TIME Jobs

It’s Not Time to Despair Over the Terrible Jobs News—Yet

Views From A Job Fair As U.S. Added 238,000 Jobs In December
Prospective job applicants wait in line to learn about job openings at the Kentucky Kingdom Amusement Park during a job fair at the nearby Crowne Plaza Hotel in Louisville, Ky., Jan. 4, 2013. Luke Sharett—Bloomberg/Getty Images

With today’s lackluster jobs report, the Labor Department is now estimating that the economy added an average of 94,000 jobs per month in December and January, which is barely enough to keep up with population growth. Combine that with recent data showing weak auto sales, construction and manufacturing activity, and there’s plenty of evidence that we have a slowing economy on our hands.

So should we be worried? Probably not just yet. Economists are quick to warn against drawing any hard conclusion from any one or two data points–it’s the long-term trends are the real gauge of the economy’s health. Furthermore, there is reason to believe that the inclement weather plaguing much of the country this winter has put a damper on economic activity, an effect that will be reversed as things start to warm up.

As Kathy Bostjancic, an economist with the Conference Board, wrote this morning, the second straight month of disappointing jobs number is cause for concern, but, “We expect that an eventual return to more normal weather conditions will allow job gains to rebound back towards their previous 180,000 – 200,000 trend pace.” Doug Duncan, Chief Economist at Fannie Mae agrees, writing, “Today’s report did not change our view that economic growth will pick up modestly this year, boosted by private sector activity.”

So why aren’t economists changing their views in the face of data which seems to show a deceleration of the recovery? First of all, the monthly estimate of job growth by the Labor Department has a very large margin of error, somewhere around 90,000 jobs per month. That means that when the Labor Department estimates that the economy added 113,000 new jobs in a month, what it’s really saying is that it’s 90% certain that the economy added between 23,000 and 203,000 jobs.

Secondly, other data, like initial jobless claims, don’t corroborate the idea that the jobs recovery is slowing down. Yesterday’s jobless claims report and recent GDP growth data show a much stronger economy than is suggested by the Labor Department jobs data. Jim O’Sullivan, Chief Economist with High Frequency Economics, wrote in a note to clients this morning that though today’s report was disappointing other data are strong enough to make him “expect a catch up in the coming months.”

In other words, it’s not quite time to freak out yet. One more bad jobs report next month, however, and it might be time to worry.

TIME Jobs

Early Unemployment Data Lifts Hope for Job Growth

Prospective job applicants wait in line to learn about job openings at the Kentucky Kingdom Amusement Park during a job fair at the nearby Crowne Plaza Hotel in Louisville, Ky., Jan. 4, 2013.
Prospective job applicants wait in line to learn about job openings at the Kentucky Kingdom Amusement Park during a job fair at the nearby Crowne Plaza Hotel in Louisville, Ky., Jan. 4, 2013. Luke Sharett —Bloomberg/Getty Images

Fewer unemployment claims than expected

The number of newly-unemployed workers seeking unemployment benefits fell last week by 20,000 to a seasonally-adjusted 331,000, the Labor Department said Thursday. That was below economists’ expectations of 335,000 and lifted hopes that Friday’s jobs report will show strong growth.

Last month’s job’s report was disappointing, showing that the economy added just 74,000 jobs in December. Employment data, however, can be highly volatile, and many economists predict that last month’s numbers will be revised upwards as other economic data—like GDP growth figures—point to a stronger economy.

“The sharp slowing in payrolls in the December employment report was not due to a weaker trend,” Jim O’Sullivan, Chief U.S. Economist at Hi Frequency Economics, wrote in a note to clients Thursday morning. O’Sullivan predicted Friday’s jobs report will show the economy added a healthy 220,000 new jobs in January.

TIME real estate

Actually, San Francisco’s Inequality Problem Isn’t the Tech Industry’s Fault

Signs in opposition of technology companies are seen in San Francisco, California Dec. 9, 2013.
Signs in opposition of technology companies are seen in San Francisco, California Dec. 9, 2013. Stephen Lam—Reuters

But a lack of construction appears to blame

Widening wealth and income inequality have been a hot political topic for several years now, and nowhere more than tech boomtowns like San Francisco. In recent weeks and months, protesters have taken to picketing parts of the city where Google’s private luxury buses come to pick up their highly paid engineers in order to take them to work at the firm’s nearby campus in Mountain View.

The protests are ostensibly about Google’s use of public bus stops for private purposes, but they are motivated also by the impression that new tech money is raising home prices and forcing long-time residents out of the city they love. “You can say ‘I’m just a company, leave me alone, I’m creating jobs, why do I have to do anything else,’” San Francisco mayor Ed Lee recently told TIME. Well, no company can feel that way … Being a citizen of San Francisco, there’s more obligations.

The data, however, paint a more complicated picture. In a report released Thursday, Jed Kolko, Chief economist for the real estate site Trulia, dug into Census and home price data to see where home values are rising faster in tech hubs than the rest of the country and what is driving those increases.

Kolko used Census data to determine the metro areas with the highest concentrations of tech workers, and looked to see how price increases in those cities compared with the country overall. He found that “recent price gains in tech hubs are in line with national trends.” In fact, of the top 10 metro areas with the highest price increases, the only tech hub was Oakland, while four of the tech hubs identified by Kolko were below average in terms of price increases over the past year.

And while tech hubs are generally more expensive places to live, their being expensive predated the Internet boom. Writes Kolko:

“Today’s tech hubs had expensive housing before dot-commers, Internet bubbles, and all that came with them. Decades ago, many of the metros that would become tech hubs had advantages like major research universities, technically skilled workers, thriving computer manufacturing industries, or a nice climate. Places with advantages like these tend to be more expensive, and they turned out to be fertile soil for the today’s tech industry.”

So what’s the real culprit for sky-high home prices in San Francisco? Kolko points to a lack of construction. He writes, “Since 1990, there have been just 117 new housing units permitted per 1,000 housing units that existed in 1990 in San Francisco. That’s the lowest of the ten tech hubs and among the lowest of all the 100 largest metros even with the recent San Francisco construction boom.”

Compared to other tech-heavy cities like Raleigh or Austin, construction in San Francisco occurs very slowly. writes Kolko, “Geography limits construction in the Bay Area–it’s hard to build on the ocean, the bay or on steep hills–but regulations and development costs hurt too.”

TIME Food and Beverage Industry

Anheuser-Busch to Buy Blue Point Brewing Company

Anheuser-Busch InBev logo outside the brewery headquarters in Leuven
View of Anheuser-Busch InBev logo outside the brewery headquarters in Leuven February 27, 2013. REUTERS / REUTERS

The world's largest brewer is adding to its empire

Anheuser-Busch InBev, the world’s largest beer maker, announced Wednesday that it will acquire the Long Island-based Blue Point Brewing Company.

The deal will position the maker of such popular beers as Budweiser and Corona to take advantage of the booming market for craft beers like Blue Point’s flagship Toasted Lager, while exposing Blue Point to a much larger consumer base.

“Together, our talented brewing team and Anheuser-Busch will have the resources to create new and exciting beers and share our portfolio with even more beer lovers,” Mark Burford, a co-founder of Blue Point, said in a statement.

The financial details of the deal have not yet been disclosed.

[NYT]

TIME Amazon

Amazon Prime Price Hike Could Be a Major Mistake

Amazon Prime Price Hike Could Be a Major Mistake
A employee sorts packaged customer orders ahead of shipping at one of Amazon.com Inc.'s fulfillment centers. Bloomberg/Getty

Amazon has long been given the benefit of the doubt by investors, who have been content to forgo profits as long as Amazon has proven that it is rapidly growing its footprint.

But the retail giant slipped a bit Thursday, when it announced that its fourth-quarter profit fell short of Wall Street’s expectations, and the stock tumbled as much as 10% in after-hours trading. Perhaps in anticipation that investors would be disappointed by its profits and outlook going forward, Amazon CFO Thomas J. Szkutak told analysts that the company was considering raising the price of its popular Amazon Prime service by anywhere from $20 to $40.

Piper Jaffray analyst Gene Munster told the Wall Street Journal that it could drive $475 million in new revenue for Amazon, based on his estimate that the service has 18.7 million users. But is this price raise short-sighted? The Prime Membership program, after all, isn’t supposed to be about revenue in and of itself. It’s more like a rewards program that convinces customers to do all sorts of shopping on the website, from big ticket electronics to everyday items like toothpaste and tissue paper.

“I was a little surprised by it,” says R.J. Hottovy, analyst with Morningstar who covers Amazon. “I thought that’s been a price point that’s worked for them for some time.”

In a report issued last year, Hottovy explained how even with the high shipping costs that come with free, two-day shipping, Amazon Prime was a profitable program for the company because it attracted high-value customers who spend big (and do so often) on the site.

So why mess with a profitable program that is one of the main drivers of Amazon’s massive growth? At some point Amazon is going to have to increase its margins. It can’t just go on being barely profitable forever, and investors are going to at some point demand earnings that warrant the company’s sky-high valuation. Though Hottovy was surprised by the timing of the move, he does think that raising the price of Amazon Prime is preferable to raising prices more broadly. “Today’s consumer has just gotten so savvy when it comes to online shopping,” he says. “You have to maintain the perception of low-cost products, and raising the price of a one-time charge of a Prime membership has less impact psychologically.”

The move could also be an attempt to create more of a tiered pricing for the Prime program. Amazon already lures many new Prime members through its lower-cost student program, which costs just $39 per year, and offers a free month of Amazon Prime to those who purchase new Kindle Fire tablets. It’s possible that the move to raise prices on Prime membership will come in concert with more offers like these, which will enable Amazon to raise prices on less price-sensitive shoppers, while still attracting more discerning, newer customers.

Still, you have to wonder why Amazon wants to raise prices at all. Though Amazon doesn’t divulge Prime membership figures, Hottovy estimates that it doubled its membership in 2013 and that Amazon Prime could have north of 20 million subscribers. Those kind of numbers don’t scream “broken program,” he says.

TIME Personal Finance

Nearly Half of America Lives Paycheck-to-Paycheck

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Getty Images

The economic picture is looking brighter these days. The federal government announced Thursday that economic growth had picked up to its fastest pace in two years, while employment growth over the past five months has averaged a healthy 185,000 new jobs. But as evidenced by a report out Thursday from the Corporation for Enterprise Development, nearly half of Americans are living in a state of “persistent economic security,” that makes it “difficult to look beyond immediate needs and plan for a more secure future.”

In other words, too many of us are living paycheck to paycheck. The CFED calls these folks “liquid asset poor,” and its report finds that 44% of Americans are living with less than $5,887 in savings for a family of four. The plight of these folks is compounded by the fact that the recession ravaged many Americans’ credit scores to the point that now 56% percent of us have subprime credit. That means that if emergencies arise, many Americans are forced to resort to high-interest debt from credit cards or payday loans.

And this financial insecurity isn’t just affected the lower classes. According to the CFED, one-quarter of middle-class households also fall into the category of “liquid asset poor.” Geographically, most of the economically insecure are clustered in the South and West, with Georgia, Mississippi, Alabama, Nevada, and Arkansas being the states with the highest percentage of financially insecure.

TIME Economy

Economy Growing at Fastest Pace in 2 Years

Getty Images

The U.S. economy grew at an annualized rate of 3.2 percent in the fourth quarter of last year, the government estimated Thursday.

The Department of Commerce estimate was in line with economists’ expectations, and when combined with third-quarter growth of 4.1%, it represents the best six-month stretch of economic growth in two years. Growth for all of 2013, however, was only 1.9%, a decrease from 2012 that was brought down by slow growth during the first half of the year.

Nearly all sectors of the economy contributed to the healthy growth, from consumer spending to business investment and state and local government spending. The one big drag on growth was reductions in federal government spending, which decreased by 12.6% in the fourth quarter.

TIME Currency

Currency Crises Abroad Are Benefiting the U.S.

Victor Albrow / Getty Images

Analysts are calling them “The Fragile Five,” a catchy sobriquet for five countries–Turkey, Brazil, India, South Africa and Indonesia–that have been experiencing serious turmoil in their economies and currencies in recent weeks.

To one degree or another these five economies have been rocked by foreign investors who are taking their money and parking it in safer and increasingly more lucrative investments in developed countries like the U.S. This capital flight has caused these nations’ currencies to plummet in value, forcing central banks to raise interest rates and possibly weaken economic growth at home. This week, the Turkish Central Bank raised its interest rate a stunning 4.5%, hoping to convince investors to keep their money in Turkey.

So what exactly does a currency crisis in Turkey or India have to do with the U.S.? In recent days, foreign leaders like Brazilian President Dilma Roussef reportedly laid blame for economic troubles in her country at the feet of the United States’ Federal Reserve, saying “the withdrawal of the monetary stimulus in developed countries” was fueling “market volatility.” Some analysts have dismissed this as simple scapegoating, but according to Eswar Prasad, a Cornell economist and author of a forthcoming book on the international monetary system, The Dollar Trap, the analysis is not entirely off the mark. Volatility in places like Brazil “isn’t an indictment of Federal Reserve policy, but it certainly is a side effect,” he says.

Presad explains that, following the financial crisis, the central banks of developed countries like the United States and Britain engaged in unprecedented efforts to keep interest rates very low, which motivated investors to look abroad for higher returns. Now that the U.S. is beginning to unwind this stimulus, and investors are beginning to worry about future growth prospects in places like Turkey, the reverse is happening. Money is flowing quickly from poorer countries to the developed world, fomenting economic instability in the process.

The reason for this instability, Prasad argues, is dominant position of the U.S. dollar in global finance. But this is not just a worry for the citizens of The Fragile Five. It also affects the lives of everyday Americans in countless ways, from how much they pay for their mortgage to how much the U.S. government can afford to spend on things like Social Security.

A series of financial crises from those in Latin America in the 1980s, to the Asian crisis of the 1990s, to the global meltdown we experienced five years ago has convinced developing countries that they need to amass large currency reserves to stabilize their own currencies and enable banks and businesses in their home country to continue operating during financially stressful times. Turkey, for instance, sold its dollar reserves last week in an attempt to prop up the price of the Turkish lira and quell instability.

Instead of just holding onto dollars, however, central banks like to keep much of their reserves in U.S. treasury debt so that it can earn a return from the savings, while still being “liquid,” or easy to convert to cash in a pinch. The result is massive foreign demand for U.S. government debt. As of June 2013, roughly one-third of the U.S.’s outstanding $16.8 trillion in debt was owned by foreigners, while the Federal Reserve owned one-tenth. That’s a whole lot of demand for U.S. debt that is purely the result of the dollar’s role as the world’s “reserve” currency.

The effect of all this foreign demand is to keep interest rates in America much lower than they otherwise would be. That means that we’re paying less for our cars, mortgages, and government debt that we would without that demand. It also means that the swift reduction in the deficit we’ve seen in recent years is probably unnecessary, especially because turmoil abroad is only going to make investing in U.S. government debt more attractive to investors in the near term. “The U.S. is in a very good position,” Prasad says. “All of this turmoil is going to drive even more capitol to our shores.”

So is there any downside to the dollar’s dominance of the globe? Unfortunately, yes. While demand for U.S. debt abroad drives down interest rates, it also drives up the price of the dollar, making U.S. companies less competitive internationally. And at a time when Americans are starved for good paying jobs, it can ill afford to be fighting for its share of exports with one hand tied behind its back. So while the reign of the U.S. Dollar might make it easier for the U.S. government to take care of its citizens, it’s making it harder for Americans to take care of themselves.

TIME

Americans Are Painfully Aware of How Broke They Are

Crumpled twenty-dollar bill
© William Castellana

Even if they're just relatively broke

The economic recovery is nearly five years old, but many Americans are feeling financially worse off than they were in 2008 according to study released Monday by the PEW Research Center in partnership with USA Today.

According to the study, a smaller percentage of Americans (44%) identify as being middle class than ever before. At the same time, nearly as many Americans (40%) identify as lower-middle or lower class, while the share of Americans who consider themselves upper class has decreased significantly since 2008.

FT_14.01.24_middleClass_line_420

The results show that, at least when it comes to Americans perceptions, the middle class is a rapidly shrinking demographic. Unfortunately, this isn’t just a case of a gullible public lapping up a media-generated narrative. The data show that the income of the median American has shrunk 8% between 2007 and 2012, and is at the same level today than it was in 1997. The average income for the highest quintile of earners only fell 2% during that time.

If you take wealth rather than just income into account, the situation looks even better for the wealthy. According to research from William R. Emmons and Bryan J. Noeth of the St. Louis Fed, though the American economy has recovered roughly $21 trillion in lost wealth since the depths of the recession, those gains have gone disproportionately to those who own stocks and property hot housing markets like Southern California. And the trend of increasing wealth concentration has been ongoing for decades now. According to the Congressional Research Service, the top 10% of Americans have gone from owning 67% of the country’s total wealth in 1989 to nearly 75% in 2010.

Though labels like “middle class” or “lower class” have always been ill-defined, the fact that so many Americans perceive themselves to be slipping behind in these labels does not bode well for political stability going forward. Many right-leaning commentators have objected to the narrative that wealth and income inequality is increasing in America, arguing that if you take government transfer programs like food stamps or the earned-income tax credit into account, incomes across the spectrum have been rising, just not as quickly as for those at the top.

But empirical data has clearly shown that it’s not absolute, but relative wealth which makes people happy. In other words, the average person is not made happy by how much he has, but how much he perceives himself to have in relation to those around him. Even if it is true that absolute welfare is increasing for the average American, he might still feel like he’s getting the raw end of the deal if he perceives himself falling behind in the race.

TIME real estate

New Home Sales Fall For Second Straight Month

Mark Zuckerberg during a Facebook press event to introduce 'Home' a Facebook app suite that integrates with Android in Menlo Park
REUTERS—REUTERS

The number of new homes sold in December fell for the second straight month, the Commerce Department announced Monday

The number of new homes sold in December fell for the second straight month, the Commerce Department announced Monday, to a seasonally-adjusted, annual rate of 414,000 homes. Despite the monthly fall, the annual rate was the best since 2008.

Sales of new homes typically decline during the winter months, and the below-average temperatures experienced by most of the country may be playing a role in the sales declines. The average interest rate on 30-year mortgages also rose significantly in the final weeks of 2013, and may have affected prospective buyers’ ability to afford new homes.

Despite the monthly declines, home sales for the entire year increased 16.4% compared to 2012, marking the second straight year that new home sales increased on an annual basis.

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