The housing crash sent many construction workers fleeing to other industries. Now that housing is recovering, builders are struggling with a shortage of skilled workers. That’s delaying housing starts and driving up home prices.
The housing market continues to recover along with the overall economy, but the construction workers who left the industry in droves during the recession aren’t exactly flocking back. Meanwhile, a shortage of skilled workers is getting worse. But can you blame them for leaving in the first place?
The National Association of Home Builders reports that unemployment among construction workers peaked at 22 percent during the recession.
No wonder so many found jobs in other industries, says the group’s chief economist, David Crowe, adding that housing still seems too unstable for them to come back.
"More than half of builders are now telling us that they’re having trouble finding construction workers – carpenters, brick masons, painters and so forth," Crowe explains.
60 percent of builders the group surveyed say the shortage forced them to delay projects in the last six months, or raise home prices.
That’s not putting much of a drag on the housing market yet, says Kermit Baker, with Harvard’s Joint Center for Housing Studies: "But with growth coming down the road in all likelihood, certainly we’re going to have serious problems in the future if we don’t train and attract more workers in the construction industry."
Baker adds that builders need to revive some of the training programs they scrapped during the long downturn, and get their “muscle memory” back for growing their workforce.
ProPublica recently co-published a report with The Washington Post about a company called USA Discounters that offers easy credit to military service members. The catch? If a service member falls behind, the company aggressively goes after them by suing them in courts near its Virginia headquarters, making it incredibly difficult for service members to show up in their own defense.
Click the media player above to hear ProPublica Senior Editor Tracy Weber in conversation with Marketplace Morning Report guest host Mark Garrison.
It's time for Silicon Tally. How well have you kept up with the week in tech news?
UPDATE: On Friday, the Labor Department reported that the U.S. added 209,000 jobs in July, with the unemployment rate at 6.2%.
The first Friday in August is the day we get the government’s massive monthly jobs report. Which means we get to kvetch — or kvell — about how the employment economy is doing.
“We’ve seen not only a sustained uptick in job growth, with more than 200,000 new jobs being added month in and month out, but the quality of jobs has improved," says Greg McBride is at Bankrate.com.
McBride says a lot of new jobs are in business services; blue-collar work has also picked up.
But take-home pay hasn’t — at least for most Americans, says John Canally at LPL Financial:
“Manufacturing — for the most part, wages there remain stagnant. [It’s the high-end,] high value-added jobs that require master’s degree or some advanced training [or even more], that’s where you’re seeing most of the wage gains [accrue to].”
And economists say spending on big things — like new cars and fancy summer vacations — won’t really take off until wages go up across the board.
For today’s blog, here’s a little something different. My good friend Jim Tankersley is a talented economics correspondent for the Washington Post, and the editor of a new project there, Storyline, which tells economic stories the right way: about people.
We spoke together at a conference on inequality at Kenyon College this spring, and we stay in regular touch. We talk about the economy, our lives, his son, and baseball. This week, we decided to take a few questions from readers and people on twitter. Below are a few of our answers (plus one shot at a New York Times economics correspondent. All’s fair in love, war and journalism).
We hope you like it!
1. Can you ask (Lizzie) to weigh in on that Brookings report on student debt? Does she think it’s an overstated problem?
Lizzie O’Leary: Oh, good. You tossed me the hot potato of student loans. I guarantee that any way I answer this, someone is going to want to punch me in the face.
The Brookings report got a lot of attention because it basically said hey, there’s not a loan crisis and we’re paying the same amount of our incomes in loans as we used to be.
Plus, they say those loans help you get a better gig, and it comes out in the wash. In econo-speak, that’s an “increase in earnings received over the course of 2.4 years would pay for the increase in debt incurred.”
There are a couple places where I’m skeptical. The data only runs through 2010. Since then, tuitions have continued to rise and median wages haven’t kept up with them.
In addition, the Brookings report looks at income, not wealth. Sure, your income can go up, and that will help you pay your loans. But let’s say you came from a family with very little money. Those loans may have helped you get a better job after school, but there’s no cushion if something happens to your income (you get sick, you lose your job, etc). And that’s the intersection between democratized access to expensive education and student loans that worries me.
2. Should I ever go to grad school?
Jim Tankersley: Lizzie, I’m so glad you took the college / loans question. When I go out on reporting trips and tell people I write about the economy, someone always asks about student debt, why it’s going up so much and whether college is worth it. Usually I say yes, it’s almost always worth it if you make it all the way through, but I also talk about community college and technical school and finding the right fit for you, and I ramble, and people start getting that face-punching look, so I try to head them off by making a joke about USC. *Everyone* loves a good USC joke.
Hardly anyone asks about grad school, but they should. Grad school is a huge economic decision. Tuition is expensive. If you go full time, you’re not working – or working as much as you could. On the other hand, you are, very broadly speaking, setting yourself up for higher future earnings and better odds of getting a job. As these charts show. (I’ve made them USC colored; my mom has a degree from USC; sorry about the jokes earlier, Mom!)
Source: Bureau of Labor StatisticsThe Washington Post
Of course, as they say, your results may vary, especially depending on what grad school you’re thinking about. Which brings me to the other half of this answer, economically: The value of work isn’t just about money. There’s value in enjoying what you do, as the president of the American Enterprise Institute, Arthur C. Brooks, argues. Will that grad degree help you land that job you love? Make that part of your utility-function calculation, too.
3. Should I buy a house?
O’Leary: Should you buy a house? Ask me that and I have 800 other questions for you.
I could talk to you about interest rates (they’re good right now). Down payments (how much can you afford?), and calculators (http://www.trulia.com/rent_vs_buy/). But to me, it’s about words, not numbers.
What is a house to you? If your answer is a place to live and build equity, then yes, by all means. If it’s a cash register, then nope. Houses are the single biggest asset most Americans will have. But they sure don’t appreciate like investment portfolios (yes, yes, I know the market is risky).
Since 1983, stocks and financial assets have returned 7%. Homes have returned 1.6%.
Bonus: you can listen to me interview Ray Boshara from the St. Louis Fed about this.
4. Any sectors where job growth or job decline surprises you?
Tankersley: This is not a surprise to smart folks who listen to Marketplace, but it is a fact that never fails to astonish me about the last few years: Manufacturing in America is absolutely crushing it right now, in terms of economic output. But it is not, how do you say, doing much hiring. There are reasons for this – automation being the main one; it just takes fewer people in an actual factory to produce the same amount of stuff these days – but those reasons have not stopped many people, including President Obama and his team, from predicting a much larger wave of manufacturing job creation than what we’re seeing. The surprise is that they keep predicting it.
5. Is our current economy the new “normal”? High inequality gap, shrinking middle class, etc?
Tankersley: Teaser alert: I have an entire multi-part series in store for this topic. Short preview: There’s plenty of evidence that the American economy isn’t working the way it used to – in the rising tide lifting boats sense – but also there’s nothing in American history that suggests we are stuck in our current economic situation.
O’Leary: I sort of hate this question because … I’m afraid it might be true … at least in the short term.
Do you remember that panel on inequality we were on together at Kenyon? I feel like no one there had a good answer about how we get out of this moment.
And to me, it’s not just about income inequality, but about wealth inequality.
Which means … it’s harder to buy houses, build assets, and pass things on to your kids.
This research on home ownership by African Americans is pretty telling, I think, about how much inequality eats away at our ability to build wealth for future generations.
And I don’t think we can actually get out of this until we, as a country, figure out how to pay people higher wages across the board.
Tankersley: That Kenyon panel was dispiriting. The room was full of hopeful young scholars and we – you and Ross Douthat and I – we crushed their spirits!
O’Leary: We totally did. But we swore. Which I think was maybe cool? We were the journalist panel and we were supposed to be saltier than the economists.
Tankersley: To your point on compensating people better: I think there’s a real sense in America, a correct one, among a wide swath of people, that people like me aren’t getting ahead.
O’Leary: Right. BUT — who is a part of that “like me”?
Tankersley: It’s psychologically powerful, that sense. Here is some research from USC on this topic.
But this is a storytelling question and answer column. So back to our New Normal question:
What’s the story of the American economy right now, would you say? WHO is the story of the economy?
O’Leary: Running in place is the answer to your first question. So that’s GDP, and productivity, and manufacturing all going up … but it still doesn’t mean we see the kinds of jobs that mean you can send your kids to school without debt.
And who? I think that’s an hourly wage earner. Someone who’s working in health care, maybe.
Or that lovely Navy chaplain I met, Jason DiPinto. Served in Afghanistan (before he was in the Navy), and still can’t afford to buy a house.
It just seems like maybe someone or some THING isn’t holding up its end of the bargain.
And I think on a gut level, beyond all the numbers, people feel that.
We’re depressing everyone.
Tankersley: We’re horrible people.
O’Leary: No! I’m an optimist!
Tankersley: Let’s just move on to the last question.
6. (Submitted by New York Times economics correspondent Neil Irwin) Which has higher marginal product of labor, 100 duck-sized horses, or 1 horse-sized duck?
O’Leary: They are both more productive than a New York Times economics correspondent.
David Gura talks wtih Fortune's Leigh Gallagher and FT Alphaville's Cardiff Garcia.
Listen to their conversation in the audio player above.
An isolation unit at Emory University's hospital will be used to treat a patient infected with Ebola, the virus that has killed more than 700 people in a recent outbreak in West Africa.
About 58 percent of California is currently in the worst of the four drought levels used by experts, in conditions normally seen only once every 50-100 years.
The truce is set to begin at 8 a.m. local time Friday. Envoys will also travel to Cairo to negotiate a possible longer peace deal.
China has been a big and growing market for U.S. corn. But then farmers started planting a kind of genetically engineered corn that's not yet approved in China, and the Chinese government struck back.
It will take at least three to six months to contain the largest Ebola outbreak in history, the health agency says. Fifty-seven people have died in four days, raising the death toll to 729.
"Vulture funds" earned their nickname because they are, in a sense, scavengers.
They go after the debt of dying firms or crisis-addled countries, buying it on the cheap when nobody thinks it’ll get paid back and many other creditors have given up and agreed to accept pennies on the dollar. Then, they sue to get it paid back in full. This can result in a situation where a vast majority of original creditors have agreed to accept a fraction of their original debt, leaving the vulture minority to win big.
For example, in the current dispute between a group of investors and Argentina, a firm called Elliott Capital Management purchased Argentine debt for $48.7 million and is now seeking payment of $832 million.
“These firms profit from the backs of poor people,” says Eric LeCompte, executive director of Jubilee USA, a religious organization that lobbies for debt relief for poor countries and international financial reform. “One of the most tragic recent examples is money from debt relief was sent to Zambia, but that money for schools and hospitals was collected by vulture funds.”
Funds have been aggressive in using whatever legal means they can to ensure full repayment of sometimes decades old debt. In 2010, Elliott Capital Management convinced a court in Ghana to bar an Argentine navy ship from leaving that country as a way to extract the money it says it is owed.
Such examples are extreme and give a bad name to what is otherwise a simple case of enforcing commitments, argues Edward Altman, professor of finance at New York University’s Stern School of Business.
“Asking for full payment is totally appropriate,” he says. The original owners of a country’s securities are ill-equipped to negotiate when those countries renege on their commitments, and the vultures have the appetite and ability to play hardball.
Like vultures in the wild, vulture funds may serve an important ecological purpose.
“They provide in the case of distressed assets a liquidity that simply wouldn’t be there,” he says. (In other words, it’s helpful to have somebody out there who will buy bad debt.)
There's a hole in international law
Whether morally bankrupt or legally secure, the reason why vulture funds can operate in the first place and why there is such controversy around them boils down to a hole in international law: There is no bankruptcy court for countries.
“When you, or I, or General Motors runs out of money, we can file for bankruptcy and there’s somebody to oversee that process,” explains Anna Gelpern, professor of law at Georgetown University and a senior fellow at the Peterson Institute for International Economics. “When a government runs out of money there is no such process, all you have are a bunch of contracts and it’s every person and fund for themselves.”
Theoretically, it’s possible to write contracts when bonds are issued that lay out what happens in the case of a default. For example, to set out in the contract that if 90 percent of creditors agree to accepting 30 cents on the dollar, it applies to all creditors.
The problem, of course, is that nobody wants to talk about default when they issue a bond. Bankruptcy laws get around this problem by laying out rules in law. No such luck for countries.
Over the years, an informal system developed whereby countries would get a majority of creditors on board with restructured debt when defaults occur. But the Argentina case, the firms who sued “have thrown a big wrench in the process of coming up with a methodology for an orderly resolution of countries with debt problems,” says Barry Bosworth, senior fellow at the Brookings Institution.
Gelpern points out that as firms and countries fight through international legal and financial systems, it’s banks and financial institutions that suffer jabs and bruises along the way.
“You can’t make Argentina do anything, but by golly, you can threaten anyone who has anything to do with Argentina,” she says. “Going forward, countries will find it harder to restructure their debts, creditors will have to think about risk more carefully when getting involved with countries that are in trouble.”
In the aftermath of the financial crisis, there have been relatively few individuals held responsible for the roles they played, or the bad mortgages they issued and bundled together to pass along to investors. However, a former employee of the mortgage lender Countrywide Financial was fined Wednesday as part of a civil fraud case.
It was nicknamed "the Hustle" – a program in which Countrywide is alleged to have passed bad mortgage products onto investors. Since Bank of America acquired Countywide in 2008, the bank was fined nearly $1.3 billion for the fraud. Additionally, a former Countrywide employee, Rebecca Mairone, was fined $1 million, which the judge specified she should pay herself.
Unlike previous financial crises, pursuing individuals for their misdeeds has not been the norm in recent years, says Ken Thomas, an independent bank consultant and economist.
“We’re seeing companies paying fines, but little actions against the people involved,” he says. “After the savings and loan crisis, there were many savings and loan executives that went to jail. Here, we don’t see that.”
Countrywide’s former CEO and CFO were also fined coming out of the financial crisis.
However, most individuals who have been targeted are typically lower-level employees who worked directly on the bad deals, says Michael Santoro, a professor at Rutgers Business School.
“It’s a little more difficult to present evidence against people who have set policies in motion or who might turned the other way or who may have winked at something,” he says.
According to the Securities and Exchange Commission, 174 companies or entities have been charged arising from the financial crisis. About 40 percent of those charges have been against CEOs, CFOs or other senior executives.
Many of those actions were on a different scale than this case, says David Zaring, associate professor of legal studies and business ethics at the University of Pennsylvania’s Wharton School.
“Ms. Mairone, she’s in a unique place,” says Zaring. “There’s an actual jury verdict that came in against her and a fine that was duly awarded after that verdict. Almost everything the SEC has done has been a settlement.”
Zaring says earlier failed criminal cases against a pair of Bear Stearns employees might have been a deterrent, and that if the wrongdoing was such a widespread practice in the financial industry, it can be hard to single out individuals.
What other individuals have paid fines?
It's exceedingly rare for an individual to be singled out by the SEC and it's just as rare for those folks to pay any more than a couple hundred thousand dollars -- chump change. There are only a few other exceptions: here are the biggest penalties levied by the SEC in the wake of the Great Recession:
- Angelo Mozilo, former CEO of Countrywide, is the biggest exception to the rule by far. As part of a settlement with the SEC, Mozilo agreed to pay a record $22.5 million penalty, on top of another $45 million in "ill-gotten gains" to be returned to investors. Mozilo was also banned from running a public company for life. His CFO paid a relatively puny $130,000 penalty.
- Former Brookstreet CEO Stanley Brooks didn't settle with the SEC and a federal judge hit him with a $10 million fine. In addition to the penalty, the maximum allowed for his charges, Brooks had to pay another $110,000 to investors.
- From here, the penalties drop pretty quickly and leave the executive suite. Fabrice Tourre, a Goldman Sachs trader turned academic, was accused of defrauding investors and became a symbol of the economic crisis for many. The SEC sought nearly $1 million in fines from "Fabulous Fab," but he was eventually ordered to pay $825,000.
- Former Bear Stearns portfolio managers Ralph Cioffi and Matthew Tannin were notably aquitted of securities fraud in 2009, but they settled in a later civil case, agreeing to pay about $1.05 million.
Pretty much everything bad that happens behind the wheel today is our fault.
“Today, 95 percent of accidents are actually driver error,” says Robert Hartwig, president and economist at the Insurance Information Institute, an industry association.
When cars drive themselves, he says, people hope to see a lot fewer accidents.
“The data seems to support that these cars will be better drivers than most people, because they don’t get distracted, they don't turn around and talk to their kids, they don’t play with their cellphone," says Chris Shultz, deputy commissioner of community programs and policy initiatives at the California Department of Insurance.
And while you might think this would mean cheaper insurance policies, Schultz says the future of auto insurance has actuaries getting anxious.
“We might see decreased frequency of collisions, but increased severity,” he says.
While policy holders might pay less, because your car is involved in fewer accidents, you might pay more because the cost of high tech repairs is higher.
Then, there's the liability question.
"What happens if I put my five-year-old in the back and press the button and say 'drive my five-year-old to kindergarten'? I don’t think any policy makers know what to do with that yet," says Schultz.
“The question really turns into 'who is in control of the driverless car?'” says Frank Douma, a research fellow and associate director of the State and Local Policy Program at the Univeristy of Minnesota's Humphrey School of Public Affairs and a research scholar at its Center for Transportation Studies.
The answer, says Douma, could mean analyzing data from the car after an accident – looking at its black box.
But while the knowledge may prove a relief to no one but insurers, self driving cars still have classic problems, in which liability is clear. So although we can expect to see a significant number of autonomous cars on the road by 2020, Robert Hartwig says, don’t plan to cancel your insurance policy.
“Cars could still be stolen, trees could still fall on your car.”
Kellogg's, maker of Froot Loops, Apple Jacks and Corn Flakes, could be drying up.
Americans aren't buying cereal like they used to. And that's led to a sales slump: Profits were down 16 percent last quarter.
Another factor is that cereals like Special K used to be popular because they were low-calorie. Now, however, Kellogg's CEO says Americans have become more interested in foods that are "more nutritious."
The other day, an email came in from a big online contact lens store that said, starting Aug. 1, we can all forget about getting a deal on the most popular contact lenses.
What’s happening is something called unilateral pricing. Johnson & Johnson, which makes the top-selling Acuvue brand, is joining other manufacturers, like Alcon and Bausch & Lomb, in telling eye doctors, big box retailers and online stores that they can’t charge less than a certain amount.
“If the retailer sets the lenses for below that price, then the supply of that particular contact lens would be cut off,” Senator Amy Klobuchar, Democrat of Minnesota, said as she opened a Judiciary Antitrust Subcommittee hearing on the new practices.
“If the point is to save consumers money, I don’t know why we have a minimum price we can’t go below,” R. Joe Zeidner, general counsel at the discounter 1-800-CONTACTS, told the panel.
— 1-800 Contacts (@1800CONTACTS) July 30, 2014
But pricing experts say unilateral pricing is not always bad for consumers.
“They can compete on other things,” said Barbara Sicalides, a partner and antitrust expert at the law firm, Pepper Hamilton. Companies like Bose use unilateral pricing to maintain cachet. Others, like Samsung, use minimum prices to help combat “showrooming,” helping stores staffed with knowledgeable salespeople compete with online sellers.
“One benefit is that you’re going to have more services provided to you when you buy some very complex products,” says John Zhang, a pricing expert and professor at the University of Pennsylvania’s Wharton School.
But buying contacts is different. Your doctor has already told you what to buy, and gets paid separately for the exam.
Eliminating discounts may make you more willing to buy directly from the optometrist. That’s the accusation made by contact lens discounters like 1-800-CONTACTS.
At the hearing, Dr. Millicent Knight, Johnson & Johnson Vision Care's head of professional affairs, said the new pricing is simpler and cheaper for most. It eliminates cumbersome rebates, and has “a price that is actually lower than the current national average selling price to consumers," she said.
But that’s just the average. For the roughly 10 percent of shoppers who buy online, according to Euromonitor, prices will likely go up.
And, all of this is perfectly legal, as long as manufacturers aren’t actively coordinating prices among themselves or with retailers.
Nearly a month into the war in Gaza, pollsters have been taking a look at how attitudes in the region have changed among Israelis and Palestinians.