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U.S. to Force Chinese Currency Revaluation? MoneyNews
(Headlines - scroll down for full stories)
Charles Schumer (D-NY) and Lindsey Graham (R-S.C.) have been among the most vocal of U.S. government officials in claiming that China's currency policy is a blatant means of keeping the yuan artificially cheap to provide an advantage for Chinese exports. China "is on track to amass more than $1 trillion in foreign-currency reserves by year-end - glaring evidence of its intervention in the currency markets. And its huge trade surplus … more than tripled last year to $100 billion," according to Forbes.
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Schumer and Graham have written a bill that would effectively allow the United States to impose a 27.5% tax on all Chinese exports to America - unless the Asian nation agrees to let its currency rise considerably against the dollar. "We believe that there is a very real possibility that the Chinese government and the Chinese people see it in their interest to let the yuan float," Schumer said at a briefing during his visit. "We still need some concrete signs of movement," he said. "It doesn't have to be the way that we propose - we've always said that. But we need to know over a discrete and reasonable period of time that the goal of having the Chinese currency float and market forces control it ... should occur." Interestingly, on Tuesday the yuan hit its highest level since July (when China rid itself of its peg to the dollar) - just in time for the arrival of Schumer and Graham, according to Forbes. "If China, which manages the yuan against an unknown basket of currencies, thinks it can fob off its critics this way, it has mightily underestimated Congress in an election year," says Forbes. "To judge by the host of bills and amendments aimed at curbing trade with China that are floating around Capitol Hill, there is a hearty appetite for China-bashing in Congress." In fact, there is talk that unless China moves to fix the situation, the U.S. Treasury may soon brand the country a "currency manipulator." The Forbes article claims that China has ignored America's requests because it may have believed that the Bush administration would override any attempts by Congress to force China's hand. But the Chinese may have underestimated the current extent of Bush's power, which has seemingly dwindled as Congress becomes much more willing to override his decisions - especially in an election year, says Forbes. "What the Chinese fail to grasp is that Congress could pass a protectionist bill that is veto-proof," Desmond Lachman, an economist at the American Enterprise Institute in Washington, D.C., tells the magazine.
Under the current system, China's central bank is only able to raise the currency by 0.3% per day. But "Schumer and Graham contend the yuan is undervalued by 15 to 40%, bloating the U.S. trade deficit with China, which the United States says stood at about $202 billion last year," according to Reuters.
2. Job Picture Brightens The U.S. economy and the Bush administration got some more good economic news today as the number of jobless claims dropped by a larger-than-expected amount. According to the U.S. labor department, 302,000 laid-off workers filed unemployment claims last week, down from 313,000 a week ago. The Associated Press says that the number marked the first decline in four weeks and left benefit claims at a level consistent with strong labor-market growth for the coming months. The news comes at an opportune time for the White House, which has been pushing the mostly positive economic news of late to vindicate President Bush's economic policies. News that General Motors would lay off 30,000 workers and offer buyouts to 125,000 more put a damper on such talk, but the new jobless numbers should offset any anxiety from investors - domestic and international - who were worried about the U.S. economy.
Those concerns were further allayed by the February jobs-created numbers, which showed a gain of 243,000, thanks primarily to strong growth in the Last month the unemployment rate edged up to 4.8% from a 4 1/2-year low of 4.7% in January. But as the AP points out: "Even that gain was seen as a sign of strength as better job prospects lured disappointed job seekers back into the labor market." Editor's Note:
3. Manufacturers Bearish on Economy One sector that has not experienced significant job growth is manufacturing - one of the handful of industries that failed to show a net-plus job creation number in February. Now Crain's Business is reporting that the National Association of Manufacturers surveyed its members and found they expect this year's U.S. economic growth to be slower than many economists are predicting. A majority of those queried foresee the U.S. gross domestic product growing less than 2.9% in 2006, the association said. The NAM's own expert predicts the economy will grow 3.3% this year, said Hank Cox, an association spokesman. Economists' consensus estimates have recently stood at 3.4%. Plus, more manufacturers are growing pessimistic about the economy. Some 44% of survey respondents said they expect manufacturing to trail the economy in 2006. That number is up from 34% last year, according to the NAM study. "The biggest challenges for manufacturers this year are increased costs for health care, materials and energy that manufacturers have been unable to pass along to consumers through higher prices," says Crains. "The same three costs topped manufacturers' worries last year, according to the association." MoneyNews has pointed to this phenomenon in recent issues, maintaining that it could mean lower profits for manufacturers come reporting season. "Technology and competition will only increase America's need to have access to highly skilled professionals. But our schools and training programs just aren't doing the job," said association president John Engler in a statement. The NAM survey contrasts sharply from a new University of Michigan economic poll that says the U.S. economy is set to explode in 2007. "The pace of output growth rebounds from its late 2005 slowdown during the first half of this year as rebuilding efforts in the Gulf region pick up, light vehicle sales return to a more normal pace, defense spending recovers and oil imports back off," said University of Michigan economist Joan Crary. "But during the second half of this year, homebuilding activity slips in response to higher mortgage rates, the pace of light vehicle sales stabilizes and net exports are a bigger drag on output growth." In their annual spring forecast update of the U.S. economy, Crary and colleagues Saul Hymans and Janet Wolfe say that national economic output growth (as measured by real Gross Domestic Product) will rise from 3.2% last year to 3.9% this year, before dropping to 2.6% during 2007. Although GDP growth will slip during 2007, domestic final demand growth (final sales to domestic purchasers) will register a healthy 3.1%, they say. According to the Michigan forecast, the economy will add 2.3 million (nonfarm payroll) jobs this year and another 2.3 million in 2007. Unemployment is expected to fall from last year's 5.1% average to 4.7% this year and 4.6% next year. "This follows an increase of 2 million jobs in 2005," said Wolfe, a UM economist. "While healthy, the job gains in 2006 and 2007 fall well short of the 3 million jobs added per year from 1994 to 2000." Editor's Note:
4. Portrait of a Real Estate Crash Wondering how bad a housing crash in the U.S. could be? Take a look at Japan. Reuters reports that a government census survey shows that land prices in Japan's capital city of Tokyo rose for the first time in 15 years. That's a decade-and-a-half of falling real estate prices. And, on average, Japan's real estate market continues to crumble. Nationwide, both residential and commercial land prices in Japan fell 2.7% in 2005 - the fifteenth consecutive year of falling prices. On average, prices are one-third of what they were at their peak in the early 1990s. That means real estate prices have fallen an average of 66% in the last 15 years. Residential land prices fared somewhat better - they're only half of what they were in 1991. In Tokyo, residential land prices are about 41% of their 1991 levels, says Reuters.
The good news is that Japan's real estate market finally looks like it is bottoming out. Prices rose in four out of Japan's 47 prefectures, and the rest saw prices fall at a slower pace than usual. AFX News quotes Mitsubishi Tokyo UFJ strategist Tetsuro Sawano as saying: "Given the fact that investments in rural areas still yield low returns compared to those in urban areas, it may be difficult to see an immediate upturn in overall nationwide land prices." But clearly, Japan's housing market is showing signs of crawling out of its deflationary spiral … 15 years later. Editor's Note:
5. Existing Home Sales Improve Slightly Sales of existing homes were up 5.5% in February compared to January - marking the first increase in sales in 6 months. The pickup surprised analysts who expected sales to slow during the month. It was due mainly to warm weather in the Northeast and Midwest. Compared to their peak in June 2005, sales are down 5%. Inventories managed to stay flat in February. The average amount of time it takes to sell a house remains 5.3 months. That's way above the level a year ago. For example, the inventory of single-family homes is 28% higher, and homes take 1.1 months more to sell this year as compared to last February. Condo inventories are up an astounding 44% over last year, and it takes more than six months on average to unload a condo in this market, compared to 4.2 months last year, according to Economy.com. Despite this month's performance, the trend for housing sales is still down. The amount of supply entering the market in the coming months will surely outpace demand as interest rates rise and banks crack down on speculators. Editor's Note:
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