The Liberty Mutual insurance company has announced that it has postponed its planned IPO, which would have been by far the largest initial public offering in the U.S. this year; the company was seeking to sell $1.3 billion worth of stock. Liberty Mutual cited the sluggish economic recovery and weak stock market as its reasons.
The IPO market as a whole has been underperforming this year; at least 45 companies have announced IPOs only to withdraw or postpone them. The biggest IPO this year has been for the little-known oil company Oasis Petroleum, which raised $676 million for its offering back in June. By contrast, back in the crazy days of the Internet IPOs, Priceline.com was briefly worth $10 billion on its first day on the market.
There's still hope for a huge IPO this year: General Motors is planning to take itself public again in November. The word is that the car manufacturer will seek to raise $8 to $10 billion in that stock offering. Its success or failure will probably prove to be an important signpost for this economic recovery.
Thursday, September 30, 2010
Wednesday, September 29, 2010
On the Home Front
So how's New Jersey faring in the economic recovery? It depends on which measure you look at. As is typical of this one-step-up, one-step back economy, conflicting measures of our state's economic health came out yesterday.
The good news is that household median income in New Jersey is just about the highest in the nation. The U.S. Census Bureau found that our 2009 household income of $68,342 was statistically indistinguishable from that of Maryland ($69,272) and Alaska ($66,953). For all intents and purposes, we're in a three-way tie.
On the other side of the ledger, that number was down some 2.3 percent from 2008. And the number of New Jersey families living in poverty rose from 8.7 percent in 2008 to 9.4 percent in 2009.
That probably sums up the New Jersey economy pretty well. We've weathered the storm better than a lot of other places, but make no mistake: It's still been a storm.
The good news is that household median income in New Jersey is just about the highest in the nation. The U.S. Census Bureau found that our 2009 household income of $68,342 was statistically indistinguishable from that of Maryland ($69,272) and Alaska ($66,953). For all intents and purposes, we're in a three-way tie.
On the other side of the ledger, that number was down some 2.3 percent from 2008. And the number of New Jersey families living in poverty rose from 8.7 percent in 2008 to 9.4 percent in 2009.
That probably sums up the New Jersey economy pretty well. We've weathered the storm better than a lot of other places, but make no mistake: It's still been a storm.
Tuesday, September 28, 2010
The Engines of Economic Growth
Where is the economic growth that will eventually get us healthy again going to come from? The McKinsey consulting firm has analyzed where the growth has been coming from for the past few decades, and one area stands out: No, it's not small business, but multinational firms. McKinsey found that since 2000, multinational companies have contributed 74 percent of the growth in our GDP.
Interestingly enough, though, multinationals have not contributed nearly as much to jobs growth. From 1990-2007, according to McKinsey, multinationals contributed only 11 percent of our total employment growth, with other U.S. firms accounting for the remaining 89 percent. Apparently, the larger firms are much more efficient: Despite hiring merely 11 percent of all workers, they accounted for 41 percent of the growth in labor productivity.
If those trends continue, we'll have two dynamics working at odds to each other. If we want to see economic growth, we should look toward multinationals, but if we want to see unemployment brought down, it's more likely to happen with U.S.-only firms.
Interestingly enough, though, multinationals have not contributed nearly as much to jobs growth. From 1990-2007, according to McKinsey, multinationals contributed only 11 percent of our total employment growth, with other U.S. firms accounting for the remaining 89 percent. Apparently, the larger firms are much more efficient: Despite hiring merely 11 percent of all workers, they accounted for 41 percent of the growth in labor productivity.
If those trends continue, we'll have two dynamics working at odds to each other. If we want to see economic growth, we should look toward multinationals, but if we want to see unemployment brought down, it's more likely to happen with U.S.-only firms.
Monday, September 27, 2010
Congressional Report
Many investors are waiting to see how a reshuffled Congress will affect our nation's economy after the November elections: Will a Republican-controlled Congress renew the Bush tax cuts? If the Democrats stay in charge, will there be another stimulus package? What will happen to the estate tax?
No matter who's in charge, it appears that the markets are not too fond of Congress. A 2006 study looked at the gains in the Dow Jones average when Congress was and wasn't in session, and found that more than 90 percent of the index's gains came on days when Congress was not meeting.
That's not to say that the economy is at its strongest when Congress accomplishes the least. According to the New York Times, since 1926, a large-cap stock index returned about 7 percent a year at those times when the federal government was gridlocked - that is, the same party was not in control of both branches of Congress and the White House. But when the government wasn't gridlocked, that same index returned 12 percent a year.
No matter who's in charge, it appears that the markets are not too fond of Congress. A 2006 study looked at the gains in the Dow Jones average when Congress was and wasn't in session, and found that more than 90 percent of the index's gains came on days when Congress was not meeting.
That's not to say that the economy is at its strongest when Congress accomplishes the least. According to the New York Times, since 1926, a large-cap stock index returned about 7 percent a year at those times when the federal government was gridlocked - that is, the same party was not in control of both branches of Congress and the White House. But when the government wasn't gridlocked, that same index returned 12 percent a year.
Friday, September 24, 2010
Fresh Indicators
The index of leading economic indicators was up for August, even more than the rise predicted by the economists polled monthly by various organizations. Still, the number rose by only 0.3 percent, portending a continuing but weak recovery.
In all, seven of the ten indicators were positive in August. They were:
* The interest rate spread
* The real money supply
* Average weekly manufacturing hours
* Building permits
* Stock prices
* Index of consumer expectations
* New orders for capital nondefense goods
The indicators that were negative:
* Unemployment
* Index of supplier deliveries
* New orders for consumer goods and materials
Obviously, the big one there is unemployment. Until that gets moving in the right direction, the recovery will continue to be sluggish.
In all, seven of the ten indicators were positive in August. They were:
* The interest rate spread
* The real money supply
* Average weekly manufacturing hours
* Building permits
* Stock prices
* Index of consumer expectations
* New orders for capital nondefense goods
The indicators that were negative:
* Unemployment
* Index of supplier deliveries
* New orders for consumer goods and materials
Obviously, the big one there is unemployment. Until that gets moving in the right direction, the recovery will continue to be sluggish.
Thursday, September 23, 2010
A Rise in the Ratings
The giant credit-ratings service Moody's came out with a report yesterday indicating that default risk for the companies whose bonds it rates had dropped to its lowest level in two years. In June 2009, there were 288 American companies with a credit rating of B3, which is six steps below investment grade. Now, there are just 195. Moody's added 13 companies to its negative ratings in the quarter ended August 31, as opposed to 35 in the same period a year earlier.
And these aren't just fly-by-night penny stocks; among the corporations that Moody's upgraded were such well-known entities as Clear Channel and Neiman Marcus. That shows another step towards health for this economy, making it less and less likely that we'll see very many more collapses of large American corporations (although Blockbuster will apparently file for bankruptcy today).
It's interesting to see that, in a sense, the bond market had already taken note of this lessening of risk. Purchases of speculative-grade bonds - what used to be called junk - soared in the first half of this year to $119 billion, their highest level since Bloomberg began compiling those figures in 1999. Clearly, the bond buyers had already recognized that those bonds were not likely to default.
And these aren't just fly-by-night penny stocks; among the corporations that Moody's upgraded were such well-known entities as Clear Channel and Neiman Marcus. That shows another step towards health for this economy, making it less and less likely that we'll see very many more collapses of large American corporations (although Blockbuster will apparently file for bankruptcy today).
It's interesting to see that, in a sense, the bond market had already taken note of this lessening of risk. Purchases of speculative-grade bonds - what used to be called junk - soared in the first half of this year to $119 billion, their highest level since Bloomberg began compiling those figures in 1999. Clearly, the bond buyers had already recognized that those bonds were not likely to default.
Wednesday, September 22, 2010
Commodities on the Rise
There's one market that has pulled out of the recession into full recovery: commodities. Prices of commodities - and especially agricultural commodities - plunged with everything else at the onset of the recession, rose throughout 2008, then dropped again in 2009. But now in 2010, according to a new report from McKinsey, some commodities prices have actually doubled from those 2009 lows.
One result of these rising commodities prices is that the threat of deflation seems to be easing. A deflationary environment combined with our already-sluggish recovery would have been bad news for our economy. If the markets can stop worrying about deflation, that would be good for equity prices.
Of course, the flip side of that is inflationary concern. But the inflation rate has been remarkably stable lately, hovering just above 1 percent in each of the past three months. This economy still has more than its share of trouble; it would be nice if we are now able to dispense with deflationary worries before we turn back to concerns over inflation.
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