Category Archives: Business and Economy

A Best Buy no longer?

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Wired argues that the decline of Best Buy’s business is linked to the decline of exurbia generally:

You can’t trace a precisely parallel line charting Best Buy’s decline alongside exurbia’s economic cratering. Technology and consumer preference have also taken a toll. Sales of physical media like DVDs and the players to play them have dropped as consumers stream more and more movies and music. Apple stores have seduced customers with a boutique approach that Best Buy plans to copy in some locations. Amazon and other online retailers have likely siphoned even more.

Despite these factors, the twilight gathering around Best Buy feels more than anything like part of the darkness that snuffed out the exurban dream. These signature outposts of [David] Brooks’ new world [described in his 2004 book On Paradise Drive] filled new homes with flatscreens bought with home equity loans that have since left victims of the crash drowning in debt. Like so many exurban homeowners, Best Buy banked on false promises of perpetual prosperity as contrary economic realities lurked.

I would also add that Best Buy has has to contend with expanded (and cheaper) electronics offerings at other big box stores, notably Walmart and Target.  Given the number of factors involved, is it really fair to characterize this as a “exurban problem”?

This fall, more than half of college students will be living at home

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New figures suggest that more than half of American college students will be living at home during the fall 2012 semester:

For American students, heading off to college has traditionally also meant physically going away to college. But now, at a time when college costs are soaring, and when news of young people being saddled with burdensome student loan debt is unavoidable, today’s students are trying to trim college expenses in every way possible. More than half of students, in fact, will be living at home when the fall semester begins—up significantly from the 43% of students who commuted a couple of years ago…

The argument that a so-called “higher education bubble” really does exist—and may be in the process of popping—gets a boost especially because it looks like students in wealthier American families, who should be able to pay for pricey colleges, are choosing to stay home in increasingly higher numbers. As USA Today points out:

This year, 47% of students from high-income families, those making more than $100,000, are living at home, nearly double the 24% who did two years ago.

It would be interesting to see this broken down by type of institution. In other words, are students at pricier liberal arts and research schools living at home in greater numbers?

Are there studies that show the impact of living on campus versus commuting? Does it have any impact on learning? Does it have a demonstrable impact on social adjustment and well-being? I assume colleges and universities will have to do more to justify having students live on campus or having them pay so much…

h/t Instapundit

Does Motorola Mobility moving to Chicago weaken the suburbs?

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With the news this past week that Motorola Mobility will be moving from Libertyville to downtown Chicago, a question arose: is Chicago’s gain the suburbs’ loss? Here is part of the discussion:

Rather than a zero-sum game of moving jobs from the suburbs to Chicago, Motorola Mobility’s planned relocation from Libertyville to the Merchandise Mart next year has many upsides. For one it’s another step for the city toward its goal of being a tech hub. That will not only give the company access to a coveted savvy urban workforce but also help Chicago stand out in the increasingly competitive global economy.

“The marketplace for knowledge-based industries favors dense, urban areas — it’s a global phenomenon,” said urban affairs specialit Frank Beal.

“This is not a choice between the city and the suburbs,” added University of Chicago economics professor Austan Goolsbee, “it is between Chicago and some other metro area.”

Goolsbee is correct if one takes a metropolitan view: it doesn’t really matter to the Chicago area if the headquarters is in the Loop or Huntley as long as the jobs, tax revenues, and prestige stay in the region. Yet, this is not so clear from a local perspective: Libertyville loses 3,000 local jobs and Chicago gains them. The mayor of Libertyville is disappointed:

The mayor of north suburban Libertyville says he’s disappointed Motorola Mobility has decided to move its corporate headquarters to downtown Chicago…

The mayor of Libertyville, Terry Weppler, said there are no hard feelings against Emanuel.

“I’ll put our community up against Chicago any day, you know, for any type of amenity whatsoever,” he said…

He said his next plans involve brainstorming what could fill Motorola’s giant corporate campus once it empties out.

I’m not sure Libertyville would win that battle of amenities. And it is clear that Chicago leaders are pretty happy.

But this may be part of a larger trend of large companies seeking out the more exciting and younger life of big cities:

The move brings jobs downtown — part of a reversal of fortune in which the city is now snatching corporations from suburbia. And as a result, a building type with a future that once seemed rock solid now appears under threat. United Airlines vacated its 66-acre Elk Grove Township headquarters — it even has tennis courts — for downtown Chicago beginning in 2007. The campus, designed by SOM, won three different American Institute of Architects awards since its completion in 1968.

The United Airlines campus is for sale. And it isn’t alone. On any given week, the internet and the back pages of trade journals are filled with “for sale” ads for suburban office parks and headquarters. It wasn’t always this way. Much like suburban shopping malls, these corporate utopias — air conditioned, new, private and safe — were once very much the hottest thing around. From the 1960s through the end of the 20th century, corporations — Motorola, Sara Lee, and more — left Chicago for a new life in the ‘burbs.

But now things are changing. Corporations are downsizing and the new generation of workers does not want to toil in the suburbs. A story last week in the Boston Globe discusses how young workers in the tech and creative fields prefer working in cities and getting to work by public transit.
This would fit with recent data suggesting younger adults are not as interested in the suburban life of the Baby Boomers. But it could take some time for suburban communities to figure out what to do with these large office complexes (see an earlier post about the fight in Hoffman Estates about tax breaks for the incomplete Sears complex) , particularly in a down economy where many shopping malls and lifestyle centers are having difficulty.

Of course, the tax breaks to stay in Illinois are still intact with the move:

But Mobility executives pledged a year before the Google takeover to keep Mobility’s well-paying engineering, finance, marketing, design and executive jobs in Illinois so Mobility could benefit from statewide tax credits worth more than $100 million over a 10-year period.

Gov. Pat Quinn said at a news conference in Deerfield that he gave Google “permission” to move from Libertyville to downtown Chicago, since that was the location Google preferred.

Pat Quinn has to provide his permission?

In the end, I would say that moves such as these are not necessarily bad but they could have negative consequences for the community that large corporation is leaving. Just as the big cities of America were hurt by the move of corporations to suburban office parks after World War II, there are negative consequences for suburbs when the move is made in reverse. It will be interesting to see how these moves add to or re-energize urban life. For example, one could look at how many of the Motorola Mobility employees will move to the city after their job moves there. Similarly, is there a way to quantify how much better Motorola Mobility will do once it is located in the city rather than suburbs?

Of malls, Mormons, mammon, and Mitt

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A long article in Bloomberg Businessweek on “How the Mormons Make Money” discusses City Creek Center, a $2 billion “megamall” development that opened in March 2012 “directly across the street from the church’s iconic neo-Gothic temple in Salt Lake City”:

The mall includes a retractable glass roof, 5,000 underground parking spots, and nearly 100 stores and restaurants, ranging from Tiffany’s (TIF) to Forever 21. Walkways link the open-air emporium with the church’s perfectly manicured headquarters on Temple Square. Macy’s (M) is a stone’s throw from the offices of the church’s president, Thomas S. Monson, whom Mormons believe to be a living prophet.

On the morning of its grand opening, thousands of shoppers thronged downtown Salt Lake, eager to elbow their way into the stores. The national anthem played, and Henry B. Eyring, one of Monson’s top counselors, told the crowds, “Everything that we see around us is evidence of the long-standing commitment of the Church of Jesus Christ of Latter-day Saints to Salt Lake City.” When it came time to cut the mall’s flouncy pink ribbon [press release here], Monson, flanked by Utah dignitaries, cheered, “One, two, three—let’s go shopping!”

Watching a religious leader celebrate a mall may seem surreal, but City Creek reflects the spirit of enterprise that animates modern-day Mormonism.

A few thoughts and questions:

1.  A new, $2 billion retail development seems quite aggressive given the current business climate.  Then again, Utah seems to be faring much better than the rest of the U.S. economically.  The state averaged a 6.7% unemployment rate during 2011, 11th out of 50 states (+DC), according to the Bureau of Labor Statistics (BLS).  More specifically, Salt Lake City’s 2011 rate was even lower at 6.5%, putting it at 52 out of 372 major metropolitan areas.  (If you’d like to see Utah’s unemployment rate over time and/or compare it with other state(s), Google has a wonderful interface for interacting with the BLS’ public data here.)

2.  City Creek Center (official webpage here) seems to be neither a traditional mall nor a “lifestyle center“.  Rather, it sprung fully formed within its urban environment (which no doubt contributed to its multi-billion dollar cost) as a rebuilding of Main Street rather than a “Main Streetification”.  If successful, could it usher in a new era of high-dollar, high-stakes urban retail (re)development?  Or does City Creek Center’s strong ties to LDS businesses constitute circumstances so special that they cannot be duplicated elsewhere?

3.  The Bloomberg article seems to connect City Creek Center to Mitt Romney, stating,

It’s perhaps unsurprising that Mormonism, an indigenous American religion, would also adopt the country’s secular faith in money. What is remarkable is how varied the church’s business interests are and that so little is known about its financial interests. Although a former Mormon bishop is about to receive the Republican Party’s presidential nomination, and despite a recent public-relations campaign aimed at combating the perception that it is “secretive,” the LDS Church remains tight-lipped about its holdings. It offers little financial transparency even to its members, who are required to tithe 10 percent of their income to gain access to Mormon temples.

The unstated implication seems to be that Romney’s savvy and secrecy with his own finances is somehow related to the LDS Church’s savvy secrecy with theirs.  Is this a fair conclusion to draw?  Is Bloomberg suggesting that there is something inherent within Mormonism that mandates this particular way of doing business?

 

Wells Fargo pays more than $175 million to settle case of steering minorities to worse mortgages

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This is part of what discrimination looks like today: Wells Fargo has just agreed to a big settlement for offering minorities worse terms on mortgages.

At least 34,000 African-American, Hispanic and other minority borrowers paid more for their mortgages or were steered into subprime loans when they could have qualified for better rates, according to the Department of Justice. The DOJ settled a fair-lending lawsuit with Wells Fargo, the nation’s largest mortgage lender, on Thursday…

The complaint also says that between 2004 and 2008, “highly qualified prime retail and wholesale applicants for Wells Fargo residential mortgage loans were more than four times as likely to receive a subprime loan if they were African-American and more than three times as likely if they were Hispanic than if they were white.”

During the same period, the complaint says, “borrowers with less favorable credit qualifications were more likely to receive prime loans if they were white than borrowers who were African-American or Hispanic.”

Wells will pay at least $175 million to settle the case; it denies any wrongdoing in settling. Bank of America agreed to pay $335 million in settling similar charges in December.

This is not unusual: audit studies have shown that minorities tend to have more difficulty renting, securing a car loan, getting a job, and getting mortgages compared to whites.

Even though I have looked at several news reports on this, here is what I really want to know: is this a large enough settlement for Wells Fargo to really care? In other words, is this a light fine or a heavy fine? And perhaps more importantly, how do we know that they and other banks won’t pursue similar tactics in the future?

Argument: data says US housing bust has ended

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A Wall Street Journal columnist says the data is clear: the US housing bust is over. Here is some of the data he finds convincing:

Nearly seven years after the housing bubble burst, most indexes of house prices are bending up. “We finally saw some rising home prices,” S&P’s David Blitzer said a few weeks ago as he reported the first monthly increase in the slow-moving S&P/Case-Shiller house-price data after seven months of declines.

Nearly 10% more existing homes were sold in May than in the same month a year earlier, many purchased by investors who plan to rent them for now and sell them later, an important sign of an inflection point. In something of a surprise, the inventory of existing homes for sale has fallen close to the normal level of six months’ worth despite all the foreclosed homes that lenders own. The fraction of homes that are vacant is at its lowest level since 2006…

Builders began work on 26% more single-family homes in May 2012 than the depressed levels of May 2011. The stock of unsold newly built homes is back to 2005 levels. In each of the past four quarters, housing construction has added to economic growth. In the first quarter, it accounted for 0.4 percentage points of the meager 1.9% growth rate…

Economists aren’t always right, but on this at least they agree: A new Wall Street Journal survey of forecasters found 44 believe the housing market has reached its bottom; only three don’t.

The details of the argument aren’t quite as rosy: Wessel suggests at the end that things could still go wrong with housing but housing itself is unlikely to drag down the economy by itself.

It will still be interesting to see how long it takes housing to recover. Not everyone has a positive outlook about housing values.

 

Should we care that Apple pays its retail store employees relatively little money?

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The New York Times has a long piece about what Apple pays its retail store workers. Here are some of the details:

About 30,000 of the 43,000 Apple employees in this country work in Apple Stores, as members of the service economy, and many of them earn about $25,000 a year. They work inside the world’s fastest growing industry, for the most valuable company, run by one of the country’s most richly compensated chief executives, Tim Cook. Last year, he received stock grants, which vest over a 10-year period, that at today’s share price would be worth more than $570 million.

And though Apple is unparalleled as a retailer, when it comes to its lowliest workers, the company is a reflection of the technology industry as a whole…

“In the service sector, companies provide a little bit of training and hope their employees leave after a few years,” says Arne L. Kalleberg, a professor of sociology at the University of North Carolina. “Especially now, given the number of college kids willing to work for low wages.”

By the standards of retailing, Apple offers above average pay — well above the minimum wage of $7.25 and better than the Gap, though slightly less than Lululemon, the yoga and athletic apparel chain, where sales staff earn about $12 an hour. The company also offers very good benefits for a retailer, including health care, 401(k) contributions and the chance to buy company stock, as well as Apple products, at a discount…

“It’s interesting to ask why we find it offensive that Wal-Mart pays a single mother $9 an hour, but we don’t find it offensive that Apple pays a young man $12 an hour,” Mr. Osterman said. “For each company, the logic is the same — there is a line of people eager to take the job. In effect, we’re saying that our value judgments depend on the circumstances of the employee, not just supply and demand of the labor market.”

I find two things very interesting from the quoted sections above:

1. This is a reminder that we now live in the era of the service economy. While Apple may generate tremendous profits and have a really high stock price, the majority of its jobs are low wage. This is what our economy looks like today: many jobs are relatively low-trust and low-paying and not everyone will have an opportunity to parlay it into a better, more fulfilling job. One could criticize Apple for such policies but they are hardly the only company doing this and it appears to be effective for generating profits.

2. The difference in perception between Apple and Walmart is indeed intriguing. One company has a better image than the other. Both rely on similar methods as they look for ways to make their products in a more cost effective way (though they aren’t exactly operating in the same price levels in the market – it will be some time before we see Apple computers sold at Walmart), have a number of jobs overseas (or at least their suppliers do), and are looking for ways to maximize their market share. It would be interesting to know if any of the recent reports about Apple employees in China (see this NYT story about Foxconn) has influenced people’s perceptions of Apple as well as altered their consumption habits.

This story got me thinking: what would happen if US Apple retail store workers decided to unionize and demanded better wages (perhaps even a living wage)? Apparently there is an effort underway to unionize the stores:

“People have definitely listed [pay] as a top issue,” said Moll, who started the Apple Retail Workers Union in an attempt to unionize U.S. store workers. “Because of our low wages we often can’t afford to buy the technology that we sell.”

Would Apple strongly fight these efforts and if so, how much negative attention would they receive?

Richard Florida: homeownership not related to economic growth and development

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Richard Florida looks at some data and argues that homeownership is not related to several dimensions of economic growth and development:

The economic growth and development of cities and regions is generally thought to be driven by three key factors: innovation, human capital, and productivity. Homeownership, it turns out, is not related to any of them.

Take innovation and high-tech industry. Homeownership bears little relation to either, being weakly negatively associated with the concentration of high-tech industry (-.20) and not associated at all with innovation (measured as the rate of patenting).

Or consider the percentage of college graduates or share of highly-skilled knowledge/creative jobs. Again, nothing. The arrow in fact points in the wrong direction. Homeownership is weakly negatively correlated with both the share of college grads (-.27), and with the creative class share of the labor force (-.30).

What about productivity? Once again, no connection to homeownership. Homeownership is weakly negatively associated with economic output per capita (-.19)…

It used to be that homeownership signaled and led to economic growth. But that relationship was tied to the industrial era, when building and buying more homes primed the pump of America’s great assembly-lines, increasing demand for cars, appliances, televisions, and all manner of consumer durables. Those days are gone. The United States is a now knowledge and service economy; less than ten percent of Americans work in some form of manufacturing and just 6.5 percent are engaged in actually producing things. The stuff Americans buy is largely made offshore.

I wonder how this relates to the recent campaign from the National Association of Realtors regarding how building homes would lead to more jobs. While having more construction might lead to some good short-term outcomes, Florida is arguing here that homeownership doesn’t have a large influence on the economy.

Going beyond the economic impact of homeownership and building homes, these statistics don’t quite capture the cultural influence of homeownership in American culture. At the same time, the numbers might suggest that policymakers shouldn’t go all in for promoting homeownership for its economic benefits. Selling homeownership can be done by linking it to values of individualism or the American Dream but the larger economic angle doesn’t hold up.

I wonder what the story would be utilizing data that allow analysis beyond correlations…

Sociologist: economic crisis leads to mistrust of the system

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As the economic crisis drags on and Americans have lost a lot of wealth, one sociologist suggests the economic uncertainty leads to mistrust of the system:

“I don’t want to romanticize the past — it wasn’t perfect — but there was a sense of security, and that is gone,” said Thorne, a sociologist at Ohio University and an expert on bankruptcy and consumerism.

“We felt that if we played by the rules, that we would do all right. Now there is a feeling that you are never on solid ground, even if you do the right thing.”

Thus the biggest loss may go beyond the decline in the American family’s assets, she said: trust.

“Despite our most honest efforts, through all of our lifetimes, we worked our jobs, we played by the rules, and we still lost. That fosters fear and mistrust in the system.”

While the economic effects of a recession or slow recovery are well-known, I’ve been interested in commentators who have argued that there is much longer-lasting social and emotional impact. While Thorne is quick to not “romanticize the past,” there is some nostalgia here: American prosperity after the end of World War II was perhaps unprecedented in history. What happens if we never see this again, in the United States or elsewhere in the world? If this sort of prosperity and certainty doesn’t come back for a long time, how would people find a new level of trust in the American system?

Photographing Detroit for something more than “ruin porn”

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Pete Brook over at Wired profiles Brian Widdis and Romain Blanquart, two photographers whose project “Can’t Forget the Motor City” argues that “Photos of Detroit Need to Move Beyond Ruin Porn“:

As a symbol of the U.S. economy in general, even before the crash of 2008, Motor City has been the subject of much “ruin porn” – photography that fetishizes urban decay.

“The portrayal Detroiters are used to seeing – crumbling buildings with no people to be seen – is frustrating because they know their city is more than that,” says Detroit photographer Brian Widdis. “Nobody here denies that those things are real, but seeing the city portrayed one-dimensionally – time and again – it’s like hearing the same awful song being played over and over on the radio. Detroiters want to hear a different song once in a while.”…

Ruin porn worships the 33,000 empty houses and 91,000 vacant lots of Detroit and overlooks the 700,000+ residents. It doesn’t come close to describing the city.

“I still do not understand her. The complexity of Detroit makes many give up, move out or move on, if they can. But for others, we want to further that relationship with her,” says [Romain] Blanquart….“Detroit is not a tragedy. We attempt to show its humanity[.]”

Widdis and Blanquart’s photographs are indeed beautiful and, generally, full of people.  While I’m not convinced that there’s anything inherently “pornographic” about photographing urban ruins (and underscoring the now-absent humanity those ruins imply), I agree that there is something wrong with hitting this same point to the exclusion everything else, especially insofar as this singled focus implies that there is nothing else to show or say.  However small Detroit’s population may be compared to its heydays, the city is still home to hundreds of thousands of people whose lives–and stories–are still ongoing.  I applaud these photographers’ efforts to document Detroit’s continuing stories through their artistry and not simply focusing on architectural echoes from the past.