Consumer spending finally rebounded, big banks are doing great, and people are optimistic about the stock market. So why isn’t the economy doing as well as you might expect? Marketplace editor Paddy Hirsch explains the mixed signals.
Consumer spending rebounded after three months of declining retail sales, but the increase isn’t as strong as people were expecting. Economists believed that recent job gains, wealth gains, and low gas prices should have added up to a resurgence in consumer sentiment. However, it seems that people are saving money and paying off debt, instead of pumping money into the economy. It’s a big deal if people aren’t spending, because the consumer economy makes up about 2/3 of the U.S. economy.
Big banks have reported positive first quarter earnings, but it’s not because people are saving money. Rather, banks are running certain sectors well, like trading and lending. Bank success this quarter doesn’t have anything to do with the consumer economy.
The stock market:
There is currently a disconnect between what is happening in the actual economy and what is happening in the stock market.
The stock market is doing really well, but that isn’t a reflection of what’s happening today. It’s a bet on what’s going to be going on in the economy in six months. Right now, people are optimistic about the stock market which is why the bet is so good. A lot of people are saying we might see a 5-10% correction in the next six months.
For at least 25 years, California has been developing an informal “spot market” for water. Cities or farmers looking for more water can often buy it from water districts that have more senior water rights and may not need all the water they get from state or federal water projects. But the state’s extreme drought is pushing the limits of that market. Supply is so constricted that even traditionally water-rich districts aren’t always willing to sell.
“If we’re water-short in our area, we’re not going to sell water outside of our area,” Ted Trimble says. Trimble, general manager of the Western Canal Water District, says the rice farmers in his northern California district and some others recently opted out of a tentative deal to sell their water to the Metropolitan Water District of Southern California. That’s because they found out their own water allocations from the state would be cut in half.
Right now, the California water market is “very supply-constrained," says Tim Quinn, executive director of the Association of California Water Agencies. “So when a market gets highly constrained, the number of transactions contracts and prices goes up. And that’s what’s happening in California.”
MWD was willing to pay $700 an acre foot for the rice farmers’ water. That’s twice as much as the going price five years ago, according to Trimble. An acre foot is the amount of water it takes to cover an acre one foot deep in water, or roughly the water supply used by two families of four in one year.
From Greg Gieser's at an oilfield services company in Kildeer, N.D., there are plenty of signs of a slowdown. He sees less traffic on the roads and fewer trucks clogging up the gas station. And then there's the drilling rigs—some of which are effectively mothballed.
“You'll see a field where there will be 18 drilling rigs, just sitting there, not doing anything,” he says.
And at Trilliant Oilfield Services, where Gieser is area supervisor for North Dakota, business is not exactly booming. The firm rents out equipment used for drilling new oil wells. In the past, it also made crews available for roustabout services—odd jobs on the oilfield. Both of those business lines have slowed down.
“We used to have half a dozen employees here and that's just gone by the wayside,” says Gieser. “They wanted me to hire more people, I just didn't see it, for the little bit of work that we do.”
Gieser surmises that if he had a sales rep, he could drum up more business, but the market forces aren’t working in his favor. A huge drop in oil prices is rippling across North Dakota, the second biggest oil producer in the U.S. Oil companies are backing off on the costly investment of drilling new wells because they may not be able to sell their oil profitably. Today there are about 90 rigs drilling new wells in the state, more than 50 percent fewer than a year ago.
The retrenchment is holding down revenue and headcounts at a whole host of businesses with ties to the oilfield.
Greg Gieser’s trying to keep his company going through the slow times by whatever means necessary.
“I rented a space in my yard to a company. Rented my building out. Whatever you can do to get revenue in and cut costs,” he says.
Bob Horab, the owner of a firm called McCody Concrete in Williston, N.D.Todd Melby
Meanwhile, oilfield companies want steep discounts from their service providers. Bob Horab, the owner of a firm called McCody Concrete in Williston, N.D., says negotiating those requests is like playing poker.
“I like to play poker with these guys just as much as they like to play with me. So we'll see what happens,” he says. “Who's going to tip their hand first? Am I going to chance losing their business or am I going to just fold?”
About 60 percent of the business at Horab's company is tied to oil. His concrete slabs serve as bases for heavy vessels and pumpjacks on the oilfield.
Horab says it'll likely be a while before the oil downturn really takes a toll on his business, and he may be able to offset any declines with commercial construction projects. But it’s clear that requests for discounts on his oilfield products are causing consternation in the meantime.
“The thing about it is, is, profit isn't a dirty word. They're in it for profit as am I. And if they break me, because I can't produce a profit, if I'm working at a loss, and if I go away, what good am I to anybody?” he asks. “When things come back, and I'm not here, then what do they do?”
Some business owners in the oil patch have much more immediate concerns about survival.
Mark Pyatt, owner of Killer Diesel Performance in Williston, N.D.Todd Melby
Mark Pyatt owns a repair shop called Killer Diesel Performance in Williston, N.D., where segment his parking lot has been dubbed "Death Row.” It consists of trucks left behind by customers, largely oilfield workers, who were previously flush with cash. They'd pay thousands of dollars to beef up their diesel engines so their trucks would go faster. But now, several customers aren't paying their bills.
Pyatt points to a black pick-up truck with enormous tires and wheels. He says the owner spent about $12,000 on bells and whistles and then found out the motor is bad, so he doesn’t want to fix it.
“And what's probably happened—probably work slowed down and he can't afford to. And it's been sitting here for two and a half months,” Pyatt says. “And if he doesn't pay the bill he owes, he'll never get it back.”
An employee of Killer Diesel PerformanceTodd Melby
The reversal of fortune for Pyatt has been abrupt. He says when he opened his doors last August, he had so much business that his mechanics were each earning about $9,000 a month. They still have some work trickling in, but Pyatt says it's not enough.
“They should probably be looking for jobs here shortly, and they know that,” he says.
Pyatt expects to close his doors this summer. He says a buyer is interested in taking the place off his hands and turning it around.
“I say more power to you, if that's the case,” he says. “But I have warned him fairly. I just do not believe that's possible.”
Pyatt's a tall guy with a long, scruffy beard, and the words "love hard" tattooed on his knuckles. He comes across as a mostly cheerful guy. But his outlook on the future of Williston is gloomy. If the oil industry bounces back, as many here hope it will, it won't happen soon enough to save businesses like his.
“It's called a boom town,” he says. “Why do they call it a boom town? It has to have a bust, otherwise they'd just call it a town.”
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In the coming weeks, a dance between the companies that make the television shows we all love, and the people who pay for it all: the advertisers.
Upfronts, as they're called, happen each year in New York, and the name says it all. Networks pitch their programming to ad buyers, hoping to score a big budget up front. The typical measure that they're selling is a Nielsen rating, the total number of viewers broken down by age and gender. That's why we hear so much about categories like men aged 18-34 for programs like "The Daily Show."
But in an ad world infused by the many clicks and Tweets of social media, that may not be enough. Upfront sales have been flat, declining slightly in recent years.
Variety reports that Time Warner and Viacom have a new strategy. Both are in talks to guarantee specific outcomes from an ad campaign, not just the average number of eyeballs it will get.
"They are saying, 'Look, tell us what you need. Do you need more foot traffic in your restaurant? Do you need more people to sign up for your loyalty program? Do you need X number of retweets on Twitter? Tell us what you want and let's try to work it out together,'" said Brian Steinberg, senior TV editor for Variety.
That's a big shift from delivering a sizeable audience, and it relies on using more of the advertisers' own data, beyond what Nielsen can offer. Companies can compare email lists or loyalty swipes with geographic information pulled from set-top boxes to see who's really responding to the ads, and where.
It's a methodology directly affected by the popularity of tablets and online video -- and the smaller, more targeted audiences that advertisers are reaching there. Likewise, Time Warner is looking to test this strategy for smaller, more targeted broadcast channels like Cartoon Network and Adult Swim, whose younger audiences are fairly well-defined.
In the words of one marketing executive who talked to Steinberg, this is "the Holy Grail of advertising."
"For years, [advertisers] have long decried TV," he said. Despite big audience figures, there's little nuance. "You may blast a car ad on 'American Idol,' but how many of those people are in the market for a new car?"
Nielsen is a little nervous about this, Steinberg added. While it's still the dominant way ads are sold, the ratings don't capture the places people watch TV outside of the living room.
Medicine's move into the computer age has great potential for improving care. But patients and doctors still face serious challenges in adapting to the rush of new technology.
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The Reddit “Button” that started out as an April fool’s prank has turned into an internet obsession. As of this writing, nearly 750,000 people have pushed it.
What exactly is it? It's a button with a timer that counts back from 60 seconds. Anyone who had a Reddit account before the day the button launched can push the button and reset the clock. But they can only push once. And no one knows what happens if the clock gets to zero.
So what’s the big deal? “I think the short answer is, there’s a lot of reasons,” said Kelly Goldsmith, Assistant Professor of Marketing at Northwestern University. She’s been reading what a lot of people have said online about their experience of pushing the button, which range from competition to status.
“But it also seems like there’s a strong sense of affiliation and a strong sense of community,” said Goldsmith. “But on the other hand, it could just be driven by curiosity.”
Curiosity about when the next person is going to push it? Or how long it’s going to keep going? Or what might happen if no one pushed it?
“That’s really what keeps it so mesmerizing,” said Goldsmith.
Although a strong sense of community is making people push the button, Goldsmith said, “the motivating power of curiosity” was part of it too.
“I don’t think gets enough attention in the academic literature, but it’s (curiosity) definitely a strong driving force,” said Goldsmith.
When she first heard about it, she admits she was in favor of people banding together not to push the button so they could see what would happen. But since then she’s changed her mind because she think so many people working together to keep the button going is a positive affiliation. But that doesn’t mean she’s going to push the button right away.
“I would absolutely be of the group that waits to get the clock as low as possible,” said Goldsmith. “Again, just for curiosity's sake. How low can it go? What would happen if no one pushed it?”