Judging by the latest Intuit Money Matters Town Hall Small Business Survey, many small business owners are not overly confident that recovery is underway, and continue to focus more on ways to cut costs. Take a look at how many small business owners say they are responding to the recession now, compared with two years ago and four months ago:
Take a look at other results from the survey here. (hat tip: Small Business Trends)
Hewlett-Packard is acquiring Palm for $1.2 billion. And Barron's Eric Savitz says H-P is going to have to pay a lot more to make the deal work out. Which begs the question: what is behind this deal? Savitz, the Wall Street Journal's Justin Scheck, and MarketWatch's Dan Gallagher say it has everything to do with H-P not wanting to get any further behind in the mobile market:
Some interesting new data from NetProspex via the influential Aussie social media blogger Jeff Bullas shows Microsoft employees are the most networked employees when it comes to use of social media. The rest of the top ten (from Bullas):
Rank 2: eBay with a score of 208
Rank 3: Amazon.com with 202
Rank 4: Walt Disney 181
Rank 5: Google with 172
Rank 6: Electronic Arts with 164
Rank 7: Intuit scoring 163
Rank 8: Raytheon with 157
Rank 9: Best Buy on 155
Rank 10: Apple with 153
Read Bullas's take here.
The Associated Press and others are reporting that President Obama will nominate three new members of the Federal Reserve Board of Governors later today. Janet Yellen, currently president of the San Francisco Fed, is set to replace Donald Kohn, who is retiring as Vice Chair. MIT economist Peter Diamond and Sarah Raskin, Maryland commissioner for financial regulation, are also expected to be nominated. And lest any of them have any questions about how the Fed works, they could do worse than to watch this Drawing Board primer from the Cleveland Fed:
William Kerr and Ramana Nanda, assistant professors at Harvard Business School, are "all for policy support for entrepreneurs," but the currently favored approach of governments--at the state level primarily--is not effective, they argue. Writing at Forbes, Kerr and Nanda remind us that most successful new businesses start out with 5 or fewer employees. So when policymakers select "hot" new companies to support, and those companies that get attention are frequently large enough to get noticed, they undermine "creative destruction"--"whereby entrepreneurs with new ideas and methods of production displace less efficient incumbents." And targeting sectors, Kerr and Nana argue, is also ineffective:
Every politician loves to announce that their city or state will be home to next biotech cluster. In fact, 49 of 50 states have made such announcements in the US despite the fact that most biotech activity funded by venture capitalists tends to cluster in Boston and San Francisco (Lerner 2009). Public efforts to boost such innovative start-ups tend to be unsuccessful because policymakers find it hard to shut down "experiments" that yield negative information. How many politicians want to announce that the biotech cluster idea did not work?
In short, targeted funding may be effective politically, but it is not effective in spurring real growth in the small business sector, they conclude, and should be dropped in favor of policy that supports improving the overall economy. Read How Governments Should Spur Entrepreneurship here.
As emerging markets rise in global influence, Edward Tse, Booz & Company's Chairman for Greater China, envisions a world where multiple powers will all influence global business rather than one or two "superpowers." He also believes that, because of the way business works in likely powers the U.S., China, Japan, and India, businesses will have to "combine the globalness of companies as well as to become very local." Here is Tse discussing the multi-power future:
You can watch the full interview at Big Think, here.
Photographer, software engineer, and blogger Stephen Von Worley put together this visualization at his Weather Sealed blog:
In short, it reveals a lot about how income tax on those in the highest tax bracket has shifted considerably since World War II--and especially since the Reagan years. It was inspired by this Henry Fetter article piece in The Atlantic in which Fetter argues that the 90% tax rate for top earners in the 1950s and 1960s had a big impact on prize fighting.
Read Von Worley's Net Worth Fighting For here. (hat tip: Catherine Mulbrandon)
McKinsey consultants Marc Goedhart, Rishi Raj, and Abhishek Saxena have a report in the latest McKinsey Quarterly in which they analyze the analysts. And they conclude that the analysts' have a history of optimistic projections that rarely prove true.
Analysts, we found, were typically overoptimistic, slow to revise their forecasts to reflect new economic conditions, and prone to making increasingly inaccurate forecasts when economic growth declined.
Alas, a recently completed update of our work only reinforces this view—despite a series of rules and regulations, dating to the last decade, that were intended to improve the quality of the analysts’ long-term earnings forecasts, restore investor confidence in them, and prevent conflicts of interest. For executives, many of whom go to great lengths to satisfy Wall Street’s expectations in their financial reporting and long-term strategic moves, this is a cautionary tale worth remembering.
Exceptions to the long pattern of excessively optimistic forecasts are rare, as a progression of consensus earnings estimates for the S&P 500 shows (Exhibit 1). Only in years such as 2003 to 2006, when strong economic growth generated actual earnings that caught up with earlier predictions, do forecasts actually hit the mark. This pattern confirms our earlier findings that analysts typically lag behind events in revising their forecasts to reflect new economic conditions. When economic growth accelerates, the size of the forecast error declines; when economic growth slows, it increases. So as economic growth cycles up and down, the actual earnings S&P 500 companies report occasionally coincide with the analysts’ forecasts, as they did, for example, in 1988, from 1994 to 1997, and from 2003 to 2006.
Read Equity Analysts: Still too bullish here.
Harvard Business School professor David Garvin has spent the last two years examining the very nature of business schools, and attempting to identify ways for MBA programs to adapt to changing times. He says that business schools should help students develop in three key areas: knowledge, skills, and a sense of purpose. Since their inception, business schools have been excellent at developing knowledge, but less strong in building up the other two areas, Garvin argues.
In this Harvard Business School video, Garvin discusses his findings and his book, Rethinking the MBA: Business Education at a Crossroads (co-authors Srikant Datar and Patrick Cullen) with Harvard Publishing's Sarah Green:
Four current Goldman Sachs and one former Goldman trader will testify at a Senate hearing tomorrow over SEC charges of fraud. The former Goldman trader, Fabrice Toure, met with congressional investigators over the weekend, the Wall Street Journal reports. Toure is a person of particular interest these days, as the man who created the Abacus 2007-AC1 financial instrument. In short, Abacus allowed Goldman to profit off of the collapse of the housing bubble. For a more comprehensive explanation, here's Paddy Hirsch at the Marketplace Whiteboard:
SEC goes after Goldman from Marketplace on Vimeo.
Nokia and Ericsson have long been leaders in mobile media, but both companies lost their momentum last year and continue to report earnings that fall short of expectations, according to Business Week's Andy Reinhardt. But Reinhardt sees the two "Nordic giants" as heading in different directions at the moment. Nokia, he writes, has a problem with a "perceptual gap" among investors:
Nokia, whose shares have fallen 1.4% this year against a backdrop of generally rising telecom stocks, can’t seem to catch a break these days. Long the leader in mobile handsets, and still hanging on to one-third of the overall market, Nokia has been sent reeling by the success of the Apple iPhone. Sure, Nokia sold 21.5 million “converged mobile devices,” or smartphones and mobile computers, in the first quarter, up 57% from a year earlier. Apple, by comparison, sold just 8.75 million iPhones. But Apple snagged an average of $622 in product and service revenue for each iPhone, whereas Nokia’s devices sold for an average price of $207 (€155). Translation: Apple made 22% more revenue on fewer units—and its profit margins were even more dominant.
It's not as if the Finnish giant hadn't been developing smartphones for years, or hadn't spotted the trend towards mobile services. Indeed, it was ahead of the rest of the industry for many years in both areas. Recall that the original palm-top Communicator with a QWERTY keyboard came out in 1996(!), and Nokia made waves—and annoyed jealous mobile operators—almost a decade ago with its Club Nokia download center for ringtones, screen savers, and other phone enhancements. But Apple, with its snazzy design, great timing, and unparalleled ability to rally software developers, has walked away with the market buzz in state-of-the-art smartphones and downloadable (and revenue-producing) apps.
But, Reinhardt argues, the same iElephant in the room that is causing problems for Nokia is a boost for Ericsson:
Ericsson has bulked up by buying other companies, including some of the assets of failed Canadian telco gear-maker Nortel. It was the addition of those assets, plus a well-timed deal with AT&T, that helped Ericsson lift its North American sales 99% in the first quarter, to $1.3 billion, making the region now its largest in the world.
The proximate reason investors bid up the shares of Ericsson even as they hammered Nokia is, ironically, the same: the iPhone. In his conference call with analysts after the earnings announcement, Ericsson CEO Hans Vestberg pointed to the rapid growth in mobile data services in the U.S.—a phenomenon largely driven by Apple's popular device and the voracious wireless bandwidth consumption of its users. Investors see huge opportunity for Ericsson to sell equipment that serves that growing demand, which in some cities has already lead to network saturation. Credit Suisse figures Ericsson could be 20% undervalued at its current price.
Read Nokia and Ericsson: A Tale of Two Telcos here.
Here's a little something to help you head into the weekend thinking less about the takes you paid earlier this month and more about what really matters. Derek Bok, two time president of Harvard University has been making the rounds talking about happiness. Specifically, he's been discussing his latest book, The Politics of Happiness: What Government Can Learn from the New
Research on Well-Being. He made a stop at the Carnegie Council recently, and he addresses one of the great misconceptions people have about the relationship of money to happiness:
You can watch or listen to Bok's full talk at Carnegie's website. Click here.
The Bureau of Labor Statistics released Producer Price Index data yesterday, and the year over year numbers show a rise in the price of finished goods that we have not seen since September of 2008. The monthly increase during the month of March was 0.7%. The PPI for intermediate goods showed a similar pattern. Here's a look at the finished goods data. First, the monthly percent change, seasonally adjusted:
And the 12-month percent changes (this is not seasonally adjusted):
So does this data mean it is time to consider inflation again? Mark Thoma says no. In his latest Money Watch column, Thoma argues that the "pass through from producer prices to consumer prices is less than 100 percent in any case, and in some cases it is close to zero," and he gives an interesting lesson in why we should look at "core inflation":
First, core inflation is used to forecast future inflation. For example, this recent paper uses a “bivariate integrated moving average … model … that fits the data on inflation very well,” and finds that the long-run trend rate of inflation “is best gauged by focusing solely on prices excluding food and energy prices.” That is, this paper finds that predictions of future inflation based upon core measures are more accurate than predictions based upon total inflation.
Second, we also use the core inflation rate to measure the current underlying trend in the inflation rate. Because the inflation rate we observe contains both permanent and transitory components, the precise long-run inflation rate that consumers face going forward is not observed directly, it must be estimated. When food and energy are removed to obtain a core measure, the idea is to strip away the short-run movements thereby giving a better picture of the core or long-run inflation rate faced by households. (I should note, however that this is not the only or even the best way to extract the trend, and the Fed also looks at other measures of the trend inflation rate that have better statistical properties, e.g. “trimmed mean” measures. Also, the first use of core inflation described above is for forecasting future inflation rates, the second attempts to find today’s trend inflation rate. There is a way to combine the first and second uses into a single conceptual framework, but it seemed more intuitive to keep them separate.)
Let me emphasize one thing. If the question is “what is today’s inflation rate,” the total inflation rate is the best measure. It’s intended to measure the cost of living and there’s no reason at all to strip anything out. It’s only when we ask different questions such as what the inflation rate will be in the future — essential knowledge for policymakers due to lags between the implementation of policy and its effects — that different measures are used.
Third, and this is the function that is ignored most often in discussions of core inflation, but to me it is the most important of the three, it is the inflation target that best stabilizes the economy (i.e. best reduces the variation in output and employment).
Read Thoma's column here.
For the BLS data on producer prices, click here.
New reports from the International Monetary Fund paint a picture of steady global recovery. The latest World Economic Outlook projects 4.2% growth, globally, in 2010. That's abig jump from the 0.3% forecast in January. And the Global Financial Stability Report shows "risks to financial stability have subsided.," (though the report is clear that the global marketplace will continue to feel "short term strains").
Both reports point to many potholes in the road to recovery. IMF Director of Research Olivier Blanchard describes the growth as "weak," and "slow," but "healthy." And as he discusses in this short interview, the speed of recovery will be different from country-to-country:
Read more from Blanchard here.
After a week of almost no flights throughout Europe, thanks to the ash clouds created by a volcano in Iceland with a name few can pronounce, there was a glimmer of hope for those weary business travelers stuck in Paris, or London, or Amsterdam (we can think of worse places to be stuck, trust us) today as airports like London's Heathrow opened up their runways. And Reuters is now reporting that almost all flights will run tomorrow. But the shutdown of air travel in Europe prompts us to wonder whether, in the age of globalization and digital connectivity, business truly depends on air travel and face-to-face meetings. Two economists at the University of Colorado--PhD candidate Nune Hovhannisyan and McGuire Center for International Economics Director Wolfgang Keller--have done a bit of research into that question. And they conclude, as they write at VoxEU, that in-person meetings remain essential, at least in the terms of spurring innovation:
What is the economic importance of international business travel for innovation? The size of our estimates suggests that a 10% increase in business travellers from the U.S. is associated with 1% higher greater patent applications in the US. Take the two Latin American countries Colombia and Honduras, for example. Inventors from Colombia patent more than inventors from Honduras, and consistent with our analysis, there is also a higher number of U.S. business travellers going to Colombia than to Honduras. If, counterfactually, Honduras would receive the same number of U.S. business travellers as Colombia usually does, our estimates suggest that, all else equal, Honduras's patenting would increase by about 4 patents per year. This increase accounts for almost two-thirds of the actual difference in the patenting rates between Colombia and Honduras that we see in the data. We conclude from this that the impact of international business travel is an economically important determinant of a country’s rate of innovation.
Read International business travel and innovation: Face-to-face is crucial here.
Lev Ekster graduated from law school last year and faced a bleak hiring picture for newly minted lawyers. So he made the most of a bad situation. Specifically, he made cupcakes. And he started Cupcakestop.com, a mobile business in New York that delivers baked goods direct to customers. Ekster spoke last week at World Entrepreneurship Day. He talked about his experience starting the company, and the way he relies on social media tools to foster business (video from Fora.tv):
The key to being a successful entrepreneur isn't simply about people buying your product, but about them buying your ideas. And the marketing blog Right Ideas/Bright Ideas has a tip: learn the art of the pitch from Jay Leno (or, for those of us who have trouble watching Leno, learn from Letterman, or even Conan, when he gets back on the air). Some of the basic rules of stand-up comedy apply: "Know the room"; "Rock the house"; "Always leave them laughing"; and, most importantly, "Always bring your A game":
They aren't buying you or your idea. They are buying all the things the idea will do for them. So describe it in the simplest terms. They have to understand it, see the value, personalize the value and appreciate the value. They don't need every detail.
Don't fall in love with your ideas or overestimate the benefits. Test the idea before you get there. Every comic tests her or his material before the big show. Don't fall into, "I came up with the idea all they have to do is make it work." It doesn't matter if your presentation and persuasion skills are in the Guinness Book of World Records a well-tested idea trumps you everytime.
Read Pitch Like Jay Leno - Sell Your Ideas, Messages, Strategic Plans And Corporate Vision here.
Sheena Iyengar took an interesting path to becoming a leading expert on choice. Iyengar has researched how people make decisions as a PhD student at Stanford and as a professor at Columbia Business School, but she says her interest in choice goes back to her childhood. She recently talked with Big Think about her early interest in choice and how it led to her current work:
Iyengar's latest book is The Art of Choosing.
Judging from Pew Research Center poll data on Americans' trust in government, trust often goes up and down in similar patterns to the unemployment rate. Except for some notable moments when they appear to have an inverse relationship (not that the polls show an actual relationship). And we are in one of those moments now:
Click here to use Pew's interactive graph.
Not only do more people lose their jobs during a recession, but the duration of unemployment also always increases, according to Rob Valletta and Katherine Kuang of the San Francisco Fed. The number of Americans unemployed for six months or longer reached an all-time high last year. And Valletta and Kuang have analyzed whether the availability of unemployment insurance has a significant impact on how long people remain unemployed.
For our specific test, we look at the increase in unemployment duration observed as the UI extensions were introduced and renewed in 2008 and 2009. We use the "expected unemployment duration" concept from Valletta (2005), which yields a monthly measure of the typical completed duration of unemployment for an individual who becomes unemployed in a particular month, based on the distribution of individual unemployment spells for the current and prior months. This measure more accurately reflects the overall duration of unemployment spells and changes in duration over time than do the average and median duration series published by the BLS, which are tallied from incomplete spells measured at the time each survey is conducted.
Figure 2Unemployment duration by reason
(through December 2009, three-month moving average)
Note: Authors' calculations from CPS microdata (seasonally adjusted). The solid vertical line indicates the recession start; the dashed lines indicate effective dates for UI extensions (through 12/09).
Figure 2 displays the resulting unemployment duration series for job losers and leavers/entrants from 2005 through the end of 2009. The vertical lines identify the start of the recession and the dates for the initiation and renewal of the extended UI benefits programs. Unemployment duration rose slightly in the early phase of the recession and then increased sharply after extended UI benefits became available, reaching a high of about 35 weeks in mid-2009 before declining back to about 30 weeks by the end of the year. Notably, the increase in expected duration was similar for job losers, the group that is eligible for UI benefits, and leavers and entrants, who are ineligible.
The similar increase in duration for the UI eligible and ineligible groups suggests that extended UI had only a limited impact on unemployment duration. As of the fourth quarter of 2009, the expected duration of unemployment had risen about 18.7 weeks for job losers and about 17.1 weeks for leavers and entrants, using the years 2006-2007 as a baseline. The differential increase of 1.6 weeks for job losers is the presumed impact of extended UI benefits on unemployment duration. It is straightforward to translate this increase in unemployment duration into an effect on the unemployment rate, based on their proportional relationship and adjusted for the share of job losers in overall unemployment, which was about 67% in December 2009. The implied increase in the unemployment rate is quite small, slightly less than 0.4 percentage point, indicating that without UI extensions, the measured unemployment rate would have been 9.6% in December 2009 rather than the observed 10.0%.
Read Extended Unemployment and UI Benefits here.
George Soros says that the field of economics has shifted from away from its scientific base and become more "axiomatic." And, Soros argues, this is a problem as "axioms must resemble reality," and "rational expectations theory does not." Soros made this argument earlier this month at the first conference of the Institute of New Economic Thinking. He called on economists to incorporate historical thinking into their analysis:
I should like to emphasize, however, that it is not enough to study history, we must also learn some lessons from it. We need to abandon rational expectations and the Efficient Market Hypothesis and build our theory of financial markets on the recognition that imperfect understanding – I call it fallibility -- is the human condition. But what is imperfect can be improved, and right now there is plenty of room for improvement – both in rethinking economics and rethinking regulations. I am afraid the current discussions miss the main point: namely that the recent financial crisis was not only a market failure but also a regulatory failure. And what matters now is not so much who regulates, but how. Regulators ought to undertake a course of critical self-examination – Chinese style. But that will be the subject of another panel.
Here is video of Soros's address:
For more information on the INET conference, click here.
Apple will be posting 2nd quarter figures after the close of business tomorrow. The Wall Street Journal reports that analysts are expecting strong numbers, based on a big--"nearly 80%"--increase in sales over last year. Some of that has to do with the iPad, with an estimated 600,000 units sold this month. But iPhone and Mac sales are up as well. One would think that this is reason for Steve Jobs to relax and celebrate. And yet, to hear one former Apple employee describe his former boss, it may be that Jobs all-but-ignores the good news.
Bruce "Tog" Tognazzini was with Apple for the launch of the Mac in 1984. Now with the Nielsen Norman Group, where he consults on "human-computer interaction," and software and computer design, Tognazzini is among those who believes that you can't separate Apple from Steve Jobs. And he points to the iPad as further evidence. The iPad launch follows the same formula as every Jobs-led product launch, but each launch, according to Tognazzini, "seems to get better." And, part of that formula is to focus on the product launch as just the beginning of a long life for the product, and not get caught up in quarterly figures. From AskTOG:
Probably the strongest character trait of Steve Jobs is his absolute
lack of fear. While every other CEO in America, it seems, shakes in his
boots at the very thought of not having a good next quarter, my
experience in knowing Steve Jobs is that, frankly, he could care less
about the next quarter. He’s much more focused on the next five years,
rather than the next 90 days. But even more than that, it is his quest
to change the world, and he’s willing to do whatever it takes to
accomplish that end even if he risks failure in the process.
Every Apple employee, from the CEO on down, knew we were
literally “betting the company” with the Mac. Both the Xerox Star and
Apple Lisa, the first two attempts to commercialize the GUI interface,
were failing in the marketplace, but Steve was so convinced that this
new graphical user interface was the future, that he—and Apple—just flew
ahead, in the full knowledge that he might be steering the plane right
for a mountain.
The Mac has never been the runaway success it could have been
due to a combination of subsequent abysmal marketing and the belief, on
the part of Apple’s management once Steve left, that the Mac interface
was now perfect and complete. (They watched, amused, as Microsoft
crashed and burned, crashed and burned, until Microsoft, more than a
decade later, finally figured out how to copy the Mac and swiftly pulled
ahead in sales and even, in some areas, technology.)
The lessons of the Mac were not lost on Steve, and he pushes
second and third generation products with all the fervor with which he
pushes the first.
Today, Apple is a big enough company that it could absorb a
failure with no danger of collapse, but Steve still bets heavily, and he
doesn’t do so in order to swell the coffers in the next 90 days, but in
the next decade or two.
Read Mac & iPad, History Repeats Itself here.
Members of the Congressional Oversight Panel--tasked by Congress to provide oversight of the Treasury Department's actions in managing the Troubled Assets Relief Program (TARP)--"applaud" what they see as Treasury's improved response to the foreclosure crisis, but say that "even now Treasury’s programs are not keeping pace with the foreclosure crisis." Here's an excerpt from COP's latest monthly report:
Despite Treasury’s efforts, foreclosures have continued at a rapid pace. In total, 2.8 million homeowners received a foreclosure notice in 2009. Each foreclosure has imposed costs not only on borrowers and lenders but also indirectly on neighboring homeowners, cities and towns, and the broader economy. These foreclosures have driven down home prices, trapping even more borrowers in a home that is worth less than what they owe. In fact, nearly one in four homeowners with a mortgage is presently underwater. Although housing prices have begun to stabilize in many regions, home values in several metropolitan areas, such as Las Vegas and Miami, continue to fall sharply.
Treasury’s response continues to lag well behind the pace of the crisis. As of February 2010, only 168,708 homeowners have received final, five-year loan modifications – a small fraction of the 6 million borrowers who are presently 60+ days delinquent on their loans. For every borrower who avoided foreclosure through HAMP last year, another 10 families lost their homes. It now seems clear that Treasury’s programs, even when they are fully operational, will not reach the overwhelming majority of homeowners in trouble. Treasury’s stated goal is for HAMP (Home Affordable Modification Program) to offer loan modifications to 3 to 4 million borrowers, but only some of these offers will result in temporary modifications, and only some of those modifications will convert to final, five-year status. Even among borrowers who receive five-year modifications, some will eventually fall behind on their payments and once again face foreclosure. In the final reckoning, the goal itself seems small in comparison to the magnitude of the problem.
COP Chair Elizabeth Warren introduces the April report in this video:
Read the full report here.
Vicente Fox, former president of Mexico and onetime Coca Cola executive, says that his administration was able to reduce poverty in his country by 35%, even though the economy grew at a rate of "only two and a half percent." He says his administration did so by learning to keep inflation low, and by investing in "human capital." This was important, as he argues in this speech at the Wharton School, in building sustainable growth and investment:
Fox spoke as part of Wharton's Leadership Lecture Series. He also addressed some hot button issues like immigration and drug policy. For more on his talk, read this report from the Daily Pennsylvanian.
The Commerce Department has released data on retail sales for March, and the monthly and yearly trends are positive:
The advance estimates from Commerce show total US retail and food sales at $363.2 billion for the month. That's up 1.6% from February, and up 7.6% from March, 2009. Even self-proclaimed pessimist, and Fed watcher, Tim Duy is upbeat about the data. He writes--in his regular column at Economist's View--that the data "should dispel any lingering concerns that American consumers remain huddled in their basements, clutching a bar of gold with one hand and a loaded shotgun with the other." Read his analysis of this data and the impact it should have on the Fed's outlook here.
And read the Commerce Department's release here.