Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.
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May 17, 2013 at 10:28 AM
The Dow is over 15,000, corporations are sitting on record amounts of cash, M&A activity is picking up, the deficit problem is on track to being solved, inflation is nearly non-existent and the U.S. economy is performing better than that of almost all other industrialized nations. Metropolitan Seattle, with 5.5 percent unemployment, is getting close to what economists would consider full employment. On the other hand, millions remain unemployed, wages are stagnant and inequality is the highest we’ve seen since the 1920s and perhaps even at a historic record. It’s a recovery, but one very different from those seen in the post World War II era.
Consider that a recession comes along around every seven years or so. Also, the banking industry is as dangerous as ever, and so politically powerful that it was most recently able to push back meaningful regulation of derivatives. Federal austerity is holding back a more robust recovery. Recession in the eurozone, a slowdown in China and political tensions in east Asia are among many concerns. What has you most worried?
Read on for the best links of the week and the haiku:
May 15, 2013 at 2:52 PM
The final toll of workers killed in the collapse of a garment factory in Bangladesh is 1,127. It is a staggering tally of loss. By contrast, the infamous 1911 Triangle Shirtwaist Factory fire in New York City killed 146. The Triangle fire, where factory managers had locked fire-escape doors, galvanized the Progressive movement in America, leading to new safety codes, labor laws and increased unionization. Such a favorable outcome in Bangladesh is much less likely.
As the Seattle Times’ Amy Martinez reports, officials at Nordstrom are scrutinizing the safety conditions at the three Bangladesh factories where some of its garments are made (none were made at the factory that collapsed). Benetton, H&M, Joe Fresh, Mango, Tesco and Zara are among the companies that are pushing a binding agreement that requires them to help pay for better safety conditions at Bangladeshi apparel factories. Gap, Sears, and J.C. Penney are among others who have yet to sign on. Gap, for example, has said it fears lawsuits from American lawyers. Wal-Mart, the biggest player, is drafting its own plan, but critics worry it won’t be enough to prevent further deaths.
In addition to the lack of a united front by Western retailers, the Bangladesh government is corrupt and deeply captured by the international garment industry. Ready made apparel is the poor country’s largest export. The government did say it would allow garment workers to unionize and raise the minimum wage, but it’s unlikely these reforms will do much good in such an environment.
May 13, 2013 at 11:32 AM
The Census Bureau has a nifty interactive map on business patterns at the state and county level, based on its latest survey (2011) released in April. It allows for some interesting compare-and-contrast. For example, Washington is only slightly more populous than Arizona (6.9 million vs. 6.6 million), yet we are home to 173,511 businesses vs. 130,305 for the Grand Canyon State. Arizona also trails less populous Colorado (150,889).
So what accounts for the difference? At least in the Washington vs. Arizona match up, I suspect it has a great deal to do with the large headquarters and successful clusters in aerospace, software and biotech/biomedical. The former provides sizable mother ships that support many small-business vendors, while the latter produces a culture of genuine (as opposed to the buzzword) innovation and startups, both at critical-mass levels so growth and reinvention happen. The Seattle area also draws a very high level of college graduates. Arizona has nothing to compare.
The “fun facts” mostly involve the most populous states and counties (e.g., most auto repair outlets, California; most convenience stores, Texas). King County does rank third with the most day care centers (870) after LA County and Chicago’s Cook County. King County ranked No. 8 in full-service restaurants and No. 9 in real-estate businesses. A shocking failure: King County didn’t make the list of top 10 in number of bars. It hasn’t been for my lack of patronage.
And Don’t Miss: Climate change, corporate sustainability and the supply chain | Bulletin of the Atomic Scientists
Today’s Econ Haiku:
Let’s suggest the NBA
May 10, 2013 at 10:14 AM
Gov. Jay Inslee has unveiled the state’s Aerospace Industry Strategy. Among its chief goals, as the Seattle Times‘ Dominic Gates reports, is to attempt to do as much work here on the Boeing 777X as possible. We have the tools and we have the talent, as the old expression goes: One of the world’s top two aerospace industry clusters and 92,000 employees, including 86,000 working for Boeing. But achieving this is not assured. Boeing will pit state against state, particularly Washington against South Carolina, for the best package of tax breaks and other incentives.
It’s worth noting that earlier this month Raytheon announced it would move the headquarters of its Space and Airborne Systems unit from El Segundo, Calif., to the Dallas suburb of McKinney. Relatively few employees are involved, but the symbolism is large. Southern California’s aerospace and defense industries employed 272,000 in 1990. It lost 142,000 jobs over the next decade. According to LAEDC, the regional economic-development organization, LA County aerospace employment fell 69 percent from 1990 to 2o11 vs. a national decline of 44 percent (the numbers were 65 and 60 percent declines for Orange and San Diego counties respectively. Southern California aerospace employment was down to 85,700 by 2011.
What do you think?
Read on for the best links of the week and the haiku:
This Week’s Links:
• JPMorgan: A new type of dirty energy | Naked Capitalism
• The health-care ‘market’ is so not a market | Jared Bernstein
• Mergers and enforcement in 2012 | Conversable Economist
• Triumph of the mercantilists | Clyde Prestowitz
• How oil travels around the world, in one map | Washington Post
• Seven myths about Keynesian economics | The Fiscal Times
Today’s Econ Haiku:
The deficit’s down
As the economy climbs
May 8, 2013 at 9:45 AM
As of last month, Starbucks was holding nearly 1.7 billion in cash on hand. In June of last year it was nearly $2.5 billion. Microsoft had nearly $74.5 billion. Amazon.com, which invests heavily in its future, still boasted about $7.9 billion. All these figures are much higher than before the recession — and these companies are pikers compared to many. Apple, for example, has about $145 billion. In general, American corporations are holding record amounts of cash.
Economists at the Federal Reserve Bank of St. Louis set out to find the answers. One size probably doesn’t fit all. For example, some corporations are keeping profits earned in growing international markets offshore to avoid U.S. taxes. Some don’t seem to trust the safety of the financial system after the Panic of 2008, thus are keeping cash for acquisitions and operations rather than borrowing on a large scale as they would have done so in the past. Yet another explanation is the rising importance of information-technology firms, which use cash for research and development. I would add that cash gives management a tool to keep shareholders happy, with dividends and stock buybacks.
One thing that’s not happening is broad-based hiring. The nation still faces an unemployment crisis, despite record cash in corporate treasuries and a historic high (not adjusted for inflation) for the Dow Jones Industrial Average. Whether this is the new normal or a sign of continued uncertainty and low demand is a key question that isn’t answered.
And Don’t Miss: Bankers warn of farm, student loan bubbles echoing subprime | Bloomberg
Today’s Econ Haiku:
The snake eats its tail
May 7, 2013 at 10:21 AM
James J. Hill was in the wrong game and lived in the wrong era. Hill, the “empire builder” who directed construction of the Great Northern Railway to Seattle as well as the newly renovated King Street Station, joined a cabal involving some of the richest men of the Gilded Age — John D. Rockefeller, E.H. Harriman and J.P. Morgan — to create a giant rail network including the Great Northern, Northern Pacific and Chicago, Burlington & Quincy. They pooled their holdings in a trust called the Northern Securities Co.
The 1901 deal was especially good for Hill and Harriman, the latter controlling the Union Pacific. The UP received favorable treatment from the Hill lines. The competing Burlington Route was taken out as a rival. Hill kept control of railroads to the Puget Sound. These rich men were saved from the cost of “ruinous competition.” Shippers were forced to pay high rates and had no alternatives. (The Milwaukee Road’s extension to Seattle and Tacoma would not arrive until later in that decade).
What none of them counted on was Theodore Roosevelt, the new president. Unlike his predecessors in the 1880s and 1890s, he responded to the popular outcry against the monopoly and sued Northern Securities under the Sherman Antitrust Act. The case went to the Supreme Court and the rich men lost. Northern Securities was broken up, the biggest coup of the Trust Buster. I wonder what TR, who enjoyed sports as much as he loved “fair play,” would make of David Stern and the National Basketball Association?
May 6, 2013 at 10:38 AM
Jamie Dimon, chairman and chief executive of JPMorgan Chase and acquirer of Washington Mutual, may no longer be “America’s least-hated big banker” — admittedly a low bar. Last year, he presided over the “London Whale” trading fiasco, a bet gone wrong that cost the bank $6.2 billion. Investigation of the disaster further tarnished the bank’s once glowing reputation. Both the Federal Reserve and the Office of the Comptroller of the Currency censured JPM for poor oversight of its trading (read gambling) and also for lax controls against potential money laundering. A U.S. Senate subcommittee said the bank misled investors.
Now, Dimon is facing a proposal that the chairman and chief executive officer jobs be separated, and three JPM directors not be re-elected when the firm holds its annual meeting May 21st. Institutional Shareholder Services, an investment advisory firm, has backed the initiative. ISS cited “material failures of stewardship and risk oversight.” The three directors targeted are David Cote, James Crown and Ellen Flutter, all on the board’s risk policy committee.
Not to worry. Even Warren Buffett has ridden to Dimon’s defense, telling CNBC that Dimon should keep both jobs. In his annual letter to shareholders, which came out last month, Dimon wrote that the Whale “was extremely embarrassing, opened us up to severe criticism, damaged our reputation and resulted in litigation and investigations that are still ongoing.” He promised to do what it takes to make JPM “the safest and soundest bank on the planet.” But earlier this year he threatened to leave if he loses both jobs, and that worries the Wall Street conventional wisdom, which holds that Dimon is indispensable. Also, note how a similar effort to separate the two jobs turned out at Boeing. At least JPM’s board forced Jamie to take a one-year pay whack to show some accountability.
May 3, 2013 at 10:08 AM
Job growth picked up in April, with the economy adding 165,000 new jobs. Still, the unemployment rate barely budged downward and the length of the average workweek actually declined from 34.6 to 34.4. (Here’s the report in charts). Economist Heidi Shierholz of the Economic Policy Institute called this “a substantial drop that is not a good sign for future hiring.” And although the number of jobs created was above that needed to keep up with the natural growth of the labor force, Shierholz said that at the growth rate seen this year — around 196,000 jobs a month — “it will take more than five years to return to the prerecession unemployment rate.” For high-school graduates, the economy keeps getting worse.
Economist Dean Baker dug deeper into the report, labeling the composition of the jobs created “disturbing”:
More than a fifth of the added jobs (34,600) were in employment services. Restaurant employment accounted for 38,000 jobs and the retail sector added 29,300. These three sectors accounted for more than half of April job growth. Health care added 19,000 jobs, a bit less than its 25,000 average over the last year.
Jobs were lost in construction and government. Local and state governments have shed 224,000 jobs over the past year. Manufacturing employment was flat. “One disturbing item in the household data was a 1.0 percentage point drop in the share of unemployment due to voluntary quits. This is the sharpest fall since February of 2009 and could be an indication of less confidence in the job market.” Also, “there is zero evidence that the prolonged period of high unemployment is due to a lack of skills of the workforce.”
What are you seeing at your workplace?
Read on for the best links of the week and the haiku:
May 2, 2013 at 10:15 AM
Falling incomes and higher rental housing costs put increasing pressure on working families from 2008 to 2011, according to a new report from the Center for Housing Policy. Using Census Bureau American Community Survey data, the report found that nationally rental costs rose 5.9 percent while incomes declined by 3.2 percent. Some 26.4 percent of working renters spent more than half of their household income on housing costs. Costs for owners in this cohort dropped 3.2 percent while incomes fell 4.2 percent. They paid 20.9 percent, basically unchanged from 2008.
The advocacy group defines working households as those with incomes less than 120 percent of the median for its area, and whose members worked at least 20 hours per week on average. Metro areas with the highest share of households facing a “severe housing burden” were Miami, Los Angeles, New York, Orlando and San Diego.
Seattle-Tacoma-Bellevue’s rate of working households spending more than half of their incomes on housing was below the average of the 50 largest metros, at 23 percent in 2011. That’s 134,428 households and up from 22 percent in 2008. The data don’t include households where the working-age people are unemployed. In Portland, the number jumped to 24.3 percent from 20.9 percent.
April 30, 2013 at 9:00 AM
You remember Weyerhaeuser. Or, if you moved here in the past five years, maybe you don’t. At one time, the Federal Way-based corporation was one of the largest and most powerful integrated paper-and-timber companies in the world and a major asset to the Puget Sound, especially in its former home of Tacoma. It also attracted criticism for its clear-cutting, among other environmental controversies. Then, in 2008, it cut 1,000 of its 2,500 headquarters jobs as it completed a transformation into a smaller real-estate investment trust that included selling its packaging and paper units. It was immediately slammed by the housing collapse, which dried up demand for its timber and shattered the ambitions of its housebuilding unit.
But Weyerhauser is back, after a fashion. Last week, it reported robust first-quarter earnings that beat Wall Street’s expectations. Earlier this month, it increased its dividend. The news attracted the attention of Financial Times’ influential Lex column, which proclaimed on Monday, “Now streamlined around its forest-based segments, the company can capitalise on America’s reinvigorated homebuying.” Behind the strong earnings was the best performance by its wood products unit since 2005, during the prime of the housing boom.
In a Friday conference call with analysts, Chief Executive Dan Fulton said the company was seeing benefits from a recovering U.S. housing market, as well as strong export demand from Asia. The company’s timber holdings in the West especially benefit from exports, while Southern forests were more closely tied to the U.S. housing market. “The positioning of our Western lands allows us to fully realize the opportunity to supply strong export markets, as well as to serve recovering domestic demand. In the South, we’re well positioned to meet increasing demand as log markets improve.”