An Amazon facility in Northern Virginia that lost power this week took a chunk of the Internet down with it. Dan Gross on why the episode is a reminder that the vaunted cloud is much like the Web in the 1990s—young and far from foolproof.
When an Amazon facility lost power in a storm this week, it caused a major cloudburst of its own.
A decent chunk of the Internet went down, with massive sites like Reddit and Foursquare unavailable, and smaller ones like TheRoot.com having difficulty posting new items. Entrepreneurs couldn’t get onto FastCompany.com. Even The Daily Beast’s commenting system went down. And plenty of other companies had difficulty accessing vital data. Those affected Tuesday morning were clients whose data was stored at an Amazon Web Services (AWS) facility in Northern Virginia.
Amazon.com is one of several large entities offering cloud-based computing services. Other big providers include Rackspace and Concentric. Amazon doesn’t break out revenues for its AWS unit, which provides data storage and processing services to all sorts of companies. But James Staten, an analyst at Forrester Research, says his firm anticipates that Amazon gets about $1 billion a year in revenues from Web services. While Forrester doesn’t provide a current forecast, Staten guesses that the cloud-based infrastructure business is a $2 billion-a-year business.
Cloud-based storage is surfing two huge trends. First there’s the rise of the cloud itself—the shift of data and the software that powers businesses off-site, managed by a third party, yet easily summoned at a moment’s notice. As is the case with many outsourcing decisions, the logic is inescapable. Why bother to buy, install, maintain, and upgrade server farms when somebody else who does it at great scale will do it for you? The second trend is the rise of Big Data. With processing and storage power getting cheaper by the day, more and more businesses rely on constant data-processing to run their business. Think, for example, of the way retailers can use information on consumers’ individual purchasing histories to offer instant sales at the cash register. Cloud-based computing can make businesses more efficient and cut costs, which is very appealing to managers.
“I get the sense there is a wave building,” says Gene Ruth, an analyst at the Gartner Group. When his clients discuss cloud computing, he says, the question has shifted from “why would you do that?” to “why aren’t you doing that?”
David De Lossy / Getty Images
But outsourcing has its limits. And these two trends also set the stage for high-profile, concentrated failures. Every day, in homes, businesses, large companies, and networks, there are calamities—outages, computers freezing, systems that are pokey and difficult to access. But it happens behind closed doors. The cloud centralized and publicizes such failure.
Staten, the Forrester analyst, notes that outages like Tuesday’s are “are par for the course, not just in the cloud, but in traditional hosting and corporate data centers.” It was only shocking because “we are making the dumb assumption that the cloud is more highly available than any other data center.”
Here Comes Housing, Cont'd
Housing is back, Vol. IX, Part 62
For several months now, we’ve been arguing that housing is back as an economic force. And with each passing month, the thesis becomes more clear. The level of housing-related activity – housing starts, new homes sales, existing home sales – has been on the rise all year. And in recent months, housing prices have started to rise.
Wednesday brought confirmation of the trend. The Census Department reported that in September, home sales came in at an annualized rate of 389,000. That’s an increase of 5.7 percent from the August rate of 368,000. But what really matters is how much September new 2012 home sales rose from September 2011. The answer? They were up 27.1 percent. Through the first nine months of 2012, new home sales are up 21.8 percent from the first nine months of 2011.
As demand rises, supply seems to be shrinking. Builders have generally been cautious about putting up speculative homes in recent years. And who can blame them? But they’ve been caught off-guard to a degree by the surge in home sales. At the end of September, there were only 145,000 new homes for sale in the U.S. That’s down from 160,000 for sale at the end of September 2011. At the current sales price, there are only 4.5 months worth of inventory on the market. A year ago, there were 6.3 months worth of inventory clogging the market. In September 2012, the inventory as a function of the rate of sales was the lowest it has been since October 2005.
What happens when demand rises on a relative basis while supplies fall on a relative basis? Why, prices go up. The median price of a new home sold in September 2012 was $242,400, up 10.3 percent from $217,000 in September 2011.
The Dow Jones lost nearly 250 points in a rough start Tuesday. But don’t worry, writes Daniel Gross, the U.S. domestic economy is actually doing better than most of its global rivals.
The U.S. stock market fell out of bed Tuesday. The Dow Jones Industrial Average lost nearly 250 points in its first hour of trading, and was muddling along down 170 points midday. The main culprit? Poor earnings reports and chastened outlooks delivered by large, multinational firms, like 3M, the large manufacturer, and UPS, the global delivery service.
A trader works on the floor of the New York Stock Exchange on Oct. 19, 2012, in New York City. (Andrew Burton / Getty Images)
The action on Wall Street Tuesday highlights a larger truth about the U.S. economy and its markets at this moment in time. As we’ve noted before, these days it seems that American consumers are from Mars, while global business is from Venus.
That represents a 180-degree from the state of affairs in 2009 and 2010. Then, companies whose fortunes were tied to the U.S. consumer were getting the tar beaten out of them. Consumers, traumatized by crushing declines in the housing and stock markets and massive job losses, began saving, hoarding, and generally spending less. At the same time, regions that had escaped the subprime crisis—Latin America, China, India, sub-Saharan Africa—continued to power ahead. So as small businesses that catered primarily to U.S. consumers suffered, multinationals that got most of their business from overseas found a steady source of orders, demand, and markets materializing out of nowhere.
But a few years later, the shoe is increasingly on the other foot. American Consumers may not be partying like its 2006, but things have been moving steadily in the right direction. The job market is improving, with more than 4 million jobs added since early 2010. Consumer confidence, as measured by the University of Michigan, is at a five-year high. Financial failure is down across the board, as consumers are generally doing a better job keeping up with financial obligations. And as regular readers of this space should know by now, housing is back. Sales, construction activity, and prices are all higher through the first nine months of 2012 than they were in the first nine months of 2011. So it’s no surprise that retail sales continue to rise and that the National Retail Federation expects holiday sales to rise a healthy 4.6 percent in 2012. (Amazon.com’s stock was up on Tuesday.)
As for global business, that’s another story. The giant companies with operations around the globe that are now finding their dependence on overseas markets for growth is problematic. Even though the worst of the sovereign debt crisis seems to have passed, the euro zone—the wealthiest single entity outside the U.S.—is in recession and doesn’t have much prospect of growth. China, the motor of the world’s economy, is showing signs of slowing down. In the third quarter, China grew at a 7.4 percent annual rate—the lowest such number it has posted since early 2009. India is shifting into a lower gear. Simply put, the volume of goods, services, and people whizzing around the globe is still rising—but at a slower rate than previously thought. The IMF in September reduced its estimate for trade growth in 2012 from 3.7 percent to a mere 2.5 percent. (In 2011, global trade grew 5 percent.)
And so the news from large corporations has been generally dispiriting for the last few months. IHS iSuppli earlier this month reported that global PC shipments are expected to fall in 2012 for the first time since 2001. That’s bad news for companies like Intel, Microsoft, Hewlett-Packard, and Dell. Equipment maker Caterpillar on Monday reported a solid quarter(PDF) but dialed down expectations for 2012 revenues and profits due to “global economic conditions that are weaker than we had previously expected.” Chemical giant DuPont on Tuesday morning reported disappointing earnings.
All of which means the U.S. domestic economy is now doing better on a relative and absolute basis than many of its global peers and rivals. UPS’s earnings report was one of the reasons the stock market fell early Tuesday. But look closely inside the company’s earnings. It shows the dichotomy. The company’s U.S. business revenues rose a bit from the year-ago quarter, and average daily volumes rose nearly 4 percent. In international operations, by contrast, revenues fell nearly 4 percent and daily volumes were flat.
Three banks failed in the U.S. on Friday
Failure Friday is back. After a lull of a couple weeks, three banks failed on Friday.
Gulf South Private Bank, a four-branch bank based in Destin, Florida, with $159 million in assets, failed and was taken over by SmartBank, based in Pigeon Forge, Tennessee.
First East Side Savings Bank, a one-branch bank based in Tamarac, Florida, with $67 million in assets, failed and was taken over by Stearns Bank National Association, based in St. Cloud, Minnesota.
Excel Bank, a four-branch bank based in Sedalia, Missouri, with $200 million in assets, failed, and was taken over by Simmons First National Bank, based in Pine Bluff, Arkansas.
This brings the total to 46 banks failing through the first 42 weeks of 2012. But that’s still progress. As the chart shows, bank failures rose sharply in the wake of the housing bust: 30 in 2008, 140 in 2009, and 157 in 2010. (The FDIC's complete failed bank list can be seen here.)
But the wave of failures has subsided. Bailouts, government guarantees, and the Fed's easy money policies helped buoy banks. Meanwhile, American companies, borrowers, and consumers started to do a much better job keeping up with financial obligations. This is one of the great underreported and underdiscussed features of the current economic expansion. In 2011, 93 banks failed. That's high by historic standards, but it was down 40 percent from 2010. And the size of the banks failing fell, too. All of which meant the systemic implications of bank failures became far less severe in 2011 than they were in 2010.
That trend is continuing through 2012. As noted, through the first 42 weeks of 2012, 46 banks have failed – more than one per week. But in the first 42 weeks of 2011, 86 banks failed. So far through 2012, then, bank failures are down 46 percent from 2011.
Showman, Lawyer, quant, jock. No, it’s not the next novel by John le Carré, author of Tinker, Tailor, Soldier, Spy. Rather, it’s the intrigue-filled succession of chief executive officers at Citigroup, the massive U.S. bank that was nearly killed in the financial crisis. On Oct. 16, CEO Vikram Pandit abruptly resigned, and the company announced that he would be succeeded by a largely unknown company lifer: Michael Corbat, the fourth top boss at the company in nine years. At the time of their respective appointments, each leader possessed precisely the right qualities to make up for the shortcomings of his predecessor.
First came the showman. Sandy Weill, the up-from-Brooklyn striver, built Citi into the nation’s largest financial institution. A creature of the razzle-dazzle 1990s, Weill ultimately merged Travelers Corp. with Citi, thus erasing the Glass-Steagall Act (which prohibited the marriage of investment and commercial banks) before Congress formally overturned it. But Weill’s empire was full of conflicts of interest. After the dotcom crash, Citi faced a host of regulatory and legal challenges over its stock recommendations and investment banking practices. So the company turned to a lawyer to clean up the mess. Chuck Prince, a corporate attorney, brought some order to the sprawling company. But Prince’s theory of extending credit seemed remarkably laissez-faire. By mid-2007, when things were clearly getting out of control, he famously told the Financial Times: “As long as the music is playing, you’ve got to get up and dance. We’re still dancing.” Prince danced Citigroup to the brink of failure.
In late 2007 the bank decided that what it needed was a numbers guy—a quant. And it found one in Vikram Pandit, a Columbia finance Ph.D. turned hedge-fund manager. Pandit took his slide rule to the bank’s balance sheet—accepting a massive federal bailout, cutting jobs, hiving off unwanted assets into a separate unit, and rebuilding the firm’s capital base and reputation from the ground up. The focus on hard data bore fruit. Citigroup repaid the government, sold off junky assets, and reduced spending (it even cut back the company’s name to just plain Citi). But Pandit wasn’t versed in basic CEO-ship. He couldn’t convince the Federal Reserve to sign off on its new capital plan, or convince shareholders to approve his pay package—two major embarrassments.
As 2012 wore on, observers noted that Citi lacked a leader versed in basic blocking and tackling. So naturally it turned to a former college-football lineman. Michael Corbat, who played at Harvard, is a lifelong Citi banker. He has spent 30 years getting to know the ins and outs of the company. Citi is now betting the lineman can transform into a quarterback.
A solid sales report sent the stock market climbing today, taking analysts by surprise. What’s the big shock, asks Daniel Gross? Signs of the rebounding consumer are all around.
The stock markets rallied nicely on Monday in response to a solid retail sales number. The Census Bureau reported (PDF) that in September, sales rose 1.1 percent from August, to a record $412.9 billion. In addition, the August figure, originally reported as a gain of .9 percent from July, was revised to a 1.1 percent gain.
Ryan McVay / Getty Images
Yes, higher gas prices accounted for a healthy chunk of the sales increase in September—about one quarter. But the numbers bear witness to a larger trend. In the summer and in the fall, Americans began to do what they do best: shop. For the three month period between July and September 2012, sales were up 4.8 percent from the comparable period in 2011.
Analysts were surprised by the results. But the time has long since passed when we should be surprised by positive signs emanating from the American consumer. Sure, there is great uncertainty in the world—in Europe, in Asia, in the markets, and in the U.S. But the Greek bailout and the China slowdown affect business behavior far more than they influence consumer behavior. Consumer spending tends to be driven by three pretty significant forces. Each was trending down for much of 2009 and 2010. Each is now trending up. Check out the chart of U.S. retail sales below.
First, and above all, there’s the job market. Most Americans shop with their earnings. Even with wages relatively stagnant, when more people work, it tends to translate into more consumer spending. In September 2012, there were 1.8 million more Americans with payroll jobs than there were in September 2011; and 4.2 million more than there were in February 2010.
Second, there’s consumer confidence. The labor market isn’t good by any stretch of the imagination. But consumer sentiment and psychology plays a role in spending decisions. If people are feeling better about their current situation and future prospects, they’ll be more likely to spend a chunk of their paycheck—and more willing to take on a little debt in order to go to the mall. And consumer confidence is definitely on the rise. The Conference Board’s most recent reading of consumer confidence shows it spiked in September and stands at its highest level since February 2012. Last Friday, the University of Michigan’s measure of consumer sentiment came in at a five-year high.
Consumer confidence rises and falls with the job market, which is on the upswing. But it also rises and falls with the value of assets held by the American consumer. A booming stock market tends to make the minority of Americans who own stocks feel wealthier, and hence more confident about spending. And a rising housing market tends to make the majority of Americans who own homes feel wealthier, and hence more confident about spending. (Check out this article by my colleague Matthew Zeitlin to understand precisely how that works.) Data from Case-Shiller suggests that for the first time in years, home prices began rising in the U.S. this summer on a year-over-year basis.
One by one, over the past two years, the gears that make the mighty consumer engine go have been engaged. And the data points to an ironic twist in the trajectory of the U.S. economy. Businesses, which thrived and boomed in the early years of this subpar economy, are now increasingly taking a backseat to increasingly upbeat consumers.
The decline of financial failures is one of the big underreported stories in the economy
Something comparatively unusual happened on Friday: no banks failed.
Since the onset of the financial crisis, the last day of the work week has typically been Failure Friday. After the markets close, the FDIC's SWAT teams swoop in, close down listing banks and then transfer ownership to a new entity who can reopen for business on Monday. After years in the middle part of the last decade when no banks went down, bank failures rose sharply: 30 in 2008, 140 in 2009, and 157 in 2010. (The FDIC's complete failed bank list can be seen here.)
But the wave of failures has subsided. Bailouts, government guarantees, and the Fed's easy money policies helped buoy banks. Meanwhile, American companies, borrowers, and consumers started to do a much better job keeping up with financial obligations. This is one of the great underreported and underdiscussed features of the current economic expansion. As defaults on mortgages and other debt declined -- as financial failure declined, in other words - bank failures started to go down, too. In 2011, 93 banks failed. That's high by historic standards, but it was down 40 percent from 2010. And the size of the banks failing fell, too. All of which meant the systemic implications of bank failures became far less severe in 2011 than they were in 2010.
That trend is continuing through 2012. Through the first 41 weeks of 2012, 43 banks have failed. That's still (duh!) a pace of about one per week. But, again, it is down sharply from 2011. In the first 41 weeks of 2011, 80 banks failed. So far through 2012, then, bank failures are down 46 percent from 2011. And in the past 11 weeks, only four banks have failed.
That's good new for owners of banks, for depositors who tend to get stressed out when their bank fails, and for the FDIC deposit insurance fund, which continues to replenish itself. It's also good news for the economy at large.
Jack Welch, who accused Obama of manipulating the jobs report, is just one of the wealthy white dudes, mostly in their late 60s and 70s, who’ve been stalking the airwaves, print, and social media, attacking the president. Daniel Gross offers a guide to the aging moguls who loathe Obama.
They’re everywhere! In the past few weeks, it’s been hard not to notice a new species: Maleus Americanus Crustius. Sure, they’ve always been with us. But these days, the alpha-male specimens, white dudes mostly in their late 60s and 70s, have been stalking the airwaves, print, and social media. They’re full of rage and fury about politics, tax policy, and the resident of 1600 Pennsylvania Avenue. They share certain characteristics: north-south migration patterns, brittle egos, receding hairlines, and long records in business. While they respond well to obsequiousness and stroking, they exhibit a tendency to snarl when put on the defensive. And they don’t need medication to get blood moving to their extremities. The mere mention of President Obama does the trick.
(From left to right) Real Estate Investor Sam Zell, Wynn Resort's Founder Steve Wynn and News Corp CEO Rupert Murdoch. (AP Photo (3))
Our Field Guide to Angry Old Obama-Hating Rich Men.
Name: Jack Welch
Pedigree: Titan of industry, 20-year CEO of General Electric, turned speaker, management guru and columnist with wife Suzy. Active on Twitter.
Natural habitat: Boston, Nantucket, Palm Beach.
Recent noteworthy activities: Starting with a series of tweets last Thursday, Welch has been all over the media—on CNBC, on MSNBC, on the Wall Street Journal op-ed page—accusing the White House and the Obama campaign of manipulating the September jobs report. He’s also generally been running down the conduct of the U.S. economy under the Obama administration. Reacted to harsh pushback from reality-based community by comparing U.S. to Soviet-style authoritarian regime in which any and all dissenting views are crushed.
Ostensible reason for anti-Obama rage: Is convinced the Obama administration is cooking the books on labor market, and is anti-business.
Real reasons for generalized anger: Legacy as a highly praised CEO who raised revenues from $26 billion in 1980 to nearly $130 billion in 2000 but has been attacked recently as just the wins of a bull market economy. Meanwhile, his hand-picked successor, Jeff Immelt, who accepted an Obama appointment to a jobs council, has racked up much less impressive record—but is much better-liked.
Name: Leon Cooperman
Pedigree: Founder and CEO of Omega Advisors, wildly successful hedge fund
Natural habitat: Lower Manhattan
Recent noteworthy activities: Cooperman featured prominently in Chrystia Freeland’s recent article in The New Yorker about angry rich guys. He distributed a letter to colleagues complaining about Obama’s divisive rhetoric and class warfare, and obliquely compared Obama’s political rise to that of Hitler.
Ostensible reason for anti-Obama rage: Obama occasionally refers to the wealthy as fat cats, says people who fly in private jets should pay higher taxes, blames banker and Wall Street for woes of economy.
Real reason for generalized anger: Neither Obama—nor his kids—sent Cooperman a thank-you note after he presented the president with a volume of self-published poems written by Cooperman’s teenaged granddaughter.
Name: Sam Zell
Pedigree: Legendary real estate investor, known for jumping into distressed situations. Ill-fated, highly leveraged acquisition of Tribune Company wound up in bankruptcy.
Natural habitat: Chicago, distressed-investing conferences.
Recent noteworthy activities: In an appearance on CNBC on October 2, Zell tore into Obama, suggesting that it didn’t make sense for people like him to invest at a time when business is under attack.
Ostensible reason for anti-Obama rage: Obama wages class warfare by arguing that those with higher incomes should pay higher taxes than they pay now.
Real reason for generalized anger: Even after a successful career as contrarian investor, Zell is mostly known to the public for his disastrous, money-losing purchase of the Tribune Company in 2007.
Name: David Siegel
Pedigree: Founder of Westgate, a large time-share business. Builder of 90,000-square-foot home in Florida, featured in documentary, The Queen of Versailles.
Natural habitat: Orlando
Recent noteworthy activities: Recently circulated an email to employees in which he said he would fire employees if President Obama were to be reelected.
Ostensible reason for anti-Obama rage: Obama’s plans to raise taxes on rich and health care costs will make it impossible for businessmen like him to make money. Also, president has apparently failed to stimulate sufficient demand for the low-end vacation time shares he sells.
Real reason for generalized anger: He came off badly in documentary about his unfinished 90,000-square-foot house.
Name: Steve Wynn
Pedigree: Charismatic founder of Wynn Resorts, helped reinvent Las Vegas.
Natural habitat: Las Vegas, Macau
Recent sightings: In an interview with journalist Jon Ralston earlier this week, Wynn raged about the president’s practice of class warfare. “I can’t stand the idea of being demagogued, that is put down by a president who has never created any jobs and who doesn’t even understand how the economy works.”
Ostensible reason for anti-Obama rage: Obama has called for higher taxes on the wealthy, and has made off-handed comments that are harmful to casinos’ effort to pry dollars from consumers. For example, he warned companies that accepted bailout funds: “You can’t go take a trip to Las Vegas or go down to the Super Bowl on the taxpayer’s dime.” He also told Americans: “You don’t blow a bunch of cash in Vegas when you’re trying to save for college.”
Real reason for generalized anger: Enraged that Andy Garcia got to play the role of the casino owner in the Ocean’s 11 franchise.
The introverted leader, the lady heir apparent, the dubious plans for financial success—it all matches. If the Obama administration were a company, it would have to be Facebook. Daniel Gross explains.
We’ve had some fun in recent weeks comparing the Romney campaign to corporate entities like Chick-fil-A and the New York Jets. But if the Obama administration/
campaign were a company, what would it be?
Pablo Martinez Monsivais / AP Photo
Let’s review the similarities.
Both were extremely hot and really popular among young people a few years ago but have reached something close to saturation in the U.S. market. The metrics suggest Facebook is running out of Americans to sign up to join its network. The polling data suggest President Obama is showing signs of running out of Americans to sign up to join his network. Meanwhile, fickle fans of both entities are constantly looking for other alternatives—i.e., Twitter, Romney.
Both were organized around a somewhat introverted, awkward young guy who spent a few formative years in Cambridge, Mass., and who cultivates an aloof public persona with his constituents—investors for Mark Zuckerberg, voters for Obama.
At both Facebook and the Obama administration, the most effective leader and future heir apparent may be an older woman who serves as the diplomat, who served in the Clinton administration, and who is an iconic figure for working moms—i.e., Sheryl Sandberg and Hillary Clinton.
Both were designed to level the playing field, promote an egalitarian, barrier-free society, and give voice to the voiceless. But both have wound up lining the pockets of insiders and making the rich richer as middle-class folks suffer. Since 2009, median income in the U.S. has declined, even as the stock market has risen sharply, the wealthy have enjoyed low tax rates, and income inequality has risen. Just so, in the Facebook initial public offering, the Wall Street underwriters made money, early venture-capital investors and insiders cashed out—and the ordinary investors who bought the stock when it opened for trading have lost about half their money.
In his foreign-policy speech today, Romney excoriated the president for failing to sign ‘one new free-trade agreement.’ Daniel Gross on why that’s a small but significant lie.
As lies go in this political campaign, it’s a relatively small one. But it’s a pretty telling one nonetheless.
In his foreign-policy speech on Monday, Mitt Romney excoriated President Obama for not seeking to open new markets for American goods and services. “I will champion free trade and restore it as a critical element of our strategy, both in the Middle East and across the world,” Romney said. “The president has not signed one new free-trade agreement in the past four years. I will reverse that failure.”
That’s false. In fact, about a year ago, on Oct. 21, 2011, Obama signed new free-trade agreements with South Korea, Panama, and Colombia. (There’s a picture of him doing so right here.)
While those free-trade agreements were many years in the making—as all free-trade deals are—they are indisputably “new” free-trade agreements. They were not ratified by the U.S. Congress until President Obama convinced the legislative branch to do so. And they did not exist as laws until President Obama signed them.
The Bush administration and the government of South Korea first signed a trade agreement in June 2007. The same month the administration also reached agreement with Panama on a new trade deal. President Bush first submitted the Colombia free-trade deal to Congress in April 2008. But Bush was not able to get any of these measures through Congress, in part because Democrats in Congress didn’t like all the terms of the deals, and in part because he was losing effectiveness as a legislator. To get them through Congress, Bush would have had to (a) convince the counterparties to modify some of the terms; and (b) convince Congress to approve them. He did neither.
U.S. Republican presidential candidate Mitt Romney delivers a foreign-policy speech at the Virginia Military Institute in Lexington, Va., on Oct. 8, 2012. (Jim Watson / AFP / Getty Images)
Obama was ultimately able to do both. For much of the early part of the Obama administration, the free-trade agreements languished. But eventually things came together. Colombia agreed to implement new protections for labor. Panama, responding to concerns that it had become a tax haven, in 2010 agreed to share more tax information. With Korea, the Obama administration held out for—and won—better terms on market access for U.S. carmakers. As a result, the United Auto Workers wound up supporting the agreement. In all three instances, the agreements signed in October 2011 contained significant differences from the agreements reached in 2006 and 2007.
It is an article of faith among conservatives that the Obama administration is hostile to businesses of all sorts, that it has created barriers to companies seeking to get involved in trade, and that it is hostile to the expansion of free trade. That’s a holy trinity of hooey.
The U.S. added 114,000 jobs in September, sending the unemployment rate down to 7.8 percent. Daniel Gross digs into the report and finds even more positive trends—and just a few red flags.
Well, Friday’s jobs report—aka the most important jobs figure of all time, ever—didn’t disappoint. The Bureau of Labor Statistics reported that the U.S. economy added 114,00 payroll jobs in September, and that the unemployment rate fell from 8.1 percent to 7.8 percent. Here are a few important takeaways.
The labor market is recovering, 1.
The payroll-jobs figure shows the labor market is recovering. The economy has now added jobs for 24 straight months. Since February 2010, the private sector has added 4.7 million new positions. Employment is pretty much back where it was in January 2009.
The labor market is recovering, 2.
The household survey—the component of the jobs report that yields the unemployment rate—has generally told a less positive story than the payroll-jobs figure, which describes how many people companies are hiring. For the household survey, BLS calls people and asks if they’ve been working, if they’ve given up, if they’re working part time. This survey yields not only the unemployment rate, but the size of the labor force, the employment-to-population ratio, and an alternate measure of employment. And in recent months, even as payroll jobs grew, many of these measures went in the wrong direction.
In September, however, the household survey flashed all kinds of green lights. Instead of contracting, the labor force grew over the month, by 418,000. And yet the unemployment rate fell to 7.8 percent from 8.1 percent in August. The reason: all these new entrants to the labor force were absorbed, and then some. The household survey found that some 873,000 more people were at work in September than in August, and that the employment-to-population ratio ticked up from 58.3 percent to 58.7 percent.
The trend is the friend.
Over the past few years, we’ve seen a pattern develop, one that is common during the early stages of labor-market recoveries. The BLS revises its monthly data in each of the successive months. Then it revisits all the numbers and issues annual revisions. The trend has generally been for the revisions to be positive. That may not do much for political campaigns that live and die by the headline number, but it is good news for the economy. So, for example, in September, BLS reported that the economy created 386,000 more jobs between March 2011 and March 2012 than originally thought. This month, BLS looked back on July and August and found lots of new jobs. The July figure, previously reported as a gain of 141,000 jobs, was revised to a gain of 181,000. The August figure, originally reported as an anemic 96,000 gain, was revised to a more impressive 142,000. That’s 86,000 additional jobs.
What should have been a passionate clash about unemployment and economic growth turned out to be a boring, abstract yawner. Daniel Gross on what was missing from the first debate.
This was supposed to be a debate about the economy–— the gripping, all-consuming question. How is the creaky engine of global growth performing? How can it boost demand and soak up all the unemployed and underemployed? What should be done about the crisis of unemployment? About housing? How can America compete in global markets? And how does the state of play in the global markets affect the economic experience of individuals?
Saul Loeb / AFP-Getty Images
That’s not what happened. What we saw was a discussion that was very narrowly contained—the type I’ve seen a dozen times at Davos, at Washington think tanks, on Metro North. Entitlement reform, discussed in abstract terms. Reducing the deficit, as a presumed end rather than a means. The Simpson-Bowles Commission, for G-d’s sake. A long back and forth about Dodd-Frank? I can barely muster up the energy to follow the discussion about Dodd-Frank, and I get paid to do this. There was no discussion of the bailouts and revival of the nation’s largest manufacturing and retail sector: the automobile industry. There was precious little mention of the unemployed. And if they talked about housing, I must have slept through it.
At the outset, the candidates set up opposite approaches—Obama calling for “economic patriotism” and Romney complaining about “trickle-down government.” But the differences weren’t sustained. Obama didn’t hit Romney on his Bain experience, or on his atrocious 47 percent remarks. Romney’s mentions of overreaching government were rote.
That said, especially in the early going, Romney had the better of it. Stylistically, he was on the front foot—aggressive, prepared, and engaged. Romney gets truly animated when he talks about enterprise, business creation, and—above all—bringing down tax rates. Obama simply isn’t as fluent—never has been—when talking about the economy, and the connection between government policy and economic growth.
There was a great deal missing from the parts of the debate that were supposed to be on the economy—passion, aggression, and a game plan by Obama, truthfulness by Romney. Romney continually said that his massive reductions in marginal rates wouldn’t be tax cuts, because ... well, just because he said so. That’s a new one on me.
But more significantly, while both candidates occasionally dipped into the real world—isn’t it funny how so many of their meaningful encounters with struggling voters happened to take place in Ohio—the entire discussion was remarkably detached from the reality of today’s economy. There have been some significant changes in the U.S. economy in the past three years—good and bad. A massive increase in exports and rise in trade. A sharp rise in domestic energy production, which in turn stimulates other industries. An incredible rebound in the credit and stock markets, and in corporate profits. At the same time, we have a historically stubborn unemployment problem, a decline in median income, and a massive increase in income inequality.
These developments present—and demand—responses from politicians and government. And we’ve certainly got some reactions and counter-reactions in the past four years. But in Denver Wednesday night, the two candidates were oddly detached from the realities of the U.S. economy circa 2012. Obama failed to make his case for the positive trends in recent years, and Romney failed to connect the dots on how his policies would be implemented, and how they would bring help to people struggling today. In fact, at the outset, when the candidates laid out their economic plans, they were somewhat interchangeable: trade, energy, education/skills, blah, blah, blah.
Amid signs of an economic slowdown, U.S. car sales keep moving, led by sales of small cars and a resurgent Toyota. By Daniel Gross.
In the U.S., cars constitute both the largest manufacturing sector and the largest sector of the vast retail industry. So it really matters how many cars are sold each month. We’ve entered an autumn full of fears of a slowdown. But while global growth sputters, and cracks are showing in the U.S. growth story, auto sales held up relatively well in September. Industrywide, sales came in at an annualized pace of 14.87 million. That’s better than analysts’ expectations of about 14.5 million.
Chrysler sales consultant Doug Desloover, left, shows a Jeep Wrangler to Lewis Colon at the Hollywood Chrysler Jeep car dealership on October 2 in Hollywood, Fla. (Joe Raedle / Getty Images)
A few important takeaways.
The Italian job, continued. Chrysler, which stood on the verge of liquidation just a few years ago, is sustaining its remarkable comeback under the leadership of Fiat CEO Sergio Marchionne. Chrysler sales rose (PDF) 12 percent in September from last year, the 30th straight month of year-on-year gains. Chrysler has been energized by new products. It sold more than 4,100 Fiat 500s and 5,235 Dodge Darts—two recent introductions. Meanwhile, sales of the company’s iconic Jeeps rose 10 percent from last year. While September’s gains were less impressive than results from recent months, the figures show a company that is firing on almost all cylinders.
The Rising Sun. Last year was a terrible year for Japanese carmakers like Toyota and Honda. The tsunami and its aftermath disrupted the supply chain and made it impossible for dealers to stock vehicles at a time when overall demand was rising. But Toyota and Honda are back up at full speed. Toyota reported (PDF) September sales of 171,910 vehicles, up a whopping 41 percent from September 2011. From inexpensive models like the Scion to the upscale Lexus, sales were strong across the board. The company sold 26,747 hybrid vehicles in September—accounting for about 16 percent of its total. Honda’s sales were up by a smaller margin. U.S. Honda sales rose 30.9 percent from September 2011, to 117,211 units, led by gains in the Accord and the Civic.
Small is Beautiful. Rising gas prices and pinched incomes means Americans continue to show interest in smaller, more fuel-efficient vehicles. Toyota and Honda’s results showed that. At General Motors, which sold 210,245 vehicles in September, up only 1.5 percent from a year ago, sales of passenger cars soared by 29 percent. The company sold nearly 26,000 Chevy Cruzes, up 42 percent from a year ago, and 2,851 units of the much-maligned Chevy Volt—a four-fold increase from a year ago.
The Big Picture. Sales of the Big Three—GM, Ford, and Chrysler—always tend to garner the biggest headlines. And in September, the Big Three’s results were less impressive than in previous months. But that has less to do with the weakness of the auto market, and more to do with the return of foreign automakers like Honda and Toyota to the marketplace in full force. The pie continues to expand, but foreign automakers are gobbling up slightly larger pieces this year than last. Good things happen in the U.S. when more cars are produced and more cars are sold. At a time of rising economic anxiety, the September car sales data offers some reassurance.
From loose seats to a scathing op-ed in The New York Times, American Airlines’ reputation is in free fall. Daniel Gross reports that the iconic airline may not be able to survive going through bankruptcy.
American Airlines, the Ft. Worth–based international air carrier, may have already had its worst week ever—and it’s only Tuesday. The airline has been operating in bankruptcy since November and has suffered a series of public relations and operational black eyes in just the last few days.
American Airlines planes on the tarmac at Miami International Airport. (Joe Raedle / Getty Images)
Their travails started on Saturday with novelist Gary Shteyngart’s caustic op-ed in The New York Times detailing his harrowing 30-hour journey from Paris to New York. Shteyngart declared, on America’s most important op-ed page, that the airline “should no longer be flying across the Atlantic” because American did not have the “know-how” and that its employees “have clearly lost interest in the endeavor.”
The bad news continued today, with news that the federal government is investigating two cases of seats on American Airlines planes coming loose midflight. There have been three reported incidents of loose seats since last Wednesday. A flight on Monday from New York City to Miami had to be diverted back to John F. Kennedy airport when the seats came loose.
Meanwhile, the company’s management team is embroiled in a dispute with its most important employees—the pilots—even while trying to fend off a takeover bid from rival US Airways. All of which shows the perils of operating a complex business like an airline in bankruptcy for an extended period of time.
Although American’s parent company filed for bankruptcy last November, it has continued to operate. The U.S. bankruptcy system gives companies great leeway in restructuring debt, renegotiating contracts, and shucking other financial obligations. The ability of the system to process financial failure while letting businesses continue to operate has been a competitive advantage for the United States. And every year, thousands of companies successfully emerge from bankruptcy protection with better balance sheets without substantial erosion of their brand and underlying business.
But it’s a lot easier for a restaurant chain or a hotel to operate while in Chapter 11 than it is for an airline, as American has proved. Airlines are complex, capital-intensive businesses that rely on highly skilled labor and expensive machinery and systems that require vigilant maintenance and constant improvement.
In the best of times, U.S. airlines struggle with customer service, maintaining their fleets, and working within a creaky aviation infrastructure. And they’re not very profitable—between 1979 and 2009, U.S. airlines have lost $67 billion.
They both bet on (but coexist awkwardly with) evangelicals, take defensive approaches to their campaigns, and rely on a tough guy from New Jersey. Dan Gross points out the similarities between Romney and the Jets.
Republican presidential candidate Mitt Romney has repeatedly expressed his affinity for business owners. When asked if he was a NASCAR fan, he responded that he was friends with some NASCAR team owners. Romney similarly finds support among the elite class of professional sports franchises owners. New York Jets owner Woody Johnson, for example, is the chairman of Romney’s New York campaign, and a major fundraiser. So it comes as no surprise that the Jets, who just endured a humiliating 34-0 loss on Sunday to the San Francisco 49ers, bear certain resemblances to the Romney campaign. Let’s count the ways.
Both are occasionally overshadowed by franchises based in Wisconsin—the Packers for the Jets, vice presidential nominee Paul Ryan for Romney.
Both have relied on a blustery, plus-size, New Jersey-based, media-hogging, tough-talking guy with an over-inflated sense of his own competence as a frontman and spokesperson: head coach Rex Ryan for the Jets, and New Jersey Governor Chris Christie for the Romney campaign.
Both have placed bets on evangelicals but coexist awkwardly with them and hold back from letting them hold center stage. Romney’s brief history as a moderate, and lifelong history as a Mormon, have contributed to an uneasy relationship with fundamentalist Christians. At the Republican convention in Tampa, few were given primetime speaking spots. The same might be said of the Jets, who brought in Tim Tebow, the Bible-thumping, knee-taking quarterback from Denver in the off-season. Tebow has been a fish out of water in the Jets’ offense. Even in Sunday’s debacle, as incumbent quarterback Mark Sanchez struggled, going 13 of 29, for 103 yards, with one interception, Tebow remained anchored on the bench. He threw one piece (complete) and carried the ball twice.
Both have taken a defensive approach to the campaign, and find it difficult to go on the offensive. In both the primaries and the general elections, Romney has generally waged a careful campaign that frequently finds itself pinned near its own end zone thanks to gaffes and fumbles. He has struggled to seize the initiative and narrative of the campaign. And he’s constantly calling audibles that result in incomplete passes—most recently, he’s taken to touting the Massachusetts health-care mandate as a sign of empathy. Just so, the Jets are a team that has historically been based on playing tough defense first, and that has struggled for years to develop a razzle-dazzle, high-scoring offense. On Sunday, the Jets’ offense was incompetent.
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Bettors give both entities long odds at success this fall. The “Nowcast” in Nate Silver’s election model on Monday gave Romney a 1.9 percent chance of winning the election. The same day, Vegas Insider had the Jets at a 30:1 longshot to win the Super Bowl.
Earlier in the season, both the Romney campaign and the Jets found themselves subject to Monday-morning quarterbacking and a dreaded quarterback controversy. In a recent Politico story, outsiders, anonymous insiders, and pundits questioned the play-calling and the game plan of the Romney campaign, and suggested that campaign QB Stuart Stevens be benched. These guys have been at it for four years, and they don’t seem to have a clue as to what to do with the ball. Which precisely echoes the criticism levied at the New York Jets offensive minds and quarterback Mark Sanchez. See this New York Post blogpost for an example: “He was flat out awful. This is now three straight weeks where he has completed less than 50 percent of his passes. If it’s not Tebow time yet, it’s getting close. The fumble at the end of the first half was an unbelievable mistake for a fourth-year player … Plain and simple, he’s not getting better.”
With an Ohio Walmart hosting a holiday food drive for its own workers, The Daily Beast's Michael Tomasky criticizes the notoriously stingy company for not paying them more.
As Obama and others press to raise the federal minimum wage about $7.25, skeptics say such a move could bruise the economy. Who’s right? Let’s the consult the data!