May 2010 - Global Economic Watch


Global Economic Watch


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Median Unemployment Duration by State

05-31-2010 2:06 AM with no comments

The House of Representatives passed legislation Friday to extend unemployment insurance.  The case now goes before the Senate.  The extension of benefits would seem particularly desired in those states where people tend to stay unemployed for the longest--like Michigan, South Carolina, Florida and Rhode Island.  Here's a look at median unemployment duration by state.  This map is from the Economic Policy Institute.  Click here to use the interactive version.

Posted by Graham Griffith

Mobile Marketing and the iPad

05-31-2010 1:55 AM with no comments

Apple's iPad has made two important steps toward going global.  The hot mobile device of 2010 is now available in the UK and Japan. It is just the latest success for Apple's latest success, and many marketers are bullish on the iPad's potential to deliver new ways for engaging customers.  Gap is one retailer trying hard to get in on the game, having recently released its iPad application.  And to hear Gap VP for global marketing Ivy Ross describe it, you'd think the iPad is the product of marketers' dreams. Marketplace's Steve Henn reported on Gap's efforts, and the iPad's potential as a marketing tool Take a listen here.  

Posted by Graham Griffith

Home Prices Still Down, But Property Taxes Not (Corrected)

05-28-2010 6:00 AM with no comments

Case Shiller Indices data were released this week by Standard and Poor's.  The bad news: National Home Prices Index dropped 3.2% in the first quarter of 2010.  The good news: the picture is much better than it was a year (or two, or three years) ago.  Take a look at the trend:

Now, match that with this interesting chart that Kim Rueben of the Tax Policy Center shared in a recent post online (the chart is from Don Boyd, and this report by the Rockefeller Institute):

Byron Lutz, Raven Malloy and Ĥui Shan gave a report on state and local government tax revenue last week, and they found that while most sources of tax revenue for local and state government have been hit hard by the recession, property taxes have least not yet. 

Read a synthesis of their findings by Kim Rueben here.  

(Correction: The above graph was previously attributed to Lutz, Malloy, and Shan.  It is from the Rockefeller Institute)

Posted by Graham Griffith

Shirky Says Facebook Change Follows Familiar Pattern

05-28-2010 4:02 AM with no comments

One of the biggest business stories this week is also a social media story, and a story of consumer influence.  Following pressure from consumer groups and direct complaints from users, Facebook founder Mark Zuckerberg announced new privacy controls for the world's largest social media site.  Clay Shirky says this week's events follow a pattern for Facebook--"overstepping their bounds, apologizing and scaling back."  But, he points out, the site always wins because the scaling back never goes beyond where they were before they "overstepped their bounds."  So Shirky is not concerned for Facebook:

Posted by Graham Griffith

Raghuram Rajan on 'Fault Lines' and Systemic Risk

05-27-2010 3:46 AM with no comments

In his new book, Fault Lines: How Hidden Fractures Still Threaten the World Economy, University of Chicago economist Raghuram G. Rajan lays out the structural flaws in the US financial sector and government policy that put the nation in danger of economic meltdown.  He does not reject the notion that the behavior of bankers was a significant component, but he argues that there were systemic risks, or "fault lines," and that those risks still exist, as he writes in the introduction to the book:

Although I believe that the basic ideas of the freeenterprise system are sound, the fault lines that precipitated this crisis are indeed systemic. They stem from more than just specific personalities or institutions. A much wider cast of characters shares responsibility for the crisis: it includes domestic politicians, foreign governments, economists like me, and people like you. Furthermore, what enveloped all of us was not some sort of collective hysteria or mania. Somewhat frighteningly, each one of us did what was sensible given the incentives we faced. Despite mounting evidence that things were going wrong, all of us clung to the hope that things would work out fine, for our interests lay in that outcome. Collectively, however, our actions took the world’s economy to the brink of disaster, and they could do so again unless we recognize what went wrong and take the steps needed to correct it.

Rajan spoke recently at the Carnegie Council.  In this excerpt, he discusses regulatory reform and dealing with the 'too big to fail' problem:

Watch the full speech here.  

And read the introduction to Fault Lines here.  

Posted by Graham Griffith

Tim Berry's Divide-By-1,000 Rule

05-27-2010 3:26 AM with no comments

Contractors, managers, business owners share a familiar dilemma with regards to how much their time is worth.  Does it makes sense to take a cheaper flight with connections rather than fly direct?  Tackle a menial, time-sucking task or hire somebody to do it?  Travel across town for a face-to-face meeting or connect from the office?  It all depends on what value you attach to your time.  

Tim Berry, founder and president of Palo Alto Software, says the calculation is actually fairly simple.  He says, as a rough guideline, you should divide your salary by 1,000.  Then that is your estimated cost per hour.  Berry adds that you can get more detailed, but this figure is awfully close, and easy.  

Read Do You Know Your Time-is-Money Rate? at Small Business Trends, here.  

Posted by Graham Griffith

OECD: Growth is Promising, But 'Serious Risks' to Recovery Remain

05-27-2010 2:51 AM with no comments

The latest Economic Outlook from the Organisation of Economic Cooperation and Development (OECD) paints a largely positive picture for global economic conditions--but with a considerable warning.  GDP is rising across the globe, and the OECD is raising its growth projections for 2010 and 2011.  But debt clouds the otherwise sunny picture.  From the OECD press office:

Trade flows are rising again. Strong growth in China and other emerging markets is helping to pull other countries out of recession. But at the same time, the risk of overheating and inflation is growing in emerging markets. A boom-bust scenario cannot be ruled out, requiring a further tightening in countries such as China and India. The knock-on  effect would be slower growth in other regions. Exchange rate flexibility could ease some of the pressure on Chinese monetary policy and provide more scope for addressing domestic inflation, says the OECD. 

Instability in sovereign debt markets poses another serious risk. It has highlighted the need for the euro area to strengthen its institutional and operational architecture. Bolder measures need to be taken to ensure fiscal discipline, says the Outlook.Several countries are already taking early action to enhance the credibility of their fiscal consolidation plans and this is very welcome.

Here's a look at the fiscal balance that has OECD analysts concerned:

And here is OECD Chief Economist, Pier Carlo Paduan discussing the risks to global recovery:

Read more here.  

Posted by Graham Griffith

Nilekani Moves from Corner Office to Ambitious Government Role

05-26-2010 6:53 AM with no comments

Nandan Nilekani, a key leader in the surge of Indian global business clout, has left the company he founded and led as CEO, Infosys, once again.  This time, it is to head up a new venture for India's government.  He will be chairman of the Unique Identification Authority of India.  Bloomberg Business Week describes his role as "de facto chief information officer for India."  And in an interview with Bloomberg, Nilekani said that the process of setting up unique IDs for all Indians is an important step in establishing social welfare programs, and then lifting up the economic health of the whole country:

I'm focusing on some of the soft infrastructure components. If we can give everybody a unique ID number, if you can get people a bank account, a mobile number, this gives them a leg up, a set of tools to meet their aspirations. You can think of this as soft infrastructure. If we are able to implement a good, clean design for creating a national toll network, that has an impact on hard infrastructure: Trucks will move smoother, faster. One of the projects on the financial side is reengineering the way taxes are paid in India. They have all kinds of spin-off benefits.

Read the full interview here.  

Posted by Graham Griffith

McKinsey: Strategies for Lasting Cost Cutting Measures

05-26-2010 4:45 AM with no comments

The recovery may be underway, but that does not mean that companies that instituted cost-cutting measures over the last 2 years are ready to look the other way and just let their expenditures return to pre-recession levels.  They have their work cut out for them, according to McKinsey's Ankur Agrawal, Olivia Nottebohm and Andy West, who argue in the McKinsey Quarterly that most cost-cutting measures have limited lasting power.  They write:

Many executives expect some proportion of the costs cut during the recent recession to return within 12 to 18 months —and prior research found that only 10 percent of cost reduction programs show sustained results three years later.

On either schedule, any programs initiated in the early months of the downturn are already beginning to fail—just as savings would be most useful to finance growth. Sales, general, and administrative (SG&A) costs prove to be particularly intransigent. While manufacturing efficiencies have enabled an average S&P 500 company to reduce the cost of goods sold (COGS) by about 250 basis points over the past decade, SG&A costs have remained at about the same level (Exhibit 1--below).

So to fight the erosion of cost-cutting gains, the authors argue that leading executives need to be involved, but since the most effective cost cutting measures take place at "very small, very practical" levels, companies need to utilize clear benchmarks.  And most important, efforts to reduce costs must be tied to larger strategic initiatives.  Read Five ways CFOs can make cost cuts stick here.  


Posted by Graham Griffith

White House Honors Small Business Owners, Calls on Congress to Pass Small Business Jobs Package

05-26-2010 4:01 AM with no comments

Noting that small business owners are not "just the backbone of this economy," but also "the driving force behind this recovery," President Obama introduced the 2010 Small Business Owners of the year.  The winners:

National Small Business Owner of the Year: Waymon Armstrong, of Florida based Engineering & Computer Simulations Inc. 

First Runner-up: Rebecca Ann Ufkes (pictured second from right), president of UEC Electronics, LLC, of Hanahan, South Carolina.

Second Runner-up: Warner Cruz (pictured third from left), president of J.C. Restoration, Inc., of Rolling Meadows, Illinois.

In the ceremony honoring small business, the President outlined the goals of his administration in aiding small business owners, and called on Congress to pass a Small Business Jobs Package.  Watch the ceremony here:

Posted by Graham Griffith

SBA Administrator Touts Loan Programs' Success in National Small Business Week Keynote

05-25-2010 2:47 AM with no comments

Small Business Administration head Karen Mills kicked off National Small Business Week yesterday in Washington by celebrating some small business success stories from around the country.  And she stressed that, while many business owners are still struggling to find open channels of credit, the SBA has had some success in unfreezing credit lines and getting money to business owners.  Mills:

18 months ago, lending was completely frozen and credit lines were cut. Today, conventional small business lending is still very tight, but the SBA has helped fill the gap in credit.

Specifically, the raised guarantee and lowered fees from the Recovery Act have helped engineer a turnaround in our top two lending programs – 7(a) and 504. We’re back at pre-recession levels.

Altogether, we’ve taken about $680 million in taxpayer dollars… and turned it into more than $27 billion in lending support for about 63,000 Recovery loans. That’s nearly double our weekly loan volume compared to the weeks before it passed.

Mills also shared this slide, to illustrate the turnaround in lending since 2008:

Read Mills's speech here.  

For more on National Small Business Week, click here.  

Posted by Graham Griffith

Gen Y's Buying Power and What Brands Will Do Well With the Next 'Greatest Generation' of Comsumers

05-25-2010 2:12 AM with 1 comment(s)

NYU Stern School of Business professor Scott Galloway points out that there are now more members of Generation Y than there are Baby Boomers.  And as Gen Y members eclipse their parents in number, they also are poised to take their place as the generation with the most spending power.  And Galloway says that means that they will dictate the future of business--especially Gen Y members in China.  In this talk at the L2 Generation Next Forum, Galloway breaks down the key characteristics of Gen Y, and what brand marketers need to know about the "next 'Greatest Generation'":

Posted by Graham Griffith

Wharton Business Plan Competition Sees Big Jump in Entries

05-24-2010 5:07 AM with no comments

Could the number of entries in an annual business plan competition be an economic indicator of some sort?  230 teams entered the Wharton Business Plan Competition this year.  That's up from 162 last year and 145 in 2008, according to Forbes.  The competition is open to all students at the University of Pennsylvania, and $75,000 in prizes is at stake.  Health care was big in this year's competition--five of the seven finalists are business plans that are in or related to the health sector.  You can read about the finalists, and learn the winner, at Forbes.  Click here.  

Posted by Graham Griffith

Harvard Business Review: 'How to Start and Entrepreneurial Revolution'

05-24-2010 2:57 AM with no comments

In the latest Harvard Business ReviewDaniel Isenberg, professor of management practice at Babson College and executive director of the Babson Entrepreneurship Ecosystem Project, lays out a comprehensive list of action items for government that seek economic growth through creating a thriving "entrepreneurial ecosystem."  

Isenberg sets up the opportunity for governments to spark entrepreneurship by taking a trip through Costco, and pointing out the products that come from small countries that he says represent strong business climates:

Rwanda, Chile, Israel, and Iceland all are fertile ground for entrepreneurship—thanks in no small part to the efforts of their governments. Though the companies behind the products on Costco’s shelves were launched by innovative entrepreneurs, those businesses were all aided, either directly or indirectly, by government leaders who helped build environments that nurture and sustain entrepreneurship. These entrepreneurship ecosystems have become a kind of holy grail for governments around the world—in both emerging and developed countries.

Unfortunately, many governments take a misguided approach to building entrepreneurship ecosystems. They pursue some unattainable ideal of an ecosystem and look to economies that are completely unlike theirs for best practices. But increasingly, the most effective practices come from remote corners of the earth, where resources—as well as legal frameworks, transparent governance, and democratic values—may be scarce. In these places entrepreneurship has a completely new face.

For leaders and policymakers that wish to follow these examples, Isenberg provides these rules:

1: Stop Emulating Silicon Valley.

2: Shape the Ecosystem Around Local Conditions.

3: Engage the Private Sector from the Start.

4: Favor the High Potentials.

5: Get a Big Win on the Board.

6: Tackle Cultural Change Head-On.

7: Stress the Roots.

8: Don’t Overengineer Clusters; Help Them Grow Organically.

9: Reform Legal, Bureaucratic, and Regulatory Frameworks.

Read Isenberg's detailed descriptions for these action items in his HBR article, The Big Idea: How to Start an Entrepreneurial Revolution.  Click here.  

Posted by Graham Griffith

Barro and Lee: The Value of Extra Schooling

05-24-2010 2:24 AM with no comments

With graduation season upon us, it is time for the annual conversations about the value of schooling.  Robert Barro--professor of Economics at Harvard--and Jong-Wha Lee--Head of the Asian Development Bank’s Office of Regional Economic Integration (OREI) and Acting Chief Economist--have been studying the economic impact of "educational attainment" for several years.  In a recent column for Vox, they introduce some of their most recent findings.  

The average years of schooling has gone up steadily--from 3.2 years, globally, in 1950, to 5.3 years in 1980, to 7.8 years in 2010, the authors point out.  So what about the rate of return for extra years of schooling?  It appears that geography matters.  

Here's a graph from Barro and Lee that shows the "rates of return to an additional year of schooling, by region":

Barro and Lee:

Our estimates of rates of return for an additional year of schooling range from 5% to 12%. These estimates control for the simultaneous determination of human capital and output by using the 10-year lag of parents‘ education as an instrumental variable for the current level of schooling. These estimates are close to typical Mincerian return estimates found in the labour literature.

Estimates of rates of return to education vary across regions (Figure 2). The estimates for the group of advanced countries, East Asia and the Pacific, and South Asia are the highest at 13.3%. In contrast, the estimated rates of return are only 6.6% in Sub-Saharan Africa and 6.5% in Latin America. 

Read Educational attainment in the world, 1950–2010 here.

Posted by Graham Griffith

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