Posts Tagged ‘recession’

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Group Of 20 Wants The World’s Currencies To Stay Steady

Monday, October 25th, 2010

It doesn’t make sense at first, but sometimes countries actually want their currencies to be worth less. Of course, if everyone tried to do it at the same time, disaster would ensue…

  • The G-20 – a group of financial leaders from 19 nations and the European Union – met this weekend in South Korea to discuss economic policies related to global economic stability.
  • One of the goals of this meeting was to encourage countries to end “competitive devaluation of currencies.” Devaluing your country’s currency makes it cheaper for other countries to buy from you, and more expensive for your citizens to import goods from other countries. This can boost domestic production and export profits. When a country devalues its currency, other countries often do the same so they can remain competitive in the export market.
  • Both China and the U.S. were singled out for recently devaluing their currencies. Though the G-20 hasn’t set up specific regulations and wouldn’t have the power to enforce them if it had, the hope is that public shaming will keep finance ministers around the world in line.

Facts & Figures

  • China is currently taking in 4% more money than it is expending, reflecting a favorable balance of trade.
  • The U.S. is spending 3.2% more money than it is taking in, indicating a trade deficit.
  • As of Monday morning, one euro was worth $1.39, and one dollar was worth 81.31 yen.

Best Quote

“I want the market to value the fact that we were able to forge a certain level of agreement.” –  Yoshiko Noda, Japanese Finance Minister

U.S. Taxpayers Actually Profit From TARP

Friday, October 22nd, 2010

The mere mention of TARP sends many people into grumble-mode, but the emergency measure to bail out large financial institutions has actually turned the government a profit.

  • The Troubled Asset Relief Program traded banks much-needed capital in exchange for partial government ownership.
  • Now that two-thirds of TARP recipients have paid the money back, the government has seen a profit of about 8.2%. That’s more than the return on any U.S. Treasury bond, high-yield savings account, money-market fund, or CD.
  • Despite the return on investment, the public is not happy about TARP. Several politicians have lost primary elections this year because they voted in favor of the program, and authorities say the return rate is misleading because it doesn’t take into account the other costs of the bailouts.

Facts & Figures

  • The government has earned about $25.2 billion so far on $309 billion in TARP investments.
  • The return rate on 30-year Treasury bonds averaged 4.1% during the last two years.
  • Over the same period of time, high-yield savings rates averaged 0.36% – 0.92%.

Best Quote

“From the perspective of the taxpayers getting their money back, TARP has been a great success. But there are other costs as the government made it possible for the banks to pay back TARP. Those costs can turn out to be larger, and their legacy could last longer.” – Todd Petzel, Chief Investment Officer at Offit Capital Advisors LLC

U.S. Companies Buying Stock… In Their Own Companies

Thursday, October 7th, 2010

It’s an easy way to make your shares look better, but is it the kind of long-term investment companies need?

  • Companies these days have a lot of cash on hand. Because of the recession, they’ve been scared to spend too freely and risk losing more money. So they’re doing something kind of unusual: they’re buying back stock they’ve sold to investors.
  • Buying up lots of your own company’s shares makes your stock look better to investors because of a statistic called earnings per share. If you reduce the number of total shares available to the public (by buying them back), you make that number go up.
  • Spending cash on shares means not investing in company infrastructure or workforce. Some people say it’s a bad long-term strategy because it’s based on short-term gains, not long-term growth.

Facts & Figures

  • Firms plan to buy back $273 billion of their own shares this year.
  • According to the Federal Reserve, companies (excluding financial firms) held $1.8 trillion in cash and other short-term assets as of June 2010.
  • Some of the companies buying back large amounts of their own stock include Hewlett-Packard, Pepsico, and The Washington Post Co.

Best Quote

“It’s totally wasted money. It does not do anything long-term for companies.” – William Lazonick, Professor and Director of the Center for Industrial Competitiveness at University of MA at Lowell

The Recession’s Been Over For More Than A Year Now

Monday, September 20th, 2010

Are we late in reporting this, or what?

  • After almost a year of analysis and debate, the National Bureau of Economic Research has announced that the recent recession officially began in December of 2007 and ended in June of 2009.
  • The good news in the report ends there. The NBER doesn’t rule out the possibility of another recession, just indicates that any subsequent recession would be a new one.
  • The Organization for Economic Cooperation and Development also released a report emphasizing that the recovery, especially in the labor market, will take at least three more years. It praised and encouraged the Obama administration’s handling of the economic crisis, and suggested that taxes and interest rates will probably have to be raised to make up for some of the damage done.

Facts & Figures

  • Unemployment probably won’t return to pre-recession levels for another 3 years.
  • Unlike past recessions, this one could result in permanently increased unemployment numbers.
  • Though tax increases are unpopular, the United States has a lower tax rate than many other countries.

Best Quote

“The committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity.” – from the National Bureau of Economic Research’s report

Nonprofits Added Jobs During The Recession

Wednesday, September 8th, 2010

What?? But yes, it’s true…

  • The Johns Hopkins University Center for Civil Society released a study showing that nonprofit job openings actually grew from mid-2007 to mid-2009, while employers in the for-profit sector were shedding jobs left and right.
  • One explanation for this surprising trend is stimulus funding, which pumped more money into public programs in response to the economic crisis. But not every area of the nonprofit world grew equally. Social-service nonprofits did relatively well, but that is likely because the whole social-service sector (including for-profits) did well.
  • There is concern that when stimulus funding runs out, the job situation in the nonprofit sector will reverse.

Facts & Figures

  • Nonprofit jobs in the 21 states studied grew by an average of 2.5% each year
  • In the same time frame, those states lost jobs at a rate of about 3.3% each year
  • Job growth in the nonprofit sector actually grew more between 2007-2009 than it had between 2001-2007

Best Quote

“The service area has been growing, historically, pretty fast, much more so than manufacturing.” – Lester M. Salamon, Director of the Center for Civil Society Studies

Flipping Positions, Dividends Paying Out More Than Bonds

Wednesday, September 8th, 2010

For the first time in 15 years, a usually-small bonus payout is earning investors more money than long-term corporate bonds!

  • Dividend-paying stocks are handing a higher return percentage to investors than corporate bonds issued by the same companies, in part because in the short-term, companies are pretty flush with cash, but nobody knows what the long term holds.
  • The recession drove down the prices of most S&P 500 companies, but at the same time their profits have soared. This means their stock prices are relatively cheap, considering the health of the companies.
  • Bond yields have been low since the start of the recession for many reasons, including the Fed’s rock-bottom interest rate and uncertainty about the future of the economy.

Facts & Figures

  • Interest on 10-year Treasury bonds was 2.42% last month
  • Kraft dividends are up to 3.82% – that’s 0.18% higher than their bonds expiring in 2018

Best Quote

“The economy is slowing down, but productivity has been so great in this country and companies have been able to make good profits,” said Duessel, the Pittsburgh-based equity market strategist at Federated. “Companies that would have cut their dividends already did so. It’s an unusual time where, yes, their profits are good, their cash is good, they can afford to pay more in dividends.” – Linda Duessel, Equity Market Strategist for Federated Investors

Mass Layoffs Fund Raises For Sketchy CEOs

Thursday, September 2nd, 2010

Tough love, or “tough luck – bwahahahaha”?

  • A study by the Institute for Policy Studies, a Washington think tank, shows that in the 50 companies that laid off the most workers around 2009, CEOs tended to make more money than CEOs of other companies.
  • The companies analyzed were diverse in terms of their health in the wake of the recession. Some were doing fine while others were struggling. But all showed the same trend toward higher CEO pay.
  • Most of these companies were actually laying off workers during a time of increased profit. Layoffs are usually a short-term solution that companies use to increase profits and stay afloat.

Facts & Figures

  • CEOs of high-layoff companies were paid an average of 42% more than their peers – about $12 million
  • Of the 50 companies studied, average CEO pay rose by 7% in 2009
  • Average pay for CEOs in the Fortune 500 decreased 11% in the same period

Best Quote

“We are trying to encourage people to think long-term, that there are all kinds of costs to mass layoffs, in terms of morale problems with remaining workers, in terms of when you may have to rehire and train workers if conditions improve. It was more a way to boost their profits in the short terms and line the pockets of their CEOs.” – Sarah Anderson, study author and Global Economy Project Director at Institute for Policy Studies

A City Pawns Its Zoo To Keep The Lights On

Wednesday, August 25th, 2010

Selling off parts of the city may help right now, but is it really a good idea?

  • Facing record budget shortfalls, cities and states across the country have come up with a creative solution: privatize. Privatizing means selling off city properties to private companies – parking lots, buildings, airports, even zoos.
  • Companies pay governments lump sums for these income-generating properties, but the cities lose that future income and end up losing money on the sale. This raises the question of whether it’s better for a city to pay off its debts now or hold onto its assets to secure income for the future.
  • Privatization is not new. America and other nations have been doing it for years. Private companies often have more cash and economic motivation to improve quality and efficiency of public properties like roads and parking lots, but ultimately they only answer to their shareholders – not to the tax-paying populace.

Facts & Figures

  • In 2008, Chicago sold the rights to 36,000 of its metered parking spaces for $1.16 billion.
  • Selling off public assets can cause rating agencies to downgrade government credit ratings.
  • A Pittsburgh deal to lease out its parking system for 50 years for a $300 million lump sum payment is predicted to lose the city $3.5 billion in revenues.

Best Quote

“The investors will make their money back in 20 years and we are stuck for 50 more years making zero dollars.” – Scott Waguespack, an alderman who voted against the 2008 Chicago parking lease

Things Looking Up For Unemployed New Yorkers

Friday, August 20th, 2010

Employers in New York went on a hiring frenzy in July.

  • Several thousand unemployed New Yorkers were hired in July, marking the city’s best job growth since January.
  • The nonprofit sector, performing arts and restaurants were the most notable gainers, while transportation, hospitals and private educational services cut back.
  • Manufacturing jobs are still scarce and apparel manufacturers have shed 6,000 jobs since the recession began.

Facts & Figures

  • New York added about 24,600 jobs in July.
  • New York City’s unemployment rate was 9.4% in July.

Best Quote

“It’s very strong numbers in terms of jobs. Just about every sector performed above their historical averages.” – James Brown, Economist, Labor Department.

Recession Benefits The Employed?

Tuesday, August 17th, 2010

Although the recession has produced a large number of the long-term unemployed, there are, ironically, some benefits for those who have been able to keep their jobs.

  • Though wages usually fall during economic downturns, this recession has seen a growth in salaries.
  • Some regions have been hit harder than others but areas in the central US are relatively unscathed.
  • Although blue collar jobs suffered most at the beginning of the recession, we’re currently seeing a downturn in white collar jobs instead.

Facts & Figures

  • Nearly 45% of unemployed workers today have been unemployed for 27 weeks or more.
  • Since the recession began, real average hourly wages have risen almost 5%.
  • The unemployment rate for college graduates is still only 4.5%, and the disparity between their pay and that of non-graduates has never been greater.
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