Weathering the economy’s soft patch

Kate Linebaugh and James R. Hagerty, Business Abroad Drives U.S. Profits, Wall St. J., July 25, 2011, at B1:

While the U.S. economy is struggling, U.S. corporations aren’t. A third of the way through the second-quarter reporting season, earnings at companies in the Standard & Poor’s 500-stock index are the highest in four years, according to S&P analyst Howard Silverblatt, who predicts the second half will be even stronger. Yet there is little indication that the strong results will jump-start the U.S. economy and get the millions of Americans idled by the recession back to work…. Corporate profits — one of the few areas of strength in the limp U.S. recovery — appear to be weathering the economy’s soft patch.

According to a study by Northeastern University economists titled The ‘Jobless and Wageless Recovery’ From the Great Recession of 2007-2009, “corporate profits captured 88 percent of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1 percent.”

But “even as the economy limps along, more of the nation’s wealthier families are cutting out the car ride and chartering planes to fly to summer camps” according to Christine Haughney, To Reach Simple Life of Summer Camp, Lining Up for Private Jets, N.Y. Times, July 25, 2011, at A1:

Gov. Paul LePage of Maine happened to be waiting for his flight at Augusta State Airport on a recent Saturday when the weekend crush began.

A turboprop Pilatus PC-12 carrying Melissa Thomas, her daughter, her daughter’s friend and a pile of lacrosse equipment took off for their home in Connecticut, following the girls’ three-week stay at Camp All-Star in nearby Kents Hill, Me. Shortly after, a Cessna Citation Excel arrived, and a mother, a father and their 13-year-old daughter emerged carrying a pink sleeping bag and two large duffel bags, all headed to Camp Vega in Fayette.

“Love it, love it, love it,” Mr. LePage said of the private-plane traffic generated by summer camps. “I wish they’d stay a week while they’re here. This is a big business.”

More on LePage’s economic ideas here.


4 Comments so far. Leave a comment below.
  1. Danger,

    Sabrina Tavernise, Recession Study Finds Hispanics Are Hit Hardest, N.Y. Times, July 26, 2011, at A1:

    Hispanic families accounted for the largest single decline in wealth of any ethnic and racial group in the country during the recession, according to a study published Tuesday by the Pew Foundation.

    The study, which used data collected by the Census Bureau, found that the median wealth of Hispanic households fell by 66 percent from 2005 to 2009. By contrast, the median wealth of whites fell by just 16 percent over the same period. African Americans saw their wealth drop by 53 percent. Asians also saw a big decline, with household wealth dropping 54 percent.

    … Median wealth of whites is now 20 times that of black households and 18 times that of Hispanic households, double the already marked disparities that had prevailed in the decades before the recent recession, the study found.

    … The share of Americans with no wealth at all rose sharply during the recession. A third of Hispanics had zero or negative net worth in 2009, up from 23 percent in 2005. For blacks, the portion rose to 35 percent from 29 percent, and for whites, it rose to 15 percent from 11 percent.

    About a quarter of all black and Hispanic households owned nothing but a car in 2009. Just 6 percent of whites and 8 percent of Asians were in that situation.

    Whites were less affected by the crisis, largely because their wealth flowed from assets other than housing, like stocks. A third of whites owned stocks and mutual funds in 2005, compared with 8 percent of Hispanics and 9 percent of blacks.

  2. Danger,

    More on the Pew Research Center study with Roderick Harrison, sociologist and demographer at Howard University, and former chief of racial statistics at the Census Bureau on Democracy Now: Wealth Gap Between Minorities and White Americans Doubles After Housing Crisis, Recession (7/28/2011)

    JUAN GONZALEZ: Well, in terms—the importance of assessing the wealth gap versus the income gap, because obviously the income gap is a year-to-year situation, whereas the wealth gap is really sort of the accumulation of all the disparities of generations, really, whether it’s—you could be earning a lot of money as an African American, but if you have discriminatory lending rates or other matters, you’re still being penalized, subsequently. So, but here we have a situation where the Obama presidency was supposed to, for many people, bring in a post-racial America, where there was a greater sense of equality among the races, and yet we’re seeing this enormous step backward. Your sense of what it means for this concept of a post-racial America?

    RODERICK HARRISON: It means that, clearly, any hopes or aspirations, particularly based solely on Obama’s election, that we had reached some kind of post-racial state were, you know, close to delusional. The socioeconomic realities have not changed on the ground. And this report is pointing to just how much the socioeconomic inequalities have been exacerbated by the recession and the poor economy. It has hit, as it historically does, lower-income minorities, less-educated populations, much more heavily than others. And this report has shown very graphically the consequences of this. So any—I think the sense that perhaps the willingness to elect the first black president does suggest some degree of importantry of moving beyond race in our society, but clearly, that has—doesn’t change the kind of socioeconomic realities that are the consequence of centuries and decades of inequality.

    … We’ve been seeing now for decades increases in inequalities in income. And this is—there are many factors in that, including the incredibly—the incredible increases in the ratio of the incomes of executives and managers to workers within firms. But also, some of it is driven by the growth of the very good incomes of families with two college-educated workers and the stagnation of wages amongst males and a very slow growth amongst females and very slow growth amongst people with less than a college education. So, these things have contributed to the gap. And one would expect that since you do need to make sufficient income to be able to have savings that you can invest, whether it’s in savings accounts or stocks, bonds, etc., one would expect the increase in income inequality to gradually produce increases in wealth inequality, as well. But clearly, the recession has, just in a few short years, thrown us into a truly different world. The black and Hispanic income levels, you mentioned, wiped out 20 years of gains; they’re back to where they were in 1993, approximately.

  3. Danger,

    Stephanie Clifford, Even Marked Up, Luxury Goods Fly Off Shelves, N.Y. Times, Aug. 4, 2011, at A1:

    … Even with the economy in a funk and many Americans pulling back on spending, the rich are again buying designer clothing, luxury cars and about anything that catches their fancy. Luxury goods stores, which fared much worse than other retailers in the recession, are more than recovering — they are zooming. Many high-end businesses are even able to mark up, rather than discount, items to attract customers who equate quality with price.

    The rich do not spend quite as they did in the free-wheeling period before the recession, but they are closer to that level…. What changed? Mostly, the stock market, retailers and analysts said, as well as a good bit of shopping psychology. Even with the sharp drop in stocks over the last week, the Dow Jones is up about 80 percent from its low in March 2009. And with the overall economy nowhere near its recession lows, buying nice, expensive things is back in vogue for people who can afford it.

    … While the free spending of the affluent may not be of much comfort to people who are out of jobs or out of cash, the rich may contribute disproportionately to the overall economic recovery.

    “This group is key because the top 5 percent of income earners accounts for about one-third of spending, and the top 20 percent accounts for close to 60 percent of spending,” said Mark Zandi, chief economist of Moody’s Analytics. “That was key to why we suffered such a bad recession — their spending fell very sharply.”

  4. Danger,

    Kate Murphy, Child’s Play, Grown-Up Cash, N.Y. Times, July 21, 2011 at D1:

    … Even in a troubled economy, it seems, some parents of means are willing to spend significant (if not eye-popping) sums on playhouses for their children that also function as a kind of backyard installation art.

    There are a number of companies and independent craftsmen that make high-end playhouses, which can cost as much as $200,000, and come in a variety of styles, including replicas of real houses… and more-fantastical creations like pirate ships, treetop hideouts and fairy tale cottages. And many of these manufacturers report that despite the economic downturn, they are as busy as ever.

    Barbara Butler, an artist and playhouse builder in San Francisco, said her sales are up 40 percent this year, and she has twice as many future commissions lined up as she did this time last year. Not only that, but the average price of the structures she is being hired to build has more than doubled, from $26,000 to $54,000.

    … “We get a lot of calls this time of year, when the weather gets warm and people want to get their kids outside,” said Patty Toner, vice president for sales for Lilliput Play Homes, in Finleyville, Pa., a company that sells playhouses on what might be considered the low end of the scale: between $4,000 and $50,000, depending on the style and degree of customization. Best sellers include a two-story Colonial-style house with a balcony and colonnaded porch, and a miniature medieval castle with turrets and secret passages.

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