ECONOMY
New Health-Care Taxes Help Obama ‘Spread the Wealth’
March 22,2010 (Bloomberg) — President Barack Obama said on the campaign trail in October 2008 that he wanted to “spread the wealth around.” With Obama on the verge of signing sweeping health-care overhaul legislation, he’s about to do just that.
If the final version of the legislation passes the Senate, high-income investors will pay higher Medicare taxes, tax breaks for out-of-pocket medical deductions will be curtailed, and it will cost insurance companies more to pay executives millions of dollars. Those levies will help fund expansion of Medicaid services for the poor and subsidize health insurance to cover millions who don’t currently have benefits. link
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What U.S. debt means to consumers 3/11/10
USA TODAY
The debt has implications for savers and investors:
•Eventually, the Fed will have to raise interest rates to prevent inflation, which will add to the nation’s interest expenses: The average Treasury security matures in 55 months, according to the Bureau of the Public Debt. But savers will get better yields on money market funds and bank CDs. If you’re shopping for CDs now, don’t lock in to today’s rates for five years. Keep your CD maturities short — about a year or so — and you’ll be able to reinvest at higher rates.
•Yields on short-term Treasury securities, such as T-notes that mature in two to five years, are unusually low by historic measures, says Brad Tank, chief investment officer for Neuberger Berman. When rates rise, the price of short-term Treasuries will suffer. It’s no problem if you hold them to maturity — you’ll get your principal and interest — but short-term government bond funds will probably get hurt.
•If foreign investors start to diversify their reserves away from the dollar, the value of the dollar will fall on the currency markets. A falling dollar gives a boost to international investments, and makes U.S. exports cheaper. Increasing your holdings of international stock and bond funds will help you take advantage of the dollar’s long-term decline.
•Gold typically rises when the dollar tumbles. The yellow metal has already had an impressive run, and it’s too volatile to be a core holding. But keeping 5% of your portfolio in gold is a prudent form of insurance against a steep decline in the dollar. link
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U.S. Labor Market Poised for Gains as Jobless Rate Stabilizes 3/6/10
March 6 (Bloomberg) — The unemployment rate in the U.S. held at 9.7 percent in February and employers cut fewer jobs than anticipated, indicating improvement in the labor market even as East Coast blizzards forced temporary closings of some businesses.
Payrolls dropped by 36,000 last month after a revised 26,000 decrease in January, a Labor Department report showed yesterday in Washington. The jobless rate, which has not increased since October, held at 9.7 percent, even as more people entered the workforce.
Stocks and the dollar rallied while Treasuries fell as investors reckoned the economy would have added jobs were it not for seasonal snowfall records in cities including Baltimore and Philadelphia. The U.S. needs employment growth to sustain a recovery from a recession that has cost 8.4 million jobs since December 2007.
via U.S. Labor Market Poised for Gains as Jobless Rate Stabilizes – Bloomberg.com.
The US economy grew at an annualised rate of 5.9% in the last three months of 2009, revised official figures have shown. 2/26/10
The rate is higher than the first estimate of 5.7%.
The figures confirm the world’s largest economy is emerging rapidly from recession.
According to economists, the rise was down to an increase in manufacturing output rather than stronger consumer spending.
In fact, growth in consumer spending was revised down from 2% to 1.7% in the quarter.
Manufacturing rose to meet the demand from retailers and businesses who had allowed stock levels to fall.
Business spending on equipment and software, for example, saw an 18.2% rise, while exports of US goods rose by 22.4% – the fastest pace in 13 years. link
U.S. Economy: Confidence Falls to Lowest Since April- bloomberg 2/23/10
Feb. 23 (Bloomberg) — Confidence among U.S. consumers fell in February to the lowest level in 10 months, a sign that concern about job prospects may hold back the spending needed to sustain the recovery.
The Conference Board’s confidence index slumped to 46, below the lowest forecast in a Bloomberg News survey of economists, from 56.5 in January, a report from the New York- based private research group showed today. A separate report showed home prices rose for a seventh month.
Stocks fell and Treasuries gained after the confidence report also showed attitudes about current conditions fell to the lowest level in 27 years and the outlook for wages dimmed. The survey reinforces expectations Federal Reserve Chairman Ben S. Bernanke will repeat the central bank’s pledge to keep interest rates low for “an extended period” in testimony to Congress tomorrow. link
Wholesale prices, jobless claims rise; leading indicators up slightly 2/18/10
In a third report released Thursday, a private research group said its forecast of future economic activity rose for a 10th month in January, although the pace of growth is slowing. link
US retail sales growth beats expectations 2/12/10
Sales grew 0.5% month-on-month, while December’s figure was revised to a 0.1% fall from a first estimate of a 0.3% fall, the Commerce Department said.
Compared with January last year, sales were up by 4.7%.
But separately, a closely-watched survey suggests that confidence among US consumers remains fragile as concerns about unemployment remain.
Retail sales are followed particularly closely in the US, as consumer spending accounts for about 70% of overall US economic activity.
“It’s a nice surprise for the economy. It suggests that the consumer is willing to spend a little. It tells us that retail sales are in a clear recovery,” said Kathleen Stephansen at Aladdin Capital Holdings. link
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U.S. Foreclosure Filings Top 300,000 for 11th Month 2/11/10
Feb. 11 (Bloomberg) — U.S. foreclosure filings rose 15 percent in January from a year earlier and exceeded 300,000 for the 11th consecutive month as modification programs failed to keep delinquent borrowers in their homes, RealtyTrac Inc. said.
A total of 315,716 properties received a notice of default, auction or bank seizure last month, or one in 409 households, the Irvine, California-based seller of default data said today in a statement. Filings fell 10 percent from December. link
Job Openings in U.S. Rose in December, Labor Says 2/09/10
By Timothy R. Homan
Feb. 9 (Bloomberg) — Job openings in the U.S. rose in December for the first time in three months, signaling employers are gaining confidence in the economic recovery.
Openings increased by 63,000 to 2.5 million, the Labor Department said today in Washington. Job vacancies climbed for state and local governments, the report showed.
The figures indicate that the world’s largest economy, which expanded in the second half of 2009, may soon add jobs after payrolls unexpectedly dropped last month. Still, the labor market will take time to overcome the loss of 8.4 million jobs lost since the recession began in December 2007.
“Today’s report is indicative of an improving labor market,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. “Most segments of the economy are already seeing positives in terms of job growth.”
The rate of job openings in December climbed to 1.9 percent from 1.8 percent, according to today’s report. The separations rate, which includes dismissals and those who quit their jobs, fell to 3.2 percent from 3.3 percent the prior month.
Payrolls fell by 20,000 last month after a 150,000 decline in December, according to Labor Department figures released on Feb. 5. The unemployment rate unexpectedly dropped to 9.7 percent from 10 percent.
Harvard’s Feldstein Says U.S. Economy Still Mired in Recession 12/17/09
Dec. 17 (Bloomberg) — The U.S. economy remains mired in a recession, prospects for next year are weak and home prices may resume declines, Harvard University economics professor Martin Feldstein said.
“The recession isn’t over,” Feldstein said today in an interview on Bloomberg Radio in New York. “It will be a while before we have enough information to know if the recession ended.” link
U.S. Economy: Unemployment Rate Jumps to 26-Year High 11/6/09
Nov. 6 (Bloomberg) — The unemployment rate in the U.S. jumped to 10.2 percent in October, the highest level since 1983, casting a pall over the prospects for a sustained recovery and risking further erosion of President Barack Obama’s popularity.
Payrolls fell by 190,000 last month, more than forecast by economists, a Labor Department report showed today in Washington. The jobless rate rose from 9.8 percent in September. Factory payrolls dropped by the most in four months, and the average workweek held at a record low.
Treasury two-year notes rose on bets the Federal Reserve is more likely to maintain its pledge to keep interest rates near zero. The figures prompted Obama, who signed a bill today extending jobless benefits, to promise fresh measures to help put some of the 15.7 million unemployed Americans back to work. link
U.S. Economy: Consumers, Government Propel Growth 10/29/09
Oct. 29 (Bloomberg) — The U.S. economy returned to growth in the third quarter after a yearlong contraction as government incentives spurred consumers to spend more on homes and cars.
The world’s largest economy expanded at a 3.5 percent pace from July through September, figures from the Commerce Department showed today in Washington. Household purchases climbed 3.4 percent, the most in two years.
Policy makers will now focus on whether the recovery, supported by government spending and tax credits, can be sustained into 2010 and generate jobs. The record $1.4 trillion budget deficit means President Barack Obama has little room for maneuver as he tries to keep unemployment from rising above 10 percent, while Federal Reserve policy makers wind down emergency programs in a bid to prevent a surge in inflation.
“Consumers will feel that the news is getting better, but not good,” Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania, and the top economic forecaster last year according to a survey by Bloomberg Markets magazine, said in an interview. Americans “are not going to see businesses out there hiring a whole lot of people and the unemployment rate is likely to continue to rise.” link
U.S. Trade Deficit Unexpectedly Falls as Exports Rise 10/09/2009
Oct. 9 (Bloomberg) — The U.S. trade deficit unexpectedly narrowed in August as exports climbed to the highest level of the year and oil imports plunged.
The gap fell 3.6 percent to $30.7 billion from a revised $31.9 billion in July, the Commerce Department said today in Washington. A rebound in auto making contributed to a jump in exports to Canada, while a drop in the number of barrels of petroleum bought abroad swamped an increase in fuel prices.
More than $2 trillion in government stimulus programs are reviving demand from Asia to Europe, ensuring American factories benefit from growing sales overseas as the dollar falls. Gains in production and the need to replenish depleted inventories mean imports will probably also grow in coming months.
“As the global recovery strengthens, it will help exports,” said Guy LeBas, chief economist and fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who forecast the trade gap would shrink to $31 billion. “We’ll see a pickup in imports into the fourth quarter as the U.S. consumer stabilizes. The outlook on the trade front is stable to improving for exports, and a bit challenging for imports.”
The trade gap was projected to widen to $33 billion, from an initially reported $32 billion in July, according to the median forecast in a Bloomberg News survey of 76 economists. Deficit projections ranged from $29 billion to $35.3 billion. link
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9.8 Percent Jobless Rate ‘Sobering,’ Obama Says
October 2, 2009
President Obama said Friday that his administration will do everything possible to put Americans back to work after September job cuts pushed the U.S. unemployment rate to 9.8 percent — the highest in 26 years.
“I want to let every single American know that I will not let up until those who are seeking work can find work,” Obama said, calling a new unemployment report a “sobering reminder” of how fragile the economy is.
Earlier Friday, the Labor Department announced that U.S. employers cut 263,000 jobs last month, meaning payrolls have now dropped for 21 consecutive months. Experts had not expected such massive cuts, especially on the heels of a revised report showing 201,000 job losses in August. Last month’s unemployment rate was 9.7 percent. link
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Home Sales, Goods Orders Probably Rose 9/20/09
Sept. 20 Bloomberg — Home sales and orders for long- lasting goods probably rose in August, extending gains that have signaled the U.S. is emerging from the worst recession since the 1930s, economists said before reports this week.Purchases of new and existing houses climbed to a combined 5.79 million annual pace last month, the most in almost two years, according to the median forecast of economists surveyed by Bloomberg News. Bookings for durable goods likely rose 0.4 percent, the fourth advance in five months, the survey showed.Housing and manufacturing, two areas that deepened the slump, are stabilizing as stimulus measures such as credits to first-time homebuyers and “cash for clunkers” revive demand. While acknowledging the economy is healing, analysts project Ben S. Bernanke and his colleagues at the Federal Reserve will commit to keeping interest rates low when they meet this week.“We are coming out of recession and we are in the early stage of a very fragile recovery,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh. “It’s an infant recovery that needs a lot of care and nurturing, and that means no rate hikes from the Fed.” link
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Bernanke Says U.S. Recession ‘Very Likely’ Has Ended 9/15/09
Sept. 15 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke said the worst U.S. recession since the 1930s has probably ended, while warning that growth may not be strong enough to quickly reduce the unemployment rate.
“Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time,” Bernanke said today at the Brookings Institution in Washington, responding to questions after a speech.
The remarks are Bernanke’s most explicit statement that the contraction that began in December 2007 is over. They echoed comments yesterday by San Francisco Fed President Janet Yellen and followed a report today showing retail sales rose last month by the most in three years, adding to evidence of a recovery.
“Unemployment will be slow to come down” if growth turns out to be “moderate” and not much more than the economy’s underlying potential, Bernanke said.
The central bank has kept the benchmark lending rate as low as zero since December and in August said “exceptionally low” rates are likely warranted for “an extended period.”
The policy-setting Federal Open Market Committee also said in its Aug. 12 statement that there were signs that “economic activity is leveling out.” The Fed’s Beige Book report last week said that 11 of its 12 regional banks reported signs of a stable or improving economy in July and August. link
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Obama Says New Financial Rules Needed as Crisis Eases 9/14/09
Sept. 14 (Bloomberg) — President Barack Obama, speaking a year after Lehman Brothers Holdings Inc.’s collapse, warned against complacency as the financial crisis ebbs and said Wall Street firms must accept a new regime of “common-sense” regulations to avoid another market meltdown. link
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Profits Rebound in Sign U.S. Economy Healing From Recession 8/27/09
Aug. 27 (Bloomberg) — Profits at U.S. companies climbed in the second quarter by the most in four years, another sign the recession-stricken economy is on the mend.
Earnings were up 5.7 percent from the prior three months to $1.25 trillion, the biggest gain since the first quarter of 2005, the Commerce Department reported today in Washington. The figures, included in the department’s report on gross domestic product, were the first look at total profits. link
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U.S. Economy: GDP Shrinks Less Than Forecast as Recovery Nears 8/27/09
Aug. 27 Bloomberg — The U.S. economy took a first step toward recovering from the worst recession since the 1930s in the second quarter as companies reduced inventories, spending started to climb and profits grew.Gross domestic product shrank at a 1 percent annual rate from April to June, less than the 1.5 percent decline projected by economists in a Bloomberg News survey, a Commerce Department report showed today in Washington. Corporate earnings rose by the most in four years, the department also said.Government programs, including the “cash-for-clunkers” and first-time homebuyer incentives, are boosting manufacturing and housing, indicating the gain in sales that began last quarter will be sustained in the second half of the year. Another report showed unemployment may jeopardize the strength of the economic rebound. link
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Consumer Spending Probably Decelerated: U.S. Economy Preview 8/23/09
Aug. 23 (Bloomberg) — Consumer spending in the U.S. probably rose in July at half the pace of the previous month, showing the biggest part of the economy is struggling to rebound, economists said before reports this week.
Purchases increased 0.2 percent after a 0.4 percent gain in June, according to the median estimate of 61 economists surveyed by Bloomberg News before a Commerce Department report Aug. 28. Other figures may show orders for long-lasting goods jumped and sales of new homes improved.
The government’s “cash-for-clunkers” plan revived auto sales last month just as Americans cut back on items such as furniture and electronics. Depressed home values and the biggest employment slump since the 1930s will prompt households to save more, meaning an economic recovery will be slow to gain speed even as housing and manufacturing stabilize.
“It’s hard to see consumer spending driving the economy forward given the losses of wealth that have occurred,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “The consumer isn’t going to play a leading role in this recovery,” he said, in part because “employment is going to keep falling.”
Auto industry data showed sales of cars and light trucks rose to an 11.2 million unit annual pace in July, the most since September, after the government offered credits of up to $4,500 to trade in gas-guzzlers for more fuel-efficient vehicles under the cash-for-clunkers program. link
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World Economy Emerging From Worst Recession Since World War II 8/22/09
Aug. 22 (Bloomberg) — The global economy may be coming out of the worst recession since World War II as record-low interest rates and trillions of dollars in fiscal stimulus spur demand.
Sales of existing U.S. homes jumped in July to the highest level since August 2007, and German service industries expanded this month for the first time in almost a year, reports yesterday showed. The Japanese economy grew for the first time in five quarters, according to a report earlier this week.
“There is no question the global economy is healing and emerging from recession,” Kenneth Rogoff, a Harvard University professor and former chief economist for the International Monetary Fund, said in a Bloomberg Television interview yesterday. link
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Japan’s economy leaves recession 8/17/09
Japan’s economy leaves recessionSeijiro Takeshita from Mizuho Financial Group on why Japan’s economy has grownJapan has come out of recession after its economy grew by 0.9% in the April-to-June quarter.The growth comes after four consecutive quarters of contraction.Correspondents say the rise is due to a huge government stimulus package and it is unclear whether the momentum will be sustained when this is concluded.Recent figures show other economies coming out of recession, including Germany, France and Hong Kong, a sign the global slowdown is easing.Despite Japan exiting recession, the country’s main share index, the Nikkei, fell back as the rate of growth was not as large as analysts had hoped.If Japan’s latest quarterly rate were maintained for a full year, the economy would grow 3.7%, but this was less than market expectations of 3.9%. link
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NEW YORK (CNNMoney.com) — The foreclosure plague continued to devastate last month. 8/13/09
There were more than 360,000 properties with foreclosure filings — including default notices, scheduled auctions and bank repossessions — an increase of 7% from June and 32% from July 2008, according to RealtyTrac, an online marketer of foreclosed homes. In fact, one in every 355 U.S. homes had at least one filing during July. link
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U.S. Economy: Sales Unexpectedly Decrease as Job Losses Mount 8/13/09
Aug. 13 (Bloomberg) — Sales at U.S. retailers unexpectedly fell in July, raising the risk that consumers will keep cutting back as job losses mount and temper a recovery from the worst recession since the 1930s.
Purchases decreased 0.1 percent, the first drop in three months, as shrinking demand at department stores such as Macy’s Inc. and Wal-Mart Stores Inc. overshadowed a boost from the cash-for-clunkers automobile incentive program, Commerce Department figures showed today in Washington.
A separate government report today showed more Americans than forecast filed claims for unemployment insurance last week, underscoring the threat to spending from the continued deterioration in the job market. Treasury securities jumped and the dollar fell after the reports, and some economists lowered estimates for growth this quarter. link
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Euro-Area Economy Contracted 0.1% in Second Quarter 8/13/09
Aug. 13 (Bloomberg) — The euro-region economy barely contracted in the second quarter as Germany and France unexpectedly returned to growth, suggesting Europe’s worst recession since World War II is coming to an end. link
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Hall Says May Take More Than a Year to Deem U.S. Recession Over 8/10/2009
By Steve Matthews
Aug. 10 (Bloomberg) — Declaring the U.S. recession over may take more than a year because of the risk that recent signs of stabilization will prove short-lived, according to the head of the group charged with making the call.
“We are serious about being sure that the apparent upturn is not just a part of a longer decline,” Robert Hall, who heads the National Bureau of Economic Research’s Business Cycle Dating Committee, said in an interview. The group will “wait for activity to surpass its previous peak,” which may take 18 months or more to determine, he said.
via Hall Says May Take More Than a Year to Deem U.S. Recession Over – Bloomberg.com.
BBC NEWS | Business | Pace of US economic decline eases 7/31/2009
The US economy shrank at an annual pace of 1% in the April-to-June quarter, government figures have shown.
The data was better than expected, but marked the longest period of decline since records began in 1947.
Analysts said the data suggested that the worst could be over for the US economy, which has now been in recession for a year.
However the figures for the January-to-March quarter were revised down to -6.4%. The previous estimate was -5.5%.
The figures are worked out on an annualised basis, which reflects the change if continued at the current pace over a year.
via BBC NEWS | Business | Pace of US economic decline eases.
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Recession worse than prior estimates 7/31/2009
July 31 Bloomberg — The first 12 months of the U.S. recession saw the economy shrink more than twice as much as previously estimated, reflecting even bigger declines in consumer spending and housing, revised figures showed.The world’s largest economy contracted 1.9 percent from the fourth quarter of 2007 to the last three months of 2008, compared with the 0.8 percent drop previously on the books, the Commerce Department said today in Washington.link
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China’s Rebound Carries U.S., Other Economies Toward Recovery 7/16/09
By Bloomberg News
July 17 (Bloomberg) — China’s economic comeback is under way, towing along companies from Intel Corp. to Hyundai Motor Co. and starting to make up for weak demand in other major economies.
The world’s third-largest economy grew 7.9 percent in the second quarter from a year earlier after expanding at the slowest pace in almost a decade in the previous three months, the statistics bureau said yesterday. The first acceleration in growth in more than two years came after the government implemented a 4 trillion yuan ($585 billion) stimulus plan and prodded banks to lend more.
China is the only one of the 10 biggest economies that is expanding, highlighting the role the nation may play in easing the worst global recession since the Great Depression. The U.S. economy is still shrinking, five months after Congress agreed to President Barack Obama’s $787 billion stimulus package.
“China cannot save the world by itself, but its recovery is a definite positive,” said Brian Jackson, a strategist at Royal Bank of Canada in Hong Kong. “China has a lot more control over how its banks do business and they were in a lot stronger position than U.S. banks to implement policy stimulus.”
The Chinese economy will expand 8.1 percent this year, according to the median forecast of 16 economists surveyed by Bloomberg News after the government released the second-quarter figure. Growth will accelerate to 9.1 percent in 2010, they estimated. The pickup, driven by tax cuts and government-funded incentives to encourage consumers to buy automobiles and electronics goods, is bolstering demand for imports. link
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Retail Probably Rose, Factory Slump Eased: U.S. Economy Preview 7/12/09
By Shobhana Chandra
July 12 (Bloomberg) — Retail sales in the U.S. probably increased in June for a second straight month and factory production fell at a slower pace as the recession abated, economists said before reports this week.
Sales gained 0.4 percent after a 0.5 percent increase in May, according to the median estimate in a Bloomberg News survey before the Commerce Department’s report on July 14. The next day, Federal Reserve figures may show industrial output fell 0.6 percent last month after a 1.1 percent drop in May.
Consumers are venturing back into stores, seeking discounts and favoring necessities such as food or fuel. Even as the projected increase in sales and reports this week on housing may show the worst of the downturn has passed, a turnaround is likely to be gradual.
“The spending is more on staples than discretionary purchases,” Tom Porcelli, a senior economist at RBC Capital Markets in New York, said last week. “Aggregate demand is still amazingly weak. Things aren’t falling apart, but don’t expect a robust recovery.”
An index consumer confidence dropped last week on concerns about job losses, sending stocks lower. The Standard & Poor’s 500 Index closed at 879.13 in New York on July 10, down 0.4 percent from the previous day, capping its fourth straight weekly loss. The Dow Jones Industrial Average closed down 0.5 percent to 8146.52. link
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May incomes surge, but savings outpace spending 6/26/09
By MARTIN CRUTSINGER, AP Economics Writer Martin Crutsinger, Ap Economics Writer – 1 hr 45 mins ago
WASHINGTON – Households pushed their savings rate to the highest level in more than 15 years in May as a big boost in incomes from the government’s stimulus program was devoted more to bolstering nest eggs than increased spending.
The Commerce Department said Friday that consumer spending rose 0.3 percent in May, in line with expectations. But incomes jumped 1.4 percent, the biggest gain in a year and easily outpacing the 0.3 percent increase that economists expected.
The savings rate, which was hovering near zero in early 2008, surged to 6.9 percent, the highest level since December 1993.
The income increase reflected temporary factors relating to the $787 billion economic stimulus program that President Barack Obama pushed through Congress in February to fight the recession. That program included one-time payments to people receiving Social Security and other government pension benefits.
The stimulus package also featured reductions in payroll tax withholding designed to get people to start spending more money and boost the economy. Those factors helped increase after-tax incomes 1.6 percent in May. However, without the special factors, after-tax incomes would have risen just 0.2 percent.
The savings rate, which is a percentage of disposable income, rose to 6.9 percent from 5.6 percent in April. Last month’s savings rate was far above recent annual rates, which dipped below 1 percent from 2005 through 2007 as a booming economy and soaring home prices pushed Americans to spend most of what they earned.
Those factors have been reversed amid the longest recession since World War II. Triggered by a housing bust, the downturn has depressed home prices by the largest amounts since the Great Depression.
Economists believe that a rise in personal savings rate is a good development in the long run, but they worry that it could make the rebound from the recession slower than it otherwise would have been.
However, the 0.3 percent rise in spending in May was viewed as encouraging after no change in April and a 0.3 percent drop in March. April had originally been reported as a drop of 0.1 percent. It was the best monthly performance since spending rose by 0.4 percent in February.
Consumer spending is closely watched because it accounts for about 70 percent of total economic activity. Economists are hoping that improved spending will help support a rebound in economic activity.
The government reported Wednesday that the overall economy, as measured by the gross domestic product, shrank at an annual rate of 5.5 percent in the January-March quarter, slightly less severe than the 5.7 percent decline estimated a month ago.</However, the 5.5 percent drop in the first quarter followed a 6.3 percent decline in the last three months of last year, the worst six-month performance for the GDP in more than a half-century.
Economists believe that the 0.3 percent rise in spending in May will help bolster the economy in the second quarter and will translate into a smaller drop in GDP of around 2 percent during this period. Economists believe that GDP will begin growing again in the second half of this year, signaling an end to the recession that began in December 2007.
However, the rebound is expected to be subdued. That’s because unemployment, already at a 25-year high of 9.4 percent, is expected to continue rising, pushing worried households to save even more against the threat of further layoffs.Reduced spending has been tough on the nation’s retailers, who have been forced to lay off workers and shut stores. Drugstore operator Rite Aid Corp. said Wednesday that it narrowed its fiscal first-quarter loss by closing stores and trimming other operating costs as it works to eliminate $6 billion in debt.
Still, the weak economy has kept a lid on prices. An inflation gauge tied to consumer spending edged up 0.1 percent in May compared with April.
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U.S. Fed sees “easing” of recession 6/24/09
The Federal Reserve has said the recession in the US is “slowing” but the economy is likely to remain weak.
The central bank kept interest rates unchanged and said they would remain at its current low range of between zero and 0.25% for an “extended period”.
The Fed also said it would continue its present level of purchasing long-term government debt to expand money supply.It expects inflation to stay “subdued for some time” even though energy and commodity prices have risen recently.
“Information received since the Federal Open Market Committee (FOMC) met in April suggests that the pace of economic contraction is slowing,” the Fed said in a statement after concluding a two-day meeting.
The FOMC voted unanimously to maintain its base rate, as had widely been expected.
In March, the central bank announced a $1.2 trillion programme of buying government debt to boost lending and promote economic recovery – a policy known as quantitative easing.
The Fed added that it would continue to “evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets”.
Analysts were unsurprised by the outcome of the FOMC’s latest meeting.
“It’s exactly what the markets expected. The Fed is pointing out that the recovery is tenuous,” said Jim Awad from Zephyr Management in New York.
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Housing Eludes Recovery as Job Losses, Foreclosures Climb
June 22 (Bloomberg) — Unemployment and consumer debt are putting home ownership beyond the reach of would-be buyers even as U.S. home prices reset to 2003 levels, according to a report today by Harvard University’s Joint Center for Housing Studies.
“Clear signs of a recovery have yet to emerge, and job losses and the steady stream of foreclosures are keeping many markets under pressure,” researchers for the Cambridge, Massachusetts-based center wrote. “Sales of both new and existing homes continued to struggle to find a bottom.”
Tight residential real estate markets and low mortgage rates fueled a five-year property boom as the number of U.S. households paying more than half their incomes for housing jumped from 13.8 million in 2001 to 17.9 million in 2007, the researchers said.
The federal government is now trying to stabilize the market by offering incentives for lenders to modify the terms of delinquent mortgages and the Federal Reserve has pledged to buy as much as $1.25 trillion in mortgage-backed securities to free up funding for new home loans.
When recovery comes, immigrants and children born to the post-World War II baby-boom generation will lead it, the Harvard researchers said.
So-called “echo boomers will help keep demand strong for the next 10 years and beyond” as they turn 25-44 years old, according to the report.
“Even under the low immigration assumptions, minorities will fuel 73 percent of household growth in 2010-20, with Hispanics leading the way at 36 percent,” researchers found.
Unemployment
Minority households have been hit harder by the recession and the housing slump than whites, according to the report.
The unemployment rate for black residents in April was 15 percent compared with 8 percent for whites, the report said. In low-income minority neighborhoods, the median foreclosure rate was 8.4 percent compared with 6.3 percent in low-income white neighborhoods from January 2007 through June 2008.
Even as falling prices have made homes more affordable, roadblocks to buying remain, including the difficulty of getting a mortgage as lenders require bigger down payments and higher incomes to qualify for a mortgage, the report said.
“The home buying market will continue to struggle until the foreclosure crisis comes to an end,” the report said. “Although new federal efforts may prevent millions of families from losing their homes, mounting job losses will likely keep foreclosures at elevated levels.”
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U.S. Economy: Consumer Sentiment, Import Prices Rise 6/12/09
By Courtney Schlisserman and Shobhana Chandra
June 12 (Bloomberg) — Confidence among U.S. consumers rose for a fourth straight month in June, reinforcing signs of an impending end to the recession, while prices of imported goods jumped as oil costs climbed.
The Reuters/University of Michigan preliminary index of consumer sentiment increased to 69, from 68.7 in May. The import-price index rose 1.3 percent in May, the most since July and in line with forecasts, a Labor Department report showed today in Washington.
The gain in confidence was less than economists had projected, and reflects a “dichotomy” between improving financial markets and the rising cost of gasoline, said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. The reemergence of commodity-price inflation threatens to stunt the economic recovery and constrain corporate-profit growth.
“Consumers are acknowledging some improvement is under way, but they’re not seeing a tremendous potential for upside in the economy,” said Stephen Gallagher, chief U.S. economist at Societe Generale in New York.
Treasuries rose to their highest level of the day after the confidence report. Yields on benchmark 10-year notes dipped to 3.79 percent at 4:52 p.m. in New York from 3.86 percent late yesterday. The Standard & Poor’s 500 Stock Index rose 0.1 percent to close at 946.21.
The confidence index was forecast to rise to 69.5, according to the median of 62 economists surveyed by Bloomberg News. Estimates ranged from 65 to 73.2.
Current Conditions
A gauge of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items such as cars, rose to 74.5, the highest since September, from 67.7.
An index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, fell to 65.4 in June from 69.4 the prior month.
Prices of goods imported into the U.S. rose in May for the third straight month, reflecting the increasing cost of oil that threatens to undermine the economy just as it struggles to pull out of the recession. The gain in the index followed a revised 1.1 percent increase the prior month.
Prices excluding fuels climbed 0.2 percent from a month earlier and were down 5.8 percent on an annual basis — the biggest drop since records began in 1985.
More Inflation
Consumers in today’s sentiment report said they expect an inflation rate of 3.1 percent over the next 12 months, after 2.8 percent in the May survey. Over the next five years, the measure tracked by Federal Reserve policy makers, Americans also expected a 3.1 percent rate of inflation, compared with their 2.9 percent forecast last month.
A report yesterday from Labor showed fewer Americans filed claims for unemployment benefits last week, indicating the deepest job cuts may be subsiding even as companies hold off on hiring. Initial jobless claims fell by 24,000 to 601,000 in the week ended June 6, the lowest level since January.
Still, the number of people collecting benefits rose to 6.82 million in the prior week, reaching a record for a 19th straight time. Moreover, a record loss of wealth is causing Americans to boost savings, and unemployment is forecast to keep rising, so any recovery will be slow to take hold.
Fed Chairman Ben S. Bernanke told Congress last week that the pace of the economy’s decline was slowing and consumer spending had stabilized. Still, he said, while the Obama administration’s fiscal stimulus will boost spending power, a weak job market, tight credit and falling wealth may curb sales.
‘Slight Uptick’
It took the pending demise of thousands of Chrysler LLC and General Motors Corp. dealers, which attracted shoppers back to auto showrooms, to send retail sales up for the first time in three months in May, figures from the Commerce Department showed yesterday. Higher gasoline prices also propelled the gain.
“It’s just a slight uptick,” Ken Czubay, Ford Motor Co. vice president of sales and marketing, said on a conference call June 2. “This is still a very fragile industry.”
The average price of a gallon of regular gasoline has risen by about $1 since the end of last year, according to AAA.
Personal spending, which accounts for 70 percent of the economy, will fall at a 0.6 percent annual pace in the current quarter and rise at an average 1.1 percent pace in the last six months of the year, according to the median forecast of economists surveyed this month. The projections were down from last month’s estimates.
For all of 2009, purchases will drop 0.7 percent, the worst performance since 1974, the survey showed. The economists surveyed also forecast the jobless rate, already at 9.4 percent as of May, will climb to 10 percent by the end of 2009, the highest rate since 1983.
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Household Wealth in U.S. Decreased by $1.3 Trillion 6/11/09
By Courtney Schlisserman
June 11 (Bloomberg) — U.S. household wealth fell in the first quarter by $1.3 trillion, extending the biggest slump on record, as home and stock prices dropped.
Net worth for households and non-profit groups decreased to $50.4 trillion, the lowest level since 2004, from $51.7 trillion in the fourth quarter, according to the Federal Reserve’s Flow of Funds report today. The government began keeping quarterly records in 1952.
Americans are cutting back on spending as unemployment surges, home prices continue to drop and wealth evaporates, signaling any economic recovery will be slow to develop. The drop in net worth is one reason Americans are boosting savings, blunting the effect of the tax breaks and income supplements from the Obama administration’s stimulus plan.
“It’s going to be very difficult to have any recovery in consumer spending without jobs and incomes recovering first,” said Christopher Low, chief economist at FTN Financial in New York. “The probability of a debt-financed consumer spending binge like we saw in the last expansion is essentially nil.”
Retail sales rose in May for the first time in three months, an increase driven almost solely by U.S. shoppers returning to automobile showrooms seeking bargains and the rising cost of gasoline, a report today from the Commerce Department showed.
Smaller Decline
One positive aspect of today’s Fed report is that the decreases in net worth are starting to ease. Wealth dropped by a record $4.9 trillion in the last three months of 2008.
Americans have taken on less debt as the economic recession unfolds. While the jump in savings rate to 5.7 percent in April was helped by an increase in incomes linked to the fiscal stimulus plan, some economists are forecasting savings will continue to rise as consumers hold back on spending.
Real-estate-related household assets decreased by $551.1 billion, following a $974.5 billion decrease in the fourth quarter. Net worth related to corporate equities fell by $347.8 billion the first three months of this year.
Owners’ equity as a share of their total real-estate holdings decreased to 41.4 percent last quarter from 42.9 percent in the fourth quarter, today’s Fed report showed.
Consumer debt fell at a 1.1 percent annual pace following a 2 percent decrease in the fourth quarter that was the first drop on record.
Stabilization
Mortgage borrowing was unchanged from January through March, the first time in a year it didn’t fall, the Fed’s report showed. Stabilization in real-estate lending adds to evidence that the housing slump is easing.
Total borrowing by consumers, businesses and government agencies increased at an annual rate of 4.1 percent last quarter compared with a 6.2 percent gain the prior quarter. The gain was paced by a 23 percent surge in borrowing by the federal government, reflecting spending linked to the stimulus plan.
Business borrowing decreased at a 0.3 percent pace after rising 1.5 percent the prior quarter, the Fed said.
Borrowing by state and local governments increased at a 4.9 percent rate.
The economy contracted at a 5.7 percent annual pace in the first quarter and consumer spending rose at a 1.5 percent pace.
Economists surveyed by Bloomberg News this month forecast unemployment will climb to 10 percent by the end of the year and lowered their projections for consumer spending in the second half of the year to an average 1.1 percent annual pace. For all of 2009, purchases will drop 0.7 percent, the worst performance since 1974, according to the Bloomberg survey.
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