recession

Wall Street Pay Jumps 5.7 Percent, Breaking Record

February 2, 2011

Wall Street pay is rising, while income for normal Americans has stagnated. Even as the real economy limped, financial firms paid employees a record sum last year, the Wall Street Journal reports. In 2009, the last full year data are available, average wages for Americans fell 1.5 percent from the previous year, according to the National Average Wage Index. Median household income in 2009 was “not statistically different” from 2008, according to the Census Bureau . But total pay at Wall Street firms rose 5.7 percent in 2010, as the 25 companies that have already reported results shelled out a record $135 billion. Even as regulators pressured firms to alter compensation, prominent executives got big pay bumps, seeming to suggest that the former Wall Street culture has emerged virtually unscathed from the recession. In the years leading up to the financial crisis, executives got bonuses based on their companies’ short-term performance, a phenomenon that experts say encouraged excessively risky behavior. When lawmakers drafted regulations for the financial sector, executive compensation became a crucial subject for reform. The stimulus act, passed in early 2009, contained rules limiting pay. But those rules have not worked, according to a December report from the Council of Institutional Investors. While some firms did decrease bonuses, they also raised base salaries to compensate. Even the new forms of pay — such as restricted stock, designed to align executives’ interests with those of shareholders — don’t effectively curb dangerous risk, the report found. Indeed, combined pay at the financial firms surveyed by the WSJ hit an all-time high last year. Despite concerns in recent months that firms were suffering from a decline in trading volume, revenue rose 1 percent to $417 billion, another all-time record. Meanwhile, the percentage of revenue that went into employees’ pockets climbed as well, from 31.1 percent in 2009 to 32.5 percent last year. The taxpayer bailout that firms received during the crisis has helped amplify Wall Street’s bottom lines . With hundreds of billions from the Troubled Asset Relief Program and other initiatives, the five biggest investment banks — Goldman Sachs, JPMorgan, Bank of America, Citigroup and Morgan Stanley — saw their revenues soar, Bloomberg News reported last year. As TARP has wound down, the Federal Reserve has launched a $600 billion asset-purchase program, intended to augment the flow of cash through the economy, which has also been a direct and indirect boon for the banks. As it buys U.S. government debt, the Fed announces its purchases ahead of time, giving certain banks an opportunity to profit on the trades.

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Robert Kuttner: Where’s the Protest at Home?

January 30, 2011

On Saturday, I crossed paths with a few hundred protesters marching from Cambridge to Boston to call for the resignation of Egyptian President Mubarak. By appearance, they were a mixture of Arab-Americans, locals, and people from assorted other backgrounds. The loud, peaceful march was almost startling, because you hardly see street protests in America these days, even in liberal Massachusetts. The Boston Globe quoted one Egyptian-American woman saying that middle class anger in Egypt has swelled with unemployment and inflation. “You can’t live a fairly decent life without being rich,” she said. In 2011, you might say the same about downwardly mobile America. But where are the protests in our country? Where is the leadership connecting the dots… between the financial meltdown, the record profits and bonuses on Wall Street, the continuing collapse of home equity, the joblessness, and the assault on public services in the name of budgetary prudence? For the moment, the small amount of citizen protest seems to belong to the Tea Parties. However, the Republican responses to President Obama’s State of the Union address showed a total vacuum of plausible remedies. Obama’s own address was a blend of this president at his best — invoking the aspirations that we share as Americans, some very nimble packaging of progressive themes in unassailable patriotic language — but combined with a fair amount of needless pandering to the right. As strategist Drew Westen parsed the speech at a recent conference of progressive Democratic legislators, some passages seized the political high ground and then defined it in a progressive way. We are the nation that put cars in driveways and computers in offices; the nation of Edison and the Wright brothers; of Google and Facebook. In America, innovation doesn’t just change our lives. It’s how we make a living. Our free-enterprise system is what drives innovation. But because it’s not always profitable for companies to invest in basic research, throughout history our government has provided cutting-edge scientists and inventors with the support that they need. That’s what planted the seeds for the Internet. That’s what helped make possible things like computer chips and GPS. ….. Our infrastructure used to be the best — but our lead has slipped. South Korean homes now have greater Internet access than we do. Countries in Europe and Russia invest more in their roads and railways than we do. China is building faster trains and newer airports. Meanwhile, when our own engineers graded our nation’s infrastructure, they gave us a “D.” We have to do better. America is the nation that built the transcontinental railroad, brought electricity to rural communities, and constructed the interstate highway system. The jobs created by these projects didn’t just come from laying down tracks or pavement. They came from businesses that opened near a town’s new train station or the new off-ramp. Pitch perfect. What logically follows from the president’s invoking of the history of American prosperity is a call for more public investment in 21st century infrastructure. This is not in-your-face partisanship, but the astute marketing of a progressive message and ideology that contrasts radically with the conservative one. But then the president said this: Now that the worst of the recession is over, we have to confront the fact that our government spends more than it takes in. That is not sustainable. Every day, families sacrifice to live within their means. They deserve a government that does the same. So tonight, I am proposing that starting this year, we freeze annual domestic spending for the next five years. This would reduce the deficit by more than $400 billion over the next decade and will bring discretionary spending to the lowest share of our economy since Dwight Eisenhower was president. This freeze will require painful cuts. Already, we have frozen the salaries of hard-working federal employees for the next two years. I’ve proposed cuts to things I care deeply about, like community action programs. My friend Westen was incredulous. Why would a Democrat give aid and comfort to a right wing ideology that is also wrongheaded economics? Why sacrifice Medicaid and programs for kids for the sins of the bankers? Why add fuel to the right’s attack on public employees? People watching the speech rightly wondered: How do you freeze domestic spending — and also dramatically increase outlay on 21st Century infrastructure? How do you win public support for more desperately needed public investment when you brag that you will reduce domestic spending to its lowest share of the economy since the Eisenhower years? In the 2008 election, people with incomes of under $50,000 supported Obama and the Democrats by wide margins. But the kind of mixed messaging in the president’s State of the Union address reinforces political anomalies such as the 2010 mid-term election, where white working class voters supported Republican House and Senate candidates by a staggering margin of 30 points. The administration’s mixed signals on aid to Wall Street are so potent that in the 2010 election, a majority of voters who blamed the collapse on Wall Street nonetheless voted for a Republican candidate for Congress. On January 17, the New York Times published a letter to the editor from a woman named Susan Kross, of upstate New York, praising governors for “reining in labor unions.” The shocker was her concluding paragraph. She wrote, “I was reared on a family farm where pennies were always pinched, every day was a workday, and there was no such thing as a pension or vacations, let alone paid ones.” Such is the state of ideological muddle and confused self-interest that a hard working rural, middle-class American could disdain pensions and paid vacations as unnecessary luxuries too good for working people. This woman’s family farm, if it has truly been in her family for generations, probably survived thanks to the New Deal. She gets her crops to market thanks to government-subsidized highways, and uses modern farming methods thanks to USDA. Her parents and grandparents, who benefited from Social Security, most likely did not share her contempt for pensions and paid vacations. This moment cries out for a combination of clear leadership and mass protest. The protesters shaking the foundations of despotic regimes in the Middle East are a blend of people who want radical Islam in temporary coalition with those who want western-style tolerance, democracy, and a semblance of honest and competent government. They are united only by their disgust with the corrupt status quo. But you have to admire them for acting on their frustrations. This wave of citizen protest is a reminder that insurgent moments can break out and spread with little warning. But you never know whether a genuine revolution from below leads to a Jefferson, a Mandela, a Havel, a Roosevelt — or a Hitler, Mussolini, or in current circumstances radical Islamists who reject everything secular, tolerant, and democratic about the Enlightenment. The United States may possess more than half of the world’s arms, but it is powerless to control this kind of popular uprising. As protest spreads and regimes that America propped up are toppled, we don’t know whether the successor governments will be pluralist Muslim democracies like Turkey and Indonesia, radical fundamentalist states like Iran, or military dictatorships. But half a century of American investment in strongmen like Mubarak to contain popular unrest is collapsing along with his regime, and US influence in the Middle East is very likely to decline. President Obama took office with more good will in the Middle East than any recent president, just as he kindled a new generation of hope at home. It remains to be seen whether his administration can credibly identify the United States with the aspirations of hundreds of millions of ordinary Arabs, and thereby nudge a turbulent region in the direction of tolerant democracy rather than fundamentalist rage. It also remains to be seen whether Obama can finally be the ally of drastic reform at home. If not, the domestic rage about the economy will continue to belong to the far right. It’s great to see Americans demonstrating in solidarity with ordinary Egyptians. But the next time I cross paths with a robust protest march, I’d like to see citizens protesting the wreckage of American prosperity by Wall Street and the too feeble response by our government. Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His latest book is A Presidency in Peril .

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Economic Growth Hits Pre-Recession Speed

January 29, 2011

U.S. economic output finally regained the level reached before the recession, as growth sped up on stronger consumer spending and exports. Gross domestic product–a broad measure of all goods and services produced–grew at a 3.2% annual rate in the fourth quarter, the government said Friday. That’s up from the 2.6% pace notched the quarter before and confirms the view held by many economists and stock-market investors that the economy is gaining enough momentum to start bringing down unemployment in the months ahead. The expansion in large part was fueled by a jump in consumer spending–a crucial change from earlier in the recovery, when growth relied heavily on businesses investing and building up inventories.

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Simon Johnson: Davos: Two Worlds, Ready or Not

January 29, 2011

On the fringes of the World Economic Forum meeting in Davos this week, there was plenty of substantive discussion — including about the dangers posed by our “too big to fail”/”too big to save” banks, the consequences of widening inequality (reinforced by persistent unemployment in some countries), and why the jobs picture in the U.S. looks so bad. But in the core keynote events and more generally around any kind of CEO-related interaction, such themes completely failed to resonate. There is, of course, variation in views across CEOs and the people work intellectual agendas on their behalf, but still the mood among this group was uniformly positive — it was hard to detect any note of serious concern. Many of the people who control the world’s largest corporations are quite comfortable with the status quo post-financial crisis. This makes sense for them — and poses a major problem for the rest of us.The thinking here is fairly obvious. The CEOs who provide the bedrock of financial support for Davos have mostly done well in the past few years. For the nonfinancial sector, there was a major scare in 2008-09; the disruption of credit was a big shock and dire consequences were feared. And for leaders of the financial sector this was more than an awkward moment — they stood accused, including by fellow CEOs at Davos in previous years, of incompetence, greed, and excessively capturing the state. But all of this, from a CEO perspective, is now behind them. Profits are good — this is the best bounce back on average in the post-war period; given that so many small companies are struggling, it is reasonable to infer that the big companies have done disproportionately well (perhaps because their smaller would-be competitors are still having more trouble accessing credit). Executive compensation at the largest firms will no doubt reflect this in the months and years ahead. In terms of public policy, the big players in the financial sector have prevailed — no responsible European, for example, can imagine a major bank being allowed to fail (in the sense of defaulting on any debt). And this government support for banks has translated into easier credit conditions for the major global corporations represented at Davos. The public policy issue of the day, from the point of view of such CEOs, is simple. There needs to be sufficient fiscal austerity to strengthen public balance sheets — so that states can more effectively stand behind their banks in the future, and to keep currencies from moving too much. Leading bankers, in particular, insisted on the paramount importance of providing unlimited government support to their sector during 2008-09; now they insist with equal or greater vigor that support to all other parts of society be curtailed. This is where cognitive dissonance creeps in. Most CEOs feel that the provision of general public goods is not their responsibility, although they are very happy to help guide (or capture) the provision of public goods specific to their firm. But it is reckless decisions by some in the financial sector that produced the crisis and recession — this is what accounts for the 40 percent of GDP increase in net government debt held by the private sector in the United States (to be clear: it’s the recession and mostly the consequent loss of tax revenue). And CEOs are happy to lead the charge both against raising taxes and in favor of deficit reduction. This adds up to public goods being weak and so much under pressure around the world. No one can put significant resources to work helping to bring down unemployment. No one is seriously addressing the loss of skills faced by the long-term unemployed. No one is offering real resources to help improve education for lower-income children or adults who did not finish high school. Self-anointed “fiscal conservatives” claim the budget issues we face are all about discretionary nonmilitary spending. This is nonsense. The U.S. faces an incipient fiscal crisis (a) in the shorter term, because of what the big banks did and what they are likely to do in the future, and (b) over the next few decades, if we fail to control rising health care costs (both in general and as funded by government budgets). The gap between the CEOs’ world and the real world should be bridged by the official sector. But where are the politicians and government officials who can explain what we need and why? Who can confront the CEOs in the highest profile public forums, and push them on the social responsibility broadly defined? The biggest disappointment at Davos was not the attitude of the corporate sector; these people are just doing their jobs (as they see it). To the extent the U.S. or eurozone official sector showed up at all, it continued to demonstrate the deepest levels of intellectual capture. The reasoning seems to be: As long as we do what the big banks and big firms want, everything will turn out all right. There was zero high-profile public debate at Davos this week on anything related to this way of seeing the world. Corporate Davos was borderline exuberant. Even if a deeper crisis looms, does the global business elite really care? This post originally appeared on The Baseline Scenario .

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Dan Dorfman: Lurking Oil Shock Could Wreak Havoc

January 29, 2011

After reading in a local paper that he had died, a very live Mark Twain emphatically denied it, uttering that now famous quote: “The reports of my death are greatly exaggerated.” It may be the same thing can be said about our most recent recession, which, given the onset of a peppier economy, is widely believed to have gone the way of the black-and-white TV set. Maybe so, but then again, maybe no because some economic watchers point to a developing trend that suggests another recession is lurking in the wings. Sure, we all know the obvious recessionary dangers, such as the renewed downturn in housing, which will precipitate an accelerated rate of foreclosures, the prospects of a wave of new layoffs by financially-strapped state and local governments and the ongoing, high 9.4 percent jobless rate, which, at best, is expected to show only a minimal improvement this year. None of these, however, fit the bill for the new recession reason being referred to here. This one centers on an emerging risk — the ballooning price of oil — which is rearing its ugly head as a potential new and dangerous economic threat. The facts speak for themselves. According to knowledgeable energy industry trackers, 10 of the past 11 recessions since World War II can be directly linked to oil shocks or sharply higher oil prices. The very same can be said about six of the last seven recessions since 1973. On top of this, I recently read in a Florida newsletter, Strategic Investment, that one energy expert, Steven Kopits, the managing director of Douglas-Westwood LLC, a leading provider of business research and analysis on global energy services sectors, has shown that the U.S. economy reliably sinks into a recession when spending on oil and gasoline exceeds 4 percent of GDP, as it will do with oil at $90 a barrel. Every driver will tell you they’re getting beaten up at the gas pump in the wake of a sharply rising price per barrel of oil (now at around $89), which has more than doubled from its March-April 2009 trading range of about $40. As Oppenheimer & Co.’s well-regarded energy analyst Fadel Gheit explains it to me, every $1/a barrel rise in the price of oil is equivalent to about a $0.2 to $0.3-a gallon hike at the pump. That may not seem like a lot, but it is if you look at it on a broader scale, what with every penny boost at the pump draining an estimated $1.5 billion out of household cash flow. So where are oil prices headed this year following a 2010 close of $91.48? Gheit figures a realistic 2011 range is between $75 and $100 a barrel, but he doesn’t rule out a higher level, say between $90 and $100, due to a weaker dollar, inflation fears, the threat of global disruptions and brisk fund trading in oil, among them hedge and pension funds. He’s quick to note, though, that such price ranges are not supported by supply-demand factors, what with an abundance of available supply, most noteworthy 5 million barrels a day of spare capacity in Saudi Arabia. Moreover, he points out, every one, thanks to research breakthroughs and research and development, is becoming more energy efficient. About 10-15 years ago, he points out, we got 10 to 15 miles a gallon, now we’re getting 25 miles a gallon, and in 5-10 years it’ll probably be double that. In other words, he says, we’re all going to get a bigger bang for the buck. Getting back to the risk of an oil-related recession, a number of economists see it as a real potential danger that could precipitate recessionary pressures. One of them is Madeline Schnapp, the economist at West Coast-based TrimTabs Research, who recently griped to me that it cost $75 to fill up her SUV. In her neck of the woods, she says, the average price of gas has risen from $2.90 to $3.40 a gallon, which she calculates is a $60 million tax on consumption nationally. “We’re talking about an economic hardship,” says. “The more you spend on energy, the less discretionary income.” Although we’re right around that recession-producing $90 a barrel, Kopits, for one, doubts we’ll see a recession at current oil prices, given the current phase of recovery. But he does see the high price as an economic drag by slowing the rehiring of millions unemployed here and reducing consumption. As of now, Kopits thinks the U.S. can tolerate current prices, but he does see a “substantial risk” of a recession should oil rise to the $100-$120 range. Whether such a range could be in the cards is anybody’s guess, but one could certainly view higher prices as probable, given Kopits’ observations that consumption estimates for 2011 are too low by about a half, conspicuously so because of the increased demand he expects from China, an increase in this year’s demand by about two million barrels a day, mostly from emerging nations, and flat overall supply. Against this background, our Energy Information Association expects world demand to climb 1,47 million barrels per day this year to 86.65 million barrels per day, another catalyst for higher prices. An unanswered question is the impact of the riots in Egypt on the price of oil, which has already risen somewhat on that chaotic situation. The longer it lasts the higher the price of oil will go, observes one commodities trader. Kopits sketches a worrisome 2012, noting if the 2012 supply situation looks like 2011′s, then we’ll run out of capacity next year. Historically, he adds, when demand outstrips all supply, that leads to an oil shock, which, in 2012, could be similar, he believes, to the one we experienced in 2008. In July of that year, crude rose to an-all-time high of $147.27 a barrel. If he’s right — and that’s a big if — such an oil shock could be pretty devastating. Among other things, it could well set the stage for a double-dip recession, establish a widespread price of $4 a gallon at the pump, possibly lead to some airline bankruptcies and open the door to a price of triple-digit a-barrel crude, which could be chaotic for corporate earnings, especially those of transportation companies. What do you think? E-mail me at Dandordan@aol.com.

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Microsoft Earnings Edge Down On Slow PC Sales

January 27, 2011

SEATTLE — Microsoft Corp. said Thursday that its net income for the latest quarter fell slightly from a year ago, and it beat Wall Street’s expectations despite the weak personal computer market. Sales of Office 2010 to consumers and businesses buoyed the results, as did the popularity of Kinect, Microsoft’s new motion-sensing controller for the Xbox 360 video game system. Microsoft’s net income for the October-December quarter was $6.63 billion, compared with $6.66 billion in the same period last year. Thanks to stock buybacks, its net income rose to 77 cents per share, from 74 cents. Analysts surveyed by FactSet were expecting net income of 69 cents per share for the fiscal second quarter. Much of Microsoft’s business depends on selling copies of the Windows operating system and Office desktop software, products that usually rise and fall with fluctuations in the personal computer market. Microsoft launched Windows 7 in the same quarter of 2009, making for a tough comparison. Revenue plunged 30 percent in the Windows division to $5.1 billion. Worldwide personal computer shipments only grew about 3 percent in the latest quarter, as Apple Inc.’s iPad and the promise of more tablet devices to come made consumers think twice about what kind of device to buy. However, the division that sells Office software and other programs saw revenue rise 24 percent to $6 billion. Big companies that put off buying new technology during the worst of the recession are more willing now to upgrade their systems. Microsoft said the division’s revenue from businesses rose 18 percent while revenue from consumers jumped 49 percent, both because of sales of Office 2010. Strength in the entertainment and devices division, which is responsible for Xbox 360, also helped make up for weak Windows sales. Microsoft says it sold 8 million Kinect controllers, helping push revenue for the segment up 55 percent to $3.7 billion. In all, Microsoft’s revenue edged up 5 percent to $20 billion, topping analysts’ expectations for $19.2 billion in revenue. The software maker rushed out its earnings report a few minutes early, just before the markets closed for the day. Shares spiked to more than $29 per share in heavy trading about 15 minutes before the closing bell, before dropping back to $28.87, a 9 cent gain for the day. They slipped 16 cents to $28.71 in extended trading. “A preproduction draft of our earnings release was discovered by one or more media sources who then published our results to the Web before market close,” Bill Koefoed, Microsoft’s general manager of investor relations, said in a statement. Microsoft posted its official numbers after consulting with the Nasdaq stock market, he said. The company is reviewing its procedures to avoid a repeat of the earnings leak. This has happened before to other companies, including The Walt Disney Co. last year. A reporter accessed the quarterly report by guessing the Web address Disney would use before the information was made public, based on the pattern used in past quarters. Microsoft did not immediately say whether the media used a similar tactic to obtain the early results. Despite a successful holiday season for Kinect, Microsoft still needs to prove it is heading in the right direction in areas where it currently lags behind market leaders. Thursday’s report included a wider loss in the online division, which is mostly made up of online advertising. Google Inc., which makes almost all of its money from online advertising, saw its earnings in the same period rise 29 percent to $2.5 billion. Devices running a new smart phone system, Windows Phone 7, went on sale during the quarter, but in its quarterly filing with the Securities and Exchange Commission, Microsoft did not mention its contribution to the entertainment and devices division, which also houses Xbox.

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Bouncing Hard Along the Bottom: Bankers’ Eye View of CRE

January 27, 2011

The nation’s banks, while still clearly unenthusiastic about commercial real estate, are finally acknowledging that CRE markets have hit a hard rocky bottom. A handful even says they are re-loaded and ready to resume lending. That is largely the view expressed in fourth quarter bank earnings statements and conference calls, including the nation’s nine largest banks. While their comments anecdotally substantiate that the worst of the recession for…

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Russia To Come Out of Recession by 2012

January 23, 2011

Russia To Come Out of Recession by 2012

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Richard L. Revesz and Michael A. Livermore: Obama’s Executive Order: Olive Branch to Whom?

January 20, 2011

Tuesday’s news of a new executive order on regulatory review was not welcomed by some progressives. President Obama announced his move in a Wall Street Journal op-ed , and it was widely perceived as an olive branch to regulated businesses. But in its substance, the order mostly boosts the case for a strong government hand in protecting the public from the negative consequences of the free market. The timing of the president’s actions is important, and has played a big role in how they’ve been received. Employment growth has lagged the economic recovery and there is massive ground to make up for jobs lost during the recession. After the mid-term election shellacking of the Democratic Party, many Washington insiders are looking for a rightward tack by the administration. But while the President certainly did make some rhetorical concessions in his op-ed that recognized that regulation can have its downsides (like the now-infamous saccharine example ), the substance of the order, and the president’s reaffirmation of the need for regulation at a time like this, show a deep commitment to an aggressive agenda of agency regulation. In fact, there are several important new changes in the order that respond to long-sought-after demands from progressives. There are beefed up public participation requirements, including a requirement for better use of the Internet to engage the public. In a separate presidential memorandum, Obama creates a system to significantly increase the transparency of agency enforcement, which is where the rubber meets the road for all regulatory programs. This transparency will give public interest groups the tools they need to ensure that the rules on the books actually have the bite of an agency watchdog. There is also new language added to the order that encourages agencies to take into account “equity, human dignity, fairness, and distributive impacts.” While it is too soon to say exactly how that will play out in practice, it gives advocates a hook to go to agencies and push for programs that help the most vulnerable members of society. Perhaps the most important piece of the new order, and the subject that has gotten the most attention, is a requirement for agencies to conduct “retrospective analysis.” This analysis has been called for from both sides of the political spectrum, but importantly, the Obama order requires agencies to look both at “excessively burdensome” and “insufficient” rules — directing agencies to identify areas where rule could be eliminated, but also strengthened. At a time of deep economic crisis, a call to increase regulatory stringency should help alleviate fears that the administration is backing away from its track record of strong protections. The order is definitely a compromise, like pretty much everything that happens in government. In addition to these largely progressive reforms, the president is requiring agencies to conduct special analysis for small businesses that could encourage agencies to write permissive loopholes into new rules. In some cases, small business exemptions might make sense, but this process gives an unjustified precedence to a particular group. Better would have been to expand the section on distributional analysis into a more detailed and systematic procedure, which could take small business impacts into account, as well as other important factors like how rule affect low-income or minority communities. But overall, the order is a solid step forward in the direction of more balanced review. If progressives want to find evidence that the Administration is changing its tune, they will have to look elsewhere (for example, recent moves by EPA to delay important rulemakings on hazardous air pollutants). On this executive order, the olive branch offered to industry is more likely to bear fruit for the public interest in the long term.

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Analyst: Credit Card Problems As Low As We’ve Ever Seen In December

January 18, 2011

NEW YORK — Fewer credit card accounts slipped into default in December than in any other month of 2010, and signs point to further improvement ahead. All six of the biggest card issuers Tuesday posted their lowest rates for charge-offs, or accounts written off as uncollectible. Citibank, which has had some of the highest charge-off rates over the past two years, posted the biggest decline. It wrote off 8.34 percent of its card balances in December, down from 9.4 percent in November and well below the high of 11.55 percent posted in March. Discover, Chase and Capital One also reported substantial declines. While the rates of balances companies wrote off declined consistently throughout the year, they remain high by historical standards. “There are some good improvements,” said Mike Dean, a managing director with Fitch Ratings. Fitch’s charge-off index, which tracks the industry, remains near record levels, he said. “We’ve seen some better numbers there, but nothing to say, ‘Wow!’” Dean said he expects charge-off rates to continue improving, but noted that the defaults are “highly correlated” to the unemployment rate. With the jobless rate is forecast to remain high throughout the year, it is difficult to predict when charge-offs will return to normal levels, said Jeff Hibbs, an analyst with Moody’s Investors Service. Industry wide, the charge-off rate peaked in the second quarter of last year at 10.37 percent of balances, according to the latest data from the Federal Reserve. In the two years prior to the recession, it averaged 3.82 percent, Fed records show. Credit card debt has been dropping the last two years, reflecting a combination of factors, including individuals paying down balances and credit card companies cutting the amount of available credit and writing off what they can’t collect. The elimination of many card users who could not pay their bills from the pool of borrowers through charge-offs is one reason for the lower charge-off rates. Hibbs said that the customers who have been able to keep paying their bills despite the downturn and the spike in unemployment have proven they are trustworthy borrowers. “Those left have exhibited a great deal of resilience to this stress,” Hibbs said. “They withstood the depths of the last three years.” Card companies have tightened lending standards, so people who lost access to credit during the recession have not been able to get new cards. Fed data shows that in November, total revolving debt held by U.S. consumers – which is mostly credit cards – fell to $796.5 billion. That’s about 18.5 percent below the record high reached in the third quarter of 2008, and the lowest point since September 2004. Credit reporting agency TransUnion has estimated as many as 8 million former credit card users no longer have cards, either by choice or because their banks cut their credit lines. Reflecting the strong positions that remaining credit card borrowers are in, December rates for payments late by 30 days or more also reached annual lows for all six top card issuers. That figure, also known as the delinquency rate, is considered a precursor for future defaults. “The numbers this month are as low as we have ever seen them,” Hibbs said. “That’s a strong indicator that charge-offs will continue to move steadily lower.” All issuers are participating in the industry-wide improvement, he added, noting that the first part of the year is typically the best for credit card payments, because consumers frequently use tax returns to catch up on overdue bills.

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Retail Sales Rise For The Sixth Month In A Row

January 15, 2011

Despite Federal Reserve chairman Ben Bernanke’s expectations of only moderate economic growth this year, Americans are less worried about losing their jobs and more willing to spend money . This change in attitude is reflected in the numbers. The Commerce Department reported that retail sales were up in December, the sixth month in a row, making for the strongest holiday sales retailers have seen in recent years. Sales rose 0.6 percent last month to $381 billion, lifting sales for the year by the largest amount in more than a decade. Speaking to the Senate Budget Committee last week Ben Bernanke expressed the hope that “a self-sustaining recovery in consumer and business spending may be taking hold.” Despite the private sector adding 113,000 last month and 50,000 jobs in November, Chris Christopher, the IHS Global Insight economist who conducted the analysis, expects the unemployment rate, currently 9.4 percent, to remain above 9 percent in 2011. “Businesses are hiring people, but they’re not hiring them at a fast enough rate because they’re waiting to see consumer spending increase more. They’re still a little hesitant,” Christopher said. Consumers are hesitant, too, according to Scott Hoyt, Senior Director of Consumer Economics at Moody’s Analytics . “There’s an abundance of evidence that consumers are being more conscious of their spending, certainly in comparison to before the recession,” he said. Bernanke expects this cycle of hesitance to continue impacting the economy for years to come. “It could take four to five more years for the job market to normalize fully,” he told the Senate Budget Committee. The increase in retail sales came mainly from auto dealerships, gas stations (because of price hikes, not increased demand), building material stores and health stores. Online and mail order retailers, as well as gardening and furniture businesses, did surprisingly well. Retail sales for department stores fell 1.6 percent in December after jumping 2.9 percent in November, according to IHS Global Insight’s analysis. This drop in December may have been the result of the desperate measures some stores took to attract consumers in previous months with Walmart, Gap and Sears staying open on Thanksgiving Day and luxury retailer Neiman Marcus , known for their hefty price tags, opened bargain outlets.

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AP: Year Ahead Looms As Toughest Yet For State Budgets

January 15, 2011

SACRAMENTO, Calif. — If 2011 is hinting at a national recovery, there is little sign of it in statehouses across the country. States that already have raided their reserve funds, relied on borrowing or accounting gimmicks, and imposed deep cuts on schools, parks and public transit systems no longer can protect key services in the face of another round of multibillion dollar deficits. As governors roll out their budget proposals and legislatures convene this month, they do so amid a sputtering economic recovery and predictions of slow growth for years to come. State and local governments face lackluster revenue projections, worries from Wall Street over looming debt and the end of federal stimulus spending. In the first weeks of 2011, Republican and Democratic governors alike have begun detailing across-the-board pain for education, health care, transportation, public safety and other programs. Some say the year of reckoning for state and local governments is at hand, with calls for structural changes that could radically shift expectations of what services government provides. Many believe the months ahead will be the most challenging in memory, with consequences for millions who depend on government funding. “We need to send a message to the governor: We’re real, and we depend on all these services,” said Sergio Garibay, a 41-year-old Southern California resident who relies on state disability payments and recently protested deep cuts to Medi-Cal programs proposed by California Gov. Jerry Brown. “There are other alternatives to the budget. Why don’t we tax the rich, these corporations?” In releasing his budget proposal, Brown told California lawmakers “the year ahead will demand courage and sacrifice” as the state faces a deficit projected to hit $25.4 billion over the next 18 months. His proposal combines spending cuts to Medi-Cal, in-home services for the elderly and higher education with a five-year extension of income, sales and vehicle taxes. New York Gov. Andrew Cuomo proposed eliminating 20 percent of state agencies by combining duties, such as merging the Insurance Department, Banking Department and the Consumer Protection Board into the Department of Financial Regulation. It’s part of “radical reform” to pull his state out of its fiscal crisis. And Gov. Chris Christie in New Jersey skipped a $3.1 billion payment to the state’s pension system in a push to cut benefits for public workers, while proposing higher employee contributions and a boost in the retirement age from 62 to 65. In Illinois, lawmakers voted for a dramatic 66 percent hike in personal income tax, from 3 percent to 5 percent, in a bid to resolve a $15 billion deficit, which amounts to more than half of the state’s entire general fund. The tax increase will be coupled with strict 2 percent limits on spending growth. “It’s important for their state government not to be a fiscal basket case,” Gov. Pat Quinn in defending the major tax hike. And on and on it goes: _ In oil-rich Texas, where education and social service spending is relatively low and Republican Gov. Rick Perry has railed against government spending, hard times are looming. The shortfall is projected to be between $15 billion and $27 billion over the coming two-year budget cycle. _ In South Carolina, outgoing Gov. Mark Sanford has proposed a spending plan that would end funding for museum and arts programs, slash college funding and give many state employees a 5 percent pay cut. _ In Georgia, deep cuts appear to await the state’s popular HOPE scholarship program that provides public college tuition to students who earn good grades. Rising tuition and enrollment have outpaced the lottery revenues that fund the program and Gov. Nathan Deal has not proposed any additional state money to bail it out. Even as tax revenue in many states shows signs of a rebound, states are expected to collect 6.5 percent less than they did in 2008, according to the National Association of State Budget Officers. And any revenue gains could be more than offset by the expected loss of federal stimulus money. Most of the $814 billion stimulus program was designed to help states provide essential services and give a boost to the economy, but will start to run out this summer. A new round of stimulus funding is unlikely with Republicans controlling one house of Congress. Top GOP lawmakers say they will try to provide states with relief by reducing mandated programs, not by giving them more money. “States came into this recession with relatively large rainy day funds. Now that states have done the accounting gimmicks and the relatively easier stuff, each year gets harder and harder because those one-time things are gone,” said Nicholas Johnson, director of the state fiscal project at the Center for Budget and Policy Priorities, a think tank in Washington, D.C. Despite lower tax revenue since the recession began, the level of service expected from state and local governments remains, often creating a disconnect between public perception and the reality of the fiscal crisis confronting elected officials. Public schools face rising enrollments, more people are seeking government health care because they have lost jobs or their employers have dropped coverage, and millions of those thrown out of work are receiving unemployment checks. One possible solution is revising tax structures, even with an anti-tax mood persisting across much of the nation. In Georgia, some lawmakers are considering a 4 percent state sales tax on groceries and boosting the tax on cigarettes as part of an overhaul of the state’s outdated tax code. The increases would be paired with reductions in the personal and corporate income taxes. But any proposal for tax increases will run into opposition from Republicans, who were swept into office in large numbers last fall on a message of reducing the size and reach of government. Republicans picked up 690 state legislative seats Nov. 2 – the largest shift since 1966, according to data compiled by the national legislative group. The GOP now controls both chambers of the state legislature as well as the governorship in 21 states. “When you’ve got an unemployment rate at 10 percent, I don’t think that’s a good time for us to tell Georgians that we need more of their money,” Georgia House Speaker David Ralston said. “I’m going to resist that again this year.” As states struggle to balance their books, Wall Street is watching rising debt burdens, although analysts so far have not sounded many alarms. Federal law does not allow states to file for bankruptcy protection, but states can default on their debt if their financial condition worsens considerably. That move is extremely rare. Arkansas was the last state to default on its debt payments, a move it took during the Great Depression. Moody’s predicts that no state government will default on its debt in 2011. Moody’s Managing Director, Naomi Richman, said states generally borrow for long-term infrastructure projects. They don’t usually borrow to pay debt and fund operating budgets. Those that have, including California, Illinois and Arizona, already have been penalized with low credit ratings, which increases their borrowing costs. It’s possible, however, that more cash-strapped cities and counties could seek bailouts from states, as Harrisburg sought help from the commonwealth of Pennsylvania. “I think you’re more likely to see it cascade up, rather than down,” said Steve Malanga, a senior fellow at the Manhattan Institute, during a discussion about state budgets at George Mason University. Kail Padgitt, an economist with the nonpartisan, nonprofit Tax Foundation, said the states with the greatest concerns about their fiscal health are those with costly public employee pensions that are underfunded. Many public pension systems use overly optimistic rates of return and do not provide a true, long-term cost to taxpayers. Padgitt cited a recent study by the Pew Center on the States that found states face a $1 trillion funding shortfall in public-sector retirement benefits, but said that likely underestimate the problem. “The long-term outlook is quite bad,” Padgitt said unless states begin to make pension reforms. Matt Hanson, 50, a civil engineer who has worked for California’s transportation department for 22 years, said he understands that public pension systems could use adjustments but he believes pensions are fundamentally sound. For example, he said he’s open to contributing more to cover retiree health care costs, which have been rising. “If there’s some shared pain that has to be felt than I want it to be constructive,” Hanson said. “There’s a difference between going out for a run and feeling pain right after – at least you’ll be in better shape in the long run, rather than hitting your hand with a hammer. Pain for pain’s sake doesn’t make a lot of sense.” ____ McCaffrey reported from Atlanta. Associated Press writer Robert Jablon in Los Angeles contributed to this report.

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Bryce Covert: Detroit: An American Ghetto Where a House Costs Less Than a Car

January 12, 2011

Cross-posted from New Deal 2.0 . Detroit’s history tells the story of the rise of manufacturing and economic prowess in the US. It is the story of the American middle class, built on the back of a booming industrial sector. But today it’s become an omen of the struggles for middle- and lower-class Americans and the manufacturing jobs they once relied on. And the city itself is turning into a ghetto. Convenient to transportation on rivers and rail, Detroit became a hub of industry as far back as the late 1800s, leading to a nouveau riche class of wealthy industrialists. But its real claim to fame would come when Henry Ford piggybacked on the city’s established carriage trade and built his first car manufacturing plant in 1899. Ford was the epitome of an American self-made man — the son of an immigrant farmer who left to apprentice with a machinist and go on to become an engineer and an industrialist. Soon after Ford’s plant opened up, GM, Chrysler and American Motors would follow suit, and the city quickly became the world’s car capital. The booming automobile industry sucked in labor, and the city’s ranks swelled from 265,000 in 1900 to over 1.5 million in 1930. With the workers — who came from the South as well as Europe — came labor disputes and the rise of union activism. It became the fourth largest city in the country. This period was the city’s gilded age, during which skyscrapers, mansions, and historic buildings all cropped up, as well as apartment buildings aimed at middle class workers from the factories. This was the American Dream. Now look at the city today: it is literally falling apart. It has shed roughly 1 million residents since the 1950s, and as the 2010 census showed Michigan was the only state to lose population, some analysts estimated that it would also show a drop to 150,000 people living in Detroit, down from 951,000 in 2000. The median price of a home sold in Detroit in 2008 was $7,500 — less than the price of a car — and the proportion of vacant homes to occupied ones almost tripled since 1999 to 28%. The city’s unemployment rate just fell , but from a dismal 13.3% to a still-pretty-dismal 12%. Median household income dropped nearly 25% to $28,730 between 1999-2008. The auto crisis allowed the big car companies to force two-tier payment systems in GM and Chrysler plants and labor’s influence is taking a huge blow in the recession. And those beautiful buildings built with booming auto profits lie in shambles, which look straight off the set of a post-apocalyptic movie. (I highly recommend clicking through and taking in these devastating, striking photos .) Sign up for weekly ND20 highlights, mind-blowing stats, event alerts, and reading/film/music recs. Living in this city is tantamount to living in a lawless state. Just ask Johnette Barham , who stuck it out through more than 10 burglaries and break-ins before her place and most of what she owned were torched. “I was constantly being targeted in a way I couldn’t predict, in a way that couldn’t be controlled by the police,” she told the WSJ . The empty houses that surround her can no longer act as a buffer against crime, and she and many other middle-class people are fleeing the city in droves. Wealthy neighborhoods have resorted to hiring private security firms to police their streets. Why? The Detroit Police Department is down about 700 officers, according to Warren Evans, who was appointed police chief in July 2009. There’s no one he can send to take care of crimes like petty theft when they’re working round the clock to bring down homicide rates. It’s not just the police force that’s feeling the pain from budget cuts. As fires raged through the city in September, which destroyed 85 homes and structures, the level of damage was directly connected to cutbacks. They’ve led to 8-12 fire company “brown outs” each day, meaning the companies are temporarily unavailable to fight fires, and one of the decommissioned stations was reported to be closest to a neighborhood that went up in flames. The city’s public school system is considering a GM-style restructuring to deal with its $327 million deficit and avoid bankruptcy. As Mayor Dave Bing grapples with the city’s $300 million budget gap, he’s looking to cut services in the emptier parts of town in an effort to shrink the city, which means many areas will be left without basic services such as water and sewage. On top of the cuts at the city and state level, cuts at the federal level also imperil Detroit’s economy — take Defense Secretary Robert Gates’ recent announcement to cut the defense budget, which will mean layoffs in Michigan defense companies. Not to mention that just Friday Ben Bernanke said the Federal Reserve won’t be helping out any state or local governments saddled with debt. All of these trends are likely to continue or worsen as the recession drags on and cutting budgets and services is in vogue. And while Detroit’s troubles are gruesome, it’s not the only city in America that’s falling to shambles. Take Baltimore. Roosevelt Institute Senior Fellow Tom Ferguson recently took to the city’s streets to explain how it’s caught in a housing Catch-22. When cheap loans pushed on the population went sour, they brought down many communities’ housing prices, and now without a steady tax base no one is interested in making loans to a city that is desperate for funds. It’s no wonder Ferguson tells this story outside boarded up houses. And it’s no wonder that images of Detroit ended up on a blog called Ghetto America . Once our pride and joy, Detroit now reminds us of how far off track our economy has gone and how downtrodden the middle class is. As Roosevelt Institute Senior Fellow Rob Johnson said to me: Detroit is the canary in the coalmine of America’s harsh, unbridled economic adjustment. It can happen anywhere with a violence and swiftness that is only tolerated by suppressing these horrid images and neglecting the human consequences. Such an unnecessary loss of grand creations.

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AP Analysis: Jobs Crisis Still Strong, Economy Will Continue Struggling

January 12, 2011

Higher unemployment and foreclosure rates, especially in South Atlantic and Mountain states, raised the nation’s economic stress in November, according to The Associated Press’ monthly analysis. One month after economic stress reached an 18-month low nationally, it rose in three-quarters of the 3,141 counties the AP analyzed and in 39 states. Unemployment and foreclosures edged up in more than two-thirds of the states. Bankruptcies rose in half the states. Florida, in particular, is struggling. Its recovery has lagged behind those of other states that were also ravaged by the housing bust, such as Arizona and California, because Florida’s economy is less diversified. And Colorado, Idaho and other Mountain states have suffered from a loss of drilling, tourism and construction jobs. The AP’s index calculates a score from 1 to 100 based on unemployment, foreclosure and bankruptcy rates. A higher score signals more stress. Under a rough rule of thumb, a county is considered stressed when its score exceeds 11. The average county’s score in November was 10.3, up from 9.9 in October. It was the highest reading since August’s 10.3 score. Nearly 40 percent of the nation’s counties were deemed stressed, up from a little more than one-third in October. Nationally, the unemployment rate ticked up to 9.8 percent in November from 9.7 percent in October. In December, the rate slipped to 9.4 percent. For all of 2010, the economy added about 1.1 million jobs – far fewer than are normally created after a severe recession. Many economists expect twice as many net jobs to be created this year. But most think the unemployment rate will remain around 9 percent by year’s end. Federal Reserve Chairman Ben Bernanke said last week that it could take up to five years for unemployment to drop to a historically normal rate of around 6 percent. States that were hit especially hard when the real estate bubble burst – California, Florida, Arizona and Nevada – will likely continue to suffer. A big reason is the loss of construction jobs that aren’t coming back. “We are not looking for a big bounceback,” says David Wyss, chief economist at Standard & Poor’s in New York. Nevada has been stuck with the highest monthly Stress score since it surpassed Michigan in March 2008. The AP index dates to October 2007. In November, economic pain worsened in Nevada, which posted a score of 21.96. Nevada was followed by Florida (17.14) and California (16.42). Rounding out the five-most-stressed states, Michigan (14.83) and Arizona (14.6) saw some easing of economic distress. North Dakota (4.05) was again the least-stressed state in November. It was followed by South Dakota (5.17), Nebraska (5.27), Vermont (6.29) and New Hampshire (7.11). But all the healthiest states except Nebraska suffered higher stress from October to November. Over the past three months, Florida has endured the sharpest increase in economic pain. It surpassed California and Michigan to become the second-most-stressed state based on the AP’s index. Florida also has suffered the third-sharpest increase in stress over the past 12 months, exceeded only by the Mountain states of Colorado and Utah. “It’s the housing crisis, combined with a lack of manufacturing and other industries,” David Denslow, a University of Florida economist, says of the state’s troubles. Colorado, Idaho and other Mountain states fell into recession later than much of the country did, once mining and construction jobs evaporated, tourism fell and their second-home markets fizzled. “Late in, late out,” says Richard Wobbekind, an economist at the University of Colorado at Boulder. “We haven’t seen the pickup yet.” Fewer people migrating to Idaho, for example, led to a drop of more than 21,000 construction jobs, says Bob Fick, a spokesman for Idaho’s Labor Department. Other industries, such as electronics manufacturing, also suffered losses from the recession. Their troubles contributed to a nearly 6 percent drop in Idaho’s employed work force over the past three years. “In 2007, when everything was starting to look like there was a recession, we still had Californians up here buying houses like it was nobody’s business,” Fick says. “The bottom didn’t really fall out until later.” Counties with heavy concentrations of workers in hotel and food services and real estate endured the sharpest increases in stress in November. Among those with at least 25,000 residents, Imperial County, Calif. (33.15) fared worst. Next were Yuma County, Ariz. (26.91); Lyon County, Nev. (26.75); Nye County, Nev. (25.21); and Yuba County, Calif. (24.18). By contrast, stress declined the most in counties with many workers in wholesale trade, transportation, financial services, insurance and support jobs. Ward County, N.D. (3.29) was deemed healthiest in November. It was followed by Sioux County, Iowa (3.71); Buffalo County, Neb. (3.74); Brown County, S.D. (3.96); and Brookings County, S.D. (3.98). ___ Schneider reported from Orlando, Fla., Crutsinger from Washington.

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Dan Dorfman: The Jobs lost in the Great Recession May Return… By 2018

January 9, 2011

The charade in the bloodied jobs market just won’t quit. That’s the growing contention–strongly promoted by the White House and Wall Street–that the employment picture is on the verge of taking a decided turn for the better and that it’s only a matter of time, thanks to a peppier economy and government stimulus, before the roughly 8.5 million jobs lost during the recent recession will be restored. Friday’s bum employment news–the creation of only 103,000 new jobs in December, nearly 50% lower than the generally expected 150,000–was an unmistakable sign to the contrary, namely that the folks holding such exuberant job expectations are not doing it with a full deck. The key reason: The economy, though on the way back and gnawing away at unemployment, is by no means ready to transition into robust growth. Nor is Corporate America, though sitting with oodles of cash on their balance sheets (about $2 trillion) in a gradually improving economy, ready to commit to more aggressive hiring on a national level. Nor, for that matter, are banks, whose death rate continues at brisk pace (157 failures in 2010, the highest number since 1992), and saddled with a lofty level of overly stated assets, especially in real estate, ready to offer an abundance of cash to would-be buyers to speed up the recovery, in turn leading to more job creations. So it all raises some obvious questions: How long should it realistically take to recover the jobs lost during the recession and get us back to a normal unemployment rate? And what will it cost Uncle Sam to achieve such a goal? For some thoughts, I rang up Madeline Schnapp, the economic skipper of West Coast liquidity tracker TrimTabs Research, partially owned by Goldman Sachs. Sharp, incisive, perceptive and thought-provoking, she is no stranger to my HuffPost contributions, having made a number of timely and on-the-money economic calls. Sorry to say, her words won’t be pleasing to the 14.5 million jobless Americans or the nearly 26 million job seekers, including those who’ve quit the work force and would like full-time employment. For starters, Schnapp figures it will take four to seven years to recuperate all the jobs lost during the recession, which means the timetable could be as far out as 2018. She believes four is probably too optimistic, given such ongoing economic-stifling problems as high unemployment, a dead housing market, a deleveraging consumer, the financial plight of state and local governments saddled with gigantic budget gaps, meaning more layoffs and higher taxes, and a 14% jump in prices at the gas pump over the past three months, equivalent to a $60 billion tax on consumption on an annual basis. Actually, Schnapp thinks there’s a possibility that 20% to 25% of the lost jobs may never come back because of the damaging effects from the eventual collapse of the hyper-charged housing market between 2003 and 2007. Over the past two years, the federal government has spent about $3.5 trillion in bailouts, stimulus and quantitative easing. In 2010, after almost two consecutive years of job losses, the economy generated about 1.1 million jobs. That means each job that year cost taxpayers $3.2 million. Going forward, Schnapp estimates the economy will produce a total of 2.8 million jobs in 2010 and 2011. If that’s right, each job will cost taxpayers $2 million. She further notes that if the Fed keeps printing dollars ad nauseum and the government keeps running trillion dollar-plus deficits, the total price tag to replace the 8.5 million jobs could run $13-$15 trillion. Given her economic concerns, our worry-wart looks for a muddling-along 2011 economy, with anemic growth, say in the 2%-2.5% range. Goldman Sachs, more positive than Schnapp, recently predicted the S&P would wsind up would wind up this year at 1,500. She disagrees, looking for an uninspiring year for investors, with the index trading in a narrow range of 1,050-1,100 on the low side and 1,300 on the high side. Another 2011 thought from Schnapp: She expects another round of quantitative easing or QE3. No, not to further fuel the economy, but to provide bailout money for insolvent states, such as California, Illinois and New Jersey. “They say it can’t happen, but we’ve heard that before,” she says. “I guess deficits work, until you run out of other people’s money.” What do you think? E-mail me at Dandordan@aol.com

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Marcie Pitt-Catsouphes, Ph.D.: The Value of Multi-Generational Workplaces

January 8, 2011

If you’re reading this post at work, I’d like you to stop, look around you, and identify the four co-workers you collaborate with most often. Got ‘em? Now let me ask you — how do these four co-workers compare to yourself in terms of age and on-the-job experience? If you’re like most of us, you’ll notice that, as the population rapidly ages, today’s workplaces are more age-diverse than ever before. Your colleagues may no longer be close to your own age group and experience level. Does this hinder your collaboration? Probably not. But there is still widespread speculation that multiple generations in the workforce is a recipe for segregation or conflict. Why? Some of it has to do with expectations and career progression in corporate culture — employees want to move up to management, management to VP, VP to executive, and so on — and the idea that one generation of workers may be holding up the advancement of the next. Then there are also stereotypes of older and younger workers, and the common assumption that these groups are inclined to clash in the workplace; that they simply don’t work well together. However, the Sloan Center on Aging and Work ‘s pilot project called the “Executive Innovation Lab ” has shown exactly the opposite — when younger workers and older workers collaborate, it can be good for business. Unfortunately, most employers have not yet adapted their practices to harness the power of multi-generational workplaces to identify innovative business solutions. To jumpstart this process we created the Lab. We invited a group of companies to come together who were interested in exploring how multi-generational teams of employees work together. We reached out to executives from various industries and asked them to handpick teams of employees to participate, taking care to select people from different age groups and experience levels. The teams then engaged in a rapid prototyping exercise where they were tasked with finding a solution to a pressing workplace problem in a rigidly structured amount of time. What we found may surprise you. When these age-diverse teams were taken out of their normal work situations and tasked with quickly solving a challenging problem, they came up with very viable solutions in just a few hours. Brought together on teams different from what they were used to, these groups quickly found the type of innovate, creative solutions that are so hard to come by in the workplace. What we saw in the Lab, across the board, is that when older workers, younger workers and executives can put myths and misconceptions behind then. And, when given supportive, creative opportunities to collaborate, their collective innovation is a real outcome. Employees who participated in the Lab noticed this, too. At the end of the Lab, participants’ perceptions of colleagues 10 or more years older than themselves actually changed. They reported seeing their older counterparts as more creative, more willing to learn, and more innovative than they had expected them to be. The employees were enthusiastic about their new teams, noting an injection of energy. Team members would grab their leaders in the hall and ask, “When are we going to have that meeting again?” In addition, the executives expressed positive assessments of age-diverse teams; specifically, that they were able to get started working quicker, were more likely to push beyond difficult parts of their work, and had a new ability to reach quality results in a shorter period of time. Many of the organizations that participated in the lab are planning to implement the process for other projects. It would behoove other businesses to follow their lead. Every employee comes to the workplace with a different set of life experiences. The veteran worker who has been in the same job for 30 years, the middle-age career changer and the 22-year-old just starting out may seem like they have irreconcilable outlooks, but in reality these contrasting perspectives are just what workplaces need to thrive. Instead of adhering to the age-old myths that older workers are bad for business, today’s corporate leaders must learn to take advantage of their age-diverse workforces. Today’s workforce is aging more rapidly than ever before, and employers who act now to leverage the creativity of age experience and diversity will have an immediate competitive advantage over their peers. As the American economy starts to find its way out of the recession, we need innovative and creative workplaces more than ever before. Companies can make this happen, but only by creating conditions that leverage the strengths of the age diverse workforce.

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Mark Engler: The Rich Can Already Call It a Year

January 7, 2011

Well, 2011, it’s been nice. But I think we’ve worked enough already. In any case, we’ve already made enough money. Time to call it a year. This is a ridiculous idea, right? Yet, as the Canadian Financial Post reported at the beginning of the week, “Top CEOs will have earned average workers’ full annual pay by 2:30 p.m. today.” The “today” in question was Monday, January 3, the first business day of the year. Here’s their explanation: Canada’s best-paid chief executives earned 155 times the average income earner during the darkest days of the recession, the Canadian Centre for Policy Alternatives said in a report Monday. Declaring that those 100 chief executives were “recession proof,” the think tank said they earned an average of $6.6 million in 2009 compared with $42,988 for the average Canadian. That means by 2:30 p.m. Monday, the first working day of the year, those CEOs will have earned the full year’s wage of the average Canadian, said Hugh Mackenzie, the author’s study and research associate for the centre. I’m not sure how the Canadian Centre for Policy Alternatives , when producing this brilliant bit of PR, crunched the numbers to come up with the exact time of 2:30 p.m. on January 3. However, their general point stands. And, in fact, the situation is even worse in the United States. Here, as the AFL-CIO has tracked , the average compensation for a Fortune 500 CEO is $9.25 million per year. Even if we grant that these businesspeople are workaholics putting in seventy-hour workweeks and taking no vacation, that comes to $2,541 for every hour they labor. Calling it quits after the first week of January, these American CEOs would each be able to take home an annual income of over $177,000. Whether the world would be worse off if they did check out for the rest of the year is a debatable point. As CNN Money has noted , not all of the companies run by the top-twenty-earning CEOs were even profitable. For example, in 2009 Johnson & Johnson experienced its first annual sales decline in seventy-six years, yet its CEO, William Weldon, was nevertheless paid $22.8 million , in large part for making “difficult personnel decisions.” (Translation: firing as many as 8,000 workers.) Of course, even these Fortune 500 CEOs are not making money very quickly by the standards of the financial sector. The New York Times reported that the top twenty-five hedge fund managers made $25.3 billion between them in 2009, with George Soros personally raking in $3.3 billion. That’s $8.2 million per day. It goes without saying that, while the incomes of the rich may be “recession proof,” that is not the case for the wages of the rest of us. But a lot of people don’t realize that this is not just a result of the recession of the past couple years. Over the last several decades, as earnings at the very top have skyrocketed, incomes for those outside of the top 20 percent have been basically stagnant, with productivity gains not translating into wage increases . And we are working ever more hours just to stay afloat. I have written a couple times before about Take Back Your Time Day , which takes place on October 24 each year. The notion behind this holiday is that if working hours in the United States were on par with those in Germany, the Netherlands, or Norway, then, come October 24, we’d be able to take the rest of the year off. If you don’t want to use those other countries as points of comparison, that date could be adjusted. Economist Juliet Schor explains that “the average worker [in the U.S. was] putting in 204 more hours in 2006 than in 1973.” That’s a full five weeks of extra work per year. If Americans just worked the same amount they did in the early 1970s, we’d be able to finish up our working year on about November 25. This would mean turning the entire month of December into a glorious annual sabbatical. Or we could spread the free time out over the entire year. (Three Fridays off per month, anyone?) The result: a far more reasonable balance between work, family, and leisure — a standard of life that used to be widely enjoyed in this country. Certainly, that’s not as sweet as being able to take your hard-earned week’s pay of $177,000 and clocking out from now until 2012. But it’s something the rest of us can dream of — and demand. Cross-posted from the “Arguing the World” blog at Dissent magazine.

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Odysseas Papadimitriou: Fed Displays Policy Shift, Strengthens CARD Act

January 4, 2011

As the United States comes out of the Great Recession, we must critically examine the causes of this economic swoon and make adjustments in order to prevent such an event from ever occurring again. While it appears that many consumers have failed to do this–as indicated by the rise in credit card debt during the third quarter of 2010–the Federal Reserve has indeed altered its approach. In a move running counter to a decade of laissez faire regulatory policy, the Fed recently announced changes that stand to close loopholes in the CARD Act before they lead to major issues. These proactive regulations stand to benefit American consumers in the short term by further strengthening what is already the most consumer friendly credit card legislation passed in years. Even more importantly, they may also represent a portent of future U.S. economic safety and well-being. The Fed changes–which will take effect as soon as October 2011–stand to supplement the CARD Act in three ways. First, they will outlaw unscrupulous credit card companies from treating interest rate waivers any differently than they do introductory or promotional interest rates. No matter what terminology credit card companies use to describe them, all interest rate offers must comply with the CARD Act stipulations concerning when an interest rate can be changed and if an increased interest rate can apply to an existing balance. In addition, the Fed addressed the issuer practice of charging more than the legally allowed 25% of a card’s limit in fees during the first year an account is open by amending current rules to include any fees charged before an account has been active for 12 months–even “processing” fees assessed before an account is officially “open.” Finally, the Fed ruled that lenders can no longer use household income as an indicator of how much debt a consumer can reasonably manage. Individual income must now be used in its stead. This aspect of the Fed’s loophole restrictions is particularly poignant considering the fact that unchecked dangerous lending practices were a main precursor to the Great Recession. In fact, the Federal Reserve’s transformation can be seen clearly by comparing its inactivity before the recession to its activity after it. Before, the Fed allowed consumers to acquire more debt than they could handle, lenders to perform unsound underwriting practices and credit card companies to act without transparency. It did not step in to curb these trends despite having the power to do so and, as a result, problems compounded and placed extraordinary stress on the economy, forcing its fall. It now appears that the Fed has learned from its mistakes and is handling problems in their infancy. This policy shift is quite encouraging and if it persists, America’s financial future will surely be much brighter. Whether or not the “New Fed” will continue in its regulatory ways, we do not yet know. What is certain, however, is the effect the Fed’s announced changes will have on the shady credit card companies that have circumvented the spirit of the law by semantically adhering to its letter. These changes will surely benefit consumers by eliminating the wiggle room issuers have to evade the intent of the law. Still, abiding only by the letter of the law and not the spirit is often lucrative for issuers, and with money at stake there’s incentive to find new ways to carry on such practices. Therefore, both the Fed and consumers alike must keep a critical eye trained on banks to ensure that they are not continuing predatory operations. This article was written by Odysseas Papadimitriou, CEO and Founder of CardHub.com, an online marketplace for credit card offers and gift card exchange .

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Depression Economics: When The Jobless Run Out Of Unemployment Insurance

January 3, 2011

If 2008 was the year of the financial crisis, and 2009 the year of the recession, then 2010 was the year of unemployment. The good news is that things are starting to look up, if modestly. The number of workers making initial unemployment claims–a good indicator of where the unemployment rate is heading–fell to its lowest level since July 2008 this week. Employers have started filling more available positions. And economists expect December’s unemployment rate, to be released next week, to be lower than last month’s.

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For Unemployed, New Jobs Come With A Catch

December 31, 2010

A new study of American workers displaced by the recession sheds light on the sacrifices a large number have made to find work. Many, it turns out, had to switch careers and significantly reduce their living standards.

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Andrew Winston: The Top 10 Green Business Stories of 2010

December 30, 2010

Here’s my attempt to capture the most important stories that affected the greening of business in 2010. To keep this to blog length, it’s going to be quick, so see the links for more on these stories. The first five are macro-level issues that affect the context for business: 1. The climate bill dies in the U.S. Senate. Any hope for a national approach to tackling the largest challenge facing humanity petered out pathetically this year (see the complete, sad tale in a Pulitzer-worthy New Yorker article). Unfortunately for every other country, this is a global story. When the U.S. can’t get its act together, the world can’t create global policies, and thus the Cancun meeting last week resulted in some nice agreements to raise funds for adaptation — arranging the deck chairs on the Titanic, anyone? — but no binding targets on carbon. 2. Nature strikes back/climate change is real. Ironically, given the rising debate in the U.S. on the science, the world got hotter , a lot hotter, this decade and this year. Russia saw its worst drought in 1,000 years ( video ), and Pakistan was overcome by flooding ( video ). Scientists will always give the caveat that you cannot blame climate change for any single weather event, but let’s get real — this is what devastating climate change looks like on the ground. These weather events also directly affect resource availability, bringing me to my next point… 3. Resources get very tight. The drought in Russia destroyed 40 percent of its wheat crop, so Putin pulled wheat — 1/6 of the global trade in the crop — off the global market, driving up wheat prices . The floods in Pakistan helped double the price of cotton . And I could write a book on the topic of rare earth metals, those precious elements that make nearly every green technology possible and go into every iPhone. China mines 95 percent of these metals, and it needs them all now, making the U.S. ” vulnerable to rare earth shortages .” We’re also vulnerable on fossil fuels. We learned from the massive spill in the Gulf of Mexico that readily accessible oil is a thing of the past — we don’t dig one mile under the ocean for the heck of it. So most natural resources are getting more scarce, from oil to metals to crops. Smart companies like Hitachi are trying to find solutions, such as its new plan to develop rare earth recycling technologies . 4. China, China, China. Did I mention rare earth metals? Or the rise of the world’s largest solar producer from a manufacturing base of nearly nothing a few years ago? Or how about China’s unparalleled (and some would say illegal) support for its renewables companies , which has the World Trade Organization fretting about trade barriers ? China is very serious about its green ambitions , with support from the very top , and the business community is taking note. 5. Renewables are for real and moving fast. Ok, there’s some good news. The market for renewables is growing fast. About 45 percent of Portugal’s electricity comes from renewables, and this is up from 18 percent in just five years . Germany, not really the sunniest country in the world, added 1 percent of its electric needs in solar in 2010 alone (it took 10 years to get the first 1 percent online, and just eight months for the second 1 percent). No wonder HSBC says the market for clean tech and climate change solutions will top $2.2 trillion by 2020 . Now for the company-level stories: 6. Supply chain pressure continues to rise (a.k.a., Wal-Mart doesn’t slow down) . Even coming out of the recession, this was a big year for green supply chain announcements. In February, Wal-Mart said it would eliminate 20 million metric tons of GHG emissions from its supply chain. Then in October, the retail giant announced it would double the amount of locally-grown produce on its shelves (and former sustainability exec Matt Kistler indicated this year that products getting higher scores in its Sustainability Index would get more shelf space ). We also saw big announcements from P&G and Kaiser Permanente on supplier scorecards, IBM greatly increasing its demands on suppliers , and Pepsi using detailed carbon lifecycle data to make suppliers rethink how they grow Tropicana oranges . 7. Zero is the new black. Companies seem to be tripping over themselves on the path to “zero waste.” GM announced that 62 of its plants now send zero waste to landfill, and UK retailer Marks & Spencer reached a 92% diversion rate on the way to its zero goals. And Sony one-upped everyone by setting a goal of zero environmental impact across its operations by 2050. 8. Big goals were back. Recession-schmecession. Sony wasn’t the only one setting aggressive targets. Panasonic said it wanted its GHG emissions to peak by 2018 and it would greatly increase sales of eco-products. Unilever has probably gone the furthest , announcing it would double sales by 2020, but halve total environmental impact ( among other big goals ). Unilever’s leaders are serious about driving these plans into the operations of the whole company. 9. Electric vehicles storm the market. The Nissan LEAF was just named 2011 European Car of the Year , and GE announced it would buy 25,000 electric cars . Since the auto industry is one of the biggest in the world, there will be ripples from this movement. Enough said. 10. Small guys can do it too. It’s easy to get caught up in the tales of giant companies. So one of my favorite stories of the year is a simple example of eco-efficiency and savings from 10-employee Bowman Design with just 2,000 square feet of office space in Southern California (where else?). See founder Tom Bowman’s description of his company’s path to a 65 percent reduction in GHG emissions and $9,000 savings annually (OK, I’ll admit that I didn’t mind that Tom name-checked my book Green to Gold in his article, but I don’t know him). 11. (Bonus!) The military gets serious about green. Honorable mention to the government and military, which is technically not “green business.” But they’re not kidding around, from plans to greatly reduce reliance on oil and diesel in army operations, to navy sustainability plans and test flights of planes running on biofuels . Go military green! Looking Forward to 2011 No list would be complete without utterly over-confident predictions for the future. It’s obvious that the pressures/themes above will continue to get stronger in the coming year. In particular, and in addition… Supply chain pressure will evolve and get more sophisticated (such as retailers who said in August they would not buy fuel from Canadian oil sands ). This shift will be partly driven by… A data explosion around green is brewing. Companies will know more than ever about their impacts up and down the value chain. Water will become a very big topic for business (it began this year, but there will be some great stories in my 2011 wrap up a year from now). My first couple of blogs of the New Year will look at water strategy. Biomimicry, the design principle that suggests looking to nature for great ideas, will gain currency Energy innovation will be the order of the day (e.g., the Paris metro station that captures body heat to warm a nearby building) But here’s my final, shocking prediction: climate change policy won’t matter (much). Even though the failure of the bill was my #1 above, #2 through 10 tells me that for business, the logic of green does not depend on believing in climate change, or in having a law in place . The natural resource, supply chain, innovation, and profit drivers are just too strong. Business will be getting a lot greener in every sense of the word, no matter what political battles are waging. We’re going to stop debating climate in the business community and just focus on the larger case for prosperity, for companies and countries alike. I’m sure I missed many, many great stories. Please share your favorites here, and have a Merry Green New Year! This post first appeared at Harvard Business Online .

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Katherine Jentleson: The Top New York Art Auctions of 2010

December 30, 2010

Throughout 2010, record-setting sales served as powerful jolts of adrenalin for the auction market, which had been sluggish in 2009. The year opened with a bang: In February an iconic, sinewy bronze sculpture of a walking man by Alberto Giacometti stunned Sotheby’s London salesroom when it more than tripled the house’s presale estimate, selling for $104.3 million. Giacometti’s L’homme qui marche I was an outlier; excluding the sculpture’s phenomenal sum, the average price of a work in that sale was only $3.5 million. Nonetheless, the bold display of the Giacometti proved that high quality consignments had the potential to soar in 2010. Consignors responded to this green light immediately. Whereas highly valued masterpieces were rare in 2009, reassured sellers sent top-tier works tumbling across the auction block in 2010. Christie’s and Sotheby’s–the rival auction houses that dominate the market worldwide–ditched the conservative estimates that had become their defense for dealing with conservative buyers and sellers in 2009. In May, for instance, Christie’s offered Picasso’s Nude, Green Leaves and Bust for upwards of $80 million; the work made good on the house’s astronomical expectations, eking past the Giacometti sale price to bring $106.5 million–the highest price ever paid for a work of art at auction. These jaw-dropping sales–along with a slew of unprecedented prices for artists like Amedeo Modigliani and Roy Lichtenstein–made it feel as though the market has fully recovered from the recession, even though it hasn’t. Buy-in rates in most categories are still higher than they were in 2007, and auctions produced fewer sales over $10 million than they did in the heady days of the boom. Even though the market isn’t quite as bright and shiny as it was two years ago, the takeaway from 2010 is that it will bear masterpieces. New York has been the center of much of the year’s record-setting action, holding blockbuster sales of Impressionist, Modern and Contemporary art, as well as notable auctions of Photography, Indian and Southeast Asian art, American art and Latin American art throughout the year. As the Editor of The ART Report, a monthly newsletter that profiles trends in the auction market, I’ve been following these big Big Apple auctions closely; for this slideshow I handpicked a selection of the most memorable New York art sales of 2010. Katherine Jentleson is the Director of Analytics at Art Research Technologies in New York. She is the editor of The ART Report , a monthly newsletter that provides high-level analysis of the auction market in a timely fashion. Her art market research appears regularly in the weekend edition of the Wall Street Journal. She is also a PhD student in the Art History Department at Duke University; her research at Duke is on American art and the art market.

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New Year’s Resolution: 84% Want To Find A New Job

December 29, 2010

New Year’s resolutions come in all shapes and sizes. From losing weight to spending less to finding a new job it seems everyone has something they’d like to change. It seems the thing most people want to change this year, is their job . 84% of working individuals plan to find a new job in the new year, according to Manpower, a job-placement firm. That’s up a staggering 24% from last year. The change comes largely from the fact that people seem to simply be disappointed with their current positions, as wages have frozen, according to CNN Money . However, this doesn’t necessarily mean there will be a large number of available jobs. While the desire to change jobs may be powered in many cases by dissatisfaction with management, it may actually have more to do with money, according to The Street . Wages have grown marginally since the height of the recession ended, and many are looking for greater income. While unemployment was up at the end of 2010 , the outlook for 2011 looks better, and may afford many workers the opportunity to make career changes.

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Cheryl Wills: Entrepreneurs Counting Down to 2011

December 28, 2010

In all of the debates and discussions about how the recession has ravaged Wall Street, few seem to be focused on entrepreneurs who have been soldiering on in the worst of times. These are the working-class folks who didn’t get a golden parachute or a hefty severance package. Stay in business or starve – that is their daily reality. These are the employers who lost sleep over after telling tearful mothers and fathers that they could no longer afford to keep them on payroll. These are the bosses who went from working 12 hour days to suddenly working around the clock – desperately holding on to clients and their sanity. Martin Gover knows this all too well. He is the Founder, President, Chief Executive Officer and so much more of Momentum Sports Management, Inc. A superstar in the field of agents, he became famous for pairing his celebrity roster of athletes and entertainers with corporations and charities. But his New York City-based business suffered a devastating one-two punch that left him reeling for years. The first blow was immediately after 9/11. Just months before the World Trade Center attacks, the New York City police officer resigned from the force to pursue his dream job and quickly saw his newly formed business go down the toilet. Gover says, “It was horrific on multiple levels but I hung in there.” But the Bush-era recession nearly torpedoed him for good and he fled the Big Apple and relocated most of his business to Las Vegas. He says it was a ‘do or die’ decision. Martin Gover is getting his groove back and he says he’s finding his footing back in New York City with new clients and growing opportunities. Soul food king Carl Redding is also getting his groove back – but he had to leave his old stomping grounds to find it. He sold his legendary Harlem restaurant Amy Ruth’s and fled for greener pastures in Atlantic City in 2010. Redding’s Restaurant is a full-service comfort food restaurant in downtown Atlantic City with 60 employees. Redding says, “I am sure that the recession has had an effect on my business because I can see the hurt and despair on the faces of people in the community.” Redding is optimistic that 2011 will mark a healthy turnaround for his restaurant. Lee McDonald is also hoping for a turnaround. Her two-year-old Maryland based business the Renaissance Group was founded in 2008 – just a few short months after the U.S. entered the recession. The marketing, public relations and event planning firm got hit extra hard because she primarily works with individuals, small businesses and non-profits. McDonald says, “Unfortunately when line items are trimmed from the budget, we are the first to get cut.” But she says 2011 looks promising because new clients are coming on board and the existing ones are staying put. For 32 years, Vera Moore has been holding steadfast to her vision of being the next big cosmetics queen. And just when she nailed the opportunity of a lifetime, getting prominent placement in a major chain, the recession tightened its grip and Moore had to fight to stay afloat. Moore says, “We had to keep everything lean and mean as customers cut back their spending.” It wasn’t pretty, but Vera Moore believes the worst is over and she can’t wait to kiss 2010 goodbye. Moore’s family business has five employees and her skincare and cosmetic products are featured in twelve Duane Reade “Look Boutique” stores. But the cosmetics maven is still putting her best face forward. Drug store giant Walgreens just acquired Duane Reade and Vera Moore hopes her eponymous brand will see even greater exposure with 20 more locations. So here’s to 2011 – entrepreneurs are hoping for a silver lining and a chance to exhale.

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END OF CHEAP CREDIT? Surge Of Money From Bonds Could Hurt Lending

December 24, 2010

NEW YORK (AP, Matthew Craft) — Americans are leaving bond mutual funds at the fastest rate in more than two years. U.S. investors pulled $8.6 billion out of bond funds in the week ended Dec. 15, the largest withdrawal since October 2008 when financial markets were in free-fall. They pulled an average of almost $3 billion every week since Nov. 23, according to the Investment Company Institute. Prior to November, money had been flowing into bond funds every week for nearly two years. “This is the real deal,” says Marilyn Cohen, founder of Envision Capital Management, which oversees $300 million in mostly fixed-income investments. If she’s right, the end of cheap credit is near. Interest rates would rise, which would ripple through the economy. It would become more expensive for cities, states and companies to borrow money to build schools, roads and expand their businesses. It would also cause the value of bond funds to fall, blindsiding Americans who thought they’d stashed their retirement savings in an investment that wouldn’t sink. Bond funds are creditors. They take cash from savers and lend it to corporations and governments in exchange for interest payments and promises that the cash will be returned at a certain date. If there’s less money to lend, borrowers need to pay higher rates to coax funds to buy their bonds. It follows the law of supply and demand. If there’s less of something, it pushes the price up. In this case, if the stream of money running into bond funds dries up, the cities, states and corporations that rely on them for financing will wind up paying more to borrow. That would hurt cash-strapped states like California and Illinois which can’t afford higher debt payments. It also means that Wal-Mart Stores Inc., Johnson & Johnson and other corporations will no longer be able to borrow money at the cheapest rates on record. IBM Corp. sold $1.5 billion worth of bonds in August at a rate of just 1 percent. With few exceptions, Americans have favored U.S. stocks over bonds since the early 1990s. The housing bust broke that habit. U.S. stock funds began bleeding cash in 2007 and bond funds began piling it up. That shift intensified during the financial crisis as people sought safer investments and bond funds began posting stronger returns. Banks and foreign governments made U.S. bonds a favored hiding spot during the financial crisis, knocking the yield on the 10-year Treasury note down to nearly 2 percent. The yield had been above 5 percent in June and July of 2007, before the onset of the Great Recession in December of that year. The embrace of fixed-income funds throughout the recession had many benefits, says Hans Mikkelsen, credit strategist at Bank of America-Merrill Lynch. The record $376 billion that flowed into the bond market in 2009 allowed corporations to refinance their debt at cheaper rates. Without it, Mikkelsen says, many companies would have defaulted. “It should have been the worst run of defaults we’ve ever seen, but instead it ended up being the shortest,” Mikkelsen said. Just as their safe and steady performance drew investors to bond funds, the recent rout in debt markets is scaring them away. In four of the past five weeks, Americans have yanked more money from bond funds than they invested, the only weeks this year that has happened. Nicholas Colas, chief market strategist at BNY ConvergEx, regularly checks the data tracking investment flows for any surprises. Watching the slow, steady drip of cash into them became tedious after a while. “Now it’s like when you see a car crash,” he says. “First you look and think, ‘Did that really happen?’ And then you check to see if everything is OK.” Even the world’s largest mutual fund has lost some appeal. Pimco’s $256 billion Total Return Fund, run by bond market guru Bill Gross, returned just 1 percent a month on average until November, according to Morningstar data. That month the bond fund lost 1.4 percent, its worst performance since September 2008. Investors pulled $1.9 billion from the fund in November, the first net withdrawal in two years. What spurred the change? It started with a sharp drop in Treasury prices in mid-November, which drove long-term interest rates up from near-record lows. That sent borrowing costs higher across the board because all U.S. debt markets take their cue from the Treasury market. Treasury prices had been climbing since late August on hopes that a major bond-buying program by the Federal Reserve would prevent long-term interest rates from rising. But then a number of economic reports started to raise hopes that the economy was strengthening. That led investors to start pulling money out of Treasurys. The big blow came after President Barack Obama announced a compromise with Senate Republicans to extend tax cuts for two years and unemployment benefits for another year. Economists raised their forecasts for economic growth, and bond traders began bracing for even wider federal budget deficits. Both spell trouble for bonds. The tax package, signed into law last Friday, is expected to cost $858 billion. “All that talk from Washington about wanting to keep budgets tight just went out the window,” Colas said. The real danger, analysts say, is if the selling starts to feed on itself, creating a steep jump in long-term interest rates. Investors ditch bonds, pressing prices down and causing more investors to flee. “Selling begets more selling,” Cohen says. “The psychology of greed and fear never changes.” Under the worst-case scenario, long-term rates shoot higher and derail the recovery. If they rise gradually without choking off economic growth, some think the money flowing out of bond funds will find its way into stocks. That hasn’t happened yet. U.S. stock funds are still seeing an average $2.3 billion in net withdrawals a week. Stock funds have two important trends running in their favor. — Stocks became less volatile right after the bond market started to weaken in November, and major indexes have been on a steady climb. Analysts say investors may wind up returning to stocks for many of the same reasons they piled into bonds: a sense of security and greed. — Studies show people tend to follow winners. This “return chasing” benefited bond funds when they trounced stocks, and it may help lift stocks next year, Mikkelsen says. The Standard & Poor’s 500 index has returned 15 percent including dividends over the past year and has notched two-year highs day after day this month. On Tuesday, it hit the level it traded at just before Lehman Brothers filed for bankruptcy in September 2008.

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Tax Cuts Raise Expectations For Economy In 2011

December 22, 2010

WASHINGTON â Expectations for economic growth next year are turning more optimistic now that Americans will have a little more cash in their pockets. A cut in workers’ Social Security taxes and rising consumer spending have led economists to predict a strong start for 2011. Still, most people won’t feel much better until employers ramp up hiring and people buy more homes. Analysts are predicting economic growth next year will come in next year close to 4 percent. It would mark an improvement from the 2.8 percent growth expected for this year and would be the strongest showing since 2000. “Looking ahead, circumstances are ripe for the economy to develop additional traction,” said Joshua Shapiro, chief U.S. economist at MFR Inc. in New York. He is estimating growth for 2011 to be above 3.5 percent. The economy grew at a moderate pace last summer, reflecting stronger spending by businesses to replenish stockpiles, the Commerce Department reported Wednesday. Gross domestic product increased at a 2.6 percent annual rate in the July-September quarter. That’s up from the 2.5 percent pace estimated a month ago. While businesses spent more to build inventories, consumers spent a bit less. Many analysts predict the economy strengthened in the October-December quarter. They think the economy is growing at a 3.5 percent pace or better mainly because consumers are spending more freely again. Still, the housing market remains a drag on the slowly improving economy. The National Association of Realtors reported Wednesday that more people bought previously owned homes rose in November. The sales pace rose 5.6 percent to a seasonally adjusted annual rate of 4.68 million units. Even with the gain, sales are still well below what analysts consider a healthy pace. Even if analysts are right about 2011 being a better year for the economy, growth still wouldn’t be strong enough to dramatically lower the 9.8 percent unemployment rate. By some estimates, the economy would need to grow by 5 percent for a full year to push down the unemployment rate by a full percentage point. Even with growth at around 4 percent, as many analysts predict, the unemployment rate is still expected to hover around 9 percent. The third-quarter’s performance marks an improvement from the feeble 1.7 percent growth logged in the April-June quarter. The economy’s growth slowed sharply then. Fears about the European debt crisis roiled Wall Street and prompted businesses to limit their spending. “It sure looks like the `soft patch’ is over,” said Nariman Behravesh, chief economist at IHS Global Insight. In the third quarter, greater spending by businesses on replenishing their stocks was the main factor behind the slight upward revision to GDP. Consumers boosted their spending at a 2.4 percent pace. That was down from a 2.8 percent growth rate previously estimated. Even so, consumers increased their spending at the fastest pace in four years. The slight downward revision reflected less spending on health care and financial services than previously estimated. More recent reports from retailers, however, show that shoppers are spending at a greater rate in the final months of the year. Companies are discounting merchandise to lure shoppers. A price gauge tied to the GDP report showed that prices – excluding food and energy – rose at a 0.5 percent pace in the third quarter, the slowest quarterly pace on records going back to 1959. Americans have more reasons to be confident. Stock prices are rising, helping Americans regain vast losses in wealth suffered during the recession. Job insecurity remains a problem, but the hiring market is slowly improving. And loans aren’t as difficult to obtain for those with solid credit histories. Even with the improvements, though, consumers are showing some restraint. In the past, lavish spending by consumers propelled the economy to grow at a rapid pace. After the 1981-1982 recession, the economy expanded at a 9.3 percent clip. Consumers increased their spending at an 8.2 percent pace. Consumers have yet to display that level of confidence in the economy. While hiring is improving, employers still aren’t adding enough jobs to lower the unemployment rate. Even with stronger economic growth anticipated for next year, analysts predict it will still take until near the end of this decade to drop unemployment back down to a more normal 5.5 percent to 6 percent level. The government’s estimate of GDP in the July-September quarter was its third and final one. The government makes a total of three estimates for any given quarter. Each new reading is based on more complete information. GDP measures the value of all goods and services – from machinery to manicures – produced within the United States.

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Tax Cuts Raise Expectations For Economy In 2011

December 22, 2010

WASHINGTON â Expectations for economic growth next year are turning more optimistic now that Americans will have a little more cash in their pockets. A cut in workers’ Social Security taxes and rising consumer spending have led economists to predict a strong start for 2011. Still, most people won’t feel much better until employers ramp up hiring and people buy more homes. Analysts are predicting economic growth next year will come in next year close to 4 percent. It would mark an improvement from the 2.8 percent growth expected for this year and would be the strongest showing since 2000. “Looking ahead, circumstances are ripe for the economy to develop additional traction,” said Joshua Shapiro, chief U.S. economist at MFR Inc. in New York. He is estimating growth for 2011 to be above 3.5 percent. The economy grew at a moderate pace last summer, reflecting stronger spending by businesses to replenish stockpiles, the Commerce Department reported Wednesday. Gross domestic product increased at a 2.6 percent annual rate in the July-September quarter. That’s up from the 2.5 percent pace estimated a month ago. While businesses spent more to build inventories, consumers spent a bit less. Many analysts predict the economy strengthened in the October-December quarter. They think the economy is growing at a 3.5 percent pace or better mainly because consumers are spending more freely again. Still, the housing market remains a drag on the slowly improving economy. The National Association of Realtors reported Wednesday that more people bought previously owned homes rose in November. The sales pace rose 5.6 percent to a seasonally adjusted annual rate of 4.68 million units. Even with the gain, sales are still well below what analysts consider a healthy pace. Even if analysts are right about 2011 being a better year for the economy, growth still wouldn’t be strong enough to dramatically lower the 9.8 percent unemployment rate. By some estimates, the economy would need to grow by 5 percent for a full year to push down the unemployment rate by a full percentage point. Even with growth at around 4 percent, as many analysts predict, the unemployment rate is still expected to hover around 9 percent. The third-quarter’s performance marks an improvement from the feeble 1.7 percent growth logged in the April-June quarter. The economy’s growth slowed sharply then. Fears about the European debt crisis roiled Wall Street and prompted businesses to limit their spending. “It sure looks like the `soft patch’ is over,” said Nariman Behravesh, chief economist at IHS Global Insight. In the third quarter, greater spending by businesses on replenishing their stocks was the main factor behind the slight upward revision to GDP. Consumers boosted their spending at a 2.4 percent pace. That was down from a 2.8 percent growth rate previously estimated. Even so, consumers increased their spending at the fastest pace in four years. The slight downward revision reflected less spending on health care and financial services than previously estimated. More recent reports from retailers, however, show that shoppers are spending at a greater rate in the final months of the year. Companies are discounting merchandise to lure shoppers. A price gauge tied to the GDP report showed that prices – excluding food and energy – rose at a 0.5 percent pace in the third quarter, the slowest quarterly pace on records going back to 1959. Americans have more reasons to be confident. Stock prices are rising, helping Americans regain vast losses in wealth suffered during the recession. Job insecurity remains a problem, but the hiring market is slowly improving. And loans aren’t as difficult to obtain for those with solid credit histories. Even with the improvements, though, consumers are showing some restraint. In the past, lavish spending by consumers propelled the economy to grow at a rapid pace. After the 1981-1982 recession, the economy expanded at a 9.3 percent clip. Consumers increased their spending at an 8.2 percent pace. Consumers have yet to display that level of confidence in the economy. While hiring is improving, employers still aren’t adding enough jobs to lower the unemployment rate. Even with stronger economic growth anticipated for next year, analysts predict it will still take until near the end of this decade to drop unemployment back down to a more normal 5.5 percent to 6 percent level. The government’s estimate of GDP in the July-September quarter was its third and final one. The government makes a total of three estimates for any given quarter. Each new reading is based on more complete information. GDP measures the value of all goods and services – from machinery to manicures – produced within the United States.

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Employed But Struggling: Report Finds 1 in 3 Working Families Near Poverty

December 21, 2010

Michelle Feliz, a single mother living in Boston, can’t afford day care for her one-year-old son. She can’t afford new clothes for her teenage daughter. Late last year, she applied for food stamps. Unlike many Americans increasingly seeking public assistance, Feliz, 35, is employed. Yet what she earns in her job as a secretary does not cover even her most basic needs, leaving her scrambling to keep food on her table. In the aftermath of the worst economic downturn since the Depression, much attention has been focused on the 15 million people who are officially out of work, yet even among those who have jobs, livelihoods and living standards have been substantially downgraded. Growing numbers of employed people live in near poverty, struggling to make ends meet. Almost a third of America’s working families are now considered low-income, earning less than twice the official poverty threshold, according to a report released Tuesday by the Working Poor Families Project . The recession, which has incited layoffs and wage cuts, reversed a period of improvement: Between 2007 and 2009, as the recession set in, the percentage of U.S. working families classified as low-income grew from 28 percent to more than 30 percent. Workers who once focused on career advancement now live paycheck to paycheck. The American middle class, in effect, is eroding. “They’re no longer working actively, with a chance to advance and gain more experience and skills,” said Brandon Roberts, manager of the Working Poor Families Project and a co-author of the report. “They’re just putting pieces together to stay afloat, to meet basic needs.” Last year, 45 million people, including 22 million children, lived in low-income households, according to the report. As breadwinners lost jobs or suffered pay cuts, the report notes, the number of low-income families grew to 10 million last year, an increase of almost a quarter-million from 2008. The problem is worse among minorities: 43 percent of America’s working families with a minority parent are low-income, the report finds, compared to 22 percent of white working families. Feliz, who is Latina, has a job. But she’s barely scraping by. “I had to take this job because it was the only thing I could find,” Feliz said. “I was making more money than I’m making now.” Once an officer manager at Oficina Hispana, an English language education program, Feliz was laid off in 2007 when her employer didn’t get a crucial grant. She collected unemployment insurance for half a year, she said. The week before the benefits expired, she got her current job as a secretary at the University of Massachusetts Boston. Her annual salary dropped from $42,000 to $37,000. And her dream of opening a shelter for female victims of domestic violence was deferred. “Career-wise, that set me back a lot,” she said. She now struggles just to put food on the table. She applied for food stamps in November of last year, she said, but was denied because her salary was just above the cutoff. So she began clipping coupons. When her son came down with a bad fever recently, she feared she would have to make a difficult choice: stay home and risk losing her job, or take him to prohibitively expensive day care. Fortunately, her parents, who also live in Boston, were able to look after him. “I’m afraid to stay home,” Feliz said. “If I take too many days off, I could lose my job.” Feliz, who has an associate’s degree from Roxbury Community College, is taking classes in human services and management at UMass Boston, and her employer agreed to help foot the bill. She hasn’t given up on her dream, but her focus right now is on preserving her income. “I’m doing at least three people’s jobs,” she said. “It’s hard.” Her son’s father, who pays child support, is similarly struggling to keep two part-time jobs, Feliz said. The crisis extends beyond the struggling breadwinners. Children in low-income families suffer from diminished educational opportunities and compromised health care, according to the new report. Nationwide, 35 percent of children in working families are living in low-income households, the report finds, and childhood poverty tends to persist into adulthood. “That has serious implications for children, not only today, but as they look to the future,” Roberts said. “The odds are being stacked against them.” Living in a low-income family can take a psychological as well as financial toll. Feliz has striven to raise her children’s spirits, pushing her daughter to do well in school. “I want her to be able to get a good job,” she said, “to have things I’m not able to give her.”

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Richard Barrington: 8 Best Banking Trends of 2010

December 15, 2010

It seems like the words “good news” and “banking” haven’t gone in the same sentence since the start of the financial crisis in 2008. Although there’s no doubt that bank customers got a raw deal in the recession, there were many positive developments in banking during 2010. Here were the eight best trends in banking for consumers this year: Mortgage rates were cheaper than ever. Historically, 30-year mortgage rates have averaged around 8.91 percent. For the first 11 months of 2010, they averaged 4.69 percent. This cuts the interest expense of buying a house almost in half. Perhaps even better, the drop in mortgage rates sparked a surge in mortgage refinancing, giving a boost to the budgets of many a cash-strapped household. The great thing about these historically low mortgage rates is that while they may not last long, homeowners who were able to lock in 30-year mortgages this year will benefit from this dip in rates for many years to come. Financial reform. The Dodd-Frank Wall Street Reform and Consumer Protection Act — commonly known as financial reform — was a mixed bag for consumers. Chief among the negatives: higher compliance costs may cause higher fees on checking accounts and/or lower interest rates on CDs, savings accounts and money market accounts in the years to come. In the big picture, though, the new law’s consumer protections and restoration of elements of the old Glass-Steagall legislation should make the banking system more stable and secure . Looking ahead, it remains to be seen how long these reforms survive the efforts of the banking lobby to chip away at them. Millions of Americans stopped paying protection. It’s not extortion, but it is exorbitant — overdraft fees had become a huge profit center for banks in recent years. New rules gave customers the latitude to say no to overdraft protection programs and, according to Moebs Services, over 30 million customers did just that. Unfortunately, a great many more chose to continue overdraft protection. Even these customers got a small break, though. The average overdraft fee dropped by 50 cents in the latter half of 2010, according to Moebs. Free checking survived. Some predicted that the compliance costs of Dodd-Frank, the loss of some overdraft fee revenue and previously implemented limitations on credit card practices would drive banks to drop services like free checking. Indeed, a Moebs survey found that the availability of free checking dropped 11 percentage points. However, that still left nearly three-quarters of banks and credit unions offering free checking. With thousands of FDIC-insured institutions out there, customers still had plenty to choose from. A poll in late 2010 by MoneyRates.com and GetRichSlowly.org found that 95 percent of respondents were able to avoid monthly checking account fees one way or another. The hike in FDIC insurance was made permanent. For years, Federal Deposit Insurance Corporation (FDIC) insurance was $100,000 per depositor at any given institution. This was temporarily hiked to $250,000 during the banking crisis, and in 2010 this higher insurance limit was made permanent. This was a triple win for consumers. First, this emphatic government backing demonstrated that the federal government is prepared to stand behind deposits in the U.S. banking system. Second, the increase in the insurance ceiling reflected the fact that the previous $100,000 limit had been significantly devalued by inflation since it was established in 1980. Third, raising the insurance limit to $250,000 increases the ability of customers to consolidate funds and take advantage of “jumbo” rates on deposits (offered on balances of $100,000 or higher) and other benefits available to large depositors. The dollar limit for FDIC insurance was increased. In a less publicized move, FDIC insurance on non-interest-bearing transaction accounts, which includes checking accounts that don’t pay interest, was temporarily expanded without limit. These accounts also will not count against the $250,000 limit for other deposits, making it easier for customers to have checking accounts at the same bank as their savings accounts or money market accounts without exceeding the insurance limit. Two caveats: This unlimited insurance is available only from December 31, 2010, to December 31, 2012, and it only applies to accounts that don’t pay interest. Of course, with interest rates as low as they are now, customers would not have to forgo much interest for the benefit of obtaining unlimited insurance on their accounts through 2012. Consumers fought back against credit card debt. A streak of 40 straight years in which revolving credit balances, which chiefly includes credit card debt, increased was broken in 2009. Federal Reserve figures through October 2010 showed that revolving credit debt was on track to decrease again in 2010. This sudden reversal in a decades-long debt binge doesn’t mean that revolving credit balances are now low, but at least they are finally headed in the right direction — back to the neighborhood of 2004 levels. It is also possible that consumers are taking advantage of low interest credit card rates to reduce their total debt spend. Americans began to build savings. Paying down debt is just half the battle for American households. After years of lax savings habits and disappointing investment returns, Americans were far behind in their retirement savings. In 2010 there were some steps in the right direction. According to the Federal Reserve, savings deposit accounts increased during each of the first 10 months of the year. This added a cumulative total of more than $400 billion to savings deposit balances — despite the fact that these balances were getting little help from low interest rates on savings accounts. As with the trend in revolving credit balances, this increase in savings so far represents only a short-term reversal of some long-standing bad habits. Still, the road to rebuilding savings accounts has to begin somewhere, and the figures indicate that in 2010 Americans have at least made a start. Which banking customers didn’t benefit in 2010? Most notably, those who were victimized by slapdash foreclosure procedures by some banks and mortgage processing companies, and the customers in deposit accounts who lost billions of dollars to inflation in an environment of unnaturally low CD rates, savings account rates and money market rates. Maybe 2011 will be the year when these customers get a better deal. The original article can be found at MoneyRates.com: 8 best banking trends of 2010

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Andrew Fieldhouse: Any Payroll Tax Cut Should Be Designed Not to Hurt Lower-Income Workers

December 15, 2010

Under the tax cut package negotiated by President Obama and Senate Republicans, a one-year 2 percent payroll tax cut would be substituted for the extension of the Making Work Pay (MWP) refundable tax credit proposed in the President’s budget request for fiscal year 2011. Many liberals have objected to the payroll tax credit on political grounds because it potentially undermines the dedicated funding source for Social Security, but there is also a compelling economic argument against this trade-off. While the payroll tax cut comes at a much higher price tag and would thus have a greater net impact on job creation, the cut would actually lower disposable income for all tax filers earning less than $20,000 a year. Dedicating the revenue associated with the payroll tax cut to an expanded MWP refundable credit would address both concerns. Alternatively, if political constraints require a tax cut rather than a refundable credit, we recommend adding a “hold harmless” provision to the payroll tax holiday to protect lower-income earners from seeing their disposable income reduced. The “hold harmless” provision would be relatively inexpensive, carry a particularly high “bang per buck” (by increasing disposable income of those individuals with the highest marginal propensity to consume), and help alleviate the rise in poverty associated with the recession. The MWP refundable tax credit — the largest tax provision of the American Recovery and Reinvestment Act — refunds 6.2 percent of earned income up to a maximum credit of $400 for individuals ($800 for joint filers). Making Work Pay also included a phase-out of 2 percent of income on earnings above $75,000 for income ($150,000 for joint filers), so individuals earning over $95,000 ($190,000 for joint filers) would not receive any credit. The payroll tax cut, on the other hand, would temporarily reduce payroll taxes from 6.2 to 4.2 percent (on the employee side only) for all tax filers. The taxable earnings threshold for Social Security payroll taxes is currently set at $106,800 — above which no Federal Insurance Contribution Act (FICA) taxes are charged — so the maximum credit under the payroll tax cut would be $2,136. Because of the higher cap and lack of a phase-out threshold for higher-income earners, the payroll tax cut would increase disposable income for almost all tax filers. The payroll tax cut would, however, hurt individuals earning less than $20,000 relative to the MWP credit because of the slower phase-in rate and lack of refundability. For example, a tax filer earning $10,000 would see a $400 credit under MWP (having hit the maximum credit amount) but only a $200 credit under the payroll tax cut. The breakeven point for a lower-income tax filer would be $20,000, where the value of the 2 percent payroll tax cut would rise to the $400 maximum credit under Making Work Pay. Thus, compared to the president’s proposal to extend Making Work Pay, the payroll tax cut serves as a tax increase for all earners making less than $20,000. Economic theory suggests that adding a “hold harmless” provision would see a very high “bang per buck” and would pump even more stimulus into an economy that desperately needs to create jobs. Econometric evidence is also supportive of the higher economic return on refundable tax credits than many other short-term countercyclical policies. Moody’s Analytics chief economist Mark Zandi estimates that the payroll tax credit will see $1.09 in economic activity for every dollar spent, a less cost effective stimulus than the Child Tax Credit ($1.38), Earned Income Tax Credit ($1.24), or MWP ($1.17) refundable credits. By way of contrast, extensions of the Bush income tax cuts would generate only 35 cents on the dollar and the “accelerated depreciation” business expending credit would yield only 24 cents on the dollar. We estimate that the additional estate tax relief ($25 billion more expensive than reinstatement at the 2009 parameters) would have a much lower — indeed negligible — impact on economic activity and employment. While many liberals would have designed a tax relief and stimulus package quite differently (particularly with regards to the estate tax), the projected economic impact of the package is nonetheless compelling in many respects. For instance, the Center on Budget and Policy Priorities (CBPP) estimates that the expanded EITC, the CTC, and the payroll tax cut will keep 2.4 million Americans — half of them children — out of poverty. Given that poverty climbed to a 15-year high of 14.3 percent in 2009 and is likely to climb higher in 2010, cutting the disposable income of working Americans earning less than $20,000 annually would unconscionably worsen poverty in America. CBPP estimates that continuing the refundable MWP tax credit instead of enacting a nonrefundable payroll tax cut would keep an additional 500,000 Americans out from under the poverty line. Based on the Tax Policy Center’s distributional analysis of the two tax cuts, we estimate that a “hold harmless” provision for low-income workers would cost roughly $6.5 billion. The Congressional Budget Office estimates that the payroll tax cut would cost $112 billion, so both the tax cut and the “hold harmless” provision could be funded under the $120 billion placeholder in the negotiated tax cut deal. While costly extensions of the Bush tax cuts for the wealthy and additional estate tax relief may be the concessions to Republican lawmakers needed to move any additional stimulus, including middle class tax relief, there is no defensible reason to concede a tax hike on those earning less than $20,000. Short of replacing the entire payroll tax cut with a more progressive and stimulative refundable tax credit, a “hold harmless” provision would make for sound economic and social policy.

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Angela Haines: The Next Best Thing

December 14, 2010

Early dreams for a new business took root during the agonizing ten months Army Captain Dawn Halfaker spent recovering from over 20 operations she endured when she was severely injured in Iraq. She had spent five months in Baquba, in the volatile province of Diyalah as a Platoon Leader, charged with training an Iraqi police force. Shortly after midnight in June, 2004, Dawn rolled out in a convoy of 4 humvees on a reconnaissance patrol when her vehicle was hit by a barrage of small arms fire and rocket-propelled grenades. One grenade pierced the engine of Dawn’s vehicle before it burst immediately next to her, leaving her right arm hanging by a piece of skin and a few tendons. Dazed and covered with blood, Dawn still managed to order the driver to flee before lapsing into a coma that lasted twelve days. She awoke as a patient in Walter Reed Army Medical Center in terrible shape: besides burns and lacerations, Dawn suffered 5 broken ribs, a shattered shoulder blade and a deadly infection that almost took her life, and eventually led to the amputation of her right arm. For her heroism, she was awarded a Purple Heart and a Bronze Star. During her recovery, as Dawn began to realize the military career she had desperately wanted since the first day she entered the United States Military Academy at West Point was over, she worried about “losing a sense of purpose.”: I really loved what I was doing. To me the military was a dream job with so much of my life and my identity wrapped up in it. So I was fiercely determined to stay connected to the fellow soldiers I had left behind on the battlefield. Like a good soldier, she switched into survival mode and began to plan the outlines of a consulting business to help the military to seek out new technologies that could save lives or at least lessen injuries, a career path she calls “the next best thing.” After working out of her basement for a year, Dawn landed a contract with the Department of Defense, specifically the Defense Advanced Projects Research Agency, where she led projects researching various technologies ranging from nanotechnology that could make lighter weight body armor to advanced medical devices, such as creating miniature ventilators for use directly in the battlefield to help prevent brain damage from serious injuries. When she began to see the growth potential for her consulting business, Dawn headed back to school to acquire an M.A. in Security Studies from Georgetown University. Her company, Halfaker and Associates, was officially launched in 2006. Located in Arlington, Va, the company provides help with security policy, physical security management services for military bases, administrative and technical support and training. Currently Halfaker and Associates has over 120 employees. For 2010, it expects to post revenues of more than $15 million from services provided to over 20 major clients, mostly governmental agencies. Her biggest client remains the Department of Defense for which her team is currently analyzing how the intelligence data gathered from a variety of sources affects the army and its decision makers as they develop policies and strategies. Another major client is the Department of Homeland Security for which the Halfaker and Associates team offers solutions in the areas of force protection, antiterrorism, emergency management and chemical, biological, radiological, nuclear, and high yield explosive (CBRN) defense. Soon after Dawn launched her business, the economy began to slide. One consequence was that “we got a whole new slew of competitors who began to chase lucrative government contracts for the first time since their former clients were slashing budgets because of the recession.” Her solution was “to continue to seek out exceptional talent so we can offer our clients the best services possible.” As part of her plans for long term growth, 31-year old Dawn Halfaker plans to adopt her company services to the needs of commercial clients for whom she sees rising demand in all areas of security; she also offers in depth capabilities in information technology solutions to help clients with a variety of business problems from website designs to software integration to data management. Currently she spends most of her time on strategic planning and maintaining essential relationships by planning quarterly visits to the sites of her twenty most active programs. She also attends industry events because “you can’t get new business if you don’t put yourself out there.” Recently, Dawn was selected as one of the winners in the 2010 Winning Women program, sponsored by Ernst and Young . Her reward was participation in a 5-day strategic growth forum that brought together 1700 business leaders in Palm Spring in early November. The experience, she said, “made me realized I was pigeon-holed; the blinders were removed as I began to see that there are opportunities everywhere. I developed a much better understanding of how to access the resources I need; it also gave me the ability to understand how to navigate the obstacles we face as I look at my strategic plan for growth.” She also loved the networking with the other winning women which “became the kind of sorority I never had at West Point.” Since the growth forum coincided with Veteran’s Day, Dawn was unexpectedly invited to the stage by the forum leaders to share her combat story. The audience responded with a standing ovation in honor of her courage and determination to accomplish her “next best thing”: running a successful company.

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Marian Salzman: Tapping Consumer Minitrends: Predictions for 2011

December 14, 2010

This is the 11th in a series of 12 posts expounding on the 2011 forecasts in the annual trends report from Salzman, president of Euro RSCG Worldwide PR and an internationally respected trendspotter. How does a trend get legs? Some trends start small and grow elephantine as if by force of nature, like the rise of women in power and the strength of Asia, both unstoppable trends here for the long term. Others, especially the ones that really spell opportunity for innovators, can need nudges — as well as that special brand of foresight that always looks prescient in retrospect. The people who succeed in today’s fast-paced world are those who have their eyes on the future and on such opportunities. Microtrends: The Small Forces Behind Tomorrow’s Big Changes , the book by Mark Penn, worldwide CEO of Burson-Marsteller, who writes a weekly “Microtrends” column in The Wall Street Journal and was the pollster who identified soccer moms in 1996, is perhaps the definitive source on minitrends, but he didn’t see that the U.S. election was one big trend: Change. That said, minitrends are exactly what communications people can tap to generate news, to be in and of newsmaking. A trend’s growth factor depends, like all things do, on timing: Is the right technology in place in the right hands for a tech trend to take off? Or, if it’s a new product or service, has it hit the price-point sweet spot in such a way as to get a handle with the right number of the right people? Here are some minitrends I’m calling out for 2011: The rise of African consumers. The continent of Africa has more than 1 billion people, with 35 democracies (compared with nine a decade ago). And as an “emerging market,” investment bankers are bullish on it , citing the IMF’s forecast for a growing GDP in sub-Saharan Africa–home to 84 percent of the continent’s population–at 5 percent this year, accelerating to 5.5 percent in 2011. Havas Worldwide, Euro RSCG Worldwide PR’s parent, has invested in South Africa, such as with a sports and entertainment marketing arm , and, indeed, South Africa is increasingly seen as an entry point for doing business on the continent in various industries, but the trend will be pan-African . MIT’s Technology Review reported that cell phones are one technology that have migrated well to Africa despite the poor infrastructure and political instability that have been barriers in the past. The report described customers using them for applications including digital banking and payments. Leading to another minitrend… Money-transfer services. This is mobile banking, aka mBanking or SMS banking. A BusinessWeek report (in 2007) quoting forecasts from Nokia Corp. estimated worldwide mobile subscriptions to grow to 5 billion by 2015, when two-thirds of the people on earth will have phones. Clearly, while mobile banking spells convenience in the developed world, in the developing world it can mean the difference between banking and not banking . TMCnet has cited reports that emerging markets will collectively compose about 60 percent of the mobile banking market share in 2013. Gavin Krugel, director of mobile banking strategy at the GSMA , “goes a step further,” says Mint.com, claiming that ‘…one billion consumers in the world have a mobile phone but no access to a bank account.’” The GSMA Development Fund has started Mobile Money for the Unbanked , and its intention is to deliver banking services to those who live under U.S.$2 per day. Mobile health care. Our colleagues at Havas Health, Larry Mickelberg in particular, tipped us off to this trend. Vodafone, which Technology Review cited as having big expansion plans for Africa, estimated in 2009 at the Mobile World Congress that there are 2.2 billion mobile phones in the developing world but only 11 million hospital beds. The U.N. Foundation reports on its initiatives at the intersection of mobile tech and health care. In South Africa, for example, Project Masiluleke’s AIDS hotline through SMS showed a 350 percent call volume increase (click on the report’s Current Impact & Future Needs link). This all demonstrates — as I said in a previous trend — the strong benefits for traditional businesses that adopt social-good profits into their mission. For health nuts in the developed world, medical apps for smart phones — did you know you could track your blood pressure with your iPhone or Android ? — are the latest craze. A smarter way to read. Mobile readers are, of course, here to stay, with reports that the iPad tore out of Apple stores at a rate of 8.8 per hour on the recent Black Friday. Estimates are calling for about 7.1 million iPads to be sold this year, doubling in 2011 and nearly tripling in 2012. E-readers are already great ways to read magazines and newspapers, but new free apps such as Flipboard , which put people’s SoMe shares into magazine format (flipping pages) for easy readability, make these devices smarter and more ergonomic all the time. Jeff Bezos told TechCrunch that dropping the price of the Kindle — whose sales beat hardcover book sales at Amazon by a rate of 143 to 100 — to $189 saw sales triple. So even though conversations might continue about people “preferring” real books and magazines to e-readers, great interfaces such as The New York Times app — and one the Times touted, Reuters News Pro — make reading even complex articles onscreen perfectly comfortable. There’s every gain in portability, too; they don’t even have to be removed from carry-on luggage in the airport security line. Small-scale solar. Even though the recession has hit big solar projects in the developed world, in emerging markets I forecast small-scale solar energy growing in leaps. Renewable Energy World magazine is strong on technologies such as micro-inverters, which eliminate the need for a central inverter in a solar installation. Given that in 2009, it was reported that nearly 44 percent of the population in the developing world lacks electricity, it is also estimated that by 2020 developing countries–especially in Asia, Africa and Latin America — will represent huge markets for solar. The challenge of making such installations cost-effective, experts argue, lies also in getting these countries to adapt (and funding widespread initiatives to this end) to energy-efficient lightbulbs and other efficient appliances so that outdated household gear doesn’t put undue power demands on a system that indeed promises to change the face of the developed world’s energy-use patterns. As ever, technology is a key driver in minitrends; the developing world and mobile tech will prove to be a new direction for opportunities in the near future. Previously: “Mad as Hell–and Only Getting Madder” “Talk to the Hands” “Net Gain” “Public Mycasting System” “Booting Up” “Yes, We Can…Reinvent Ourselves” “Reinvention, Part II” “Separated at Worth” “Gender Bender” “Who’s in Control?” Tomorrow: Wrapping Up

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Trade Deficit Falls To 9-Month Low On Big Demand From China, India

December 10, 2010

Buoyed by strong demand from China and India, the U.S. trade deficit dropped to its lowest level in 9 months, as exports rose to their highest level in two years. The trade gap narrowed 13.2 percent to $38.7 billion in October and exports gained 3.2 percent over the same period. A good portion of the this increase has been driven by manufactured goods. “Exports of manufactured goods have accounted for about two-thirds of the total growth in exports so far this year,” Mark Dorns, Chief Economist at the Department of Commerce said in a statement. These numbers should please the Obama Administration, who’ve set out to double exports over the next five years to combat high unemployment rates and encourage domestic manufacturers. Analysis by the Economics and Statistics Administration indicate that exports in will this year support close to 9.4 million jobs, an increase from a 2009 estimate that put the number at 8.5 million. Chris Cornell, an analyst for Moody’s Analytics , was optimistic about the trade report. “Trade will improve at a disproportionate rate until it settles into its long-run pattern,” he said. He noted that exports had recovered nearly all of their losses since the start of the recession, while imports are perhaps two-thirds of the way to recovery. “Our forecast for fourth quarter GDP growth is likely to be higher, though precisely how much higher remains up in the air,” he said. The White House’s five-year export goal may be feasible, at least according to Moody’s forecast results which showed exports expected to be about $3 trillion by the fourth quarter of 2014, which would indeed double the $1.25 trillion reported in the second quarter of 2009. But, much will depend on the economies of China and Latin America, Cornell cautioned. The U.S. trade deficit with China, its largest trade gap by far, dropped 8.3 percent to $25.5 billion in October, but still accounts for about 65 percent of the overall trade deficit.

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WATCH: Bernanke Defends Bond Buys On ’60 Minutes’, Says Years Until ‘Normal’ Unemployment

December 6, 2010

WASHINGTON (Associated Press) — Federal Reserve Chairman Ben Bernanke is stepping up his defense of the Fed’s $600 billion Treasury bond-purchase plan, saying the economy is still struggling to become “self-sustaining” without government help. In a taped interview with CBS’ “60 Minutes” that aired Sunday night, Bernanke also argued that Congress shouldn’t cut spending or boost taxes given how fragile the economy remains. The Fed chairman said he thinks another recession is unlikely. But he warned that the economy could suffer a slowdown if persistently high unemployment dampens consumer spending. The interview is part of a broad counteroffensive Bernanke has been waging against critics of the bond purchase plan the Fed announced Nov. 3. The purchases are intended to lower long-term interest rates, lift stock prices and encourage more spending to boost the economy. WATCH: Critics, from Republicans in Congress to some officials within the Fed, say they fear the Fed’s intervention could spur inflation and speculative buying on Wall Street while doing little to aid the economy. On other issues in the “60 Minutes” interview, Bernanke: _ Argued that unemployment would have been far higher – “something like it was in the Depression, 25 percent” – had the Fed not provided extraordinary aid to Wall Street firms, banks and other companies to ease a credit crisis. _ Said it could take four or five more years for unemployment, now at 9.8 percent, to fall to a historically normal 5 percent or 6 percent. _ Reiterated that the Fed is prepared to buy even more than $600 billion in Treasury bonds over the next eight months, should it decide the economy needs the fuel of even lower interest rates. _ Argued that the risk of inflation is overblown. Bernanke said he’s “100 percent” confident the Fed will be able to ward off inflation, when the time is right, by raising interest rates and unwinding its stimulative programs. _ Called the risk of deflation – a prolonged drop in prices, wages and the values of homes and stocks – “pretty low.” He said the likelihood would have been greater if the Fed weren’t maintaining super-low interest rates. _ Urged Congress to improve the nation’s tax code “by closing loopholes and lowering rates” for individuals and companies. He said doing so would create greater incentives for people to invest. Critics who fear the Fed is raising the risk of inflation have complained that its bond purchases mean the Fed is, in effect, printing more money. In the interview, Bernanke called that a “myth.” He insisted the Fed isn’t printing money when it buys Treasurys and said the program won’t expand the amount of money in circulation in a “significant way.” Lou Crandall, chief economist at Wrightson ICAP, said Bernanke is right that the Fed’s purchases won’t significantly change the amount of money circulating in the economy. That’s mainly because banks aren’t lending most of the money they already hold in reserve. When the Fed buys Treasurys, it increases the reserves in the banking system. For those reserves to actually “create” money, the banks would have to lend it. Still, Crandall suggested that the bond-buying program creates the appearance of printing money, something that could put the central bank’s credibility at stake. Bernanke’s apperance Sunday night is part of a public-relations blitz he’s mounted since the Fed announced the program Nov. 3. In private and public appearances, Bernanke has sought to explain and defend the program to ordinary Americans, investors and lawmakers on Capitol Hill. His efforts have included an Op-Ed article in The Washington Post and discussions with students in Jacksonville, Fla., economists in Jekyll Island, Ga., business people in Columbus, Ohio, central bankers in Europe and members of the Senate Banking Committee. Criticism has come from both home and abroad. Officials in China, Germany, Brazil and other countries have argued that the Fed’s plan is a scheme to give U.S. exporters a competitive edge by keeping the value of the dollar weak. A weak dollar makes U.S. goods cheaper abroad and foreign goods more expensive in the U.S. It’s rare for a sitting Fed chairman to grant an interview, whether for broadcast or print. But this was Bernanke’s second appearance on “60 Minutes.” His first was in March 2009. At the time, he was facing anger over Wall Street bailouts and rising anxiety about the economy. In the interview that aired Sunday, Bernanke pointed out that the economy is growing at an annual pace of around 2.5 percent – far too slow to reduce unemployment. For a self-sustaining recovery, consumers and businesses would need to spend more, so the economy could grow faster. Bernanke has said he hopes the Fed’s bond-buying program will help lift stock prices. In part, that’s because lower yields on bonds would cause some people to shift money into stocks and also because lower corporate bond rates will spur business investment. Higher stock prices would boost the wealth and confidence of individuals and businesses. Spending would rise, lifting incomes, profits and economic growth. Bernanke has referred to this as a “virtuous cycle.” Asked whether the recovery is self-sustaining, Bernanke responded: “It may not be. It’s very close to the border.” Given the economy’s still-weak growth, he said: “We’re not very far from the level where the economy is not self-sustaining.”

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The 15 U.S. Cities Hit Hardest By The Recession

December 4, 2010

LAS VEGAS (AP) — An international study says Las Vegas has one of the worst economies in the world, and prospects for a rapid recovery appear dim. The Brookings Institution and London School of Economics study ranked Las Vegas fifth from the bottom in a ranking of 150 metropolitan areas, citing a limited economy that relies heavily on tourism and construction. Las Vegas fared better than only Dublin; Dubai, United Arab Emirates; Barcelona, Spain; and Thessaloniki, Greece. The rankings weigh jobs, job growth and income. Las Vegas was ranked the world’s 14th best economy from 1993 through 2007, according to a report by the Las Vegas Sun published Tuesday. Sin City’s decline began during the recession in 2008, when it fell to 128th place. The report said the gradual recovery that has played out in most U.S. cities in recent months eluded Las Vegas. The city’s income levels declined 1.2 percent despite an increase nationally, and the employment rate dropped 3 percent, much greater than the national decline of 0.7 percent. “If the first year (of recovery) is any indication for Las Vegas, it could be a long, slow road ahead,” Alan Berube, senior fellow and research director at Brookings Metropolitan Policy Program, told the Sun. The report also refers to Las Vegas’ record foreclosure rates. The area has the second highest share of bank-owned homes in the country and more than two-thirds of residential mortgage holders owe more than their homes are worth. The strongest growth during the recovery has taken place in highly educated regions such as Washington, D.C.; Minneapolis; Austin, Texas; and San Francisco, Berube said. Highly educated people tend to work in industries that haven’t been hit very hard, and if they do become unemployed, they have an easier time finding a new job compared to someone who’s less skilled and educated, he said. Check out the other U.S. cities hit hardest by the downturn:

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Seaport Markets Offer a (Relative) Bastion of Warehouse Stability in Economic Storm

December 2, 2010

Warehouse assets oriented near the nation’s largest seaports didn’t experience drop offs in demand as quickly or fall as deeply during the recession and have also rebounded more quickly than metro markets as a whole, according to a recent analysis by…

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Ron Ashkenas: How Companies Can Give More Than Just Thanks

November 24, 2010

Many cultures around the world celebrate a yearly thanksgiving festival, a time when we express our gratitude for a successful harvest. While observances and timing vary considerably based on different crops, climates, religions, and histories, the common thread is that we should set aside time to thank a higher power — or nature — for providing us with another year of sustenance. Although it’s common knowledge that effective food production is critical to our survival and worthy of a yearly ” thank you ” (especially in light of recent food recalls ), most of us in the modern, developed world take the annual harvest for granted. Although we are aware of droughts, floods, and fires that may affect food production in various parts of the globe, producing food for most of us is no longer a miracle — it’s an established industry . As a result, the Thanksgiving holiday, particularly in the United States , has become more about football and parade floats than the availability of food. The reality is that malnutrition and starvation have not been eradicated , even in the developed world, and may only worsen as the population expands. The food agency of the United Nations, the FAO, estimates that there are 925 million undernourished people in the world , largely because the calories produced worldwide (which should be sufficient) are not effectively utilized and distributed. So while there is abundance in some places, there are shortages in others. The FAO also reports that food production needs to rise by 70% in the next 40 years to meet population growth, while there will be less available land due to urbanization and climate change. According to their study, hitting this target will require a 50% annual increase in agricultural investment starting now. Clearly these macro-economic and developmental problems cannot be solved by any one person or organization alone. However, the Thanksgiving holiday (which comes this week in the United States) is a good time to think about what each one of us can do, both as individuals and as members of organizations . Here are a few ways to promote giving throughout the year: 1. Make giving easy. Talk to your leadership team about making it convenient for you and your colleagues to make charitable contributions beyond just the yearly United Way campaign. Due to the recession, donations to the 400 largest charities in the U.S. (including the United Way) dropped by 11% in 2009 . At the same time, contributions by people making over $200,000 per year fell by 35% . So, in these tough times when many aid organizations have fewer resources, it is all the more important to mobilize larger numbers of people to contribute. Obviously organizations cannot (and should not) force employees to give — but they can make giving easy by setting up payroll reduction plans, putting links to vetted charities on company websites, and providing forums for educating employees about social and community issues. 2. Cut back to give back. Consider ways of redirecting some of the lower-value items in your budget to community or social activities. For example, one company realized that it was supplying three biscuits (as well as coffee, tea, and soft drinks) for every person attending meetings in the headquarters building. By reducing the biscuit allocation it was able to save hundreds of thousands of dollars per year, some of which could be shifted to corporate giving. Another opportunity is to either reduce the luxury level of corporate offsites, and/or spend a portion of each offsite with your team doing community service. This not only benefits the community, but also develops the team . 3. Work together to give your time. Use the Thanksgiving holiday to talk with your team about doing or sponsoring a social service project together (again on an optional basis). Find out what kind of project they would feel good about, and tap into their interests and passions. Set a goal for what you want to accomplish, and then keep it going throughout the year. Although it may not be apparent, individuals and organizations can make a difference — especially if we all increase the giving that goes along with our thanks. How can your company give more? Cross-posted from Harvard Business Online .

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Video: U.S. New Home Sales Unexpectedly Drop 8.1% in October

November 24, 2010

Nov. 24 (Bloomberg) — Sales of new homes in the U.S. unexpectedly decreased 8.1 percent in October to a 283,000 annual rate, indicating near record-low borrowing costs are failing to lift the industry that precipitated the recession. Bloomberg’s Michael McKee reports. (Source: Bloomberg)

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Falling Retail Rents Mean More Store Openings

November 17, 2010

Following the decline in retail rents since the recession, a number of retailers are reporting that they plan to step up store openings in the next couple of years to take advantage of the more favorable pricing. According to CoStar Group analysis…

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Jeffrey Rubin: G20: Look for Even More Friction in the Future

November 16, 2010

With France and China already plotting to replace the US dollar as the world’s reserve currency at the next G20 summit in Cannes, don’t count on this international forum’s lasting too much longer. The huge fiscal divisions that were already in evidence at the G20 summit in Toronto last June morphed into even bigger and more rancorous divisions on exchange rates at the recent Seoul summit. With the US at China’s throat about its record trade surplus, and China at the US’s throat over the Federal Reserve Board’s blatantly devaluationist policy of quantitative easing, it’s little wonder nothing was accomplished. More importantly, this likely marks the end of the great China-US economic accord, which defined the apex of globalization. That once virtuous and self-reinforcing circle of trade and capital flows, whereby Chinese savings invested in the Treasuries market effectively funded US consumer demand for Chinese exports, is clearly in both countries’ gun sights these days. At the summit in Seoul , gone was any pretense of a coordinated policy approach to manage the global economy. Coordinating national economic policies may once have been easy, when everybody’s economy was mired in the deepest recession of the entire post-war era. But very disparate rates of economic recovery across the G20 have spun equally disparate policy responses from member countries. And the more anemic the recovery, the more disparate the policy responses have been. Record fiscal stimulus and printing money have become the new orthodoxies in American economic policy, even as most of the US’s trading partners are reining in their fiscal deficits and hiking interest rates. What’s increasingly clear is that growth imbalances are going to increase, not decrease, in the future, and that the G20 is hardly going to be the forum for policy arbitration between countries. If you thought the growth gap between emerging market economies and the OECD ones was big before the recession, you can expect it to be much larger in the future, in view of the craters of debt that the recession has left behind in the American and European economies. With no remedies in sight, look for more trade friction in the future. US Treasury Secretary Timothy Geithner’s proposal to target countries’ current account or trade balances is only the opening salvo in potential future trade wars. If the Fed’s printing presses don’t devalue the greenback enough, there are always tariff walls to be rebuilt. If the discussions seemed strained in Seoul, listen carefully to the tone from Cannes in six months’ time. At the rate things are going at G20 summits these days, the next one’s agenda will have the Smoot-Hawley Tariff of the 1930′s on it.

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Martin Ford: Vanishing Middle Class Jobs

November 16, 2010

There’s a very good article in The New York Post on the polarization of the job market and the disappearing middle class: From 1979-2009, there was a nearly 12% drop in the four “middle-skill” occupations: sales, office/administrative workers, production workers, operators. Meanwhile, people in the top 20% of the economy earning $100,000 or more a year, says Peter Francese, demographer at Ogilvy and Mather, “have barely been touched by this recession.” They average an unemployment rate between 3% and 4%, the lowest in the nation. The US Bureau of Labor Statistics projects a 14% increase in low-education service jobs between 2008-2018. “The only major occupational category with greater projected growth,” Autor writes, “is professional occupations, which are predicted to add 5.2 million jobs, or 17%.” These sectors include medicine, law and middle- and upper-management. Economists seem to acknowledge that middle skill jobs are vaporizing. But so far, they seem to view the situation as static. They express little concern that the “missing middle” is going to relentlessly expand and consume more jobs both at the bottom and the top. As I wrote previously, I think robots and other forms of automation will eventually become cost-effective even in low-wage occupations. At the same time, both software automation/expert systems and offshoring will be increasingly focused on the higher paying jobs. The result is going to be fewer viable consumers — and that will drive even more cyclical unemployment. Eventually, I think we will have to find ways other than job-based income to support the bulk of the population and maintain consumption. I suggest a possible scenario for this in my book The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future . In the meantime, it looks like we are going to do exactly the opposite. Millions of people will see their unemployment benefits expire in the coming year — many having used up an entire 99 weeks — and a Republican House suggests it may be impossible to even renew the existing extensions. Martin Ford is the author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future (available from Amazon or as a FREE PDF download ) and has a blog at econfuture.wordpress.com .

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No Downturn For Walmart As Retailer Posts Big Quarter

November 16, 2010

NEW YORK — Wal-Mart Stores Inc. reported a 9.3 percent increase in third-quarter net income as the world’s largest retailer benefited from cost controls and a robust international business. The company also raised its full-year profit outlook. The improvements come despite weakness at its U.S. business. Total revenue at U.S. Walmart stores fell as fewer customers visited and spent less when they did. Revenue at stores open at least a year also fell, for the sixth quarter in a row, underscoring the challenges of its U.S. business as many customers struggle economically. Still, Wal-Mart, armed with free shipping deals and sharp prices on basics like socks and underwear, remained upbeat about the holiday season and said restocking grocery items it had dropped is starting to pay off. It also maintained it expects revenue at stores open at least a year to turn positive in the critical fourth quarter. “Our own surveys and the reports on the recent U.S. election cycle indicate that financial uncertainty still weighs heavily on everyday Americans, including many of our core customers,” President and CEO Mike Duke said in a prerecorded address to investors. “Whether it’s for everyday groceries, or for discretionary items, Walmart U.S. will be the price leader throughout the holidays, and I remain confident about improving (comparable store sales) trends in the fourth quarter.” Wal-Mart posted net income of $3.44 billion, or 95 cents per share, in the quarter ended Oct. 31. That’s up from $3.14 billion, or 81 cents per share, in last year’s third quarter. Excluding a tax benefit, the company earned 90 cents per share, which matched estimates from a survey of analysts surveyed by Thomson Reuters. Revenue reached $101.24 billion, below the estimate of $102.25 billion. Revenue at stores open at least a year slipped 0.7 percent, dragged down by a 1.3 percent drop at U.S. Walmart stores. The decline, which excluded fuel sales, is worse than analysts’ estimates for a 0.4 percent decrease. The measure rose 2.4 percent at its Sam’s Club chain. Wal-Mart benefited during the recession as affluent shoppers traded down to cheaper stores, but its main customers have been under increasing financial stress amid an unemployment rate that’s still stuck at almost 10 percent. Wal-Mart customers continue to have a hard time stretching their dollars to the next payday, company officials said. But Wal-Mart’s merchandising missteps also have hurt its U.S. business, and the company is scrambling to rectify those mistakes. That includes restocking thousands of grocery items eliminated as a part of a campaign to declutter its stores last year. Company executives said Tuesday it’s already seeing improving sales after expanding its assortment of pie fillings and jams. It’s also going back to everyday low-pricing strategies after steep rollbacks failed to excite frugal shoppers. Wal-Mart is also stocking more $1 items and mini-size products such as detergent at the end of the month as it has felt pressure from dollar stores, where financially strapped shoppers turn when they have only a few dollars left. Bill Simon, president of Walmart’s U.S. business, reiterated that the strategies are all aimed at getting its customers with household incomes of under $70,000 to spend more. That group represents 68 percent of its business, and these customers spend about 22 percent of their disposable income at Walmart, so “there remains lot of opportunity,” Simon says. Wal-Mart has been throwing its weight around this holiday season. It said last week it will offer free shipping on nearly 60,000 online items. That offer, which includes most electronics, jewelry and toys, will run through Dec. 20. It’s also increasing the space it devotes to toys by about 15 percent this month. In December, Walmart said it will nearly double the amount of space it has dedicated to toys compared with last year and offer about 4,000 toys. Wal-Mart said it expects revenue at stores opened at least a year for its U.S. Walmart business to be anywhere from down 1 percent to up 2 percent in the fourth quarter. For the third quarter, Wal-Mart’s U.S. business generated revenue of $62.18 billion, down 0.1 percent. The last time Wal-Mart had a decline in its U.S. division was during last year’s fiscal fourth quarter, ended Jan. 31, when total revenue fell 0.5 percent. Meanwhile, Wal-Mart’s international business, which accounts for 25 percent of annual total revenue, rose 9.3 percent. At Sam’s Club, total revenue reached $12.14 billion, up 2.7 percent. Wal-Mart also predicted that earnings per share for the full year will range from $4.08 per share to $4.12 per share. That’s up from $3.95 per share to $4.05 per share. Analysts expected $4.02.

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David Coates: Fiddling While Rome Burns

November 15, 2010

Rome lived on its principal until ruin stared it in the face. Industry is the only true source of wealth, and there was no industry in Rome. By day the Ostia Road was crowded with carts and muleteers, carrying to the great city the silks and spices of the East, the marble of Asia Minor, the timber of the Atlas, the grain of Africa and Egypt — and the carts brought nothing out but loads of dung. That was their return cargo…. Long Beach is the Ostia of our day, the gateway to the great American market… The imports are as numerous as the sands on the nearby beach, including everything from shoes and shirts to computers, autos, advanced telecommunications gear, and photo voltaic panels for generating solar energy. The exports, though, are few, consisting mostly of scrap metal and waste paper — this millennium’s dung, you might say. -Clyde Prestowitz, principal trade negotiator for Asia in the Reagan administration, writing in his The Betrayal of American Prosperity. As Congress convenes for its lame duck session, Paul Ryan is poised to become a very important man. As the likely chairman of the House Budget Committee from January, he is determined — as he told the Financial Times immediately after the mid-term elections — to see America “turn the corner” by maintaining “a firm focus on restoring the basic foundations of growth: low taxes, sound and honest money; fair, predictable and reasonable regulations; and, of course, spending cuts and reforms.” “Mr. Obama,” he wrote, “must now move quickly to join the growing bipartisan consensus calling for at least a two year freeze on all current tax rates. He should also join us to address our shared concern with the unsustainable deficit… Our fiscal and economic problems have been decades in the making — a bad situation made much worse over the past two years [which is why the president should] enact the spending cuts proposed in House Republicans’ ‘Pledge to America’.” “We face a choice,” Ryan said, “between an opportunity society with a safety net or a cradle-to-grave social welfare state.” Clearly he prefers the former. Personally, I prefer the latter — but that is of no consequence because no such choice currently awaits us. What awaits us instead is the interesting conundrum of a Republican Party cutting taxes for the rich while decrying the scale of the federal deficit. What awaits us is a House Budget Committee chaired by a man committed to resolving our current difficulties by repeating the policies that created them. And what awaits us is a Congress preoccupied with the wrong kind of debt. We certainly have a problem of debt. Part of that debt problem is the gap between federal taxes and federal expenditures — a gap that opened up on the watch of a Republican president and congress, not a Democratic one. A federal surplus inherited in 2000 was squandered well before 2008 by the tax cuts now due to expire and by the financing of a war of choice. The federal spending is larger now because of the recession triggered by a financial collapse that also occurred while the treasury secretary was a Republican. So it is simply untrue, and entirely disingenuous, to talk of “a bad situation made much worse over the past two years”, if by that is meant to signal that the Obama stimulus package deepened the recession. It did not. Arguably, the package should have been larger, the better to lift the economy from recession more quickly and to speed the flow of tax revenue again. Companies are slow to hire now not because they are over-taxed or over-regulated. They are not hiring now because their CEOs lack confidence in demand, and they lack confidence in demand because other companies share that same lack of confidence. With private sector confidence low, demand can only be increased by more targeted public spending rather than by less. To cut the federal deficit in the long term, the last thing sensible policy requires is its cutting now. But the main debt problem which currently besets the U.S. economy — the debt problem that keeps internal demand low — is not primarily a debt problem at the federal level, no matter what Paul Ryan claims or implies. It is a debt problem at the level of people’s personal finance. One of the “fiscal and economic problems decades in the making” to which Paul Ryan ought properly to refer, but which he does not, is the generalized stagnation of American hourly wages in the decades since Ronald Reagan was president, the intensification of American poverty over the bulk of that period, and the stellar rise in income and wealth inequality that has accompanied poverty and the lack of wage growth. One third of all Americans currently live on incomes that are within one tranche of the poverty level for their size of family. Indeed, the median income of average Americans has actually fallen in the last decade — down 4.8% according to the latest Census Bureau figures. The mass and generality of American consumers have maintained their living standards for the last quarter century not by paying “low taxes [in an economy based on] sound and honest money,” as Ryan would have it, but by working longer hours, sending more and more of their family members out to work, and by maxing out their credit cards. “Research shows that credit card debt in America has quadrupled since 1989 and increased 41 percent just since 2000. American now owes more over $1 trillion in credit card debt.” Money doesn’t come much less sound and honest than that. The other debt problem that now besets the U.S. economy is debt at the international level. Over the last two decades we have become the global system’s consumer-of-last-resort. The U.S. began the post-war period (in 1945) as the global capitalist system’s major exporter and supplier of investment funds, as well as its major military protector. The military role remains and the dollar is still for the moment the global system’s major reserve currency; but U.S. export domination has entirely vanished. It is American debt, not American largesse, which now helps to sustain global economic growth. Our trade relationship with China is emblematic: a U.S. deficit that was a mere $10 billion in 1990 and $83 billion in 2000 has now soared to $268 billion in 2008 and $226 billion in 2009. In 2008, the United States main export to China was waste and scrap paper — some $7.6 billion worth — more than we exported in oilseeds and grains (but oilseeds and grains were the third largest category of goods we exported to them). So here we have the United States of America sending to China, a major trading partner, agricultural produce and waste, in exchange for manufactured goods and money loans. No wonder Arianna Huffington chose to call her latest best-seller Third World America because in many ways our trading patterns are beginning to resemble those of an imperial power in decline. As we have argued before on this website, since World War 2 the United States has known two sustained periods of economic growth. Both were based on different social settlements. Each has something to tell us about how, and how not, to go forward. The first period was that between 1948 and 1973. Abroad in those years the world was organized around a Cold War division and a nuclear stand-off. At home, prosperity was anchored in the spread of semi-automated production systems. Productivity per worker rose dramatically after 1948, as did the wages of unionized workers: north-eastern and mid-western wage militancy was crucial to the demand side of the 1950s economic equation. American manufacturing led the world, and blue-collar American living standards exceeded those of traditional middle class and professional families in Western Europe and Japan. Internal income inequality accordingly diminished: by 1970 average CEO compensation packages in Fortune 500 companies ran somewhere between 56 and 70 times higher than the median wage those companies paid. Throughout the bulk of that first growth period, the United States ran a balance of trade surplus (the world bought American goods) and a balance of payments deficit (dollars flowed out to keep global demand high), dollars distributed globally in no small measure through the placing of American military personnel abroad. It was a growth period book — ended by two wars — Korea at the outset, Vietnam at its end — military expenditure on the second of which eventually helped bring that first growth period to an end. Twenty years later, the U.S. economy experienced a second prolonged period of growth, one that was momentarily slowed in the immediate wake of 9/11 but otherwise sustained from 1992 to 2008. There was no Cold War this time: rather initially a peace dividend and then the confrontation with Islamic fundamentalism that triggered wars in Afghanistan, Iraq and now Afghanistan again. Productivity rose at home again as it had between 1948 and 1973, this time the consequence of computerization and the spread of new information technology. But there were no rising wages through strong trade unions in this second growth period; and no U.S. balance of trade surplus. Instead there was debt — increasingly foreign debt and personal debt — and there was greater income inequality Income and wealth distribution in this second growth period moved average CEO compensation packages in large corporations into a 200-400 percent ratio to median wage, depending on the state of the stock market, and helped fuel the credit bubble which broke so dramatically and with such serious consequences in September 2008. Paul Ryan’s “Pledge to America” proposes to take us to a third growth period by replicating the inequalities of the second. That cannot do. What this economy now needs is a scale of change far more fundamental than simply token tax cuts and the closing of federal programs. What the economy now needs is a new growth trajectory whose underpinnings more resemble the first period of post-war U.S. economic growth than they do the second. At the very least, we need somehow to scale back our global role, restore our competitive manufacturing base, and return to a lower and more functional level of social inequality. A leading Republican figure from an earlier age has recently compared the United States to Rome. Given the force of that comparison, it is hard to avoid seeing Paul Ryan, for all his new found importance, as fiddling with tax cuts for the rich while the rest of America hurts. Our economic strength is eroding and a social time bomb is ticking beneath our feet, which is why it is time to put the fiddle away and begin a proper conversation whose seriousness matches the hour. For more David Coates, read Making the Progressive Change: Towards a Stronger U.S. Economy , to be published by Continuum Books in 2011. Originally posted with full citations at www.davidcoates.net.

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Merton and Joan Bernstein: Mistake About Social Security Distorts Sunday New York Times Budget Exercise

November 15, 2010

Sunday’s New York Times , focused on national deficits, introduces its section on Social Security with the statement that, “Social Security is projected to run a deficit by 2015…” There follows a menu of Social Security proposed reductions to avert such a dreadful outcome. You’ll be relieved to hear that the statement is incorrect. But, then you’ll be concerned that the media, deciders and opinion makers and the public, used to depending upon the Times for solid information, will consider the budget debate with that major distortion in mind. The facts: In 2015, the Social Security trustees’ latest report projects program outlays will exceed Social Security payroll tax revenues slightly. But Social Security has two other dedicated income streams. In 2015 one source — taxes on the benefits received by high earners — just about cancels that difference. The third stream — interest on money borrowed by the Treasury from the Social Security Trust fund — would add $154 billion in revenues. So, official projections for 2015 show Social Security generating a surplus of $151 billion. Some pooh-pooh that interest owed by Treasury as IOUs. But IOUs (more formally called “bonds” or “debt obligations”) are what public and private trust funds hold. And among those securities, U.S. Treasury obligations are bought by other nations’ central banks and private investment funds because U.S. Treasuries are so highly valued around the world. Those Treasury obligations came into the Social Security Trust Fund because, since 1983, Treasury borrowed the portion of Social Security income left over after the program paid all benefits when due. Those surpluses and the taxes from high earners were a purposeful part of the 1983 Social Security legislation, designed to provide a long-term cushion for the program and to assure the public that Social Security was socking away funds to supplement payroll tax revenues when needed. Those surpluses now total some $2.5 trillion and will grow to about $4.2 trillion by 2024 enabling the payment of full benefits through 2037. . Social Security participants have already paid for those benefits. So any Treasury borrowing is, not to pay for Social Security, but to repay the borrowing from the Social Security trust fund; that was used largely to pay for the unfunded Iraq and Afghanistan wars and offset the Bush tax cuts. But for that borrowing, income and corporate taxes would have been higher and/or U.S. payments for non-Social Security activities would have been smaller. It would seem fair that the beneficiaries of those wars — certainly not the men and women who waged them, nor their families — but rather the contractors who made out like bandits (which some were) and the general public and corporations spared higher taxes — should replace those funds. That’s an entirely different allocation of future burdens than cutting Social Security as so widely proposed in discussions of deficit reduction. The New York Times ‘ error was not some minor or a technical glitch but a mistake that distorts the whole exercise the Times put before its readers to decide how to reduce projected deficits. Polls repeatedly show popular support for modest increases in the payroll tax, proposals absent from the Times budget exercise. One very gradual change starting in 2015, after the recession is over, would increase the payroll tax by one-twentieth of one percent for both employees and employers for twenty years. That boost would banish more than two-thirds of Social Security’s small long-term shortfall. In combination with raising the taxable amount of wages to its historic level, would make Social Security solvent for 75 years. Both poll very favorably. Preserving, and indeed improving, Social Security should be a top domestic priority. Social Security, the nation’s most effective anti-poverty program, is the mainstay of our retirees, providing the largest source of retirement income. The recession decimated private pensions and savings devices like 401(k)s and IRAs, making Social Security even more vital to seniors, the disabled and their families — over 50 million people. It makes no sense for Republicans to adamantly insist on extending the Bush tax breaks for the wealthiest Americans, at the cost of $4 trillion, while reducing the most important income support program for the rest of the population. And despite reassurances that current Social Security recipients would be unaffected, reducing cost-of-living adjustments, COLA, starting in 2012, is a central feature of such reductions We should not permit the specter of future deficits to further distract our attention and efforts from the most urgent problems millions of Americans already face — the lack of jobs and work income, the loss of millions of homes to foreclosure, and the huge but avoidable non-benefit costs of our health care non-system.

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Postal Service Takes Massive Loss Despite Deep Cuts

November 13, 2010

WASHINGTON — The Postal Service said Friday it lost $8.5 billion last year despite deep cuts of more than 100,000 jobs and other reductions in recent years. The post office had estimated it would lose $6 billion to $7 billion, but a sharp decline in mail took a toll. Increased use of the Internet and the recession, which cut advertising and other business mail, meant less money for the agency. For the year ending Sept. 30, the post office had income of $67.1 billion, down $1 billion from the previous fiscal year. Expenses totaled $70 billion, a decline of about $400 million. The post office also was required to make a $5.5 billion payment for future retiree health benefits. “Over the last two years, the Postal Service realized more than $9 billion in cost savings, primarily by eliminating about 105,000 full-time equivalent positions – more than any other organization, anywhere,” chief financial officer Joe Corbett said in a statement. “We will continue our relentless efforts to innovate and improve efficiency. However, the need for changes to legislation, regulations and labor contracts has never been more obvious.” The post office is currently in contract negotiations with two of its unions, with two more scheduled to be negotiated next year. The loss of $8.5 billion in 2010 was $4.7 billion more than the previous year. Mail volume totaled 170.6 billion pieces, compared with 176.7 billion in 2009, a decline of 3.5 percent. At the same time, volume was declining the post office was required to begin service to thousands of new addresses to accommodate population growth and new businesses. The post office has asked Congress for permission to reduce mail delivery to five-days-a-week and to eliminate annual payments for future retiree health benefits. A request from the agency for a 2-cent increase in postage rates to take effect next year was recently turned down by the independent Postal Rate Commission. The post office has appealed that decision in federal court. While the post office does not receive tax money for its operations it still must answer to Congress, which has been reluctant to agree to closing of local post offices and centers. Sen. Tom Carper, D-Del., blamed the loss on the recession and “operating restraints placed on postal management.” The result, he said, may represent the most serious threat to the post office in its 200-year history. “If corrective action is not taken quickly, the Postal Service will likely run out of cash and borrowing authority by this time next year, placing its ability to continue operations in serious jeopardy,” said Carper, who urged quick congressional action. Rep. Darrell Issa, R-Calif., who is expected to head the House committee overseeing postal operations, said the loss “only underscores the urgent need for the Postal Service to trim its operating costs to match revenues.” Fredric V. Rolando, president of the National Association of Letter Carriers, said the loss “comes as no surprise.” “For the Postal Service to improve its financial situation, the government must let the USPS manage its financial affairs in the most effective manner possible, like any other business,” he said. “Essential to that process would be for Congress to fix an onerous congressional mandate from 2006, which obligates the Postal Service to make annual payments of $5.5 billion to pre-fund future retiree health benefits. No other institution in America, public or private, has to do this.” Some have suggested privatizing the service, but the requirement to provide service everywhere in the country at the same price is not likely to be attractive to private companies. Of particular concern has been the decline in the lucrative first-class mail, largely consisting of personal letters and cards, bills and payments and similar items. First-class mail volume fell 6.6 percent in 2010, 8.6 percent in 2009, and 4.8 percent in 2008. Traditionally, this mail has produced more than half of total revenue. Volume for standard mail – advertising and similar business items – improved somewhat, indicating some signs of economic recovery, but generates less income. Postmaster General John Potter, who retires in December, has developed a 10-year plan for the future of the post office, but parts of that plan require congressional action. ___ Online: http://www.usps.com

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Richard (RJ) Eskow: Simpson/Bowles: A Predawn Raid on the Middle Class

November 11, 2010

Today the Presidential Deficit Commission’s co-chairs released a radically right-wing budget proposal. They acted without any prior announcement, just three weeks before the entire Commission was scheduled to deliver its collective report. Consider it as a sneak attack on the middle class, a pre-dawn raid on the American dream. Many things can and will be said about this draft proposal, but first and foremost it must be considered an admission of failure. Erskine Bowles and Alan Simpson were asked by the President to lead a commission that was to agree on a set of proposals most of its members could endorse. This proposal is their admission that they’ve failed, and it should be read with that failure of leadership in mind. It’s also important to remember that this is not an isolated act. The release of their proposal today was the culmination of a highly coordinated and extremely well-funded assault led by deficit hawks willing to harm our already-weak economy in order to cut government, and who would slash important programs like Social Security and Medicare to advance their agenda. And the timing of this proposal was no accident. Simpson and Bowles know they don’t have the 14 votes they need to issue a report. Releasing this proposal may be a desperate attempt to pressure some of their Commission own members. Or they may be trying to deliver some “shock and awe” by issuing a proposal so extreme that any subsequent package of cuts, no matter how unfair, will seem reasonable by comparison. Whatever their motives, the President who appointed this Commission is now in an ideal position to reject their conclusions. For one thing, endorsing them would violate his campaign promise not raise the retirement age or to cut Social Security benefits. (Check it our here .) Instead he should reiterate his argument that we need to reduce runaway health care costs, not cut or cap Medicare benefits, if we want to fix the deficit. As for Simpson and Bowles, this attempted end run around their own Commission shows they’ve failed to carry out the mission he gave them. It would have been more honorable if they had simply resigned. Since they haven’t, the President should look elsewhere for good ideas. Because of the covert way this was done, only their ideological allies were given a preview of the proposal. But an initial reading makes it clear that their agenda is a radical upward redistribution of national wealth and resources, with budget policy as the vehicle and “deficit reduction” as the rhetorical smokescreen. The bald guy says everybody should get a haircut It’s the perfect metaphor for this proposal: The cue-ball-headed Mr. Simpson is proposing an “across-the-board ‘haircut’” for public programs while saying absolutely nothing about Bush’s tax cuts, a budget-busting bonanza for the ultra wealthy that Republicans are pledging to defend at all costs. Their proposal calls for great sacrifices from the elderly, college students, and veterans. Surely, people will say, a plan that asks so much of those in need must also call for increased taxes on the wealthiest Americans. After all, their tax burden will be lower than it was for most of the 20th Century, even if the Bush cuts are allowed to expire. So they’ll share in the sacrifice too, right? Nope. When it comes to asking the super rich to pay their fair share, these deficit hawks suddenly go silent. If these Commissioners lack the political will to call for rolling back the Bush tax cuts, they should go back to Wyoming and North Carolina. The US economy and the global economic system are still struggling to recover from the worst recession since the 1930s. The nation urgently needs more jobs and increased economic growth. Instead the co-chairs have laid out a reckless set of proposals that would impose crippling austerity on the US government precisely when we need a strong increase in public investment. This plan is a recipe for pushing the economy into another recession. In the past, Bowles and Simpson have given lip service to the reality that any spending cuts must wait until we’ve achieved a strong economic recovery and sustained growth. But the document they released today would send the economy right off a cliff. They’re proposing major cuts to public spending that start in 2012, when most economists expect the economy will still be weak and fragile. Even if your only goal is a balanced budget, that’s a bad idea. A smart deficit hawk would first work to create jobs, increase income, and expand business activity, all of which reduce deficits in the long run. These are not smart deficit hawks. Co-Chairs Simpson and Bowles acknowledge that Social Security contributes nothing to the Federal deficit. That doesn’t prevent them from pushing cost-of-living changes that would harm current retirees, along with future increases in the retirement age that would reduce benefits even more for those who retire in the years to come. The Campaign for America’s Future just conducted election day polling which found that strong majorities of Americans – including Tea Party supporters – strongly oppose the cuts they’re proposing . Most voters of all political persuasions prefer eliminating the cap that limits the taxes wealthy individuals now pay for Social Security. The truly ‘bipartisan’ solution, embraced by Democrats and Republicans alike, is to lift the tax cap while protecting benefits. That’s the exact opposite of what Simpson and Bowles have proposed. At a time when most Americans are worried about their jobs and everyone has just taken a huge hit to their retirement savings, any politician who embraces these proposals is committing political suicide. And any leader who has the public’s best interests at heart will understand that these ideas must be rejected. Roger Hickey is Co-Director of the Campaign for America’s Future. He was a leader of the campaign to stop the privatization of Social Security, and he is a founder and member of the steering committee of Health Care for America Now. In the late 1980s he and Jeff Faux created the Economic Policy Institute. Richard (RJ) Eskow is a Senior Fellow with the Campaign For America’s Future. He is also a former executive with experience in health care, benefits, and risk management, and a policy consultant who has worked in the United States and in over 20 countries.

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Blythe McGarvie: Where the Action Is: Consumer Spending

November 8, 2010

I research and write about economic realities in the interconnected world and their implications for you and your business. I first discovered, in 1983, when I joined the Kellogg Alumni Council, that business school professors provide inspiration, analysis and thoughtful insight into the nature of business. You may be surprised that academia is relevant in these fast-paced and uncertain times. I have learned from them how to rely on quantitative and behavioral research to provide a deeper understanding of what I read in many media outlets. The headlines focus on conflict and controversy, not what happens during the rebuilding process. While professors research and consult, business men and women create and grow businesses. We all succeed by going where the action is. Let’s look at where the action is for consumer spending. Current Consumer Spending The largest component driving the U.S. GDP is consumption. In the last ten years, GDP has been comprised of roughly 70% consumer spending, 15% of exports to other countries, 10% of direct investments, and 5% of government purchases. Today, as some signs indicate an easing of the recession, U.S. consumers continue to hold back from spending. The most recent GDP information for the first half of 2010 shows that Exports increased 10% over last year. Direct Investments have increased 28%, Government Purchases increased by 1%; but, Consumption increased only 2%. Consumers will not be spending at their previous levels for a host of reasons. In fact, according to the President’s economic report in February: The growth that preceded the recession saw high consumption spending, low private saving, excessive housing construction, unsustainable run-ups in asset prices (especially for assets related directly or indirectly to housing), and high budget and trade deficits. That path was unstable — as we have learned at enormous cost — and undermined long-run prosperity. Thus, as the economy recovers, a rebalancing will be necessary. The model used in the report indicates that three factors drive the tradeoff between savings and spending. The higher the sense of wealth, the lower unemployment expectations, and the greater the ability to borrow (and pay back), the more people will spend. The recent stock market rallies and the lowest interest rates in decades suggest some optimism for spending. And, importantly, the GDP is growing at 2.7% and not contracting. Jobs will return in those areas that support exports and direct investments. But, the largest engine for the US GDP is stalled due to consumers’ sentiment about unemployment and their pressing need to pay down their current debt levels. According to a government report released November 1st, U.S. consumer spending rose by less than expected in September as income fell for the first time in 14 months. Inflation remained minimal. Other Countries’ Consumer Spending The news for major developing countries is quite different. Consumer confidence and purchasing behavior indicators in Brazil, Mexico, Taiwan, and Hong Kong are growing strongly (between 1 to 4%) and those of India and China are growing even faster (more than 5%). Each quarter, The Nielsen Company publishes the state of the global consumer and purchasing behavior. Included in this scorecard is the level of advertising spending, a leading factor in consumer spending. The key learning from this data is that the consumer is cautious; but, longer term, with 30 of 31 countries showing positive ad spending in the 2nd quarter of 2010, global consumer spending may receive a boost. Consumers respond to innovations and promotional activities. Tapping into Consumers Global companies continue to innovate. For example, DuPont launched more than 1400 new products in 2009, a 60% increase from 2008. The company filed more than 2,000 patents — its highest number in its history. Sales from emerging markets of $8 billion exceeded 2007 levels and are projected to grow at a 14% annual compounded growth rate to 2012. New companies also are discovering that consumers will spend money on items that they find innovative. The founder Robert Croak of the company selling Silly Bandz states: “I came across a product that a Japanese designer had created for an industrial design contest. I thought it would be really neat if we remolded it, made it thicker, larger and into a fashion accessory — and that’s how Silly Bandz was born.” Knowing “where the action is” helps management to focus on new business opportunities. One of my colleagues, Roger Schmid, recently gave a lecture and wrote about Brazil, where he works with consumer companies which you can find on our website LIFgroup.com . The only way to capitalize on this knowledge of which markets are growing is to be agile and nimble. This means knowing how to adjust your plans of action to find new consumers for your products. Of course, while you are in the markets, keep your eyes open for new competitors and innovative ideas.

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U.S. Banks Failing At Fastest Pace In 2 Decades

November 6, 2010

MARCY GORDON, Associated Press WASHINGTON — Regulators shut down four more banks Friday, bringing the 2010 total to 143, topping the 140 shuttered last year and the most in a year since the savings-and-loan crisis two decades ago. The Federal Deposit Insurance Corp. took over K Bank, based in Randallstown, Maryland, with $538.3 million in assets, and Pierce Commercial Bank, based in Tacoma, Washington, with $221.1 million in assets. The FDIC also seized two California banks: Western Commercial Bank in Woodland Hills, with $98.6 million in assets, and First Vietnamese American Bank in Westminster, with assets of $48 million. M&T Bank, based in Buffalo, N.Y., agreed to assume the deposits and $410.8 million of the assets of K Bank. First California Bank, based in Westlake Village, Calif., is acquiring the assets and deposits of Western Commercial Bank. Heritage Bank, based in Olympia, Wash., is taking the assets and deposits of Pierce Commercial Bank, while Los Angeles-based Grandpoint Bank is assuming the assets and deposits of First Vietnamese American Bank. In addition, the FDIC and M&T Bank agreed to share losses on $289 million of K Bank’s loans and other assets. The FDIC and First California Bank are sharing losses on $83.9 million of Western Commercial Bank’s assets. The failure of K Bank is expected to cost the deposit insurance fund $198.4 million. That of Western Commercial Bank is expected to cost $25.2 million; Pierce Commercial Bank, $21.3 million, and First Vietnamese American Bank, $9.6 million. Like these four financial institutions, the banks that have failed this year are smaller, on average, than those that succumbed in 2009. That has meant the deposit insurance fund has suffered a milder loss, which has reached about $21 billion so far this year, compared with $36 billion in 2009. Still, banks, especially small community institutions, are falling as soured loans have mounted and the economy has sputtered. The wave of closings points to the lingering power of the recession more than a year after its official end. Florida, Georgia, Illinois and California have each seen bank failures in the double digits this year. Some communities in those states are still reeling from the financial meltdown that brought an avalanche of bad loans, especially for commercial real estate. The closures have compounded the problems in areas already straining under high unemployment, foreclosed homes and vacant malls and office buildings. The pace of failures has accelerated as banks’ losses on loans for commercial property and development have mounted. Many companies have shut down in the recession, vacating shopping malls and office buildings financed by the loans. That has brought delinquent loan payments and defaults by commercial developers. The 2009 total of bank failures had been the highest annual toll since 1992, at the height of the savings and loan crisis. More than 1,000 banks went under in the savings-and-loan crisis of 1987-1992. Twenty-five banks failed in 2008, the year the financial crisis struck with force; only three succumbed in 2007. The growing bank failures have sapped billions of dollars out of the FDIC’s deposit insurance fund. It fell into the red last year, and its deficit stood at $15.2 billion as of June 30. The FDIC expects the cost of resolving failed banks to total around $52 billion from 2010 through 2014. Depositors’ money — insured up to $250,000 per account — is not at risk, with the FDIC backed by the government. That insurance cap was made permanent in the financial overhaul law enacted in July.

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Obama Concedes Economy Isn’t Producing Enough Jobs

November 5, 2010

WASHINGTON — President Barack Obama says he’s pleased with healthier job growth, but concedes the economy isn’t producing enough jobs to accommodate people in need of work. Speaking after the November jobs report came out, Obama said he’s “open to any idea, any proposal” that will help jumpstart the economy. He also said the country cannot afford two more years of partisan gridlock in Washington. The president made his statement at the White House before leaving on an Asian trip. He said that America cannot get bogged down in political fights while other countries, like China, are moving forward aggressively to build their economies. He said “the recession caused a great deal of hardship” and it’s vital that business growth be spurred so that substantially more jobs can be created. (This version CORRECTS APNewsNow. Corrects spelling error in short headline. This story is part of AP’s general news and financial services. AP Video.)

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For-Profit College Shares Tumble

November 4, 2010

NEW YORK — Shares of for-profit schools dove Thursday after a seemingly routine program review by the Department of Education reawakened fears of greater oversight – and lower profits – in the sector. Several analysts also sounded warnings, concerned about their ability to sign up new students and access government-backed financial aid due to increased scrutiny. Apollo Group Inc., which owns the University of Phoenix, the country’s largest for-profit higher education chain, said on Thursday that the DOE is launching a review of how Phoenix administers federal financial aid. The announcement comes not even five months after the conclusion of another review which cost the school $1.8 million in repayments. The new review will cover the period from the 2009-2010 aid year up to the present. Program reviews are fairly common, and the launch of a review doesn’t mean a school has violated financial aid rules. Yet back-to-back reviews in the past would have unusual, said UBS analyst Ariel Sokol. “The perception perhaps has been that the DOE.has been asleep at the wheel” regarding oversight of the schools, he said. “In that context, it’s not surprising.” A Government Accountability Office report in August found misleading recruitment practices at 15 schools, which the DOE said it could use to act upon. Such reviews could result in fines or restricted access to government-backed financial aid, which makes up the bulk of the schools’ revenues. The University of Phoenix program review “is the initial evidence of an increased enforcement regime” at the Education Department, said Signal Hill analyst Trace Urdan in a research note. Critics claim the schools are not helping students find better jobs and say enrollment counselors sign up many who are unprepared for higher education. When students drop out, they are still stuck paying back their student loans – unless they default, and then the bill goes to the taxpayers. Defaults on student loans, most of which are supplied by the government, have been rising throughout the recession. One DOE proposal is called a “gainful employment” rule that could limit schools’ access to federal financial aid if graduates’ debt levels are too high or too few students repay loans. It was supposed to be announced by Nov. 1, but intense lobbying from the for-profit sector helped delay finalization until 2011. The DOE held a public hearing on the rule Thursday. School chains, including Apollo, have been warning investors that they expect student enrollments to drop as they accommodate new rules. Apollo shares tumbled $2.91, or 7.6 percent, to $35.56 in afternoon trading. Shares of Corinthian Colleges Inc. fell more than 11 percent, hitting a new 52-week low, after a downgrade from UBS. The company said that it may have to raise tuition or risk violating government rules on how much of its revenue can come federal financial aid. It also expects a big drop in new student enrollments. DeVry Inc. shares dropped 4 percent, while Grand Canyon Education Inc., which was downgraded by Baird, fell nearly 6 percent. ITT Educational Services Inc. fell more than 3 percent, as did American Public Education Inc. Bridgepoint Education Inc., Capella Education Co., Strayer Education Inc., Career Education Corp. and the Washington Post Co., which owns the Kaplan school chain, all had share declines of 2 percent to 3 percent. Education Management Corp. shares bucked the trend after a better-than-expected earnings report, rising $1.22, or 10.5 percent, to $12.95. (This version corrects misspelling of analyst name.)

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