Archives for January 2014

“The key takeaway here is that it’s not just the individuals who are suffering as members of our generation,” said Rory O’Sullivan, the policy and research director of the Young Invincibles, a postrecession youth advocacy group, which did the study. “When you have an entire generation of people that are out of work, it’s going to create tremendous costs for taxpayers both now and in the future.”

Fifteen percent of workers ages 16 to 24 are unemployed, compared with 7.3 percent of all workers. That does not include young people who are not working because they are in school, who are no longer looking for work or who were too discouraged to begin a job search. Much has been written about how much this will cost them in the long run, as they spend years trying to catch up.

The new report is an effort to quantify the financial effect now. Its authors determined how much young people would have paid in taxes had they been working, and how much less they would have collected in unemployment and other social welfare spending. Each jobless worker between 18 and 24 accounted for $4,100 a year, they concluded, and those between 25 and 34 accounted for $9,875, the study said.

Based on those figures, if youth unemployment were reduced to its prerecession rate, the study said, the federal government would recoup $7.8 billion, or $53 per taxpayer, and state and local governments would recoup $1.1 billion.

If all those discouraged young people, who are not counted as unemployed because they are not actively seeking work, were also in the labor force, the total figure would be larger: $25 billion. About 93 percent of that number comes from taxes that would have been collected, and the rest from averting social spending, the study said. The report estimated that effect per state taxpayer was greatest in Alabama, Kentucky and North Carolina.

The group intends to present its findings at a news conference on Tuesday with Senators Patty Murray of Washington and Cory A. Booker of New Jersey, both Democrats.

The report is the latest in several detailing the disproportionate effect of the recession on young people and their lifetime earnings. The findings have renewed interest in programs that long ago went out of fashion, like apprenticeships and vocational high schools. President Obama has said he will reward colleges and universities that demonstrate an ability to place graduates in paying jobs.

“Suddenly people are talking about youth,” said Anthony P. Carnevale, the director of the Center on Education and the Workforce at Georgetown, who wrote a foreword for the latest study. He said youth work programs went out of style in the 1980s, as the baby boom generation stopped needing them.

Now, struggles among white, middle-class young people have helped bring the issue back to the fore, he said. “They’re not getting traction,” he added. “The fear that’s the strongest of all is that young people won’t be middle class anymore.”

Still, Mr. Carnevale said, “Spending for retirement is crowding out investment in young people, especially human capital investment.”

Young Invincibles said that federal youth jobs programs had been cut by $1 billion a year since 2002, and recommended expanding the Labor Department’s registered apprenticeship program and AmeriCorps, a national service program that had more than half a million applicants last year for about 80,000 positions, Mr. O’Sullivan said. It also advocates restoring financing to Youth Opportunity Grants, which were aimed at at-risk youth and were ended in 2005.

Article source: http://www.nytimes.com/2014/01/07/business/economy/in-jobless-youth-nation-is-said-to-pay-high-price.html?partner=rss&emc=rss

As a Fed official, Ms. Yellen, 67, has been an influential proponent of the Fed’s extraordinary measures to revive the economy, even though interest rates are already close to zero.

But as chairwoman, Ms. Yellen will face the arduous task of overseeing the gradual unwinding of those measures, despite an uncomfortably high unemployment rate of 7 percent and subdued inflation.

During the confirmation process, senators from both sides of the aisle criticized the Fed for not doing enough to aid the economy and help middle-class Americans, and for trying to do too much, thus distorting the markets and risking new bubbles.

“I fear that they are already in way too deep,” said Senator Charles E. Grassley, an Iowa Republican, on the Senate floor, before the confirmation vote. Mr. Grassley questioned how the Fed would pull back on its recent campaign of large-scale asset purchases “without spooking investors,” and whether that might stoke inflation.

Despite those objections, Ms. Yellen won confirmation easily. Ms. Yellen was approved 56 to 26, with many senators kept away from the Capitol by inclement weather.

Nearly a dozen Republicans — including Kelly Ayotte of New Hampshire, Saxby Chambliss of Georgia and Tom Coburn of Oklahoma — crossed the aisle in support of Ms. Yellen. She will be the first Democratic nominee to run the Fed since President Jimmy Carter named Paul Volcker as chairman in 1979.

Still, Ms. Yellen’s was the thinnest margin of Senate approval for a Fed chairman in the central bank’s history. Ben S. Bernanke, the most recent chairman, was confirmed for a second term with 70 yes votes and 30 no votes in 2010.

As a woman, Ms. Yellen will be a rarity among the world’s central bankers, a club dominated by men. “Practically one hundred years to the day from when the Federal Reserve was created, the central bank finally has its first woman president,” said Terry O’Neill, president of the National Organization for Women. “It’s about time.”

Ms. Yellen has been a powerful force in the Fed during the deep recession and sluggish recovery. She has argued for the central bank to provide more clarity to market participants and supported its campaign to soak up trillions of dollars of Treasury and mortgage-backed debt in order to bring down interest rates and spur investors to start spending.

She has also publicly expressed concern over the problems in the American labor market. In particular, she has focused on the persistent high rate of long-term joblessness — which might scar the unemployed even after they find a job, depressing their earnings and even their children’s earnings down the road.

The employment crisis “has imposed huge burdens on all too many American households and represents a substantial social cost,” Ms. Yellen warned in a major speech last year. “If these jobless workers were to become less employable, the natural rate of unemployment might rise,” meaning a higher jobless rate and a less vibrant economy even during good economic times.

Her views have prompted speculation among market participants that Ms. Yellen — long considered a contender for the top position at the Fed — might be a stronger proponent for the Fed’s extraordinary policies than Mr. Bernanke.

But their views have not differed all that much.

In December, Ms. Yellen joined Mr. Bernanke in supporting the Fed’s decision to start tapering its purchases of Treasury and mortgage-backed debt to a pace of $75 billion a month from $85 billion a month. The decision came as new data showed stronger economic growth and a significant drop in the unemployment rate, to 7 percent in November from 7.8 percent a year before.

The Fed’s decision “to modestly reduce the pace of asset purchases at its December meeting did not indicate any diminution of its commitment to maintain a highly accommodative monetary policy for as long as needed,” Mr. Bernanke said in a speech this month, reflecting on his tenure. “It reflected the progress we have made toward our goal of substantial improvement in the labor market outlook.”

The strategic shift will likely dominate the early part of Ms. Yellen’s tenure, which is expected to start on Feb. 1. Fed watchers have warned that withdrawing support from the economy comes with significant risks. Pull back too soon and the economy could face subpar growth; Wait too long and the markets could overheat.

“The Fed will need to exercise caution as it scales back further on its pace of asset purchases,” David J. Stockton of the Peter G. Peterson Institute for International Economics said in an analysis of the challenges that lie ahead for Ms. Yellen. “We have experienced several episodes in the past few years when a burst of favorable data led to increased optimism that soon proved unwarranted.”

“The Fed could taper purchases now and then ramp them back up should economic results fall short,” he continued. “But reversing course like that would be a difficult maneuver to execute and communicate.”

There are already signs that the Fed’s decision to ease up on stimulus has affected lending activity. Interest rates on 30-year mortgages jumped after Mr. Bernanke indicated that the Fed might start to reduce its asset purchases last year, although rates remain low by historical standards.

In her confirmation testimony, Ms. Yellen stressed that the Fed’s extraordinary measures were bolstering growth, even if the pace of the economy’s expansion had been frustratingly sluggish at times. She also said that the Fed’s policies had helped not only Wall Street, but Main Street.

The bank’s stimulus campaign has “made a meaningful contribution to economic growth,” Ms. Yellen said. “The ripple effects go through the economy and bring benefits to, I would say, all Americans.”

Article source: http://www.nytimes.com/2014/01/07/business/economy/Yellen-Senate-Vote.html?partner=rss&emc=rss

Compounding the issue, at least for one airline, were new regulations requiring more rest time for pilots that began at the beginning of the year.

JetBlue Airways said the combination of bad weather and the new Federal Aviation Administration rules led it to cancel all of its flights into and out of Boston and the three New York area airports for 17 hours starting Monday afternoon.

The regulations made airlines build more leeway into their already tight pilot scheduling. Once the delays hit, some pilots who formerly would have been available to fly were not allowed to.

“In the midst of us repairing those schedules disrupted by this week’s winter storms, we’re facing an additional challenge as new F.A.A. rules went into effect for crew rest,” JetBlue said in a statement.

The biggest impact on the airlines was in the Northeast and the Midwest, where polar weather swooped in. Airlines canceled 4,400 flights on Monday, bringing the total to more than 18,000 since last Thursday, according to FlightView.com, a flight information website.

The delays, during one of the busiest travel periods of the year, marooned thousands of people trying to return home from holiday trips, begin a new school term or get back to work. Fans of Florida State and Auburn scrambled to find their way to Pasadena, Calif., for college football’s national championship game at the Rose Bowl Monday night.

One traveler, Courtney Morrissey, said she was supposed to start a new job on Monday in Denver but has been stuck in Rochester since last Thursday after three different flights she had rebooked were canceled. She is now scheduled to fly on Wednesday.

“I am not holding my breath,” Ms. Morrissey said. “Every time they put me on a new flight now, I expect that to be canceled.”

Widespread cancellations are increasingly common in the airline industry, which relies on the hub-and-spoke model of connecting flights. Airlines also now operate on a much tighter schedule, leaving them with little slack, and have few spare planes to rebook passengers.

In 2012, Hurricane Sandy forced airlines to cancel more than 20,000 flights over a four-day period.

Chicago’s O’Hare International Airport was hit the hardest, with more than 1,600 flights canceled on Monday as temperatures fell below minus 12 degrees.

United Airlines operated a pared-down schedule as ground workers and bag handlers could not stay more than 15 minutes on the tarmac. Refueling operations also took longer than usual, said Mary Ryan, a United spokeswoman.

JetBlue stopped all service from 5 p.m. Monday to 10 a.m. Tuesday from Logan Airport in Boston and from Kennedy International, La Guardia and Newark Liberty International Airport in the New York area. The airline warned of the effect of the new Federal Aviation Administration regulations on service.

The new rules mandate a minimum rest period for pilots of 10 hours before they report for duty, up from eight hours, and includes a provision that they get eight hours of uninterrupted sleep. It also limits the number of hours a pilot can fly and sets cumulative flight duty limits.

“These rules further impact our ability to operate an already disrupted schedule, causing our pilots to ‘time out’ even sooner,” JetBlue said. “As a result, additional cancellations are likely to occur as we work to reset the operation.”

Capt. Sean Cassidy, a first vice president at the Air Line Pilots Association, said it was too soon to know what impact, if any, the new rules had on the recent cancellations. Airlines have had nearly two years to plan for the new regulations.

“It’s rather unfortunate that the day the new rule change became mandatory happens to coincide with this massive weather system,” Mr. Cassidy said. “It is very difficult to extrapolate.”

Still, Mr. Cassidy added, “some airlines were better prepared than others, that’s fair to say.”

Jessica Bidgood contributed reporting from Boston and Frances Robles from Fort Lauderdale, Fla.

Article source: http://www.nytimes.com/2014/01/07/business/frigid-weather-cripples-air-travel-system.html?partner=rss&emc=rss

The Standard Poor’s 500-stock index is off to its worst start to a year in almost a decade, closing lower on Monday for a third straight trading day.

Although the declines have been modest, the direction has been consistently down. The S.P. 500 index has fallen 1.2 percent from its most recent record high close on Dec. 31.

The S.P. 500 surged almost 30 percent last year, its best annual gain since 1997. The banner year ended with the stock market climbing to record highs in the face of signs that the economy was strengthening.

“The market is basically looking for additional confirmation of economic strength and may be marking time as it catches its breath from a pretty strong run at year-end,” said Jim Russell, a regional investment director at U.S. Bank.

The S.P. 500 fell 4.60 points, or 0.3 percent, to 1,826.77. The Dow Jones industrial average dropped 44.89, or 0.3 percent, to 16,425.10. The Nasdaq composite index fell 18.23, or 0.4 percent, to 4,113.68.

The weak start to 2014 is not a good omen for stock investors. In 2005, the last time the S.P. 500 dropped on the first three trading days of the year, it climbed just 3 percent for the whole year.

Despite the slow start, many analysts say it is too early to call a change in the market’s upward trend.

Reports on Monday on American service companies contained hopeful signs, as they grew at a steady, but slightly slower, pace in December. The most closely watched economic report of the week will be the Labor Department’s jobs survey for December, which is scheduled for release on Friday. That will influence the Fed’s decisions on reducing its bond purchases.

Company earnings reports also start coming out this week, providing another catalyst that may lift the market. Alcoa, a former Dow stock, will be one of the first major companies to report its fourth-quarter earnings, after the close of trading on Thursday.

“This downturn is persisting a little bit more than I would expect,” said Jack Ablin, chief investment officer at BMO Private Bank. “Between the jobs report Friday and earnings results next week, we will have a much better idea of the drivers of the market.”

In government bond trading, the price of the benchmark 10-year Treasury note rose 10/32, to 98 7/32, and its yield fell to 2.96 percent from 3 percent late Friday.

Article source: http://www.nytimes.com/2014/01/07/business/daily-stock-market-activity.html?partner=rss&emc=rss

PHILADELPHIA — Academic heavyweights have been debating whether the current United States economy is so sluggish because of too much government stimulus or not enough, or because slower growth had become the norm even before the recession.

But maybe these arguments share a faulty premise.

The American economy is actually doing reasonably well — at least compared with what would be expected after a major financial crisis — according to a provocative study from Carmen M. Reinhart and Kenneth S. Rogoff, Harvard economists and financial crisis historians whose work has been attacked and embraced by the political right and left.

The study, presented over the weekend at the annual meetings of the American Economic Association, rejects comparisons with regular postwar American recoveries, as other economists have made, and instead examines 100 major, or “systemic,” financial crises that have occurred over the last two centuries, in the United States and abroad.

It found that relative to previous American financial crises, the current economy is doing substantially better. Across nine major financial crises in the United States, the average peak-to-trough decline in inflation-adjusted per-capita gross domestic product is about 9 percent, and it has taken an average of 6.7 years to recover to the precrisis peak. During the years after crises, five of the nine episodes also had a “double-dip” downturn.

By contrast, the recent American subprime crisis beginning in 2007 had “only” a 5 percent drop in per capita output, and took “only” six years to get back to the precrisis peak. And so far, at least, there has been no second downward turn.

Employment and other measurements currently remain well below their precrisis peaks, but it is difficult to compare those numbers to past crises because the historical data for those categories is not as reliable, Ms. Reinhart said. Relative to its current peer countries, the study says, the United States is also doing unusually well.

Eleven other countries experienced systemic crises around the time the United States did: France, Germany, Greece, Iceland, Ireland, Italy, the Netherlands, Portugal, Spain, Ukraine and Britain. Six years later, just two of them — the United States and Germany — have recovered to their previous peak in real income.

While the United States has been doing well relative to historical crises, the other advanced countries seem to be doing especially poorly compared with their performance after previous crises.

“This crisis may in the end surpass in severity the Great Depression in a large number of countries,” Ms. Reinhart said in an interview. “In fact, it may very well have one of the most protracted and painful recoveries for advanced countries in the aggregate.”

Historical data shows that it takes about 7.4 years for the average advanced country that experienced a major crisis to reach its prior peak in real per-capita income; with nearly seven years gone by since the 2007 crisis began, many advanced countries still appear to be contracting.

Ms. Reinhart offered a few explanations for why the study showed the United States doing unusually well compared with both its past self and its current peers, however bad it still feels to the typical American worker. Among the biggest likely contributors are the major monetary and fiscal stimulus measures American policy makers undertook early in the crisis, which helped limit losses from the recession.

The United States also had some effective restructuring of debt through foreclosures. In some states, when the house is seized, borrowers do not usually still owe the balance of the loan. In much of Europe, Ms. Reinhart said, “You lose your house, but not the debt.”

Finally, and perhaps most significant, the United States was still able to borrow money easily as the rest of the world sought safe assets. These enthusiastic lenders allowed American politicians to avoid the truly crippling austerity measures that countries like Greece resorted to in order to try to pay their bills.

“Why would any politician in their right mind undertake the kinds of austerity measures Greece has done? Because no one will lend to them, and existing creditors want full repayment,” Ms. Reinhart said. “When the rest of the world is unwilling to lend, you do things that are driven by necessity.”

Ms. Reinhart said one of the policy implications of the new study was that Europe needed to engage in substantially more restructuring, both of public and private debt.

While an earlier, much debated paper that she wrote with Mr. Rogoff about the correlation between high debt and lower growth was cited by congressional Republicans to justify austerity measures, she said her work over all had instead emphasized debt restructuring as a useful policy response.

“If you’re going to engage in austerity, your best shot is if you at least couple it with something else, like debt write-offs, or inflation,” she said. “But they’re all ugly scenarios, really.”

Asked about the debate on whether some underlying “secular stagnation” might have also predated the subprime crisis, as Lawrence H. Summers, her Harvard colleague and a former Obama administration official, has been arguing, she said it was too soon to tell. But she said the long-term decline in labor force participation was worrisome.

In a talk at the weekend conference, Mr. Summers reiterated his concerns about slow growth that in his view began before the crisis and that he had previously discussed in a speech in November at the International Monetary Fund.

These doldrums, he said on Saturday, stem from factors including slower population growth, a possible decline in technology innovation and changes in the distribution of income — not only between the rich and poor but also between corporations and households.

With interest rates already so low, he said, it is difficult to use expansionary monetary policy to encourage investment. Instead, he called for government spending, particularly on infrastructure, especially while government borrowing costs are so cheap.

“The central imperative is anti-austerity, not austerity,” he said, “and it has the potential to be as free a lunch as economics will ever find.”

If Mr. Summers’s theory is accurate, said John B. Taylor, a Stanford economist who served in Republican presidential administrations, “You would have expected the economy to not have been working so well before the crisis. He says it wasn’t. I say it was.”

Mr. Taylor said that such measures as inflation, housing investment and unemployment showed a strong economy leading up to the crisis.

Unlike the Reinhart-Rogoff work, Mr. Taylor argues that it is fair to compare some postwar recoveries to the current one — a comparison that does indeed make today’s economic conditions look unusually bad.

He places blame for this tepid recovery on economic uncertainty and regulation, and on what he calls a departure from rules-based, predictable monetary policy.

Article source: http://www.nytimes.com/2014/01/06/business/economy/study-suggests-recovery-in-us-is-relatively-vital.html?partner=rss&emc=rss