What Will ‘the New Poor’ Mean for Struggling Hospitals?

20 Sep

The New York Times published an article today discussing “the New Poor”—a class of over-50 unemployed people who fear they’ve been priced out of the workforce and may never again find employment. With 2.2 million people 55 or older of the 14.9 million presently unemployed, I wonder what effect prolonged or indefinite unemployment among this age group will have on demand for medical procedures and patients’ ability to pay increasing insurance copays.

A report published today in The Wall Street Transcript addresses what’s already become the plight of many hospitals today—contracting budgets and mounting bills for patients in need of emergency treatment but who have no health insurance or ability to pay their copays. With more and more people putting off what were once considered non-deferrable treatments, such as diabetes care, the risk of emergency interventions increases while demand for services and medical devices continues to spiral downward.

“On one hand, you’ve got less demand from potential patients, and on the other hand, you have your main hospital customer in dire financial straits,” Piper Jaffray Senior Analyst Thomas Gunderson explained to TWST. “The hospitals in 2008, 2009 and into 2010 are strapped. Their budgets are constrained, the insurance payments to them are less, and the number of lower-profit-margin Medicaid patients and nonpaying patients has increased.”

While it’s difficult to predict how the new health care reform will impact or remedy this frightening situation, one thing is clear: the emergence of “the new poor” will have reverberating effects on the country’s medical services providers and hospital industries.

The For-Profit Education Regulatory Debate

9 Sep

Which side are you on?

Should for-profit universities be forced to cut programming that historically hasn’t placed students in high-paying jobs, thus increasing the likelihood that these same students will default on federal student loans?

Or rather than scrutinizing the programs, should the Department of Education turn its evil eye to the students themselves? Student dropout rates at for-profit educational institutions are extremely high—is that the bigger enemy of student loan defaults than the actual programs?

“The best way to control things like cohort default rates and graduation is to enroll only those students most likely to persist in programs. The unintended consequence is that it may deny a student with certain risk factors the opportunity to pursue an education in the first place, but that is what companies must do to maintain compliance with regulations,” Suzanne Stein, a securities analyst at Morgan Stanley, explained to The Wall Street Transcript. ” [For-profit education] companies are paying the price now for the explosive growth, and the biggest lesson we learned from this is to focus on quality not quantity.”

Quality students over quantity. But then what happens to those “non-quality” students who don’t have the resources to remain in school and continue working toward their goals? If the end result of these regulations is that for-profit institutions—those universities that take in students considered “undesirable” by state and private universities—cut acceptance rates, how will that impact our society’s overall access to education?

With Summer Over, Optimism Peeks Through the Clouds of Pessimistic Fall Retail Expectations

7 Sep

I mentioned last Friday that retail is one of the consumer sectors that’s been hardest hit by diminishing discretionary spend, unsettling unemployment trends and declining consumer optimism regarding the “eminent” economic recovery. And with heavy discounts already showing up at several major retailers—Abercrombie & Fitch (ANF) has taken 40 percent off of its denim styles, while Aeropostale (ARO) is offering jeans for under $20—many analysts aren’t optimistic when it comes to back-to-school and holiday season retail predictions. Many except for at least one…

“A lot of times we have shoppers procrastinate until the last minute, and we could see that happen again. Last year, when the calendar was similarly placed in terms of Labor Day being in week two [of September], we actually saw stronger September sales trends than August. So given what we’ve seen so far, we could see that replay itself this year,” Wedbush Securities Analyst Betty Chen told The Wall Street Transcript.

Could Ms. Chen have a point? Granted, the weather has been amazingly nice on the East Coast, possible keeping many on the beach rather than in the mall. But what about the rest of the country?

My second question is, does it even matter if Ms. Chen is right at all? Is it enough that she’s taken the more optimistic route in reassuring investors, and consumers, that the inventory apocalypse is not approaching and price wars will not annihilate teen retailers as we know them? I wonder what would happen if all analysts took the glass-half-full position and reported a more sunny back-to school analysis—would consumers be more optimistic themselves and start shopping (and spending more)?

Does the old adage, “If you don’t have anything nice to say, don’t say anything at all” apply to today’s economy?

A Hot-and-Cold Jobs Report. Anyone Surprised?

3 Sep

The long-awaited monthly employment report for August was finally released today and—surprise, surprise—it shows improvement in some areas of the job market and disappointment in others. It’s no wonder Americans continue to be frustrated with the pace of recovery, given that it seems each jobs report takes two steps forward and four steps back.

While the good news is that June and July saw more jobs created and fewer jobs lost than originally thought—the estimates dropped from 131,000 to 54,000 jobs lost for July and from 221,000 to 175,000 for June—the bad news is that the number of total unemployed rose in August, along with the unemployment rate, which is now 16.7 percent.

One question we should all be asking ourselves: How are these numbers hurting those who do still have jobs and are earning money?

“Right now there is a lot of uncertainty emanating out of the policies that Washington is doing, all this regulation that they are passing,” explained Alexander D. Goldfarb, Associate Director and Senior REIT Analyst at Sandler O’Neill + Partners, L.P., to The Wall Street Transcript. “Basically 90% of the people who are employed—and that of course is not taking into account the underemployed—but if you assume the 90% who are employed, they are going about their lives, but they are obviously adjusting their habits in the face of increased taxes and increased regulation by the government. And that’s not good for economic growth.”

Basically any investor who has money in real estate, retail or any other consumer sector has to wonder, “When will the bad-news cycle stop and real progress begin?”

When do you think?

Today is “Rally Wednesday!”

1 Sep

The Street is a buzz with activity and optimism as shares rise along with interest rates thanks to better-than-expected data released by The Institute for Supply Management today. With numbers pointing upward—the supply management association’s index showed manufacturing activity increased to 56.3 points from 55.5 in July—it will be interesting to see whether or not today’s rally can withstand any blows that may be dealt later in the week by the U.S. government’s monthly employment report.

“Cyclically, light industrial staffing and manual staffing picks up first, and that is still the best growth areas in the sector right now. But in no way do we consider either light industrial or manual staffing to possess the best growth through the cycle; this staffing horizontal is earlier cycle,” J.P. Morgan Analyst Andrew Steinerman told The Wall Street Transcript earlier this year. Does this go hand-in-hand with today’s rosy-colored manufacturing data?

Although we shouldn’t overlook ADP’s rather depressing jobs report, we shouldn’t dwell on it either—the Street certainly hasn’t today. While temporary census jobs fly out the window, new temporary positions are also being created in industries that hold a lot more promise for recovery.

“May temporary help grew 16%, April was 14% and March was 8%. We view temporary help as a concurrent indicator of the economy and somewhat of a leading indicator of labor. So if temporary help continues to be strong, it would eventually lead to broader job recovery,” Steinerman said. “But as I mentioned, temporary help is very concurrent with the economy, and so what we are really looking for is continued real GDP growth above the threshold level.”

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