Small Businesses Not Hiring

Posted in American Economy, American Workers, California Businesses on July 11, 2011 by David Griffith

Businesses starting smaller, creating fewer jobs: study

On Monday July 11, 2011

By Lucia Mutikani

WASHINGTON (Reuters) – New businesses are starting leaner and with fewer employees than was the case in the past, an independent study showed on Monday, suggesting that the pace of job creation will remain frustratingly slow.

The study by the Kauffman Foundation found that this trend was already entrenched well before the 2007-09 recession, which destroyed more than 8 million jobs.

Startups are key to long-term employment growth. The study drew on data on new establishments from the Bureau of Labor Statistics and the Census Bureau to paint a bleak picture of an economy struggling to generate enough jobs to absorb the 14.1 million unemployed Americans.

Job growth has stalled in recent months, with employers adding a scant 18,000 workers to their payrolls in June and the unemployment rate ticking up to 9.2 percent from 9.1 percent in May. Nonfarm employment increased a meager 25,000 in May.

“One of the major problems that we have is that businesses have been starting smaller and growing less for the last several years,” said E.J. Reedy, a Kauffman Research fellow and co-author of the study.

“That jobs deficit has accumulated and needs to be addressed,” he told Reuters, noting that new businesses were struggling to grow in the first five years.

Prior to the recession, roughly 45-50 percent of start-ups survived. But the survival rate has dropped below 45 percent.

The study found that new firms created in 2009 were on track to create one million fewer jobs in the next decade than historical averages. Historically, new firms in the United States generate about 3 million new jobs every year, but have since downshifted, creating only 2.3 million jobs in 2009.

JOBS DEFICIT

The study’s analysis of the Census Bureau’s data found that the number of new employer businesses had dropped 27 percent since 2006.

Although the level of startups has held steady or even edged up since the recession, when including new employer businesses and newly self-employed workers, it said they did not grow enough to generate the new jobs needed to support overall economic growth.

Its analysis of BLS data shows employment at new businesses dropped from a peak of 4.7 million jobs annually between 1997 to 2000 to less than 2.5 million in 2010.

At the firm level, the decline is more dramatic. New businesses opened their doors with about 7.5 jobs on average for much of the 1990s, the study found. But the number has dropped to 4.9 jobs.

Similar findings are deduced from the Census Bureau data. Aggregate employment at new establishments peaked in 2006 at just under 7 million jobs and dropped to fewer than 4.5 million by 2009.

An examination of the Census Bureau’s data on new independent firms showed a 700,000 decline in jobs created between 2008 and 2009.

“While the recession certainly deepened the jobs deficit, the U.S. economy stopped producing enough new jobs well before the downturn,” said Robert Litan, Kauffman Foundation vice president of research and policy and study co-author.

“Startups are the key to long-term employment growth, and they have been hiring fewer people for the last several years. We won’t fix our core unemployment problem in the United States until young businesses get back on track.”

The study recommended that policymakers focus on young and small businesses to address the nation’s unemployment problem, and it cautioned against hoping that the growing ranks of self-employed workers will solve the jobs shortfall.

“We need to find a way to start more employer businesses, ensure that they are larger and nurture their growth,” Litan said.

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Clean Tech Can Lead an American Jobs Resurgence

Posted in American Economy, American Workers, California Businesses, Clean Tech on July 9, 2011 by David Griffith

David Griffith’s Note: America‘s share of advanced battery production is soaring and could be as much as 40% of world output in 5 years – this is a bandwagon we need to get behind to propel job growth in this country and restart our economy.

Electric Cars a “Win-Win” for America, Former Gov. Granholm Says

By Stacy Curtin | Daily Ticker

The June jobs report was shockingly abysmal. Only 18,000 jobs were created last month and the unemployment rate ticked up from 9.1% in May to 9.2%. (See: June Jobs Report: the Ugly, the Ugly, and the Ugly)

Jennifer Granholm, former Governor of Michigan and now a senior adviser to the Pew Clean Energy Campaign, has a solution: Invest in clean energy solutions like the electric car, which in turn will create thousands of auto and advanced battery manufacturing jobs.

Today, electric cars like the Chevy Volt costs thousands of dollars more than a regular gas-powered vehicle, making them uneconomical for many Americans — even with a tax credit of up to $7,500. All that could change by 2017 according to Granholm, who cites a projection by Energy Secretary Steven Chu. But price parity and new jobs are all contingent on more investments and subsidies to help jump-start technological advancements in the lithium ion batteries — the batteries that go into electric cars.

“Remember the cost of computers? Remember the cost of cell phones before they were able to benefit from technological advances and commercialize [and] take those technologies to scale?,” she asks Aaron in the accompanying interview. “Already the battery costs have dropped 50% since they were introduced a few years ago…[and] Michigan is expected to create 63,000 [related] jobs by the year 2020.”

During his Twitter town hall on Wednesday, President Barack Obama echoed Granholm’s enthusiasm for clean energy investments and highlighted the great strides the country has already made in the battery sector.

“When I came into office, advanced batteries, which are used, for example, in electric cars, only accounted for 2 percent of the world market in advanced batteries. And we have quintupled our market share, or even gone further, just over the last two years,” he said. “And we’re projecting that we can get to 30 to 40 percent of that market. That’s creating jobs all across the Midwest, all across America.”

For Granholm, supporting the electric car industry is not only a win for American jobs, it is a win for the country’s national security and energy independence.

Housing Bubble Crushes American Middle Class

Posted in American Economy, American Workers, Buying a Home, Real Estate Prices, US Stock Markets on July 8, 2011 by David Griffith

How the Bubble Destroyed the Middle Class

by Rex Nutting
Friday, July 8, 2011

Commentary: Sluggish growth is no mystery: No one has any money

A lot of people say they are deeply puzzled by the slow recovery in the U.S. economy. They look at the 9+% unemployment rate and the mediocre growth in national output, and they scratch their heads and wonder: Where is the boom that inevitably follows a deep bust, such as we experienced in 2008 and 2009?

But there is no mystery. What other result would you expect from the financial ruin of the once-great American middle class?

And make no mistake, the middle class has been ruined: Its wealth has been decimated, its income isn’t even keeping pace with inflation, and its faith in the American economy has been shattered. Once, the middle class grew richer each year, grew more comfortable, enjoyed a higher living standard. It was real progress in material terms.

But that progress has been halted and even reversed. In some respects, the middle class has made no progress in a generation, or two.

This isn’t just a sad story about a few losers. The prosperity of the middle class has been the chief engine of growth in the economy for a century or more. But now our mass market is no longer growing. How could it? The middle class doesn’t have any money.

There are a hundred different ways of looking at the economy, and a million different statistics. But if you wanted to focus on just one number that explains why the economy can’t really recover, this is the one: $7.38 trillion.

That’s the amount of wealth that’s been lost from the bursting of housing bubble, according to the Federal Reserve’s comprehensive Flow of Funds report. It’s how much homeowners lost when housing prices plunged 30% nationwide. The loss for these homeowners was much greater than 30%, however, because they were heavily leveraged.

Leverage is an amazing thing: When prices go up, the borrower gets all the gains. And when prices go down, the borrower takes all the losses. Some families lost everything when the bubble collapsed, others lost very little. But, on average, American homeowners lost 55% of the wealth in their home.

Most middle-class families didn’t have much wealth to begin with — about $100,000. For the 22 million families right in the middle of the income distribution (those making between $39,000 and $62,000 before taxes), about 90% of their assets was in the house. Now half of their wealth is gone and it will never come back as long as they live.

Of course, rich folk lost lots of wealth during the panic as well. Their wealth is mostly in paper not bricks — stocks, bonds, mutual funds, life insurance. The market value of those assets fell further than home prices did during the crash, but they’ve mostly recovered their value now. The S&P 500 (^GSPCNews) lost 56% of its value when it crashed, but it’s doubled since then. Stocks are down about 13% from peak.

The rich recovered; the rest of us didn’t.

If losing half your meager life savings weren’t bad enough, the middle class has also been falling behind in terms of income for decades. Families in the middle make most of their money the old-fashioned way: Working their fingers to the bone for 40 years for wages and a modest pension.

Their wages have been flat after adjusting for inflation. In the late 1960s, the 20% of families right in the middle were earning almost their full share of the pie: they had 17.5% of total income. Their share has been falling steadily ever since. Now, that 20% is earning just 14.6% of all income. Meanwhile, the top 5% captured a growing share, going from 17% in the late 1960s to 22% today.

The housing bubble was the last chance most middle-class families saw for grasping the brass ring. Working hard didn’t pay off. Investing in the stock market was a sucker’s bet. But the housing bubble allowed middle-class families to dream again and more importantly to keep spending as if they were getting a big fat raise every year.

I don’t think we’ve quite grasped how much the bubble distorted the economy in the Oughts, and how much it continues to distort it today. We’re still paying the bills from that binge.

During the last expansion from 2003 to 2007, according to an analysis by Fed economists, American homeowners took $2.3 trillion in equity out of their homes through cash-out refinancing and home-equity loans, and they spent about $1.3 trillion of it on cars, boats, vacations, flat-screen televisions and shoes for the kids.

All that spending circulated through the economy, creating millions of jobs here and in China, where they make those TVs and shoes.

During that period, the economy grew at an annual average rate of 2.7%, which is about typical for our economy. But growth would have been closer to 2% if we hadn’t had a housing bubble; if we hadn’t had the extra consumption financed by the bubble and if we hadn’t built millions of surplus homes. That’s a huge difference. At 2.7%, the economy can create a significant number of jobs. But 2% is stagnation, not even keeping pace with population growth and productivity improvements.

Now that the bubble has burst, homeowners are putting money INTO their homes, not taking it out. The impulse to pay down the mortgage and the credit card is reducing the amount of money we’re spending on other things. Since 2007, instead of taking $2 trillion out of their house, homeowners have put $1.3 trillion into them.

You think that might be having an impact on consumer spending?

Even with trillions in debt being paid off or written off, very little progress has been made in deleveraging. The debt-to-disposable income ratio has slipped from 130% at the height of the bubble to 115%, but that’s still far more than the 90% recorded in 2000 or the 80% of 1989 or the 60% of 1976. No one knows how far it needs to fall before American families are comfortable with how much they owe.

The slow growth in the economy is no mystery: Most families don’t have any extra money to spend. It will take a long time for the middle class to rebuild its wealth, especially if we don’t find some work.

The crazy thing is that our leaders aren’t even talking about this crisis. With the upper classes prospering and global markets booming, they don’t need the U.S. middle class any more. The market is up, profits are soaring, and the corporate jet is fueled and ready for takeoff.

And if the middle class can’t buy bread? Let them eat cake.

 

Housing Still Hasn’t Hit Bottom

Posted in American Economy, Buying a Home, Foreclosures and Loan Modifications, Real Estate Prices on May 19, 2011 by David Griffith

BREAKOUT By Jeff Macke May 19, 2011

Housing bulls have wanted to get bullish ever since the bubble popped in 2008. They better grab a chair because it’s going to be a while, according to Richard Suttmeier. The chief market strategist of ValuEngine.com says home prices simply aren’t going to bottom no matter what the government or banks may do to push them higher.

Suttmeier, whose firm uses a blend of technical and fundamental analysis to drive its investment recommendations, offers some discouraging data for contrarian housing bulls. Housing prices haven’t just been “correcting” in the context of a recovery, observes Suttmeier. Housing actually never recovered in the first place. The economic truth of supply and demand is in play; during the bubble years we simply built way too many houses, and the glut isn’t going to be worked off anytime soon.

None of which is particularly new information for those paying attention to Federal Housing Finance Agency data or watching the S&P/ Case-Shiller Home Price Index approach the 2009 lows. What is of note are the investment conclusions Suttmeier reaches based on this and other observations. He says the bad mortgage problem still exists for regional banks in particular and that foreclosure rates would be much higher were it not for the fact that it’s often less expensive to allow people to stay in a home than it is to evict. After the federal bailout the regional banks are, in many cases, left holding the housing bag, stuck with massive inventory of homes that need to be sold off to a market with no demand.

By extension Suttmeier says companies such as Caterpillar (CAT), which has been on a torrid run of late, are poised for a fall. When my partner Matt Nesto observes that an enormous percentage of CAT’s revenues come from foreign sources, Suttmeier says emerging markets are following close behind the U.S. in the creation of a capacity glut. This echoes the observations of Vitaliy Katsenelson, who last week asserted that the Chinese government has resorted to building massive and unoccupied “ghost towns” in order to keep up the appearance of growth.

Suttmeier is also in the Breakout camp in keeping an eye on the recent drop in copper. He says the leading economic indicating metal dropped below its 200-day moving average on May 11 for the first time since July 2010. This is a warning, according to Suttmeier, that the global recovery is sputtering.

Before dismissing Suttmeier as a perma-bear, please note that he’s a truly agnostic strategist, simply following the lead of his proprietary screening methodology, which follows 5,500 stocks. When the fundamentals flash a warning sign, he plugs in the technical and other observations to arrive at his conclusions. This system has proven prescient in the past for Suttmeier’s clients, who were warned about bank stocks in 2007. This was early enough to be actionable, which is distinct from the countless number of bears who “saw the housing market bubble coming” well before such an observation made, or saved, them money.

How to Achieve Corporate Success in China

Posted in Doing Business in California with tags , , , , , on May 13, 2011 by David Griffith

[tweetmeme]

Multinational corporations now look toward China with a mixture of trepidation and anticipation. The remarkable speed and scope of Chinese economic growth is changing the global distribution of power and resources, possibly to the detriment of the major industrial powers. But this same transformation presents tremendous opportunities for companies who understand China well enough to leverage both its accomplishments and its deep-seated problems for corporate benefit.

In straightforward language, with numerous examples to back up his argument, Lieberthal cogently presents not only how to benefit from doing business in China, but also how to avoid the serious risks that the endeavor entails. The implications that Lieberthal lays out for corporate strategy are wide-ranging and critically important.

“This is a book to read before one begins work in China and to come back to once there. With its comprehensive analysis of challenges and insightful recommended responses, it efficiently points executives in the right direction and helps them avoid the errors that others have made. It has the potential to give any executive a flying start to executing their China strategy.”

Purchase “Managing the China Challenge“.

The Next ‘Shoe to Fall’ for California Housing

Posted in Buying a Home, Doing Business in California, Mortgage Rates, Real Estate Prices on May 12, 2011 by David Griffith

Federal Retreat on Bigger Loans Rattles Housing

DAVID STREITFELD, On Wednesday May 11, 2011, 1:40 am EDT

MONTEREY, Calif. — By summer’s end, buyers and sellers in some of the country’s most upscale housing markets are slated to lose one their biggest benefactors: the deep pockets of the federal government. In this seaside community of pricey homes, the dread of yet another housing shock is already spreading.

“We’re looking at more price drops, more foreclosures,” said Rick Del Pozzo, a loan broker. “This snowball that’s been rolling downhill is going to pick up some speed.”

For the last three years, federal agencies have backed new mortgages as large as $729,750 in desirable neighborhoods in high-cost states like California, New York, New Jersey, Connecticut and Massachusetts. Without the government covering the risk of default, many lenders would have refused to make the loans. With the economy in free fall, Congress broadened its traditionally generous support of housing to a substantial degree.

But now Democrats and Republicans agree that the taxpayer should no longer be responsible for homes valued well above the national average, and are about to turn a top slice of the housing market into a testing ground for whether the private mortgage market can once again go it alone. The result, analysts say, will be higher-cost loans and fewer potential buyers for more expensive homes.

Michael S. Barr, a former assistant Treasury secretary, said the federal government’s retrenchment would be painful for many communities. “There’s always going to be a line, and for the person just over it it’s always going to be an arbitrary line,” said Mr. Barr, who teaches at the University of Michigan Law School. “But there is no entitlement to living in a home that costs $750,000.”

As the housing market braces for more trouble, homeowners everywhere have been reduced to hoping things will someday stop getting worse. In some areas, foreclosures are the only thing selling. New home construction is nearly nonexistent. And CoreLogic, a data company, said Tuesday that house prices fell 7.5 percent over the last year.

The federal government last year backed nine out of 10 new mortgages nationwide, and losses from soured loans are still mounting. Fannie Mae, which buys mortgages from lenders and packages them for investors, said last week it needed an additional $6.2 billion in aid, bringing the cost of its rescue to nearly $100 billion.

Getting the government out of the mortgage business, however, is proving much more difficult than doling out new benefits. As regulators prepare to drop the level at which they will guarantee loans — here in Monterey County, the level will drop by a third to $483,000 — buyers and sellers are wondering why they should be punished simply for living in an expensive region.

Sellers worry that the pool of potential buyers will shrink. “I’m glad to see they’re trying to rein in Fannie Mae, but I think I’m being disproportionately penalized,” said Rayn Random, who is trying to sell her house in the hills for $849,000 so she can move to Florida.

Buyers might face less competition in the fall but are likely to see more demands from lenders, including higher credit scores and larger down payments. Steve McNally, a hotel manager from Vancouver, said he had only about 20 percent to put down on a new home in Monterey County.

If a bigger deposit were required, Mr. McNally said, “I’d wait and rent.”

Even those who bought ahead of the changes, scheduled to take effect Sept. 30, worry about the effect on values. Greg Peterson recently purchased a house in Monterey for $700,000. “That doesn’t get you a palace,” said Mr. Peterson, a flight attendant.

He qualified for government insurance, which meant he needed only a small down payment. If that option is not available in the future, he said, “home prices all around me will plummet.”

The National Association of Realtors, 8,000 of whom have gathered in Washington this week for their midyear legislative meeting, is making an extension of the loan guarantees a top lobbying priority.

“Reducing the limits will put more downward pressure on prices,” said the N.A.R. president, Ron Phipps. “I just don’t think it makes a lot of sense.” But he said that in contrast to last year, when a one-year extension of the higher limits sailed through Congress, “there’s more resistance.”

Federal regulators acknowledge that mortgages will get more expensive in upscale neighborhoods but say the effect of the smaller guarantees on the overall housing market will be muted.

A Federal Housing Administration spokeswoman declined to comment but pointed to the Obama administration’s position paper on reforming the housing market. “Larger loans for more expensive homes will once again be funded only through the private market,” it declares.

Brokers and agents here in Monterey said terms were much tougher for nonguaranteed loans since lenders were so wary. Borrowers are required to come up with down payments of 30 percent or more while showing greater assets, higher credit ratings and lower debt-to-income ratios.

In the Federal Reserve’s quarterly survey of lenders, released last week, only two of the 53 banks said their credit standards for prime residential mortgages had eased. Another two said they had tightened. The other 49 said their standards were the same — tough.

The Mortgage Bankers Association has opposed letting the limits drop, although a spokesman said its members were studying the issue.

“I don’t want to sugarcoat this,” said Mr. Barr, the former Treasury official. “The housing finance system of the future will be one in which borrowers pay more.”

The loan limits were $417,000 everywhere in the country before the economy swooned in 2008. The new limits will be determined by various formulas, including the median price in the county, but will not fall back to their precrisis levels. In many affected counties, the loan limit will fall about 15 percent, to $625,500.

Monterey County, however, will see a much greater drop. The county is really two housing markets: the farming city of Salinas and the more affluent Monterey and Carmel.

Real estate records show that 462 loans were made in Monterey County between the current limit and the new ceiling since the beginning of 2009, according to the research firm DataQuick. That was only about 1 percent of the loans made in the county. But it was a much higher percentage for Monterey and Carmel — about a quarter of their sales.

Heidi Daunt, with Treehouse Mortgage, said loans too large for a government guarantee currently carried interest rates of at least 6 percent, more than a point higher than government-backed loans.

“That can definitely blow a lot of people out of the water,” Ms. Daunt said.

Can’t Get a Mortgage Loan – Part II

Posted in American Economy, Buying a Home with tags , , , , , , , on April 19, 2011 by David Griffith

Fed unveils proposal on mortgage standards

REUTERS/George Frey

On Tuesday April 19, 2011

By Dave Clarke

WASHINGTON (Reuters) – Lenders would be required to make sure prospective borrowers have the ability to repay their mortgages before giving them a loan, under a proposal released by the Federal Reserve on Tuesday.

The rule, which is required by the Dodd-Frank financial reform law, is intended to tighten lending standards and combat home lending abuses that contributed to the 2007-2009 financial crisis.

The rule would establish minimum underwriting standards for most mortgages and lenders could be sued by the borrower if they do not take the proper steps to check a borrowers ability to repay the loan.

The law does provide protections from this type of liability if a loan meets the specific standards that are part of a “qualified mortgage.”

In its proposal, the Fed is seeking comment on two possible ways of defining a qualified mortgage.

Under the first scenario the loan could not include interest-only payments, a balloon payment and regular payments could not result in the principle of the loan increasing.

Under the alternative, the loan would have to meet all the standards laid out under the first option and meet additional requirements such as having the lender verify a borrower’s employment status and debt obligations.

The proposal lays out a general standard for complying with the rule, including verifying a borrowers income, their employment and the amount of debt they have.

Mortgage originators who serve rural and underserved areas would be allowed to give out loans with balloon payments.

“This option is meant to preserve access to credit for consumers located in rural or underserved areas where creditors may originate balloon loans to hedge against interest rate risk for loans held in portfolio,” the Fed said in a statement.

The Fed is seeking comments on the proposal through July 22.

The final rule will be implemented by the Consumer Financial Protection Bureau, which opens its doors on July 21.