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Which way for the economy? Four new signs.
A spate of economic data out Thursday offered mixed — but mostly negative — signs about the pace of growth. Here’s what the statistics tell us about the state of the recovery. — Neil Irwin
EARNINGS J.P. Morgan posts $4.8 billion profit
J.P. Morgan Chase said its sec- ond-quarter net income was $4.8 billion, a 77 percent rise, as losses from failed loans eased. That helped offset a difficult spring in trading and investment banking, and the company beat analysts’ profit estimates. Rev- enue, however, declined nearly 8 percent, to $25.6 billion. The results offered hope that loan losses at the nation’s biggest banks may have peaked in the first half of 2010, a critical step before banks can become stron-
ger and boost lending to con- sumers and small businesses. J.P. Morgan set aside $3.36 billion to cover bad loans, down 65 percent from a year ago and 52 percent from the first quarter, but chief executive Jamie Dimon said loan losses overall “remain at extreme- ly high levels.”
Economists and investors are looking to those loan-loss levels as an indicator of how the eco- nomic recovery is faring. — Associated Press
Google’s gains miss Wall Street’s target Google missed Wall Street’s
quarterly profit estimates for the first time in two years after a spike in expenses offset a 24 per- cent revenue jump. The search gi- ant said it earned $1.84 billion ($5.71 a share) in the second quarter, up from $1.48 billion ($4.66) a year earlier. Excluding one-time charges, its per-share profit was $6.45, below the aver-
JOSHUA ROBERTS/BLOOMBERG NEWS Hopefuls line up at a District job fair in May. U.S. unemployment claims fell significantly last week; it’s unclear whether that signals a trend. Manufacturing production
Overall industrial production edged up in June, but only because warmer-than-usual weather led utilities to amp up their production. A 0.4 percent drop in output by manufac- turers shows that activity in the nation’s factories is slowing down as companies have largely completed rebuilding their inventories from lows during the recession.
Percentage change from preceding month, seasonally adjusted
2.0 %
0.5 1.0 1.5
-0.5 0
Producer price index
Wholesale prices, meanwhile, fell 0.5 percent, the latest evidence that price pressures are nonexistent in recent months and deflation, or falling prices, could even be a risk. The decline was driven by a drop in food and energy prices, but even excluding those volatile categories the producer price index rose a scant 0.1 percent.
Percent change from previous month, seasonally adjusted
0.5 1.0 1.5 2.0
J J A S O N D J F M A M J -0.4%
2009 2010
-1.5 -1.0 -0.5 0
% Unemployment claims
In a piece of good news, the number of new claims for unemployment insurance benefits fell to 429,000 last week, from 458,000. That’s the best sign in months that the pace of jobs losses is slowing — or it would be if it weren’t for some screwy seasonal factors involving automakers’ production schedules that pulled the number down. It will take a few more weeks to see whether the improved number is a fluke or a trend.
Weekly initial unemployment claims, in thousands, seasonally adjusted
-0.5%
300 350 400 450 500
0 2009
J J A S O N D J F M A M J 2010
SOURCES: Federal Reserve, Bureau of Labor Statistics, Labor Department, Federal Reserve Bank of New York J 2010 F M A M J J Empire State manufacturing survey*
Surveys of business activity by two regional Federal Reserve banks show a rapidly deccelerating recovery. The Empire State survey of manufacturers in New York state declined to its lowest level this year, and the Philadelphia Fed’s survey showed the lowest level of manufacturing growth in that region since September. Both are further evidence that manufacturing will no longer drive the recovery.
General business condition index, seasonally adjusted
10 20 30 40
429,000
-40 -30 -20 -10 0
2007 *Monthly survey of manufacturers in New York state by the Federal Reserve Bank of New York. 5.1 MANUFACTURING
10-YEAR TREASURY UP $5.20 PER $1,000, 2.98% YIELD
CURRENCIES $1 = 87.36 YEN; EURO = $1.294
DIGEST
FRIDAY, JULY 16, 2010
age estimate of $6.52, according to Thomson Reuters. Google shares fell almost 4 per-
cent after-hours on worries about rising costs as it spent heavily on research and development and hired aggressively. The company said the spending was focused on initiatives it thinks could grow into billion-dollar businesses.
— Reuters
TED S. WARREN/ASSOCIATED PRESS More delays for Boeing 787
The first delivery of Boeing’s new 787 jetliner might slip into the first weeks of 2011 because of inspections and changing instruments on the flight-test aircraft, Boeing said Thursday. The modifications involve special sensors and data-gathering devices aboard the test planes and not standard flight instruments or systems. The 787 was earlier delayed because of problems with parts from suppliers around the globe.
ALSO IN BUSINESS 2008 2009 2010 THE WASHINGTON POST
For KKR, an unsteady debut: Shares of KKR wobbled in their debut on the New York Stock Ex- change. The parent company of private-equity firm Kohlberg Kravis Roberts opened at $10.50 Thursday, rising as high as $11.08 before closing down at $10.29. KKR said in a filing with the Se- curities and Exchange Commis-
prevents companies from using all that cash piling up on balance sheets to hire workers and make major investments. Then, without missing a beat, those very same business groups declare themselves unalterably opposed to any climate-change legislation that sets plant-specific targets for carbon reductions, puts a floor and a ceiling on the price of carbon, tells utilities exactly how much of their power should come from low-carbon sources or sets specific standards for the energy efficiency of cars and appliances.
T Apparently the Chamber of Commerce
types think Americans are so gullible that we won’t notice their blatant and self-serving hypocrisy. In reality, it’s only a certain kind of regulatory clarity they seek — the clarity of knowing that old regulations won’t be enforced and new ones will be dictated by industry lobbyists.
And here I was thinking how much progress had been made in getting past the stale political bromides. When the business community demanded
that regulations be subject to a cost-benefit analysis, that’s just what happened, over the objection of labor unions and environmental groups. The latest report from the staff at the Office of Management and Budget shows that the benefits outweighed the costs last year by record levels. Then the business community demanded
that regulators give up their command-and- control mentality and take a market-based approach that leaves it to each company to figure out how to meet goals. That’s exactly what the cap-and-trade bill on carbon emissions is all about — but now, apparently, that’s not good enough. It’s been 20 years since Harvard Business School professor Michael Porter provided scholarly support for the notion that, rather than hamper economic growth and competitiveness, well-crafted regulation could actually promote it. Porter’s first observation was that some of the world’s most prosperous and economically vibrant countries were also those with some of the
he big complaint from the business lobby these days concerns a “lack of clarity” about federal regulation that
Can regulation beget innovation? STEVEN PEARLSTEIN
most stringent business regulations, such as Germany and Japan. His studies of specific industries also turned up numerous examples of new products and more efficient ways of doing business that came about only because companies and industries were forced to comply with rules. Porter’s musings, introduced in an article in Scientific American, have since spawned a cottage industry of researchers intent on proving or disproving his hypothesis. Its most controversial aspect was to suggest that profit-maximizing companies were ignoring opportunities to produce profitable new products or adopt more-efficient production techniques. Such a notion not only runs counter to the most basic principles of economics and efficient markets, but it also offends the sensibility of corporate managers, who find it preposterous that such opportunities could be revealed only when the EPA or an OSHA inspector knocks on their company’s door.
But subsequent research confirmed what some of us have long since discovered — namely that corporate executives can be stuck in their ways, averse to risk and unwilling to sacrifice short-term profitability for long-term gain. And as a result of these market “imperfections,” sometimes a new regulation comes along that spurs innovation by forcing companies to look at things in new ways. That doesn’t mean that regulation is costless, but it does suggest that, on an economy-wide basis, those costs can be offset by subsequent investment and innovation. That, in fact, is the message I got Thursday from the chief executives of two of the country’s electric utilities, who were only too eager to tell me about the billions of dollars they are ready to spend if only Congress would adopt one of several reasonable
sion last week that it would regis- ter 204.9 million common units worth about $1.93 billion, and said it might later raise about $500 million in a share offering. As of March 31, KKR had assets under management of $54.7 bil- lion, up from $47.4 billion a year earlier.
— Associated Press
proposals on the table to limit carbon emissions. At this point they are so eager for regulatory “clarity” that they would accept a bill that, at least initially, applies only to their sector. At Public Service Enterprise Group, the
giant New Jersey utility, chief executive Ralph Izzo says his greatest fear is that Congress will do nothing about carbon emissions, the EPA will step in with regulation, and the next decade will be spent in endless litigation until global warming becomes a crisis. Better, he says, to bite the bullet and set a long-term price for carbon now, phase it in slowly and give businesses time and flexibility to adjust. At PSEG, that would mean immediately investing an extra $2 billion upgrading old plants, building solar and wind farms and helping customers with energy efficiency, with $10 billion more after that to build a nuclear power plant. “We all know something will have to be done, but we don’t know what and we don’t know when — and that’s putting us in limbo,” said Lew Hay, chief executive of NextEra Energy, the latest incarnation of the old Florida Power and Light. While Hay has lots of ideas of what he’d like to see in an energy and climate-change bill, he’s at the point where even an imperfect bill is better than no bill at all.
Once the rules are set, Hay says he’ll spend
$3.5 billion on new wind and solar production, in addition to what NextEra is already spending, that he estimates will generate 50,000 jobs over five years. That would be followed by a $14 billion-plus investment in two additional nuclear power plants. The problem in Washington is not that
President Obama and the Democratic Congress have created a hostile regulatory environment for investment and job creation. Rather, the problem is the hyperbole and poisonous rhetoric from the business lobby that have created a hostile environment for political compromise. Over the years, Americans have shown that they can respond creatively, even profitably, to reasonable regulation. Apparently our business leaders have lost faith that we can do it again.
pearlsteins@washpost.com
Faster Forward ROB PEGORARO Excerpt from
washingtonpost.com/fasterforward
The iPhone 4 antenna story, loud but not so clear The Story That Refuses to Die took another twist Thursday
afternoon, as Bloomberg BusinessWeek and the Wall Street Journal each reported that Apple chief executive Steve Jobs waved aside engineers’ warnings that the iPhone 4’s externally mounted antenna could suffer from interference. Neither the WSJ piece nor the Bloomberg story names sources — which is not surprising, given Apple’s extreme emphasis on secrecy — and the WSJ item quotes an Apple spokesman as saying Bloomberg’s story is “simply not true.” The reports add a whole new level of intrigue to the news conference that Apple had already scheduled for 1 p.m. Eastern time Friday to discuss iPhone 4 problems. I have no idea whether the Bloomberg and WSJ stories are true. For
that matter, it’s worth noting that many iPhone 4 users haven’t reported problems with their device’s reception. What I do know is that Jobs has a history of demanding progress, precision and then perfection in product design. For sheer volume of testimony about Jobs’s persnickety direction of product design, there’s no beating the collection of first-person accounts at
Folklore.org, which includes such details as Jobs threatening to remove sound capability from the Macintosh if its audio quality didn’t improve by Monday (it did, paving the way for years of further improvement). Most of the time, this we-must-do-better insistence pays off for Apple and its customers. But as long as Apple hires from the same fallible species as every other company in the world, this strategy won’t and can’t succeed all the time.
BUSINESS Smart analysis, fast
A pair of new blogs: The Company Beat looks at Washington through the eyes of corporate America and the issues that bring CEOs to Capitol Hill. Political Economy provides fast tips on breaking economic news, as well as interviews and quick analysis.
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washingtonpost.com/ business
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