October 3rd, 2009 08:30pm
Annette LaCross
And I thought I was a pessimist.
According to a study released last week by a pair of economists at Rutgers University, the economic slowdown will persist long after even I had predicted.
Think 2017. That’s how long the authors expect it will take to get back to pre-2007 levels — and that doesn’t factor in job growth.
It is, to say the least, a sobering report, calling the first 10 years of the century the Lost Employment Decade. In fact, it marks the first time since the Great Depression that we’ll record a loss of jobs over the course of a decade.
To put this new experience into perspective, during the final two decades of the 20th century, the nation gained 34.4 million private-sector jobs. Today, it appears that we are “destined to lose more than 1.7 million private-sector jobs” in this decade, according to the study.
But then there’s the growth of the labor force. The Bureau of Labor Statistics expects the work force to grow by 1.3 million people through 2016. So just to stay even, we’d have to find an additional 1.3 million new jobs as well as the 7.6 million lost through September.
One of the more ominous developments found by the authors, James Hughes and Joseph Seneca, was the decline of the service sector. In previous recessions, it represented a small part of the job losses, with most of the drops coming from manufacturing and construction.
In the 1981 recession, for example, job losses in the service sectors — which covers a broad swath of industries, from financial consultants to attorneys to hotel employees — registered about 2 percent of overall job losses.
Lately, however, the number has skyrocketed, accounting for more than 50 percent of job losses, according to the study.
Hughes and Seneca cite a few things that have hampered job growth throughout the decade, including the cost of health care benefits. Indeed, why create more jobs when the cost of the additional workers’ health care benefits could bankrupt you?
On the other hand, some companies may have registered productivity gains, enabling their output to grow without adding to their employment rolls. This could indicate a more efficient economy at work.
Still, the bleak reality has some far-reaching implications, including a significant rise in the competition among states for industries that will bring jobs.
This, of course, means there are opportunities out there for communities like ours. And while cities and counties have limited control over their overall economic environment — state policies tend to be larger drivers, not to mention that Midwestern communities lack Arizona’s climate and California’s coastline — taking advantage of any growth means we will succeed only if we step up our game.
As always, companies looking to relocate have a number of priorities: ready availability of educated or trained workers, access to the company’s markets, a public infrastructure that provides a high quality of life to its workers and high-performing schools.
Looks like Rockford has its work cut out for it.
Contact Business Editor Annette LaCross at alacross@rrstar.com or 815-987-1295.
September 5th, 2009 06:48pm
Annette LaCross
We’ve been hearing a lot about the New Economy lately, the new “normal.”
We are saving, not spending. We are clipping coupons, wearing our frugality proudly. We are organizing neighborhood swap meets.
So goes the prevailing wisdom, at any rate. It’s no longer the economy we knew, national experts intone solemnly, even as an encouraging number of reports suggest that the Great Recession, if not actually dead, is at least having trouble breathing.
Still, they say, Americans have rethought their fiscally imprudent lifestyles and have embraced living without.
Nonsense. What they don’t say, and what I’m wondering, is how long it takes before “new” gets old.
For the American consumer, it doesn’t tend to be too long. After all, we can get just so excited about reusing tin foil before the urge to buy something new becomes overpowering.
Certainly, rising unemployment is enough to put a damper on anyone with a hankering for a new electronic gadget. And as I wrote last week, the economy isn’t actually going anywhere unless consumers get back into the spending business.
But they will. If the baby-boomer generation has taught all other generations anything, it’s our right to spend money.
And after a full decade of unbridled spending, there’s a lot of pent-up demand out there.
We may have been forced to recover some semblance of sanity — to start cleaning up our debt, to live within our means — but it never lasts.
And that’s OK — just like we needed a housing bubble to pull ourselves out of the crisis after the 9/11 terrorist attacks, we need consumer activity to jump-start this one.
But there’s an interesting dynamic that will kick in at some point, one that promises to keep our standard of living below the heady years of recent memory.
Those same baby boomers, the ones who taught the world how to spend, are moving away from their spending years.
They’re moving into retirement, or savings, mode.
And the rest of the population doesn’t have that kind of spending power at their disposal.
I think we’ll see a mini-bubble, when the boomers pocket that pent-up demand and head out to spur the economy. But inevitably, it will slow, with more of it making its way to the health-care system and the rest safely in retirement and savings accounts. For the rest of us, that’s the new “normal.” And it hasn’t been established yet.
Even when it does, we’ll find a new reason to find ourselves atop an unsustainable mountain of debt — it happens every decade or so, after all — as individuals and corporations develop “recession amnesia,” as Rockford Area Economic Development Council chief Janyce Fadden calls it. And then we’ll find another new normal.
It’s the thing to remember about the economy, new or not: We don’t like change, and we tend to return to our most comfortable behaviors. Even if those behaviors can be a little self-destructive.
Contact Business Editor Annette LaCross at alacross@rrstar.com or 815-987-1295.
August 22nd, 2009 02:51pm
Annette LaCross
The way I see it, there are three fairly significant hurdles in the path of any real economic recovery, which is why I’m truly puzzled over the joyous proclamations that we’re well on our way.
As I’ve said before, there are reasons for optimism in the wake of some better-than-expected reports in the past few months.
But here’s what I don’t get: How can we be well on our way to economic Elysium with three unpredictable wild cards still floating around out there?
In a nutshell, and in no particular order, call them crude, credit and consumers.
Start with crude. To paraphrase Leon Uris’s “Exodus,” if the kingdom of heaven runs on righteousness, the kingdoms of Earth runs on oil.
It’s been the most volatile global commodity in the past year, spiking to $140 a barrel last summer, dropping to $40 or so by December and settling lately around $70. If it spikes again, fearful consumers will pull back.
The culprit, of course, was supply and demand. Emerging markets, such as China and India, began their explosive growth in the boom years, all of which required a steady supply of crude oil.
When the bottom fell out of the global economy, growth fizzled, as did the demand for oil.
But that growth will begin again. And when it does, those developing nations will recover their thirst for oil.
Even if the growth is only a steady swing, oil prices are going to rise again. And they will keep rising. It will have a significant effect on the U.S. economy, which consumes a quarter of world production every year.
Then there’s credit. Or rather, there isn’t. Much.
Certainly, financial institutions no longer are in the full-scale lending retreat that struck in October and froze the world’s economies for months.
But for all practical purposes, lending remains stunted. And credit is to businesses what gasoline is to your car: It’s the business community’s lifeblood. It can run on its reserves for a while. But at some point, you have to fill it up again.
It’s going to have substantial consequences for any sort of recovery.
And consumers? Surely by now you’re aware that consumer spending has made up 70 percent of the economy.
To put it another way, the national economy is an engine running at 30 percent power without it.
There have been few signs of growth in consumer spending. And still-rising unemployment numbers don’t inspire a lot of confidence, anyway.
Rockford stores suffered worse than most in May, with revenues dropping 13.7 percent compared with May 2008. That marked the largest year-over-year decline for Rockford.
Stillman Valley, Polo and Oregon posted declines of more than 20 percent, Mount Morris’s revenue was off 36 percent, and South Beloit’s was down a drastic 41 percent.
The government’s stimulus spending and consumers buying necessities might boost the engine’s overall output to 60 percent. But to me, that’s not recovery. It’s more of a refurbishment.
Without those three factors added to the equation, I don’t see a recovery anytime soon.
And given how unpredictable they are, I don’t see how anyone else can, either.
Contact Business Editor Annette LaCross at alacross@rrstar.com or 815-987-1295.
August 15th, 2009 04:38pm
Annette LaCross
The central bank of the U.S. is walking a real tightrope these days. And some folks already are betting against it.
The specter of inflation, or worse, hovers ominously on the horizon, and if the Federal Reserve can’t rein it in judiciously, it stands to significantly impede any progress we make toward an economic recovery.
Since global finance fell apart last September, the Fed has pumped literally billions of crisp new dollar bills into circulation. Sort of.
They’ve printed these new bills, certainly. But many of them aren’t technically “in circulation” at the moment because the financial institutions to which they were given aren’t spending them.
Then there are the billions more paying for the Obama administration’s stimulus projects, all of it designed to force the economy to right itself. And when it does, those dollars will start trickling into general circulation.
Therein lies the tightrope on which the Fed must delicately balance: When do they start decreasing the money supply, which is much, much greater than market demand?
Used correctly, inflation and increased government spending are useful tools in a recession. Increase the money supply and lower interest rates and, bingo, lending goes up and the economy gets a jolt. Use the government’s money to put people to work and, bingo, spending goes up, the economy gets a jolt.
The downside, of course, is the resultant decline in the value of a dollar.
And the amount of money available is enough to trigger hyperinflation, which, as you can probably guess, is just like inflation except worse.
As I said, a few have established hedge funds betting on hyperinflation, which seems a little too pessimistic, even for me. Still, the Fed didn’t have much of a choice. The alternative, to let the markets figure it out themselves, would have almost certainly led to a depression to rival the first. In fact, the lack of government intervention is one of the primary reasons the Great Depression came about in the first place.
Fed chief Ben Bernanke, a student of the Great Depression, knew that if the government didn’t start a massive infusion of cash into the marketplace, the entire system would fall apart.
But now comes the tricky part: pulling that cash back into Fed coffers before it gets loose and sends the system careening out of control again, this time in the other direction.
But history — in fact, pre-Depression history — has left Bernanke another road map to follow, even if it’s a good example of what not to do.
After World War I, when Germany was saddled with debt it couldn’t pay, its central bank started printing money.
Within a matter of months, goods shot to stratospheric levels. In the time it took to enjoy a cup of coffee, the price of the cup doubled. Restaurant waiters had to reset prices on menus several times a day. Workers were given a half-hour after they were paid — in thousands upon thousands in currency notes, which they carted around in wheelbarrows — so they could spend the money before it became worthless.
As Liaquat Ahamed wrote in his excellent book “Lords of Finance,” it was “the single greatest destruction of monetary value in human history.”
Bernanke believes he can wind up that money before it does too much damage. And for the time being, I’m keeping my money on him.
Contact Business Editor Annette LaCross at alacross@rrstar.com or 815-987-1295.
August 8th, 2009 10:15pm
Annette LaCross
A pair of columns I wrote nearly a year apart seem to be coming to a head these days.
A month or so ago, I wrote that it took nearly 70 years for Wall Street to unwind most of the regulations established by Franklin Delano Roosevelt’s administration in the throes of the Great Depression. It took fewer than 10 before the same bankers managed to bring the economy crashing down around us again.
More than a year ago, I wrote that Wall Street was inviting a hell of its own making by imploring the federal government for help before its vaunted institutions fell apart completely.
Uncle Sam did help, at which point many of its vaunted institutions fell apart completely. The government did succeed in propping up a select few.
From a Wall Street standpoint, that’s when the real problems began. Uncle Sam, you see, seems to share at least one characteristic of vampiric legend: Vampires can’t come into your house unless you invite them. But watch out if you do … they won’t leave until you’ve bled to death.
In the general panic of last year’s fourth quarter, inviting the demon inside seemed to make sense, especially considering the other monster stalking their halls: bankruptcy.
These days, however, safely tucked in the third quarter of 2009, with the financial waters calming, Wall Street has decided to thank its one-time benefactor politely and send it out of town. Fast.
Unfortunately, it can’t have it both ways — which is why the real hell for Wall Street is just beginning.
The Obama administration’s ambitious financial reform plans are irrefutably necessary. We’ve seen all too clearly what happens when financiers run amok, which is a fair representation of their behavior over the past decade or so.
And it’s a fair conclusion that government regulators, at the very least, didn’t take their jobs very seriously.
Granted, they may have been lulled into this position with the help of former Fed chief Alan Greenspan, who believed regulation of financial firms unnecessary because the firms would always act in their own best interests — which even I would assume doesn’t include outright failure.
So there is clearly a need to reinforce some of the regulations.
The heart of the reforms focuses on consumer protection, with a new agency providing oversight of credit, debit and gift cards, mortgages, overdraft protection, payday loans and a host of other consumer-focused instruments.
Banks and other financial firms will have to answer to stiffer rules, including the standards by which their capital is measured; some of the larger hedge-fund companies would be regulated; and the ratings agencies, which have undergone some intense scrutiny, would face more disclosure requirements and stricter standards.
I’ll admit, I share some of Wall Street’s “concerns” — a polite term that in this case means “frenzied panic” — over the proposed regulations. Anyone who saw bankers and financial types being grilled by various congressional committees this year knows what I mean.
But even vampires have to follow the rules. And the rest of us are safer for it.
Contact Business Editor Annette LaCross at alacross@rrstar.com or 815-987-1295.
August 1st, 2009 05:41pm
Annette LaCross
Glimmers of economic hope have been dawning on the horizon, and they’ve prompted a flurry of news reports containing such words as “recovery,” “bottom,” “rebound” and “optimistic.”
Unquestionably, they’re a relief after nearly two years of unrelenting reports containing “plunged,” “plummeted,” “sales” and “stock market,” or “skyrocket,” “soar,” “unemployment” and “oil prices.”
Still, there are two important things to keep in mind when reading these reports:
1. Watch the clock.
2. They really don’t matter.
At least, as far as you and I are concerned.
If all politics is local, then the economy is more so. And such an elusive concept as economic recovery will only be recognized when we can actually see it — when the rising number of unemployed people in Winnebago and Boone counties head back to work, when the restaurants and retailers on East State Street or Illinois 251 are bustling again, when neighbors move in next door.
The word that must be included in those stories, of course, is “sustained.” And lately, it isn’t.
That’s why I remain bearish, despite the reports that retailers had stronger-than-expected sales gains in the late spring and early summer or that home sales saw a good month or two around the same time. Certainly it’s cheering news. But it’s also why watching the clock is important, for any number of reasons.
The time of year is a big factor, of course, because home and retail sales, even unemployment, tend to record improvements when the weather gets warmer: Consumers get out more, and companies take on seasonal workers.
Even more important, however, is that a month or two of increases does not signal any sort of recovery after such a prolonged contraction. It doesn’t even mean that the market has hit “a bottom.” It just means long-suffering retailers and Realtors may have seen a little — in some cases very little — relief.
Consider: Homebuilders in Belvidere and unincorporated Boone County saw the number of residential building permits grow 100 percent — 100 percent! — in June over the previous five months.
The number of building permits filed from January through May? Zero. The number in June? One.
Then again, it also was the first month that the number of building permits filed in Winnebago and Boone counties didn’t drop year over year.
Any signs of growth are hopeful. Just don’t fall into the trap of listening to economists who already insist that the economy is recovering.
In other words, we’ll know when the recession has ended. And it has nothing to do with the official “end” — remember, it was about this time last year that we learned we were actually in a recession, although most of us knew it well before any announcement was made.
Contact Business Editor Annette LaCross at alacross@rrstar.com or 815-987-1295.
July 11th, 2009 10:06pm
Annette LaCross
We are dauntless, it seems, in our quest to find and conquer our bogeymen.
You know him well, probably. He exists in many forms — the debt collector, the unethical coworker, the former spouse.
Of course, as the recession has unfolded around us, his various forms have started to look a lot alike: Wall Street financiers, American International Group executives, commodities traders, bankers, stock traders, short sellers, politicians … you get the idea.
It’s a fundamental human reaction, to be sure, this need to blame somebody for our woes. It allows us to identify the cause of the problem. By assigning it to one individual or group, we are reassured that the offending behavior has thus been labeled, isolated and, hopefully, imprisoned.
It doesn’t mean we’re right, of course. It just means we’ve identified the most convenient scapegoat for our troubles and can now move on, satisfied that the behavior won’t be renewed.
If nothing else, it gives us a sense of control after a global economic meltdown.
The latest bloodsucker to capture the attention of Capitol Hill is the ever unpopular Oil Speculator, with new rules proposed by the Commodity Futures Trading Commission to limit the volume of trades on energy futures by any one trader.
Politicians couldn’t find a better scapegoat — nameless, faceless and dedicated to destroying the American lifestyle. Even better, most people don’t have any idea what these guys do, anyway.
In my more cynical moments, I often wonder whether the politicians do.
At any rate, these particular bogeymen are before us for the second time as the cause of some, if not all, of our fiscal pain.
North Dakota Democratic Sen. Byron Dorgan summed up the populist tripe, saying the proposed rules would help thwart such speculators, who are no doubt “looking for a quick buck at the expense of American consumers.”
He probably said something similar last year, when gas prices jumped to $4 a gallon and politicians demanded justice from the evil Speculators. That is, until gas prices fell and Capitol Hill abandoned the bogeyman du jour to hunt for another one.
It’s coming up again because of the volatility in the oil market. Oil prices fell below $59 a barrel Friday after a steady rise the week before, when it reached a peak of $73. It’s been bouncing around most of the year and has nearly doubled from its low in the first quarter.
Certainly, speculating on energy markets no doubt has some effect on prices.
But the real problem, once again, is simple economics.
Oil prices fell last week on reports of the rise in jobless claims and the drop in consumer spending in the U.S. That means Americans, who use at least a quarter of the world’s oil production, likely aren’t going to be driving or flying much.
In other words, demand in the U.S. fell. And so did demand in those emerging markets — which will drive most of the world’s production in the next decade or two — we hear so much about: China, India, Brazil.
If you want to know when we’ll see $4-a-gallon gas again — and we will — keep an eye on those foreign economies and earnings reports from construction material and equipment companies. That’s when speculators will get involved, betting that the demand for construction in emerging markets will be followed by the demand for oil.
No satisfaction, then, in the rise. Unless we should blame another country for aspiring to the standards the U.S. has set.
Contact Business Editor Annette LaCross at alacross@rrstar.com or 815-987-1295.
July 4th, 2009 05:24pm
Annette LaCross
It was starting to look like a glum graduation for students of the country’s business schools.
Millions of people are crowding unemployment offices. Companies across the globe are trying desperately to survive. Wall Street is in a shambles. Besides, what’s the fun of being based at Capitalism Central if Uncle Sam is the one telling you what your take-home pay is going to be?
But take heart, Young Capitalists. I have identified three can’t-miss areas of growth, even in an economy whose glory days are long gone.
First, think bankruptcy. Plenty of companies and individuals have fallen victim to their addiction to debt. But there are plenty more to come. And you can get in on the ground floor of the first boom trend in this New Economy.
That means you should bone up on mergers. M&A activity tends to accelerate the longer recessions linger. And for some experts, the more companies that declare bankruptcy and sell off their parts, or those that want to divest of ancillary divisions to focus on their “core competencies,” spur hopes of imminent recovery — the final shakeout of Darwinian theory.
But the real opportunity is not in the boardrooms of Corporate America. It’s in the shadowy halls of Capitol Hill.
You need to become a lobbyist. Just think of the possibilities.
The Obama administration has been nothing if not busy, dreaming up new regulations to pin on financial institutions of every stripe. And every agency, from the Federal Reserve to the Federal Deposit Insurance Corp., has been piling on as well, not wanting to be left out of the history books.
That means the financial industry is going to need people to get to work immediately to repeal the regulations they don’t like — in other words, all of them.
It means long-term security as well. It took nearly seven decades for Wall Street’s lobby to convince Congress to unwind the Glass-Steagall Act of 1933, which gave the Fed tighter control of banks, prohibited banks from selling securities and created the FDIC, among other things.
It also has enormous potential for growth. It took Wall Street less than one decade to unwind the entire global economy.
Ironic, that.
In 1999, the repeal of Glass-Steagall was hailed as a triumph over a Depression-era relic.
“Today, Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,” said then-Treasury Secretary Lawrence Summers, now President Barack Obama’s top economic adviser and the leading candidate for the job of Federal Reserve chairman. “This historic legislation will better enable American companies to compete in the new economy.”
Well, you heard it there first. Welcome to the 21st century.
Contact Business Editor Annette LaCross at alacross@rrstar.com or 815-987-1295.
June 20th, 2009 03:26pm
Annette LaCross
I remember when homes weren’t so … well, disposable.
Back when they weren’t comfortably furnished ATMs, that is, with money practically pouring out of the marble fireplace. When they were still valued by the people in them, in other words, and not only as a short-term investment opportunity.
At the height of the housing boom, too many people treated homes like cars — a new one every two years or so.
And that might have been a good plan five years ago, when property values were guaranteed to go up. That’s what Wall Street was determined to believe, anyway.
But somewhere in the boom, another belief began to take root. We cast away the joy of owning a house as it became the latest get-rich-quick scheme for Joe America.
It’s another consequence of the decidedly deflated housing bubble — in addition to several others, like the worst recession since the first time Chrysler asked the government for a bailout — one I fear will have further consequences down the road.
Even today, too many people are “waiting” to sell their homes. Just waiting for a year or two, they say, largely because they don’t seem at all confident that they’ll be able to find buyers. But they’re also waiting until the value of their homes goes back up to 2005 (or 2006) levels.
Such folly. They’ve managed to convince themselves — most likely because they really want to believe it, much like those Wall Street financiers — that their home’s true value is the highest one.
Don’t get me wrong. Their homes will return to those levels. But it will take years to get there, just like it’s supposed to.
A house, like a retirement account, is a long-term investment. Checking every month or so to see how much yours has risen in value makes about as much sense as checking your 401(k) balance every day. It’s really not worth it.
Assuming no catastrophic changes to the neighborhood, such as a hurricane or a hasty gentrification, your home’s value should rise at roughly the same rate as inflation, which averages 2 percent to 3 percent every year.
It’s not a very exciting process to watch.
And it’s one of the reasons more people should have seen this coming — in 2005 and 2006, home values across the country rose by 11 percent and 15 percent, respectively.
In other words, your home was never worth the value it was assigned at the height of the bubble.
It was phantom money. It never really existed. Your house, remember, is only worth what somebody else is willing to pay for it.
But humans are usually driven by hope and fear, and this is where we could get into trouble again — with the resultant consequences.
Too much fear, and the housing market never gains ground, which I believe it must (not everyone does) before the economy can start moving in the right direction.
But too much hope is just as dangerous. We’re too willing to buy into another bubble — even to will one into existence, just so we can get back to buying a house every two years.
Contact Business Editor Annette LaCross at alacross@rrstar.com or 815-987-1295.
June 13th, 2009 04:00pm
Annette LaCross
If anything embodies the old saw, “Where there’s a will, there’s a way,” it has to be the new Chrysler Group LLC.
Although we could modify it, in this case, to “When the most powerful man on the planet wants something to happen, he tends to get his calls returned.” It’s not as catchy, maybe, but no less true.
I wasn’t particularly surprised, then, when the company’s bankruptcy proceedings seemed to occur exactly as President Barack Obama predicted weeks ago. The bankruptcy court judge seemed to know just how to rule on the various issues.
Indeed, the only blip came when U.S. Supreme Court Justice Ruth Bader Ginsburg ordered a stay on the judge’s decision to allow the sale of Chrysler’s assets to Fiat SpA, to decide whether it would hear the objections of a trio of pension funds.
It must have been the quickest Supreme Court decision in decades — it took a mere 24 hours before it decided to not take the case.
As I said: When the most powerful man on the planet wants to get things done in a hurry, things tend to get done in a hurry. And not surprisingly, those things tend to go his way.
At issue for the pension funds is the makeup of the New Chrysler. The United Auto Workers retiree health-care trust got a 55 percent equity stake and $4.5 billion note for its $10.5 billion unsecured claim, while Fiat stands to get an initial 20 percent stake.
That leaves the secured lenders holding the rest, the equivalent of about 30 cents on the dollar.
The major lenders, including JPMorgan Chase, Citigroup, Morgan Stanley and Goldman Sachs, backed off fairly early in the process. Then again, they are all recipients of billions of dollars from Obama’s inherited Troubled Asset Relief Program.
The smaller creditors, those in which the government doesn’t have a controlling stake, were holding out for 60 cents on the dollar.
If their objections came to nothing — the Supreme Court’s refusal means Fiat will collect Chrysler’s assets — I at least got a chuckle over Obama’s indignation as he triumphantly declared that Chrysler was bankrupt.
He vilified those pesky teacher and construction worker pension funds, all but calling them unpatriotic.
What sort of patriotism were they lacking, I wondered, those American teachers from the heartland — as if giving an otherwise worthless company to an Italian automaker somehow calls for a tearful rendition of “The Star-Spangled Banner.”
Then again, I’m probably looking at it the wrong way. Maybe I should have whipped myself into a frenzy of national pride the first time, when a German company took over.
Contact Business Editor Annette LaCross at alacross@rrstar.com or 815-987-1295.
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