Is another big name from the 1970s attempting a comeback? Stagflation, the worst-of-both-worlds scenario in which weak growth is accompanied by robust inflation, may be on the radar again. It's enough to conjure memories of President Gerald Ford's ill-fated campaign to talk down prices through a "Whip Inflation Now" [WIN] campaign. The risk is evident in the latest economic numbers. Indeed, Marc Faber, the widely followed global investment adviser based in Asia believes that "we're already in stagflation: no real economic growth -- or recession -- amidst inflation" in his latest Gloom Boom & Doom Report.
Certainly, the economy is teetering on the edge of recession. Government statisticians reported on Jan. 30 that gross domestic product, dragged down by the declining home market, grew at an anemic 0.6% in the final three months of 2007. The 2.2% rate for all of 2007 was the worst performance in five years.
GDP Numbers Signal Trouble
With releases like the GDP report pointing to a weakening U.S. economy, the Federal Reserve is aggressively easing monetary policy to offset the gathering recessionary forces. The central bank cut its benchmark interest rate to 3% from 3.5% on Jan. 30. The sense of urgency for policymakers is clear: The Fed has slashed rates by a dramatic 1.25% in a mere eight days.
Yet inflation is also running hot. The GDP report has the prices of goods paid for by consumers during the fourth quarter increasing by 3.8%, up sharply from the 1.8% pace of the previous three months. The cost of living as measured by the more widely followed consumer price index rose by a steep 4.1% last year -- its highest rate in 17 years -- while in the last quarter of last year the CPI surged by 5.6%. No matter how it's measured, consumer inflation is well above the Fed's target range of 1% to 2%.
What if 4% is a CPI floor rather than a cost-of-living ceiling? It's possible, considering the Fed has eased so much that its benchmark interest rate is below the rate of inflation, a signal that inflation pressures could erupt later. Meanwhile, the weak dollar, combined with higher energy, food, and commodity prices, is exerting upward pressure on overall inflation. "We're in an environment of greater-than-average inflation risk," says James Paulsen, chief investment strategist at Wells Capital Management.
Fed "Can Keep Inflation Under Control"
To be sure, few prognosticators worry about a reprise of double-digit inflation rates of the 1970s. The international competition for goods and services is a force for lower prices. So is the current meltdown in the housing market.
Perhaps most important, considering the painful monetary lessons of the '70s, most economists believe the Fed wouldn't tolerate a repeat performance. "Philosophically, the Fed is much more attuned to the problem of inflation compared to the 1970s," says Mark Thoma, an economist at the University of Oregon. Adds James Hamilton, an economist at the University of California, San Diego: "The Fed is not an omnipotent institution, but it can keep inflation under control."
That could prove cold comfort. The risk for business, consumers, and investors is the emergence of a different kind of stagflation -- call it "stagflation-lite." It would be defined by higher-than-expected inflation rates [say, a 5.6% increase in the CPI] and lower-than-expected growth rates [like a 0.6% economic expansion].
Fickle Productivity Forecasts
A close look at the economy in the '70s gives pause. With the benefit of hindsight, it's clear that the Fed acted responsibly with the data available to it at the time, but the central bank's army of economists badly misread the tea leaves. Specifically, the Fed was aware that productivity had risen at a heady 2.7% average annual rate between 1948 and 1973. When the productivity growth rate plunged in the early 1970s, most economists expected it would bounce back. Instead, productivity fell to a less than 1% annual rate between 1973 and 1979, and to 0.32% from 1979 to 1982. [The figures are from Edward Fulton's Trends in American Economic Growth, 1929-1982.]
And that was the big problem for the Fed. Monetary policy was too expansive for an economy with deteriorating productive capacity, calculates Athanasios Orphanides, an economist at the Federal Reserve who has delved into central bank policy during that troublesome era. [The research paper is "Activist Stabilization Policy and Inflation: The Taylor Rule in the 1970s," February, 2000.]
America's productivity growth rate is similarly suspect today. Productivity growth has averaged a healthy 2.6% over the past decade. Yet since midyear 2004, it has come in at a much lower, 1.6% pace. Some economists expect productivity will take another haircut as consumers' borrowing zeal of recent years cools off [BusinessWeek, 1/23/08]. Still, it could be a long time before the trend in productivity is clear, raising the risk that the Fed overestimates the economy's speed limit and, like the 1970s, ends up with a too-loose monetary policy that results in higher rates of inflation.
Investors Hedge Against Inflation
It's striking how investors are snapping up assets that boomed during the inflationary '70s, pushing them to high levels -- and even record prices. For instance, while the dollar is trading at low levels in the international currency markets, gold, a classic hedge against inflation, is near its record price, now at $919 an ounce. Prices for key commodities such as oil, food, and platinum, are at nosebleed levels. The stocks of companies in industries with a history of "pricing power" such as cereal makers and electric utilities are attracting investor interest. Indeed, almost all the traditional safe havens against the ravages of spiraling inflation are doing well. And the last time real estate values and stock market prices declined sharply together was 1974 -- a period of both recession and inflation.
That said, it's strange that bond prices are up and bond yields down despite the recent high inflation figures. One interpretation: Investors aren't worried about inflation. However, it could be that lower yields reflect a global flight to financial security rather than a lack of concern over higher prices.
The Fed, Wall Street, and Washington are primarily concerned about recession right now. The Fed's press release after the Jan. 30 Federal Open Market Committee meeting gives a strong impression that more cuts are coming: "[D]ownside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks."
Yet it might not be long before inflation starts climbing a wall of worry. When that happens, expect to hear a lot more about the return of stagflation.
credited by: BusinessWeek.com
2008-01-31
Nordstrom's offers a sneak peek
Nordstrom's first full-line department store in Hawaii will feature a third of an acre of shoes and the largest sunglass and women's petites departments in the retailer's chain.
Nordstrom executives gave a preview of its new Ala Moana Center store on Thursday.
The interior of the new three-level building on Kapiolani Boulevard is nearly completed, although empty of merchandise, with marble tile aisles, carpeted sales floors and wood-and-glass shelving and display cases throughout the store. Merchandise will be brought in over the next several weeks in advance of the 210,000-square-foot store's March 7 opening.
The store's five shoe departments -- three for women and juniors, one for men and one for children -- will carry about 50 percent more shoes than the Nordstrom shoe store at Ward Center, said spokeswoman Brooke White.
Women's apparel takes up the entire top floor, while the men's and children's departments are on the street level, along with a cafe restaurant.
The new store also will have two espresso bars and a gelato bar.
credited by: bizjournals.com
Nordstrom executives gave a preview of its new Ala Moana Center store on Thursday.
The interior of the new three-level building on Kapiolani Boulevard is nearly completed, although empty of merchandise, with marble tile aisles, carpeted sales floors and wood-and-glass shelving and display cases throughout the store. Merchandise will be brought in over the next several weeks in advance of the 210,000-square-foot store's March 7 opening.
The store's five shoe departments -- three for women and juniors, one for men and one for children -- will carry about 50 percent more shoes than the Nordstrom shoe store at Ward Center, said spokeswoman Brooke White.
Women's apparel takes up the entire top floor, while the men's and children's departments are on the street level, along with a cafe restaurant.
The new store also will have two espresso bars and a gelato bar.
credited by: bizjournals.com
Legislators react to 208 Commission's recommendations
State lawmakers on Thursday reviewed recommendations and proposals for making health care more affordable and available to roughly 800,000 Coloradans without medical coverage.
Legislators greeted the effort of the 27-member Blue Ribbon Commission on Health Care Reform with praise and scrutiny, during a joint meeting of the House and Senate Health and Human Services Committees.
Although the legislators applauded commissioners for the 18-month project -- promising to turn much of their work into legislative action -- the costs and viability of the proposed health care reforms also weighed heavily on their minds.
Some also expressed concerns about expanding available government programs and creating new ones.
"It makes me nervous to turn more Colorado dollars over to a system where it's very difficult for us to retain control," said Rep. Spencer Swalm, R-Centennial, referring to the commission's recommendation to cover more Coloradans through federal programs such as Medicaid.
Rep. Ellen Roberts, R-Durango, asked commission chair Bill Lindsay how the state would raise Medicaid reimbursements with its limited funding stream. The federal government matches Medicaid dollars the state provides.
"It's clear that in order to apply all the recommendations, we're going to need a lot more money," Lindsay said. "There's absolutely no doubt about that."
The commission recommends raising Medicaid reimbursements to 70 percent of medical costs in an effort to get more doctors on board with the program, prompting Roberts to question whether that still would be enough.
Lindsay said the commission studied modeling up to 100 percent of costs, but determined it was too expensive.
The commission hopes that streamlining administration of government programs might make the plans more attractive to doctors.
"Our focus was only on physician reimbursements -- it's an effort to show we're working on the problem," Lindsay said. "At the end of the day, our goal is to move reimbursements higher and bring efficiency with it."
Rep. Jim Riesberg, D-Greeley, said he worries that even if the state covers the uninsured, there may not be enough physicians to care for them.
"The huge concern I have is access of care," Riesberg said. "There are many places in this state where even where there's enough money to provide access, there aren't enough doctors."
Lindsay also addressed a question about the commission's recommendation to require all Coloradans to obtain health coverage or pay a tax penalty. But the commission also recommended providing subsidies for those who can't afford coverage -- a costly proposition for the state.
"One of the reasons for focusing on a mandate is because it's the only way to bring young invincibles into the system," Lindsay said, acknowledging that many uninsured people are between 19 and 34. While many are healthy, he said some are "marginally employed and may need some level of subsidies."
Sen. Shawn Mitchell, R-Broomfield, asked Lindsay if it would be "responsible" for Colorado to pursue health care reform, given that a new presidential administration might make it a priority after the November election.
But Lindsay said the state should get a jump on the health care problem.
"Our sense is anything that happens on a federal level is going to take awhile," Lindsay said. "There are some very specific things that we can do as a state right now that probably won't be addressed on the federal level for many, many years. In the opinion of many of us, we just can't afford to wait."
The floodgates for health care legislation are expected to open in February, with at least 48 rumored health care reform bills in the works.
In an overview to legislators, commission member Elisabeth Arenales, health care program director for the Colorado Center on Law and Policy, pointed out that Coloradans spend $30.1 billion on health care annually.
Health care experts believe the uninsured are responsible for rising medical costs, since hospitals and doctors pass unreimbursed expenses back to health insurers, who then pass the bill to employers.
Arenales said in the last 10 years, health insurance premiums and family spending on health care has more than doubled.
"Rising costs mean all of us are in danger of losing coverage," she said. "The status quo isn't working."
While legislators are exploring many of the commission's ideas, Gov. Bill Ritter and legislators from both parties have cautioned that comprehensive health care reform -- including any legislation that involves individual mandates or increased taxes -- probably won't happen this session.
However, an effort to cover Colorado's 120,000 uninsured children by 2010 is picking up some bipartisan support.
Other proposed legislation would give the Division of Insurance more authority to scrutinize health insurance mergers and rate hikes. House Speaker Andrew Romanoff, D-Denver, has said he likes a commission idea to standardize claims forms and to create a clearinghouse to manage administrative work for doctors.
Sen. Bob Hagedorn, D-Aurora, and Rep. Anne McGihon, D-Denver, are collaborating on proposed legislation to provide at least $23 million to public health agencies to prevent disease and promote healthy behavior.
credited by: bizjournals.com
Legislators greeted the effort of the 27-member Blue Ribbon Commission on Health Care Reform with praise and scrutiny, during a joint meeting of the House and Senate Health and Human Services Committees.
Although the legislators applauded commissioners for the 18-month project -- promising to turn much of their work into legislative action -- the costs and viability of the proposed health care reforms also weighed heavily on their minds.
Some also expressed concerns about expanding available government programs and creating new ones.
"It makes me nervous to turn more Colorado dollars over to a system where it's very difficult for us to retain control," said Rep. Spencer Swalm, R-Centennial, referring to the commission's recommendation to cover more Coloradans through federal programs such as Medicaid.
Rep. Ellen Roberts, R-Durango, asked commission chair Bill Lindsay how the state would raise Medicaid reimbursements with its limited funding stream. The federal government matches Medicaid dollars the state provides.
"It's clear that in order to apply all the recommendations, we're going to need a lot more money," Lindsay said. "There's absolutely no doubt about that."
The commission recommends raising Medicaid reimbursements to 70 percent of medical costs in an effort to get more doctors on board with the program, prompting Roberts to question whether that still would be enough.
Lindsay said the commission studied modeling up to 100 percent of costs, but determined it was too expensive.
The commission hopes that streamlining administration of government programs might make the plans more attractive to doctors.
"Our focus was only on physician reimbursements -- it's an effort to show we're working on the problem," Lindsay said. "At the end of the day, our goal is to move reimbursements higher and bring efficiency with it."
Rep. Jim Riesberg, D-Greeley, said he worries that even if the state covers the uninsured, there may not be enough physicians to care for them.
"The huge concern I have is access of care," Riesberg said. "There are many places in this state where even where there's enough money to provide access, there aren't enough doctors."
Lindsay also addressed a question about the commission's recommendation to require all Coloradans to obtain health coverage or pay a tax penalty. But the commission also recommended providing subsidies for those who can't afford coverage -- a costly proposition for the state.
"One of the reasons for focusing on a mandate is because it's the only way to bring young invincibles into the system," Lindsay said, acknowledging that many uninsured people are between 19 and 34. While many are healthy, he said some are "marginally employed and may need some level of subsidies."
Sen. Shawn Mitchell, R-Broomfield, asked Lindsay if it would be "responsible" for Colorado to pursue health care reform, given that a new presidential administration might make it a priority after the November election.
But Lindsay said the state should get a jump on the health care problem.
"Our sense is anything that happens on a federal level is going to take awhile," Lindsay said. "There are some very specific things that we can do as a state right now that probably won't be addressed on the federal level for many, many years. In the opinion of many of us, we just can't afford to wait."
The floodgates for health care legislation are expected to open in February, with at least 48 rumored health care reform bills in the works.
In an overview to legislators, commission member Elisabeth Arenales, health care program director for the Colorado Center on Law and Policy, pointed out that Coloradans spend $30.1 billion on health care annually.
Health care experts believe the uninsured are responsible for rising medical costs, since hospitals and doctors pass unreimbursed expenses back to health insurers, who then pass the bill to employers.
Arenales said in the last 10 years, health insurance premiums and family spending on health care has more than doubled.
"Rising costs mean all of us are in danger of losing coverage," she said. "The status quo isn't working."
While legislators are exploring many of the commission's ideas, Gov. Bill Ritter and legislators from both parties have cautioned that comprehensive health care reform -- including any legislation that involves individual mandates or increased taxes -- probably won't happen this session.
However, an effort to cover Colorado's 120,000 uninsured children by 2010 is picking up some bipartisan support.
Other proposed legislation would give the Division of Insurance more authority to scrutinize health insurance mergers and rate hikes. House Speaker Andrew Romanoff, D-Denver, has said he likes a commission idea to standardize claims forms and to create a clearinghouse to manage administrative work for doctors.
Sen. Bob Hagedorn, D-Aurora, and Rep. Anne McGihon, D-Denver, are collaborating on proposed legislation to provide at least $23 million to public health agencies to prevent disease and promote healthy behavior.
credited by: bizjournals.com
2008-01-29
Hawaii '07 visitor arrivals dropped 1.2%
The number of people visiting Hawaii in 2007 dropped 1.2 percent to 7,368,048, the first decline since 2003.
Visitor spending in Hawaii totaled $12.2 billion in 2007, about 1 percent more than in 2006.
Visitor spending was up .9 percent, about $103 million more than in 2006. Daily visitor spending increased 2.5 percent to $183 per person in 2007.
But with Hawaii's inflation rate running at 5 percent for most of last year, actual visitor spending came in at about $11.7 billion, about $200 million less in real dollars than in 2005.
The visitor report was released Tuesday by the Hawaii Department of Business, Economic Development and Tourism.
While passenger travel from the U.S. West grew .1 percent and arrivals from Canada were up 5.3 percent, fewer Japanese and visitors from the U.S. East contributed to an overall decline.
The average length of stay remained about nine days, but total visitor days were down 1.6 percent year over year.
credited by: bizjournals.com
Visitor spending in Hawaii totaled $12.2 billion in 2007, about 1 percent more than in 2006.
Visitor spending was up .9 percent, about $103 million more than in 2006. Daily visitor spending increased 2.5 percent to $183 per person in 2007.
But with Hawaii's inflation rate running at 5 percent for most of last year, actual visitor spending came in at about $11.7 billion, about $200 million less in real dollars than in 2005.
The visitor report was released Tuesday by the Hawaii Department of Business, Economic Development and Tourism.
While passenger travel from the U.S. West grew .1 percent and arrivals from Canada were up 5.3 percent, fewer Japanese and visitors from the U.S. East contributed to an overall decline.
The average length of stay remained about nine days, but total visitor days were down 1.6 percent year over year.
credited by: bizjournals.com
First Financial Bancorp sees uptick for 4Q, year
In a quarter when bad news has been the norm for banks, First Financial Bancorp produced gains for its fourth quarter and year.
The Hamilton-based bank posted net income of $10.7 million, or 29 cents per share, compared to $800,000, or 2 cents per share, in the year-ago quarter. Net interest income dropped slightly, to $29.1 million from $30.1 million.
For the 12-month period, First Financial reported net income of $35.7 million, or 93 cents per share, versus $21.3 million, or 54 cents per share in 2006. Net interest income fell to $118.5 million from $125.1 million.
First Financial (NASDAQ: FFBC) operates in Ohio, Kentucky and Indiana.
credited by: bizjournals.com
The Hamilton-based bank posted net income of $10.7 million, or 29 cents per share, compared to $800,000, or 2 cents per share, in the year-ago quarter. Net interest income dropped slightly, to $29.1 million from $30.1 million.
For the 12-month period, First Financial reported net income of $35.7 million, or 93 cents per share, versus $21.3 million, or 54 cents per share in 2006. Net interest income fell to $118.5 million from $125.1 million.
First Financial (NASDAQ: FFBC) operates in Ohio, Kentucky and Indiana.
credited by: bizjournals.com
KGW coming to Pioneer Square
The local news channel KGW will spend as much as $1 million to build a news studio in Pioneer Square.
The high-definition facility will take over a vacant space formerly occupied by Powell's Travel Books. It'll be renovated to include floor-to-ceiling glass windows to allow the public to watch the anchors at work, similar to the NBC studio in Rockefeller Center.
The station expects to begin live morning and noon broadcasts from the studio this summer.
KGW, Portland's NBC affiliate, is a news-gathering partner of the Business Journal. It's owned by Dallas-based Belo Corp. (NYSE: BLC).
Outdoor television monitors will also broadcast the news for passersby to watch.
credited by: bizjournals.com
The high-definition facility will take over a vacant space formerly occupied by Powell's Travel Books. It'll be renovated to include floor-to-ceiling glass windows to allow the public to watch the anchors at work, similar to the NBC studio in Rockefeller Center.
The station expects to begin live morning and noon broadcasts from the studio this summer.
KGW, Portland's NBC affiliate, is a news-gathering partner of the Business Journal. It's owned by Dallas-based Belo Corp. (NYSE: BLC).
Outdoor television monitors will also broadcast the news for passersby to watch.
credited by: bizjournals.com
2008-01-28
Ag stats say '07 was a vintage year
The official numbers are in and they confirm that the 2007 grape crop was one of New York state's best in recent history.
Volume was 16 percent higher than 2006 and value was 22 percent greater, the New York Agriculture Statistics Service reported.
Total volume for all uses topped out at 180,000 tons. Of that, 176,000 tons of processed grapes went into grape juice (77 percent) and wine (23 percent). Four thousand tons sold as table grapes.
Value increased to $49.2 million, up from $40.4 million in 2006 and $38.5 million in 2005.
credited by: bizjournals.com
Volume was 16 percent higher than 2006 and value was 22 percent greater, the New York Agriculture Statistics Service reported.
Total volume for all uses topped out at 180,000 tons. Of that, 176,000 tons of processed grapes went into grape juice (77 percent) and wine (23 percent). Four thousand tons sold as table grapes.
Value increased to $49.2 million, up from $40.4 million in 2006 and $38.5 million in 2005.
credited by: bizjournals.com
Sephora among retailers opening for business at Towson Town Center
Two national retailers will open new stores at Towson Town Center this year.
Cosmetics chain Sephora will open a 5,800-square-foot store on level two of the mall this fall, while XXI Forever, a new concept from Forever 21, will open a two-story store this summer.
The new stores are part of the mall's plan to add 100,000 square feet of new retail and restaurants.
Mall owner General Growth Properties Inc. also announced that Crate & Barrel will triple the size of its existing store to 35,000 square feet, first reported last year in the Baltimore Business Journal.
San Francisco-based Sephora carries more than 250 brands of makeup, skin care and beauty accessories. Its other Maryland stores are located in Annapolis, Bethesda and Columbia.
XXI Forever will sell men's and women's fashions, lingerie, footwear, cosmetic items, and other accessories in a 20,000 square foot store.
credited by: bizjournals.com
Cosmetics chain Sephora will open a 5,800-square-foot store on level two of the mall this fall, while XXI Forever, a new concept from Forever 21, will open a two-story store this summer.
The new stores are part of the mall's plan to add 100,000 square feet of new retail and restaurants.
Mall owner General Growth Properties Inc. also announced that Crate & Barrel will triple the size of its existing store to 35,000 square feet, first reported last year in the Baltimore Business Journal.
San Francisco-based Sephora carries more than 250 brands of makeup, skin care and beauty accessories. Its other Maryland stores are located in Annapolis, Bethesda and Columbia.
XXI Forever will sell men's and women's fashions, lingerie, footwear, cosmetic items, and other accessories in a 20,000 square foot store.
credited by: bizjournals.com
Boat show organizers tout attendance bump
A slumping economy did not sway some consumers from turning out to look at some really large boats in Baltimore.
Organizers of the Baltimore Boat Show, which ran at the Baltimore Convention Center Wednesday through Sunday, said attendance grew 6 percent this year compared to last year. The growth represents an uptick from last year, when attendance dropped 16 percent.
The rise is due partly to the addition of sailboats for the first time in the show's 54-year history. Total attendance for the five-day show was 21,544.
Nationally, overall boat sales are down. Registrations for new powerboats fell 3 percent in the third quarter of 2007 and 7 percent year-to-date through September, according to a recent report compiled by the National Marine Manufacturers Association. The Chicago group organizes the Baltimore Boat Show.
Convention organizers shortened the show from nine to five days this year while expanding its total exhibit space to encompass the entire 300,000-square-foot Baltimore Convention Center.
Among the largest boats sold at the Baltimore Boat Show was a 46-foot Island Packet 465, a yacht that sold for $722,000.
Show organizers are planning for the 2009 show, including adding more space for sailboats and more vendors.
credited by: bizjournals.com
Organizers of the Baltimore Boat Show, which ran at the Baltimore Convention Center Wednesday through Sunday, said attendance grew 6 percent this year compared to last year. The growth represents an uptick from last year, when attendance dropped 16 percent.
The rise is due partly to the addition of sailboats for the first time in the show's 54-year history. Total attendance for the five-day show was 21,544.
Nationally, overall boat sales are down. Registrations for new powerboats fell 3 percent in the third quarter of 2007 and 7 percent year-to-date through September, according to a recent report compiled by the National Marine Manufacturers Association. The Chicago group organizes the Baltimore Boat Show.
Convention organizers shortened the show from nine to five days this year while expanding its total exhibit space to encompass the entire 300,000-square-foot Baltimore Convention Center.
Among the largest boats sold at the Baltimore Boat Show was a 46-foot Island Packet 465, a yacht that sold for $722,000.
Show organizers are planning for the 2009 show, including adding more space for sailboats and more vendors.
credited by: bizjournals.com
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