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Economix: The Role of Government Spending

July 29, 2011 by Leave a Comment

As Congress continues to wrangle over a debt reduction bill that will inevitably cut government spending, Friday’s estimates of second-quarter gross domestic product provided a sobering look at how a decline in public spending and investment can restrain growth.

G.D.P. grew at an annual rate of just 1.3 percent in the second quarter, according to the Commerce Department, well below consensus forecasts. First-quarter growth was revised down sharply to just 0.4 percent from an earlier estimate of 1.9 percent.

The astonishingly slow growth rate from April through June was due in large part to sluggish consumer spending and an increase in imports, which subtract from growth numbers. But dwindling government spending also held back growth.

While federal government spending increased by 2.2 percent in the second quarter, that was all because of a jump in military spending. Excluding military, federal government spending and investment fell by 7.3 percent, a much larger fall than in the previous quarter. State and local government spending, which has been a crimp on growth throughout most of the official recovery, fell by 3.4 percent.

The figures will inevitably put further pressure on Congress as it tries to come up with a plan and figure out just how many billions of dollars can be shaved out of the government’s budget.

“A weak economy will only make the tough decisions on the budget even more difficult,” Nariman Behravesh, chief economist at IHS Global Insight, wrote in a research note Friday, “and the case for fiscal austerity in the near-term even weaker.”

On the other hand, said Steve Blitz, a senior economist for ITG Investment Research, policy makers have to decide whether to continue to pump up the economy through government spending or figure out a way to spur the private sector.

“We are probably at as important an intersection of policy and the economy as we were in late 2008 and early 2009 when the economy was collapsing,” Mr. Blitz said.

Mr. Blitz favors reforming tax policy and aggressively pursuing foreign markets for American goods. But, he said, the only real prescription is to wait. With so many households still working off the debt accumulated during the boom years, he said, “that’s just going to take time to work out, and you can’t cheat the process.”

Article source: http://feeds.nytimes.com/click.phdo?i=ce5b9dc83b7cd673f90d16f10683a65e

Filed Under: Economy News Tagged With: , ,

Economix: Consumer Spending: The Chicken or the Egg

July 19, 2011 by Leave a Comment

Yet more on the consumer bust, this time from David Backus (via Andrew Gelman):

The suggestion … is that the economy is growing slowly because consumers aren’t spending money. But how do we know it’s not the reverse: that consumers are spending less because the economy isn’t doing well. As a teacher, I can tell you that it’s almost impossible to get students to understand that the first statement isn’t obviously true. What I’d call the demand-side story (more spending leads to more output) is everywhere, including this piece, from the usually reliable David Leonhardt.

We can’t know, for sure. But here’s an important clue:

If a weak economy inexorably led to weak consumer spending, which in turn led to an even weaker economy, we would never escape recessions. We’d enter an inescapable spiral. You often hear warnings of such a cycle in the latter stages of a typical economic slump. Unemployment is high and even rising. Income growth trails inflation. Bankers and corporate executives are uncertain about when the recovery will begin.

Robert Barbera, an economist and author, will sometimes tick off this list of the grim realities in the late stages of a recovery and then conclude by bellowing, “And it was ever thus!”

His point is that recoveries are able to begin even when consumers seem to have little available money, and he’s absolutely right.

After the 2001 recession, the economy did not begin adding jobs until 2003 — but consumer spending was rising again by the end of 2001. Likewise, in the early 1990s, job gains did not start until the spring of 1992, but consumer spending began to recover in 1991. In 1982, consumer spending started to pick up speed in the summer, while the economy was still shedding hundreds of thousands of jobs.

How does this happen? Even before employers begin adding jobs again, the pent-up demand that exists in the late stages of a recession — for new cars, appliances, even vacations — asserts itself. People start shopping again.

The absence of this dynamic is what distinguishes the bursting of a bubble, like the one we’re experiencing now. There is not as much pent-up demand, because of the earlier bubble excesses. Even more important, consumers are not able to fulfill the pent-up demand they do have, because they are still paying down debts and trying to rebuild their finances.

Ultimately, this issue is not either/or. An improving job market would, of course, play a big role in lifting consumer spending and the economy. But I think it’s a mistake to view consumer spending as merely, or even predominantly, an effect of other economic changes.

Mr. Gelman notes this question may not be the most important one anyway:

Regarding the causal question, I’d like to move away from the idea of “Does A cause B or does B cause A” and toward a more intervention-based framework … in which we consider effects of potential actions.

That is, what steps should the government now be taking to help put people back to work?

Article source: http://feeds.nytimes.com/click.phdo?i=5eec36283511f6b1a51da70d388f53ba

Filed Under: Economy News Tagged With: , ,

You’re the Boss: This Week in Small Business: Worse Than We Think?

July 5, 2011 by Leave a Comment

What’s affecting me, my clients and other small-business owners this week.

Dashboard

A weekly roundup of small-business developments.

Happy Independence Day!

At Monday’s cookout, did you take a moment to think about what could have happened if we had lost the war?

The Deficit: Is It Worse Than We Think?

Many are expecting a two-part deficit reduction program. The BBC’s Justin Webb asks if Americans are in denial over the debt crisis. A reduction in our debt rating could cost $100 billion. A former governor of the Federal Reserve says the deficit is worse than we think: “Only serious long-term spending reduction in the entitlement area can begin to address the nation’s deficit and debt problems. It should no longer be credible for our elected officials to hide the need for entitlement reforms behind rosy economic and budgetary assumptions.” Paul Krugman thinks the Republicans are blackmailing President Obama. The Treasury secretary considers leaving. James Pethokoukis says the G.O.P. should not go wobbly on taxes: “Axing all the Bush tax cuts would chop three percentage points off gross domestic product growth, according to Goldman Sachs, certainly sending America back into recession. Tax revenue would again plummet.” Jared Bernstein liked the president’s press conference.

The Data: Home Prices Could Be Stabilizing

Manufacturing activity in the central Atlantic region firmed somewhat in June after stalling in May. Home prices increased in April, and a blogger demonstrates that prices are stabilizing. Consumer spending halted and personal income increased which prompts James Picerno to ask if consumers are starting to save more. (I’m thinking of giving up bacon.) Scott Grannis gives himself mixed reviews on his forecasts at mid-year and reports lower truck tonnage. Investors are warned to prepare for the next oil shock. A new TD Bank survey says that 51 percent of small-business owners are optimistic about the economy and 73 percent expect to meet or exceed revenue projections in the upcoming quarter. Twenty-three percent of everything made since the year 1 A.D. has been made in the past 10 years. Small-business borrowing surges. (Or maybe not.)

Starting Up: Homework Will Never Be Fun

Ben Yoskovitz says that start-ups need to make leaps of faith but not blindly. Here are a few ideas to keep your side business moving while you also keep your day job. A battery start-up flows toward introduction. HP steps up its outreach to start-ups. An Austin firm works on a powerful, portable disinfectant for hospitals. A young company hopes to make homework as much fun as video games. Experts at a New York multicultural small-business conference show would-be entrepreneurs a thing or two. There’s a little house of secrets on the Great Plains. A Twitter alum raises $100 million.

Marketing: F.Y.I. on Q.R. Codes

Anuradha Shukla demonstrates how a few small businesses are using Q.R. codes to improve their social media marketing. Makeuseof.com’s Tim Brookes follows up with seven great uses for Q.R. Codes and how to generate your own for free. American Express lets small businesses trade points for Facebook ads. An award winning marketer explains how to improve your online marketing. Constant Contact launches a free social media marketing guide for small businesses. A survey reveals area codes have the edge over zip codes in boosting small-business image.

Red Tape: Patent Reform

There are rumors that a corporate tax overhaul is in the works. A cash-constrained Internal Revenue Service would become more automated and show less sensitivity to individuals. The Public Forum’s president, Jonathan Ortmans, asks who won after patent reform passes. Cyndia Zwahlen explains how small claims court can be a big help for merchants. New legislation would prohibit American companies from exporting hazardous electronic waste to developing nations. Will California’s “Amazon tax” kill 25,000 small businesses?

Ideas and Opportunities: Gooooaaal!

Say it ain’t so: professional soccer is starting to outdraw professional baseball. Here are five hot industries every small business should know about.

Success Strategies: Work Out, Make Money

The Kaufman Foundation starts an online education program for aspiring entrepreneurs. Founders reveal books that changed their lives. Figures from the Small Business Administration show that small businesses won deals worth a record $97.9 billion, or 22.7 per cent of the government’s contract spend last year. Small medical practices are adapting to survive. A start-up mentor, Martin Zwilling, feels that a healthy start-up requires a healthy entrepreneur — and Derek Flanzraich provides an entrepreneur’s guide to working out.

Your People: Avoiding Mistakes

Here are 13 insanely cool resumes that led to interviews at Google and other top jobs. Jeff Haden suggests a way to avoid a hiring mistake: “Decide how many individuals who possess your most important attribute will be enough. If you get more, great — if not you’ll still be O.K.” American Airlines announces more benefits for small and medium-sized businesses expanding globally. A workspace idea: floating desk and lamps. Speaking of mistakes, MySpace is sold for $35 million. The Dodgers file for bankruptcy.

Around The Country: Thank You, Mr. Mayor

North Dakota is booming. Virginia is the top state for business. A couple of Reuters bloggers say that most state governments are well equipped to create policies conducive to growth. Philadelphia’s mayor says no to a sick leave bill that could harm small businesses. Gay weddings mean big business and Mayor Bloomberg wants gay people to marry in the Big Apple. Red ants are invading southern states. A few savvy women entrepreneurs lead fast-growing businesses in Atlanta. Minnesota shuts down.

Around the World: Sacrebleu!

Small companies feel the pain in China. In Prague, there’s a new shopping mall that caters just to men. Yahoo is bigger than Mongolia. Vietnam’s high interest and inflation prove a challenge to small-business owners. A U.F.O. is spotted over London. Entrepreneurs are recovering more quickly in France than in the United States!

Finance: Credit Card Tips

A blogger gives strategies for accepting credit cards. Example: “While comparing companies, look to see what additional options are available. One example of this might be swipe capabilities for your cellphone. This allows easy processing by swiping the credit card rather than entering the card numbers by hand.” Kiva.org, and Visa start a new program that will extend small business access to microloans in American cities. My advice is to borrow a few bucks from this guy. The chief operating officer of a cost-containment firm lists five ways we can reduce operating expenses.

Technology: Office 365

Microsoft rolls out Office 365, prompting three small-business questions from Ed Bott. Thomas Claburn lists four reasons Google Apps beats Office 365. Arik Hesseldahl poses seven questions for Google Apps executive Shan Sinha. For example: “When you get into these companies and governments, are you displacing Office and Exchange? Or are you enhancing them or coexisting with them?” Paul Mah shows what we can learn from Dropbox’s security breach: “In my opinion, the fact that cloud storage has to be accessible from any location on the Internet places it at greater risk.” Andreas Bernstrom discusses how 4G will affect the way we communicate. Here’s what our e-mail address says about our computer skills. Network World says desktop PCs are dead. Google introduces its Facebook competitor. Skype now has video calling for the Droid.

The Week Ahead

Factory orders on Tuesday. But this is a week of (un)employment news: ADP’s non-farm employment change numbers and weekly unemployment claims arrive on Thursday, and the official unemployment rate is announced Friday (along with consumer credit numbers). On Wednesday take your Webmaster to lunch (a burger and a Red Bull is probably sufficient).

This Week’s Bests

Advice for Valuing Your Start-Up Bill Clark offers nine steps to consider when valuing your start-up. “You need to consider the time it would take for someone to copy your idea. Simple ideas often have low barriers to entry; they’ll have to fight off “me-too” companies very quickly. For example, Groupon and other ‘deal of the day’ sites. Start-ups with high barriers to entry present complex ideas that may require a lot of time, money and effort, and therefore face less competition. However, high barrier to entry (longer first-to-market exclusivity) may be more attractive, and therefore more valuable, to potential investors.”

Suggestion on How to Be More Productive (and Still Get Eight Hours of Sleep) Prime Sarmiento explains: “Follow your rhythm. Do the most important task at a time which fits your body clock. I’m not a morning lark and prefer to write most of my analytical reports in the afternoon. I can’t force myself to write in the morning – it just won’t happen as my mind is sharper after lunch. I instead spend my mornings on routine stuff: responding to e-mails, drinking coffee and running errands.”

Thoughts on Embracing Change Tory Burch tells entrepreneurs to embrace change: “Entrepreneurs have a great ability to create change, be flexible, build companies and cultivate the kind of work environment in which they want to work.”

This Week’s Question Do you think you’re adaptable to change?

Gene Marks owns the Marks Group, a Bala Cynwyd, Pa., consulting firm that helps clients with customer relationship management. You can follow him on Twitter.

Article source: http://feeds.nytimes.com/click.phdo?i=7a938486f8e8879a2e957a29cc123d93

Filed Under: Small Business Tagged With: , ,

U.S. Consumer Spending Stalled in May

June 27, 2011 by Leave a Comment
Opinion »

Disunion: A Railroad to Freedom, Underground No More

Three exiles trudged onward like the ghosts of a long-vanished past.

Article source: http://feeds.nytimes.com/click.phdo?i=663b58ae7de3500dc923d57141e3c093

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Recovery Seen in Rising Use of Credit Cards

May 14, 2011 by Leave a Comment

This year, evidence is building that they are — with every swipe of their credit cards.

In the most recent quarter, covering January to March, American Express, MasterCard and Visa all reported increases in card spending. Business and consumer spending in the United States helped propel that growth, along with global growth and an increase in merchants that accept cards.

“The dust is slowly coming off credit cards,” said Gregory Daco, a senior economist with IHS Global Insight. “It is a general return of consumers to credit card usage, but it is a cautious one. Income is lower and slowly making a comeback right now.”

In the last few years, consumers and household budgets have been constrained by the housing crisis, a weak job market and, most recently, high energy prices. Economists now are cautiously forecasting a turnaround in spending. Consumers cut debt after the 2008 financial crisis, this year’s federal payroll tax cut is padding incomes, and consumers are adjusting to a labor market that appears to be stabilizing.

At the same time, the rate of deleveraging has been slowing, according to Federal Reserve data. Revolving credit balances, mostly credit cards, have generally been falling as demand declined, consumers used their cards less or paid them off, and banks wrote off nonperforming balances. Such balances reached $796.1 billion in March, compared with a peak of $973.6 billion in August 2008.

The most recent data show that revolving credit was up 2.9 percent in March compared with February, only the second monthly increase since late 2008. The other increase was in December 2010.

While these figures are moving in the right direction, Mr. Daco and other economists say there are still factors, like gas prices and other uncertainties, that could derail any progress.

“The positive news from the credit card issuers and processors is directly related to the increase in consumer spending over the past nine months and a more positive outlook for spending going forward,” said Cristian deRitis, the director of consumer credit analytics at Moody’s Analytics.

The card industry is a good gauge of how consumers are spending and what they are buying. It also shows how confident they are in reaching for their credit cards again. Consumers are starting to relieve some of the pent-up demand for autos, appliances and other goods that they had put off buying, analysts said.

“It is a psychological pall that is gradually lifting with the realization that the economy has in fact not been in recession for more than a year,” said David Robertson, publisher of The Nilson Report, a journal covering the consumer payments industry.

“It is incremental,” he added. “It is not blockbuster.”

The three biggest card brands, reporting their results for the latest quarter, say the trends point to relative growth of Americans’ consumer credit card use.

MasterCard said its first-quarter profit rose 24 percent, to $562 million, as people used cards more in global markets and to a lesser extent, as consumers swiped them more for nonessential items. Still, consumer spending in the United States has been surpassed by business spending.

“The recovery, such as it is in the United States, is really a commercially driven, as opposed to a consumer-driven thing,” Timothy H. Murphy, the chief product officer for MasterCard, said at a recent investor conference.

MasterCard’s credit card purchase volume was $115 billion in the first quarter of 2011, a 5 percent increase compared with the year earlier. While the company does not break down that spending, it said its consumer credit card spending rose. It was essentially flat in the fourth quarter of 2010 and negative going back to the second quarter of 2008. Analysts said that could mean consumers were returning to discretionary spending.

Visa, in its earnings report for the three months ending in March, showed $199 billion in credit purchase volumes in the United States, a 9 percent rise compared with the year-ago quarter. While the company did not break down the figure for consumers, the chief financial officer, Byron Pollitt, said credit was typically used more for discretionary purchases.

“As the economy recovers, our belief is that consumers, in combination with more employment, become more willing to spend on the discretionary side,” he said during a conference call.

American Express reported that first-quarter consumer spending on its cards in the United States reached $96 billion, up 13 percent compared with last year.

“Over all, we are seeing consumers spending again across all categories and including discretionary items like travel and entertainment,” a spokeswoman for the company, Joanna G. Lambert, said.

The quarterly results also suggest that more consumers were spending more freely, analysts said.

David J. Koning, a senior research analyst at Robert W. Baird Company, said that while American Express typically had a more affluent cardholder base, for example, growth was accelerating at Visa and MasterCard. That may reflect a broader economic recovery, he said.

Mr. Robertson, of The Nilson Report, added, “Those people at the very top are spending more quarter after quarter, as the wealthiest individuals overthrow whatever cloak of recessionary blues they might have had.”

He said, “And that is permeating and dropping down further into the American credit card public.”

Article source: http://feeds.nytimes.com/click.phdo?i=0337153d9e179a5c7807bfbed7481e6d

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China Posts 1st Quarterly Trade Deficit Since 2004

April 10, 2011 by Leave a Comment

BEIJING (AP) — China reported its first quarterly trade deficit since 2004 on Sunday as surging prices for commodities pushed up its import bill.

The General Administration of Customs said in an online statement that China posted a trade deficit of $1.02 billion from January to March this year.

However, China reported a small trade surplus of $140 million in March, up from a deficit of $7.3 billion the month before, it said.

Export growth in the first quarter was strong, it said, increasing 26.5 percent to $399.64 billion compared to a year earlier, but imports soared 32.6 percent during that period, to $400.66 billion.

“The value of imports in the first quarter hit a record high for the first time of more than $400 billion,” the administration said.

It said China imported more mechanical and electrical equipment, including cars, as well as iron ore and soybeans, than it did a year ago and that the prices of those commodities had all shot up.

Analysts expect a Chinese global trade surplus this year of $160 billion-$200 billion but say that should narrow if oil and commodity prices stay high. Last year, China ran a trade surplus of about $16 billion a month.

A smaller trade surplus might help to ease trade strains with Washington and other governments that complain Beijing is giving its exporters an unfair advantage with currency controls and other policies.

Stronger imports could help economies looking to China’s robust growth to drive demand for their goods. Imports also might benefit from ongoing government efforts to boost consumer spending to reduce reliance on exports and investment.

China is a major importer of oil, iron ore and raw materials and runs a deficit with suppliers such as Saudi Arabia and Australia. It pays for that by running multibillion-dollar surpluses with the United States and Europe.

___

Online:

General Administration of Customs of China (in Chinese):

http://www.customs.gov.cn

Article source: http://www.nytimes.com/aponline/2011/04/09/business/AP-AS-China-Trade.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

U.S. Consumer Spending Rose 0.7% in February

March 28, 2011 by Leave a Comment
Opinion »

Disunion: The Choice is Charybdis

Lincoln receives discouraging news from Charleston, polls his cabinet, then makes a fateful decision.

Article source: http://feeds.nytimes.com/click.phdo?i=35c4cb81696c37b2d07b61e0ad374203

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