Category Archives: National
“Corporate earnings are expected to be poor for the second quarter, perhaps the worst in three years, or the worst since the end of the recession. Each of these predictions has been made with conviction. However, the bottom line buffer for many companies may be ongoing layoffs or, at least, the unwillingness to add jobs.
While the economy added 195,000 jobs last month, the rate is nowhere near enough to replace jobs lost in the recession. Many targets for healthy unemployment put a signal of a full recovery at below 6%. Corporate job additions are not near a pace to bring the joblessness number down that far.
One of the most commonly used actions to keep labor costs down is to retain workers on a part-time basis. Bureau of Labor Statistics data for June showed that trend ongoing:
The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 322,000 to 8.2 million in June. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.
Companies that absolutely must have workers for productivity can get them at below the market costs that existed before the recession. There is no end in sight for that practice. As a matter of fact, it seems to work very well….”
“Thought it is barely above the poverty line, many Americans believe that they can live on $24,000 a year. The number is implausibly low, but perhaps a sign that many people have set their financial aims downward since the start of the Great Recession.
A new Gallup poll on financial security in the U.S. shows that:
About seven in 10 Americans, including a majority of those making more than $24,000 a year, say they have enough money to do what they need to do. However, it is not until Americans reach $48,000 a year in annual income that a majority say they can handle a substantial purchase or unexpected major expense.
It is safe to suppose that a major purchase would include something as basic as a car, and that an unexpected major expense would include a long illness. So, it is a powerful irony that so many Americans believe that they could go broke on incomes that are just below the national average household income of $51,000.
The federal government sets poverty thresholds at various levels based on family size. The threshold for a family of four is $23,021. So, put simply, based on Gallup’s data, Americans who can live on $24,000 a year sit just above the level at which people are considered abjectly poor.
One has to wonder if the $24,000 threshold would have been nearly as low in 2007, before the economy was gutted and unemployment was well above 15%, when people who work part time but would like to work full time and those who gave up on finding work were included. Whatever equity these people had in real estate likely was demolished. In many cases, hope for social advancement, base on income at least, was extinguished.
The data leads to one other conclusion, which is that the economic recovery will hit its limits as people who make more than $48,000 run through the portion of their incomes devoted to discretionary spending. At some point…”
The U.S. used to be the leader of many lists. Unfortunately, over the past 30+ years we have declined on most of those lists. Now we find the U.S. is seriously lagging the world in the creating entrepreneurs…
“The American Dream used to be a house to call your own that you paid for with a steady paycheck after an honest day’s work. But in this post-financial-crisis nation, the dream for many now means having a part-time job and being able to rent an apartment.
And with unemployment and wages stagnant, as well as uncertainty about the costs of the new health care act for employers, the pared-down expectations may be a trend for years to come.
“The quality of the jobs being added are quite low, especially relative to the jobs that were lost,” said an economist from a major Wall Street investment bank, who declined to be named because he hasn’t published on this trend yet. “Homeownership, especially for the younger, is quite low, showing perhaps some secular decline.”
The jobs report on Friday showed that May unemployment was unchanged at 7.6 percent.
But digging deeper into the data reveals a different story. The unemployment rate was just 3.8 percent for those with a bachelor’s degree and higher. Its 7.4 percent for those with only a high school degree.
The number of workers who are “part-time for economic reasons” is higher than it has ever been after every recession since 1950, according to the Department of Labor….”
“The number of American households on food stamps reached a new record high in March, according to new data released by the Agriculture Department.
The March numbers the USDA released Friday reveal 23,116,441 households enrolled in the Supplemental Nutrition Assistance Program (SNAP), or food stamps, each receiving an average monthly benefit of $274.30.
The number of individuals on SNAP did not break any records but remained high, with 47,727,052 people enrolled in SNAP, receiving an average monthly benefit of $132.86.
The number of individuals on SNAP hit a record high in December, with 47,792,056 people enrolled.
Nearly 80 percent of the $955 billion farm bill represents funding for SNAP. The Senate is expected to vote on the final passage of the farm bill Monday. The Senate’s bill cuts about $400 million a year from SNAP’s budget, or about half a percent of the total cost.
The House farm bill, which left committee last month, cuts about $2.5 billion from the program a annually, or about 3 percent of the SNAP budget. The House bill is expected to come to the floor later this month….”
“The Pentagon has been paying hundreds of millions of tax dollars a year to people and companies that don’t deserve it, but its financial management shortcomings are so severe that it’s made little progress in halting the errors or even measuring their magnitude, according to a report released by a Senate committee Thursday.
Although the Defense Department reported making over $1.1 billion in overpayments in fiscal year 2011 to military personnel and retirees, civilian defense workers, contractors, and others, investigators from the Government Accountability Office said that figure is not credible due to missing invoices and other flawed paperwork, as well as errors in arithmetic.
The Pentagon is required by law to ferret out programs susceptible to significant payment errors and then use statistical sampling to estimate the size of those errors, so that Congress can determine the size of the problem. But GAO found defense finance officials didn’t have procedures in place to collect and maintain the data they need to come up with a credible estimate.
Even when the department could find and document mistaken payments, it frequently did not take cost-effective steps to recover the money, the GAO said. The U.S. Army Corps of Engineers, for example, has spent $256,000 since 2009 on an automated overpayment-detection program that has recovered just one improper payment of $20.79, GAO said.
The Pentagon’s payment system is so weak that sometimes it doesn’t pay what’s owed. By its own estimate, for example, the Pentagon made $238.2 million in overpayments and $48.4 million in underpayments related to travel alone during fiscal 2011, for a total of $286.6 million in incorrect payments.
But when pressed by GAO, defense finance officials were only able to identify $1.6 million, or less than 1 percent, of the program’s estimated overpayments as recoverable, explaining that they lacked supporting documentation for a significant portion of the total.
The Defense Department “is at risk of foregoing the detection and recovery of potentially substantial funds owed to the government,” the GAO report said….”
“LOS ANGELES (Reuters) – A Republican congressman on Thursday introduced legislation to allow online gambling on a federal level, which he says will give consumers more uniformity than legalizing it on a state-by-state basis.
The move by Representative Peter King of New York follows industry lobbying for federal legislationto provide a larger, more liquid market across state lines, attracting more gamblers.
U.S. casinos operators like MGM Resorts International and Caesars Entertainment Corp plan to launch Internet operations in states like New Jersey, which recently passed online gambling legislation….”
“Companies flush with cash remain reluctant to hire or make capital purchases, choosing to reward investors rather than expand their businesses.
Recent economic data exemplify the trend: Private payrolls grew by just 135,000 during May, according to ADP, while employment components both for the Institute of Supply Management’s manufacturing and nonmanufacturing indexes show a flat jobs outlook.
The grim hiring prospects come as nonfinancial firms hold nearly $1.8 trillion in cash on their balance sheets.
Rather than look to expand, though, they’ve chosen to participate in aggressive share buybacks and dividend increases to reward investors.
According to TrimTabs, companies have spent $290.7 billion this year on buybacks, which are aimed at decreasing the amount of available shares—or float—thus driving up stock prices.
That effort, at least, has been a success.
The Standard & Poor’s 500 has gained more than 13 percent in 2013, led by big gains in financials and health care stocks.
Worried about growth prospects, S&P 500 companies have been passing out dividend payments with a free hand as well, rewarding shareholders with a record $37.5 billion thus far, rather than hiring….”
There are more than 200 tax breaks in the U.S. tax code, and the top 10 for individuals are by far the most expensive. How expensive? They will cost federal coffers $12 trillion over the next decade.
But the dollar benefits of those top 10 breaks are not distributed evenly across income groups.
The top 20% of households will enjoy more than half of the combined benefits of the major tax expenditures this year, according to a report by the Congressional Budget Office released Wednesday.
And within that top 20%, the benefits skew disproportionately to the highest earners.
The top 1% — who make at least $327,000 as individuals or $654,000 as a family of four — get 17% of the breaks’ value.
The largest breaks include the tax-free treatment of employer contributions to workers’health insurance; tax preferred retirement savings; state and local tax deductions; and reduced rates on capital gains and dividends.
That’s not to say that low- and middle-income households don’t benefit from the major tax breaks and wouldn’t notice if they were curtailed — a distinct possibility when lawmakers eventually do embark on tax reform.
This year, households in the middle income quintile will enjoy about 13% of the value of the biggest breaks, the budget office estimates. Those in the middle include one-person households earning roughly $39,000 to $55,000 and four-person households earning between $77,000 and $110,000.
The lowest earners, who make no more than $25,000 as singles or $50,000 as four-person households, will get only 8% of the benefit of the tax expenditures. What value they do see will come primarily from the Earned Income Tax Credit and, to a lesser extent, the child tax credit.
“…………………..You can see, public construction spending is lower than its been in over 20 years.
“Despite the sequester—huge cutbacks in federal spending that were mandated by law in March—some high-level Federal executives are scheduled to get millions of dollars in bonuses, unless there’s a law to stop them.
According to a report released Fridayby the Senate Subcommittee on Financial and Contracting Oversight, the bonuses must be paid under current Congressional regulations, even with some $85 billion in government funding cuts in effect.
Senator Claire McCaskill, (D-Mo) chairperson of the subcommittee, has introduced legislation to prevent the bonuses from being handed out during the sequester. Senators Tom Coburn (R-OK) and Ron Johnson (R-WIS) are co-sponsors of the legislation.
“”The idea that some of the highest paid federal government employees could be getting bonuses while others are being furloughed is outrageous,” said McCaskill, on her web site. “This legislation will ensure that doesn’t happen.”
The bonuses would go to Senior Executive Service employees who meet certain performance criteria. The group makes up less than one percent of the federal workforce…..”
“Americans’ confidence in the economy has reached a five-year weekly high, according to Gallup’s weekly tracking index.
This week’s reading matched a five-year high set the week ending Feb. 3. It comes just a week after The Conference Board’s April Consumer Confidence survey showed a huge surge to 68.1 from last month’s upwardly-revised 61.9 reading.
The current confidence score in Gallup‘s confidence reading is -8, which was a surge from -13 the previous week. The index has reached as low as -22 this year.
Monthly economic confidence in April also matched a five-year high, coming in at a marked improvement over March’s reading, which was likely low because of the budget sequester….”
“A little known rule change that allows companies to contribute fewer dollars to pension funds is signaling just how meaningless the retirement vehicle has become.
“This proves that pensions are pretty much dead,” said Greg McBride, chief economist at Bankrate.com. “The change is just another charade to mask the underfunding of pensions and increases the odds of having less money for retirement.”
“It’s not necessarily the immediate end of pensions but it’s not good for them and it’s certainly a bad sign,” McBride added.
The pension change was part of a transportation bill—called Moving Ahead for Progress in the 21st Century or MAP-21—passed by Congress last June. The change became mandatory this year.
In essence, MAP-21 lets employers put less money in their pension plans by allowing them to value their liabilities— what they have to pay out to pensioners—using a 25-year average of interest rates instead of current rates.
When interest rates are low, like now, pension plan liabilities are estimated to be higher and companies have to put in more money. When rates are higher, the liabilities are figured to be smaller and employers’ contributions are less. The 25-year average is expected to be at least 2-3 percentage points higher than rates today.
The reduced amount that companies will be putting in has to be figured out by each firm based on the higher rates. But Madison Pension Services, a consulting firm, has reported that some minimum pension contributions in 2012 were reduced by 33 percent.
Employers are not required to offer pension plans, but the government encourages them to do so by offering tax breaks….”
“We’ve made progress on a lot of things since the 1950s and so have CEOs — in their quest for more money that is.
The ratio of CEO-to-worker pay has increased 1,000 percent since 1950, according to data from Bloomberg. Today Fortune 500 CEOs make 204 times regular workers on average, Bloomberg found. The ratio is up from 120-to-1 in 2000, 42-to-1 in 1980 and 20-to-1 in 1950.
“When CEOs switched from asking the question of ‘how much is enough’ to ‘how much can I get,’ investor capital and executive talent started scrapping like hyenas for every morsel,” Roger Martin, dean of the University of Toronto’s Rotman School of Management, told Bloomberg.
The findings come just one day after the S&P 500 soared to a new record, indicating that perhaps the only ones not reaping the benefits from the companies’ historic profitability are workers. Other reports have come to similar conclusions. An analysis from the AFL-CIO, the umbrella organization for many of America’s unions, found earlier this month that CEO pay was 354 times that of the average employee….”
“Even as the U.S. economy began to rebound from the Great Recession, only the highest earning households in America actually felt the difference.
The richest 7% of American households saw their net worth grow by 28% to a whopping $3.2 million during between 2009 to 2011, according to a new study by the Pew Research Center.
In contrast, 93% of households lost money. Average household net worth for this group fell by 4% during the same period, down to about $133,800 per household. …”
“NEW YORK (AP) — A day after flight delays plagued much of the nation, air travel was smoother Tuesday, but the government warned passengers that the situation could change by the hour as thousands of air-traffic controllers are forced to take furloughs because of budget cuts.
Meanwhile, airlines and members of Congress urged the Federal Aviation Administration to find other ways to reduce spending. Airlines are worried about the long-term costs late flights will have on their budgets and on passengers.
“I just can’t imagine this stays in place for an extended period of time. It’s just such terrible policy,”US Airways CEO Doug Parker said. “We can handle it for a little while, but it can’t continue.”
The delays are the most visible effect yet of Congress and the White House’s failure to agree on a long-term deficit-reduction plan.
Transportation Secretary Ray LaHood said no one should be surprised, noting that he warned about the potential for problems two months ago.
His solution: Blame Congress for the larger budget cuts that affected all of government, including a $600 million hit to the Federal Aviation Administration.
“This has nothing to do with politics,” LaHood said. “This is very bad policy that Congress passed, and they should fix it.”
Critics of the FAA insist the agency could reduce its budget in other ways that would not inconvenience travelers….”
“The U.S. economy and the stock market are not the same thing.
The stock market is currently sitting near all-time highs. Meanwhile, the U.S. economy remains anemic with the unemployment rate painfully high.
Generally speaking, the stock market represents large corporations who can borrow cheaply from the bond markets and take advantage of low overseas tax rates.
Yet small business can do neither of those things. They are also America’s most important job creators.
The lead economists of the National Federation of Independent Business (NFIB), which produces the widely-followed small business optimism report, recently gave a presentation at the Richmond Fed’s Credit Market Symposium titled “One Country, Two Economies.”
In it, they lay out the state of small business, which is much weaker than what is being seen in the stock market.
“A couple of updates …
From Goldman Sachs economist Alec Phillips: The Federal Budget Deficit: Shrinking Faster:
The federal deficit continues to shrink. Through the first six months of the fiscal year, revenues have come in higher than expected, while spending has come in lower than expected. As a result we are lowering our deficit forecast for the current and next two fiscal years.
Earlier this year we lowered our FY2013 deficit forecast from $900bn (5.6% of GDP) to $850bn (5.3%). In light of recent trends, we are lowering it again to $775bn (4.8%). Spending in the fiscal year to date is lower than a year ago and the nominal growth rate is lower than it has been in decades. Revenues have also exceeded expectations, with a 12% gain fiscal year to date. What is more notable is that the strength in revenues preceded the payroll tax hike at the start of the year, and the spending decline does not seem to reflect sequestration, which has just started to take effect.
We expect the improvement to continue for the next few years….”
“The premium in America has shifted from truth to self-serving distortion, and from trust to manipulation.
The premium we place on truth and trustworthiness is self-evident. Truth is uniquely productive feedback from the real world. Truth (including factual data) is indispensable, for it alone enables us to correct errors, learn from mistakes and improve our effectiveness and communication.
We pay a premium for trust because the cost of dishonesty and artifice is steep.Would you pay more to buy a used car from someone you trust? If you place no premium on trustworthiness, then you buy the “great deal” used car you found online: oops, the “new” battery was spray-painted black, the crankcase leaks, the engine is shot and doesn’t pass smog, and the certificate of ownership is forged.
The premium on truth and trust is eroding under the constant onslaught of officially manipulated data and markets, and a vast array of distortions and propaganda designed to serve the interests of ruling Elites and key constituencies.
We all know the negative premium placed on fact: telling the truth will get you fired. And not just in the corporate world: politicians from the President on down all worship at the altar of the carefully distorted unemployment rate.
The officially sanctioned lying and manipulation are now shameless. Never mind that millions of people have become statistical phantoms (i.e. not in the workforce) to generate that low rate, and college graduates working 3 hours a day (if they’re called in at all) are gleefully counted as employed, as if there is no difference between a full-time job and a marginal one.
President Obama is touting rising auto sales as proof of the “recovery” (and implicitly, of his wise stewardship), studiously avoiding the fact that these stupendous auto sales are the result of offering low-interest rate auto loans to marginal borrowers with near-zero collateral (i.e. skin in the game).
How did blowing a credit bubble and securitizing the debt turn out last time?
Never mind: here we go again. Via Doug Nolan at Prudent Bear:
Springleaf Finance Corp., the lender to borrowers with poor or limited credit, sold $604 million of bonds last month backed by personal loans secured by household goods from furniture to electronics, its first such deal. Demand for riskier asset-backed bonds has grown as the Federal Reserve holds its benchmark interest rate at almost zero for a fifth year. Sales of securities linked to subprime auto loans doubled to $4 billion in January from a year earlier.
Manipulation and carefully crafted distortion erode trust, not just in the individuals employed to repeat the lies but in the institutions that issue them. The ruthless pursuit of self-interest is now the norm; truth is a terribly risky disruptor that must be hidden, masked or countered with plausible lies.
As a nation, we’re like the obese person who looks at himself in the mirror and sees his body as normal–the distortion of truth is so complete that we literally no longer recognize reality. Untruth no longer arouses any moral indignation; we are either too jaded to care, or our moral compass now spins aimlessly from one manipulation to the next.
There can be no trust if there is no truth. How can we trust people who lie to us constantly, who issue one self-serving justification after another for their own parasitic predation? We cannot. How can we trust institutions whose credibility now rests on the continuation of lies that are so embedded in our financial sector and State that their collapse will bring down the entire house-of-cards debtocracy? We cannot.
The premium in America has shifted from truth to self-serving distortion, and from trust to manipulation. This spiritual and moral rot will end gloriously, have no doubt, for the stock market’s permanent ascendancy dissolves all other narratives. ….”