Are BMW imported cars?

The following short and simple article appeared in the NYT. I thought that I will include it as a blog post because of the number of important questions that are embedded in it: Is an X3 assembled in South Carolina an imported car? ( I think that the Camry is one of the cars that has the highest percentage  of US manufacturing in it). Note also that a foreign manufacturer is creating US jobs and is also increasing US exports.
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FRANKFURT — BMW said on Friday that it would invest $1 billion over the next two years in its factory in Spartanburg, S.C., which will become its largest production site.

The expansion will add 800 jobs in Spartanburg and increase the plant’s capacity by 50 percent in 2016, BMW said. In addition, the plant will begin to produce a new, large crossover vehicle.

Expansion of the plant had been expected, but BMW did not disclose the scope of its investment until Friday at an event attended by Penny Pritzker, the secretary of commerce for the United States, and Nikki Haley, governor of South Carolina.

BMW, based in Munich, said the decision to expand production in Spartanburg reflected the importance of the United States market, the company’s second-largest after China. BMW sold 377,000 vehicles in the United States last year, or 19 percent of the company’s total.

“At the BMW Group, we have a golden rule: Production follows the market,” Norbert Reithofer, the chief executive of BMW, said in Spartanburg, according to prepared remarks. Mr. Reithofer managed the Spartanburg operations from 1997 to 2000 and has often said that the optimistic American attitude he encountered there shaped his management style.

Photo

A finished BMW X3 was driven off the assembly line on Thursday at the Spartanburg plant in South Carolina. Credit Chris Keane/Reuters

The Spartanburg plant already produces BMW’s line of X series crossover vehicles, which combine elements of sedans and S.U.V.s. The new crossover model produced there will be called the X7, BMW said. It did not say when production of the X7 would start, but typically it takes about three years to bring such a vehicle to the assembly line.

BMW also plans also produce a hybrid version of its smaller X5 crossover in Spartanburg “in the near future,” the company said.

The company’s plans should help American exports, since BMW ships about 70 percent of the vehicles produced in Spartanburg abroad. Germany owes its status as the world’s third-largest exporter, after China and the United States, primarily to the car industry. BMW and its German rivals Mercedes-Benz and Audi dominate the global market for luxury vehicles.

With the investment, the capacity of the Spartanburg plant will rise to 450,000 vehicles and the work force of 8,000 will grow by 10 percent. The figure does not include additional jobs that the investment will generate at suppliers or local businesses.

The event Friday was BMW’s 20th anniversary of producing cars in the United States. BMW said it had built 2.6 million vehicles in Spartanburg since the plant opened in 1994. After the expansion is complete, Spartanburg will have the largest capacity of BMW’s 28 production facilities around the world.

BMW still produces more than half its vehicles at plants in Germany, however.

(A version of this article appears in print on March 29, 2014, on page B3 of the New York edition)

Income Inequality, Again.

The following article by Professor Krugman speaks of a book by Piketty. The book in question was released in English only about 10 days ago but practically every review praises it as a classic in the making. The issue that Professor Pikkety is concerned with is that of inequality of income on a global level. This should be enough of a background for the remarks by Mr. Krugman on income distribution in the US

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Mar 22, 9:36 am 9

Working for the Owners

I’ve just finished a draft of a long review of Thomas Piketty’s Capital in the 21st Century, which argues that we’re on the road back to “patrimonial capitalism”, dominated by inherited wealth. It’s an amazing book; among other things, it does an awesome job of integrating economic growth, the factor distribution of income (between capital and labor), and the individual distribution of income into a common framework. (It’s all about r-g). One slight weakness of the book, however, is that Piketty’s grand framework doesn’t do too good a job of explaining the explosion of income inequality in the United States, which so far has been driven mainly by wage income rather than capital. Piketty does take this on; but it’s kind of a side journey from the central story.

No matter; it’s still a masterwork. But I’ve been thinking about this quite a bit, and one thing that strikes me is the remarkable extent to which American conservatism in 2014 seems to be about defending and promoting patrimonial capitalism even though we aren’t there yet.

Think back to the Bush administration, whose main economic theme was the “ownership society“: in effect, the message was that you’re not really a full-fledged American, no matter how hard you work, unless you have a lot of assets. Think of Eric Cantor’s famous Labor Day tweet in which he used the occasion to celebrate business owners. More recently, Mike Konczal has pointed out that despite claims that the Tea Party somehow represents a rebellion against business domination of the GOP, the Tea Party agenda corresponds almost perfectly with Wall Street’s goals.

Oh, and let’s not forget the long crusade against the estate tax.

In short, the GOP is more and more a party that consistently, indeed reflexively, supports the interests of capital over those of labor. But why?

Well, one thing you might imagine would be that the party was responding to a change in society — aren’t more and more Americans asset owners, for example through their retirement accounts?

And the answer is no. In fact, the concentration of income from capital in a few hands has risen sharply. Tucked deep inside the CBO report on trends in the US distribution of income are data on the concentration of various types of income; here’s the one percent’s share of capital income:

So what we’re seeing is that half the political spectrum now instinctively accords much more respect to capital than to labor, at a time when capital income is growing ever more concentrated in a few hands — and is surely on its way to being concentrated largely in the hands of people who inherited their wealth.

Curious, isn’t it?

Should Wal Mart support the new proposed minimum wage?

Please note that if Wal Mart is to adopt the new proposed minimum wage then it is estimated to cost about $200 million a year which can be passed along to the consumers by raising every $16 purchase by 1 penny !!!!

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In 1914, Henry Ford announced he was more than doubling the average wage of Ford Motor Co. factory workers to $5 a day, in part so they could afford a Model T. His act took the world by surprise, spurred auto sales and helped create an American middle class.

One hundred years later, U.S. companies including Gap Inc. and Wal-Mart Stores Inc. are caught up in the debate over raising pay -- this time an increase in the federal minimum wage. President Barack Obama and Senate Democrats want to raise it to $10.10 an hour from $7.25, saying doing so will bolster the economy and reduce income inequality. House Republicans and industry groups oppose the plan, deeming it a job killer.

“When Henry Ford announced the 5-dollar-day, the response was that it would diminish the auto industry and bankrupt his company,” Harley Shaiken, a labor economist at the University of California, Berkeley, said in an interview. “Instead it jump-started purchasing power, reduced turnover and increased the profitability of Ford Motor Co. There’s a lesson we can still learn from that.”
A boost in the minimum wage to $10.10 would add $200 million -- or less than 1 percent -- to Wal-Mart’s annual labor bill, the University of California Berkeley Center for Labor Research and Education estimates.

 

If Wal-Mart passed along the estimated $200 million in extra labor cost to consumers, it would equal about a penny per $16 item, said Ken Jacobs, the Labor Center’s chairman. Meanwhile, the rise may boost purchases among the chain’s core shoppers, many of whom could see their earnings climb, he said.

Income Equality

The corrosive effects of income inequality on companies came into renewed focus yesterday when Wal-Mart said profit this year will trail analysts’ estimates as its low-income U.S. customers continue to struggle. The Bentonville, Arkansas-based retailer, which previously backed a higher minimum wage, is trying to assess whether raising it again would help or hurt.
Gap Inc. didn’t wait for Congress to act and announced raises for store workers starting next year. Obama hailed the San Franciso-based chain’s action and urged others to follow.
The 1914 pay increase was a more dramatic change than the current proposed increase. Raising wages to $5 gave workers an extra $62.22 daily in purchasing power in 2014 dollars, based on a Bureau of Labor Statistics inflation calculator, assuming they were earning the $2.34 industry average. Today, workers will gain $22.80 per 8-hour day with a $7.25 to $10.10 raise.

Boosting Incomes

Still, economists say raising the wage will help low-income workers. In a report this month, the non-partisan Congressional Budget Office said that while raising the federal minimum wage to $10.10 an hour could wipe out as many as 500,000 jobs, it could also boost the incomes of 16.5 million low-wage workers by $31 billion in 2016.

“High wages make your employees better customers,” Wallace Hopp, associate dean of faculty and research at the University of Michigan’s Stephen M. Ross School of Business, said in an interview. “You’re putting this money in the hands of people who are most definitely going to spend it. They’re not socking it away in mutual funds. The money goes back into the economy pretty quickly.”

While the U.S. economic recovery is in its fifth year, disposable incomes only inched up in 2013, for the fourth year in a row. Low-income shoppers have been buying mostly necessities even as more well-heeled consumers shell out for bigger-ticket items such as appliances and cars. As a result, Ford and General Motors Co. last year posted the strongest auto sales in the U.S. since 2007. By contrast, retailers from Wal-Mart to Lululemon Athletica Inc. have cut their forecasts.

Wal-Mart Question

For Wal-Mart, the question is whether a higher minimum wage that puts more money in shoppers’ wallets would boost sales enough to offset higher labor costs. Figuring that out isn’t easy because it’s hard to predict consumer behavior, David Tovar, a company spokesman, said in an interview.
Would increased consumer spending “offset and maybe even exceed whatever impact you pay out to associates?” he said. “It’s really hard to model behavior based on these kinds of changes.”
Wal-Mart won’t reveal the potential added costs or potential impact. The calculations for the Berkeley study are based on Wal-Mart’s wage distribution data, which the company published as part of a lawsuit more than a decade ago, Jacobs said. That data is indexed to Wal-Mart’s average full-time wage, which the company updates each year, and his estimates of its state and federal minimum wage workforce are very close to the retailer’s, he said.

Small Number

“It’s a rough estimate, but however you change the parameters, at $10.10 you are not going to come up with a big number vis-à-vis their overall cost structure of business,” Jacobs said.
Other large discount retailers and dollar stores may similarly see higher sales, which may help them to cushion the additional labor costs. Such an outcome reinforces the view of minimum wage supporters that a hike bodes well for consumer spending, 70 percent of the economy.
Much of the extra cash that workers would get is likely to go to basic goods, such as clothing and food, resulting in a “very modest” impact, said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania.
Labor-intensive businesses like restaurants could find the wage hikes more difficult to absorb than large retailers.
Even so, the debate about raising the minimum wage goes beyond the immediate lift it would provide to purchases, according to Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc.

Living Wage

“There is plenty of merit in the economic argument, but that’s hardly the entire argument,” Shapiro said. People “are stuck in a cycle of crappy jobs” and “we need to ask ourselves, why do we have this situation? In general, paying people wages that they can live on is something every industrialized society should be able to do.”
Nine years ago, Wal-Mart was making purchasing-power arguments similar to the ones being made by Obama and Democrats today. In 2005, H. Lee Scott, then Wal-Mart’s chief executive officer, urged Congress to raise the minimum wage, saying the company’s customers “are struggling to get by.”
“The U.S. minimum wage of $5.15 an hour has not been raised in nearly a decade and we believe it is out of date with the times,” Scott said in a speech to company executives. “Our customers simply don’t have the money to buy basic necessities between pay checks.”
Support from Wal-Mart helped Democrats push through the last increase in the wage floor after the party won control of both chambers of Congress in the 2006 midterm elections. Just three Senate Republicans opposed the 2007 rise, which also drew the backing of more than a third of House Republicans.
This time Wal-Mart has staked out a neutral position. The political optics have changed too. Senate Majority Leader Harry Reid, a Nevada Democrat, plans to bring the latest minimum-wage proposal to the Senate floor next month. The legislation faces long odds on Capitol Hill. Democrats, who control 55 seats in the 100-member Senate chamber, may struggle to garner 60 votes to advance the bill.
(From Bloomber)

Income Distribution in one chart.

Note that this illustration is an effort to make income distribution more meaningful and easier to understand. It reduces the total population to 10,000 which means that 90% is equal to 9000. Again in the same token the top 1% is only 100 but even that is divided into 1of the 100 i.e 0.01%... Note that the actual income of the 90% is just over 52% which means that the other 10% gets almost as much as the 90%...

Both Wages and Employment are lagging.

For the more than 10 million Americans who are out of work, finding a job is hard. For the 145 million or so who are employed, getting a raise is even harder.

The government said on Friday that employers added 113,000 jobs in January, the second straight month of anemic growth, despite some signs of strength in the broader economy. The unemployment rate inched down in January to 6.6 percent, the lowest level since October 2008, from 6.7 percent in December.

But the report also made plain what many Americans feel in their bones: Wages are stuck, and barely rose at all in 2013. They were up 1.9 percent last year, or a mere 0.4 percent after accounting for inflation. Not only was that increase even smaller than the one recorded in 2012, it was half the normal rate of wage gains in the two decades before the last recession.

The stagnation helps explain why many people feel apprehensive even though the economy grew at a robust pace in the second half of 2013, corporate profits rose, the stock market boomed and the housing market continued to gain ground. The issue cuts across the American work force. In fact, white-collar workers did a bit worse than blue-collar workers last year in terms of wage growth.

“People are running in place in terms of their living standards,” said Ethan Harris, co-head of global economics at Bank of America Merrill Lynch. “There’s almost no growth in spending power.” As recently as 2008, when the economy sank deeper into recession and Lehman Brothers collapsed, wages still managed to rise by 3.5 percent, before inflation. But the combination of a backlog of workers left behind in the recession’s wake, as well as productivity gains resulting from new technologies, means salaries may not rebound anytime soon.

“We won’t see stronger wage growth until unemployment gets below 6 percent and we begin adding 200,000 jobs a month,” Mr. Harris predicted. Friday’s data from the Labor Department shows an economy performing well below that level, however. The 113,000 jobs that were added in January fell far short of the 180,000 economists had anticipated, and came after a particularly weak December. Despite the decline in the jobless rate, some economists said on Friday that job creation had indeed slowed, in what might be called a winter wobble for the economy — the cold weather equivalent of last year’s summer swoon.

Dean Maki, chief United States economist at Barclays, noted that over the course of November, December and January, the more reliable three-month pace of job creation stood at 154,000, roughly 75,000 positions fewer than employers added in September, October and November. Initially, the weak report for December was blamed on wintry conditions that inhibited hiring, but Mr. Maki said a second straight month of disappointing job gains led him to conclude that the cold and snow could not be blamed this time.

“I don’t think we can say weather affected January payrolls,” Mr. Maki said, noting that the construction sector, for example, bounced back in January after a weak showing in December. Nevertheless, Mr. Maki and most other economists said they did not believe the weak numbers for job creation in December and January would prompt the Federal Reserve to reverse course on its decision late last year to steadily reduce its stimulus efforts in 2014.

“This will get the Fed’s attention, but it won’t affect their trajectory,” Mr. Maki said. Still, another poor showing for hiring when the next employment report comes out in early March might prompt a pause among Fed policy makers at their meeting later that month, especially if other indicators show a parallel cooling.

Wall Street shrugged off the unemployment report on Friday, as bullish investors sent stocks higher, with market indexes finishing higher for the week after three straight weeks of losses. The Dow Jones industrial average jumped 165.55 points, or 1.1 percent, to close at 15,794.08. The Standard & Poor’s 500-stock index gained 23.59 points, or 1.3 percent, finishing at 1,797.02. The Nasdaq surged by 68.74 points, or 1.7 percent, to 4,125.86.

In bond trading, the price of the benchmark 10-year Treasury note rose 5/32 to 100 18/32, while its yield dropped to 2.69 percent from 2.7 percent late Thursday.

One reason Wall Street may have looked on the bright side Friday is that the separate survey of households the Labor Department uses to calculate the unemployment rate told a different story from the payroll data survey. It showed a gain of more than 600,000 workers, helping bring down the unemployment rate.

In the payroll data survey for January, the public sector held back overall payrolls, as government employment shrank by 29,000 jobs in January. Excluding that loss, private employers added 142,000 positions, a slightly better showing. Several other sectors which had been strong in recent months — education and health care, as well as retail — also lost positions, contributing to the overall weakness.

The falloff in hiring in the health care sector was especially noteworthy. In December and January together, just 2,600 health care positions were filled. By contrast, as recently as November, nearly 25,000 health care workers were added to payrolls.

Although this area of the economy is undergoing a transformation as President Obama’s new health care plan is slowly introduced, that is unlikely to have caused the abrupt slowdown in hiring, said Mr. Harris, the Bank of America Merrill Lynch economist. If anything, he said, the law should create new jobs in the sector as health care coverage is expanded, even if higher costs for some employers result in job cuts elsewhere in the economy.

As for retail, which lost nearly 13,000 jobs in January, Mr. Harris said that some of the reduction could have been because of excess hiring in December, when stores added nearly 63,000 positions as the holiday shopping season peaked. The cuts may also have been spurred by weak results at some retailers, with chains like J. C. Penney announcing major job cuts last month, and Loehmann’s, the venerable discounter, now in liquidation.

The employment-population ratio, which has been falling as more workers drop out of the job market, edged up 0.2 percentage points, to 58.8 percent in January.

While salary gains have been muted across the work force, more educated workers continue to enjoy much better employment options than those with a high school degree or less. The unemployment rate for college graduates in January stood at just over 3 percent, compared to 6.5 percent for high school graduates and 9.6 percent for people who lack a high school diploma.

The problem for economic growth in general, and wage growth in particular, is that only one-third of the American work force — 50.4 million out of 155 million — have a college degree or more. By contrast, there are approximately 73 million workers who have a high school diploma or some college, and 11 million workers who did not finish high school.

With many less educated workers chasing a limited number of new jobs, employers have little reason to increase wages. “It’s just an extremely competitive environment for workers, where people have little negotiating power,” Mr. Harris said. 

(NYT Feb. 7, 2014)

Can Apple still Grow or Is It Already Too Big?

The stock market doesn’t know quite what to make of Apple.

The company started out in the 1970s as a risk-taker and a rule-breaker, and for many members of Steve Jobs’s generation, Apple will always carry a whiff of sex, drugs and rock ’n’ roll. It retained some of that renegade aura even as it set off on a wild growth spree in the first decade of the new millennium.

By last September in the annual Interbrand survey, Apple had managed to depose Coca-Cola as the most valuable brand on the planet, using criteria like popular perception and financial performance. And based on the value of its shares in the marketplace, Apple has become the biggest company in the world, worth roughly 10 percent more, in the eyes of investors, than its nearest rival, the venerable oil giant Exxon Mobil.

Yet now that Apple is so big and so successful, it poses something of a puzzle for investors. Is it a gigantic tech growth stock that will expand even more rapidly in the years ahead? Or has it turned into a high-end consumer products company, one that is, at the moment, the biggest cash cow in the world?

These questions intensified last Monday, after Apple issued its latest earnings report. The numbers seemed to describe a mature company with enormous profits, a nearly $159 billion cash hoard and copious cash flow but modest overall growth — a stunning change from the Apple of only a few years ago.

“Basically, the market is beginning to value Apple as a consumer goods company today,” said Doug Kass, president of Seabreeze Partners Management. “It’s being valued like General Mills — a great company with great cash flow.” And with Apple, he said, you get a share of all of its idle cash plus a kind of bonus: the possibility that the company will somehow manage to come out with another world-beating innovation.

As recently as fiscal 2012, Apple was on a tear, with revenue that grew at an annual rate of 45 percent; that rate was 66 percent in 2011 and 52 percent in 2010. The latest earnings report portrays a much more sedate company.

In fact, a close look reveals evidence of slowing momentum in what is Apple’s most important profit center by far: the iPhone. While worldwide iPhone sales expanded — thanks in part to a new carrier, China Mobile, the country’s largest — sales in existing markets actually fell by 2 percent in the first quarter of fiscal 2014, according to a dissection of Apple’s earnings by Toni Sacconaghi, a technology analyst at Sanford C. Bernstein in New York. (For accounting purposes, Apple’s fiscal year ends in September, so it ended its first quarter in December.)

While Carl C. Icahn, the activist investor, announced on Twitter that he had been buying Apple shares, the overall market was clearly rattled by what many investors perceived as a lackluster performance. Apple shares dropped more than 8 percent on Tuesday alone, the largest one-day decline in a year. For the month, Apple fell by more than 10 percent.

Mr. Sacconaghi said: “This is a company where two-thirds of the total profits come from the iPhone, and the key take-away from the earnings report for me is that the iPhone’s addressable market — that is, the high end of the smartphone market — is increasingly experiencing saturation. When the biggest part of your business doesn’t have a lot of growth in it, that’s really worrisome.”

Apple acknowledged that its introduction of the iPhone 5C, a colorful model with last year’s technology, has been bumpy. The phone went on sale in September for $100 less than its top-of-the line model, the 5S, but the 5C has underwhelmed buyers in the United States and China.

“Investors reacted to that,” said Mark Moskowitz, an analyst at JPMorgan in San Francisco. “It was an unfortunate misstep".

 

While the problem of one specific phone model may seem trivial, he said, the 5C represented the first time that Apple had expanded the iPhone line under Timothy D. Cook, the chief executive who succeeded Mr. Jobs. “They just didn’t do a good job,” Mr. Moskowitz said.

There were some separate, technical reasons for slowing sales of iPhones in the United States. In a conference call, Mr. Cook said part of the problem “in North America specifically was that some carriers changed their upgrade policies” for new smartphones. “This restricted customers who were used to upgrading earlier than the 24 months that they’re allowed and stretched the time out to be a hard-and-fast 24 months,” he said.

In another quarter or two, he suggested, the effects of the new upgrade rules will have ebbed. And he said Apple’s sales in China would grow as China Mobile sells the phone in 300 cities; China Mobile supports it in 16 cities now. On the other hand, Lenovo’s acquisition of Google’s Motorola Mobility unit, announced last week, could add to pressure on smartphone profit margins globally. That could be more bad news for Apple.

For the company as a whole, Mr. Moskowitz projects sales growth of 8.5 percent in the 2014 fiscal year, while Mr. Sacconaghi puts it at 4 percent. In either case, that’s nothing to celebrate for a company that once expanded at a jaw-dropping rate.

In a sense, Apple’s size is its biggest problem. The company is so large that even if it comes up with a major new product or service — say, a full-fledged Apple TV or a beautifully designed, multifunctional wristwatch or a mobile payment service — it may not propel overall growth all that much.

The problem, Mr. Moskowitz says, is one that many companies would envy: “It’s so big that its success has put them under an ultramicroscope.”

For his part, Mr. Kass says he isn’t counting on growth. Apple is a good value now, he said. He likes it as it is — as a cash-generating consumer goods company.

Minimum Wage.

(the following article appeared in Chron)

A minimum wage is a prescribed wage level that must be met or exceeded by employers in all employment contracts, as set forth in the Fair Labor Standards Act. The minimum wage is revised from time to time to adjust for inflating prices. Microeconomics is the study of financial issues from the perspective of individual economic units, such as a single household, small business or individual. The minimum wage has a number of positive and negative effects on businesses, families and individual workers, from a microeconomics perspective.

Effects on Business

Businesses that rely to a large extent on unskilled labor generally experience dramatic increases in wage expenses as a result of a minimum wage, since a minimum wage virtually eliminates companies' ability to negotiate wages for their lowest-level employees. According to the U.S. Department of Labor, the minimum wage increased about twenty four percent between 2007 and 2009, going from $5.85 to $7.25 per hour. Businesses that employ unskilled labor see their profit margins diminish and their expenses increase, presenting a challenge to their economic growth and introducing a new variable to economic decision-making.

Local Employment

Many companies see the minimum wage as a large expense for an unskilled worker, which can cause them to impose stricter decision criteria for hiring or cut back on hiring altogether. Minimum wage jobs are often suited for young people entering the workforce for the first time, but, according to the Employment Policy Institute, every 10 percent increase in the minimum wage causes a five to nine percent decrease in youth employment. This can cause a situation where individuals with little experience who might happily accept a lower wage find themselves unable to find a job. If this trend continues in specific regions, local unemployment could rise, possibly raising homelessness and crime rates as well.

Effects on Individuals

Employees experience direct benefits from a minimum wage, but there are a number of drawbacks to consider as well. The obvious benefit to unskilled workers is the guaranteed boost in discretionary income provided by a guaranteed wage. Highly skilled and experienced workers experience a boost in income as well, since a raise in the lowest wage pushes all other wages upward as well. It can be argued that the minimum wage has never been high enough to fully support a family. According to the U.S. Census, only around seventeen percent of minimum wage earners are supporting families on their own. The effects of business's reactions to the minimum wage can be detrimental to employees in the long run as well. Companies may turn to automation or outsourcing to control the increase in wage expenses. This could reduce the number of jobs available in the marketplace for unskilled workers, again resulting in higher unemployment. Younger employees can benefit greatly from the minimum wage. Employees entering the workforce for the first time, with no experience, can count on the minimum wage to provide them the income they need to handle their first expenses. This, in turn, allows heads-of-household more discretionary income to spend on family needs.