The New Economy
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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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.
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"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… )
Worst company in America?
This is not a list you want to be on once, let alone twice.
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.
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The Consumerist "Final Four" contenders are as follows:
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."
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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."
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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… )
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.
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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… )