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.
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.
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 not...at 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)
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:
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:
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.
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.
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.
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.
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.
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:
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.
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'":
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.
In the latest Harvard Business Review, Daniel 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.
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.
As Congress continues to try to figure out new rules on bank regulation, some investors who lost money in the global economic crisis are fighting the banks themselves. Through the courts.
Marketplace's Paddy Hirsch explains the legal battle over fiduciary responsibility:
Why investors are suing the banks from Marketplace on Vimeo.
As much as it may pain any Red Sox supporter reading this (or writing this), the Yankees are firmly back on top. They are, of course, the defending World Series champions. But now they have also returned to the top of another competition: global brand value for a sport franchise. Forbes magazine now ranks the Yankees ahead of previous leader Manchester United (owned by Steinbrenners' fellow Tampa business family, the Glazers). Merchandise sales are a key reason the Yankees moved up, but the rise of the dollar against the pound didn't hurt:
The Yankees brand is worth $328 million (21% of their $1.6 billion total team value), while we calculate the Man U name to be worth $285 million (16% of their $1.835 billion value). The two teams swapped spots as the Yankees saw a merchandising frenzy thanks to a 27th World Series title and the opening of their new stadium. Gross sales of World Series and Yankees championship-emblazoned products totaled $450 million last year, while the new ballpark spurred 40% growth in sponsorship revenue. Local TV ratings on YES Network(Forbes is a partner in a show on YES) were up 11%, even as most baseball teams saw ratings decline. Also helping push the Yanks to the top was a strengthening U.S. dollar, which gained 17% on the British pound over the 12-month period we reviewed.
Man U might not be knocked off their perch for very long. A new four-year, $130-million shirt sponsorship deal with insurerAON ( AON - news - people ) to begin next season is 50% greater, on average, than their current deal with AIG ( AIG -news - people ). When combined with their pact with apparel giant Nike ( NKE - news - people ), the Red Devils will see an average of $66 million a year from the two sponsors, plus a 50% share of profits on specific Nike merchandise sales. Man U also lays claim to an unmatched global fan base: 333 million followers and 139 million core fans, with more than half coming from Asia.
Read The Most Valuable Team Sports Brands here.
As the global economic crisis hit and grew in severity, NYU Stern Business School professor Nouriel Roubini moved on from his "Dr. Doom" moniker--often used in a pejorative sense pre-2008-- to be seen as something of an economic prophet by many new admirers. So now when he speaks, whether it be on the Greek crisis, or on the US bond market, he has many listeners.
Roubini has a new book out as well--Crisis Economics: A Crash Course in the Future of Finance--and it sums up his thinking on economic crises and how they come about. Roubini spoke about the book, and about how he came to the conclusion that financial meltdown was a coming danger, at Sixth and I Historic Synagogue in Washington, DC. Here's an excerpt:
You can watch the full speech here.
British company Tesco Mobile asked UK customers to rank the most important inventions in history, and Apple has to be pleased to see the iPhone crack the top ten. Here's the top of list, provided by Marketplace:
Striking that the iPhone reaches such a high ranking when mobile phones comes in down the list at 21. See the full list at Marketplace's Website, here.
Harvard Business School professor Robert Eccles is interested in firms that are working on ways to retrofit and restart urban centers. In this excerpt from an interview with Big Think, Eccles discusses a company named Living PlanIT and its "radical business model":
Watch the full interview here.
The German government has made a major market move, and the markets moved in response. Last night, German authorities put a ban on certain types of short selling into effect. From the Financial Times report:
The German action against naked shorting – or selling securities such as shares and bonds that are not owned or borrowed – comes amid heated discussion in Europe of regulatory curbs on speculative trading, which has been widely blamed by politicians for exacerbating the Greek debt crisis.
Bafin, Germany’s financial regulator, said the ban was needed because of the “exceptional volatility” in eurozone bonds and the considerable widening of spreads on credit default swaps. Large-scale short-selling could have “endangered the stability of the entire financial system”, Bafin said.
The ban, which would be effective immediately and last until the end of March next year, would be regularly scrutinised, Bafin said. It would apply to eurozone sovereign bonds and credit default swaps as well as the shares of a group of 10 leading German financial stocks.
After the news, the Euro, already at a four year low against the dollar, dropped again.
Read Germany moves against short sellers here.
Bundle is a relatively new website and tool for understanding household spending habits. It is a great way to compare what families in different cities are paying, on average, for food, shopping, and health care costs. It does not include mortgage and rent. For example, take a look at spending in Austin, TX, where people spend more on average than any other American city:
The other end of the list is Detroit. Take a look:
The data is a few months behind at the moment--it runs through December of last year--but still provides some interesting comparisons. Most people probably understand that spending varies based on geography--but just how widely that spending varies might surprise some.
Check out the list of the top 25 spending cities here. (Hat tip: Kit Tisdale)
After going all of 2008 and 2009 without a single profitable quarter, General Motors has some very good earnings data. One year after filing for bankruptcy, GM posted a first quarter profit of $865 million. Detroit News reporter Robert Snell writes that much of that profit was generated in North American sales, as GM has faced some difficult times in Europe and other overseas markets.
The strong quarter could also mean good news on the jobs front, as production is on the rise. Snell:
The positive financial results released Monday coincided with a dramatic increase in production. GM built 668,000 vehicles from January through March, 80 percent more than a year earlier.
Operating income was $1.2 billion during the first quarter, when GM posted revenue of $31.5 billion, a 40 percent increase. GM also generated $1 billion in free cash flow during the quarter.
GM's last quarterly profit came in the second quarter of 2007, when it earned $891 million.
The company's stint in bankruptcy court last summer helped lower GM's break-even point as the automaker shed brands, factories and slashed thousands of jobs.
One quarter does not a turnaround make. As Wall Street Journal Detroit Bureau Chief Neal Boudette points out, the profit is still well under half of what Ford earned during the quarter. Still, Boudette says this is news is a very positive sign:
As a consultant with Monitor 360, Nils Gilman has spent a lot of time exploring the economic underbelly of globalization. In other words, he is and expert on how black markets operate. Speaking recently at a Long Now Foundation event, Gilman addressed the issue of "deviant globalization." In this excerpt, he discusses how black markets thrive on entrepreneurial thinking, and create a north-south flow of resources and capital. He also points to an interesting trend: states embracing deviant globalization as "an explicit developmental strategy":
You can watch the full event at Fora.tv, here.
Confidence among home builders is up to its highest level since August, 2007, according to the latest Housing Market Index released by the National Association of Hombe Builders and Wells Fargo. Here's a look at the trend, from the NAHB online release:
From the news release:
Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.
Each of the HMI’s three component indexes posted three-point gains in May. The component gauging current sales conditions climbed to 23, its highest level since July of 2007. The component gauging sales expectations in the next six months rose to 28, its highest point since November 2009, and the component gauging traffic of prospective buyers improved to 16, its best showing since September 2009.
The HMI also posted gains in every region in May. The Northeast, which has the smallest survey sample and is therefore subject to greater month-to-month volatility, rose 14 points to 35, its highest point since June of 2007. The Midwest posted a two-point gain to 17, while the South registered a one-point gain to 22, and the West posted a seven-point gain to 20.
Learn more, and track NAHB statistics here.