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.

from Felix Salmon:

Counterparties: Bits of laundry

Ben Walsh
May 29, 2013 21:21 UTC

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Even criminals need financial intermediaries. Yesterday federal prosecutors shut down Liberty Reserve, a currency exchange and payment processor, and indicted seven people connected to the company. The indictment called the company a “financial hub of the cybercrime world... including credit card fraud, identity theft, investment fraud, computer hacking, child pornography, and narcotics trafficking”, and alleges it laundered $6 billion via 55 million illegal transactions for one million users over the last seven years.

The Tico Times has a detailed article on the history of the Costa Rica-based business, not to mention “flashy cars, lavish gifts, multiple identities and armed Russian henchmen”.

from Felix Salmon:

Counterparties: Europe’s longest recession

Ben Walsh
May 15, 2013 22:37 UTC

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Europe is in the midst of its longest recession since it began keeping records in 1995 -- even surpassing the calamity that hit the region in the financial crisis of 2008-2009. While the German economy grew 0.1% from the fourth quarter of 2012 to the first quarter of this year, just about everyone else in the eurozone is shrinking.

France’s economy shrank 0.2% quarter on quarter, and is now officially back in recession after just one quarter of positive growth. It’s not alone: Cyprus, Finland, Italy, Greece, the Netherlands, Portugal, and Spain are all in recession right now. And while the UK managed to just barely avoid a triple-dip recession by growing 0.3% in the first quarter, its economy is still 2.6% smaller than it was 5 years ago.

from Felix Salmon:

Counterparites: Split personalities

Ben Walsh
May 6, 2013 22:11 UTC

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Institutional Shareholder Services’ message is clear: no one man should have all that power.

More specifically, ISS has declared Jamie Dimon shouldn’t be JP Morgan’s chairman and CEO. The firm, which advises shareholders on corporate voting, is also recommending that its clients not support the reelection of three of the bank's directors. Each of those directors -- David Cote, James Crown and Ellen Futter -- sits on the bank’s risk committee. The proposal to split the roles of chairman and CEO is non-binding; the re-election of board members is binding. It’s unclear whether either measure will pass.

from Felix Salmon:

Counterparties: Masters of overcharging

Ben Walsh
May 3, 2013 21:25 UTC

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JP Morgan may be going back to banking basics. Instead of losing billions in arcane, illiquid credit instruments, the bank’s latest scandal is a classic: overcharging unwitting customers.

Jessica Silver-Greenberg and Ben Protess report that JP Morgan is in some very hot water with the Federal Energy Regulatory Commission (FERC). According to an agency memo, the bank turned “money-losing power plants into powerful profit centers”.

Growth after the financial crisis

Ben Walsh
Apr 25, 2013 23:35 UTC

It’s easy to blame the UK’s weak post-crisis economy, which just barely avoided a triple-dip recession, on its large financial sector.

This chart, however, shows that austerity measures play a bigger role than the size of the financial sector when it comes to depressing post-crisis growth. Post financial crisis GDP growth is on the x-axis, and financial sector assets as a percentage of GDP is on the y-axis:

The Swiss economy is more highly financialized than the UK’s, and has had strong post-crisis growth. Meanwhile, Spain, with a much smaller financial sector, implemented austerity measures along with the UK and has also seen its economy shrink considerably.

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