Tag Archives: Economics reporting
Government revives probe into how biz media handled data
by Chris Roush
U.S. law enforcement officials have reversed a decision to wind down an investigation into how news agencies handle the release of economic data to investors, concerned some sensitive information may have leaked into financial markets.
Timothy Ahman of Reuters writes, “The Wall Street Journal reported earlier on Wednesday that Thomson Reuters Corp, the parent of Reuters News, Bloomberg LP and Dow Jones & Co., a unit of News Corp, were among the media companies under investigation.
“The source who spoke to Reuters declined to provide details.
“Reuters and the Wall Street Journal reported in January that law enforcement authorities had conducted an investigation into whether media companies facilitated insider trading by prematurely releasing market-sensitive data, but decided not to bring charges.
“Media organizations are provided sensitive economic data during “lockups” in which they are not supposed to transmit any information until a set embargo time has lifted.
“The Wall Street Journal reported on Wednesday that the FBI had been frustrated the Commodity Futures Trading Commission had not provided data sought by investigators. Citing officials familiar with the probe, it said the CFTC had since agreed to provide trading data and analysis to help the investigation.
“‘We are not aware of a current investigation nor any embargo violations,’ said Ty Trippet, a spokesman for Bloomberg LP. A spokeswoman for Dow Jones, Paul Keve, said the government had not contacted Dow Jones about any criminal investigation. Thomson Reuters spokesman David Girardin declined to comment.”
Read more here.
Covering the budget proposal
by Liz Hester
President Obama unveiled Wednesday his $3.78 trillion budget proposal, which is destined to be picked over and debated. Let’s take a look at the initial coverage of the proposal.
Here’s the story from the Wall Street Journal:
President Barack Obama‘s $3.778 trillion spending proposal for next year incorporates for the first time a number of measures to slow the growth of spending on Social Security, Medicare and other federal benefits, hoping to draw Senate Republicans to the table for negotiations.
The White House has said it would accept many of the benefit changes only if they are part of a broad deficit-reduction package that combines spending cuts with tax increases. But with many Republican lawmakers opposed to any more tax increases, the odds of a large-scale budget deal remain low.
“I will not agree to any deal that seeks to cut the deficit on the backs of middle class families,” Mr. Obama wrote in the budget blueprint released Wednesday. “I am willing to make tough choices that may not be popular within my own party, because there can be no sacred cows for either party.”
These budget decisions loom at a time when the economic recovery remains fragile. The stock market is at record levels and tax receipts are rebounding, but unemployment and the budget deficit remain high.
Mr. Obama’s budget proposal, for the fiscal year that begins Oct. 1, calls for more than $700 billion in new taxes over 10 years, and seeks increased spending on highways and other infrastructure, early-childhood education and mental health programs.
The Bloomberg coverage started with the proposal to raise taxes on the highest earners, appropriate angle for their clients:
President Barack Obama wants to again rely on the top-earning U.S. households for most of the tax increases he’s proposing.
Obama’s budget plan, released today in Washington, would cap tax deductions for top earners, increase the estate tax, eliminate private-equity managers’ ability to receive lightly taxed carried interest and require those earning more than $1 million to pay a minimum tax rate.
In a break from past budgets, Obama wants to reserve most business tax increases to pay for a cut in the corporate tax rate rather than designate the revenue for deficit reduction.
Under Obama’s budget plan, in 2023 the federal government would collect 20 percent of the gross domestic product as revenue, the first time it would hit that mark since 2000.
That’s compared with 16.9 percent this year and 19.1 percent projected for 2023 if Congress does nothing, according to the Congressional Budget Office. Congressional Republicans want to rewrite the U.S. tax code without adjusting overall revenue levels from the CBO projection.
New tax provisions scattered through the budget plan accompany many repeated proposals that Obama has made since 2009.
The New York Times story was the most general, leading off with a bit of information for everyone. Here are some excerpts:
In his fifth annual budget proposal to Congress on Wednesday, President Obama once again has put forward a fiscal mix of investments in infrastructure, education and research with further deficit reduction through tax increases and spending cuts. But for the first time he has included changes to Medicare and Social Security intended to entice Republicans back to the bargaining table.
The main new element of the budget is his proposal, offered previously in private negotiations with Speaker John A. Boehner, for a new cost-of-living formula that would reduce future Social Security benefits. On the spending side, Mr. Obama wants to help states make prekindergarten available universally, paid for by higher taxes on tobacco products.
Mr. Obama incorporated the compromise offers on Social Security and Medicare into his annual budget for the first time — over vehement objections from many Democrats — in part after earlier private discussions with individual Republican senators about what he could do to assure them of his seriousness about reaching a long-term deal to stabilize the national debt.
The 10-year budget plan would cut spending by about $1.2 trillion over that time to replace the indiscriminate across-the-board cuts, known as sequestration, that took effect March 1 when Mr. Obama and Republican leaders failed to agree on alternative deficit-reduction measures.
One of the more interesting sidebars was in the Wall Street Journal and touched on overhauling the tax code. This is an issue that most corporations, small businesses and individuals are keenly interested in seeing resolved, so kudos to WSJ for writing a separate story:
Notably, the budget proposal endorses the idea of overhauling both the individual and business tax systems at the same time, something that Republicans say is necessary to prevent political battles that could kill the effort.
The budget blueprint also effectively declares a truce with Republicans on the president’s longstanding goal of raising income-tax rates on people making more than about $250,000. The fiscal-cliff compromise at the end of 2012 set that level at around $450,000 for couples and the administration budget basically accepts the parameters of that deal, although it proposes revisiting the deal on the estate tax, and raising estate-tax levels starting in 2018.
“The President believes that today’s tax code has become overly complex and inequitable and that we should immediately begin the process of reforming the individual and business tax systems,” says a White House fact sheet accompanying the release.
Lawmakers in both parties are hoping that a tax overhaul will become part of the elusive grand budget bargain that President Barack Obama and lawmakers continue to seek.
Little about a tax overhaul would be simple, and obstacles abound in the budget. Perhaps the biggest stumbling point for Republicans is the administration’s continuing demand for about $600 billion in additional taxes from high-income individuals.
Most of that money would come from the administration’s proposal to reduce the value of tax breaks for couples making more than $250,000, according to the new budget. The affected breaks would include itemized deductions as well as other breaks for workplace health care, retirement-savings contributions and others.
The administration’s proposal would reduce the value of these breaks to 28%. For example, $100,000 in tax deductions would produce a break of $28,000 for a very-high-income household, compared with $39,600 currently based on the top tax rate of 39.6%. That change is projected to raise about $529 billion over a decade.
Let the debate (and the see-saw coverage) begin. It’s likely to be a fierce battle to consensus.
Center for Public Integrity hires two biz journalists
by Chris Roush
The Center for Public Integrity is investing in the coverage of finance with two new hires.
Alison Fitzgerald, a 2009 Polk Award winner, author and longtime Bloomberg economics and enterprise reporter, will oversee the Center’s financial coverage as well as much of its state money-in-politics work. She is joined by Dan Wagner, who comes to the Center from the Associated Press’ Washington bureau, where he specialized in financial regulation.
Both Fitzgerald and Wagner will start, appropriately enough, on tax day, April 15.
Fitzgerald’s career highlights include writing the 2011 book “In Too Deep: BP and the Drilling Race that Took it Down.” Her reporting has appeared in the New York Times and International Herald Tribune, among other publications. Prior to joining Bloomberg in 2000, Alison worked as a reporter, and then international editor, for the Associated Press. She also has worked as a reporter at the Philadelphia Inquirer and Palm Beach Post in Florida.
Fitzgerald is a graduate of Georgetown University and earned a master’s degree from Northwestern University. Given her fluency in French and Italian, it’s perhaps appropriate that the long list of reporting awards she’s won includes a 2008 Overseas Press Club honor. Her coverage of secretive political donors won her a 2011 National Press Foundation Everett Dirksen Award for distinguished reporting of Congress.
Wagner has worked at the Associated Press since 2008, where is most recent work focused on financial regulation reporting, particularly the banking industry’s relationship with official Washington. Among his many scoops and deep dives are stories on former Treasury Secretary Timothy Geithner’s close Wall Street contacts, government subsidies to abusive mortgage companies, lavish spending by bailed-out bankers.
Before joining the Associated Press, Wagner worked for two years at Newsday, where he won a National Headliner Award for uncovering risky lending by American Home Mortgage — a practice that helped lead to the company’s demise. Wagner, a graduate of Harvard University, has also worked stints at the Boston Globe and National Public Radio.
Read more here.
Housing begins to rebound
by Liz Hester
Good news for homeowners who have made it through the last several years and were able to hang onto their homes. Prices are going up, giving them more equity for the first time in years.
Here’s the story from Bloomberg:
More American homeowners will be able to use their properties as cash machines again after real estate equity jumped last year by the most in 65 years.
Property owners recaptured $1.6 trillion as home values climbed to the highest levels since 2007. The amount by which the value of the houses exceeds their underlying mortgages rose to $8.2 trillion last year, a gain of 25 percent, according to Federal Reserve data.
An expanding group of homeowners is able to get cash from their properties as banks show more willingness to make home equity loans with the market’s recovery. Originations for the mortgages should rise 10 percent to almost $83 billion this year, from about $75 billion in 2012, said Shaun Richardson, a vice president at Icon Advisory Group, a mortgage analytics firm in Greensboro, North Carolina. About 6 percent of lenders eased equity-mortgage standards at the end of 2012, the most in 18 months, according to the Fed.
“Lenders are starting to come back into the marketplace,” said Greg McBride, a senior financial analyst at Bankrate Inc. “We’re not going back to the wild, Wild West we saw during the real estate boom, but we are going to see more people spending their equity.”
Americans went on a spending spree in the five years before the 2006 peak of the real estate market, tapping about $800 billion of their rising equity to spend on everything from cars and televisions to debt consolidation and college tuition.
At the beginning of the financial crisis in 2008, close to $1 trillion of the loans were outstanding at U.S. banks and credit unions, an all-time high, according to the Fed. In the housing crash that followed, banks wrote off, or declared worthless, about $251 billion of home equity loans, according to the Federal Deposit Insurance Corp.
The year-old real estate recovery is helping to ease defaults. The volume of equity loans 90 days or more overdue dropped 25 percent in the fourth quarter to $3.2 billion from the prior period, according to the FDIC. As a result, banks are beginning to view equity lending as a potential source of income, rather than losses, said Stuart Feldstein, president of SMR Research Corp., a consumer-lending research firm in Hackettstown, New Jersey.
But while banks may be poised to return to an abandoned source of revenue – home equity loans – there’s another potential fee stream that may go away.
According to the Wall Street Journal, regulators are being to look at regulating “forced” home insurance policies and the banks that charge the fees:
A U.S. housing regulator is cracking down on a little-known practice that has hit millions of struggling borrowers with high-price homeowners’ insurance policies arranged by banks that benefit from the costly coverage.
The Federal Housing Finance Agency, which regulates mortgage giants Fannie Mae and Freddie Mac, plans to file a notice Tuesday to ban lucrative fees and commissions paid by insurers to banks on so-called force-placed insurance.
Such “forced” policies are imposed on homeowners whose standard property coverage lapses, typically because the borrower stops making payments. Critics say the fee system has given banks a financial incentive to arrange more expensive homeowners’ policies than necessary.
Banning the fees and commissions could help lower the price of the insurance policies. The housing agency’s move would apply nationwide to all mortgages guaranteed or owned by Fannie and Freddie—about half of the housing market.
Forced policies have boomed in the wake of the housing bust, as many homeowners struggled to keep up with mortgage payments. Some borrowers may try to save money by dropping the original standard coverage, only to be hit by policies with premiums that are typically at least twice as expensive as voluntary insurance, and sometimes cost as much as 10 times more. Nearly six million such policies have been written since 2009, insurance industry data indicate. Consumers are free at any point to replace a force-placed policy with one of their own choosing.
Property insurance generally is required to secure a mortgage and protects not only the homeowner’s investment but also the lender’s.
Regulators say some consumers don’t read warning letters that they will be subject to potentially more-expensive coverage if they don’t restore their original coverage or line up some other homeowners’ policy.
They only realize months into the new arrangement that the amount they are being billed is much higher than they previously paid for coverage.
Rising home prices might be good not only for consumers, but also for the banks that may have another revenue stream. On the other hand, increased regulatory scrutiny could take away another source of income. It seems right to get rid of products that don’t help consumers and return to products that do.
Yet another European crisis
by Liz Hester
Just when you thought it was safe to stop worrying about Europe and move onto other concerns, Cyprus decides to go and remind everyone that the world economy isn’t as robust as we all might wish.
Here’s the story from the New York Times:
Leaders in Cyprus and Brussels and elsewhere in Europe scrambled Monday to contain the fallout from the euro zone’s decision over the weekend to force ordinary bank depositors to share the pain of an international bailout.
Much of the day was given over to cross-border finger pointing and a public reluctance for anyone to take responsibility — some might say blame — for a decision that some analysts worry could cause a run on banks in Cyprus, and possibly in Italy and other troubled euro zone countries. Cyprus, whose banking system is on the verge of collapse, is now the fifth nation among the 17 members of the euro to seek financial assistance since the crisis broke out three years ago.
Members of the Eurogroup, the club of euro zone finance ministers, which finished a bailout plan for Cyprus in the wee hours of Saturday, were holding a conference call Monday evening to talk things through once more. Germany was widely thought to have taken a hard line against Cypriot depositors because of the large volumes of money stashed there by rich Russians. But the German finance minister, Wolfgang Schäuble, was quoted by Reuters on Monday as denying that Germany had pressed for smaller depositors to be taxed as well.
As announced on Saturday, depositors in Cypriot banks with balances of more than €100,000, or $129,500, would have to pay a one-time tax of 9.9 percent on their holdings. Those with balances below that threshold would pay 6.75 percent.
Early in the day Monday, large banks in the Netherlands, Spain and France led stock market declines across Europe. By the end of trading in Europe, most indexes had regained much of the lost ground. And there seemed to be scant carryover effect to U.S. markets — though the euro was down almost 1 percent against the dollar at 1.2957.
The Cypriot president, Nicos Anastasiades, was trying to compel policy makers in Brussels to soften the terms of the deal, saying European Union leaders used “blackmail” to get him to agree to penalize depositors in order to receive a bailout package worth €10 billion.
The Wall Street Journal offered more specific details about the crisis and quest for a deal:
Cyprus on Monday put off for another day a debate on a bank-deposit levy in the Parliament—a precondition to receiving a €10 billion ($13.07 billion) bailout—and said its banks would remain closed until Thursday, as the government sought more time to shore up support for the tax and raced to avert a collapse of its banking sector.
Cyprus Parliament speaker Yiannakis Omirou said Monday that the debate and vote would be pushed back to Tuesday—now two days behind schedule—amid fears of a meltdown in the island’s financial system.
“The parliament will convene at 6 p.m. [Tuesday],” Mr. Omirou told reporters. “The reason is because there now exist amendments to the government legislation that is to be submitted. Consequently, it requires the necessary time in parliament, in the finance committee, to examine these new proposals.”
As negotiations in Nicosia entered a third day, the government was focusing on a new proposal that will aim to raise €5.8 billion for Cyprus’s crisis-hit banks—the same amount already set as a requirement for Cyprus’s bailout—but which would lower the tax on smaller deposits.
According to two European officials familiar with the talks, the new proposal being floated by the government would see smaller depositors, those with up to €100,000, taxed at a 3% rate—down from 6.75% as initially envisaged. Savers with €100,000 to €500,000 would be taxed at a 10% rate; and those with over €500,000 taxed at 15%, one official said.
Global markets weren’t happy with the news, according to the Washington Post:
The situation in Cyprus is a potent reminder of how the political economy of the euro zone remains volatile. Though many analysts feel the worst of Europe’s crisis has past, the prospect of a nation being forced from the currency union remains a possibility and carries an uncertain set of risks.
The United States has little direct exposure to Cyprus. A statement from the U.S. Treasury Department said officials were watching the situation closely and urged “that Cyprus and its Euro area partners work to resolve the situation in a way that is responsible and fair and ensures financial stability.”
World markets dropped modestly Monday and the euro fell against the dollar, but analysts said the real costs may come later if depositors in struggling countries such as Spain and Italy question whether their money is safe in their banks.
Bank depositors have been spared in the euro zone’s other bailouts, though other classes of asset holders and investors have suffered officially sanctioned losses — including owners of Greek government bonds, and bank stockholders in Ireland and Spain. Outside the euro zone, foreign depositors were wiped out in Iceland’s 2008 banking crash.
Jacob Funk Kirkegaard, an analyst at the Peterson Institute for International Economics, noted that Cyprus, the IMF and other international creditors had few options. The country’s banking problems are so deep that the Cypriot government could not afford the loans needed to fix them. And within Cyprus’s banks, deposits are the only pool of money large enough to raise the $7.5 billion international lenders want Cyprus to contribute to a roughly $20 billion total bailout.
Hopefully the government and finance ministers will be able to avert yet another disaster, but how many more will the world be able to dodge?
Retail sales jump, but by how much?
by Liz Hester
The fact that retail sales were up 1.1 percent made headlines in the major business papers and web sites.
But the placement of the so-called core number, the one most watched by economists and other market analysts, in various stories is something to note.
The New York Times put the core number in the fourth paragraph and spent several focusing on it near the top of the story:
Retail sales in the United States rose more than expected in February, suggesting that consumer spending this quarter will hold up despite higher taxes.
The Commerce Department said on Wednesday that retail sales increased 1.1 percent last month, the largest rise since September, after a revised 0.2 percent gain in January.
Economists polled by Reuters had expected retail sales, which account for about 30 percent of consumer spending, to rise 0.5 percent last month after a previously reported 0.1 percent gain in January.
So-called core sales, which strip out automobiles, gasoline and building materials and correspond most closely with the consumer spending component of gross domestic product, rose 0.4 percent after advancing 0.3 percent in January.
The rise in core sales was the latest suggestion of momentum in the economy even as fiscal policy tightened, marked by the end of a 2 percent payroll tax cut and an increase in tax rates for wealthy Americans in January.
The gains in core sales in the first two months of the year offered hope that consumer spending, which accounts for about 70 percent of the American economy, might not be slowing much this quarter after growing at a 2.1 percent annual rate over the last three months of 2012.
The first mention of core sales in the Wall Street Journal story was in the seventh paragraph and didn’t last long:
Retail sales excluding gasoline, automobiles and building materials—a figure watched closely by economists who use it as a truer gauge of consumer behavior—was up 0.36% in February, the Commerce Department said.
“The combination of higher gasoline prices and higher payroll taxes limited household purchasing power at the start of (the first quarter),” economists with UBS Investment Research said earlier this week. “That said, a strengthening labor market, rising tax refunds and a more confident consumer should provide important support to the consumer later in the quarter.
Wednesday’s report showed spending dropped 1% at department stores and 0.7% at restaurants. Building material sales remained elevated, rising 1.1%, although that could be because of rebuilding efforts in the aftermath of superstorm Sandy.
While the top of the Reuters story was positive, it still put the core sales number in the fifth paragraph, again giving it a bit more significance:
Retail sales expanded at their fastest clip in five months in February, the latest sign of momentum for an economy facing headwinds from higher taxes and pricier gasoline.
The solid sales last month comes on the heels of strong gains in employment and manufacturing. But the improvement in the economic picture is likely insufficient to shift the Federal Reserve from its very accommodative monetary policy stance.
“The economy in February is looking solid. None of this, however, is likely to cause the Fed to change tack in the near term,” said John Ryding, chief economist at RDQ Economics in New York.
Retail sales increased 1.1 percent, the largest rise since September, after a revised 0.2 percent gain in January. That was well above economists’ forecasts for a 0.5 percent advance.
So-called core sales, which strip out automobiles, gasoline and building materials and correspond most closely with the consumer spending component of gross domestic product, rose 0.4 percent after increasing 0.3 percent in January.
The upbeat report helped to lift to the dollar to a seven-month high against a basket of currencies. Prices for U.S. government debt fell and stocks on Wall Street slipped after a recent rally.
It’s interesting to see the difference in the treatment of the number that seems to be the most watched by traders and economists. It just shows that it pays to read beyond the first couple of paragraphs to make sure that you’re getting the full story.
Jobs still top of mind
by Liz Hester
Jobs and the reports tracking them seem to still be tops of mind for business publications these days. I realize that we just talked about this last week, but there were several interesting coverage during the weekend.
From the New York Times, which just a few days before ran a front page story saying companies still weren’t hiring, was this piece:
Wall Street is hopeful that American companies, after years of gaining ground at the expense of their employees, will start to succeed because of the rising fortune of those workers.
Less than a week since the Dow Jones industrial average hit its all-time high, the broader Standard & Poor’s 500-stock index is on track to surpass its own 2007 high. The reason, in no small part, is because of investor confidence in the growing economic strength of American households.
This is a shift from the last few years, when stocks and corporate profits soared primarily because of cost-cutting and increased productivity from a shrinking or slow-growing work force. The Federal Reserve’s stimulus programs helped corporate America, but they did little to help improve the lives of most American workers, whose wages declined while unemployment remained stuck at high levels.
A surprisingly good employment report on Friday was the strongest of a number of recent indicators that the benefits of the Fed’s program are now starting to trickle down to ordinary Americans, who should, in turn, push up sales at American companies. In addition to brisk job growth in recent months, the February employment report gave some of the first evidence of a sustained upturn in wages, and showed that it was spread across many industries.
The improving job market could falter, particularly if cutbacks in government spending mandated by the so-called sequester take a substantial bite out of economic growth. But even a more modest upturn comes not a moment too soon for American companies.
Growth in corporate profits has slowed in recent quarters as the earlier gains from productivity and cost-cutting reached their limits. Many strategists are now seeing signs that the slowdown in expense reduction — the so-called bottom line — is being made up for by top-line growth in revenues from reviving American consumers.
Employers are adding to payrolls, despite what the Times said last week, according to the Wall Street Journal:
Employers stepped on the accelerator last month, hiring briskly enough to bolster the recovery but likely not enough to prompt the Federal Reserve to turn off its easy-money spigot.
The U.S. added 236,000 jobs in February, notching gains in almost every corner of the private sector. February’s gains were well above the 195,000-job-a-month average of the previous three months and pushed the jobless rate to a four-year-low of 7.7%.
Surging stock prices, mending housing and labor markets and a booming energy sector are among the tailwinds propelling the economy. U.S. stock markets rose following the report, with the Dow Jones Industrial Average ending at its fourth consecutive record close, finishing the week up 2.2% at 14397.07.
“The overall 236,000 number is nice, but the breadth of jobs growth across industries tells me that the recovery is broadening and likely gaining momentum,” said Mark Vitner, senior economist at Wells Fargo Securities LLC. “The mix of jobs is also changing. We’re creating higher-paying ones.”
Although February showed promising momentum, the Fed isn’t expected to put the brakes on its easy-money programs until it sees further, sustained gains.
Recent benchmarks, including measures of gross domestic product and manufacturing, reflect a recovery that is moving forward but at risk of losing pace as its main engine—consumer spending—is strained by higher taxes and gas prices. The recession in Europe and weakness in other U.S. export markets also pose threats, as do possible shocks from Washington’s budget wrangling.
Despite the headwinds, a growing number of businesses are pressing ahead with expansion.
But according to Jon Hilsenrath of the Wall Street Journal, the good news wasn’t enough for the Federal Reserve:
When Federal Reserve officials next meet later this month, they no doubt will welcome recent job-market improvements, but they also will want to see more.
Top Fed officials have made clear that the labor market’s health is their primary worry right now, and it is the main factor in determining how long they will continue their controversial bond-buying program, which is aimed at spurring more spending and investment. The central bank has said it wants to see “substantial progress” in the job market before pulling back, which likely would require several more encouraging employment reports like Friday’s.
“To me, there is still a ways to go,” Charles Evans, president of the Federal Reserve Bank of Chicago, said in an interview with The Wall Street Journal.
Recent comments made by top Fed officials suggest they are unlikely to shift from their plan to keep short-term interest rates pinned near zero and to purchase $85 billion per month of Treasury and mortgage-backed securities to lower long-term rates.
Much of the research coming out of the Fed in recent months has found notable benefits from bond buying in the form of lower long-term interest rates, which help drive spending and investment, particularly in interest-sensitive sectors like housing. However, internal and outside critics worry the programs could fuel inflation or market instability.
It seems that no one knows what to make of the jobs reports and what it means for the broader economy. Tune in for Tuesday’s analysis. It’s likely to be different.
Mixed message on jobs
by Liz Hester
A well-watched jobs report was better than expected Wednesday, but the anecdotal news for those looking for work wasn’t so good.
First, let’s look at the ADP report from this Wall Street Journal story:
Private businesses added new employees in February at a faster pace than economists expected, according to a tally of private-sector hiring released Wednesday.
Private-sector jobs in the U.S. increased by 198,000 last month, according to a national employment report calculated by payroll processor Automatic Data Processing Inc. and forecasting firm Moody’s Analytics.
Economists surveyed by Dow Jones Newswires expected ADP to report a smaller gain of 175,000 private jobs. The January job gain was revised up to 215,000 from 192,000 reported a month ago.
The ADP report comes out two days ahead of the Bureau of Labor Statistics’ employment situation report. The BLS report counts private and government payroll slots. The median forecast of economists expects February payrolls increased 160,000. Although the ADP report beats expectations, the increase may not be big enough to cause many economists to change their forecasts significantly.
According to ADP, companies employing between one and 49 workers increased jobs by 77,000 in February. Midsize businesses with payrolls of 50 to 499 workers hired 65,000 new employees. Large firms, businesses with 500 or more employees, added 57,000 positions.
Service-sector jobs increased by 164,000 in February, and factory jobs rose by 9,000.
But the news isn’t all good news for many in the market for employment. According to a New York Times story, companies are reluctant to fill positions and are calling job candidates back for more rounds of interviews than in previous years.
American employers have a variety of job vacancies, piles of cash and countless well-qualified candidates. But despite a slowly improving economy, many companies remain reluctant to actually hire, stringing job applicants along for weeks or months before they make a decision.
If they ever do.
The number of job openings has increased to levels not seen since the height of the financial crisis, but vacancies are staying unfilled much longer than they used to — an average of 23 business days today compared to a low of 15 in mid-2009, according to a new measure of Labor Department data by the economists Steven J. Davis, Jason Faberman and John Haltiwanger.
Some have attributed the more extended process to a mismatch between the requirements of the 4 million jobs available and the skills held by many of the 12 million unemployed. That’s probably true in a few high-skilled fields, like nursing or biotech, but for a large majority of positions where candidates are plentiful, the bigger problem seems to be a sort of hiring paralysis.
“There’s a fear that the economy is going to go down again, so the message you get from C.F.O.’s is to be careful about hiring someone,” said John Sullivan, a management professor at San Francisco State University who runs a human resources consulting business. “There’s this great fear of making a mistake, of wasting money in a tight economy.”
As a result, employers are bringing in large numbers of candidates for interview after interview after interview. Data from Glassdoor.com, a site that collects information on hiring at different companies, shows that the average duration of the interview process at major companies like Starbucks, General Mills and Southwest Airlines has roughly doubled since 2010.
“After they call you back after the sixth interview, there’s a part of you that wants to say, ‘That’s it, I’m not going back,’ ” said Paul Sullivan, 43, an exasperated but cheerful video editor in Washington. “But then you think, hey, maybe seven is my lucky number. And besides, if I don’t go, they’ll just eliminate me if something else comes up because they’ll think I have an attitude problem.”
The Times story doesn’t do anything to resolve the conflict between the anecdotal reporting and the actual figures released. The story was extremely well reported with a variety of “real people” examples, which every reporter knows can be more than challenging to find. I commend Catherine Rampell for her diligent work, but there should have been some mention of the latest job numbers.
I would like to know why companies seem to be dragging their feet on putting people in jobs, but employment continues to rise. I’m sure there is some explanation and I hope a diligent reporter will follow through on finding it.
Student loans: Only investors seem to want them
by Liz Hester
Nearly everyone I know has student loan debt. Those who don’t are lucky and already paid it off. I can maybe name the people on one hand who have not owed money for the privilege of earning a degree.
It seems that now investors are also more willing than ever to get in on the act. The Wall Street Journal had this story on Monday:
Student loans are souring at a growing rate—and investors can’t seem to get enough.
SLM Corp., the largest U.S. student lender, last week sold $1.1 billion of securities backed by private student loans. Demand for the riskiest bunch—those that will lose money first if the loans go bad—was 15 times greater than the supply, people familiar with the deal said.
Meanwhile, SecondMarket Holdings Inc., a New York-based trading platform best known for private stock shares, said it would roll out on Monday a platform to allow lenders to issue student-loan securities directly to investors.
“The catalyst for this new suite of services is investor demand,” said Barry Silbert, founder and chief executive of SecondMarket.
But while investors are piling into student loans, borrowers are falling behind on their payments at a faster clip. According to a Thursday report by the Federal Reserve Bank of New York, 31% of people paying back student loans were at least 90 days late at the end of the fourth quarter, up from 24% in the fourth quarter of 2008. The figures include federal student loans and those issued by private lenders.
Investors’ hunger for risky loans shows the lengths they are willing to go to generate returns in a period when interest rates are hovering near record lows.
So now investors can cut out the middle man – the bankers – and put their money into the student loan market directly. As Businessweek points out, the opportunities are growing:
that 35 percent of those of us under age 30 simply won’t—or can’t—make their loan payments anymore, according to a new report from the Federal Reserve Bank of New York.
Since 2004, educational debt has nearly tripled, to $966 billion, surpassing credit-card debt, auto loans, and home equity lines of credit to take second place behind mortgage debt, with a total balance moving steadily toward $1 trillion. Even through the recession, student debt showed no signs of stopping.
“Student loan debt is the only kind of household debt that continued to rise during the Great Recession and has now the second-largest balance after mortgage debt,” write Donghoon Lee, an economist at the New York Fed, according to Bloomberg News. “With delinquent student debt, mortgage origination is very difficult. The mortgage origination gap across the size of student debt has declined between 2005 and 2012.”
Much has been written about the deferred purchasing as people pay off loans. But with investors demanding more of the private debt, will that push lenders to offer more loans? One thing is for sure, the government sequester is going to hurt those looking for federal funding, according to ABC News.
While Republicans and Democrats fight over how to deal with the automatic budget cuts that start tomorrow, the sequester will almost certainly mean cuts to programs for college students.
That includes cuts to some federal work-study programs and reductions in payments to millions of student loan borrowers, although the exact detail and timeline remain unclear.
During the White House briefing Wednesday, Secretary of Education Arne Duncan warned of the dire effects sequestration could have on federal higher education funding.
“That ($86 million cut) would mean for the fall as many as 70,000 students would lose access to grants and to work-study opportunities,” Duncan said during the briefing. “And if young people lose access to grants and lose access to work study, my fear … is many of them would not be able to enroll in college, would not be able to go back. And, again, do we want a less-educated workforce?”
Though funding for federal Pell Grants are protected from sequestration, funding for federal work study grants would be cut by $49 million and supplemental educational opportunity grants by $37 million, according to the Department of Education.
That’s a lot more people turning to the private sector, making the timing of the SecondMarket offering perfect for investors.
WSJ names new economics reporter
by Chris Roush
Timothy Aeppel, the economics bureau chief for The Wall Street Journal, sent out the following staff announcement on Monday afternoon:
We’re pleased to announce Brenda Cronin is joining the New York economics bureau, where she’ll write about all aspects of the U.S. and global economy and keep tabs on academic economics. She already has deep roots in economics, having spent the last two years on the national news desk editing our daily economics coverage, including extras, vital signs and the Capital and Outlook columns.
Before that, she edited global economics on the Journal’s international desk. Brenda previously served as a national news editor for wsj.com and Washington news editor for the Journal. Brenda’s a graduate of Georgetown University and writes fiction in her spare time—she has a novel coming out later this year.
Before joining the Journal in 2001, she worked for Knight Ridder in Washington, where she established the Knight Ridder and Tribune Co. Business News Service, and was executive producer of the KRT broadcast news wire.
