TIME Japan

Japan Sinks Into Recession (Again)

A man holding a shopping bag walks on a street at Tokyo's Ginza shopping district
Yuya Shino—Reuters A man holding a shopping bag walks on a street at Tokyo's Ginza shopping district on Nov. 16, 2014

An unexpected contraction in quarterly GDP shows that Prime Minister Shinzo Abe’s radical economic program is badly broken

If anyone is still holding out hope that Abenomics — the unorthodox slate of economic policies named after their inspiration, Japanese Prime Minister Shinzo Abe — could rescue Japan from its two-decade slump, the news on Monday should dash it. The troubled economy surprised analysts by (once again) tumbling into recession. GDP in the quarter ended September shrank by an annualized 1.6% — far, far worse than the consensus forecasts. That followed a disastrous 7.3% contraction in the previous quarter. Speculation in Japan is that the bad results will push Abe to call a snap election only two years after taking office.

What’s going on in Japan is important for all of us. Since the economy is still the world’s third largest (after the U.S. and China), a healthy Japan could provide a much needed pillar to growth in a struggling global economy.

The current downturn is being blamed on a hike in the consumption tax, implemented in April to try to stabilize the government’s feeble finances, which slammed consumer spending. It is now expected that Abe will delay a further increase in that tax scheduled for next October. But the real causes lie much deeper — in the failings of Abe’s economic agenda.

The idea behind Abenomics was to boost the economy with massive stimulus from the Bank of Japan (BOJ) and the government combined with structural reform of the economy, or what has been called the third arrow. The problem is that we got the first two arrows, but not the third. While the BOJ kept its printing presses rolling, dramatically weakening the value of the yen, badly needed deregulation and market-opening has come extremely slowly. Some critical changes, like a loosening of labor laws, seem to be off the menu entirely. The result is that the actual potential of the economy has not been enhanced. Meanwhile, the welfare of the average Japanese family hasn’t improved either. Wages haven’t advanced much, while prices have increased.

If Japan’s situation proves anything, it is the limits of central bank policy to fix economies. Despite a torrent of cash infused into the economy through the BOJ’s “quantitative easing” or QE, Japan’s economy remains mired in slow growth and stagnant household welfare. That’s why it is hard to imagine that the BOJ’s October decision to increase its QE program will make a major difference. So that’s the takeaway for policymakers in the U.S. and especially a stumbling Europe: If you’re going to rely too much on central bankers to revive growth, you’re going to fail.

The question facing Abe is whether he can press ahead more quickly with important reforms, either in his current administration or after a fresh election, which his party will still mostly likely win. Based on his recent track record, we don’t have reason to be confident. But maybe one day Japan will give us a surprise — in a good way.

Read next: It May Be Too Late for Japan’s PM to Fix the World’s Third Largest Economy

MONEY Shopping

Target Is Closing Another 11 Stores

woman with shopping cart and wallet
iStock

On Tuesday, Target announced it will be closing 11 U.S. stores, making a total of 19 closures in less than 12 months.

In the aftermath of last year’s monumental data breach of customer credit card information—not to mention years of underwhelming sales at some retail locations—Target decided to close eight stores in May, including two stores in the Las Vegas area and two stores in Ohio. This week, Target announced it will be closing 11 more stores in the U.S., including two Chicago-area locations and three Targets in Michigan.

The 11 stores will be shut down by February 1, 2015. “The decision to close a Target store is only made after careful consideration of the long-term financial performance of a particular location,” a company statement accompanying the announcement explained. “In most cases, a store is closed as a result of seeing several years of decreasing profitability,” a Target spokesperson added in an email to (Minneapolis) StarTribune.

There are roughly 1,800 Target stores in the U.S., and the number of planned closures pales in comparisons to the likes of troubled chains such as RadioShack and Sears. Yet it’s worth noting that that Target’s reputation among shoppers and the retail industry as a whole has declined greatly since the pre-recession years, when the cheap-chic darling was belovedly known as “Tarjhay.”

Over the summer, Target hired a new CEO, Brian Cornell, a former CEO at PepsiCO Americas Foods, with the hopes that new leadership could help the company rebound from its troubling slump, as well as the embarrassing and costly data breach that potentially compromised the information of well over 100 million customers. More recently, Target introduced its plans for the 2014 winter holiday season, which include a special offer of free shipping with no minimum purchase required on all orders placed at target.com through December 20.

Read next: It Doesn’t Matter if Alex From Target Is Real or Fake

TIME Research

A Lot of Men Got Vasectomies During the Recession

vasectomy
Getty Images

Up to an additional 150,000 to 180,000 per year between 2007 and 2009

The recession was accompanied by a sharp increase in the number of American men who underwent vasectomies, according to research presented Monday, though it’s unclear if economic woes actually led to more procedures.

Researchers from Weill Cornell Medical College looked at survey data from the National Survey for Family Growth, which interviewed more than 10,000 men between 2006 and 2010, according to the American Society for Reproductive Medicine. They wanted to get a sense of how the economic downturn from 2007 to 2009 affected men’s decisions about having kids.

Before the recession, 3.9% of men reported having a vasectomy, but 4.4% reported having one afterward, which the researchers calculated to mean an additional 150,000 to 180,000 vasectomies during each year of the recession.

The researchers also found after the recession that men were less likely to be employed full-time, and more likely to have lower incomes and be without health insurance. Nothing changed when it came to men’s desire to have children, but those who were interviewed after the recession were more likely to want fewer children.

It’s important to note that the study, which is being presented at the American Society for Reproductive Medicine’s 70th Annual Meeting, does not prove causation, meaning it’s unclear whether men were undergoing surgery for financial reasons. Though the researchers do conclude that their findings suggest Americans may be factoring economics into family planning—which is not necessarily a new trend.

MONEY The Economy

Why the Fed Should Stop Talking About Raising Interest Rates

Some central bankers have called for raising rates sooner rather than later. Recent economic data — and the huge stock market sell-off — should dampen those calls.

There have been two presidential inaugurations and six Super Bowl champions since interest rates were effectively lowered to 0%. Recently, some Federal Reserve officials have said they expect to raise rates by the middle of next year thanks to a decently expanding economy and stronger job growth.

Some central bankers, though, think the middle of 2015 is too late and have been pushing to increase borrowing costs sooner. Esther George, President of the Kansas City Fed, said as much in a speech earlier this month, and two members of the Federal Open Market Committee voted bristled against easy monetary policy in their most recent meeting.

But with developed economies around the world showing dismal growth and less-than-stellar economic metrics here at home — punctuated by a rapidly declining stock prices (the stock market is, after all, a reflection of the market’s forecast for the economy six to nine months down the road) — it might be time for these inflation hawks to quiet down.

“Until we see wages expanding faster than the rate of inflation, and significantly so, we won’t see much in the way of inflation pressure,” says Mike Schenk, Vice President of Economics & Statistics for the Credit Union National Association. “Why raise rates if you don’t have inflation?”

Inflation Hawks

Dallas Fed President Richard Fisher voted against the most recent monetary action policy, according to minutes of the meeting, due to, among other factors, the “continued strength of the real economy” and “the improved outlook for labor utilization.”

Earlier this month, Philadelphia Fed President Charles Plosser said that he’s “not too concerned” about inflation growth below the Fed’s 2% target and joined Fisher in voting against the Fed policy because he disagreed with the guidance that said rates will stay at zero for “a considerable time after” the Fed ends its unconventional bond-buying program later this month.

George, meanwhile in a speech earlier this month, said Fed officials should begin talking seriously about raising rates since “starting this process sooner rather than later is important. If we continue to wait — if we continue to wait to see full employment, to see inflation running beyond the 2% target — then we risk having to move faster and steeper with interest rates in a way that is destabilizing to the economy in the long term,” according to the Wall Street Journal.

Jobs

The jobs environment has been improving in recent months. The economy added almost 250,000 jobs in September and the unemployment number fell to a post-recession low of 5.9%. But the unemployment number doesn’t tell the whole story.

If you look at another metric that takes into account workers who only recently gave up looking for a job and part-time employees who want to work 40 hours a week, the situation is much worse. Before the recession, this broader unemployment rate sat at around 8%. It’s now at almost 12%. There are still about three million workers who’ve been unemployed for longer than 27 weeks, up from around 1.3 million at the end of 2007.

Inflation

Right now, and for some time, there has been very little inflation. Prices grew 1.7% over the past year in August, per the Bureau of Labor Statistics’s Consumer Price Index. Even the Fed’s preferred inflation tracker, the PCE deflator, showed prices gain 1.5% compared to 12 months ago.

Wage growth is likewise stalled. Taking into account wages and benefits, workers have only seen a 1.8% raise. It’s just difficult to have inflation in a low interest rate environment without wage growth.

St. Louis Fed President James Bullard recently said that the Fed should consider postponing the end of its bond-buying program. “Inflation expectations are declining in the U.S.,” he said in an interview yesterday with Bloomberg News. “That’s an important consideration for a central bank. And for that reason I think that a logical policy response at this juncture may be to delay the end of the QE.”

Europe

European economic woes aren’t helping. Germany, Europe’s largest economy, recently cut it’s growth forecast, now only expects to grow by 1.2% in 2014 and 2015. Sweden and Spain saw prices actually decline in August, and now there’s fear that the euro zone will endure a so-called triple-dip recession. The relative prowess of the American economy compared to Europe’s has strengthened the U.S. dollar, thus making our exports less competitive.

Look, the U.S. economy isn’t about to go off a cliff. Not only did we see growth of 4.6% last quarter, but employers are adding jobs at a decent clip and the number of workers filing first-time jobless claims fell to the lowest level since 2000, per the Labor Department.

But with low inflation and European struggles to achieve anything close to robust growth, raising interest rates anytime soon doesn’t appear likely.

TIME energy

Low Oil Prices Raise the Risk of Recession in Russia

Russia oil
Photo by Dmitry Korotayev/Kommersant Photo via Getty Images Russia will look to tap Arctic resources of oil and gas

Oil prices dipped to around $92 per barrel in early October

This post originally appeared on OilPrice.com.

Falling oil prices are inflicting deeper economic pain on Russia’s economy, which is already reeling from EU and U.S. sanctions.

Russia is currently considering its budget for 2015-2017, and based on the numbers, the Kremlin is planning for leaner times. With oil revenue accounting for around half of the country’s budget, any dip in prices has a ripple effect.

And in recent years, Russia’s economy has become more dependent on oil to meet its budget commitments. Excluding oil revenue, Russia has run a budget deficit that hit 10.3 percent in 2013, the highest level in three years.

In other words, the government needs oil revenues to plug budget holes, and that need is growing.

Related: Will Ukraine Commit Economic Suicide?

Russia occupies a strong economic position when oil prices are high, but for every $1 decline in the price per barrel of oil, Russia loses $2.1 billion in revenue on an annualized basis. Slumping oil prices in recent months could see revenues to the state decline by $30 to $40 billion.

The Russian economy may only expand 0.4 percent this year, and just 1 percent in 2015. But even that meager growth rate is not a certainty. Russia is increasingly facing the possibility of recession, according to a Bloomberg survey of economists.

Oil prices dipped to around $92 per barrel in early October. While that won’t plunge Russia into an immediate economic crisis, the government needs oil prices to stay around $105 in order to balance the budget. Thus, if oil prices don’t rebound soon, problems will only grow worse for the Kremlin.

The upcoming budget plans for the possibility of persistent inflation, a weakening ruble, and the potential need for the state to dip into cash reserves in order to finance its budget. What is worse, even this negative outlook is based on highly optimistic assumptions – it assumes oil prices of around $100 per barrel.

“It is quite optimistic given where oil prices are at now and given how much the Russian budget depends on oil revenues,” Liza Ermolenko, an analyst at Capital Economics, told The Moscow Times. “For the next year, it’s more likely that the oil prices will be lower than what they are penciling in.”

Running a deficit will be tricky because western sanctions have restricted access to financial markets. Major Russian companies targeted by the U.S. and Europe are unable to take out long-term loans. As a result, they are turning to the Russian state for funds. That has worked so far, but a Bloomberg report outlines an emerging fight within the Russian elite over a dwindling pile of money.

The mid-September arrest of Vladimir Evtushenkov, the head of oil company OAO Bashneft, was a sign that the situation is starting to deteriorate. He is the richest Russian arrested since Mikhail Khodorkovsky was thrown in jail in 2005 and whose oil company, Yukos, was taken over by the state. Evtushenkov, an ally of Prime Minister Dmitry Medvedev, is thought to have been arrested because of a growing rift in Russia’s elite that is at least partially due to the troubled economy.

Related: Europe Seeks To Undermine Russian Energy Influence

“This is creating a dire financial situation, particularly for state companies friendly to Putin, which are now vying for shrinking state resources,” Yevgeny Yasin, a former Russian economy minister, told Bloomberg. Russian President Vladimir Putin and his allies are hunting for more assets as the economy worsens, according to the same article.

Oil prices could remain low for a while. Reuters reports that the Russian central bank is beginning to plan for a disaster scenario in which oil prices drop to $60 per barrel. Such a scenario would precipitate a dramatic weakening of the ruble, forcing the central bank into action.

But there is no easy way out. The Russian economy is far too dependent on the global price of oil, a volatile benchmark largely out of the Kremlin’s control.

More Top reads From Oilprice.com:

TIME Workplace & Careers

1 in 5 U.S. Workers Say They Were Laid Off in Last 5 Years: Poll

New York Job Fair Offers Services For Chronically Unemployed
John Moore—Getty Images People stand in a line that stretched around the block to enter a job fair held at the Jewish Community Center (JCC), on March 21, 2012 in New York City.

Total of 30 million say they received pink slips since 2009

One in five American workers say they have lost their jobs at some point within the last five years, according to a new survey that reveals that the recession, which technically ended in 2009, has continued to rattle the labor market.

The survey findings, released by Rutgers University’s John J. Heldrch Center for Workforce Development, exposes the lingering costs of lay-offs, both for those who cannot find work and those who have. Nearly 4 out of 10 laid-off workers say they spent more than seven months searching for a new job and nearly half of those who managed to find work said their new job was a step lower on the payscale.

Regardless of employment status, two-thirds of all adults in the survey say the recession negatively impacted their own standard of living, but the workers that took the hardest hits to income and savings were those who had been unemployed for a period longer than 6 months, whose struggles the authors called “among the most persistent, negative effects of the Great Recession.”

 

MONEY Jobs

The Economy is Improving, but May Face a New Speed Limit

empty cubicles
Getty Images Get ready for Boomers to leave the work force.

The recession is gradually ending, but we're about to enter a world where fewer and fewer people work.

While it might not feel like it yet, the economy is getting better. On Thursday, the Bureau of Economic Analysis announced the U.S. economy grew faster than expected in the second quarter of this year.

Here’s the thing, though. Even as employers add jobs, we’re about to enter an era with the lowest percentage of working Americans since 1973. Below is a Congressional Budget Office projection, from a new set of charts they’ve released here, showing the labor force participation rate—the number of people working or looking for a job—through the year 2024. As you can see, despite the economic recovery, it has a distinctly downward trend.

Screen Shot 2014-08-29 at 12.06.20 PM

Why doesn’t a better economic climate mean more workers? The boomers, largest generation in American history, is on the cusp of retirement, and will soon begin to drop out of the workforce in even greater numbers. Over time, this will have an dampening effect on the economy—though by how much is disputed. The CBO predicts that GDP growth will average around 2.2% per year, noticeably less than the growth we got used to in the 1980s and 1990s.

Another way to visualize the change is something called the dependency ratio, which measures the proportion of the population that aren’t of working age (below 18 or over over 65). As FiveThirtyEight’s Ben Casselman points out, that number is about to increase from 59% in 2010 to 75% in 2030.

Screen Shot 2014-08-29 at 12.05.20 PM
Source: U.S. Census.

As you’ll notice from the above chart, we’ve been a demographically fortunate nation of late, but we’re about to lose that tailwind. On the other hand, this country has faced big demographic changes before: Look the at the jump in the dependency ratio from the 1950s to the 1960s. Back then, an increasingly prosperous nation spent part of its wealth on kids. Those kids grew up and made the economy even larger, and soon we’ll have to spend part of that prosperity on their retirement.

MONEY The Economy

Sex Keeps Getting Cheaper Around the Globe

Exterior of the Love Ranch at night
Brad DeCecco

The going rate for sex with a prostitute has plummeted in recent years, according to analysis from the Economist.

In 2006, the price for one hour of sex with a female prostitute averaged $340 around the globe. Today, the average rate is down to $260.

The Economist came up with this data after reviewing the online profiles and listings of 190,000 female sex workers in a total of 84 cities in 12 countries. There are several reasons cited for why the price of prostitution has fallen steadily in recent years, including the migration of poor sex workers into wealthier countries, which has pushed prices down. There’s also some indication that the increased availability of legal prostitution in countries such as Germany has put downward pressure on rates for paid sex.

Overall, the explanation for the decline in the price of sex boils to the same two factors that have affected so many other industries over the last decade or so: The responsibility (or blame, if you will) can be traced back to the Great Recession, and the rise of the Internet’s facilitation of virtually every aspect of life. “The fall in prices can be attributed in part to the 2007-8 financial crisis,” the Economist reported. “The increase in people selling sex online—where it is easier to be anonymous—has probably boosted local supply.”

Increased supply means increased competition, and lower prices in order to win customers’ business. This turn of events should put a smile on the face of folks like comedian Jim Norton, who wrote a stunning pro-paid-sex essay titled “In Defense of Johns” last week for TIME.com.

Naturally, sex workers are upset about the decline in asking prices for prostitution. An analysis by the Economist on all the different ways the Internet has impacted the oldest profession indicates that the shift online hasn’t been all bad for prostitutes, however. By being able to advertise and sell sex online, prostitutes don’t have to rely as much on brothels, pimps, or other intermediaries, so less of a sex worker’s money is going to a middleman. Selling sex on the web is certainly not safe, but it’s considered safer than streetwalking, partly because prostitutes can do rudimentary background checks on clients and share information about violent or abusive customers.

Generally speaking, however, it’s hard to come away after reading the Economist’s investigation and not be depressed. Here’s a group of workers who suffered mightily during the recession years and are still feeling its lingering effects. It’s more difficult to make a living in this trade than it has been in the past, what with clients who have less cash to spend and who have more, lower-priced options to choose from thanks to the Internet and other technology.

That description could be used to sum up the recent plight of many retail employees, travel agents, factory workers, or, heck, journalists. Instead, in this instance, it describes the situation facing women who feel forced to sell sex for money.

MORE: Dear Johns: Actually, You Should Be Ashamed to Buy Sex

TIME Money

Bank of America Reported Close To Record DOJ Settlement

Paying up for their role in the housing crisis

Bank of America may pay $16 billion to $17 billion to the Department of Justice as a settlement for their role in the housing crisis, according to media reports.

That would be the highest payment to the DOJ for mortgage securities fraud to date, exceeding the $13 billion settlement that J.P. Morgan Chase negotiated in November.

Bank of America issued the most mortgage securities of any large bank on Wall Street in the years leading up to the financial crisis. According to the Wall Street Journal, of the $965 billion in mortgage securities that the bank issued between 2004 and 2008, $245 billion in securities have defaulted or become delinquent.

 

TIME cities

The Rise of Suburban Poverty in America

Rooftops in suburban development in Colorado Springs, Colorado.
Blend Images/Spaces Images/Getty Images Rooftops in suburban development in Colorado Springs, Colorado.

The suburbs aren't the middle-class haven many imagine them to be as new numbers show 16.5 million suburban Americans are living beneath the poverty line

Colorado Springs is often included on lists of the best places to live in America thanks to its 250 days of sun a year, world-class ski resorts and relatively high home values. But over the last decade, its suburbs have attained a less honorable distinction: they’ve experienced some of the largest increases in suburban poverty rates.

The suburbs surrounding Colorado Springs now have seven Census tracts with 20% or more residents in poverty, according to a report released Thursday by the Brookings Institution. In 2000, it had none. In those neighborhoods, 35% of residents are now considered to be below the poverty line, defined as a family of four making $23,492 or less in 2012.

“We’ve seen this all over the state,” says Kathy Underhill of Hunger Free Colorado, a statewide anti-hunger organization, referring to the growth of suburban poverty. “But I think the American public has been slow to realize this transition from urban poverty to suburban poverty.”

Poverty in the U.S. has worsened in neighborhoods already considered to be poor, but it’s now becoming more prevalent in the nation’s suburbs, according to the Brookings report.

“Poverty has become more regional in scope,” says Elizabeth Kneebone of the Brookings Institution and a co-author of the report. “But at the same time, it’s more concentrated and it’s erased a lot of the progress that we made in the 1990s.”

In the last decade, the number of Census tracts considered “distressed” — in which at least 40% of residents live in poverty — has risen by almost 72%. The number of poor people living in those neighborhoods has grown by an even faster rate—78%—from 3 million to 5.3 million. In 2000, the percentage of poor people who live in economically distressed neighborhoods was 9.1%. Today, it’s 12.2%.

Those areas are leading to what Kneebone calls a “double burden” for impoverished residents—being poor while living in a low-income area that often has failing schools, inadequate healthcare systems and higher crime rates. And as those areas are increasingly located in suburban areas, low-income Americans don’t have the kind of social safety nets often found in urban centers.

The numbers of suburban poor are growing at a more rapid rate than those in urban areas. In 2012, there were 16.5 million Americans living below the poverty line in the suburbs compared with 13.5 million in cities. The number of suburban poor living in distressed neighborhoods grew by 139% since 2000, compared with a 50% jump in cities. Overall, the number of poor living in the suburbs has grown by 65% in the past 14 years—twice as much growth as in urban areas.

It’s easy to pin the growth of concentrated and suburban poverty on the recession, but the spread of poverty throughout the U.S. has broader and more varied explanations. The numbers of suburban poor have been swelled by low-income residents who might once have lived in urban cores, but have been priced out of gentrifying cities, and have moved into affordable housing more prevalent in the suburbs.

Suburban areas also tend to be centered around industries most affected by the economic downturn, like manufacturing and construction, and the jobs that have taken their place are often low-paying, like retail and service positions.

There are also few social programs to help the suburban poor ascend the economic ladder. In the counties surrounding the Denver and Colorado Springs area, for example, many charitable organizations and anti-poverty programs have historically been focused on urban cores and haven’t caught up to changing demographics.

“The charitable infrastructure over the decades have focused on the inner city,” says Underhill of Hunger Free Colorado. “They’ve traditionally not had big case loads and aren’t accustomed to the level of service that’s needed.”

The Brookings report highlights a few suburbs that have seen decreases in poverty, including those around El Paso, Texas; Baton Rouge, La.; and Jackson, Miss. But they were outliers. In North Carolina, three suburban areas—Winston-Salem, Greensboro-High Point, and Charlotte—saw significant increases in both the number of economically distressed neighborhoods and the percentage of poor in those areas. Atlanta now has 197 areas with poverty rates above 20%, up from 32 in 2000.

“Suburban areas are no longer just homes to middle- and upper-income households,” says University of New Hampshire demographer Ken Johnson. “There were always poor suburbs, but much of the outflow of population from urban cores to suburbs has historically been middle- and upper-income. That is less true now.”

Kneebone agrees, saying the perception that suburban areas were some sort of middle-class haven “was always a bit too simplistic.”

“Poverty is touching all kinds of communities,” Kneebone says. “It’s not just over there anymore.”

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