Baber Turnaround Consulting Blog

Baber’s Easy 2 Read Econ Newsletter (5/10/11) – Weekly Top 25

This newsletter summarizes this week’s 25 most important economic issues…followed by 25 full-length articles.

As a business owner, CPA and Certified Turnaround Professional, it is my job to monitor economic issues and trends, especially those that affect business owners and taxpayers.

Each week I study US and International economic trends and events…then explain “what this means for you…” for the Top 10 issues.

The information I provide comes to you from many of the country’s most respected publications and sources, including the: Wall Street Journal, Economist, Bloomberg Businessweek,  IRS, Federal Reserve, Census Bureau, SBA, Moody’s Economics, BankRate.com, Oppenheimer, Department of Labor, Bureau of Labor Statistics, USA Today, Office of Management and Budget, Thomson Reuters.

If you have a family member, colleague or friend who would benefit from these updates, they can sign up through the “Contact” link at the www.Easy2ReadEcon.com website.

Economic change happens at such a fast pace…you simply can’t afford to be out of the loop.

Summarized Top 25 (full-length articles below)

1. April private sector job growth highest in five years…but the unemployment rate rose for the first time in five months from 8.8% in March to 9.0% in April.

2. China fines Unilever $308K for talking about price increases…causing Chinese consumers to panic and strip shelves of soap and deodorant before prices go up.

3. Treasury takes emergency action to delay hitting $14.3T debt ceiling…by not issuing state and local government securities.

4. Company profits up 17% in Q1…from Q4 2010, as reported by 75% of companies in the Standard & Poor’s 500 index who have released earnings.

5. 51% of US households paid no federal income taxes in 2009…as reported by the IRS.

6. Europe holds interest rate at 1.25%…after increasing from 1.0% in March for the first time in three years.

7. Home prices drop 3% in Q1 2011…from Q4 2010, the steepest decline since 2008.

8. Canadians vote-in Conservative Party lawmakers…on promises to reduce corporate taxes, strengthen defense and get tough on crime.

9. Manufacturers have jobs but can’t find workers…as April marked the seventh month in a row that US manufacturers added workers.

10. Greece struggles to repay 24%+ interest debt…and wants to avoid giving creditors a haircut, but needs to restructure debt payments to make it work.

11. New claims for unemployment compensation (seasonally adjusted=SA) for the week-ended April 30 increased 43,000… or 10% to 474,000.

12. Continuing claims for unemployment (seasonally adjusted=SA) for the week-ended April 23 was up 74,000… or 2% to 3,733,000.

13. April auto sales soar for US Big 3…compared with April 2010, despite higher gas prices and reduced sales incentives…with GM +27%, Chrysler + 22%, Ford + 16%.

14. April retail sales up nearly 9% from last year…at 25 retailers tracked by Thomson Reuters.

15. Americans over 44 are the “voting majority”…for the first time in history, as the 78 million “baby boomers” born between 1946 and 1964 drive those numbers.

16. Mortgage rates hit lowest level in four months…averaging 4.72% on 30-year loans for the week-ending May 5…down from 4.82% the previous week and 5% from a year ago.

17. Poor criminals get less free lawyering…as budgets are cut for public defenders.

18. Renters pay more…with apartment costs expected to rise more than 5% this year.

19. Dodd-Frank financial regulation law passed in 2010 stalls…due to massive scope and complexity, with implementation deadlines being missed.

20. Bank loans have only grown 1% in the last year…and bankers want to lend, but businesses either don’t need the money or don’t qualify for credit.

21. US GDP economic growth was higher at a 1.8% annualized rate for Q1 2011 from Q4 2010… but at the low end of the range compared to other countries.

22. College debt nearly $23,000…for 2010 graduates, up from $15,000 ten years ago.

23. Government annualized spending for Q1 2011 was a record $5.6 trillion…at federal, state and local levels.

24. Investments…as of 5/6/11

Dow Jones Ind. Avg.: Friday close 12639; 52-week low-high 9686 – 12811; week -1.3%; YTD +9.2 %

Nasdaq Composite: Friday close 2828; 52-week low-high 2092 – 2874; week -1.6%; YTD +6.6%

S&P 500: Friday close 1340; 52-week low-high 1023 – 1364; week -1.7%; YTD +6.6%

Gold (per troy ounce): Friday close $1491; 52-week low-high $1158-$1556; week -4.1%; YTD +4.9%

Crude oil (per barrel):  Friday close $97.18; 52-week low-high $68-$114; week -15%; YTD +6%

Natural Gas (per MMBtu): Friday close $4.24; 52-week low-high $3.29-$5.19; week -10%; YTD -4%

Silver plummeted 27% last week, the biggest drop since March 1980, and gold dropped over 4% and oil slid 15%…as speculators took profits and concerns mounted about overheated markets.

25. Interest rates…as of 5/6/11

Consumer Rates and Returns:

Money market:  0.62%… 0.65% last week, 52-week low – high 0.59% – 0.79%

5-Year CD: 2.00%… 2.00% last week, 52-week low – high 1.92% – 2.64%

30-year mortgage: 4.72%… 4.82% last week, 52-week low – high 4.32% – 5.21%

New car loan (48-month): 3.93%… 4.19% last week, 52-week low – high 3.91% – 6.52%

Home equity loan, $30,000: 5.07%… 5.04% last week, 52-week low – high 5.04% – 5.17%

Business Rates and Returns:

Prime rate:

US: 3.25%… same as last week and same for 52-week low and high

Canada: 3.0%…3.0% last week, 52-week low – high 2.25% – 3.0%

Euro zone: 1.25%…1.25% last week and 52-week low – high 1.0% – 1.25%

Fed-funds effective rate: 0.09%… 0.09% last week, 52-week low – high 0.08% – 0.22%

Libor, 1-month: 0.20%… 0.20% last week, 52-week low – high 0.21% – 0.35%

Libor, 3-month: 0.27%… 0.27% last week, 52-week low – high 0.27% – 0.54%

10-year Treasury bonds:  3.16%…3.30% last week, 52-week low – high 2.38% – 3.72%

Currency:

Euro, per dollar: 0.697…+3.2% for the week; -7% YTD; 52-week low – high 0.67 – 0.84

Yen, per dollar: 80.6…-0.7% for the week; -0.8% YTD; 52-week low – high 79 – 93

U.K. pound, in dollars: 1.64…-1.8% for the week; +5% YTD; 52-week low – high 1.43 – 1.67

Inflation: U.S. Consumer Price Index (CPI):

All items: 223.467 March 2011…+0.98% from February 2011…+2.7% from March 2010

Core (excl. food and energy): 223.69 Mar 2011…+0.30% from Feb 2011…+1.2% from Mar 2010

-WSJ, Bankrate.co; Thomson Reuters

Top 25 Full Articles

1. April private sector job growth highest in five years…but the unemployment rate rose for the first time in five months from 8.8% in March to 9.0% in April.

The private sector added 268K jobs in April…up 37K or 16% from the 231K jobs added in March.

The private sector accounts for about 70% of the workforce.

24,000 US Government jobs were lost in April…up from 10,000 lost in March, as federal and state lawmakers focus on reducing deficits by shrinking the size of government.

Total non-farm payrolls increased 244K in April…up 23K or 10% from the 221K jobs added in March.

The number of unemployed in April was 13.7 million…virtually unchanged for the last three months, but down 1.4 million or 9% from April 2010.

The number of employed workers in April was 139.7 million…down 190K from March and up only 292K or 0.2% from April 2010.

First-time jobless claims for the week-ended April 30 surged 43,000 or 10%…and at 474,000 was the highest level since last summer and the third increase in four weeks.

-Labor Dept.; Bureau of Labor Statistics; WSJ

What this means for you…is more conflicting data on US unemployment.

The strong private sector job growth in April was encouraging…but the depth of the unemployment situation is still unknown as the “discouraged jobless” begin looking for work again.

The unsettling reality is that out of a total workforce of over 153 million people…there has only been an increase of 292,000 jobs in the last year with a jobless rate is 9%, which may trend higher as more people begin looking for jobs.

Many hope that lawmakers at the federal and state levels will reduce corporate taxes to encourage global companies to invest in American manufacturing capacity and jobs…and not raise taxes on small business owners who can hire people as the economy recovers.

…and let’s hope that the recent uptick in new jobless claims is not a trend.

2. China fines Unilever $308K for talking about price increases…causing Chinese consumers to panic and strip shelves of soap and deodorant before prices go up.

China’s economic planning agency claims that Unilever broke the law by talking publicly about pending price hike thereby disrupting market order.

Proctor & Gamble, Unilever and other companies were recently mentioned in the Chinese media as planning to raise prices 15% due to rising freight and commodity costs…but so far only Unilever has been fined.

Unilever has agreed to pay the penalty due to their long-standing relationship with China.

In March China’s CPI leaped to 5.4% from a year ago to a 32-month high as commodity prices skyrocket and companies try to pass along cost increases.

The Chinese government is extremely sensitive to recent inflationary trends as they want to avoid anger and frustration from poverty-level Chinese who are feeling the pain of rising prices.

-WSJ

What this means for you…if your company exports to China is that you may have to endure eroding profit margins due to rising costs and are at the mercy of the Chinese government if you want access to their 1.3 billion consumer market.

Hopefully American consumers won’t have to “pay the price” for Unilever and other companies trying to make up for lost profits in China by raising prices elsewhere.

3. Treasury takes emergency action to delay hitting $14.3T debt ceiling…by not issuing state and local government securities.

The move will make it more difficult for states and cities to borrow money as they will have to use issuers in the private market.

Stronger than anticipated tax receipts along with this action postpones the date for reaching the borrowing limit and a possible default from mid-May to early August.

Lawmakers on both sides of the aisle continue to “hold their ground” on strategies to reduce the deficit…Republicans push to slash government spending while Democrats prefer a combination of raising taxes along with moderate spending cuts.

-WSJ

What this means for you…as a taxpayer is to let your lawmakers know your preference on how to reduce the deficit…cut spending, or increase taxes.

Republican Tea-partiers who were elected on “no tax increase” platforms, along with many taxpayers. remain staunchly opposed to raising taxes in any way, shape or form.

Democrats feel the pressure to “increase taxes on the rich” from their constituents.

The IRS reported that in 2009 51% of households paid no federal income tax…while the top 10% of income earners paid 70% of individual income taxes.

4. Company profits up 17% in Q1…from Q4 2010, as reported by 75% of companies in the Standard & Poor’s 500 index who have released earnings.

Q1 2011 earnings growth marked the sixth straight quarter of higher earnings…and the first double-digit quarterly sales increase (10%) since Q1 2006.

Companies have stockpiled $940 billion in cash but hesitate to invest in capacity or jobs due to uncertain economic trends and pending changes to corporate tax rates.

70% of companies exceeded profit expectations…with 95% of health care companies beating forecasts.

Profit forecasts for the rest of the year are cautiously optimistic due to uncertainty about higher energy and material costs…and the ability of companies to protect profits by raising prices.

-Standard & Poor’s; USA Today

What this means for you…is encouraging news that the higher oil prices, Mideast unrest and the problems in Japan haven’t dramatically impacted US company profits…yet.

Unfortunately for the unemployed, the strong profit growth has not translated into significant job growth or the willingness of companies to invest in additional capacity.

5. 51% of US households paid no federal income taxes in 2009…as reported by the IRS.

The top 1% of taxpayers…earn 39% of individual income…and pay 38% of individual income taxes.

The top 10% of taxpayers…earn 64% of individual income…and pay 70% of individual income taxes.

The next 40% of taxpayers…pay 27% of individual income taxes.

The bottom 50% of taxpayers…pay 3% of individual income taxes.

30% of taxpayers received money in 2009 from the government through tax credits…such as the earned income  credit and child credit.

-IRS; National Taxpayers Union; Joint Committee on Taxation; WSJ; USA Today

What this means for you…is a danger signal for the country that when more than 50% of households don’t pay taxes…they have the potential clout to elect lawmakers to make sure that trend continues.

2009 was the first time since 1992 that more than half of households paid no federal income tax.

Resistance from many lawmakers to increasing taxes makes it even more critical that government spending cuts remains the initial focus for reducing national and state budget deficits.

6. Europe holds interest rate at 1.25%…after increasing from 1.0% in March for the first time in three years.

European Central Bank (ECB) President Trichet kept the rate unchanged…even as inflation leaped to a 2 ½-year high of 2.8%, well above the 2% target.

The euro fell as global investors moved to other investments as they had expected an imminent increase in rates…which now may not occur for several months.

Euro bankers are hesitant to raise rates which could dampen economic recovery…as the Portugal, Greece and Ireland economies continue to languish and make up 6% of euro-zone GDP.

Portugal’s financial problems were resolved for the time being due to a $116 billion bailout from the International Monetary Fund (IMF) and European Union…with promised budget cuts expected to reduce Portugal’s GDP by 2% for the next two years.

-Eurostat; Thomson Reuters;WSJ

What this means for you…may be good news for US taxpayers as global investors redirect investments from the euro to US Treasury bonds, keeping interest rates low…which is especially  important as the Fed winds down QE2 and stops buying Treasury debt.

This may be bad news for US exporters to Europe if the euro weakens substantially, which will make our exports to Europe more expensive…with the euro strengthening (to the US dollar) about 25% since mid-2010.

7. Home prices drop 3% in Q1 2011…from Q4 2010, the steepest decline since 2008.

March values were down 1.1% from February and down 8.2% from a year earlier…and mark the 57^th straight month that prices have fallen.

Freddie Mac and Fannie Mae (mortgage companies) sold 94,000 foreclosed homes in Q1 2011…a record high and 23% increase from Q4 2010.

Freddie and Fannie hold another 218,000 mortgages, 33% more than a year ago…and reported  a $6.5 billion net loss for Q1.

Foreclosed homes usually sell at a discount and force other sellers to lower their prices.

Economists are predicting that home values could drop another 5% to 10% this year…and not hit bottom until early 2012.

-Zillow.com; WSJ

What this means for you…is bad news if you are selling, opportunities if you are buying.

Real estate agents recommend taking the first offer, if possible, as trends indicate that future offers will be lower.

Another headwind for housing is that credit requirements are tighter…with loans backed by Fannie Mae averaging credit scores of 718 in the 2001 – 2004 period, and were 762 in Q1.

8. Canadians vote-in Conservative Party lawmakers…on promises to reduce corporate taxes, strengthen defense and get tough on crime.

It has been 7 years since Canada had a one-party majority in the House of Commons.

Voters increased Conservative Party seats in the House of Commons from 47% to 54%…at the expense of the Liberal and Bloc Quebecois (French separatist) parties.

The “right-leaning” Conservative Party, headed by Prime Minister Stephen Harper, takes control of the House of Commons for the first time since 1988…and plans to champion free-trade pacts, reduce corporate taxes and clarify rules on foreign ownership of Canadian companies.

The irony of the election is that it was forced by the three opposition parties in an attempt to bring down Harper’s Conservative Party.

The attempt backfired when conservatives used American-style “attach ads” which rallied voters to embrace lower taxes and stronger defense.

-Parliament of Canada; Elections Canada; WSJ

What this means for you…if you export to Canada is to expect a more business-friendly environment as Conservative lawmakers plan to grow their economy by reducing business taxes and being more open to foreign investment and ownership of Canadian companies.

American lawmakers should take note that Canada’s plan to reduce corporate taxes from 21% to 15% may entice US businesses to expand capacity in Canada…to escape the 35% US top corporate tax rate, the second highest among major nations (Japan’s is 39.5%).

9. Manufacturers have jobs but can’t find workers…as April marked the seventh month in a row that US manufacturers added workers.

Manufacturing  jobs have declined from over 16 million in 2000 to about 12 million today…but there are over 200,000 job openings now compared to 100,000 two years ago.

Average total hourly compensation for goods-producing industries rose from $27 in 2004 to $33 in 2010…compared to service-providing industries $24 in 2004 to $29 in 2010.

Three trends are impacting the ability of companies to find skilled workers:

1. Manufacturing jobs are growing…after more than 10 years of declines.

2. Baby boomers are retiring…with about 2.7 million or 25% of manufacturing employees 55 or older.

3. The US education system isn’t turning out enough people with math and science skills…which are required to repair and operate complicated computer-controlled plant equipment.

As the economy picks up steam  companies are filling job openings  any way they can…retraining white collar workers, stealing from competitors and even hiring former prisoners who learned skills while behind bars.

Many companies are partnering with local high schools , trade schools and community colleges to implement manufacturing training programs…and hiring students for part-time “apprentice jobs”, hoping they will come back when they graduate.

-ADP; Macroeconomic Advisors; Labor Dept.; HIS Global Insight; WSJ

What this means for you…as a parent or employer is to encourage school guidance counselors to inform students about employment opportunities in manufacturing.

Also, high schools, trade schools and community colleges should reach-out to local-area manufacturers asking them to talk to students about their companies…and start apprentice programs if they don’t already exist.

School boards need to focus on increasing student math and science skills…as recent studies completed by the Organization for Economic Cooperation and Development reflected US student math and science test scores trailed far behind China, Japan, South Korea, Canada and Germany.

10. Greece struggles to repay 24%+ interest debt…and wants to avoid giving creditors a haircut, but needs to restructure debt payments to make it work.

Germany and Greece favor extending the maturity date on bonds (debt rescheduling)…while the French, the European Central Bank (ECB) and others oppose the move.

Concerns are that financial markets would view restructuring Greek debt as an indication that other debt-ridden Euro countries like Ireland and Portugal may also be unable to pay their debts.

Portugal recently agreed to a $116 billion bailout from the European Union (EU) and International Monetary Fund (IMF), with specific terms yet to be released.

Greece received a $163 billion bailout in May 2010 from the IMF (International Monetary Fund) and other Euro-zone governments on the pledge that it would slash spending…which hasn’t happened.

Greece’s two-year government bonds yield has doubled  this year from about 12% in January to over 24% in April…indicating that investors doubt that the bonds will be fully repaid.

Breaking news…rumors that Greece may exit the euro zone if loans are not restructured…and if they are, investors and EU countries are concerned that Ireland and Portugal will want their loans restructured, too.

-Thomson Reuters; WSJ

What this means for you…is an example of how interest rates can skyrocket when investors feel the risk of not being repaid, on-time, in full.

Greece may be forced to continue borrowing more from other euro-zone governments and less from private investors in order to pay a lower interest rate on its debt…leaving taxpayers in other euro countries “holding the bag” for Greece’s financial mismanagement.

The US Federal Reserve’s “quantitative easing” stimulus programs (printing money…) to buy US Treasury debt…is another way to keep interest rates artificially low.

When QE2 ends in June economists hope that the interest rate on US Treasury debt will only be marginally impacted (up 25 – 50 basis points).

11. New claims for unemployment compensation (seasonally adjusted=SA) for the week-ended April 30 increased 43,000… or 10% to 474,000.

The four-week moving average increased 22,250 or 5% to 431,000 from the previous week:

…up 41,000 or 11% from last month (w/e April 2)

…down 34,000 or 7% from last year

-Bureau of Labor Statistics

12. Continuing claims for unemployment (seasonally adjusted=SA) for the week-ended April 23 was up 74,000… or 2% to 3,733,000.

The four-week moving average decreased 1,250 or 0.04% to 3,701,000 from the previous week:

…down 37,000 or 1% from last month (w/e March 26)

… and the lowest level since October 2008

Continuing claims for unemployment (NSA) on April 23 were 3,752,000:

…down 334,000 or 8% from last month (w/e 3/26/11)

…down 919,000 or 20% from last year (4/24/10)

…down 2.5 million or 40% from two years ago (4/25/09) when 6,281,000 were drawing unemployment

-Bureau of Labor Statistics

13. April auto sales soar for US Big 3…compared with April 2010, despite higher gas prices and reduced sales incentives…with GM +27%, Chrysler + 22%, Ford + 16%.

Total US new vehicle sales rose 18% to 1,157,000…at a seasonally adjusted annualized rate of 13.2 million, up 900,000 or 7% from six months ago and up 2 million or 18% from a year ago.

Foreign auto makers also showed positive gains…Kia +57%, Hyundai +40%, Nissan +12% and Honda +10%.

Toyota only had a 1% sales increase with many models in short supply…and the Lexus brand dropping 8% as all but one of its models is built in Japan.

One explanation of strong April foreign car sales was concern over potential production disruption and parts shortages…with higher domestic sales due to improved economic conditions.

-Autodata; TrueCar.com; Edmunds.com; USA Today; WSJ

14. April retail sales up nearly 9% from last year…at 25 retailers tracked by Thomson Reuters.

Compared to last year, April was helped by Easter, which fell in March last year.

March + April sales this year were still up 5.3% from last year…the largest gain since last November, with 60% of retailers exceeding Wall Street estimates.

The positive news reflects rising consumer confidence…even in the face of rising gas prices (up 30% from last year) and higher costs for food, clothing and household items.

-Thomson Reuters; WSJ

15. Americans over 44 are the “voting majority”…for the first time in history, as the 78 million “baby boomers” born between 1946 and 1964 drive those numbers.

People 45 and older total 119 million, or 51% of the voting population…up from 42% in 1990 and 46% in 2000.

While this age group makes up 51% of the voting population…they represent 60% of voters in national elections.

Politicians will “tread lightly” when debating changes to Social Security and Medicare (entitlements) in fear of voter backlash from this group.

-AP; Census Bureau; WSJ

16. Mortgage rates hit lowest level in four months…averaging 4.72% on 30-year loans for the week-ending May 5…down from 4.82% the previous week and 5% from a year ago.

Rates on 15-year loans averaged 3.89%…the lowest level since the beginning of the year and down from 4.36% a year ago.

The reason for lower rates was due to weak economic data for Q1 2011…with 1.8% GDP growth below expectations and the slowest rate since Q2 2010.

-Freddie Mac

17. Poor criminals get less free lawyering…as budgets are cut for public defenders.

Spending on defending the indigent leaped from $1 billion in 1986 to over $5 billion in 2008.

A 1963 Supreme Court ruling provides criminal defendants’ a constitutional right to counsel.

State and counties struggling to balance budgets are firing police officers, prosecutors and public defenders…causing defenders to prioritize, and in some cases abandon, legal services.

-American Bar Association; WSJ

18. Renters pay more…with apartment costs expected to rise more than 5% this year.

Demand for rental housing is booming due to:

…people getting jobs and not “doubling up” anymore

…fewer apartments being built…only 40,000 new units expected this year vs. 130,000 for most of the last decade

…people choosing to rent instead of buy due to declining home values and tougher lending requirements

Trends for apartment vacancy rate and average monthly rent:

2009…8.0%…$964

2010…6.6%…$986

2011 projected…5.5%…$1,029

-Reis; MPF Research; USA Today

19. Dodd-Frank financial regulation law passed in 2010 stalls…due to massive scope and complexity, with implementation deadlines being missed.

The law was intended to tighten financial regulations…but turned into the biggest overhaul since the Great Depression.

Facts about the Dodd-Frank law:

…requires 387 new sets of rules, with only 21 rules currently finished

…not one US agency has met any of the 26 deadlines set for April 2011

…contains 849 pages, compared to:

… 66 pages in the 2002 Sarbanes-Oxley Act which changed accounting rules after the Enron scandal

…34 pages in the Glass-Steagal Act which created the FDIC (Federal Deposit Insurance Corp.) to separate commercial and investment banking during the Great Depression

The “paper trail” if laid end-to-end in the Federal Register created by this law would be over 20 times taller than the Statue of Liberty…and 2.6 times taller than the Empire State building.

30 rule making procedures have already missed deadlines out of 145 which were to be completed in 2011.

Implementation delays have been due to lawmaker’s focus on reducing the budget deficit…as well as the 2010 Congress under-estimating the magnitude and complexity of implementing these changes.

-Davis Polk and Wardell; WSJ

20. Bank loans have only grown 1% in the last year…and bankers want to lend, but businesses either don’t need the money or don’t qualify for credit.

Even with little growth, loans and leases at 45% of GDP are still high due to slow economic growth.

From 1976 to 2011 loans and leases averaged 36% of GDP.

During the last decade loans grew faster than GDP…peaking at 51% of GDP in December 2008.

The trend of loans and leases as a % of GDP during the last 20 years:

35% in 1990

31% in 1995

37% in 2000

40% in 2005

48% in 2010

-Federal Reserve; Credit Suisse; WSJ

21. US GDP economic growth was higher at a 1.8% annualized rate for Q1 2011 from Q4 2010…but at the low end of the range compared to other countries.

+8.7%…China

+6.1%…Hong Kong

+5.6%…South Korea

+5.1%…Mexico

+4.0… Belgium

+3.3%…Canada

+3.2%…Austria

+1.8%…US

+1.5%…Germany

+1.4%…France

+1.2%…Euro Area

-Economist

22. College debt nearly $23,000…for 2010 graduates, up from $15,000 ten years ago.

Parents are picking up about $5,000 of the tab with students paying the other $18,000.

With increased focus on state budget deficits, college students can expect bigger tuition increases than the recent 5% trend.

In 1990 the average student debt was $6,000…rising to $15,000 in 2000…and $18,000 in 2005.

-National Center for Education Statistics; Fastweb.com; FinAid.org; WSJ

23. Government annualized spending for Q1 2011 was a record $5.6 trillion…at federal, state and local levels.

$5.6 trillion = $18,000 for each American…up about $4,500 or 33% from 2001.

$5.6 trillion = about 37% of GDP, our total “economic output”…which will be $15+ trillion this year.

-Bureau of Economic Analysis; USA Today

24. Investments…as of 5/6/11

Dow Jones Ind. Avg.: Friday close 12639; 52-week low-high 9686 – 12811; week -1.3%; YTD +9.2 %

Nasdaq Composite: Friday close 2828; 52-week low-high 2092 – 2874; week -1.6%; YTD +6.6%

S&P 500: Friday close 1340; 52-week low-high 1023 – 1364; week -1.7%; YTD +6.6%

Gold (per troy ounce): Friday close $1491; 52-week low-high $1158-$1556; week -4.1%; YTD +4.9%

Crude oil (per barrel):  Friday close $97.18; 52-week low-high $68-$114; week -15%; YTD +6%

Natural Gas (per MMBtu): Friday close $4.24; 52-week low-high $3.29-$5.19; week -10%; YTD -4%

Silver plummeted 27% last week, the biggest drop since March 1980, and gold dropped over 4% and oil slid 15%…as speculators took profits and concerns mounted about overheated markets.

25. Interest rates…as of 5/6/11

Consumer Rates and Returns:

Money market:  0.62%… 0.65% last week, 52-week low – high 0.59% – 0.79%

5-Year CD: 2.00%… 2.00% last week, 52-week low – high 1.92% – 2.64%

30-year mortgage: 4.72%… 4.82% last week, 52-week low – high 4.32% – 5.21%

New car loan (48-month): 3.93%… 4.19% last week, 52-week low – high 3.91% – 6.52%

Home equity loan, $30,000: 5.07%… 5.04% last week, 52-week low – high 5.04% – 5.17%

Business Rates and Returns:

Prime rate:

US: 3.25%… same as last week and same for 52-week low and high

Canada: 3.0%…3.0% last week, 52-week low – high 2.25% – 3.0%

Euro zone: 1.25%…1.25% last week and 52-week low – high 1.0% – 1.25%

Fed-funds effective rate: 0.09%… 0.09% last week, 52-week low – high 0.08% – 0.22%

Libor, 1-month: 0.20%… 0.20% last week, 52-week low – high 0.21% – 0.35%

Libor, 3-month: 0.27%… 0.27% last week, 52-week low – high 0.27% – 0.54%

10-year Treasury bonds:  3.16%…3.30% last week, 52-week low – high 2.38% – 3.72%

Currency:

Euro, per dollar: 0.697…+3.2% for the week; -7% YTD; 52-week low – high 0.67 – 0.84

Yen, per dollar: 80.6…-0.7% for the week; -0.8% YTD; 52-week low – high 79 – 93

U.K. pound, in dollars: 1.64…-1.8% for the week; +5% YTD; 52-week low – high 1.43 – 1.67

Inflation: U.S. Consumer Price Index (CPI):

All items: 223.467 March 2011…+0.98% from February 2011…+2.7% from March 2010

Core (excl. food and energy): 223.69 Mar 2011…+0.30% from Feb 2011…+1.2% from Mar 2010

-WSJ, Bankrate.co; Thomson Reuters

Baber’s Easy to Read Economic News (5/3/11) – Weekly Top 10+

This newsletter summarizes this week’s 25 most important economic issues…with full-length articles on each of the top 10 issues below.

As the owner of Baber Turnaround Consulting, it is my job to monitor economic issues, especially those that affect local businesses.

I study local trends, compare them with analyses of regional and national economic events …then explain “what this means for you…”

The information I provide comes to you from many of the country’s most respected publications and sources, including the: Wall Street Journal, Bloomberg Businessweek, Economist, IRS, Federal Reserve, Census Bureau, SBA, Moody’s Economics, BankRate.com, Oppenheimer, Department of Labor, Bureau of Labor Statistics, USA Today, Office of Management and Budget, Thomson Reuters.

If you have a family member, colleague or friend who would benefit from these updates, they can sign up through the “Contact” link at the www.Easy2ReadEcon.com website.

Previous newsletters can be found at the BaberConsulting.com website “BLOG” – your comments will be appreciated.

Summarized Top 10 (see the full-length articles after Vital Signs)

1. What happens when we reach the debt ceiling…which has been raised about every 8 months and happened 74 times since 1962.

2. GDP slumps to 1.8% in Q1…down from 3.1% in Q4 2010.

3. US dollar losing value…to the lowest point since mid-2008 and April’s decline the worst since September 2010.

4. Inflation rate for Q1 highest since 2008…but Fed Chairman Bernanke says not to worry.

5. When QE2 winds down will QE3 wind up…is an uncertainty which makes financial markets nervous.

6. Silver investors happy…while silver users struggle with record prices, fueled by speculators as a hedge against inflation and currency declines.

7. College grads are underemployed…as only 60% have jobs that require a degree compared to 75% in 2000.

8. Massachusetts municipal unions fight usually friendly Democrats…over lawmaker’s plans to reduce health benefits.

9. Just-in-time (JIT) inventory levels too lean…and didn’t predict Japan’s crises

10. China’s 1-baby per family creates problem…as its population ages rapidly.

Vital Signs (15 Topics, #11 – #25)

11. New claims for unemployment compensation (seasonally adjusted=SA) for the week-ended April 23 increased 25,000 or 6% to 429,000.

The four-week moving average increased 9,250 or 2.3% to 408,500 from the previous week:

…up 14,000 or 3.6% from last month (w/e Mar. 26)

…down 60,000 or 13% from last year

12. Continuing claims for unemployment (seasonally adjusted =SA) for the week-ended April 16 was down 68,000 or 2% to 3,641,000.

The four-week moving average decreased 22,750 or 0.6% to 3,698,000 from the previous week:

…down 72,000 or 2% from last month (w/e 3/19/11)

… and the lowest level since October 2008

Continuing claims for unemployment (NSA) on April 16 was 3,765,000:

…down 366,000 or 9% from last month (w/e 3/19/11)

…down 1,031,000 or 21% from last year (4/17/10)

…down 2.6 million or 41% from two years ago (4/18/09) when 6,339,000 were drawing unemployment

13. Interest rates…as of 4/29/11

Consumer Rates and Returns:

Money market:  0.65%… 0.65% last week, 52-week low-high 0.59% – 0.79%

5-Year CD: 2.00%… 2.00% last week, 52-week low-high 1.92% – 2.64%

30-year mortgage: 4.82%… 4.86% last week, 52-week low-high 4.32% – 5.22%

New car loan (48-month): 4.19%… 4.25% last week, 52-week low-high 4.19% – 6.53%

Home equity loan, $30,000: 5.04%… 5.04% last week, 52-week low-high 5.04% – 5.17%

Business Rates and Returns:

Prime rate:

US: 3.25%… 3.25% last week and same for 52-week low and high

Canada: 3.0%… 3.0% last week, 52-week low-high 2.25% – 3.0%

Euro zone: 1.25%… 1.25% last week and 52-week low-high 1.0% – 1.25%

Fed-funds effective rate: 0.09%… 0.11% last week, 52-week low-high 0.08% – 0.22%

Libor, 1-month: 0.21%… 0.21% last week, 52-week low-high 0.21% – 0.35%

Libor, 3-month: 0.27%… 0.27% last week, 52-week low-high 0.27% – 0.54%

10-year Treasury bonds:  3.30%… 3.40% last week, 52-week low-high 2.38% – 3.72%

Currency:

Euro, per dollar: 0.675… -1.8% for the week; -10% YTD; 52-week low-high 0.67 – 0.84

Yen, per dollar: 81… -1% for the week; -0.1% YTD; 52-week low-high 79 – 95

U.K. pound, in dollars: 1.67… +1.1% for the week; +7% YTD; 52-week low-high 1.43 – 1.67

Inflation: U.S. Consumer Price Index (CPI):

All items: 223.467 March 2011… +0.98% from Feb 2011…+2.7% from Mar 2010

Core (excl. food and energy): 223.69 Mar 2011… +0.30% from Feb 2011…+1.2% from Mar 2010

-WSJ, Bankrate.co; Thomson Reuters

14. Investments…as of 4/29/11

Dow Jones Ind. Avg.: Friday close 12811; 52-week low-high 9686 – 12811; week +2.4%; YTD +10.7%

Nasdaq Composite: Friday close 2874; 52-week low-high 2092 – 2874; week +1.9%; YTD +8.3%

S&P 500: Friday close 1364; 52-week low-high 1023 – 1364; week +2.0%; YTD +8.4%

Gold (per troy ounce): Friday close $1556; 52-week low-high $1158-$1556; week +3.5%; YTD +9.5%

Crude oil (per barrel):  Friday close $113.93; 52-week low-high $68-$114; week +1.5%; YTD +25%

Natural Gas (per MMBtu): Friday close $4.70; 52-week low-high $3.29-$5.19; week +7%; YTD +6.7%

15. American’s income up 5% in March from a year ago…and up 0.5% from February, but lost ground in April due to higher gas and food prices.

The saving rate, which reflects how much consumers have left after monthly spending and taxes, remained constant in March at 5.5%… which has been the level for the last year.

The low point in personal income was in 2009 when it ranged from 0% to -2%.

-Commerce Dept.; WSJ

16. 64% of homes are undervalued for insurance purposes…giving homeowners only 81% of what they need to rebuild their homes.

Only 43% of renters have “renters insurance”.

If federal disaster relief is available…it is capped at $30,000, with average payments usually less.

 Even though home values have plummeted in recent years…the cost to rebuild has likely gone up.

Tornadoes are usually covered by home insurance policies…with separate coverage required for earthquakes, floods and hurricanes.

-Marshall & Swift 2008 Survey; Insurance Research Council; USA Today

17. Japan’s manufacturing drops 15+% in March…from February due to after-effects from the earthquake and tsunami.

The decline in output from mines and factories was the biggest on record.

April production is only expected to rise about 4% from March.

-Japanese Ministry of Economy, Trade and Industry; WSJ

18. Germany hits record low unemployment rate of 7.1%…in April, but the pain in Spain continues.

Germany’s unemployment level fell to below 3 million for the first time in 20 years…while Spain struggled with 20.3% in Q4 2010, which is expected to be worse for Q1 2011.

Compounding Spain’s problem are union-friendly labor laws which make it expensive to add new workers.

Total Euro-zone unemployment is around 9%.

-Eurostat; WSJ

19. Consumer confidence index up in April to highest level since 2008…due to optimism about job growth.

Trend of consumer confidence index, lowest level to highest level since 2007:

85…110…2007

40…85…2008

25…52…2009

48…60…2010

60…73…2011

-Conference Board; WSJ

20. Home prices fall in February for 8th month in a row…with 50% of the 20 metro areas hitting the lowest point of the recession.

Only one market had prices higher than a year ago…Washington, DC.

The markets with the largest declines from the nationwide peak (July 2006)…and from a year ago:

-58%, -5%…Las Vegas

-56%… -8%… Phoenix

-50%… -6%… Miami

-46%… -6%… Tampa

-45%… -4%… Detroit

-40%… -3%… San Francisco

-S&P/Case-Schiller; Moody’s Analytics

21. “Private exchange insurance” reduces health insurance costs for small businesses…by shifting responsibility to workers.

Private exchanges operate in 20 states and are run by former insurance executives and employee-benefit consulting firms.

Companies contribute a set amount to each employee and the employee then selects a plan that fits their needs.

Business owners know how much they are going to pay… while employees have the responsibility to determine the type of coverage they need, deductibles and co-pays.

Currently companies often over-insure their employees by providing coverage they don’t need.

A similar plan was proposed by House Budget Committee Chairman Paul Ryan (Republican) for Medicare recipients…giving them a set amount to buy insurance from private insurers.

-Aon Hewitt; USA Today

22. Public schools and teachers unions resist “open enrollment”…which allows parents to send their children to the best schools, even if not in their district.

MI Gov. Rick Snyder (Republican) encourages competition between public schools by proposing a system where “any school with space for a nonresident would have to accept that student, using a lottery system if not enough openings.”

The state would pay the “per pupil allowance” based on students in the district…not based on where the children live.

Proponents of “open enrollment” and charter schools feel that giving parents a choice of the school their children attend would force administrators to be more aggressive in replacing poor teachers.

-WSJ

23. Social security phases out paper checks by 2013…and on May 1 people applying for federal government benefits are required to arrange direct deposit.

85% of Social Security beneficiaries currently use direct deposit, however, about 9 million US households don’t use a bank or credit union.

The US government issues 120 million checks a year, at a cost of $1 each…vs. 10 cents for electronic payment.

The US Treasury estimates that direct deposit will save $1 billion over 10 years.

-Treasury Dept.; USA Today

24. Prices plummet for sugar, cotton and lumber…as supplies increase, shortage fears subside and booming economies (China) take steps to slow growth.

% increase during the last half of 2010… % decrease from 2011 peak:

Sugar…+126%…-34%

Cotton…+81%…-17%

Lumber…+34%…-28%

-Thomson Reuters; WSJ

25. Other facts:

44% of Americans killed by tornadoes in 2010 lived in mobile homes.

$1.96 was the price of gas 10 years ago.

5.5 million jobless Americans are not receiving unemployment benefits…compared with 1.4 million a year ago.

Top 10 Full Articles

1. What happens when we reach the debt ceiling…which has been raised about every 8 months and happened 74 times since 1962.

Facts about reaching the debt ceiling:

…it has happened four times and remained unchanged for months while Congress deliberated, with no disruption to capital markets

…the Treasury is empowered to use “extraordinary tools” to open borrowing capacity…which includes delaying transfers of US Treasurys to pension funds

…the US can spend only what it collects in tax revenues, which will be about $2.2 trillion in 2011

US creditors (who we owe money to) would be encouraged if the debt ceiling issue resulted in lawmakers coming together to define and implement serious government deficit reduction plans.

-Emil Henry/WSJ, Asst. Secretary of Treasury 2005 – 2007

What this means for you…as a taxpayer is to let your elected officials know where you stand on deficit reduction strategies.

Do you want working Americans to pay more taxes…or should lawmakers first reduce and restructure government spending so that we don’t borrow 40 cents of every dollar we spend.

2. GDP slumps to 1.8% in Q1…down from 3.1% in Q4 2010.

Economists forecast a jump to a 3+% annualized rate for Q2 and the rest of 2011.

The slower growth was attributed to bad weather, the soft housing market, higher gas and food prices, and lower government defense spending.

Recent upticks in manufacturing data is an encouraging sign that Q1 numbers may understate the underlying strength of the economy…and may be revised upward when more data is received in the next few weeks.

-WSJ

What this means for you…is more uncertainty on the speed of the recovery.

The US economy grew at a 2.3% annualized rate during the 12 months ending 3/31/11…far below the 3% – 4% needed to rapidly reduce the 8.8% unemployment rate.

3. US dollar losing value…to the lowest point since mid-2008 and April’s decline the worst since September 2010.

Publicly Federal Reserve and Treasury officials claim their goal is a stronger dollar…but are doing little to “stop the slide.”

Based on the “US Dollar Index”, which values the dollar against a basket of other currencies, historical periods of significant dollar declines occurred in:

Mar 1985 – Dec 1987…down 48%

Jan 2002 – Dec 2004…down 33%

Nov 2005 – Apr 2008…down 23%

Jun 2010 – Apr 2011…down 17%

One concern is that the Fed’s current “low interest rate policy” which has pumped $ billions into the financial system…will create inflation as imports will cost more.

Another impact could be rapidly increasing interest rates if investors resisted buying US Treasury bonds due to high government deficit-spending and debt levels.

Other countries have started raising interest rates causing investors to shift US $-based holdings into other currencies offering higher rates of return.

-Thomson Reuters; WSJ

What this means for you…is good news if you are an exporter because it makes US goods cheaper to buy, but bad news for consumers as it means you will pay more for imports.

Hopefully lawmakers will get serious about reducing government spending and our reliance on other countries to loan us money…which may come to a head when Congress and the White House address raising the $14.3 trillion debt ceiling in May.

4. Inflation rate for Q1 highest since 2008…but Fed Chairman Bernanke says not to worry.

Bernanke mentioned “inflation expectations”  21 times in his news conference April 27 to calm investors who are nervous about spikes in the cost of oil and food products…and the 3.8% Q1 increase in the “personal consumption expenditure index.”

The 3.8% Q1 increase was the largest since Q3 2008.

One measure of future (5+ years) inflation expectations is the interest rate gap between Treasury bonds and Treasury inflation-protected securities (TIPS)…which haven’t changed much in the last year.

A survey recently conducted by the Univ. of Michigan of consumers mirrors the TIPS gap data.

Consumers only expected 2.9% CPI inflation over the next five years…but 4.6% in the next year due to high energy and food prices.

-Commerce Dept.; Federal Reserve; Univ. of MI; WSJ

What this means for you…as a consumer is conflicting inflation expectations.

In the long-term, high inflation may be less likely given slow US economic recovery and high unemployment…however in the short-term consumers feel the pain of higher gas and food prices.

5. When QE2 winds down will QE3 wind up…is an uncertainty which makes financial markets nervous.

QE1 (first round of “quantitative easing”) launched in December 2008 when the Federal Reserve bought $1.7 trillion of mortgage-backed securities and Treasury bonds…the objectives being to end the economic crises and stimulate economic growth.

 QE1 was completed in March 2010.

Then came QE2 in November 2010 with the Fed printing an additional $600 billion to continue QE1 objectives…with surplus money flooding into stock markets, commodities and other riskier investments.

QE2 is targeted for completion in June 2011.

Global investors are watching the impact of QE1 and QE2 on the US economy as the Fed prints money to buy US debt…while lawmakers and the White House fail to take significant actions to reduce deficit spending and stop soaring US debt.

-WSJ

What this means for you…is even more uncertainty on the financial direction of the US after the end of QE2.

Concerns are that interest rates will rise, stock markets could fall 10%+, the housing market will become even tougher and job growth will stall.

Some economists predict that the Fed will initiate QE3, or another round of government investment to prop-up artificially-low interest rates and investment values.

The soaring price of gold to record highs is a reflection of investor nervousness about over-valued stocks, currency stability and the ability of governments to be financially responsible.

6. Silver investors happy…while silver users struggle with record prices, fueled by speculators as a hedge against inflation and currency declines.

Facts about silver:

Prices soared 84% in 2010…and up another 54% in 2011 (compared to gold’s 2011 9%+ increase)

$5 per ounce in 1992…$10 in 2007…$20 in 2008…$30 in 2010…$47 in 2011

75% is used for film, jewelry, mirrors, batteries, solar panels, plasma TVs

Every $1 per ounce increase takes $10 – $15 million from Kodak’s bottom line.

Manufacturer’s relying on silver are working on technologies to reduce or replace silver…like copper and stainless steel.

Jewelers are substituting less-costly stainless steel or rhodium-plated materials for silver.

-Thomson Reuters; WSJ

What this means for you…as a consumer is to expect continuing price increases for jewelry and other silver-dependent products as manufacturers and retailers struggle to maintain profit margins while their silver cost soars.

Winners are precious-metal refineries who are overwhelmed with scrap silver…which eventually will dampen price increases as supply catches up with demand.

7. College grads are underemployed…as only 60% have jobs that require a degree compared to 75% in 2000.

Between September 2010 and January 2011 nearly 2 million college grads under 30 had jobs which didn’t require a university degree.

About 1.7 million college graduates with bachelor’s degrees will enter the job market this Spring along with 687,000 with a master’s degree.

-Chicago Tribune; Northeastern Univ. Center for Labor Market Studies; US Dept. of Education

What this means for you… is that even with a college degree the slow economic recovery doesn’t guarantee a high-paying job.

However, those with college degrees are still more likely to get a job than those with just a HS education.

The average annual pay for the under-employed college grad is $25K compared to $40K for jobs that require the degree…and only $22K for those with only a HS degree.

8. Massachusetts municipal unions fight usually friendly Democrats…over lawmaker’s plans to reduce health benefits.

Democrat-controlled House, Senate and Governor aim to roll back public-union rights to negotiate health benefits due to projected $1.9 billion 2012 budget shortfall.

Massachusetts municipal health care costs have gone up at nearly double the rate of a state-administered plan (11% vs. 6%)…with average premiums 39% higher than private-sector premiums.

Lawmakers predict savings over $100 million for municipalities and puts costs in line with health plans for state employees.

The proposal allows 351 cities and towns to set co-pays and deductibles for municipal health benefit plans covering over 175,000 municipal workers.

-Boston Foundation; Massachusetts Taxpayers Foundation; WSJ

What this means for you…is a nearly unprecedented situation where unions are squaring off against Democrat lawmakers to protect generous health benefit plans.

Massachusetts Democrat lawmakers join Republican legislators in Wisconsin and Ohio to curb public employees’ power to negotiate benefits…and raise contributions to pensions and health care plans.

9. Just-in-time (JIT) inventory levels too lean…and didn’t predict Japan’s crises.

Companies around the world enthusiastically implemented JIT inventory management philosophies over the last 20 years…but didn’t anticipate a crisis like Japan’s.

JIT meant companies kept inventories of raw materials and finished goods as low as possible…requiring suppliers to meet tight delivery schedules and in some cases store finished inventory for customers.

The crisis in Japan exposed how vulnerable many companies are to supply disruptions.

Even before the disaster, companies recognized this exposure and made 90+ day purchase commitments with suppliers to ensure product continuity.

The trend of inventory-to-sales over the last 15 years improved cash flow for JIT disciples:

1.45 in 1995 (45% more inventory than needed for sales)

1.40 in 1997 (40%)

1.35 in 2002 (35%)

1.30 in 2004 (30%)

1.25 in 2006 (25%)

1.45 in 2009 (45%) (recession, high finished goods levels)

1.25 in 2011 (25%)

During the recession some manufacturers were saddled with excessive inventory as demand plummeted.

After they sold-through the surplus…many were left under-inventoried when demand picked up with the problem compounded by Japan’s supply chain disruptions.

-Commerce Dept.; AP; WSJ

What this means for you…as a manufacturer is to carefully weigh the cost/benefit of lean inventory levels vs. lost sales, due either to unexpected high demand or supply disruption.

Also, JIT proponents often reduced their supplier base which left them even more vulnerable to supply disruptions.

10. China’s 1-baby per family creates problem…as its population ages rapidly.

In 1980 the Chinese government implemented the one-child planning policy to curb exploding population growth…expecting it to take 30+ years to be successful.

Based on 2010 census results…the plan was too successful.

China’s population grew at an annual rate of 1.07% between 1990 – 2000…and only 0.57% between 2000 – 2010.

In 2000 China had 1.27 billion people…and now has 1.34 billion.

People over 60 now account for 13% of the population…up from 10% in 2000.

People under 14 (future workers) now make up only 17% of the population…down from 23% 10 years ago.

Couples who violate the one-child policy are fined several months pay and can lose their jobs if they work for the government.

Chinese leaders are unlikely to make any changes before the 2012 Communist Party leadership change, which only happens once every 10 years.

Officials claim that over 400 million births were prevented by the policy…helping to reduce poverty and pollution levels.

-WSJ

What this means for you…if you are an exporter is to temper long-term economic growth estimates for China as tepid population growth could slow down more if one-child restrictions aren’t raised, along with China’s historical “preference” for boys…who now outnumber girls.

 Also, consumer spending may be dampened as the burden grows for workers to care for the aging population.

Baber’s Easy to Read Economic News (4/26/11) – Weekly Top 10+

This newsletter summarizes this week’s 25 most important economic issues…with full-length articles on each of the top 10 issues below.

As the owner of Baber Turnaround Consulting, it is my job to monitor economic issues, especially those that affect local businesses.

I study local trends, compare them with analyses of regional and national economic events …then explain “what this means for you…”

The information I provide comes to you from many of the country’s most respected publications and sources, including the: Wall Street Journal, Economist, IRS, Federal Reserve, Census Bureau, SBA, Moody’s Economics, BankRate.com, Oppenheimer, Department of Labor, Bureau of Labor Statistics, USA Today, Office of Management and Budget, Thomson Reuters.

If you have a family member, colleague or friend who would benefit from these updates, they can sign up through the “Contact” link at the www.Easy2ReadEcon.com website.

Previous newsletters can be found at the BaberConsulting.com website “BLOG” – your comments will be appreciated.

Summarized Top 10 (see the full-length articles after Vital Signs)

1. Gold hits record high…as world stability hits record low.

2. Standard & Poors warns that US top AAA credit rating could be downgraded…in the next two years if lawmakers fail to agree on a realistic plan to reduce deficit.

3. Manufacturing output leaps to strongest growth rate since 1997…as Q1 2011 output increased at a 9% + annualized rate, more than four times the 2% growth of the total US economy.

4. Government construction projects pay union rates…even for non-union companies.

5. States “clawback” economic development grants…when companies don’t create jobs.

6. China props up Europe…by continuing to buy their debt and invest in their companies.

7. US-based global companies added over 2.4 million jobs overseas…while cutting nearly 3 million jobs in the US between 1999-2009.

8. Feds cracking down on illegals…by arresting employers.

9. Home sales rise but prices fall…and are expected to keep falling.

10. Hottest jobs, what they pay, what you need to know…and expected % growth between 2008-2018.

Vital Signs (15 Topics, #11 – #25)

11. New claims for unemployment compensation (seasonally adjusted=SA) for the week-ended April 16 decreased 13,000 or 3% to 403,000.

The four-week moving average increased 2,250 or 0.6% to 399,000 from the previous week

…up 10,000 or 2.6% from last month (w/e Mar. 19)

…down 68,500 or 15% from last year

12. Continuing claims for unemployment (seasonally adjusted =SA) four-week moving average on April 9 was 3,695,000

…down 7,000 or 0.2% from the previous week

…down 103,000 or 2.7% from last month (w/e Mar. 12)

… and the lowest level since October 2008

Continuing claims for unemployment (NSA) on April 9 was 3,879,000:

…down 398,000 or 9% from last month (w/e 3/12/11)

…down 1,052,000 or 21% from last year (4/10/10)

…down 2.5 million or 39% from two years ago (4/11/09) when 6,406,000 were drawing unemployment

13. Interest rates…as of 4/21/11

Consumer Rates and Returns:

Money market:  0.65%… 0.61% last week, 52-week low – high 0.59% – 0.79%

5-Year CD: 2.00%… 2.00% last week, 52-week low – high 1.92% – 2.64%

30-year mortgage: 4.86%… 4.95% last week, 52-week low – high 4.32% – 5.25%

New car loan (48-month): 4.25%… 4.31% last week, 52-week low – high 4.25% – 6.57%

Home equity loan, $30,000: 5.04%… 5.09% last week, 52-week low – high 5.04% – 5.17%

Business Rates and Returns:

Prime rate:

US: 3.25%… same as last week and same for 52-week low and high

Canada: 3.0%…3.0% last week, 52-week low – high 2.25% – 3.0%

Euro zone: 1.25%…1.25% last week and 52-week low – high 1.0% – 1.25%

Fed-funds effective rate: 0.11%… 0.14% last week, 52-week low – high 0.08% – 0.22%

Libor, 1-month: 0.21%… 0.22% last week, 52-week low – high 0.21% – 0.35%

Libor, 3-month: 0.27%… 0.27% last week, 52-week low – high 0.27% – 0.54%

10-year Treasury bonds:  3.40%…3.49% last week, 52-week low – high 2.38% – 3.81%

Currency:

Euro, per dollar: 0.69…-0.8% for the week; -8% YTD; 52-week low – high 0.69 – 0.84

Yen, per dollar: 82…-1.4% for the week; +0.9% YTD; 52-week low – high 79 – 95

U.K. pound, in dollars: 1.65…+1.3% for the week; +5.9% YTD; 52-week low – high 1.43 – 1.64

Inflation: U.S. Consumer Price Index (CPI):

All items: 223.467 March 2011…+0.98% from February 2011…+2.7% from March 2010

Core (excl. food and energy): 223.690 Mar 2011…+0.30% from Feb 2011…+1.2% from Mar 2010

-WSJ, Bankrate.co; Thomson Reuters

14. Investments…as of 4/21/11

Dow Jones Ind. Avg.: Thursday close 12506; 52-week low-high 9686 – 12506; week +1.3%; YTD +8.0%

Nasdaq Composite: Thursday close 2820; 52-week low-high 2092 – 2834; week +2.0%; YTD +6.3%

S&P 500: Thursday close 1337; 52-week low-high 1023 – 1343; week +1.3%; YTD +6.3%

Gold (per troy ounce): Thursday close $1503; 52-week low-high $1142-$1503; week +3.4%; YTD +5.8%

Crude oil (per barrel):  Thursday close $112.29; 52-week low-high $68-$113; week +2.4%; YTD +23%

Natural Gas (per MMBtu): Thursday close $4.41; 52-week low-high $3.29-$5.19; week +5%; YTD +.02%

15. $38.5 billion in 2011 spending cuts not real…states Congressional Budget Office (CBO), claiming that the reduction in actual $’s spent from last year will only be $352 million.

The CBO claims that most of the announced spending cuts were either never going to be spent anyway… or will be much less than projected because they will take time to go into effect.

Also, Democrats insisted that $17B of the $38.5B in cuts would be restored in 2012…as they were in “mandatory” spending categories which by law will revert to 2010 levels.

59 House Republicans vetoed the deal, even though it was negotiated by their leader… House Speaker Boehner.

-Congressional Budget Office; WSJ

16. IRS nabbing more tax cheats…with prosecutions up 25% since 1991.

In 2010 prosecution recommendations by the IRS hit a record high of 1,057…up 50% from 2001.

One reason is more focus on offshore tax evasion by rich Americans.

Swiss bank USB gave the IRS information on 4,450 clients…ending Switzerland’s reputation as a “don’t tell” destination for secret cash.

E-filing of tax returns increased from 4% in 1990…to 28% in 2000…to 50% in 2005…to 69% in 2010.

-IRS; Transactional Records Access Clearinghouse; USA Today

17. US debt ceiling must be raised again…when it hits $14.3 trillion sometime in May.

The US government borrows about 40 cents out of every $1 it spends.

US debt trend in trillions $, which has doubled in the last 8 years:

$6.8T 2002

$8.1T 2004

$10T 2007

$12T 2009

$15T+ 2011 est.

-CRS; Kiplinger

18. BRICS countries unite to reduce importance of the US$…as the world’s “reserve currency.”

BRICS = Brazil, Russia, India, China and South America agree to open credit lines in their currencies to each other.

BRICS total GDP (economic output) totals $13 trillion, or about 15% less than the US $15.2 trillion.

BRICS are using their combined economic clout to reform the current dollar-denominated international monetary system…lobbying to replace the US$ with a “basket of currencies” to value international trade.

The BRICS dilemma is concern about China’s undervalued currency.

-International Monetary Fund; World Economic Outlook; WSJ

19. Land lines dying… as 27% of homes in June 2010 were wireless only, up from under 14% in 2007.

The demise of land lines has happened in every state…from a low of 13% in RI to a high of 35% in Arkansas.

The young, renters and those living in low income homes are more likely to be wireless.

-Centers for Disease Control and Prevention; USA Today

20. US has 70% of global oil shale reserves…with global reserves equal to 3 to 4 times the size of Mid-East conventional oil reserves.

New technology melts solidified oil and gas into liquid form…which can then be extracted with traditional drilling techniques.

This process is still more expensive than traditional drilling…but the cost is dropping and comparable with drilling in the Arctic and near Brazil.

Estimates of global oil shale reserves equal 2.8 trillion barrels of oil…making the US 70% share equal about 2 trillion barrels.

The US consumes around 20 million barrels of oil a day…or 7.3 billion barrels a year…making our estimated oil shale reserves equal to over 270 years supply at our current usage.

-Kiplinger

21. US House of Representatives working harder than the Senate…evidenced by “roll call votes” through mid-April.

The Republican-led House has had 277 votes…the most since 1995, passing 24 bills.

The Democrat-led Senate has had 61 votes…the lowest since 1997, passing 11 bills.

The number of House and Senate bills passed at this point is the lowest in more than a decade.

-House and Senate Clerks; USA Today

22. Unemployed and poor would have to pass drug tests to get paid…if pending state legislation is passed.

SC Republican state senator Harvey Peeler introduced legislation which would suspend unemployment checks to people failing a drug test needed to get a job.

26 other states are considering legislation requiring people receiving welfare assistance to pass drug tests.

Employers are complaining that open jobs are going unfilled because of difficulty finding unemployed who can pass a drug test.

-Greenville SC News; USA Today

23. China is replacing US $-denominated trades… with the Chinese yuan, which represented 7% of China’s foreign trade in Q1 2011, up from just 0.5% a year ago and 0.1% for Q4 2009.

Yuan-based trade deals in US$ have grown from less than $3 billion in Q1 2010 to over $55 billion in Q1 2011…up over 20x.

Chinese leaders want to reduce the use of the US$ and are aggressively expanding and encouraging using the use of the yuan for settling trade deals.

The recent willingness of the Chinese government to allow the allegedly under-valued yuan to appreciate against the US$…helps make US exports to China cheaper.

-People’s Bank of China; WSJ

24. School vouchers gaining popularity across the nation…as studies prove that vouchers boost high school graduation rates.

The US Dept. of Education conducted a 2010 study revealing a 91% graduation rate for students in “voucher programs” vs. a 70% rate for students who applied for voucher programs but didn’t win the “placement lottery.”

Another study in Milwaukee had similar results with a 77% graduation rate for ninth grade students in a voucher program vs. 69% for peers in public high schools.

1.3 million teens drop out of school every year…with drastic financial consequences.

High school dropouts have a 15.2% unemployment rate compared to 10.5% for adults with a HS degree but no additional education…and make an average of $21,000 a year or $10,000 less than HS grads.

-US Dept. of Education; Univ. of Arkansas; Alliance for Excellent Education; USA Today

25. Fun facts:

Phone users: 29% Blackberry, 27% iPhone, 14% Android, 30% other

Income of iPad owners: 49% over $100K, 16% $75-$100K, 16% $50-$75K, 12% $25K-$50K, 7% under $25K

Age of iPad owners: 8% under 17, 15% 18-24, 27% 25-34, 20% 34-44, 16% 45-54, 14% 55+

 –comScore Inc.; WSJ

Top 10 Full Articles

1. Gold hits record high…as world stability hits record low.

At $1,500+ per ounce gold has gone up for five straight weeks and is up about 6% for the year.

Investors world-wide are bidding up the price of gold seeking a hedge against inflation, a weaker US $ and instability in Japan and the Mid-East.

There is also continued concern about Europe’s financial problems with Greece, Ireland, Portugal and Spain.

Buyers are now taking physical possession of gold instead of using futures contracts…creating capacity problems for companies operating storage vaults.

GFMS Ltd. consultants projected that physical bullion holdings jumped 66% in 2010 to 880 metric tons.

Central banks world-wide hold over 27,000 metric tons of gold, or 11.3% of their total reserve holdings.

The Univ. of Texas Investment Management Company recently converted all of its gold futures into physical bullion holdings…totaling $1 billion (about 21 tons) out of $26.6 billion investments.

-World Gold Council; WSJ

What this means for you…is to watch the price of gold as a barometer of financial market concern.

Gold goes up when there is a lack of confidence in governments to fix financial problems.

As quickly as gold went up…it could go down if investors regain confidence that world economic growth can resume without government support, currency values stabilize and political unrest subsides.

As a reminder, the price per ounce of gold has risen from $600 in 2006…to $900 in 2008…to $1200 in 2010…and is now $1500+.

2. Standard & Poors warns that US top AAA credit rating could be downgraded…in the next two years if lawmakers fail to agree on a realistic plan to reduce deficit.

US debt held by the public is $9.7 trillion…and when added to the $4.6 trillion “inter-governmental debt” which represents Social Security and Medicare “trust funds”…equals the $14.3 trillion “national debt.”

Trend in national debt held by the public:

$712 billion in 1980

$2.3 trillion in 1990

$3.4 trillion in 2000

$8.2 trillion in 2010

$11.6 trillion in 2012 (estimate)

Debt issued by other AAA-rated countries: 

$1.8 trillion from France

$1.7 trillion from U.K

$1.6 trillion from Germany

The Congressional Budget Office forecasts that the US 2011 budget deficit will be $1.5+ trillion…which means that we are borrowing about 40 cents of every dollar we spend.

-Economic Report of the President; Council of Economic Advisors; Thomson Reuters; USA Today

What this means for you…is a wake-up call that if Congress and the White House can’t agree on how and when to reduce government spending and the deficit…US borrowing costs will increase which will make the deficit and debt even worse.

And if interest rates rise…economic growth will slow down and prolong the country’s unemployment problems.

The immediate need is to restructure spending on the Medicare  (for the elderly and disabled) and Medicaid (for the poor and disabled) “entitlement programs” to eliminate wasteful spending and abuse.

3. Manufacturing output leaps to strongest growth rate since 1997…as Q1 2011 output increased at a 9% + annualized rate, more than four times the 2% growth of the total US economy.

The stock market reacted positively…with the Dow Jones Industrial Average (DJIA) closing at 12,506, the highest level since June 2008.

Strong manufacturing gains are due to stronger sales of cars, trucks, computers and servers along with equipment to growing markets in Latin America, China and India.

Increased US manufacturing output means more jobs, even with improved labor productivity and efficiency.

 Manufacturing employment dropped about one-third or six million jobs between 1997-2009…but is slowly rebounding, adding over 100,000 jobs last year and over 100,000 in Q1 2011.

-Federal Reserve Board; Labor Dept.; WSJ

What this means for you…is another indicator that the overall world economic outlook is improving, even if US consumer demand is picking up at a slower pace.

Also, the weaker US dollar is making our exports cheaper…the offset being more expensive imports.

Rising prices world-wide for food, metal and oil have fueled demand for equipment related to farming, mining, exploration and infrastructure.

Manufacturing growth could be dampened if oil prices keep rising along with prices for copper and other raw materials.

4. Government construction projects pay union rates…even for non-union companies.

The Davis-Bacon Act mandates that construction projects receiving $2,000+ in federal funding pay “prevailing wages”…which are typically based on recent union labor contracts, including benefits.

Lawmakers in 21 states are trying to eliminate “prevailing wage requirements”…with Ohio Republican Gov. John Kasich’s budget raising the prevailing wage threshold from $78,258 to $5 million for new construction.

32 states currently have prevailing wage rules.

Labor typically accounts for about 30% of project costs…with union-related prevailing rates being as much as 30% – 40% higher than nonunion rates.

For example, in Howard County, IN the prevailing hourly wage (including benefits) for a union carpenter is about $36…compared to $26 for nonunion workers.

Indiana Republicans are trying to raise the minimum for prevailing-wage contracts from $150,000 to $1 million….causing Democrat lawmakers to flee the state, but then returned and are negotiating a compromise.

-Ohio Commerce Dept.; US Labor Dept.; WSJ

What this means for you…is to expect heated battles at state and national levels between budget- cutting Republicans who want to end wasteful spending and union-backed Democrats trying protect the status quo.

Nonunion contractors complain that current rules prevent them from being more competitive with union companies…and unnecessarily inflates public sector construction costs.

5. States “clawback” economic development grants…when companies don’t create jobs.

Ohio’s Republican Gov. John Kasich recently sent a bill for $15,915 to a company which received a $35,000 development grant…when the company only created 445 new jobs instead of the 816 promised.

The economic development director in Albuquerque, NM is attempting to clawback over $490,000 in property tax abatements used to lure a call-center company…which subsequently closed and eliminated 670 jobs.

State and local governments nationwide grant tax breaks worth $70+ billion to entice companies to create new jobs…in hopes of generating more tax revenues.

Some governors are creating funds for economic-development deals by reducing costs elsewhere…as done in Virginia by Republican Gov. Robert McDonnell.

In 2010 Virginia increased economic incentive spending by 56% and has experienced declining unemployment rates…with March at 6.3%.

On the flip-side, economic-development spending in New York rose 422% between 2001 and 2010…while private sector jobs dropped 2%.

-New York Governor’s Office; WSJ

What this means for you…as taxpayers is to support lawmaker’s efforts to monitor the impact of economic grants to make sure that promises are met and that there are strings attached to future grants.

Opponents of “tax break grants” charge that governments shouldn’t create “winners and losers” based on preferential tax deals to certain companies…and that it weakens the free market system.

Companies receiving tax breaks could also be harmed in the short-term by keeping more jobs than they need…to avoid repaying previous incentives.

6. China props up Europe…by continuing to buy their debt and invest in their companies.

Chinese automaker Geely bought Swedish brand Volvo, the Fosun Group bought a 7% interest in Club Med (French) and may inject $13 billion into Spanish banks.

The European Union (EU) is China’s largest trading partner…sharing $522 billion in business deals in 2010, with about one-third being exports from the EU to China.

The US and China shared $457B worth of business last year.

One reason China invests in Europe’s bonds is to help prevent the euro from losing value…which would make EU imports from China more expensive, hurting the Chinese economy.

-WSJ

What this means for you…is the risk that China will use it’s $3 trillion in foreign-exchange reserves to invest less in US Treasurys and more in other country’s bonds and companies…which may cause the interest cost to go up on US debt.

The risk of higher US interest cost is yet another reason for lawmakers to reduce deficit spending…which will reduce debt levels and the need to borrow money from China and other countries.

7. US-based global companies added over 2.4 million jobs overseas…while cutting nearly 3 million jobs in the US between 1999 – 2009.

US multi-national companies:

employ about 21 million in the US, or 15% of the US workforce… and over 10 million overseas

cut over 5% of their US workforce in 2009 vs. only 1.5% abroad

generate 23% of US private-sector output

account for 48% of exports

-Commerce Dept.; McKinsey Global Institute; Companies; WSJ

What this means for you…is to encourage Congress and President Obama to make the US a better choice for global companies to grow manufacturing capacity by:

reducing the top corporate income tax rate from 35%…nearly the highest in the world… to 25%

improving the quality of the US education system by using charter schools and “voucher systems” to give parents a choice of where to educate their children…which will force public schools to “get better”

eliminating immigration barriers for highly skilled workers

As the world economy grows the US will become a smaller piece of the pie…making it imperative that global companies view America as the top choice for expanding production capacity and “doing business.”

8. Feds cracking down on illegals…by arresting employers.

Fed-initiated worksite investigation cases has nearly tripled from 1,093 in 2007 to 2,746 in 1010…with criminal arrests of employers soaring from 3 in 2005 to 196 in 2010.

Employers caught keeping two sets of books…one for legal workers and another for illegals, and not  deducting employment taxes on illegals.

In 2009 the Obama administration shifted the focus from arresting illegal workers to arresting the  employers who hired them.

The Immigration and Customs Enforcement (ICE) department and the IRS have teamed up to go after businesses expected of hiring illegals, targeting restaurants.

Technology is now making it more difficult to counterfeit documents.

“I-9” forms containing identity information is now being filed online to reduce errors, with some firms hiring people dedicated to reviewing hiring documents.

-Immigration and Customs Enforcement; Pew Hispanic Center; WSJ

What this means for you…if you own a business which may be employing illegal aliens, you would be wise to stop the practice before the IRS finds out.

Around 11 million illegal immigrants live in the US…and most have traditionally used fake names and Social Security numbers to get jobs.

President Obama favors legalizing most illegal workers while many Republicans insist that illegals use the same process  other hopeful immigrants must follow…not go to the head of the line.

9. Home sales rise but prices fall…and are expected to keep falling.

March sales of existing homes rose 3.7% from February (seasonally-adjusted) to an annualized level of 5.1 million.

The March increase was the sixth in eight months which is good news…the bad news being that median prices are down nearly 6% from March 2010.

Most economists agree that prices will continue falling for the rest of the year…ranging from 5% – 7%…with some markets experiencing steeper declines.

Distressed homes made up 40% of sales compared to 35% last March…with distressed home sales typically at a 20% discount which lowers average market prices.

Investors looking to flip homes for a quick profit accounted for about 22% of sales…up from 19% last year, with a record-level 35% of deals 100% cash.

About 25% of homeowners owe more on their mortgage than their home is worth.

-National Assoc. of Realtors; IHS Global Insight; USA Today

What this means for you…is bad news if you are selling, good news if you are able to buy.

The combination of relatively low mortgage rates, willing sellers and the market expected to bottom out this year…makes it a good bet to buy now rather than wait.

Average credit scores for borrowers have risen from 720 in 2007 to 760 reflecting tougher credit requirements, as reported by government-backed Freddie Mac and Fannie Mae.

10. Hottest jobs, what they pay, what you need to know…and expected % growth between 2008-2018.

461,000 home health aides…$20,500…short-term on the job training…+50%

376,000 personal and home care aides…$19,200…short-term on the job training…+46%

175,000 computer software engineers, applications…$85,400…Bachelor’s degree…+34%

164,000 medical assistants…$28,300… moderate-term on the job training…+34%

156,000 network systems and data communications analysts…$71,100…Bachelor’s degree…+53%

106,000 dental assistants…$32,400…moderate-term on the job training…+36%

81,000 self-enrichment education teachers…$35,700…work experience in occupation…+32%

80,000 compliance officers…$48,900…Long-term on the job training…+31%

63,000 dental hygienists…$66,600…Associate’s degree…+36%

-Bureau of Labor Statistics; USA Today

What this means for you…is a heads-up on what you need to know and how much you can make based on job growth forecasts.

Part of the US unemployment problem is “structural”, meaning that people lack the education, experience or training to qualify for job openings today…and in the future.

This reality requires that the unemployed, or under-employed (not making what they used to or in jobs unsuited by education or experience) need to take the bull by the horns and get the education, skills or training they need to compete for jobs.

Counting on the government (federal and state) to continue paying extended unemployment benefits or funding special education or training programs may prove to be a bad bet…given the budget cutting which is happening at all levels of government.

Baber’s Easy to Read Economic News (4/19/11) – Weekly Top 10+

This newsletter summarizes this week’s 25 most important economic issues…with full-length articles on each of the top 10 issues below.

As the owner of Baber Turnaround Consulting, it is my job to monitor economic issues, especially those that affect local businesses.

I study local trends, compare them with analyses of regional and national economic events …then explain “what this means for you…”

The information I provide comes to you from many of the country’s most respected publications and sources, including the: Wall Street Journal, Economist, IRS, Federal Reserve, Census Bureau, SBA, Moody’s Economics, BankRate.com, Oppenheimer, Department of Labor, Bureau of Labor Statistics, USA Today, Office of Management and Budget, Thomson Reuters.

If you have a family member, colleague or friend who would benefit from these updates, they can sign up through the “Contact” link at the www.Easy2ReadEcon.com website.

Previous newsletters can be found at the BaberConsulting.com website “BLOG” – your comments will be appreciated.

Summarized Top 10 (see the full-length articles after Vital Signs)

1. $38 billion in budget cuts for 2011 approved by Congress…but does little to dent this year’s $1.6 trillion projected deficit, setting the stage for a battle in May over raising the $14.3 trillion debt ceiling.

2. President Obama’s 2012 budget plan calls for $1 trillion in tax increases… optimistically projecting that taxes paid by individuals will total over 9% of GDP…which has happened only eight times in US history.

3. Soaring Euro makes their exports more expensive in global markets…deepening financial troubles in Ireland and Portugal.

4. Only 45% of the US population is working… which creates a problem if over half the population is not working and relies on those who are.

5. Washington DC-area is spared unemployment problems…and at a 5.9% rate is among the lowest in the nation.

6. US budget deficit 2^nd highest in the world…at 9.9% of GDP forecasted for 2011.

7. More than 40% of inmates return to prison within three years…with annual spending skyrocketing from $10 billion in the mid-1980’s to $52 billion this year.

8. Euro nation borrowing costs double…as debt crisis and default fears escalate.

9. Struggling homeowners may not be helped…by pending new regulations for mortgage servicers.

10. Global GDP should grow 4.4% in 2011…predicts the International Monetary Fund in their twice-yearly projections.

Vital Signs (15 Topics, #11 – #25)

11. New claims for unemployment compensation (seasonally adjusted=SA) for the week-ended April 9 increased 27,000 or 7% to 412,000.

The four-week moving average increased 5,500 or 1.4% to 390,250…and is up 8,250 or 2% from last month (w/e Mar. 11).

12. Continuing claims for unemployment (seasonally adjusted =SA) four-week moving average on April 2 was 3,680,000…down 58,000 or 1.6% from the previous week and down 113,000 or 3% from last month (w/e Mar. 5), and the lowest level since October 2008.

Continuing claims for unemployment (NSA) on April 2 was 3,919,000:

…down 378,000 or 9% from last month (w/e 3/5/11)

…down 1,068,000 or 21% from last year (4/3/10)

…down 2.4 million or 38% from two years ago (4/4/09) when 6,328,000 were drawing unemployment.

13. Interest rates…as of 4/15/11

Consumer Rates and Returns:

Money market:  0.60%… 0.62% last week, 52-week low – high 0.59% – 0.79%

5-Year CD: 2.00%… 1.99% last week, 52-week low – high 1.92% – 2.64%

30-year mortgage: 4.95%… 5.01% last week, 52-week low – high 4.32% – 5.29%

New car loan (48-month): 4.31%… 4.36% last week, 52-week low – high 4.31% – 6.59%

Home equity loan, $30,000: 5.09%… 5.04% last week, 52-week low – high 5.04% – 5.17%

10-year Treasury bonds:  3.41%…3.57% last week, 52-week low – high 2.38% – 3.81%

Business Rates and Returns:

US: 3.25%… same as last week and  same for 52-week low and high

Canada: 3.0%…3.0% last week, 52-week low – high 2.25% – 3.0%

Euro zone: 1.25%…1.0% last week and 52-week low – high 1.0% – 1.25%

Fed-funds rate target: 0.14%… 0.11% last week, 52-week low – high 0.08% – 0.22%

Libor, 1-month: 0.21%… 0.23% last week, 52-week low – high 0.21% – 0.35%

Libor, 3-month: 0.27%… 0.29% last week, 52-week low – high 0.27% – 0.54%

Currency:

Euro, per dollar: 0.69…+0.2% for the week; -7% YTD; 52-week low – high 0.69 – 0.84

Yen, per dollar: 83…-2.1% for the week; +2.3% YTD; 52-week low – high 79 – 95

U.K. pound, in dollars: 1.63…-0.4% for the week; +4.5% YTD; 52-week low – high 1.43 – 1.64

-WSJ, Bankrate.co; Thomson Reuters

14. Investments…as of 4/15/11

Dow Jones Ind. Avg.: Friday close 12342; 52-week low-high 9686 – 12427; week +0.31%; YTD +6.6%

Nasdaq Composite: Friday close 2765; 52-week low-high 2092 – 2834; week -0.5%; YTD +4.2%

S&P 500: Friday close 1320; 52-week low-high 1023 – 1343; week -0.6%; YTD +4.9%

Gold (per troy ounce): Friday close $1453; 52-week low-high $1135-$1485; week +0.8%; YTD +4.5%

Crude oil (per barrel):  Friday close $109.66; 52-week low-high $68-$113; week -2.8%; YTD +20%

Natural Gas (per MMBtu): Friday close $4.20; 52-week low-high $3.29-$5.19; week +4%; YTD -4.6%

15. Largest number of job openings in 2 ½ years…as unfilled positions jumped from 2.7 million in January to 3.1 million in February.

This was good news for the unemployed, especially those with highly specialized skills as many unfilled vacancies are skilled positions.

The “job opening rate”, which represents vacancies relative to all positions, filled and unfilled, rose from 2.1% in January to 2.3% in February.-Bureau of Labor Statistics

16. Governor vetoes bill to extend jobless benefits for the long-term unemployed…rather than agree to automatic cuts if the state budget is not approved on schedule.

North Carolina Gov. Beverly Perdue (Democrat) vetoed a Republican bill which would have extended financial benefits to 37,000 long-term unemployed… rather than be forced to cut government spending by 13% if the 2011 – 2012 budget was not approved by July 1.

NC’s current budget gap for 2012 is projected to be over $2 billion.

17. 30% of taxpayers wait until the last week to file…and 7% file six-month extensions.

Out of an expected 141 million tax returns, the IRS reported that 98.6 million returns had been received through April 8…with 10 million expected to file extensions.

Nearly 81 million or 82% of filers as of April 8 received tax refunds averaging $2,940.

-IRS; H&R Block Tax Institute; AP

18. China export prices to US jump 5.2% in Q1 2011…the highest growth rate since August 2008.

The increase reflects a rapid increase in worker pay and the rising value of the Chinese yuan.

The impact will be higher prices on TVs, shoes and other goods largely imported from China.

US companies will rethink off-shore production strategies which shifted manufacturing to China, Southeast Asia and other low cost areas…and may start bringing jobs back home.

-Labor Dept.; WSJ

19. Companies which have their financial records audited…typically receive lower loan rates.

Based on a survey of over 10,000 closely held companies, audited companies saved about 0.7% on bank loan interest rates.

Another important benefit is that CPA-prepared year-end financials are important if you are considering selling or merging your company.

Also, if your company is unable to afford an experienced Controller or Chief Financial Officer, a “part-time Controller/CFO” may be a good investment.

Only about 25% of businesses with fewer than 500 employees produce financial statements, according to the Federal Reserve Board’s National Survey of Small Business Finances. – The Wall Street Journal

20. Prices rose 2.7% in March…to the highest annual CPI level since December 2009, due in part to higher gasoline prices.

Core inflation which excludes volatile energy and food prices rose 1.2%…under the Fed’s annual target of 2.0%.

-Labor Dept.; WSJ

21. US trade deficit falls 2.6% or $46 billion in February…as imports dropped more than exports.

Imports went down $211 billion or 1.7% from January…while exports slipped $165 billion or 1.4% from January’s all-time high due to lower sales of autos, food products and industrial equipment.

-Commerce Dept.; USA Today

22. European Union (EU) endorses “single market” patent reform…reducing patent registration costs from about $45,000 to $2,700, which is about the same cost as in the US.

Currently a company must register a patent in all 27 EU countries to protect rights to reach all 500 million EU consumers.

The new patent plan has been approved by 25 of the 27 countries and could be in place by 2012.

Patents would be issued in three languages:…English, French and German… and be processed through the European Patent Office in Munich, Germany, founded 34 years ago.

-European Patent Office; WSJ

23. Silicon Valley pay skyrockets… as dot-com start-ups forced to pay top $ for computer software engineers, offering $100,000 to $150,000 a year to new college grads to compete with Facebook, Twitter, Zynga and others.

Google and Tagged, Inc. recently gave all employees a 10% raise to minimize competitor poaching.

Facebook and others have also allowed employees to cash-out of their private company stock, putting pressure on smaller start-ups to set up similar programs.

Pay for software engineers: $89K national average, $98K NY, $98K Balt/Wash, $106K Silicon Valley.-WSJ, Dice Holdings

24. 35% of adults are not sure how much they want to save for retirement…which is made more complicated by uncertainty as to when changes will be made to get the Social Security system solvent… and what those changes will be.

A Scottrade survey of 1,000 adults revealed:

19% want to save $250,000 or less

25% want to save $250,001 to $1 million

21% want to save more than $1 million

-USA Today

25. Twice as many people work for the government than in all of manufacturing…22.5 million vs. 11.5 million.

In 1960 it was reversed… with 15 million working in manufacturing and 8.7 million in government jobs.

Only two states have more workers in manufacturing than on the government payroll…Indiana and Wisconsin.

Private companies spur productivity and quality by firing low performers…while tenure for teachers and near-lifetime employment for government workers almost ensures eroding productivity and quality.

-Bureau of Labor Statistics, WSJ

Top 10 Full Articles

1. $38 billion in budget cuts for 2011 approved by Congress…but does little to dent this year’s $1.6 trillion projected deficit, setting the stage for a battle in May over raising the $14.3 trillion debt ceiling.

The 2011 spending bill was detailed in 459 pages and made cuts to at least 271 programs, the largest cuts were ($ billions or $ millions – Dept. – Program):

$6.2B…Commerce…Census

$3.1B…Transportation…”orphan earmarks”

$2.9B…Transportation…high speed rail projects

$1.0B…Health and Human Services…AIDS and sexually transmitted disease protection

$812M…General Services Administration…construction

$786M…Homeland Security…first responder grants

$638M…Energy…defense environmental cleanup

$529M…Interior…wild land fire programs

$504M…Agriculture…women, infants and children nutrition assistance

$377M…State…contributions to United Nations and others

$296M…Justice…community oriented policing grants

$93M…Congress…House, Senate, Library of Congress

-House Appropriations Committee; USA Today

What this means for you…is that $38B is a drop in the bucket which is what riled up the Tea-partiers and others who want to see dramatically more aggressive cuts in federal spending.

While House Republicans didn’t win a proposal to ban Planned Parenthood funding …the Obama administration did agree to imposing a ban on the District of Columbia from using its own tax revenue to fund abortions for poor women.

Get ready for a huge fight in May between Republicans and Democrats over raising the country’s $14.3 trillion debt ceiling.

Conservatives will insist on reducing budget deficits by cutting spending… with Democrats pushing to raise taxes and protect spending programs for the poor.

2. President Obama’s 2012 budget plan calls for $1 trillion in tax increases… optimistically projecting that  taxes paid by individuals will total over 9% of GDP…which has happened only eight times in US history.

Historically taxes paid by individuals have averaged around 8% of GDP…and only exceeded 9%:

…during WWII (1944)

…during recessions (1969 – 70, 1981 – 82, 1991 – 92)

…during the tech-stock boom (1997 -2001) at 9.6% of GDP due to quintupling Nasdaq stock prices and proliferation of stock options

Obama’s plan raises tax rates on couples earning more than $250,000…while over the next decade spending more than 23% of GDP (economic output) compared to about 20% in 2007 and 18% in 2001.

The Congressional Budget Office (CBO) estimates that President Obama’s plan would more than double the federal debt held by the public from $10.4 trillion or 69% of GDP in 2011…to $20.8 trillion or 87% of GDP by 2021.

Watch the stock market for negative reactions if meaningful government spending reductions are delayed until after the 2012 elections.

-Mr. Alan Reynolds (Cato Institute); WSJ

What this means for you…is to understand that raising the income tax rates on the highest income earners is unlikely to raise taxes to the levels assumed in President Obama’s budget plans.

Historically, lowering tax rates has often resulted in higher taxes being paid by individuals as they increase investing activity.

When the capital gains tax rate was lowered from 28% to 20% in 1998 – 2000…the capital gains portion of reported income for the top 1% of taxpayers soared from 13%-22% of reported income to 29%-32%.

The one sure way to reduce the recent trend of budget deficits and ballooning government debt is to:

…cut government spending

…grow the economy (GDP) by reducing tax rates on businesses, which will make US global companies more competitive and encourage them to bring foreign profits back to the US to invest in US jobs

…grow GDP by reducing unnecessary government regulations

3. Soaring Euro makes their exports more expensive in global markets…deepening financial troubles in Ireland and Portugal.

Against the US dollar the euro recently hit $1.45, a 15-month high…and since the beginning of the year is up almost 10% against the dollar and 4% against the British pound.

With global trade expected to only grow about 7% this year compared to over 12% in 2010…euro zone exporters are hit twice as hard as growth within the zone is struggling.

Portugal and Ireland are the most vulnerable to a rising euro due to exports of labor-intensive, low-value products, especially textiles.

-WSJ

What this means for you…is to expect to pay higher prices for European goods.

German exports such as cars and precision tools will count on continued perception of high quality to offset the exchange-rate impact on prices.

The European Central Bank (ECB) recently raised interest rates…which attracts investors seeking higher returns and supports the currency.

4. Only 45% of the US population is working… which creates a problem if over half the population is not working and relies on those who are.

The current 45% rate is the lowest level since 1983, and compares to 49% in 2000.

In 2010 only 67% of men had jobs, also another record, and compares to 80% of men working in the 1960s and prior decades.

Low employment levels are due to an aging population, bad economy and leveling off of women working.

The share of women working rose from 36% in 1960…to 57% in 1995…and has leveled off at 56% in 2010.

The bulk of people not working has shifted from children… to adults.

In 2000 the US had about the same number of children as non-working adults…and since then, the nation has added 27 million non-working adults and only 3 million children.

Taxpayers spend about $10,000 a year educating a child and $25,000 a year supporting a retiree ($13,000 in Social Security + $12,000 in Medicare benefits).

In total, taxpayers spend about $125,000 educating a child and $500,000 caring for a senior given current life expectancies.

-Bureau of Labor Statistics; Bureau of Economic Analysis; USA Today; Economist

What this means for you…is the need for America to grow the economy by creating jobs through a reduced tax environment, eliminating wasteful government spending…and most importantly, restructuring social entitlement programs (Medicaid, Medicare, Social Security) to ensure that these programs are financially viable.

Since 1971 the life expectancy of the average 65-year old in the developed world has increased four to five years…while the average retirement age has dropped one year, to 63.

5. Washington DC-area is spared unemployment problems…and at a 5.9% rate is among the lowest in the nation.

Even at the height of the recession, the DC-area only had a 7% unemployment rate… compared to 10.1% nation-wide.

84,000 new jobs were added in the DC metro area in the last year…nearly 6% of total US job growth for an area with just 2% of the population.

Home values in Washington rose 3.6% during the last year while prices dropped 3% in an index representing 20 large cities.

-Bureau of Labor Statistics; S&P/ Case-Shiller; Economist

What this means for you…depends on what you do and who you work for.

The federal government employs 2.2% of the workforce nationally…but almost 13% in the Washington area.

Federal employment in the DC-area rose nearly 20,000 since the beginning of the recession…while state governments in the surrounding areas were cutting jobs due to spending reductions.

Also holding down the area’s unemployment rate is the area’s diverse high-tech and bioscience industries…and high number of skilled, technical jobs.

6. US budget deficit 2^nd highest in the world…at 9.9% of GDP forecasted for 2011.

Countries with the highest forecasted deficits for 2011 as a % of GDP:

-12.1% Egypt

-9.9% US

-9.0% Britain

-8.1% Greece

-7.9% Japan

-Economist

What this means for you…is that investors world-wide who finance our debt are watching to see what the US does to reduce deficit spending…and how quickly actions are taken.

Investors are concerned that meaningful spending reduction actions will be delayed until after the 2012 elections.

Congress will vote in May to increase the national debt ceiling above $14.3 trillion.

Republicans are pushing to reduce government spending deeply and quickly…with resistance expected from Democrats who prefer to raise taxes and protect entitlement programs (Medicare, Medicaid, other social spending programs).

7. More than 40% of inmates return to prison within three years…with annual spending skyrocketing from $10 billion in the mid-1980’s to $52 billion this year.

The “return to prison rates”, or recidivism, has remained largely unchanged over the years…even as state officials implement programs to help prisoners re-enter society.

The Pew Center analyzed data provided by 41 states for inmates released in 1999 and by 2002 more than 45% returned to prison…and 43% of those released in 2002 had returned to prison by 2007.

Minnesota had the highest return rate…at over 61%.

-Pew Center on the States; USA Today

What this means for you…is to get ready for states to reduce budget deficits by cutting spending on programs to rehabilitate inmates and to re-evaluate offenses requiring imprisonment.

Agencies supervising prisoners on parole may start looking the other way when parolees break the rules…reducing the “return to prison rate.”

8. Euro nation borrowing costs double…as debt crisis and default fears escalate.

Recent history of Europe’s financial crises:

May 2010…Greece gets 110 billion euro bailout ($160 billion) from International Monetary Fund

November 2010…Ireland gets 68 billion euro bailout ($99 billion)

April 2011…Portugal requests 80 billion euro bailout ($116 billion)

Interest rate paid on 10-year government bonds:

Greece: 5.5% in Jan. 2010…12.8% in April 2011

Ireland:  5% in Jan. 2010…9% in April 2011

Portugal: 4.5% in Jan. 2010…9% in April 2011

-Thomson Reuters; WSJ

What this means for you…is an example of how rapidly government borrowing costs can rise if investors fear that a country is not managing its financial affairs.

What is happening in Europe is a wake-up call to Americans to hold elected officials accountable for balancing budgets at the national, state and local levels…or pay the price through lower ratings for US government securities which results in higher interest rates on our debt.

9. Struggling homeowners may not be helped…by pending new regulations for mortgage servicers.

New rules will be announced soon for the country’s top mortgage servicers, and include:

…stopping foreclosure proceedings when delinquent borrowers comply with modified loan terms

…giving homeowners one person to contact at the mortgage servicer

…hiring independent consultants to review foreclosure details

…creating a process for borrowers to submit requests for mediation if unfairly treated

…giving regulators the power to assess fines if mortgage servicers fail to implement the new rules

There were 1,051,000 foreclosures in 2010, up from 918,000 in 2009…an increase of 14%.

States with the most foreclosures in 2010, and as a % of all US foreclosures:

173,000 (16%) California

123,000 (12%) Florida

73,000 (7%) Michigan

70,000 (7%) Arizona

62,000 (6%) Texas

-USA Today

What this means for you…if you are in the foreclosure process is more protection from unreasonable tactics from mortgage servicers.

Critics of the pending regulations are concerned that the changes basically only require the servicers to comply with existing laws.

Federal banking regulators reviewed 2,800 foreclosures and found that the top 14 mortgage servicers had “critical deficiencies” in their foreclosure processes that violated laws, regulations or rules.

Attorney generals at the state level are concerned that their aggressive efforts to extract concessions from mortgage servicers will be over-ridden by possibly less onerous concessions proposed by federal bank regulators.

10. Global GDP should grow 4.4% in 2011…predicts the International Monetary Fund in their twice-yearly projections.

Forecasted % increase over 2010:

+10% China

+8% India

+4.2% Brazil

+2.7% US

+1.8% Britain

+1.5% Japan

-International Monetary Fund; Economist

What this means for you…is good news that fear of a “double-dip” recession has faded…and concern that persistently high oil and commodity prices could dampen the recovery.

Baber’s Easy to Read Economic News (4/12/11) – Weekly Top 10+

This newsletter summarizes this week’s 30 most important economic issues…with full-length articles on each of the top 10 issues below.

As the owner of Baber Turnaround Consulting, it is my job to monitor economic issues, especially those that affect local businesses.

I study local trends, compare them with analyses of regional and national economic events …then explain “what this means for you…”

The information I provide comes to you from many of the country’s most respected publications and sources, including the: Wall Street Journal, Economist, IRS, Federal Reserve, Census Bureau, SBA, Moody’s Economics, BankRate.com, Oppenheimer, Department of Labor, Bureau of Labor Statistics, USA Today, Office of Management and Budget, Thomson Reuters.

If you have a family member, colleague or friend who would benefit from these updates, they can sign up through the “Contact” link at the www.Easy2ReadEcon.com website.

Previous newsletters can be found at the BaberConsulting.com website “BLOG” – your comments will be appreciated.

Summarized Top 10 (see the full-length articles after Vital Signs)

(1) House Speaker Boehner strikes deal with Democrats…to avoid government shutdown, which may only delay it a couple weeks as Congress needs to approve raising the $14.3 trillion debt ceiling by early May.

(2) Europe first to raise interest rates…in reaction to inflation fears.

(3) Federal Housing Administration (FHA) slack scrutiny of lenders could cost taxpayers $billions.

(4) Top 8 audit triggers.

(5) US companies fire fast and hire slow compared to other nations…which boosts labor productivity and profits as the economy improves, but hurts the unemployed.

(6) Pro-life movement growing at national and state levels…with legislation pending in over 30 states to limit abortions.

(7) Medicaid makes up 22% of state spending…and why action is needed now to change this program which will cost taxpayers $465 billion this year.

(8) Southeast has four of the top 10 fastest growing states…from 2000 – 2010.

(9) Government suppliers prepare for the worst…as their biggest customers in the US and abroad plan to slash spending.

(10) Doctors defraud Medicare by performing multiple surgeries…on the same patient.

Vital Signs (20 Topics, #11 – #30)

11. New claims for unemployment compensation (seasonally adjusted=SA) for the week-ended April 2 dropped 10,000 or 2.6% to 382,000. The four-week moving average dropped 5,800 or 1.5% to 389,500…and is down 4,000 or 1% from last month (w/e Mar. 4).

12. Continuing claims for unemployment (seasonally adjusted =SA) four-week moving average on March 26 was 3,746,000…down 91,000 or 2% from last month (w/e Feb. 26), and the lowest level since October 2008.

Continuing claims for unemployment (NSA) on March 26^th was 4,069,000:

…down 391,000 or 9% from last month (w/e Feb. 26)

…down 986,000 or 20% from last year (3/27/10)

…down 2.4 million or 37% from two years ago (3/28/09) when 6,452,000 were drawing unemployment

13. Interest rates…as of 4/8/11

Consumer Rates and Returns:

Money market:  0.62%… 0.63% last week, 52-week low – high 0.59% – 0.79%

5-Year CD: 1.99%… 1.95% last week, 52-week low – high 1.92% – 2.64%

30-year mortgage: 5.01%… 4.93% last week, 52-week low – high 4.32% – 5.34%

New car loan (48-month): 4.36%… 4.38% last week, 52-week low – high 4.36% – 6.59%

Home equity loan, $30,000: 5.04%… 5.14% last week, 52-week low – high 5.04% – 5.17%

10-year Treasury bonds:  3.57%…3.45% last week, 52-week low – high 2.38%-3.90%

Prime rate:

US: 3.25%… same as last week and 52-week low and high

Canada: 3.0%…3.0% last week, 52-week low – high 2.25%-3.0%

Euro zone: 1.0%…same as last week and 52-week low and high

Fed-funds rate target: 0.11%… 0.11% last week, 52-week low – high 0.10% – 0.22%

Libor, 3-month: 0.29%… 0.30% last week, 52-week low – high 0.28%-0.54%

-WSJ, Bankrate.co; Thomson Reuters

14. Investments…as of 4/8/11

Dow Jones Ind. Avg.: Friday close 12380; 52-week low-high 9686 – 12427; week +0.03%; YTD +6.9%

Nasdaq Composite: Friday close 2780; 52-week low-high 2092 – 2834; week -0.4%; YTD +4.8%

S&P 500: Friday close 1328; 52-week low-high 1023 – 1343; week -0.3%; YTD +5.6%

Gold (per troy ounce): Friday close $1473; 52-week low-high $1135-$1473; week +3.2%; YTD +3.7%

Crude oil (per barrel):  Friday close $112.79; 52-week low-high $68-$113; week + 4.5%; YTD +23%

Natural Gas (per MMBtu): Friday close $4.04; 52-week low-high $3.29-$5.19; week -2.9%; YTD -7%

15. China has quarterly trade deficit in Q1 2011…for the first time since 2004, due to higher prices on imported commodities and timing of purchases.

China’s Q1 deficit of $1 billion highlights concern that the country’s continued strong growth forecasts may be optimistic.

The forecasted $150 billion trade surplus for 2011 is off about 20% from 2010…and marks three straight years of declines.

-Ministry of Commerce; General Administration of Customs; WSJ

16. Government standards for fleet fuel economy scheduled to rise to 60 mpg by 2025…up from 35.5 mpg for 2016.

Automakers can achieve goals with lean-burn engines, battery-powered hybrids, lighter chassis and transmissions with more gears.

Consumers will pay for higher mpg…raising vehicle costs by at least $3,000.

-Kiplinger

17. March retail sales come in stronger than expected…rising 1.7% for same-store sales for 25 retailers tracked by Thomson Reuters vs. expected 0.7% decline.

Better than expected March sales growth was attributed to tax refunds, addition of 216,000 jobs and continued stock market gains encouraging consumers to spend.

Concern lingers on profit margins as retailers face increasing cost pressures from rising cotton and labor costs.

-Thomson Reuters; WSJ

18. New health care law provisions which are now in effect:

People with pre-existing conditions can join a national high-risk insurance pool.

Adult children may remain on their parent’s insurance until they are 26.

People on Medicare can get free annual exams.

Insurance companies can’t place lifetime-limit spending caps on how much they pay.

19. Jobs for the less-educated falling and harder to find…indicated by Q1 2011 hiring trends.

Since January employment has grown 521,000 for those with college degrees…and fallen 318,000 for those only having a high school diploma.

Businesses are competing for experienced accounting, engineering, sales and business-development professionals…with those jobseekers getting multiple offers.

There are opportunities for part-time workers… as McDonald’s announced they are hiring 50,000 in April to prepare for summer business.

-Bureau of Labor Statistics; USA Today

20. First-time home buyers sitting on the sidelines…due to tighter lending standards, higher down payment requirements and expired tax credits.

First-time buyers typically account for 40% to 45% of all home purchasers…and are critical for existing home sales so that those sellers can buy more expensive homes.

First-time buyers for existing homes were only 29% of purchasers in January and 34% in February…a dampening impact on the housing market.

-National Assoc. of Realtors; Mortgage Finance; USA Today

21. Europe’s finances continue to crumble as Portugal may need a $114+ billion bailout… from the European Union (EU) and International Monetary Fund. Portugal is the third EU country after Greece and Ireland needing financial assistance. Spain may be next as it raises its 2011 unemployment rate forecast to nearly 20%.-USA Today

22. Labor force participation rate at historic low of 64.2%…compared to a pre-recession average of over 66% between 2000 and 2008.

Every 1% change in the participation rate equals about 1.5 million workers…so if the rate was 66%, the number of unemployed would be about 3 million higher…making the unemployment rate nearly 11% in March vs. the 8.8% reported rate.

The low rate may be an indication of unemployed workers taking advantage of Congress’ decision last year to extend unemployment benefits to 99 weeks.

In March there were over 6 million people who have been out of work for six months or longer…equaling 45.5% of the unemployed, up from 43.9% in February.

-Bureau of Labor Statistics

23. Online shopping surged to 12% of holiday purchases…causing already high mall and strip center vacancies to get worse.

Mall vacancies in Q1 2011 rose to the highest level in 11 years… averaging over 9% in the top 80 US markets, with strip centers at over 11%.

Record lows were in 2005 when the vacancy rate was 5.1% for malls and 6.7% for strip centers.

Contributing to the high vacancy rate was more than one billion square feet of retail space added since 2000 in the 54 largest US markets…which followed heavy housing development during the real estate “boom.”

-Reis; Property and Portfolio Research Inc.; WSJ

24. Community banks and their directors being sued by the FDIC…causing insurers to limit “officers and directors liability coverage” and making it tougher for bankers to recruit board members.

The FDIC has sued six of the 351 banks that have failed since 2007…and has authorized lawsuits against 158 directors and officers, seeking $3.57 billion in damages.

Outside directors earn about $42,000 a year at small banks and are only sued if the FDIC thinks their actions are grossly negligent.

-WSJ

25. Fed rate falls to .11%, down from .20% in late December, fueling concerns…that the Fed may have a difficult task controlling inflation.

The Fed’s target is between 0% and .25%…with the rate typically close to the high end of the range.

The Fed rate is an overnight lending rate affecting borrowing costs throughout the economy.

When the Fed wants to fend off inflation it raises the rate…but the task is complicated when the Fed pumps cash into the economy.

The Fed hopes that a new tool to manage the funds rate will work…paying interest to banks on the reserves they keep on deposit with the central bank.-WSJ

26. The Japanese yen drops to lowest level (100 yen buys $1.18) since September 2010…and is down 12% since mid-March, due to the Bank of Japan loosening monetary policy to aid economic recovery from the earthquake and tsunami.

The weaker yen lowers export prices for Japanese products.-WSJ

27. Airline ticket prices soar in March due to higher oil prices…with airlines pushing through six price increases in the first three months of the year, however, not all markets went up:

La Guardia to O’Hare +27%…LA to Honolulu +24%…LA to JFK +21%…SF to LV +19%…SF to Honolulu +18%

Denver to Phoenix -1%…LA to LV -8%…Boston to Washington Reagan -18%

Travelers should expect high prices to continue as long as oil remains above $100 a barrel, as fuel totals about 25% of operating expenses.

Every penny change in fuel costs airlines $175 million a year.

-Expedia.com; WSJ

28. The dollar has dropped about 4% in 2011 against the currencies of major trading partners…to the lowest level since early 2008.

Causing the drop are worries about the US government deficit and debt…and higher short-term interest rates overseas.

The weaker dollar helps US exports…but fuels inflation by raising the cost of imports.

-Federal Reserve, WSJ

29. SBA now guaranteeing up to $5 million for export-related working capital loans… up from $2 million for small businesses.

Small and mid-size companies contribute 50% of America’s output… but only 30% of exports.

Only 1% of the nation’s 30 million companies export products, with 58% shipping to only one country.

The Commerce Dept. is working to enforce tariff violations and remove trade barriers for small businesses…which generate nearly two-thirds of new jobs in an economic recovery.-USA Today

30. Union members bully business owners to gain support, threatening to boycott…businesses which don’t display pro-union signs.

A store owner in Wisconsin refused to display a pro-union sign and received a letter from the American Federation of State, County and Municipal Employees stating “…failure to do so will leave us no choice but do a public boycott of your business.”

A group of unions in Wisconsin including teachers, firefighters and police are boycotting businesses not supporting union-efforts, including Kwik Trip, Marshall & Isley Bank of Milwaukee.-WSJ

Top 10 Full Articles

1. House Speaker Boehner strikes deal with Democrats…to avoid government shutdown, which may only delay it a couple weeks as Congress needs to approve raising the $14.3 trillion debt ceiling by early May.

GOP tea-partiers have not agreed to Boehner’s deal yet, as spending cut details have not been shared…but will be in time for a vote this week.

Republicans wanted $61B in spending cuts for the last six months of this fiscal year (ends Sept. 30)…while Democrats were offering $33B, and settled for $39B – which is only a reduction of about 1% of the annual budget.

-Economist; WSJ

What this means for you…is to get ready for a bare knuckle brawl between Republicans and Democrats as they promote their long-term deficit reduction strategies.

Republicans prefer to attack budget deficits (over $1.6 trillion this year) by reducing government spending and using tax incentives and less regulation to encourage business owners to invest in new jobs.

One spending reduction goal would be to incentivize states to reduce Medicaid spending (for poor and disabled) by giving them more authority to determine who qualifies for aid and how government money is spent.

Another goal by would be in 2022 to reduce Medicare spending (for elderly and disabled) by giving them more responsibility for managing their health care costs, using private health insurance programs.

Medicare program would not change at all for people now 55 or older.

President Obama’s proposed 2012 budget plan called for tax increases on people making more than $250,000 a year and changing other parts of the tax code he thinks benefits the wealthy…while the Republican plan does not raise taxes, focusing solely on reducing spending.

Obama’s plan targets a 2021 deficit of about 5% of GDP (US economic output)…compared to the Republican target of under 2%.

2. Europe first to raise interest rates…in reaction to inflation fears, signaling that easy, cheap credit may be ending.

The European Central Bank (ECB) raised its benchmark interest rate from 1.0% to 1.25%…even though higher interest rates may deepen the financial woes of Greece, Ireland, Portugal and Spain.

Consumer prices in euro countries rose 2.6% in March, well above the 2% ECB target.

Escalating inflation is more of a threat in Europe than the rest of the world as they are closer to full employment and are already experiencing higher inflation than other regions.

The US is more hesitant to raise rates due to more spare capacity than Europe, which will dampen inflation as economies rebound.

For comparison, central bank short-term interest rate targets in late 2007 vs. today:

Bank of England 5.9% vs. 0.5%

US Fed 5.3% vs. 0.2%

ECB 4.0% vs. 1.25%

-US Commerce and Labor Departments; Goldman Sachs; Eurostat; J. P. Morgan; WSJ

What this means for you…depends on which country you live in or do business with.

U.S.: experiencing high unemployment and inflation below 2% target level… creating conflicting estimates on when the Fed will raise rates, ranging from late 2011 to fall of 2012.

Central banks in Australia and Canada raised rates last year, with the U.K. expected to raise rates within the next three months.

Japan: no plans to raise rates due to earthquake and nuclear crises.

The stakes are high as raising rates too soon could choke off economic recovery from the worst recession since the Great Depression…while raising them too late could lead to high inflation, also harming economic momentum.

3. Federal Housing Administration (FHA) slack scrutiny of lenders could cost taxpayers $billions.

The FHA was created to help increase home ownership by insuring the mortgages of borrowers who don’t qualify for conventional bank mortgages.

The FHA insures nearly 7 million mortgages and in 2010 covered 19% of all home-purchase loans…up from 4% in 2006.

As the world’s largest mortgage insurer the FHA authorizes 3,000 mortgage companies to decide on its behalf whether people they are lending to qualify for FHA insurance.

Numerous incidents spanning years highlight the FHA’s ineffective “early warning system” for flagging problem lenders…with officials ignoring warnings about lenders with high rates of failing loans.

Tens of thousands of bad loans that the FHA approved between 2006 and 2008 are resulting in record numbers of insurance claims.

In 2010 the HUD inspector general looked into a sampling of 284 loans which defaulted and found that half had serious problems…including overstated income and assets, with liabilities and credit problems minimized.

Bad loans are typically paid from premiums the FHA collects…but lawmakers fear a multi-billion dollar rescue is looming as individuals who operated shady subprime lending operations have formed new businesses specializing in FHA-insured mortgages.

-Dept. of Housing and Urban Development; WSJ

What this means for you…is probably another multi-$billion taxpayer bailout of a failed government agency, while rewarding incompetent executives for wasting taxpayer money.

The FHA commissioner since July 2009, David Stevens, recently resigned to become president of the Mortgage Bankers Association which lobbies the FHA on behalf of 2,400 mortgage companies, brokers and commercial banks.

4. Top 8 audit triggers.

Mortgage interest deduction over $50,000

Large charitable contributions…especially of noncash items

Schedule C business losses more than two years in a row

Home-buyer tax credit

Rental real estate, especially with losses

Payouts to sub-chapter S owners who earn little or no compensation

Large deductions in relation to income, especially for business travel and entertainment

Home office…less now than before

-IRS; WSJ

What this means for you…is to make sure you have an experienced tax CPA prepare your tax return.

A good tax CPA will be worth their weight in gold and save you multiples of their cost…and should be an integral part of your personal and business advisory team.

5. US companies fire fast and hire slow compared to other nations…which boosts labor productivity and profits as the economy improves, but hurts the unemployed.

The American economy has grown faster than every G7 (1) nation except Canada based on an AP quarterly analysis of the 22 countries representing 80% of global output…yet the US job market remains the weakest.

Over 8 million US jobs were lost during the recession…and there are still over 5% fewer people working now than there were in December 2007.

US employers slashed nearly 800,000 jobs a month in Q1 2009 and found they could produce just as much with fewer workers… which fueled 12+% higher profits for Q3 2010 vs. pre-recession results.

Fewer than 12% of American workers belong to unions…the fourth lowest participation rate among the 31 countries tracked by the Organization for Economic Cooperation and Development.

(1) The other G7 nations are Britain, France, Germany, Italy and Japan.

-AP; USA Today

What this means for you…if you are unemployed is possibly a long wait to find a job, as companies have been slow to rehire.

Historically US companies kept more workers than they needed when the economy softened…using them to do low priority maintenance and other make-work projects in order to have them available when business picked back up.

During this downturn employers found out that they could produce just as much…and sometimes more with fewer workers as job processes were revamped and streamlined.

Canadian, European and Japanese companies are less inclined to slash employees…due in part to unions and government labor regulations.

6. Pro-life movement growing at national and state levels…with legislation pending in over 30 states to limit abortions.

Current pending abortion-related bills introduced this year in state legislatures:

54 bills in 23 states…bans insurance (public, private, or both) coverage for abortions

29 bills in 15 states…bans abortion more than 20 weeks after conception

20 bills in 10 states…requires woman to undergo ultra-sound before abortion

13 bills in 9 states…gives “personhood” status to fetuses

8 bills in 5 states…bans abortions for race or sex selection

-NARAL Pro-Choice America; USA Today

What this means for you…is a renewed debate on the emotional and divisive issue of abortion… occurring at national and state levels.

The New Hampshire House voted last month to require minors to tell a judge or their parents before having an abortion.

Indiana legislators would require women seeking abortions be told that life begins at inception and that they face a greater risk of breast cancer…and ban the procedure after 20 weeks unless the woman’s life is in danger.

7. Medicaid makes up 22% of state spending…and why action is needed now to change this program which will cost taxpayers $465 billion this year, equaling over $3300 for every working American (139 million).

Medicaid was signed into law by President Lyndon Johnson in 1965, along with Medicare, and was intended as health insurance for the poor.

One-third of Medicare spending goes towards paying 43% of America’s long-term care bill…including 60% of the cost for nursing home residents.

Other Medicaid facts:

Who is enrolled: 49% children…27% adults…16% disabled…8% elderly

How much is spent on: 44% disabled…22% children…20% elderly…14% adults

Who pays for long-term care: 43% Medicaid…33% out-of-pocket, private insurance…24% Medicare

Where does the money go: 62% acute care…33% long-term care…5% other

-Congressional Budget Office; Kaiser Family Foundation; WSJ

What this means for you…is for states to prepare for receiving less money from the federal government which now pays for about 57% of all Medicaid costs.

The good news is that states will probably be freed from federal restrictions to provide better care, for less money…hopefully.

With this authority, states may be able to untangle the complexities when the elderly and disabled are covered by both state-federal Medicaid and all-federal Medicare.

Another option may be to keep the elderly and disabled in their homes or in community-based assisted living programs…and out of nursing homes.

The best option is to encourage individuals to save more or buy their own insurance for long-term care costs.

8. Southeast has four of the top 10 fastest growing states…from 2000 – 2010.

NV +35%…AZ +25%…UT +24%…ID +21%…TX +20%…NC +19%…GA & FL +18%…CO +17%…SC +15%.

Ten slowest growing states:

PA +3.4%…IL +3.3%…MA +3.1%…VT +2.8%…WV +2.5%…NY +2.1%…OH +1.6%…LA +1.4%…RI +0.4%…MI -0.6%

The fastest growing regions were:

 West South Central + 15.6% – TX, OK, MO, LA

South Atlantic +15.5% – WV, VA, NC, SC, GA, FL

-Census Bureau; USA Today

What this means for you…depends on where you live and what you do.

States experiencing smaller population growth may lose seats in the House of Representatives and face budget deficits if costs aren’t cut before taxes decline.

States with strong population growth may be helped or hurt depending on the demographics of the larger population…helped if they add workers who pay more in taxes than they consume in local government services and assistance.

9. Government suppliers prepare for the worst…as their biggest customers in the US and abroad plan to slash spending.

Federal agencies spent $535 billion in 2010, down from $550 billion in 2009…the first drop in a decade.

Defense contractors like General Dynamics and Northrop Grumman have already begun layoffs, diversifying into non-government sectors and lowering forecasts.

Cisco Systems executives predict a decrease in discretionary local, national and foreign government IT spending, which will dampen growth for the next several quarters.

-Office of Management and Budget; WSJ

What this means for you…if you rely on government contracts is to plan now for reduced business before the government order pipeline dries up.

Leasing arrangements will become more popular as government agency budgets are cut.

10. Doctors defraud Medicare by performing multiple surgeries…on the same patient.

Medicare is a taxpayer-funded health program for the disabled and elderly.

A surgeon (Dr. X) in Oregon performed spinal fusion surgery six times in two years on a machine-tool operator.

After the WSJ analyzed his surgical history, Dr. X was discovered having operated an average of 39 additional times for every 100 fusions, compared to a national Medicare average of four… and performing seven spinal fusions on another patient, for a total cost of $175,000 to Medicare.

Dr. X has been sued numerous times for malpractice, usually settling out of court…yet it is nearly impossible for most people to check doctor’s surgical success rates or legal history due to confidentiality laws and opposition by the American Medical Association.

Medicare spending trend:

$50 billion in 1980…$100B in 1990…$200B in 2000…$300B in 2004…$400B in 2006…$500B in 2009

-Medicare Trustees Report; WSJ

What this means for you…is another example of wasteful taxpayer spending, which should have been prevented or detected sooner.

Medicare databases should be aggressively analyzed for fraudulent activity and the AMA required to share information on doctor’s performance metrics and lawsuit history…without revealing patient names.

The Republican’s “Path to Prosperity” presented by Congressman Paul Ryan plans to privatize Medicare and give people the incentive to proactively manage the quality and cost of their health care.

Baber’s Easy to Read Economic News (4/5/11) – Weekly Top 10+

This newsletter summarizes this week’s 30 most important economic issues…with full-length articles on each of the top 10 issues below.

As the owner of Baber Turnaround Consulting, it is my job to monitor economic issues, especially those that affect local businesses.

I study local trends, compare them with analyses of regional and national economic events …then explain “what this means for you…”

The information I provide comes to you from many of the country’s most respected publications and sources, including the: Wall Street Journal, Economist, IRS, Federal Reserve, Census Bureau, SBA, Moody’s Economics, BankRate.com, Oppenheimer, Department of Labor, Bureau of Labor Statistics, USA Today, Office of Management and Budget, Thomson Reuter.

If you have a family member, colleague or friend who would benefit from these updates, they can sign up through the “Contact” link at the www.Easy2ReadEcon.com website.

The “Contact” link also now includes the email addresses for all NC Senate and House members.

Previous newsletters can be found at the BaberConsulting.com website “BLOG” – your comments will be appreciated.

Summarized Top 10 (see the full-length articles after Vital Signs)

(1) Government shutdown may happen April 9…if House Republicans and the Democrat-controlled Senate can’t agree on a budget for the last six months of this year, with the gap about $28 billion (GOP targets $61B in cuts vs. Democrats $33B).

(2) Republican-proposed 2012 budget spends $179 billion less than President Obama’s plan…and balances the budget by 2015 (excluding interest payments).

(3) Unemployment in March inches down to 8.8%…down from 8.9% in February and 9.0% in January, and at a .1% drop per month, will take three to four years to reach a normal level of 5%.

(4) Jefferson County, AL (Birmingham) on brink of bankruptcy…and at $3+ billion would be the largest municipal bankruptcy in US history.

(5) State and local tax revenues in 2010 just 2% shy of 2008 record…but huge problem lingers as $150 billion fed stimulus goes away.

(6) Community banks shun government $30 billion small-business lending program…causing program deadline to be extended from March 31 to May 16.

(7) New governors in 29 states shake things up…igniting protests from state workers, teachers and unions.

(8) Exports propel US out of recession…accounting for nearly half of the 3% growth rate during the last 18 months.

(9) No raise in 2012 for most social security recipients…as higher Medicare premiums will probably offset social security COLA adjustments.

(10) States bracing for huge unemployment tax increases…as Uncle Sam ends the grace period for states to borrow money to pay the unemployed…and looks to be repaid.

Vital Signs (20 Topics, #11 – #30)

11. New claims for unemployment compensation (seasonally adjusted=SA) for the week-ended March 26th dropped 6,000 to 388,000, down 1.5%. The four-week moving average rose 4,250 or 1.1% to 393,000…and is up 4,000 or 1% from last month (w/e Feb. 26).

12. Continuing claims for unemployment (seasonally adjusted =SA) four-week moving average on March 19th was 3,757,000…down 111,000 or 3% from last month (w/e Feb. 19).

Continuing claims for unemployment (NSA) on March 19^th was 4,112,000…down 233,000 or 5% from last month (w/e Feb. 19)…down 1.1 million or 21% from last year (3/20/10)… and down 2.3 million or 36% from two years ago (3/21/09) when 6,388,000 were drawing unemployment.

6.1 million job seekers have been out of work for longer than six months…and account for 46% of the unemployed.

13. Interest rates…as of 4/1/11

Consumer Rates and Returns:

Money market:  .63%… .63% last week, 52-week low – high .59% – .79%

5-Year CD: 1.95%… 1.94% last week, 52-week low – high 1.92% – 2.64%

30-year mortgage: 4.93%… 4.92% last week, 52-week low – high 4.32% – 5.43%

New car loan (48-month): 4.38%… 4.89% last week, 52-week low – high 4.38% – 6.59%

Home equity loan, $30,000: 5.14%… 5.14% last week, 52-week low – high 5.06% – 5.19%

10-year Treasury bonds:  3.45%, 3.45% last week, 52-week low – high 2.38%-4.00%

Prime rate:

US: 3.25%… same for last week and 52-week low and high

Canada: 3.0%, 3.0% last week, 52-week low – high 2.25%-3.0%

Euro zone: 1.0%…same for last week and 52-week low and high

Fed-funds rate target: 0 – 0.25%… 0.00% last week, 52-week low – high 0.0% – 0.0%

Libor, 3-month: 0.30%… 0.31% last week, 52-week low – high 0.28%-0.54%

-WSJ, Bankrate.com, Thomson Reuters

14. Investments…as of 4/1/11

Dow Jones Industrial Avg.: Friday close 12377; 52-week low-high 9686 – 12391; week +1.3%; YTD +6.9%

Nasdaq Composite: Friday close 2790; 52-week low-high 2092 – 2834; week +1.7%; YTD +5.2%

S&P 500: Friday close 1332; 52-week low-high 1023 – 1343; week +1.4%; YTD +5.9%

Gold (per troy ounce): Friday close $1428; 52-week low-high $1133-$1439; week +.13%; YTD +.5%

Crude oil (per barrel):  Friday close $107.94; 52-week low-high $68-$108; week + 2.4%; YTD +18%

Natural Gas (per MMBtu): Friday close $4.36; 52-week low-high $3.29-$5.19; week -2.9%; YTD -1%

15. Average private sector hourly earnings (including salaried employees) at $22.87 were flat in March…for the fourth time in five months, and at an annualized growth rate of 1% for that period is the weakest stretch in 25 years.

March 2011 wages are up just 1.7% from March 2010…indicating that it is still an employer’s market as people are willing to accept a lower wage than they might have before the recession.

Lack of wage pressure is helping business owners offset higher raw material and fuel costs…but hurting workers as they deal with stagnant income and higher prices (consumer price index +2.1% in February from a year earlier).

The US is not only experiencing a job-less recovery…but also a wage-less recovery.

-Labor Dept.; WSJ

16. Jobless workers lose 20 weeks of unemployment benefits…in states like NC when the three-month average unemployment rate falls dramatically below that three-month period for the year before.

NC’s three-month average dropped in February to about 9.8% compared to 11.4% for the prior year.

A provision in the 2009 federal stimulus act provided federal funding for 20 additional weeks of jobless benefits. Since February 2009 the federal government has paid $750 million to NC unemployed workers as part of this program.

NC job-seekers are currently eligible for 26 weeks of initial unemployment benefits, plus up to 53 additional weeks through a federal program which expires in January 2012.

-Charlotte Observer

17. Net imports of oil have dropped over 10% since 2005…from over 12 million barrels a day to 9.4 million in 2010.

However, US daily oil production has steadily fallen from over 9 million barrels in 1973…to 8 million in 1980…to 7 million in 1993…to 6 million in 1998…to 5.5 million in 2010.

Plans to decrease reliance on oil imports include tapping into large reserves of natural gas, increasing reliance on biofuels made from ethanol, switch grass, wood chips and making vehicles more fuel efficient.

A speedier solution, preferred by Republicans, would be to expedite approval of drilling permits and ease government policies for drilling on federal lands.

-U.S. Energy Administration; USA Today

18. Unlisted distressed “shadow” homes may drag down home prices for years…as they eventually are foreclosed and sold at below market prices.

Shadow homes are those which are more than 90 days delinquent on the mortgage, are in the foreclosure process or are already owned by the bank.

“Shadow inventory” was 1.8 million homes in January 2011…down 10% from the 2 million in January 2010.

-CoreLogic; USA Today

19. Law signed to limit the collective bargaining rights for public workers…by Ohio Gov. Kasich, impacting 350,000 public workers.

The bill also prevents unions from negotiating wages, eliminates automatic pay increases and bans strikes.

Similar actions are in-process or being considered in other states to reduce budget deficits by restricting the power of public worker unions.

20. Medicaid participants who are smokers or obese may be charged a $50 annual fee…if proposed legislation by Arizona Gov. Jan Brewer (Republican) is passed, following in the footsteps of private companies across America battling skyrocketing health care costs.

The fee would be charged to patients who don’t meet specified goals developed by a primary care physician. The proposal is a way to reward good behavior and raise awareness that certain conditions, including obesity, inflate health care costs.

About 46% of Arizona’s Medicaid enrollees smoke…and 26% are obese.  Nationwide, annual health care costs an additional $2500 for obese men and $5000 for obese women.

-ABC News; WSJ

21. State-level public work force payroll costs continue going up…even as the number of workers go down.

As an example, South Carolina has trimmed nearly 6,800 jobs or 11% from its public work force since 2001…while state payroll costs have increased 12%.

The average state worker earned about $34,500 in 2001 and now earns $43,000…nearly 25% more.

Including benefits, state workers earned in average compensation (pay and benefits) 13% more than private sector workers… about $54,000 compared to $48,000.

-Bureau of Economic Analysis; Census Bureau; SC State Budget and Control Board; Charlotte Observer

22. Americans ratio of spending on debt obligations vs. income hits lowest level in nearly 15 years…as they payoff credit cards, and default on debt.

In Q4 2010, the percentage of after-tax income going towards credit cards, rent, mortgage payments and other household obligations fell to 16.6%, compared to:

19% in 2008…18% in 2004…17% in 2000…16% in 1994…15.5% in 1980

-Federal Reserve

23. Wealthy taxpayers are targeted by the IRS…as the percentage of taxpayers audited increased in every category of adjusted gross income above $500,000.

Adjusted gross income and change in % audited during year-ended Sept. 30, 2010 vs. 2009:

$10+ million…18% vs. 11%

$5M to $10 million…12% vs. 8%

$1M to $5 million…6.7% vs. 5.4%

$500,000 to $1 million…3.4% vs. 2.8%

-IRS Data Book; WSJ

24. Municipal bond sales for Q1 2011 drop to lowest level in 11 years…as individuals and large investors show little interest.

Municipal bond mutual funds experienced overall outflows for 20 weeks in a row, as of March 20.

Q1 2011 municipal-bond issuance was only about $36 billion and compares to a total of $431 billion  in 2010…as lenders remain nervous about rising interest rates and worrisome municipal finances.

-Thomson Reuters; Investment Company Institute; WSJ

25. US Supreme Court ruling allows people in Arizona to deduct donations to organizations that support religious schools, dollar-for-dollar from state income taxes… paving the way for a nationwide expansion of similar programs.

Parents disenchanted with public schools will use the program to help pay for sending their children to religious schools.

Critics bemoan the program as another blow to public schools…while supporters feel that parents deserve a choice on where their children will be educated.

-Tribune Newspapers, WSJ

26. Freezing government hiring is a smart way to reduce deficits without firing workers…promised by NC Gov. Perdue. In Perdue’s February state-of-the-union address she reminded lawmakers of the freeze and included in her budget halting pay raises and hiring for all but the most crucial jobs.

The reality…since the first of the year 495 exceptions to the wage and hiring freeze have been approved, with 484 being for new hires.-Charlotte Observer

27. Cutting the US top corporate tax rate from 35% to 25%…will incentivize global companies to expand production in the US instead of countries with lower tax rates.

The US rate is nearly the highest among industrial nations…which have an average 25% top corporate rate.

A 10% reduction in the top tax rate (35% to 25%) could possibly be tax neutral if enough jobs were created in the US instead of overseas…helping get the nearly 14 million unemployed back in the workforce.

During the last 20 years corporate taxes have averaged less than 10% of all federal tax receipts, making the proposed reduction a good bet that should pay off in lower unemployment costs and more tax-paying Americans.

28. Indiana Republicans pursue broad-based school vouchers…allowing even middle-class families earning up to $60,000 to participate.

Students receiving vouchers make up less than 1% of school enrollment and give parents the choice of where their children will be educated…at no additional cost to the state as money is transferred from public school budgets.

Democrats, public school teachers and officials oppose vouchers as they take money away from public schools.

Conservatives support vouchers as a way to raise education standards by incentivizing school boards to act more quickly to either fix problems at “failing schools”…or face the consequence of students fleeing to private schools to get a better education.

-AP, Charlotte Observer

29. Patent applications have soared from 300,000 in 2000 to nearly 500,000 in 2009…causing Congress to overhaul patent laws to simplify the process and reduce litigation.

Lawmakers are considering bringing the US in line with other countries by granting patent rights to the inventor who is “first to file”, instead of the current “first to invent” system.

Small businesses and conservative groups feel the “first to file” system will hurt individual inventors.-US Patent and Trademark Office; WSJ

30. Consumer spending rose 0.7% in February from January…and adjusted for inflation, was up 2.5% from last year.

At an annual rate, February personal spending was about $9.45 trillion compared with $9.2 trillion last year (in 2005 dollars).

Recent surveys indicate consumer spending may soften in the next few months due to higher prices for gas and food, and Middle East unrest.

-Commerce Dept.; WSJ

Top 10 Full Articles

1. Government shutdown may happen April 9…if House Republicans and the Democrat-controlled Senate can’t agree on a budget for the last six months of this year, with the gap about $28 billion (GOP wants $61B in cuts vs. Democrats $33B).

Republicans are wielding a meat axe to the budget, Democrats prefer a scalpel and President Obama’s proposed 2012 budget conspicuously avoids any “entitlement” spending cuts (Social Security, Medicare, Medicaid) which make up nearly 60% of the budget.

-WSJ

What this means for you…is potentially a caving-in of GOP leadership by agreeing to a $33 billion “deal”,  instead of negotiating now to seriously address reducing government spending. 

Everyone but the Tea-partiers fear a repeat of the 1995/1996 government shutdowns (5 days – Nov. 14 – 19; 21 days – Dec. 16 – Jan. 6), however, the Republicans suffered more in the 1996 elections while President Clinton’s popularity polls increased.

What happens in a shutdown…”essential” services continue and “non-essential” services stop, with the administration determining the difference.

Essential services include: Treasury, defense, law enforcement, Post Office, air traffic controllers, power distribution, public health programs and social security payments.

Non-essential services could include: paying government contractors, administering veterans’ benefits, closing national parks, laying off Social Security Administration employees, processing passport applications.

FYI…the 1995/1996 shutdown had minimal economic and financial impacts and resulted in a seven-year plan  to achieve a balance budget…which was achieved in 1999 ahead of schedule.

2. Republican-proposed 2012 budget spends $179 billion less than President Obama’s plan…and balances the budget by 2015 (excluding interest payments).

The GOP plan projects a 2012 deficit of $995 billion…after three straight years of $1+ trillion deficits.

Current government spending is about 24% of GDP and would be reduced to 22.5% in 2012 and less than 20% by 2018.

The Republican plan would reduce the deficit to $385 billion by 2021…and between 2012 and 2021 cut spending $6.2 trillion more than President Obama’s plan.

The tax code would be overhauled with the top tax rate for individuals and corporations reduced from 35% to 25%…offset by eliminating tax breaks to make the change revenue neutral.

Medicare, the health program covering 48 million elderly and disabled Americans… cost taxpayers $396 billion in 2010 and would change for those now under the age of 55.

The proposed Medicare changes would include the government paying the first $15,000 in premiums for private insurance plans when people reach 65…with those less healthy or poorer receiving bigger payments than others.

Medicaid, the health program for the poor and disabled, will cost the federal government about $275 billion in 2011…more than doubling from the $118 billion spent in 2000.

The federal government pays on average 57% of Medicaid costs, with states responsible for 43%.

Proposed changes to Medicaid include giving states “block grants” and allowing states more flexibility in administering the program in order to save money. The Food Stamp program would also be turned into a block grant system.

-Office of Management and Budget; WSJ

What this means for you…depends on if you are willing to accept the status quo on “entitlement programs” (Medicare, Medicaid, Social Security) which make up 60% of the federal budget…or feel that we need to aggressively reduce federal spending and the national debt.

The Republican budget proposal seeks to cap overall federal spending at 20% of GDP (US economic output) vs. President Obama’s 2012 to 2016 spending budget of about 23% of GDP…with that 3% difference equaling about $500 billion of extra spending and additional US debt every year.

In 2011 the federal government will spend about 24% of GDP…which is about 9% or $1.6 trillion more than receipts, which are projected at 15% of GDP.

The Republican proposal returns spending on domestic government agencies to 2008 levels and freezes them for five years.

President Obama’s budget calls for a freeze based on current spending levels…locking-in wasteful spending habits.

3. Unemployment in March inches down to 8.8%…down from 8.9% in February and 9.0% in January, and at a .1% drop per month, will take three to four years to reach a normal level of 5%.

Compared with other nations: 9.9% Euro area (Jan.), 9.6% France (Jan.), 8% Britain (Jan.), 7.8% Canada (Feb.), 7.1% Germany (Mar.), 4.6% Japan (Feb.)

Non-farm payrolls in March grew 216,000, up from February’s 199,000, and reflected 230,000 new private sector jobs offset by a 14,000 reduction in government jobs.

The key question is how long will it take to create full-time jobs for the 13.5 million unemployed, and the 24 million (16% of workforce) underemployed (working part-time or in temporary/undesired jobs).

Monthly net job gains of at least 150,000 a month are needed to absorb the nearly 2 million people entering the workforce every year.

It is taking 37 weeks for the average unemployed worker to find a job.

…More people are giving up looking for jobs, evidenced by the “labor force participation rate” continuing to drop, from around 67% in 2008 to 64% in March…the lowest point since the mid-1980s. The unemployment rate would be over 11% at a 67% participation rate.

-Bureau of Labor Statistics, Labor Dept., WSJ

What this means for you…is a reminder that the key to long-term, sustainable job growth is to encourage business owners to invest in US capacity as the world-wide economy rebounds.

Continuing to have the government create jobs through stimulus programs increases the debt, which will end this year at over $15 trillion, and is not a sustainable solution to reducing unemployment.

Lawmakers are considering reducing the top corporate tax rate from 35%, one of the highest in the world, to 25% to make US companies more competitive and to stop shipping jobs overseas.

 4. Jefferson County, AL (Birmingham) on brink of bankruptcy…and at $3+ billion would be the largest municipal bankruptcy in US history.

Alabama Gov. Bentley (Republican) would support a bankruptcy if Jefferson County officials decide that is the best option.

The $3+ billion debt resulted from a series of corrupt and bad decisions related to a sewer-improvement project…including borrowing at variable interest rates and a wrong bet on the direction of interest rates.

The previous record for a municipal bankruptcy was a $2 billion filing in 1994 by Orange County, CA.

-WSJ

What this means for you…if this bankruptcy happens is to expect a continued rise in borrowing costs for state and local governments as bond markets raise interest rate requirements due to increasing default risk.

This potential bankruptcy also signals that states may be hesitant to bail-out counties and cities due to poor financial planning and oversight…encouraging local lawmakers and voters to become more fiscally conservative.

5. State and local tax revenues in 2010 just 2% shy of 2008 record…but huge problem lingers as $150 billion fed stimulus goes away.

Total tax receipts for state and local governments reached $1.29 trillion in 2010, 2% below the 2008 record of $1.32 trillion (not adjusted for inflation).

Tax receipts peaked in 2008 due to the lag between when a downturn hits and taxes are collected.

Tax hikes imposed during the recession boosted 2010 state revenues by about $12 billion, or 2%.

While state tax revenue increased every quarter in 2010, local revenues dropped in the first and fourth quarters due to lower property tax receipts.

States are primarily funded by sales and income taxes, while the nation’s 89,000 local cities, school districts and other governments depend heavily on property taxes.

For decades the cost of government has increased faster than inflation due to pension and health-care promises made to their employees.

-Census Bureau; Nat’l Assoc. of State Budget Officers; Rockefeller Institute of Govt.; WSJ

What this means for you…is to realize that states, counties and towns need to solve their own budget problems, and not rely on handouts from Washington.

Lawmakers will continue to feel the pressure to make tough, cost-cutting decisions…as already seen by state and local governments shedding 242,000 jobs in the last 12 months.

6. Community banks shun government $30 billion small-business lending program…causing program deadline to be extended from March 31 to May 16.

Only $7.6 billion or 25% of the program’s funds have been requested…with only 526 or 7% of the 7,700 qualifying banks participating (those with less than $10 billion in assets).

Bankers aren’t that interested, claiming  they have the capital to make loans to qualified borrowers… and don’t like the increased scrutiny from regulators and extra paperwork tied to the loans.

Banks pay rates ranging from 1% to 5% for the government money, with the lowest rates going to banks that increase small-business lending by at least 10%.

The total value of small business loans has dropped  $60 billion or 8% from 2008…from $712 billion to $652 billion in 2010.

The Treasury estimates that about $17 billion will ultimately be borrowed…generating about $170 billion in loans to businesses.

Detractors of the program claim that many banks are borrowing the money to refinance outstanding government debt rather than boost small business lending.

-Small Business Administration; WSJ

What this means for you…is probably another example of a government assistance program which isn’t needed, or is being misused.

7. New governors in 29 states shake things up…igniting protests from state workers, teachers and unions.

In the 2010 elections Republicans (GOP):

…took 11 governorships from Democrats giving up five, totaling 29 for the GOP, 11 for Democrats, with one independent

…hold 53% of state legislative seats, the most since 1928

…control 54 of the 99 state legislative chambers, the biggest share since 1952

Newly minted governors are proposing dramatic changes:

Ohio Gov. Kasich (GOP) signed a law to limit collective bargaining for state workers and ban them from striking.

Florida Gov. Scott (GOP) plans to reduce education funding and overhaul teacher’s tenure and merit pay.

Michigan Gov. Snyder (GOP) wants to cut school funding and tax public and private pension income.

New York Gov. Cuomo (Democrat) wants to eliminate automatic funding increases for Medicaid and education.

Gov. Christie (GOP) elected in 2009 gained national attention due to his efforts to pay teachers based on performance instead of tenure and require state workers to increase contributions for pensions and benefits.

Indiana Gov. Daniels (GOP) elected in 2004 ended collective bargaining in 2005 for public sector workers.

-USA Today

What this means for you…is to watch the cuts made in state budgets as a sign of what is to come at the national level.

Public workers, teachers and unions will fight tooth and nail to keep high pay and benefit packages accumulated over the last generation.

The largest public-employee union AFSCME gave $2.2 million to Democrats in the 2010 election…and $10,000 to Republicans.

8. Exports propel US out of recession…accounting for nearly half of the 3% growth rate during the last 18 months.

Continued economic growth in the 3%+ range will need to come more from US demand than exports, due to Japan’s earthquake and nuclear crisis (world’s 3^rd largest economy), Middle East unrest, higher oil prices, and Europe’s fiscal restraint.

Some economists are lowering 2011 global growth forecasts from 4% to 3% and US growth from 3% to 2.3%…compared to 2.9% for 2010.

Exports account for 13% of US output, up from nearly 10% in 2000.

-Labor Dept.; Institute for Supply Management; Moody’s Economics; WSJ

What this means for you…is good news if your living is made in strong export sectors: industrial equipment, chemicals, pharmaceuticals and agricultural goods.

Expect more volatility in the future as the price paid for increased global exposure.

A current example is farmers who are enjoying booming profits due to global demand driving up prices, and also land and fertilizer…leaving little margin for error if demand drops.

9. No raise in 2012 for most social security recipients…as higher Medicare premiums will probably offset social security COLA adjustments.

Even though 2012 will have the first COLA adjustment for social security payments since 2009, because Medicare Part B (doctor visits) premiums are automatically deducted from the payment…this may be the third year in a row that social security payments remain unchanged for about 75% of seniors.

About 45 million people (one out of seven, nationwide) receive both Social Security and Medicare.

Social Security recipients spend on average 9% of their benefits on Medicare Part B premiums and 3% for the Medicare prescription drug program.

-AP;  Charlotte Observer

What this means for you…if you are a senior, is that it is more important than ever for lawmakers to eliminate fraudulent claims in Medicare and reign-in escalating health care costs.

The elderly are feeling the pinch from savings lost in the stock market decline, lower home values and unable to find work if they are still healthy and interested.

The good news is that by law, social security payments can never go down, even if Medicare premiums rise more than COLA adjustments.

10. States bracing for huge unemployment tax increases…as Uncle Sam ends the grace period for states to borrow money to pay the unemployed…and looks to be repaid.

33 states owe the federal government nearly $46 billion, with California topping the list at $10.4 billion.

Washington is considering a two-year moratorium on interest payments…and may even forgive portions of the debt.

-Raleigh News & Observer; Charlotte Observer

What this means for you…depends on where you live, however, unemployment insurance taxes for businesses in most states will increase.

NC’s unemployment insurance fund is $2.7 billion in the red, the sixth highest in the country, with NC business owners paying a top rate of 6.84% on the first $19,700 earned, or $1,347 per employee.

NC cut the rate a number of times in the mid-1990’s and even exempted companies without a history of layoffs…and now about 25,000 or 12% of NC employers pay nothing into the fund.

Last year SC raised its top rate from 5.4% to 11.3%, more than doubling revenue from $290 million to $680 million to get out of the hole.

Baber’s Easy to Read Economic News (3/29/11) – Weekly Top 10+

Please click the “display images” prompt in your email account when you open the newsletter, which will make sure that all of the information is displaying completely.

As the owner of Baber Turnaround Consulting, it is my job to monitor economic issues, especially those that affect local businesses. I study local trends, compare them with analyses of regional and national economic events …then explain “what this means for you…”

If you have a family member, colleague or friend who would benefit from these updates, they can sign up through the “Contact” link at the www.Easy2ReadEcon.com website. The “Contact” link also now includes the email addresses for all NC Senate and House members.

Periodically you may receive a brief, anonymous survey (no more than five questions) requesting your feedback on economic issues.

This information will be used to focus my newsletter content and when appropriate, share survey findings with you and elected officials.

Previous newsletters can be found at the BaberConsulting.com website “BLOG” – your comments will be appreciated.

Summarized Top 10 (see the full-length articles after Vital Signs)

(1) The top 1% income earners paid 38% of federal taxes in 2008…due largely to stock market profits and stock options, creating huge budget deficits as states forecasted high income levels to continue.

(2) Corporate profits in 2010 rose 29% or $1.7 trillion…the largest gain in 60 years.

(3) Southeast jobless rates (seasonally adjusted = SA) dip in February… for FL, GA, NC, SC, but go up for TN. All remain above the 8.9% national average. See full article for details.

(4) New home sales plunged 17% in February from January…to an annualized rate of 250,000…the lowest level since this data series began in 1963.

(5) Public employees rush to retire before contracts expire…with NJ’s largest pension funds seeing a 60% increase in retirements in 2010 to lock-in rich benefits.

(6) White House grants Health Care Law waivers to unions…and selected employers, on requirement to provide at least $750,000 annual coverage for each person.

(7) The United Auto Workers outlined a plan to recruit US workers at foreign auto makers…after failures in the last decade to recruit Nissan workers.

(8) Optimistic public pension fund investment return rates will make underfunded pensions worse…causing taxpayers and employees to contribute more in the future.

(9) The federal government spends $18 billion a year on 47 separate job training programs…run by nine different agencies.

(10) Rare earth metals being stockpiled by China…which controls 95% of the global production…and prices are soaring.

Vital Signs (20 Topics, #11 – #30)

11. New claims for unemployment compensation (seasonally adjusted=SA) for the week-ended March 19th dropped 5,000 to 382,000, down 1.3%. The four-week moving average dropped 1,500 or .4% to 385,000, the lowest level since July 2008…and down 16,000 or 3% from last month (w/e Feb. 19).

12. Continuing claims for unemployment (not seasonally adjusted =NSA) four-week moving average on March 12th was 4,341,000…down 151,000 or 3% from February’s average.

Continuing claims for unemployment (NSA) on March 12^th was 4,260,000…down 327,000 or 7% from last month (2/12/11)…down 1.1 million or 20% from last year (3/13/10)… and down 2.2 million or 34% from two years ago (3/14/09) when 6,440,000 were drawing unemployment.

13. Interest rates…as of 3/25/11

This week, last week, last year:

CDs: 6-month .30%, .30%, .45%…1-year .48%, .47%, .72%…2 ½-year .74%, .75%, 1.11%… 5-year 1.71%, 1.71%, 2.12%.-Bankrate.com 

10-year Treasury bonds:  3.45%, 3.28% last week, 52-week low – high 2.38%-4.00%

Prime rate:

US: 3.25%… same for last week and 52-week low and high

Canada: 3.0%, 3.0% last week, 52-week low – high 2.25%-3.0%

Euro zone: 3.0%…same for last week and 52-week low and high

Libor, 3-month: 0.31%, 0.31% last week, 52-week low – high 0.28%-0.54%

30-year mortgage: 4.92%, 4.87% last week, 52-week low – high 4.32% – 5.43%

New car loan: 4.89%, 4.93% last week, 52-week low – high 4.89% – 6.59%

Home equity loan, $30,000: 5.14%, 5.13% last week, 52-week low – high 5.06% – 5.20%

-WSJ, Bankrate.com, Thomson Reuters

14. Investments…as of 3/25/11

Dow Jones Industrial Avg.: Friday close 12221; 52-week low-high 9686 – 12391; week +3.1%; YTD +5.6%

Nasdaq Composite: Friday close 2743; 52-week low-high 2092 – 2834; week +3.8%; YTD +3.4%

S&P 500: Friday close 1314 Friday close; 52-week low-high 1023 – 1343; week +2.7%; YTD +4.5%

Gold (per troy ounce): Friday close $1426; 52-week low-high $1104-$1438; YTD +.35%

Crude oil (per barrel):  Friday close $105.40; 52-week low-high $68-$105; week + 3.5%; YTD +15%

Natural Gas (per MMBtu): Friday close $4.40; 52-week low-high $3.29-$5.19; YTD -.05%

15. Foreclosure rates skyrocket as down payment shrinks….2% if 30% down payment…1.3% if 20% down…3.3% if 10% down…4.0% if 5% down…4.7% if 3% down.

Federal regulators will soon be deciding how much “skin in the game” (risk retention) banks must have when they issue mortgage securities.

There is concern that if regulators “don’t get it right”…the rules would have little benefit and may damage fragile mortgage markets. -WSJ, Moody’s Analytics

16. The United Kingdom will reduce its corporate tax rate from 28% to 23%…over the next three years, giving UK companies a global competitive advantage from a tax perspective.

The current 28% rate drops to 26% on April 5, the start of the new fiscal year…and will drop 1% every year after for the next three years.

The 23% rate will be the lowest rate in the G7 (group of seven) leading economies…and compares to a 35% rate in the US. Companies are already considering relocating to the UK.-WSJ

17. Treasury officials nix Republican’s “tax holiday” proposal which could create jobs…by allowing US multi-national companies to bring overseas profits back to the US (“repatriate”) at low tax rates.

Republicans claim that the foreign earnings would be used for job creation and training. The US 35% top corporate tax rate is one of the highest in the world, with the US one of the few large countries which taxes companies’ overseas earnings.

In 2004 a similar measure returned $300 billion from offshore subsidiaries, at a 5.25% rate.-WSJ, Treasury Officials

18. Japan’s contributes 9% of the world’s economic output…90% of BT resin for circuit boards, 60% of silicon wafers, 20% of computer chips, 11% of luxury sales.

Japan’s 2010 exports were $767 million, or about 13% of their economy…61% machinery/transportation equipment, 13% iron/steel, 12% clothing/toys/re-exports, 10% chemicals, 4% rubber/wood/petroleum products.-Japan’s Ministry of Finance, WSJ

19. Government shutdown April 8^th appears likely…as talks slow between Republicans and Democrats to bridge a $50+ billion gap in targeted spending cuts for the last six months of the fiscal year (Republicans want $61B vs. Democrats $11B).

GOP Speaker of the House Boehner and Majority Leader Eric Cantor are feeling the heat from Tea-party activists who remain angry that Republican leadership isn’t pushing for even larger budget cuts.

Also fueling the anger is a delayed budget confrontation with Democrats, with the GOP leadership agreeing to five weeks of “continuing resolutions” (March 4 – April 8).

The US has run for six months (since Oct. 1) without an approved budget, with Tea-partiers claiming that Republicans are “timidly passing mediocre spending reforms.”-WSJ

20. Proposed state legislation cracking down on illegal immigration angers farmers…and exposes differences between GOP constituencies.

Chamber of commerce Republicans favor easing restrictions due to potential farm labor shortages…while rule-of-law Republicans support Arizona-style legislation allowing police to check the immigration status of people they stop.

The current federal system requiring immigration approvals from multiple agencies slows down the process…and encourages employers to bypass the process. Farmers who follow the rules pay higher labor costs than those who don’t.

21. The US Postal Service will be $5.5 million in the red this year after losing $8.5 billion in 2010…and plans on cutting 7,500 managers and closing 2,000 offices to save $750 million, closing the gap.

Retiree health plans alone cost the post office $5.5 billion a year, and since 2007 US law requires prefunding this benefit. Another 16,000 unprofitable offices will be reviewed for closing and service on Saturday eliminated.

The Postal Service has already maxed-out its $15 billion line of credit from the federal government.

22. Average 2010 income per person in the US is $40,600…up 34% since 2000. Inflation was 27% in the last decade.

The top three states:  CT #1 at $56,000 (+34%)…MA #2 at $51,600 (+35%)…NJ #3 at $50,800 (+31%).

The bottom three states: UT #48 at $32,600 (+33%)…ID #49 at $32,300 (+31%)…MS #50 at $31,200 (+45%).

In the Southeast: NC #35 at $35,600 (+28%)…GA #37 at $35,500 (+24%)…TN #39 at $35,300 (+32%)…SC #45 at $33,200 (+32%).

-Bureau of Economic Analysis, Bureau of Labor Statistics, University of New Mexico, USA Today

23. State lawmakers will soon begin redrawing political maps (“redistricting”)… based on the 2010 Census, changing voting districts for Americans across the country. 

Districts will be redrawn, adding or subtracting constituents to achieve a target average of 733,000 per voting district.

NC has 13 congressional districts, with six districts slated to shrink as they have population exceeding the target: #2, 3, 5, 6, 9, 10.

I-NC General Assembly, Charlotte Observer

24. New households created between 2006 and 2009 averaged about 500,000 per year…down from an average of 1.2 million between 2000 and 2005, with about 700,000 households created in 2010.

The drop from 2000-05 is due to families “doubling up” due to tough economic times and young adults living with family and friends.

The homeownership rate has dropped to 66.6%, down from a peak of 69% in Q42004, representing a decline of 2.8 million homeowners.

Based on the latest Housing Vacancy Survey, the rental vacancy rate dropped to 9.4% in 4Q2010 from 10.3%, the lowest rate since 2003 as previous homeowners either decide not to buy, or can’t.

-National Assoc. of Realtors, Census Burea, S&P Case Shiller

25. Average household income (in constant dollars) has grown 26%… from $75,000 to $95,000 in the last 34 years for college graduates and has remained level at about $50,000 for high school graduates. – The Economist, US Census Bureau

26. The Dept. of Transportation wants to reduce driver’s time behind the wheel… from 11 hours a day to 10. Safety advocacy groups claim that fewer hours will mean more alert drivers, and fewer accidents.-Kiplinger

27. Health care overhaul requires doctor’s approval for over-the-counter products…to be paid by pre-tax flex-spending accounts.

The change is driving up health care costs as Americans visit their doctor before going to the drugstore, to get a prescription. 20% of Americans use flexible spending accounts; maximum contributions drop to $2,500 in 2013 from $5,000 today.-National Health Interview Survey

28. Banks are demanding higher down payments…which averaged nearly 22% in nine major cities in 2010, up from a low of 4% in late 2006. The higher down payments reduce the bank’s risk of default.

This move along with escalating mortgage rates is forcing home prices down and weakening the already soft housing market.

Home loans will continue to be harder to get as the government backed loans from the FHA, Fannie Mae and Freddie Mac are likely to be phased out, or cut back.–Zillow.com

29. UNC out-of-state tuition at $25,300 is much lower than…Virginia’s $33,600, Cal Berkley’s $35,300, Michigan’s $36,000 and Duke’s $40,600. NC in-state students pay $6,000. -American Council on Education

30. Consumer confidence plummets with 10^th largest drop on record…due to rising gas and food prices, along with Middle East unrest.

Even with signs of improvement in the labor market as new weekly jobless claims fall to a 2 ½-year low…consumer sentiment remains weak, making economic growth unlikely to pick up until confidence does.-Reuters, Univ. of Michigan, WSJ

Top 10 Full Articles

1. The top 1% income earners paid 38% of federal taxes in 2008…due largely to stock market profits and stock options, making it hard to predict, creating huge budget deficits as states forecasted high income levels to continue.

Studies done by the Pew Center on the States and the Rockefeller Institute discovered that in 2009 states overestimated revenue, primarily personal income taxes, by more than $50 billion.

The 35% top federal tax rate applies to joint filers with $379,000 taxable income…and is double the rate paid by joint filers with $69,000 or less.

The share of taxes paid by the top 1% has risen from 25% in 1990…to 30% in 1995…to 33% in 2000…to 38% in 2008…and then dropped in 2009 and 2010.

State legislators optimistically established continually higher spending levels based taxes from the wealthy…and are now facing the stark reality that today’s spending must be cut to match today’s income.

Suggestions to “increase taxes on the rich” may drive the wealthy from high tax states to low tax states.

Republican lawmakers are considering lowering the top tax rates to broadening state tax bases to reduce volatility…and limit the flight of wealthy taxpayers, and their businesses, to low tax states.

States with high tax rates: Hawaii and Oregon with 11%…California 10.3%…NJ and NY at 9%.

-Institution on Taxation and Economic Policy, Federation of Tax Administrators, Tax Policy Center, IRS, Tax Foundation, WSJ

What this means for you…is an example of high tax, high spending states losing businesses and jobs to states with lower tax rates and business-friendly (non-union) environments.

Southeastern states have an opportunity to incent business owners to relocate their businesses by enacting fiscally-responsible local and state tax and spending policies.

Caterpillar continues to shift jobs out of its home state of IL to NC, TX and offshore, partly due to IL’s high tax and spend environment.

The Pew Center recommends that states have a “rainy day fund” of at least 15% of annual expenditures to minimize impacts of fluctuating, difficult to predict revenue.

California is an example of what happens when states fail to establish rainy day funds and rely on taxes from the richest 1% (45% of CA’s revenue)…a $20+ billion deficit and either massive spending cuts or broad-based tax increases.

2. Corporate profits in 2010 rose 29% or $1.7 trillion… the largest gain in 60 years.

2011 profits may be dampened by:

- the surge in oil prices

- potential supply disruptions from the Japan tsunami

- a weak pricing environment in Q4 2010 spilling over into 2011

- higher raw material and commodity costs

- softening consumer confidence, down 13% in March to the lowest level since 2009 (Univ. of MI consumer-sentiment index)

-Commerce Dept., WSJ

What this means for you…is good news if you owned stocks in those companies and enjoyed rising portfolio values and dividends.

Hopefully politicians will enact legislation lowering the 35% top tax rate on corporations to encourage them to invest in American factories and jobs… instead of expanding in more tax-friendly countries.

Companies operating in other major industrial nations enjoy the advantage of top rates averaging 25%…with the U.K. recently deciding to reduce its top rate from 28% to 23% over the next three years.

3. Southeast jobless rates (seasonally adjusted = SA) dip in February…for FL, GA, NC, SC, but go up for TN. All remain above the 8.9% national average.

Unemployment rates: January 2011, February 2011, peak

FL: 11.9% Jan, 11.5% Feb… peak 12.0% Dec 2010

 GA: 10.3% Jan, 10.2% Feb…peak 10.4% Q4 2009 and Nov-Dec 2010

NC: 9.8 Jan, 9.7% Feb…peak 11.4% Jan-Feb 2010

SC: 10.5% Jan, 10.2% Feb…peak 11.8% Nov-Dec 2009

TN: 9.4% Jan, 9.6% Feb…peak 10.8% Jun-Aug 2009

Unemployment level (not seasonally adjusted = NSA):

FL: 1,007,000 in Feb…down 80,000 or 7% from Jan 2011…down 29,000 or 5% from Feb 2010

GA: 478,000 in Feb…down 8,700 or 2% from Jan 2011…down 17,000 or 3% from Feb 2010

NC: 446,000 in Feb…down 15,000 or 3% from Jan 2011…down 102,000 or 19% from Feb 2010

SC:  219,000 in Feb…down 3,500 or 2% from Jan 2011…down 42,000 or 16% from Feb 2010

TN:  313,000 in Feb…up 2,100 or 1% from Jan 2011…down 15,000 or 5% from Feb 2010

-Dept. of Labor, Bureau of Labor Statistics

What this means for you…in the Southeast is a continuing downward trend in unemployment rates and levels, although still a long way to go to reach the 5% to 6% levels that historically represent “full employment.”

Now is the time to encourage lawmakers to pass legislation which incents business owners to invest in growing their business, creating jobs…by decreasing taxes, reducing government spending and allowing states to take control and responsibility for managing their tax and spending policies.

4. New home sales plunged 17% in February from January…to an annualized rate of 250,000…the lowest level since this data series began in 1963. Economists view a 700,000 rate as healthy.

Median prices dropped to the lowest level since December 2003, and were down 14% from January.

Sales were down in all regions of the country, lead by the Northeast with a 57% drop, Midwest down 28%, West down 15% and the South down 6%.

New home sales have been sliding since last spring due to the expiration of the federal tax credit, a soft economy, people getting deals on used homes…with February sales hurt by lousy weather.

The median price of a new home is now 30% higher than that of a home being resold…double the normal spread.

-Commerce Dept., National Assoc. of Realtors, USA Today, WSJ

What this means for you…is that if you have been looking to buy a home, you were probably impacted by tighter lending standards, especially if you lost a home due to foreclosure or short sale.

Economists worry that the US housing market may not bottom out this year, and may slide into another downturn, or double dip.

5. Public employees rush to retire before contracts expire…with NJ’s largest pension funds seeing a 60% increase in retirements in 2010 to lock-in rich benefits.

WI has experienced a 73% jump this year for people applying to retire in 2011 and a 134% increase in people requesting estimates of potential retirement benefits.

Some are retiring before they lose union collective bargaining rights, which is happening in states across the country.

-WSJ

What this means for you…as taxpayers, may be higher long-term expenses for retiring public-sector workers as they lock-in generous retirement benefits.

Benefits may be avoiding layoffs as older workers are not replaced, and those that are, replaced with lower-paid employees with less-generous benefits.

6. White House grants Health Care Law waivers to unions…and selected employers, on the requirement to provide at least $750,000 annual coverage for each person.

The Affordable Care Act was signed March 23, 2010… and labor unions plan to celebrate the first anniversary with a week of events highlighting the laws benefits.

Those benefiting so far from waivers include labor unions representing Teamsters, electrical workers, carpenter, plumbers, food and commercial workers…along with health plans run by Cigna and Aetna.

To date the White House has relaxed the $750,000 requirement for more than 1,000 health plans covering 2.6 million people.

Republicans feel the waivers are another example that the new law is fundamentally flawed, with others concerned that the law will be unequally applied with the temptation to engage in political favoritism.

-New York Times, Charlotte Observer, Heritage Foundation

What this means for you…may depend on where you live. The Obama administration lowered the requirement to 65% for Maine, with five other states requesting similar waivers (FL, GA, KY, NV, NH)…and at least 12 others considering applying.

This is another example of complications caused by the new health care law, and how it may be used for political gain by Democrats.

7. The United Auto Workers outlined a plan to recruit US workers at foreign auto makers…after failures in the last decade to recruit Nissan workers.

The UAW is also sending activists abroad to organize rallies and protests to support their campaigns.

Millions of jobs for US auto workers have shifted overseas as industries have globalized, and taken advantage of low-cost markets.

The UAW has set aside tens of millions of dollars out of their strike fund to bankroll the campaign.

Contact talks are scheduled this year with the Chrysler, Ford and GM… and the UAW has set aside tens of millions of dollars out of their strike fund to bankroll the campaign.

UAW members are pushing the union to claw-back wage and benefit concessions made prior to the GM and Chrysler bankruptcies.

The UAW claims to have 375,000 members…down nearly half from the 650,000 in 2004.

-Labor Dept., UAW, WSJ

What this means for you…is the need to watch closely an aggressive attempt by the UAW to return to the high-pay, high-benefit strong-hold on the US auto industry, which pushed GM and Chrysler into bankruptcy.

Expect union efforts to falter in the South…at US plants owned by Asian and European auto makers, as workers there appreciate well-paying jobs in a favorable climate…weather and tax.

8. Optimistic public pension fund investment return rates will make underfunded pensions worse…causing taxpayers and employees to contribute more in the future.

The California Public Employees’ Retirement System (Calpers) ignored its actuary’s recommendation for a lower annual investment return rate (i.e. rate)…to ease current budget strains.

Calpers kept its rate at 7.75%, while corporations typically use a 6% rate to determine contributions to their pension funds.

A lower rate would have required bigger contributions now, to avoid the pension being underfunded in the future.

Calper’s actuary recommended a 7.5% rate, which would have increased what local California governments pay to the state pension fund from 1.5% to 3.0% of payroll.

Wilshire Associates, an investment consulting firm, projects public pension funds will see a 6.5% return rate over the next decade…with 8% the median rate currently used by state pension funds.

-Pew Center on the States, Calpers, National Assoc. of State Retirement Administrators, WSJ

What this means for you…as a taxpayer, is to make sure you understand the status and assumptions of your state’s public pension funds.

The director of the Washington Dept. of Retirement Systems said there wasn’t a “big push to create more budget pain if you don’t have to.”

Your lawmakers may be ignoring realistic actuarial investment return rates to kick the can down the road, requiring future public employees and taxpayers foot the bill for underfunded pension plans.

9. The federal government spends $18 billion a year on 47 separate job training programs… run by nine different agencies.

Nearly half of the agencies have not had a “performance  review”  since 2004, with only five studied to determine if job seekers in the program do better than those who don’t participate.

There is a network of 575 local work force boards running 1,300 job centers. The system can be bewildering to job seekers and businesses that would hire them. –USA Today

What this means for you…is another example of government inefficiency, lack of oversight and overlapping/duplication of efforts. Hopefully the new legislators in Washington and Raleigh will take action.

10. Rare-earth metals…are being stockpiled by China which controls more than 95% of global production. This enables China to influence global prices for materials used to make laser-guided weapons, hybrid car batteries, cell phones, etc.

Prices are soaring, despite the prospect of a short-term disruption from the Japan disasters, the world’s number one importer.

The current average price of $44,000 per ton is nearly double last year’s average and 91% above the 2010 year-end level.

Rare-earth metals consist of 17 elements, referred to as “21^st Century Gold” because of their importance in high-tech applications.

While China controls more than 90% of current REM supplies, they only have about 50% of world-wide deposits…but it can take 10 years or more to get a new mine up and running.

Out an estimated 110 million metric tons (MMT) of world-wide REM deposits, China has 55MMT (50%), Former Soviet Union 19MMT (18%), U.S. 13MMT (12%). –WSJ, Lynas Corp.

What this means for you…are potentially higher costs for cell phones, oil refining and high-tech batteries if China stockpiles REMs and continues to drive up global prices.

Congress may introduce a bill to require the US military to stockpile these metals.

Baber’s Easy to Read Economic News (3/22/11) – Weekly Top 10+

Please click the “display images” prompt in your email account when you open the newsletter, which will make sure that all of the information is displaying completely.

As the owner of Baber Turnaround Consulting, it is my job to monitor economic issues, especially those that affect local businesses. I study local trends, compare them with analyses of regional and national economic events …then explain “what this means for you…”

If you have a family member, colleague or friend who would benefit from these updates, they can sign up through the “Contact” link at the www.Easy2ReadEcon.com website. The “Contact” link also now includes the email addresses for all NC Senate and House members.

Periodically you may receive a brief, anonymous survey (no more than five questions) requesting your feedback on economic issues.

This information will be used to focus my newsletter content and when appropriate, share survey findings with you and NC elected officials.

Previous newsletters can be found at the BaberConsulting.com website “BLOG” – your comments will be appreciated.

Summarized Top 10 (see the full-length articles after Vital Signs)

(1) Japan’s 9.0 earthquake will hurt the U.S. economy, with exporters reporting wide-spread disruptions (Japan receives 5% of U.S. exports, accounts for 6% of imports).

(2) Home building plunged 22.5% in February from January, to an annualized rate of 479,000.

(3) The U.S. gets 37% of its energy from oil, followed by 25% from natural gas and 21% from coal.

(4) Republican governors take the lead in whacking state spending to reduce deficits, angering unions.

(5) Illinois Democratic Gov. Quinn submits budget proposing that the state may need a “federal guarantee” of IL pension funds, which are currently underfunded by $82 billion.

(6) Social Security Disability Insurance program may run out of money in four to seven years, with every working American paying about $1,000 a year to fund this program.

(7) 50% of workers are not confident that they are saving enough for retirement.

(8) Over 13% of Americans now get food stamps, compared to 9% in 2007.

(9) Americans are living longer than ever, at 78.2 years, increasing health care costs.

(10) High Tech bubble may be emerging as estimates of market valuations soar for privately held companies, soon to go public: $75 billion Facebook, $9 billion Zynga.-USA Today

Vital Signs (20 Topics, #11 – #30)

11. New claims (seasonally adjusted=SA) for unemployment compensation for the week-ended March 12th dropped 4% to 385,000. The four-week moving average dropped 7,000 or 2% to 386,000, and is down 32,000 or 8% from Feb. 12^th.

12. Continuing claims for unemployment (not seasonally adjusted =NSA) four-week moving average on March 5th was 4,418,000…down 74,000 or 2% from February’s average.

Continuing claims for unemployment (NSA) on March 5^th was 4,277,000…down 1.1 million or 21% from 3/6/10 and down 2.1 million or 33% from 3/7/09, when 6,356,000 were drawing unemployment.

13. Interest rates… this week, last week, last year:

CDs: 6-month .30%, .30%, .45%…1-year .48%, .47%, .72%…2 ½-year .74%, .75%, 1.11%… 5-year 1.71%, 1.71%, 2.12%.-Bankrate.com 

10-year Treasury bonds:  3.28%, 3.40% last week.

Prime rate: 3.25%…same for last week and last year.

Libor, 3-month: 0.31%, 0.31% last week, 0.28% 52-week low, 0.54% 52-week high

30-year mortgage: 4.87%, 4.91% last week, 4.32% 52-week low, 5.43% 52-week high

14. Federal Reserve reduces restriction on banks to pay dividends…for the first time since the 2008 financial crisis, due to banks passing a new round of regulatory “stress tests.” Potential 2011 dividends could be $12 billion for the nine largest banks, compared to about $40 billion in 2007 and $35 billion in 2008, now limited by the Fed to 30% of anticipated earnings.

15. Wholesale food prices in February rose the most in 36 years…up 3.6%. The producer price index, which tracks price changes before they reach the consumer, rose 1.6% in February, double January’s increase and the biggest increase since June 2009. Cold weather was partly to blame, along with increased demand from China and India and droughts last summer in Russia and other countries.-AP

16. Tea Party activists are furious that 30 Tea Party-backed members… of Congress voted for the three-week continuing resolution (until April 8^th), after the first two-week resolution (until March 18^th)…continuing to kick the can down the road to avoid negotiating a $50+ billion spending cut difference with Democrats.  “By giving liberals in the Senate another three weeks of negotiations, we will only delay a confrontation that must come.” Rep. Mike Pence (R., Ind.).-USA Today, WSJ

17. Americans are giving less to Japan ($49 million in first six days)… than to Haiti ($296 million in first week) or victims of the Indian Ocean tsunami in 2004 ($247 million in first week). Part of the reason for lower donations may be Japan’s lack of need and perception by others as a wealthy country, with the world’s third largest economy (approximately $5.8 trillion vs. U.S. $15+ trillion).-Center on Philanthropy

18. Debit cards may bounce, just like checks…as large U.S. banks look for ways to offset a potential $15+ billion fee loss from the Dodd-Frank law capping debt-transaction fees at 12 cents, down from a current average of 44 cents. While debit card payments are now guaranteed once approved, banks may begin charging retailers a higher rate if they want the payment guaranteed.  U.S. debit card purchases were over $40 billion in 2010, compared to $20 billion in 2005 and $8 billion in 2000.-The Nilson Report, USA Today

19. Banks may receive less income from servicing mortgage loans…as regulators consider changing the fees banks earn, which is currently .25% on all loans. Under consideration is paying banks higher payments for troubled loans, but lower payments for performing loans…which are the bulk of most servicing portfolios. The banks most affected will be those with the largest “mortgage-servicing-rights assets” (present value of future payments): Wells Fargo with $15.9 billion, Bank of America with $15.2 billion and J.P. Morgan with $13.7 billion.-The Companies, WSJ

20. Americans revolving credit card debt dropped in January to the lowest level since 2004…at a 6.4% annualized rate to $795 billion, and compares to a peak of $974 billion in Aug. 2008. “Non-revolving credit” which includes car and student loans, went up at an annualized 7% increase to $1.6 trillion.-Federal Reserve

21. Interest payments on our national debt will cost every working American over $1,700 in 2012…based on the $242 billion interest expense budget and 139 million employed workers.

22. Americans are the most prolific inventors in the world…filing nearly 45,000 patent applications in 2010, followed by 32,000 from Japan, 17,000 from Germany, 12,000 from China and 10,000 from South Korea.-World Intellectual Property Organization

23. New York is the most heavily-unionized state…with over 24% of the workforce union members, followed by Alaska with 23% and Hawaii with 22%. The least unionized state is North Carolina with 3% of the workforce in unions, followed by Arkansas and Georgia with 4%.-Bureau of Labor Statistics

24. Homeowner’s equity dropped 6% or $400 million in 2010…from $6.7 trillion in 2009 to $6.3 trillion, which lowered average equity from 39.5% to 38.5%, vs. a 2005 peak of 60% and $13+ trillion.-Federal Reserve

25. Import prices increased 7% in the past five months…and are up nearly 9% from Feb. 2010. February prices grew 1.4%. The major drivers behind increases are higher costs for petroleum and other raw materials.-Labor Dept., WSJ

26. The biggest mistakes small business owners make…32% said underestimating expenses, 20% – hiring the wrong people, 18% – not knowing how to sell or market products, 18% – not securing a large enough credit line. -Hiscox Small Business Insurance Survey, USA Today

27. The U.S. Strategic Petroleum Reserve was created in 1975 in the wake of the OPEC oil embargo… to serve as an emergency supply in the event of a severe supply disruption. The reserve has 727 million barrels, or about 35 days supply for Americans. The reserve has been tapped three times: 21 million barrels in 1990-91 during the Persian Gulf War; 28 million barrels sold in 1996-97 to meet budget targets; 11 million in 2005 after Hurricane Katrina.-Dept. of Energy, USA Today

28. The non-partisan Congressional Budget Office (CBO) predicts deficits 32% higher…during the next 10 years, than President Obama’s budget.  The difference is due to the CBO using less optimistic assumptions than Obama’s budget. The CBO estimates that the proposed budget will result in an average of about $1 trillion a year in deficits over the next 10 years.-AP, CBO

29. State governments rushing to pay Medicaid bills as fast as they can…before the special $80 billion federal assistance program expires July 1, which began in 2009. The special program reduced state’s portion of Medicaid payments from 40% to 28%. Medicaid is the nation’s health care program for the poor.-Bureau of Economic Analysis, USA Today

30. House Ways and Means Chairman Dave Camp wants to cut the top tax individual rate to 25%…from 35%, offset by reducing popular tax breaks (mortgage interest deduction, exclusion of employer contributions for  health insurance, exclusion of retirement contributions and earnings, others).

Top 10 Full Articles

1. Japan’s 9.0 earthquake will hurt the U.S. economy…as exporters report wide-spread disruptions.

Japan buys about $1.5 billion worth of goods from N.C., led by chemical sales of $457 million in 2009, with 18% of the state’s agricultural product revenue going to Japan in 2008.

 Japan buys about 5% of U.S. merchandise exports and 8% of services exports, like travel and accounting.

Japan accounts for about 6% of total U.S. imports.

 Most affected are U.S. agricultural products like fruits, vegetables – which make up 11% of exports to Japan,  along with chemicals (18%), computers (13%) and transportation gear (11%). Shortages of key components in U.S.-made cars will cause hiccups at some auto plants.

As Japan rebuilds, companies like Caterpillar should benefit, along with makers of lumber, steel, cement, electrical and transportation equipment.

Japan is the U.S.’ second largest lender at nearly $900 billion, after China’s $1.1 trillion, and may hold off buying U.S. debt as they will need the money at home for rebuilding efforts and for insurance companies to pay claims.

Actions by G7 nations to work together to prevent dramatic yen appreciation should provide stability to world currency markets, and protection for Japanese exports.

Japan accounted for about 8% of the world’s GDP in 2010, down from 17% in the mid-‘90s.

 Japanese tourists were expected to spend nearly $2 billion in Hawaii this year, and make up about 18% of Hawaii’s 7 million annual tourists.

-IMF, Economist, Foreign Trade Div., U.S. Census Bureau, USA Today, AP, Hawaii Tourism Authority, Dept. of Commerce, Oppenheimer

What this means for you…depends on your job and industry. Workers tied to the reconstruction efforts in Japan will benefit, while exporters and those relying on tourism will not.

U.S. companies receiving at least 10% of their revenue from Japan and with the most exposure: AFLAC, DSP Group, Silicon Image, InterDigital, OM Group, Cymer, Coach, Tiffany, Synopsys, Amerigon.

Hawaii has already experienced thousands of tour and hotel cancellations from the Japanese.

2. Home building plunged 22.5% in February from January…to an seasonally adjusted annualized (SAAR) rate of 479,000, the lowest level since April 2009.

Single family homes fell 12% in February, and make up 80% of home construction.

Condo and apartment construction dropped 45%, reversing January gains.

Building permits dropped 8%, to the lowest level since 1960.

Sales of previously owned homes fell nearly 10% in February from January, to an annualized rate of 4.9 million…compared to a peak of about 7 million in 2005.

-USA Today, Commerce Dept., National Assoc. of Realtors

What this means for you…is that now is a good time to build a home, as contractors need the business and mortgage rates have recently gone down.

3. The U.S. gets 37% of its energy from oil…followed by 25% from natural gas, 21% coal, 9% nuclear, 4% biomass, 3% hydropower, 1% wind/geothermal/solar.

The BP oil spill in 2010 is a reminder of the risk of off-shore oil production and exploration, however, as we import over half of our oil needs, Americans will remain reliant on a volatile world market and the need to continue exploring for new oil sources.

Countries with the largest petroleum use measured by annual “barrels per person”: U.S. 22, S. Korea 17, Japan 13, Germany 11.

The U.S. at 22 barrels per person = 19 million barrels a day, 578 million barrels a month, 6.9 billion barrels a year…or 13,000 barrels every second.

The U.S. has huge natural gas supplies, however, extracting gas from rock formations risks contaminating drinking water with carcinogens and radioactive elements.

Coal supplies 21% of U.S. energy and nearly half of electricity needs. The good news is that America has vast coal supplies… the bad news is that coal mining is one of the most dangerous professions and scars the land.

America’s risk with nuclear reactors…emergency batteries lasted eight hours at Fukushima, while in American nuclear plants batteries are typically designed to only last four hours.

The countries with the highest dependence on nuclear electricity production:

75% France, 49% Ukraine, 35% South Korea, 29% Japan, 26% Germany, 20% U.S.

-Energy Information Administration, USA Today, World Nuclear Assoc.

What this means for you…is that we can’t turn our back on nuclear power, which provides 9% of U.S. energy and 20% of electricity.

Since the  accident at Pennsylvania’s Three Mile Island accident 32 years ago, the nuclear industry has a strong safety record and offers huge amounts of 24/7 power with hardly any carbon emissions.

While wind and solar power are clean, safe sources of energy…they provide less than 1% of combined energy production and it will take decades to equal the output from oil, coal and natural gas.

4. Republican governors take the lead in whacking state spending to reduce deficits…standing up to union members who are trying to preserve their pay and benefit packages.

Many states are facing tough spending decisions as billions of federal stimulus dollars will disappear and no longer be available to fund state programs. Voters are refusing to allow politicians to raise taxes to perpetuate wasteful, unnecessary spending habits.

Ohio Gov. John Kasich proposed a fiscally responsible budget, mirroring actions proposed by other newly-elected Republican governors (Florida, Michigan and Wisconsin), including:

-          selling five prisons to private operators for an estimated $200 million

-          reshaping Medicaid, which is 30% of Ohio’s budget, by reducing provider payments and deemphasize nursing homes in favor of cheaper alternatives

-          lifting a cap on the number of charter schools,  easing teacher-licensing requirements and laying off teachers based on merit, not seniority

-          cutting aid to municipalities by 25% in the first year and 25% in the second year

-          easing a requirement to pay prevailing union wages on construction projects

-          curtailing public-employee bargaining rights

-          leasing state-run liquor distribution

-WSJ

What this means for you…as voters, is to remind those officials who ran on platforms to reduce spending and not increase taxes that you will hold them to their promises and make them accountable in the next election.

A new Pew Research Center poll reports that Tea party support  for Republican budget plans has dropped from 75% after the November elections to 52%…potentially indicating a backlash to the GOP delay in negotiating spending cuts with Democrats and Obama.

5. Illinois Democratic Gov. Quinn submitted a budget proposing that the state may need a “federal guarantee” of IL pension funds…which at a 45% funding level, is the most under-funded state plan in the country, according to Moody’s Investor’s Service.

The IL pension liability is currently underfunded by $82 billion…and is projected to grow to $140 billion by 2030.

The problem is due to the state’s failure for years to make actuarially recommended contributions to the fund.

IL lawmakers propose to fix the ailing pension system by:

-          asking current workers to pay more into the plan

-          raising the retirement age from 60 to 67

-          scaling back on cost-of-living raises from 3%, to the lower of 3% or 50% of the CPI change

-          cutting pension benefits for new workers from the highest average compensation of four consecutive years, to the average of eight highest years of pay in the last 10 years of service

-          reducing the benefits for workers hired before 1/1/11…cuts TBD

-Illinois Commission on Government Forecasting & Accountability, State of IL, WSJ

What this means for you…is another example of out-of-control government spending on public-sector employees, who traditionally support Democrats.

How Illinois deals with their pension funding problems may…or may not be a blueprint for other states to follow which have similar problems.

6. Social Security Disability Insurance (SSDI) program may run out of money… in four to seven years, unless changes are made, claims government auditors.

This program started in 1957 for people who worked several years before suffering a debilitating illness or injury…and now pays beneficiaries for cancer, chronic back pain, persistent anxiety and schizophrenia.

SSDI recipients have skyrocketed in recent years, from 4 million in 1990 to 6.6 million in 2000 to over 10 million in 2010…due to the soft economy and state’s willingness to ease requirements.

Government payments have soared from $25 billion in 1990…to $50 billion in 2000…to nearly $125 billion in 2010.

Puerto Rico has 9 of the top 10 zip codes for disabled workers, while in the last 10 years Texas recipients have surged 85% and New Hampshire 69%.

Puerto Rico’s increase is due to the closing of factories, U.S. military installations…and corruption. One judge in San Juan approved 98% of the disability cases brought to him…compared to the national average of 47%.

Puerto Rico received 2% of SSDI total spending in 2009, yet has only 1% of the U.S. population.

SSDI decisions are made based on medical opinions, varying doctor by doctor, and state by state.

In 2009 SSDI benefits averaged $1,064 a month, but the program opens access to other government programs, including Medicare (usually available only to those 65 or older), multiplying the ultimate cost.

-Social Security Administration, WSJ

What this means for you…is to expect the federal government to either tighten oversight, or shift the burden to the state level.

One solution would be to shift the SSDI contributions and payment responsibility to states, so that taxpayers in states with aggressive oversight aren’t footing the bill for states which don’t.

The states with the highest % approval of SSDI applications: NY, NJ, DE, MD, DC, PR, ND, SD, NE, WY, WI, AK, HI…and those with the lowest: NC, SC, GA, TN, MS, AZ.

The government’s average lifetime commitment is $300,000 per person, and based on recent trends…will cost every working American about $1,000 per year to pay these benefits.

SSDI abuse is yet another stark example of wasteful government spending which needs to be stopped.

7. 50% of workers are not confident that they are saving enough for retirement…with only 59% saving anything for retirement.

56% have less than $25,000 in savings and investments, with 29% having less than $1,000.

34% of workers have dipped into savings to pay expenses or take a loan.

22% of workers say that debt is a major problem.

74% plan to work in retirement to supplement savings, however, only 23% of retirees surveyed say they have worked in retirement.

-Employment Benefit Research Institute, USA Today

What this means for you…is that the time to start saving for retirement is now, regardless of your age. Social security benefits for many now under the age of 55 will probably be reduced, with it not being a matter of if…but how much.

See a financial advisor to better understand your retirement needs, as planning to work in retirement is a risky bet.

8. Over 13% of Americans now get food stamps… compared to 9% in 2007, with 44 million people participating compared with 27 million in October 2007.

States experiencing the fastest growth in food stamp recipients are Utah +34%, Nevada +25% and Idaho +24%.

 These states have been especially hard hit by high unemployment rates, due to softness in construction, technology and real estate industries.

These states historically had some of the lowest food stamp use in the nation, including a culture of self-reliance and disdain for government handouts.

Idaho handed-out 10 million pounds of food this year, double the amount from 2007.

-Agriculture Dept. Food and Nutrition Service, WSJ

What this means for you…is upward pressure on the U.S. deficit as this federally backed program is expanded in states…with federal efforts to restrict usage being rebuffed by state legislators.

For example, Idaho Gov. Butch Otter suspended a federal provision that blocked people with assets such as a boat from eligibility for food stamps.

9. Americans are living longer than ever, at 78.2 years… increasing health care costs and projected social security costs.

In 2009 the rate of of death dropped for 10 of the top 15 causes: -7% murder, -5% flu and pneumonia, -4% for strokes, respiratory diseases, accidents, Alzheimer’s, diabetes, heart disease.

Infant mortality hit a record low in 2009 of 6.4 deaths per 1,000 live births, down from 6.6 deaths in 2008.

Life expectancy:

White males 75.7 years…white females 80.6

Black males 70.9 years…black females 77.4

The death rate dropped for the 10^th year in a row with 2,436,000 deaths in 2009, or 741 per 100,000 people or .74%…down from .76% in 2008.

-CDC’s National Center for Health Statistics, USA Today

What this means for you…is to see your financial planner to make sure that you are using realistic assumptions for how much retirement savings you may need, without adjusting your lifestyle.

10. A high tech bubble may be emerging… as estimates of market valuations soar for privately held companies, soon to go public: $74.8 billion Facebook, $9.3 billion Zynga, $7.2 billion Twitter (up from $3.7 in December), $5.2 billion Groupon, $2.8 billion LinkedIn.

Estimated market valuations are based on private transactions from the SharesPost market.

Speculation is brewing that Google and Facebook may bid as much as $10 billion for Twitter.

Groupon turned down a $6 billion offer from Google.

Facebook has about $2 billion in annual revenue, with Groupon at $760 million in 2010.

-USA Today, SharesPost

What this means for you… is to avoid getting caught up in the hype of IPOs, or private sales, which can push prices up dramatically with get-rich-quick investor mentalities.

In the last year 48 tech IPOs realized 19% gains on the first trading day, however…share prices can drop dramatically if company performance stumbles.

Don’t be influenced on price because a company files an IPO… because it may never happen.

Private marketplaces (e.g. SecondMarket, SharesPost) enable owners of shares in private companies to sell to institutions and high-net-worth individuals…and are often employees in firms looking to cash-out.

Share prices can be over-inflated based on small volume sales in relatively small markets.

Valuations of public companies: $304 billion Apple, $208 billion Microsoft, $177 billion Google, $77 billion Walt Disney, $38 billion eBay, $13 billion NewsCorp.

Baber’s Easy to Read Economic News (3/15/11) – Weekly Top 10+

This letter is now in its fourth month of distribution and it is important for me to understand your interest level in continuing to receive it.

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Bob Baber

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As the owner of Baber Turnaround Consulting, it is my job to monitor economic issues, especially those that affect local businesses. I study local trends, compare them with analyses of regional and national economic events …then explain “what this means for you…”

If you have a colleague or friend who would benefit from these updates, they can sign up through the “Contact” link at the www.Easy2ReadEcon.com website. The “Contact” link also now includes the email addresses for all NC Senate and House members.

As a new feature, periodically you will receive a brief, anonymous survey (no more than five questions) requesting your feedback on economic issues.

This information will be used to focus my newsletter content and when appropriate, share survey findings with you and NC elected officials.

Previous newsletters can be found at the BaberConsulting.com website “BLOG” – your comments will be appreciated.

Summarized Top 10 (see the full-length articles after Vital Signs)

(1) February U.S. deficit sets a one-month record at $222 billion.

(2) NC unemployment rate rises in January to 9.9, up from December’s 9.8%, and well above January’s 9.0% national average. Details on South Carolina and Georgia in full article.

(3) U.S. total household debt (mortgages, credit cards) fell in 2010 for the second straight year to $13.4 trillion.

(4) Republicans seek to cut funding for Corporate Public Broadcasting by $242 million, from $430 million, due to derogatory comments about the Tea party made by NPR top fund-raiser, Ron Schiller.

(5) Medicaid worse than no coverage at all based on new government research comparing Medicaid patients treatment success with those on private insurance plans.

(6) Nuclear power plants generate 20% of U.S. electricity from 104 plants in 31 states.

(7) Prisons account for $50 billion, or 7% of state’s discretionary budgets.

(8) California nightmare continues, with high unemployment, foreclosures and staggering budget deficits.

(9) Underwater mortgages rise to 23.1% in the 4^th quarter, over 11 million households.

(10) 2010 census sets NC population at 9.5 million, up 18% since 2000 compared with 10% for US.

Vital Signs (20 Topics, #11 – #30)

11. New claims (seasonally adjusted=SA) for unemployment compensation for the week-ended March 4th rose 7% to 397,000…after dropping for three straight weeks, dampening hope that falling layoffs would translate into more hiring. The four-week moving average rose 3,000 or 1% to 392,250, but is down 24,000 or 6% from a month earlier.

12. The continuing claims for unemployment (not seasonally adjusted =NSA) four-week moving average at 4,488,000 is down 138,000 or 4% from the end of January…down 1.1 million or 19% from Feb. 2010 and down 1.7 million or 27% from Feb. 2009… when 6,167,000 were drawing unemployment.

13. Latest yields… this week, last week, last year: CDs: 6-month .30%, .30%, .45%…1-year .47%, .48%, .73%…2 ½-year .75%, .75%, 1.12%… 5-year 1.71%, 1.71%, 2.12%.-Bankrate.com 

10-year Treasury bonds:  3.40%, 3.49% last week.

Prime rate: 3.25%…same for last week and last year.

14. NC legislators to vote on requiring photo IDs for voters…to reduce voter fraud. Republican lawmakers see it as a common-sense idea to ensure integrity of the voting process, while Democrats are concerned they will lose votes. Frank De Luca, executive director of Raleigh-based Civitas Institute, said public opinion polls taken across partisan and racial lines show 84% of NC voters support requiring photo identification.-Raleigh News and Observer

15. Governors passing legislation to limit public union collective bargaining…firing up unions, which have pledged to pour over $30 million into efforts to stop legislation in dozens of states seeking to limit bargaining rights. WI Gov. Scott Walker signed legislation giving local governments the flexibility to deal with cuts in state aid, necessary to fix budget deficits. Idaho, Iowa and Ohio are expected to pass similar laws curbing bargaining rights for unionized public workers. President Obama ignored requests from union leaders to go to Wisconsin to “rally the faithful”, or to send VP Joe Biden, or Labor Secretary Hilda Soldis…reneging on a campaign pledge to stand with unions.-AP

16. Poll on acceptable ways to reduce the deficit…81% – surtax on people earning $1 million+; 68% – phase out tax cuts for families earning $250,000+; 67% – freeze domestic spending for five years; 62% – reduce Medicare and social security benefits for wealthy retirees; 56% – gradually raise retirement age to 69 by 2075.-WSJ/NBC poll Feb. 24 – 28

17. U.S. exports rose 2.7% in January to a record level of $168 billion…but even faster import growth increased the trade deficit to $46 billion, up 15% from Dec. due partly to higher oil prices.-Commerce Dept.

18. Billionaires total 1,210 worldwide…up from previous 2008 high of 1,125. The group was led by Mexico’s Carlos Slim, 71, with $74 billion (up $20.5B, mobile phone operator for Americas), Bill Gates, 55, with $56 billion (+ $3B) and Warren Buffett, 80, with $50 billion. Mark Zuckerberg, 26, was 52^nd with $13.5 billion (+ $4B). The U.S. had 34% of the total, down from 50% ten years ago. Moscow has the most billionaires (79), followed by New York with 58.-Forbes

19. 73,000 refugees came to the U.S. in 2010…49% from Near East/South Asia, 24% from East Asia, 18% from Africa, 7% from Latin America/Caribbean, 2% from Europe. -U.S. Refugee Admissions Report

20. China car sales soften…up only 2.6% in December, the lowest increase in two years.

21. State lawmakers considering legislation to end teacher tenure…with Idaho leading the way, allowing only 1-year contracts and eliminating collective bargaining.

22. Gov. Perdue borrowed $491 million from state funds to repay taxpayers…prompting Senate leader Phil Berger’s comment “We see a continuation of business as usual in terms of a refusal to face up to the serious fiscal issues that are right in front of us.”  $100 million is coming from the unemployment fund.-Raleigh News & Observer

23. Small business confidence rose to highest level (94.5) in February…since Dec. 2007, when the recession started. Compares to a high of 101 in early 2006 and low of 81 in early 2009.-National Federation of Independent Business

24. North Carolina has received $46 million… in federal funding to spur small business lending, administered by the NC Rural Economic Development Center (known as the NC Capital Access Program or CAP Program). Loans up to $5 million are available to finance real estate, equipment purchases or business expansions.-Charlotte Business Journal

25. SBA offers $15 billion to small firms…to refinance real estate loans that mature and require a balloon payment between now and September 2012. Borrowers can refinance 90% of the appraised property value or 100% of the outstanding mortgage, whichever is lower.-Charlotte Business Journal

26. 43% of local government workers (includes police, fire fighters, teachers) belong to public sector unions…followed by 31% of state public-sector workers and 27% of federal government workers.-Bureau of Labor Statistics

27. Brazil overtook Italy as the world’s seventh-biggest economy, at $2.1 trillion…with the U.S. #1 at $14.7 trillion, followed by China at $5.9 trillion, Japan $5.8 trillion, Germany $3 trillion, France $2.6 trillion and Britain at $2.2 trillion.­-National Accounts, Thomson Reuters, Economist

28. U.S. commercial crude-oil inventory rose to 349 million barrels…marking the highest level in four months, as refiners and others hoard oil due to turmoil in Libya and elsewhere.-Energy Info. Admin., WSJ

29. 96 departing U.S. House of Representatives paid an extra $6.7 million to staffers …in the 4^th quarter of 2010, or 31% more than the average of the previous three quarters. The 31% extra pay, for the most part, represents bonuses for staffers, whose pay ranges from $20,000 to $168,000, capped at $14,000 a month. The 31% is about double the amount awarded by the returning members of the 112^th Congress.-WSJ, House of Representatives statements of disbursements

30. Gov. Perdue changes mind… and vetoes Republican’s aggressive campaign to challenge federal health care law, as it appears that Republicans won’t be able to override her veto (four votes short). Pressure from Gov. Perdue on conservative Democrats killed the Republican efforts for NC to opt-out of the law which requires everyone to buy health insurance.-Raleigh News and Observer

Top 10 Full Articles

1. February U.S. deficit sets a one-month record at $222 billion…with the  “federal debt ceiling” expected to reach $14.3 trillion in April or May, requiring lawmakers to raise it, again, or signal that the U.S. isn’t prepared to meet its obligations.

Government spending in February was $333 billion, more than triple the $110 billion received in revenue…and at an annualized rate of $4 trillion, exceeds President Obama’s $3.7 trillion 2012 budget by nearly 10%.

This year’s projected deficit of nearly $1.7 trillion sets a new record, up from last year’s $1.4 trillion and the third straight year of $1 trillion-plus deficits.

On March 18^th the current two-week stopgap bill (continuing resolution) expires, which allows government spending at last year’s rate. The continuing resolution is required because the 2011 budget was never passed by last year’s Democratic Congress.

Negotiations are underway to kick the can down the road, extending the continuing resolution another  three weeks to April 8, with a promise to cut $6 billion of spending.

Lawmakers struggle to close a $50 billion gap between the $60+ billion that Republicans want to cut from the last six months of the fiscal year and the $10 billion wanted by the White House and Democrats.

The trend of the U.S. debt:

 1990 – $3 trillion 

1995 – $5 trillion  

2000 – $6 trillion  

2005 – $8 trillion

2010 – $14 trillion 

2011 – $15.5 trillion (est.)   –Office of Management and Budget, Treasury Dept., AP, WSJ

What this means for you…is that it is time to tell your elected officials to stop mortgaging our children’s futures because we don’t have the guts to reducing spending today.

The current year’s projected budget deficit of nearly $1.7 trillion and year-ending $15.5 trillion debt will be the largest in our country’s history.

Senate Republican leader Mitch McConnell vows that no GOP senator would vote to raise the federal debt ceiling unless President Obama takes a leadership position on crafting a broad, bi-partisan deficit reduction agreement… including Medicare, Social Security and other entitlement programs.

2. NC unemployment rate rises in January to 9.9%…from 9.8% in December, down from 11.4% in January 2010, up from 9.2% in January 2009…and well above January’s 9.0% national average.

South Carolina’s unemployment rate fell in January to 10.5%…from 10.9% in December, down from 11.7% in January 2010, and down from the peak of 11.8% in Dec. 2008.

Georgia’s January unemployment rate remained unchanged at 10.4% from December… unchanged at 10.4% from January 2010, and up from the 8.5% rate in January 2009.

NC lost over 28,000 jobs in January (down to 3,972,000 – not seasonally adjusted/NSA)…with employment down 4,600 from Jan. 2010…down 129,000 or 3% from Jan. 2009 and down 314,000 or 7% from Jan. 2008.

SC lost over 5,400 jobs in January (down to 1,907,000 – not seasonally adjusted/NSA)…with employment up  23,000 or 1% from Jan. 2010…down 21,000 or 1% from Jan. 2009 and down 74,000 or 4% from Jan. 2008.

Georgia lost  8,000 jobs in January (down to 4,178,000 – not seasonally adjusted/NSA)…with employment down  28,000 or 1% from Jan. 2010…down 199,000 or 5% from Jan. 2009 and down 375,000 or 8% from Jan. 2008.

NC has 463,000 unemployed (NSA), up 35,000 or 8% from December, down 81,000 or 15% from Jan. 2010 and up 17,000 or 4% from Jan. 2009.

SC has 221,000 unemployed (NSA), down 11,600 or 5% from December, down 45,000 or 17% from Jan. 2010 and up 7,400 or 3% from Jan. 2009.

Georgia has 489,000 unemployed (NSA), up 12,000 or 3% from December, down 17,000 or 3% from Jan. 2010 and up 67,000 or 16% from Jan. 2009.

24 states saw their jobless rates drop in January, 10 posted increase, with 16 unchanged.

-U.S. Bureau of Labor Statistics, Charlotte Observer

What this means for you…if you are unemployed and looking for work, is that the speed of the economic recovery depends on where you live and finding a job on what you do.

Many people looking for jobs and can’t find one, locally, will have difficulty relocating because of the continued soft housing market.

3. U.S. total household debt (mortgages, credit cards) fell in 2010 for the second straight year… to $13.4 trillion…or a total of 116% of disposable income which is the lowest level since 2004, and down from a 2007 peak of 130%.

Commercial banks wrote-off about half of the $209 billion drop in household debt.

The average household net worth in 2010 was up 5% from 2009 to $505,000, still well below the peak of $595,000 in Q2 2007…before housing prices plunged.

U.S. consumers make up about one-sixth of global demand, and with their shrinking debt burden, can make a big contribution to the world-wide recovery.

The trend of household debt as a % of annual disposable income,  Americans’ net worth:

2000 – 92%,

2002 – 104%, $40 trillion

2004 – 116%, $52 trillion

2006 – 128%, $63 trillion

2008 – 125%, $48 trillion

2010 – 116%, $58 trillion

-Federal Reserve, WSJ

What this means for you…depends on your situation, as some economists feel that a healthy household-debt-to-disposable-income ratio would be 100% or lower.

Tougher bankruptcy rules make it difficult for consumers to shed debt, with a weak job market leaving millions without much income.

January wage and salary income was about $20,000 a person, up 2.9% from a year earlier, but down 3.7% from the peak in March 2008.

If you are considering buying a home, do it now as mortgages will be increasingly difficult to get, and more expensive, as banks pull back on risk and government-run Fannie Mae and Freddie Mac reduce lending.

4. Republicans seek to cut funding for Corporate Public Broadcasting (CPB)…by $242 million, from $430 million total.

The reduction is due to derogatory comments by NPR’s top fundraiser, Ron Schiller, who was captured in a “sting video” meeting with a member of the fictitious Muslim Education Action Center, who were offering a $5 million donation.

Schiller’s comments on the Tea party movement included “They believe in some sort of white, middle America, gun-toting – it’s scary. They’re seriously racist, racist people.”

Also, NPR executive Betsy Liley was caught in audio tapes suggesting to the Muslim donors the possibility of making an anonymous gift, which would remain invisible to tax authorities, hiding the identity of the donors.

NPR only gets about 2% of its budget from CPB but many of its 268 member stations rely heavily on CPB grants. The CPB has more than 400 public radio stations, not all are NPR affiliates.

-McLatchy Newspapers, Charlotte Observer

What this means for you…if funding is cut, is probably nothing as liberal donors, led by billionaire financier George Soros currently provide additional funds for public broadcasting.

Conservative Republicans feel that with a $1.7 trillion deficit, spending $ millions on public broadcasting doesn’t make sense when private donors may make up the difference…if the broadcasting is important to them.

Expect a fierce fight from Democrats and President Obama to continue funding CPB at current levels.

FYI…the “sting” was orchestrated by conservative activist James O’Keefe who made headlines when he posed as a pimp, capturing on tape embarrassing comments made by the community-organizing group ACORN.

5. Medicaid worse than no coverage at all… based on new government research comparing Medicaid patients treatment success with those on private insurance plans.

Cash-strapped states are cutting payments to Medicaid providers, which are sometimes so low that people can’t find doctors willing to accept Medicaid.

Current federal rules mandate that everyone has to get the same package of benefits, regardless of health status, needs or personal desires.

Patients would get better care if states could tailor Medicaid benefits to target resources to sicker people, giving healthy adults cheaper, basic coverage.

Because states are forced to offer everybody everything, actual payments are driven so low that people who need care, can’t get it.

Medical studies showing why Medicaid patients are sometimes better off without health insurance:

Head and neck cancer Medicaid patients and those with no insurance were 50% more likely to die, when compared with private insurance patients.

Medicaid patients receiving surgical procedures were more than twice as likely to die in the hospital, than those with private insurance, with uninsured patients about 25% less likely to die in the hospital than those with Medicaid.

Medicaid patients having coronary angioplasty were 59% more likely to have “major adverse cardiac events”, such as strokes or heart attacks, compared with privately insured patients.

-Annals of Surgery, American Journal of Cardiology, WSJ

What this means for you…is bad news if you rely on Medicaid. Contact your elected official to give your opinion on allowing states to tailor benefits to the individual needs of the patients, and abandon the current mandate of “comprehensive coverage for everyone.”

Unless changes are made, states will be forced to continue reducing payments to providers, sometimes pennies on each dollar of customary charges…encouraging doctors to put a cap on how many Medicaid patients they will accept.

6. Nuclear power plants generate 20% of U.S. electricity from 104 plants in 31 states…compared to 55 plants in Japan, 21 in South Korea, 20 in India and 13 in China.

The 1979 nuclear accident at Three Mile Island in Pennsylvania sidelined the nuclear power industry in the U.S., with no new licenses granted for 30 years.

Tennessee will finish a reactor started years ago, coming on-line in 2013. Site preparations have started for nuclear plants in Georgia and South Carolina, which should begin operations in 2016.

­-WSJ, World Nuclear Association

What this means for you…may depend on our elected officials appetite for providing loan guarantees to build nuclear power plants.

President Obama’s proposed 2012 budget includes $36 billion in loan guarantees, and in addition spending millions on nuclear energy research and modern reactor design.

Republican leaders agree with the president for expansion of nuclear power…an opportunity for bipartisan cooperation.

Negatives to rapidly expanding nuclear power capabilities are cheap natural gas, which is being used to generate electricity, and reduced demand due to the recession.

7. Prisons…are consuming nearly $50 billion annually, or 7% of state discretionary budgets on correction facilities…the third highest expenditure after only health care and education.

States seeking to reduce these expenses are beefing up probation and parole programs to reduce prison populations and stressing rehabilitation over jail for low-level drug crimes.

Falling crime rates, under-capacity facilities and public sentiment to reducing or eliminating jail-time for non-violent crimes is fueling the movement to reduce corrections spending.

31 states made mid-year cuts to 2010 corrections spending, totaling over $800 million…with NC contributing  $52 million.

-WSJ, National Association of State Budget Officers, Justice Dept.

What this means for you…is to expect resistance from towns that benefit from correctional facilities, unionized corrections workers and law-enforcement groups, who are among the most powerful players in state government.

8. California nightmare…getting worse, with unemployment of 12.5% in December compared with 4.7% in January 2001.

While California is still attractive to immigrants from Latin America and Asia, population growth is internally driven by young Hispanics of child-bearing age while white and black populations are aging and leaving the state.

California faces a $25 billion budget shortfall for 2012, and is led by the state’s oldest governor at 72, Jerry Brown, who was once the state’s youngest governor.

California grew 10% in the last decade, from 33.9 million to 37.3 million, down from 14% growth in the ‘90s.

Non-Hispanic white population plummeted from 47% in 2000 to 40% in 2010, with Hispanics rising from 32% to 38% of the population. Asians make up 13% of California’s population, all others 9%.

North Carolina’s Hispanic population more than doubled between 2000 and 2010.

Latino children for the first time composed a majority of California’s under-18 population.

-Census Bureau, USA Today

What this means for you…is a growing voter base for Democrats in the West as Hispanics, making up 22% of the California electorate, vote overwhelmingly Democratic.

Rising Hispanic populations in other parts of the country may pressure Republicans to soften their stance on immigration, border control and related issues.

9. Underwater mortgages…rise from 22.5% in the 3^rd quarter of 2010 to 23.5% in the fourth, after consistent declines in early 2010. 5% of mortgages are usually underwater in healthy markets.

December home prices bottomed out in 11 of 20 major U.S. metro areas.

Over 11 million households have negative equity, with 2.4 million home owners having  5% equity or less in their homes…close to the tipping point.

67% of Nevada homeowners have negative equity…followed by 50% in Arizona, California, Florida and Michigan .

-Core Logic, USA Today

What this means for you…if you have negative equity, is little hope of refinancing your loan unless you pay off the difference and if you are in the worst markets, unlikely to recover your lost value for years.

Underwater mortgages also dampen home sales, as sellers refuse to take or loss or can’t convince the bank to agree to a short sale.

10. 2010 Census…sets NC population at 9.5 million, up 18% since 2000, compared with 10% for nationwide.

NC is now the 10^th most populous state and was the fastest growing state in the Southeast.

NC is part of the “New South”, along with Virginia and Georgia with diversifying economies and populations, differing from “Deep South” states like Alabama and Mississippi which have experienced lackluster growth.

Top five largest counties (population/growth since 2000):

Mecklenburg 919,000/32%…Wake 901,000/44%…Guilford 488,000…Forsyth 350,000…Cumberland 319,000

Top five largest cities (population/growth since 2000):

Charlotte 731,000/35%…Raleigh 404,000/46%…Greensboro 270,000…Winston-Salem 230,000…Durham 228,000

NC’s Hispanic population has grown from 60,000 in 1990… to about 400,000 in 2000…doubling to 800,000 in 2010.

-WSJ, U.S. Census

What this means for you…is a confirmation that NC has become and will continue to be a destination for:

 companies seeking a business-friendly environment with a diverse, experienced workforce,

 vacationers seeking mountains, coast and pristine lakes,

 retirees looking for a moderate climate  with four seasons, centrally located on the East coast… within a one day’s drive to Orlando, Atlanta, Philadelphia or New York City.

Charlotte, the banking hub of the South, has doubled its population since 1990.

Baber’s Easy to Read Economic News (3/8/11): Weekly Top 10+

As the owner of Baber Turnaround Consulting, it is my job to monitor economic issues, especially those that affect local businesses. I study local trends, compare them with analyses of regional and national economic events …then explain “what this means for you…”

If you have a colleague or friend who would benefit from these updates, they can sign up through the “Contact” link at the www.Easy2ReadEcon.com website. The “Contact” link also now includes the email addresses for all NC Senate and House members.

As a new feature, periodically you will receive a brief, anonymous survey (no more than five questions) requesting your feedback on economic issues.

This information will be used to focus my newsletter content and when appropriate, share survey findings with you and NC elected officials.

Previous newsletters can be found at the BaberConsulting.com website “BLOG” – your comments will be appreciated.

Vital Signs (number represents full article after Vital Signs, including “What this means for you…”)

(1) Unemployment for February 8.9%, down from 9.0% in January, 9.4% in December. Unemployment claims 4-week moving average for the week-ending February 26^th drops to 388,000, down 13,000 or 3%.

(2) Duplicate government programs potentially cost taxpayers $100 billion to $200 billion a year.

(3) Election spending totaled $3 billion in 2000, $4 billion in 2004… $5.2 billion in 2008.

(4) Public sector pensions guaranteeing defined benefits being scrapped by Republican governors.

(5) Government shutdown deadline extended two weeks to March 18.

(6) Poll to reduce deficit reveals that 52% want to reduce federal assistance to state governments.

(7) Trucking rates expected to increase 5% in 2011.

(8) Mortgage relief program potentially costing $75 billion is in Republican cross-hairs.

(9) Medicaid cost forcing states to request federal permission to reduce participants.

(10) Health Care Law nullified by the Republican-controlled Idaho House of Representatives.

Economic growth was realized in all 12 federal reserve regions in January…with retail sales picking up in 10 of the 12, falling in the Atlanta and Richmond regions.-Federal Reserve Beige Book

U.S. manufacturing output in January hits highest level in over six years… and highest level in 10 years for Europe, resulting in inflationary pressure.-Institute of Supply Management

Automakers sold 27% more new vehicles in February… than a year ago, at an annualized pace of 13.4 million, compared to 11.5 million in 2010 and 10.4 million in 2009. February market share: 21% GM, 16% Ford, 14% Toyota, 10% Honda, 9% Chrysler, 9% Nissan, 4% Hyundai, 3% Kia, 3% VW, 11% all other.

52% of cars have less than 100,000 miles, 36% have 100,000-200,000, 8% have 200,000+, 4% don’t know.-Jiffy Lube Customers

Gas prices hit $3.50+ per gallon…with every 1 cent increase equalling $1.2 billion less in annual consumer spending. If prices hit $4, it would take nearly $100 billion out of consumer’s pockets.

Oil prices would probably need to leap from $105 to the 2008 peak of $150 a barrel to significantly impact the U.S. economic recovery.

A gallon of gas costing $3.51 reflects: $2.35 oil (67%), $.46 taxes (13%), $.39 refining (11%), $.31 distribution (9%).

In 1973 we imported 36% of our oil, we now import 61%. -ABC News, Economist

50% of the products we buy are made In America…compared to 90% in the ‘60s. If consumers spent 18 cents more per day on U.S. products, it would add 200,000 jobs. -ABC News

The U.S. federal corporate income tax rate at 35%…is the second highest in the industrialized world (Japan is #1). Canada’s rate is 16.5%.

20% minimum down payment required… on home loans being pushed by bank regulators, a 75% loan-to-value ratio for refinances, and a 70% loan-to-value for cash-out refinances in which the borrower refinances into a larger loan.-WSJ

Bargaining rights for public employees curbed …by Ohio state senators, preventing negotiating health benefits, pensions and working conditions. Public pension plans are underfunded by as much as $3 trillion, with about half of state plans short by more than 25%.-Kiplinger

Online gambling considered by New Jersey Gov. Chris Christie… making NJ the first state to tap that source of tax income, estimated to yield $30 million a year to NJ in taxes. About 10 million people in the U.S. play poker online.-WSJ, Poker Players Alliance

NC over-estimated 2009 tax receipts by more than 25%…along with Arizona, New Hampshire and Oregon. The median overstatement of all states was 10% in 2009. States historically have consistently overstated projected revenues during tough economic times due to the volatility of personal income taxes and sales tax revenue.-Pew Center on States, Rockefeller Institute of Government, WSJ

Total construction spending dropped to a new low of $791 million… in December (seasonally adjusted annual rate – SAAR), down from a peak of $1 trillion in early 2006.-Commerce Dept.

Congressional religious affiliation…57% Protestant, 29% Catholic, 7% Jewish, 3% Mormon, 4% all others/not specified.

Mortgage closing costs will rise due to a new government program… which goes in place July 29. The new law requires mortgage initiators to submit finger prints, file a credit report and pass a test to qualify…adding about $1,000 compliance cost per person.

66% of Americans oppose tenure for teachers…and in New York, Chicago and Los Angeles in recent years, fewer than one out of 1,000 tenured teachers has been successfully fired. In a 2009 poll of poorly performing schools, less than 1% of teachers were classified unsatisfactory by administrators. -The Week

Gov. Perdue vetoes the Republican challenge to the federal health care law…ensuring that in 2014 NC citizens must buy health insurance or face pay penalties.

Ohio’s legislature may become the first to pass a law prohibiting public sector unions…which cover about 350,000 teachers, police officers, fire fighters, university professors and other public sector employees.

Full Articles

1. U.S. Unemployment: Unemployment for February 8.9%, down from 9.0% in January and 9.4% in December. The January calculation basis was changed due to the 2010 Census, which economists view as the main reason for the .4% drop in January from December.

The .1% drop in the unemployment rate in February is statistically insignificant, but does indicate that after three months of declines we hopefully are headed in the right direction, towards 8%…not 10%.

Compared with other nations: 9.9% Euro area (Jan.), 9.7% France (Dec.), 7.9% Britain (Dec.), 7.8% Canada (Jan.), 7.3% Germany (Feb.), 4.9% Japan (Jan.)

Non-farm payrolls in February grew 192,000, near forecasted expectations of 200,000, reflected 222,000 new private sector jobs offset by a 30,000 reduction in government jobs.

The key question is how long will it take to create full-time jobs for the 13.7 million unemployed, and the 25 million (16% of workforce) underemployed (working part-time or in temporary/undesired jobs).

Monthly net job gains of at least 175,000 – 200,000 a month are needed to absorb the 2 million people entering the workforce every year (January +63,000, December +121,000).

It is taking 37 weeks for the average unemployed worker to find a job.

More people are giving up looking for jobs, evidenced by the “labor force participation rate” continuing to drop, from around 67% in 2008 to 64% in February…the lowest point since the mid-1980s. The unemployment rate would be over 11% at a 67% participation rate.

-Bureau of Labor Statistics, Labor Dept., WSJ

What this means for you… is that at a rate of 250,000 new jobs a month it will take over six years to get the unemployment rate down to the 5%-6% level, which most economists feel is the level historically reflecting “full employment.”

Economists expected February job  gains, after slow hiring in January due to bad weather.

The March employment numbers will be a more meaningful indicator of whether companies are adding to their workforce as the economy continues to gain strength.

Near term unemployment rates may actually go higher as discouraged job seekers start looking again.

President Obama and the Democratic-controlled Senate will probably use February’s drop in the unemployment rate and job gains to resist Republican efforts to aggressively cut spending…claiming that significant reductions in government spending and the government work force will hurt the economy.

Republicans will probably claim that delaying spending cuts continues to kick the can down the road, make the deficit deeper and continue to increase the government debt (forecasted at $15.5 trillion by the end of the year).

2. Duplicate Government Programs: A new Government Accounting Office (GAO) report recommended consolidating agencies with overlapping responsibilities. Estimated annual savings could be $100 billion to $200 billion.

The number of programs with overlapping responsibilities:

82 to improve teacher quality…spread across 10 agencies… 53 are “small”, receiving less than a $50 million annual budget, with many having separate administrative oversight

80 to help disadvantaged people with transportation needs

80 for economic development, with budgets totaling over $6.5 billion

56 to help people understand finances

52 for entrepreneurial efforts

47 for job training and employment

35 for infrastructure

20 to help the homeless

15 agencies overseeing food-safety laws-WSJ, GAO

What this means for you…is a reminder of how wasteful, redundant government spending has existed, unchallenged, far too long.

A device to detect mines (“mine rollers”) has a cost ranging from $85,000 if the Marines buy it to $225,000 if bought by the Army. How many examples do lawmakers need that all budgets need cutting, including the military?

Maybe the elected officials who don’t think we should aggressively cut spending should seek guidance from one of the 56 programs which help people understand finances.

3. Election Spending: $90 million was spent on the 2010 election by the American Federation of State, County and Municipal Employees, the largest source of campaign spending other than candidates and political parties.

$300 million was spent in 2010 from both parties on television advertising.

President Obama raised $750 million for his 2008 campaign.

$30,000 is the most an individual can contribute to a political party, with no caps for outside groups.

Labor unions vow to spend $30 million this year to fight efforts by Republican governors to eliminate collective bargaining.

Spending on presidential elections: $3 billion in 2000, $4 billion in 2004… $5.2 billion in 2008

-WSJ, Center for Responsible Politics

What this means for you… Since new election rules were enacted in 2002, labor unions, political organizations and pro-Democratic groups have spent more than groups backing Republicans.

Union spending in 2011 to protect their collective bargaining rights… means less money available to back Democratic candidates in 2012.

4. Public Sector Pensions: Republican governors in Florida, Minnesota and Nevada and other states have taken the lead in proposing legislation to scrap “guaranteed retirement plans” for public workers, in favor of 401(k) plans.

By switching to 401(k) plans, Michigan officials project saving between $200 million and $400 million over the next 10 years, with Utah estimating $180 million savings over the next seven years.

Other states will require new public employees to enroll in 401(k)-like plans.

Government-worker unions oppose the plans.-WSJ

What this means for you…as taxpayers is another significant opportunity to reduce state budget deficits by reducing gold-plated public sector benefits…instead of raising taxes or eliminating needed teaching positions.

Expect public sector workers to battle fiercely, with help from their unions, to fight efforts from Republican-led state legislators to reduce government spending.

Private sector tax payers will offer no sympathy and continue to push legislators to get public worker compensation more in-line with the private sector.

5. Government Shutdown: President Obama and Congress passed legislation to extend spending for two weeks…until March 18^th, kicking the can down the road, again, to delay making the tough decisions to reduce the deficit.

If it happens…who is impacted and what is the financial impact:

2.8 million civilians work for Uncle Sam, not counting 1.6 million in the military.

Federal civilian payroll has risen nearly $60 billion, or 48% from 1995 to 2009 (from $118 billion to $175 billion)…equaling 10% of federal tax receipts (excluding social security and Medicare taxes).

Federal spending: $1.6 trillion in 1996…$3.8 trillion in 2011…up 137%.

Budget deficit: $107 billion in 1996…$1.6 trillion in 2011…up 1395%.

Federal debt: $5.2 trillion in 1996…$15.5 trillion in 2011…up 198%.

The last two shutdowns were  in 1995-1996 (five days, 21 days), with 800,000 federal workers furloughed in November 1995, and 300,000 in late December 1995 through early 1996…but they were all paid when the shutdown ended.

-USA Today, Census Bureau, White House Office of Management and Budget, Yahoo! Finance

What this means for you…who gets paid: workers in the military, post office, air traffic controllers, CIA, FBI, prison guards and others deemed “essential” by the White House Office of Management and Budget.

The President and Congress would still work and get paid…but some lawmakers want to send them home, too.

What may shut down or be delayed: national parks, museums, passport application processing, student loans, veteran’s checks, social security payments.

Tea Party and spending reduction supporters want the Republicans to stand firm and force significant spending cuts, to begin aggressively reducing the $1.6 trillion 2011 budget deficit.

President Obama and most Democrats prefer smaller spending reductions over a longer period of time, and to protect government jobs.

Republicans would like to reduce 2011 spending by at least $61 billion from now through September…the White House is only looking for $10 billion to $20 billion in cuts.

6. Poll to Reduce Deficit: A WSJ/NBC News poll revealed the following:

77% feel significant cuts to Social Security unacceptable

52% want to reduce federal assistance to state governments

51% want to reduce funding for the Environmental Protection Agency

46% disapproved of President Obama’s job performance

29% thought the economy would improve during the next year

If the deficit can’t be cut by eliminating wasteful spending…35% are willing to cut important programs and 33% are willing to raise taxes.

What this means for you…is to let your elected official know if you feel that they need to be more aggressive in cutting “wasteful spending”.

Over half of people surveyed favored raising the retirement age to 69, by 2075, which may not be aggressive enough given the need to reduce the deficit…and eventually begin paying off the debt.

A likely scenario is protecting those near retirement, while changing social security for those younger than 55.

7. Trucking Rates Higher: Trucks are rolling again as evidenced by a 3.8% increase in tonnage shipped in January from December, reaching its highest level in three years.

Expect rates to increase 5% in 2011, adding to inflation worries, after falling from 2007 – 2009, and up 2% in 2010.

Higher rates are being influenced by diesel prices rising 20% since December, higher equipment costs which are up 25% in the past five years and the need to hire more drivers due to new restrictions on driver hours.

What this means for you…is to expect continually rising higher trucking costs for the reasons stated above, compounded by a potential 15% drop in trucking capacity.

Capacity will decline as tougher government inspection standards force companies out of business which can’t afford to replace aging fleets, along with carriers that shut down during the recession.

Truckers may begin switching from diesel to liquefied natural gas, which costs about $1.50/gallon less.

-American Trucking Association, R.W. Baird, USA Today, Kiplinger

8. Mortgage Relief: Only 25% of the 2.7 million homeowners seeking help from the Obama administrations “Home Affordable Modification Program” (HAMP) succeeded in getting their monthly payments reduced. The rest failed to qualify or fell behind, even with lower monthly payments.

Reasons for disqualification were: not submitting required paperwork, lost paperwork, current mortgages considered “affordable” (less than 31% of pretax income), loans exceeded $730,000 or loans were not in danger of default.

Between 2000 and 2010, 6.7 million U.S. homes were lost to foreclosure, short sale or turned back to lenders…with another 3.6 million potentially added to that total by 2013.

Nearly 5 million homes were lost between 2008 and 2010. One in five HAMP loans goes bad in the first year.

The Obama administration originally asked for $75 billion for HAMP, with about $1 billion spent so far.

Republicans are calling the program a failure and waste of money, and are seeking to pull the plug on funding.

-Moody’s Analytics, WSJ, Kiplinger

What this means for you…if you are having difficulty making mortgage payments, it may be now or never to find out if you qualify and can be helped with the HAMP program…before it is shut down.

9. Medicaid Cost: More than half the states have requested permission to remove hundreds of thousands of people from the Medicaid insurance program, as they struggle with budget deficits.

Currently 53 million Americans, or one out of six, are covered by Medicaid.

Arizona has stopped covering certain organ transplants, Washington pared vision and dental services and South Carolina eliminated coverage for circumcisions.

Medicaid was created in 1965 as a federal-state partnership to provide health coverage for the poorest people, especially those with children, with the federal government picking up about 57% of the tab.

Current federal rules keep states from changing eligibility guidelines or rates it pays providers, preventing states from reducing Medicaid rolls, which currently fund nearly two-thirds of all nursing home residents.

Medicaid accounts for 17% of all hospital spending, with 1% of beneficiaries accounting for 25% of all expenditures.

On average, states cut-off Medicaid for families earning more than $11,600 a year, although some states allow income as high as $48,000. NC’s cut-off is in the $8,500 – $11,600 range.

-Kaiser Family Foundation, National Association of State Budget Officers

What this means for you…if you count on Medicaid, is that federal and state support is likely to be cut back, due to the inability of government to continue absorbing escalating cost increases.

Medicaid spending has nearly doubled from $187 billion in 2000 to $346 billion in 2009…which equals  $2,500 contributed annually by the 139 million working Americans to pay for the cost for 53 million (1 out of 6) Medicaid recipients.

10. Health Care Law Nullification: The Idaho House of Representatives, controlled by Republicans, became the first elected body in the nation to pass a “nullification bill”, voiding the mandates of the Patient Protection and Affordable Care Act.

Republican Gov. Butch Otter indicated that he would sign the bill into law when it passes the Senate.

Nullification rights by states dates back to Thomas Jefferson’s arguments against Congress’ passage of the “Alien and Sedition Acts” in 1798, claiming the notion that states have the right to void federal laws that they believe are contrary to the Constitution.

Also, state’s rights embodied in the U.S. Constitution’s 10^th Amendment states that powers not granted to the federal government nor prohibited to the states by the Constitution are reserved for states or the people.

15 states have openly defied federal drug laws by legalizing medical marijuana and 25 states refused to implement the 2005 Real ID Act, which created a national identification card.

Federal lawsuits will probably be filed challenging the action.-USA Today

What this means for you…is another example of momentum building across the country to ignore federally-mandated laws and programs, which state governments don’t support.