How Long Can the Stock Market Defy Economic Gravity?

As the pragmatic conservative economist Herbert Stein once said, “If something cannot go on forever, it won’t.” I’ve been thinking about that saying a lot in relation to today’s bull market and the complacency with which investors seem to view it.

The VIX, or fear index—which measures investors’ expectations of volatility in the stock market—is at its lowest ebb since 2007, before the financial crisis. Prices for all sorts of assets, even things like junk bonds, are soaring in a way that would seem to indicate blue skies over the global economy. All this despite the fact that we’re still facing the debt ceiling debate, the resolution of the Eurozone crisis, and a real estate bubble in China that could make the Middle Kingdom go “pop.”

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Part of the bullishness may be a reaction to the fact that things have been tough in the global economy for so long, investors believe they can’t get tougher. But it also reflects history. According to Ruchir Sharma, the head of emerging markets and global macroeconomics for Morgan Stanley Investment Management, who has examined the past 100 years of bull-market history, we’re exactly where we?ought to be in the economic cycle. Typically, by the fourth year of a recovery, stocks have more than doubled. In the fifth year, markets tend to rise about 10%, which is what many analysts predict for this year. In this context, the low fear index and bullish sentiment seem perfectly reasonable.

But there’s a problem: While markets are reacting just as history tells us they should, the real economy is not. Putting aside a better-than-expected fourth quarter last year, we are still in the middle of the second weakest recovery in a century and the weakest one of the post–World War II era. McKinsey Global Institute estimates that it will take another 25 months for employment to reach prerecession levels.

Just as worrisome is the disconnect between the fortunes of companies and the fortunes of workers, which has never been greater. Stock prices are far from a perfect proxy for the economy; they ultimately reflect the earnings and earnings potential of large corporations. While 60% of the profits of the S&P 500 today come from large multinational manufacturing firms, those companies account for only about 15% of U.S. employment, far less than when outsourcing to nations with cheaper labor costs began on a large scale in the 1980s. Many of these companies get an increasing share of their sales from abroad, some of them as much as half, while wages paid to U.S. workers remain flat.

(MORE: What the Current Economic Outlook Means for American Families)

Put these facts together and it’s clear that global gains for American multinationals are no guarantee of economic growth and job creation at home. This is an important—and often overlooked— risk factor in the markets right now. At some point, as Sharma puts it, “you need stronger growth in the real economy for corporate earnings to go up.” We may already be at a breaking point. For more on that, check out my Curious Capitalist column in the latest issue of TIME magazine.

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Fed Survey: US Economy Picked Up at End of Year

(WASHINGTON) — Holiday shopping, strong auto sales and a recovering housing market helped boost the U.S. economy from the middle of November through early January, according to a Federal Reserve survey released Wednesday.

The Fed said 12 of its regional banking districts reported “modest or moderate” growth in the final weeks of 2012. Of those, only St. Louis said growth had slowed from the previous survey, which covered October through early November.

Consumers increased spending at the end of the year in every district. Auto sales were steady or stronger in 10 districts. Nearly all of the districts reported increases in home construction and home sales.

(MORE: What the Current Economic Outlook Means for American Families)

Still, employers in some parts of the country delayed hiring because of uncertainty over the fiscal cliff. Congress and the White House reached a deal on Jan. 1 to prevent sharp income tax increases from hitting most Americans. But they put off decisions on government spending cuts.

The report, called the Beige Book, provides anecdotal information on economic conditions through Jan. 4. Overall, analysts said the survey showed the economy looked better at the end of the year. “Despite concerns about the dreaded fiscal cliff, the economy looks to have improved slightly in recent months,” said Sal Guatieri, senior economist at BMO Capital Markets. He said the latest survey probably had not fully captured the improvement in business sentiment that has occurred with the January deal to avoid most income tax increases.

Congress must still decide what to do about automatic spending cuts that are now set to take effect in March.

The survey showed that companies in six districts — Boston, Richmond, Atlanta, Chicago, Kansas City and San Francisco — held off on hiring because of those looming cuts. Many of the companies are in the defense industry, which is slated for some of the cuts.

The information collected for the Beige Book survey will be used as the basis for the Fed’s policy discussion at the Jan. 29-30 meeting. Many economists believe the Fed will take no new steps at its January meeting.

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The Fed last month said it planned to keep its key short-term interest rate at a record low even after unemployment falls close to a normal level — which it said might take three more years. And it said it would keep buying $85 billion a month in Treasurys and mortgage bonds to try to keep borrowing costs low and encourage more spending.

The economy has shown some signs of improvement, according to recent government and private data.

U.S. automakers finished 2012 with their best sales in five years. The housing recovery has helped lift home prices in most parts of the country. Retail spending grew in December from November, led by higher sales of cars, furniture and clothing. And factory output has increased in the past two months.

Job growth has been modest but steady. In December, employers added 155,000 jobs, roughly matching the monthly average in 2011 and 2012.

Still, unemployment remains high at 7.8 percent. Wages are barely increasing. And many consumers are likely to pull back on spending at the start of the year because lawmakers and President Barack Obama allowed a two-year reduction in Social Security payroll taxes to lapse.

Most Americans will start seeing less money in their paychecks this month. A person earning $50,000 a year will see take-home pay shrink by roughly $1,000 in 2013. That’s likely to slow consumer spending and weigh on economic growth.

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Virginia Is Worried Cars Are Becoming Too Fuel-Efficient

The average fuel economy of new vehicles rose 6% in 2012, and cars are expected to use less and less gas going forward. Isn’t that a good thing?

Well, not if you’re a state hoping to bump up revenues collected on gasoline sales. Less gas sold means less gas taxes collected by states—and therefore, less money the states have to build highways, patch roads, and do all of the other things normally funded by gas taxes.

To increase gas tax revenues, or at least maintain their current levels, one simple solution is to hike gas tax rates. As a New York Times magazine story recently detailed, many economists think higher gas taxes—at least $1.25 per gallon, more than double the current national average—are necessary for a wide range of reasons, including the reduction of traffic and offsetting the environmental impact of driving.

Curiously, in Virginia, Governor Bob McDonnell is suggesting just the opposite as a solution. McDonnell is proposing that Virginia eliminate its gas tax, which is now 17.5￠ per gallon. Since gas tax revenues are bound to decline as drivers buy less fuel, McDonnell suggests that the state drop this tax entirely, while jacking up another tax—one that’s paid by everyone, not just drivers, and that’s never expected to decline. If the proposal passes (it’s quite a long shot), road projects in Virginia would no longer be funded by gas taxes, but by a 0.8% increase in state sales tax, which would rise from 5% to 5.8% (still lower than neighboring Maryland‘s 6% rate).

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The Richmond Times-Dispatch quoted McDonnell’s attempts at explaining the proposed “solution”:

“We have a problem in Virginia and it’s a math problem,” McDonnell said in announcing his proposal. “When you look at what is happening with the primary sources of transportation funding, the fuels tax, that it is on a downward slope.”

Perhaps even more curiously, McDonnell is also suggesting that the owners of alternative-fuel vehicles—who are accustomed to receiving bonuses (rebates, free charging stations, access to special highway lanes) for their green choice of vehicles—should pay a $100 annual fee. And here’s how the governor explained this part of his plan:

“I’m a strong supporter of alternative fuel vehicles, and I’ve directed that we convert the state vehicle fleet to natural gas, but these vehicles generate little federal gas tax revenue and therefore need to contribute their share to fund the roads they use,” McDonnell said.

(MORE: Why the Car of the Future Will Be Powered by … Gasoline)

The proposal has support in certain circles—like among taxi companies and other businesses that spend a lot out of pocket on fuel costs and would obviously benefit if gas was cheaper. A Washington Post story recently offered their point of view, as well as that of the Virginia Retail Federation, which swore that it has “not found a pushback yet for the increase in the sales tax” among its members. Supporters also argue that the disappearance of the state gas tax may trickle down, so that prices would decrease for all sorts of goods and services priced partially based on the cost of fuel.

Regardless, everyday consumers may not like the idea of paying for services they don’t necessarily use. “There’s no need for people that don’t drive a car to pay higher taxes on consumer goods in order to subsidize those people who do drive cars,” Virginia Sen. J. Chapman Petersen said, according to the Times-Dispatch.

The point here is figuring out how to fund road infrastructure, right? Interestingly enough, surveys show that the majority of drivers actually support higher taxes on gasoline (a theoretical 10￠ increase) so long as the funds raised are used to improve roads. Think about that: How often are the majority of Americans behind the idea of increases taxes on anything?

(MORE: Top New Cars of 2013)

Nonetheless, McDonnell wants to eliminate the gas tax and spread the burden of funding road improvements to all consumers, while simultaneously decreasing incentives for drivers to purchase more fuel-efficient and alternative-fuel vehicles and to stay off the roads more, perhaps by using public transportation. But hey, gas would be cheaper!

Brad Tuttle covers business and personal finance for TIME. He lives in Massachusetts with his wife and four sons, and also teaches journalism at UMass-Amherst.

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Today’s Young Adults Will Never Pay Off Their Credit Card Debts

When we talk about Americans barely into adulthood who are saddled with debilitating levels of debt, the conversation is almost always about student loan debt. But there’s a growing body of evidence suggesting that today’s young adults are also drowning in credit-card debt — and that many of them will take this debt to their graves.?

More than three-quarters of renters between the ages of 18 and 24 spend more than they earn every month, according to a survey of 1,000 renters (of all ages) by Rent.com. This is the case even though 17% of respondents in that age bracket say they’re willing to live with roommates to save money.

More than 20% overspent their income by more than $100. That’s every single month. And since they haven’t built up their credit histories yet, it’s a safe bet that these young adults are paying relatively high interest rates on the resulting credit card debt.

Although more young people than older adults blame “socializing” as a barrier to saving money, most young people aren’t knocking back $20 drinks in trendy lounges. They’re struggling with much more prosaic financial demands. For 42%, rent is their top expense, while 18% say transportation costs eat up the biggest chunk of their earnings and 22% say paying for food eats up the greatest share of their monthly budget.

(MORE: Why More Americans Will Fall Behind on Credit-Card Bills This Year)

To a disturbingly large extent, the young and the broke are relying on credit cards to make it until their next payday. This obviously isn’t sustainable in the long run, and it’s going to put a huge drag on this demographic’s spending power even after they reach their peak earning years, because they’ll still be paying interest on that carton of OJ or box of spaghetti they bought a decade earlier.

A new study out of Ohio State University found that young adults are racking up credit card debt at a more rapid rate than other age groups, and that they’re slower at paying it off.?”If what we found continues to hold true, we may have more elderly people with substantial financial problems in the future,” warns Lucia Dunn, co-author and professor of economics at Ohio State University. “If our findings persist, we may be faced with a financial crisis among elderly people who can’t pay off their credit cards.

(MORE: The Verdict Is In: Tackle Smaller Debts First)

People born between 1980 and 1984, for instance, already have an average of $5,689 more in credit card debt than their parents did at that age. And remember, those parents are members of the generation that’s now starting to worry about whether or not they’ve saved enough for their impending retirements. Their kids are going to be able to save even less since they’re funneling so much more into servicing their burgeoning debt.

Along with more debt, this age cohort is paying off those debts at a sharply lower rate than their parents. Dunn says a lot of these young people are never going to get out from under their credit card debt. “Many people are borrowing on credit cards so heavily that payoff rates at these levels are not sufficient to recover their credit card debt by the end of their life, “ she writes in the study. “We can expect more people to carry credit card debt at death, which could have loss implications for the credit card issuing banks.”

Banks can file a claim against someone’s estate if they die with both debt and assets, but if the deceased doesn’t have any assets, banks can’t go after their heirs and have to just eat the loss. This is bad news for the banks, but sympathy may also be in order for the people who literally live their lives under a cloud of credit card debt.

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At Under $19K for a Nissan Leaf, Does the Math on Electric Cars Finally Add Up?

YASUYOSHI CHIBA / AFP / Getty Images Nissan's Leaf, an all electric car.

Nissan’s Leaf has a long way to go to expand beyond its status as a niche commuter car. Sales have been underwhelming, even with cheap lease offers, leading some to declare the Leaf an overpriced, impractical flop. Will this change now that the Leaf isn’t quite so overpriced?

For a while now, we’ve heard that the new Nissan Leaf will have a cheaper sticker price than older models. Now we know just how much cheaper it’ll be.

Impressively, the retail price of the 2013 Nissan Leaf will drop by over six grand.

This week at the Detroit Auto Show, Nissan announced that the new Leaf S series will start with an MSRP of $28,800, which undercuts the previous least expensive Leaf by $6,400, representing a drop of 18%. Add up the incentives for buyers—$7,500 in federal tax credits, plus a $2,500 rebate in certain states, including California—and drivers can essentially pay “full price” for a Leaf for as little as $18,800.

(MORE: Electric Cars: More Models, Cheaper Prices Coming in 2013)

A drop of more than $6,000 in a vehicle’s sticker price is undeniably a big deal. Normally, an automobile model’s MSRP only goes in one direction: up. Any official dip in price can make news, and when the decline is substantial, like whenVolkswagen dropped the starting price of the Jetta by $2,400, it can provide a major boost to sales.

Is that what we can expect from the new Leaf? Surely, the lower price will push some buyers into getting off the fence in the consideration of an electric vehicle. But Leaf sales have underwhelmed before, falling well short of sales goals in each of its first two years on the market, and they may do so again. Nissan anticipated a 50% rise in Leaf sales in 2012, only to see sales increase by 22%, even as the automaker rolled out discounted lease deals toward the end of the year. Before that, Leaf sales were often down compared to corresponding months in 2011.

For 2013, Nissan is projecting a sales increase of at least 20% for the Leaf, thanks to the newly cheaper price. “Now customers won’t have to pay a premium for owning a green car that’s really fun to drive, and that’s exciting,” Billy Hayes, global vice president of Leaf sales, stated via press release. That statement, of course, basically owns up to the idea that anyone buying a Leaf in the past was indeed paying a high premium for the privilege.

(MORE: Is It Time to Declare the Nissan Leaf a Flop?)

While the new lower-priced S model Leaf is getting all the attention, the 2013 versions of the SV and SL Leaf are also cheaper than preceding models, by $3,380 and $2,410 respectively. How can Nissan cut prices like this? Lower costs for batteries and other parts help. Nissan may also be willing to eat some of the potential profits in order to get more Leafs on the road; that wouldn’t be surprising given the speculation that surfaced last year that Chevy loses tens of thousands of dollars on each Volt sold.

Regardless of how Nissan gets to the price point for the Leaf, has it reached the point that mainstream buyers will bite? A report from the Congressional Budget Office published last fall estimated that when comparing a pure battery-powered vehicles like the Leaf to a similar gas-powered car, “tax credits would still need to be about 50 percent higher than they are now to fully offset the higher lifetime costs of an all-electric vehicle.” In other words, instead of a $7,500 tax credit, something like $11,250 would cut it.

The math changes, however, now that the cheapest Leaf is $6,000 less. State rebates help put the math in the Leaf’s favor too, of course. Based on the new math, it would seem that it’s less expensive to own a Leaf rather than a similar traditional car like the Nissan Versa, all things being equal.

The problem, of course, is that all things aren’t equal. After adding up initial price, insurance, “fuel” and other expenses, a Leaf owner may pay less out of pocket than a Versa owner over the course of five to seven years, but over that time period the Versa owner is never subjected to so-called “range anxiety.” The Leaf owner can only make it 70 or 80 miles without having to stop for hours (overnight, probably) to recharge. The Versa owner, on the other hand, can embark on serendipitous road trips without carefully plotting mileage and charging stations and without having to pause for huge chunks of the day to refill the tank.

(MORE: Why the Car of the Future Will Be Powered by … Yep, Gasoline)

For drivers in search of a vehicle strictly for mid-size commuting purposes, the Leaf makes more sense than ever. Yet for drivers who demand more in a car, the Leaf probably isn’t the solution — at any price.

Brad Tuttle covers business and personal finance for TIME. He lives in Massachusetts with his wife and four sons, and also teaches journalism at UMass-Amherst.

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US Jobless Aid Applications Fall to 5-Year Low

(WASHINGTON) — The number of Americans seeking unemployment aid plummeted to a five-year low last week, a hopeful sign the job market may be improving. But much of the decline reflects seasonal volatility in the data.

Weekly unemployment benefit applications fell 37,000 to a seasonally adjusted 335,000, the Labor Department said Thursday. That’s the lowest level since January 2008, just after the recession began. The four-week average, a less volatile measure, fell to 359,250.

(MORE: US Unemployment Aid Applications Tick Up to 371K)

The applications data can be uneven in January. Job cuts typically spike in the second week of the month as retailers, restaurants and other companies lay off temporary workers hired for the winter holidays.

The department seasonally adjusts the numbers to account for such trends, but the data can still be choppy.

Last week, the layoffs weren’t as large as expected, a department spokesman said. That caused a steep drop in the seasonally adjusted data.

The broader trend will become clearer in the coming weeks. Applications were declining slightly at the end of last year, pushing the four-week average to a four-year low in the last week of December.

The applications figures “suggest the labor market is getting better, the issue remains the extent of the improvement,” said Joseph LaVorgna, an economist at Deutsche Bank.

Applications are a proxy for layoffs. Overall, applications remain at a level that suggests employers are hiring at a slow but steady pace. Applications fluctuated between 360,000 and 390,000 for most of last year. At the same time, employers added an average of 153,000 jobs a month.

That’s just been enough to slowly push down the unemployment rate, which fell 0.7 percentage points last year to 7.8 percent.

(MORE: U.S. Economy Adds 155K Jobs; Jobless Rate Unchanged)

Employers added 155,000 jobs last month, nearly matching the average for the year. December’s steady job gain suggests employers didn’t cut back on hiring in the midst of the debate over the tax and spending changes known as the fiscal cliff. Many economists feared that the prospect of higher taxes and steep cuts in federal spending would cause a slowdown in job gains.

That’s a good sign, since more budget showdowns are expected. Congress must vote to raise the government’s $16.4 trillion borrowing limit by sometime between mid-February and early March. If not, the government risks defaulting on its debt. Republicans will likely demand deep spending cuts as the price of raising the debt limit.

More than 5.8 million people received unemployment aid in the week ended Dec. 29, the latest data available. That’s about 465,000 more than the previous week. The figure includes about 2 million people who receive extended benefits paid for by the federal government. The rest receive aid under state unemployment programs, which usually last 26 weeks.

The overall economy grew at an annual rate of 3.1 percent in the July-September quarter. But economists believe activity slowed considerably in the October-December quarter to a rate below 2 percent or less, in part because companies cut back on restocking.

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Is Walmart’s Buy American/Hire Veterans Initiative Anything More Than a PR Stunt?

FREDERIC J. BROWN / AFP / Getty Images Police man the front of a Walmart store amid heightened Black Friday security in Paramount, Calif., on Nov. 23, 2012

Bill Simon, president and CEO of Walmart U.S., made a big splash yesterday when he announced two new initiatives the firm will launch this year: One focusing on putting returning veterans to work, with a promise to hire 100,000 veterans over the next five years, as well as a push to increase the dollar amount of American-made products the firm purchases by $50 billion over ten years.

The programs received praise from the likes of First Lady Michelle Obama; Jim Knotts, CEO of the veteran-support group Operation Homefront;?as well as Scott Paul,?president of the Alliance for American Manufacturing. But before we fall over each other to join these luminaries in their praise of the world’s biggest retailer, it’s worth taking a moment to dig deeper into the numbers.

First, though, let it be said that the goal of hiring veterans is a noble one, and one that should in many cases?make business sense as well. As Simon said yesterday in his speech announcing the initiative, “Veterans have a record of performance under pressure. They’re quick learners, and they’re team players.” But many veterans have struggled to find work in a tough economy. Though the overall employment rate for veterans is below the national average, the unemployment rate for post-9/11 vets sits at 10.8%, versus 7.9% for the nation as a whole, according to the Department of Veterans Affairs. Especially for this group, Simon’s pledge to, “offer a job to any honorably discharged veteran within his or her first twelve months off active duty” must sound like a good deal.

(MORE:?10 Ways Walmart Changed the World)

But what exactly is Simon promising, and will he be helping veterans in a big way by fulfilling it? Walmart employs 1.3 million sales associates in the U.S. and claims an average annual turnover rate of 37%. At that rate, the company has to hire some 480,000 sales associates in the U.S. per year. If Walmart ends up hiring 100,000 veterans over five years, or 20,000 per year, that would account for only?4.2% of its total hiring. But according to the Veterans Administration and the Labor Department, veterans make up 9.3% of the civilian working population. To actually make a dent in veteran unemployment, Walmart would have to increase its annual hiring of veterans to 65,000, or 325,000 over five years — and hope other employers in the U.S. adopt similar hiring policies.

What about Walmart’s new efforts to “buy American”? Surely the American manufacturing sector could use a boost from the world’s largest retailer making a concerted effort to spend more on its products. And $50 billion over ten years probably sounds pretty concerted to most ears. But in Walmartland, most numbers are large and impressive. And when you compare that $5 billion per year in additional product purchases to what Walmart would likely be doing anyway, it’s reasonable to wonder whether it represents any special effort on behalf of veterans at all.

According to Walmart’s 2012 annual report, the firm increased its cost of sales (an accounting term that basically tells you what it pays its suppliers for products) by more than $21 billion from 2011 to 2012. This figure is more or less in line with annual increases in Walmart’s recent history. In other words, in a typical year of late, Walmart buys $21 billion more products than it did the previous year. Walmart doesn’t break out what percentage of these incremental costs are attributed to Walmart U.S., Walmart International, or Sam’s Club, but if we assume that the proportions mirror those of the firm’s operating profits, that would mean Walmart U.S. spends about $15 billion more each year on products than it did the year before.

(MORE:?The Corporate Tax Rate Is Lowest in Decades; Is Business Paying Its Fair Share?)

So by promising to buy $5 billion more each year in U.S. sourced products, Walmart is promising to spend one-third of its annual new spending on U.S.-sourced products. Not bad, right? But Simon claimed in his speech yesterday that “items that are made here, sourced here, or grown here account for about two-thirds of what we spend to buy products at Walmart U.S.” If this is true, then shouldn’t Walmart promise — at the very least — to maintain that two-thirds proportion in its new spending?

This is just back-of-the-envelope number crunching, but these calculations suggest that rather than creating new initatives to help solve social problems, Walmart is merely dressing up what it already planned to do. Perhaps that’s why the firm is obviously underestimating itself when it set these goals. In all likelihood, Walmart will end up surpassing these benchmarks by a large margin as the U.S. economy improves and more manufacturing comes back to America due to higher fuel costs and rising labor costs abroad. And then it will be in a position to drive home it’s PR coup by bragging about how the firm greatly exceeded its goals for hiring veterans and increasing its purchases of U.S.-sourced products.

Walmart tried something like this before, in fact — and it didn’t end particularly well. The company launched a “Buy American” campaign in 1985, but ended it?after Dateline NBC discovered?that some Walmart stores were advertising clothing made in Bangladesh as American-made.

When I presented these figures to Walmart spokesperson Randy Hargrove, he said that these goals of $50 billion in new buying of U.S.-sourced products and 100,000 new veterans are floors, not ceilings, and that in each case the numbers could go higher. But he was unable to say whether $5 billion per year in new spending on U.S.-sourced products represents an increase from what it’s done in previous years because the company “doesn’t break out those numbers.”

In Walmart’s defense, we perhaps should not expect the company to tackle social problems in a meaningful way. Walmart is good at doing a lot of things, but above all else it excels at offering products to the American public at ridiculously low prices, and thereby raising our standard of living. But private corporations aren’t all that great at solving social problems. That’s because curing social problems more often than not involves sacrificing something of value. And what does Walmart value more than anything else? Low prices for its customers. And Walmart won’t give up those low prices for anything, not the American manufacturing sector, the environment, or even veterans employment.

(MORE:?Which States Have the Most Economic Mobility?)

Christopher Matthews is a Reporter for TIME Business.

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Best of the North American International Auto Show

Courtesy of BMW North America, Inc. While in some precincts the recession lingers on like unmelted snow drifts from a late winter storm, luxury was very much on display at the North American International Auto Show in Detroit, where many car makers emphasized new models featuring?expensive?materials, high-performance engines, and cutting edge technology. Still, other manufacturers appeared determined to stick to the basics. Ford, for example, showed the prototype for its next generation pickup, while Toyota and Honda displayed vehicles like the Toyota Furia and Honda Urban SUV that offer a glimpse of what the mainstream will be driving in the years ahead. Here’s a look at 11 of the most notable new models in both categories.?Next 2014 Corvette Stingray

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Lithium Batteries Central to Boeing’s 787 Woes

WASHINGTON — Lithium batteries that can leak corrosive fluid and start fires have emerged as the chief safety concern involving Boeing‘s 787 Dreamliner, a problem that apparently is far more serious than government or company officials acknowledged less than a week ago.

The Federal Aviation Administration late Wednesday grounded Boeing’s newest and most technologically advanced jetliner until the risk of battery fires is resolved. The order applies only to the six Dreamliners operated by United Airlines, the lone U.S. carrier with 787s. But other airlines and civil aviation authorities in other countries will be under pressure to follow suit or face possible accusations of taking unnecessary risks with public safety.

Japan‘s two largest air carriers voluntarily grounded their 787s on Wednesday ahead of the FAA’s order following an emergency landing by one of the planes in Japan. On Thursday, the European Aviation Safety Agency ordered all European carriers to ground the jetliner. And the Indian government ordered Air India to ground its fleet of six Boeing 787s.

Only hours before the FAA issued its order, Transportation Secretary Ray LaHood reiterated to reporters that he considers the plane safe and wouldn’t hesitate to fly one. LaHood and FAA Administrator Michael Huerta unequivocally declared the plane safe at a news conference last week even while they ordered a safety review of the aircraft.

(MORE: How Safe is the Boeing 787?)

However, as details emerged of two battery failures only 10 days apart, it became apparent that the FAA wouldn’t be able to wait for completion of its safety review before taking action. An inspection of the All Nippon Airways 787 that made an emergency landing in western Japan found that electrolytes, a flammable battery fluid, had leaked from the plane’s main lithium-ion battery. Investigators found burn marks around the damage. Japan’s Kyodo News agency quoted transport ministry investigator Hideyo Kosugi as saying the liquid leaked through the electrical room floor to the outside of the aircraft.

In the first battery incident on Jan. 7, it took firefighters 40 minutes to put out a blaze centered in an auxiliary power unit of a Japan Airlines 787. The plane was empty of passengers shortly after landing at Boston’s Logan International Airport.

The two incidents resulted in the release of flammable electrolytes, heat damage and smoke, the FAA confirmed. The release of battery fluid is especially concerning, safety experts said. The fluid is extremely corrosive, which means it can quickly damage electrical wiring and components. The 787 relies far more than any other airliner in operation on electrical systems to function.

The electrolyte fluid also conducts electricity, so as it spreads it can cause short-circuits and ignite fires. And its corrosiveness raises concern about whether a leak might weaken a key support structure of the plane, even though the 787 is the first airliner to be made primarily from lightweight composite materials that are less susceptible to corrosion than aluminum, safety experts said.

“Anytime you have leakage of battery fluid it’s a very serious situation,” said Kevin Hiatt, president and CEO of the Flight Safety Foundation in Alexandria, Va., which promotes global airline safety.

(MORE: Emergency Landing Grounds Boeing 787 Jets in Japan)

The fluid leak identified in the ANA plane was a “very significant finding,” said John Goglia, an expert on aircraft maintenance and a former National Transportation Safety Board member. It’s possible that a leak could interfere with electrical signals, making it impossible for pilots to control the plane, he said.

“There are all kinds of possibilities,” Goglia said. “They need to go in and take a look at it. I guarantee you everybody’s doing that.”

The 787 is the first airliner to make extensive use of lithium-ion batteries to help power its energy-hungry electrical systems. The batteries charge faster and can be better molded to space-saving shapes compared with other airplane batteries.

“Unfortunately, what Boeing did to save weight is use the same batteries that are in the electric cars, and they are running into the same problems with the 787 as the problems that have shown up in electric cars,” said Paul Czysz, professor emeritus of aeronautical engineering at St. Louis University.

The lithium-ion batteries in several Chevrolet Volts used for crash-testing caught fire in 2011. General Motors engineers eventually figured out that the fires were the result of a battery coolant leak that caused electrical shorts after side-impact crash tests. GM retrofitted the car with more steel to protect the battery. No fires were ever reported on real-world roads.

Jim McNerney, Boeing’s chairman, president and CEO, said the company is working with the FAA to resolve the situation as quickly as possible.

“We are confident the 787 is safe and we stand behind its overall integrity,” he said in a statement. “We will be taking every necessary step in the coming days to assure our customers and the traveling public of the 787′s safety and to return the airplanes to service.”

(MORE: The Rise of the Alterna-Banks)

Mike Sinnett, chief engineer on the 787, said last week that the plane’s batteries have operated through a combined 1.3 million hours and never had an internal fault. He said they were built with multiple protections to ensure that failures “don’t put the airplane at risk.”

The lithium-ion design was chosen because it’s the only type of battery that can take a large charge in a short amount of time.

Neither GS Yuasa Corp., the Japanese company that supplies the batteries for the 787, nor Thales, which makes the battery charging system, would comment on the recent troubles.

Boeing and its customers will need to move quickly to resolve the problem. The aircraft maker has booked orders for more than 800 of the planes from airlines around the world attracted by its increased fuel efficiency.

The jet’s lightweight design makes it more of a fuel-sipper; fuel is the largest expense for most airlines. It’s so lightweight in part because it uses electricity to do things that other airplanes do with hot air vented through internal ducts. So a 787 with electrical problems is like a minivan that won’t haul kids. It goes to the heart of what the thing was built to do.

The FAA order had airlines, flight crews and passengers scrambling to figure out what to do next. Stanislaw Radzio, the captain of a LOT Polish Airlines 787 that landed at O’Hare International Airport in Chicago late Wednesday, told The Associated Press he wasn’t sure when the plane would be heading back to Poland.

“We’re grounded like everyone else,” he said. “We are very unhappy with the situation.”

He said he was told of the FAA decision during the flight from Warsaw. A captain and flight instructor at the Polish airline since 1999, Radzio said the 787 is the nicest plane he’s ever flown.

A passenger on the flight, Taras Dukyn, a student at the University of Illinois at Chicago, said he was surprised when told of the grounding by reporters, but would be willing to fly the aircraft again if the problems were fixed.

“It’s a really nice plane. Computers in every chair. It was comfortable, although I was a little hot,” he said.

Freed reported from Minneapolis. Associated Press writers Herb McCann in Chicago, Elaine Kurtenbach and Yuri Kageyama in Tokyo, Kelvin Chan in Hong Kong and Scott Mayerowitz in New York contributed to this report.

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Do Less, Succeed More

Entrepreneurs and small business owners are typically buried in demands and obligations, so learning to say “no” and focus on the right things is critically important.

Vickie Milazzo, an entrepreneur and author of “Wicked Success Is Inside Every Woman,” has some advice that could benefit just about anyone, not just women.

Milazzo emphasizes using your time wisely. You don’t achieve big goals overnight; you have to work at them every day, sometimes in small chunks. So commit to doing something every day toward your goal and reach it in stages.

Abandon perfectionism. When you get there, success may not look like what you expected, so adjust your expectations and definition of success along the way. We all have an idea of how success will look and feel when we get there, so your ability to be flexible and adjust your goals could get you to a place of success earlier than you otherwise might.

Find successful people to learn from and emulate. If you’re struggling to achieve a goal, you won’t learn much from someone else who is struggling to achieve that same goal. Look around for others who have achieved what you want and whose work you admire and model yourself after them.

Keep it fresh. Do you remember why you wanted the career you have? Tap back into the frame of mind you had when you were just starting out. Finding that passion again will renew your energy and engagement.

Finally, give yourself a break. If you stepped back and looked at your daily routine objectively, as if it were happening to your best friend, what would your advice be? Slow down? Take a few deep breaths? Spend a few moments enjoying the day?

Adapted from Successful Woman’s New Year’s Advice for Other Women: Stop ‘Enduring’ by Don Tennant at IT Business Edge. And send us your small business success tips!

Paul Shread is editor in chief of the IT Business Edge network.

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Goldman, Morgan Stanley Pay $557M in Mortgage Case

WASHINGTON — Goldman Sachs and Morgan Stanley will pay a combined $557 million to settle federal complaints that they wrongfully foreclosed on homeowners who should have been allowed to stay in their homes.

The agreements announced Wednesday with the Federal Reserve were similar to deals struck earlier this month with 10 other major banks and mortgage lenders. Combined, the 12 firms will pay more than $9 billion.

The settlements could compensate hundreds of thousands of Americans whose homes were seized because of abuses such as “robo-signing,” when banks automatically signed off on foreclosures without properly reviewing documents. The agreement will also help eliminate huge potential liabilities for the banks.

Consumer advocates say regulators settled for too low a price by letting banks avoid full responsibility for foreclosures that victimized families.

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The Rise of the Alterna-Banks: 4 Options Beyond Traditional Banking

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Is it time to part ways your bank? There are more options than ever for people looking for a different kind of banking experience — many of them without the onerous fees and requirements of traditional bank accounts.?

According to the FDIC,?821,000 households ditched their banks between 2009 and 2011. The financial crisis, the foreclosure robosigning scandal, and the huge amounts of money banks were raking in from fees turned consumers against their banks. Even as new regulations have forced banks to change some of their ways, more customers are expected to close their accounts going forward. A survey by Javelin Strategy & Research found that 11% of Americans plan to switch banking institutions in the next year. If?you’re one of them, it may be time to desert traditional banks entirely and consider one of these alterna-bank options:

Full-feature prepaid debit cards
Maybe you’ve been scared off from banks by overdraft fees and other zingers that sap your balance. You don’t mind paying a little bit, but you want to know what fees you’re paying upfront. You don’t really use paper checks, but you’d still like to get the other perks that come with a regular bank account. If these descriptions apply to you, look into prepaid cards.

What’s good: There’s a lot more competition today. The prepaid landscape has expanded greatly over the past couple of years, prompting providers to lower fees and add features.

(MORE: Should You Get a Prepaid Debit Card?)

What’s not: Prepaid cards are still mostly unregulated, consumer advocates point out. The Consumer Financial Protection Bureau will be taking a look at the prepaid debit card marketplace, but so far there’s limited oversight. Most prepaid debit card providers voluntarily comply with rules for regular debit cards, so that customers are protected if a card is lost or stolen. Still, providers aren’t required to comply. The lack of rules also means there is something of a free-for-all when it comes to fees. Many card providers claim transparency, but you still have to examine the fine print to figure out if a card is a good choice for you.

Standouts: Last year, a number of national and regional banks muscled into the prepaid card market, which had previously been the territory of companies like UniRush and Green Dot. The two options that have attracted the most attention lately are Chase’s Liquid card and Bluebird, a checking and debit alternative jointly offered by American Express and Wal-Mart. Liquid charges a relatively low monthly fee of $4.95 that’s waived if you link the card to a Chase checking account; Bluebird doesn’t charge a monthly fee at all. With both cards, you can get direct deposit and withdraw cash for free at in-network ATMs. The cards can be used to pay bills online, and deposits can even be made remotely by taking a picture of a check with your smartphone camera.

Web banking and budgeting accounts
New web-based platforms deliver a combination of banking and budgeting tools. They aren’t banks. But they do partner with institutions that provide many of the services included in typical bank accounts. These platforms are loaded with money management tools as well, which help users keep track of spending.

What’s good: If you’re a fan of personal finance platforms like Mint.com and wish you could keep your money in the same place you manage it, this option gives you one-stop-shopping on your computer or smartphone without the fees that weigh down most regular checking accounts. Heavyweight analytics tools give in-depth insight into your spending habits.

What’s not: If you want an in-person banking experience, this probably isn’t for you, and some standard bank account features (like paper checks) might not be available.

Standout players: Startup Simple is a sort of mashup of Mint.com and a free online checking account. It offers users “detailed information that allows customers to search their accounts with plain English commands,” explains the New York Times.

(MORE: Why More Americans Will Fall Behind on Credit Card Bills This Year)

Another option, Kasasa,?acts as a sort of middleman between consumers and a network of community banks and credit unions around the country. Since your “soul mate” bank might be halfway across the country, Kasasa reimburses customers for ATM fees. Kasasa’s 360 money-management platform gives customers budgeting and spending analysis tools. What’s more, accountholders earn rewards (cash back, free apps and music, and more), which is notable because checking-account rewards programs are virtually extinct these days.

Prepaid debit with high-interest savings
This category of alterna-bank combines the functions of a prepaid debit card account with the high-APR (relatively speaking) savings feature that is a selling point for online banks like ING Direct and Ally.

What’s good: Interest rates in the 5% ballpark — much, much higher than the average bank account rate, which is barely above 0% — are not unusual. Some providers offer budgeting and personal finance tools too.

What’s not: In a word, the fees. The eye-popping interest rate is the eye-catching figure these providers want you to pay attention to, but take a look at the fee schedules to find out if you’ll really be saving any money. Some cards we’ve seen go so far as to charge a fee with every transaction. That’s a quick way to deplete whatever interest you’ve earned, and then some.

(MORE: What’s Hot on the Dating Scene? Good Credit)

Standout: Mango is one of the more transparent cards out there. It offers a 6% interest rate on up to $5,000 for customers with direct deposit, and you can avoid the $5 monthly fee with direct deposits of $500 or more monthly. (There’s also a $20 bonus for signing up for direct deposit.) But other fees — like $2 for ATM withdrawals and $10 to get remaining funds via check when you close the account — can really cut into the 6% you’re earning.

Mobile bank account
Talk about the circle of life. Green Dot, one of the granddaddies of prepaid debit, rolled out a mobile bank account this week, following its acquisition of a bank in 2011 and mobile location-service provider Loopt last year.

Called GoBank, it’s designed to appeal to consumers who grew up with smartphones and social networks. The entire experience takes place via the bank’s apps for iOS and Android or through a user’s mobile web browser.

What’s good:?It doesn’t hit users over the head with fees. The monthly fee is set up on a sort of honor system; there’s a “pay what you want” feature that lets customers choose an amount varying from nothing to $9 a month. There are no overdraft fees and few other fees (like $2.50 to use an out-of-network ATM).?Direct deposit and mobile check deposit using the phone’s camera are free.?Users don’t get checkbooks, but the bank will mail a paper check to anyone on request, or they can send money to people via text message or through Facebook.

(MORE: Are State-Owned Banks the Antidote to the Too-Big-to-Fail Epidemic?)

What’s not: To deposit cash, users need to buy a Green Dot MoneyPak for around $5, so GoBank might not appeal to people who generally get paid in cash.?For people who aren’t used to conducting transactions via their phone — or who don’t have a smartphone — GoBank won’t be a viable option. But GreenDot is betting that younger consumers would rather have their bank at their fingertips than down the block.

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Stand Out in Your Interview

You get one chance to impress in a job interview. Perform well and the job may well be yours. Fail and you’re back to sending out resumes. Here are three tips for getting it right:

Prepare, prepare, prepare.?Find out as much as possible about the company, how it’s organized, its culture, relevant industry trends, and some information about the interviewer.Ace the first 30 seconds.?First impressions matter. Start off by speaking clearly but slowly, walk with confidence, and think through what “props” you will carry so you don’t appear over-cluttered.Tell stories.?In interviews, people respond to narratives far more than they do data. Prepare concise stories that demonstrate your ability to do the job. Make sure they have a good opening line, such as, “I’m going to tell you about a time that I rescued the organization.”Adapted from?“Stand Out in Your Interview” by Amy Gallo.

Visit Harvard Business Review’s Management Tip homepage

Purchase the HBR Management Tips book

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Bank of America’s Earnings Shrink on Mortgage Settlements

NEW YORK — Bank of America says its fourth-quarter earnings shrank as it cleaned up old problems from its mortgage unit.

The bank made $367 million in the last three months of 2012 after paying preferred dividends, down from $1.6 billion in the same period a year ago. The earnings were equivalent to 3 cents per share.

The bank had warned that it expected earnings to be only “modestly positive.” It took big charges related to a settlement with the government-backed mortgage lender Fannie Mae and a separate agreement in which it and other banks settled government accusations of wrongful foreclosure practices.

The earnings were slightly better than the 2 cents per share estimate of financial analysts polled by FactSet.

(MORE: The Rise of the Alterna-Banks: 4 Options Beyond Traditional Banking)

Revenue was dragged down by the Fannie Mae settlement. It fell to $19.6 billion after stripping out an accounting charge, down from $26.4 billion in the same period a year ago.

Analysts called it another quarter of sacrificed earnings as the bank works through its troubled mortgage division. A long string of regulatory fines and lawsuits for the unit have made earnings unpredictable for several years.

Bank of America’s stock fell 15 cents to $11.63 in pre-market trading.

In a call with reporters, Chief Financial Officer Bruce Thompson said the bank is much better positioned than it was a year ago. He emphasized a jump in deposits, higher fees from investment banking, and shrinking debt.

As for future litigation in the mortgage unit, Thompson said he couldn’t be sure what might come. “I can’t tell you exactly what else could be out there,” Thompson said, “but what I can tell you is that we put a lot of risk behind us in 2012.”

Mortgages, which were a big revenue source for Wells Fargo and JPMorgan Chase in the fourth quarter, were also up at Bank of America, which funded 42 percent more mortgages over the year.

Bank of America has been struggling to figure out its identity as a mortgage maker. It catapulted to a top spot in mortgage banking in summer 2008, when it gobbled up Countrywide a few months before the financial crisis imploded. Countrywide was a California-based mortgage lender known for exotic loans, and Bank of America hailed the purchase as a triumph.

(MORE: Jamie Dimon Will Get a Pay Cut After Trading Loss)

But the purchase has brought enormous headaches for Bank of America, including regulatory investigations, shareholder lawsuits and quarterly losses.

That’s influenced Brian Moynihan, who became CEO a year and a half after the Countrywide purchase, to retreat from mortgages and sell off related units. Bank of America now controls about 4 percent of the U.S. mortgage market, compared to 22 percent shortly after it combined with Countrywide, according to the trade publication Inside Mortgage Finance. That puts it behind No. 1 Wells Fargo, with 30 percent, as well as JPMorgan and U.S. Bank.

Thompson said the bank expects to expand the mortgage unit, focusing on borrowers who are already bank customers. He declined to comment on the bank’s shrunken market share.

“What we’re focused on is doing more with our consumers, continuing to grow this, and if we do that well, where we are with our peers will take care of itself,” Thompson said.

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US Home Construction in 2012 Highest in 4 Years

WASHINGTON — U.S. builders started work on homes in December at the fastest pace since the summer of 2008 and finished 2012 as their best year for residential construction since the early stages of the housing crisis.

The Commerce Department said Thursday that builders broke ground on houses and apartments at a seasonally adjusted annual rate of 954,000. That’s 12.1 percent higher than November’s annual rate and nearly double the recession low reached in April 2009.

For the year, builders started work on 780,000 homes. That’s still roughly half of the annual number of starts consistent with healthier markets. But it is an increase of 28.1 percent from 2011. And it is the most since 2008 — shortly after the housing market began to collapse in late 2006 and 2007.

(MORE: Today’s Young Adults Will Never Pay Off Their Credit Card Debt)

Steady job gains, record-low mortgage rates and a tight supply of new and previously occupied homes available for sale have helped boost sales and prices in most markets. That has made builders more confident.

“The strong rise in single-family starts is a clear indication of builder confidence in the sales outlook,” said Pierre Ellis, an economist at Decision Economics, in a note to clients.

In December, the pace of single-family home construction, which makes up two-thirds of the market, increased 8 percent. It is now 75 percent higher than the recession low reached in March 2009.

Apartment construction, which is more volatile, surged 23 percent last month.

Applications for building permits, a sign of future construction, inched up to a rate of 903,000 — a 4 ? year high.

Confidence among homebuilders held steady in January at the highest level in nearly seven years. But builders are feeling slightly less optimistic about their prospects for sales over the next six months, according to a survey released Wednesday.

In November, sales of previously occupied homes rose to their highest level in three years, while new-home sales reached a 2 1/2-year high.

(MORE: The Next Gun Fight)

Those factors have helped make homebuilders more confident and spurred new home construction. But homebuilders’ are still warily watching the current standoff in Washington between President Barack Obama and Congress over several approaching budget deadlines, including the need to boost the nation’s $16.4 trillion borrowing limit.

Though new homes represent less than 20 percent of the housing sales market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data from the homebuilders association.

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