TIME Economy

No Failures in Fed’s Annual Bank Stress Tests

The U.S. Federal Reserve Bank Building in Washington.
J. Scott Applewhite—AP The U.S. Federal Reserve Bank Building in Washington.

All 31 banks the Federal Reserve tested were deemed strong enough

For the first time since the financial crisis, the Fed isn’t handing out any Fs.

On Thursday, the Federal Reserve released the results of its annual bank stress tests. Of the 31 banks the Fed tested—which included the largest U.S. banks, like Bank of America, Citi, and Wells Fargo—as well as some sizable regional banks and the U.S. divisions of large international banks, all were deemed strong enough to weather a severe economic meltdown without any help from the government.

Still, a number of banks, including Goldman Sachs, weren’t far above levels that the Fed requires to pass its test. Regional bank Zions Bancorp, too, just cleared the Fed’s minimum on certain accounts. Zion was the only U.S. bank to fail the stress test last year.

Still, as was the case a year ago, the banks collectively cleared the test by a wider margin than they did in 2014. And the banks didn’t just have more capital — the amount of money they have in reserves to cover losses — than a year ago. The Fed also projected they would have fewer bad loans and fewer trading losses.

The positive stress test results serve as yet another example of how far the economy and the banking sector have recovered since the financial crisis. Lending in 2014 rose nearly twice as fast as it did in any year since the financial crisis. On Friday, the government’s employment report is expected to show that employers added 230,000 positions in February, which would be the 12th straight month in which that figure has surpassed 200,000.

Recently, though, U.S. banks have seen their bottom lines falter. That’s in part because of low interest rates, which has made lending less profitable. But some have wondered whether new regulations and other long-term changes to the financial system have made banks less profitable. Shares of the big banks have lagged the market for the past year.

Others stress the fact that the banks are now safer than they used to be, and that’s better for both the economy and investors. Some economists have even argued the shares of safer banks should be worth more.

All told, the Federal Reserve estimated that the 31 banks would lose just over $490 billion dollars if the economy were to enter a recession similar to the one we experienced in the late 2000s. That’s down from just over $500 billion in bank losses the Fed projected a year ago. Among the nation’s largest financial firms, Morgan Stanley came out looking the weakest. A key ratio the Fed looks at to measure financial strength, the so-called tier 1 common ratio, was projected to drop to the lowest level (among the U.S.’s six biggest banks) at Morgan Stanley. Goldman was in the second worst position. A Fed official said that the regulator included higher losses in stock and bond markets than in the past. That might have hurt Morgan Stanley and Goldman more than the other banks because both banks are more closely tied to trading markets than their immediate competitors.

The initial results appear to be a win for Citigroup and CEO Michael Corbat. Among the big banks, Citi had the highest tier one common ratio. JPMorgan Chase, again, had relatively disappointing results in the Fed’s stress test, coming out only slightly above Morgan Stanley and Goldman. JPMorgan’s large investment bank and trading operations could have hurt the bank’s performance.

The Fed conducted its stress test by looking at how much the banks could stand to lose in their loan portfolios and trading books under an adverse economic scenario. The scenario included a rise in the unemployment rate to 10%, a 60% drop in the Dow Jones industrial average, and a 25% drop in housing prices.

After simulating those losses, the Fed then figured how much capital a bank would have left as a percentage of its remaining loans and investments, weighted for risk. The Fed generally deems a bank healthy if it has enough capital to cover a 5% drop in its assets. At the worst of the financial crisis, the average so-called capital ratio at the largest banks dropped to 5.6%. But the Fed said the average capital ratios of the big banks would only dip to 8.5% in this year’s stress test. That was up from 7.6% a year ago.

This year’s results, though, were skewed by particularly strong results from Deutsche Bank, which scored a tier 1 common ratio of nearly 35% under the Fed’s severely adverse scenario. Then again, Fed officials said that only a small part, perhaps 15%, of Deutsche’s U.S. operations were examined in the test.

Besides the main test, the Fed also tested how banks would do under an economic scenario that was less severe but one that included quickly rising interest rates. The banks weathered that scenario as well.

A Fed official cautioned that while all the banks met the minimum capital levels, the regulator might still reject a bank’s request to increase dividends based on qualitative factors. The Fed will release those results next week.

This article originally appeared on Fortune.com.

TIME China

China Lowers Growth Target to 7% Amid Slowing Economy

Chinese Premier Li Keqiang attends the opening of the 3rd Session of the 12th National People's Congress at the Great Hall of the People on March 5, 2015 in Beijing.
Lintao Zhang—Getty Images Chinese Premier Li Keqiang attends the opening of the 3rd Session of the 12th National People's Congress at the Great Hall of the People on March 5, 2015 in Beijing.

China's growth has declined steadily since it peaked at 14.2 percent in 2007

(BEIJING) — China set a lower economic growth target for this year and promised to open more industries to foreign investors as it tries to make its slowing, state-dominated economy more productive.

The growth target of about 7 percent, down from last year’s 7.5 percent, is in line with efforts to create a “moderately prosperous society,” said Premier Li Keqiang in a report Thursday to China’s ceremonial national legislature. Last year’s actual growth was 7.4 percent, the lowest since 1990.

The ruling Communist Party is in the midst of a marathon effort to guide the world’s second-largest economy to slower but more self-sustaining growth based on domestic consumption and services. It is trying to replace a worn-out model driven by trade and investment in construction and heavy industry that has left China’s air and water badly polluted.

“We need to maintain a proper balance between ensuring steady growth and making structural adjustments,” said Li in the report to the National People’s Congress in the Great Hall of the People in central Beijing.

The full session of the 2,964-member NPC usually is limited to endorsing policy decisions already made by the ruling party but serves as a platform to publicize reform initiatives and set a tone for government work.

Communist leaders say they are comfortable with the slowdown that President Xi Jinping, invoking an American phrase, has dubbed “the new normal.” But in a sign they are afraid of a politically dangerous spike in joblessness, they have tried to spur activity with two interest rate cuts since November and a reduction in business taxes.

Li promised to give entrepreneurs and foreign investors a bigger role in an economy that after three decades of market-oriented reforms still is dominated by government-owned banks, oil producers and other companies.

Beijing will cut in half the number of fields in service and manufacturing industries in which foreign investment is restricted, the premier said. He gave no details but the change has long been sought by foreign companies that face a thicket of restrictions and feel increasingly unwelcome.

The chairman of the American Chamber of Commerce in China, James Zimmerman, said in an email its member companies “share the premier’s hopes for a stable, fair, transparent and predictable business environment” and look forward to the promised streamlining in regulation.

China’s growth has declined steadily since it peaked at 14.2 percent in 2007. Much of that reduction was intentional as Beijing tried to cool inflation and a debt-financed boom in construction and investment. Efforts to promote consumer spending have been slow to gain traction at a time when many workers are uneasy about their financial futures.

The International Monetary Fund expects growth to fall to 7 percent this year and a Cabinet think tank, the Development Research Center, says growth will decline to 6 percent next year.

“I don’t think there’s too much to worry about,” said Yi Yanli, an NPC delegate from the northeastern province of Jilin who is CEO of Adayo Group, a maker of automotive electronics. “I think it’s headed in a pretty good overall direction and that hasn’t really changed.”

China’s slowdown has cut demand for iron ore and other commodities that drove economic booms in Brazil, Australia and other countries. But if Beijing succeeds in building up a consumer market, that could boost demand for other imports ranging from higher-quality food to Hollywood movies.

In a separate report, the Cabinet’s planning agency promised to “improve the environment for consumer spending” by improving social welfare systems to reduce the need for Chinese households to save so much to pay for retirement and medical care.

Li, the premier, warned China’s economy still faces problems including a scarcity of credit for private companies and a low level of innovation.

Li’s most concrete promises were in areas that are considered politically easy. He avoided detailed promises in more fraught areas such as changing the status of politically influential state companies that benefit from subsidies, monopolies and other favors. Reform advocates say they are a drag on development and their privileges must be cut back.

Li said projects led by state companies will be opened to private investment but gave no indication whether outside investors will be given any voice in management.

“There was relatively little new information today on reforms. Mr. Li largely reiterated the reform goals laid out at previous meetings,” said Julian Evans-Pritchard of Capital Economics in a report.

The premier set a 6 percent target for growth in trade, a field that employs millions of Chinese workers. Last year’s total growth in imports and exports was just 3.4 percent due to weak demand, triggering factory closures and labor tension in the export-dependent southeast.

Li also promised changes in China’s state-owned banking industry. He said qualified private investors will be allowed to set up small and medium-size banks, though he gave no details.

He also promised to cut pollution that is choking China’s cities and improvements in a range of social areas, including education and poverty alleviation. He said Beijing aims to reduce carbon intensity, or emissions per unit of economic output, by 3.1 percent.

In the countryside, authorities will try to finish bringing electricity to the homes of the remaining 200,000 people who still lack it, the premier said.

Li gave no update on the status of anti-terrorism crackdowns being waged by Beijing in restive ethnic minority areas in Tibet and the northwestern Muslim region of Xinjiang. He repeated the Communist Party’s stance that it has improved livelihoods there and is protecting traditional culture.

___

AP Writers Christopher Bodeen and Didi Tang contributed.

TIME Economy

Hard Math in the New Economy

Rana Foroohar is TIME's assistant managing editor in charge of economics and business.

Tech is disrupting traditional work. Is that really a bad thing?

Technology has always been a net job creator. So why do so many of us feel that the robots (or algorithms) are about to take our jobs? A recent Kaiser Family Foundation poll of unemployed Americans ages 25 to 54 found that 35% believed that they’d been displaced by technology. It’s true that software can do more work that human beings used to do. But it’s also true that Silicon Valley hasn’t dealt particularly well with growing fears about tech-related job displacement, at least from a public relations standpoint.

The truth is that technology has long served as an easy target for employment alarmists–in no small part because innovators tend to tout new efficiencies and cost savings foremost. But as a recent Brookings Institution analysis put it, “Historically, technological progress has created winners and losers, but over the long run, [it] has tended to create more jobs than it has destroyed.”

If you look at the shift from an agrarian to an industrial society, that’s certainly true. From 1900 to 2000, the proportion of the workforce working on farms fell from 41% to 2%, yet agricultural output increased and farmers eventually found jobs in factories or, later, in cubicles. That’s not to say that periods of technological change aren’t fraught. There’s a reason the textile artisans who came to be known as Luddites started smashing knitting machines in 19th century England.

Nobody has started smashing their Laptops or iPads yet. But it is disturbing to see how unevenly the gains from the past 20 years of technological innovation have been shared. Many economists associate the middle class’s shrinking partly with the fact that technology is displacing people. Increasingly, there are jobs for Ph.D.s and hands-on laborers like, say, home health care aides, but more and more of what’s in between can be automated. Self-driving cars are coming for chauffeurs; drones threaten delivery drivers. A recent National Bureau of Economic Research paper co-written by economist Jeffrey Sachs hypothesized that software developers themselves might someday be replaced by the very programs they create.

There is a strong counterargument that the jobs and value technology create just aren’t being counted properly. “GDP was designed to measure the output of 20th century industrial nation-states making stuff, not a 21st century economy generating bytes and ideas,” says Zachary Karabell, whose book The Leading Indicators: A Short History of the Numbers That Rule Our World examines what our current system does and doesn’t tally.

Academics like the Massachusetts Institute of Technology’s Erik Brynjolfsson, who believes we vastly underestimate the productivity created by the “free goods of the Internet,” would agree, as would Silicon Valley entrepreneurs like Airbnb CEO Brian Chesky. His company may have 30 million users and only 1,600 employees, but Chesky says it creates many more “21st century jobs” by helping generate extra income for hosts who monetize their homes and for local businesses and such service providers as cleaners who benefit from the influx of vacationers. For New York City alone, Chesky puts the value of that additional income at $768 million annually, which the company claims supports 6,600 jobs. Of course, those are “jobs” without the health care, 401(k) or other benefits that a traditional position might provide.

Which underscores a disturbing truth about the new economy: it’s all on you. People who are smart, well educated and entrepreneurial may well do better in this paradigm. But what about those who aren’t as well positioned or at least need help in tooling up?

The obvious answer is for government to provide more help through a reformed educational system, workforce training and a social safety net to pick up slack. That’s what I consistently hear tech titans and other CEOs calling for. The hitch is that they are calling for it even as they pay a smaller share of the tax pie to fund it all. (About a third of all the corporate profit sitting in overseas bank accounts is from technology-driven firms.) Certainly some companies are making big private contributions to educational reform; Google, Microsoft and IBM are prime examples. But more will be needed.

For now, the power divide between the public and private sectors is only growing. The public sector holds most of the world’s debt, as well as responsibility for the welfare of those who are being “disrupted.” Big Tech has the profits but could stand to do some creative thinking about how better to share–or at least account for–the rewards of innovation. Otherwise it risks breeding a whole new generation of Luddites.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME Economy

What Today’s Trade-Deal Negotiators Could Learn From History

Marco Polo
Print Collector/Getty Images Marco Polo sailing from Venice in 1271. From a late 15th century illuminated manuscript in the collection of the Bodleian Library, Oxford.

The history of trade is one of merchants bending the rules. Governments would be wise to let them

History Today logoThis post is in partnership with History Today. The article below was originally published at HistoryToday.com.

 

Plucky merchants, circumventing or breaking the rules, have promoted trade down the ages – governments, for the most part, have hindered it. At a time when negotiations for the Transatlantic Trade and Investment Partnership (TTIP) are at an impasse, governments on both sides of the Atlantic should beware of repeating history. If not, they risk irrelevance.

David Abulafia, preeminent historian of maritime trade, speaks at the Legatum Institute this week about his history of the Mediterranean, The Great Sea, and his current work: a history of the oceans. Abulafia shows that from the Greco-Roman period onwards, huge quantities of goods flowed in both directions between China and the Mediterranean through the Middle East and the Indian Ocean. These goods were transported by traders who had to overcome perilous seas, pirates and, most importantly, avaricious rulers.

The Silk Road was not, contrary to popular opinion, the preeminent trade route during the medieval period: far more was transported by ship. Coins from Iraq, Afghanistan, Persia and Spain have been found in Siraf, a port on the Iranian shore of the Persian Gulf and a trading hub in the 8th century. The 9th century saw the revival of the Greco-Roman trade routes in the Red Sea: Chinese pottery has been excavated in Ayla, located on the site of Aqaba in Jordan. Moving further east 12th century accounts survive of Abraham ben Yiju, a Jewish Merchant based in Mangalore. Ben Yiju imported arsenic from the west and sent back iron, mangos and coconuts from the east.

Abulafia describes a global network, stretching from Spain, and later the Atlantic, to Japan. This network arose not by governmental dictat but through the actions of traders. In doing so some made themselves fabulously rich: a 10th century book by the Persian author Buzurg describes the life of a trader called ‘Isaac the Jew’ whose cargo was worth an estimated million dinars – an incredible amount, given that a middle class family could have subsisted on 24 dinars per annum.

That is not to say that governments did not play their part in promoting trade. But their actions often hindered rather than helped. Trade, then as now, was seen as a source of revenue in many countries. Aden flourished as a point of exchange on the Indian Ocean. Customs officers there extracted tribute or taxes at the government checkpoint, taxes which were attractive enough to tempt the Persian Kish who attacked Aden in 1135. The many checkpoints that goods had to travel through inflated prices – spices were not so rare or the journey so arduous – yet consumers in Europe paid a high price. A lot of which lined the pockets of rulers.

Those who resisted, the forbears of modern free-traders, could find themselves in hot water. Isaac the Jew came to a nasty end after refusing the pay the rajah of ‘Serboza’ (assumed to be the Kingdom of Sri Vijaya) 20,000 dinars for passing through his territory.

When governments weren’t taxing trade they were often disrupting it in other ways. In the 1180s the crusader lord Reynaud de Châtillon launched an attack on Mecca and on the traffic passing through the Red Sea. The result, after Reynauld’s failure, was the closure of the Red Sea to non-Muslims.

This is not to suggest that merchants were all saints preyed upon by dastardly rulers. As the Ottomans took over more territory in the eastern Mediterranean in the 15th and 16th centuries European merchants looked for other markets to obtain sugar. The result was an expansion of economic activity in the newly discovered Atlantic islands. With a little help from Christopher Columbus, a Genoese merchant, this would eventually lead to the Caribbean sugar trade and the slave trade.

This brings us back to the TTIP. History, both ancient and more recent, tells us that economic activity usually finds a way: whether its money-lenders finding loopholes in the usury laws in the 12th century or investment bankers engaged in off-balance sheet transactions in the 21st. The challenge for governments is to prevent the more egregious forms of commercial activity without throttling enterprise altogether. The history of maritime trade in the Medieval period shows that rulers usually fail to achieve both objectives – hopefully today’s leaders will not make the same mistake.

Stephen Clarke is a Research Analyst at the Legatum Institute, London.

The Legatum Institute is currently running the History of Capitalism Programme, a series of lectures which explores the origins and development of a movement of thought and endeavour which has transformed the human condition.

TIME Innovation

Five Best Ideas of the Day: March 4

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. We’re measuring family poverty wrong. We should measure access to opportunity to find out what’s really working.

By the Annie E. Casey Foundation

2. Anxiety, depression and more: “Four to five times more” high school athletes struggle with mental health issues than concussions.

By Gary Mihoces in USA Today

3. They provide social order and an economic structure. What if prison gangs actually make life better behind bars?

By Shannon Mizzi in Wilson Quarterly

4. Scientists have released the genetic sequence of the 2014 Ebola virus to crowdsource solutions to future outbreaks.

By Fathom Information Design

5. If new technology really cut jobs, we’d all be out of work by now.

By Walter Isaacson in the Aspen Journal of Ideas

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME China

Official Says China to Boost Military Budget by 10%

Chinese military officers arrive at the Great Hall of the People in Beijing, March 4, 2015
Ng Han Guan—AP Chinese military officers arrive at the Great Hall of the People in Beijing on March 4, 2015

The military budget will grow by almost 10% despite slowing economic growth

(BEIJING) — China’s military budget will grow by about 10 percent in the coming year, a legislative spokeswoman said Wednesday, despite slowing economic growth that fell to 7.4 percent last year and is expected to further decline in 2015.

It would be a slightly smaller rise than last year, but would reflect the fifth year in a row of double-digit increases, bringing the total military budget to about $145 billion. The Pentagon and global arms bodies estimate actual spending may be anywhere from 40 to 50 percent more because the budget doesn’t include the costs of high-tech weapons imports, research and development, and other key programs.

The higher spending is seen as a reflection of China’s growing economic might and its desire to assert itself in the region and internationally. Beijing says the bigger budgets are merely aimed at modernizing and improving conditions for the 2.3 million-member strong People’s Liberation Army, the world’s largest standing military.

The planned increase of about 10 percent — to be confirmed Thursday at the opening of the National People’s Congress — is in line with the overall increase in government spending planned for 2015, NPC spokeswoman Fu Ying told a news conference.

“China has a tougher road to travel than other large nations in terms of national defense modernization. We can only rely on ourselves for research and development of most of our military technology,” Fu said. “Meanwhile, we need to ceaselessly improve conditions for our soldiers.”

Fu reiterated China’s position that it maintained a strictly defensive military posture and had never used “gunboats to open routes” as a means of advancing its economic and trade interests.

Despite such assurances, China’s spending draws comparisons to trends among other countries in the region, many of which have been unnerved by China’s rise.

Japan increased its defense budget by2.8 percent this year to a record $42 billion, the third consecutive year of increases following 11 years of declines prior to hawkish Prime Minister Shinzo Abe’s rise to power in 2012. Planes and naval vessels to counter China’s growing capabilities top the Japanese military’s shopping list.

Even more dramatically, India, the world’s biggest arms importer in recent years, increased its spending this year by 11 percent to $40 billion, with big increases for the navy and air force. China and India have a disputed land border and New Delhi has expressed concern about the PLA navy’s growing presence in the Indian Ocean.

China’s spending is still less than a third of the U.S. defense budget, a proposed $534 billion this year along with $51 billion for the conflicts in Afghanistan, Iraq and Syria. But it comes against a background of anticipated flat or falling American spending on its armed forces in coming years.

China is seeking to improve conditions for the military amid rising labor costs and competition with the private sector for top graduates in science and technology.

The need for ever-more sophisticated weaponry is increasing its costs, with the addition of an aircraft carrier combat wing and the rolling out of two prototype stealth fighters.

China’s main security challenges range from its contested frontier with India high in the Himalayas to disputes over waters and islands in the South China Sea and a bitter spat with Japan over an uninhabited archipelago in the East China Sea.

New missions are also taking the PLA beyond its previous mandate to guard China’s borders and prepare for any contingencies involving Taiwan, the self-governing island democracy that Beijing has pledged to take control of, by force if necessary.

Alongside its active participation in United Nations peacekeeping missions, China is now poised to pass a new anti-terrorism law that would permit it to send military forces overseas to take part in such missions if granted permission by the host nation.

However, China’s forces are also seen as being hampered by political interference and top commanders have lately come under scrutiny as part of a nationwide crackdown on corruption.

Already, President Xi Jinping has overseen the arrests of two top generals, including the military’s retired No. 2, Xu Caihou, and this week announced a further list of 14 top officers who are now under investigation or have been convicted of crimes such as selling ranks, embezzling funds or taking kickbacks on contracts for housing and other projects.

TIME Venezuela

Venezuela Is Slowly Coming Apart—and President Nicolas Maduro May Pay the Price

A boy with blood on his chest kneels in front of police after 14-year-old student Kluiver Roa died during a protest in San Cristobal, Venezuela, Feb. 24, 2015.
Carlos Eduardo Ramirez—Reuters A boy with blood on his chest kneels in front of police after 14-year-old student Kluiver Roa died during a protest in San Cristobal, Venezuela, Feb. 24, 2015.

Hyperinflation and shortages of basic goods have Venezuelans angry—and looking for new leadership

CARACAS – Amid the death of a 14-year-old boy killed by a policeman during anti-government unrest, the arrest of a key opposition mayor by armed government intelligence agents and talk of a coup plot against the government spearheaded by Washington, this last week also saw another another turn in Venezuela’s growing crisis. At DolarToday, a website little known outside of Venezuela that has become a key indicator of the country’s black market exchange rate, the bolívar local currency passed the psychological barrier of 200 per greenback. Four years ago, the dollar cost eight bolívares per dollar; five months ago it was 100; now it is already at 221 and counting. This rapid deterioration in the value of the local currency, 61% drop against the dollar over the last year, is one of the best indicators of just how much trouble Venezuela—and President Nicolas Maduro—is in.

While many in Venezuela have little direct engagement with the dollar—the country’s foreign exchange is strictly controlled—the currency crisis pervades everyday life. It means many doctors and engineers earn the equivalent of just a dollar a day and prefer instead to drive taxis or smuggle pasta or gas across the border to Colombia. It means that those who want to buy basic goods for their families must line up for hours every day due to shortages, and hoping all the time that shelves won’t be empty. It means that stealing is more valuable than working, fueling one of the world’s highest crime rates and the murder of one police officer nearly every day.

It means that people like Yormina Alguilera, a street cleaner earning the same as the minimum wage of doctor or engineer, are giving up. “We’re in crisis,” she said, taking a break from the sun at a fruit stall in the square at Caracas’ 23 de enero barrio, as murals of Che Guevara and Hugo Chávez loom over. Alguilera voted for Maduro and his predecessor Chávez, “but never again,” she said. “At least under Chávez I could get things. It’s a mess with Maduro and there’s no end in sight. Things are getting worse every day.”

Maduro, who was elected after the death of Chávez in 2013, is in serious trouble. His approval ratings are in the low twenties, according to Datanálisis, a respected local pollster. This time last year, the president faced down Venezuela’s biggest anti-government protests in more than a decade, and now they appear to be starting up again. In San Cristóbal, on the country’s border with Colombia and where unrest was sparked last February by similar though less severe economic problems, 14-year-old Kluiberth Roa was killed with a rubber bullet by police. That tragedy has only sparked further public anger.

Supermarket lines often run into the hundreds if not thousands due to shortages of the most basic goods, from shampoo to condoms. Inflation last year was near 70%. The economy, which has long been propped up by high crude prices, is crumbling as oil has tumbled over the last few months. (A barrel of Venezuela oil sells for half what it did a year ago; the country obtains 96% of foreign currency from oil.) Maduro has blamed this on an “economic war” being waged by the opposition with a hand from the United States, but many ordinary Venezuelans don’t believe that. “They talk about an economic war but we’re certainly not winning it,” said Aida Guedez Álvarez, a 61-year-old housewife buying a watermelon in 23 de enero. “I voted for Maduro but I’ve been deceived, like everybody else.”

Maduro’s government faces tough legislative elections later this year. “The government isn’t necessarily falling but it is weak and losing its leadership,” said Reinaldo Manrique, 24, an accounting student and student leader who was one of the very first detained for protesting in San Cristóbal, last year, sparking nationwide unrest. “But you know what? The leaders of the opposition are even more weak.”

Though former Chavistas are much angrier than they were a year ago, they do not see the opposition, led loosely by two-time presidential candidate Henrique Capriles, as a viable alternative. “Of course I’d never vote for Capriles,” said Alguilera, the street cleaner. “I give up. No one will change things.” Rather than protest, students are talking of finishing their studies and leaving the country. Many who took to the streets last year have left. “I’m studying to become a primary teacher,” said Leonardo Díaz, 25, in Caracas’ Plaza Altamira, a bastion of protest. “But as soon as I graduate, I’ll leave. All my friends at university are the same.”

Capriles, who stood against both Chávez and Maduro in presidential elections, is the more moderate face of the opposition. He continues to govern the state of Miranda and at least on paper lead the opposition. The government has cracked down on its more hardline critics. Leopoldo López, a major opposition heavyweight, has remained behind bars for more than a year for his role in inciting last year’s protests. “The government is working in a barbaric way to steal from public funds, destroy the country, rob the country’s oil while it says it’s constructing a homeland!” López’s father, also called Leopoldo, told TIME. Antonio Ledezma, Caracas’ mayor, was arrested and charged earlier this month in a conspiracy to overthrow Maduro.

María Corina Machado, another more radical leader, was charged in December with involvement in a plot to assassinate Maduro. “With Maduro there is more persecution than ever,” she told TIME. Next on the government’s list appears to be Julio Borges, an opposition party coordinator. The government requested a probe into his alleged conspiracies against Maduro this week. “Every year there are elections but this is the first time the government is up with a political crisis of this magnitude,” Borges told TIME. “In Venezuela everyone is scared—including the government.”

Maduro has remained tough. “Every fascist has his day,” the president said on Ledezma’s arrest. And he still has some support. As he completed a crossword on a park bench in the wealthy La Castellana area of Caracas, Emilio Neumann backed the government’s stance. “Lopez and Ledezma are exactly where they deserve to be, behind bars,” said the 69-year-old public administrator. “After calling so many people to the streets and committing who knows how many murders.”

President Maduro must hope, if he is to see out the next couple of years, that he can persuade people like Neumann to stay on side. To do this he must turn the country’s economy around, though with three official exchange rates as well as a black market on the dollar — with a spread between the highest and lowest of them of some 3,400 per cent — it is becoming increasingly difficult to do so. Pragmatic moves such as consolidating those exchange rates or raising the price of gas, currently the world’s lowest at just a few cents per tank, are politically dangerous especially when Chavistas are turning away from Maduro.

TIME Economy

U.S. Economy Slowed Down at Close of 2014

But economists still forecast strongest growth in a decade this year

The U.S. economy slowed more sharply in the final three months of the year than initial estimates, reflecting weaker business stockpiling and a bigger trade deficit.

The Commerce Department said Friday that the economy as measured by the gross domestic product grew at an annual rate of 2.2 percent in the October-December quarter, weaker than the 2.6 percent first estimated last month. It marked a major slowdown from the third quarter, which had been the strongest growth in 11 years.

Economists, however, remain optimistic that the deceleration was temporary. Many forecast that growth will rise above 3 percent in 2015, which would give the country the strongest economic growth in a decade. They say the job market has healed enough to generate strong consumer spending going forward.

For all of 2014, the economy expanded 2.4 percent, up slightly from 2.2 percent growth in 2013.

Consumer spending, which accounts for 70 percent of economic activity, was a bright spot in the fourth quarter. It expanded at an annual rate of 4.2 percent, down slightly from the first estimate of 4.3 percent growth but still the best showing since the first quarter of 2006.

Friday’s report was the second of three estimates for fourth quarter GDP, the broadest measure of the economy’stotal output of goods and services.

The downward revision stemmed largely from slower stockpiling by businesses. Last month, the rise in inventories was estimated to have added 0.8 percentage points to fourth quarter growth. But that was lowered to a contribution of just 0.1 percentage point in the new estimate. The change, however, will likely translate into stronger growth in the current quarter because businesses will not have to work down an overhang of unsold goods.

Trade also weighed more heavily on growth than first thought, subtracting 1.2 percentage points as imports grew much more strongly than first thought. That could be a reflection of the rising value of the dollar, which makes imported products cheaper for U.S. consumers.

Many analysts believe 2015 will start slowly, in part reflecting the disruptions caused by a rough winter. However, it’s unlikely to be as bad as the first quarter of 2014, when heavy snow and cold contributed to a 2.1 percent plunge in growth in the first quarter of 2014.

That big drop was followed by sizzling growth rates of 4.6 percent in the second quarter and 5 percent in the third quarter.

Analysts are looking for less of a roller-coaster ride this year. JPMorgan economists say growth will come in around 2.5 percent in the current quarter and then hover between 2.5 percent to 3 percent for the rest of the year. They are forecasting growth of 3.1 percent for the entire year, a significant improvement from the 2.4 percent growth seen in 2014.

If the forecast proves accurate, it would be the best GDP performance since the economy grew by 3.3 percent in 2005, two years before the beginning of worst economic downturn the country has experienced since the 1930s.

Joel Naroff, chief economist at Naroff Economic Advisers, is even more optimistic. He’s forecasting economic growth of 3.5 percent this year.

Naroff and other economists believe the key to the economy shifting into a higher gear will be further improvements in the labor market, when stronger job gains leading to rising wage gains.

“I see 2015 as a really good year for consumer spending because of the wage gains,” Naroff said.

Even though the recession ended nearly six years ago, wage growth has been weak as businesses were able to pay less with so many unemployed looking for jobs.

Several large companies have already signaled a willingness to pay more to retain workers. Retailers like TJX and The Gap, as well as the health insurer Aetna.

News last week that Wal-Mart, the nation’s largest private employer, would also increase its minimum pay could be a sign that a tighter labor market are finally leading to increased wages, some analysts believe.

The unemployment has fallen to 5.7 percent.

Federal Reserve Chair Janet Yellen, testifying to Congress this week, listed stronger wage growth as one of the elements the central bank is looking for before deciding to start raising interest rates. She said as long as wage gains remained weak and inflation low, the Fed was prepared to remain “patient” in moving to raise rates.

Many private economists believe the Fed’s first move to increase its key rate, which has been near a record low of zero for six years, will not come until June at the earliest.

MONEY

Jobless Claims Surge by Highest Number Since 2013

Unemployment filings jumped by 31,000 last week, taking many economists by surprise.

Initial jobless claims last week increased by the highest amount in roughly two years, according to the latest data from the Department of Labor. The numbers, released Thursday, show those filing for unemployment last week jumped by 31,000 compared with a week earlier, pushing up the total number of individuals reporting to 313,000 from 282,000.

The news comes as unemployment is broadly improving. The U.S. economy added 257,000 jobs in January, continuing a 12-month streak in which employers hired more than 200,000 workers a month. As a result, a sharp rise in jobless claims seemed to take economists by surprise. A Bloomberg survey of 49 economists predicted jobless claims would rise by only 8,000.

However, as the Associated Press notes, more unemployment filings probably isn’t a cause for alarm. Short-term surveys of the employment market can be uneven, and the 4-week moving average showed an increase of just 11,500 jobless claims, significantly less than the week-by-week numbers. Other employment indicators, like wage growth and gross domestic product, have also been increasingly positive, suggesting the job market will continue to broadly improve.

TIME Economy

The Real Meaning of $9 an Hour

Walmart’s decision on Feb. 19 to raise its base wage to $9 an hour, $1.75 higher than the federal minimum, has been heralded as a major victory for American labor. Wall Street punished the world’s largest retailer for the pay hike–which will cost the firm $1 billion this fiscal year–by driving down its shares. But labor economists and liberals lauded the raise as a new wave of “Fordism,” referring to Henry Ford’s historic 1914 decision to double wages in his factories, which not only boosted productivity and reduced turnover but also created more customers for his company’s products.

Walmart’s move is seen by some as a sea change for the retail sector. “Walmart sets the standard, and the fact that they’ve kept wages so low has made it hard for others to raise them,” explains Isabel Sawhill, co-director of the Center on Children and Families at the Brookings Institution. Now it’s likely that pay for other low-income workers will rise, not just in retail but also in other sectors like home health care, child care and fast food, all of which compete for the same workers as Walmart.

The question is, how much will it matter? Labor’s share of the economic pie has been decreasing since the 1970s, thanks to globalization, which has outsourced low-wage jobs (and technology, which has destroyed them outright); the shrinking of unions; and pressure from Wall Street to reduce costs, which turbocharged all these trends. The corporate share, meanwhile, is at record highs. That means Walmart’s move to $9 an hour won’t make much difference in macroeconomic terms. The $1 billion it will effectively put in the hands of 40% of its 1.3 million U.S. employees is a tiny fraction of our $16 trillion economy. Damon Silvers, the policy director of the AFL-CIO, estimates that even if all low-wage employers followed Walmart’s lead, it wouldn’t move the needle on labor’s share by even a single percentage point. “That’s not to say that the Walmart workers’ victory isn’t an important step forward for low-wage workers,” he says. “But it also shows what a small piece of the pie they’ve been getting.”

Indeed, the Walmart workers who have spent much of the past year in parking lots with bullhorns were asking for $15 an hour and better schedules. “When I started, I saw how many of us were working for one of the richest companies in the world and yet we had to be on public assistance,” says Kelly Sallee, 22, who has worked for Walmart for eight months and took part in wage protests in Dayton, Ohio. Despite the pay increase, employees like Sallee, who says she’d like to work full time but can’t get enough hours, are still struggling for improvements in scheduling, an important labor-rights issue. Retailers across the country use software to optimize scheduling around store traffic. This often means less notice given for when workers must report to their jobs and erratic cuts in some of their hours, which labor activists believe may also be intended to decrease the number of workers on full-time benefits. Walmart denies this and says it would prefer more full-time workers to multiple part-timers. The company also says that the $9 it will pay is better than the $7 and change paid by many other retailers, even some unionized ones, and that it gives more notice of shift changes than many others. It says that workers can ask for more hours via Walmart’s intranet system and that 1 million hours a week regularly go unclaimed.

But the fact that Walmart workers, who aren’t unionized in the U.S., got anything at all shows the PR pressure that companies like it are coming under as economic inequality gains clout as a political issue. Twenty-nine states have raised the minimum wage, and presidential candidates from both parties are expected to wrestle with the challenge for the next 18 months. Whether or not Walmart’s top brass, a conservative bunch, has experienced an ideological shift is not the point. That it is concerned about turnover costs as a better economy gives laborers more options for where to work is most significant.

An extra couple bucks an hour will certainly help low-wage workers, and they’ll be more likely to spend it than the rich, meaning it will drive more economic growth. It will not be a net job destroyer, as some believe. The nonpartisan Congressional Budget Office found that while a $9 minimum wage could put from zero to 500,000 low-end jobs at risk as companies try to limit staffing, it would also lift 1 million people out of poverty and increase earnings for 16.5 million workers. As Sawhill puts it, “That’s not quite a free lunch, but it’s pretty cheap.” That’s a reason for Congress to raise the federal minimum wage. But even if it doesn’t, Walmart workers have proved they can move the most powerful retailer in the world to change. That means they, and others, can do it again. And that, more than anything else, may be the real victory.

Your browser, Internet Explorer 8 or below, is out of date. It has known security flaws and may not display all features of this and other websites.

Learn how to update your browser