A blog about business and economics.

April 17 2014 11:07 AM

The Great Whitefish Shortage Strikes Passover

Midway through Passover, Jewish families across the country are reckoning with the one plague no one could avoid—the polar vortex.

Whitefish, the main ingredient in the Jewish holiday staple known as gefilte fish, is in short supply after record lows and a lingering deep freeze have left the Great Lakes ice-coated and inaccessible to fishermen. Distributors are feeling the pinch as they’ve turned away requests for the fish while customers are torn between feeling nostalgic for tradition and secretly pleased to forgo an appetizer that, according to some, tastes like cat food.

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To get a sense of how bad and wide-ranging the whitefish shortage really is, I called up Kevin Crespel, a manager at Universal Seafood in North Hollywood. Crespel said his company usually sells a couple hundred pounds of whitefish a week, but lately it’s dropped to basically zero. They’ve been substituting with another fish, a Mediterranean white seabass, which, he assured me, is still kosher.

“It’s the worst deep freeze since 1979, when 95 percent of the surface was covered,” he said. “Now it’s around 90 percent. It’s still melting and the boats can’t get out because there are still chunks of ice everywhere.”

Even if they can get onto the lakes, many fishermen choose not to take that risk. The nets they use to catch whitefish can cost tens of thousands of dollars, and one or two snags on a sharp bit of ice can render them useless. Whitefish comes mainly from the Great Lakes and western Canada.

As supply dwindled, prices shot up. Crespel said whitefish typically sells wholesale for $9.95 a pound, but lately has risen to $14.95 a pound. Consumers are likely paying even more than that, by the time local distributors and delis tack on their own fees. “People aren’t really willing to pay that right now,” he says. The Mediterranean white seabass, on the other hand, costs a mere $7 a pound.

Universal Seafood has held up fine through the shortage because whitefish is a small, if consistent, part of its business. Even with warmer temperatures around the corner for most of the country, Crespel said it could be weeks or even months before the ice melts enough to let fisherman resume their activity on the Great Lakes.

Thankfully, not all is lost for Passover observers. Unlike 2008, there's no shortage on matzo.

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April 16 2014 6:43 PM

The Scars of the Housing Bust (in One Very Telling Chart)

If you’re ever starting to suspect that we’ve left the Great Recession behind for good, I sincerely recommend reading The House of Debt blog. Launched by economists Amir Sufi and Atif Mian in advance of their upcoming book, it’s a fast-acting cure for misplaced optimism. While browsing it, I was struck by the graph below, illustrating how the housing bust is still hamstringing American spending. The blue line traces the consumer-spending trend in states where home prices fell the least, while the red line traces it in states where they fell the most. Each group contains about 20 percent of the U.S. population. And as you can see, the crash states are still well behind. Before adjusting for inflation, their spending had just barely returned to 2006 levels as of 2013.

houseofdebt_20140414_1

House of Debt

Sufi and Mian have made the academic case that spending before the recession really was driven by the “wealth effect” of rising home prices. People saw their housing values rocket up, and felt richer. Often, they took out second mortgages to spend. When the market crashed, so too did their finances. It may sound like an intuitive point to some, but it's a key part of understanding why the recovery has been so underwhelming. The difference between states that got the full brunt of the housing collapse and states that didn’t, as shown in this chart, suggests that its scars are still very much with us. And they probably will be for a long while.

April 16 2014 5:55 PM

Yellen Lays Out Three Main Fed Concerns in Speech

In case you missed it, Janet Yellen spoke today at the Economic Club of New York. Most of her comments were familiar: She reiterated Fed officials' expectations for continued, moderate economic growth and for short-term interest rates to remain low for "some time." She said the central bank projects the economy could return to healthy levels of employment and inflation by the end of 2016.

"If this forecast was to become reality, the economy would be approaching what my colleagues and I view as maximum employment and price stability for the first time in nearly a decade," she said.

Yellen outlined three big questions that central bank officials will consider as they assess the ongoing economic recovery:

  1. Is there still significant slack in the labor market?
  2. Is inflation moving back toward 2 percent?
  3. What factors may push the recovery off track?

Labor market slack was a focus of Yellen's first public speech back in March, where she argued against giving up on the long-term unemployed. On Wednesday, she said again that the high long-term unemployment rate might fall if the economy picks up steam.

Inflation has slowed as of late, and Yellen said inflation that persisted below 2 percent could "pose risks to economic performance" by allowing adverse economic events to trigger deflation. She noted that as slack in the labor market diminishes, the Fed expects to see less of a drag on inflation.

With regard to the third and final question, Yellen gave the catch-all response of "myriad factors continuously buffet the economy."

One interesting and newish point in Yellen's speech was a shifted evaluation of how the harsh winter may have affected financial markets and the broader economy. In her March speech, Yellen said weather was "in part" to blame for the recent slowdown in economic activity. On Wednesday, she modified that statement to say a "significant part" of the lag could be attributed to weather.

April 16 2014 4:55 PM

Google Misses on Q1 Earnings as Mobile Drags Down Ad Prices

Shares of Google tumbled more than 5 percent just after the bell on Wednesday, following first-quarter earnings that appeared to suggest the search giant is struggling to adjust to a shift to mobile advertising.

Google missed on both the top and bottom lines. It reported revenue of $15.42 billion, shy of the $15.52 billion that analysts had predicted. Earnings per share were $6.27, also below estimates for $6.42 a share. The company’s stock price, which closed at $556.54, fell to around $524 in after-hours trading on the news.

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The average cost-per-click for ads on Google and sites in its network fell roughly 9 percent over the first quarter of 2013, and was more or less unchanged from the last quarter of 2013. The overall number of paid clicks on those ads increased approximately 26 percent over the first quarter last year.

That drop in price is largely because of a broader shift to mobile, where small screens limit the number of displayable ads and make marketers more selective. Bloomberg reported that the cost-per-click for search ads on smartphones plunged 35 percent during the first quarter in the U.S., while ad prices on tablets rose.

April 16 2014 3:11 PM

The Upside of Double Down

KFC has found its McRib.

The chicken chain, which has become a bit of an afterthought in the great race to innovate the next bizarro fast food delight (here’s looking at you, waffle taco), is planning to bring back its Double Down sandwich for a limited time starting April 21, according to USA Today. Sandwich is of course a loose term here. The Double Down, in case you’ve forgotten, consists of two pieces of fried or grilled poultry with a layer of bacon, cheese, and special sauce between them. There’s no bread, but it’s all wrapped up so it can be eaten by hand. It’s basically half-assed chicken cordon bleu for diners who have trouble with forks. 

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I compare the Double Down to the McRib because they’re now both officially fast food events—culinary oddities that cause a commotion by periodically sweeping, comet-like, through menus. That said, they may actually serve slightly different business functions. Writing for the Awl in 2011, Willy Staley made a great speculative case that the McRib was essentially a commodities play. McDonald’s consistently brought it to market during the fall, when the price of pork was at a low. As pork got more expensive, it would disappear again from whence it came. (Which is to say, cold storage.) Meanwhile, at least according to a quick search of Google Trends, the buzz it generates doesn’t seem to affect the overall frequency of searches for McDonald’s.

Bringing back the Double Down, on the other hand, strikes me as a pure PR play. It’s debut in 2010 led to a brief media sensation—Sam Sifton, the New York Times’ dining critic at the time, pronounced it “a disgusting meal, a must-to-avoid”—and its initial sales convinced KFC parent company Yum! Brands to keep it on menus indefinitely. Eventually, it slowly drifted off menus. But returning to Google Trends, it seems that when commotion over the Double Down peaked, the overall attention paid to KFC popped as well. 

And right now, KFC could probably use all the attention it can get. Chick-Fil-A recently usurped its throne as the king of American chicken chains.* And while Yum’s annual report doesn’t break out Taco Bell, Pizza Hut, and KFC, Yum’s U.S. same-store sales across all brands were flat in 2013.

So heck, why not bring back a greasy fascination? Look, I’m already writing about it. And you're reading! If it’s a publicity stunt, it’s already working at least a little.

*Correction, April 16, 2014: This post originally misspelled the name of fast food chain Chick-Fil-A.

April 16 2014 11:42 AM

Another Father of Bitcoin?

More than a month has passed since Newsweek opened the conspiracy floodgates with a cover story claiming that bitcoin’s founder was an unassuming, Toyota Corolla–driving, model-train-loving man in California named Dorian Satoshi Nakamoto. One of the pieces of circumstantial evidence was that the punctuation and “other format quirks” in the original bitcoin proposal were “consistent with how Dorian S. Nakamoto writes.” After the report broke, Nakamoto issued a statement to “unconditionally deny” Newsweek’s story and his involvement in bitcoin.

Now, researchers from a British university have run their own comprehensive forensic linguistics analysis and ID’d a new candidate as the digital currency’s “probable creator”: blogger and former George Washington University law professor Nick Szabo.

The “Project Bitcoin” study examined linguistic similarities between the bitcoin paper and hundreds of documents written by 11 other individuals rumored to be its author, including Nakamoto. Jack Grieve, a lecturer in forensic linguistics at Aston University and the leader of the study, said in a statement that the “number of linguistic similarities between Szabo’s writing and the Bitcoin paper is uncanny”:

Our study adds to the weight of evidence pointing towards Nick Szabo. The case looks pretty clear-cut. Szabo is an expert in law, finance, cryptography and computer science. He created “bit gold”, a precursor to Bitcoin, and was looking for collaborators in 2008. Did Nick Szabo create Bitcoin? We’re not sure, but we think he probably wrote the paper so it’s certainly worth a closer look.

The hedging in that statement makes pretty clear that the researchers have learned the lesson of the Newsweek debacle, carefully avoiding claims of a smoking gun. A spokesman for Aston University said the report has not been peer reviewed and is not set to be in the near future. Szabo did not respond immediately to a request for comment.

The Aston University release goes on to detail the correlations between Szabo’s writing and the text of the bitcoin paper:

The results showed that of the eleven Szabo is by far the closest match, with a large number of distinctive linguistic traits appearing in both the Bitcoin paper and Szabo’s blogs and other writings. This includes the use of: the phrases “chain of…”, “trusted third parties”, “for our purposes”, “need for…”, “still”, “of course”, “as long as”, “such as” and “only” numerous times, contractions, commas before ‘and’ and ‘but’, hyphenation, ‘-ly’ adverbs, the pronouns ‘we’ and ‘our’ in papers by a single author; fragmented sentences following colons and reflexive (-self) pronouns.

And here’s one last point: The study notes that the bitcoin paper was drafted using LaTeX, an open-source document preparation system. Szabo, they add with a hint of conclusiveness, uses LaTeX for all his publications, too.

April 15 2014 6:03 PM

Meat and Produce Prices Lead Surge in Food Costs

Keep a close eye on your grocery bill, because food prices are climbing. Tuesday’s release of the March Consumer Price Index showed that food costs rose 0.4 percent for the second consecutive month. Over the past year, grocery costs have increased 1.4 percent.

Breaking this down a little more, meats, poultry, fish, and eggs posted the biggest price jump in March at 1.2 percent, while dairy prices added 1 percent. Fresh fruits shot up 3.1 percent and fresh vegetables declined 1.6 percent, with the overall fruits and vegetables index gaining 0.9 percent. You can see the recent leap grocery food prices (“food at home”) have made compared with the overall CPI in this chart:

screen_shot_20140415_at_5.27.39_pm

Chart from IHS Global Insight.

Chris Christopher, an economist at IHS Global Insight, said the upward trend in food prices is “somewhat worrisome” because it means consumers will be spending proportionately more of their income on trips to the grocery. That leaves less pocket money for other discretionary spending, which isn’t great for the economy.

As most avid carnivores are probably aware, meat prices have risen faster than almost every other food group for some time now. A deadly pig virus has limited the pork supply, and the domestic cattle herd is the smallest since 1951, according to Bloomberg. Feed prices for farmers also threaten to move higher, in part because of the conflict in Ukraine, a major exporter of corn and wheat.

On the produce side of things, prolonged drought and a long, cold winter have blighted fruits and vegetables. Even cereals and bakery products have gotten a tad more expensive, with prices inching up 0.2 percent in March.

While hikes in food costs are never ideal, Christopher worries that this one is coming at a particularly inopportune moment, especially for low-income families. The U.S. food stamp program, SNAP, suffered huge across-the-board cuts last November, and another round of reductions is underway in some states.

In better news for grocery-goers, the food-pricing surge may taper off soon. IHS Global Insight expects costs to increase through the second quarter of 2014, but then more or less plateau for the rest of the year.

April 15 2014 3:19 PM

Small Private Colleges Are in Deep Trouble (as They Should Be)

These are agonizing times for small, private colleges. Enrollment is falling. Debts are rising. Tuition is high as it can go. And since the financial crisis, schools have been shuttering more often than normal.

Now, Moody’s Investor Service, which analyzes the credit worthiness of more than 500 public and private nonprofit colleges, is delivering this grim prognosis for the future.

“What we’re concerned about is the death spiral—this continuing downward momentum for some institutions,” analyst Susan Fitzgerald tells Bloomberg. “We will see more closures than in the past.”

And that, I will add, might be a very good thing.

Small private colleges aren’t necessarily nefarious institutions, but they’re not exactly the heroes of higher education either. For the moment, forget about elite schools Amherst or Wesleyan (they’re doing fine, anyway). Instead, consider places like Ashland University in Ohio, which Moody's has called a default risk. These institutions often cater to iffy students and produce mediocre graduation rates. But because they don’t have much in the way of endowments, they tend to charge high tuition, and leave undergraduates saddled with debts that simply might not be worthwhile. When all the aid is factored in, attending Ashland still costs $21,000 a year, according to the Department of Education. Meanwhile, only 59 percent graduate after six years. And so, according to Payscale, it offers one of the lowest returns on investment of any college in the country.

That might have been sustainable in a pre-Great Recession world. But as Moody’s has found, the business model of asking middling students to pay exorbitant prices for an education they might not finish is beginning to creak and fail. In part, that’s because many schools have larded themselves with debt in order to finance dubiously worthwhile expansions. But now that their enrollment rolls and tuition revenues are dwindling, their finances are fraying. In 2013, Moody’s downgraded its credit ratings on 36 schools and raised it on only nine. A study by Vanderbilt found that the rate of school closures doubled from about five annually before the crash to about 10 annually after it.

bloomberg_college_debt_downgrades

Bloomberg

The Vanderbilt study is especially instructive because it shows the particular types of schools that have run into the worst financial strife. Again, they tend to be very small, with 1,000 students or under, and are often religiously affiliated. The majority of private nonprofit colleges, meanwhile, don’t really seem to be in too deep trouble. Overall, the sector’s enrollment has actually increased over the last few years. And while Bain has suggested that as much of a third of all colleges are on a financially “unsustainable” path, its metrics were a bit questionable (among other schools, it seemed to suggest Harvard and Cornell were in trouble. I assure you, they’re not).

What we’re witnessing right now, then, is a small brush fire, clearing out some of the unhealthier institutions in higher ed. It will be wrenching for the schools and the people who work for them. But hopefully, it will also inspire some better ways of doing business. A few colleges, like Ashland, have already responded by slashing their sticker prices. In practice, that often just means they’re handing out smaller aid packages, while charging about the same amount as always, but it’s a step in the right direction. If the demise of a few schools can make the rest of higher ed a bit healthier, then let the death spiral whirl.

April 15 2014 3:00 PM

Luxury Apartments Push Out More Affordable Housing

New York isn't the only place where the rent is too damn high. Median rent prices have now crossed a basic affordability threshold for middle-income families in 90 cities across the U.S., the New York Times reports.

Rent and utilities are traditionally considered affordable when they consume 30 percent or less of a household's income. But in 90 cities nationwide, median rent alone—so not even including utilities—exceeds 30 percent of the median gross income. And according to the Times that could keep getting worse:

Nationally, half of all renters are now spending more than 30 percent of their income on housing, according to a comprehensive Harvard study, up from 38 percent of renters in 2000. In December, Housing Secretary Shaun Donovan declared “the worst rental affordability crisis that this country has ever known.”
Apartment vacancy rates have dropped so low that forecasters at Capital Economics, a research firm, said rents could rise, on average, as much as 4 percent this year, compared with 2.8 percent last year. But rents are rising faster than that in many cities even as overall inflation is running at little more than 1 percent annually.

The least affordable city is Los Angeles, where median rent now makes up 47 percent of median income. Next is Miami, where that figure is 43.2 percent, and then College Station, Texas. San Francisco ranks sixth and New York comes in 10th. One in four renter households in the U.S. earns below 30 percent of their area's median income, according to a recent report from the National Low Income Housing Coalition.

In addition to tormenting renters, these high prices could be putting a damper on the economy. More money heading to rent and utilities means less left over for people to spend on goods and services. The sharp uptick in rents has also happened alongside a decline in funding for affordable housing.

The problem, as the Times puts it, is that as the demand for apartments has climbed, the market has catered mainly to high earners. So while we have a surplus of luxury condos lining the beaches of Miami, there's not too much left for your typical renter.

April 15 2014 12:10 PM

The Rich Are Paying More Taxes: The Horror! The Horror!

This year, America’s richest households are expected to pay their highest federal tax rates since the Clinton administration. For that, we can thank the partial expiration of the Bush tax cuts, and the new taxes that were tucked into Obamacare.

One could call this a minor victory for the notion of progressive government. Alternatively, one could take it as an opportunity to fret over the plight of the country’s top earners, which is the route the Wall Street Journal seems to have taken in an extraordinarily misleading article titled “Top Earners Feel the Bite of Tax Increases.” Wealthy taxpayers are feeling “sticker shock,” it declares. “That, in turn, is rekindling a debate over a question likely to smolder for a long time: How much more could—or should—taxes go up on the well-to-do?”

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There is nothing wrong with having that debate—most liberals, I think, welcome it. There is something very wrong, however, with how the Journal presents America’s shifting tax burden, which it traces in the graph below. The chart is supposed to tell us that the entire top 20 percent of households—the group shown in red, which includes “couples with two children making more than $150,000,” as writer John McKinnon puts it—is now responsible for paying a vastly larger share of all federal taxes than it was at the start of the Reagan era. It’s not just the ultra-rich who are doing the heavy lifting. It’s the upper-middle class, too.

wsj_shifting_burdens

Wall Street Journal

That is only true if you lump together the top 1 percent with the next 19 percent of taxpayers. Break them apart (as I’ve done below, using the same data sets as the Journal), and it’s clear that the only cohort responsible for a notably larger share of the country’s tax bill is the top 1 percent. (The graph includes a break where it shifts from Congressional Budget Office data, which ends in 2010, to figures from the nonpartisan Tax Policy Center).

taxes_top_20_percent

If you only look at federal income tax liability—so no payroll taxes or corporate taxes—then the entire top 10 percent has seen its share of the burden grow quite a bit. But that brings us to the bigger point: Income inequality is rising. And as long as we have progressive taxation, that means the rich will naturally pay a larger share of the tax tab. The Journal, to its credit, acknowledges this. What it fails to point out is that, according to both the Congressional Budget Office and Tax Policy Center, only one group is paying a higher average tax rate than it did during the Bush era. Again, that’s the top 1 percent.

If you’re going to mourn for the rich, don't pretend as if you're mourning for anyone else. 

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