December 6, 2019

Orders for Durable Goods Increased Slightly in August

A separate report on Wednesday showed that Americans increased purchases of new homes in August after cutting back in July, suggesting that higher mortgage rates are not yet slowing the housing recovery.

The Commerce Department reported that orders for durable goods, items expected to last at least three years, edged up 0.1 percent in August. Such orders plunged 8.1 percent in July, largely because of a steep drop in volatile commercial aircraft orders.

The August orders were held back by a decline in demand for military aircraft and other military goods. That could be related to steep government spending cuts that took effect in March. Excluding military spending, orders rose 0.5 percent.

Auto factories reported a 2.4 percent increase in orders, the biggest in six months.

And demand for so-called core capital goods rose 1.5 percent, after falling 3.3 percent the previous month. Core capital goods are a good measure of businesses’ confidence in the economy and include items that point to expansion, like machinery.

Still, economists said the gains were not enough to reverse the declines in previous months.

“It was definitely a mixed month,” Jennifer Lee, an economist at BMO Capital Markets, said. “The gains in core orders and shipments in the month do not offset weakness in the last couple of months.”

Durable goods shipments rose 0.9 percent in August, after two months of declines. The shipment figures are used to calculate economic growth.

The pickup in core capital goods orders suggests production and shipments could rise in the final three months of the year.

“Third-quarter growth in equipment investment will be pretty weak, but the fourth quarter should be notably better,” said Paul Ashworth, an economist at Capital Economics.

In its separate report, the Commerce Department said sales of new homes increased 7.9 percent last month to a seasonally adjusted annual rate of 421,000. That comes after sales plunged 14.1 percent in July to a 390,000 annual rate.

The rebound in sales could ease worries that higher mortgage rates have started to damp sales. It coincided with the best month of sales for previously occupied homes in more than six years.

Some buyers may be racing to close deals before rates rise further. The average rate on the 30-year fixed mortgage has risen more than a full percentage point, to about 4.5 percent, since May.

New-homes sales were 12.6 percent higher in August than a year earlier, although the pace remains well below the 700,000 consistent with a healthy market.

The median price of a new home sold in August fell 0.7 percent from July to $254,600.

Sales rose in all but one region of the country in August, increasing 19.6 percent in the Midwest, 15.3 percent in the South and 8.8 percent in the Northeast. Sales plunged 14.6 percent in the West, the second month of declines.

Article source: http://www.nytimes.com/2013/09/26/business/economy/orders-for-durable-goods-rose-slightly-in-august.html?partner=rss&emc=rss

Rising Output in Factories Hints at Growth in Europe

Industrial production in the 17-nation currency zone rose 0.7 percent in June from May, Eurostat, the statistical agency of the European Union, reported from Luxembourg. The agency also revised down the size of the decline in May to 0.2 percent, from 0.3 percent.

On Wednesday, Eurostat is scheduled to release its first estimate of second-quarter gross domestic product, and expectations for good news were supported by the results of a survey that showed growing confidence in Germany.

The ZEW institute, an economic research organization based in Mannheim, said its economic sentiment indicator had risen to 42.0 points, up by 5.7 points from July, and well above its historical average of 23.7.

“The euro zone’s recession ended when the snow melted last Easter,” Christian Schulz, an economist at Berenberg Bank in London, wrote in a research note. He said the euro zone economy, having contracted for six straight quarters, “probably expanded modestly” in the April-June quarter “and will gain further momentum in the second half of the year.”

Ben May, an economist in London with Capital Economics, said the data reported Tuesday — as well as a small rebound in construction — suggested that the G.D.P. grew 0.2 percent in the second quarter, following a 0.3 percent decline in the first three months of the year.

Mr. Schulz credited the European Central Bank’s monetary policy, as well as the fading impact of austerity measures. He projected a 0.3 percent expansion in G.D.P. for the third quarter, followed by 0.4 percent growth in the fourth.

Even with second-half growth, Eurostat has estimated that the euro zone economy will contract slightly over all in 2013 before expanding by 1.2 percent next year.

Still, there is little to celebrate. More than 26 million Europeans cannot find work, and the jobless rate in countries like Greece and Spain is well over 20 percent. Economists do not expect hard-hit countries to bounce back fully for several years.

Growth in Europe is still likely to lag behind that of other developed nations like the United States and Japan, as well as rising giants like China.

June represented the fifth month of the last seven in which industrial production had risen, with the data released Tuesday confirming the findings of a survey last month of European purchasing managers.

Production of consumer durables rose by 4.9 percent in June, while output of capital goods rose by 2.5 percent.

Eurostat did not break down the data by product, but consumer durables generally include things like appliances, furniture and cars.

Industrial output in Germany, the largest euro zone economy, rose a strong 2.5 percent in June from May, but France, the No. 2 economy, posted a 1.5 percent decline.

For the European Union as a whole, Eurostat reported a 0.9 percent increase in June production.

Compared with a year earlier, industrial production grew 0.3 percent in the euro zone, and 0.4 percent in the overall European Union.

Article source: http://www.nytimes.com/2013/08/14/business/global/industrial-production-lifts-european-economy.html?partner=rss&emc=rss

Japan’s Economy on Road to Recovery, Central Bank Says

TOKYO — Three months into Japan’s bid to reinflate its economy after years of falling prices, the country’s central bank said Thursday that economic conditions were starting to recover, signaling its confidence that the world’s third-largest economy was on the cusp of a long-awaited turnaround.

It was the first time since January 2011, before Japan’s natural and nuclear disasters in March that year, that the Bank of Japan had ventured to use the phrase “recover.” The bank’s message is underpinned by a rebound in Japan’s mainstay exports, helped by a weaker yen, as well as some signs of a broader recovery in consumer spending.

Reflecting its optimism, the central bank’s policy-setting board left monetary policy unchanged and stuck to its goal of hitting 2 percent inflation in two years. To get funds flowing again in the Japanese economy, the bank, led by Governor Haruhiko Kuroda, has pledged to pump 60 trillion to 70 trillion yen, or about $600 billion to $700 billion, into the economy annually.

“Japan’s economy is starting to recover moderately,” the bank said in a statement released at the end of its two-day meeting. For proof, it pointed to a pickup in corporate investment and profits, industrial production, and both business and consumer sentiment.

After years of disappointing growth, Japan’s economy is showing signs of a comeback, thanks to what economists have called the bold economic policies of Prime Minister Shinzo Abe: an aggressive monetary policy, heavy government spending and a set of pro-growth reforms.

Japan is now growing faster than any of the Group of 7 leading economies, logging an annualized G.D.P. growth of 4.1 percent in the first three months of the year. This week, the International Monetary Fund raised its growth outlook for Japan to 2 percent for 2013, putting it well ahead of its G-7 peers. The Tokyo stock market has gained 40 percent this year.

Economists, along with Mr. Abe, have taken to calling his economic program “Abenomics.” The term has featured prominently in campaigning for the July 21 elections for Japan’s upper house of Parliament, which Mr. Abe’s ruling Liberal Democratic Party is favored to win by a landslide.

Still, the central bank acknowledged that it could take time for an all-around recovery in prices to take hold after 15 years of deflation, scaling back its shorter-term inflation outlook. The year-on-year rate of change in consumer prices, excluding fresh food, is still zero, it said, though some indicators suggested a rise in inflation expectations.

Meanwhile, jitters over volatility in government bond markets have also receded in recent weeks, after the bank adjusted the way it conducts its purchases in that market, minimizing any disruption. Despite Japan’s sky-high public debt, long-term interest rates remain far lower than those in the United States or in Europe.

Even as the Fed debates when to phase out its stimulus, the focus in Japan has turned to when the central bank might push ahead with more easing. But the bank’s willingness to stand pat on monetary policy, and on its 2 percent inflation target, nevertheless suggests that the bank is comfortable with letting its program play out in the wider economy for now, economists said.

In a note to clients, Kyohei Morita, a Japan economist at Barclays, said he was pushing back his projection for further easing from the central bank to next April, from an earlier forecast of October this year. A slowdown in government spending as post-disaster reconstruction demand winds down could hurt growth projections for 2014 and force the bank’s hand, he said.

He was optimistic that growth, for now, would receive wide support from strong consumer spending, buttressed not only by improving sentiment but on the impending mass retirement of the country’s postwar baby boomers, who are expected to turn en masse from net savers to net spenders.

“Japan’s economy is increasingly characterized by strong personal consumption, supported by Abenomics and the baby-boomer generation,” Mr. Morita said.

Article source: http://www.nytimes.com/2013/07/12/business/global/japans-economy-on-road-to-recovery-central-bank-says.html?partner=rss&emc=rss

U.S. Manufacturing Gauge Falls to June 2009 Level

The Institute for Supply Management said on Monday that its index of manufacturing activity fell to 49 last month, from 50.7 in April. That is the lowest level in nearly four years and the first time the index has dipped below 50 since November. A reading under 50 indicates contraction.

A gauge of new orders fell to 48.8, its lowest level in nearly a year. Production and employment also declined.

Manufacturing has struggled this year as weak economies abroad have slowed exports from the United States. Businesses have also reduced their pace of investment in areas like equipment and computer software.

At the same time, consumers are holding back on spending more for factory-made goods, possibly a reflection of higher Social Security taxes that have reduced paychecks this year.

A separate report Monday said a measure of Chinese manufacturing dropped last month to 49.2, from 50.4 in April. As with the institute’s index, a reading below 50 indicates contraction. The figure added to signs that a resurgence of China’s economy, the world’s second-largest after the United States, might be losing momentum.

Europe remains mired in recession and is buying fewer American goods. In the first three months of the year, American exports to Europe fell 8 percent compared with the same period a year ago.

After a steep fall in March, companies in April stepped up their orders for United States machinery, electronic products and other equipment that reflect their investment plans. Overall orders for so-called durable goods jumped 3.3 percent in April from March.

Much of the April gain reflected more orders for commercial aircraft. But excluding the volatile transportation sector, which includes aircraft and autos, orders rose 1.3 percent in April, a big turnaround after a decline in March.

Article source: http://www.nytimes.com/2013/06/04/business/us-manufacturing-gauge-falls-to-june-2009-level.html?partner=rss&emc=rss

Existing-Home Sales Rose in April

The National Association of Realtors said on Wednesday existing home sales advanced 0.6 percent to an annual rate of 4.97 million units, the highest level since November 2009.

The data underscored the housing market’s improving fortunes as it starts to regain its lost glory. Resales were 9.7 percent higher than the same period last year.

“It’s quite supportive of the overall economy,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch in New York. “It’s a cushion against some of the other concerns in the economy.”

Economic activity appears to have slowed somewhat early in the second quarter as the effects of higher taxes and deep government spending cuts started filtering through.

Manufacturing, in particular, has been showing strains, but housing has held up surprisingly well, with the gains in home values helping to boost consumer confidence and retail sales.

The ripples from housing’s recovery have also extended to the jobs market, where construction employment has been rising.

That should limit the degree to which the economy slows this quarter. It expanded at a 2.5 percent annual pace in the first three months of the year.

U.S. stocks were narrowly mixed in afternoon trading. Treasury debt prices were lower while the dollar was higher against a basket of currencies.

PRICES SOAR

Tight supplies in some parts of the country have constrained the pace of home sales, but sellers are starting to wade back into the market, attracted by rising prices.

In April, the median home sales price increased 11 percent from a year ago to $192,800, the highest level since August 2008. It was the fifth consecutive month of double-digit gains.

With prices rising, more sellers put their properties on the market. The inventory of homes on the market rose 11.9 percent from March to 2.16 million.

That represented a 5.2 months’ supply at April’s sales pace, up from 4.7 months in March. It remained, however, below the 6.0 months that is normally considered a good balance between supply and demand.

The market has been helped by monetary stimulus from the Federal Reserve that has kept mortgage rates near record lows. On Wednesday, Fed Chairman Ben Bernanke made clear he was not yet ready to retreat from the U.S. central bank’s monthly $85 billion asset purchase program.

Adding to signs that the housing recovery was becoming firmly established, distressed properties – which can weigh on prices because they typically sell at deep discounts – accounted for only 18 percent of sales last month.

That was the lowest since the Realtors group started monitoring them in October 2008. These properties, foreclosures and short sales, had made up 21 percent of sales in March.

In another bright sign, properties are selling faster. The median time on market for homes was 46 days in April, down from 62 days the prior month. That was the fewest days since the NAR started monitoring that number in May 2011. Before the market collapsed in 2006, it usually took about 90 days to sell a home.

“While there are clearly a lot of interested buyers out there snapping up homes at a rapid clip, there do not seem to be enough homes on the market,” said Omair Sharif, an economist at RBS in Stamford, Connecticut.

About 44 percent of all homes sold in April had been on the market for less than a month, while only 8 percent had been on the market for a year or longer.

Last month, first-time buyers accounted for 29 percent of the transactions, with investors buying 19 percent of homes. Investors, both individuals and institutions, are mostly buying homes for renting.

Sales were up in three of the four regions, falling 3.4 percent in the Midwest.

(Editing by Andrea Ricci)

Article source: http://www.nytimes.com/reuters/2013/05/22/business/22reuters-usa-economy-housing.html?partner=rss&emc=rss

PC Sales Still Slumping, Despite New Offerings

But not only have the new offerings failed to stop the downward slide in PC shipments that has been going on for the last year, they appear to have made it worse.

On Wednesday, the research firm IDC reported that worldwide PC shipments declined 13.9 percent during the first three months of the year compared with the same period a year earlier.

To put those numbers into perspective, that is the most severe decline in the PC market since IDC began tracking the business almost two decades ago and almost double the rate of decline that the firm was expecting for the quarter.

Gartner, another research firm, had estimates that were only slightly better, showing an 11.2 percent decline in PC shipments for the first quarter.

This is the fourth consecutive quarter of year-over-year declines in shipments for the PC.

Many of the challenges facing the PC business have not changed during the last year. Smartphones and tablets, while not perfect substitutes for PCs, are pulling dollars out of consumers’ wallets that might have otherwise gone to laptop or desktop computers. People are simply more excited about those mobile technologies, with their touch-screens, than they are about buying conventional computers.

In this environment, Microsoft introduced Windows 8 last October. The software, a bold redesign of the company’s flagship operating system, is tailored to run on tablets, traditional keyboard-and-mouse computers and hybrid devices that combine elements of both. But it seems that the changes Microsoft made with Windows were so extreme that they scared off buyers.

“At this point, unfortunately, it seems clear that the Windows 8 launch not only failed to provide a positive boost to the PC market, but appears to have slowed the market,” Bob O’Donnell, program vice president for clients and displays at IDC, said in a statement. He said that “radical changes” to elements like the user interface and higher costs had made PCs less attractive compared with tablets and other devices.

“Microsoft will have to make some very tough decisions moving forward if it wants to help reinvigorate the PC market,” Mr. O’Donnell added.

The severity of the decline in the market is further evidence that the “post-PC era” heralded several years ago by Steven P. Jobs, Apple’s former chief executive, was not an empty slogan. Mr. Jobs, who died in 2011, predicted that PCs would endure, but that smartphones and tablets would become the devices people favored for most of their computing needs.

That shift has big implications for the balance of power in the tech business. Last week, Gartner estimated that by 2017, the dominant operating system for all computing devices, including smartphones, computers and tablets, would be Google’s Android, with software from Microsoft and Apple far behind.

Article source: http://www.nytimes.com/2013/04/11/technology/data-show-steep-decline-in-pc-shipments.html?partner=rss&emc=rss

DealBook: Dexia Gets a New Bailout

Workers removed the logo from the Dexia's heaquarters in Brussels in February after the Belgian part of the bank was nationalized.Julien Warnand/European Pressphoto AgencyWorkers removed the logo from the Dexia’s headquarters in Brussels in February after the Belgian part of the bank was nationalized.

9:49 a.m. | Updated

PARIS — The French and Belgian governments said on Thursday that they would inject an additional 5.5 billion euros into Dexia, a bank that has been troubled since the 2008 financial crisis, in an acknowledgment that it finances have continued to deteriorate.

The two governments will obtain preference shares in exchange for the new capital, equivalent to about $7 billion, giving them first rights to any value the group might eventually yield.

Belgium will provide 2.9 billion euros, 53 percent of the new funds. The French government will provide the rest, about 2.6 billion euros. They have also renegotiated their credit guarantees to Dexia, whose operations were concentrated largely between Belgium and France at the time of the credit crisis.

They said the new capital was necessary because “a certain number of hypotheses underlying the plan” for the bank’s orderly resolution had been revised. In particular, assumptions about the bank’s financing costs had turned out to be too optimistic. Its Dexia Municipal Agency unit will now have its value effectively wiped out in a planned sale to the French government.

Dexia S.A., the group holding company, has a negative net worth after writing down the full value of its stake in Dexia Crédit Local, it said. The holding company also reported a third-quarter loss of 1.2 billion euros, and a loss of 2.4 billion euros for the first nine months of the year.

France, Belgium and Luxembourg, where the group has an operating subsidiary, are winding down Dexia after the bank reached the verge of collapse in the September 2008. The bank foundered after the collapsing credit bubble exposed its reliance on short-term financing, and its balance sheet was scorched by failed investments that included hundreds of millions of dollars in unsecured Lehman Brothers bonds.

Paris and Brussels agreed in 2008 to shore Dexia up with more than 6 billion euros. In October 2011, they decided to nationalize the bank after worries about its exposure to Greek debt led to a run on its shares, not long after the European Banking Authority had given it a clean bill of health after a stress test.

Dexia’s government-appointed administrator, Karel De Boeck, said at a news conference in Brussels on Thursday that the recapitalization was necessary because Dexia had a deficit of 2.2 billion euros in its finances, Belgium’s RTL broadcaster reported.

Without the agreement, “we would have had a hearse waiting outside the door,” RTL cited him as saying, adding: “A total and immediate liquidation of Dexia – for which there are various obligations stretching out to 2099 – would cost a ridiculous amount of money.”

Dexia continues to hemorrhage money, even as it dumps assets. It booked a loss of 599 million euros on the sale of its Turkish unit, DenizBank. It also booked a loss of 466 million euros on the sale of Dexia Municipal Agency, which it is selling to the French government for 1 euro, rather than the 380 million euros it had assumed previously.

France and Belgium, both struggling to bring their finances into line with European Union standards at a time of economic stagnation, can ill afford an open-ended commitment to Dexia.

The governments said on Thursday that they had agreed to reduce loan guarantees made to Dexia Group in 2011, to 85 billion euros from 90 billion euros. In line with the new capital injection, Belgium’s share of the guarantee falls to 51.41 percent from 60.5 percent, while that of France rises to 45.59 percent from 36.5 percent. Luxembourg’s is unchanged at 3 percent.

They must also go back to the European Commission, which adjudicates antitrust matters, and seek approval for the latest bailout.

Article source: http://dealbook.nytimes.com/2012/11/08/dexia-gets-new-5-5-billion-bailout/?partner=rss&emc=rss

Chrysler Quarterly Profit Jumps

DETROIT (AP) — Strong U.S. sales powered Chrysler to a healthy third-quarter profit.

The company on Monday reported net income of $381 million, up 80 percent from $212 million a year earlier. The profit was due mainly to a 13-percent sales increase in the U.S., where Chrysler does three quarters of its business. The company sold nearly 417,000 cars and trucks in the U.S. under the Jeep, Dodge, Ram, Fiat and Chrysler brands.

Under the ownership of Italy’s Fiat SpA, the Detroit company has been transformed since its 2009 trip through bankruptcy protection. It has posted profits since early last year and is now propping up Fiat, which is struggling with dropping sales in Europe.

Unlike its Detroit rivals General Motors Co. and Ford Motor Co., Chrysler has few sales in Europe and its profits aren’t being eroded by losses there.

Chrysler’s sales have been helped by a series of revamped cars and trucks that began rolling out in 2010, including the Jeep Grand Cherokee SUV, the Ram pickup and the Chrysler 200 midsize sedan.

The company’s quarterly revenue rose 18 percent to $15.5 billion as global sales increased 12 percent.

The company earned $1.29 billion in the first nine months of the year, and it reaffirmed a 2012 profit forecast of $1.5 billion.

Chrysler Group LLC also repeated estimates that it would ship 2.3 million to 2.4 million vehicles worldwide this year, as well as generate $65 billion in revenue.

CEO Sergio Marchionne, in an e-mail to employees, said the competition isn’t showing any signs of vulnerability, so the company will have to keep fighting for its share of the market.

“We are going in the right direction, and I simply ask you to keep faith in Chrysler and in each other and keep working to shape this company,” he wrote.

Chrysler plans 66 new, revamped or special-edition cars and trucks by 2014, Marchionne wrote.

Even though it had a good quarter, Chrysler’s rapid growth is starting to slow. Its U.S. sales last quarter fell about 4 percent from the second quarter and it faces increased competition from Honda and Toyota. The two Japanese companies have recovered from last year’s earthquake and tsunami that hobbled their factories and left them short of models at U.S. showrooms.

Article source: http://www.nytimes.com/aponline/2012/10/29/business/ap-us-earns-chrysler.html?partner=rss&emc=rss

Service Sector Grew in August

The Institute for Supply Management, a private trade group, said Tuesday that its index for service companies rose to 53.3 in August from 52.7 in July. Any reading above 50 indicates expansion.

The service sector includes businesses like restaurants, hotels, health care companies and financial service companies. It has grown in all but one month over the last two years. The index reached a five-year high of 59.7 in February.

Still, the rate of growth among service businesses has declined in four of the last six months. High gas prices and scant wage gains have left consumers with less money to spend on services.

The private trade group said its gauge of hiring for service companies fell last month to an 11-month low. That reflected Friday’s grim government report that showed that the economy added no net jobs in August.

“While the modest August bounce in the I.S.M. index for services is good news, it does not change the overall picture of an economy that is slowly unwinding and losing momentum,” said Brian A. Bethune, an economics professor at Amherst College.

Retail and wholesale trade, transportation services and hotels all showed strength in August, according to the report. Educational service companies, recreation and entertainment firms, and health care, finance and insurance businesses all reported declines.

Last week, I.S.M. said its manufacturing index fell in August to 50.6, barely above the 50 threshold that separates contraction from growth.

The nation’s economy expanded in the first six months of the year at an annual rate of just 0.7 percent — the slowest growth since the recession officially ended two years ago.

Since then, consumer and business confidence have been hurt by a spate of bad economic news: lawmakers in Washington fought over raising the federal borrowing limit, Standard Poor’s downgraded its rating on long-term United States debt, the debt crisis in Europe worsened and the stock market tumbled in late July and early August. The Dow is nearly 14 percent lower than its close on July 21.

President Obama will offer a plan to increase job growth during an address to a joint session of Congress on Thursday.

Still, the president is unlikely to win support for any stimulus spending from Congressional Republicans, who say the president’s economic policies have failed. They say they want further spending cuts and less government regulation.

The economy needs to add 250,000 jobs a month to make a major dent in the unemployment rate, which has been above 9 percent in all but two months since May 2009.

Many economists believe that the economy will grow only 2 percent in the second half of this year, far below the pace needed to generate significant job gains.

Article source: http://feeds.nytimes.com/click.phdo?i=952e9ce8c0e8812b0306cd327ba60b59

In Tech We Trust: Investors Provide Millions to Risky Start-Ups

In March, Color unveiled its photo-sharing cellphone application — and revealed that it had raised $41 million from investors before the app had a single user. Despite the company’s riches, the app landed with a thud, attracting few users and many complaints from those who did try it.

“It would be pointless even if I managed to understand how it works,” one reviewer wrote in the Apple App Store.

Since then, Color has become a warning sign for investors, entrepreneurs and analysts who fear there is a bubble in start-up investing. They say it shows that venture capitalists, desperate to invest in the next Facebook or LinkedIn, are blindly throwing money at start-ups that have not shown they can build something useful, much less a business that can provide decent returns on investment.

Color, which says it is overhauling its app, is just one of the start-ups that have set tongues wagging about bubbly excess in Silicon Valley. The Melt plans to sell grilled-cheese sandwiches and soup that people can order from their mobile phones. It raised about $15 million from Sequoia Capital, which also invested in Color.

Airbnb, which helps people rent rooms in their homes, is raising venture capital that would value it at a billion dollars. Scoopon, a kind of Groupon for Australians, raised $80 million; Juice in the City, a Groupon for mothers, raised $6 million; and Scvngr, which started a Groupon for gamers, raised $15 million. These could, of course, turn out to be successful businesses. The worry, investors say, is the prices.

They say they have paid two to three times more for their stakes in such start-ups over the past year. According to the National Venture Capital Association, venture capitalists invested $5.9 billion in the first three months of the year, up 14 percent from the period a year earlier, but they invested in 51 fewer companies, indicating they were funneling more money into fewer start-ups.

“The big success stories — Facebook, Zynga and Twitter — are leading to investing in ideas on a napkin, because no one wants to miss out on the next big thing,” said Eric Lefkofsky, a founder of Groupon who also runs Lightbank, a Chicago-based venture fund with a $100 million coffer.

A decade ago, in the first surge of Internet investing, it was not unusual for tech start-ups to raise tens of millions of dollars before they had revenue, a product or users. But venture capitalists became more cautious after the bubble burst and the 2008 recession paralyzed Silicon Valley.

Meanwhile, it now costs less than ever to build a Web site or mobile app. So this time around the general philosophy has been to start small.

“By starting out lean, you have the chance to know if you’re on to something,” said Mark Suster, a managing director at GRP Partners. “If you start fat and the product concept doesn’t work, inherently the company will lose a lot of money.”

Two of Color’s photo-sharing competitors, Instagram and PicPlz, exemplify the lean start-up ethos. They started with $500,000 and $350,000, respectively, and teams of just a few people. As they have introduced successful products and attracted users, they have slowly raised more money and hired engineers.

Color, meanwhile, spent $350,000 to buy the Web address color.com, and an additional $75,000 to buy colour.com. It rents a cavernous office in downtown Palo Alto, where 38 employees work in a space with room for 160, amid beanbag chairs, tents for napping and a hand-built half-pipe skateboard ramp.

Bill Nguyen, Color’s always-smiling founder, has hired a team of expensive engineers, like D. J. Patil, a former chief scientist at LinkedIn.

“If I knew a better way of doing it, I would, but that’s what my cost structure is,” Mr. Nguyen said in an interview last week.

Michael Krupka, a managing director at Bain Capital Ventures and one of Color’s investors, said Color needed to raise a lot of money because it planned to do much more than photo-sharing.

Jenna Wortham contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=5837ec24f47fbdbb31c3fb49350b2916