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The Media Transformation | Insight and commentary on the transforming content economy - Part 21

This has the feel of a big week. The headlines that clicked by on Bloomberg today captured a different zeitgeist than last week, a sense of a logjam of rhetoric and disconnection break open.

Commentators will have a field day, but it’s worth taking a look at how the rhythm of the news shifted.

1-21 hed 11 go 1.pngHere’s the summary of the day.

  • The activity that drives jobs and the economy — manufacturing and services — is gearing up, albeit slowly.
  • The employment market continues to stabilize.
  • Obama, faced with a strategic defeat in Massachusetts, quickly tunes into popular opinion, backs off health care and goes straight after the Wall Street titans.
  • Consumers are beginning to spend more, and the biggest Wall Street giant of them all bows to popular opinion to cut back its bonus pool, after using a Federal subsidy to post its highest earning year ever.
  • In the midst of this sudden shift in momentum, the market slides, unclear what the implications are and in a hurry to hedge its downside risk.

Here’s the highlights from Bloomberg:

U.S. Economy: Leading Index Rises More Than Forecast

The New York-based Conference Board’s gauge of the outlook for the next three to six months climbed 1.1 percent, the most in three months, after increasing 1 percent in November. The gain exceeded the median forecast in a Bloomberg News survey for a 0.7 percent rise. Another report showed Philadelphia-area manufacturing expanded in January for a fifth straight month.

Factories in Philadelphia Fed Region Grew in January

Increases in exports and business investment, combined with a need to stabilize inventories, may promote further gains in manufacturing in early 2010. The report corroborates figures issued by the Fed Bank of New York last week that showed factories in that region accelerated, indicating the rebound is broad-based.

Jobless Claims in U.S. Unexpectedly Rise on Backlog

The jump was due to an “administrative” accumulation from late December and early January holidays, and did not reflect “economic” reasons, a Labor Department spokesman said.

Obama, Democrats Signal Willingness to Scale Back Health Bill

President Barack Obama and House Democratic lawmakers signaled a willingness to scale back legislation overhauling the U.S. health-care system after the party suffered a defeat in a key Senate race.

Obama Calls for Limiting Size, Risk-Taking of Banks

President Barack Obama, tapping into voter anger over bank bailouts, called for limiting the size and trading activities of financial institutions as a way to reduce risk-taking and prevent another financial crisis.

American Express Profit Surges as Spending Rebounds

“We still face the challenge of high unemployment levels, depressed real estate values, and shrunken household balance sheets, but the overall economy and our company are in stronger shape than they were a year ago,” Chenault said in the statement. “While the economic recovery now under way is likely to be modest, we expect it to continue and have begun to shift our focus to growing American Express for the longer term.”

Goldman Sachs Posts Record Profit on Bonus Pool Cuts

“The big story is the compensation,” said Keith Davis, an analyst at Farr, Miller & Washington LLC in Washington, which manages about $650 million, including Goldman Sachs shares. “They got the message that politically they can’t be paying out close to 50 percent of revenues anymore, at least for the time being. Obviously, that’s the primary reason for the beat.”

Stocks, Commodities Slide, Treasuries Gain on Obama Bank Reform

“Financials are selling off and dragging down the market,” said Michael Nasto, the senior trader at U.S. Global Investors Inc., which manages about $2.5 billion in San Antonio. “There’s concern about an overhaul of financial services companies, with increased regulation, hurting the bottom-line of banks.”

The ultimate measure of consumer confidence, particularly during unsettled times, is driven by their pocket book. What money do they have, what bills do they have, how do the two match and how do they feel about their ability to keep their equilibrium.

So, when you are thinking about the near-term prospects for the economy, run all the news you see through that filter of self-interest and well-being. You should be able to guess how consumer confidence will be trending at any single moment.

The best way to feel the squeeze is to look at just how much variable cost an average consumer has in their monthly budget. Yesterday, I shared a chart from Column Five Media that showed how the distribution of consumer spending has shifted over the past 100 years. Today, I’d like to share a chart that digs in to exactly what the consumer of today spends money on. (These Column Five folks make GREAT infographics.)


Fixed costs are close to 70% of total expenses for the average consumer. These are expenses, like housing and transportation costs, that can’t be changed without a significant life restructuring. Truly discretionary expenses, like entertainment, gifts to charity and eating out, amount to close to 18% of total expenses.

Here’s what that means in real dollars:

  • The average consumer takes home about $4,205 each month, after taxes.
  • Housing, transportation, healthcare and insurance costs $2,820 each month.
  • Of the remaining $1,385, $616 goes to food, education and assorted items for personal care.

There’s not much margin for error. A downturn in hours, a cut in salary, a job elimination, an expected expense can put this average U.S. Consumer Unit in a bad spot.

The reality of this math puts the results from BIG Research’s continuing survey of Consumer Intentions and Actions in context. In their January briefing, the analysts at BIG Research paint a picture of a consumer who is becoming warily confident, but who does not intend to stop their new habits designed to make them more financially stable.


From the report:

While the current double-digit U.S. unemployment rate is likely keeping consumer sentiment and spending depressed, consumers remain relatively positive about the employment outlook for the first six months of the New Year…in January, 31.0% indicated “more” layoffs over the next six months, down just over a point from last month (32.5%) and nearly half the reading from a year ago (59.9%). Close to one in two (45.8%) contend that layoffs will remain the “same,” stable from December (45.7%) and rising from January ’09 (30.5%). Nearly one in four (23.2%) are predicting layoffs to decline, up from 21.8% a month ago and more than double the figure recorded a year ago (9.6%).

Consumers also retain their optimism with their own job security this month…4.4% are currently concerned about becoming laid off, flat from last month (4.6%), but lowering by 50%+ from January ’09 (9.6%).

It looks like many consumers vowed to rein in spending and control debt in 2010…nearly two in five (37.9%) are prioritizing paying down debt over the next three months, rising from 34.4% in December. Almost as many (37.0%) contend they will decrease overall spending in Q1, up more than five points from last month (31.6%). Consumers are also increasingly focused on adding to their savings (30.0%) and paying with cash more often (25.7%).

Within the context of this wary stability, one can understand the visceral resentment of the bailout of the financial industry, the concern about home values, the despair that creeps in when the media bleakly reports the future and the desire for clear and decisive leadership from the government.

None of those external factors is going to change, so we should expect a wary consumer and a volatile body politic for a while yet.

What a great chart: The change in consumer spending over the past 100 years. It tells you about what’s shifted, what’s important in the economy and how much money we’ve had left over to play around with.

To see more of this kind of infographic, go check out Column Five Media.

And, it’s amazing how much more we spend on getting from place to place and having a place to live than we once did, and how much less we spend on food. And, as a nation, we’re teetering on the edge of statistical morbid obesity. There’s a relationship there somewhere.


Congratulations to my friend and former colleague Doug Manoni, who was named CEO of Source Media this week.

F4B12153-A985-4968-BB92-75EB8F4D79D2.jpgDoug and I worked at Cowles Business Media through the better part of the 1990’s. At the end, Doug was my CFO.

He’s an interesting study for people who wonder about the future of business-to-business companies. Doug is a logical and sensible guy who understands that everything in the end comes down to cash: Who will pay you and who do you have to pay? He’s intellectually curious and enjoys interacting with new people. He doesn’t get overwhelmed by the things he doesn’t know and he’s grown more and more confident over the years in his own decisions.

This personality has helped Doug develop a bias towards extending diversifying his businesses to incorporate higher value content. He’s made this transition twice before from traditional advertising-based businesses successfully. I’m sure he’ll manage to do it again in this role.

[A note: the Chairman of Source, Marty Maleska, is member of the NCI board.]

Martin Feldstein, the Harvard economist, today in the Wall Street Journal offers an attractively succinct and common-sense assessment of the effect of Obama administration programs on the economy.

A stimulus was needed, Feldstein writes. The problems was that it had the wrong emphasis.

The result was an unnecessarily large increase in the national debt for a very modest rise in gross domestic product, with too much emphasis on redistributing income and preserving public-sector jobs and not enough on raising economic activity. Only about one-fourth of the nearly $800 billion will be used for government spending that adds directly to GDP.

Simply focusing on the right things would have had much more impact, Feldstein says.

The flaw in the stimulus package wasn’t, as some say, that it was too small. It was that it was poorly targeted. Instead, Congress and the president could have gotten more stimulus from accelerating the repairing and replacing of equipment in the civilian and defense sectors. Long-term reductions in marginal tax rates of the type used by Presidents Kennedy and Reagan would also have been better than temporary tax cuts that have no positive incentive effects.

Feldstein doesn’t offer a solution, except to suggest that administration needs to shift its focus. The Congressional Budget Office recently completed a paper showing the impact different job stimulus initiatives could have on employment.

936D3DE0-05E6-4EF0-9421-002026998757.jpgThe chart to the right is from the director of the CBO’s blog and shows which initiatives would have the most significant impact on employment. A big impact would be from reducing payroll taxes. This effectively reduces the cost of having an employee. In theory, this is good for the government, for while the company would contribute less in tax, this decline would be offset by an increase in personal income tax.

But, in a faint echo of Feldstein’s comments, the CBO director has a caution. We’ve already run up a big bill with the stimulus programs and those bills have a price.

CBO concludes that further policy action, if properly designed, would promote economic growth and increase employment in 2010 and 2011. Different policies vary in cost-effectiveness as measured by the cumulative effects on GDP and employment per dollar of budgetary cost and in the time patterns of those effects. Moreover, despite the potential economic benefits in the short run, such actions would add to already large projected budget deficits. Unless offsetting actions were taken to reverse the accumulation of additional government debt, future incomes would tend to be lower than they otherwise would have been.