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From the Marketplace desk of "Man, I'd really like to have one of those": Tesla announced a new feature for its Model S line Friday called Ludicrous mode.
For a mere extra $13,000, you can get an electric car that not only looks good — because c'mon, they're pretty cars — but also one that goes from zero to 60 in 2.8 seconds.
That's an improvement of four-tenths of a second from the earlier model.
Or $3,250 per tenth of a second.
Why are they offering that? Because they can.
Anyone who subscribes to Hulu knows it never met an ad it didn't love. Its shows are crawling with them.
"Too much ad clutter makes some people say, 'I don’t want to be exposed to all these ads,' and they go to a competitor," says Thales Teixeira, associate professor of marketing at Harvard Business School.
That's a challenge for services like Hulu, because the ad-free-TV competition is growing: Netflix, Amazon and HBO, even YouTube, is working on a paid, ad-free model.
That's also one reason the streaming service may consider a new no-ad tier, which is more expensive than its current $7.99 monthly fee for the top service.
But all this buy-your-way-out-of-advertising poses a problem for traditional advertisers.
"The people you are losing through opting out are some of the most valuable customers," says Lars Perner, an assistant professor at the USC Marshall School of Business.
People who have extra income. People in the market for say, a Lexus, or an expensive new gadget.
Steve Kazanjian, head of the television marketing organization PromaxBDA, isn't worried.
"You will be able to buy your way out of a 30 second spot, but you will never be able to buy your way out of being marketed to," he says.
Kazanjian says marketers are getting smarter about targeting ads and making them more relevant.
They’re working on making their brands part of the show. And the data you turn over when you opt out: they can use that too, to get a better idea of how to market to you somewhere else.
Judith Alter Kallman has a fancy New York City address with fancy art in fancy gold frames on the walls. On a recent visit to see her, Andy Anderson, Wells Fargo chief historian spread documents and maps of countries that no longer exist across her coffee table.
“This is the ship manifest for the passenger ship S.S. Kroonland,” he says, pointing out the name of Kallman’s father-in-law, Hirsch Kallman, who went by Harry after moving to the U.S. He came through Ellis Island in 1904 in his late teens or early 20s, a baker with brown hair and gray eyes.
“That was the beginning of the family story here in America,” Anderson explains.
The S.S. Kroonland was in service from 1902-1927, Anderson says. It was built by the Red Star Line. (Image via ancestry.com)
Kallman had only $20 with him when he first arrived, according to the manifest. Six months later, he and his brother had made enough to send for other family members. Fast forward a century. The family members now have enough wealth to be considered among Wells Fargo’s top clients, which is how they came to work with Anderson.
Wells Fargo employs a team of historians to research and document the family histories of its top clients, those with the potential of doing at least $25 million dollars’ worth of business with the bank. While it doesn’t charge for the service, Anderson says these histories more than pay for themselves.
“In particular with multigenerational families, it’s not uncommon to see a doubling of assets under management after we do this,” he says.
Anderson says documenting this history for the Kallmans helped deepen the family's relationship with the bank, but he also works with new and potential clients, even some companies. Genealogy has become an increasingly popular pastime for many Americans. Ancestary.com and its affiliated websites brought in $620 million in revenue last year, nearly triple 2009 figures.
The ship manifest page on which Hirsch and his brother Simon are listed as arriving on the S.S. Kroonland, according to Anderson. (Image via ancestry.com)
However, for Alter Kallman, this was more than just a hobby. She lost her parents and two siblings during the Holocaust and used Anderson’s research to aid in the writing of a memoir, “A Candle in the Heart.”
“I needed that sense of belonging, knowing where I came from,” she says. “I had to pass this on to my children: ‘Don’t get involved with the wrong crowd, with the wrong people. You come from a wonderful foundation; you come from a heritage that is special.’ ”
Anderson says helping clients teach the next generation where the family’s money came from and the hard work it took to create it is a big motivator for Wells Fargo. After all, it’s in the business of building and preserving wealth — they don’t want that money going anywhere. The more they manage, the more they make.
He tells customers to consider your past to plan your future.
“History is always about the future,” he says. “If you just take a look at the reasons why you were successful previously, they’re the best signpost you’ll ever have about how to be successful going forward.”
For tips on how to start researching your own history, check out the document below:
Joining us to talk about the week's business and economic news are Leigh Gallagher of Fortune and the Wall Street Journal's John Carney. The big topics this week: Greece and the EU kicked the can, the potential looming meltdown in China, Google's earnings and the Fed.
Housing starts rose 9.8 percent in June, the U.S. Commerce Department reported Friday. Yet behind that big monthly number is some economic noise. Almost all the building increase came in apartments and condos, which creates fewer jobs than the single-family house market and can be a volatile statistic month to month.
Still, economist Stephanie Karol of IHS Global Insight notes a broader set of numbers that reflect what she calls a housing recovery gaining steam: building permits are at their highest in eight years; single-family housing starts, on an annualized basis, were up 43 percent in the second quarter; and first-time home buyer purchases rose nearly 30 percent over last year.
"That's new blood entering the marketplace," Karol says. "That frees up some of the older buyers to then turn around and say 'Hey, I want a new house. I want to build the house that I've always wanted.' "
Analyst Daniel Hyman at Pimco notes the housing market is fueled by an improving labor market. He says the economy has created 10 million jobs in the last five years, and the jobless rate has dropped more than four percentage points.
"People have jobs, a little more money in their pocket," Hyman says. "They form households."
Banks may hold a key to the next level of recovery, says Morgan Stanley managing director Vishwanath Tirupattur. He says mortgages are affordable, they just aren't available to enough people.
"While we are getting better, better than last year," Tirupattur says, "we are quite far from what would I consider to be a more normalized housing market."
Nearly a third of millennials still live with their parents, and about four in ten older millennials have children, according to the Census Bureau’s data released this week. Millennials — the oft-marketed-to 18- to 34-year-olds — make up a third of the labor force, and they're a generation in transition. How do millennials live? And with whom? Let’s do the numbers:
Many more millennials have lived with their parents since the financial crisis. Many millennials can’t work out the math to become a homeowner. There are also remaining nightmares of underwater mortgages. These seem to be big challenges especially for men. A lot more of them remain at their parents’ homes than women do.
Much fewer millennials are choosing to live with non-related roommates compared to a decade ago. Picking random roommates or living with friends has fallen out of fashion as more young people live with their relatives or opt to live alone.
"Will you marry me?" "No, I won't." "Will you reside with me? Yes, I do."
More younger millennials are choosing to live with their significant other without being married. That's a marked difference from just a decade ago, and older millennials are on the same path, although their rate of marriage is declining more slowly.
Though summer can conjure images of vacations, resorts and road trips, fewer Americans are actually taking time off from their jobs to go on those vacations.
Katie Denis is senior director at Project: Time Off, an organization that researches paid time off in the U.S and its effects. The company is powered by the U.S. Travel Organization, which represents many companies in the travel and tourism industry.
In a recent report, Project: Time Off found that the declining American vacation is actually a relatively new problem. "When you look at how much vacation we've taken historically, there's this idea of the storied American work ethic, and that's always been part of the fabric of our country. But we looked at data from the Bureau of Labor Statistics that starts back from the '70s to about 2000, we have this really static trend line of taking about 20.3 days vacation."Courtesy of Project: Time Off
"And then we start to drop off. And the drop off has not slowed. In just the last 15 years, not even 15 years, we've managed to lose almost a full work week of vacation," Denis says. "Most people when we talk about this say, 'Well, you know, we're not going to be France.' No one says we have to be France. We can be the U.S. 15 years ago. It doesn't have to be a massive, massive overhaul of everything we can consider normal."
Denis mentions that the traditional thinking that as hours worked goes up, productivity must follow, is also an inhibitor to why we don't take time off."I was actually looking at the typical hours per week that [people in Organisation for Economic Co-operation and Development] countries worked. Germany has one of the lowest hours-per-week-worked countries out there. And I think everyone really highly regards their economy— Greece in particular. They're highly productive, but they're on the lower end of hours.
"I think that if you're overworked, your productivity drops off. There's tons of studies that show that. It's one of those things. I know I went through that when I had my first child. I put way more hours before, but day care does not care about your work life. My productivity, if anything, went way up."
Most people who eschew taking time off worry that work is going to pile up if they leave the office or that they don't want to be seen as replaceable.
Denis, though, says this is the wrong mindset. "As much as we've talked to employees, we've also talked to company leadership, managers, [human resource] leaders, trying to get a sense of what they think about the issue. And what we're finding is they are overwhelmingly positive. They know all the benefits and taking time off. They know it's good for their employees, but they don't talk about it. When we ask employees, 'OK, what do you hear from company leadership, management, about this issue?' two-thirds say, 'I don't really hear anything.'"
In a small plane climbing quickly to 12,500 feet, 20 skydivers are packed like sardines, waiting to jump.
At Skydive Perris in Perris, California, this is one of many planes to take off today, packed with professional skydivers and first-timers looking for a thrill.
Divers line up to board a plane at Skydive Perris. (Bill Lancz/Marketplace)
Skydive Perris is a destination for skydivers: it's one of the largest skydiving facilities in the country, one of only two with a wind tunnel. The facility operates seven of its own planes, runs it own tiny airport and is home to a well-known skydiving school. On the ground, there is a pool, a restaurant and a bar (no drinks before jumping, only after).
The Redbull is flowing freely, and Perris is full of skydivers wearing brightly colored flight suits and heavy parachute packs. Seasoned pros land at high speeds, chutes flapping behind them, and sprint in to swap packs and hop on the next plane. Behind them come first-time jumpers, legs still wobbling a little from fear or adrenaline, beaming and hardly able to speak.
Even in the summer, Skydive Perris' low season, you might see 80 first-time jumpers on a weekend day. Full-time skydivers frequent the facility too, paying $26 per jump once they have their own equipment, a steep discount from a $199 first-time tandem jump.
"We are a recreational facility the same way a ski slope would be ... a tennis club, a golf course," Skydive Perris Manager Dan Brodsky-Chenfeld says. "There are people here from 18-85 years old, from every conceivable walk of life, every economic background, every different kind of job, every ethnicity — quite a wide range of people."
Brodsky-Chenfeld has seen whole families come in to jump and even hosted a man jumping for his 100th birthday who came back for his 101st.
Keeping the busy facility running takes a lot of work. According to Brodsky-Chenfeld, "about 100 people earn their living at Skydive Perris." That includes instructors, pilots, parachute riggers and a full-time maintenance crew for the planes. The restaurant, bar and wind tunnel have full-time staffs, and freelancers travel to Perris to teach lessons.
The business of adventure isn't always lucrative. "You're not necessarily going to buy a Mercedes or a mansion," says pro diver and instructor Lawrence de Laubadere, "but, you're going to be happy, and when you wake up, you're happy and you get to make people happy."
De Laubadere makes money teaching people to dive. He got hooked during college and has been with Perris for four years, ever since he left work at the United Nations for what was supposed to be a three-month skydiving vacation.
Wingsuit skydivers hang out the window of the plane preparing to perform a trick jump. Two divers will fly together, one on the other's back, while a third diver films. (Bill Lancz/Marketplace)
Professional skydivers like de Laubadere make money doing demonstration dives, jumping into stadiums and for big events. They can also make money coaching, teaching new jumpers or, if they invest their own time and money, honing their skills to the point where they can instruct wingsuit skydivers and teach more skilled specialties.
Most of the instructors at Skydive Perris make $40 to $50 per jump. Most of them say it's not really about the money — one wingsuit diver, a tourist from Iceland, says his goal is to make enough money teaching skydiving to support his own skydiving.
De Laubadere agrees. "The other day I jumped onto Santa Monica beach, and I got 200 bucks for it," de Laubadere says, "and frankly, I would have paid 500 bucks to make that jump, because it was awesome."
Repeat skydivers, whether or not they're making their living jumping from planes, seem to be chasing something other than a thrill. The real reason so many of them keep jumping? Flight, freedom and the sense of complete focus and calm they feel right when they exit the plane.
Skydivers parachute down towards the landing strip at Skydive Perris. (Bill Lancz/Marketplace)
"People think that skydivers are just here for the adrenaline rush, but I've got over 26,000 jumps," Brodsky-Chenfeld says. "If I still had the same adrenaline rush as I did on my first jump, I'd have had a heart attack by now. It's not about that ... you learn to fly ... and it's that sensation that we're all in love with, and there's nothing like that feeling at all."
Next week on the Marketplace Weekend, we'll be looking at the places where we seek shelter in our cities, lives and in our wallets.
We want to hear from you! Where do you seek financial shelter? Tell us your story.
The agency was born out of the Dodd-Frank Wall Street Reform and Consumer Protection Act and was launched in 2011. Handling consumer complaints related to issues like debt collections and banking services is a key part of its mission. The CFPB says in its four years of existence, it has handled 650,000 consumer complaints, and its enforcement work has resulted in more than $10 billion in relief for more than 17 million consumers.
Consumer advocate Ed Mierzwinski with U.S. Public Interest Research Group says the CFPB's new monthly report provides a kind of dashboard summarizing complaints.
“So every month, the CFPB is going to say which are the worst companies, and then it's going to drill down into a specific kind of company, and finally it's going to look at geographical trends,” he says.
Rankings are based on volume of complaints. The credit reporting agencies Equifax and Experian had the most over a three-month period earlier this year. Bank of America came in third.
“They're basically in the shaming of banks business by providing what I call a ‘David Letterman Top 10 List’ of complaints,” says Richard Hunt, president of the Consumer Bankers Association.
Hunt is dissatisfied with the CFPB's methods of substantiating consumers’ beefs. And he says the largest institutions will naturally rack up the most complaints.
“I could’ve saved the CFPB a lot of taxpayer money deducing that,” he says.
In written remarks yesterday, CFPB Director Richard Cordray said the agency is assessing how it can "'normalize' complaint data for size and volume, among other things.'"
After the week's turmoil in Europe, we'll check in on the U.S. economy. Plus, we'll talk to U.S. Secretary of Education Arne Duncan about the Senate's vote to revise No Child Left Behind. And we just got more details on the biggest apparel deal in college sports history: Nike is agreeing to pay the University of Michigan $169 million to be the school’s official athletic brand. It’s a sign of the battle between Nike, Adidas and Under Armour to own college campuses.
On Wednesday, one of Puerto Rico’s government agencies failed to transfer a debt payment of $93.7 million to a trustee. Failure to make an additional payment on August 1st could constitute a default. Now, if this same scenario were happening in a state, that agency would probably restructure what they owe — just look at the city of Detroit last year. But Puerto Rican agencies can’t do that.
"What's really weird about Puerto Rico is that the commonwealth has been excluded from the Chapter 9 provisions of the bankruptcy code," says John Pottow, a professor at the University of Michigan Law School. "Now what's weird about Puerto Rico's omission from the bankruptcy code is that no one can really defend it. It appears to be a technical error. In fact, if you go back through the legislative history it looks like Congress tried to fix it and was unsuccessful. So, the clear text of the Federal Bankruptcy Code for mysterious reasons precludes Puerto Rico from letting its entities file for Chapter 9."
There's a bill in Congress that would allow Puerto Rican agencies to file for Chapter 9, but it has stalled. And Federal Reserve Chair Janet Yellen said Wednesday that she thinks the Fed "can't and shouldn't" get involved in the commonwealth's debt crisis. The commonwealth itself even drafted legislation to try to restructure its debt. "It passed and then got struck down as unconstitutional for, ironically, violating Chapter 9 of the Federal Bankruptcy Code, which they say preempts it," Pottow says.
Steven Walt, a bankruptcy law specialist at the University of Virginia Law School, says even if Puerto Rican agencies continue to miss payments, bond holders aren't in a very powerful position because everyone will just have to wait and see what happens in Congress before creditors can go about collecting. "Realistically speaking, okay, so there's a default. What are the collectors going to do? Yes, they're entitled to payment and even to accelerate their debt but they're going to have a very hard time realizing on any assets in Puerto Rico."
Walt says the complicated, multi-faceted debt restructuring scenario for Puerto Rico puts them between a rock and a hard place. "They can't restructure, without unanimous agreement, and that's not forthcoming. At the same time they don't have entry into the bankruptcy code. They can't enter it directly as a municipality, obviously. And secondly, Chapter 9 somehow preempts them from enacting legislation that would allow for restructuring. So, it leaves them out in the cold, doesn't it?"
Iranians are flying around in airplanes that are at least 25 years old. There have been crashes, and many near-crashes.
“The plane is struggling, going up and down and side to side,” says Hooshang Amirahmadi, a Rutgers professor and President of the American Iranian Council, a nonprofit working to improve U.S.-Iranian relations, recalling a flight in Iran about a dozen years ago. “The plane almost crashed.”
That was an old Russian plane. But Iran can’t get new parts for its aging western-made planes because of sanctions. Western companies were briefly allowed to apply for licenses to export things like spare airplane parts to Iran.
“This is a relatively small market,” says Joel Johnson, an aerospace trade analyst at the Teal Group.
He says, for example, Boeing has a backlog of orders for new planes.
“There’s a limit to how much enthusiasm you bring to the table when you have a very strong backlog already,” he says.
As part of a series about music technology called "Noise Makers," we're talking to musicians about their favorite noise-making device.
When asked about the most important gear she brings on tour, Neko Case immediately points to the 1960 Fender Jazzmaster. Previously, the guitar belonged to Case's favorite guitar player of all time, Pete Staples.
But more than its sentimental value, Case speaks of the guitar's lower register, which she says helps her with vocal tuning: "Low end is a really hard thing to capture at a live show sometimes, if you're singing. It's a vibration that's not that easy to make with your own body sometimes."
Plus, she simply adores it. Short on superlatives, Case let her imagination run, describing it as "a sleek panther covered in maple syrup shaking in slow motion."
Click the media player above to hear Neko Case of the New Pornographers about her beloved 1960 Fender Jazzmaster.
It's time for Silicon Tally! How well have you kept up with the week in tech news?
Click the media player above to play along.
The Senate passed an overhaul of the federal No Child Left Behind act on Thursday. Annual testing will still be required in most grades, but the federal government will have less of a role in how those tests are used to hold schools accountable.
Unlike the version passed in the House earlier this month, the bill passed in the Senate had strong bi-partisan support. Now, negotiators will try to reconcile the two.
U.S. Secretary of Education Arne Duncan says part of the focus of reform should be eliminating redundancies in test-taking for students. Says Duncan, "I always remind people that when I led the Chicago public schools, we were taking the Illinois state test — which made sense — but for some reason, our students were also taking the Iowa tests, which didn't make sense to me."
He says flaws in No Child Left Behind had to do with where it placed its priorities: "What it got fundamentally wrong is it was very, very loose on goals — so you had 50 different states, 50 different standards — but very prescriptive on how you get there."
Click the media player above to hear Marketplace's Amy Scott in conversation with U.S. Secretary of Education Arne Duncan.
We got details this week on the biggest apparel deal in college sports history: Nike will pay the University of Michigan $169 million to be the school's official athletic brand.
And if that sounds like a lot of money just to put the iconic swoosh on Wolverine jerseys, then you have to understand the battle that brands are waging right now to own college campuses.
For fans, this stuff matters.
When Michigan fans found out the school would be leaving Adidas — which it partnered with in another major apparel contract back in 2007 — and going back to Nike, the reaction was big.
There was mass celebration on fan blogs. Athletes rejoiced on Twitter. Interim Athletic Director, Jim Hackett, even told reporters that beloved Coach Jim Harbaugh had voiced his desire to go with Nike just two days after taking the job at Michigan.
There were rumors and hints that Michigan had actually left even more lucrative offers from Under Armor or Adidas on the table.
At the Coach and Four Barbershop in downtown Ann Arbor, rising junior Brian Cook laughed at how much this all meant to him and other fans: “We have such, like, a big feeling about this stuff!”
Now sports fanatics, and maybe college fans especially, are known for sweating the small stuff: the details and stats and minutiae that totally escapes the less devoted. But this felt different. This didn’t just feel like navel gazing about jerseys and cleats and helmet design. Because on campuses in recent years, the emotion about whether your school is Nike or Adidas or Under Armor – it’s real.
"It's less about money and more about keeping up with the rest of college football, really,” says barber James Price.
“When you see Nike, you know they're going to do what they have to do promote the school, and put the school on that pedestal."
“The battleground for American universities”
And that belief that Price just voiced? That’s obviously priceless to brands like Nike.
That’s why Nike is in a kind of arms race with Under Armor and Adidas to throw more and more money at apparel contracts with big sports schools.
Because they're not just trying to sell shoes — although, yeah, they want to sell shoes.
They're also trying to BE college football and basketball, at least in the fan's mind - the biggest, fastest, sexiest parts of college ball.
Take Nike’s ad for its football camp, The Opening, for top high school players, where a gravel-voiced coach shouts at a bunch of teenagers that “every year, 163 of the strongest and bad-est will come to play, with another thousand KILLING themselves to get here!”
The Opening may not be the kind of industry staple that Nike would like it to be – at least not yet.
But it’s one of the way that brands are trying to drive and even create content, not just apparel, when it comes to college sports.
And it’s smart. Because right now, in these slow July days, there just isn’t a lot of football happening. So reporters and blogs write about — and then fans endlessly dissect — what’s happening at camps like this one. Clips from great plays go viral. It makes “news.”
Then, hey, look at that: Nike also conveniently allows you to purchase every $200 pair of cleats and $50 camo tights that players at the Opening are wearing. So thoughtful of them.
Morningstar analyst Paul Swinand, who focuses on sporting and luxury goods, says this is all part of a new national approach.
“The battleground for American universities is part of the strategy to get the consumer early to lock in their emotional ties to the brand,” Swinand says. "That's made it imperative to get the biggest, and the needle-moving schools in your camp. So I don't want to say that they're ready to write blank checks to universities. But they're competing much harder and willing to spend more. That's driving the price up."
Plus, as audiences becomes increasingly fragmented between all the competing offerings on TV, web, and mobile, live sports is one of the few ways brands can get national attention.
And teams with deep, rabidly loyal fan bases like Michigan’s? Those are worth more than ever.
That's how many flight miles two hackers were given apiece for finding a hole in an United Airlines' website. As the BBC reports, the reward came as part of a bug bounty program offered by many companies to locate flaws in security before hackers with malicious intent can find them.$169 million
That's how much Nike will pay to be the University of Michigan's official brand. The Wolverines leave behind a previous deal with Adidas and a reported offer from Under Armour. With price tags for major college sport sponsorship ever rising, it seems the real competition is between brands.$30,000
That was the starting price for a luxury doll house once sold by F.A.O. Schwarz — customization and details added to the price from there. But the dollhouse was just one of several luxury toys that created the store's brand of exclusivity, a distinction that faded when it was bought out by Toys "R" Us in 2009. Head over to the Atlantic for a debriefer of some of the other impossibly expensive fare once offered by the iconic toy store. While you're there, pour one out for the Richie Rich's of the world: the store closed up its New York flagship this week.$93.7 million
That's the size of the debt payment Puerto Rico failed to make on Wednesday. Even more difficult? The commonwealth is excluded from Chapter 9 provision of the bankruptcy code. That's gotten in the way of Puerto Rico being able to restructure its debt.
South Korea is home to a very big corporate empire – Samsung. And Samsung is in the middle of a very big takeover fight right now.
It's in one corner and in the other, across the Pacific Ocean, is Elliott Associates, an American hedge fund with a large stake in the subsidiary at question. With any other company, you could boil this down to a battle between a founding family and its shareholders. But Samsung is a unique kind of company. And that means this isn't your typical takeover fight.
Says Will Stofega, an analyst covering the mobility market with market research firm IDC, “You have under one corporate umbrella a company that does everything from life insurance, hotels, construction, electronics and lots of other different products."
On top of that, Samsung is what’s called a chaebol— a South Korean conglomerate founded and controlled by one family. Chaebols can be enormous – just look right at Samsung.
“It contributes roughly about 23 percent of Korea’s GDP,” Stofega says.
If you’re a shareholder, that kind of earning potential should turn the corners of your mouth upwards, but chaebols have often been the target of criticism on behalf of shareholders who aren't part of the family.
"The bad news is there can be issues where the governance is not what it should be from a shareholder perspective," says David Larcker, senior faculty of the Arthur and Toni Rembe Rock Center for Corporate Governance at Stanford.
Larcker notes that because of the family’s interests and complicated relationships, business decisions may not always be made with the profits of the shareholders of just one company in mind.
“Are you investing money to increase value or are you investing money to maintain a family or business relationship that’s long standing?”
Given its size and connections, non-family shareholders don’t have a strong chance to fight Samsung, Stofega says. Then there’s culture. Usha Haley, an expert on East Asian governance and prior consultant to the South Korean government on chaebols, says bottom line, it may not make sense to expect foreign businesses to work like American ones.
"When culture meets legal regimes and legal rules, one or the other gives, and it’s generally the legal regulations that do,” she says.
Canada's central bank has cut its key interest rate and slashed its economic outlook in the second quarter due to the impact of lower oil prices and weaker demand for exports.
The Bank of Canada cut its target for the overnight rate by a quarter of a percentage point to 0.5 percent. In response, the Canadian dollar dropped to a post-recession low of about 77 U.S. cents.
This news is troubling enough, but it also marks the second straight quarter where Canada’s gross domestic product actually contracted — the textbook definition of a recession.
And yet, “I'm really hesitant to call it a recession at this point,” says Jeremy Kronick, a senior policy analyst at C.D. Howe Institute, an economic policy think tank based in Toronto.
“We have to have some duration of negative growth, we have to have obviously certain amplitude, but even more importantly we need it to be widespread,” Kronick says.
He says the downturn is largely caused by one industry — energy. Crude oil found in Canada’s western provinces is the country’s top export.
Arlene Kish, a senior Canada economist for IHS, says that despite steep cutbacks in the oil industry, other sectors such as retail and housing are doing quite well.
“So, consumers are still out there spending, incomes are still rising, so it’s not as if we're facing any major challenges on the household front,” Kish says.
Moreover, Canada’s main trading partner, the United States, is still doing well; any threat to the broader North American economy typically runs from the U.S. north, not the other way around.
“When they sneeze, we catch a cold," she said. "So, when Canada has a recession it is typically not going to be felt that big in the U.S.”
She said low interest rates, and the favorable exchange rate with the U.S. dollar, should eventually boost the manufacturing sectors located in Ontario and Quebec, which are heavily vested in aerospace and the auto industries.