Monday, November 30, 2015

A December to Remember

Today is the last day of November, and it could be a record one for the auto industry. Powered by Black Friday sales, this month could be the best November ever for U.S. auto sales, according to forecasts from TrueCar and

Even more important, we're on pace to set an all-time record for more new cars sold in a year. LMC Automotive said last week that it is increasing its forecast for the year by 200,000 units to 17.5 million. That would edge out the previous all-time high of 17.402 million, which was set in 2000.

It's good that we're seeing all this activity now. The New York Fed took a look at what happens to car sales when interest rates rise, as many expect to happen in December. Just a one-percentage point increase in a consumer’s interest rate raises the cost of a four-year, $25,000 loan by $11 per month. or $528 over the life of the loan. That's enough, the Fed found, to reduce auto production by an annualized rate of 12 percent, or a decline of around 170,000 fewer cars and trucks produced.

Friday, November 27, 2015

Gloomy Friday

As Black Friday looms, the question on most economists' minds is, What kind of holiday retail season are we in for? Here's one negative sign: Consumers report slightly lower intended holiday spending in 2015 than they reported in 2014, according to the 16th annual holiday spending survey conducted by the Consumer Federation of America and Credit Union National Association. 

In this year's survey, 38 percent of the respondents said they would reduce their spending this year, up from 33 percent last year. Both this year and last, 10 percent of those surveyed said they would spend more.

People do feel a bit more confident of their economic security this year, though. For the first time since the question was asked back in 2012, more than half of those surveyed said they had sufficient extra funds to “pay for an unexpected expense of $1,000."

Thursday, November 26, 2015

Thoughts for Thanksgiving Day

“Be thankful for what you have; you'll end up having more. If you concentrate on what you don't have, you will never, ever have enough.” ~ Oprah Winfrey

“We have been the recipients of the choicest bounties of Heaven; we have been preserved these many years in peace and prosperity; we have grown in numbers, wealth and power as no other nation has ever grown.” ~ Abraham Lincoln

"When asked if my cup is half-full or half-empty, my only response is that I am thankful I have a cup." ~ Sam Lefkowitz

Wednesday, November 25, 2015

Enter the Earnings Recession

It's official: We are in an earnings recession. With 98 percent of the S&P 500 companies having reported third-quarter earnings, profits shrunk by 1.7 percent, according to FactSet. They fell 0.4 percent in the second quarter, and the two consecutive quarters of contraction fit the common definition of an earnings recession, just as two consecutive quarters of shrinking GDP constitute an economic recession.

It may not get better any time soon. FactSet’s projections for the fourth quarter forecast another contraction, with S&P 500 earnings expected to be down another 4.3 percent.

The primary culprit in all of this is the energy sector, reeling from the falling price of oil. Energy sector profits fell 57 percent in the third quarter, after falling 56 percent in the second and 57 percent in the first. Goldman Sachs estimated that S&P 500 profits will rise 10 percent in 2016, largely because they expect a recovery in energy profits.

Tuesday, November 24, 2015

GDP Notches Upward

Good news out this morning from the Bureau of Economic Analysis: The second revision to the third quarter GDP number shows that the economy expanded at a rate of 2.1 percent. The first estimate for that figure had been a somewhat disappointing 1.5 percent.

The upward revision to GDP was primarily caused by an upward revision to private inventory investment. American business' investment in their inventories declined in the third quarter - but by a much smaller margin than was previously estimated. Businesses accumulated $90.2 billion worth of inventory in the third quarter, instead of the $56.8 billion reported last month.

Some downward movement: Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at a 3.0 percent rate, down from the 3.2 percent rate estimated last month. Growth in exports was also revised downward, to a slower 0.9 percent rate of increase.

Monday, November 23, 2015

The Global Dividend Picture

The third quarter was a big one for dividends around the world, according to figures compiled by Henderson Global Research. There was nearly $300 billion paid out in the quarter, up 2.3 percent from the same period a year earlier.

The rise among North American stocks was even stronger than that. There was $116.5 billion paid out in dividends by North American companies, an increase of 20 percent from the year earlier. That includes $10 billion paid out by Kraft and Heinz as part of their merger.

But the most dramatic increase was in Japan, where the yearly increase was a whopping 70 percent. Meanwhile, Henderson warns that in China, dividends might decline in 2015 for the first time ever.

Friday, November 20, 2015

New Businesses Creating Fewer Jobs

There's a disquieting statistic out this week from the Labor Department that might explain why the economy still doesn't feel like it's firing on all cylinders. The number of jobs created by new businesses is down 18 percent from a decade ago. And it's still falling: That figure is down 7 percent from the fourth quarter of 2014.

At the same time, the number of job losses due to business closures is down 21 percent from 2005. It looks like the current economy is incurring less risk-taking on either side of the equation.

Another factor is that small businesses still don't have as much access to capital as they once did. Banks held roughly $590 billion of small-business loans in the third quarter, according to the FDIC, which is down 17 percent from 2008.

Thursday, November 19, 2015

Is the Fed Ready to Raise Rates?

Rising interest rates in December became a much stronger possibility yesterday, when the Fed released the minutes from its last meeting. The central bank released a statement explicitly saying it would consider raising rates “at its next meeting” in mid-December. That’s the most direct statement we’ve had yet on the subject, ever since interest rates went to near-zero back in 2008.

The new statement said the Fed would be “monitoring global economic and financial developments.” That seems like a far less cautious statement than it issued in mid-September, when the Fed warned that “recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” 

Fed officials say they want to be “reasonably confident” that U.S. inflation will rise back to 2% before they begin raising rates. October’s inflation reading was the first positive one in three months – potentially the last step toward the Fed raising rates.

Wednesday, November 18, 2015

Signs of Inflation

After it had fallen slightly for two months in a row, the consumer price index rose by 0.2 percent in October, according to figures released by the Labor Department yesterday. Even excluding the normally volatile food and energy categories, so-called core prices also grew 0.2 percent for the month. 

Those core prices have risen 1.9 percent on the year, led by increases in the cost of shelter and medical care. For the past 12 months, overall prices have risen just 0.2 percent, tamped down by falling energy prices. 

But energy prices have been hugely deflationary. Overall, energy prices have fallen by 17.1 percent in the past year. On the other hand, energy prices actually rose by 0.3 percent in October, and gas rose by 0.4 percent. 

Tuesday, November 17, 2015

Foreclosures Coming Back

Home foreclosures in America peaked at more than a million in 2010, as the aftereffects of the housing bubble and the recession cost a lot of people their houses. The numbers dropped sharply from there, though, sinking to 327,000 total in 2014.

But in a somewhat alarming development, they're on their way back up. According to real estate data tracker RealtyTrac, lenders are on a pace to foreclose on 445,000 homes this year. That's a whopping 36 percent increase over last year.

Part of that is lingering foreclosure cases that never got settled after the housing bubble burst. But it also shows that many homeowners are still unable to keep up with their mortgage payments.

Monday, November 16, 2015

Signs of Retail Distress

Some sobering news as we head into the holiday shopping season: This earnings season was a brutal one for some of America's biggest retailers. Big department stores Nordstrom and Kohl's were down 15 percent and 6 percent, respectively, making them some of the biggest decliners in the S&P 500 Friday.

After Nordstrom reported its third-quarter results on Friday, its shares lost a fifth of their value before bouncing back somewhat. For the third quarter, Nordstrom reported a slowdown across all categories, regions and channels, including online, at both its full-priced department stores and its off-priced Rack locations.

Is there a reason for the slowdown? Analysts think that consumer spending habits may be shifting, with buyers moving away from smaller expenditures but still willing to spend on big-ticket items like cars and smartphones. We'll see how that affects the holiday shopping season; Black Friday is less than two weeks away.

Friday, November 13, 2015

Back to the Hearth

The recession forced a lot of economic data back to the early days of the decade - but back to the 1940s? That's what a new study from the Pew Foundation found: In part because of economic woes, there's a larger share of young American women living with family now than at any time since 1940.

As of last year, the share of women aged 18 to 34 living with family had climbed to 36.4 percent. That figure had previously peaked in 1940, when 36.2 percent of young women lived with their parents or other relatives. By 1960, just 20.4 percent of women lived at home, the low point for this number.

But it spiked during the Great Recession, leading us back to the 1940 number. It's not just job problems: Women today are five times as likely to be enrolled in college than in 1940, and college students are significantly more likely to live with family than young adults who aren’t in school.

Thursday, November 12, 2015

Cyberfraud Bust

The big news yesterday was that indictments were announced against a team that  had been hacking into valuable financial information at big institutions like J.P. Morgan and E*Trade. Some 100 million people had sensitive information stolen, resulting in $100 million that the criminals had stashed in Swiss bank accounts.

Federal prosecutors are calling it a  “diversified criminal conglomerate” that employed 270 employees and resulted in 75 shell companies. The criminals ran a gamut of illegal activities, including pump-and-dump stock schemes, illegal Internet casinos and an unlicensed bitcoin exchange.

Yesterday's announcement linked the current case to last year's breach of information at J.P. Morgan. At that point, we knew that hackers broke into J.P. Morgan’s networks and made off with the contact information of more than 83 million customers.

Wednesday, November 11, 2015

Veterans Day

Today is Veterans Day, the anniversary of the armistice that ended World War I and the day we salute the men and women who have served our country in uniform. It's sort of a half-holiday for the markets: The stock markets are open, but the bond markets are closed.

There's a logical reason that no bonds would be traded today. Since Veterans Day is a federal holiday, the U.S. Treasury Department is closed for the day as well. Given that Treasury bills are such a significant part of a typical day's bond-trading activity, it makes sense that the bond market would shut down.

Stocks have never taken a Veterans Day holiday, but they did used to observe Veterans Day with a brief two-minute shutdown. That ended in 2007, so now, for stock traders, Veterans Day is business as usual.

Tuesday, November 10, 2015

The Retirement Battle of the Sexes

There's a fascinating new study out from Vanguard looking at the difference in retirement savings habits between men and women. Matching up job tenure between the genders, Vanguard found that women tend to save at greater rates than men, at all income levels.

But they don't have as much retirement savings, for a simple reason: Men make more money. For 2014, the median income for men in the study was $74,590, while for women with equal tenure on the job, it was $56,264.

The result is that despite the higher savings rate, women had a median retirement account balance of $24,446, while men had $36,875, a difference of about 34 percent. This is despite the fact that women and men tend to have very similar portfolios, taking similar amounts of risk with their investments. 

Monday, November 9, 2015

Tough Times for 401(k)s

The markets took a spill in the third quarter of this year, and that poor performance is now starting to show up in reports of retirement account balances. According to Fidelity Investment’s analysis, balances in both 401(k) and IRA savings fell in the quarter.

The average 401(k) balance fell to $84,400 at the end of the third quarter, from $91,100 in the previous quarter. The average total 401(k) contribution amount fell slightly, to $2,610 from $2,770 in the second quarter. IRA balances fell to $88,700 from $96,300 at the end of June.

But it's also easy to make too much of these short-term numbers. Despite all the turmoil in the markets and the slight drop in contributions, 401(k) balances still increased over the course of the year. A year ago, the average balance had been $89,100.

Friday, November 6, 2015

A Strong Jobs Report

The economy seemed to get back on track in October, according to the monthly job figures released this morning by the Bureau of Labor Statistics. We added 271,000 jobs for the month, making it the strongest month for new employment all year. The headline unemployment rate dropped from 5.1 percent to 5.0 percent.

October's number is nearly double the one from September, which was revised upward to 142,000 jobs in today's report. The previous high for the year before October had been the 266,000 jobs we added in February.

The industries contributing the most to the month's job growth were professional and business services, which added 78,000 jobs; health care, which added 45,000; and retail, which added 44,000. In another positive sign, hourly worker earnings rose by 9 cents in October. 

Thursday, November 5, 2015

A Rough Earnings Quarter

This U.S. earnings season is on track to be the worst since 2009, according to data compiled by Bloomberg. With about three-quarters of the companies in the S&P 500 having reported results, profits are down 3.1 percent - the biggest quarterly drop in earnings since the third quarter 2009, and the second straight quarter of profit declines.

Not surprisingly, the biggest casualty is the energy sector, which is still dealing with sagging oil prices. That sector has endured a 54 percent drop in quarterly earnings so far this quarter. With the global drop in commodity prices, profits in the materials sector are down 15 percent.

The top-performing sector this quarter has been telecom services, which has seen earnings growth of 23 percent. Consumer discretionary isn't far behind, at 19 percent.

Wednesday, November 4, 2015

Raising the Steeple

Here's a corner of the American economy that doesn't get much attention, but may be on the upswing: The construction of U.S. religious buildings – including churches as well as synagogues, temples, mosques and other structures – has bounced up this year after being in decline for more than a decade, according to construction-data firm Dodge Data & Analytics.

Religious construction peaked way back in in 2002, with 51.9 million square feet of new space It then began a steady decline, even before the recession started, and Dodge estimates it will hit 9.3 million square feet this year, down 82 percent from that 2002 peak.

In dollar terms, spending on religious construction fell 9.1 percent in 2014. But through the first eight months of 2015, religious spending rose 2.3 percent compared with the same period in 2014. That;s the first increase for this industry in a very long time.

Tuesday, November 3, 2015

It's Buyback Season

If you're a fan of stocks that buy back their own shares, now is the time of year to start paying attention to the market. For the past few years, November has been the busiest month of the year for company share repurchases, according to research from Goldman Sachs Group, with 13 percent of all buybacks happening in that month.

On top of that, December is tied for the third-most active month. So from now till the end of the year, historically speaking nearly 25 percent of all company share buybacks are likely to happen.

That may be part of the reason that November and December tend to be a strong time for stocks. Since 1971, November has been the fourth best month for the Dow Jones industrial average, gaining an average of 1.2 percent, and December has been the second best month, gaining an average of 1.7 percent.

Monday, November 2, 2015

Hotels Are Going Up

Even though it's been a year when the overall economy has not been especially impressive, there are industries that still shine through. Case in point: The American hospitality business, which is headed for its best year ever.

The year-to-date occupancy rate for hotels is at 67.7 percent, which is up from 66.6 percent in 2014. The best year in history for this figure was 2000, when it was at 67.1 percent for the entire year, before 9/11 and the recession helped to depress it for over a decade.

Investors have noticed this growth. According to the latest GDP figures from the Commerce Department, investments in lodging - new hotels and the like - are up 39 percent  this year.