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It’s the Economy: What Nail Polish Sales Tell Us About the Economy

December 20, 2011 by Leave a Comment

Our current problem is that much of the world has shifted rapidly from consuming way more than it could afford to consuming far less. The subsequent whiplash has left many people (and, in some cases, entire countries) broke, unemployed and deeply pessimistic about the future. And while we can measure stock prices and bond rates, the key factor that determines consumption and, therefore, the health of the economy, lies in our psychology. Economists believe that what we feel about the state of the economy is best revealed not through what we say in surveys but rather through what we buy and exactly how much of it. There’s a lot of data available, though none come with a prepackaged psychological narrative attached. So analysts do the best they can, combing through our national shopping lists hoping to uncover clues. Sometimes they find remarkably helpful information in very unlikely places.

They also uncover plenty of cute facts that mean little. Consider this: 2011 was a banner year for the sale of insanely expensive fine wines at auction. Someone at a Christie’s auction in Hong Kong, for example, bought 12 bottles of 1985 Romanee-Conti for a bit more than $150,000, or about $600 per sip. And the grand lesson this teaches us about the overall economy is . . . absolutely nothing. There’s some meaning in this anecdote about how the superrich — especially the newly superrich in China — are doing far better than the rest of us. But that can’t help us figure out if we’re headed for a double dip, a stagnant decade or a sudden rebound.

To figure out what our buying behavior says about the U.S. economy’s future, we have to understand what’s going on in the middle class, the 50-percenters. And to figure this out, my colleagues and I at NPR’s “Planet Money” went searching for as many shopping-based indicators as we could find, hoping some would unlock a hidden story about what Americans are feeling and where the country is headed.

The results were mixed, but we did uncover some ominous signs. Lipstick sales used to go up when the economy went down, perhaps because women were searching for a cheap pick-me-up or an edge in a job interview. For reasons nobody quite understands, the lipstick indicator doesn’t hold up anymore, though nail polish sales now seem to reflect the economy very clearly (albeit inversely). A rise in nail polish sales indicates that we’re searching for bargain luxuries as the economy craters — and sales of nail polish are way up right now. Women’s underwear sales are down, which historically suggests intense frugality and more rough times ahead.

But we were encouraged by the number of optimistic indicators we uncovered. There is good news in cemetery plot sales. They seem to have peaked a couple years ago when desperate families were unloading unused holes in the ground (though cremation numbers are rising). Sales of cardboard boxes, because everything from electronics to clothing is packaged in them, should also be a strong indicator of economic rejuvenation. (Current production — enough to paper over the entire state of Maryland — portends recovery.) Sales of men’s underwear, one of Alan Greenspan’s favorite metrics for predicting growth, are also up. Sales of cheap spirits, which soared during the worst of the recession (people need an affordable way to self-medicate), have now stabilized, meaning, at the very least, that people can now afford better liquor.

Of all the indicators we looked at, one of the most consistently accurate was Champagne sales. The amount of French Champagne that Americans consume has predicted — with nearly 90 percent accuracy — the average American income one year later. Apparently, when we pop a Champagne cork, we know that good times are ahead (see chart). Champagne sales hurtled upward twice in recent history — at the peak of the Internet bubble in 1999 and during the heyday of the housing bubble in 2007. These were both followed by slowdowns as fewer people found reason to celebrate.

There are so many indicators to choose from that you could glean just about anything regarding our economic future. In fact, the most telling indicator appears to be the sheer number of indicators themselves. Americans now have so many seductive things they can buy that there are ample consumer options no matter what we feel. Partly as a result, savings — known in economics as deferred consumption — have fallen steadily for more than 30 years, from a high of nearly 12 percent of income. It kissed zero before a tiny uptick in the past couple years.

The decline of the savings rate is particularly troubling because it is consistent through busts and booms. During the fast growth of the late 1990s and mid-2000s, and the dark times that followed, people have been choosing to spend more and save less than ever before. Paradoxically, this happened just as pensions have been disappearing and life spans have been increasing. It suggests that Americans are so caught up in every short-term enthusiasm or agony that they haven’t thought enough about long-term fiscal health.

When the dust clears from the current crisis in a year or two or 10, it will probably become obvious that the recent decades were a giddy consumption mirage fueled, in part, by free-flowing foreign debt. The world won’t lend the United States money for nothing forever (though, downgrade aside, nobody has told the world that yet), and the country can’t keep buying a lot more from everyone else than it is able to sell them. America will, most likely, need to find a more normal, sustainable level of consumption, and that’s exactly the problem. We don’t know what normal consumption looks like. Over much of the last few decades, we gave in to every shopping whim, with little thought to the future, except for those times we were so dispirited, we wouldn’t spend at all. What does a reasonable balance between consumption now and consumption deferred actually look like? That’s what we need to figure out.

Article source: http://feeds.nytimes.com/click.phdo?i=401675b9ccde4de77a5c4119ab9d3dc3

Filed Under: Economy News Tagged With: , ,

It’s the Economy: What Nail-Polish Sales Tell Us About the Economy

December 14, 2011 by Leave a Comment

Our current problem is that much of the world has shifted rapidly from consuming way more than it could afford to consuming far less. The subsequent whiplash has left many people (and, in some cases, entire countries) broke, unemployed and deeply pessimistic about the future. And while we can measure stock prices and bond rates, the key factor that determines consumption and, therefore, the health of the economy, lies in our psychology. Economists believe that what we feel about the state of the economy is best revealed not through what we say in surveys but rather through what we buy and exactly how much of it. There’s a lot of data available, though none come with a prepackaged psychological narrative attached. So analysts do the best they can, combing through our national shopping lists hoping to uncover clues. Sometimes they find remarkably helpful information in very unlikely places.

They also uncover plenty of cute facts that mean little. Consider this: 2011 was a banner year for the sale of insanely expensive fine wines at auction. Someone at a Christie’s auction in Hong Kong, for example, bought 12 bottles of 1985 Romanee-Conti for a bit more than $150,000, or about $600 per sip. And the grand lesson this teaches us about the overall economy is . . . absolutely nothing. There’s some meaning in this anecdote about how the superrich — especially the newly superrich in China — are doing far better than the rest of us. But that can’t help us figure out if we’re headed for a double dip, a stagnant decade or a sudden rebound.

To figure out what our buying behavior says about the U.S. economy’s future, we have to understand what’s going on in the middle class, the 50-percenters. And to figure this out, my colleagues and I at NPR’s “Planet Money” went searching for as many shopping-based indicators as we could find, hoping some would unlock a hidden story about what Americans are feeling and where the country is headed.

The results were mixed, but we did uncover some ominous signs. Lipstick sales used to go up when the economy went down, perhaps because women were searching for a cheap pick-me-up or an edge in a job interview. For reasons nobody quite understands, the lipstick indicator doesn’t hold up anymore, though nail-polish sales now seem to reflect the economy very clearly (albeit inversely). A rise in nail-polish sales indicates that we’re searching for bargain luxuries as the economy craters — and sales of nail polish are way up right now. Women’s underwear sales are down, which historically suggests intense frugality and more rough times ahead.

But we were encouraged by the number of optimistic indicators we uncovered. There is good news in cemetery-plot sales. They seem to have peaked a couple years ago when desperate families were unloading unused holes in the ground (though cremation numbers are rising). Sales of cardboard boxes, because everything from electronics to clothing is packaged in them, should also be a strong indicator of economic rejuvenation. (Current production — enough to paper over the entire state of Maryland — portends recovery.) Sales of men’s underwear, one of Alan Greenspan’s favorite metrics for predicting growth, are also up. Sales of cheap spirits, which soared during the worst of the recession (people need an affordable way to self-medicate), have now stabilized, meaning, at the very least, people can now afford better liquor.

Of all the indicators we looked at, one of the most consistently accurate was Champagne sales. The amount of French Champagne that Americans consume has predicted — with nearly 90 percent accuracy — the average American income one year later. Apparently, when we pop a Champagne cork, we know that good times are ahead (see chart). Champagne sales hurtled upward twice in recent history — at the peak of the Internet bubble in 1999 and during the heyday of the housing bubble in 2007. These were both followed by slowdowns as fewer people found reason to celebrate.

There are so many indicators to choose from that you could glean just about anything regarding our economic future. In fact, the most telling indicator appears to be the sheer number of indicators themselves. Americans now have so many seductive things they can buy that there are ample consumer options no matter what we feel. Partly as a result, savings — known in economics as deferred consumption — have fallen steadily for more than 30 years, from a high of nearly 12 percent of income. It kissed zero before a tiny uptick in the past couple years.

The decline of the savings rate is particularly troubling because it is consistent through busts and booms. During the fast growth of the late 1990s and mid-2000s, and the dark times that followed, people have been choosing to spend more and save less than ever before. Paradoxically, this happened just as pensions have been disappearing and life spans have been increasing. It suggests that Americans are so caught up in every short-term enthusiasm or agony that they haven’t thought enough about long-term fiscal health.

When the dust clears from the current crisis in a year or 2 or 10, it will probably become obvious that the recent decades were a giddy consumption mirage fueled, in part, by free-flowing foreign debt. The world won’t lend the United States money for nothing forever (though, downgrade aside, nobody has told the world that yet), and the country can’t keep buying a lot more from everyone else than it is able to sell them. America will, most likely, need to find a more normal, sustainable level of consumption, and that’s exactly the problem. We don’t know what normal consumption looks like. Over much of the last few decades, we gave in to every shopping whim, with little thought to the future, except for those times we were so dispirited, we wouldn’t spend at all. What does a reasonable balance between consumption now and consumption deferred actually look like? That’s what we need to figure out.

Article source: http://feeds.nytimes.com/click.phdo?i=401675b9ccde4de77a5c4119ab9d3dc3

Filed Under: Economy News Tagged With: , ,

Strategies: Half Stocks, Half Bonds: A Solution for Turbulent Times

November 27, 2011 by Leave a Comment

For investors, the course is obvious: Seek safety, and avoid risky assets like stocks.

All of that may seem clear enough. Since August, it has often been the prevailing view in financial markets. But it’s not the only narrative, and it hasn’t always been the dominant one.

In fact, another argument has received considerable support lately. It goes something like this: Recent economic data have been surprisingly strong, showing that while the economy is weak, it’s not in a recession, at least not in the United States. As for the crises in the euro zone and in Washington, the politicians will just have to come to their senses before the situation really gets out of control.

For investors, the course is obvious: Jump into stocks. Don’t miss the big rally.

It may be hard to decide which picture makes the most sense. Perhaps each is appealing, sometimes one more than the other, depending on the news of the particular moment.

These days, paying close attention to the economy and the markets can cause whiplash. What should an investor really do?

In a word, nothing.

When the latest news tempts you to move your investments around, take a deep breath. Unless you need the cash soon, the best course of action may be inaction.

That’s the import of a recent study by the Vanguard Group. Assuming you’ve already set up a diversified portfolio, sitting tight may make the most sense.

Vanguard created a model portfolio divided equally between stocks and bonds, and compared the returns in periods of economic expansion and recession. It found that “the average real returns of such a portfolio since 1926 have been statistically equivalent regardless of whether the U.S. economy was in or out of recession.”

Vanguard’s founder, John C. Bogle, popularized index funds, and the study tracked the stock and bond markets using indexes that mirror the broad markets. Individual stock and bond selection wasn’t involved at all.

The study, titled “Recessions and Balanced Portfolio Returns,” used the official recession dating of the National Bureau of Economic Research to compare market returns throughout the up and down phases of the business cycle from 1926 through June 2009. During expansions, the model portfolio had average real returns, factoring in inflation, of 5.6 percent, compared with 5.3 percent during recessions.

In short, there was a difference, but it was too small to be of any statistical significance, says Joseph H. Davis, chief economist and head of the investment strategy group at the Vanguard Group and a co-author of the report. (The other author was Daniel Piquet of Vanguard.)

When the economy was bad and when it was good, the portfolio performed more or less the same. It really didn’t matter.

“The results may seem counterintuitive,” Mr. Davis said in a telephone interview. “You might think that it’s best for investors to avoid a recession, and in some ways, of course, it is. No one wants a recession. But the results suggest that as investors, rather than try to time the market, most people are best off with a diversified portfolio and just sticking with it over the long run.”

What accounts for these results? Put simply, bonds tend to outperform stocks when a recession is on the horizon, while stocks tend to rally when an economic expansion is in the offing. “The financial markets themselves tend to move in advance of the economy,” Mr. Davis said.

Predicting the economy’s direction is famously difficult. So unless you have substantial bond holdings in your portfolio well before a recessions begin, you’ll miss upturns in the bond market. And unless you’re holding stocks before an economic recovery has started, you’ll miss those big rallies.

By holding stocks and bonds in equal proportion — a portfolio that’s easy to construct by using index funds — you won’t need to be prescient; you can stick to your portfolio and ride out the storms.

Of course, a 50-50 stock-bond division is relatively conservative. Alter those proportions and the results will shift significantly. During recessions, for example, a portfolio containing 60 percent stocks and 40 percent bonds fared worse than the 50-50 portfolio, with an average real return of 4.9 percent annually. In expansions it did better, with an average real return of 6.8 percent, according to Vanguard’s calculations.

That points out the allure of market timing. In an ideal world, if you knew in advance where the economy was heading, you’d be a market wizard. You would shift your entire portfolio into stocks during expansions, for example, and put all of it into bonds in recessions. If you could actually do this, the results would be impressive. In expansions, Vanguard found, stocks have gained an average of 11.9 percent annually, after inflation, while the comparable figure for bonds in recessions is 7. 2 percent That kind of timing is ideal.

BUT it’s easy to shoot yourself in the foot. Get the timing wrong and hold only stocks in recessions, for example, and you’d have an annual average gain in those periods of 3.3 percent, after inflation. And if you hold bonds in expansions, you’d lose an average annual 0.7 percent, also after inflation.

It may be possible to predict the rough direction of the economy some of the time, but there’s no evidence that anyone gets it right all the time. “I’d be very careful before assuming that I knew better than the overall market,” Mr. Davis said.

It turns out, though, that if you have a diversified portfolio and are prepared to hold onto it, you may not need to know where the economy is going.

In other words, humility may bring the steadiest returns.

Article source: http://feeds.nytimes.com/click.phdo?i=1cc05d1d5d1eb538dbe0904e4d5b4b47

Filed Under: Economy News Tagged With: , ,

App Smart: For the iPad, Books That Respond to a Child’s Touch

June 30, 2011 by Leave a Comment

The latest book apps to appear on my iPad include The Fantastic Flying Books of Mr. Morris Lessmore ($5), Angelina Ballerina’s New Ballet Teacher ($1), The Wrong Side of the Bed in 3-D ($3), Oh, the Thinks You Can Think! ($4) and Cars 2 Storybook Deluxe ($6).

They’ve scored higher marks with my children than the earliest book apps, like Miss Spider’s Tea Party and Toy Story 2 Read-Along.

Even though publishers haven’t yet woven the interactive thrill of the Elements chemistry app or the AirCoaster roller coaster app into a children’s narrative, the book apps are usually much cheaper than traditional books. It’s hard to feel cheated with a purchase.

The first thing to keep in mind when buying children’s books on the iPad — many of them are also available for the iPhone and iPod Touch — is that there are two places to buy them, the iTunes App Store and the iTunes Books store. The Books store has categories devoted to Children and Teens and Kids’ Picture Books.

Apps in those categories follow the traditional book model, with text and illustrations and little else.

In the iTunes App Store, though, offerings for children are scattered among the 41,000 books that include sound, animation or graphics that respond to the reader’s touch.

Aside from highlighting a children’s book app in the New and Noteworthy or What’s Hot selections, Apple gives parents little help in finding selections for their children. Kirkus, the book review service, devotes a Web page to its 2010 list of best iPad books for children, and sites like CNet, Gizmodo and others occasionally mention good ones as well.

I chose three from those sources and added the Cars 2 and Dr. Seuss books, which were released last week, as examples of the latest products from well-financed developers.

Of those, Morris Lessmore is the best. It is a visually stunning bit of work with entertaining interactive features.

The content is largely pulled from the animated short film of the same name, which tells the story of a young man’s experience with a magical library. The app’s pages are brief movie scenes that pause to reveal interactive elements: books suddenly fly at the reader’s touch, for instance, and readers can play a piano or scribble in a blank book of their own.

The interactions are placed with a storyteller’s touch, so they generally serve the narrative instead of distracting from it.

If there’s a flaw, it’s that the book is not suitable for a wide enough audience. Between the narrator’s voice and the animation, young readers can probably follow the action, but as a reading experience it is beyond the reach of, say, 7-year-olds.

One imagines future books of this type with alternative narratives tailored to different age groups. For now, Morris Lessmore is better suited to older children and preteenagers.

Slightly younger children will appreciate Angelina Ballerina, which also deftly mixes animation into a traditional children’s book format. The story involves a ballet-centric drama consistent with other installments in the “Angelina” TV and publishing franchise.

The artwork isn’t nearly as arresting as that of Morris Lessmore, but it is beautiful in its own right, and the interactions are engaging. If you touch a character’s image, for instance, it acts out a fragment of the plot. But a character will sometimes react to the actions or words of another character, so if you tap them in the incorrect sequence you’re rewarded with non sequiturs.

The text occasionally includes highlighted ballet terms that, when tapped, yield a printed and narrated explanation of the term. It would be nice to see that feature extended to more words that could trip up early readers.

The newest book apps on my list, Oh the Thinks You Can Think! and Cars 2, fairly represent the market’s approach to new readers. Oh the Thinks is conventional Seuss fare. The illustrations aren’t animated, but the images move subtly across the page to enliven the graphics. Like other book apps for early readers, Oh the Thinks highlights each word as the narrator reads it. But if you tap important characters or images from the story, the narrator speaks the operative word — “wall,” for instance — and an animated rendering of the word pops out at the reader.

I’ll let literacy specialists and parents debate the pedagogical merits of this approach, but my immediate impression was that it probably couldn’t hurt.

Cars 2 is more entertainment (and, arguably, media branding) than children’s literature. That will suit many parents and children just fine, of course, but a beginning reader can sometimes lose the text in the wash of animation, music and sound effects. As with many other book apps for children, this one includes a coloring book option, simulated jigsaw puzzles and games for many pages. In other words, it’s more app than book.

Come to think of it, that’s not a bad way to see the genre at the moment — more app than book, but the book is gaining.

At least on Apple devices, that is. On Android, I found almost nothing worth recommending. The ones I tried often featured static, low-resolution graphics with advertisements intruding on the story. Oceanhouse Media, which publishes Oh the Thinks and many other children’s book apps on Apple, also distributes most of them on Android tablets and phones. But that wasn’t the case for any of the other good Apple app books I tried.

If Android tablets make a bigger dent in the iPad’s market share, the imbalance in the book app category will most likely shift. For now, though, the category is almost all Apple’s.

Quick Calls

Tennis fans can track the month’s biggest tournament on their Apple devices free, with Wimbledon, from the All England Lawn Tennis Club. … N.O.V.A. 2 HD, the poplar first-person shooter game on iTunes, is now available on Android for $7. … Slightly tamer: Pretty Pet Salon for Android, free.

Article source: http://feeds.nytimes.com/click.phdo?i=cfc77251faddd5375b8b2c2865417fa0

Filed Under: Business News Tagged With: , ,

The Fed’s Crisis Lending: A Billion Here, a Thousand There

March 31, 2011 by Leave a Comment

WASHINGTON — The Federal Reserve lent billions of dollars to the nation’s largest banks during the financial crisis in the fall of 2008. It also lent $400,000 to the Eudora Bank, a community lender with a single location in the center of Eudora, Ark.

Day after day in late October and early November, near the high-water mark of the Fed’s efforts to rescue Wall Street, the central bank also made dozens of similarly modest loans to small banks in communities across the country.

Some banks, like Howard Bank, a suburban lender with four offices outside Baltimore, borrowed as little as $1,000 — a fire drill in case things got worse.

Other borrowers already were facing dire problems. Several have since failed, including La Jolla Bank in Southern California, which took $6 million.

The Fed released a complete list Thursday of banks that borrowed during the crisis from its discount window, its oldest and broadest emergency lending program. The central bank already released similar information for its other lending programs.

As with those other programs, the discount window mostly served the giant banks like Bank of America, Citigroup and Washington Mutual, whose struggles to survive the consequences of reckless lending and investment have defined the narrative of the crisis.

But the discount window was unique because it was open to smaller banks, too. The other emergency programs were created during the crisis to support the trading and investment activities that are concentrated in New York. The discount window, which predates the crisis by almost a century, was created to help commercial banks weather cash squeezes.

The long list of banks that lined up at the window, which the Fed provided in the form of a daily loan register, shows a crisis stretching far beyond Wall Street.

On Wednesday, Oct. 29, 2008, for example, the Fed lent money to 60 different banks, in amounts ranging from $1,000 to $26.5 billion.

At least 10 of those banks have since failed.

Borrowing from the discount window is considered a sign of weakness, and banks historically have avoided it if they can. From 2003 through 2006, the Fed lent an average of less than $50 million each week.

By the summer of 2007, however, the central bank was increasingly concerned that a growing number of banks needed help but were unwilling to borrow. In August, the Fed slashed the cost of borrowing from the discount window by half a percentage point. Then it arranged for four of the nation’s largest banks, Bank of America, Citigroup, JPMorgan Chase and Wachovia, to take what were described as symbolic loans of $500 million.

By the peak of the crisis in late October and early November 2008, the volume of outstanding discount window loans reached above $100 billion.

The Fed has long treated its interactions with banks as confidential but a series of federal courts ruled that it had to provide information on its emergency lending programs in response to Freedom of Information Act requests filed more than two years ago by Bloomberg News and the Fox Business Network.

The Fed provided the data to reporters Thursday in the form of several hundred electronic images of the original documents, loaded on a compact disc, distributed by hand at 10 a.m. in the cramped security checkpoint outside its headquarters building.

By contrast, the Fed released data on its other emergency lending programs in December by creating a public, searchable Web site.

Bankers have expressed concerns about the release of the data, saying that the prospect of publicity will deter future borrowing.

“I think it will make it harder for people to use the discount window in the future,” Jamie Dimon, chief executive of JPMorgan Chase, said Wednesday.

Article source: http://feeds.nytimes.com/click.phdo?i=cd6ca9c035e6a4ad328861fbeca0bc2c

Filed Under: Business News Tagged With: , ,