February 2010 - Global Economic Watch

Asia's Bold Recovery

02-25-2010 3:37 PM with no comments

China and Asia are flexing their economic muscles as they rebound from the recession with much more vigor than the US and, especially, Europe.  Wall Street Journal Economics Editor David Wessel says we need to recognize that Asia is "aiming to pull itself out of the recession by itself," perhaps diminishing the importance of Western consumers in the process:  

Read more from Wessel on Asia's recovery here.  

Posted by Graham Griffith

Service Driven Economic Success: The India Model for Developing Countries

02-25-2010 8:42 AM with no comments

India's leaders are anticipating that their country's economy will be able to maintain is rapid growth in the coming years, according to a new government economic survey.  Whether or not India can indeed boast the "fastest growing economy" by 2014, as the survey predicts, the rapid recovery of India's GDP even as prices lag around the globe remains a story to watch.  China will remain the giant in Asia, but it is interesting to watch the success of India compared to its neighbor.  As China grows on the strength of manufacturing, India's is a service economy.  World Bank economic advisor Ejaz Ghani says India's success is a new model for developing countries, and just might allow them to jump ahead on the traditional path of growth.  Ghani writes, at VoxEu:

The Services Revolution could upset three long-held tenets of economic development. First, services have long been thought to be driven by domestic demand. They could not by themselves drive growth, but instead followed growth. In the classical treatment of services, any attempt to expand the volume of services production beyond the limits of domestic demand would quickly lead to deterioration in the price of services, hence a reduction in profitability, and hence the impulse towards expanded production would be choked off.

Second, services in developing countries were considered to have lower productivity and lower productivity growth than industry. As economies became more service oriented, their growth would slow. For rich countries, with high demand for various services, the slowdown in growth was an acceptable consequence of the higher welfare that could be achieved by a switch towards services. But for developing countries such a trade off was thought to be inappropriate.

Third, services jobs in developing countries were thought of as menial, and for the most part poorly paid, especially for low skilled workers. As such, service jobs could not be an effective pathway out of poverty.

India’s development experience offers hope to late-comers to development in Africa. The marginalisation of Africa during a period when China and other East Asian countries grew rapidly has led some to wonder if late-comers to development like Africa are doomed to failure. Many considered the “bottom billion” to be trapped in poverty (Collier 2007). The process of globalisation in the late 20th century led to a strong divergence of incomes between those who industrialised and broke into global markets and a bottom billion” of people in some 60 countries where incomes stagnated for twenty years. It seemed as if the bottom billion would have to wait their turn for development, until the giant industrialisers like China became rich and uncompetitive in labour-intensive manufacturing.

Read The service revolution in India here.  

Posted by Graham Griffith

Jeff Zucker on the Future of NBC Universal and Business Growth in the Digital Era

02-25-2010 7:56 AM with no comments

NBC did something this month that it hasn't done in a long time--beat out American Idol for viewers.  And nobody is happier that Americans are watching the Winter Olympic Games from Vancouver than Jeff Zucker, president and CEO of NBC Universal.  Zucker spent the last few months talking about his reshuffling of NBC's late night lineup and his network becoming a Comcast property.  So for this month at least he gets to bask in the gold medal glow of Olympic success. But lest we forget the long term challenges of the network, here's an interview from last fall at the Paley Center for Media, when CNBC's Erin Burnett, talked to her boss about the business of running NBC, including the then-pending merger with Comcast.  This is not a hard-hitting interview by any means, but it gives some insight into how Zucker is approaching his company's future.  You can judge for yourself whether he has NBC poised to compete in the digital era (and then get back to watching curling) :

Posted by Graham Griffith

Washington Monthly: 'Monopolization' and Job Creation (or lack thereof)

02-24-2010 1:04 PM with no comments

The decade that just ended has the ignominious distinction of being the first decade in at least 70 years with zero net job growth in the US, according to Barry C. Lynn and Phillip Longman.  In fact, they point out, every other decade since the 1940s saw at least 20% growth in US jobs.  Certainly the timing of the latest recession meant a lot of jobs were lost at the end of the decade.  But Lynn and Longman argue, in a piece in the latest Washington Monthly,  that the problem is more the result of lack of job creation, relative to past decades, and that lack predates the collapse of the real estate bubble. 

The problem of weak job creation certainly can’t be due to increased business taxes and regulation, since both were slashed during the Bush years. Nor can the explanation be insufficient consumer demand; throughout most of the last decade, consumers and the federal government engaged in a consumption binge of world-historical proportions.

Other, more plausible explanations have been floated for why the rate of job creation seems to have fallen. One is that the federal government made too few investments in the 1980s and ’90s in things like basic R&D, so the pipeline of technological innovation on which new jobs depend began to run dry in the 2000s. Another is that a basic shift in competitiveness has taken place—that countries like India, with educated but relatively low-cost workforces, have become more natural homes for jobs-producing sectors like IT.

But while the mystery of what killed the great American jobs machine has yielded no shortage of debatable answers, one of the more compelling potential explanations has been conspicuously absent from the national conversation: monopolization. The word itself feels anachronistic, a relic from the age of the Rockefellers and Carnegies. But the fact that the term has faded from our daily discourse doesn’t mean the thing itself has vanished—in fact, the opposite is true. In nearly every sector of our economy, far fewer firms control far greater shares of their markets than they did a generation ago.

Read Who Broke America's Jobs Machine here.  (Hat tip NYT's Economix Blog)

Posted by Graham Griffith

Fashion During Hard Times

02-24-2010 7:42 AM with no comments

Millard Drexler, CEO of J. Crew, says if you are selling clothes in this economic climate, you first have to decide whether you are selling products as a commodity or as something more--"style, design," for example.  If you are selling a commodity, price will dictate behavior.  Consumer behavior in the fashion market, however, creativity comes into the equation.  Drexler was part of a panel of leaders in the fashion industry who joined Charlie Rose to discuss, among other topics, how designers are responding to the economic downturn.  Here's an excerpt:

You can watch the full interview here.

Posted by Graham Griffith

Rethinking How We Measure Web Audience

02-23-2010 11:16 AM with no comments

Are you watching the Vancouver Winter Olympics on television, or via the Internet?  Odds are, you are still watching on television, but this may be the last Winter Olympic Games that has more viewers on television than online.  At least that is what Paul Venezia, who writes at InfoWorld, expects.  That seems plausible to us.  And it also seems likely that the cost of online advertising will go up in four years.  But it remains uncertain just when and how that will happen.  

Michael Zimbalist, VP of research and development operations for The New York Times, thinks a key step is better measurement systems for Web sites. In a short article at Ad Age, Zimbalist writes:

The web changes at lightning speed, but online advertising remains stuck with the same old metrics we've had since the beginning. "Unique visitors," or 30-day cumulative reach, holds firm as the audience measure. The currency for buying and selling continues to be "ad impressions," which are generally disconnected from any meaningful audience dimensions. Worst of all, the reigning metrics for campaign efficacy are all tied to observable outcomes, as is typified by the dreaded "click-through rate ."

Zimbalist proposes that we adopt a new measurement system for online that mirrors TV's "gross rating points" (GRPs).  Here is his "blueprint,":

Name it. All industry initiatives need a name. Let's call ours the "Werp" (WRP).

Creative unit. TV uses the 30-second spot. Let's start by allowing any of three IAB approved units to count: the medium rectangle, the large rectangle, or the half page.

Time and clutter. TV's use of the 30-second spot solves two problems that have plagued us online. It gives advertisers 100% share of voice, and it (sort of) guarantees an exposure time. Let's propose that for an ad exposure to count towards a WRP, it must be the sole marketing message in focus for a minimum of five seconds.

Calculating WRP's. Works exactly the same as GRPs. Reach frequency.

Audience reporting. Eventually, we'd want to have WRPs by day part. But as a modest beginning, and so as to gracefully transition publishers from the 30-day cumulative measure, let's start with total weekly WRPs at the site level.

Read Measure the Web Like TV and Brand Advertising Will Follow here.  

Posted by Graham Griffith

Fears of More Subprime Risks in FHA Lending

02-23-2010 10:18 AM with no comments

Representative Tom Price (R-GA) is among those criticizing the Federal Housing Administration for "risky mortgage practices."  Price writes, in Investor's Business Daily, that the FHA is "dabbling in the riskiest of loans and heavily leveraged, we sadly expect the FHA's troubles to get worse before they get better."  

Price is not alone.  So with the FHA's practices sparking fear of more loan failures, Marketplace's Paddy Hirsch revisits the dangers of subprime lending in this Whiteboard video:

Subprime from Marketplace on Vimeo.

Posted by Graham Griffith

Graphic: Housing Costs vs. Income, from Visual Economics

02-23-2010 8:50 AM with no comments

We know housing prices have been falling for the last few years after a steady, thirty-year climb.  But Visual Economics puts those prices in perspective, charting them against median income in this visualization:  

Read analysis of the above graphic at Visual Economics, here.  (Hat tip Barry Ritholtz)

Posted by Graham Griffith

Disruptions and Interruptions Define the Workplace

02-22-2010 10:07 AM with no comments

Jason Fried, co-founder of 37Signals, says the workplace is "all about interruptions."  "Disruptions" define the workday, and workers can't ignore them.  As a result, while people may work 60-work weeks, Fried argues they never get 60 hours of work done.  And the biggest problem?  "Managers," Fried says.  So with his company, which designs web-based apps for small businesses, he is betting that companies want to change the workplace environment. He explains their efforts in this interview:

Watch the full interview at Big Think, here.

Posted by Graham Griffith

Dell's Asia Strategy

02-22-2010 7:50 AM with no comments

Dell slipped to third place in the computer-maker race last year, losing global market share as upstart Acer gained with its success in selling low-cost computers.  Business Week's Bruce Einhorn writes that Dell's future depends on how well it does against Taiwan-based Acer in China and India:

Dell's comeback strategy hinges partly on China and India. The company had sales of about $4 billion from China, according to Felice, making China Dell's second-largest market, behind the U.S. Sales grew 81% in China, which now accounts for 7.5% of the total. Last November, Dell launched its first smartphone, the Mini 3, with state-owned China Mobile (941:HK), the largest cellular operator in the country. The company, which also began selling the Mini 3 in Brazil, plans to launch it in the U.S. with AT&T (T) this year. "We are in very early stages" of the smartphone business, Felice said. "But we have had good sales results in China."

In PCs, Dell's improving Chinese sales haven't translated into better market share. According to Felice, Dell got a big boost from the Chinese government's stimulus package, which promoted purchases of computers. "The stimulus has helped," said Felice. "A lot of it was aimed at small businesses," he said. That's a segment of the industry where Dell has traditionally been strong. Dell's market share in China for the fourth quarter of 2009, however, fell to 8.2%, compared with 9.5% in the fourth quarter of 2008. Dell was the only one of the three biggest vendors in China to lose share: Lenovo grew from 30.8% in the fourth quarter of 2008 to 33.4% in the fourth quarter of 2009, according to IDC data; HP went from 10.9% at yearend 2008 to 14.3% in the fourth quarter of last year.

Read Dell Hopes to Catch Acer With Help from China, India here.

Posted by Graham Griffith

Bill Gates Calls on Business Leaders to 'Innovate to Zero'

02-19-2010 9:35 AM with no comments

Bill Gates changed the face of business with his success in leading Microsoft through the global tech revolution of the last few decades.  Now he devotes his time and innovative thinking to fighting global poverty and trying to improve quality of life in developing nations.  So his annual talk at the TED conference tends to focus on how technological innovation can help global development.  This year, he focused on the dangers of climate change for the world's most vulnerable communities.  And he calls for "lots of companies" to work on pushing forward energy technologies, and fast. 

Posted by Graham Griffith

Fed Change in Short-Term Loan Rate

02-19-2010 9:06 AM with no comments

The Federal Reserve announced a bump in the interest rate for short-term loans to banks yesterday, citing "continued improvement in financial market conditions" as the rationale for the move.  From the Fed release:

The increase in the discount rate announced Thursday widens the spread between the primary credit rate and the top of the FOMC's 0 to 1/4 percent target range for the federal funds rate to 1/2 percentage point. The increase in the spread and reduction in maximum maturity will encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve's primary credit facility only as a backup source of funds. The Federal Reserve will assess over time whether further increases in the spread are appropriate in view of experience with the 1/2 percentage point spread.

Global stocks, most notably in Asia, dropped on the news.  The dollar, on the other hand, rose.  It is now valued at $1.35 against the Euro--the highest it has been in nine months. The move signals that the "era of extraordinarily cheap money," as Andrew Ross Sorkin notes on his DealBook blog, is coming to a close.  But beyond that, we are cautioned not to expect major interest rate changes any time soon:

Given the slow and uneven nature of the recovery, an unemployment rate close to 10 percent and fears of a new wave of mortgage defaults, particularly in commercial real estate, few economists expect the Fed to begin a campaign of broader interest rate increases quickly or sharply. The central bank reaffirmed last month that the key short-term interest rate it controls would remain “exceptionally low” for an “extended period,” language it has used since March.

While borrowing by banks from the Fed’s discount window has already fallen to more historically normal levels from its peak in October 2008, many small and medium-size businesses still find it difficult to obtain loans, a major concern of the Obama administration and Congress.

Randall S. Kroszner, an economist at the Booth School of Business at the University of Chicago and a former Fed governor, said after the announcement: “This is a technical change that makes sense as a precondition for other changes, but is not a precursor of short-term change.”

Read Fed Rate Move Rattles Stocks here.

Posted by Graham Griffith

Skype Partnership with Verizon Reveals Growing Strength of VOIP in Global Business

02-18-2010 3:51 PM with no comments

After years of being dismissed or ignored as a potential competitor by phone companies, Skype--a global market leader in Voice of Internet Protocol (VOIP)--is now getting a little respect.  Verizon Wireless and Skype announced a partnership that will allow Verizon customers to use Skype on their mobile phones.  Skype CEO Josh Silverman spoke with Bloomberg's Mike McKee about what this partnership reveals about the success of his company:

Posted by Graham Griffith

Small Business Owners Continue to Struggle for Loans

02-18-2010 9:27 AM with no comments

As CNN Money's Catherine Clifford reports, small business owners are still waiting for a thaw in credit, and big banks do not appear to be moving in the right direction:

Eleven top TARP recipients -- including Wells Fargo, by far the nation's largest lender to small companies -- cut their collective small business loan balance by more than $2.3 billion in December, according to a Treasury report released late Tuesday.

The drop marked the eighth consecutive month of declines for the 11 banks. In that time, their total loan balance has fallen 7%, to $169.4 billion. Seven of the reporting banks have cut their small business loan balance every single month.

Read The lending crunch: 'It is very hard to survive' here.

So it isn't any wonder that optimism among small business owners continues to be low.  The National Federation of Independent Business Optimism Index is now at 89.3.  That's up from last year's low of 81.0 in March, but continues to indicate, as NFIB economists William C. Dunkelberg and Holly Wade write, that "small business owners entered 2010 the same way they left 2009 – depressed.   Here's the Optimism Index trending since 1975:

Read the NFIB report here.  

Posted by Graham Griffith

Christina Romer on Financial Regulation

02-18-2010 1:56 PM with no comments

It remains unclear whether Congress will push through financial regulation reform anytime soon, and what exactly that reform might look like (Reuters outlines key differences between current House and Senate proposals).  Christina Romer, chair of the President's Council of Economics Advisers, spoke with Charlie Rose about some regulatory reform that she thinks would help, and about why she thinks regulatory reform is necessary now.  Here's an excerpt from that interview:

Watch the full interview here.

Some Wall Street bankers are making it clear that they expect tighter regulation will drive up costs for consumers.  Marketplace's Bob Moon reported on JP Morgan Chase's anticipated cost adjustments and how it might affect shareholders and consumers.  Here is his report:

Posted by Graham Griffith