Economic Recovery Data

The economy is being boosted by higher retail sales, stronger factory output and a rise in companies’ stockpiles. That picture emerged from reports Friday pointing to an economy that’s improving modestly but steadily after the worst recession in decades. Yet the recovery needs stronger job creation, and it remains under pressure from fears that Europe’s debt crisis could slow the U.S. economy. See blog US Economy on Shaky Ground.

The decent gains in payroll employment in recent months have improved the outlook for spending, but economists expect a sub-par recovery because of high unemployment, tight credit and still-high debt loads.

Shoppers are closely watched because their spending accounts for 70% of economic activity. It rose in the first three months of this year at the fastest pace in three years, according to the Commerce Department report. Industrial production also climbed in April, posting an 0.8% gain. Factories, the biggest slice of industrial activity, ratcheted up output by a brisk 1% for a second straight month, the Federal Reserve report showed. Manufacturers have played a leading role in powering the recovery. They are boosting production because companies are starting to restore their depleted stockpiles of goods.

Still, consumers and businesses appear less confident than in previous recoveries. Complicating the outlook is the uncertainty in Europe.

Economists worry that spending could falter in the coming months without more growth in income. But there have been encouraging signs that job growth is picking up. In April, payroll jobs grew by 290,000, the most in four years.

Still, the unemployment rate rose to 9.9% as more people began or resumed job searches a sign that many are feeling more optimistic about the job market.

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Rattled Investors

The US unemployment rate dropped sharply last month, but employers continued cutting jobs in January as businesses remained insecure about the economic outlook.

The jobless rate fell to 9.7% from 10% in December, the Labor Department said Friday, because its survey of households found more people landed jobs than entered or returned to the labor market.

But a separate survey of employers, which counts how many workers are added or cut from payrolls, found that 20,000 jobs were eliminated last month. And revisions to last year’s data found far more jobs were lost over the 12 months than previously predicted.

After rising virtually uninterrupted since its bear market low in March, the stock market is suddenly exhibiting a fragility not seen since the dark days of the financial crisis. Rising investor angst was evident Thursday, when mounting worries over debt problems in Europe and a fresh reminder that jobs are hard to find in the USA sparked a sell-off that pushed the Dow Jones industrials briefly back below 10,000 on its way to a 268-point loss — its biggest one-day drop since April.

The Dow, which hit a peak of 10,725 on Jan. 19, closed down 2.6% at 10,002.

Talk of a correction, or a drop of 10%, is also heating up, with the broad market now down 7.6% since its January high. It’s one thing to talk about a correction, but when it happens, investors start to have visions of March ’09.

The latest worry surrounds a familiar concern: debt. This time it’s not ballooning debt at the corporate level, such as banks, that has investors worrying about defaults; it’s ballooning deficits facing countries such as Greece, Portugal and Spain.

The ability of bad news to “overshadow” good news and rattle investors is “more about the psyche of the investor than the outlook for the economy.

Retail report: holiday stress or success

With Christmas just days away, consumers must be flooding malls and stores nation-wide to fill the underneath of their trees. But, the media reports lackluster sales and empty parking lots, which I recall hearing for the last, oh, ten years! Are the large retailers struggling? Or is this a strategic media ploy to motivate shoppers to start buying to aid the economy? Lets take a look in this month’s retail report.

Lets start with the large, upscale department store, Nordstrom. I can’t remember a December where I didn’t have to fight for a parking spot or park across the street from it at a business park. Nordstrom offers clothing, jewelry, fragrance, and food, which all should be in high demand this time of year. Has the recession taken a bite out of their sales or stock price as the Nordstrom stock news would have you believe? Doesn’t appear to have, not when you look at 2009 Q4 sales and corollary stock price for Nordstrom, Inc. Total sales for Nordstrom, Inc. rose 5.9 percent to $749 million for the four-week early Christmas/Black Friday period ending November 30, 2009 from $707 million a year ago. Its stock price has also increased from $33.45 on Nov. 30 to Dec. 14th price of $35.95.

Now lets look at Target stock news. Another retail establishment busting at the seams with potential flu carriers…I mean, consumers. Target has a more broad selling focus, offering clothing, electronics, toys, household, office supplies, and groceries. If their checkout lines are any indication, Target will also dispel the media’s claims of a “ghost town” shopping season. Target’s stock price rose from $46.56 to $47.66 from Nov. 30 to Dec. 14. Its net retail sales for the early Christmas/Black Friday period from Nov. 1-28, 2009 were $5,689 million, an increase of 1.5 percent from $5,605 million for the same period in 2008.

Before we take a look at our last outlet in this retail report, there is another issue that I want to discuss. If we’re in a ression then how is there a “holiday hot toy”! It’s almost impossible to find a Zhu Zhu Pet at the store. From Nov. 1-30, over 206,000 Zhu Zhu Pets transactions have taken place on ebay. Shouldn’t parents be buying bread and socks for their kids insted of motorized hamsters? The market is a contradiction. Its not just pockets of retail success. Look at this eBay chart indicacating where Zhu Zhu Pets have been sold. It looks like a nation-wide outbreak of (spending, that is) rather than a recession.

Venture into the online shopping arena with the recent powerhouse Amazon.com news and you will see no other cyber-retailer compares with Amazon. They offer books, electronics, home & garden, tools, grocery, digital downloads, you name it. Have the attractive prices and ease of shopping from your office chair or couch enticed consumers in this economy? From the same range as the other retailers, Nov. 30 to Dec. 14, Amazon’s stock price (AMZN)  has dipped from $135.91 to $131.38. Interesting. However, if you move back the starting date to Oct. 22, which could mark the time people embarked on their early Christmas shopping, the price was $93.45. Four days later it shot up to $124.64 and has stabilized in the $120-$144 range since. Into Q4, Revenue was up 28% from last year to $5.45 billion. Amazon.com Consumer Electronics VP Paul Ryder reported that sales are up in December and have been getting busier and busier as Christmas grows closer. So, it looks like Amazon is beating the slow consumer spending rap as well.

So, don’t believe what you hear on the news. Based on this retail report of three of the retail leaders in their segments, there is no consumer spending crisis. Spending this Christmas season has not only matched last year’s numbers, it has eclipsed them. Stocks are up, revenue is up, and no-one can find Zhu Zhu Pets. Good luck, shop well, and have a great Christmas.

Economic Growth Projected to Continue

The U.S. Economy will continue to grow in 2010 and this expected strength will help ensure the dollar stays firm, Federal Reserve Chairman Ben Bernanke said Monday.

In a rare move, the Fed chief made several remarks on the U.S. dollar, which has fallen in value recently as global economic activity has picked up and investors no longer seek the safety of dollar assets.

Mr. Bernanke said the central bank will keep a close eye on the dollar’s slide but reiterated that the key federal funds target rate is expected to remain at record lows for some time. More from Bernake’s luncheon speech on US Economy today:

“Today, financial conditions are considerably better than they were then, but significant economic challenges remain. The flow of credit remains constrained, economic activity weak, and unemployment much too high. Future setbacks are possible. Nevertheless, I think it is fair to say that policymakers’ forceful actions last fall, and others that followed, were instrumental in bringing our financial system and our economy back from the brink. The stabilization of financial markets and the gradual restoration of confidence are in turn helping to provide a necessary foundation for economic recovery.

“We are seeing early evidence of that recovery: Real gross domestic product (GDP) in the United States rose an estimated 3-1/2 percent at an annual rate in the third quarter, following four consecutive quarters of decline. Most forecasters anticipate another moderate gain in the fourth quarter.

How the economy will evolve in 2010 and beyond is less certain. On the one hand, those who see further weakness or even a relapse into recession next year point out that some of the sources of the recent pickup–including a reduced pace of inventory liquidation and limited-time policies such as the “cash for clunkers” program–are likely to provide only temporary support to the economy. On the other hand, those who are more optimistic point to indications of more fundamental improvements, including strengthening consumer spending outside of autos, a nascent recovery in home construction, continued stabilization in financial conditions, and stronger growth abroad.

My own view is that the recent pickup reflects more than purely temporary factors and that continued growth next year is likely. However, some important headwinds–in particular, constrained bank lending and a weak job market–likely will prevent the expansion from being as robust as we would hope. I’ll discuss each of these problem areas in a bit more detail and then end with some further comments on the outlook for the economy and for policy.

Bank Lending and Credit Availability.  Several factors help explain the reluctance of banks to lend, despite general improvement in financial conditions and increases in bank stock prices and earnings. First, bank funding markets were badly impaired for a time, and some banks have accordingly decided (or have been urged by regulators) to hold larger buffers of liquid assets than before. Second, with loan losses still high and difficult to predict in the current environment, and with further uncertainty attending how regulatory capital standards may change, banks are being especially conservative in taking on more risk. Third, many securitization markets remain impaired, reducing an important source of funding for bank loans. In addition, changes to accounting rules at the beginning of next year will require banks to move a large volume of securitized assets back onto their balance sheets. Unfortunately, reduced bank lending may well slow the recovery by damping consumer spending, especially on durable goods, and by restricting the ability of some firms to finance their operations.

More of Bernanke’s speech found at Reuters.com Bernanke’s  Economic Speech

Consumer Index and the Stock Market

Nervous Consumers Stall Recovery

The fear on Wall Street is that nervous consumers (non-believers) are going to short-circuit the economic recovery.

Stocks fell sharply this past Friday, taking the major indexes (NYSE & NASDAQ) down about 1 percent, after investors were disappointed by reports that the Reuters/University of Michigan index of consumer sentiment fell significantly short of expectations for the first part of August. That’s a sign consumers may well keep cutting back their spending as they worry about losing their jobs and furthering economic woes. Consumer spending is crucial for the economy to emerge from recession as it accounts for two-thirds of all U.S. economic activity.

The discouraging reading came a day after the Commerce Department reported a rather unexpected down trotting in retail sales, which was not suppose to happen this time of year as August has typically been a big month for retail. Investors were able to shake that off, but Friday’s consumer sentiment number had them bailing out of stocks, jeopardizing a summer rally that had lifted the Standard & Poor’s 500 index more than 15 percent in about a month.

Investors also sold off oil and other commodities and moved their money into the relative safety of the dollar and government bonds. Treasury prices jumped, sending their yields lower, while the dollar rose against other major currencies.

After rallying for months on expectations of an economic recovery, investors are worried that they have been too optimistic, given consumers’ continuing reluctance to spend. Analysts are predicting that the market may be choppy for several more months and this recession will continue to drage on with consumer confidence not as high as expected.

After the consumer forecasts were released the Dow Jones fell slighttly (0.8 percent). The S&P 500 index fell 8.64, or 0.9 percent, to 1,004.09, while the Nasdaq composite index fell 23.83, or 1.2 percent, to 1,985.52.

The drop erased much of the market’s advance of the last two days, and gave the big indexes their first losing week after four weeks of gains. The Dow was down 0.5 percent for the week, while the S&P 500 index fell 0.6 percent and the Nasdaq was off 0.7 percent.

In other trading, the Russell 2000 index of smaller companies fell 11.29, (or approximately 2%).

Bond prices rose sharply. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.57 percent from 3.62 percent late Thursday. The drop in the 10-year yield is good news for consumers because it is closely tied to interest rates on mortgages and other loans.

Cash for Clunkers Program Working?

Cash for Clunkers is a government stimulus plan enacted to help the struggling automotive industry in America. There are many different opinions on this program, but most agree that it is working in the short-term, at the very least. Some say it is a success, though others believe it will lead to long-term tragedy.

This program provides consumers with up to $4,500 when they give up their old “clunker” to be destroyed. They are then expected to purchase a new car with their monetary gains, thus stimulating the auto industry. This strategy appears to be working. Everyone likes free money and a new car. It should be stressed, however, that this is not a long-term solution to the United States’ economic woes, nor is it particularly intended to address anything but the issues of the auto industry.

Despite its narrow focus, it has ended up influencing the stock market in positive ways, some of which are quite unexpected. For example, platinum stocks are skyrocketing due to the fact that platinum is used in car manufacturing. Savvy investors can make quite a profit if they read the market right. Besides these side benefits, the Cash for Clunkers program has definitely helped boost car sales, at least in the short-term. The auto companies who did not experience higher sales rates reported that their losses were still significantly less than had been expected.

It may be too early to label the Cash for Clunkers program a success or a disaster, but it is still certain that profit can be made from it. Hopefully, its current benefits will lead to stock market boosts and eventually full success.

Obama’s Restructuring Plan

A man with motivational speeches, carrying a strong conviction that he has the vision of all that America needs and that he would bring to life all that the past governments have been incapable of doing.  President Obama says that he is more than shallow promises and says that ‘change is what he believes, he can’ is the right of Americans and they shall have it. He says that in times of ‘unusual situations’ he is doing the unusual to baptize the US economy.

With a lot of hope and belief the people of United States of America extend their support for Obama. There were several issues that the government was to address in times of serious crisis. There was a large fiscal deficit to address, one of the most matured financial markets was sagging and the liquidity crunch led to the slow down of growth, the big bulls of the finance market –likes of Lehman Brothers, Washington Mutuals, Bears Sterns collapsed like a house of cards, others had fractured their spinal cord and were looking for bail out support for revival. The sub-prime crisis had washed away the remaining confidence of the people that the economy was soon to see revival, and it had become official that United States of America was in the recessionary phase, a phase that was to stay.

With such challenges to take up the Obama administration jumped headlong to delve with all these issues. Obama’s agenda during the campaign hit the nail right, the key areas of focus was a) higher employment levels by creating jobs in America, b) Immediate relief for struggling families, c) assistance to the homeowners and lastly to salvage the economy from the ongoing crisis. More than 7.5 lakh jobs were lost in the year 2008. People started parking their funds in gold or kept them locked in their cupboards rather than making investments. The basics of macro economy would not work if the money supply went any haywire. So to keep the consumer spending alive, it was important that jobs remained intact and employment levels increased. This is where from the ‘buy American’ drive began. Next on the agenda of ‘change’ was relief to the struggling families. A lot of thinking had been done on this front and several tax exemptions and remedies were provided. The Housing market would make rigorous efforts in collaboration with the mortgage industry to revive the markets there is still no progress seen on this front. The treasury would regulate the interest rates and the refinancing industry was sure to act like a catalysts. North American Free Trade Agreement was to be amended, outsourcing of jobs to be reconsidered so that the companies cannot escape the tax burden simply by outsourcing and reducing job prospects in America. Next and the most important on agenda were using ‘tools and means’ to revive the economy.

Now that more than 100 days of Obama administration are over and people are all over, meticulously analyzing every move that he has made so far, there are people questioning whether the reforms implemented are doing any good to America or is Obama and his team creating a bigger mess of an already messy situation.

Obama’s $800 billion stimulus package, now a law, would add $400 billion to the fiscal deficit and bring it to 10% of the GDP levels which are currently at 8.3% of the GDP. The benchmark Federal fund rates are at zero. Money supply in the market has been increased by 20% in the three months of his administration. The Congressional budget office has announced a fiscal deficit of $1.19 trillion which is 8.3% of the GDP. The unemployment levels are on an all time high. Revision in the financial markets regulations have been eyed; making them more transparent and pro-investors and looking for the systemic risk approach to ensure that no company’s risk appetite would cause the economic downturn.

What does the layman understand of all these policies? Is America on its way to recovery or are they digging a bigger pit for themselves. A lot of analysts have been calling names and ridiculing every move that Obama is making. From outsourcing policies, to health and environment issues, shedding billions of dollars in bailout or increasing the burden on the government or investment in clean energy and technology, because people love to take potshots at others.

An economy is not driven by a particular factor but several factors – significant, insignificant, big or small and affects everything. So there is a Herculean task. A policy is not bad unless the shortcomings start to show. So to understand the economies of recovery we will have to wait for a while because what took eight years to destruct can’t be rebuilt in only 100 days.

2009 Bernanke Stock Market Forecast

Ben Bernanke, Federal Reserve Chairman, recently predicted that the US economy would start growing later this year and expressed optimisim for the remainder of the 2009 stock market forecast. This has been the most optimistic forecast that Bernanke has made about the country’s financial status since the onset of the recession. Bernanke also mentioned that there appears to be improvement in the area of credit stresses. There appeared to be little reaction from Wall Street traders, however, and Bill Stone, a Chief Investment Strategist, commented that Bernanke’s comments were optimistic, but they really didn’t tell them anything new. Investors have kept in mind that it is typical for the stock market to turn around about four months before the economy does. Most traders have been selling treasuries and buying stocks in recent weeks, because of mounting evidence that the economy is turning around.

Bernanke’s stock market summary speech about his financial plan focused on monitoring rapidly escalating risks, such as the mortgage market, which collapsed prior to the recession. He spoke about troubleshooting for “evolving risk management practices” and identifying “regulator gaps,” including those gaps which affect the protection of consumers and investors and pose risks for the entire system. Bernanke also included in his speech that under “risk management,” bonuses and other compensations should have incentives which would promote the long term well being of the institution. He specified that capital and liquidity, along with effective risk management, were the keys to sound banking.

Bernanke, while speaking about the economic outlook, said that he continues to expect economic activity to bottom out, before then turning upward later this year. This stock market forecast view is based on the assessment made in reference to the housing market, which is beginning to stabilize. He also believes that the inventory liquidation that was progressing with such speed will start decreasing over the next few quarters and blue chip stock prices will continue to climb.

Current State of US Economy

The economic crisis that hit US economy in the mid 2008 has now spread to other parts of the world and is continuing to gulp down credit markets and financial institutions worldwide. As per the economic analysis of the present year, the current state of the US Economy is expected to become worse than the last year and may prevail for a few more months ahead.

According to the stock market analysis of economists during the 56th annual economic conference held at the University of Michigan, the present US economy may hit bottom halfway into the year 2009 and the percentage of unemployment in the country is predicted to be of 8 %. If the condition prevails as such it is certain that the United Nation in the next 18 months shall drop about 2.4 million jobs from different companies. The rate of GDP is also predicted to experience pitiful fall of 1 % in the present year 2009 and may continue to fall further by 2 % in 2010. Although various important financial stimulus packages are introduced as a rescue measure, the condition may still be difficult to rise up. Altogether the overall outlook of the US economy shows that it may experience uncertainty. To increase liquidity to the markets, the Federal Reserve of US has implemented numerous measures to satisfy the demand of new homes because of which aggressive monetary and fiscal policies shall be introduced in the present year.

The US economy shows a pitiful downtrodden condition with the ongoing collapse of the domestic automobile industry and numerous companies that supply automobile parts. This browbeaten effect of the automobile industry offers profound economic crisis in the whole nation. As a result of lay-off in the automobile industry, unemployment is at its peak with the dismissal being 18,500 workers in Chrysler (Daimler News) and lesser percentage with Ford News and other popular automobile companies. Similarly lay-off is affecting other area of workers such as with Whirlpool (5,000), DHL (9,500), Yahoo (1,100), Citigroup (50, 000) and many more. In the same way the sinking of banks and other financial institutions are a common sight in the US where lay off of workers are still more critical than anywhere else.

Business investments are also experiencing a fall because of unemployment and cut spends. The oil prices that continue to drop are expected to show slow hike by the end of the year 2009- climbing to $107 a barrel. However, the petrol price is expected to remain in line as in 2008 and heating oil may rise to an average of $3.08 a gallon. The forecast revealed by blue chip shows the contraction of US economy by 0.4 % in 2009 and is predicted to fall to longer and deeper recession, though there are some areas of hope. With the current state of US economy, most economists predict an increase of 4 to 5 % for food and farm inventories in 2009.

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