Britain Slides Into Double-Dip Recession

April 30th, 2012

Europe’s financial woes have spread across the English Channel as the United Kingdom slid into its first double-dip recession since the 1970s. Britain’s GDP fell 0.2 percent from the 4th quarter of 2011, when it declined 0.3 percent, according to the Office for National Statistics (ONS).

As anti-austerity backlash grows on the Continent, Prime Minister David Cameron said the data was “disappointing” and promised to shore up growth without backtracking on the UK’s biggest fiscal squeeze since World War II.  “I don’t seek to excuse them, I don’t seek to try to explain them away,” Cameron said.  “There is no complacency at all in this government in dealing with what is a very tough situation, which frankly has just got tougher.”  Cameron said “We have got to rebalance our economy.  We need a bigger private sector.  We need more exports, more investment.  This is painstaking, difficult work but we will stick to our plans, stick with low interest rates and do everything we can to boost growth, competitiveness and jobs in our country.”

Opposition leader Ed Miliband said the figures are “catastrophic” and asked Cameron why this had happened.  “This is a recession made by him and the chancellor in Downing Street.  It is his catastrophic economic policy that has landed us back in recession,” Miliband said.

The Bank of England is in the last month of economic stimulus and the fall-off in output comes as prospects dim in the Eurozone, Britain’s biggest export market.  “This isn’t supportive of the fiscal consolidation program, so the government is likely to be concerned about that,” said Philip Rush, an economist at Nomura International in London.  “The data were bad, and that supports the view that the Bank of England will do a final £25 billion of quantitative easing in May.”

According to ONS, output in the production industries decreased by 0.4 percent; construction fell by three percent.  Output of the services sector, which includes retail, increased by 0.1 percent.  The decline in government spending contributed to the particularly large fall in the construction sector.  “The huge cuts to public spending – 25 percent in public sector housing and 24 percent in public non-housing and further 10 percent cuts to both anticipated for 2013 — have left a hole too big for other sectors to fill,” said Judy Lowe, deputy chairman of industry body CITB-ConstructionSkills, said.

The UK’s last double-dip recession, defined as consecutive quarterly drops in GDP, was in 1975. At that time, Labour Prime Minister Harold Wilson was in office and Margaret Thatcher was elected leader of the opposition Conservatives.  UK Treasury forecasters and the International Monetary Fund (IMF) believe the economy will grow 0.8 percent this year, the same as last year.  According to Chancellor of the Exchequer George Osborne, the UK’s economic situation is “very tough” and the government should stick to its plans of eliminating a majority of the deficit by 2017.  “The one thing that would make the situation even worse would be to abandon our credible plan and deliberately add more borrowing and even more debt.  It’s taking longer than anyone hoped to recover from the biggest debt crisis of our lifetime,” Osborne said. “The one thing that would make the situation even worse would be to abandon our credible plan and deliberately add more borrowing and even more debt.”

Chris Williamson, chief economist at Markit, said: “The underlying strength of the economy is probably much more robust than these data suggest.  The danger is that these gloomy data deliver a fatal blow to the fragile revival of consumer and business confidence seen so far this year, harming the recovery and even sending the country back into a real recession.”

Not everyone agrees that the data indicates a double-dip recession.  Writing in the Telegraph, Philip Aldrick says that “Economists have been questioning the reliability of the ONS numbers for a while now, but the latest data drew the debate sharply into focus.  At -0.2 percent, the GDP reading was considerably worse than the consensus of 0.1 percent growth.  The ‘discrepancy’, as Goldman Sachs’ Kevin Daly described it, was ‘unbelievable’ because much of the recent survey data – from the Bank of England’s agents’ reports to the purchasing managers’ indices – have been encouraging.  Andrew Goodwin of the Ernst & Young ITEM Club agreed.  ‘Our reaction is one of disbelief,’ he said.  ‘The divergence is virtually unprecedented and must raise significant question marks over the quality of the data.’  They are not alone.  No lesser institution than the Bank of England has queried the ONS data.  Last week, minutes to the Monetary Policy Committee meeting damningly noted: ‘The sharp falls in construction output in December and January were perplexing, and the Committee was minded not to place much weight on them.”

Tom Silva

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March Housing Starts Down, While Construction Permits Rise

April 25th, 2012

American homebuilders started construction on new houses in March at a slower pace, but in an ironic twist, the number of construction permits jumped to their highest level in 3 ½ years.  This is a positive signal for the slumping residential industry.  According to the Department of Commerce, housing starts fell 5.8 percent to an annual rate of 654,000, significantly below the MarketWatch forecast of economists who had projected an increase to 703,000.  Housing starts in February were also revised down slightly, to 694,000 from 698,000.  At the same time, building permits — a measure of future demand — rose 4.5 percent to 747,000 in March from February’s revised 715,000.  The increase occurred entirely in the multi-dwelling housing segment.

The increase in permits suggests builders are increasingly optimistic as the industry recovers from the worst slump in modern times. Multi-family permits rose 24.2 percent to 262,000.  On the other hand, permits for single-family homes fell 3.5 percent to 462,000 — evidence that builders still face pressure from a deluge of foreclosures.  Many buyers are looking for deals on existing homes instead of paying more for new construction.

Some economists speculate that warm weather contributed to the March decline in housing starts because it allowed builders to start new projects in January and February that they normally would have begun in spring.  “It appears that the payback from an unusually warm fall and winter came in March as record warm temperatures likely pulled new construction forward,” said Yelena Shulyatyeva of BNP Paribas.

The average March temperature was 51.1 degrees; that’s 38.6 degrees warmer than the 20th century average and the hottest March since records were first kept in 1895, according to the National Oceanic Atmospheric Administration.  Spring home sales are expected to outpace last year as record low mortgage rates produce an attractive market for home buyers.  The average fixed rate on a 30-year mortgage was 3.88 percent in mid-April, according to Freddie Mac and may fall again.

An oversupply of unsold homes is holding prices down, creating a major difficulty for the sector, said Gregory Miller, an economist at Suntrust Banks in Atlanta.  “The production side of the housing market is in the early stages of recovery, but builders are shifting their composition of products from condos and single-family homes to apartment construction.  It’s going to be rocky for awhile.  You still have inventory overhang.  There are also issues on the financing side of production as well as the mortgage side.  The problem is getting over the financing hurdle. Lenders are still very concerned about where they put their capital.  From a trend perspective, it is still on a rising path.  Tentative is the best we could say about this.”

Even a slow-growing housing market is a big plus because it is no longer a drag on the broader economy. Residential real estate was the cause of the financial crisis and the recession, so it’s encouraging to see this sector moving in the right direction.  It’s early to expect strong, sustained growth in the immediate future.  “Housing continues to bump along the bottom,” said Jacob Oubina, a senior economist at RBC Capital Markets.  “The best we can hope from housing over the next couple years is that it won’t subtract from growth.”

According to Omer Esiner, Chief Market Analyst, Commonwealth Foreign Exchange, “The housing data is mixed.  On the one hand housing starts came in below expectations and on the other hand it was a strong month for permits, which bodes well for the months ahead.  So the rise in permits kind of offsets the disappointing data.”

Mike Ochs

Posted by: Mike Ochs
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Let’s Go Shopping!

April 24th, 2012

Despite rising gas prices, retail sales in the U.S. rose 0.8 percent in March, proof that consumers are still filling up their tanks, according to economists.  The rise in purchases follows a 1.1 percent increased in February that was the biggest in five months, according to a survey of 71 economists.  The gain sent retail sales to a record high of $411.1 billion, 24 percent higher than the recession low hit in March 2009.  “Retail sales are going to end the quarter on a positive note,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc.  “Underlying job growth is decent.”

Sales may have been helped by the unusually warm weather. The average temperature was 51.1 degrees Fahrenheit, the warmest on record for the month in the past 117 years, according to the National Oceanic and Atmospheric Administration.  The economy expanded “at a modest to moderate pace” from mid-February through late March as manufacturing, hiring and retail sales strengthened, according to the Federal Reserve’s latest Beige Book report.  The central bank is maintaining its benchmark interest rate near zero until late 2014 to encourage economic expansion.

Americans spent more on building materials, cars, electronics, furniture and clothing in March.  A separate Department of Commerce report showed that American companies restocked at a steady pace in February, which suggests that businesses expect consumers to continue spending this spring.  The retail sales report is the government’s initial monthly look at consumer spending, which represents 70 percent of economic activity.  The increase, along with other positive data on inventories and trade, suggests growth in the January-March quarter could be stronger than first thought.  Economists are estimating growth at an annual rate of between 2.5 percent and three percent in the 1st quarter, which is in line with the annual pace reported for the October-December quarter.  Americans are feeling greater confidence in the economy after seeing hiring strengthen over the winter.  Job gains were typically 246,000 per month from December through February.

In terms of cars, “The industry and consumers have been very resilient in the face of higher pump prices,” Don Johnson, vice president of U.S. sales at General Motors, said.  “The steadily improving economy is playing a role and so is pent-up demand and an improved credit market.”

Corporate stockpiles rose a seasonally adjusted 0.6 percent, according to the Commerce Department. That’s less than January’s upwardly revised gain of 0.8 percent. The increase pushed stockpiles to $1.58 trillion which is nearly 20 percent more than the recent low hit in September 2009, just after the recession ended. Sales grew faster than inventories in February, rising 0.7 percent.  This is a good sign because it is evidence that companies aren’t building too much inventory, which can result in cutbacks in production in the future.

“The pace of inventory building is consistent with what you’d expect to see in a gradual expansion,” said Tim Quinlan, an economist at Wells Fargo.  Businesses are rebuilding their stockpiles after cutting them over the summer in fear of a double-dip recession.  Steady inventory growth in the 1st quarter, as well as a narrower trade deficit in February and stronger retail sales, has lifted the outlook for growth.

American households “have the income to propel their purchases now that we’re seeing job growth,” said Russell Price, senior economist at Ameriprise Financial Inc., the third- best forecaster of retail sales for the 24 months ended in March.  “They have adjusted to the higher price of fuel.  The economy now needs to build on its own momentum.”

Tom Silva

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Is Greece Headed Towards a Third Bailout?

April 23rd, 2012

Lucas Papademos, Greece’s prime minister, said that his crisis-plagued country could require a third bailout just weeks after it secured a second round of rescue funds after much discussion in Brussels. Athens may have received the biggest bailout in history but another lifeline could not be ruled out, according to Papademos.  To date, the European Union (EU) and International Monetary Fund (IMF) have committed a total €240 billion to the nearly bankrupt nation.  “Some form of financial assistance might be necessary but we have to work intensely to avoid such an event,” Papademos said, noting that additional spending cuts are inevitable.  Whatever government emerges after the upcoming general election, it is vital that is it prepared for the measures.  “In 2013 – 2014, a reduction in state spending of about €12 billion is required under the new economic program,” Papademos said.  “Every effort must be made to limit wasteful spending and not to further burden salaries of civil servants.”

Greece’s new government will have “about 60 days” to enact long-overdue structural reforms and agree on ways of reining in public debt before officials make a decisive inspection tour in June.  “It is very important that there is no let up in the pace of reforms after elections,” said a senior Papademos aide.  The chiefs of both the EU and IMF missions to Greece said while progress is being made in meeting deficit-reducing targets, a lot of work remains to be done.  “There are still many measures to be taken, painful ones too.  I believe we’ll be able to see in the second half of the year in which direction we’re going, whether we’re on the right path or not,” said Matthias Mors, head EU monitor.

Papademos reiterated that Greece will do everything necessary to remain in the Eurozone, saying the cost of an exit would be “devastating.  More than 70 percent of the Greek people support the country’s continuing participation in the euro area,” he said.  “They realize, despite the sacrifices made, that the long-term benefits from remaining in the Eurozone outweigh the short-term costs.  Greece will do everything possible to make a third adjustment program unnecessary,” Papademos said.  “Having said that, markets may not be accessible by Greece even if it has implemented fully all measures agreed on.  It cannot be excluded that some financial support may be necessary, but we must try hard to avoid such an outcome.”

Private investors in Greek debt wrote down the value of their investment by 53.5 percent, or risk losing everything in a possible default.  Public-sector jobs are being slashed, workers ‘ wages are being frozen, welfare payments are being slashed, and taxes are being raised.  Greece’s official unemployment rate is currently more than 20 percent.  If Greece does default, it could start a domino effect that would drag down other ailing European economies — possibly plunging the Eurozone into recession.

According to Papademos, “The real economy is still weak, and high unemployment is likely to persist in the near future.  The challenging period ahead of us needs to be addressed with great care.  If we do things right, implementing all measures agreed upon in a timely, effective and equitable manner, and if we explain our policy objectives and strategy convincingly, public support will be sustained.  An improvement in confidence would have a positive multiplier effect on economic activity and employment.”

When asked if Greece might return to its old currency, Papademos said “The consequences would be devastating.  A return to the drachma would cause high inflation, unstable exchange rate, and a loss of real value of bank deposits.  Real incomes would drop sharply, the banking system would be severely destabilized, there would be many bankruptcies, and unemployment would increase.  A return to the drachma would increase social inequalities, favoring those who have money abroad.”

James I. Clark III

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Rising Unemployment Could Push Eurozone Into a Double-Dip Recession

April 18th, 2012

Europe’s unemployment has soared to 10.8 percent, the highest rate in more than 14 years as companies from Spain to Italy eliminated jobs to weather the region’s crisis, according to the European Union’s (EU) statistics office.  That’s the highest since June 1997, before the Euro was introduced.  European companies are cutting costs and eliminating jobs after draconian austerity measures slashed consumer demand and pushed economies from Greece to Ireland into recession.

According to Eurostat, the number of unemployed totaled 17.1 million, nearly 1.5 million higher than in 2011.  The figures stand in marked contrast to the United States, which has seen solid increases in employment over the past few months.  “It looks odds-on that Eurozone GDP contracted again in the first quarter of 2012….thereby moving into recession,” said Howard Archer, chief European economist at IHS Global Insight.  “And the prospects for the second quarter of 2012 currently hardly look rosy.”

The North-South divide is evident, with the nations reporting the lowest unemployment rates being Austria with 4.2 percent; the Netherlands at 4.9 percent; Luxembourg at 5.2 percent; and Germany at 5.7 percent.  Unemployment is highest among young people, with 20 percent of those under 25 looking for work in the Eurozone, primarily in the southern nations.  The European Commission, the EU’s executive arm, defended the debt-fighting strategy, insisting that reforms undertaken by governments are crucial and will ultimately bear fruit.  “We must combat the crisis in all its fronts,” Amadeu Altafaj, the commission’s economic affairs spokesman, said, stressing that growth policies are part of the strategy.

According to Markit, a financing information company, Germany and France, the Eurozone’s two powerhouse economies, saw manufacturing activity levels deteriorate.  France fared the worst with activity at a 33-month low of 46.7 on a scale where anything below 50 indicates a contracting economy.  Only Austria and Ireland saw their output increase.

Spain, whose government recently announced new austerity measures, had the Eurozone’s highest unemployment rate at 23.6 percent; youth unemployment — those under 25 years of age — was 50.5 percent.  Greece, Portugal and Ireland — the three countries that have received bailouts — had unemployment rates of 21 percent, 15 percent and 14.7 percent respectively.

With unemployment rising at a time of austerity, consumers have stopped spending and that holds back the Eurozone economy despite signs of life elsewhere.  “Soaring unemployment is clearly adding to the pressure on household incomes from aggressive fiscal tightening in the region’s periphery,” said Jennifer McKeown, senior European economist at Capital Economics.  She fears that the situation will worsen and that even in Germany, where unemployment held steady at 5.7 percent, “survey measures of hiring point to a downturn to come.”

The numbers are likely to worsen even more. “We expect it to go higher, to reach 11 percent by the end of the year,” said Raphael Brun-Aguerre, an economist at JP Morgan in London.  “You have public sector job cuts, income going down, weak consumption.  The economic growth outlook is negative and is going to worsen unemployment.”

Writing for the Value Walk website, Matt Rego says that “By the looks of it, Europe could be heading for a recession very soon.  If the GDP contracts this 1st quarter of 2012, they will most likely be in a double dip.  Those are some pretty scary numbers and forecasts because they would send economic aftershocks around the world.  If Europe goes into a double dip and U.S. corporate margins do peak, we could be looking at trouble.  If you are a ‘super bull’ right now, I would reconsider because we are walking the line for both factors coming true and there really is nothing we can do, the damage is done.  Could we have seen all of the year’s gains in the beginning of this year?  Probably not but this European recession scare would certainly trigger a correction in the U.S. markets.  Bottom line, get some protection for your portfolio.  Buy stocks that aren’t influenced by economic times and buy protection for stocks that would react harshly to a double dip.”

James I. Clark III

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Facebook IPO to Be Listed on Nasdaq

April 17th, 2012

Facebook is friending Nasdaq in one of the most-desirable deals among the Internet companies jockeying ahead in the race for social-media IPOs.  The addition of Facebook’s listing enhances Nasdaq’s reputation as the favored exchange among high-tech companies.  The exchange is home to several tech firms, including Apple and Google.  The stock will trade under the symbol FB, as Facebook prepares its initial public offering for May.

“This is a strong, substantial win for Nasdaq, and no doubt a momentum builder for future listings,” said Richard Repetto, an analyst at Sandler O’Neill & Partners.  Facebook’s IPO — which could raise as much as $10 billion — -is likely to be the biggest Internet IPO since Google’s in 2004.  “Winning Google further emboldened Nasdaq’s reputation as being the exchange of choice for the technology companies,” said Jay Frankl, senior managing director at FTI Consulting.  “The Facebook listing I’ve seen as being similar to the Google listing, which had a similar competition between the exchanges, and a similar win for Nasdaq.”

Companies pay an annual fee to list their stock, while exchanges receive listings-related income from the sale of market data and additional services offered to their listed companies.  A company can pay as much as $500,000 annually to be listed on the NYSE, while all Nasdaq fees are capped at approximately $100,000.

The decision is a big victory for Nasdaq, which competes intensely with NYSE Euronext, which operates the New York Stock Exchange.  The listing will give Facebook financial clout as it works to expand its global audience of about 845 million users.  It also might help Facebook avoid a challenge from Google, which wants to rival Facebook with its own social networking system.

Writing in Forbes, Robert Hof wonders if “Will Facebook’s sudden, outsized presence distort the Nasdaq index of 100 companies so that it becomes even more volatile than it already is?  It’s not a premature question by any means.  Already, just a few companies – Apple, Google, Microsoft, Intel, and Oracle – dominate the Nasdaq index, accounting for nearly half the value of the entire Nasdaq 100.  Thanks to its incredible run, Apple stock once again accounts for almost 20 percent of the index, after exchange operator Nasdaq OMX Group reduced its weighting to 12 percent a year ago.  It’s not clear yet, of course, what kind of presence Facebook will have in the index, since it obviously has to go public first and then get added by Nasdaq OMX.  But it seems a good bet that trading in its shares, like those of many new issues, will be anything but calm.  And given the huge interest in the company by investors and the press, and the relatively small float at the outset, every little announcement or hiccup seems sure to send the shares soaring or plummeting.  If Facebook becomes a significant portion of the Nasdaq index, as seems likely, that could make the famously dynamic index even more volatile.  This isn’t much of a problem for Facebook itself.  Its fate rests less with what the stock does in the short term than with how CEO Mark Zuckerberg and his business executives Sheryl Sandberg and others build out the company’s advertising, payments, and other potential businesses.”

CNBC’s Bob Pisani says that Nasdaq’s securing the Facebook listing is an important psychological victory. According to Pisani, “What does matter are the co-branding opportunities, and it here it gets down to a simple issue: what are you offering in the way of a partnership?  It’s not hard to imagine the pitch: the NYSE would certainly have argued that they have broader business-to-business connections with the biggest companies in the world, with whom they can partner to expand the brand name and co-venture with.  I have mentioned before that, as an example, if Groupon (which listed on Nasdaq) was doing something with Starbucks, Groupon might send out 65 million emails that references a deal with Starbucks and Groupon, with the solicitation noting that Groupon is listed on Nasdaq.  Nasdaq will pick up a portion of that cost.  Zillow, to take another company (also on Nasdaq), might have been very interested that Nasdaq has an enormous electronic sign in Times Square that is a virtual billboard for a company that wants to attract eyeballs to its website.  Get it?  What can you offer us?  And just what did Nasdaq offer to Facebook?”

Tom Silva

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EPA Putting the Lid on Coal-Fired Power Plants

April 16th, 2012

The Environmental Protection Agency (EPA) announced new greenhouse-gas standards for power plants, following through with the authority conferred by a 2007 Supreme Court ruling declaring carbon dioxide a pollutant under the Clean Air Act.  The new regulation effectively bans new coal-fired power plants unless they capture and sequester carbon dioxide.  Advanced natural-gas plants would meet the standard without mitigation, while existing power plants would be grandfathered in.  The regulation would require new power plants to emit no more than 1,000 pounds of CO2 per megawatt‐hour of electricity generated.

What are the implications?  It is clear that the short-term impact will be minimal: cheap natural gas derived from plentiful shale deposits is already overtaking coal as a source of power.

An average coal-fired plant generates more than 1,700 pounds of carbon dioxide per megawatt. The majority of natural-gas fired plants – and the bulk of power plants currently under construction – emit less than the new standard, approximately 800 pounds per megawatt.

Environmentalists praised the proposed restrictions, while the coal industry warned that the change would lead to higher electricity prices.  “Today we’re taking a common-sense step to reduce pollution in our air, protect the planet for our children, and move us into a new era of American energy,” said EPA Administrator Lisa Jackson.  “We’re putting in place a standard that relies on the use of clean, American-made technology to tackle a challenge that we can’t leave to our kids and grandkids.”  Currently, there is no consistent national limit on the amount of carbon emissions that new power plants can release.  According to an EPA fact sheet, the agency was obliged by the landmark 2007 Supreme Court ruling “to determine if (the emissions) threaten public health and welfare.”  In December of 2009, the EPA formally confirmed that greenhouse gases “endanger the public health and welfare of current and future generations.”

Older coal plants have already been going offline, thanks to low natural gas prices and weaker demand for electricity. Nevertheless, some accused the Obama administration of clamping down on low-priced, domestic energy sources and said the regulation raises questions about the seriousness of the president’s pledge for an “all-of-the-above” energy policy.  “This rule is part of the Obama administration’s aggressive plan to change America’s energy portfolio and eliminate coal as a source of affordable, reliable electricity generation,” said Representative Fred Upton, (R-MI), chairman of the House Energy and Commerce Committee.  “EPA continues to overstep its authority and ram through a series of overreaching regulations in its attacks on America’s power sector.”

“There are areas where they could have made it a lot worse,” said Scott Segal, director of the Electric Reliability Coordinating Council, a coalition of power companies.  Nevertheless, “the numerical limit allows progress for natural gas and places compliance out of reach for coal-fired plants” not planning to capture carbon dioxide.  Steve Miller, CEO and President of the American Coalition for Clean Coal Electricity, a group of coal-burning electricity producers, was more negative about the proposal.  “The latest rule will make it impossible to build any new coal-fueled power plants and could cause the premature closure of many more coal-fueled power plants operating today,” Miller said.

Writing for Reuters, John Kemp, Senior Market Analyst, Commodities and Energy notes that “Because natural gas is currently so much cheaper than coal, the agency projects gas-fired units will be the facilities of choice until at least 2020.  ‘Energy industry model ling forecasts uniformly predict that few, if any, new coal-fired power plants will be built in the foreseeable future,’ according to the proposed rule.  The key word is ‘foreseeable’.  No one can predict the economics of natural gas as far ahead as 2020, let alone 2030.  Recent development of abundant gas reserves through fracking may have caused prices to plunge, leading to a ‘golden age of gas’, but just seven years ago the industry was gripped by panic about gas production peaking and thought America stood on the brink of needing to import increasing quantities of expensive gas.”

Jeff Goodell of Rolling Stone writes “So this new rule is, at best, a baby step in the right direction.  As always with the climate crisis, physics is moving much faster than politics.  Just yesterday top scientists warned that global warming is close to irreversible now. In the biggest sense, we’re still doing next to nothing to confront this crisis.  Global carbon pollution is rising faster than ever, and the weather – to say nothing of future our future climate – is getting wilder.  The urgency of our situation just underscores the need for an economy-wide price on carbon, or cap-and-trade system, which would impact all major emissions sources and actually limit the amount of carbon we dump into the atmosphere, rather than just speeding the shift from coal to gas.  Still, this is an important moment, a small sign of progress.  Goodbye, Mr. Coal.  Don’t let the door hit you on the way out.”

Mark McDowell

Posted by: Mark McDowell
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Newspapers Lack Business Model for Digital Presence

April 11th, 2012

A new report from the Pew Center’s Project for Excellence in Journalism (PEJ) tells a gloomy story. Its main point is that the search for a new business model to revive the newspaper industry is making extremely halting progress.  The most startling revelation is that, on average, for every dollar newspapers earn in digital advertising revenue, they lose $7 in print ad revenue.  This data is based on the PEJ’s survey of six companies that own 121 newspapers, which shared private data about some of their papers’ financial performances.

“Executives at the 13 companies involved in this report confirmed that closing the revenue gap remains an uphill and existential struggle,” said Tom Rosenstiel, the project’s director.  “The most optimistic projections saw digital gains overcoming print losses within a few years; the most pessimistic held that it would never occur.  A number of executives said they did not know when it might happen.  Of the 38 papers that provided detailed data about their operations, not all were achieving growth in digital revenue.  Seven of those studied suffered declines for the last year for which they had full data.  One stayed the same year to year.”

According to Rosenstiel “Some of those we talked to seem frustrated and even uncertain about how to proceed. But we also found signs that, if you can break out of old cultural patterns, there is another way.”  Those newspapers showing signs of success “are those that have pushed harder to change their sales staffs, have pushed digital even at the risk of putting less effort into the old categories that pay the bills, have taken more risks — have fought against the deep ‘inertia’ that many of the executives describe.”

Despite the once-rosy outlook for digital advertising, the study says that has not happened, and that “cultural inertia is a major factor” as most newspapers are just not prioritizing digital ad sales.  As many newspaper executives noted, it’s not easy to shift focus to the digital side, especially when print sales still comprise 92 percent of overall ad revenue.  In terms of the future of newspapers five years from now, the executives said still would be printed and delivered, only less frequently, perhaps even only on Sundays.  Newspapers also would continue to be “diluted” as more layoffs empty out newsrooms.

“In general, the shift to replace losses in print ad revenue with new digital revenue is taking longer and proving more difficult than executives want and at the current rate most newspapers continue to contract with alarming speed,” the report said.

The report, which was issued on the day that the Los Angeles Times put up a pay wall, is ironic.  Ken Doctor, a prominent news industry analyst, said that he thought 20 percent of daily newspapers would have pay walls in place by the end of the year.  By making paying users register, the papers have the ability to gather more information about the reader, better positioning them to target online advertising at a time when print advertising is at its lowest point in 60 years.

Pay wall success stories are few and far between, and the number of doubters is legion.  “The average newspaper might sell online subscriptions to the equivalent of two percent of its print subscribers,” said Alan Mutter, a professor at University of California at Berkeley’s Graduate School of Journalism and a former top editor at the San Francisco Chronicle.  “It’s not turning out to be a very significant revenue stream,” said Mutter, who agrees with the pay wall in general but doesn’t think it will save many newspapers.

Steve Ladurantaye, Media Reporter for the Globe and Mail, notes that “The industry is caught in a trap, the report states, where declining print revenues provide most of the money but digital revenue is the only category seeing growth.  It’s reflected in their sales forces – where print ad reps outnumber digital ad reps 3-to-1.  ‘The shift to replace losses in print ad revenue with new digital revenue is taking longer and proving more difficult than executives want and at the current rate most newspapers continue to contract with alarming speed,’ the report states, adding that the executives they interviewed considered replacing print revenue an ‘existential’ issue.  The biggest challenge is that managers are convinced the ‘old way’ of doing things will salvage what’s left of their ad bases.  ‘Newspaper executives described an industry still caught between the gravitational pull of the legacy tradition and the need to chart a faster digital course.  A number of them worried that their companies simply had too many people – whether it be in the newsroom, the boardroom or on the sales staff – who were too attached to the old way of doing things.

Tom Silva

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Cash Mobs Form to Support Local Businesses

April 10th, 2012

First, there were flash mobs.  Now, there are cash mobs. A cash mob is an organized group of do-gooders who suddenly descend on small businesses, snap up merchandise and gather at pubs and restaurants afterward to celebrate their pro-community mission.  The shopping sprees have taken place in cities ranging from San Diego to Buffalo.  The cash mobs organize online at website such as Facebook or Twitter, where they get details.  Farmers markets, toy retailers and hardware stores have populated the hit list so far, with mob members typically spending between $10 and $20.  The cash mob trend started getting social media pickup last year, and as word spread, so has the benevolence. Community activists, non-profit employees and regular people have formed cash mobs in their towns.

The philanthropic acts provide an appreciated economic boost for small-business owners, said entrepreneur John Reburn, who was hit by a cash mob numbering more than 100.  His Appalachia Press, a letterpress and silk-screening shop in Roanoke, VA, rang up 54 sales in less than an hour as customers bought stationery, books and prints.  “We did the equivalent of a Christmas shopping day in 45 minutes,” Reburn said.

Reburn, who was informed of the cash mob visit three days in advance, said the throng not only stimulated sales, it raised his spirits.  “There are months when you just wonder if you can continue and if (printing) just has to be a hobby and not your career,” he said.  “But this little cash mob was just so joyful.  Even though it was just one night, it does make you feel appreciated.”  Although the term mob brings up connotations of a fight, Reburn said it was a pleasant experience when dozens of customers crammed into his small shop.  “They were very respectful and there to have fun,” he said.

The group was there to support local business, yet participants get something in return, said Jennifer Baker, an assistant professor of philosophy at the College of Charleston in South Carolina.  Under the “virtue ethics” point of view, if people try to continually do what they think is right, “It becomes second nature, and you end up with fewer worries and a better grasp on what is truly of value.”

The increase in cash mob activity comes at a time when America’s small businesses need community support to survive.  Nearly 40 percent cite declines in customer spending are one of the three most significant challenges to their firms’ survival, according to the National Small Business Association.

Long Beach, CA resident Francisco M. Dominguez organized his city’s first cash mob, taking the flash mob concept by organizing consumers to patronize a business on a certain day during a certain time and spend a minimum of $20 at the targeted store.  “I started cash mobs out of necessity for local businesses,” said Dominguez.  “Cash mob is a social economic movement, driven by the need to support our local businesses.”

For Dominguez, the criteria are simple: his cash mobs patronize no chains or franchises; the store has to be local and it has to be struggling.  “The business does not know we are trying to help as a community and the mobbers are willing to pay full price for (an) item,” he said.  “No one is looking for free stuff or (a) discount.  And we started to have a large number of followers.  We also started to get notice from larger businesses that have invited us to come and mob them but they have to be turned down because we can’t see if they are struggling or not.  We are getting contacted by many different people and businesses.  The problem that we are having is that we like to stay very involved, and for us to physically be able to attend several places one week is proving difficult.  We are working on implementing technology for expansion.  We will eventually be able to control and advertise one cash mob per week all over the U.S.”

Tom Silva

Posted by: Tom Silva
Categories: Economics, General
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Office Buildings Have to Get on the Smart Grid

April 9th, 2012

Back in the day, hot weather that overtaxed the power grid meant that office buildings had to turn down the air conditioning to save electricity.  Meanwhile, the employees would notice that their surroundings were getting appreciably warmer.  Today – because more buildings are connected to a smarter grid – fewer adjustments need to be made, one of those perhaps switching to a secondary power source that happens to be roof-mounted solar panels.

Writing in National Real Estate Investor magazine, Managing Editor Susan Piperato says that “Smart grids are digital networks connecting utilities, power-delivery systems and buildings.  Traditionally, when local energy grids become overtaxed, what’s referred to as a ‘demand event,’ a utility company must fire up additional power stations to meet increased demand or ask its biggest users to reduce power consumption.  If a building that isn’t connected to the smart grid receives notice of a demand event, the building engineer must manually reduce the building’s power usage in some way.  When the event is over, the engineer manually revs up the building’s energy consumption level again.  But by connecting to smart grids and utilizing demand response (DR) systems, a building can determine automatically through its building management system (BMS) how much electricity it needs at various times of day.

DR systems manage buildings’ consumption of electricity in response to supply conditions and respond to a utility company’s demand event by automatically reducing the amount of power being used or starting on-site power generation through, say, a solar panel array or wind turbine.”

Unfortunately, the majority of commercial owners are not using these highly beneficial advanced technologies.  A surprising finding of a preliminary CoR Advisors survey found that most commercial building owners and managers aren’t even thinking of connecting.

According to the survey, a mere 19 percent of buildings have some type of automated connection to the smart grid, while 32 percent are using DR systems.  CoR Advisors President and CEO Darlene Pope said that 68 percent of building owners are not planning to connect their buildings to automated smart grid systems within the next three to five years.  The survey, commissioned by Continental Automated Buildings Association and conducted by CoR Advisors, asked 25,000 commercial building owners and managers about “their attitude about smart buildings and the smart grid,” according to Pope.  The survey included approximately 12,000 buildings comprising approximately 1.2 billion SF.

A Federal Energy Regulatory Commission rule allows smart buildings in DR programs to recoup some of their investment by shedding load during times of non-peak demand and selling that excess capacity at spot pricing, Pope said.  “So if the price of electricity is $200 a kilowatt hour in Dallas in the middle of August because there’s such a demand for capacity…and you have a building in New Jersey that you want to shed load, and you want to sell it in Texas, you can do that.  While you might be paying 17 cents per kilowatt hour in New Jersey, you can sell it to people in Dallas for $200.”

Why don’t more building owners take advantage of these new technologies?  According to John Bredehorst, executive vice president with WSP Flack+Kurtz, his firm’s “more responsible clients” are already participating.  Additionally proactive clients are the exception and not the rule.  The smart grid is still nascent, and “No one wants to be a guinea pig.”  Many existing buildings lack the infrastructure to support the technology, meaning that their owners don’t have the ability to cut electrical consumption by switching to a secondary power source.

California is showing the most interest in smart-grid buildings, according to WSP Flack+Kurtz’s Clark Bisel, senior vice president.  He is managing the construction of 350 Mission Street in downtown San Francisco, which hopes to acquire LEED-Platinum status and will have smart grid connection and DR systems.  It’s a multifaceted project, but Bisel sees 350 Mission as “a very good idea from the building owner’s perspective.  Demand response is becoming more of a discussion topic,” he said, with the big electrical utilities directly approaching customers and offering competitive rates for DR programs.

“California is a hotbed for this,” Bisel said.  “Frankly, the utility crisis of 2000 is still in people’s minds, so that may be more of a reason why (smart grid and DR) is active out here.”  If there was more new construction, according to Bisel, the smart grid and DR would take off even faster.  With new construction, “You have architects, engineers, and developers all very engaged in the whole dialogue so when a utility company approaches, they find a very receptive audience.”  When it comes to existing buildings, operations are decentralized and owners are “more interested in making tenants comfortable.”

WSP Flack+Kurtz’s Bredehorst says it will take 10 years for the smart grid and DR to catch on.  With more smart buildings being constructed, he said, existing buildings will need to make alterations to stay competitive.  Additionally, utility companies need become more proactive: “They make it easy for building owners to be able to upgrade their building’s control system and tie it in with a utility,” he said.  “They need to make it so that it’ll be enough of an incentive for (buildings) to reduce their load, but also easy enough that (building owners) don’t have to tie (DR) in with their entire infrastructure and change out a lot of equipment.”

Mark McDowell

Posted by: Mark McDowell
Categories: General, Green, Office
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