Forget precious metals. Precious medals is where it's at. Or medallions. Taxi cab medallions, to be specific. In New York, a couple of taxi medallions recently sold for $1 million. Each. This presented an interesting question for the Planet Money team: what makes these medallions so valuable? Scarcity? The promise of long returns? And are they a good investment?
In the most recent Planet Money podcast, David Kestenbaum and Robert Smith discuss the taxicab industry, and "why economists hate it." Take a listen:
There were fewer layoffs in November than in October, but the total number of layoffs in 2011 has now surpassed 2010, with one month still to go. James O'Toole reports for CNNMoney:
Outplacement consulting firm Challenger, Gray & Christmas said 42,474 planned layoffs were announced in November, down 0.7% from October's total. That's the second straight drop after September's 28-month high of 115,730.
But job cuts announced this year are up 13% overall and now total 564,297 -- already more than 2010's full-year total of 529,973 -- and we still have to get through December.
Government and retail jobs, as well as those in the financial sector, have taken the biggest hit so far this year, the report showed. The government has announced cuts of more than 180,000 jobs this year, while retail has lost more than 48,000 and financial services 56,000.
Read the full article here.
Note: the Challenger report is for layoffs specifically. We'll be looking ahead to the
Labor Department's monthly employment report for overall jobs numbers this Friday.
Bloomberg's Kartik Goyal reports that India's economy grew 6.9% in the third quarter of 2011. While that number looks great from the US, it is the lowest level of growth since the second quarter of 2009. Inflation and exposure to Europe's economic woes are leading causes for the lower expansion rate, but India is certainly not alone feeling the effects of global slowdown. Goyal writes:
While India’s growth is still the fastest after China among major economies, expansion in BRIC nations is starting to falter as demand from Europe wanes. China’s economy grew 9.1 percent in the third quarter from a year earlier, the least since 2009.
Manufacturing in India grew 2.7 percent in the three months through September from a year earlier, slower than the 7.2 percent gain in the previous quarter, today’s report showed. Mining fell 2.9 percent, farm output rose 3.2 percent and construction grew 4.3 percent.
Investment by companies and the government declined 0.6 percent in the three months ended Sept. 30 from a year earlier after a 7.9 percent gain in the previous three months, according to the report.
“The slippage in investment that we are seeing doesn’t jeopardize the medium-to-long term story at all,” Kaushik Basu, chief economic adviser in India’s finance ministry, told reporters in New Delhi today. He expects India’s economy to expand about 7.5 percent in the year ending March 31.
Read India’s Economy Expands Least Since 2009 as Fastest BRIC Inflation Bites here.
US home prices are now back to where they were in the first quarter of 2003, according to the latest S&P/Case-Shiller Home Price Indices release. Here's a look at the long term trend:
From the release:
“Home prices drifted lower in September and the third quarter,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “The National Index was down 3.9% versus the third quarter of 2010 and up only 0.1% from the previous quarter. Three cities posted new index lows in September 2011 - Atlanta, Las Vegas and Phoenix. Seventeen of the 20 cities and both Composites were down for the month. Over the last year home prices in most cities drifted lower. The plunging collapse of prices seen in 2007-2009 seems to be behind us. Any chance for a sustained recovery will probably need a stronger economy.
“Detroit and Washington DC posted positive annual rates of change and also saw an improvement in these rates compared to August. Only New York, Portland and Washington DC posted positive monthly returns versus August. It is a bit disturbing that we saw three cities post new crisis lows. For the prior three or four months, only Las Vegas was weakening each month. Now Atlanta and Phoenix have fallen to new lows too. On a monthly basis, Atlanta actually posted a record low rate of -5.9% in September over August. The markets are fairly thin, and the relative lack of closed transactions might be exacerbating the downside. The relative good news is that 14 cities saw improvements in their annual rates of change, versus the six that weakened.”
Is "not as negative as it could have been" the new positive for housing reports? If so, this is a positive report. Read the full release here.
Good news for those of us caught in the middle. Daniel Altman says today's economy rewards middlemen. In this Big Think interview, Altman explains why middlemen are so important, and what it takes to be a successful connector in the global economy:
Watch the full interview with Altman here.
As developed nations in Europe and the US have struggled to keep from slipping into recession, Brazil's economy has, for the most part, continued to gain strength. One sign of growth in Brazil is the increasing number of wealthy Brazilians. At Forbes, Ivan Castano reports that Brazil's population of millionaires is now growing at a rate of 19 per day:
Individuals with a net worth ranging from $539,000 – $2.7 million ($1m-$5m reais) make up the bulk of the new millionaires, [Guilhermo] Morales said, adding that most private banks tend to individuals whose net worth falls below $5.4 million ($10m reais).“I think that this trend will continue for the next three years but I don’t see it lasting forever. After all, there is a limit to everything,” Morales noted.Brazil’s economy has been growing at an annual average of 5% in recent years and is predicted to maintain that pace in the medium term. However, some economists have warned that the country’s economy could overheat as inflation rises to unsustainable levels.The 19-millionaires-a-day statistic was measured by taking all of an individual’s wealth into account, including investments, property, savings and other assets in addition to cash. Some in the private banking conference said the statistic seemed a bit overhyped but Emerson Pieri, Head of Wealth Management, Latin America, at Haliwell Bank (which unveiled the millionaire statistics as part of a Brazilian wealth management study) insisted they are reliable.
Read Brazil's Booming Economy Is Creating 19 'Millionaires' Every Day here.
Roger McNamee has been a leading investor in science and technology for thirty years. Lately, he has been telling people we are on the verge of a new tech cycle--one that will change the way that we interact with technology, with businesses, and with each other. And while he can't put his finger on exactly what is happening, he has six "hypotheses" that he says we should be watching and testing. McNamee discussed these hypotheses in a talk at TEDxSantaCruz:
For the better part of thirty years, commodity prices kept going down. But that trend was reversed, in a big way, after 2000. Here's a look at McKinsey Global Institute's commodity price index trend:
Will this trend continue, subjecting us to higher and higher prices in the near future? McKinsey Global Institute analysts Richard Dobbs, Jeremy Oppenheim, and Fraser Thompson warn that prices will be volatile over the next two decades:
Demand for energy, food, metals, and water should rise inexorably as three billion new middle-class consumers emerge in the next two decades.1 The global car fleet, for example, is expected almost to double, to 1.7 billion, by 2030. In India, we expect calorie intake per person to rise by 20 percent during that period, while per capita meat consumption in China could increase by 60 percent, to 80 kilograms (176 pounds) a year. Demand for urban infrastructure also will soar. China, for example, could annually add floor space totaling 2.5 times the entire residential and commercial square footage of the city of Chicago, while India could add floor space equal to another Chicago every year.
Such dramatic growth in demand for commodities actually isn’t unusual. Similar factors were at play throughout the 20th century as the planet’s population tripled and demand for various resources jumped anywhere from 600 to 2,000 percent. Had supply remained constant, commodity prices would have soared. Yet dramatic improvements in exploration, extraction, and cultivation techniques kept supply ahead of ever-increasing global needs, cutting the real price of an equally weighted index of key commodities by almost half. This ability to access progressively cheaper resources underpinned a 20-fold expansion of the world economy.
Read A new era for commodities here.
It is of utmost importance to China's leaders that China be recognized as a market economy. As a market economy, China would be treated differently when it comes to global trade law. But while the nation's leaders appear to believe that admission as a member of the WTO in 2001 triggered a 15 year countdown to market economy status, Bernard O'Connor says "idea that there is a deadline is an urban myth that seems to have gone global." Writing at Vox, O'Connor says China must earn market economy status by satisfying very specific criteria:
As Karel De Gucht, the current EU commissioner for trade, recently stated, whether China is or is not a market economy is a technical question under EU law. The EU assesses the existence of a market environment using five criteria set out in the EU antidumping regulation. Such conditions can be summarised in the following questions:
Does the government influence the operative decisions of firms or are they made in response to market signals?
Does the legacy of the command economy, in terms of public ownership, barter trade and so on, affect firms' operations?
Do firms have effective accounting standards?
Do firms operate under an effective framework of bankruptcy regulation and property-rights protection?
Do firms convert currency at standard market rates?
Does China as a whole meet these criteria? This is an open question. Both the US Department of Commerce and the EU Commission have found, during the course of investigations into companies in antidumping investigations that firms in China do not comply with international accounting standards, and in anti-subsidy investigations, that many market sectors operate within the framework of the five-year plans which encourage some sectors and discourage others. For example, companies in the encouraged sectors receive funding from state-owned banks without any regard to the risks which such funding might incur. In addition, many countries have questioned whether China allows its currency to float. Brazil has raised this issue in the WTO referring to the concept of monetary dumping.
On the basis of analysis carried out in the US and in the EU it is unlikely that China would be considered a market economy according to the normal standards applicable in EU law. And Article 15 of the China WTO accession protocol requires that the evaluation be carried out on the basis of the law of the importing WTO member.
Read Market-economy status for China is not automatic here.
Many retail businesses are doing everything they can to get customers to like them today and walk through their doors (real and virtual) to make holiday purchases. Many businesses are taking a customer friendly approach. But few are truly "customer centric," according to Wharton's Peter Fader. In his new book, Customer Centricity, Fader argues that top companies need to recognize that being customer centric means using the data available to make distinctions between customers and focusing your outreach on some more than others. He explains his thinking in this Knowledge@Wharton interview:
It may be time for us to reconsider what we mean by "rational decisions." At Project Syndicate, Robert Shiller celebrates the growing influence of neuroscience on economic studies. Shiller says we are "at the dawn of 'neuroeconomics,'" wherein we are just beginning to gain valuable insights into how people make decisions.
Another direction that excites neuroscientists is how the brain deals with ambiguous situations, when probabilities are not known, and when other highly relevant information is not available. It has already been discovered that the brain regions used to deal with problems when probabilities are clear are different from those used when probabilities are unknown. This research might help us to understand how people handle uncertainty and risk in, say, financial markets at a time of crisis.John Maynard Keynes thought that most economic decision-making occurs in ambiguous situations in which probabilities are not known. He concluded that much of our business cycle is driven by fluctuations in “animal spirits,” something in the mind – and not understood by economists.Of course, the problem with economics is that there are often as many interpretations of any crisis as there are economists. An economy is a remarkably complex structure, and fathoming it depends on understanding its laws, regulations, business practices and customs, and balance sheets, among many other details.Yet it is likely that one day we will know much more about how economies work – or fail to work – by understanding better the physical structures that underlie brain functioning. Those structures – networks of neurons that communicate with each other via axons and dendrites – underlie the familiar analogy of the brain to a computer – networks of transistors that communicate with each other via electric wires. The economy is the next analogy: a network of people who communicate with each other via electronic and other connections.
Read The Neuroeconomics Revolution here.
Here's a new interactive map from Colin Dobrin at Credit Sesame. It provides a state-by-state view of one lingering aspect of the housing crisis: homes on which the owners owe more than the property is worth.
Click here to use the map.
Economic activity edged up ever so slightly in October. The Chicago Fed's National Activity Index remains below 0, but it went from -0.20 in September to -0.13 in October. Here's a look at the National Activity Index trend (note: this charts the three-month moving average, as opposed to monthly index levels):
Some of the key factors in the index for October:
Production-related indicators made a contribution of +0.15 to the index in October, up from –0.05 in September. Industrial production rose 0.7 percent in October after ticking down 0.1 percent in the previous month. Manufacturing production rose 0.5 percent in October after increasing 0.3 percent in September. Additionally, manufacturing capacity utilization increased to 75.4 percent in October from 75.1 percent in the previous month.
The employment-related indicators’ contribution to the index in October was +0.03, down from +0.14 in September. Payroll em- ployment edged up 80,000 in October after increasing 158,000 in the previous month. In contrast, the unemployment rate edged down from 9.1 percent in September to 9.0 percent in October. The sales, orders, and inventories category contributed +0.01 to the index in October, up slightly from –0.01 in September.
The contribution from the consumption and housing category to the index decreased to –0.32 in October from –0.28 in September. Housing starts edged down to 628,000 annualized units in October from 630,000 in September. Conversely, housing permits increased to 653,000 annualized units from 589,000 over the same period.
Read the release here.
In an interview with the Wall Street Journal's Alan Murray, Peter Thiel--founder of PayPal, Clarium Capital, and the Thiel Foundation--shares the key questions he asks when considering whether to fund a startup. The one that jumps out at us: "Why will the 20th person join your company?"
Watch more of the interview here.
At Vox, Philip Hans Franses--professor of applied econometrics at the Erasmus School of Economics--and Heleen Mees--researcher at Erasmus School of Economics--take a look at money illusion in China. And they find that Chinese consumers are signficantly less prone to money illusion--making decisions based on the nominal value of a good as opposed to the real value--than American consumers.
Our results show that considerations of happiness, morale, and job satisfaction are intimately related with each other, in contrast to economic considerations. The default decision-making framework for respondents in China appears to be dominated by economic considerations, while the default decision-making framework for respondents in the US appears to be dominated by considerations of happiness, morale and/or job satisfaction. This may well reflect the difference in affluence between respondents in the US and China, with the former having already conquered the top layers of Maslow's pyramid of needs while (many of) the latter find themselves still scrambling at the bottom (Maslow 1943). It also suggests that affluent societies are more prone to money illusion and, hence, more susceptible to irrational exuberance (Akerlof and Shiller 2009).
It is important to note that there are two distinct reasons why respondents in China are less prone to money illusion than respondents in the US.
First, when asked specifically to judge a transaction on economic terms, respondents in China are more likely to correctly choose the transaction with the highest real monetary value.
Second, if no guidance is given on whether to judge a transaction on economic terms or terms of wellbeing, respondents in China are more likely to adopt a decision-making framework that is dominated by economic considerations.
In other words, Chinese people are more likely to correctly choose the transaction with the highest real monetary value instead of the transaction with the highest nominal monetary value.
Read Are Chinese individuals prone to money illusion? here.
Sean Parker helped lead Napster and Facebook into the world. So he is a big believer in supporting new ventures. Indeed, as managing partner of VC firm Founders Fund, he continues to encourage and support entrepreneurs in the digital and tech sectors. But he is concerned that there may be a little too much encouragement going on. Parker sat down for an interview with CNet's Paul Sloan while attending Techonomy 2011. And he shared his concerns for Silicon Valley, where he says a lot of investors are exhibiting behavior that is not sustainable in the current economic climate:
There was a huge inefficiency in the market six or eight years ago, where there wasn't enough early stage capital. It was that opportunity that allowed Founders Fund, my venture fund, to enter the market to fill that void because angels had become very skittish and started to believe they could never get their money out.
Now we've seen this explosion in angel investing. There are lots of angels coming out of Google and Facebook investing very rapidly and wanting to be players. I think that's some of the motivation--wanting to be players, to stay close to the game and wanting to have a seat at the table.
And they're making tons of investments often in companies that aren't fully baked--either the team isn't fully baked or the product isn't fully baked or there's no conceivable revenue model.
Read the full interview here.
In A Great Leap Forward, Alexander Field looks at the Great Depression as an important learning moment for the US. An economist at Santa Clara University and and executive director of the Economic History Association, Field points to the 1930s as an unparalleled period of technological advancement in the US. And it was technological advancement, he argues, that brought about a remarkable growth in output by the early 1940s. Field discusses the 1930s in this interview with The Economist:
While we're watching to for signs of whether the economy will grow more quickly or slide back into recession, Forbes contributor Joe McKendrick suggests we watch new technology platforms for signs of recovery. And he says the new platforms "tilt the scales" in favor of entrepreneurs (and consumers) for the following reasons:
1) Technology platforms offer new recruiting and employment tools.
2) Technology platforms offer entrepreneurial resources
3) Technology platforms offer access to capital
4) Technology platforms offer economic boosts for distressed communities or regions
5) Technology platforms offer access to new innovation
Read Five Ways Cloud, Social and Mobile Technologies are Lifting Our Economy here.
Nearly 60 percent of Americans live in the state in which they were born. And they are staying put more than they have in decades. According to a new US Census Bureau report, migration in the US between 2010 and 2011 was the lowest for any year since the bureau started collecting statistics on migration back in 1948:
Read the report here.
(Hat tip, Catherine Rampall, NYT)
Speaking yesterday at the Brookings Institution, Small Business Administrator Karen Mills once again argued that the big challenge for small businesses is getting access to capital. Mills pointed to positive signs for small business growth, but without banks lending to smaller institutions in many communities, there is a gap between supply and demand. One answer may be fostering more private/public partnerships:
Watch more excerpts from Mills's appearance yesterday here.
The Consumer Price Index for All Urban Consumers reversed course slightly in October. After climbing 3.5% (seasonally adjusted) over the last year, the CPI decreased 0.1%. The key factor was energy costs. From the Bureau of Labor Statistics release:
A decline in the energy index more than offset small increases in the indexes for food and all items less food and energy to create the all items decline. The energy index turned down in October after increasing in each of the three previous months as the gasoline and household energy indexes declined after a series of seasonally adjusted increases. The food index rose in October, but posted its smallest increase of the year as the fruits and vegetables index declined sharply.
The index for all items less food and energy increased 0.1 percent in October; this was the same increase as last month and matches its smallest increase of the year. While the shelter and medical care indexes accelerated in October and the apparel index turned up, the indexes for new vehicles, used cars and trucks, airline fare, and recreation all declined.
Here's a look at the CPI for All Urban Consumers over the last year:
The OECD's composite
leading indicators (CLIs) "point more strongly to slowdowns in all major economies" than they were last month. Here is a look at the composite CLIs for September:
Anything below that 100 marker points to economic activity below the
long term trend. And most OECD countries are below the line now. The US, Russia and Japan remain holdouts, but Japan and US are still trending downward toward the 100 marker. The indicators for Germany might be the most disappointing, and underscores the struggles in Europe:
See the specific CLIs for OECD countries here.
The expansion of the mobile marketplace over the last decade has brought companies access to exponentially more data than they previously had on consumer behaviors and desires. Too much data, as it turns out. Collecting meaningful data has become a major challenge. The old tools simply may not work. In a new paper, George Day, Co-Director of the Mack Center for Technological Innovation and Professor of Marketing at the Wharton School, says there is a dangerous gap between the potential value of all the data and the capacity of companies to adequately analyze that data:
The hypothesis that organizations are not keeping pace with market velocity and complexity is more difficult to test. Suggestive evidence comes from several sources. The first is the vast literature on information overload, which describes how an excess of information has resulted in the loss of the ability to make decisions, process information, and prioritize tasks (Eppler and Mengis 2004; Klingberg 2009; Meyer 1998). The second is the equally large literature on organizational adaptation in the face of environmental change (ranging from Miles and Snow  to Hamel ).
Still, there is no longitudinal measure of the size of the gap. Some evidence comes from recent estimates that the amount of data available expanded at an exponential rate from 100 billion gigabytes in 2005 to 1000 billion gigabytes in 2010 (IDC 2007). This suggests an even greater rate of growth than Davenport and Harris’s (2007) claim that unique information per person is growing at 50% per year. In contrast, they estimate that information consumption per person is only growing at 2% a year. Taken together, a reasonable case can be made that the deluge of data has run up against the barrier of the limited ability of people and organizations to process it. The evidence sug- gests that the volume of inbound data and the proliferation of channels is going to continue for the foreseeable future. Absent any breakthroughs in human beings’ ability to process data, unless new tools and approaches are adopted, the gap will continue to grow.
There are other reasons to suggest that the gap is growing and that new approaches are needed to begin closing it. During periods of technological disruption, most organiza- tions have trouble keeping pace. This is true of the effect of the Internet and cheap, ubiquitous communication technologies on the habits and behaviors of consumers and the creation of new business models for reaching these markets. The tendencies toward inertia and sclerotic decision making are fed by lag effects and organizational rigidities.
Read the full paper here.
And watch Day and colleague David Reibstein discuss the "data deluge" problem in this Knowledge@Wharton interview:
Adrian Peralta-Alva, Senior Economist at the St. Louis Fed, gives us two charts that highlight the impact of the housing boom and bust on employment and GDP across 31 nations:
The chart on the left shows the direct effect of the changes in construction sector employment from 2008 to 2010 versus total employment for 31 different countries. The change in construction sector employ- ment is the construction sector’s proportion of 2008 employment times the percentage change in this sector’s employment from 2008 to 2010. This chart also contains a statistically fitted line that illustrates the strong relation between the two variables. The fitted line implies that declines in construction employment can directly account for about half of the observed changes in total employment.
The chart on the right shows a similar analysis for the direct effects of construction sector output declines and declines in total GDP. The statistically fitted relation between these two variables is still positive, but a little weaker as the dots do not follow the line as closely. This weaker relation may be explained, at least in part, by the fact that the share of total employment in the construction sector is considerably higher than its share in GDP.
Read Construction and the Great Recession here.
We already saw Millenials as an exceptionally entrepreneurial generation, but young Americans may be even more focused on starting their own businesses than we thought. Over half of Americans aged 18-34 either want to start a business or have already started one, according to a new Young Invincibles report. However, the would-be entrepreneurs see several barriers in their way. Here's a look at what respondents to the Young Invincibles survey saw as the biggest barriers in their way:
Many would like the US Congress to clear a path for them. 65% of the Millenials surveyed want Congress to "prioritize making it easier to start a business." 83% want Congress to make it easier to get loans. Given the struggles some in the generation are having with their student loans, this is a generation that understands debt.
Student loan forgiveness for young people who start businesses was also a popular fix to a common barrier, with 81 percent of survey respondents supportive of the idea. Young people of color are more likely to strongly support these suggestions. More young African Americans strongly support increasing access to credit and student loan relief (62 percent and 63 percent, respectively). The majority of young Latinos also strongly support these ideas (53 percent for both). Among all young people who have seen their debt increase, school loans (42 percent) make up the most common amount of increased debt. This is even more common among people under age 25 (54 percent have seen increased student loan debt). Thirty-two percent of young Americans have more than $5,000 in personal debt, not including a mortgage, and 25 percent are very worried about being able to pay off their current debt.
Read the full report here.