Monthly Archives: June 2014

The Nation’s Economy, This Side of the Recession

By ALICIA PARLAPIANO, SHAILA DEWAN and NELSON D. SCHWARTZ JUNE 14, 2014

In the five years since the United States began its slow climb out of the deepest recession since the 1930s, the job market has undergone a substantial makeover. The middle class has lost ground as the greatest gains have occurred at the top and bottom of the pay scale, leaving even many working Americans living in poverty. The housing industry, once the primary engine of growth and a fountain of jobs, has shrunk, while health care, technology and energy have led the recovery.

Lost Jobs, Missing Workers, Stagnant Wages

After a long climb from the valley, the number of jobs has finally reached the previous peak of January 2008, with gains of more than 8.5 million jobs since early 2010. Still, the working-age population has grown substantially in the last six years, and the nation’s economy, by reliable estimates, is at least seven million jobs below its potential. That has cost Americans hundreds of billions of dollars in lost output.

With the weak recovery from the recession, more than four million people are still considered among the long-term unemployed, out of work for at least half a year. They face considerably dimmer prospects of finding another job as their skills deteriorate and their contact with the world of work fades.

And that does not count the more than six million who have opted out of the labor force altogether, even taking into account demographic factors like the aging of the population.

Economists hope that many such people will be lured back to work as business improves and that wages will rise as the labor market tightens. But for now, the slack in the economy has served to hold down pay; wages for roughly four-fifths of American workers have declined since 2007, after adjusting for inflation.

Unemployment rate

BEFORE

NOW

5.0%

6.3%

Recession

’00

’07

’14

Labor force participation rate

BEFORE

NOW

66.0%

62.8%

’00

’07

’14

Share of unemployed out of

work for six months or more

BEFORE

NOW

17.4%

34.4%

’00

’07

’14

Source: Bureau of Labor Statistics

A Shrinking, Shifting Middle Class

The downturn hit hard at industries that employ middle-wage workers, particularly those categories with large concentrations of men, and the subsequent recovery has done little to improve their position. More than 1.5 million construction jobs, paying wages of $55,120, on average, are still missing.

The manufacturing sector, which pays an average of $51,480 a year, has regained several hundred thousand jobs in the last couple of years but now employs 1.7 million fewer workers than it did before the recession.

By contrast, the health care sector has continued to thrive, expanding its role as a leading employer at all salary levels and emerging as the backbone of an evolving new middle class. Home services and outpatient centers grew the most, as the American population aged and health services shifted away from hospitals to less expensive ways of delivering care. And while the growth has slowed under pressure to keep costs down, health care services have added 1.5 million jobs and are expected to expand further.

Over all, industries whose average salaries are in the middle of the wage spectrum have shrunk by 2.5 million jobs.

Industries paying middle wages

3 million

1 million

500,000 jobs

KEY

Each circle represents an industry paying an average of between $17 and $35 an hour and is sized by its number of jobs. Industries at the top of the charts have grown the most since the recession began.

Heath care

industries

Construction

industries

Manufacturing

industries

+60%

+40%

+20%

GROWN

SHRUNK

–20%

–40%

$17

$26

$35

AVG. HOURLY

EARNINGS

Source: Bureau of Labor Statistics

Industrial Ruin and Revival

Change in private manufacturing jobs, by county

Sept. ’07 – Sept. ’13

50,000 jobs

Increase

Decrease

10,000

1,000

Source: Bureau of Labor Statistics

Since the end of World War II, every recession has eliminated factories and cut jobs in manufacturing. But the most recent downturn was one of the worst, leaving the American economy with only about 12 million people working for manufacturing industries, 8.7 percent of the total number on payrolls.

By contrast, after a steep two-year drop that began in 2008, the total value of what the country makes is now back to where it was in 2007. As a result, companies doing business in the United States are producing their cars, airplanes, computer chips, turbines, household appliances and most everything else at fewer factories with many fewer workers.

That efficiency and high productivity provide many benefits. But because manufacturing jobs tend to pay better than those at retailers and restaurants — two sectors that have led the job expansion after the recession — the loss of so many factory positions is an important reason for the erosion of middle-wage jobs.

Manufacturing has recaptured a bit of momentum recently, with lower energy prices, a recovering auto industry and the return of some overseas production lifting employment by 600,000 from the trough four years ago.

While there will be bumps along the road, American industry will probably continue on the path of greater production of more valuable and sophisticated goods, relying on a shrinking share of the total work force.

Manufacturing production index

BEFORE

NOW

100.2

101.0

’90

’00

’07

’14

Manufacturing employment

In millions

BEFORE

NOW

13.7

12.1

’90

’00

’07

’14

Sources: Federal Reserve Bank of St. Louis;

Bureau of Labor Statistics

For Many Americans, Not Much of a Recovery

While the richest Americans have generally recouped their losses from the recession and gained considerable new wealth during the recovery, the situation is bleaker for the poor and for low-wage workers than it was in 2007.

As work dried up and wages stagnated, tens of millions of Americans took jobs with lower pay and fewer hours, many of them turning to the federal government for additional support to help make ends meet.

The number of people receiving food stamps under the Supplemental Nutrition Assistance Program soared to 47.6 million in 2013 from 26.3 million in 2007. Incomes for the typical middle-income family have slipped, and the nation’s poverty rate remains above its prerecession level.

Food stamp recipients

BEFORE

NOW

26.3

47.6

In millions

’13

’90

’00

’07

Poverty rate

BEFORE

NOW

12.5%

15.0%

’90

’00

’12

Median household income

BEFORE

NOW

$55,627

$51,017

’90

’00

’12

Sources: U.S. Department of Agriculture;

U.S. Census Bureau

In Housing, a Puzzling New Normal

The collapse of the mortgage-fueled housing bubble was the central cause of the recession. Although housing’s revival over the last couple of years has helped stabilize the economy, the sector will probably never again contribute as much to economic activity as it did during the boom years of the early 2000s.

Moreover, after scraping along the bottom for so long, it’s not clear what a normal housing industry would look like. Prices have rebounded, builders are breaking ground on new developments, foreclosures have dwindled and households are forming once more. But almost one in five homeowners with mortgages owe more than their homes are worth.

Even after double-digit price increases, houses are still about 15 percent below their peak value, on average. The situation varies widely across the country, however, with energy-rich states like Texas and North Dakota surpassing their old peaks while those that were hit hardest, like Nevada and Florida, still far from their previous highs.

Change from pre-recession peak home prices

Two years ago

One year ago

Now

PEAK

–60%

–40%

–20%

–60%

–40%

–20%

–60%

–40%

–20%

Nev.

N.C.

U.S.

Vt.

Fla.

Wis.

Ark.

Ariz.

Va.

Tenn.

R.I.

Mass.

Hawaii

W.Va.

Mo.

N.Y.

Ill.

Ga.

Mont.

Mich.

Utah

Iowa

N.J.

Ohio

Neb.

Conn.

Wash.

Alaska

Md.

Ore.

La.

N.M.

Miss.

Okla.

Pa.

Idaho

Colo.

Ind.

Del.

Tex.

Kan.

N.H.

Wyo.

Calif.

S.C.

S.D.

Ala.

Ky.

N.D.

Minn.

Me.

Source: CoreLogic Home Price Index, single-family combined series, as of April 2014

Benefiting From an Energy Bonanza

Even as much of American industry was suffering through the recession and anemic recovery, energy production was undergoing a stunning boom.

The middle of the country has been the prime beneficiary. Bolstered by hydraulic fracturing and other unconventional drilling methods, oil and natural gas output has surged, enriching traditional energy states like Texas as well as newer ones like North Dakota. (The effect can be seen in the map below, showing the change in all private employment by county.) Alternative energy sources like wind and solar have also gained.

Since 2007, employment in the oil and gas drilling business has surged by 60,000, to nearly 210,000, the highest level since “Dallas” was a hot television show in the 1980s and J.R. Ewing epitomized the swashbuckling oilmen of that time.

The combination of increased energy production and lower consumption, driven in part by efficiency gains, has led to much improvement in the country’s trade balance. Cheap natural gas has been a lifeline for manufacturers struggling to compete with overseas rivals; it has helped revive production in energy-intensive industries like chemicals and plastics.

U.S. energy production

In quadrillion B.T.U.s

TOTAL

Natural gas

Coal

Crude oil

Renewables

Nuclear

’90

’00

’07

’13

Source: Energy Information Administration

Change in all private-sector jobs

Sept. ’07 – Sept. ’13

–20%

–10

–5

+20

Data not available

Source: Bureau of Labor Statistics

Thriving Technology Proves a Magnet for Talent

As much of the rest of the economy clawed its way out of the recession, the technology industry emerged relatively unscathed. Today, it is thriving.

Social networking companies like Twitter and Facebook were just getting up and running in the years before the recession. Apple introduced its iPhone less than a year before the official start of the economic downturn in December 2007, setting off a wave of purchases of smartphones that have since come to dominate the market for mobile phones.

These technology companies, along with hundreds of others, generally managed to power through the hard times and have since emerged as prime drivers of the economy, creating tremendous wealth for a number of individuals and adding many well-paying jobs.

Silicon Valley, with its initial public offerings and billion-dollar acquisitions, isn’t showing any signs of slowing down. And those high-tech companies that capitalize on social media, cloud computing and big data are so appealing that they have even been luring business school graduates away from high-paying Wall Street jobs.

U.S. smartphone shipments

136.6

In millions

20.1

’07

’13

Industries of employment

among U.S. M.B.A. graduates

25%

Products and services

20%

Finance and accounting

Consulting

15%

Technology

10%

Nonprofits/government

Manufacturing

Health care

Energy and utilities

2008

2013

Sources: International Data Corporation;

GMAC Alumni Perspective Surveys

Employment Is Back Where It Started, but Not All Industries Fared the Same

Not all industries recovered equally over the past five years. Those that paid wages in the middle of the economic spectrum fared the worst over all, while low-paying industries hired the most during the recovery. Fast-food restaurants — which pay less than $22,000 a year, on average — added more jobs than nearly any other industry. Several high-paying areas also helped drive the recovery, including oil and gas extraction, computer programming, consulting, doctor’s offices and investment firms.

Population Declines to 2010 Levels – Thousands Leave State Seeking Work

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ART WOOLF12:12 a.m. EDT June 19, 2014

Vermont has only a few more residents today than it had in 2010, according to the U.S. Census Bureau. And, according to numbers just published by the U.S. Census Bureau, the vast majority of Vermont towns have fewer residents today than they did in 2010.

Let’s look at the good news first: Some Vermont towns grew relatively fast, if we define relatively fast as above the national average. But only 16 out of Vermont’s 251 towns and cities can make that claim. And most of those towns were in the greater Burlington metro area.

More than 180 towns have lost population in Vermont, an experience that hearkens back to the mid-19th century when many Vermont towns lost a significant share of their population. Indeed, many Vermont towns lost so many people that they did not regain their peak 19th century populations until the 1960s, over a century later.

Declining populations are not just a feature of small, rural Vermont towns. Most cities in Vermont have fewer residents today than they did at the 2010 Census count. That includes Burlington, Winooski, Montpelier, Barre City, St. Albans City, Bennington, Brattleboro, Windsor, White River Junction and St. Johnsbury.

The table shows the total population of a few towns and cities and their growth (or decline) since 2010. The left side shows some Chittenden County towns and a few outside of the county but still within commuting distance of Chittenden County’s employment centers.

Burlington and Winooski, which most people consider to be true cities (at least in a Vermont context) were the only Chittenden County jurisdictions that lost population. Every other town in the county, plus nearby Fairfax and Georgia in southern Franklin County, and St. Albans town, have grown. That’s not true of St. Albans City or Montpelier or Middlebury, despite their being within commuting distance of Burlington.

The right side columns show that throughout the state, historic cities and downtowns have all, except for Morrisville, experienced declining populations this decade.

The state has several programs to help revitalize downtowns. These include different varieties of tax credits, downtown designations, grants, and more. But almost every one of the historic cities that have received state revitalization funds are still losing population.

It’s difficult to have a healthy and thriving downtown when the population of the city supporting that downtown is declining. It’s not easy for the state or for localities to turn this around.

As to solutions, a first step would be to acknowledge that a declining population is a problem.

Art Woolf is associate professor of economics at UVM and editor of The Vermont Economy Newsletter.

Employers Get Payout After You Die – Years After You Exit Company – NY Times

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CORPORATE GOVERNANCE

An Employee Dies, and the Company Collects the Insurance… years after you retire, were fired, or left the company….

By DAVID GELLES

JUNE 22, 2014 10:43 PM 8 Comments

Monica Almeida/The New York TimesFreedom Communications’ chief executive, Aaron Kushner, defends the use of life insurance.

Employees at The Orange County Register received an unsettling email from corporate headquarters this year. The owner of the newspaper, Freedom Communications, was writing to request workers’ consent to take out life insurance policies on them.

But the beneficiary of each policy would not be the survivors or estate of the insured employee, but the Freedom Communications pension plan. Reporters and editors resisted, uncomfortable with the notion that the company might profit from their deaths.

After an intensive lobbying campaign by Freedom Communications management, a modified plan was ultimately put in place. Yet Register employees were left shaken.

The episode at The Register reflects a common but little-known practice in corporate America: Companies are taking out life insurance policies on their employees, and collecting the benefits when they die.

Because so-called company-owned life insurance offers employers generous tax breaks, the market is enormous; hundreds of corporations have taken out policies on thousands of employees. Banks are especially fond of the practice. JPMorgan Chase andWells Fargo hold billions of dollars of life insurance on their books, and count it as a measure of their ability to withstand financial shocks.

But critics say it is immoral for companies to profit from the death of employees, while employees themselves do not directly benefit. And despite a law enacted in 2006 that sought to curb the practice — companies now are restricted to insuring only the highest-paid 35 percent of employees, who must give their consent — it remains a growing, opaque and legal source of corporate profit.

“Companies are holding this humongous amount of coverage on the lives of human beings,” said Michael D. Myers, a lawyer in Houston who has brought class-action lawsuits against several companies with such policies.

Companies and banks say earnings from the insurance policies are used to cover long-term health care, deferred compensation and pension obligations.

“Life insurance is one of the ways of strengthening the long-term health of the pension plan and ensuring its ability to pay benefits,” Freedom Communications’ chief executive, Aaron Kushner, said in an interview.

And because such life insurance policies receive generous tax breaks — the company-paid premiums are tax-free, as are any investment returns on the policies and the death benefits eventually received — they are ideal investment vehicles for companies looking to set aside money to pay for pension plans. Companies argue that if they had to finance such obligations with investments taxed at a normal rate, they would incur losses and would not be able to offer the benefits to employees.

But in many cases, companies and banks can use the tax-free gains for whatever they choose. “If you want to take that money and go build a new bank branch, fine,” said Joseph E. Yesutis, a partner at the law firm Alston & Bird who specializes in banking regulation. “Companies don’t promise regulators they will use it for any specific purpose.”

Hundreds of billions of dollars of such policies are in place, providing companies with a steady stream of income as current and former employees die, even decades after they have retired or left the company.

Aon Hewitt estimates that in new policies worth at least $1 billion are being put in place annually, and that about one-third of the 1,000 largest companies in the country have such policies. Industry analysts estimate that as much as 20 percent of all new life insurance is taken out by companies on their employees.

But determining the exact size of the market for corporate- and bank-owned life insurance is impossible. With the exception of banks, companies do not have to report their insurance holdings.

“There is no reliable reporting of the use of who’s buying life insurance, of what they’re buying it for,” said Steven N. Weisbart, chief economist of the Insurance Information Institute.

Banks have to report their holdings because regulators want to know how much cash they could access if they had to redeem the policies in a pinch before the death of the insured employee.

That figure, known as the “cash surrender value” — or the amount they could withdraw immediately — provides a glimpse of just how big such policies can be.

Bank of America’s policies have a cash surrender value of at least $17.6 billion. If Wells Fargo had to redeem its policies tomorrow, it would reap at least $12.7 billion. JPMorgan Chase would collect at least $5 billion, according to filings with the Federal Financial Institutions Examination Council.

Because banks could collect the cash from insurance companies quickly, if needed, life insurance holdings are considered Tier 1 Capital, a basic measure of a bank’s strength. Many banks have 10 to 25 percent of their Tier 1 Capital invested in life insurance policies, according to Goldstein Financial Group, a broker dealer.

Insurance industry experts say that most big banks have delayed new life insurance purchases, in part because of limits on how much insurance they can hold. Yet the value of existing policies continues to grow, with the gains from invested capital outpacing the benefits paid out as employees die.

Corporate- and bank-owned life insurance grew out of so-called key person insurance policies that protected companies against the economic consequences related to the death of top executives. The New York Times Company has taken out life insurance policies on some top employees.

But absent meaningful regulation around the practice, it grew unchecked, and soon companies were taking out policies on many poorly paid employees like janitors, then reaping millions in profit when they died.

A string of class-action lawsuits, some filed by Mr. Myers, went after companies abusing the practice. Several companies, includingWalmart, settled the suits, paying millions to low-ranking employees who had been covered. The I.R.S. took companies including Winn-Dixie and Camelot Music to court for using policies as tax avoidance schemes.

Critics began calling the policies “dead peasant” insurance, an allusion to Nikolai Gogol’s novel “Dead Souls,” in which a con man buys up dead serfs to use them as collateral in a business deal.

Despite the criticism, companies and banks continued to use the policies to chase returns. In the years before the financial crisis, life insurers for banks including Wachovia and Fifth Third Bancorpinvested their premiums in a hedge fund run by Citigroup.

As the value of the fund rose, the profits were recorded on the companies’ balance sheets, raising earnings. But when the hedge fund collapsed during the market panic, so did the value of the policies, leading the banks to take substantial write-downs.

Efforts have been made to better regulate the practice. The 2006 Pension Protection Act included a set of best practices for companies taking out life insurance on employees.

“The government has taken great strides to clean it up,” said J. Todd Chambley, who runs the executive benefits practice at Aon Hewitt.

Still, the notion of life insurance policies benefiting company balance sheets, rather than individuals, remains subject to criticism.

Responding to attacks on the Freedom Communications plan, Mr. Kushner defended himself in a letter to employees. “Life insurance is not ghoulish, nor are the people who sell it, nor are those who buy it,” he wrote. “Life insurance, by its very nature, was created to benefit the people we love and care about most.”

r is greater than g — Thomas Piketty –

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So: Imagine a wealthy family that has managed, somehow or other, to guarantee that a large fraction of its income is used to accumulate more wealth. Can this family thereby acquire a dominant position in society?

The answer depends on the relationship between r, the rate of return on assets, and g, the overall rate of economic growth. If r is less than g, dynasties are doomed to erode: even if all income from a very large fortune is devoted to accumulation, the family’s wealth will grow more slowly than the economy, and it will slowly slide into obscurity. But if r is greater than g, dynastic wealth can indeed grow to gigantic size.

Notes on Piketty (Wonkish) Paul Krugman, NY Times

MARCH 14, 2014 7:47 AM

I’m working on a long-form review (for the New York Review of Books) of Thomas Piketty’s epic Capital in the 21st Century; I don’t want to steal my own thunder, so a broader reaction will have to wait. But for my own edification I wanted to write up a clarification of a couple of technical points.

Piketty’s big idea is that we are in the early stages of returning to a society dominated by great dynastic fortunes, by inherited wealth. And he has an analytic argument to back up that idea. I wonder, however, how many readers will fully appreciate either the strengths of the weaknesses of that argument.

To get at what is going on in his book, I think it’s useful to do it in the reverse order from his own presentation, first laying out a necessary condition for dynastic dominance, then asking what macroeconomic forces determine whether this condition is met.

So what determines r-g? Piketty stresses the effects of changes in economic growth. I find this easiest to see in terms of a standard Solow model. In the figure below, we assume that s is the aggregate rate of saving; that technological change is labor-augmenting, so that it can be thought of as increasing the number of effective workers faster than the number of actual workers; and that there is an aggregate production function Q/L = f(K/L) where Q/L is output per effective worker and K/L is capital per effective worker. The familiar diagram then looks like this:

Over time, the economy converges to steady-state growth at the rate n, which is the sum of labor force growth and technological progress, and the capital-output ratio converges to s/n.

As the figure shows, a decline in n will lead to a rise in the capital-output ratio and a fall in both r and g. Which falls more? Well, it depends on what happens to the capital share in output, which in turn depends on the elasticity of substitution between capital and labor.

I find this easiest to think of in terms of a numerical example. Let’s assume that s = .09 and initially n = .03. Then the capital-output ratio is 3; if the capital share is .3, r=.10. Now let n and hence steady-state g fall to .015. K/Q rises to 6. If the capital share doesn’t change, r falls to .05 – that is, it falls in proportion to growth. If the elasticity of substitution is less than 1, the higher ratio of capital to effective labor means a fall in the capital share, so the return on capital falls more than the growth rate. However, Piketty asserts that the elasticity of substitution is more than 1, so that the capital share rises, and r falls less than g.

And then Piketty tells us something remarkable: historically, r has almost always exceeded g – but there was an exceptional period in the 20th century, a period of rapid labor force growth and technological progress, when r was less than g. And he asserts that the kind of society we consider normal, in which high incomes reflect personal achievement rather than inherited wealth, is in fact an aberration driven by this exceptional period.

It’s a remarkable, sweeping vision. A couple of questions:

1. How much of the decline in r relative to g in the 20th century reflected fast growth, and how much reflected policies that either taxed or in effect confiscated inherited wealth? In other words, how much was destiny, how much wars and political upheaval? Piketty stresses both factors, but never gives us a relative quantitative assessment.

2. How relevant is this story to what has happened so far? In the United States, as Piketty himself stresses, soaring inequality has to date been largely been driven by labor income – by “supermanagers” (I prefer superexecutives.)

Much more when I deliver the whole thing.

( r > g ) (Piketty, 2014 Capital…) Poor People Drive Less, Spend Less, Earn Less

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Gas prices climb as turmoil in Iraq increases raising the cost of fuel.

As an economic threat, the $4 gallon of gas is not what it used to be.

There was a burst of media attention this week around the fact that today’s national average price of $3.69 per gallon for unleaded regular is the highest for this time of year since the grim economic days of 2008, as pump prices have edged higher with world oil prices amid violent unrest in Iraq. Yet better average gas mileage, higher wages and a dramatic decline in miles driven since 2008 means a further climb in gas prices probably wouldn’t pinch consumers noticeably unless it reached the new “pain point” of about $4.25 a gallon.

[Of course, in many parts of the country prices already far exceed $4. This analysis is based on national average prices, which are the key to gauging broad economic effects.]

Jack Ablin, chief investment officer of BMO Private Bank in Chicago, attempts to integrate gas prices, fuel efficiency and prevailing wages to compare the impact of gasoline prices on households across the decades. To do so, he calculates how many miles of driving could be “bought” with the national median hourly wage. He estimates that, since the 1970s, gasoline prices have inflicted serious pain on consumers only when the average hourly wage can purchase fewer than 150 miles of driving.

An hour’s work earned less than 150 miles on the road for much of 2007 and 2008, as the recession took hold amid record-high energy costs. From 1979 through 1982 – the classic “oil shock” years – things were considerably worse. At one point around 1980, an hour’s wages typically got you 100 miles (in a far thirstier vehicle) on the road. In the late ‘90s, the oil bust tax cut meant drivers “earned” up to 270 miles in an hour.

As of this week, Ablin figures, “motorists can travel 168 miles” on the gross amount earned through an hour of work. Assuming the median hourly wage today of $20.65 and typical light-vehicle gas mileage of 30 miles per gallon, that 150 mile threshold gas price sits at a national average price of $4.13 a gallon – or about 12% above current prices. This implies the U.S. economy still has a decent cushion against a substantial drag on consumer vitality – especially if recently emerging signs of wage growth carry forward.

The psychological effect

Sure, higher gasoline prices visible at every intersection might have a small psychological effect. A new Yahoo Finance poll asked whether recent increases would lead to curtailed road-trip plans this summer. While 52% said they’d likely stick closer to home, 31% said no, and the remaining 17% would only change plans if prices kept rising from here. But the true picture might be even a bit brighter than Ablin’s analysis suggests.

While his number-crunching work approximates the typical working-and-driving household’s capacity to travel on its paycheck, Americans as a whole are driving significantly less than they have in years. As Doug Short details on his valuable Advisor Perspectives blog, total miles driven as of May were 2.5% below their all-time peak of November 2007, right near that early 2008 period when gasoline prices were cresting.

The reasons for this are varied. While the still-impaired job market has something to do with it, the aging population and emerging preferences for urban living and alternative modes of travel also appear to be involved. Short’s tracking of miles driven, adjusted for the size of the driving-age population, seems to show structural societal changes underway. This is reflected in total domestic gasoline usage. In 2013 Americans burned 6% fewer gallons of the stuff than during the peak consumption year of 2007.

Putting it all together, if the current run rate of gas prices and income implies $4.13 a gallon is a key stress threshold, the reduced national driving habit means the aggregate economic burden from elevated gas prices won’t reach levels comparable to 2007 and 2008 until they hit a national average of at least $4.25 – up another 15%. Let’s call that the true U.S. economic “pain price.”

Viewed another way, when gas prices were around today’s level in 2008, U.S. gross domestic product was $14.5 trillion. Now, the per-gallon price is the same but fewer gallons are being used and the economy is more than 10% larger, at about $16 trillion.

This reduced energy burden should spare the economy much discomfort unless gas prices shoot dramatically higher in a relative hurry from here. This fact helps explain why the U.S. stock market has managed to inch to new all-time highs even as the Middle East noise and rising energy prices began bleeding into the headlines.

SMARTvt’s and Trustoptix Lean Six Sigma, ISO, GDS2, IEC 60661 Standards Guru to Lord Microstrain

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SMARTvt’s and Trustoptix Lean Six Sigma, ISO, GDS2, IEC 60661 Guru, Mark Poulin, will be providing complex solutions for Lord Microstrain in Williston. Poulin was selected among hundreds of competitors – passed a comprehensive Capabilities Verification, Background Verification and Fitness / Medical Assessment.

Poulin will be providing complex solutions for Lord Microstrain who makes innovative, miniature motion control sensors and integrated wireless systems helps performance-driven companies develop and maintain next-generation manufacturing machines. Our lines of small, power-smart sensors deliver the precision needed to enhance manufacturing productivity, ensure premium-quality products, and maximum energy efficiency. New cloud based sensor monitoring services offer high value asset owners the ability to track machine health through an entire product life.

LORD Corporation is headquartered in Cary, North Carolina and is a privately held corporation that was founded in 1924. MicroStrain® Sensing Systems business is based in Williston, Vermont and began in 1987. Earl development focused on producing micro-displacement sensors for strain measurement in biomechanics research applications. First sensors were designed for arthroscopic implantation on human knee ligaments; since then, LM expanded their product line through continual product improvement and expanded our market reach.

Poulin plays a major role in driving the miniaturization of key technology used to stop counterfeit electronics and art fraud and identifying high-end watches from fraud.

SMARTvt’s Food Distribution / Logistics and Specialty Product Sales Expert John McCarthy has accepted an Executive Leadership Role with Dowlings Inc, a Multi-state Food – Beverage – Retail – Specialty Niche Food Distributorship in New England and New York.

Dowlings Inc is a full line convenience wholesaler, Dowling’s services convenience and grocery stores across New Hampshire, New York and Vermont with a complete array of products, programs and value added services designed to help our customers grow their business profitably.

Independently owned and operated for nearly 100 years, each member of the Dowling’s team strives to provide a level of ethical service to our customers that will exceed their expectations. Dowlings Inc., is large enough to provide powerful purchasing power and technology, but never forgetting clients and customers.

Distribution is a money-maker as an enterprise.

The Distributor’s Role

Manufacturers produce products and retailers sell them to end users.

A can of motor oil, for example, is manufactured and packaged, then sold to automobile owners through retail outlets and/or repair shops.

In between, however, there are a few key operators-also known as distributors-that serve to move the product from manufacturer to market.

Some are retail distributors, the kind that sell directly to consumers (end users). Others are known as merchant wholesale distributors; they buy products from the manufacturer or other source, then move them from their warehouses to companies that either want to resell the products to end users or use them in their own operations.

According to U.S. Industry and Trade Outlook, published by The McGraw-Hill Companies and the U.S. Department of Commerce/International Trade Administration, wholesale trade includes establishments that sell products to retailers, merchants, contractors and/or industrial, institutional and commercial users. Wholesale distribution firms, which sell both durable goods (furniture, office equipment, industrial supplies and other goods that can be used repeatedly) and nondurable goods (printing and writing paper, groceries, chemicals and periodicals), don’t sell to ultimate household consumers.

Three types of operations can perform the functions of wholesale trade: wholesale distributors; manufacturers’ sales branches and offices; and agents, brokers and commission agents. As a wholesale distributor, you will probably run an independently owned and operated firm that buys and sells products of which you have taken ownership. Generally, such operations are run from one or more warehouses where inventory goods are received and later shipped to customers.

Put simply, as the owner of a wholesale distributorship, you will be buying goods to sell at a profit, much like a retailer would. The only difference is that you’ll be working in a business-to-business realm by selling to retail companies and other wholesale firms like your own, and not to the buying public. This is, however, somewhat of a traditional definition. For example, companies like Sam’s Club and BJ’s Warehouse have been using warehouse membership clubs, where consumers are able to buy at what appear to be wholesale prices, for some time now, thus blurring the lines. However, the traditional wholesale distributor is still the one who buys “from the source” and sells to a reseller.

Getting Into the Game – The Market or Channel

Today, total U.S. wholesale distributor sales are approximately $3.2 trillion.

Since 1987, wholesale distributors’ share of U.S. private industry gross domestic product (GDP) has remained steady at 7 percent, with segments ranging from grocery and food-service distributors (which make up 13 percent of the total, or $424.7 billion in revenues) to furniture and home furnishings wholesalers (comprising 2 percent of the total, or $48.7 billion in revenues). That’s a big chunk of change, and one that you can tap into.

The field of wholesale distribution is a true buying and selling game-one that requires good negotiation skills, a nose for sniffing out the next “hot” item in your particular category, and keen salesmanship. The idea is to buy the product at a low price, then make a profit by tacking on a dollar amount that still makes the deal attractive to your customer.

Experts agree that to succeed in the wholesale distribution business, an individual should possess a varied job background. Most experts feel a sales background is necessary, as are the “people skills” that go with being an outside salesperson who hits the streets and/or picks up the phone and goes on a cold-calling spree to search for new customers.

In addition to sales skills, the owner of a new wholesale distribution company will need the operational skills necessary for running such a company. For example, finance and business management skills and experience are necessary, as is the ability to handle the “back end” (those activities that go on behind the scenes, like warehouse setup and organization, shipping and receiving, customer service, etc.). Of course, these back-end functions can also be handled by employees with experience in these areas if your budget allows.

“Operating very efficiently and turning your inventory over quickly are the keys to making money,” says Adam Fein, president of Pembroke Consulting Inc., a Philadelphia strategic consulting firm. “It’s a service business that deals with business customers, as opposed to general consumers. The startup entrepreneur must be able to understand customer needs and learn how to serve them well.”

According to Fein, hundreds of new wholesale distribution businesses are started every year, typically by ex-salespeople from larger distributors who break out on their own with a few clients in tow. “Whether they can grow the firm and really become a long-term entity is the much more difficult guess,” says Fein. “Success in wholesale distribution involves moving from a customer service/sales orientation to the operational process of managing a very complex business.”

Setting Up Shop

When it comes to setting up shop, your needs will vary according to what type of product you choose to specialize in. Someone could conceivably run a successful wholesale distribution business from their basement, but storage needs would eventually hamper the company’s success. “If you’re running a distribution company from home, then you’re much more of a broker than a distributor,” says Fein, noting that while a distributor takes title and legal ownership of the products, a broker simply facilitates the transfer of products. “However, through the use of the internet, there are some very interesting alternatives to becoming a distributor [who takes] physical possession of the product.”

According to Fein, wholesale distribution companies are frequently started in areas where land is not too expensive and where buying or renting warehouse space is affordable. “Generally, wholesale distributors are not located in downtown shopping areas, but off the beaten path,” says Fein. “If, for example, you’re serving building or electrical contractors, you’ll need to choose a location in close proximity to them in order to be accessible as they go about their jobs.”

State of the Industry

Upon opening the doors of your wholesale distribution business, you will certainly find yourself in good company. To date, there are approximately 300,000 distributors in the United States, representing $3.2 trillion in annual revenues. Wholesale distribution contributes 7 percent to the value of the nation’s private industry GDP, and most distribution channels are still highly fragmented and comprise many small, privately held companies. “My research shows that there are only 2,000 distributors in the United States with revenues greater than $100 million,” comments Fein.

And that’s not all: Every year, U.S. retail cash registers and online merchants ring up about $3.6 trillion in sales, and of that, about a quarter comes from general merchandise, apparel and furniture sales (GAF).

This is a positive for wholesale distributors, who rely heavily on retailers as customers. To measure the scope of GAF, try to imagine every consumer item sold, then remove the cars, building materials and food. The rest, including computers, clothing, sports equipment and other items, fall into the GAF total. Such goods come directly from manufacturers or through wholesalers and brokers. Then they are sold in department, high-volume and specialty stores-all of which will make up your client base once you open the doors of your wholesale distribution firm.

All this is good news for the startup entrepreneur looking to launch a wholesale distribution company. However, there are a few dangers that you should be aware of. For starters, consolidation is rampant in this industry. Some sectors are contracting more quickly than others. For example, pharmaceutical wholesaling has consolidated more than just about any other sector, according to Fein.

Since 1975, mergers and acquisitions have reduced the number of U.S. companies in that sector from 200 to about 50. And the largest four companies control more than 80 percent of the distribution market.

To combat the consolidation trend, many independent distributors are turning to the specialty market. “Many entrepreneurs are finding success by picking up the golden crumbs that are left on the table by the national companies,” Fein says. “As distribution has evolved from a local to a regional to a national business, the national companies [can’t or don’t want to] cost-effectively service certain types of customers. Often, small customers get left behind or are just not [profitable] for the large distributors to serve.”

(r > g, Piketty, T., 2014 ) Recession’s Back Fueled by Oil Prices, Drops in Consumer Spending

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By Rick Newman13 hours agoBreakout

NEW YORK, NY – MARCH 06: A woman participates in a “Pink Slip” protest in Union Square on March 6, 2012 in New York City. The protest, which supports those who have lost their jobs due to the recession started in 2007, asks others to recognize that “the next pink slip might be yours,” and to support the lobbying of congress to invest in US-based jobs. (Photo by Andrew Burton/Getty Images)

A worrisome word is popping up in discussions among some economists: Recession. As in, the next one.

Many Americans feel the recession that began at the end of 2007 never ended, but in technical terms, the economy has been growing since the middle of 2009. Until recently, it looked as if growth might finally hit “normal” levels of 3% or more later this year, as the housing recovery kicks in and employers finally start to hire more. But recent economic setbacks have fed new worries about tapped-out consumers falling even further behind.

“The danger has increased the U.S. economy could pivot from healthier growth to close to recession in the next 6 to 18 months,” Bernard Baumohl of the Economic Outlook Group warned clients recently.

The Federal Reserve seems to share such concerns. It just lowered its forecast for GDP growth in 2014 by half a percentage point, to a range of 2.1% to 2.3%. Even at those lower growth rates, the economy wouldn’t be in a recession — yet the Fed’s projections have been notoriously overoptimistic.

In a press conference following the Fed’s recent two-day meeting, Fed Chair Janet Yellen acknowledged one of the biggest problems with the economy: Wages have barely kept up with inflation. “Real wage growth has essentially been flat,” she said. “It has not been rising in line with productivity.” She did point out, however, that supbar wage growth in recent months may have set the stage for an uptick later this year as wages catch up.

The recovery’s missing link: Spending power

There’s no single factor right now that’s dominating headlines and threatening the economy — but that could actually breed complacency and obscure smaller trends conspiring to generate a downturn. The biggest overall problem in an economy driven by consumer spending is that weak hiring and stagnant pay could leave consumers with little disposable income. “The issue is spending power, which remains the missing link in the recovery,” writes Joel Naroff of Naroff Economic Advisers.

If inflation were low, as it has been for most of the past five years, purchasing power wouldn’t suffer much. But inflation has been picking up this year, with the latest numbers showing a 2.1% annual inflation rate and larger price hikes for staples such as food and energy. Some economists point out that rising inflation is itself a sign of an improving economy — but when that happens, wage gains are usually part of the reason, which isn’t the case now.

During the past 12 months, average weekly earnings rose by the same amount as inflation, which means after inflation, the typical worker is barely staying even. Since lower-income workers spend a larger portion of their money on necessities that are rising in price faster than pay, those people are falling behind.

To make ends meet, more people are borrowing. The total amount of consumer debt rose by $26.8 billion in April, the biggest jump in nearly three years. Much of that was student loan debt, but credit-card debt was 12.3% higher than the year before — the biggest jump since 2001. Put it all together and it adds up to more consumers using credit cards to cover monthly expenses they can’t pay for with regular income.

The geopolitical factor

In a stable economy, that might be a temporary blip offset by an improving labor market. But now, add Iraq to the equation. The recent instability there has created the possibility of a wider Middle East conflagration that could threaten oil supplies, with prices already up $5 to $10 per barrel since last month, depending on the benchmark. The Iraqi situation could calm down for a while, or it could erupt into something even more dangerous. Either way, the oil price “fear premium” seems likely to linger, driving up gasoline prices for consumers. Again, if there were more slack in household budgets, this might not be a problem. But with many families on the edge, rising energy costs could lead to even more borrowing.

The real crunch would come if interest rates rise this year, as some forecasters expect. That would make revolving debt such as credit card balances, which usually have floating interest rates, more expensive. Since mortgage rates would also rise, homes would drift further out of reach of entry-level buyers, which could derail a housing rebound that’s fragile to start with.

The stock market is the final wild card. Investors have been buying stocks even as money advisers warn of a correction, setting up a test of the broader economy: Will it grow by enough to justify stock prices that are above historical averages? The jagged upward move in stocks this year suggests investors believe the answer is yes — but their conviction may be lacking. If growth falters and catches investors by surprise, that could be the catalyst triggering a 5% or 10% market correction, which many market watchers are calling for. A full-blown recession could trigger even steeper declines.

There’s a case for bullishness, too. “There are many good reasons why we should see a period of sustained growth,” Yellen said in her press conference, citing improving credit conditions, declining federal deficits and the Fed’s own efforts to boost the economy. Still, the ultimate sign of more stable economy will be the end of the Fed’s easy-money policy and the decision to start raising interest rates, which still seems unlikely before 2015 at the earliest. That gives Iraq and other problems a long time to play out.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.

View Comments (14)

Robert 5 hours ago

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What recovery? The “recovery” is just a sham due to companies buying out shareholders and making acquisitions with the funny money the Fed printed. Sooner or later there will be a correction and things will end very very badly for all as there’s nothing to show there’s people buying anything as there’s still a lot of people unemployed.

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HistoryMan 3 hours ago

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Unless geopolitics doesn’t tip us back into a recession then we are due during 2016-2019.

The USA has not gone more than 10 years without a recession (since the official end of a previous recession) since 1920.

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Patriot Alice 32 minutes ago

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If they told us they way things really are, we’d all get depressed, thus The Depression…

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mysaug 5 hours ago

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The selling out of manufacturing in this country by wall st, politicians, multinationals was biggest blow to our economy in last 50 yrs.

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It’s I 8 hours ago

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We haven’t even had a real recovery under the Obama administration, and people are already talking about a recession. Can we now all agree that more government spending, more regulations and higher taxes is not the prescription for economic improvement?

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brett d 4 hours ago

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trading in $20/hour factory jobs for minimum wage sales jobs isnt exactly my version of a recovery.

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Tuf Nut 5 hours ago

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Go away, Rick

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asdf 7 hours ago

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These “increases” are not enough to recover from the losses.

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Milt. V. 4 hours ago

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Didn’t you hear Yellen today? FREE MONEY for the 1% till 2016.
Whopeeeeeeee!

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4 more Beers! 3 hours ago

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there is no recovery. what they mean by recovery means cheap part time laborers for the 1%

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Jobs Recovery: Political Spin – “The Big Lie”

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Robert J. Samuelson: The jobs mystery: Straddling good news and bad

By Robert J. Samuelson, Washington Post

Published: Wednesday, June 11 2014 6:30 p.m. MDT

Updated: Thursday, June 12 2014 6:22 a.m. MDT

The good news is that May’s increase of 217,000 payroll jobs finally puts total employment above its pre-recession peak. There are 8.8 million more jobs than at the low point. Unemployment has dropped from 10 percent to 6.3 percent.

Amy Sancetta, FIle, Associated Press

Enlarge photo»

Robert J. Samuelson

Washington Post

Summary

With the government’s latest monthly employment report, the American job market has entered a bewildering good news, bad news phase.

WASHINGTON – With the government’s latest monthly employment report, the American job market has entered a bewildering good news, bad news phase. The good news is that May’s increase of 217,000 payroll jobs finally puts total employment above its pre-recession peak. There are 8.8 million more jobs than at the low point. Unemployment has dropped from 10 percent to 6.3 percent. Chief White House economist Jason Furman points out that monthly job gains have averaged nearly 200,000 in the past year and are trending up.

And the bad news? There’s plenty of that too. Economist Gary Burtless of the Brookings Institution notes that getting to the pre-recession employment level took six years and four months, far longer than the previous post-World War II record of four years after the 2001 recession. Not only has job creation been slow, but the number of people wanting more work remains discouragingly high. To the 9.8 million officially unemployed must be added another 7 million; they say they would like a job but — because they are not looking — are not counted in the labor force. Finally, there are 7.3 million part-time workers who would like longer hours.

Because the evidence is mixed, it’s hard to describe the job situation in terms that will strike most people as realistic. Clearly, the labor market has improved. At the depths of the recession, there were nearly seven unemployed workers for every estimated job opening, according to the Bureau of Labor Statistics. Now, the ratio is about 2.2. (Note: in 2007, this ratio fell to 1.4.) The latest number of job openings is 4.5 million for April, 108 percent higher than the low point in July 2009.

But the improvement has not yet been powerful enough to produce a parallel increase in wages, as employers bid for scarce workers. Average weekly earnings are running about 2 percent above a year ago, roughly compensating for inflation over the same period. Moreover, the share of the jobless who are unemployed for six months or more remains at historically high levels, 34.6 percent in May. Until the Great Recession, the post-World War II peak for long-term unemployment was 26 percent in 1983; in 2010, it reached a high of 45.3 percent.

There has also been a massive exodus from the labor force. Since late 2007, the number of people 16 and over “not in the labor force” has increased by almost 13 million. Studies suggest that at least half of the loss reflects natural causes: older workers retiring; spouses — men and women — staying at home with children. Adding the remaining labor-force dropouts to the officially unemployed would boost the jobless rate to 9.7 percent, estimates the Economic Policy Institute, a left-leaning research and advocacy group.

So the job market straddles good news and bad. The open question is whether the economy is approaching “full employment” — often estimated between 5 percent and 6 percent unemployed — or whether stronger job creation will pull many recent dropouts back into the labor market. If full employment approaches, that could put upward pressure on wages and inflation. But if dropouts re-enter the labor market, the numbers of both the employed and the unemployed might rise.

There’s no consensus. A recent paper by Princeton University economists Alan Krueger, Judd Cramer and David Cho found that the long-term unemployed are on the fringes of the labor market and, even in good times, have poor re-employment prospects. They don’t much influence wages and prices. The same logic would seem to apply to labor-market dropouts. We may be closer to “full employment” than is commonly supposed. On the other hand, the Great Recession and the weak recovery aren’t typical of economic cycles since World War II. Past patterns may not hold.

Robert J. Samuelson is a columnist at the Washington Post.

US Marine Corp Sergeant Major Jamie Deets Joins SMARTvt.org

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Welcome to SMARTvt.org Sergeant Major Deets !

Sergeant Major Deets, USMC, soon to be retired has joined SMARTvt.org.

Says SMARTvt Michael Hussey, Captain, USMC, “Deets is directly responsible for shaping, molding, training, managing thousands of young Marines who now are employed as civilians throughout the world. He has a reputation for excellence in intelligence, tough-mindedness, perseverance, technology, training, staff development and senior level management.”

Deets has powerful credentials in:

– Logistics

– Budgeting

– Strategy

– Human Resource Development

– Production

– Goal Attainment

– Staff Development

Said Michael J. Kipp, CEO of SMART Holdings USA – “Deets exemplifies our commitment to life-long-learning, personal subject matter expertise development accountability, and sustained contributions into the professional lives of others. We are happy to have Sergeant Major Deets with us.”

Director of Learning, Dr. Michael Olson said he hopes to incorporate Deets Subject Matter Expertise in Staff Development into his “Distance Learning” program.

Welcome Sergeant Major Deets.

SMARTvt – SMART Holdings USA

Changing the way the world works

Monthly Archives: June 2014

Recession Update – NY Times Reports – Trends, Data, Where The Jobs Are

BUSINESS DAY

The Nation’s Economy, This Side of the Recession

Population Declines to 2010 Levels – Thousands Leave State Seeking Work

Employers Get Payout After You Die – Years After You Exit Company – NY Times

An Employee Dies, and the Company Collects the Insurance… years after you retire, were fired, or left the company….

r is greater than g — Thomas Piketty –

Notes on Piketty (Wonkish) Paul Krugman, NY Times

( r > g ) (Piketty, 2014 Capital…) Poor People Drive Less, Spend Less, Earn Less

SMARTvt’s and Trustoptix Lean Six Sigma, ISO, GDS2, IEC 60661 Standards Guru to Lord Microstrain

The Distributor’s Role

(r > g, Piketty, T., 2014 ) Recession’s Back Fueled by Oil Prices, Drops in Consumer Spending

A new reason to worry about jobs and stocks

Jobs Recovery: Political Spin – “The Big Lie”

Robert J. Samuelson: The jobs mystery: Straddling good news and bad

US Marine Corp Sergeant Major Jamie Deets Joins SMARTvt.org

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