Kent Hughes discussing the ‘fiscal cliff’ with LA Times

Deputy business editor Joe Bel Bruno and economy reporter Don Lee talk with Kent H. Hughes, director of the Program on America and the Global Economy at the Woodrow Wilson International Center for Scholars. Find more fiscal cliff stories at http://www.latimes.com/business

Housing Market Picks Up

housing marketAnother sign that the housing market is recovering came on November 29th when the National Association of Realtors reported an increase in pending home sales to 5.2% in October.

The improvement is reflected in the pending-home-sales index which reached 104.8 last month from 99.6 in September. On the index, 100 is equivalent to the 2001 average level of contract activity. This means the market is picking up beyond pre-recession levels in this sector as more people are buying previously owned homes. Despite the setback of Hurricane Sandy, which has slowed real estate markets in the Northeast, growth in the Midwest and in the South have more than made up for their neighbor’s regional decline.

This represents a 13.2% increase from this time last year, and continues the 18 month of gains for the real estate sector. This is an impressive rise, particularly considering the past uncertainty during election season and now before the fiscal cliff for buyers.  Furthermore, the Mortgage Bankers’ Association reported that last week applications for mortgage loans to buy homes increased 11% since November 9th, contributing to the 22% increase in purchasing applications this year.

Not only are the sales contracts and purchasing applications up from previous months and rising, but construction sector confidence in the housing market is also growing strongly. On the builder sentiment index the US now hits 46 in November, rising 5 points from 41 in October. A year ago, the index showed  confidence level of 17, with 50 and above marking positive sentiment regarding the market.

Positivity is certainly growing for many Americans, affirms NAR’s Chief Economist Lawrence Yun, “We’ve had very good housing affordability conditions for quite some time, but we’re seeing more impact now from steady job creation, and rising consumer confidence about home buying now that home prices have clearly turned positive.”

Posted by: Sophia Higgins

Sources: Reuters, Market Watch by the Wall Street Journal, Time Business

Photo Credit: Real Estate = Big Money courtesy of Flickr user thinkpanama

Wilson Center Policy Brief Series: Manufacturing Matters, Strengthening America: Inventing the Future

The Wilson Center recently released two essays by Kent Hughes, Director of the Program on America and the Global Economy, in its series of policy briefs on critical issues which will run from now until Inauguration Day.
 

Manufacturing Matters

Manufacturing plays a key role in the U.S. economy and will continue to do so. The private sector provides roughly 70 percent of total U.S. spending on research and development, and the bulk of that amount comes from manufacturing enterprises. Manufacturing generates 90 percent of U.S. patents. It also is central to the system that translates laboratory research into commercial products, thus generating jobs and creating wealth. Manufacturing also constitutes the single most important export sector of the economy and is thus critical to America’s ability to pay its way in the international economy. Finally, manufacturing generates millions of jobs, which provide pay and benefits that exceed the national average. Looking ahead, the United States needs a manufacturing strategy that can support the emergence of advanced manufacturing processes that, in conjunction with low-cost energy, can revitalize the U.S. manufacturing sector.

>> Read the Policy Brief in its Entirety

Strengthening America: Inventing the Future

The U.S. innovation system has enormous strengths, including public and private support for research and development, the world’s best university system, and an entrepreneurial risk-taking culture. But those elements of the system now face several domestic and international challenges. In the United States, cuts in federal spending could reduce support for university research. The kindergarten through 12th grade (K–12) education system struggles to keep pace with the rising demands of the 21st-century workplace. Internationally, the United States now faces competition to attract or keep advanced manufacturing firms, research facilities, and top scientific talent. The United States will need to maintain support for research and development (R&D), improve its education system, and learn from best practices around the world.

>> Read the Policy Brief in its Entirety

Making a Success of Every School

The Wilson Center and the Program on America and the Global Economy are proud to share a recently released publication on U.S. education reform:

Paul Vallas, distinguished scholar and noted education reformer, identifies the main challenges facing U.S. education in the 21st century.  He notes that US performance on the Programme for International Student Assessment (PISA) ranks American 15 year olds as 17th in science and 25th in mathematics.  Vallas and others stress that American schools have not declined.  Rather it is a case of technology, a changing job market, and rising international competition demanding much more of America’s educational system.  Attracting and retaining top teachers is vitally important, but Vallas stresses that one cannot neglect early childhood education, school improvement-focused state and district governance, and a 21st century curriculum.

Click here to access the full report

Wall Street Improves as Congress Meets on the Fiscal Cliff

On Monday, November 19th the DOW Jones Industrial average rose by 207 points and the S&P gained 2%, marking the second day of improved performance for Wall Street after a 5.3% drop of the S&P index after Election Day. The likely result of this improvement is lawmakers coming together to discuss the fiscal cliff, an imminent financial threat to investors and consumers alike.

In the words of Jeff Morris of Standard Life Investments, “”Constructive comments over the weekend are key for the market to feel like, in this postelection environment with all the intense partisan politics, the two parties will be able to get together to avoid the fiscal cliff that would put the economy back in contraction.”

The cliff, set to be reached on January 1st, 2013 will result in staggering tax increases coupled with extreme spending cuts if Congress and the executive do not find a resolution. The pressure of this situation and the post-election daze coupled with controversial European debt negotiations has negatively impacted the domestic financial outlook.

Nevertheless, several companies have claimed gains since Friday, including the top two achievers Lowe’s and Tyson Foods with a 6.2% rise and 7.8% respectively. Intel, however, saw a loss of .04% due to the retirement announcement of current CEO Paul Otellini who will step down in May. Hopefully in the coming weeks before the New Year, Congress can sit down and find a bipartisan solution to the impending crisis not only for the sake of Wall Street stocks, but for all Americans.

Posted by: Sophia Higgins

Sources: Reuters, Wall Street Journal, New York Times

Photo credit: Rep. Charlie Bass, R-NH @ photostream courtesy of Flickr user Talk Radio News Service

Starbucks: Serving So Much More than a Cup of Coffee

Starbucks was not kidding around when they dropped the word “coffee” from the logo. As of Wednesday, November 14th Starbucks Corporation has acquired Teavana Holdings Inc. for about $620 million. Entering the tea market is the latest strategy of the company to satisfy a growing global consumer demand for caffeinated beverages. In the words of Starbucks CFO Troy Alstead, “[tea] is the second-most consumed beverage in the world, second only to water. We should be leading in tea.”

Expanding into different beverage markets is a logical next choice for the company, which has seen a drop in domestic store presence by 440 locations within the last four years. Teavana marks the largest of a string of acquisitions by the coffee giant, including a $30 million deal with fresh juice brand Evolution Fresh Inc. and a $100 million purchase of La Boulange Bakery (Bay Bread LLC) last year. This is not the corporation’s first foray into the tea market. Tazo Tea was acquired in 1999 is now worth approximately $1.4 billion annually in pre-packed tea bag and drink sales. The two brands, however, will not create an Apple-like cannibalism of sales; Starbucks maintains that the two brands are “complementary” and company leadership has yet to decide if they will both be sold in Starbucks locations.

The company has released a plan to open 1,000 new Teavana stores in the US within the next five years. Will these new locations maintain Teavana’s trademark brand image loose-tea and its pottery shop ambience, or will the consistent packaging of a Starbucks experience be present in the new Teavana stores? While this remains to be seen, company heads have stated that their coffee will not be sold within Teavana shops.

This is likely to be an image and not a monetary decision for the corporation. Besides ownership of the entire drink experience- coffee, tea, juice- and the pastry on the side, Starbucks also earns billions each year in sales of its retail bottled beverages and juices at grocery stores and quick stop shoppes. Furthermore, the coffee king is planning to extend its reach into far-flung markets favoring tea, particularly in China and India where tea is consumer up to 16 and 7 times more often than coffee, respectively. Teavana, having recently expanded past North America and into Kuwait, will certainly get more face time on the global market as a result of one of Starbucks’ “smartest acquisitions” yet.

 

Posted by: Sophia Higgins

Sources: Bloomberg News, Reuters, Starbucks Corporation

Photo credit: Black Coffee and Tea in White Cup is Hot @ epSos.de’s photostream courtesy of Flickr user epSos.de

Will the US Ascend the Oil Throne by 2020?

The International Energy Agency predicts that by 2020, the United States will surpass Saudi Arabia as the world’s largest producer of oil. Furthermore, the agency forecasts that by 2035 the US will achieve energy self-sufficiency. These facts follow a trend of 14% growth in crude oil production as well as a 10% increase in natural gas production between 2008 and 2011.

Behind these developments are increases in private land production and new technological innovations such as hydraulic fracking, a controversial oil extraction method from shale rock formations. In addition to less expensive gas and electricity prices, the American oil and gas industry has a competitive edge against Russia and Saudi Arabia, the current top producers. Though the IEA foresees the US becoming a net exporter, it does not see the US exceeded either country in energy exports due to large domestic demand that will require about 93% of US production. US output is currently at 6.7 million barrels a day and is expected to reach nearly 12 million by 2020. Current import levels of 20% are expected to steadily decrease as the US satisfies its own demand.

The international community is contributing to the overall rise in oil production as well. By 2035, China, India and the Middle East will account for 60% of growth in the industry and help fulfill a world-wide need for almost 100 million barrels per day. Still, the IEA emphasizes that there is more to be done to maximize known reserves across the globe. Exploration must be prioritized to leave no environmentally-sound opportunity untapped. Additionally, energy efficiency measures should be implemented with new industry fuel standards to encourage cleaner energy use to fill gas energy gaps.

Ultimately, the US is no longer on the oil decline. Rather, this is a growing industry strongly based at home and has the energy to develop further. Contemporary foreign policy has stressed the importance of energy independence and the opportunity is now in American hands. A reversal of the energy trend has come, and the United States may take the crown.

The World Energy Outlook report is published annually by the IEA in Paris.

Posted by: Sophia Higgins

Sources: IEA, Reuters, Bloomberg, CNN Money

Photo Credit: Triple_Divide_Oil_Gas_Pipeline6 @ photostream courtesy of Flickr user Public Herald