Posts Tagged ‘Great Recession’
Thursday, July 29th, 2010
It’s ironic that — even in the depths of the Great Recession — the number of millionaires around the world grew by 17 percent to 10 million. Their collective wealth surged 19 percent to $39 trillion, according to the latest world wealth report from Merrill Lynch-Capgemini. “We are already seeing distinct signs of recovery and, in some areas, a complete return to 2007 levels of wealth and growth,” said Bank of America Corporation wealth management chief Sallie Krawcheck.
India, China and Brazil are home to the majority of the world’s newest millionaires, despite the fact that they were some of the hardest hit markets in 2008. Asia now has three million millionaires - meaning it has caught up with Europe - thanks to a 4.5 percent economic expansion rate. Their combined wealth soared 31 percent to $9.7 trillion, outstripping Europe’s $9.5 trillion.
North America’s wealth grew by 18 percent, while the number of individuals considered rich climbed 17 percent; their wealth totals $10.7 trillion. Last year, the United States boasted the most millionaires - 2.87 million. Japan was next with 1.65 million; Germany had 861,000; and China 477,000. Switzerland boasts the highest concentration of millionaires, with approximately 35 for every 1,000 adults.
According to Lyle LaMothe, Merrill Lynch’s U.S. wealth management chief, “The wealthy allocated, as opposed to concentrated, their investments.” In other words, they put their money into fixed-income investments that provided predictable cash flow. The trick now is to convince the wealthy to return to higher risk investments that have a higher income potential. “There is still a hesitancy,” LaMothe notes. “Liquidity is incredibly important and people need cash flow to preserve their lifestyle - but they want to replace that cash flow in a way that does not increase their risk profile. Investors are open to areas they hadn’t thought about before as they try to preserve their ability to be philanthropic, to preserve their lifestyle. To me, the report underscored that clients are involved and they’re not inclined to stay in one percent savings accounts.”
Tags: Asia Pacific, Bank of America Corporation, Brazil, China, Germany, Great Recession, India, Latin America, Merrill Lynch-Capgemini, millionaires, Switzerland, United States, wealth management
Posted in Economics | No Comments »
Thursday, July 15th, 2010
Banks are starting to hire again as they return to structuring CMBS, a sign that the financial markets are gradually returning to normal. “I see lots of friends who used to be employed, and weren’t for a while, and are now being rehired by institutions,” said Jonathan Strain, debt capital markets director at JPMorgan Chase’s CMBS division.
This industry-wide hiring is evidence of the banking sector’s effort to recover from the depths of the Great Recession and rebuild the capability of providing liquidity to refinance commercial real estate owners who need to recapitalize their portfolios. Industry leaders believe that CMBS may never recover to its 2007 origination peak of $237 billion. So far this year, CMBS originations total just over $1 billion. According to one banker, the CMBS market may eke out $10 billion in 2010; that could ultimately grow to a total of $100 billion annually several years down the road.
According to Lisa Pendergast, managing director with Jeffries Group, Inc., “Supply will be far less than what we were accustomed to.” Pendergast also is president of the CRE Finance Council, the industry’s leading trade group.
Tags: Bank of America, banks, CMBS, CRE Financial Council, Great Recession, hiring, Jeffries Group, JP Morgan Chase, Wachovia, Wells Fargo
Posted in Economics, Financing | No Comments »
Thursday, June 24th, 2010
Is there something special in the water in Texas? After surviving the Great Recession in relatively good shape, the Lone Star State can claim that it has more jobs than it did two years ago, as well as the lowest unemployment rate of the 10 largest states at just 8.3 percent. According to the Texas Workforce Commission, the state has created more jobs in the private sector - 724,300 in December of 2009 alone — than any other state in the last 10 years. Boasting the world’s 11th largest economy, Texas reported a gross state product (GSP) of roughly $1.25 trillion during 2009 as it expanded its presence in knowledge-based industries. Additionally, Texas leads the nation in export revenues for the last eight years, shipping $163 billion in product last year.
“Texas, so far, is the big winner,” said William Frey, a demographer with the Brookings Institution. “Big Texas metros are doing well because they avoided a lot of the pitfalls of the housing boom and bust.” Frey specifically points to Austin, Dallas, San Antonio and Houston as high-growth cities with expanding economies, particularly in energy, technology, government and education. Austin, Dallas and Houston are expected to experience a seven percent job growth rate over three years. San Antonio, which is close to four military bases, is expected to experience an 8.32 percent increase in employment over the next few years. What sustained Texas through the recession? Civic leaders think it was the diversified economy, low taxes, reasonable regulatory rules, government incentives and funding, as well as a skilled, highly educated workforce.
Austin, for example, has long been a magnet for entrepreneurial businesses that thrive in Texas’ capital. “There’s an old saying in Austin: If you come here and can’t find a job, start a new business,” notes Rebecca Melancon, executive director of the Austin Independent Business Alliance. Austin’s Small Business Development Program is extremely supportive of would-be entrepreneurs with databases to research demographics, free counseling and even classes on how to operate a business. Additionally, the “Keep Austin Weird” support for unique cultural events supports local businesses. “The biggest thing our city does to promote local business is not something that city hall does. It’s our culture. We don’t want to be Anywhere, U.S.A, and we work hard not to be,” Melancon said.
Tags: Austin, Brookings Institution, chemicals, coal, computers, Dallas, electronics, Great Recession, GSP, Houston, Lone Star State, petroleum, San Antonio, Small Business Development Program, Texas, Texas Emerging Technology Fund, Texas Enterprise Fund, Texas Workforce Commission
Posted in Development, Economics, Industrial, Office | No Comments »
Wednesday, June 23rd, 2010
Federal Reserve Chairman Ben Bernanke is warning that - even as the nation struggles to recover from the worst recession in 75 years - Congress must deal with an “unsustainable” level of debt. “Our nation’s fiscal position has deteriorated appreciably since the onset of the financial crisis and the recession,” Bernanke said in testimony before the House Budget Committee.
Although Bernanke admits that the deficit was a necessary evil designed to bring the nation out of a deep recession, it has to be addressed in the long term because of the European debt crisis. The budget deficit gap will narrow as the economy improves and stimulus programs are phased out. The Fed chairman still sees several drags on the economy. First and foremost is the jobless rate, which stands at 9.7 percent nationally, as well as the housing market that is plagued by foreclosures and short sales - of which 4.5 million are expected this year. The good news is that the Fed’s recently updated Beige Book found that consumer and business spending are up slightly. There is limited growth in the manufacturing, non-financial services and transportation sectors.
The housing market is expected to remain flat, thanks to the expiration of government-funded subsidies. According to the Mortgage Bankers Association, the number of people applying for mortgages has fallen to its lowest level in 13 years. Tourism also is down, partly because of the Gulf of Mexico oil spill. Inflation also is low, making it probable that the Fed will keep the benchmark U.S. interest rate close to zero.
Tags: Beige Book, Ben Bernanke, benchmark lending rate, congress, debt, deficit, European debt crisis, Federal Reserve, foreclosure, Great Recession, Gulf of Mexico, House Budget Committee, inflation, Mortgage Bankers Association, oil spill, tourism
Posted in Economics | No Comments »
Thursday, June 17th, 2010
As George Harrison said in his 1989 song, “Cheer down.” In a move that surprised many economists, GDP growth for the 1st quarter of 2010 has been revised slightly downward - from 3.2 percent to three percent - according to the Bureau of Economic Analysis. Even with the downward revision, the 1st quarter was the second highest quarterly growth reported since late 2007 when the Great Recession began.
Writing in The Atlantic, Daniel Indiviglio notes that “The revision was caused almost entirely by the personal consumption expenditures portion, i.e., consumer spending. Even though this got a lot better in the 1st quarter, it didn’t improve as much as originally thought. It was responsible for 2.42 percent of the three percent growth. The prior estimate reported a 2.55 percent contribution. That 0.13 percent difference is responsible for the vast majority of the 0.2 percent revised drop.” Spending on services - housing, utilities, food and accommodations — during the 1st quarter was overestimated in the original GDP report.
According to Indiviglio, “Of course, 0.2 percent isn’t much. But it is a little disappointing where most of this revision came from. Spending needs to drive the recovery to create jobs. It’s also unfortunate that restaurants and travel was one of the most downwardly revised components; spending on these non-necessities is also an indicator that consumers are feeling much more comfortable opening their wallets. This component, and spending overall, still showed a healthy increase compared to 2009, but these revisions make their progress a little less impressive.”
Trade estimates were revised upward to $27.3 billion from $22 billion. At the same time, imports rose to $47.6 billion from $41 billion in the original estimate. “So the net result is mostly a wash: the two revisions approximately cancel each other out. But it is good to see more exports than originally anticipated,” Indiviglio concludes.
Tags: Bureau of Economc Analysis, consumer spending, Daniel Indiviglio, GDP, Great Recession, job creation, The Atlantic
Posted in Economics | No Comments »
Wednesday, June 9th, 2010
The economic upheavals of recent years have changed Americans in ways that we are still coming to terms with because it marks the end of an era. The Great Recession was anything but an ordinary downturn and the way we live and work has been transformed. Construction and auto jobs have declined by one-third; retail and banking employment is down eight percent. Some of those jobs will return as the economy improves, but Americans must face the new reality that the era of cheap credit, cheap oil and runaway consumerism has vanished - and likely will remain that way at least for the foreseeable future.
Writing in The Economist, Greg Ip, a senior writer for The Wall Street Journal, says that “The crisis and then the recession put an abrupt end to the old economic model. Despite a small rebound recently, house prices have fallen by 29 percent and share prices by a similar amount since their peak. Households’ wealth has shrunk by $12 trillion, or 18 percent, since 2007. As a share of disposable income it is back to its level in 1995. And if consumers feel less rich, they are less inclined to spend. Banks are also less willing to lend: they have tightened loan standards, with a push from regulators who now wish they had taken a dimmer view of exotic mortgages and lax lending during the boom.”
Consumer debt was 129 percent of disposable income in 2007, a rise over the 80 percent reported in 1990 - an untenable situation that was destined to come to a bad end. Over the next six or seven years, Americans will slash their debt to more controllable levels, according to the McKinsey Global Institute. Ip notes that “The effect on the economy of deflated assets, tighter credit and costlier energy are already apparent. Fewer people are buying homes, and the ones they buy tend to be smaller and less opulent. In 2008 the median size of a new home shrank for the first time in 13 years. The number of credit cards in circulation has declined by almost a fifth.”
The recession was caused by a financial crisis that harmed the financial system and saw consumers and businesses weighted down by surplus buildings, equipment and debt acquired during the boom. With recovery now in its ninth month, the GDP has grown at approximately four percent and unemployment remains at generational highs. Innovation is being scaled back, because tight credit makes it impossible for start-ups to get the cash they need. Despite the glum news, there is reason for optimism. The Conference Board has reported an increase in consumer confidence, rising to 63.3, an increase over the 57.7 reported in April.
According to Lynn Franco, Director of The Conference Board Consumer Research Center, “Consumer confidence posted its third consecutive monthly gain, and although still weak by historical levels, appears to be gaining some traction. Consumers’ apprehension about current business conditions and the job market continues to slowly dissipate. Consumers’ expectations, on the other hand, have increased sharply over the past three months, propelling the Expectations Index to pre-recession levels (August 2007, 89.2). The improvement has been fueled primarily by growing optimism about business and labor market conditions. Income expectations, however, remain downbeat.”
Tags: American economy, deflated assets, economic recovery, GDP, Great Recession, Greg Ip, macroeconomic shift, McKinsey Global Institute, The Conference Board, tight credit
Posted in Economics, Financing | No Comments »
Wednesday, June 2nd, 2010
The Great Recession has taken a toll on the famous American optimism and belief in social mobility as defined by the 
stories of such luminaries as Alexis de Tocqueville, Horatio Alger and Barack Obama. According to a poll by YouGov for The Economist, 39 percent responded that the opportunities available to them were not as positive as their parents’ experiences; just 36 percent reporting having greater opportunities than the previous generation. Approximately 50 percent think that the next generation will have a lower standard of living and fewer opportunities for social mobility.
This trend is not new. According to The Economist, “In 1963, John Kennedy declared that a rising tide lifts all boats. Indeed, in 1963 this was true. Between 1947 and 1973, the typical American family income roughly doubled in real terms. Between 1973 and 2007, it grew by only 22 percent - and this thanks to the rise in two-worker households. In 2004, men in their 30s earned 12 percent lease in real terms than their fathers did at a similar age, according to Pew’s Economic Mobility Project. This has been blamed on everything from immigration to trade to declining rates of unionization. But the driving factor, most economists agree, has been technological change and the consequent lowering of demand for middle-skilled workers.”
Americans tend to be remarkably accepting of comparatively high disparities in income because they still believe in upward mobility. The truth is that America does offer opportunity, though perhaps not as much as most people believe. A better yardstick of income potential is parental salaries, which suggests that social mobility is a less powerful indicator. Americans born to the middle class have a 50/50 chance of moving up or down in income, according to the Economic Mobility Project.
Tags: Alexis de Tocqueville, Great Recession, Horatio Alger, John F Kennedy, Pew Economic Mobility Project, President Barack Obama, social mobility, standard of living, The Economist, upward mobility, YouGov
Posted in Development, Economics | No Comments »
Tuesday, May 18th, 2010
The latest numbers on housing starts, new home sales and rising prices indicate that the residential recovery is for real. Because the housing crash was a primary cause of the Great Recession, word that the sector is rebounding is good news. Housing permits and starts have increased in the last several months, and new house sales increased in March.
Even though the Case-Shiller home price index showed mixed numbers for January and February, there was better news found in a recent government report on the producer price index for single-family residential construction through March. This measure of the average change in the cost of materials for new home construction has risen three percent since last summer. Economists are interested in the producer price index because it is a critical factor in the pricing of existing homes. Inflation hawks may claim that this statistic is a portent of rising prices in the general economy.
According to Casey B. Mulligan, an economist at the University of Chicago, a little inflation is not a bad thing for housing. “It’s quite possible that inflation-adjusted housing prices will not significantly increase, but even if a housing price increase resulted merely from general inflation, it would be welcome because anything that raises housing prices can help alleviate the extraordinary prevalence of foreclosures that derives largely from the fact that debt-strapped homeowners can no longer sell their homes for enough to cover their mortgage,” Mulligan said.
Tags: Case-Shiller home price index, Casey B Mulligan, Economist, Great Recession, housing crash, inflation, producer price index, residential market, Standard & Poors 500, University of Chicago
Posted in Economics, Residential | No Comments »
Thursday, May 13th, 2010
A 2010 survey conducted by the National Association of Business Economists (NABE) released in April confirms that the economy is in recovery, with industry demand showing expansion for a third consecutive quarter. There’s good news in the fact that expectations for economic growth have spiked significantly. Approximately 25 percent of survey respondents believe the real GDP for 2010 will grow by at least three percent; 70 percent believe the economy will expand at a two percent rate this year.
In terms of job creation, the NABE survey noted the first increase in employment in two years. The number of firms adding to their payrolls rose to 22 percent, compared with just 13 percent reported in January. According to the survey, companies cutting jobs fell from 28 percent in January to just 13 percent in April. The number of companies planning to add employees in the next six months rose to 37 percent, compared with the 29 percent reported in January.
“NABE’s April 2010 Industrial Survey confirms that the U.S. recovery from the Great Recession continues, with business conditions improving,” said William Strauss of the Federal Reserve Bank of Chicago. “Industry demand moved higher compared to results in the January 2010 report, pointing to stronger growth in 2010. While input costs have been increasing, prices have also been moving higher, allowing profits to continue to rise. After more than two years of job losses, job creation increased in the first quarter of 2010, suggesting a better outlook for hiring over the next six months. Little of the improvement to date in job growth can be attributed to the stimulus bill enacted in February 2009. Capital spending remained steady. Tight credit conditions continued to negatively impact business conditions.”
To listen to an interview with the Fed’s Rick Mattoon about the recovery, click here.
Tags: capital spending, economic recovery, Federal Reserve Bank of Chicago, GDP, Great Recession, job creation, NABE April 2010 Industrial Survey, National Association of Business Exexutives, stimulus bill, William Strauss
Posted in Economics | No Comments »
Monday, March 29th, 2010
The Congressional Budget Office has determined that the Troubled Asset Relief Program (TARP) will cost the government $109 billion - just 16 percent of the $700 billion set aside to rescue the nation from the great recession. Insurance giant AIG and the auto industry are TARP’s largest beneficiaries.
The federal government bought $40 billion in AIG preferred stock and created a $30 billion line of credit for the firm. Earlier CBO estimates that AIG would cost the government $9 billion; since AIG hasn’t paid the Treasury Department the quarterly dividend it owes, the CBO increased its projected loss to $36 billion or more than half of the bailout cost. The CBO estimates that TARP will lose $34 billion from its bailout of Chrysler and General Motors.
TARP’s mortgage modification program is estimated to use less than $20 billion, less than half of the $50 billion set aside to help people stay in their homes. The CBO says that fewer people will participate in the program than anticipated. When President Barack Obama announced the program in February of 2009, he said that as many as four million homeowners could reduce their monthly payments to no more than 31 percent of their pre-tax incomes. At the end of February, only 170,000 distressed homeowners had taken advantage of the mortgage modification program.
Tags: AIG, auto industry, Chrysler, Congressional Budget Office, General Motors, Great Recession, President Barack Obama, TARP, Treasury Department
Posted in Economics, Financing, General, Residential | No Comments »