Tuesday, April 03, 2007

Signs of the Economic Apocalypse, 4-2-07

From Signs of the Times:

Gold closed at 669.00 dollars an ounce on Friday, up 1.8% from $657.30 at the close of the previous Friday. The dollar closed at 0.7487 euros Friday, down 0.5% from 0.7528 at the previous week’s close. That put the euro at 1.3357 dollars compared to 1.3284 at the end of the week before. Gold in euros would be 500.86 euros an ounce, up 1.2% from 494.92 for the week. Oil closed at 65.87 dollars a barrel Friday, up 5.8% from $62.28 at the end of the week before. Oil in euros would be 49.31 euros a barrel, up 5.2% from 46.88 for the week. The gold/oil ratio closed at 10.16 Friday, down 3.8% from 10.55 at the close of the previous Friday. In U.S. stocks, the Dow closed at 12,354.35 Friday, down 1.0% from 12,481.01 for the week. The NASDAQ closed at 2,421.64, down 1.4% from 2,456.18 at the end of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.64%, up three basis points from 4.61 for the week.

Friday was the end of the first quarter of 2007, so let’s look at the year-to-date numbers. Gold went from 638.80 dollars an ounce to $669.00 in the first quarter, a rise of 4.7%. The dollar fell 1.2% from 0.7576 euros to 0.7487 in the first quarter. The euro rose 1.2% from $1.3199 to $1.3357. Gold in euros went from €483.98 to €500.86 in the first quarter, a rise of 3.5%. Oil rose 7.9% from $61.05 to $65.87. In euros, oil went from €46.25 to €49.31, a rise of 6.6%. The gold/oil ratio fell 3.0% from 10.46 to 10.16 in the quarter. The Dow Jones Industrial Average fell 0.9% from 12,463.15 to 12,354.35 and the NASDAQ rose 0.3% from 2,415.29 to 2,421.64 in the first quarter of 2007. The yield on the ten-year U.S. Treasury note fell six basis points from 4.70 to 4.64 in the quarter.

To summarize, gold and oil rose substantially in the first quarter of 2007, U.S. stocks were about the same and the dollar fell a bit against the euro. Many indices had ups and downs that were more dramatic than that from week to week, but the end result, comparing the beginning of the quarter to the end, is an economy that is treading water. The big question marks remain the impact of the end of the housing boom and whether or not the wars in the Middle East will expand and worsen. In both areas the trends don’t look good, but not much was decided in the first quarter.

Here are some charts showing price changes going back to the beginning of 2005:

American workers had good reason to feel uneasy last week. The small bit of good news on the housing the previous Friday (existing home sales) was cancelled Monday by bad news on the new home sales numbers for February fell 3.9%. Then, the electronics retailer, Circuit City announced that they will lay off 3,400 of their most experienced and high-paid workers, then rehire them at lower wages.

US: Circuit City fires 3,400 better-paid store workers

By Naomi Spencer
30 March 2007

In a ruthless move to slash worker compensation costs, electronics retailer Circuit City announced March 28 that 3,400 in-store employees, 9 percent of the company’s workforce, would be fired. The company is specifically targeting experienced workers because after years on the job they had accumulated relatively higher wages. According to the Washington Post those affected were notified Wednesday morning and immediately escorted out of the stores by management.

The retailer, which operates 640 outlets in the US, is cutting $775 million in costs over the next seven years by replacing its better-paid store clerks and outsourcing its information technology department. Stocks rose by 2 percent on news of the firings, to $19.23 a share.

Like most of the US retail sector workforce, Circuit City employees are not unionized, and are subject to high job insecurity. According to a Bloomberg report, average pay for Circuit City store employees is a modest $10 to $11 an hour. The company has said that those fired this week were “well above the market-based salary range for their role.”

“This was a cost containment measure that occurred in our stores today,” Circuit City spokesman Jim Babb declared in an interview with the Vermont-based newspaper Burlington Free Press. Absurdly, Babb insisted that employees were fired without notice because “if something like that is hanging over their head for two weeks, it doesn’t benefit the employee or the company.”

While claiming they cannot afford to pay more than $22,000 a year—barely above the official poverty rate for a family of four—Circuit City executives are continuing to rake in the cash. According to Forbes.com, president and chief executive Philip Schoonover received $4,514,975 in compensation and an additional $5,459,409 in stock options in 2006. Executive vice-president George Clark drew $1,949,733 in compensation and $4,083,013 in stock options last year.

These workers now have the option of reapplying after a severance period at what the company’s executives call “current market range” wages. And while the new wage range has not been announced, Babb tellingly announced that hiring was to start immediately, and applicants need have no sales experience.

Aside from the cost cutting, the firings and pay caps are also a brazen attempt to intimidate the workers into accepting worsening conditions. The Los Angeles based Daily News interviewed workers at a local Circuit City who explained that the firing comes two weeks before performance reviews, which often come with pay raises.

One employee, who did not give his name because of a store policy against speaking to the media, told the Daily News he was afraid to take a raise on top of his $10.50 an hour. “You’re going to walk in the [manager’s] door, and for the first time you’re going to say, ‘I don’t want a raise,’” he said. “If you take the raise, will you lose your job?”

“This store has probably lost all its good salespeople,” Richard O’Neal, who was among those fired, told the paper. “This morning we were all really pissed, but now I laugh about it. What can you do?” O’Neal was told he could reapply for his job after 10 weeks if he was willing to work for minimum wage. Currently in California minimum wage is $7.50 an hour, an outrageously low wage for the high cost of living in Los Angeles.

Alan Hartley, a car stereo installer at a Charlotte, North Carolina Circuit City, told local television station WCNC that he and other top employees thought they had been called in to a special meeting because they were going to be recognized for outstanding job performance. Instead, they were handed termination letters and told to leave. “We just bought our first house about two or three months ago, and I’m afraid I’m going to lose it,” he told the reporters. “I’m not sure what I’m going to do. I’m hurt mainly because I love this company. I planned on retiring from it. I feel I’ve taken very good care of them, and I can’t believe they did this.”

“Now they are going to hire people that aren’t properly trained for the jobs to take care of their customers,” Hartley said. “All the employees that were the best, they just fired . I’ve consistently out performed the other people in my department. I’ve gotten raise upon raise, and the other people who got fired today [were] the same way.” He added, “I haven’t told my kids yet. They don’t know I just got fired for doing a good job.”

The firings are the most abrupt and brazen manifestation of a trend by corporate America to push out older and better compensated workers and replace them with a smaller, younger, uninsured and underpaid workforce. Other major retailers have put a multi-tiered wage system in place whereby new workers are paid significantly less than their predecessors. Wal-Mart has implemented such a system, with frozen wages for the longtime employees.

One Asheville, North Carolina Circuit City employee among the fired, 24 year-old Steven Rash, told the Washington Post that he earned $11.59 an hour after working for the company for seven years. Rash, who works another job full-time, explained that he worked 15 to 20 hours a week at the store in order to manage his student loan debt. “It’s not just a part-time job,” he told the Post “It’s about paying the bills.” He told the paper he was given four weeks of severance pay.

“I’m ticked off that they can just come at you from one day to another, no warning, and oh, you’re gone,” Jose Macias, 27, of San Diego, California, told the Post. “I dedicated seven years to them. Loyalty gets you nothing.” Macias said he had been told that Circuit City was firing all employees who were paid more than 51 cents over pay caps that were set for departments. The cap for the computer department, where he worked, was $15.50 an hour.

In Roanoke, Virginia, Channel 10 news interviewed two fired Circuit City employees. Bobby Young, who had just been awarded a certificate in recognition of 20 years of excellence with the retailer in January, said he was handed a termination letter addressed “to whom it may concern” when he got to work Wednesday morning. “I don’t know what I’ll be doing tomorrow morning,” he told the station. “What they did as a company to me, it’s not the American way.”

Another fired Roanoke employee, Douglas Burnette, worked at Circuit City for 19 years. He earned about $35,000 a year. “You say you pay me too much,” he said, “but I’m coming to work everyday. I’m reliable. I’m honest . . . Circuit City kicked me out. We gave these people our lives. We went there, we gave them honesty, and that’s a slap in your face.”

They don’t even try to hide the feudal nature of neoliberalism anymore. Even mainstream neoliberal economist have been coming out and saying that free trade will hurt most people in the developed world. Only a small percentage of people are benefitting and people are beginning to realize that even in the United States. During the debate on NAFTA in the 1990s, the professional, technical and managerial classes thought that free trade would only hurt the working class. Now they are realizing, too late, that they too will be its victims.

In related news, income inequality in the United States reached levels not seen since the 1920s:

Income Gap Is Widening, Data Shows

By David Cay Johnston

March 29, 2007

Income inequality grew significantly in 2005, with the top 1 percent of Americans — those with incomes that year of more than $348,000 — receiving their largest share of national income since 1928, analysis of newly released tax data shows.

The top 10 percent, roughly those earning more than $100,000, also reached a level of income share not seen since before the Depression.

While total reported income in the United States increased almost 9 percent in 2005, the most recent year for which such data is available, average incomes for those in the bottom 90 percent dipped slightly compared with the year before, dropping $172, or 0.6 percent.

The gains went largely to the top 1 percent, whose incomes rose to an average of more than $1.1 million each, an increase of more than $139,000, or about 14 percent.

The new data also shows that the top 300,000 Americans collectively enjoyed almost as much income as the bottom 150 million Americans. Per person, the top group received 440 times as much as the average person in the bottom half earned, nearly doubling the gap from 1980.

Prof. Emmanuel Saez, the University of California, Berkeley, economist who analyzed the Internal Revenue Service data with Prof. Thomas Piketty of the Paris School of Economics, said such growing disparities were significant in terms of social and political stability.

“If the economy is growing but only a few are enjoying the benefits, it goes to our sense of fairness,” Professor Saez said. “It can have important political consequences.”

...The analysis by the two professors showed that the top 10 percent of Americans collected 48.5 percent of all reported income in 2005.

That is an increase of more than 2 percentage points over the previous year and up from roughly 33 percent in the late 1970s. The peak for this group was 49.3 percent in 1928.

The top 1 percent received 21.8 percent of all reported income in 2005, up significantly from 19.8 percent the year before and more than double their share of income in 1980. The peak was in 1928, when the top 1 percent reported 23.9 percent of all income.

The top tenth of a percent and top one-hundredth of a percent recorded even bigger gains in 2005 over the previous year. Their incomes soared by about a fifth in one year, largely because of the rising stock market and increased business profits.

The top tenth of a percent reported an average income of $5.6 million, up $908,000, while the top one-hundredth of a percent had an average income of $25.7 million, up nearly $4.4 million in one year.

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