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Foxconn announces salaries for workers would increase by 16-25% to about $400 a month before overtime. Foxconn plans to reduce overtime. Foxconn is a major supplier in China for Apple Computer.

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A shift in priorities away from focussing on high growth to lower sustainable growth was announced by China's premier Wen Jiabao at the National People's Congress, China's parliament, in March 2012. This shift will reduce investment in infrastructure, power generation and exports, which will affect the level of imports of commodities from commodity producing nations in the Middle East, Australia, Canada and Brazil. It should increase imports of software, computers, entertainment, tourism and high tech goods from the U.S. and Europe. Chinese leaders have said they would make this kind of shift for some years now but growth has consistently increased more than the target rate, and domestic consumption as a percentage of the economy has actually decreased in the last decade. Now 9-10% growth rates may be a thing of the past and the target of 7.5% set this year may be actually closer to the real figure. The Chinese leaders have belatedly realized the need to make these changes now because slowing markets in Europe -which is seeing declining growth and high unemployment- and in the U.S., make the issue impossible to avoid. Wen told the Congress: "Accelerating the transformation of the pattern of economc development... is both a long term task and our most pressing task at present... Domestically it has become more urgent but also more difficult... to alleviate the problem of unbalanced, uncoordinated and unsustainable development." This is his way of saying that its unavoidable and better to start in earnest now, and at the same time recognizing the resistance to change from the stateowned companies and the other interests who have benefitted from surging growth, and now occupy a central role in the power structure. An opinion article in the People's Daily, China's official newspaper, said: "imperfect reforms are to be preferred to a crisis caused by no reforms." The World Bank's president Zoellick is respected by the Chinese leaders. He also urged them to make changes now. The recent report of the DRC, China's planning research arm, and the World Bank, also laid out the new direction away from a focus on infrastructure to domestic consumption. The fear is sudden deceleration in the absence of policy action. The impact of this will be negative for commodities over time, leading to slower growth in Australia, Brazil, and Canada. It should boost imports from Europe and the U.S. of high tech, consumer, pharmaceutical goods over time....

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Ben Inker of Grantham Mayo sees profitability at U.S. companies at a high because of savings in labor costs while consumption has not declined because of government transfer payments and fiscal policy. He sees profits of U.S. companies declining in 2012-2013. This makes the U.S. stocks less likely to perform well in the future, especially the stocks outside of the blue chips which he sees as highly overvalued. A better choice in his view is in Europe and Japan which are undervalued. His funds have 39% in U.S. stocks and most of it in blue chip stocks. His view is that interest rate policy will not have a large effect as the changes will be very gradual, and going from zero percent interest rates to one percent interest rates will not lead to much change in economic activity. From his point of view the largest risk is in shrinking of profits at U.S. companies as the deficit comes down, because today workers are able to maintain consumption because of fiscal policy and companies are able to cut costs. In Europe the austerity cuts are being taken seriously and this will impact profits, so the U.S. will look better in 2012. But value will prevail in the long run as European and Japanese stocks are undervalued and the U.S runup leaves stocks overvalued in terms of future stream of profits....

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China's GDP growth accelerated slightly to 6.9 percent in the 1st quarter of 2017, after five consecutive quarters of GDP growth at 6.7-6.8%, according to government data. This reflected larger use of steel in the construction industry and more mortgages issued by the state controlled banking sector. Government officials say productivity is improving helping GDP growth, with closing of less efficient manufacturing plants. Industrial production increased 7.6% in March 2017, according to the National Bureau of Statistics. The government is trying to control higher lending and reduce the backlog of bad loans at banks. Higher growth helps to reduce the bad loans at banks from the earlier period after 2008 financial crisis, improving financial stability.

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A report released by the Organization for Economic Cooperation and Development (OECD) shows growing income inequality in 34 OECD countries. OECD Secretary General, Angel Gurria says: "The social contract is starting to unravel in many countries. This study dispels the assumptions that the benefits of economic growth will automatically trickle down to the disadvantaged and that the greater inequality fosters greater social mobility. Without a comprehensive strategy for inclusive growth, income inequality will continue to rise." Countries with the largest ratios between incomes at the top and the bottom, are the United States, Turkey and Israel, roughly 14 to 1. Germany, Denmark and Sweden have ratios of 6 to 1, with their ratios up from the 1980's. Gaps in Chile and Mexico are at 25 to 1. The study covers the period from 1980 to 2008. Overall inequality went up by 25% in the U.S. from 1980. In 2008 the top ten percent in the U.S. earned $114,000, 15 times than incomes for the bottom 10%. The top 1% of Americans saw incomes go up from 1980 to 2008, increasing from 8 percent to 18 percent. The richest 1% having $1.3 million in after tax income, and the lowest 20% making $17,700. The trends have accentuated an increase at the highest end- the top 1% and top 10% of the people- and a sharp decrease for the bottom 20%, which can be grasped from the $17,700 and the $1.3 million, both at extreme ends. The study attributes the rise in inequality to a growing gap in wages for highly skilled workers as technology advances, a surge in foreign direct investment and a looser regulatory regime that reduces employee protections leading to wage premiums for financial jobs and smaller incomes for workers at the bottom. Income groups and professions and sectors that had the greatest influence in government were able during this period to get the greatest protection for incomes, and able also to maximize their incomes. Incomes in the financial sector increased dramatically in the last decade, as a result of deregulation leading to higher risk and speculative activities in the financial sector, leading to the financial crisis of 2008-2009. Financial crises further depress incomes at the lower end. Similiar income inequality trends can be seen for India and China. China has a Ginni coefficient of 0.5 according to researchers at Beijing Normal University, up from 0.3 three decades ago- a Ginni Coefficient above 0.4 is considered destabilizing. Another factor that played a part in these countries is corruption and lobbying by special interests for favored treatment of sectors or groups. Austerity measures taken in Europe and in the U.S. are likely to widen income gaps by depressing the lower end income groups, creating social unrest, especially in the absence of efforts to stimulate growth....

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Keith Bradsher visits Guangzhou, China, just as prime minister Wen Jiabao tells the National People's Congress that China is changing its priorities from high growth to sustainable development. As recently as 2007 GDP growth reached 14%! The minimum wage is expected to rise 13% each year under the five year plan. Even with the increase in wages owning an apartment is unaffordable in Guangzhou- a 1000 square feet apartment costs upward of $300,000, showing the extent to which the bubble in real estate prices affects young people who cannot afford to own an apartment. A new graduate with marketable skills such as computer engineering makes about $6000 a year, putting owning an apartmet beyond reach. Another change he notices today is that during visits to construction sites he does not see flood lit sites at night. This used to be the case because builders were scrambling to build. With government policies discouraging the property bubble there is no longer a need for work at night. The focus now has shifted to build low income housing....

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How will countries like India generate jobs when technology enables manufacturing and other activity to do work with fewer and fewer people. Even Hon Hai in China is shifting work to robots. Technological progress is leaving more people unemployed and widening income gaps with the benefits going to a few people, says the Economist in this research based essay. It will require carefully managed governance to invest in infrastructure, raise skills of less skilled workers through education, and wage subsidies for those left behind to ensure our current system works in the future.

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This New York Times editorial after the Senate passed a bill in October 2011 calling for action on the misaligned Chinese currency, points to ways a misaligned currrency is damaging for China. It cites the Peterson Institute for International Economics estimate that this is costing China $240 billion a year. This is a result of accumulating huge dollar reserves that have a declining value against the renminbi. Higher import prices lead to higher inflation. And low interest rates on savings, to the point that they are lower than the inflation rate, hurt the vast majority of Chinese and reduce domestic consumption. And perversely this leads to money pouring into speculative uses such as real estate, creating unsustainable bubbles in housing. The Times editorial says China is not generating jobs from this strategy, as the export strategy is relying on use of advanced technology in manufacturing and not creating many jobs. It cites a statistic showing employment has increased by only 1 percent a year from 2004 even with GDP growth above 10%. China is beginning to realize the cost of this strategy, and is planning a shift in its five year economic plan. But this rebalancing has many obstacles. The current system dominated by state run companies, banks, local and federal government, is biassed in favor of the old export led strategy, and experts are pessimistic about the possibilities for change. The Times suggests China may be falling back on the export led strategy as the global economy is slowing. The whole system would have to change after three decades of this kind of development, and would require new leadership and major changes....

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Tom Keene of Blomberg BusinessWeek talks to a panel of experts about the future prospects for the US and the global economy. The discussion was spurred by Carmen Reinhart's paper at the central banker's Jackson Hole, Wyoming, conference. This paper forecasts high unemployment, low housing prices and very low growth in the US upto 2017. Shiller, Calomiris, Orszag, Kaufman and Bill Gross are part of this panel. Shiller's to do list main item is to get help to local and state governments by restoring general revenue sharing arrangements. Gross would focus on jobs that can hold up in a competitive economy, and put back some of the production that is taking place in the developing countries back into the developed countries, as part of a rebalancing; through a currency realignment. Kaufman would like to see a capital expenditure program by the US government, including infrastructure and education. Calomiris would like to see a setup of a new Republican Congresss to set the stage for post 2012 efforts. Calomiris favors cutting entitlements, cutting payroll taxes, but is not clear how this would help lower the deficit. Orszag points to feedback from business leaders suggesting a lowering of payroll taxes will not spur hiring, as the real reason for not hiring was low 1-2 % expected growth. Shiller, Kaufman and Gross see government efforts as realistically needed in the current situation....

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Portfolio manager Robert Arnett, who manages two of PIMCO's funds, has some alarming things to say about the environment retirees face in the future. In ten years for every working age person added to the workforce there will be 10 new retirees, the complete reverse of what it was ten years ago when there were 10 new working age persons for every new retiree. The impact of this will take the shape of many more retirees selling stocks and bonds to live on and fewer buyers for the bonds and securities, lowering the prospects for higher prices for bonds and securities. He expects the demand for goods and services to continue with higher prices. He sees stocks giving a nominal return of about 5%, bonds a nominal return of 2-4%, for a balanced portfolio yield of about 4%, during the next 10-20 years. After inflation and taxes the returns will be very thin. Expectations of 10% returns do not take into account deficits, debt, and demography in developed countries, says Arnott.

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In a shift from statements at earlier summits which focussed on fiscal restraint, the Camp David summit continued the "firm committment to fiscal consolidation," yet emphasized jobs and economic growth as "imperative." There is new flexibility to address needs for economic growth and no specific timetables for fiscal balance as in previous summits. Obama had many one to one encounters with the other leaders. He discussed the euro crisis with Cameron while working out on a treadmill, and watched the Champions League soccer final between Chelsea and Bayern Munich with Merkel and Cameron. Each leader of the G-8, Harper of Canada, Monti of Italy, Hollande of France, Medvedev of Russia, Cameron of Britain, Noda of Japan, Merkel of Germany, was assigned a cabin in the rustic wooded setting of Camp David's mountains. A special effort was made to see that Germany's Merkel did not feel isolated in the setting because of the growing sentiment that austerity policies pushed by Germany are not working. On Iran, Obama stated that he was "hopeful that we can resolve this issue in a peaceful fashion that recognizes their sovereignty, but also recognizes their responsibilities."...

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The May 6 episode of the stock market plunge of 900 points in the U.S. and then recovering had the effect of rattling investors nerves especially retirees. The impact of this episode is recorded in the experience of one Charles Schwab broker office in Englewood, Colorado. By the end of that day this broker had 50 calls on his answering machine from a fifth of his clients, all seeking to know what happened. Charles Schwab, who helped launch a period of individual investing in the U.S. after 1982 by cutting fees and going after the average investor, (along with others like Jack Bogle of Vanguard Funds), is also on edge. He says he has not seen anything like this since his early days. Schwab confirms Yale Prof. Shiller who says (see link) that his index for markets shows a lot of nervousness. Saying that 98% of people are still very concerned, coming after the May 6 incident, and the Greece and eurozone crisis that impacted US stock markets. One other factor he points out is the constant flow of headlines that suggest certain business people engaged in fradulent practices, something that fuels a lack of trust. Charles Schwab ponders from his office across the San Francisco Bay Bridge, whether words like safety and soundness mean anything anymore. Another factor of concern, Bogle points out, is that institutional investors now own 70% of American corporations, up from 35% in 1975. And the advantage has veered sharply in their direction as institutions, hedge funds, and investment banks trade on their own account, with wealth moving in that direction. This leaves the individual investor and especially the retiree or those about to retire in a severe predicament....

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Kaushik Basu, economist at Cornell University, and Chief Economist at the World Bank, says the U.S. Federal Reserve should consider the current low labor participation rate and low inflation in its rate policy setting decisions in 2015. Basu points out that in the recent past unemployment has gone below the current 5.5% without increasing the risks of inflation. He cites the period from July 1997 to August 2001 when inflation was below 5%, and at some points below 4%, yet inflation in 2002 was close to 2%. The large number of discouraged workers in this economic cycle has placed the unemployment rate below what it really is, says Basu.

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A slight shift in American opinion favoring a deal with Iran is shown in a WSJ/NBC poll in July 2015 compared to the poll in April 2015. Support for reaching a nuclear deal with Iran remains stable at 36% in both polls, the opposed drops by 6 percentage points to 17% from 23%, and the percentage of people who say they do not know enough to formulate an opinion goes up to 46% from 40%. The intricacies of a nuclear technology deal and the sites involved lead to a high percentage of don't know enough to give an opinion. Factors hindering a deal include inspection of military sites, and Iranian intentions. Factors favoring reaching a deal now is the risk that this would mean Iran would go back into isolation and the opportunity to work with moderates might be lost. The Rouhani administration was an effort by voters to elect a government that could ease or remove sanctions to improve the economy and living conditions- its failure would lead to Iran losing an opportunity to open up to the world. The pressure from the U.S. Congress and Israel served to push for a verifiable and effective agreement to control development of nuclear technology for weapons systems. Behavioural factors involved are the very young population in Iran which has no memories about the period before the revolution in 1979- 70% of the population of 74 million are people under the age of 35. This group is eager for ties to the outside and could change Iran's outlook and policies int the future towards moderation. Risks in not reaching a deal also include the possibility of the Saudis developing nuclear technology and nuclear proliferation. Winners from a deal because of the flow of Iranian oil to world markets and a period of extended low oil prices are the U.S., Europe, China and India. Germany gains new markets to replace the growth in the Russian market after sanctions. Lifting of an arms embargo, an added risk in the last days of the talks, would be mitigated by making the lifting of that embargo very gradual....

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With 40% of the unemployment shown as longterm unemployed, U.S. Federal Reserve policies are focussed on bringing down these levels, which pose a risk to the productive capacity in the U.S.

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Krugman points to the connection between the failure to achieve debt reduction through debt forgiveness and the sluggish economic growth in the eurozone and U.S., five years after the global banking and financial crisis of 2009 and four years after the beginning of the eurozone debt crisis in 2010. In the U.S. debt reduction for homeowners was delayed with a wave of foreclosures, and in Europe austerity budgets were the norm as Germany pushed hard for austerity policies. In 2014 small relaxation of austerity to give relief to voters took place in Greece, France, Italy and Spain, with austerity budgets still in place. Growth also slowed in Germany to slight contraction in the third quarter and no growth in the fourth quarter of 2014. This is leading to the formulation of new policy to address growth challenges in the eurozone. Debt to GDP is growing in eurozone countries and Britain because of lack of growth, even though spending cuts have been made, showing the need for rethinking policy. ...

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Hon Hai, a Chinese company which makes IPads and IPhones for Apple has grown by doing high quality work for lower prices than anyone else. In the process Hon Hai has generated a culture that is tough even by Chinese standards. About 250,000 workers are employed in its factories in Shenzen alone. A series of suicides at the plant has attracted attention to the tough conditions. One worker says conversation on the production line is banned, bathroom breaks are limited to 10 minutes for every 2 hours, and the discipline is strict. Hon Hai won Apple's order says one supply-chain search expert, by pricing low. Its CEO Gou was willing to sell some components at zero profit according to people familiar with his actions. Workers come from rural areas, are very young, the first time they are away from their families, and live in dormitories, eight to ten people to a room. Hon Hai's response is to increase wages 30%. But a report about a college graduate who was asked about conditions reflects the general feeling. This graduate makes twice as much in product development, at 2000 yuan a month, or $293 a month. But the monotonous life and the feeling of no future affects this worker and may be a sign of something changing in China's factories. The unwillingness to accept the conditions that existed in the past....

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Italy's prime minister, Mario Monti put it best when he said in a speech in Brussels in April 2012: "If a country becomes more productive and competitive, but there is no demand for its products domestically or around it, growth will not materialize." There is a new shift in opinion towards a balance of fiscal discipline with growth measures to get Europe back on track. The feeling in different parts of Europe is that the German view of austerity alone will not work for Europe. And the view is coming from the far right to the far left, from Marie Le Pen, far right presidential candidate in France, to the far right leader whose move to withdraw support to the government in Netherlands on the issue of austerity measures led to its collapse. Geert Wilders, leader of the Freedom Party in the Netherlands, said: "we don't want our pensioners to bleed just to meet the dictates from Brussels." The IMF has put out research that questions what is now called "the German hypothesis." The "German hypothesis," is based on the unique experience of Germany with the Hartz reforms under chancellor Schroeder which were based on wage restraint by workers, the German "kurzarbeit" program of government support for retaining workers with lower pay during cyclical downturns, improving competitiveness of German companies, and conservative budget practices. There appear to be two exceptions to this. One is that demand has to be strong outside or domestically for a country to reduce unemployment and improve productive capacity utlilization as it increases competitiveness. This was the case as Germany made the Hartz reforms under Schroeder. Wage restraint acts as a form of devaluing currency for reducing the cost of its products to improve exports. All leading parties and the unions are now in favor of wage restraint and lowering wages to preserve jobs to improve France's competitive position. Germany had the benefit of a decade to implement these reforms to reduce unemployment, because demand was not declining domestically or around it during its reforms. The situation is different in Spain where in all likelihood demand would shrink further with unemployment rising from 25% to higher levels, and higher sales taxes. This is why Francois Heisbourg, special advisor at the Paris based Foundation for Strategic Research, says about the current situation in Europe, that destroyiing Greece with strict austerity alone wasn't something the EU can look back at with the sense of having done the right thing, for Spain it appears misguided and lacking careful thought. The editors of the Wall Street Journal expressed the same sense when they described the March 2012 bailout of Greece as a tragic sideshow, because the main purpose was to buy time and insulate the other larger economies in the EU by giving the French, Spanish and German banks time to improve their financial position. The Journal called it bad for Greece leaving it with debt at 120% of GDP till 2020 and no economic growth, and bad for democracy as it was done against overwhelming Greek public opinion- The Tragic Greek Sideshow, Feb. 22, 2012. Volker Perthes, director of the German Institute for International and Security Affairs, a Berlin think tank, says the Germans have always viewed German leadership in Europe with discomfort, and would prefer a leadership where several states, France, Italy, Spain, and other countries in the EU coalesce around consensus positions. This is historically true for the German position since chancellor Adenauer. With the Free Democrats in decline, and the Social Democrats and the Pirate party doing well in recent German elections and favoring consensus in Europe, Merkel's Christian Democrats need to rethink their policy to give greater weight to economic growth for a consensus position in Europe. ...

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How returns in the U.S. stock markets of over 30% in 2013 change the picture of five year returns to the end of 2013 compared to the end of 2012. Long run has to be much more than 5 years and even longer for decent returns.

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David Kostin, Goldman Sach's U.S. equity strategist and his prediction of the S&P 500 at 1250 at the end of 2012. The S&P was at 1421 on April 1, 2012, the highest it has been since May 20, 2008. In his research note Kostin says that over the longer term the stock market will offer opportunities after a more normal growth environment is reestablished. This is similiar to the view held by John Bogle, founder of Vanguard. For the short term- the 2012-2013 time frame Kostin sees tactical risks, and results below average. The reason he gives is low economic growth and the large degree of uncertainty. The situation in Europe shows slowing to no growth and more deficit problems, and the sanctions on Iran pose risks for oil prices.