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MP:

The debt service ratio was 11.75% in the last quarter of 2010, which is the lowest ratio since the first quarter of 1998, and the financial obligations ratio at 16.64% in Q4 2010 was the lowest since the first quarter of 1995.

Explanations? Thoughts?

PeakTrader said...

Losing your $60,000 job, house, car, credit cards, etc. will reduce monthly payments.

And then when you get your job at McDonalds for $20,000, you don't have to worry about a mortgage, a car payment, credit cards, etc.

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PeakTrader said...

Small businesses need to take up the slack.

Nonetheless, "Corporate America" has been strengthening for decades.

U.S. multinationals offshored low profitable goods, imported those goods at lower prices and at higher profits, redeployed resources into more profitable goods, including goods with market power, and freed-up resources for emerging firms.

U.S. industrial and tech firms have much stronger balance sheets, particularly after the quick and massive "Creative-Destruction" process, mostly from 2000-02.

May 10, 2011 Articles:

“Owners found no reason to be optimistic about the future and see no reason to pick up the pace of spending and hiring,” William Dunkelberg, the group’s chief economist, said in a statement. “Spending must recover here to get employment up and running.”

A growing gap is emerging between the large corporations and small businesses, even as expressed by the S&P 500 vs. the Russell 2000 (whose members are far bigger than those in the NFIB survey).

Just 16% of survey respondents plan to increase hiring, down 2%.

“It’s difficult to know exactly why the outlook for small firms is in decline; but it’s a safe bet that political and economic uncertainty – about the deficit, the threat of inflation, rising energy and healthcare costs – are at top of the mind for most small-business owners.”

The disparity “suggests that the bulk of new hiring is happening in larger firms and the smaller counterparts on Main Street – the ones traditionally responsible for leading the country out of recessions – are still struggling to hire.”

Some good news?:

The report “could have been much worse”...said Ian Shepherdson, chief US economist at High Frequency Economics. “Small firms remain gloomy, and hiring and [capital expenditure] intentions are still very weak, but we think this should be the floor.”

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VangelV said...

"U.S. industrial and tech firms have much stronger balance sheets, particularly after the quick and massive "Creative-Destruction" process, mostly from 2000-02."

Do they? And how does it benefit US workers when the capital is deployed abroad and creates jobs for foreign workers instead?

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PeakTrader said...

VangelV, it frees American workers of unnecessary jobs, and allows limited resources (e.g. labor, capital, land, raw materials, energy, etc.) to shift into higher skilled-higher quality-higher paying U.S. jobs.

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VangelV said...

"VangelV, it frees American workers of unnecessary jobs, and allows limited resources (e.g. labor, capital, land, raw materials, energy, etc.) to shift into higher skilled-higher quality-higher paying U.S. jobs."

I agree that is what would happen if government got out of the way and let the markets work. But that is not what is happening because high tax rates prevent repatriation of earnings and domestic capital formation. Those 'high paying' jobs are not there because the private investment is not there.

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PeakTrader said...

The net effect of many government policies has made it more difficult for most small businesses to succeed.

It's important to note, the U.S. is, by far, the most capital abundant country in the world. Yet, most of its high-paying jobs are labor intensive.

Jobs in Silicon Valley and Wall Street, for example, are labor intensive. A factory in China is capital intensive (and labor abundant).

Moreover, I may add, U.S. production has become "lighter," and less energy intensive.

The knowledge economy produces many goods & services that weigh little or nothing.

Of course, the energy savings on the production side were used on the consumption side.

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VangelV said...

"The net effect of many government policies has made it more difficult for most small businesses to succeed."

Very true. Unlike the big companies small business can't spend a lot on accountants and lawyers to get around rules put up by Congress.

"It's important to note, the U.S. is, by far, the most capital abundant country in the world. Yet, most of its high-paying jobs are labor intensive."

Nonsense. Your airports, railroads, highways, and bridges are below many Developing World standards. Cities are falling apart. Commercial buildings and houses lay abandoned. Few new refineries or nuclear power plants have been built over the past thirty years. Many oil pipelines are old and past their design lives. Sewer and water systems are crumbling under city streets. The economy has shifted away from production and towards consumption.

"Jobs in Silicon Valley and Wall Street, for example, are labor intensive. A factory in China is capital intensive (and labor abundant)."

But many Wall Street jobs are not very productive for anyone other than Wall Street firms. The Wall Street performance is an accounting illusion brought on by the changes forced onto FASB and by actions taken by the Fed. If those firms had to value their assets properly and could not sell them to the Fed they would be insolvent.

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PeakTrader said...

VangelV, I guess, you didn't notice the U.S. productivity boom, record breaking U.S. profit growth, huge foreign capital inflows (i.e. capital account surpluses), etc.

"Too many" assets and goods (e.g. bigger and better houses, autos, imports, etc.) are a problem when diminished marginal utility and a lack of liquidity reach the point where Americans won't buy anymore goods unless they're almost free.

Wall Street not only facilitated the U.S. profit boom, and help lower prices for U.S. consumers, it recycled dollars by selling securites overseas, and diversified the risk worldwide, which provided dollars to U.S. consumers.

Also, you're talking about some poorly managed big cities.

Take a look at Bellevue, Washington or the 100 mile stretch between Orange County and San Diego California. There are many new cities in the U.S.

Moreover, take a look at some older U.S. cities, e.g. Denver Colorado. Recently, it built three new pro sports stadiums, a new convention center, a huge central library, renovated the entire lower downtown (that looks like the 1920s when it was new), repaved the streets and rebuilt the sidewalks, built an international airport, a light rail system, etc.

Around 10 miles southeast of Denver is another Denver: The Denver Tech Center, which has grown faster than Silicon Valley. There are about a hundred tech campuses, impressive new malls, and upper income housing tracts have replaced empty fields all the way to the mountains in the west and Castle Rock in the south.

Moreover, I may add, almost the entire U.S. homebuilding boom took place in new cities and neighborhoods.

Huge segments of many big U.S. cities would be ghost towns if it weren't for tens of millions of poor immigrants and their children.

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juandos said...

"it frees American workers of unnecessary jobs, and allows limited resources (e.g. labor, capital, land, raw materials, energy, etc.) to shift into higher skilled-higher quality-higher paying U.S. jobs"...

Yeah PT I agree with you on the principle but those supposedly 'unnecessary jobs' come with paychecks and are part of the tax base...

Considering today's political atmosphere what companies want to invest in business that will offer higher paying jobs?

I mean look at today's U6 number of 15.9%.

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PeakTrader said...

Juandos, should we blame American businesses for producing more output with fewer inputs?

Who's to blame for too few small businesses, too little residential and commercial construction (and production of related goods), energy underproduction, and high costs of health care and education?

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QT said...

Peak Trader

...I'm thinking you mean government?

Excellent posts.

VangeIV,

Would love to know how many developing nations have better infrastructure than the U.S. China, Brazil, India, Asian tiger economies may have impressive infrastructure but these are the exception...hardly representative of conditions in developing countries around the world.

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PeakTrader said...

QT, thanks.

What to do with a shrinking city?:

A Shrinking City Knocks Down Neighborhoods
Mar 15, 2011

Youngstown, Ohio, gave up on the idea that a city needs to grow. Now, the city is trying to figure out how to shrink.

The population was shrinking year after year.

Without the dream of growth, Youngstown just had a bunch of empty houses that no one was ever coming back to. So the city started demolishing thousands of empty houses.

Thousands of people will leave one neighborhood, and maybe a dozen people will stay behind.

So Youngstown has been offering financial help for those people left behind, offering to move them to a place with more neighbors.

"...streets could be closed," D'Avignon says. "Trash wouldn't have to be picked up in that area."...the city will close entire neighborhoods...That would save the city a lot of money.

Earlier this week, the 2010 census numbers came out for Ohio. Youngstown's population shrunk by 18 percent in the last decade.

The city can only...hope that the population does eventually stabilize, while there's still some city left to enjoy.

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Benjamin said...

PT_
Detroit is trying farming. Maybe farming can make a comeback in Youngstown. Usually towns started out due to good farmland.

And think of the endless fount of federal subsidies and lard that would pour into Youngstown when you started farming.

Farming is subsidized; manufacturing is not.