Wednesday, August 31, 2011
What caused the drop? As you may know, the consumer confidence index is divided into two parts: an assessment of current conditions, and a short-term outlook for the near future. In the former category, the August numbers didn't change a whole lot. People saying that jobs are plentiful dipped slightly, from 5.1 percent to 4.7 percent; people who think current business conditions are bad rose from 38.7 percent to 40.6 percent.
The biggest increases were all on the forecasting side. Those expecting business conditions to worsen over the next six months increased from 16.1 percent to 24.6 percent. Those expecting jobs to become less plentiful over the next six months went from 22.2 percent to 31.5 percent. In other words, current economic conditions are only slightly worse than they have been - but consumers expect them to get much worse, very quickly.
Tuesday, August 30, 2011
Why didn't he announce any action? There are a couple of theories. For one thing, banks and corporations are flush with cash right now; the economy is not so much seeking more liquidity as it is additional demand. Another is that Bernanke flooded the economy with money via QE2 at a time when we were concerned about the possibility of deflation, and he was willing to push more toward inflation at that time. Now Bernanke is more concerned about keeping inflation below the Fed's target level of 2 percent.
Bernanke did say that he would tack on an extra day to the Fed's upcoming September policy meeting. It's been supposed that he needs this time to bring the other Fed governors to a consensus regarding how to move forward on the economy. So that should be a meeting to watch.
Monday, August 29, 2011
There is obviously, though, a great deal of physical damage. On Sunday morning, Governor Christie estimated the cost of the damage "in the billions of dollars, if not in the tens of billions of dollars." Much of that is covered by insurance, of course; the disaster experts at Kinetic Analysts now predict that the storm's cost to insurers will be around $3 billion. That leaves, according to Kinetic, another $4 billion in losses that aren't insured.
So if we exceed that and reach the higher end of Christie's estimate, there will be an awful lot of uninsured damage that will somehow need to be paid for. On the other hand, it could have been much worse. Kinetic's damage estimate from last week, before the storm hit, forecast the damage at $14 billion.
Friday, August 26, 2011
The Labor Department reported that 417,000 Americans filed first-time claims for unemployment insurance last week, which was up about 9,000 from the previous week. About 21,000 union members, though, were among those filing unemployment claims. The strike against Verizon ended on Tuesday, so those people will be back at work instead of collecting unemployment insurance. The upshot is that the "real" number of new unemployment filers last week should have been something like 396,000.
Wait - how can striking workers expect to call themselves unemployed? It turns out that in the state of New York, the law allows some striking workers to collect unemployment benefits. Among the Verizon workers who went on strike, about 16,000 of them lived in New York, and were thus eligible to file under the law. The remaining 5,000 filers may have just been confused.
Thursday, August 25, 2011
Transportation equipment - cars and aircraft, mostly - was responsible for most of the gain, with orders rising 14.6 percent for the month. Nondefense aircraft was up a whopping 43 percent. Even without the transportation sector, though, the remainder of the durable goods category rose by 0.7 percent in July. The big loser: communications equipment, which dropped by 25 percent on the month.
Not only did orders for durable goods increase in July, but shipments did as well, going up by 2.5 percent. Inventories increased as well, and are now at their highest level since the statistics were first kept on this in 1992.
Wednesday, August 24, 2011
The idea is that the Fed would make an effort to sell short-term Treasury notes and use the proceeds to buy up longer-term ones. The goal is to increase shorter-term interest rates while reducing longer-term ones, making long-term investments in things such as mortgages more desirable.
The Fed tried this once before, back in 1961, when the Twist was still a recent dance craze; the Fed was supposedly trying to twist the yield curve. Economists generally considered Operation Twist a failure the first time around, but more recent research has been able to remove other countervailing economic factors and isolate the Fed's impact on yields themselves. The current thinking, then, is that Operation Twist actually accomplished what it was intended to do. We may soon see whether that will be the case again.
Tuesday, August 23, 2011
Monday, August 22, 2011
As a result, dividend payments to shareholders have increased by roughly $29 billion this year, according to Standard & Poor's. It wasn't so long ago that that figure was moving in the opposite direction. Two years ago, between January and August of 2009, the S&P 500 companies dropped their dividends by a collective $41 billion.
Even after all those payouts, the 500 S&P companies are still sitting on more than a trillion dollars in cash and short-term investments. They can easily afford those dividend payments, and a lot more.
Friday, August 19, 2011
Of course, most of those people who expect to continue working will do so because they like to work. Only 44 percent of the respondents who said they'd work in retirement plan to do so out of financial necessity.
And that's what retirement planning is really all about, isn't it? It's not about whether you work or not; it's about doing what you want to do, whether that's working at a job you love or spending all your time with your family and your hobbies.
Thursday, August 18, 2011
Fitch dropped New Jersey's rating for general-obligation bonds from AA to AA-minus, which means we fell from the third-highest possible rating to the fourth-highest. Although the rating services use slightly different nomenclature, we're at AA- for Standard & Poor's and Aa3 for Moody's, each designation being the fourth-highest rating.
Because of that, the effects of the Fitch downgrade will be muted. It might, however, reinforce another tick upward in the amount of interest the state has to pay on the bonds it floats - which could make it even harder for us to get out of our current fiscal mess.
Wednesday, August 17, 2011
American production at factories, mines and utilities grew by 0.9 percent in July. That was a surprise: The median forecast by the analysts surveyed by Bloomberg News had pegged the increase at about half that much.
Motor vehicle output led the way, with a production increase of 5.9 percent on the month. Consumer energy products were up 1.5 percent on the month, transit equipment up 2.5 percent, and information processing equipment was up 1.0 percent. Sectors that saw their output decrease in July included electrical equipment, appliances and components.
Tuesday, August 16, 2011
But this strategy has not proved to be especially lucrative. According to a survey from the Institute for Private Investors, that same group of investors earned a collective return of just 11.3 percent in 2010. In that same year, the S&P 500 returned 13 percent.
Then again, when you have $30 million to invest, even getting back 11.3 percent per year is an awful lot of money.
Monday, August 15, 2011
The last time we experienced this situation was in November 2008, just as it seemed our entire economy was falling apart. That was only the second time those two yields had crossed since 1958.
But the current scenario isn't necessarily reminiscent of 2008. For one thing, back then, when Treasury yields fell below those of the S&P, they stayed there for a couple of months. Wednesday's occurrence was the result of ten-year Treasury yields dropping 89 basis points in 12 days, and they've since bounced back a little. And we certainly hope we not headed for another tumble, like we saw through the winter of 2008-2009.
Friday, August 12, 2011
According to data compiled by Bloomberg, per-share earnings among the S&P 500 companies that have released quarterly results in the past month have increased by 18 percent. Sales for that same time period are up 13 percent. About three-quarters of the companies have topped the consensus analysts' profit estimate, whereas that number is customarily more like 60 percent.
While the stock market shoots up and down on a daily basis, these are the figures that are forming the long-term backbone of our economy. It's good to see those numbers continue to be strong.
Thursday, August 11, 2011
Many investors have a dim view of China right now, not only for the fact that they own great chunks of our national debt, but for the perception that the Chinese have appropriated our manufacturing base. Two economists at the San Francisco office of the Federal Reserve have looked into the latter claim, and found some very surprising results.
We do have a record trade deficit from China, but the impact of this on our economy is smaller than you might think. While imports account for 16 percent of our GDP, imports from China account for only about 2.5 percent of GDP, and about 2.7 percent of our personal consumption expenditures. And of that last figure, about half of those expenditures go toward the production of the goods themselves (i.e., to China), and the other half go to American businesses that transport and sell those products.
The one area in which China does dominate our consumer goods is, unsurprisingly, clothing. Fully 35 percent of the money we spend on clothing and shoes goes for products made in China, with only about 25 percent going for those made in the U.S. But even so, all our apparel expenses add up to only 3.4 percent of all consumer spending.
Wednesday, August 10, 2011
What the Fed chose not to do was to initiate another round of quantitative easing to inject more money into the financial system. This was despite not only the economic problems we've seen in recent weeks, but the fact that the Fed itself ratcheted down its outlook for growth in the near future. It now "expects a somewhat slower pace of recovery over coming quarters."
Was there any good news? In its last report, seven weeks ago, the Fed committee said it was concerned about inflation and watching for its return. Now, the same group says there is a "subdued outlook for inflation."
Tuesday, August 9, 2011
Be that as it may, we still have to live with the downgrade we got. The effects will be muted because the two other major ratings agencies - Moody's and Fitch - still rate us AAA, meaning any firm that is required to invest in the safest possible instruments can rely on those ratings and keep buying Treasury bonds. In fact, Treasury prices moved up on Monday morning after the downgrade, signaling that investors still have faith on the ability of the U.S. to pay its debts.
But of course, the market had a horrible day on Monday, with the S&P 500 posting its fourth-biggest point drop ever. It’s likely, though, that that response was more about overall economic conditions than the downgrade itself, which would affect bond prices more than it would stocks. Goldman Sachs and Barclays, looking to corporate fundamentals, still both forecast the S&P 500 to rise by more than 20 percent between now and the end of the year.
Monday, August 8, 2011
The breakdown includes 154,000 private-sector jobs, or substantially up from the 114,000 figure we saw from ADP earlier in the week. Meanwhile, the public sector collectively shed 37,000 jobs in July.
There is a caveat to this, though: Much of the decrease in the unemployment rate can be attributed to the number of discouraged workers leaving the labor force. There are now more than a million people who are not working but have given up looking for work. Less than 58 percent of the American population is now working - the lowest that number has been since 1983.
Friday, August 5, 2011
What's missing? For some people, it's some pretty basic stuff. A fifth of all the respondents had not developed a living will, and 31 percent had not named a durable power of attorney. About half had not left documented instructions for how their heirs should divide their personal property - even though a quarter of those surveyed agreed that their heirs had no idea how to divide those personal effects.
Small-business owners fared the worst of all. Only 3 percent said they had a documented succession plan for the business. If you see yourself in any of these figures, give me a call and we'll help you get your affairs straightened out.
Thursday, August 4, 2011
Wednesday, August 3, 2011
* There was a report from the Commerce Department that consumer spending dropped in June, the first month in which it had done so in two years.
* The Institute for Supply Management reported that factory activity declined in July to its lowest level in two years.
* Not surprisingly, stocks were down sharply on Tuesday. All 30 Dow Jones average issues declined. The S&P 500 hit a new low for 2011.
Some pundits have reported this last development indicates that Wall Street is not happy with the parameters of the debt-ceiling deal, but that's not readily apparent from the market's reaction yesterday. Unfortunately, there was plenty of bad news that could have been responsible, in whole or in part, for the down day on Wall Street.
Tuesday, August 2, 2011
Monday, August 1, 2011
The recession itself, it turns out, was even worse than has been reported. We now know that the fourth quarter of 2008, the worst quarter of the Great Recession, saw a drop in GDP of a stunning 8.9 percent, the worst quarter on record since 1958.
This makes the aggregate totals turn from bleak to downright bad. Previously, the estimate for total change on GDP over the period from the fourth quarter 2007 - the onset of the recession - to the first quarter of 2011 had been reported as an increase of an average annual rate of 0.2 percent. Now the Bureau of Economic Analysis says that over that period, the economy actually shrank at an average annual decrease of 0.2 percent. That's nearly four years in which the economy has done nothing but lose ground.