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The link between the stock market and the economy is weakening – BNN

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(Bloomberg Opinion) — The stock market is often misused as a bellwether for the economy, especially in political debates. Yet the market has never reliably moved in concert with the economy. And today the connection between the two is weaker than at any point since World War II. The reasons for this disconnect, furthermore, suggest the relationship will loosen even further in years ahead.

One major reason the correlation between equity markets and real economic activity has never been particularly strong is that stock prices are driven by expectations about future, not current, economic conditions, and they can also be significantly influenced by changes in the interest rate used to discount future earnings. As the economy has evolved toward services industries such as health care and education, though, and as private equity funds have grown to become a larger force, the stock market has become even less representative of current economic activity.

New research by Frederik Schlingemann of the University of Pittsburgh and Rene Stulz of Ohio State University documents what has happened. In 1973, 41 per cent of private-sector workers in the U.S. were employed by publicly listed firms. By 2019, that share had fallen to 29 per cent percent. And among public firms, employment now plays a smaller role than it once did in explaining market values: In the 1970s, employment differences across companies explained half of the differences in stock market capitalization; they now account for only a fifth of the variation.

What explains the growing gap between stock prices and employment? Schlingemann and Stulz point to sectoral shifts across the economy as being the major driver. Manufacturing companies, with significant physical investment, often turn to equity markets for their substantial financing needs. Services firms are less likely to be publicly listed. Only 4 per cent of workers in education and health services are employed by public firms, compared with more than three-fourths of workers in manufacturing.

U.S. economy heading for V-shaped recovery, but stock market thrill ride also ahead: CFRA’s Stovall

Another round of encouraging data out of the United States has Sam Stovall, chief investment strategist of U.S. equity strategy at CFRA, saying the U.S. economy “is mapping out a V-shaped recovery”, but he also warns investors to prepare for increased market volatility.

Thus, the increasing disconnect between the stock market and jobs is largely a story of the American economy’s shift to services over the past several decades. In 1973, manufacturing employed 30 per cent of workers. Employment in the sector has fallen by more than 2 million people since then, and the share of total employment in manufacturing has declined by almost two-thirds. At the same time, since the early 1970s, employment in education, health services, professional business services, and leisure and hospitality has grown by more than 200 per cent.

If education and health-care firms were as prone as manufacturing companies to tap public equity markets, then listed firms would have represented 43 per cent of all workers in 2019 — slightly more than in 1973. In other words, the shift of employment toward services and away from manufacturing has widened the disconnect between the stock market and the job market.

The mirror image of the public companies’ declining employment share is the rise in private equity. Since 2002, the net asset value of private companies has risen twice as fast as that of public ones, McKinsey estimates. As the number of public companies has fallen in half over the past two decades, the role of private companies has risen.

So what should we expect in the future? The buzz around special purpose acquisition companies, or SPACs, suggests that for many firms the allure of public markets will persist. Overall, though, as people consume more and more health care, education and other services, employment will probably continue to shift toward private companies.

All this raises an interesting question: Do we need new measures of activity among private companies? As the employment share of public companies continues to fall, data from their activities tells us less and less about the broader economy.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Peter R. Orszag is a Bloomberg Opinion columnist. He is the chief executive officer of financial advisory at Lazard. He was director of the Office of Management and Budget from 2009 to 2010, and director of the Congressional Budget Office from 2007 to 2008.

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Biodiversity and the circular economy | Greenbiz – GreenBiz

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Making its way to the top of global agendas and the bottom of balance sheets, biodiversity recently has risen through the ranks of planetary priorities. As a result, I’ve noticed a growing number of organizations calling to connect the dots between the circular economy and biodiversity, so I thought it worthwhile to consider their relationship — one that I instinctively felt to be a bit of a stretch. 

Although fundamentally aligned in their overlapping aims to address resource extraction, water scarcity, energy generation, toxicity and climate change, in practice circular economy strategies and biodiversity preservation seem to be one step removed. 

For example, repairing or reselling a pair of jeans does not directly preserve biodiversity. But done at scale, product life extension and keeping materials in use for as long as possible does reduce the need to extract the same quantity of natural resources, and therefore reduces the strain on our ecosystems. The same can be said for climate change mitigation, given that climate change contributes to 11 to 16 percent of biodiversity loss, and circular economy strategies can reduce carbon emissions

A central aim of the circular economy is to curb the extraction of finite resources and to regenerate living systems — two strategies that support the preservation of biological diversity, but only if they are done right. 

No one framework or priority is intended to stand alone or address every problem in the world.

As companies champion the $7.7 trillion potential of the bioeconomy by 2030, a gradual move away from nonrenewable (and often petroleum-based) inputs has made manufacturers and materials scientists alike turn to bio-based materials as ideal inputs to more circular systems.

One example is the nuances of bioplastics, which are often produced through monoculture farming in deforested areas and use synthetic fertilizer. This actively decreases biodiversity and contributes to the 90 percent of biodiversity loss created by the way that we extract and process materials, fuels and food. 

I think the Dutch consultancy Circle Economy posed the question best: “You need biodiversity for a circular economy, but do you need a circular economy for biodiversity?” 

Personally, I don’t care. Connecting the dots between biodiversity and circularity isn’t necessarily additive, although it certainly can’t hurt.

Whether a company’s primary lens is sustainability, regeneration, net-zero, biodiversity, the circular economy or something else, what matters most is an aligned orientation of these solution sets to make sure we’re moving in the right direction. Neither the circular economy nor biodiversity preservation are ends unto themselves. These are means to move us towards a clean and resilient economy, equitable and prosperous communities and a healthy planet. 

No one framework or priority is intended to stand alone or address every problem in the world. 

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Economy

Biodiversity and the circular economy | Greenbiz – GreenBiz

Published

 on


Making its way to the top of global agendas and the bottom of balance sheets, biodiversity recently has risen through the ranks of planetary priorities. As a result, I’ve noticed a growing number of organizations calling to connect the dots between the circular economy and biodiversity, so I thought it worthwhile to consider their relationship — one that I instinctively felt to be a bit of a stretch. 

Although fundamentally aligned in their overlapping aims to address resource extraction, water scarcity, energy generation, toxicity and climate change, in practice circular economy strategies and biodiversity preservation seem to be one step removed. 

For example, repairing or reselling a pair of jeans does not directly preserve biodiversity. But done at scale, product life extension and keeping materials in use for as long as possible does reduce the need to extract the same quantity of natural resources, and therefore reduces the strain on our ecosystems. The same can be said for climate change mitigation, given that climate change contributes to 11 to 16 percent of biodiversity loss, and circular economy strategies can reduce carbon emissions

A central aim of the circular economy is to curb the extraction of finite resources and to regenerate living systems — two strategies that support the preservation of biological diversity, but only if they are done right. 

No one framework or priority is intended to stand alone or address every problem in the world.

As companies champion the $7.7 trillion potential of the bioeconomy by 2030, a gradual move away from nonrenewable (and often petroleum-based) inputs has made manufacturers and materials scientists alike turn to bio-based materials as ideal inputs to more circular systems.

One example is the nuances of bioplastics, which are often produced through monoculture farming in deforested areas and use synthetic fertilizer. This actively decreases biodiversity and contributes to the 90 percent of biodiversity loss created by the way that we extract and process materials, fuels and food. 

I think the Dutch consultancy Circle Economy posed the question best: “You need biodiversity for a circular economy, but do you need a circular economy for biodiversity?” 

Personally, I don’t care. Connecting the dots between biodiversity and circularity isn’t necessarily additive, although it certainly can’t hurt.

Whether a company’s primary lens is sustainability, regeneration, net-zero, biodiversity, the circular economy or something else, what matters most is an aligned orientation of these solution sets to make sure we’re moving in the right direction. Neither the circular economy nor biodiversity preservation are ends unto themselves. These are means to move us towards a clean and resilient economy, equitable and prosperous communities and a healthy planet. 

No one framework or priority is intended to stand alone or address every problem in the world. 

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US adds a strong 379000 jobs in hopeful sign for economy – constructconnect.com – Daily Commercial News

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WASHINGTON — U.S. employers added a robust 379,000 jobs last month, the most since October and a sign that the economy is strengthening as confirmed viral cases drop, consumers spend more and states and cities ease business restrictions.

The February gain marked a sharp pickup from the 166,000 jobs that were added in January and the loss of 306,000 in December. Yet it represents just a fraction of the roughly 9.6 million jobs that the economy needs to regain to return to pre-pandemic levels.

The pickup in hiring lowered the unemployment rate from 6.3 per cent to 6.2 per cent, the Labor Department said in its monthly jobs report. That is down dramatically from the 14.8 per cent jobless rate of April of last year, just after the virus erupted in the United States. But it’s well above the pre-pandemic unemployment rate of 3.5 per cent.

Stock prices surged on the news of solid job growth, a day after Wall Street suffered deep losses on fears that inflation and interest rates could soon be headed higher.

One year after the pandemic triggered a violent recession, economists are increasingly optimistic that hiring will accelerate in the coming months as Americans seize the opportunity to once again travel, shop, attend sporting events and visit movie theatres and restaurants. Households as a whole have accumulated a huge pile of savings after having slashed spending on those services. Much of that money is expected to be spent once most people feel comfortable about going out.

The report showed that the nation’s job growth is still being driven by a steady recovery of bars, restaurants and other leisure and hospitality establishments. Bars and restaurants, in particular, snapped back last month, adding 286,000 jobs as business restrictions eased in California and other states. That trend will likely continue as Texas joined some other states in announcing that it would fully reopen its economy with no restrictions.

Also hiring last month were retailers, which added 41,000 jobs, health care companies with 46,000 and manufacturers with 21,000. On the other hand, construction companies shed 61,000 jobs, likely in part because of the severe storms and power outages in Texas.

The strong jobs report, by suggesting that the economy is on the mend, could complicate President Joe Biden’s push for his $1.9 trillion economic rescue package, which is being considered by the Senate after winning approval in the House. The Biden package would provide, among other things, $1,400 checks to most adults, an additional $400 in weekly unemployment aid and another round of aid to small businesses.

One discouraging note in the February data is that last month’s net job growth came entirely from people who reported that their layoffs had been temporary. By contrast, the number of people who said their jobs were permanently gone was largely unchanged compared with January. People who have permanently lost jobs typically face a tougher time finding new work. In many cases, their former employers have gone out of business.

With so much money being pumped into the economy, Oxford Economics forecasts that growth will reach seven per cent for all of 2021, which would be the fastest calendar-year expansion since 1984. The Congressional Budget Office projects that the nation will add a substantial 6.2 million jobs this year, though that wouldn’t be nearly enough to restore employment to pre-pandemic levels.

Still, the size of the Biden relief package, coming as the economy is already showing improvement, has stoked fears that growth could overheat and accelerate inflation, sending borrowing costs up and possibly leading the Federal Reserve to jack up interest rates. Those fears have roiled financial markets for the past two weeks.

Fed Chair Jerome Powell sought to assuage those concerns – without success, based on sharp selloffs in the stock and bond markets – when he suggested that any meaningful rise in inflation would likely prove temporary and that the Fed would be in no hurry to raise its benchmark short-term rate.

Nor did Powell offer any hint that the Fed would act to push back against a surge in the yield on the 10-year Treasury note, which has jumped from about 0.9 per cent last year to 1.5 per cent. Still, Powell sounded some optimistic notes. Citing in part the increasing distribution and administering of coronavirus vaccines, he said, “There’s good reason to expect job creation to pick up in the coming months.”

Other recent economic reports have also suggested better times ahead. Americans sharply increased their spending at retail stores and restaurants in January, when the $600 relief checks were mostly distributed. Retail sales jumped 5.3 per cent, after three months of declines.

Factory output also picked up that month, and demand for long-lasting goods, such as autos and aircraft, rose 3.4 per cent, the government said last week.

Home sales have been on a tear for most of the past year, driven by low mortgage rates and the desire of many Americans for more space during the pandemic. A huge jump in the proportion of people working from home has also driven up sales, which were nearly 24 per cent higher in January than a year earlier.

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