Category: Business and Finance

Hurdles for Starbucks China Aren’t Deterring The Business

Starbucks has moved into the Chinese market, and they are experiences growing pains as they do so.  While Chief Executive Howard Schultz expects that their mainland China sales will overtake those in Canada by 2014, they are experiencing some early hurdles. Starbucks China is finding that customers linger in cafes without purchasing anything for hours.

In addition, with the lower income levels in China, sale volumes have been much smaller than those in the United States. Chinese customers have been known to bring their own food to the Starbucks stores and to use the facilities to have meetings and to browse the internet.

Starbucks first came to China in 1999 and it now has over 570 stores in 48 cities.  They plan, by 2015 to have 1500 stores in 70 plus cities.

The stumbling blocks, however, are plentiful.  Chinese incomes are much lower than American salaries and Chinese people don’t inherently have a coffee habit.  As a comparison, Starbucks booking sales were $358 million for mainland China in 1020, while they were $8 billion in the United States that year.

As reported by Bernstein Research analyst Sara Senatore, it would take a Chinese worker 1.3 hours of work in order to afford a 12 ounce caramel macchiato. CEO Schultz said that income has not, however, been a barrier to their growth.

Starbucks has also had trouble finding employees with skills, and they have announced plans to launch a training program called Starbucks China University next year.

Bernanke on U.S. Economy and the Debt Crisis

Ben Bernanke, U.S. Federal Reserve Chairman, recently stated that the Eurozone debt crisis has significantly impacted the United States’ trade and financial markets.

“The European Union accounts for roughly one-fifth of U.S. exports of goods and services. The U.S. exports to Europe over the past few years have underperformed our exports to the rest of the world,” Bernanke testified before the House Committee on Oversight and Government Reform.

“In addition, weaker demand from Europe has slowed growth in other economies, which has also lowered foreign demand for our products,” he said.

The financial markets have also taken a hit, according to Bernanke. Risk of the crisis spreading still lingers, though financial firms and markets have used this time to adjust their strategies and risks throughout the developing situation. European officials also managed to alleviate some of the stresses in the region, improving the global approach and strengthening markets everywhere.

“However, Europe’s financial and economic situation remains difficult, and it is critical that the European leaders follow through on their policy commitments to ensure a lasting stabilization,” Bernanke said.

Federal Regulations Hampering U.S. Economy

For full video:

http://downloads.cbn.com/cbnnewsplayer/cbnplayer.swf?aid=28134

CBN News discusses a recent study covering small businesses which revealed that federal regulations do even more harm than people believe. In fact, the regulations cost the nation $1.75 trillion a year. Small businesses lose more than $10,000 per employee by following the federal rules.

According to author Phil Kerpen, “Democracy Denied,” a Washington D.C. think tank called Phoenix Center discovered that “each federal regulator destroys an average of 98 private sector jobs per year.”

He added that “when you talk about spending, it’s often far more costly than just what we spend on the budgets of these agencies because of the reach they have into the private economy and the negative impact that they have.”

U.S. Unemployment Rate Falling

U.S. job growth exceeded expectations in January, implying impressive economic growth and possibly lowering the need for additional Federal Reserve actions. Gold prices have fallen as a result.

According to the Labor Department, employers created 243,000 jobs in January, after adding 203,000 last December. A recent Bloomberg News survey predicted an increase of only 140,000 job positions. The U.S. employment rate has fallen to its lowest in three years; 8.3%.

“The growth in the U.S. is much better than expected, and that has damped the expectation of quantitative easing,” said Integrated Brokerage Services LLC’s Frank McGhee. “The market has priced in continued slow growth.”

Precious metals have fallen in value over the past few weeks, however. According to Bloomberg, gold futures for April fell 1.1%, while silver futures slid 1.2%.

Slow Going for U.S. Economy

Though consumer spending has decreased over the last month or two, American incomes have increased since December, strengthening savings accounts throughout the nation, according to the U.S. government.

On Monday, the government revealed that consumer spending has barely changed since December, despite intense (and sometimes fatal) holiday shopping sprees. In November, consumer spending rose only one tenth of a percentage point. Consumer spending covers 70% of the U.S. economy, and recent trends may be cause for concern.

However, personal incomes have grown by half a percentage point as of December, reaching a year-long high. Many Americans have been forced to pay their bills with their savings over the past few years, and the rise in income has pushed savings rates up by 4%.  In addition, figures for the end of 2011 in the hedge fund industry were disappointing, having been described by Kevin Rose and Azam Ahmed as “dismal.”

Considered the world’s greatest economy, the U.S. has been growing slowly. In 2011 it grew a mere 1.7%, while Federal Reserve officials predict 2.7% growth in 2012.

U.S. Economy Growth

The U.S. economy’s growth is expected to slow somewhat at the start of 2012, following a burst of rapid growth during the fourth quarter of last year. According to the USA TODAY’s survey of economists, the current state will keep unemployment rates at around the same place they are now.

The survey continued, explaining that the economy will grow at approximately a 2.2% annual rate during the first half of the coming year. The government will release reports on fourth-quarter GDP later this week.

Diane Swonk, Mesirow Financial chief economist, explained that the slower growth will result from the fact that last year’s bounce-back won’t be able to maintain itself. She said: “The little improvement we saw was partly catch-up; the retail recovery at Christmas was more hype than reality. Consumer confidence is still at recession levels, just not at depression levels.”

Still, there are some positive sides to the upcoming year. The risk of an additional U.S. recession is decreasing significantly, while the debt crisis in Europe will only affect a quarter of a percentage point in America’s growth this year.

Jeffrey Lacker on Monetary Stimulus

Next week, U.S. central bankers will convene amongst predictions that 2012’s growth will not be sufficient to reduce the nation’s current unemployment rate of 8.5%. Explored options include additional monetary stimulus, as well as having the central bank loosen up on certain markets.

Jeffrey Lacker, President of the Federal Reserve Bank of Richmond, sees no reason to institute either of these measures unless the economy encounters severe inflation or a dramatic growth slump. “I am still where I was a month or two ago when I said I didn’t see a compelling case for further stimulus,” he said. “The record of the last year and a half is that stimulus raised inflation and didn’t do much for growth on a sustained basis. And I think if we did it again, that is what would happen.”

He continued, stating that this year should bring “more modest expectations for monetary policy.”

“My takeaway from 2011 is the lesson that the impediments to more rapid U.S. growth are likely to be deeper and more persistent than we thought a year ago,” Lacker added. “I am expecting only a modest improvement for 2012.”

JPMorgan’s Dimon on US Recovery and the European Central Bank

In an interview with CNBC yesterday, Jamie Dimon, CEO of JPMorgan Chase said the United States is currently going through a “mild recovery,” that is “broad and strengthening.”

“When you look at all the sectors- corporate, middle market, business, consumer,” he continued, “for the most part theu’re better than they were a year ago, and we even think housing is near the bottom if you look at rental prices, supply and demand, household formation. So I hope we have a growing economy.”

He added that banks “have a lot of issues sitting on them right now including Europe, which may be the largest of them. We would like to see Europe solve its problems.”

The European Central Bank’s recently instituted three-year-deposit facility “removed a lot of issues about liquidity.” However, in order to make real progress, the Bank should be combining efforts with the EU to resolve the region’s financial crises.

“It’s fair for the ECB to say this is not our issue, it’s a government issue,” Dimon said. He went on to say, though, that the European Union could come back with the valid claim that they need the Bank’s help when it comes to liquidity for sovereign debt in countries like Italy and Spain. Dimon stressed the importance of acting immediately, before the situation spirals further out of control.

Obama Accuses China of Intentionally Lowering its Currency Value

This weekend, President Barack Obama spoke at the Asia-Pacific Economic Cooperation summit in Honolulu, stating that China is now a “grown up” economy, and must learn to act more responsibly on its currency.

“We welcome China’s peaceful rise,” he said, but Beijing should cease “gaming” the international economic system and help level the field for foreign businesses from the U.S. and around the world.  He added that China is deliberately keeping its national currency at a low point in order to support Chinese exporters.

“Most economists estimate that the renminbi (yuan0 is devalued by 20 to 25 percent,” he said. “That means our exports to China are that much more expensive and their imports into the United States are that much cheaper.”

U.S. Economy Adds 80,000 Jobs

In the month of October, the U.S. economy added 80,000 jobs, and unemployment rates fell slightly, from 9.1% to 9.0%, revealing that while the going is slow, the world’s greatest economy is on a stable path to recovery.

Furthermore, the economy did not falter in the face of August’s incidents, including the downgrade to the US credit rating and the EU debt crisis. Still, the pace of recovery remains slow.

The revisions of the past few months reveal the risk of depending on the initial employment data.

“You want to see revisions to the upside if one expects firming labor conditions. Weaker labor markets normally create downward revisions. The trend is moving in the right direction,” said Eric Green of TD Securities in New York.