The Seattle Times: Sound Economy with Jon Talton

Seattle area reaches 'full employment' milestone | Jon Talton

Wed, 22 May 2013 10:45:47 PDT

Nearly four years after the end of the recession, King County unemployment hit 4.4 percent in April. That's a level economists would traditionally consider full employment. That's down from an average of 8.6 percent in 2009. It doesn't mean there's no suffering here due to job losses, but it's an important milestone nonetheless, especially when nationally 11 million are officially unemployed and the unemployment rate was 7.5 percent in April. It's an outlier in Washington, too: Pierce County's jobless rate was 8.1 percent; Gray's Harbor, 12.1 percent; Snohomish County did better at 4.9 percent.

The reasons are many: The Seattle area's diverse economy; the Amazon.com boom; a construction boom; infrastructure work, especially on the Alaskan Way tunnel and light-rail; continued strength in the IT and software sectors; trade, and Boeing (whose cutbacks haven't yet been felt, and many of whose Everett workers live in King County). We were less slammed by residential overbuilding. Another plus, aside from the Washington Mutual calamity, Seattle went into the recession strong, with companies enjoying strong balance sheets and potent assets such as our world-class clusters. Metros that entered the downturn weak, or dependent on housing, did the worst in the aftermath.

In the big divergence of recovery, Seattle is definitely on the winning side. Oklahoma City, a big energy center, turned in 4.6 percent in April. On the other side, April unemployment was 9.9 percent in Los Angeles; 9.6 percent in Miami; 9.4 percent in Chicago; 9.5 percent in Detroit; 8.4 percent in New York City, and 9.8 percent in Las Vegas. We shouldn't assume our good fortune is the norm.

In a separate report, the U.S. Bureau of Labor Statistics says that employment increased 2.4 percent in King County from September 2011 to September 2012, compared with the national rate of 1.6 percent. King County's average weekly wage rose 2.3 percent vs. a 1.1 percent average decrease nationally. King County turned in an average weekly wage of $1,354, the highest in the state. Okanogan County in north-central Washington, with an average weekly wage of $482, was lowest in the state.

And Don't Miss: 501(c)4s, 527 groups and the IRS dilemma | A Taxing Matter

Today's Econ Haiku:

QE could slow down

Bernanke won't tip his hand

It will trip the bulls

JPMorgan Chase's Dimon wins, again | Jon Talton

Wed, 22 May 2013 06:54:15 PDT

It should be no surprise that Jamie Dimon won his bid to keep both the chairman and chief executive titles at JPMorgan Chase. The company and lead director Lee Raymond, himself a retired chairman and CEO of Exxon, lobbied shareholders hard. Dimon implied he might resign if he lost the chairman's job. Scholars at the Stanford Graduate School of Business, looking at 20 years of data, put out a report claiming that splitting the two roles had little effect on stock price or future performance. Considering that relatively few major U.S. corporations separate the jobs — a practice corporate governance experts advise for proper checks on management power — this survey may be limited, but no matter. Most of all, JPM shares have been on a steady climb for the past year.

In the end, it wasn't even close, even though Institutional Shareholder Services Inc. and Glass Lewis & Co., influential advisory firms to institutional investors, supported stripping Dimon of the chairman's job and unseating directors on the risk committee. The resolution itself received 32 percent support from shareholders who voted, down from 40 percent for a similar resolution in 2012. Dimon himself received 98 percent of the vote for the board. And for all the sturm und drang leading up to today's annual meeting in Tampa, the resolution was non-binding. The bank was not required to implement it.

On top of the stock price and the clubby group-think of boards and institutional investors, Dimon still has his aura. He ably led the bank through the worst financial crash since the Great Depression. He extended its national retail franchise by purchasing the good part of Washington Mutual during the crisis. Perhaps as important, he has tremendous influence in Washington and has probably been the most effective individual in keeping the Dodd-Frank "re-regulation" weak, championing the big banks and gutting an effort that would have put tighter controls on derivatives. Against all this, the $2 billion London Whale trading loss is not much when assayed by the big institutions that vote most of the bank's shares. In addition, the board whacked Dimon's compensation as penance, the head of the division responsible for the loss was forced out and some $100 million in compensation to the traders was clawed back. This is more accountability than many big companies provide.

On the other side of the scale is Dimon's considerable ego. He is often the smartest person in any room; he always thinks he is the smartest person in every room. This is the man who failed to provide adequate controls for the Whale gambling and then initially called it "a tempest in a teapot." Characteristically, today in Tampa he said, "We try to admit our problems, fix them and move on." Then he declined to comment on the alleged manipulation ofLibor, the financial rates benchmark, which has prompted multiple investigations. JPM was among the banks subpoenaed last year in the scandal.

Whether this outcome, and the continued existence of the Too Big to Fail Banks, is good for the national interest is an entirely different question, one not addressed by the non-binding resolution.

And Don't Miss: The 182-percent loan — how installment lenders put borrowers in a world of hurt | ProPublica

Today's Econ Haiku:

'Make no little plans'

Biodomes for Amazon

Alas, dull towers

Yahoo's big Tumblr deal: a sign of things to come? | Jon Talton

Tue, 21 May 2013 06:44:43 PDT

Ever since the end of the recession, analysts have been predicting a revival of mergers and acquisitions. While some big deals have been consummated — American Airlines and US Airways, Amazon.com and Goodreads, and the buyouts of Dell and Heinz — predictions of a broad M&A revival in the United States have mostly come to little. Global deals performed better. For example, a report from the Jordan Edmiston Group, an investment bank, showed the value of M&A deals in marketing and related sectors fell 38 percent from the first quarter of 2012 to the same period this year. Overall, deals were down 4.4 percent from a year ago.

Now, with Yahoo's $1.1 billion deal for Tumblr, will more mergers become a part of the bull market? This deal is a gamble on the part of Yahoo CEO Marissa Mayer, the turnaround boss who came from Google. The social networking and microblogging site attracts 300 million visitors a month; it's also unprofitable. You can't acquire your way out of trouble. But Yahoo shares are up modestly this morning.

Some areas look promising, if M&A is your thing. For example, Vodafone Group, which could net $100 billion for selling its stake in its joint venture with Verizon Wireless, is seen in the market for new deals. Talk in the railroad industry has Kansas City Southern, which controls a lucrative line into Mexico and is the smallest Class I railroad, seeking a buyer. With corporations sitting on record cash and interest rates low, there's plenty of means to do deals.

On the other hand, deal-making can't be totally removed from the broader outlook. The newest Strategic Outlook from Russell Investments is instructive:

The stellar start to 2013 in equity markets makes us cautious about the near-term outlook. Markets move in cycles of optimism and pessimism, and the risk is that investors have become over-optimistic about the outlook for the U.S. economy and are underestimating the downside risks out of Europe.

U.S. fiscal tightening will be largest since 1969, keeping growth weak. The corporate profit outlook is "sluggish" and Russell argues that profit margins have peaked. We will see if this is an environment that supports mega-deals, or if Yahoo is a strategic one-off — or, rather, one of a relatively few big deals. [UPDATE: Dish Network's Charlie Ergen has made a $2 billion bid for LightSquared.]

M&A is always dicey for the Seattle region. Our big dogs, such as Microsoft and Amazon, are the acquirers. But more often, local companies are acquired by outside firms. And M&A rarely means more jobs if you're among the acquired.

And Don't Miss: Enron's Jeff Skilling doesn't deserve a break | LA Times

Today's Econ Haiku:

Dimon's in the rough

Will shareholders split his jobs?

Sticks or a carrot?

Poll: Your big economic worries | Jon Talton

Fri, 17 May 2013 12:46:04 PDT

The Dow is over 15,000, corporations are sitting on record amounts of cash, M&A activity is picking up, the deficit problem is on track to being solved, inflation is nearly non-existent and the U.S. economy is performing better than that of almost all other industrialized nations. Metropolitan Seattle, with 5.5 percent unemployment, is getting close to what economists would consider full employment. On the other hand, millions remain unemployed, wages are stagnant and inequality is the highest we've seen since the 1920s and perhaps even at a historic record. It's a recovery, but one very different from those seen in the post World War II era.

Consider that a recession comes along around every seven years or so. Also, the banking industry is as dangerous as ever, and so politically powerful that it was most recently able to push back meaningful regulation of derivatives. Federal austerity is holding back a more robust recovery. Recession in the eurozone, a slowdown in China and political tensions in east Asia are among many concerns. What has you most worried?

Read on for the best links of the week and the haiku:

• Recessions can hurt but austerity kills | The Guardian

• Climate change is already having a direct effect on global fisheries | Time

• Reducing unemployment is more important than cutting the federal deficit || US News

• The top 10 worst management fads | Globe and Mail

• The myth of a perfectly orderly liquidation authority for big banks | Simon Johnson/NYT Economix

• Rich-poor gap is accelerating, says OECD | BBC

• Google's multi-front war | Digitopoly

• Rethinking the middle class | Macrobusiness

• Billionaires now own American politics | Salon

• Who waters down Wall Street regulation anyway? | NY Mag

• Why Washington saved the economy then permanently destroyed the labor market | The Atlantic

• Natural resource scarcity is a real thing | Slate

Today's Econ Haiku:

Long run, we're all dead

Was Lord Keynes speaking about

The Sonics return?

No easy solutions after Bangladesh factory deaths | Jon Talton

Thu, 16 May 2013 11:05:49 PDT

The final toll of workers killed in the collapse of a garment factory in Bangladesh is 1,127. It is a staggering tally of loss. By contrast, the infamous 1911 Triangle Shirtwaist Factory fire in New York City killed 146. The Triangle fire, where factory managers had locked fire-escape doors, galvanized the Progressive movement in America, leading to new safety codes, labor laws and increased unionization. Such a favorable outcome in Bangladesh is much less likely.

As the Seattle Times' Amy Martinez reports, officials at Nordstrom are scrutinizing the safety conditions at the three Bangladesh factories where some of its garments are made (none were made at the factory that collapsed). Benetton, H&M, Joe Fresh, Mango, Tesco and Zara are among the companies that are pushing a binding agreement that requires them to help pay for better safety conditions at Bangladeshi apparel factories. Gap, Sears, and J.C. Penney are among others who have yet to sign on. Gap, for example, has said it fears lawsuits from American lawyers. Wal-Mart, the biggest player, is drafting its own plan, but critics worry it won't be enough to prevent further deaths.

In addition to the lack of a united front by Western retailers, the Bangladesh government is corrupt and deeply captured by the international garment industry. Ready made apparel is the poor country's largest export. The government did say it would allow garment workers to unionize and raise the minimum wage, but it's unlikely these reforms will do much good in such an environment.

Many Americans would be surprised to realize how many of the clothes in their closets and drawers come from sweat shops, workers toiling in abysmal conditions — indeed lethal conditions. But this is one of the consequences of the globalization and trade deals of the past quarter century. Not so long ago, much apparel sold in U.S. stores was made in the Carolinas. That industry has been nearly destroyed as hundreds of thousands of jobs were lost and the industry went to the developing world for cheap labor. In most cases, the agreements didn't set requirements for worker safety and wages, or for environmental protection. The global supply chain is so complex that buyers often don't even know the country of origin of the products they are buying. And it has changed consumer behavior. Author Elizabeth Cline calls it "fast fashion."

On NPR's Fresh Air, she told host Terry Gross, ""I'm 100 percent convinced this is the turning point. There's just something about the number of the pictures. I feel like it's too bad of a tragedy for the brands to bounce back this time." One can hope so, but I'm not so sure. Unless consumers in the West demand better, and are willing to pay for it, not much will change, especially in a poor nation with few institutions that can power reform.

And Don't Miss: Airbus pulls the covers off new composite airliner | Wired

Today's Econ Haiku:

There's no end in sight

For the eurozone troubles

Austerity blind