Back to Where We Began. Finally.

CATHERINE RAMPELL

Dollars to doughnuts.

The American economy has finally reached the size it was before the recession began four years ago, according to the latest gross domestic product report from the Bureau of Economic Analysis.

Dollars to doughnuts.

That may sound like good news, but it’s long overdue, and frankly not good enough. If the economy were functioning normally, it would be significantly greater today than it was before the recession began.

Here’s a look at the level of gross domestic product over the last decade:

It has taken 15 quarters for the economy to merely recover the ground lost to the recession. That is significantly longer than in every other recession/recovery period since World War II. In the previous 10 recessions, the average number of quarters it took to return to the prerecession peak was 5.2, with a high of 8 quarters after the recession in the 1970s.

Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities and Vice President Joe Biden’s former economic adviser, has written up some additional thoughts on the significance of these numbers. He observes:

[R]egaining the peak is just a proximate goal. What we’ve really lost here is the trillions in output between potential GDP (how the economy would have done absent the recession) and actual GDP. That’s the actual cost of the downturn—the output, jobs, incomes, opportunities, even careers, that were lost in the Great Recession.

Rajat Gupta, Merely Affluent

Rajat Gupta was rich by almost any standard. He just wasn’t rich compared with many of the people who surrounded him. He knew it, and he didn’t seem to like it.

More than a few of his friends and colleagues had tens or even hundreds of millions of dollars. They included his fellow board members at Goldman Sachs, the alumni of McKinsey & Company — a firm that Mr. Gupta ran and that paid him a few millions of dollars a year — who then made fortunes on Wall Street and, perhaps most important, his friend Raj Rajaratnam, the hedge-fund manager sentenced to 11 years in prison for insider trading. Mr. Gupta, who was indicted Wednesday for passing along corporate secrets to Mr. Rajaratnam, has proclaimed his innocence.

DAVID LEONHARDT

Thoughts on the economic scene.

What seems beyond doubt, however, is that he was envious of the wealth that his peers were amassing. In that way, Mr. Gupta is a symbol of a different kind of income inequality from the one at the heart of the Occupy Wall Street protests, where demonstrators proclaim themselves part of the “other 99 percent” and criticize the top 1 percent of earners.

Thoughts on the economic scene.

Mr. Gupta was surely part of the 1 percent. But seems to have felt as if he was part of the other 99 percent of that 1 percent.

You don’t have to sympathize with him to see how his envy could have affected the choices he made — orienting his post-McKinsey career around making money, handing over large chunks of his money to Mr. Rajaratnam and, at least according to prosecutors, going to great lengths to curry favor with Mr. Rajaratnam.

Such envy extends well beyond people accused of committing crimes. The inequality among the rich is a major force pushing many graduates of the country’s top colleges to Wall Street and drawing middle-aged professionals from other lines of work to finance.

Consider the numbers. Three decades ago, a taxpayer at the cutoff for the top 0.01 percent of earners — that is, in the top 1/10,000th — was making about 10 times as much as someone at the cutoff for the top 1 percent, according to research by the economists Emmanuel Saez and Thomas Piketty.

Since then, the top 1 percent has done very well, nearly doubling its income in inflation-adjusted terms, which is a far bigger raise than most households have received. Yet the very rich have done vastly better: someone at the cutoff for the top 0.01 percent now makes 30 times as much as someone at the top 1 percent, according to the latest numbers.

To someone making a few million dollars a year, these very rich — rather than the median-earning American — are often the relevant benchmark. “Most families are trying to keep up with the Joneses,” as Catherine Rampell wrote in a post here earlier this year. “And in dollar terms, the rich are falling far shorter of their respective Joneses than the middle-income and lower-income are.”

Another fee bites the dust: Wells Fargo backs off debit charge

Joining an industry's retreat in the face of customer protests, Wells Fargo has abandoned the idea of charging debit card fees -- the third major bank to back away from such plans in a day.

The San Francisco banking giant had planned to test a monthly $3 fee for users of its debit cards in five states. It said in a statement Friday that it had called off that pilot program "as a response to customer feedback the bank has received."

"We will continue to stay attuned to what our customers want," said Ed Kadletz, head of Wells Fargo’s debit card division.

A host of critics including President Obama have attacked Bank of America's plan to charge account holders $5 a month if they use their debit cards to make purchases. The populist outrage, highlighted by protests staged by the Occupy Wall Street movement, has caused other major U.S. banks to hold off on imposing similar fees.

Earlier Friday, Bank of America backpedaled, saying it would make it easier for its customers to avoid the fee by waiving the charge if they also used BofA credit cards, maintained minimum account balances or made certain direct deposits. Details of the revised plan had not been finalized, a person familiar with the changes said.

Also Friday, JPMorgan Chase said that after its own eight-month testing of $3 monthly debit card fees it had decided against imposing them on its customers.

Citibank, US Bank and Union Bank are among other major institutions that have now taken the no-debit-fee pledge. However, certain regional banks, such as SunTrust and Regions, already have implemented fees similar to those at Bank of America.

It will be interesting to see what other new charges the banks cook up as they try to make up for revenue lost to new regulations governing credit card, overdraft and debit card practices that were imposed in the aftermath of the financial crisis.   

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-- E. Scott Reckard

Photo: Wells Fargo in San Francisco. Credit: Paul Sakuma / Associated Press

BofA backpedals on $5 debit fee

Bank of America plans to make it much easier for customers to dodge its planned $5 monthly fee for debit cards, a person familiar with the bank's strategy says.

The $5 fee, which has triggered a storm of criticism, isn't going away. But under proposed revisions to the plan, "most of our customers won't pay it," according to the person, who spoke on condition of anonymity because the changes haven't been finalized.

Bank of America initially had said it would waive the fee only if a customer had a BofA mortgage or $20,000 in accounts at the bank and its Merrill Lynch brokerage.

It's now planning on lowering the minimum balance requirement significantly, although the final figure hasn't been set. Customers also would be able to dodge the charge by using BofA credit cards or making certain direct deposits.

The bank is going to start charging the debit card fee at a yet-to-be-determined time next year.

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Chase opts out of debit-card fee

Citibank is next with a new banking fee

Survey: Debit card users may switch banks over fee

--E. Scott Reckard

Photo credit: Lucas Jackson / Reuters

California state housing agency reverses on foreclosures

A state-run housing agency at least temporarily has suspended the practice of foreclosing on a small number of borrowers who rented out their homes.

The office of Senate President Pro Tem Darrell Steinberg (D-Sacramento) on Friday announced that the California Housing Finance Agency had agreed to his request to halt the foreclosures, even though the homeowners had not fallen behind on their monthly payments.

Earlier this week, Senate investigators issued a report that said the agency, known as CalHFA, initiated or threatened foreclosures on about 200 borrowers because they were no longer living in the homes as required by state regulations and interpretations of federal tax law.

The borrowers, who owed more on their properties than their market values, moved out for a variety of personal reasons but did not want to sell the homes at losses.

"The agency is making the right decision during difficult economic times," said Steinberg. "Struggling families, who are working to do the right thing in meeting their obligations, shouldn't be saddled with an extra, unnecessary burden."

The agency said it finances $4.2-billion worth of low-interest mortgages through the sale of tax-free bonds. U.S. Internal Revenue Service Rules specifically prohibit that the money from the sale of bonds be lent to home buyers who do not live in the properties.

Nevertheless, the agency in a letter to Steinberg and Senate Housing Committee Chairman Mark DeSaulnier (D-Concord) said it asked its board of directors to revisit the issue of owner-occupancy at its January board meeting. In the meantime, it is temporarily ceasing foreclosure proceedings  against "those who may be renting out their residence while staying current on their payments."

DeSaulnier said he is asking the agency to make the change permanent. "CalHFA serves predominately low-income, first-time home buyers," he said. These Californians should not fear foreclosure when they are doing everything right."

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-- Marc Lifsher

Photo: A foreclosed Glendale home in September. Credit: Kevork Djansezian / Getty Images

White House orders loan review to avoid more Solyndras

The White House, shifting its position on the Energy Department's loan guarantees, said it will now review the entire program for such ill-fated decisions as the much-publicized $535-million loan guarantee for California solar equipment maker Solyndra, which later fell into bankruptcy.

The step aims to defuse the embarrassing Solyndra episode, which has given rise to criticism that the Obama administration has wasted hundreds of millions of dollars in taxpayer money.

In a news conference this month, the president asserted that "the overall portfolio has been successful." He said: "It has allowed us to help companies, for example, start advanced battery manufacturing here in the United States. It’s helped to create jobs."

Obama’s defense opened him to charges that he has been tone-deaf to Solyndra’s implications. With the economy still weak and deficits topping $1 trillion, the White House can’t afford to be seen as lax overseers of taxpayer dollars.

Republicans have seized on the issue. As Obama crisscrosses the country pressing for his $447-billion jobs plan, Republicans have been citing Solyndra as an example of stimulus spending that backfired.

GOP presidential candidate Mitt Romney, speaking at the Values Voter Summit this month, said: "I welcome renewable energy. But as an old venture capitalist myself, I can tell you this: There will be no more Solyndras."

White House chief of staff William Daley ordered the 60-day evaluation and asked for recommendations about "how to improve the loan monitoring process," according to the White House.

Leading the inquiry is Herb Allison, a former Treasury official who oversaw the federal bailout program for the financial sector.

In a statement, Daley said that "while we continue to take steps to make sure the United States remains competitive in the 21st century energy economy, we must also ensure that we are strong stewards of taxpayer dollars."

Investigators are poring over the Solyndra deal. The Justice Department and congressional Republicans have been investigating the loan since the company filed for bankruptcy. At the request of Republican-controlled congressional committees, the White House has turned over thousands of emails, some of which showed administration officials rushing to approve the deal in time for a glitzy photo op.

The White House has balked at releasing everything in its possession, including the president’s BlackBerry messages. Republicans are threatening to use subpoenas to get more information even as the administration prepares to release thousands more email communications in the coming months.

They aren’t stopping at Solyndra. Congressional investigators have recently turned their attention to loan guarantees granted by the Energy Department to two automakers -- Fisker Automotive and Tesla Motors -- and to the U.S. subsidiary of a steel company owned by a Russian firm.

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-- Peter Nicholas and Neela Banerjee

Photo: Solyndra's headquarters in Fremont, Calif. Credit: Robert Galbraith / Reuters

BofA will make it easier for customers to dodge $5 debit fee

Bank of America plans to make it much easier for customers to dodge its planned $5 monthly fee for debit cards, a person familiar with the bank's strategy says.

The $5 fee, which has triggered a storm of criticism, isn't going away. But under proposed revisions to the plan, "most of our customers won't pay it," according to the person, who spoke on condition of anonymity because the changes haven't been finalized.

Bank of America initially had said it would waive the fee only if a customer had a BofA mortgage or $20,000 in accounts at the bank and its Merrill Lynch brokerage.

It's now planning on lowering the minimum balance requirement significantly, although the final figure hasn't been set. Customers also would be able to dodge the charge by using BofA credit cards or making certain direct deposits.

The bank is going to start charging the debit card fee at a yet-to-be-determined time next year.

RELATED:

Chase opts out of debit-card fee

Citibank is next with a new banking fee

Survey: Debit card users may switch banks over fee

--E. Scott Reckard

Photo credit: Lucas Jackson / Reuters

Chase opts out of debit-card fee

Another bank seems to have figured out what Bank of America Corp. has found out: Charging for use of debit cards could chase customers away.

JPMorgan Chase & Co., which for eight months has been dinging its Georgia and northern Wisconsin customers $3 a month for using debit cards, said Friday it has decided to end the test next month and won't impose the fee anywhere.

There was no official announcement, but a person who had been briefed on the matter said the bank's customers preferred a program it calls Chase Total Checking.

That's a package that charges checking customers $12 a month ($10 monthly in California, Oregon and Washington) but waives the fee if they have at least $500 direct-deposited each month, or keep at least $1,500 in the account, or have a total of $5,000 in linked Chase accounts.

A host of critics including President Obama have attacked BofA's plan to start charging account holders $5 a month if they use their debit cards to make purchases (ATM transactions are free).

Citibank has said its tests, like Chase's, showed consumers really hate the idea of debit card fees. It has raised its fee for a basic checking account but has said it won't impose a debit fee.

US Bank also has said it has no plans for such a fee, although Wells Fargo has begun conducting its own tests of a $3 monthly charge and some regional banks like SunTrust, a big presence in the Southeast, have started charging a fee similar to BofA's.

Bank customers across the country have expressed "outrage" over the BofA fee, according to Norma Garcia, who heads up a financial-services program for Consumers Union, the advocacy arm of Consumer Reports.

"It's time for Bank of America to listen to its customers who are saying loud and clear: drop the fee or we'll drop you," Garcia said in a statement. "All banks that are considering debit card fees should ditch those plans."

BofA Chief Executive Brian T. Moynihan said this week that he’s “incensed” by public criticism of his company and is pushing back by reminding local leaders of its contributions to their economies.

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Citibank imposes higher checking charges -- but no debit card fee

Debit cards poised to get much costlier

Survey: Debit cards users may switch banks over new fees     

--E. Scott Reckard

Photo credit: Elaine Thompson / Associated Press

International travel to the U.S. expected to boom

If you live near a tourist attraction in the U.S., you might want to practice your Mandarin and Portuguese.

International travel to the U.S. is expected to grow by 5% to 6% each year over the next five years, with the greatest rate of growth coming from China and Brazil, according to a new forecast by the U.S. Department of Commerce.

The latest numbers are a revision of a May forecast that said visitation numbers should grow by 6% to 8% annually over the next five years. Department of Commerce officials said they lowered their prediction slightly based on visitation numbers over the last few months.

Still, the projected increase is good news for the U.S. economy, as foreign travelers spend far more per visit than domestic tourists. The U.S. Department of Commerce projects a record 64 million international travelers to spend $152 billion during their stays in 2011, an increase of 13% from 2010.

“More than 1 million Americans owe their jobs to a strong travel and tourism sector," said Under Secretary of Commerce for International Trade Francisco Sánchez. "This record-breaking forecasted growth in travel exports will help put more Americans to work.”

Over the next five years, the greatest number of visitors will continue to be from Canada and Mexico, according to the forecast. But tourism is expected to grow the fastest from China (274%), Brazil (135%) and Australia (94%), the forecast said.

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-- Hugo Martin

Photo: Planes from foreign airlines line up at Los Angeles International Airport. Credit: Los Angeles Times

 

 

 

 

 

 

 

 

Crowded labor market drives lackluster wage growth

A labor market flooded with unemployed workers continued to put downward pressure on wages and compensation in the last three months, according to employment cost data released Friday by the Bureau of Labor Statistics. Wages and salaries increased just 0.3% in the third quarter of 2011, while benefits increased just 0.1%, the slowest growth rate since 1999.

Wages and salaries grew 1.6% in the 12 months ending Sept. 30, while benefits rose 3.2%. Benefits have grown faster than wages and salaries over the past two years. In the quarter, the overall employment cost index rose at the slowest pace in two years.

Compensation was dragged down by flat salaries for state and local government workers. Their pay increased just 1.5% over the year, the slowest growth since the data started being recorded in 1982. (In June 1982, state and local government compensation grew 8.5% over the year). That's just one more sign that state and local government positions, once seen as work that came with job security, pensions and stable pay, are no longer the sinecures they once were.

In the three months ending Sept. 30, wages and salaries in the private sector grew in financial activities and insurance, 0.8% and 0.9%, respectively, and in installation and repair. They shrank in the public sector in education, especially among elementary and secondary school employees.

Total compensation, which includes benefits, grew the fastest in the Detroit area over the year -- 4.9%. It rose just 1.9% in the Los Angeles area, and 2.9% in the Phoenix area. If benefits are taken out, wages and salaries grew the fastest in the Minneapolis region over the year, 2.5%, followed closely by Boston and Houston. They grew the slowest in Los Angeles, just 1.3%.

These growth rates aren't likely to speed up until the unemployment rate shrinks, wrote Gregory Daco, an economist with IHS Global Insight.

"With the unemployment rate at 9.1%, ongoing labor market slack should continue to put downward pressure on employment costs," he wrote. "While this is good news for business, it does not bode well for U.S. households whose real disposable incomes fell 1.7% in the third quarter -- the biggest drop since the third quarter of 2009."

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-- Alana Semuels

Photo: Job seekers in Oakland. Credit: Justin Sullivan/Getty Images

 

 

Bad sign for Europe rescue plan: Italian bond yields jump

One day later, and markets already are having second thoughts about Europe’s plan to end its government-debt crisis.

In a particularly troubling sign, yields jumped Friday on Italian and Spanish government bonds. Those are the Eurozone countries that the rescue plan is meant to save from Greece’s fate.

A key element of the plan is the expansion of Europe’s $600-billion rescue fund for member states and banks. The focus is on boosting the firepower of the fund -- known as the European Financial Stability Facility -- to $1.4 trillion by leveraging it.

The fund is expected to eventually issue guarantees on bonds issued by deeply indebted countries, particularly Italy. The goal: bring down interest rates on those securities, to levels the countries can afford, by making investors more confident about buying them.

But on Friday, investors failed to give Italy the benefit of the doubt as the country’s treasury sold $11.2 billion in bonds and paid more than expected. The market yield on 10-year Italian bonds surged to 6.02%, up from 5.88% on Thursday and the highest since early August.

The yield on two-year Italian bonds rocketed to 4.75% from 4.43% on Thursday, and now is the highest since 2008.

Yields also jumped on Spanish government debt. The yield on the country’s 10-year bonds rose to 5.51% after falling to 5.33% on Thursday. But the rate remained below its recent high of 5.55% reached on Monday.

Italian and Spanish yields rose despite rumors that the European Central Bank was buying the countries' debt in the open market.

European stock markets ended mostly lower Friday, but gave back little of Thursday’s rally. The French market lost 0.6% after soaring 6.3% on Thursday. Italian stocks were down 1.8% after a 5.5% jump a day earlier.

The euro slipped to $1.417 from $1.418 on Thursday.

U.S. stocks were little changed at about 10:30 a.m. PDT. The Dow Jones industrial average was up 20 points or 0.2% to 12,228. The Dow had surged 339 points, or 2.9%, on Thursday.

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-- Tom Petruno

twitter.com/tpetruno

Photo: The Italian Parliament in Rome. Credit: Marc Hill / Bloomberg News

Obama wants faster commercialization of research breakthroughs

President Obama on Friday directed federal research labs to move quicker to commercialize their breakthroughs in hopes of creating more private-sector jobs.

The move was one of two steps designed to spur business hiring. The Obama administration also said it would create an online site called BusinessUSA to help connect companies with federal services to help export goods and services to other countries.

The White House cited three companies that received federal research grants -- wireless chip maker Qualcomm Inc., antivirus software firm Symantec Corp. and robot manufacturer iRobot Corp. -- as examples of commercial successes helped along by the government.

Obama directed all federal agencies with research facilities to streamline and accelerate the processes they use to issue small-business research and development grants and collaborations with universities and private companies. The administration also will give agencies more flexibility to partner with private industry, such as through regional innovation clusters.

BusinessUSA will be a "centralized, one-stop online platform" to help businesses get information on various federal programs without wasting time wading through the bureaucracy. The site will be created within 90 days, the White House said.

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-- Jim Puzzanghera in Washington

Photo: Colin Angle, chief executive of iRobot Corp., holds the Roomba 780 vacuum cleaner robot at a news conference in Tokyo in September. Credit: Bloomberg.

Savings rate falls as spending outpaces income gains

Are Americans returning to their profligate spending ways?

Some may be asking that question after the latest government report showed consumer spending in September rose by a surprisingly robust 0.6%, even as personal incomes barely grew over the month. And adjusting for inflation, after-tax income in September actually fell by 0.1%, the Commerce Department reported Friday.

Put all that together and you get a sharp drop in the saving rate last month, to 3.6%. That’s the lowest level since 2007 and a drop from about 5% to 6% during most of the last two years.

Scott  Hoyt, who studies consumer spending for Moody’s Analytics, says it’s possible that the September consumption number may have been inflated by a burst of expenditures for repairs and other things after Hurricane Irene in late August. Yet other data suggest that people are spending more as lenders have loosened up a bit on credit and as households, which had put off buying new cars and other goods, feel a little better about where the economy is headed.    

In fact, the University of Michigan’s latest consumer sentiment index, reported Friday, showed confidence improving by 1.5 points in October to 60.9. That reversed a preliminary reading that saw a drop of nearly 2 points from September.

Confidence should get a further boost with the recent rally on Wall Street and retreat in gas prices, and this week's report indicating third-quarter economic output accelerating to an annual rate of 2.5%, almost double the second quarter.

Even so, with the housing market still depressed and job growth so weak that it's not keeping up with new workers coming into the job market, it's hard to see how the pickup in consumer spending can be sustained. That is, unless households reach deeper into their savings or start taking on more debt.

-- Don Lee 

Wall Street: Investors cautious after big day

Gold: Trading now at $1,738 an ounce, down 0.6% from Thursday. Dow Jones industrial average: Trading now at 12,173.51, down 0.3% from Thursday.

The day after. A day after one of the markets' best days in months, investors are being a bit more cautious.

Avoiding fees. After Bank of America faced harsh criticism for instituting a $5 debit-card fee, other banks are shying away from such fees.

Losing bets. The European rescue plan that forces banks to take a voluntary write-down on Greek debt is a total bummer for investors who had bought credit default swaps to try to cash in on Greece's misery.

Questioning the SEC. The same judge who questioned the Security and Exchange Commission's settlement with Bank of America is questioning the latest settlement sought by Citigroup.

Shocking arrest. Rajat Gupta was a hero in the Indian business community nationwide -- now his arrest has the community reeling.

I am the 1%. An anti-Occupy Wall Street analyst goes down to the protests and videotapes himself taking them on on their home turf.

-- Nathaniel Popper in New York
Twitter.com/nathanielpopper

Photo credit: Stan Honda / Getty Images

Europe kowtows to the Chinese dragon

Come to this. Few things could be more bizarre, or humiliating, than the sight of eurozone political leaders kowtowing to the Chinese in the hope that a few crumbs might fall from the dragon's table to help prop up the newly enhanced European Financial Stability Facility.

The Chinese threaten to extract a high price; security for their money, open access to European markets and freedom to buy advanced technologies (and there I was thinking they'd already stolen it all). They might also demand, though I have seen no evidence for this in published comments, that Europeans cease all open criticism of Chinese mercantalism, human rights abuse and anything else that tends to concern us over China's ever onwards and upwards rise to superpower status.

A few facts and figures. At $12.2 trillion in 2010, the eurozone's gross domestic product is more than twice as big as that of China and its income per capita is more than four times as high. And yet there's the eurozone's emissory, Klaus Regling, going cap in hand begging for handouts. How can a region be so rich and yet apparently so poor at the time?

It's a paradox which goes to the heart of the problem of global imbalances. What in effect is happening is that the Chinese earn far more than they spend. The consequent surplus in earnings and production is saved and exported. It's a funny old world that has some of the poorest people in the world lending to some of the richest to buy the goods they make but cannot themselves afford to buy, but that's the way it is.

Whatever concessions the Chinese manage to extract from the likes of Nicolas Sarkozy, who's been on the phone to President Hu Jintao, they would be well advised to leave well alone. As the investment guru Jim Rogers said on BBC radio's Today programme, the EFSF is essentially a scam. It might buy a little time, but it cannot solve the eurozone's underlying problems. The bit of it the Europeans want the Chinese to invest in is a "special purpose vehicle" – appropriately known as a SPIV – which is essentially a piece of financial engineering to make the fund bigger than it really is. It's a confidence trick.

It's also a surrogate for what the eurozone should really be doing to add liquidity to distressed peripheral nation bond markets – which is to give the European Central Bank the freedom to act as a central bank is meant to in its lender of last resort capacity and print money to ease the crisis (see this excellent piece by the economist Paul De Grauwe). Only the Germans won't allow it. They'd prefer to dance with the Chinese dragon than do the obvious. At best, they are going to end up badly singed.