Consumer Confidential: Nominee to head new agency on hot seat

Here's your to-infinity-and-beyond Tuesday roundup of consumer news from around the Web:

--He may not be Elizabeth Warren, but President Obama's nominee to head the new Consumer Financial Protection Bureau is promising to play ball with Congress and not be too rough with banks. Even so, Richard Cordray's chances of winning Senate approval to lead the agency remained uncertain. Republicans have promised to block any nominee to head the agency unless the bureau is changed in ways they say will make it more accountable. Democrats say those changes would weaken its powers. In remarks prepared for his confirmation hearing Tuesday with the Senate Banking Committee, Cordray said his experience as former Ohio attorney general taught him that litigation can be slow, costly and unnecessarily acrimonious. He said he would use lawsuits "judiciously," and noted that the bureau has other powers to resolve problems, including issuing rules, writing reports and examining large banks and many nonbank institutions.

--The problem with China is that the country just isn't caffeinated enough. Luckily, Starbucks is stepping up to remedy that situation. The company plans to triple its coffee shops in China during the next four years and step up expansion elsewhere in Asia. Starbucks plans to operate 1,500 outlets in China by 2015 from a current 470, according to the company's Asia Pacific president, Jinlong Wang. The company also expects to open 700 coffee shops in South Korea by 2016, up from 370 now, Wang said. "The coffee industry in China has huge potential," Wang told reporters in Singapore. "China has 5,000 years as a tea-drinking country, but we've created a new coffee culture." Starbucks said in July that revenue from its international business rose 20% in the April-June quarter from a year earlier and accounted for 23% of overall sales of $2.93 billion.

-- David Lazarus

 

U.S. exports more refined fuel, keeping domestic prices high

Oil prices are still far below their highs for the year, but U.S. motorists aren't benefiting from lower prices because the nation's refineries continue to boost exports and reduce supplies available in the U.S.

In California, the average price of a gallon of regular gasoline jumped 12.1 cents a gallon in just the last week, to $3.941, according to the AAA Fuel Gauge Report. That's also 89 cents a gallon higher than the price a year ago.

Nationally, the AAA said, the average price climbed 4.8 cents a gallon to $3.66 over the last week -- 97.7 cents higher than the same day in 2010.

"The U.S. petroleum balance of trade continues to shift in a 'sea change' that is both literal and figurative. For the tenth week in a row, Energy Department numbers show that the country exported considerably more refined products cargoes than were imported," said Tom Kloza, chief oil analyst for the Oil Price Information Service in New Jersey.

Much of the refined product involved in the exports is diesel, Kloza said, meaning that refineries are opting to devote more of their attention to that fuel at the expense of gasoline. The customers are mostly in Central America and South America.

"Notwithstanding disappointing U.S. demand, the worldwide merchant demand for U.S.-produced fuel is strong," Kloza said.

Five years ago, U.S. imports of refined fuels outpaced exports by a 3 million barrels a day, according to Energy Department statistics. Two years ago, fuel imports into the U.S. were still outpacing exports by 1.5 million barrels a day.

No longer.

The most recent statistics show exports of refined products from the U.S. outpacing imports by 476,000 barrels a day.

"That figure is a new modern-day record. We are a net exporter now. If not for high prices in the U.S., it would be something to cheer about in terms of helping the deficit. But in the U.S., it's just going to get under people's skin. It's like we're selling off our birthright," Kloza said.

In other energy news, U.S. benchmark West Texas Intermediate crude oil for October delivery tumbled $2.04 to $84.41 a barrel during trading on the New York Mercantile Exchange. Prices have fallen 7.6% so far in 2011. The European benchmark, Brent North Sea crude, rose $1.07 to $111.15 a barrel on the ICE Futures Exchange in London.

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Libyan oil situation remains uncertain

Stocks falls as Europe worries deepen 

-- Ronald D. White

Image: A graphic tracks the AAA's rolling 12-month average price for a gallon of regular gasoline. Credit: AAA

Osborne will not and should not change course

George OSborne: not for turning. (Photo: Getty)

Over the past week, the background noise of the usual suspects calling for a “Plan B” – repeated so often and so monotonously that there should be some “white noise” device that can blot it out – has received apparent support from some unlikely sources.  Bill Gross, chairman of Pimco has been widely quoted calling for a “course correction” – though fewer have noted that he said explicitly that he was not looking for a U-turn but instead a mild adjustment.  And he didn’t set out what that mild adjustment might actually be – temporary tax cuts, perhaps?  The Wall Street Journal has proclaimed that “Osborne Can’t Avoid a Change of Course“.

Osborne however, takes the opposite view, including today with his speech to the Lloyds of London dinner.  He says that the Coalition deficit reduction plan was made for good times as well as bad, and points out that it was set at a time and in a form of the government’s own choosing, last summer, rather than being forced upon it by the markets as plans in Italy, France, Spain and Greece have been this summer.  He alluded to the downgrade in the UK’s growth forecasts that the Office for Budget Responsibility has already signalled, but claims that will not force him to change direction.

He’s right, by and large.  It is of huge benefit to Britain that we have set about a credible deficit reduction plan in advance, and as a consequence the amount and pace of the cuts are less than would have been necessary had we taken the advice of those that urged against reducing the deficit.  If the government had listened to Ed Balls and his supporters, the likely consequence would have been faster and deeper cuts to the deficit, forced upon us by markets in a panic.  Deficit cuts forced on us under those circumstances would probably also have involved larger tax rises.  Since tax rises tend to damage growth, at least in the short term – the tax rises in the Coalition’s plan are politically necessary, to give us a sense that we are “all in this together”, not economically desirable – if we had been forced into precipitate tax rises under market pressure, the likely consequence would have been recession.  Also, of course, one of the manifestations of the market losing confidence in the British government would have been a large rise in gilt yields.  That would have made investment more expensive, damaging growth even further.

The government’s path is the pro-growth one.  Spending is cut, which will raise the long-term growth rate of the economy, allowing consumers to pay their debts, reducing the risk of banking collapse and allowing more spending in the short term.  The deficit is cut, reducing the risk of sudden large rises in interest rates and precipitate tax rises forced by market pressure.

Just because Osborne’s plan is pro-growth doesn’t, of course, mean that growth will be rapid.  It just means we get more growth (or less recession) than we would have done under the Ed Balls course.  The economy was in a dire state by 2010.  As pointed out in a paper released by the Bank of International Settlements last week, by 2010 Britain’s debt levels on all metrics – government debt; corporate sector debt; household debt – were above the levels expected to damage growth over the medium term.  In addition, government spending had risen from just over two fifths of the economy only three years before to around half the economy – again, damaging growth.  Public sector productivity growth has been dire – indeed, negative on some metrics, dragging the economy down.  The demographic challenges of an ageing population had been ignored for far too long with retirement ages raised far too slowly, meaning that the economy was projected to have an ever-smaller proportion working carrying the load of an every-larger proportion of retirees.

Such challenges have meant that the sustainable growth rate of the economy – more traditionally thought of as around 2.5 percent for the UK – may have fallen to perhaps only 1.7 percent.  The government planned its deficit reduction programme on the basis that the sustainable growth rate had fallen only a little – to 2.1-2.35 percent out to 2015/16.  That could well be optimistic.  If it is, then Osborne won’t meet his deficit reduction targets as hoped.

But how would this be helped by a Plan B?  Plan B is to deny that the economy can only grow slower.  It is to pretend that all we have are some temporary problems that we can thrust through by borrowing which can then be paid back from faster growth later.  But if the real problem with meeting the growth and deficit-reduction targets is that the economy just can’t grow as fast as the government hopes over the medium-term, then borrowing even more will make that worse, not better.  More borrowing will increase the structural deficit further, and will damage growth more – even if it doesn’t lead to the sort of crisis seen elsewhere.

Osborne should stick to his course.  His only correction should be to try to get there faster, if he can.  That is to say, if the economy slows further, we should not slow the pace of or reduce the depth of spending cuts.  Instead, we should cut more and cut faster.

Cut early; cut deep.  That is the way to maintain market confidence, it is the way for the Coalition to deliver on its promises, and it is the way to deliver growth.

Stocks fall on European fears

Growing worries about Europe's debt crisis sent U.S. stock markets down on Tuesday morning.

The declines came after a weekend of turmoil that sent many European markets down more than 5% on Monday, when U.S. exchanges were closed. On Tuesday, leading indexes were down 1% in Spain and 0.6% in Germany.   

In early trading Tuesday, the Dow Jones industrial average was down 212.59 points, or 1.9%, to 11,027.67.

Indexes briefly reclaimed some of their early losses when a report released at 7 a.m. EDT showed that non-manufacturing businesses were expanding in August more than economists expected and more than a month earlier. The Institute for Supply Management's index of non-manufacturing businesses rose to 53.3 on a scale in which anything above 50 indicates expansion.

But that was not enough to counter signs that European leaders may not be able to contain the damage from economic problems in the continent's weaker countries, such as Italy and Greece. Both countries have struggled to implement austerity plans that could help them to rein in ballooning debt.

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Individual investors pull net $3.2 billion from U.S. stock funds

Stocks fall in eurozone as U.S. jobs report adds to investor worries

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

Photo credit: Spencer Platt / Getty Images

Consumer Reports says many celebrity food brands are just average

Just because a jar of tomato sauce bears a celebrity’s smiling face doesn’t mean it’ll taste any better than cheaper brands, according to Consumer Reports.

Out of 26 star-backed products the testing agency submitted to a taste test, just three were rated as “excellent” and 10 as “very good.” Half were only average.

Consumer Reports looked at products from TV chefs, popular restaurants and major Hollywood names. Though many items tended to cost double or triple the amount of competitors, their quality was often on par with less-pedigreed national brands such as Campbell’s, Kraft and Progresso.

The top-rated products were Giada De Laurentiis’ tomato basil pasta sauce, Mario Batali’s marinara sauce, and Wolfgang Puck’s tomato basil bisque -- which tended to use better ingredients such as fresh produce and sea salt.

But other items, such as marinara sauces from Emeril Lagasse and Paul Newman, use tomato puree and powdered or dried garlic. 

“Don’t be starstruck,” said Tod Marks, senior project editor at Consumer Reports, which released the results in its magazine Tuesday. 

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Mario Batali loves the adrenaline rush of kitchen work

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-- Tiffany Hsu

Photo: Chef Emeril Lagasse, whose home-style marinara was rated below Ragu's. Credit: Alex Brandon / Associated Press

Honda recalls CR-V crossover and CR-Z hybrid models

Honda Motor Co. will recall about 1 million cars worldwide, including almost 100,000 in the United States.

The massive recall includes 80,111 CR-V sport-utility vehicles from the 2006 model year in the U.S. to replace the power window master switch.

The automaker said the design of the switch can allow residue from interior cleaners to accumulate.  That can cause the electrical contacts to degrade and start a fire. No injuries or deaths have been reported related to this condition.

Honda will also call back 5,626 CR-Z small hybrids from the 2011 model year in the U.S. The cars subject to the recall are equipped with manual transmissions and require an update to the software that controls the hybrid electric motor.

Honda said it wants to fix a problem that can cause the car to roll backward unexpectedly.

Honda said that when the gasoline engine has stalled with the battery in a very low state of charge and the transmission in gear, the electric motor might rotate in the direction opposite to that selected by the transmission. If this occurs and the driver has not engaged the brakes, the vehicle may slowly roll backward when the transmission is in a forward gear (or forward if the car is in reverse), potentially leading to a crash.

A software update will add further controls to correct the problem. No injuries or deaths have been reported related to this condition.

Owners of the vehicles will be notified of the recalls later this month.

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Musk bet over Tesla model leads to $1-million charity payday

Dealer doc fees going up

Consumer guide to electric vehicles

-- Jerry Hirsch
Twitter.com/LATimesJerry

Photo: A 2006 Honda CR-V: Credit: Honda Motor Co.

 

Study finds 41% of small businesses plan to hire in next 6 months

About 41% of small businesses plan to hire in the next six months, more than the 38% that don't plan to add jobs, according to a study released Tuesday by Pepperdine University.

The 7,502 small businesses surveyed as part of Pepperdine Private Capital Markets Project also ranked economic uncertainty as the top issue facing their sector. About 38% cited that as the biggest problem, followed by access to capital (26%) and government regulations and taxes (24%).

Uncertainty was evident in the findings as 21.2% of the small businesses said they didn't know if they would hire over the next six months.

“Small businesses should be a top consideration as the president and other legislators seek to jump-start job creation,” said John Paglia, an associate finance professor at Pepperdine’s Graziadio School of Business and Management and the lead researcher for the project.  “Establishing market confidence, improving access to capital and improving regulatory and tax structures are the most direct route to end the Great Recession and spark the Great Recovery.”

The survey defined small businesses as those with annual revenue of less than $5 million. With President Obama set to give a major jobs speech Thursday, the owners of those small businesses ranked increasing access to capital as the best thing policymakers could do to spur more job creation next year. 

About 35% of small businesses placed that as the top priority, followed by tax incentives (23%) and regulatory reform (18%).

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Congress returns, and so does the partisan budget war

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White House forecasts high unemployment through 2012

 -- Jim Puzzanghera

Photo: Harold Ingram, owner of Hisam's clothing and gift shop on Degnan Boulevard in the Village at Leimert Park, in front of his store in April. Credit: Mel Melcon/Los Angeles Times