Direct Loans: 10/19/11

Wednesday, October 19, 2011

California boosts yields on muni bond sale to lure investors

California was forced to boost interest rates on a sale of $1.8 billion in tax-free muni bonds on Wednesday, as institutional investors demanded higher yields to close the deal.

The state set a yield of 3.70% on the 10-year bonds in the offering, up from a preliminary estimate of 3.51% on Monday. The five-year bonds in the sale will pay a yield of 2.28%, up from an initial estimate of 2.10%. The bonds were sold in maturities of three to 30 years.

Interest on the bonds is exempt from state and federal income taxes for California residents. The proceeds from the sale will fund voter-approved infrastructure projects.

Treasurer Bill Lockyer had to pay higher yields after the bonds got a lukewarm reception from individual investors on Monday and Tuesday. Those investors put in orders for $387 million of the debt, or about 21.5% of the total deal.

By contrast, individual investors ordered almost 28% of the $2.37-billion bond offering the state sold on Sept. 20. And at the sale before that, last November, individuals sought nearly 80% of the deal -- when yields were substantially higher. The 10-year bond in that offering paid 4.23%.

The relatively low level of demand from individuals this time around meant that institutional investors, such as mutual funds, had more leverage to push for higher returns when the state took their orders on Wednesday. That will benefit individuals who ordered the bonds on Monday and Tuesday, because all buyers get the same final yields.

It also means taxpayers will foot a bigger bill for interest costs than Lockyer had hoped.

Some muni bond market analysts say individual investors balked at the offering because they’re unhappy with the relatively low interest rates on tax-free bonds in general, even though yields have risen over the last few weeks.

“Retail investors are deeply ambivalent about bonds at these yields,” said Matt Fabian, an analyst at research firm Municipal Market Advisors in Concord, Mass.

Interest rates on high-quality bonds have dropped across the board this year as the Federal Reserve has tried to put more downward pressure on all rates to help the economy.

The tax exemption on muni bonds means their returns are more attractive than yields on many taxable securities. A five-year U.S. T-note pays just 1.04%, and that interest is federally taxable.

Still, many investors are put off by the low nominal returns on munis compared with what they remember in recent years, said Marilyn Cohen, head of money management firm Envision Capital Management in Los Angeles.

“Given the market we confronted, we’re satisfied with the results,” said Tom Dresslar, a spokesman for Lockyer in Sacramento. “We’re confident we got the best deal possible for taxpayers.”

Besides the $1.8 billion in tax-free bonds, the state also sold $205 million in taxable bonds Wednesday.

California sells out $5.4-billion short-term note sale

California sells $2.4 billion in bonds as yields fall

Investing: Is the bond market at a crossroads?

-- Tom Petruno

Follow me on Twitter: Twitter.com/tpetruno

Photo credit: Makaristos

Airlines worldwide expected to collect $32.5 billion in fees in 2011

The worldwide airline industry is expected to collect $32.5 billion in fees for checked bags, onboard entertainment and other extras this year, a 44% increase over 2010.

The projection for a huge revenue increase came in an annual estimate released Wednesday by IdeaWorks, an airline consultant in Wisconsin, and Amadeus IT Group, a technology company in Madrid.

IdeaWorks and Amadeus said U.S. airlines should collect the vast majority of fees worldwide, pocketing $12.5 billion this year, compared with $6.7 billion last year.

The study attributes the higher revenue to increasing passenger demand and greater efforts by airlines to push for the sale of extra services and products, such as wireless Internet access and food.

The study said that about half of the extra revenues collected by the airlines would come from the sale of frequent flier miles to credit card companies. Baggage fees make up about 20% of the fees, with charges for other onboard services and products making up the balance, according to the study.

“Whatever the model, there is no doubt that the growth of ancillary sales is here to stay," said Julia Sattel, a vice president for Amadeus.

Christmas travel spending to increase, survey says

Company that puts ads on airport bins to expand

Spending on business travel expected to slow in 2012

-- Hugo Martin

Photo: A passenger talks with an airline representative at Ontario International Airport. Credit: Los Angeles Times.

Blaming Government More Than Wall Street

CATHERINE RAMPELL

Dollars to doughnuts.

Americans blame the federal government more than they blame Wall Street for the nation’s current economic distress, according to a new poll from Gallup. In fact, forced to declare j’accuse to just one culprit, twice as many chose the feds:

Dollars to doughnuts.

To be sure, Americans still say financial institutions deserve a lot of blame.

In a separate question in Gallup’s survey, which was conducted Oct. 15-16, respondents were asked how much they blamed Wall Street in general, and more than three-quarters said the banks deserved “a great deal” or “a fair amount” of blame.

Perhaps not surprisingly, in the question about apportioning blame between the two potential malefactors, Tea Party sympathizers were tremendously more likely to assign more blame to the government. What’s more, both Democrats and Republicans were more condemnatory of the government than finance, to varying degrees.

Occupy Wall Street supporters, as you might imagine, were indeed more likely to blame the financial services crowd, but the preference was still relatively small:

Given persistently high unemployment rates, and Washington’s insistence on arm-wrestling over the debt ceiling rather than focusing on the jobs crisis in recent months, it’s hardly surprising that there is so much anger at the federal government. A separate Gallup survey found that Americans’ confidence in their political leaders was at historic lows.

The question now is: Is there anything that the government will — or even can — do to help fix the economic wreckage that Americans blame them for? What do you think, readers?

Debit card users may switch banks over new fees: poll

Banks charging debit card users a monthly fee could lose 30% of those customers, according to a new report.

Bank of America Corp.’s monthly $5 debit card fee and Wells Fargo & Co.’s $3 monthly charge have consumers riled up. Three in 10 are threatening to leave their bank if similar policies are imposed, according to a poll from research firm The Research Intelligence Group.

The rate of departure is even higher among young people, West Coast residents and members of households with six-figure incomes, according to responses from 1,000 adults in early October.

The debit card fees have 43% of Americans contemplating a switch to a new payment method – 28% said they may start shelling out cash while 15% will rely more on credit cards.

Consumers Union, the publisher of Consumer Reports magazine, urged banks this week to withdraw their plans to charge debit card fees, arguing in a letter that the policy “appears to be arbitrary and designed to generate income to make up for … bad business decisions.”

“This debit card fee just adds insult to injury,” said Norma Garcia, director of the organization’s financial services program. “If Bank of America and other banks refuse to drop the debit card fee, consumers should consider dropping them.”

Bank of America to charge $5 monthly fee for debit card purchases

-- Tiffany Hsu

Photo: Elaine Thompson / AP Photo

Why Murdoch will still be writing the script at News Corp

Rupert Murdoch will be missing at least one ally at Friday’s annual meeting of News Corp shareholders in Los Angeles.

Evelyn Davis, an eccentric elderly investor who is a regular on the AGM circuit in New York, isn’t making the trip to the West Coast. Murdoch will, on balance, miss her.

More interested in her own publicity than the free food available at such meetings, Davis would have taken up valuable microphone time. Secondly, she’d have used it to back the media mogul over the phone-hacking scandal that threatened to unravel News Corp over the summer.

“No CEO can possibly know what all his flunkies are doing all the time,” she said when I caught her on the phone last week. “A lot of people are jealous of Rupert. He’s a genius.”

The shareholders who are travelling to Los Angeles will disagree. The past fortnight has seen an unprecedented number of News Corp investors demanding an overhaul of the company’s board, including the California Public Employees Retirement System (Calpers) and the California Teachers Retirement System (Calstrs) – America’s two biggest public pension funds – and Hermes, which manages BT’s pension fund.

For these investors, the scale of the phone hacking unearthed at the News of the World points to a system of corporate checks and balances that has badly broken down. There’s also scepticism that the committee News Corp has established to investigate the problem has sufficient independence from Murdoch. News Corp has defended the independence of its board, arguing last week that it's "acting decisively to get to the bottom of what happened."

But, one shareholder, Julie Tanner of Christian Brothers Investment Services, will take to the floor to call for the appointment of an independent chairman. So befitting a meeting that will unfold in the grounds of the Fox Film studios, it won’t lack for colour, drama, tension or plot lines.

But Tanner is the first to admit that her call is a symbolic one. The only shareholders who will be able to vote on in it will be those crammed into the Zanuck Theatre. And it will take special effects beyond anything Hollywood can produce to prevent the re-election of the 13 existing board members, including Rupert Murdoch and his sons, James and Lachlan. The Murdoch family controls almost 40pc of News Corp’s B shares that carry voting rights and Saudi Prince Alwaleed bin Talal Alsaud, who has staunchly backed Murdoch, holds sway over more than 5pc. That’s already within touching distance of the 50.1pc any director needs.

So let’s assume that as the News Corp board sits down to lunch on Friday they’ve all been re-elected and the pay packages for Murdoch and Chase Carey, News Corp’s chief operating officer, have been approved. How do those shareholders who have been insisting on change react?

Much will depend on the scale of the vote against Murdoch & co. If it’s large, Calpers, Calstrs and Hermes will feel emboldened. Corporate governance experts who have long had News Corp

in their sights seem confident that shareholders’ likely defeat in the vote tomorrow will be an important staging post on the road to eventual change at News Corp. “Staying at a party when a lot of people aren’t happy to have you there isn’t much fun,” says Charles Elson, a professor of corporate governance at the University of Delaware.

There’s no disputing the events that cascaded from the News of the World’s Wapping office have left the naturally pugnacious Murdoch on the back foot. News Corp is under investigation by Parliament and the Met Police in the UK, while in the US, the Securities and Exchange Commission and the Department of Justice are examining one of the world’s biggest media and entertainment companies. Any of these inquiries, or further investigative reporting, could pull on a thread that would force Murdoch to relinquish his grip on the company he founded.

But, based on what we now know, is Prof Elson right? Will Murdoch be forced to leave his own party in the next year or so? The answer is no and the explanation again lies with News Corp’s shareholders.

For every Calpers that has voiced its concerns, there’s another shareholder that hasn’t. They may have had private conversations with News Corp’s management. But given News Corp’s forceful defence of the independence of its board and the voting rights Murdoch already wields, it seems likely any shareholder who felt very strongly would have grabbed the leverage that speaking out publicly gives.

The scandal hasn’t dented News Corp’s profits, which are driven by its successful US cable television business. Wall Street’s greater concern is that Murdoch blows News Corp’s more than $10bn in cash on another newspaper or the next MySpace. Yes, pressure has increased on Murdoch, but he’s still writing the script at News Corp.

The banking crisis showed it’s a mistake to rely too heavily on shareholders to force fundamental change at companies. News Corp, so far at least, echoes that.

Wages of top 1% rise much faster than bottom 90%

Income growth for the top 1% of households has far outpaced that of all other households over the last two decades, bolstering the theory advanced by groups such as Occupy Wall Street that conditions are improving much more quickly for people outside the "99%."

An economic snapshot from the Economic Policy Institute shows that inflation-adjusted incomes of the top 1% of households increased 224% from 1979 to 2007, while incomes for the bottom 90% grew just 5% in the same time period. Those in the top 0.1% of income fared even better, with incomes growing 390% over that time period.

The top 1% of households still fare well from President Bush-era tax cuts and from a decrease in the estate tax, according to the EPI. Its authors argue, in a separate paper, that in light of these rising incomes, high-income households should be taxed more to reduce the deficit.

The average tax rate for the top 1% of households has fallen since 1979, even as their incomes rose. High-income households paid a tax rate of about 37% in 1979 and about 29.5% in 2007.

Taxes are a hot topic these days in light of proposals by Republican presidential candidates to change the tax code. Herman Cain would scrap the current progressive income tax system and replace it with a 9% income tax, as well as a 9% sales tax and a 9% corporate tax.

More jobs available, but at lower wages

What would Herman Cain's tax plan really do?

-- Alana Semuels

Chart courtesy of EPI

Prius owners are trading into electric vehicles

One reason why auto companies are rolling out comparatively low-volume electric cars is to get buyers into showrooms they might have otherwise ignored.

The strategy appears to be working for Chevrolet, which makes the Volt plug-in hybrid sedan and Nissan, manufacturer of the all-electric Leaf.

Through the first nine months of this year, Chevrolet has sold about 3,895 Volts and Nissan has sold about 7,199 Leafs, according to Autodata Corp.

“The true value of these launches is the buzz, the conversation on social media and total media attention,” said Barbara Keys, a consultant with auto information company R.L. Polk & Co., which has examined who is buying the cars.

Through the first half of this year, about 78% of Volt buyers didn't own a Chevrolet at the time of the purchase, Keys said.

That means that the Volt is bringing customers of other brands at almost twice the rate of the rest of Chevrolet, where about 43% of buyers are so-called “conquests.”

General Motors, which owns the Chevrolet brand, has provided some more interesting Volt data for sales so far this year. About 37% of Volt buyers are California residents. And the most frequent car traded in for a Volt is the Toyota Prius hybrid. It is the car traded in 7% of all Volt sales.

German cars also were comparatively frequent trade-ins. The BMW 3 Series, the Audi A4 and the Volkswagen Jetta were traded in for a combined 6% of Volt sales, GM said.

The Leaf has a similar trend line for conquests, according to Polk. About 90% of Leaf buyers didn't own a Nissan previously. That’s much better than Nissan's average conquest rate of 52%.

Nissan says that 18% of the customers purchasing a Leaf are trading in a Prius. And 38% of Leaf buyers are trading in a Prius or another Toyota.

Keys looked into whether both Chevrolet’s and Nissan’s ability to attract customers is a result of their respective EVs being new models. She looked at the Chevrolet Cruze and Nissan Juke, which also are new models. They had conquest rates of 48% and 65%, respectively.

Speaking of the Volt and the Leaf, Keys said, “These two high-profile launches have been successful in bringing new customers to the brand, and that may have long-term benefits in terms of make loyalty and customer retention.”

RELATED:

Bicycles are going couture

GM pulls ad that offended cyclists

Chevrolet rolls out battle plan for California

-- Jerry Hirsch

Twitter.com/LATimesJerry

Photo: Autoworkers work on a Chevrolet Volt at the General Motors plant in Hamtramck, Mich. Credit: Associated Press.

Consumer Confidential: Store prices, student loans, bank fees

Here's your walk-on-by Wednesday roundup of consumer news from around the Web:

--You're paying a little more food and clothes and stuff -- and that's probably not such a bad thing. The consumer price index rose 0.3% in September, less than the 0.4% increase in August, according to the Labor Department. Excluding food and energy, so-called core prices increased 0.1%, the smallest increase since March. Food prices rose 0.4% in September, pushed up by big increases in dairy, cereals and fruits and vegetables. Gas prices rose 2.9%. Costs of medical care, airline fares and tobacco also increased. But economists say a little bit of inflation is a good thing because it shows the economy is relatively stable. A deflationary spiral is something to be feared because it can lead to more jobs being lost and more pistol whippings for stocks.

--Speaking of inflation, let's talk about student loans. The amount of student loans taken out last year crossed the $100-billion mark for the first time, and total loans outstanding will exceed $1 trillion for the first time this year. Americans now owe more on student loans than on credit cards, according to the Federal Reserve Bank of New York. Students are borrowing twice what they did a decade ago after adjusting for inflation. Total outstanding debt has doubled in the last five years -- a sharp contrast to consumers reducing what's owed on home loans and credit cards. Full-time undergraduate students borrowed an average $4,963 in 2010, up 63% from a decade earlier after adjusting for inflation. And down the road, of course, those bills will have to be paid.

--Looks like many consumers won't take higher bank fees on the chin. About 30% of U.S. consumers say they'd leave their banks over fees for using their debit cards, according to a survey by the Research Intelligence Group. About 43% say they'd switch to paying with cash or credit cards if their bank implemented charges, while 13% say they'd pay the fee if it was "reasonable." The survey comes as the largest banks, including Bank of America, are testing or planning to start charging fees of as much as $5 a month for consumers who have a debit card or use one for purchases.

-- David Lazarus

Photo: You might have to look harder for bargains amid rising prices. Credit: Rahoul Ghose / We TV

SEC: Citi designed bad security for investors, bet against it

Citigroup is paying hundreds of millions to settle a lawsuit accusing it of betting against its own clients on a mortgage-backed security that the bank had designed to fail.

Citi will pay $287 million to settle the lawsuit filed Wednesday by the Securities and Exchange Commission. The complaint involves a security that derived its value from subprime mortgages -– known as a collateralized debt obligation -- that Citi helped structure and sell to clients just as the mortgage meltdown was beginning in early 2007.

Without telling the clients who were buying the $1 billion security, which carried the name Class V Funding III, Citi packed it with credit default swaps that were likely to fall in value as the mortgage market collapsed, according to the complaint. Citi traders then bet against the security, or shorted it, eventually making money at the expense of its clients, the complaint says.

One industry expert said at the time that it was “possibly the best short EVER!” according to the complaint.

The case recalls a previous case brought against Goldman Sachs for the now infamous Abacus security. While Citi is paying less than Goldman to settle its case, Citi was more integrally involved in the wrongdoing alleged in its case.

Whereas in the Goldman case, the Abacus security was designed by an outside hedge fund investor who wanted to bet against it, in the Citi case, it was Citi employees who designed the security, marketed it to investors and bet against it, eventually making $160 million from the deal.

Citi told clients that Credit Suisse had been responsible for choosing the components of Class V Funding and did not acknowledge that Citi employees had chosen half of the components itself, the complaint says. When the Citi employee responsible for the deal was putting it through he wrote that Credit Suisse "agreed to terms even though they don’t get to pick the assets."

Class V Funding defaulted in November 2007, about eight months after it was marketed to investors. The 15 clients who bought it lost most of their investment, the SEC said.

In addition to the lawsuit against Citi, the SEC filed suit against the Citi employee who oversaw Class V Funding, Brian Stoker. Stoker did not settle and the suit will move forward.

Stoker’s lawyer could not immediately be reached for comment.

In a statement, Citi acknowledged that it made money from Class V Funding, but noted that it had lost money on other collateralized debt obligations –- debts that nearly helped bring Citi down as the crisis reached its heights in 2008.

“We are pleased to put this matter behind us and are focused on contributing to the economic recovery, serving our clients and growing responsibly,” Citi said in the statement.

The SEC also filed suit and settled with Credit Suisse. Credit Suisse paid $2.5 million to settle the case.

Goldman agrees to settle fraud case with SEC, will

-- Nathaniel Popper

Seaport traffic will grow slightly through the end of the year

Global Port Tracker, the monthly study of retail goods imported to the U.S. through the nation's largest seaports, has greatly reduced its expectations for the remainder of 2011. The numbers suggest the economic recovery is weaker than previously believed.

One month ago, the report's authors, Hackett Associates, had been expecting a nearly 12% increase in imported goods in September. The jump in September was also to have been followed by a slow tapering off of holidays sales traffic, but the initial surge never materialized.

Now, Global Port Tracker says that cargo imports through the ports of Los Angeles, Long Beach, Oakland, Seattle Tacoma, New York-New Jersey, Virginia, Savannah, Charleston and Houston rose by just 2.7% in September when compared to the same month a year ago.

October is now expected to show a 2.6% increase in import traffic compared to a year earlier, but the National Retail Federation was putting the numbers in the best possible light.

"Retailers are poised to succeed in maintaining the careful balance between inventory and sales that keeps customers happy while keeping retailers profitable,” said Jonathan Gold, vice president for supply chain and customs policy for the National Retail Federation.

The National Retail Federation is also forecasting 2.8% growth in holiday sales this November and December, for a total of $465.6 billion, compared to the same two months at the end of last year.

Although the numbers aren't a strong as the National Retail Federation would have liked, Hackett Associates founder Ben Hackett said that it could have been much worse.

“General economic indicators are giving us a mixed set of signals,” Hackett said. “Yet at the same time there are indications that things are not quite that bad. We are of the opinion that the probability for economic growth is higher than the probability of recession.”

Also: Cargo surge takes a holiday

Cleaner engines for short line railroad

Southern California needs this jobs generator

--Ronald D. White

Photo: A Pacific Harbor Line locomotive on the right hauls cargo containers of imported goods bound for the nation's store shelves. Credit: Katie Falkenberg / Los Angeles Times

Hubert Humphrey III to head new consumer office for seniors

The Obama administration has tapped former Minnesota Atty. Gen. Hubert H. "Skip" Humphrey III to head a new office in the Consumer Financial Protection Bureau focused on issues affecting older Americans.

Humphrey, 69, the son of former Vice President and U.S. Sen. Hubert H. Humphrey Jr., is the second person with a well-known name to be appointed to a top position at the new agency. The head of the Office of Servicemember Affairs is Holly Petraeus, the wife of former Army Gen. David Petraeus, who now serves as director of the Central Intelligence Agency.

Like Holly Petraeus, who had been active on financial issues facing members of the military for years, Humphrey III has a long history in his own right of working on consumer protection. He was Minnesota attorney general for 16 years and served 10 years in the state Senate. Since 2008, he has been an AARP board member.

"Skip is a great leader. He's a great consumer protector," said Raj Date, the Obama administration adviser heading the consumer bureau until the Senate confirms a director. "He knows that consumer education is a critical complement to tough enforcement measures."

When Congress created the consumer bureau -- the centerpiece of the financial reform law enacted last year -- it mandated that the agency look at financial issues affecting specific populations, including older Americans.

Since the financial crisis, senior citizens have become targets of scams, in part because of the estimated $3 trillion in equity of the homes they own. Consumers Union reported last year that older Americans were particularly vulnerable to being misled on reverse mortgages and called for more government oversight.

Humphrey said that he will focus on increased education to help senior citizens deal with the "confusing and complicated financial services marketplace."

"For most seniors, our retirement savings -- if we have any -- and our homes are all we have," he told reporters on a conference call Wednesday. "If we want to keep a good standard of living and enjoy our retirement years, we need to hang on to these assets."

Seniors lose an estimated $3 billion a year to financial scams, Humphrey said.

In a blog post on the Consumer Financial Protection Bureau website, Humphrey alluded to his father's commitment to public service in talking about how he would run the new office.

"I grew up in a household where it wasn’t enough to just have a point of view," he wrote. "My parents taught me that if I had a problem, I needed to do something about it. Here at the Office of Older Americans, we’ll be embracing this do-something attitude from day one."

Consumer Financial Protection Bureau to open without a director

Consumer bureau nominee Richard Cordray backed by 37 state AGs

Reverse mortgages pose a growing threat for senior citizens, Consumers Union says

-- Jim Puzzanghera

Photo: Hubert Humphrey III. Credit: AARP

New home construction surges in September; recovery still elusive

Homes under construction in Southern California

New residential construction surged 15% in September, turning in its best performance in 17 months, though economists warned that a housing recovery has yet to take hold.

While new construction is key to getting the economy going, much of the new building came from the apartment sector, which can be very volatile. Many economists also noted that permits pulled for new construction, also an important measure of builders’ plans for the future, declined in September.

Nevertheless, the news of the increase cheered investors on Wall Street as well as several housing analysts who follow the numbers closely.

“A strong residential construction number is a welcome relief for an economy struggling to hang on to expansion and a hopeful harbinger of better days to come,” Celia Chen, a housing economist with Moody’s Analytics, wrote in a research note Wednesday morning. “Caution, however, needs to be taken in interpreting the surprisingly strong top-line housing starts for September.”

Builders started new residential units at a seasonally adjusted annual rate of 658,000 in September, a 15% increase over the prior month and up 10.2% from the same month the year before, according to the U.S. Commerce Department.

Single-family homes were built at a rate of 425,000 units, which is only 1.7% above a revised August estimate, meaning the bulk of the increase came from the building of structures with five or more units.

News of the increase in new home starts came one day after builder confidence in the market rose, according to a closely watched index that measures builder sentiment. The National Assn. of Home Builders/Wells Fargo Housing Market Index jumped by four points to 18 in what was the biggest one-month gain since April 2010, when a tax credit for buyers was fueling purchases. Sentiment remains pretty dismal, however, as a number above 50 indicates more builders view conditions as good than poor.

“A stagnant economy and labor market has meant that housing recovery over the past year has been painfully slow, but we do believe that housing is gradually healing and recovering,” Nishu Sood, a home-building analyst with Deutsche Bank, wrote in a research note Wednesday.

Despite that cautious optimism, economists also pointed to the housing permits number released Tuesday by the Commerce Department, which signaled a more mixed picture for housing. New residential building permits were issued at a seasonally adjusted annual rate of 594,000 units, which is 5.0% below the revised August rate, though still up 5.7% from September 2010.

“We would warn against getting too excited as the fundamental picture has not changed; household formation is still too low and the excess supply is still too high to warrant a major rise in home building,” read part of an analysis by Capital Economics.

Kamala Harris a key player in settlement over mortgage crisis

Kamala Harris explains decision to exit mortgage settlement talks

-- Alejandro Lazo

Photo: Homes under construction in Southern California. Credit: Getty Images

Are Employers Requiring People to Work Longer Hours?

Casey B. Mulligan is an economics professor at the University of Chicago.

Employees are working fewer hours, on average, since 2007, dedicated studies of time use show.

Today’s Economist

Perspectives from expert contributors.

As employers have sharply cut back employment since 2007, at least one survey asserted that existing employees have to work a lot more in order to maintain what was produced by the formerly larger work force.

Perspectives from expert contributors.

The Census Bureau’s monthly household surveys do not suggest that such a pattern is widespread, because they measure that average weekly hours worked per employed person have fallen to 37.8 in 2009 from 39.0 in 2007. Another survey also measures hours worked, with a similar result. So it seems that the number of people employed and the hours they work have fallen, creating a huge drop in the economy’s total work hours.

But sometimes surveys can be misleading about hours worked, because people tend to report round numbers like “40 hours” or “35 hours” even when actual hours worked are not a round number (more than 40 percent of employed people in the monthly household survey reported that they worked 40 hours in the reference week, compared with a mere 0.4 percent who reported 39 hours of work). It is logically possible that a number of employed people were working more hours in recent years, but continued to report the round number of 40.

Since 2003, the Census Bureau has supplemented its population survey with the American Time Use Survey, dedicated to measuring time use. Participants in that survey are asked to account for all their waking hours in a specific day, listing various activities, including eating, watching television, working, traveling, caring for children and so on.

The diary study therefore has no bias toward finding that masses of people work exactly eight hours every day for exactly five days a week. It would be interesting to know if the recent recession looks different when the economy’s work hours are measured from the diaries, rather than from the population surveys as the product of employees and hours per employee.

The chart below displays the results. Eight calendar years are sampled, from 2003 to 2010. The blue line is based on the household survey and is an index (normalized to 100 in the year 2007) of the average number of hours worked by adults. It shows about a 2 percent increase in hours worked from 2003 to 2006. Hours worked were about the same in 2007 as in 2006. For each of the three years after 2007, work hours were significantly below the previous year.

The red line is also an index of hours worked per person — but based on the time diary methodology (here I look at the sum of hours spent at work and in “income-generating activities”). The time diary actually suggests there was a mild recession in 2004, because hours worked per person were lower that year than in the surrounding years. Also unlike the household survey, the time diary suggests that work hours in 2007 were abnormally high by comparison with all previous years.

The time diary closely agrees with the household survey measures for the years 2008-10, confirming that hours worked dropped sharply after 2007. Although a few employers may require their workers to work longer hours, the typical pattern since 2007 is fewer hours per employee, and fewer employees.

Consumer prices rise on higher food and energy costs

If you noticed higher prices at the supermarket and gas station last month, you're not alone.

The consumer price index rose 0.3% in September, less than the 0.4% increase in August, the Labor Department said Wednesday. Excluding food and energy, so-called core prices increased 0.1%, the smallest increase since March.

But if you're a consumer, of course, food and gas prices matter. Food prices rose 0.4% in September, pushed up by big increases in dairy, cereals and fruits and vegetables. Gas prices rose 2.9%. Costs of medical care, airline fares and tobacco also increased.

Dairy prices have jumped 10.2% in the past year. Gas prices have soared 33.3%. Those increases are big reasons why inflation has jumped 3.9% in the 12 months ending in September -- the largest year-over-year increase in three years.

The annual increase in consumer prices means that 55 million Social Security beneficiaries will receive higher benefits next year. They will get a 3.6% cost-of-living increase, the first since 2009. That's because Social Security checks are tied to the consumer price index.

There was some good news in the September report. Apparel prices declined after a series of sharp increases, and prices for used cars and recreation fell. New-vehicle prices stayed flat.

Spain's credit rating cut; deal said near on European rescue fund