I get coffee pretty much every morning on the way to work. This morning ritual costs around $4.
The price of coffee is near record lows right now, less than half of what it cost two years ago. Two years ago when my latte cost… about $4.
This got me wondering. It seems like when a commodity like coffee or chocolate or bread gets more expensive, the price at the store goes up (like when Starbucks jacked prices up a couple years ago) but when commodities get cheaper, the retail price never seems to go down. It feels a little like Murphy’s law of economics.
"I’m not sure that it’s necessarily Murphy’s law," counters Andrew Burns, economist at the World Bank. "In a country like the U.S., when you go to the store and you buy a loaf of bread, the cost of the wheat in that bread is relatively small."
Burns says that's because workers get paid a lot here (relatively), and rent is expensive. Burns says in countries where labor and rent are cheaper, the price of the commodity makes up a much bigger percentage of the price at the store.
"In developing countries, when commodity prices are fluctuating, it’s felt much more directly in the pocket book of individuals," Burns says.
Here in the U.S., the coffee beans in a latte, for example, only account for about 10 percent of the price--40 cents of the $4--the rest of what I’m paying for is rent and labor.
Still, 10 percent of a company’s cost isn’t nothing, so shouldn’t I see at least a little savings?
Turns out, that depends on which kind of coffee we’re talking about
"This is Wall Street Dark Roast. One of our favorites."
At his office in Midtown Manhattan, HiLine Coffee CEO Gene Kakaulin samples one of his roasts. HiLine makes single serve coffee pods and the beans he uses are high quality beans.
"The interesting thing about the coffee market is that the commodity coffee market and the specialty coffee market have a significant disparity in price," says Kakaulin. "What you see on the exchange, the commodity price, is significantly lower than what we pay for coffee."
The beans Kakaulin uses and the beans in my latte are specialty beans. The beans sold by the ton on commodities exchanges are used to make the coffee you might get at diner or at the grocery store. Prices have gone down a little there.
But it turns out, in the specialty coffee market, there is something of a Murphy's law situation going on.
Matt Banbury is a roaster and manager for Joe Coffee—a chain of cafes.
"The level of quality that we’re buying... floats in its own sort of category. Though, if the commodity price rises too high and there’s a scarcity in commodity coffee, they will dip into specialty coffee. Which makes things more expensive."
In other words, when commodity grade beans get cheaper, the price of specialty beans won’t necessarily drop, but when commodity beans get more expensive, all beans get more expensive...
And my latte gets more expensive.
Or maybe not. Cafes can’t crank up the cost of a latte every week, even if bean prices are rising. Consumers are very sensitive to price hikes.
Especially before they’ve had their coffee.
The Dow had its seventh triple-digit drop so far this year. Is it a short term pullback, or a sign of a tough year to come?
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It was another bad day for the stock market. The Dow Industrial Average and the S&P 500 both suffered declines of about 2 percent. For the Dow, that translates to a nearly 300-point loss.
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At the end of last year, the Department of Justice issued a memo stating the federal prison system is in crisis: It’s overcrowded and expensive to run. And while there’s always a lot of hand-wringing over the burdened taxpayer - it costs about $29,000 a year to keep an inmate in federal prison - it can also be expensive for the family.
For the Hurleys in Maine, having two sons in federal prison has been surprisingly expensive.
The men were arrested for their involvement in a cocaine ring in Waldo County and sentenced to serve 30 and 56 months respectively at a federal prison camp in Florence, Colo.
"Here’s this lower middle class, working class family, our family," explains their uncle, Mike Hurley, "We’re in Maine and they take two guys and stick them in Colorado. You know, don’t look for compassion from these people."
Matt spent $10,000 on a lawyer and Chris used a public defender -- not a lot to spend on legal fees, respectively. Chris says he could have borrowed from his large family.
"They would have done it, but, I didn’t say 'Let’s sell the house and fight this.' I couldn’t ask that."
But even without fancy lawyers, the costs went into the thousands. Chris lost his job and access to his bank account – everything had to be managed, and paid for, by his family back home. There’s also no cash allowed inside prison, although some kind of alternative currency often develops, like trading cigarettes or stamps.
"Some places it’s not stamps. In New Hampshire, it was ramen," Chris, who was held briefly in that state, said. "It was a trip because people would be carrying around laundry bags full of ramen."
He says that it was possible to have your laundry done in exchange for two ramen. But bartering goods in prison isn’t legal, so as their months in the Colorado prison went on, when the brothers wanted something from the commissary: shower shoes, dental floss, sweatpants - Uncle Mike helped the family organize a fund.
"What I was trying to avoid was making these guys beg or do stuff in prison that would get you money in prison."
He made sure that every month his nephews would have $50 each, collected from the family. That adds up to about $2,500. But the biggest expense was for visits. The brother's grandmother figures it cost her $1,500 for one of her two 2,000-mile trips from Maine to Colorado. That’s a lot for Roseann Costello, who still works full-time in her mid-70s.
"I just needed to see them," Costello said, holding a stack of the various bills she collected over the past few years on her lap. "To see that they were okay. And they needed to see me. So it was good."
Family members made the trip 13 times over the past few years, totaling roughly $20,000.
"What we know from an analysis we did recently is that the average federal inmate is about 500 miles away from home," explained Nancy La Vigne, director of the Justice Policy Center at the Urban Institute. She says the federal prison system has grown sevenfold in the past 30 years, so the impact is now felt far and wide.
"Virtually every American in this country knows somebody who’s been touched by the criminal justice system."
Including this large, tight-knit family from Maine.
"Frankly, the day they got arrested taught them everything that they learned," argued the brother's aunt, Jerri Holmes. She says that the brothers’ time in federal prison has come at a great cost to everyone involved. When the family added up everything, they figure they’ve spent $60,000.
And the money has been the least of it.
"It doesn’t heal anything, it doesn’t teach you anything," continued Holmes. "Except for how to hoard your postage stamps."
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During yesterday’s Super Bowl, an ad for the web hosting company GoDaddy featured "Gwen," an engineer from New York quitting her job and announcing her new puppet business. She did this in front of a TV audience of 100 million people -- but apparently, no one from the Department of Labor.
Because while the government tracks how many people quit their jobs, the data doesn’t provide a category for public quitters – like people who announce their departure on You Tube, or on national television.
"The Department of Labor does not track those numbers," says Kent Smetters, a professor of economics at Wharton.
Smetters says 480,000 workers quit jobs in accommodations and food services last November, and that we’re seeing high quit rates from other jobs with low pay, like retail. It's what he'd expect to see as the economy recovers.
"Those were kind of like holding jobs," says Smetters, "Temporary jobs they will quit... if they feel like they can move up."
But William Ward, a professor of social media at Syracuse’s Newhouse School, says public quitters beware – your need to vent on a large platform can come back to bite you in the tuchus.
"It’s fun to watch on movies and on television and as entertainment, but it’s really never a great career move," he says.
Barbara Pachter, author of the Essentials of Business Etiquette, agrees.
"The bottom line is it’s just not fair to the other people. You’re only presenting one side to the story. There’s always two sides. I mean, people can publicly quit and they can be a bad employee," she says --which means future employers may be wary.
Jon Israel, a labor lawyer in New York, says GoDaddy’s Super Bowl ad could have been a lot worse. Gwen, the worker featured in the ad, appears to have been careful. She didn’t even mention the name of the company she was leaving:
"I suspect there was a lot of consideration given not to make difficulties for her employer," he says.
Or difficulties for herself. Israel says public quitting can lead to lawsuits. Or what Ward calls "social media hangovers," the feeling a public quitter might awaken to, the morning after.
"'Did I really do that? Can I take it back?' Unfortunately once you do it it’s out there forever," he says, "so you can’t take it back."
When United Airlines announced that it will be dropping Cleveland as a hub, the move itself wasn’t a huge surprise. The city’s been working overtime to keep United there, knowing the ice was thin.
But the timing was awkward. Just last week, United executives came to town for a big party hosted by the Chamber of Commerce, celebrating the new issue of United’s in-flight magazine, which features a 56-page insert about Cleveland.
Joe Roman, who heads the Greater Cleveland Partnership, puts on a resolutely brave face. "Well, we’re certainly disappointed," he says, "but I don’t feel as though we left anything out on the table."
With Roman's urging, the airport got some upgrades, the city pulled back on some airport fees, and Roman says hundreds of local businesses encouraged their employees to fly United for work.
He says some of them adopted policies putting United’s bottom line ahead of their own. "Companies have created specific threshhold policies, where they said: 'If the price of flying United falls within $300 or $400 of a competitor’s ticket, fly United.'"
But it didn’t work out. The airline says it was losing tens of millions of dollars a year on its operations there. The company is pulling 470 jobs from Cleveland.
The worst-case scenario would be that other businesses pick up and move.
"The major example in recent memory is Chiquita," says Adie Tomer, from the Brookings Institution.
"It offered them a metropolitan area of similar size, but more-expansive flight connections," Tomer says.
That kind of pullout seems unlikely in Cleveland's case, says Michael Boyd, president of Boyd Group International, an aviation-industry consulting firm.
"Cleveland will do fine," he says. "They’ll end up with 35 to 40 non-stop destinations. They won’t have non-stop flights to Albany anymore, and all seven people who took that flight every day will be upset, but other than that, it’ll be back to normal."
Other, smaller, cities—places that the Cleveland hub serves—will get hurt more. He offers Parkersburg, W.V., as an example. "Their main access to the rest of the world is on a commuter flight that connects to that hub" in Cleveland, he says. "That hub is gone."
Tomer and Boyd agree, the smaller number of hub airports, and the smaller number of flights to smaller cities, are part of the consolidation of the airline industry in recent decades.
"Thirty years ago, there were something like 40,000 people who flew between Albany and Boston," says Boyd. In those days, smaller regional airlines made money flying those routes.
Not anymore. Today, he says, "there's probably not one-tenth that number" flying from Albany to Boston.
"And almost none of them are flying non-stops. There aren't any flights."
So, how are people getting from Albany to Boston? "They're not," he says. "The travel paths have changed. You can't fly there anymore, so people just don't travel it."
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The U.S. stock market fell hard Monday—with the Dow Jones Industrial Average down more than 2 percent, a fall of 326 points to 15,372—on concerns about U.S. manufacturing, emerging market troubles, and China’s long-term economic slowdown.
With the Federal Reserve now gradually trimming back its fiscal stimulus, international markets have been feeling the pressure.
Paul Ashworth at Capital Economics in Toronto says: "We’ve had problems emerge in Turkey, in Argentina, and to a lesser extent that has spread to other countries such as Venezuela, South Africa, possibly even to Indonesia," says Ashworth.
While Ashworth’s list of troubled emerging markets seems long, he says each country is beset with specific problems, some of which can be traced to unsound fiscal policies.
What's scarier to Ashworth? China.
China's ongoing slowdown could have knock-on effects in a wide range of emerging economies, and fears of disruption are unsettling global equity markets. China’s manufacturing activity fell to a six-month low in January. Economists predict China is likely to grow at an annual rate of just 7 to 8 percent in coming years, as opposed to the double-digit growth the country has seen for the past three decades.
“There’s sort of a snowballing effect here that starts with China but ripples through to many of these emerging-market countries,” says Gary Thayer, chief macro strategist at Wells Fargo Advisors in St. Louis.
He points out that China is reorienting its economy intentionally--to focus more on consumption and internal growth, and less on exports and external investment. Thayer says this is impacting major emerging economies on other continents that supply raw materials for China to build houses, and high-speed train lines, and iPhones.
"A decade ago it might have been more isolated to Asia," says Thayer, "but now countries in South America, even South Africa” are feeling the slowdown in commodity demand from China. These include Chile for copper, Brazil and Australia for iron ore, and several African countries that export hard-to-find metals."
But Nicholas Lardy, senior fellow and China expert at the Peterson Institute for International Economics points out—China’s economic shift also has a positive side.
"Incomes are rising in China, diets are improving," says Lardy. "China will still have a large and growing demand for agricultural products—American soybeans for animal feed. Services are rising—medical services, education. Chinese are traveling more abroad, so Boeing and other aircraft suppliers are going to do extremely well."
And while a few U.S. heavy-equipment makers might see a slowdown in demand for tractors and other capital equipment, Lardy says new exports to serve China’s growing middle class—by U.S. farmers, and software companies and insurance companies—should more than make up for the loss.
John Canally, chief economist at LPL Financial in Boston, says that from his scrutiny of U.S. regional reports on economic activity from the Federal Reserve, he doesn’t see much evidence of a pullback in manufacturing or employment by U.S. companies due to China’s slowdown.\
"You might have some companies cite China as an excuse for missing earnings projections," says Canally."But thus far we haven’t seen that the slowdown in emerging markets, which has been going on for two or three years now, has had a big impact on corporate profits."
Canally does says global growth is shifting, as the recovery from the Great Recession proceeds. Emerging markets led the way back to growth in late 2008 and early 2009—while developed economies were still mired in recession and financial crisis. But some of those emerging economies began slowing down in 2011. Now, with investors pulling out and the Fed’s tapering exacerbating that trend, emerging economies are being overtaken by the biggest, most advanced economies.
"The growth pattern in the world is shifting away from emerging markets and toward developed markets," says Canally. "Growth is going to come from the U.S., which we expect to grow at about 3 percent this year. Japan’s economy is accelerating, and so is Europe’s."