The New Economy

The exterior of the Internal Revenue Service building in Washington. The IRS will close its offices for five separate days in the coming months, and employees will be furloughed on those days. The closures are a result of federal budget cuts. (Susan Walsh/AP/File)

IRS to close for five days: this week in the economy

By Schuyler Velasco, Staff writer / 04.19.13

The Internal Revenue Service will shut down for five separate days in the coming months, a result of federal budget cuts stemming from the 'sequester.' IRS offices will be closed on May 24, June 14, July 5, July 22, and Aug. 30, and employees will be furloughed on those days.

Additional closure dates in August and September may be added, if deemed financially necessary.

“We came to a decision that balances our primary mission to serve the taxpayers and considers the effect on employees,” IRS acting commissioner Steven Miller wrote in an internal memo obtained by Bloomberg News Friday. “We settled on having uniform furlough dates for everyone and closing down agency operations entirely. This way, the IRS can gain additional cost savings on utilities and other services in our work locations.”

Here’s the other news from around the economy this week:

Gold prices took a dive: Gold price saw its biggest single-day loss in 30 years, dropping $140, or nine percent, to $1,361.  That dip came after a five percent fall last Friday.

The per-ounce price of gold has been falling steadily since peaking at $1,900 in August 2011, but the selloff quickened this week.  Credit ratings agency Fitch predicted Friday that gold will continue its steady decline for the next two or three years as investors drop their shares, and that recent economic turmoil in Cyprus had little to do woith the metal’s long-term prospects.

"Reports that Cyprus could sell a significant volume of gold may have triggered the sharp drop in prices, but we believe the fall represents a changing sentiment towards the metal," Fitch said in a press statement Friday.

Jobless claims held steady:  The number of people applying for unemployment benefits increased just slightly last week, rising by 4,000 to 352,000 claims. Reuters characterized the weak uptick as “allaying fears of a major setback in the labor market recovery,” another encouraging sign after a week March jobs report.

“There is still no sign in the claims data that the effects of $85 billion in government budget cuts, known as the ‘sequester’ have started to filter through to the labor market,” Reuters said.

Mortgage rates remained low: The average 30-year mortgage rate dropped four basis points to 3.52 percent, according to the Mortgage Bankers’ Association’s weekly survey.  3.31 percent, reached last November, is the index’s record low. 

A rack of colorful clothing is displayed at the Vermont Trading Company in Montpelier, Vt. US retail sales fell in March from February by the most in nine months, although a decline in weekly jobless claims provided some optimism about the economy. (Toby Talbot/AP/File)

Big drop in jobless claims: this week in the economy

By Schuyler Velasco, Staff writer / 04.13.13

After disappointing unemployment figures for March, an unexpected drop in the number of people applying for jobless benefits last week was a welcome surprise.

Initial claims for unemployment benefits fell by 42,000, down to a seasonally adjusted 346,000 claims, according to the Department of Labor. It was the largest weekly drop since November 2012. This was an encouraging sign for many analysts, who took it as a signal that recent jobless claims reports, which have been higher than expected, could be the result of fluctuations in seasonal hiring and a modest slowing in the labor market, rather than an outright stall in hiring.

The four-week moving average of jobless claims, which smooth out the week-to-week volatility, rose modestly from 355,000 to 358,000.

"This is higher than the near-term low," Cooper Howes of Barclays Research wrote in an analysis, "and is consistent with our view that growth will slow in Q2 after a strong Q1."

Here are the results of other key economic reports from this week:

JOLT (Job Openings and Labor Turnover) at post-recession high in February: The BLS reported that 3.9 million jobs were open in February, the highest number since May 2008. The trade, transportation, and utilities sectors did the bulk of the hiring in the private sector. Health care and education saw a decrease in employment. 

Retail sales disappoint: Retail sales fell 0.4 percent in March, according to the US Census Bureau. Analysts expected them to remain flat, but lower gas prices, bad weather, and retailers cutting jobs all contributed to the decline. The drop comes after an unexpectedly strong start to consumer spending this year, which was expected to weaken after the expiration of the payroll tax holiday. It was the biggest drop in nearly nine months.

"Early on, there were indications that households were weathering the storm and pushing forward unfazed with their spending habits. That changed in March," said Jim Baird, partner and chief investment officer for Plante Moran Financial Advisors, told CNNMoney.

Consumers aren’t optimistic: Consumer sentiment seems to be in line with consumer actions, after a few months of falling sentiment and improving sales. The Thomson Reuters/University of Michigan's preliminary reading of the overall Consumer Sentiment index fell to 72.3 in April, its lowest level since July 2012. The Congressional Budget Office has predicted that the effects of the sequester may be catching up with the economy, and that it could shave 1.5 percentage points off economic growth figures this year.

Packets of Starbucks coffee are seen in a supermarket in Santa Monica, Calif. Starbucks Corp investors last month rejected a shareholder proposal to prohibit the world's biggest coffee chain from making political contributions or forming a political action committee. (Lucy Nicholson/Reuters/File)

Shareholders ask firms: What are your politics?

By G. Jeffrey MacDonald, Correspondent / 04.08.13

Campaign 2012 might be history, but activists are keeping the political battles going in 2013 by moving them to a new arena: corporate shareholder meetings.

As stockholders gather for annual meetings this spring, they'll consider 115 resolutions calling on firms to change or disclose details about how they influence elections and lobbying campaigns. That makes policy-related spending this year's biggest issue for investors with environmental and social agendas; 1 in 3 investor resolutions deals with the subject.

At issue: Do shareholders need to know where and how a firm flexes its muscles in the policy arena? Some say yes because donors and lobbyists shape public policy, sometimes in ways that might pose long-term risks for their companies.

"Investors are very aware of risks that companies face when they get involved in political spending," says Timothy Smith, a senior vice president at Walden Asset Management, which has sponsored lobbying-related resolutions. He cites the example of Target, which apologized in 2010 for donating to a group that supported a Minnesota gubernatorial candidate who opposed same-sex marriage. ( Continue… )

A scene from "Battlefield 4,' a video game published by Electronic Arts. The video game company is a finalist for 'Worst Company in America,' an annual online poll by the Consumerist blog. ((AP Photo/Electronic Arts))

Worst company in America: Will it be EA, the video gamemaker, again?

By David Clark Scott, Staff writer / 04.06.13

Worst company in America?

This is not a list you want to be on once, let alone twice.

But the annual Consumerist poll shows that Electronic Arts, the giant video game company, is now vying with Bank of America, Ticketmaster, and Comcast to be the 2013 Worst Company in America.

EA was also the 2012 "winner" of the Consumerist poll. The company publishes dozens of video game titles, including "Madden NFL," "Sim City," and "Star Wars: The Old Republic." EA made more than $4 billion in revenue in 2012.

The annual March poll of readers produces a bracket race that mirrors the March Madness NCAA basketball tournament. The poll is a two-choice vote with one question: "Which Company Is Worse?"

The Consumerist "Final Four" contenders are as follows:

Bank of America (64%) vs. Walmart (36%)
 Ticketmaster (55%) vs. Carnival (45%)
 Comcast (67%) vs. Time Warner Cable (33%)
 EA (84%) vs. AT&T (16%)

What's the beef that consumers have with EA?

We don't know for sure from the polling data, but the Consumerist offered these reasons when EA finished "first" in last year's poll:

"EA, meanwhile, has made a habit of sniffing out some of the best smaller video game companies, which are then acquired for their intellectual properties or to remove a competitor from the marketplace. Mass consolidation in any industry rarely works out to the benefit of the consumer, but the gaming business is one that regulators, the courts and the mainstream media have by and large ignored....

EA is among the industry leaders in pushing for more and more “microtransactions” in users’ gaming experience. For its major titles it seems to be creating exclusive and add-on content, not with the game in mind, but with the sole intention of milking consumers who may not realize how quickly those small purchases add up.

And unlike the fee-happy discount airlines that use the “everything is a la carte” model to keep base prices low, a new EA game will run you $60 for the most basic version available, making it easily the most expensive form of home entertainment."

But this year, EA Chief Operating Officer Peter Moore fired back, noting that "This is the same poll that last year judged us as worse than companies responsible for the biggest oil spill in history, the mortgage crisis, and bank bailouts that cost millions of taxpayer dollars."

Moore goes on to say:

"I’ll be the first to admit that we’ve made plenty of mistakes. These include server shut downs too early, games that didn’t meet expectations, missteps on new pricing models and most recently, severely fumbling the launch of SimCity.  We owe gamers better performance than this...."

We are committed to fixing our mistakes.  Over the last three weeks, 900,000 SimCity players took us up on a free game offer for their troubles.  We owed them that.  We’re constantly listening to feedback from our players, through our Customer Experience group, Twitter, this blog, or other sites.  The feedback is vital, and impacts the decisions we make."

Moore also suspects that this year's poll is skewed by conservative groups that don't like the inclusion of homosexual characters in games.
"In the past year, we have received thousands of emails and postcards protesting against EA for allowing players to create LGBT characters in our games.  This week, we’re seeing posts on conservative web sites urging people to protest our LGBT policy by voting EA the Worst Company in America."

Consumerist blogger Chris Moran responds that this is a scurrilous claim.

"EA received hundreds of nominations from Consumerist readers this year, by far the most of any contender in the bracket, but not a single one mentioned anything about sexual orientation. Consumerist does not condone homophobia or hate speech of any kind, and our readers understand the Worst Company contest and nominate businesses based on their merits."

The Consumerist blog was started by Gawker and sold to Consumers Union, the publishers of Consumer Reports, in December 2008.

Previous "winners" of the Worst Company in America poll include: Comcast, AIG, Halliburton, and BP.

Scott Richards of Saint Anselm College looks over possible jobs during a 2012 career fair for college students in Manchester, N.H. Unemployment stands at 16.2 percent for young people, and the number who are not working or actively looking for a job is near a record high. (Jim Cole/AP/File)

Jobs outlook: Can young people overcome the gloom?

By Laurent Belsie, Staff writer / 04.05.13

Times are tough when it comes to getting a job – and they're especially tough for young people ages 16 to 24.

Their unemployment rate is more than double that of the 25-and-over. Nearly half are not even looking for a job – a low not seen since the mid-1950s. Those fortunate to find employment are starting at pay levels that are likely to restrain their earnings for a decade or more.

"There's real evidence that kids who graduate in bad times start behind and stay behind" in terms of pay and career advancement, says Keith Hall, a senior research fellow at George Mason University's Mercatus Center and a former Bureau of Labor Statistics commissioner. "They're really bearing a big brunt of the costs of the slow recovery." 

Today's jobs report did little to relieve that gloomy outlook. Their unemployment rate stands at 16.2 percent in March, the Department of Labor reports. Though that's a slight improvement from February's 16.3 percent, the dip was caused by more young people leaving the workforce than finding a new job. As of March, 18.3 million young people don't have a job and are not looking for work, the second-highest figure recorded since the Labor Department began tracking the number in 1994. ( Continue… )

Traders work on the floor at the New York Stock Exchange, March 15, 2013, as market indexes hover near record highs. (Brendan McDermid/Reuters)

Do companies go too far to please their shareholders?

By G. Jeffrey MacDonald, Correspondent / 03.16.13

With stocks near record highs and Wall Street smiling again, here's a counterintuitive idea about the value of those shares: Investors suffer when a company focuses too much on pleasing them.

By trying to boost their stock price in the short term, companies undercut their performance in the long term, says Lynn Stout, a Cornell Law School professor and author of "The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public." They spin off divisions, buy back shares, and cut costs at the expense of research and development. It's like fishing with dynamite, she says: It gets quick results but spoils the pond.

Take Kraft. The longtime corporate icon unexpectedly split itself into two, creating Kraft Foods and Mondelez last year, in a move applauded by hedge funds and others who'd been clamoring for higher share values. But the two companies have stumbled along since with little change in their stock prices. They reported poor earnings in February.

In the face of a volatile stock market and lackluster returns over the past 15 years, socially responsible investors say companies need to temper concern about shareholder value with attention to the environment as well as their workforce and community. In theory, this so-called triple-bottom-line approach should minimize the risks of unforeseen labor or environmental problems and boost profitability. The challenge is that in practice it's very hard for management to keep a long-term perspective – and the results don't always show up in share prices. ( Continue… )

Credit card logos are adhered to a window at the entrance of a shop in Cambridge, Mass., in 2012. Credit card delinquencies are at their lowest level since Fitch began tracking them in 1991. (Steven Senne/AP/File)

Surprise! Consumers are managing their credit cards quite well.

By Bill Hardekopf, Contributor / 03.14.13

A record number of consumers are paying their credit card bills on time as well as paying a greater percentage of their monthly balance. These were some of the findings from the February data from Fitch Ratings.

The delinquency rate on retail credit card accounts declined in February to 1.61 percent, the lowest level since Fitch began its prime index in 1991.Delinquencies are defined as a credit card account over 60 days late. This February figure is 65 percent below the peak delinquency levels reached at the end of 2009.

Another all-time record was reached on the monthly payment rates (MPR) on credit cards. This figure represents the rate at which cardholders are paying back their balances. In February, this MPR climbed 1.09 percent to 24.83 percent, the highest level since Fitch began tracking this number.

Charge-offs reached a six-year low. A charge-off takes place when an issuer stops trying to collect on a delinquent account. Fitch's Prime Credit Card Chargeoff Index declined from 4.18 percent in January to 3.88 percent in February. In addition, this February charge-off rate is 26 percent lower than February 2012 levels.

These encouraging figures are, to some degree, due to the changes made during the economic downturn. At that time, issuers canceled many risky accounts, cut credit limits on millions of others, and made it harder for people with fair or poor credit scores to be approved for new credit cards. In addition, a greater number of cardholders seemed to have learned to not charge more than they can pay off at the end of the month.

– Bill Hardekopf is founder of Lowcards.com, an online credit-card information site.

Sayed Mouawad, right, of Providence, R.I., gestures while speaking to a company representative during a job fair in Boston. US employers ramped up hiring in February, adding 236,000 jobs and pushing the unemployment rate down to 7.7 percent from 7.9 percent in January. (Michael Dwyer/AP/File)

Jobs outlook: Housing growth will trump sequester woes

By Laurent Belsie, Staff writer / 03.09.13

Two-thirds back.

That's how far the United States has come in regaining the jobs it lost during the Great Recession. But it's been a long hard slog, taking nearly twice as long as the so-called "jobless recovery" of the early 2000s. Whether the current recovery speeds up from here depends on whether private sector growth proves stronger than public sector contraction.

So far, the signs are tilting positive.

"The private-sector news on the economy continues to be good, and we would be upgrading our forecast of 2013 growth slightly were it not for the federal spending sequester that began on March 1," wrote Nigel Gault, chief US economist for IHS Global Insight, in an analysis. "The sequester will not derail the recovery, but it does slow it down."  ( Continue… )

In this AP file photo, President Obama delivers his State of the Union address on Feb. 13. The Obama administration came out in support of laws changing the restrictions on unlocking cellphones on Monday. (Charles Dharapak/Pool/AP)

Obama proposes $9/hour minimum wage. OK, says business owner.

By Elizabeth Fuller-Wright, Correspondent / 02.13.13

Many employers cringe at the thought of paying higher salaries, but after hearing President Obama say that the current minimum wage isn't enough to keep workers out of poverty, one businesswoman actually did. On the spot.

"Obama says to raise minimum wage to $9.00/hr. So I did!!!" posted Kelly Wilson, a small business owner in Virginia, on her Facebook wall. " If my little company 3D Sports can do it, maybe some of the big rich companies can do it too!!!"

Raising wages – often the lion's share of expenses for small businesses – won't be easy.

"It's going to pinch us a little bit, there's no two ways about it," Ms. Wilson notes. 3D Sports offers coaching in baseball, basketball, field hockey, softball, and soccer, so in addition to her year-round crew of six to eight, she hires 15 to 20 coaches each summer.  "I already run a pretty tight ship, in terms of the number of people," she adds. ( Continue… )