Economy

Will the Economy Recover in 2012?

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There has been a lot of good news about the economy in 2012. With each passing month, it seems that unemployment drops further, the stock market goes higher, and the housing market… well, that’s why there is still a pretty big question mark out there. Economy 2012 Outlook Typically, after an economic downturn, the stock market leads the way (it’s a leading indicator) by rising in the months before various economic reports (lagging indicators) start rising. If all goes well, the stock market’s rise, is legitimated by improving corporate earnings and then backed up by an increase in hiring that improves the employment outlook across the economy. Once these things happen, the U.S. economy kicks into gear and things march upward until the next correction, recession, or god forbid, depression. The stock market has gone nearly straight up since the beginning of 2012. Earlier this year the Dow went over 13,000 for the first time since 2008. Not far behind, the S&P 500 index passed its 2008 high-water mark earlier this month. And, as Reuters and other report, the number of Americans filing for new unemployment benefits dropped to a four-year low. This follows the last few months of good …

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Payroll Tax Cut Extended

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Yea! Just got news that Congress decided not to kill off the fragile economic recovery in the U.S., well, not yet at least. Congress has passed legislation that extends the payroll tax cut through the entire year. The tax cut was a 2 percent reduction in the amount of Social Security tax paid by workers. The employer part of the social security tax (and therefore a significant part of the self-employment tax) was not cut. However, this tax cut put additional money in the pockets of households across America. Letting it expire and seeing what happens when people suddenly realize their paycheck is smaller than they are used to would have been a big problem. Virtually every respected economist in the world warned that failure to extend this particular tax cut would have a big impact on the U.S. economy, perhaps causing the tepid growth to teeter, or plunge all the way back into recession. I’ll be back later with more details once I have a chance to comb through the actually bill on its way to President Obama’s desk.

Fed Keeping Interest Rates Low

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In an announcement that comes as no surprise, in large part because it has been repeatedly telegraphed by the the Fed itself, the Federal Reserve Board on voted on Tuesday to leave interest rates at their current near zero rates. The Fed further reiterated its commitment to doing so for the near future, pledging to keep rates low through at least the middle of 2013. There are several interesting implications for investors and consumers in the Federal Reserve’s actions and statements today. First, as mortgage lending continues to languish and be a rather slow and dour corner of finance, homeowners should take solace in the fact that there is no rush. While there is no guarantee rates will stay exactly as low as they are, the Fed’s continued commitment to low interest rates means that neither new mortgage interest rates or adjustable mortgage rates are going up any time soon. Second, the Fed announced that it would continue to implements the so-called “twist” in which the Federal Reserve is moving its short-term bond holdings to longer-term bond holdings in an effort to bring down long-term interest rates. Longer term rates are traditionally less influenced by the Fed, which sets only the short-term …

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Jobless Claims Continue to Fall

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New unemployment claims fell to a nine month low in October. This trend has been struggling to get going for several months now. However, the possibility of an improving job market is a good sign for the U.S. economy. Update: Consumer sentiment also rose. That is a little bit more good news for the economy. Unfortunately, the news isn’t anywhere good enough to declare an economic recovery. The “good news” about the labor market we have been getting for the last several months means more about the job market bottoming out than it does about it getting better. Essentially, if you were drawing a graph of the U.S. labor market, these last couple of months of good economic news and indicators means you can stop drawing your line down. It does not mean, however, that you can start drawing that line back up. There are two major stumbling blocks now to an economic recovery. The first is the very unstable situation in Europe. What once looked like a problem for a couple of the continent’s weakest economies now looks like a full-fledged crisis for the entire European Union. Any collapse, or loss of faith, there and the U.S. economy will …

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Economy Growing Slowly – Inflation Benign

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The U.S. economy continues to grow at a very slow pace according to the Federal Reserve’s Beige Book. That isn’t good enough considering how deep the current recession is. At this rate, growth back to anything resembling an expansion would take a very long time. However, the good news is that the economy isn’t getting any worse for the time being. The Beige Book is a summary of the current state of the U.S economy across all of the Fed’s districts and for the most part, all reports are of "modest" or even "slight" growth. Inflation Not Happening It seems that the highest "street cred" a Fed banker can have is to be an inflation hawk. Since 2008, however, inflation hawks have actually been Chicken Little’s. With the economy growing very slowly and many Americans still out of work, it’s hard to see where inflationary pressure could come from. The just released Consumer Price Index (CPI) just confirmed that there is no real inflation anywhere to be found in the economy. The index rose just 0.1 percent. Prices excluding food and energy, both traditionally volatile pricing sectors that seem to move of their own accord rather than in step with …

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New Home Sales Rise

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Sales of new houses rose 7.3 percent, to 323,000 annual pace, the highest level in 2011. Of course, this comes on the heels of a record low just two months ago. New home sales statistics are quoted on an annual basis. In other words, if April’s new home sales numbers were what the new home sales numbers would be for every month of the year, how many new homes would be sold. So, the 323,000 new homes sold number means that there would be 323,000 new homes sold for the year. There are two important things about this latest economic data and how it will affect investors and the economy. First, the number is slightly higher than what economists were expecting. Any time a number surprises to the upside, that is good news, because it means that things were actually better than everyone thought. Second, while the number is higher, it is still very weak, meaning that IF the housing market is recovering, it is doing so very meekly. The big problem for new home sales is that there are so many existing homes for sale on the market today. Foreclosures and distressed owners continue to flood the housing market, …

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April Jobs Report Could Have Big Impact On Stocks

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The April jobs report is due out from the U.S. Labor Department on Friday. While economic statistics typically have a temporary effect on Wall Street before being shoved aside by whatever bit of news or data arrives a few days later, the April jobs number could be a bigger deal than usual. Recently, the Federal Reserve left interest rates unchanged. Following the announcement, Fed Chairman Ben Bernanke held the first ever Fed press conference in which he laid out the Fed’s view of the U.S. economy. He suggested that the economic recovery is slowing. He didn’t use the word fragile, but plenty of people heard it anyway. He also suggested that inflation was tame and that any uptick was dwarfed by the greater potential for a slowdown in growth. Jobs Key to Economic Recovery Business spending has been measured, despite a tiny boom going on in Silicon Valley. Consumer spending has been whacked by not only by widespread job losses, but also by the housing market crash and subsequent collapse of the mortgage industry. Many homeowners have no equity left in their homes. Those that do are finding that terms for second mortgages are no better than the difficulties faced …

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First Ever Fed Press Conference

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Today marks the first time the Federal Reserve will hold a press conference to go along with it’s decision on whether to change interest rates. Most observers expect the Fed to leave interest rates unchanged (basically at zero percent), so the real action will be in the details that emerge from the press conference where questions about how the economy is doing, what the Fed is doing, and how long they think those things will last, will take center stage. In another change, the Federal Open Market Committee will also release the quarterly growth and inflation estimates that is uses to make its rate decisions today. Usually, the Fed releases those numbers weeks later. Today’s changes could make for a very volatile day in the markets because no one has ever done things this way before, so no one really knows how they are supposed to react. Will the markets over-react to something Fed Chairman Ben Bernanke says? Will the markets react less than they would otherwise given how fresh all the data is? Or is this all just a bunch of sound and fury signifying nothing? We’ll all find out later today.

Unemployment Report Bad News for 2011 Economy Recovery

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The November jobs report came in worse than predicted. Recent reports suggesting that consumers were spending more money and that first-time unemployment claims were dropping suggested that the Great Recession might be coming to an end in 2010. Alas, the jobs report shatters that idea for the short-term. A recovery without new jobs isn’t worth the paper it’s statistics are printed on. Ongoing economic recovery requires that not just the people who are currently employed go back to spending and non-fear based economic decisions, but also that more people join their ranks. Unfortunately, that can’t happen if people are not returning to being employed. Smart money decisions will swing from taking advantage of low prices and low interest rates to saving cash. While increasing savings is good on a personal level, it isn’t necessarily good for the economy overall. The possibility that jobless benefits will begin to run out for millions of Americans only adds an additional weight to the overall economy. Put it together with States losing billions of dollars worth of Federal money from economic stimulus programs ending in 2011, and you have a lot of negatives pulling on the first quarter of 2011. The Federal Reserve’s recent …

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Is The Recession Really Over – Recession Ended in June 2009 News Reports Say

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Is the recession really over? That is the question a lot of people are asking today as newspapers, news websites, and television news shows lead with a headline that seems to declare that the economy is back to normal. Of course, this is not at all what is going on. This presents another opportunity to take a quick look at how financial facts and financial reporting are not always in sync. First, the actual event that occurred is that the National Bureau of Economic Research, or NBER, released a statement saying that “a trough in business activity occurred in the U.S. economy in June 2009.” Obviously, this does NOT mean the economy is back to normal, a fact that the NBER statement goes out of its way to highlight. In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Why is every news outlet in America proclaiming that the recession is over then? Technically, the recession is over, but that doesn’t necessarily mean what people think it means. Assuming the picture below depicts a hypothetical economic …

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