The New Economy
In the wake of a fatal factory fire in November and a factory building collapse in April – two tragedies in Bangladesh that claimed more than 900 lives – many Western companies with factories there are taking action.
Some, like Disney, are leaving. (Disney ordered a pullout a month before the building collapse.) Others, like Wal-Mart, are staying and working to ensure more safety at facilities that produce their goods. Still others are trying to figure out what to do as they assess the damage to their reputations and the impact on their profits.
With some of the poorest-paid workers in the world, Bangladesh is a cheap place to do business. Is it better to leave until the government commits itself to safe workplaces or work within the system to improve the lot of those workers? It’s an ethical dilemma, where there is no obviously correct solution.
Faced with such a situation, what should businesspeople do?
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Some time ago, I worked with a company – let’s call it Widget Inc. – that drafted a letter of intent with a prospective client and signed a contract. Due to a miscommunication in the language, the client expected a certain amount of work in a set period of time, which Widget Inc. could not provide. ( Continue… )
Get into stocks – or get out?
That's the question many investors are asking themselves after the Dow Jones Industrial Average closed above the 15000 mark for the first time Tuesday. The Dow reached 15056.20, ending the session 87 points higher. The S&P 500 index, which reached the 1600 milestone last week, also rose 8.46 points to close at 1625.96, a new record. The Nasdaq was up slightly to end the session at 3396.63.
Whether to move into stocks now is anybody's guess. It comes down to where you're focused. If you're looking to the near future, the prognosis isn't rosy. Economists expect the bite of federal budget cuts under the so-called sequester to take hold this summer. Publicly traded companies, while reporting generally strong earnings this spring, have in many cases offered pessimistic guidance for earnings for the rest of the year.
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Another sobering fact: The last time the Dow hit a record milestone was October 2007, when it closed above 14000 for the first time. The average flirted with that level for the next two weeks, before heading down decisively. Eighteen months later, it was trading at less than half that value, under the twin burdensof recession and the financial crisis. ( Continue… )
Businesswoman, overachiever, and someone who can say no to people in power, Penny Pritzker is stepping out of the shadows of her famous family name and her wealthier relatives to forge her own persona on the national stage.
For years the Pritzker family, founders of the Hyatt hotel chain, has operated on the fringes of public politics. Family members have stamped their names on buildings, supported philanthropies, even raised money for political candidates, but avoided the national spotlight.
With President Obama’s nomination of Ms. Pritzker as secretary of Commerce, that will change.
In Ms. Pritzker, the president is getting a savvy businesswoman who makes overachieving look almost routine. (She earned a law degree and MBA in the same year and, famously, finished her first Ironman triathalon despite spraining an ankle in the first mile of the marathon portion of the race). He will also get someone who is not afraid to speak her mind to her boss and can bring a big business perspective to an administration that, at times, has skewered big corporations for misdeeds and greed. ( Continue… )
The good news for the housing market just keeps on coming. The latest report of the S&P/Case-Shiller Home Price Indices showed that average home prices for 20 cities increased by 9.3 percent for the year ending in February 2013. That same index rose 0.3 percent between January and February of this year. It was the biggest annual increase in residential real estate prices since May 2006.
It’s yet further evidence of the trend for the past year or so – nationally, the housing market recovery is speeding along nicely. It’s still a long way off, but developments over the past year have the market at least moving toward the direction of “normal” after years of depressed conditions.
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“Despite some recent mixed economic reports for March, housing continues to be one of the brighter spots in the economy,” David M. Blitzer, chairman of the index committee at S&P Dow Jones Indices, wrote in the report. “The 2013 first quarter GDP report shows that residential investment accelerated from the 2012 fourth quarter and made a positive contribution to growth. One open question is the mix of single-family [homes] and apartments; housing starts data show a larger than usual share is apartments.”
What's driving prices up? Analysts point to lean inventories, low interest rates, a rise in employment, and a drop in the share of foreclosed homes (which typically sell at a reduced price). ( Continue… )
GDP good, but not great: Economic growth quickened in the first quarter of 2013, but not at the pace analysts expected or hoped for. US GDP (gross domestic product) expanded at a 2.5 percent annual rate in the first quarter, according to a report released by the Commerce Department Friday. The growth was propelled by an acceleration in consumer spending, housing, and business investment.
Because the last quarter of 2012 was so stagnant, with GDP only expanding at a paltry 0.4 percent annual pace, many analysts expected first quarter GDP to rebound at least 3 percent.
The numbers were “softer than our forecast and the consensus (both 3.0 percent),” Barclays economist Peter Newland wrote in an e-mailed analysis. “That said, much of the pattern of growth within the expenditure components … met broadly with our expectations, with a sharp rebound in inventory accumulation, a pickup in consumption growth, modest growth in business investment and another sizable drag from government spending.”
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Analysts are warning, too, that this could be as good as it gets for 2013, as consumers and businesses start to feel the effects of the sequester and the expiration of the payroll tax holiday. For more, read Monitor Business Editor Laurent Belsie’s take on the GDP report. ( Continue… )
After barely expanding at all in the last three months of last year, the US economy has found its old groove: sluggish but steady growth in the face of deepening federal spending cuts.
The economy grew at an annual rate of 2.5 percent in the first quarter of 2013 as measured by real gross domestic product (GDP), the Commerce Department reported Friday. That was far better than the 0.4 percent annualized rise in the fourth quarter of 2012 but below the 3 percent that many economists expected.
"The underlying picture is not one of a sustainable ramp up in demand growth," writes Peter Newland, an economist at Barclays Research in New York, in an analysis. "There is no clear indication that underlying demand has either strengthened nor slowed in the recovery cycle to date."
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The 2.5 percent GDP rise may be as good as it gets this year, economists warn. Strong growth in residential construction and auto sales is being partially offset by the drag from the federal government in the form of higher taxes (actually, the end of a temporary payroll tax cut) and lower federal spending. The end of the payroll tax cut came in January, helping to slash current disposable personal income by a 4.4 percent annual rate, its biggest decline since the recession. The federal spending cuts, or sequester, took place in March and is expected to intensify this quarter. ( Continue… )
Are you a knowledgeable investor? Try this quiz:
- What kind of account must be opened in order to trade stocks online?
- What will the average household in pay total 401(k) fees over a lifetime? a) $10,000; b) $50,000; c) more than $150,000?
- What's the most important factor for most Americans picking an online broker?
If you said: brokerage account, more than $150,000, and low prices, then congratulations. You're far ahead of most Americans, whose grasp of investing is rudimentary.
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The three questions above caused the most problems for the 869 adults in a new investment literacy survey conducted by InvestingNerd. For example: 4 in 5 couldn’t identify a brokerage account; 9 in 10 severely underestimated how much a 401(k) would cost them (because beyond the stated fees are the trading costs, which also sap returns); and while over half of the current investors in the survey said low prices were most important to them in picking an online broker, only 1 in 10 actually took the time to compare costs across accounts when making their choice. ( Continue… )
The US housing sector is powering ahead. Despite small dips in the road, the market is expected to see further recovery and rising home prices for the rest of the year.
The latest evidence: new home sales. They rose 1.5 percent in March to 417,000 homes, up from 410,000 new homes in February, according to Commerce Department data released Tuesday. Sales were up 18.5 percent from March 2012.
“Trends in new home sales remain consistent with a broad-based recovery in US housing,” Barclays researcher Michael Gapen wrote in an e-mailed analysis. “We look for lean inventories of both new and existing homes to support homebuilder activity and house prices in the coming quarters.”
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What's less clear is whether the number of home sales will accelerate. In contrast to new home sales, existing home sales slipped 0.6 percent between February and March, meaning the market is on pace to sell 4.92 million home on the year, according to the Washington-based National Association of Realtors (NAR). ( Continue… )
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.
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.
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