Despite the fact the economy added 227,000 jobs in February, the unemployment rate remained stuck at 8.3 percent, according to figures released this morning by the Bureau of Labor Statistics. The private sector grew by 233,000 jobs, while the public sector continued to shrink, although marginally. We're pretty much in a holding pattern in most areas: the total number of unemployed (12.8 million), number of long-term unemployed (5.4 million) and number of people employed part-time involuntarily (8.1 million) were all more or less unchanged.
So the 227,000 new jobs were just enough to keep up with increases in the population of the work force. Where did those jobs come from? The professional and business services sector added 82,000 jobs, although 45,000 of those were in temporary help services, which isn't a good sign. Health care and social assistance added 61,000 jobs, leisure and hospitality added 44,000, and manufacturing added 31,000. The food and drink industry, which is a subsector of leisure and hospitality, continued to be very strong, with 41,000 new jobs created in February.
Very few job sectors suffered losses of that magnitude. The biggest losers for February were construction, which lost 14,000 jobs, and, surprisingly enough, general merchandise stores, i.e., Target and Wal-Mart. That group dropped 35,000 jobs on the month.
Friday, March 9, 2012
Thursday, March 8, 2012
Who Owns Mutual Funds?
The Investment Company Institute, which is the trade association for the mutual fund industry, has just come out with its profile of the fund business for 2011. Last year, the average owner of mutual fund shares was "middle-aged, employed, educated, married or living with a partner, and shared investment decision making with his or her spouse or partner." That's all to be expected, but the financial picture the report paints is a little more interesting.
The ICI describes the typical fund owner as "of moderate financial means, with $80,000 in household income and $200,000 in household financial assets." That makes mutual funds sound like a very middle-class investment, yet these households had an average of $120,000 invested in four mutual funds, including at least one equity fund. Of all mutual-fund-owning households, 42 percent, or nearly half, had assets greater than $250,000.
Many investors are retired, of course, and living off their investments. That would explain why assets for mutual fund investors are fairly high, while their annual income is relatively low.
Wednesday, March 7, 2012
A Thousand Percent
Everyone understands that the situation in Europe remains very precarious, that the economies there are threatening to tip back into recession. And the epicenter of the Euro crisis is Greece. The Greek situation has shown some signs if improvement in recent months, but here's a sign of how dire its economy remains: For a brief time on Monday, the yield on a one-year Greek government bond reached 1,000 percent.
That's right: If you had paid $1,000 for a one-year bond from the Greek central bank on Monday afternoon, you could have expected to receive a whopping $10,000 when it comes due in a year. The government there has become so untrustworthy that it was forced to promise ten times what it borrowed just to get investors to loan it money.
Part of the issue there is that Greece is expected to reach an agreement with its bondholders in a couple of weeks to give a haircut to all its bonds and reduce its indebtedness. So it's likely that no investors will ever see that tenfold return. At any rate, by Tuesday, the yield on the Greek one-year bond had settled back to 949 percent.
That's right: If you had paid $1,000 for a one-year bond from the Greek central bank on Monday afternoon, you could have expected to receive a whopping $10,000 when it comes due in a year. The government there has become so untrustworthy that it was forced to promise ten times what it borrowed just to get investors to loan it money.
Part of the issue there is that Greece is expected to reach an agreement with its bondholders in a couple of weeks to give a haircut to all its bonds and reduce its indebtedness. So it's likely that no investors will ever see that tenfold return. At any rate, by Tuesday, the yield on the Greek one-year bond had settled back to 949 percent.
Tuesday, March 6, 2012
Three Years of Bouncing Back
This week marks the three-year anniversary of the low point of the Dow Jones average during the recession and financial meltdown. On March 6, 2009, three years ago today, the Dow bottomed out at 6,469 in intraday trading. Its lowest close would come three days later, on March 9, when it finished the day at 6,547.
The Dow has nearly doubled since that point. On its way back up from that historic low, it has risen much faster than it did the first time it climbed this high. Here's a look at some of the historic milestone numbers the Dow passed on its way down prior to hitting bottom three years ago, as well as on the way back up (dates are noted for when the Dow closed at each figure):
The Dow has nearly doubled since that point. On its way back up from that historic low, it has risen much faster than it did the first time it climbed this high. Here's a look at some of the historic milestone numbers the Dow passed on its way down prior to hitting bottom three years ago, as well as on the way back up (dates are noted for when the Dow closed at each figure):
- 12,000 On the way down: June 19, 2008. On the way up: February 1, 2011
- 11,000 On the way down: September 26, 2008. On the way up: October 8, 2010
- 10,000 On the way down: October 3, 2008. On the way up: October 14, 2009
- 9,000 On the way down: January 2, 2009. On the way up: July 23, 2009
- 8,000 On the way down: February 9, 2009. On the way up: April 3, 2009
- 7,000 On the way down: February 27, 2009. On the way up: March 12, 2009
Monday, March 5, 2012
The Lowering Demand for Oil
To follow up on last week's discussion of oil prices, it's helpful to note the extent to which American consumption of oil has been declining. It's not clear whether this is in direct response to the recent runup in gas prices, but last week, the Energy Department said that demand for gasoline over the four weeks ended Feb. 24 was 6.7 percent lower than it had been a year earlier.
Those trends have been in evidence for a long, long time. In December 1981, energy expenses accounted for 7.8 percent of all the disposable income in the United States, but in December 2011, that figure was down to 5.5 percent. Interestingly enough, the inflation-adjusted price of a gallon of gas was approximately the same at both times, at around $3.30.
The basic laws of supply and demand would indicate that lowered use of oil should help bring its price down. That may be the primary thing that will dampen the prices we've been paying at the pump recently.
Those trends have been in evidence for a long, long time. In December 1981, energy expenses accounted for 7.8 percent of all the disposable income in the United States, but in December 2011, that figure was down to 5.5 percent. Interestingly enough, the inflation-adjusted price of a gallon of gas was approximately the same at both times, at around $3.30.
The basic laws of supply and demand would indicate that lowered use of oil should help bring its price down. That may be the primary thing that will dampen the prices we've been paying at the pump recently.
Friday, March 2, 2012
The Price of Oil
What kind of effect does a runup in oil prices have on the stock market? Recent research shows that it could have a positive impact on your portfolio. For one thing, oil prices tend to signal an inflationary trend, and while inflation may make some things more difficult, stocks tend to rise along with that inflation figure. Rising oil prices can also be a sign of a strong economy, which is also good for stocks.
Nadeem Walayat, writing for the Market Oracle site, has demonstrated that the graph of the price of a barrel of oil and the trendline of the Dow Jones industrial average have moved in the same direction more often than not over the past decade. Especially since the financial meltdown in 2008, the two have tended to be highly correlated with each other.
The one prominent exception to that relationship is an oil shock. A sudden spike in oil prices is likely to curb demand for energy from all corners of the economy, and create a slowdown in economic activity. There is a huge difference in economic effects between an orderly movement in crude oil prices and a sudden shock. The current upswing in oil prices has not – at least not yet – risen to the level of an oil shock.
Thursday, March 1, 2012
Good News, Bad News
Do you want the good news or the bad news first? We had a little bit of both yesterday regarding the country's economic growth. Let's start with the good news: The Commerce Department revised upward its initial estimate of GDP growth in the fourth quarter of 2011, moving the figure up from 2.8 percent to 3 percent. That shows an even stronger upward movement from the 1.8 percent growth we had in the third quarter.
But the question is, how long is that going to last? The bad news is that Federal Reserve chairman Ben Bernanke threw a little bit of cold water on the numbers yesterday in his semiannual report on the economy. The Fed's forecast calls for GDP growth of 2.2 percent to 2.7 percent for 2012. That's somewhat down from the fourth quarter of '11.
Bernanke cited flat incomes as part of the reason for his pessimism, meaning the Fed may not have processed another bit of revision from yesterday: Commerce also revised upward its estimate of income growth from both the third and fourth quarters of 2011. Incomes are now believed to have grown a relatively robust 1.4 percent in the fourth quarter, and rose 0.7 percent in the third - after the initial estimate had pegged it at a 1.9 percent drop. That's a huge turnaround, and is probably a reason to believe the good news rather than the bad news.
But the question is, how long is that going to last? The bad news is that Federal Reserve chairman Ben Bernanke threw a little bit of cold water on the numbers yesterday in his semiannual report on the economy. The Fed's forecast calls for GDP growth of 2.2 percent to 2.7 percent for 2012. That's somewhat down from the fourth quarter of '11.
Bernanke cited flat incomes as part of the reason for his pessimism, meaning the Fed may not have processed another bit of revision from yesterday: Commerce also revised upward its estimate of income growth from both the third and fourth quarters of 2011. Incomes are now believed to have grown a relatively robust 1.4 percent in the fourth quarter, and rose 0.7 percent in the third - after the initial estimate had pegged it at a 1.9 percent drop. That's a huge turnaround, and is probably a reason to believe the good news rather than the bad news.
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