Opinion

Ben Walsh

First quarter growth goes from lackluster to dismal

Ben Walsh
Jun 26, 2013 16:57 UTC

The newest estimate by the Bureau of Labor Statistics says the US economy grew at an annual rate of 1.8% in the first quarter. Previously, growth was earlier reported to be 2.4%.

There were two main drivers to the downward revision: growth in consumer spending, which fell to 2.6% from 3.4%, and business investment, which fell to 0.4% from 2.2%.

There’s a chance that slower than estimated consumer spending in the first three months of 2013 may have improved in the second quarter (consumer confidence just reached its highest level in five years). Still, the 0.6 percentage point drop in first quarter growth is bad news for the US economy, where, as Sober Look put it, “the consensus seems to be that the US consumer will come to the rescue once again”.

Sober Look points the Econoday chart below and notes that consumer sentiment shot up in May. Today’s revision in consumer spending indicates that sales might not be following sentiment:

Compared to the discrepancy between downward consumer spending revisions and rising current consumer confidence, the 1.8 point drop in the business spending number is more in line with more recent corporate data points. The mood among business managers isn’t as dour as today’s numbers, but it’s much more restrained than consumers’ current optimism. Earlier this month, a survey by the Business Roundtable showed that CEOs expected an essentially unchanged rate of 2.2% economic growth in the second quarter. The report was summarized with this cautionary statement: “Overall, CEOs see the US economy still on a slow road to recovery”.

from Felix Salmon:

Counterparties: Government’s governance problem

Ben Walsh
Jun 12, 2013 22:21 UTC

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The US and UK have a unique sort of corporate governance mess on their hands. Both countries are trying to deal with the complications of owning a multi-billion dollar financial institution, and are having a hard time doing so.

Britain’s problem is RBS, which the government owns 81% of as a result of 2008 bailout that ended up costing $71 billion. In the US, it’s Fannie Mae and Freddie Mac, the mortgage giants that have been under federal conservatorship since 2008.

from Felix Salmon:

Counterparties: Living longer with less

Ben Walsh
Jun 10, 2013 22:31 UTC

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Americans with $1 million in savings may be in for a dispiriting surprise -- they still haven’t saved nearly enough. The problem, reports the NYT’s Jeff Somer, is that bond yields have fallen and life expectancies have risen.

A  65-year old couple with a $1 million nest egg of tax-free municipal bonds that withdraws 4% per year, Somer says, has a 72% chance of running through their retirement savings before they die. The even larger problem is that the millionaire 65-year old couple is far from typical. The median household retirement account balance for Americans aged 55-64 is just $120,000.

from Felix Salmon:

Counterparties: America’s consistently dissatisfying jobs market

Ben Walsh
Jun 7, 2013 21:44 UTC

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America's jobs market seems to have found its boring, dissatisfying comfort zone.

The Labor Department announced today that the US economy added 175,000 thousand jobs in May. (Unemployment ticked up a notch to 7.6%.) Matthew O’Brien writes that this is basically the same thing that’s been happening for the past two and a half years. “There were 175,000 new jobs a month in 2011, 183,000 in 2012, and 189,000 so far in 2013.” Kevin Roose thinks “there's something to be said for this kind of quiet, steady progress”.

from Felix Salmon:

Counterparties: The unbearable lightness of silicon beings

Ben Walsh
Jun 4, 2013 22:04 UTC

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If you build a company on something lighter-than-air, will it inevitably float back to earth? Kara Swisher reported yesterday that Zynga is laying off 520 employees and closing its LA and New York offices. The company’s core business -- selling desktop games for Facebook -- is declining, and the company says it is focusing on the faster-growing but less profitable mobile market. Zynga’s stock is now down 70% since it went public in December 2011.

Two years ago, Zynga was declared the winner of the “great social game Gold Rush”. Better than anyone, it figured how to make money out of the inordinate amount of time wasted on Facebook. It never was, and won’t ever be, a “frighteningly ambitious startup”. Despite being a big financial success, Zynga always had limited ambition.

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