San Diego Pension Funds at Risk

Pension funds are increasingly risky and placing greater liability on cities throughout the country. On a national level, the risks to cities is large and this creates problems for cities that want to ensure they are fiscally sound. On a $10 billion fund San Diego has exposure of more than $20 billion that could subject taxpayers to an additional $10 billion in losses (McDonald, 2015).

People rely on these pension funds for their retirement and it is important to ensure that decisions are being made in the best interest of the city, state, and pension beneficiaries. Pension funds that take on excessive risk or who are increasingly exposed year after year need additional attention to get them back on track.

San Diego is not alone in its predicament. The Pew Center reviewed 2009 data and found that most cities are under risk with their pensions (Bradford, 2013). Not enough was done to ensure that these pensions are running at their optimal level and were adequately protecting the money.

Too much risk in investing can cause significant problems if things go wrong. In San Diego’s case, the pension funds could lead up to $10 billion in additional losses not only bankrupting the fund but also forcing taxpayer or state bailouts. For example, in Philadelphia a 1% sales tax was implemented to cover the cost of pension obligations, (Coen, 2014).

The risks of pension funds should be a concern for cities across the nation. At a time when the country is finally making positive economic growth pension funds are a relevant risk. States do not, in general, have the money to support busted pension systems. It is necessary to get on top of these issues now and make the painstaking adjustments that lead to solid retirements tomorrow.

Bradford, H. (2013). Pew study finds dismal funded status for most U.S. city plans. Pensions & Investments, 41 (2).

Coen, A. (2014). Treasurer: sales tax extension to aid philadelphia pensions. Bond Buyer, F347 (1).

McDonald, J. (March 19th, 2015). County pension system parts with CEO. UT San Diego. Retrieved http://www.utsandiego.com/news/2015/mar/19/brian-white-severance-sdcera-ceo/

San Diego Employment Numbers Trip But Could Regain Footing from High Technology Firms

2014 wasn't a great year for job creation in San Diego as employment numbers left much to be desired. According to the Employment Development Department 30,208 jobs were added to the San Diego economy in 2014 missing economist projections (1). Despite slower than expected growth in construction, professional, health, and scientific jobs the service industry added the most jobs with a 4.86% increase. Employment rates may be on the rise if San Diego focuses closely on high growth industries that already have a solid present in the area.

The numbers are not dismal and could indicate a upward swing for 2015. Service jobs are relatively easy to add and mark a level of rising consumer spending on travel, restaurants, and leisure services that mark optimism. These are some of the first jobs added to the economy before higher paying jobs also make their way onto the market.

Higher paying employment comes after lower skilled service jobs have made their initial appearance. Industries that have higher paying positions add significantly to income and wages in the area but take a little longer to kick in. Companies making larger investments in skill, recruitment, relocation, compensation and salary only add jobs when needed.

There has been a healthy discussion of encouraging technology firms in San Diego. This discussion, in addition to other high growth fields, helps in improving the future labor market by aligning the economy to industries in demand. For example, small business accounts for 2/3 rds of job creation and high growth firms 35% of job gains during the years 2009-2012 (Clayton, et. al. 2013).

Technology industries are in hot demand around the world and gaining high levels of investment. Companies that are in the high technology sectors of pharmaceutical, chemical, communication, navigation, agricultural equipment, science, etc... find themselves growing faster than many other companies. Their abilities to obtain new resources, based on market demand, pushes them forward.

San Diego has a  solid high technology based that can be used to create stronger platforms for growth. Cities that put in place policies that encourage the development and investment in growth industries often magnify growth in these sectors (Jenkins, et. al., 2006). The policies should help funnel international investment into industries that are currently, or will soon be, in high demand globally.

Encouraging those industries that are likely to provide the highest paying jobs and greatest amount of overall economic growth is smart government. It provides an opportunity to employee more people and raise the standard of living for a lot of people. Likewise, investors want a return on capital and high growth industries offer that opportunity. Making sure legislative hurdles are lowered and letting the world know of the local investment offerings in San Diego can make a huge difference in industries that are ready to break out onto the international market.

Clayton, et. al. (2013). High-employment-growth firms: defining and counting them. Monthly Labor Review, 136 (6).

Jenkins, et. al. (2006). Do high technology policies work? High technology industry employment growth in U.S. Metropolitan Areas, 1988-1998. Social Forces, 85 (1). 

U.S. CEOs Optimistic About the Economy and Plan on Hiring

America is pulling ahead as CEO's project a much brighter future with more hiring and greater investment. According to a report by the Young President's Organization (YPO) the U.S. bucked trends of other nations by raising their confidence index from 64.2 to 65. This optimism is a full two points above other countries and has prompted some positive decisions in company strategic planning that will bode well for the American worker.

Net importers of oil were more optimistic than net exporters. The reason this is the case is because exportation of a natural resource can be lucrative but is also unsustainable and limited. Those nations that reaped the rewards in the past may find their economies struggling now that prices are changing and demand is less. Importing nations find the cheaper oil prices an advantage for their production and economy through lowered input costs.

The report had three interesting expectations over the next 12 months that include:

-70% Sales to Increase/26% Sales to Stay the Same/4% to Sale to Decline
-47% Fixed Investments to Increase/48% Fixed Investments to Stay the Same/5% Fixed Investments to Decline.
-45% Expect to Hire/51% Hiring to Stay the Same/4% Hiring to Decline.

The optimism among key decision makers, such as CEOs, help to push additional investment and hiring. You will notice that only a few believe sales, investments, and hiring will decline over the next 12 months while the far majority either believe it will stay the same or improve. Most CEOs feel that sales will improve and this in term could fuel additional investment and hiring.

Those companies that are working with less than full capacity are likely to soak up that slack before deciding to hire. Many companies have adjusted and transformed during The Great Recession and are in a lean position to grow. Future profits are expected as consumer confidence rises and additional economic activity experienced.

http://www.ypo.org/4q14us/

Developing Networks for Economic Growth

Companies exist within a wider context of information, finances, resources, and sociological networks that impact their long-term health. Successful companies can formalize and embrace this interconnected nature to develop enhanced levels of performance. They are semi-open systems that can take in information, transform it into something new, and contribute to their environment while ensuring they are retaining healthy profit margins. 

Hubs are made of clusters of competencies  that make up the back bone of local human capital. They form when businesses with similarities work in tandem and share common characteristics. We can see how clusters are formed around competencies in science, entrepreneurship, art, manufacturing, or just about any other industry. 

Clusters have socialites who foster and push network creation. Socialites pass out cards, attend meetings, make phone calls, and connect resources and finances to create new things. They are the entrepreneurs and pro-social developers that use their networks to solve problems. Such individuals are capable of changing markets by putting the right people in touch with each other. 

Companies have something called bounded rationality. This is where people band together to form an entity that produces new products/services. They share similarities in knowledge, culture, and competencies bounded into a single business for financial gain. All companies have a level of bounded rationality where members think and act alike. 

Hubs exist within a regional, national, and global marketplace. They are places where resources are converted into innovative products. A hub is defined by the types of clusters/competencies it has within in ranks. Clusters work together to create a type of synergy that is unique to that particular hub and all the elements that come define it. 

The ease by which people act and interact with each other determines the success of hubs. This interaction can be defined by financial, knowledge, and social based goal directed behavior. Development of hubs requires a level of improvement in the ease and speed of transference. This is one reason why new technology can be a game changer. Strong hubs continually develop new knowledge, financial efficiencies, and production outputs.

U.S. Consumer Confidence Rises with Economic Growth

The economies of the world’s nations are on a slow stroll while America has quickened its pace to a leading role as one of the only bright Northern lights for others to follow. Improvement is so significant that GNP has been revised upward from 3.5% to 3.9% (As cited in CNN Money). Other nations are increasingly concerned about lower inflation and the potential for deflation. The U.S. is doing so well it may start to raise interest rates in alignment with growth.

Americans are becoming increasingly positive about their future prospects within the economy. According to a recent gallop poll consumer confidence rose to -7 which is the highest it has been in 17 months (Gallop, 2014).  The poll is a combination of how people view the economy. According to the poll 24% said the economy is excellent while 30% said it is poor leaving the total balance at -7. 

The U.S. economy is also moving forward with some of that growth coming from lower energy and oil costs. Morgan Stanley’s global economist stated, “Lower energy costs boost broad economic activity in the near term and fiscal policy becomes a bit more supportive of growth in 2015” (as cited in Market Watch). Oil is a significant cost that impacts everything from shipping to production throughout the economic system.

The economy is a whole system that incorporates financial metrics as well as difficult to define human feelings, emotions, and neuro-economic choices. Improvements in oil and economic conditions are one benefit while improvements in consumer and investor mood are another. Getting investors and employees on the same page is terms of investment and skill is beneficial. 

Those not feeling positive are likely suffering from job displacement related to economic transitions in the market. Using economic hubs as a method to bit size policy to match investment in business with new learning in job skills to create new products is beneficial. Fiscal policy should focus on hedging the power of the new found economic growth to foster competitive clusters that can compete on the international market.

Is GDP the Best Measurement of Economic Growth?

Numbers are only representations of ideal states and are in and of themselves subjective to what they measure. A paper by Stow & Stow (2013) discusses some of the fallacies of relying too heavily on Gross Domestic Product (GDP) without considering the deeper meaning of the numbers. Fallacies of judgment can occur when governments adjust their economy to improve upon GDP but don’t look at actual economic activity.

GDP is calculated by adding =C+I+G+NX. Any improvement in consumption (C), Investment (I), Government Spending (G) and Net Exports (NX) would result in an improvement in overall GDP. The numbers could be misleading in the long run and lead to poor policies decisions.

When consumers spend more money they are not necessarily improving total wealth of the nation even though GDP rises. They are simply spending their money, dwindling their savings, buying now instead of investing later, and taking on debt. They may be encouraging organizational profits but not exclusively the wealth of the nation as an entire economic system. 

A similar fallacy can be found in government spending where an increase in expenditures can raise GDP numbers that don’t actually reflect national growth. Spending more today has obvious costs in terms of debt, flexibility, and confidence that are not calculated into the factor. Spending should be in areas that improve overall wealth or reduce liabilities. 

The paper is solid in the sense that numbers are only just numbers and relying on them too heavily can lead to policy mistakes that can be costly down the road. Overreliance on a single number encourages greater government spending and interventionism that can be self-perpetuating as politicians seek to justify new and expanded budgets at the detriment longer term sustainability. Using a battery of different numbers can help provide a greater context more data points to understanding true growth and development. 

Strow, B. & Strow, C. (2013). Gross Actual Product: Why GDP Fosters Increased

Government Spending and Should Be Replaced. The Journal of Private Enterprise, 29(1)

The Beige Book Says Modest to Moderate Economic Growth in Most Regions

The Beige Book is prepared at the Federal Reserve Bank of Philadelphia as is designed to gauge economic activity across various regions of the U.S. The recent (September 3rd, 2014) update shows broad economic growth with a few exceptions in construction, agriculture and wage pressure. Higher growth rates were experienced in Philadelphia, Atlanta, St. Louis, and Kansas City while moderate growth was experienced in New York, Cleveland, Chicago, Minneapolis, Dallas, and San Francisco. 

Consumer Spending and Tourism: Improvements in consumer spending. Auto sales were raising and nearly every district experienced improvements in tourism. 

Nonfinancial Services: Strong growth in professional and technology services with moderate growth in freight shipment. 

Manufacturing: Moderate growth in manufacturing throughout most regions with increasing demand for steel. 

Real Estate and Construction: A mixed bag with some regions showing moderate growth and others stagnating. 

Banking and Finance: Growth is most regions with business credit and auto loans strong. There is less demand for housing loans which is in line with slack construction. 

Agriculture and Natural Resources: High yield crops lowered prices for farmers creating mixed results. Higher demand for energy is realized throughout the nation. 

Employment, Wages, Prices: Stable with some skilled labor shortages of information technology workers in Boston District, truck drivers in New York, and construction workers in Atlanta. Wages are not yet under pressure in most areas with the exception of a few high demand growth sectors. 

http://www.federalreserve.gov/monetarypolicy/beigebook/beigebook201409.htm?summary