economist

Sales of New Homes in U.S. Fell Again in July

August 23, 2011 by NewsMaker Leave a Comment

The housing market is showing little sign of recovery, with sales of new homes in the United States down again in July, according to the latest government data.

Sales of new homes reached an annual rate of 298,000 in July, down from a rate in June that was revised to 300,000 from 312,000, the Census Bureau report said. The July figures fell short of analysts’ expectations for a rate of 310,000.

The median sales price of a new home was $222,000 in July, also down from the previous month. The stock of new homes for sale at the end of July was 165,000, the lowest this year, and would last slightly more than six months at the current sales rate.

For months, most indicators of the housing market have been suggesting bleak conditions. The number of permits issued to builders of single-family houses has also been declining.

Patrick Newport, United States economist for IHS Global Insight, said that his firm has forecast new-home sales will fall to a record low this year, 319,000 compared with 321,000 in 2010.

“It has gotten worse for builders,” said Mr. Newport. “They are stuck in a market where they cannot sell new homes.”

In addition, demand for new homes is stagnant despite record low mortgage interest rates, and competition from foreclosures continues to cloud the sector, said Joshua Shapiro, chief United States economist at MFR Inc.

“This suggests that prices will continue to edge lower at the bottom end of the market even as demand for these homes picks up a bit,” Mr. Shapiro said.

The sales rate in July came close to the record low of 281,000 in February, and the level of inventories in recent months this year has been the lowest recorded since December 1967, he wrote in a research note.

“We are just bouncing along the bottom,” Mr. Shapiro said in a telephone interview. “There is no indication out there that anything is improving. It is bouncing along at historic lows at this point.”

Economists say that it would take a turnaround in the American job market for some of the vitality to return to the housing sector.

“We need job growth but in conjunction with that, housing prices have got to stop dropping,” Mr. Newport said.

Still, one analyst said that the market was showing the potential to recover in the years ahead despite weakness in the monthly data. The analyst, Russell Price, a senior economist with Ameriprise Financial, noted that median and average prices were higher in July on a year-over-year basis.

“Generally we are forming a base in the housing sector this year,” he said. “On aggregate, I think that conditions are solidifying at historically low levels. We are unlikely to go any further down.

“As the economy does recover, and you get less competition from foreclosure sales, the market is poised for a relatively solid rebound in the years ahead,” Mr. Price said.

Article source: http://feeds.nytimes.com/click.phdo?i=9937fa1f695cf2425f5eca3e2ec3c4dd

Filed Under: Economy News Tagged With: economist, inventories, joshua shapiro

Unemployment Aid Applications at 4-Month Low

August 11, 2011 by NewsMaker Leave a Comment

WASHINGTON (AP) — The number of people seeking unemployment benefits fell last week below 400,000 for the first time in four months, a sign that the job market may be improving slowly after a recent slump.

Applications for unemployment aid dropped by 7,000 to a seasonally adjusted 395,000, the Labor Department said Thursday. Applications had been above 400,000 for the previous 17 weeks.

The four-week average, a less-volatile figure, fell to 405,000, its sixth straight decline and the lowest level since mid-April. That suggests layoffs have eased.

The decline in applications helped lift stocks. The Dow Jones industrial average rose more than 85 points in the first hour of trading.

Applications fell in February to 375,000, a level that reflects healthy job growth. They soared to an eight-month high of 478,000 in late April, and have declined slowly since then.

There were fewer layoffs last week in the manufacturing, transportation and service industries, according to the report. Only nine states reported an increase in applications.

Paul Dales, senior U.S. economist at Capital Economics said the decline shows the job market is at least not getting worse.

“Of course, it tells us nothing about hiring, which the market turmoil of recent weeks will not have helped,” said Dales, noting the 16 percent decline in the Dow Jones industrial average since July 21.

The economy added 117,000 net jobs in July, the government said last week. That was an improvement from the previous two months. But it’s far below the average of 215,000 jobs per month that companies created from February through April.

Many employers pulled back on hiring after signs emerged that the economy had weakened from last year. High gas prices and scant wage gains left consumers with less money to spend on discretionary purchases, such as appliances, furniture and electronics. Supply chain disruptions caused by the Japan crisis also dampened U.S. factory production.

The economy expanded at an annual rate of just 0.8 percent in the first six months of the year, the slowest growth in the two years since the recession officially ended.

Steven Wood, chief economist at Insight Economics, said the declining trend in weekly unemployment benefit applications is an encouraging sign for the job market.

“Although the labor market also hit a “soft patch” along with most of the rest of the economy during the spring and early summer, it now appears to be strengthening, at least a little, again,” he said.

Still, the outlook for the economy is dim. The Federal Reserve on Tuesday said it expects growth will stay weak for two more years. The Fed also acknowledged that the economy’s problems go beyond temporary factors, such as high gas prices.

As a result, the Fed said it would likely keep the short-term interest rate near zero at least through mid-2013.

Economists have slashed their growth estimates. Goldman Sachs Group Inc. expects just 2.5 percent growth in the July-September quarter, down from its previous estimate of 3.25 percent. JPMorgan Chase Co. reduced its estimate to 1.5 percent, down from as high as 3 percent several weeks ago.

Growth of about 2.5 percent is barely enough to reduce the unemployment rate. The economy needs to grow by 5 percent for a whole year to bring down the rate by one percentage point.

Fears that the U.S. economy could be at risk of falling back into a recession, along with concerns that Europe is struggling to control its debt crisis, have roiled markets in recent weeks. The Dow Jones industrial average has fallen nearly 12 percent so far this month.

Many analysts worry that market turmoil could spook investors and consumers, causing them to take fewer risks and cut back on spending. That would hurt economic growth, making the markets’ jitters a self-fulfilling prophecy.

The number of people continuing to receive unemployment benefits fell by 60,000 to 3.69 million. But that doesn’t include nearly 4 million additional unemployed people who are receiving extended benefits under emergency programs set up during the recession.

In all, about 7.5 million people received unemployment benefits in the week ending July 23, the latest data available.

Article source: http://feeds.nytimes.com/click.phdo?i=d1f913bf417ebe6f22fafd605b541897

Filed Under: Economy News Tagged With: decline, dow jones, economist

Reports Point to Continued Weak Economic Growth

August 4, 2011 by NewsMaker Leave a Comment

The report, from the Institute for Supply Management, was consistent with other data that show the economy was struggling two years after the recession officially ended.

The trade group of purchasing executives said its index for services companies fell to 52.7, from 53.3 in June. Any reading above 50 indicates expansion.

The I.S.M. index covers 90 percent of the work force. It reached a five-year high of 59.7 in February, but has fallen since then. The July reading was the lowest since February 2010.

New orders to service companies, an indication of future business, increased but at the slowest rate since August 2009, according to the I.S.M. report. Services firms are still hiring more workers, the report said. But employment growth dropped in July.

The report “suggests that the economy is not slipping into a recession but instead that growth is very weak,” said Paul Dales, an economist at Capital Economics.

Separately, the Commerce Department reported that businesses cut orders for airplanes, autos and heavy machinery in June. Factory orders dropped 0.8 percent, the second decline in three months.

Demand for durable goods fell 1.9 percent in June. Durable goods are products that are expected to last at least three years.

An important measure of business investment plans increased slightly, a positive sign amid mostly gloomy data. But business demand for transportation equipment fell 8.6 percent. That was mostly because of a big decline in volatile orders for commercial aircraft. But orders for autos and auto parts also dropped.

The reports follow a stream of dismal economic news in the last week.

Economic growth slowed to less than 1 percent in the first six months of this year, the government said Friday.

Consumer spending, which drives 70 percent of economic activity, fell in June for the first time since September 2009.

And manufacturers recorded their weakest growth in two years in July, according to the separate I.S.M. manufacturing index that was released Monday.

As the economy has slumped, so has hiring. Employers added only 18,000 jobs in June, the fewest in nine months. The unemployment rate rose to 9.2 percent, the highest level this year.

The Labor Department said Wednesday that unemployment rates rose in more than 90 percent of the nation’s cities in June, mirroring the national slowdown in hiring.

The I.S.M., a trade group of purchasing executives based in Tempe, Ariz., compiles its service sector index by surveying about 375 purchasing executives across the country.

Article source: http://feeds.nytimes.com/click.phdo?i=16ee3995861a69d9d70f8ae10cd39517

Filed Under: Economy News Tagged With: auto parts, commerce department, economist

Chinese Imports Slow but Exports Rise

July 10, 2011 by NewsMaker Leave a Comment

BEIJING — Chinese imports grew at the slowest pace in 20 months in June, government data showed Sunday, providing further evidence of the broad effect of monetary tightening on the economy.

The slowing rate of imports in June, which dropped to a 19.3 percent annual pace from 28.4 percent in May, is expected to heighten investors’ concerns about how swiftly the Chinese economy, the world’s second-largest after that of the United States, is slowing.

But coming a day after data showed that inflation in June had reached a three-year peak of 6.4 percent, analysts took the data showing a jump in the trade surplus as a sign that the Chinese central bank might have to raise interest rates further, to rein in prices and to discourage capital inflows.

Last week, the central bank raised interest rates for the third time this year, underlining the government’s confidence in the economy’s ability to cope with tighter monetary policy.

The data Sunday showed that June exports had risen 17.9 percent from the same period a year ago, slowing from a 19.4 percent rise in May and pointing to the weakness in overseas demand that has seen exports and new orders soften across most of Asia.

Exports reached a record of $162 billion in June, while imports for the month were $139.7 billion. That left the country with a trade surplus of $22.3 billion in June, compared with $13.1 billion in May.

The median forecast of economists polled by Reuters was for exports to rise 18.7 percent and imports to grow 25 percent, for a trade surplus of $16.3 billion.

“The big trade surplus means P.B.O.C. will continue to experience large capital inflows,” said Liu Li-gang, an economist with Australia New Zealand Banking, referring to the People’s Bank of China. “The P.B.O.C. will have to address this inflow problem.”

Beijing has repeatedly said it will restructure its economy, cutting its reliance on exports and investment, and promoting domestic consumption in their place. As a result, import growth has become a bellwether for the strength of Chinese demand.

A slowdown in Chinese export growth had been anticipated in response to the slowing U.S. economy and as factory growth in Asia and Europe slid in June.

A series of indicators in the past few weeks have pointed to a moderation in the heady pace of the Chinese economy, including data on Taiwan’s exports to the mainland and purchasing manager surveys of new orders.

The People’s Bank of China has made clear that inflation remains a priority. Most analysts say that the resultant economic growth from that policy mix will be slower than the near double-digit pace of the past few years but that there is little risk of a hard landing.

“Imports were below expectations,” said David Cohen of Action Economics in Singapore. “We are perhaps seeing some reflection of loss of momentum in China’s growth. After all, there has been tightening in policy. The numbers are consistent with decelerating growth, with the soft landing that many people are looking for.”

On a calendar-adjusted basis, exports expanded 16.4 percent in June from a year earlier, while imports jumped 19.2 percent, the Chinese Customs Department said.

Exports rose 3.1 percent in June from May, while imports fell 3 percent month-to-month. On a calendar-adjusted basis, June exports rose 4.2 percent from May, while imports fell 2.6 percent from May.

The trade surplus in June was the highest in seven months. Chinese trade surpluses have led to criticism from trade partners like the United States who accuse Beijing of giving its exporters an unfair advantage with an inexpensive currency.

Despite the latest data, the Chinese trade surplus is on track to narrow from the $183 billion of last year as the government tries to rebalance the economy.

“For the second half of the year, we expect exports to continue to fall due to the impact from the European debt crisis, Japan’s earthquake and other factors,” said Tang Jianwei, an economist at Bank of Communications in Shanghai.

“The trade surplus will be maintained in the second half of the year, but domestic demand is still relatively strong,” he said. “So we are expecting a full-year surplus of $100 billion.”

Article source: http://feeds.nytimes.com/click.phdo?i=4cf701edd8bd975d2820450a8808631d

Filed Under: Business News Tagged With: bank of china, economist, liu li

Big Banks Easing Terms on Loans Deemed as Risks

July 3, 2011 by NewsMaker Leave a Comment

Two of the nation’s biggest lenders, JPMorgan Chase and Bank of America, are quietly modifying loans for tens of thousands of borrowers who have not asked for help but whom the banks deem to be at special risk.

Rula Giosmas is one of the beneficiaries. Last year she received a letter from Chase saying it was cutting in half the amount she owed on her condominium.

Ms. Giosmas, who lives in Miami, was not in default on her $300,000 loan. She did not understand why she would receive this gift — although she wasted no time in taking it.

Banks are proactively overhauling loans for borrowers like Ms. Giosmas who have so-called pay option adjustable rate mortgages, which were popular in the wild late stages of the housing boom but which banks now view as potentially troublesome.

Before Chase shaved $150,000 off her mortgage, Ms. Giosmas owed much more on her place than it was worth. It was a fate she shared with a quarter of all homeowners with mortgages across the nation. Being underwater, as it is called, can prevent these owners from moving and taking new jobs, and places the households at greater risk of foreclosure.

“It’s a huge problem,” said the economist Sam Khater. “Reducing negative equity would spark a housing recovery.”

While many homeowners desperately need help to keep their homes and cannot get it, the borrowers getting unsolicited relief from Chase sometimes suspect a trick. Cutting loan balances, even for loans in default, is supposedly so rare that Federal Reserve economists wrote in a paper in March that “we could find no evidence that any lender was actually reducing principal” on mortgages.

“I used to say every day, ‘Why doesn’t anyone get rewarded for doing the right thing and paying their bills on time?’ ” said Ms. Giosmas, who is an acupuncturist and real estate investor. “And I got rewarded.”

Option ARM loans like Ms. Giosmas’s gave borrowers the option of skipping the principal payment and some of the interest payment for an introductory period of several years. The unpaid balances would be added to the body of the loan.

Bank of America and Chase inherited their portfolios of option ARMs when they bought troubled lenders during the housing crash.

Chase, which declined to comment on its program, got $50 billion in option ARM loans when it bought Washington Mutual in 2008. The lender, which said last fall that it had dealt with 22,000 option ARM loans with an unpaid principal balance of $8 billion, still has $33 billion of them in its portfolio.

Bank of America acquired a portfolio of 550,000 option ARMs from its purchase of Countrywide Financial in 2008. The lender said more than 200,000 had been converted to more stable mortgages.

Dan B. Frahm, a spokesman for Bank of America, said it was using every technique short of principal reduction to remake its loans, including waiving prepayment penalties, refinancing, lowering the interest rate, postponing some of the balance and extending the term.

“By proactively contacting pay option ARM customers and discussing other products with better options for long-term, affordable payments, we hope to prevent customers from reaching a point where they struggle to make their payments,” Mr. Frahm said.

Chase, Bank of America and the other big lenders are negotiating with the Obama administration and the nation’s attorneys general over foreclosures. Debt forgiveness and the moral hazard question of who deserves to be helped are among the most contentious issues.

The banks say cutting mortgage balances would be unfair to borrowers who remain current as well as impractical because so many loans are securitized into pools owned by investors. Bank of America’s chief executive, Brian T. Moynihan, told the attorneys general in April that cutting principal for current borrowers would send the wrong message to all those who have struggled to pay their bills. His counterpart at Chase, Jamie Dimon, bluntly said it was “off the table.”

Having an option ARM loan, however, apparently qualifies the borrower for special help. The loans, with their low initial payments and “teaser” interest rates, were immediately popular with buyers who could not afford or did not want to pay the soaring prices on houses. The problem was, eventually the rate would reset or the loan balance would have to be paid in full. “Nightmare Mortgages” they were called in a 2006 BusinessWeek cover piece.

Option ARMs were never quite as bad as predicted, partly because the crisis pushed down interest rates so far that the resets were relatively mild. Many owners did default on them, but others, like Ms. Giosmas, were quite happy to pay less for years than they would have under a conventional loan. She used option ARMs on her investment properties too.

“They saved me,” she said. “Why would I want to pay a lot more every month? I’d rather have it in my pocket.”

The concern the banks are showing for those who might get in trouble contrasts sharply with their efforts toward those already foreclosed. Bank of America and Chase were penalized last month by regulators for doing a poor job modifying mortgages in default.

Adam J. Levitin, a Georgetown University law professor, said these little-publicized programs were more evidence that the banks were behaving in contradictory and often maddening ways.

“Loan modifications that should be happening aren’t, while loan modifications that shouldn’t be happening are,” he said. “Homeowners of any sort, whether current or in default, would rightly be confused and angry by this.”

The homeowners getting new loans, however, are quite pleased. In effect, the banks are paying the debt these owners accrued as the housing market plunged.

Ms. Giosmas bought her two-bedroom, two-bath apartment north of downtown Miami for $359,000 in early 2006, according to real estate records. She made a large down payment, but because each month she paid less than was necessary to pay off the loan, her debt swelled to about $300,000.

Meanwhile, the value of the apartment nosedived. By the time Ms. Giosmas got the letter from Chase, the condominium was worth less than half what she paid. “I would not have defaulted,” she said. “But they don’t know that.”

The letter, which Ms. Giosmas remembers as brief and “totally vague,” said Chase was cutting her principal by $150,000 while raising her interest rate to about 5 percent. Her payments would stay roughly the same.

A few months ago, Ms. Giosmas sold the place for $170,000, making a small profit. Having a loan that her lender considered toxic, she said, “turned out to be a blessing in disguise.”

Article source: http://www.nytimes.com/2011/07/03/business/03loans.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: adjustable rate mortgages, economist, new jobs

Puncturing Greece’s Dream for Sharing Its Pain

June 8, 2011 by NewsMaker Leave a Comment

It would be a “restructuring without a haircut,” in the view of the plan’s proponents, who enthusiastically described it to Mr. Papandreou in a series of secret meetings earlier this year. The result, ideally, would be to ease the weight of the Greek debt on the economy, clearing the way for renewed growth, while keeping the bankers and credit ratings agencies on board.

In many ways, the plan was a dreamy alternative to the grim calculus of Europe’s demands for more austerity from Greece in return for more loans. And Mr. Papandreou went so far as to ask a political ally and the plan’s two proponents, a British and a Greek economist, to lobby Europeans in its favor.

But, according to economists who participated in the discussions, the Greek finance minister, George Papaconstantinou, was opposed, arguing that Germany, to say nothing of the E.C.B., would never go for it. And while a number of economists contend that Europe will ultimately have to develop some sort of plan for restructuring Greece’s debt, Athens has shelved any such notion for now as it moves toward another bailout to keep the country out of bankruptcy.

“It was a nice idea, but not defensible in current circumstances,” said Daniel Gros, the head of the Center for European Policy Studies in Brussels, who took part in one of the meetings with the prime minister to discuss the plan’s merits. “If there is one person who can not propose something like this it is the Greek prime minister — it would have to be a German.”

This week, Mr. Papandreou is struggling to persuade his increasingly disruptive party members that Greece must agree to another round of austerity measures to qualify for a second portion of loans from the European Union and the International Monetary Fund, including closing down public-sector enterprises, selling more assets and ramping up the tax take. The new package will be submitted to Parliament on Thursday and a vote is expected before the end of the month.

Signs are growing, however, that the patience of the long-suffering Greek public is wearing thin. Mr. Papandreou’s approval ratings are below 30 percent and, as uncertainty builds, Greeks continue to take money out of the banking system.

Mr. Papandreou’s interest in a plan to transfer much of its debt to the rest of Europe may well have been a passing fancy. And Mr. Papandreou’s chances of persuading Jean-Claude Trichet, the president of the E.C.B, to take on even more debt on top of the nearly €200 billion, or $292 billion, it already is exposed to were always going to be a long shot.

“The prime minister is in favor of the proposal,” said Vasso Papandreou, a former top financial advisor to the prime minister and an influential member of Parliament within the governing Socialist party, known as Pasok, who has been openly critical of the government’s austerity plan. “This is not a Greek problem any more — it’s a European problem.”

Ms. Papandreou is not related to the prime minister.

A spokesman for the Prime Minister said that Mr. Papandreou and other European officials had long supported a euro bond as one policy option, but that his current priority was to make the Greek economy competitive again.

“In search of the best solutions to effectively and permanently exit the crisis, the Prime Minister will continue to exchange views with his counterparts around the world as well as leading economists and academics,” he said.

The two architects of the idea have longstanding ties to Mr. Papandreou. They have characterized their sweeping plan, with a bit of cheek, a modest proposal.

Yanis Varoufakis, a political economist and blogger at the University of Athens, was a speechwriter and advisor to Mr. Papandreou from 2004 to 2006. Stuart Holland is a Europe expert and former high-ranking official in Britain’s Labour Party who was a longtime advisor to Andreas Papandreou, Mr. Papandreou’s father, who was once prime minister himself.

Article source: http://feeds.nytimes.com/click.phdo?i=91566b52caadf0902f00d5d11d9acc44

Filed Under: Business News Tagged With: economist, europeans, proponents

Economix: Using Economics to Help the World’s Poor

May 10, 2011 by NewsMaker Leave a Comment

Abhijit Banerjee and Esther Duflo — both professors at M.I.T. — have helped changed the practice of economics. Mr. Banerjee and Ms. Duflo have pushed anti-poverty programs in developing countries to become more serious about evaluating whether they are actually improving people’s lives.

David Baron/BBC Abhijit Banerjee and Esther Duflo in the field in Hyderabad, India.

I wrote about their work in a 2008 column. The New Yorker profiled Ms. Duflo last year. Ms. Duflo won the John Bates Clark Medal, which goes to the top economist under 40, in 2010. Mr. Banerjee appeared on National Public Radio this week, and a portion of a speech he gave to the Asian Development Bank is available on YouTube.

My conversation with the two — about their new book, “Poor Economics,” which covers education, health, governance and other topics — follows.

Q. You write about the strong evidence of the importance of education: the big income gains after Indonesia went on a school-building spree; the income gains and mortality reduction after Taiwan made school mandatory; the declines in teenage pregnancy among more educated girls in Malawi and Kenya, to name just a few examples. But there are definitely still education skeptics, some of whom point out that Africa has become far more educated over the past generation without become far richer. How do you respond to the point that more education doesn’t always lead to much faster economic growth?

Mr. Banerjee: It is not clear that the skeptics have always thought carefully about the alternative: what would have happened had Africa not invested in education. Would things have been even worse? I don’t know the answer, but that is the reason why these comparisons are inherently difficult to interpret. When you compare individuals, rather than countries, you find that education improves both income and the quality of life.

However, let us for the sake of the argument assume that education actually did not promote growth in Africa. I think that there a number of historical reasons why delivering quality education was particularly a challenge in Africa: First, the colonial powers were particularly niggardly in investing in African education, so the African nations were suddenly had to run a whole education system despite the fact that they had very few people who were ready to teach, especially at post-primary levels. On the other hand they could not very well tell the newly liberated citizens that their educational aspirations had to go on hold. So the countries opted to expand education without really being in a position to do so.

Second, just as luck would have it, some of the countries that decided to invest the most in education, like Angola, Mozambique, Senegal and Sudan, ended up in long-drawn civil conflicts. I don’t think education is the reason they had these conflicts — it was more that they just did not know what was coming to them after colonialism.

Last, but by no means least, as we argue in the book, the colonial model of education, which was intended to educate a small elite in the ways of the colonist, was adopted wholesale by the post-colonial states, despite the fact that they were now aiming for mass education of a population of first generation literates. No wonder the kids did not learn very much from being in school.

PublicAffairs

Q. Yes, you argue that the research shows all children — including ill-prepared ones — can learn and that even modest differences in outcomes — say, finishing fifth grade instead of second grade — have positive effects. But obviously many, many schools, from Mumbai to Lagos to Houston, do a bad job of educating poor children. What distinguishes the schools that get impressive (and rigorously evaluated) results?

Ms. Duflo: That’s indeed a vexing puzzle: experiences in the developing countries (the very successful remedial education programs run by Pratham, in India, for example) but also in the U.S. (the “no excuses” charter schools in Boston, or schools in the Harlem Child Zone in New York City) suggest that it is possible, perhaps even not that difficult, to significantly improve the quality of education. Yet most schools completely fail their students: why is that? It would be too easy to blame a lackadaisical public school system, but even the private schools that are attended by many poor kids around the world could do much better. In the U.S., not all charter schools deliver quality education.

Our sense is that what is going on is that schools have forgotten, or perhaps never knew, that teaching fundamental skills to everyone should be their prime objective. In Kenya, India or Ghana, teachers still try to teach an absurdly demanding curriculum to a very diverse set of pupils, many of whom are first-generation literates and get little or no help at home. Covering the entire curriculum is the priority, even though the majority of children may be lost by the end of the first week.

Why aren’t parents revolting, one might wonder. Why are they not demanding that their children be taught at the appropriate level, instead of sitting through day after day of teaching that mean nothing to them? In part this is because they do not know how badly schools are doing: they are not in a position to evaluate what their children are learning, and no one tells them that they are not. In part it is because they have bought into the elite bias that plagues the entire system: parents often seem to believe that education is worth it only if the child can reach the highest level.

Making sure that schools deliver may be in part a matter of defining what “deliver” means: not preparing the top of the class for some difficult public exam while ignoring the rest, but ensuring that every child learns core skills, and learns them well.

Q. Let’s broaden the discussion from education. If you each could have a few minutes with the new leaders of South Sudan — the world’s newest country and a very poor one — and they asked you how they could best improve the lives of their citizens, what would you tell them?

Ms. Duflo: In just a few minutes, we could not cover very detailed ground. So we’ll have to focus on the basics. First of all, I would try to convince them that a key priority would be to invest enough money and talent in running good quality social services for the poor, including free access to good schools, preventive medical care, and hospitals. This may not seem like rocket science: but these are basic human priorities, and these are also domains where some things are known about what may work.

Second, I think I would try to convince them to run anti-poverty policy in a more intelligent way than what we see in most countries. In particular, I may try to encourage them not to listen too much to the elevator pitches of all the other experts, and stake their entire policy course on the basis of those… Of course they’ll have to start somewhere, and there is a body of knowledge available to choose policies that are likely to work. But they will still have a lot more to learn about the best ways to achieve their objectives. So I would like to advise them to always keep some margin to experiment, in order to find the best programs to reach those goals.

Mr. Banerjee: Since they will no doubt want more specific suggestions, here are two policies that I think every poor country should implement. A small universal cash grant to everyone over 12, based on biometric identification. This guarantees that no one has to face the humiliation of being totally indigent, and from our evidence, makes people more productive as well. Making it universal is important, so that they do not attempt to identify the poor (which is very difficult to do effectively in poor countries).

Second, a free universal health insurance policy that covers catastrophic health events, which allows people to go to private or public hospitals. Catastrophic health shocks do enormous damage to families both economically and otherwise, and are easy to insure, because nobody gets them on purpose. On the other hand, insurance policies that only treat certain catastrophic illnesses are hard to comprehend, especially of you are illiterate and unused to the legalistic nature of exclusions etc. Therefore people do not value them as much as they should which makes it hard for markets to supply them. This is an obvious thing for governments to take on.

Article source: http://feeds.nytimes.com/click.phdo?i=4cfac9df46cc041e7874b813ca2b08b9

Filed Under: Economy News Tagged With: economist, john bates clark, teenage pregnancy

Economix: 5 Answers from the Jobs Report

May 6, 2011 by NewsMaker Leave a Comment

Yesterday, I posed five questions about this morning’s jobs report. Here are some answers:

1. Has the recent economic slowdown led to a slowdown in job growth?

No, at least not yet, and that’s easily the best news in today’s report. The economy added 244,000 last month. Over the past three months, it has added an average of 233,000 jobs. If you ignore the temporary Census hiring of 2010, the pace of job creation is the fastest since early 2006, almost two years before the recession began.

As Joshua Shapiro, an economist at MFR Inc., a research firm in New York, wrote this morning, “The wage and salary income that a labor market recovery, ev`en a subpar one by historical standards, provides to consumers will be key in providing fuel for ongoing economic growth in 2011.”

There remain reasons to worry. Above all, recoveries from financial crises are usually slow and uneven. High oil prices and Europe’s debt trouble aren’t helping matters. The recent rise in initial employment claims — some of which occurred after the period covered by this monthly jobs report — is an issue of particular concern. At least through mid-April, though, employers still seemed to be gaining confidence.

2. Has the crisis in Japan affected employment in this country?

Not much, it seems. Makers of automobiles and automobile parts added 3,000 jobs last month. That sector seemed most at risk of being affected by the tsunami, given the shortage of parts coming from Japan. But the addition of 3,000 jobs was little different from the recent pace of job growth.

3. Are the cutbacks by local and state governments becoming more severe — or perhaps less so?

The cutbacks continue at roughly the same pace. State and local governments cut 22,000 jobs last month. Over the last six months, the monthly average was 24,000.

4. What does the length of the work week say about business executives’ state of mind?

Businesses may be getting more confident, but they are far from wildly optimistic. The average work week in the private sector remained 34.3 hours in April, unchanged over the past three months. If businesses were on the verge of a hiring boom, an increase in the work week would be a leading indicator (given that companies often give their existing employees more work before adding new ones).

Fortunately for workers, average hourly pay did rise last month, by 3 cents, to $22.95. But it’s up only 1.9 percent over the past year. Weekly pay is up 2.5 percent. Neither pace is as fast as inflation (2.7 percent, according to the latest numbers).

5. Do the statistical details in the report offer reason for optimism?

Yes and no. The Labor Department did revise its estimate of job growth for February and March in a positive way, saying the economy had added 46,000 more jobs than earlier thought. But as these two previous posts discussed, the rise in unemployment rate suggests that the job market may not have been as healthy as some people hoped.

Article source: http://feeds.nytimes.com/click.phdo?i=f1280cd33c3a17bce046de29505a78a4

Filed Under: Economy News Tagged With: economic slowdown, economist, state governments

April Job Data Is Strong, but Some Doubt Trend Can Last

May 6, 2011 by NewsMaker Leave a Comment

The Labor Department said Friday that 244,000 jobs were added last month after a gain of a revised 221,000 in March. The unemployment rate rose to 9 percent in April from 8.8 percent in March.

“There are yellow warning flags that are popping up,” Joshua Shapiro, the chief United States economist for MFR Inc. “It remains to be seen whether this nascent recovery we are seeing is going to peter out or not.”

As has been the case for several months, all of the increase came from private employers, which added another 268,000 jobs last month, after a revised gain of 231,000 in March, the report said. Results of the previous two months were revised to show another 46,000 jobs were added.

Governments, struggling to balance budgets as they dealt with shrinking revenues and growing deficits, cut 24,000 jobs last month. Most of the drop came at the local level, where 14,000 jobs were lost in April after a decline of 15,000 in March.

April’s numbers exceeded the forecasts of analysts, who had expected a gain of 185,000 jobs over all, with the change in private payrolls of 200,000. The rise in the unemployment rate that came even as employers were adding jobs was an indication that more people were entering the work force as hopes for hiring increased.

While better than expected, Friday’s employment numbers showed that the national economy still had a long way to go to fully recover. Though down from its peak of 10.1 percent in late 2009, April’s unemployment rate reflects only those Americans who are still actively looking for work.

As such, economists said the April jobs report was part of a larger picture of the economy that remained mixed. The rise in the unemployment rate reflects the survey of households, which indicated a 190,000 decline in employment in April. And recent data on initial jobless claims and other employment indicators have been weak.

“Millions of people are unemployed and many have left the labor market and given up,” Mr. Shapiro said. “Against that we are maybe creating 244,000 jobs. That is all well and good but it just shows you how much further we have to go to make a dent into what has happened in the labor market.”

“It gets the basic debate out there about the economy,” he added. “Is all we have seen the product of government stimulus, and are all the problems coming back or not?”

Austan Goolsbee, chairman of President Obama’s Council of Economic Advisers, noted that the economy had added 2.1 million private sector jobs in the last 14 months, including more than 800,000 this year. The last three months of private jobs gains have been the strongest in five years, he said, despite the “headwinds” from higher energy prices and the Japan disaster.

President Obama, speaking in Indianapolis, said the report showed that the economy “can take a hit and still keep on going.”

Mr. Goolsbee added a note of caution. “While the solid pace of employment growth in recent months is encouraging, faster growth is needed to replace the jobs lost in the downturn,” he said.

The latest snapshot covered a period when several indicators pointed to signs of weakness. The American economy grew at a tepid 1.8 percent in the first quarter, according to the government’s estimate for the first quarter. Personal consumption has slowed and construction remains weak, though winter weather was cited as a reason.

Turmoil in the Middle East and North Africa has sent crude oil prices higher, pushing up the cost of gasoline, which in turn has taken a larger share of the money consumers have to spend. Supply disruptions in the aftermath of the earthquake and tsunami in Japan have rippled through American industries, especially the automobile sector where plants have reduced production and idled workers.

John Canally, economist for LPL Financial, said that there was a marked difference between the April report of last year, when the economy was hurt by uncertainty over the oil spill in the Gulf of Mexico and the European debt crisis.

Article source: http://www.nytimes.com/2011/05/07/business/economy/07jobs.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: economist, economists, private employers

Strategies: The Benefits of Telling the Ugly Truth

May 1, 2011 by NewsMaker Leave a Comment

Then he tells you he’s not. “It was just luck,” he says.

That oil stock, the one that jumped 80 percent? A good pick, sure — but he had no idea it was that good. “It was a surprise,” he says, “Don’t count on it happening again.”

Disappointing? Maybe. But it sounds like the truth, and that may mean that the rest of what he says is true, too. This kind of self-deprecation may not be standard patter for financial advisers, but Shlomo Benartzi, a behavioral economist at the University of California, Los Angeles, says it should be.

In order to build trust and credibility, Professor Benartzi suggests, advisers should come right out with the truth, especially when it’s ugly. If advisers have been merely lucky — or have made recommendations that were outright failures — they should come clean about it, he says. Such admissions may be off-putting initially, he said in an interview, but as long as they are followed by a clear description of what an adviser is doing well — assuming, of course, that something is being done well — candor is good business.

“From a behavioral standpoint, it’s really better for your credibility if you’re honest,” Professor Benartzi said. If you don’t take credit when the market rises, for example, you may not have to take responsibility when it goes down.

In a new study for Allianz Global Investors, a unit of Allianz, the financial giant, he draws on the broad findings of behavioral economics to make some startling recommendations for advisers. The paper — which assumes that most advisers are honest and won’t use their newly acquired psychological acumen to exploit clients — is titled “Behavioral Finance in Action: Psychological Challenges in the Financial Adviser/Client Relationship and Strategies to Solve Them.”

Behavioral economics holds that individuals do not necessarily act rationally and in their own self-interest. Instead, they make intuitive decisions that may be swayed by phenomena like “framing.” Far more people are likely to buy a package of cold cuts, for example, if it’s framed, or labeled, as “90 percent fat-free” than if it’s labeled “containing 10 percent fat.”

The paper opens what it calls the “behavioral finance toolbox” for advisers, explaining how to overcome obstacles posed by investors’ “intuitive minds.”

For example, research by Professor Benartzi and Richard H. Thaler, an economics professor at the University of Chicago — and a regular contributor to Sunday Business — found that people were generally likely to save more if asked to “precommit” to doing so in the future. Their findings have been incorporated in many 401(k) plans.

By agreeing to deduct a certain amount of money from your paycheck starting next Jan. 1 and to increase the deduction every New Year’s Day thereafter, you can procrastinate — you don’t have to do anything now — yet increase your savings substantially. And if those increases coincide with raises, your take-home pay won’t decline, avoiding “the mind’s hypersensitivity to loss,” the paper says.

You can also opt out freely — which may make you more comfortable with the plan in the first place.

The new paper takes precommitment strategies much further, advocating, for example, a “Ulysses contract” — or a “commitment memorandum” that spells out what to do when the markets move 25 percent up or down. The adviser and the investor are both supposed to sign it — agreeing in advance, perhaps, to buy more stocks in a market plunge, and not to sell. Conversely, when markets soar, they may be committed to selling overvalued stocks, not buying more of them — rebalancing the portfolio to restore an agreed-upon asset mix.

The concept of resisting temptation this way is at least as old Homer. In “The Odyssey,” Ulysses had his crew bind him to the mast and agree in advance to ignore his entreaties before sailing near the Sirens, whose songs were irresistible. It worked for Ulysses. Whether contemporary investors are ready for the strategy is another question.

“The idea is great, but it may be a little aggressive for many people,” said Bud Pernoll, senior managing director of Bay Mutual Financial, an independent financial advisory firm in Santa Monica, Calif. Many individuals and some companies will balk at signing a “contract” that might seem to limit their flexibility, he said, even though the strategy makes a lot of sense.

Mr. Pernoll is a fan of behavioral finance and its concepts, but he says the field is in its infancy and is just beginning to be absorbed by financial practitioners.

The Ulysses contract is deliberately provocative, Professor Benartzi said. It “forces you to think in advance — both adviser and client — and put a plan in writing and explain, when you’re tempted to take an action, how it fits into your plan.” He added that “the flip side — controlling the intuitive mind” so it doesn’t do damage — is important, too.

The paper gives advisers tips for enhancing their credibility. They should display their credentials prominently on the wall — this makes their recommendations more believable, the paper says. And they should present the downside of an investment strategy before explaining its benefits. “By talking about the downside first,” the paper says, “the financial adviser is displaying honesty that elicits a greater willingness in the listener.”

IN the wrong hands, of course, such insights could be quite dangerous, said Barbara Roper, director of investor protection for the Consumer Federation of America. Behavioral economics can teach an adviser bent on enriching himself how to more skillfully push an investor’s buttons.

Advisers have many different backgrounds and credentials, and work under different ethical guidelines: no universal fiduciary standard requires all advisers to put investors’ interests first. That could change: as required by the Dodd-Frank Act, the Securities and Exchange Commission has studied the issue and recommended the creation of such a universal standard. But it has not taken final action.

Cathy Smith, co-director of the Allianz Global Investors Center for Behavioral Finance, says the company hasn’t taken a position on the issue. Professor Benartzi, on the other hand, says he favors “having more consistency in the credentials” of financial advisers as well as “a requirement that they should first and foremost do what’s right for the client.”

Article source: http://feeds.nytimes.com/click.phdo?i=e7b652bfcdaceae97791a8c104b09562

Filed Under: Your Money Tagged With: economist, good business, ugly truth