A Speculated Economic Silver Lining Brightens the Shadow of a Natural Disaster: How the U.S. Economy could benefit from Hurricane Harvey

The ruthless storm battering Houston, Texas is said to rank as one of the nation’s costliest disasters, with speculated loss of tens of billions of dollars in economic activity and property damage in an area critical to chemical, energy, and shipping industries.

 

Despite the widespread devastation and predicted losses of up to $100 billion, economists vocalized optimism that the Texas city is likely to recover quickly and may experience economic growth from rebuilding efforts.

 

Historically, the U.S. economy has rebounded following natural disasters, most easily associated with the financial resurgence following the $40 billion loss from Hurricane Katrina in 2005 and the $25 billion loss from Hurricane Ike in 2008. Dan Laufenberg, chief economist at Ameriprise Financial, stated, “the U.S. economy rebounded from Katrina, although the region hit by the storm has not, demonstrating once again how amazingly resilient our economy can be.”

 

The Houston metropolitan area, the U.S.’s fifth largest based on population, accounts for approximately 3 percent of the nation’s gross domestic product (GDP). Texas is often attributed as a center for oil production and refined products like diesel fuel, gasoline, heating oil, and other distillates.

 

In anticipation of increased demand due to the hurricane, wholesale trading prices for gasoline increased 6 cents to $1.75 per gallon on the benchmark contract set to settle next month. Ellen Zentner, chief United States economist at Morgan Stanley, suggested the lagged effects of rebuilding homes and replacing motor vehicles will outlast the anticipated neutral impact on national gross domestic product in the third quarter, providing a lift to GDP in the fourth quarter and beyond.

Californian Magic Is Real – The GDP Says So

In many aspects, California has been seen as a unique case – at times an anomaly, even – of an American state. During the Rio Olympics there were many mentions of how many medals from the American roster belonged to California, and how that number would compare to other competing countries. When it comes to GDP, one can most definitely expect the similar kind of discussion taking place, especially in the current political atmosphere where the intensely progressive and liberal California stands among an overall right-leaning U.S.A..

The above graph shows California’s annual GDP growth since 2000. As the data suggests, California’s economy has remained largely healthy throughout the way, only taking a reasonable hit upon entering the 2008 Financial Crisis. However, as Bloomberg noted, California has seen a surprisingly speedy recovery compared to the rest of the nation, which the news agency accredited to the state’s liberal cultural-political environment, even going as far as saying that California “is the chief reason America is the only developed economy to achieve record GDP growth since the financial crisis of 2008 and ensuing global recession”.

The article attributed California’s “magic” to its left-leaning policies, such as securing a strong labor force through laws favoring immigrants. At a time where the President has been very outspoken against the topic, California strives to do the exact opposite, by exercising its autonomy on a state level. From raising taxes instead of lowering to encouraging companies to globalize rather than discouraging, California is almost a “rebellious child” in the eyes of the federal government. However, this rebellion has proven successful, as California’s real GDP growth maintained an upward momentum since climbing out of the recession until 2015, where it attained 4.4% while the entire country had only seen 2.6% that year.

There is no reason to believe that California would change course from what it has been doing and what has been working under the Trump administration. In fact, the President’s orders would act as the inverse-compass for the Californian economy. Despite having seen a dip in 2016, California does not seem to concern itself with this little hiccup, and from the looks of its policies, the state is set on remaining being that “problem child” in Mr. Trump’s classroom.

At Least You’re Always Ready for a Night Out?

The lipstick index, created by chairman of Estée Lauder Leonard Lauder in 2011, is the theory that consumers are ready to indulge in cheaper—yet still satisfying—purchases like lipsticks over expensive items like designer bags in rough economic times such as the recession, according to U.S. News.

Lauder “hypothesized that lipstick purchases are a way to gauge the economy. When it’s shaky, he said, sales increase as women boost their mood with inexpensive lipstick purchases instead of $500 slingbacks” (qtd. in New York Times).

In other words, when the economy is low, people are stressed or depressed and what is one way we reduce or momentarily solve that problem? Shopping—but we can’t splurge and treat ourselves with overpriced items so we resolve to the little things in life like a new set of lipsticks.

Although “[this] theory has been debunked many times,” according to Forbes, personally, it is very simple: our morale may be low but at least we look great.

Not to mention, lipstick are not “inferior goods,” as said by the New York Times. In fact, they’re a luxury item that boosts one’s confidence—I don’t think of it as second choice to, for example, a pair of $300 shoes I would have bought instead, but as a deserving little bonus gift for myself that provides me a different kind of happiness. An example of an inferior good would be choosing Taco Bell over having dinner at my favorite taqueria, Gordos, because I should be saving the money.

Sarah Hill and four other researchers studied Lauder’s theory, which was published in the Journal of Personality and Social Psychology, “[confirming] that the lipstick effect is not only real, but deeply rooted in women’s mating psychology” (Scientific American). Hill explains that in a time of economic instability where unemployment rates are high, women want to look their best to attract the financially stable opposite sex who is scarce during recession.

But lipstick sales have been declining since 2007 while sale polish “are up since the first half of 2008,” according to market research firm Mintel (qtd. in Times). Lauder responds that “[nail] polish] is the new lipstick” in Times, and once again reiterates his lipstick index as an idea on the significance of succumbing to smaller luxury items like beauty products, regardless of what it is, during hard financial times.

At a Crossroads: The Future of ESPN

The year was 1998. The Entertainment and Sports Programming Network (ESPN) was trying to close a landmark deal with the National Football League. The goal was to finally bring the crown jewel of sports content, professional football, over to ESPN for weekly primetime scheduling. To close this deal, ESPN had to ask its parent company, Disney, and their CEO Michael Eisner for permission to pay the NFL’s exorbitant rights fee. Eisner agreed, on one condition: ESPN would have to divert the cost to cable companies in the form of annually increasing subscription fees. The head of sales, George Bodenheimer who would later become the longest tenured President in company history, had to do the impossible.

Bodenheimer had to convince various cable affiliates to a new seven-year deal with a compounded 20% annual increase in subscription fees. By the stroke of unparalleled salesmanship, and a fair amount of luck, Bodenheimer secured the agreement from the major cable players across the country. Thus, ESPN, only nineteen years old at the time, finally had professional football in primetime. They would soon discover that the landmark seven-year deal, and not football, was the true jet fuel for ESPN’s meteoric rise in revenue and spending power.

This seminal moment in ESPN’s ascent to supremacy in the world of sports television is recounted in deep detail in James Andrew Miller’s oral history of the company, “Those Guys Have All the Fun.” In the book, Miller quotes Hearst CEO Vic Ganzi who estimated “that single stroke of genius sent ESPN’s carriage fees from 40 cents to $3.20.”

The deal reverberated around the entire cable ecosystem because of its shocking potential. To put the deal into perspective, achieving a 20% return annually over seven years would yield a return of 358%. This growth in revenue was so tantalizing and surprising that even Eisner didn’t believe it was possible. Bodenheimer recounts in his memoir the task of relaying the news to his boss. ‘“Impossible!” said Eisner. “Nobody will pay that.”’ Yet they did, and ESPN reaped the rewards.

One of ESPN’s most popular shows with its longtime host Chris Berman

This deal speaks to ESPN’s true competitive advantage as a network. ESPN has the highest subscription fee of any cable network, which is how much cable and satellite TV providers charge per month to users for access to the channel. This tremendous influx of cash flow allows ESPN to outbid other networks with lower subscription fees that are more reliant on advertising as a form of revenue. ESPN also can command exceptionally high advertising rates because they reach the adult male demographic, a prized catch among advertisers.

This potent dual revenue stream is what positioned ESPN as the market leader for rights deals over the last twenty years. As they became the place to find any sort of sporting event, their ratings and popularity exploded further, and their fees and advertising rates climbed even higher. It seemed nothing could stop this blockbuster business in the first decade of the 21st century. However, recently ESPN has found itself in a business quagmire of epic proportions.

The reason: the technological disruption of the cable industry. Over the last five years, television has been turned on its head. The way individuals consume media has shifted dramatically, and spending preferences have followed accordingly. With options like Netflix, Amazon, and Hulu the new generation of content consumers have more mediums to choose from than ever before. Additionally, DVR and Tivo, mechanisms to record shows, have rendered live television obsolete for the most part. Thus, “cord cutters” can pick and choose their favorite shows and avoid cable altogether.

For those loyalists who want a basic cable package, there is now the “skinny bundle,” a slim selection of channels that provides the necessities. Six months from now there will probably be even more options. In turn, ESPN’s revenue from subscriber fees has declined precipitously and it appears that trend is not stopping anytime soon.

According to Business Insider Intelligence, in October of 2016 ESPN “lost 621,000 cable subscribers, the most it has ever lost in a single month.” While that number, provided by Nielsen, has been disputed inside the kingdom of ESPN, the fact remains that the company is contracting. According to Nielsen estimates, ESPN has dropped below 89 million subscribers for the first time in a decade. Even more alarming is the fact that the company will lose close to three million subscribers in this calendar year alone. 60% of ESPN’s revenue comes from subscriber fees alone. 

The dominance of ESPN has always been its robust dual revenue stream. As of now, just ESPN, without the other companion networks like ESPN 2 and ESPNU, commands a staggering $7.04 monthly subscription fee. Losing three million paying customers over the course of the year translates to a decrease in revenue of close to 250 million dollars annually. In the world of ESPN, where double digit growth is the norm, stagnation is unacceptable. One can only imagine what contraction means for the company.

Some experts and executives in the media industry think that ESPN creating a standalone service similar to HBO NOW is the magic antidote to all of their problems. The issue with this is that unlike content on HBO that is watchable at any time, the market has not shown a propensity to watch delayed live sports events. While it is perfectly acceptable and enjoyable to watch Game of Thrones a week late, the same cannot be said of watching a week old showdown between the Lakers and the Thunder. Additionally, this would violate current contracts on their deals and there is no incentive for individual professional leagues to use ESPN as their middleman when they can air direct to consumer. 

Even more than that issue is the fact that to match ESPN’s current revenue with the standalone model, the company would need to charge an exorbitant rate per user of the service. The reason the cable model is failing is precisely why ESPN is succeeding. Millions of cable subscribers pay ESPN’s monthly fee without ever turning on the channel. With the new consumer driven economy, this inefficiency is slowly evaporating, and ESPN’s bottom line is feeling the brunt of that damage.

To compound this problem, ESPN is losing a lot of its signature talent while facing stiff competition as well as stagnant ratings on its two marquee programs: Monday Night Football and Sportscenter.

Over the last two years, ESPN has lost its most popular columnist, one of its most prominent radio hosts, and the most polarizing and talked about morning sports show TV host. The three: Bill Simmons, Colin Cowherd, and Skip Bayless all left because of friction with management and for more money. Fox Sports 1, the well-funded and fairly new competitor, flexed its financial might to pick up both Bayless and Cowherd. While Fox may have overpaid, the signings and other marquee additions like Erin Andrews, have put the TV network on the map. These were the types of moves ESPN would make in the past. As a result of its growing popularity, and a historic Chicago Cubs playoff run, Fox Sports 1 actually topped ESPN in ratings over the course of the October 13th to October 20th week for the first time since FS1 launched in August of 2013.

An FS1 show taking market share away from ESPN

The ratings drop affects ESPN’s other revenue driver: advertising. Since the advent of ESPN, the reason it has always commanded such high rates is because of its hard to reach demographic. For years, adult men have been the white whale and ESPN has been the bait to lure them in. Unfortunately for the company, ratings are down. Sportscenter, which rose to prominence in the 1990’s with transcendent hosts Keith Olbermann and Dan Patrick, has seen its ratings decline 27% since 2010. According to Sports Business Daily, the coveted 18-34 year old demographic has been hit even harder, with a 36% drop.

The two most popular hosts ever

The reasons for this are twofold. First, Sportscenter has failed to groom and create on air personalities that drive viewers the way Olbermann, Patrick, and many others did in the past. Second, highlights are now ubiquitous. One can access every highlight they want from the palm of one’s hand, without turning on Sportscenter. In a sense, the utility of the show is now obsolete. The only reason to tune in is because of the on air talent as well as the packaging. The company has tried to fix this problem by bringing in well liked Scott Van Pelt to host his own hour. This has created a brief resurgence, but there is a problem that still remains.

The new era with Scott Van Pelt

Sportscenter was the wagon that ESPN hitched itself it prior to signing the NFL. It is central to the ESPN ethos, and it represents more than just sagging ratings. In a way, Sportscenter has to work for ESPN to succeed. USC professor and sports media consultant Jeff Fellenzer says that “Sportscenter is so central to the ESPN brand and what they do that the company has to figure out some way to make it work.”

In addition to Sportscenter, Monday Night Football has also been an issue for the company. When ESPN inked the deal for the crown jewel of sports programming last decade, it unfortunately got stuck with the “B” schedule of games. The NFL moved their highest quality games to Sunday Night Football on NBC, and gave ESPN the former Sunday Night schedule. This dramatically diminished the quality of games on Monday night, and has led to less than primetime matchups. In turn, fewer people have tuned in. Since ESPN pays close to two billion dollars a year for Monday Night Football, in addition to the right to broadcast NFL highlights all week, losing viewers is not an optimal situation for the network.

This decrease in revenue puts the network in a precarious position, with rights deals for sports programming growing more expensive each round. According to Business Insider, ESPN literally will not be able to afford their league contracts if the number of subscribers continues to decrease. 

The capital markets have taken notice. ESPN, which was valued by Forbes at 40 billion dollars, only a few years ago, has dragged down the price of Disney’s stock almost single handedly over the last year. In their last earnings report, Disney missed significantly on revenue numbers because of ESPN’s shortcomings. 

Overall investors and spectators are concerned about ESPN’s future, and they wonder if the company can somehow find a new deal that rivals the earning potential of Bodenheimer’s signature achievement. Whether that is feasible remains to be seen. What is clear however is ESPN’s need to innovate in some capacity, to avoid the fate of fallen media giants before them.

The company has an array of options to choose from, and the strategy they take moving forward will be interesting. In terms of rights deals, the company can collaborate with other companies to split the monumental asking price of the various leagues. They have done this already, working with Fox on a deal for the PAC 12 and there will be more of these to come in the future. Fellenzer believes this is an absolute necessity as they won’t be able to afford as many rights deals on their own. “You will definitely start to see more of the PAC 12 deal type collaborations, I think it is the way to structure it moving forward,” Fellenzer said.

On the subscription front, the company may be able to work out deals with individual providers and other streaming services. They have started this process, offering ESPN on sling TV, a skinny bundle provider.

At the end of the day, the company is undoubtedly at a crossroads. However, they have the benefit of practically every league deal for the next decade. Live sports is still the one holdout for the rapidly shifting media landscape, and ESPN can use this decade of practically guaranteed viewers to innovate and figure out its next landmark move for the future. The company has been skilled enough to build one of the biggest media brands ever, so betting against them moving forward should be done with caution. There is a reason they are the worldwide leader in sports.

 

The Floral Industry- In Sync with the Economy

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When thinking about the economy and the spending habits of Americans, the floral industry came to my mind because it is a product that Americans shift from feeling obligated to buy (for holidays, special occasions like weddings or funerals) or buy on a whim, and this interested me. Gifting a bouquet of flowers may just seem like a kind gesture, but the state of the floral industry can be an economic indicator.

Although the floral industry is a growing industry now (its total retail sales in the U.S. in 2015 was $31.3 billion, it’s highest sales yet) it’s growth and movement typically mirrors the economy. From this list of floral sales over the years, it is revealed that when the recession hit, the sales fell by $1.4 billion. Since the recession, the floral industry has been able to recover and grow by $2.4 billion in sales. This is $1.3 billion more than the industry’s previous peak in sales before the recession.

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From my research, I have found that the floral industry’s state moves alongside the economy’s state, or in other words, the floral industry is in correlation with the U.S. economy. As U.S. consumer spending increases overall, floral sales increase. The average U.S. consumer spending monthly average in September in 2008 before the stock market crashed and the recession began, was $97. From then on after that number fell down to being in the $60-$70 from 2009-2012. Now in 2016, that consumer spending is back to an average of $90 a month. An interesting finding though is that the floral sales biggest time of growth in 2012 was much more extreme than the growth of consumer spending, and the sales have continued at this rate. The alignment of U.S. consumption and floral sales yearly are further depicted in the charts attached.

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Average Holiday Expenditure on Flowers in the United States from 2004 to 2015 in U.S. Dollars

Average Holiday Expenditure on Flowers in the United States from 2004 to 2015 in U.S. Dollars

When consumers have more money Buying flowers to give to someone as a thoughtful gesture or buying flowers for yourself to enjoy can be thought of as being frivolous, this is because the flowers are bound to die shortly after purchasing and are just to be looked at. to spend, and they already typically purchase flowers, they will buy fancier and more expensive flowers. When the floral industry is doing well the economy is as well. But, you can also tell that Americans have less readily available money when they stop spending on floral gifts for loved ones. If floral sales during one of the big bouquet gifting holidays, such as Valentine’s Day or Mother’s Day, isn’t at a similar rate to previous years, this can show that the economy isn’t doing well. This is because people do not have the money to spend on flowers on days that they traditionally buy flowers on. Or those sales can be down because people are buying less expensive flowers than they typically would when the economy is well. The types of flowers being bought and the amount of flowers being bought by consumers can show the economy’s state of being. This makes sense for the floral industry especially since it is a luxury business; people will not buy luxury goods when they think they need to save money or are not financially comfortable.

An interesting note about the floral industry is that demand for flowers has not changed much over time even when the industry has gone through many changes, besides during times of economic instability. The floral industry shifted when America went from an agricultural society to an industrial society. The farming of flowers in the floral market shifted from being grown in the United States to being grown elsewhere and are now imported. Even more recently, the floral industry for the producer took a toll when the 1991 Andean Trade Preference Act was enacted. This act was to motivate South American countries from being involved in drug trafficking to being a part of legal industries, such as growing flowers. This continued to take away from the dwindling amount of flower farms in the U.S. because it has made it more difficult for them to compete with the prices of the South American-grown flowers; now 70% of retail flowers in the U.S. are grown in Colombia. Even local flower farms and retailers have attempted to start movements for consumers to buy locally grown flowers but it has not picked up and the amount of floral imports for American floral companies and retailers has remained.

Like the stable demand for florals, predictions of the floral industry in the future includes the continued growth of the industry due to the shift from Baby Boomers’s spending habits on florals and luxury good to the Millennial’s spending habits for on these goods. From the Retail Feedback Group survey in September 2015, Baby Boomers are more likely than other generations to purchase flowers once a week or every two weeks whereas Millennials buy flowers less often and spend more. As Millennials continue to grow up they will be spending more on florals for events such as weddings, parties, work events and funerals than any generation has before. These occasions are better business for the flower industry, and they will increase alongside the economy’s continued recovery from the recession, since the amount of these events decreased during that time. If the floral industry’s correlation with the economy continues as it has been and if this prediction is correct, the economy can be predicted to grow as well.

 

https://safnow.org/floral-industry-members-look-ahead-to-2016-with-some-hesitation/

http://www.pma.com/content/articles/2015/11/floral-consumer-trends

https://smartasset.com/insights/the-economics-of-flowers

http://www.aboutflowers.com/about-the-flower-industry/industry-overview.html

http://superfloralretailing.com/january2010/StateIndustry.html

http://www.bls.gov/oes/current/oes271023.htm

https://safnow.org/new-study-provides-insights-three-generations-flower-buyers/

 

 

Mosquito Bites: Painful For The Economy as Well

No one likes mosquitoes. They act as irritants and leaches, using individuals and animals to survive. Now, there might be an even greater reason to dislike them; they also hurt the bottom line. Recent studies have indicated a correlation between the incidences of mosquito bites and a straggling economy. The greater number of mosquito bites, the worse shape the economy is in.

The theory behind this concept is exemplified in the great recession. Since real estate was at the forefront of the economic plunge, many individuals lost their homes or failed to maintain them. All of these foreclosures left thousands and thousands of abandoned or ill maintained properties. Without anyone to maintain the homes, and more importantly the pools,  the water turned stagnant in various locations. Combine that with certain humid climates, and these pools became nesting sites for mosquito breeding.

A Green Pool in Las Vegas

For instance, in Maricopa County, Arizona the unattended ponds and pools have become “green pools, according to authorities.” These pools are the ones where water has gone stagnant due to various levels of negligence, a lack of care driven by market forces. In 2009, 4,000 “green” pools were attended to by crews treating the stagnation. By comparison, only two years earlier the number was closer to 2500. This almost 60% jump correlated closely with an area that was hit extremely hard during the recession.

In areas where building was in a boom, many new developments placed pools in the backyards of individual homes. When people could no longer afford to maintain these pools, and for some, even live in the homes, mosquitoes swarmed.

In short, when the economy is bad, and people have to make hard financial choices, giving up pool maintenance is a necessary cut. The more pools across the country that go untreated, the worst shape the economy is in and the more homes mosquitoes find. So, if you hear more buzzing and see more bites, it is not just those small red dots you have to worry about. It could be a sign of great economic struggle on the way.

 

Cleaning up the mess

 

Sources:

 

http://www.theatlantic.com/business/archive/2009/06/the-5-strangest-economic-indicators/19669/

http://www.kiplinger.com/article/business/T019-C000-S001-10-quirky-economic-indicators.html

Unexpected Indicators

 

Marine Advertisement Intensity Index

blog 1.2It’s a bad economy. Job searches have not been successful. Young people are running out of options.

What can they do?

Perhaps joining the military is not a bad idea.

This may have been a thinking process for the youth during recession in the U.S.. In 2011, non-profit research organization National Priority Project (NPP) has published a military recruitment research for 2010. According to the NPP research, there was not enough data to prove a correlation between unemployment rate and recruitment rate. However, it does infer how the poor economy may drive youths to think of military as a career option.

According to NPP, the accession rate increased from FY2009 to FY2010, which indicates how more people wanted to join the military. By the FY2011 recruitment period, the US military already fulfilled the whole year’s recruitment demand and the half of FY2012’s recruitment goal. Comparing NPP’s analysis and the U.S. unemployment rate from U.S. Bureau of Labor Statistics, the correlation between the unemployment rate and demand for youth to join the military seems to make more sense. Looking at the unemployment rate trend from the end of 2009 to the beginning of 2011, the unemployment rate fluctuate between 10% and 9%. Considering the recruitment dates starting on September-October period, the unemployed youth may have felt hopelessness on looking for jobs; consecutively, they thought of enlisting.

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As mentioned above, the recruitment goal for FY2011 overfilled the government’s demand. Consecutively, the government would want less recruits on next recruitment period. Of course, there the other factors influencing the military recruitment. For instance, 9/11 incident inspired many young Americans due to the rising patriotism. Yet, the recruitment goals by the year of 2005 supports correlation between unemployment rate and enlisting rate because the goal “had fallen short of its 80,000-person” according to New York Times.

To meet the recruitment goal, the U.S. military needs either inspire or scare to influence the American youth so the recruitment goal is met. There is a myriad ways to influence the public, but Business Insider and New York times theorized how Marine Corps advertisements may be the economic indicator that speaks about the correlation between unemployment rate and enlisting rate.

Business Insider and New York Times suggest that the intensity of Marine recruitment advertisements can be a measure of economy. The general concept goes something like this: when people cannot find suitable jobs due to bad economy, the Marine Corps terrifies the potential recruits with intense imagery in the advertisements because the Marine Corps does not want too many recruits. Though there is no easy to measure the intensity of the advertisements due to its qualitative nature, it is certainly interesting to look at in the light of communication.

Marine Corps The Climb YouTube3

“The Climb”

The proof Business Insider and New York Times provides is the comparison of advertisements after and before the year of 2002. In 2002, the Marine Corps released an advertisement called “The Climb”. The advertisement showcased a man rock-climbing on a cliff. As the man ascends, the imagery of deployment, courageous Marines, American flag, troops helping people in needs, and many patriotic symbols appear on the cliff. At the end of the climbing, the man sees himself in the Marine uniform. The man gets picked up by himself in the uniform and they emerge into a proud Marine with a halo his back. Watching “The Climb”, being a Marine does not seem to be a bad idea. After watching the advertisement, it does not seem to matter how hard the training is because being a Marine looks like the most worthwhile occupation in the world. This advertisement highlights the slogan of Marine Corps “The Few, The Proud” because the advertisement sends powerful imagery to state how every recruit can become a proud Marine after a rigorous training and self-development.

The advertisement on the 2002 definitely seems to attract many recruits. On the year of 2008, however, the advertisement changed the look of military. Preparing the next fiscal year, the Marine Corps released “America’s Few” advertisement. The advertisement starts with young men from different backgrounds. They rally at the same location and the scene shifts to the series of hardcore training the cadets go through. The commercial shows the images of very intense training such as rope climbing, diving into the water with full battle gears , getting exposed to tear gas, training in the mud, getting thrown into the hand to hand combat with no protective gears, war simulations, and rigorous combat practices.

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“America’s Few”

Towards the end of the commercial, the narrator says that only a few can earn the title of proud Marines. Compare to the 2002 commercial, the advertisement on 2008 highlights how selective the Marine Corps is on picking its candidates. The images of trainees in pain from the training were repeating throughout the commercial. If the 2002 commercial was about the glory of becoming a Marine to attract many candidates, the 2008 commercial was definitely about influencing potential candidates to be hesitant on enlisting. On the year of 2009, the unemployment rate was 9.8% on September. In other words, there may have been a need to reduce the number of candidates to the Marine Corps as the unemployment rate rose; hence, “The Few” was more emphasized in the commercial than “The Proud”.

 

Of course it is not an accurate measure because the intensity can be subjective; however, the Marine Corps advertisement intensity index certainly has a value of studying. It definitely reflect on how the government communicates with people for the supply and demand. Just as other economic indicators influence how people feel about economy, Marine Corps advertisement intensity index influence how people feel about the government’s demand and supply.

 

Drink Juice and prosper

With lifestyles that usually incorporate healthy choices, it’s no surprise Los Angeles has made the juicing trend a way of life. I had the privilege of interviewing Lucy Wagner, one of the original employees of The Juice, a cold pressed organic juice bar in Atwater, Los Angeles.

Lucy Wagner has been working at The Juice since day one and she has been through the business changes and expansion of the company for over 2 years. She shared with me her understanding on the day to day challenges the founders of The Juice has faced and her first hand perspective on business development.

What makes The Juice different from other stores is that they cold press all their juices. Cold pressing it’s a newer process in which the fruits vegetables are first crushed and then pressed in a huge hydraulic press (with a pressure equal to 5 times the pressure found in the deepest part of the ocean). Because cold pressing don’t produce much heat, it keeps more of the fresh ingredients’ nutrients intact. Traditional centrifugal juicers uses a fast spinning metal blade that generates heat which destroys some of the enzymes in the fruits and vegetables rendering less nutritious juice.

First The Juice store in Atwater

The founders of The Juice, Elizabeth and Melissa both believed in high quality juices and splashed out on the cold presser despite it’s $50,000 price tag. This was a huge cost to them but ensured the quality and nutritional value of their products.

The process of cold pressing is very labour intensive and each batch can take up to an hour. Since all juices are pre-made and bottled up, customers have complained about the lack of customization and not having juices made to order.

Even though The Juice now has 3 locations throughout LA (two in Atwater and one in the Arts District) they only have 1 juicer. Juices are usually transported to the two newer locations because it’s more cost efficient this way.

One of the biggest challenge that all juice bars face is the season’s effect on business. No only are these juice bars impacted by seasonal produce but they also have to deal with lower demand in the colder months. People often assume that with biotechnology we are able to get fruits in season all year round, this is not true. When fruits are off season, it’s harder to maintain the quality and a consistent menu. Organic Juiceries such as The Juice are particularly affected by this as they only serve organic produce which is more natural and harder to control.

And just as juices are hard to maintain in the colder months, business is too. In order to keep business during the winter Elizabeth and Melissa position the juices as post holiday cleanses and defence against the flu season. At $9 a bottle, The Juice is considered a luxury in the eyes of many people. Even though the US economy is no longer in a financial crisis, when people are not doing so well juices are the first things cut out. Restaurants experience a similar decline too especially when people try to eat in more and reduce unnecessary spending.

The regulars

In the beginning, the Juice served customers ranging from regulars to locals and people visiting the area. It was very much dependent on the customers within the vicinity. However to expand their customer base, the Juice has done promotions in local farmers markets and also partnered with other local stores and cafes around the area.

Currently they collaborate with Undefeated, a hip sneaker store in the Silver Lake area. Undefeated carries The Juice products in a small in-store fridge. For this partnership The Juice created a special “undefeated” flavour only available in that store. They’ve also worked with small cafes and coffee shops around the area to expand their local customer base and increase brand recognition. These small businesses are usually close enough that the customers can return back to the original The Juice store however not so close for cannibalization. The Juice has also partnered with Pop Physique and Soul Cycle in order to reach potential health conscious customers.

A quick stop at the Juice post Zumba lessons

Apart from expanding to other local businesses, The Juice is now available on Amazon Fresh. The Juice used to deliver their juices and cleanses to their customers for a small fee, however with the emergence of more online delivery services, it has allowed them to focus on creating a high quality product. This development has enabled a larger reach, as customers who were too busy to go in-store can now reach the product online. Association with a corporation like Amazon has also boosted it’s brand image.

Since starting the business in 2013, one of their greatest reasons for success is the location and the support from the surrounding community. In 2013, Atwater was a hip up and coming place in LA and there were cool new businesses in the area. Melissa and Elizabeth were very much a part of that community so they knew the trends of their potential customers very well. The seized the opportunity to set up in Atwater before the market was saturated with other stores. The neighbourhood has changed a lot since then, with more artisan coffee shops and boutique restaurants.

To the Melissa and Elizabeth expansion is all about timing and knowing the your customers. The neighbourhood needs to be new enough that rent prices are still low and other businesses are beginning to set up. Another great indicator is when there are a few health conscious restaurants who are beginning to be successful. Highland park is the current location The Juice is looking to expand into, it is a location that is starting to experience gentrification and already has a successful vegan donut place and vegan taco place in the area.

Visit the Juice at 3145 Glendale Blvd, Los Angeles, CA 90039

A Booming Housing Market in Low-income Communities, with Low Demand

It’s been seven years since the burst of housing bubble in 2008, and the market started showing signs of recovery after 2012. It seems to be a good time to consider buying a house now, with the still-going-down 15-year fixed-rate mortgage fell to 3.08 per cent, slightly above the record low 3 per cent in May 2015, according to a Freddie Mac report.

As the mortgage rate now running below 4 per cent for nine straight weeks, the cost of getting a loan to purchase a new home has become a lot lower when compared to the data earlier this year. However, many potential first-time home buyers in low-income community, such as East Los Angeles and Boyle Heights, took a wait-and-see stance instead. More people in low-income areas have chosen to rent instead of buying houses.

“I’ve seen people renting for over 15 to 20 years,” said Alicia Bonilla, a mail carrier who moved to East L.A. in late 1990s.

Slow wage growth is not the only reason deterring potential homebuyers from owning houses in East L.A. In fact, the median home price has been hovering around $350,000 in the last quarter, which is still affordable comparing to surrounding areas of East L.A. and Boyle Heights. The median home value in Los Angeles County is much higher, at the price of $503,700.

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(A house was put for sale in East Los Angeles. Photo: Zihao Yang)

The booming for-sale housing market is on its way to reach record high since the housing market collapse in 2008. The median price for a 3-bedroom house in East L.A. and Boyle Heights was around $200,000 in 2012 and $310,000 last year, according to data released by Zillow.com.

For a neighborhood highly populated with working-class families and new immigrants, living in their own houses has always been a dream for many young residents. However, many potential homebuyers see this area merely as a springboard in their life to a better community.

“The accessibility to a lot of utilities such as transportation, Metro, freeways, airport – that’s why [people are renting in this area],” said Luis Negrete, a real estate broker who started his business in 1983 on the E. Third St., “other than that, I don’t see that much incentive to own.”

A housing market with ever-rising prices but sluggish real demand has seen an increasing number of houses for sale, but the number of potential buyers didn’t go up. Investors are less interested in investing in the area because of historical reasons, so most of the buyers are immigrants or families that have been living there for a long time, said Negrete.

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(Real estate agent Luis Negrete stands in front of his agency in Boyle Heights. Photo: Zihao Yang)

Due to its vicinity to downtown Los Angeles, Boyle Heights enticed many blue collar workers who want houses near their work locations but have no desire to own properties in the neighborhood.

“One thing that’s undeniable is the location. This is a prime location [for commute],” said Sergio Ramos, a realtor whose major business area includes Boyle Heights and East Los Angeles.

According to Negrete, the ideal final home destinations for the younger generation no longer include East L.A. and Boyle Heights, and the cultural root is not a factor as important as people thought to be. Instead, neighborhoods such as Pasadena and Hacienda Heights are becoming more attractive as places to own a property.

Take a walk on the streets in East L.A. and Boyle Heights, and you will be surprised to find how many houses were put for sale in the neighborhood recently. “They were not even for sale last month,” said Art Kawaguchi, an auto repair shop manager on the E. Third St.

But the number of home sales transaction remained flat and sluggish. Since 2012, not including investors, East L.A.’ housing market shifted further toward renting, said Ramos.

According to East Los Angeles Community Corporation (ELACC), the homeownership rate was only about 11 per cent in Boyle Heights, far lower than the average 46.9 per cent of Los Angeles County. On the national level, the homeownership rate is about 64 per cent, reported the U.S. Census Bureau.

“In this building, a lot of young families did move in. They are just trying to find a place to live on their own. But for them to buy a house, I believe they are not ready yet. They haven’t really mentioned it or talked about it,” said Jeremias Tomas, a property manager of Sol Y Luna Apartments on the E. First St.

It is projected that the mortgage rate will stay low after the Federal Open Market Committee decided to keep interest rates at record lows. But according to Fed Chair Janet Yellen, a Fed rate hike, which could affect domestic housing market, is still likely in 2015. The FOMC will host two more meetings this year, in October and December respectively. A Fed rate increase could make home loans costlier and discourage people from buying houses.

Economists predicted that in 2016, more first-time and younger buyers will “take the plunge on homeownership because the cost of renting will keep going up”, and that will “make the security of a fixed mortgage payment more attractive to more otherwise content renters,” according to a Los Angeles Times article.

Even if predictions suggest that the decreasing cost of buying a house will incentivize more young homebuyers to consider owning properties, in many low-income communities in Los Angeles, it seems that the younger generation are thinking of somewhere else to settle down in the long run.

 

 

Sources:

http://www.freddiemac.com/pmms/index.html

http://freddiemac.mwnewsroom.com/press-releases/mortgage-rates-calm-ahead-of-federal-reserve-decis-otcqb-fmcc-1217973

http://la.curbed.com/archives/2015/07/los_angeles_housing_market_bubble.php

http://www.chicagotribune.com/business/ct-mortgage-rates-slip-20150924-story.html

http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm

http://files.zillowstatic.com/research/public/Neighborhood/Neighborhood_Zhvi_AllHomes.csv

Making IT Chocolate Cake

2620ce1Internet technology has become an essential part of every day life. The economic boom in the United States during the late 1990s was in part due to the expansion of websites and search engines. Over time, businesses began to utilize the technology in order to remain profitable and relevant.

Today, computer technology continues to evolve. Many companies need people who are fluent in the language of the Internet. Internet technology consultant firms play an interesting role in how companies function in the 21st century. Daniel Cohn, an IT consultant from Atlanta, Georgia who created his own firm over twenty years ago, says the purpose of his company is to provide hassle-free managed IT for other small and medium businesses.

“We talk about providing IT chocolate cake for our clients: Delivering the best experience for them without them having to worry about the ingredients. We help avoid the avoidable problems and minimize the impact of the unavoidable ones,” said Cohn.

His company, Cohn Consulting Corporation, provides services ranging from cyber security and maintenance to disaster recovery solutions for small business owners. Since the business of IT consulting depends on the state of other businesses, his consulting firm tends to mirror what the overall economy does.

“Our business is spread over multiple sectors. We are not niched, so things may be down in one sector but up in another, which keeps us in a fairly steady state.”

Cohn says the ‘infrastructure-focused’ and ‘utility-like’ nature of the IT consulting business keeps economic activity flat for most of the year. However, during the first and fourth quarters of every year, companies do their budgeting and spending, which leads to cyclical fluctuations in economic activity.

“Companies look to change their IT environment or at least spend on it while they have the money,” said Cohn.

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During the recession, the company changed its business model from break/fix to management services. Instead of paying a fee for a single service, clients started paying a regular fixed amount on a monthly basis. It gave the firm an opportunity to gain new clients, dealing with higher-priced services, who were looking to control their costs.

“Even in a down economy, we tend to stay flat or grow,” said Cohn, “From 2008 through 2014, we grew revenues each year by 10 to 20 percent.”

Due to investments in new technology and the recent growth in profits, the Cohn Consulting Corporation continues to expand with an efficient system benefitting the consumers and the producers. Nevertheless, the company faced and continues to face major challenges in keeping the profitable machine functioning.

“A lot of small businesses run their business more on hope and nerve. When I first started my business, it was easy to spend money. Once things flattened out, I lost money and I didn’t even know it. I hired a business consultant. There’s all sorts of metrics you need to be looking at like individual profitability of clients. I learned how to understand numbers,” said Cohn.

Cohn also mentioned the reason some of the IT consulting firms did not survive the recession was because they did not switch their business model to match the needs of the clients.

“The financial goals of the services and the company are not in alignment,” said Cohn, “You could make a thousand bucks profit if the client has more problems. It’s now in my interest for them not to have problems.”

Folders_CloudOnce Cohn restructured his organization, part of his growth plan involved getting larger clients. This led to his firm competing against national and local IT consulting companies with larger pools of clients.

“I’ve been having strategic wins against Dynasis and Blue Wave. They are the big gorillas in Atlanta. You see them on billboards. They have brand recognition,” said Cohn.

Companies like Comcast and Dell have now entered the competition, providing their own Internet services including phone updates for customers. Cohn believes the commoditization of the IT consulting industry makes it a greater challenge to make sure his company remains a viable choice for customers.

“Everyone does management services,” said Cohn, “Suddenly you’re competing against the cable vendor. Now, the price is being driven down. But, the other companies will just throw an engineer at the problem.”

Cohn thinks many people today are now questioning the need for IT consultants as they move their information to a cloud provider. He argues clients need people like him to help them pick the right Internet option for their business.

“The question remains whether you want to be Godiva or Hershey’s chocolate,” said Cohn, “How do you be the Godiva? When there are people that can safely say you are more worth it than these other guys. If you own the relationship with the customer, you will be successful. You want them coming to you. You want to be the trusted advisor. You are the indispensible option.”