meeting but indicated that she and her fellow Fed economists remained concerned about sluggish wage growth, low inflation, and the tenuous housing market recovery.

 

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