US Economy has finally recovered from the 2008 financial crisis. But that doesn’t mean that US economy is going to remain strong.
As we all know, the financial crisis hit the US economy very hard. But US economy survived the onslaught and back to its feet now. But we have to several important questions now. Can the foundations support the success? Well, economists have several concerns about the structure of the economy. How long can a strong US economy survive? Let’s address this below.
Economists are cautious
Yes, we are looking at positive figures now. But the experienced economists are approaching it with caution.
- It’s not doing badly – that’s the common response from the leading economists.
- Many economists would be comfortable with the word “modest”, when asked about the strength of the economy.
- Economists point out that US economy is doing okay.
- The unemployment rate is 5% now. Or in other words, we are back to the point before the global recession in 2008.
- Finding a job is very difficult, especially if you haven’t completed high school graduation.
- We have to consider the rise of underemployment as well. Companies tend to offer less work to more workers. Or in other words, the number of hours offered by the companies remains more or less the same.
Economists are worried about the waning productivity, which isn’t a good sign for the economy at all. Even though there is an increase in salary, productivity is not increasing. Productivity is a very important factor when it comes to competing with other global firms. However, according to a Recent Fed Survey, The US Economy Is Still Expanding, Find This Article Here.
Silicon Valley is losing its sheen?
Silicon Valley is regarded as the global innovation hub. But the reports suggest that Silicon Valley may lose that title in the near future. One has to see the obvious connection between productivity and innovation. So, with waning productivity, Silicone Valley is losing its competitive edge. Recent studies have suggested that the high-tech industry has stagnated for the past couple of years. Other countries like India, Vietnam etc. are fast catching up as far as tech industry is concerned. Can the politicians do something about it? Well, no, they can no longer control this downward spiraling. Productivity is mostly clustered in the private sector and slow growth of the private sector is not good news. Government policies can definitely bring about change, but it may take several years and the changes may not as substantial as you would expect.
If we take a closer look, we can see that weak investment in the future is a big concern we have to address before it’s too late. When it comes to economic development, investment in education is really important as an educated work force can drive the economy to new heights. Yes, America offers top class education and our product top class work force. But only a small percentage manages to reach there, all thanks to the student loan debt scenario in the country. We have to fix it before it is too late. Education inequality can be the root cause of economic inequality as well. If you have well-educated work force, productivity is definitely going to be improved. This can help the economy beyond leaps and bounds.
The speed at which the digital revolution is happening is scary. The banking industry is struggling to keep up with the digital innovation.
As far as banking is concerned, the new players are giving tough competition to the traditional banks with digital innovation. However, traditional banks are still dominating the banking sector. To compete with the new entrants, the banks can do plenty of things, including partnering, piloting new solutions, crowd-sourcing and hiring. After all, everyone wants to improve the customer experience and investing more in that is definitely going to be helpful for your bank.
The challenges faced by the banking industry
Banking industry faces several challenges with constantly evolving technology. There are plenty of questions to address here:
- How can legacy banking operations be transformed with the innovations like blockchain and marketplace lending?
- There are so many fintech startups giving tough competition to traditional banking systems. Are they going to replace the traditional banking systems?
- Can fintech players and traditional banking organizations be partners? Or they will compete with each other?
Change is inevitable
None of us have answers to the aforementioned questions. But only one thing we know for sure is the fact that the banking system will not be like what we see today 10 years down the line. For that matter, we can expect to see some considerable differences by 2020 itself. A recent study has revealed that the banking industry is in for a huge transformation in the next couple of years. Both current and future trends will play a big role in shaping up the future banking industry.
What kind of transformation?
Yes, it is an established fact that the banking industry is going to undergo a sea change. Nobody questions that. All of us have only one question – what would be the nature of that transformation? New technology and competitors will play catalysts in changing the face of the banking sector. The changes that we are talking about are going to happen in a really fast manner. Also, one can expect significant changes as well. To Know More About The US Banking Sector, Visit This Page Here.
As we all know, there is friction between traditional banking systems and processes. Moreover, banks are constantly trying to outsmart each other in improving customer experience. That is exactly what attracts new players into the fold. As stated before, there are so many fintech startups are making their presence felt. But they all have to deal with numerous challenges thrown at them, despite having an increased interest from investors.
Let’s take a look at some of the megatrends below. Most of these banks will be forced to focus on an organizational structure that is agile and simple. Banks will be paying more attention on customer experience and brand equity. They will also have to rely on a blockchain-based payment system. Moreover, banks will be given more importance to machine learning. Also, it will become inevitable for the banks to consolidate the lending industry. As we can see, it’s a big deal. Can the banking industry survive amidst these changes? Well, the same study reiterates that the banking industry will emerge stronger. The only one thing which is constant is change, and the banking industry is on the verge of an explosion. The industry cannot survive without adapting to the technological innovation and it is equipped to do it.
The fintech startups are competing with the established financial institutions today. Does that suggest that we need to regulate fintech companies?
In the financial sector, financial technology boom imploding is something that keeps everyone worried. How to deal with this scenario? Well, a ground of global leaders from the finance industry has a solution – they urge the industry incumbents, startups and regulators join hands to Find A Solution to the problem. Where did this group meet? Well, they met at Davos during the World Economic Forum. The finance leaders said in unison that there is urgency as far as this issue is concerned. The rapid growth of fintech has become the need of the hour. They also said that systemic stability has to be maintained at any cost. Browse The Finance Section to Learn More About The Latest Finance News.
Why collaboration is a must?
Well, there are a number of reasons behind it. Let’s take a look below.
- Unregulated companies can come up with fintech products with security vulnerabilities. This can be really dangerous. It’s a threat to the whole industry.
- Traditional finance companies might try to compete with these newcomers with products which are less safe. And this can lead to widespread problems.
- The finance leaders demanded a new common forum for the public sector and private sector.
- Ethical use of financial data is something these leaders root for. A debate on this topic is a must, say the leaders.
- International fintech regulation is a must to avoid the common problems.
- A set of industry standards should be introduced for the fintech companies as well, say these leaders.
Speaking of these big financial leaders, who are they? Well, they are part of large financial companies where they are in prominent positions. Some of them are working as financial regulators in Europe and the US as well. Representatives from some of the biggest banks like UBS, HSBC, Deutsche Bank etc. are part of this group. Or in other words, highly influential people from the financial industry are part of the group. That suggests the significance and urgency of their proposal. It clearly indicates that these suggestions should be taken seriously for the better future of the finance sector.
Asia and Africa have some of the advanced fintech companies. According to one of the leaders, these companies have been part of a ‘regulatory gang’. In case of any new regulatory initiative, it can be enforced in the whole region via this network. According to the leaders, the recommendations they have put forward are common sense recommendations. When regular financial institutions take on these fintech companies, the whole finance sector faces the risks involved with this. Regulators working for the Financial Stability Board have flagged fintech companies saying these companies need close attention. As far as the behavior of the established financial companies, the regulators didn’t find many irregularities. The only thing mentioned is the scenario of intense competition with fintech companies leading to trouble. They agree to the fact that this sector will need to be regulated to avoid another financial crisis in the future. Such behavior can easily turn into a reckless financial behavior in no-time and it needs to be monitored.
The finance sector in Panama is facing the worst crisis in decades post the Panama leaks. The trustworthiness of the law firms in the country is being questioned.
The Panama leaks have resulted in panic all over the country. The massive data leak from legal firms sent shockwaves across the globe. But Panama had so much to worry about the scenario as the financial services in the country faced a big crisis. The financial sector in the country heavily relies on offshore business and the implications of the leak were huge.
President addresses the crisis
The president Juan Carlos addressed the media saying that he is going to defend the image of the country as it is the most important thing at the moment. The professionals in the legal and financial sector had so much to worry about. As result, they called an emergency meeting with the Government to address their concerns. To understand how the Panama leaks affect the global economy, you need to read this article.
The leak that made headlines all over the world
The leak resulted in headlines all over the world. The media kept talking about it for several days, gaining widespread coverage in the media.
- As per the leaked documents, influential politicians and celebrities are on the list.
- The list also had names of many criminals.
- They all used the law firm Mossack Fonseca to illegally keep their money in offshore entities.
- Though many of these deals are legal, most of these dealings are categorized as illegal money laundering to escape taxes.
What happened to the breached law firm Mossack Fonseca? Well, the law firm was shut soon after. And they continue to deny wrongdoings. They hired private security guards to keep the prying media away from their office building which is the center of attention now. According to one of the founders of the law firm, the hack was limited in nature. But he added that it was a crime to hack into their databases. He insinuated that it was an attack on Panama itself.
Damage control was in full-swing. President of the country, Varela has said that he is going to defend the image of the country. He said that they will cooperate with the investigation to make sure of a transparent investigation into the allegations. The vice president of the country also said that the image of the country has affected all over the world as a result of the scandal. He added that he regrets the events. How seriously is Panama tackling this scenario? Well, high level meetings are being held with government officials at the moment, indicating their commitment to a serious investigation. If you are looking for more articles in the Finance Category, Click Here.
According to the officials, Fonseca was not among them. The association of the law firms MAG had made a statement at the press conference to address these scandals. According to the lawyers, it wasn’t the case of just one law firm. It can pose a serious threat to the trustworthiness of every lawyer working in the finance sector. They added that they are considering this as an attack to the whole legal system in the country. Therefore, lawyers are united in this to defend the legal system in their country. According to them, there are more than one million companies registered in the country anonymously. And each of these companies had paid an annual tax of $250 a year.
As per the Federal Reserve, the US economy is showing the signs of recovery. It looks like jobs and spending is on the rise.
As we all know, the US economy is facing some challenges of late. However, according to the Latest Survey By The Federal Reserve, the US economy has lots to cheer as it kept expanding throughout February and March. This has happened despite the slowdown in exports and weakness in the energy sector. The situation with the exports was because of the strong dollar ad global weakness. Farm products and factory products were mainly affected by the scenario.
Increase in wages and spending
According to the latest survey by the Fed, there are many positive signs. They surveyed the business conditions in 12 districts mainly. According to them, consumer spending has witnessed a modest growth. Except for Atlanta, wages and spending showed a growth. The Great Recession has had a negative impact on the wage growth. However, we are finally seeing the signs of a recovery from the Great Recession. It is important to Understand The Factors That Affect The US Market Trends – Click Here For More Information.
The Beige Book
The survey has an official name and it is called ‘The Beige Book’. They will be considering the survey findings at the next Fed meeting, which is scheduled for April 26-27. What to expect in the coming days? Let’s take a look below.
- Economists believe that the Fed is less likely to change its benchmark policy rate. The rate is supposed to stay in the 0.25% to 0.5% range. The rate was kept at the near zero level for close to seven years before the Fed finally increased it in last December.
- The rates were kept unchanged in January-March. They wanted to see the effect of global slowdown before they change it. As we all know, the global financial market was going through a tough time and they were assessing the outreach of it on the US economy.
- According to the Fed chair, they are mulling the idea of incremental change in the rates in the future. It is because of the fact that inflation continues to remain below the target.
The findings of the survey
Let’s take a look at the major findings of the survey. The survey had collected responses until April 7. According to the survey, the retail prices were steadily climbing at a modest rate. The falling energy prices were the major reason behind this. Airlines registered good profit due to the falling energy costs and that resulted in the reduction of the cost of petroleum-based materials.
According to the survey, wages improved everywhere except Atlanta. Some states reported mild growth, whereas few other states reported moderate wage growth. As far as the job growth is concerned, most districts reported a growth, except Cleveland.
Let’s take a look at what the survey has to say about the wage gains in general. Those jobs where labor shortage is a reality, the wage gains were the strongest. To take examples, we have seen surges in wages in St. Louis, Cleveland and Boston. Manufacturing trades, skilled construction jobs and information technology had the biggest positive impact. However, energy industries suffered as they faced layoffs. Therefore, districts with huge energy industry presence have suffered.
The United Kingdom is facing a crucial vote in June to decide whether to be part of the EU or not. And it can have a huge impact on the banking system.
As we all know, the United Kingdom is going to vote in June to decide whether to be part of the EU or not. When that happens, the banking system will be highly impacted by the outcome of the vote. The banking industry will be facing some big challenges if Briton decides to separate from the EU in coming June.
Nobody wants to discuss about Brexit
Without any doubt, one can say that this is a very complex topic. We have heard that the term “Brexit” was banned in the workplace of one of the banks in the country. As far as the banking executives are concerned, they are not interested in bringing up this topic at all. They choose to ignore this topic so that they don’t have to face the uncomfortable truth.
When asked about this, one of the employees in a London bank said that his colleagues are hesitant to talk about it publicly. It is simply because they don’t want to be blamed for influencing the outcome of the vote. EU Is Already Facing Problems With The Financial Troubles Looming In Greece. For more information, Click Here.
But one can see from a distance that the changes to the EU banking industry will be huge if Briton votes against the union. As far as the short term ramifications are concerned, one can expect wholesale staffing changes at these banks all over Europe. As far as the bigger impacts are concerned, one can see jolts to cost of capital and central bank planning.
Here, one has to look at the real issues here. And one of the bigger concerns is how the market treats funding costs. This is going to be a real deal.
We have to address the biggest challenges before us. Speaking of the treatment of funding costs of the market, here are the major concerns.
- This could lead to spreads widening on bond deals.
- Bank balance sheets could face turmoil. As we all know, bank balance sheets suffered majorly in 2016.
- Credit spread pain could affect the U.S as well, according to Caldwell.
Pull back is inevitable
If Brexit becomes a reality, a pullback is inevitable. When EU came into existence, many banks in the European countries increased their presence in the UK, especially London. They increased their staff and other resources in the UK. If Brexit happens, most of these banks from other countries in the EU will be forced to pull back. Well, that also suggests that the UK banks operating in other countries in the EU will be forced to do the same. This can have a deep impact on the banking sector, which nobody can deny any longer.
Banks to feel the pressure
Banks can no longer escape the mounting pressure. If Brexit becomes a reality, tough framework will be established for banks operating in international offices. The banks in the EU will be forced to deal with the uncertainty and vulnerability of the situation. All the banks, including the big ones like Barclays, will be forced to deal with the new regulatory processes to make sure that they have a presence in other parts of the EU.
Take a look at how the crude oil price movements are in the US at the moment that reflects a slowing down of demand across the globe.
Those who look forward to trading in crude oil are treading the market hesitantly these days. In WTI crude oil there was a fall, which was 61% that was lower compared to the levels reached on February 11th. This was a fall that was mind numbing to most traders. The last few quarters there have been discussions as to why crude oil prices are likely to stagnate. The oil prices have risen over the last month though. The fate has been different for different crude oil indexes. The main test is the performance against the 200 day moving average. If the lower levels of February are retested, the wild market will look simple in comparison. You can Check This Article Stock Market Rally To Get Affected By A Slowing Economy, here.
Crude oil price movements
The crude oil prices are also dependent on the dollar strength and in which direction it will move. The crude oil prices are inversely correlated to the movements of the dollar. The move is higher in crude oil but aligned to the fall of the US dollar since the month of October. This week, however, sees a renewed focus on strengthening of the US dollar. Several rate hikes are being discussed that will take place in 2016. If that is the case, crude oil will not see much gain.
As per last Wednesday levels, the 200 day moving average has been sitting below the rate of $42 per barrel. It is assumed that 200 DMA will hold strong. Hence, the downturn in oil prices is expected to continue. The earnings of the oil producing companies have come down in comparison to the levels reached in recent years. For that reason, many companies have decommissioned two thirds of the rigs owned. They have also cut down on the investments made in production and exploration initiatives. Smaller ventures have gone corrupt as well, leading to 250,000 workers in the oil industry losing their jobs.
All this is happening due to fall in the price of oil, which is around seventy percent from the 2014 levels. Even though prices have recovered, but barrel prices continue to sink as a glut has come into this industry. It is also due to Iran having become a player in the oil market. The country was allowed to start selling oil in the international market in return for restricting its work on nuclear power development. If you ask people of the industry, they are not optimistic about prices coming back to levels like 90 or 100 dollars a barrel that used to be in the last decade.
If you look at the international benchmark for crude oil, Brent crude, it has been trading at the price of $41 per barrel as of Friday. The question that follows is why this has been happening. One of the chief importers of crude oil is US. As their domestic production has doubled over the last couple of years, they have pushed out oil imports. Hence, the same exporters are trying to find ground in Asian markets. Hence, oil prices are going down. Exports and oil production from countries like Iraq and Canada has also been rising.
This article discusses the state of the durable goods industry in the current economic scenario.
Besides crude oil prices falling down, there are other industries that are showing signs of slowing down as well. Take for instance the manufactured goods industry, especially in the durable goods segment. The factory orders fell in the month of February in US. This is a reflection of other developed economies as well. The drop has been largest since December prices in this category. The percentage of fall was 2.8 percent in February though there had been an increase in prices, by about 4.2 percent in the month of January. Commercial aircrafts are also part of this industry and the demand fell by 27.1 percent in February.
Commercial aircraft segment
In the commercial aircraft sector the orders are largest from Boeing and that also registered a drop. Demand has fallen for military aircraft as well. There had been a surge by about 97 percent in the month of January but the demand for parts has fallen by 29.2 percent in the month of February. For industry experts it signifies that durable goods sector remains under pressure or has declined in demand side. Capital markets experts state that the drops that are being seen in business investments, including capital investments will lead to a drag on the economic growth in the first quarter of the new financial year. The current forecast is 2.3 percent of growth for the next quarter, but that also depends on the market performance seen in March.
2015 has been a tough year for manufacturing and the prospects do not look certain for the upcoming financial year of 2016. The export markets are weak as well as the dollar continues to strengthen which does not spell well for the durable goods industry. Besides aircraft nonmilitary goods fell by 1.8 percent after there was a rise of about 3 percent in the month of January. Energy industry falls in this segment that has been affected by falling crude prices, which has led to demand setbacks and job cuts as well. Machinery orders have fallen around 2.6 percent. That includes electrical equipments and appliances. The drop has been around 2.8 percent. Demand for computers did rise by about one percent, though communication equipments have fallen by about 2.3 percent.
As the industry has been slowing down, declining or seeing spurts in growth, unemployment has been on the rise. However, job growth has also been noted due to which the levels of unemployment assistance have not risen as yet. The average figures for unemployment benefits remain same but on the higher side. Applications have been low and businesses are holding onto their manpower. The industry is going through a turmoil stage and growth prospects are uncertain at best as seen by industry. By the way, you can can Find Here Stock Market Rally To Get Affected By A Slowing Economy.
With the current performance and forecasts of the industry investors will probably rethink their investments. When a sector slows down, there is not much sense in pumping in funds further in such an economy. That is when redirection of funds takes place.
Energy Industries are seeing a shift and a current wind power project getting approval might well spell the beginning of renewed investments in the renewable energy sector.
Wind Power is considered to be one of the sources of sustainable power besides solar energy. With several wind transmission projects initiated or underway, another new one being commissioned in Texas has further ignited the interest of the investing sector in this industry. This project aims to bring about wind energy in Oklahoma and Texas, but there were certain hurdles that needed to be cleared first. All those hurdles were cleared and Energy Department gave the go ahead on Friday.
Focus on renewable energy
Besides the Retail Sector the energy sector needs to be encouraged as well. The development of this project has been in the offing for quite some time now. It is invested in by Clean Line Energy Partners and state lawmakers had been delaying it. However, a federal decision came about in its favor on Friday. The decision reflects the commitment of the Obama government to encourage renewable energy projects across the country. It is one of the major components of a national goal of reducing climatic changes from taking place. Several companies are looking at developing transmission lines which will be powered by wind farms as well as hydroelectric plants even in populous parts of the country.
The hurdles faced
Even with the national government’s commitments, many alternate energy companies are facing hurdles. For instance Clean Line Energy Partners were not given permission initially by the Missouri Public Service Commission for running transmission lines in certain parts of the state. Many companies propose to run high voltage transmission lines from wind farms across several states. This is essential in order to develop a grid and for accessing power in different regions that is generated by sustainable resources.
The companies that are looking to invest in wind farms and other sustainable eco friendly energy projects feel that the benefits are several:
- Renewable energy will be provided to more homes
- More jobs will be created
- Grid reliability will be enhanced
- Carbon emissions will go down
More steps to take
There is much work to be done by the energy companies in order to make the propositions work. Land has to be acquired where the lines will cross. There are support clauses in 2005 Energy Policy Act. With these clauses the energy officials hope to instigate upgrades and extensions in clean power projects across the country. Not much work has been done since the commencement of these initiatives in the eighties. Long haul lines need to be set up and approved which need to span thousands of miles. The clearing of the recent project highlights encouragement to this sector which will come at a reasonable cost. There is market demand for clean and low cost energy and with the right investments, this can become a reality. It would certainly be a strong point for the Obama administration that has supported these initiatives. It remains to be seen how the companies will fare when a new government comes into power as it is eminent this year.