The U.S. economy is continuing to grow at a “modest to moderate” pace, the Federal Reserve reported Wednesday (July 17), in an assessment that is likely to keep it continuing its loose monetary policy.
MarketWatch reported that the so-called Beige Book found expanding manufacturing, rising consumer spending, stable to growing services activity, and moderate to strong residential real estate and construction.
The Beige Book is a collection of anecdotes on the economy used to help the Federal Reserve prepare for its next interest rate setting meeting. The Fed has pledged to keep interest rates at near-zero levels at least until unemployment drops below 6.5%, as the central bank debates whether to scale back its $85 billion per month bond purchase plan.
Earlier, Federal Reserve Chairman Ben Bernanke said there was no preset path for asset purchases.
The Beige Book noted that while hiring held steady or increased at a measured pace, there was reluctance to add full-time workers. Some analysts suggested that the health-care law commonly called Obamacare is the force behind employer reluctance to add full-time workers.
The hard data seem to confirm the assessment of the Beige Book. Industrial output grew at an annualized 0.6% pace in the second quarter, and retail sales growth in June was muted. House prices, however, have seen strong growth.
Economists polled by MarketWatch expect growth of just 1.1% in the second quarter.
Consumer sentiment improved in late June, ending the month close to a near six-year high set in May, as optimism among higher-income families rose to its strongest level in six years, a survey released on Friday (June 28) showed.
Reuter’s reported that the Thomson Reuters/University of Michigan’s final reading on the overall index on consumer sentiment was 84.1 points, just slightly below a near six-year high of 84.5 in May. The late-June figure was higher than the preliminary reading of 82.7. Economists polled by Reuters had forecast the final June reading of 82.8.
“Consumers believe the (economic) recovery has achieved an upward momentum that will not be easily reversed,” survey director Richard Curtin said in a statement.
He added the recent drop in stock prices and the jump in mortgage rates have not caused a deterioration in consumers’ view on the economy.
“To be sure, few high or low income consumers expect the economy to post robust gains or think the unemployment rate will drastically shrink during the year ahead,” Curtin said.
Consumer sentiment is considered by some economists as a predictor on consumer spending, which accounts for 70% of the U.S. economy.
The latest Thomson Reuters/University of Michigan data was consistent with the June consumer confidence readings from the Conference Board released earlier this week. The research group’s U.S. consumer confidence index rose to 81.4 this month, the highest since January 2008.
Household expenditures, however, have remained sluggish despite improving optimism. Consumer spending grew at an annualized 2.6% in first quarter, faster than the 1.8% pace in the last three months of 2012 but slower than an earlier government estimate of 3.4%.
The barometer of current economic conditions ended at 93.8 in June, down from 98.0 in May. This was above an early June reading of 92.1 and economists’ forecast of 92.8.
The survey’s gauge of consumer expectations ended June at its highest level since October at 77.8, up from 75.8 in May. The latest reading was stronger than the preliminary June figure of 76.7. Economists had projected a late-June figure of 77.0.
Chief executives for the largest U.S. companies are more optimistic about sales over the next six months and plan to add more workers.
The Associated Press reported that the Business Roundtable said Wednesday that its April-June quarterly survey found 32% of its members expect to expand payrolls in the next six months. That’s up from 29% in the January-March survey. And 78% expect their sales to increase. That’s up from 72% from the previous survey.
Consumers have kept spending this year, despite an increase in Social Security taxes. That’s helped the economy grow at a modest pace.
Still, most of the CEOs don’t expect growth to accelerate. They forecast growth of 2.2% this year, only slightly better than the 2.1% forecast in the first-quarter survey.
“CEOs see the U.S. economy still on a slow road to recovery,” said Jim McNerney, chief executive of Boeing and the chairman of the Business Roundtable.
The better sales outlook reflects modest growth in the United States and “continued high growth in Asia” and other emerging markets, McNerney said, offset by continuing recession in Europe.
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Employers stepped up hiring in May in a show of economic resilience that suggests the Federal Reserve could begin to scale back the amount of cash it is pumping into the banking system later this year.
Reuters reported that the U.S. added 175,000 jobs last month, just above the median forecast in a Reuters poll, Labor Department data showed today (June 7). The unemployment rate ticked a tenth of a percentage point higher to 7.6%, in a relatively hopeful sign as it was driven by more workers entering the labor force.
Still, after a winter in which the economy seemed to be turning a corner, May was the third straight month that payrolls outside the farm sector increased by less than 200,000.
Speculation has grown that the Fed could begin reducing its support for the economy by trimming bond purchases as soon as this fall, and Friday’s jobs data did little to change expectations.
“It’s not great, but it’s good. It leaves the tapering talk still on the table,” said Steve Blitz, chief economist at ITG in New York.
Investors seemed to take the data as a sign the economy was weathering an increase in government austerity this year. U.S. stock index futures added to gains, while government debt prices were unchanged. The dollar strengthened against the euro and the yen.
Officials at the U.S. central bank have intimated they could be close to reducing bond purchases despite modest economic growth, which is not expected to pick up until late in the year when the sting from government spending cuts begins to fade.
Budget cuts have led to hiring freezes at many government agencies, and attrition could be slowly reducing payrolls. Government payrolls declined by 3,000 in May.
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Americans cut back on their purchases in April for the first time in nearly a year as their income remained flat, a potentially bad sign for an economy that depends heavily on consumer spending.
The Los Angeles Times reported that consumer spending dropped 0.2% last month, and March’s initially reported increase was cut in half to a revised 0.1%, the Commerce Department said Friday. Personal income failed to grow for the first time since falling 4.4% in January. Analysts had expected consumer spending to be unchanged last month and that personal income would rise 0.1%.
Manufacturing, which has been hit by belt-tightening by Washington, is also showing signs of recovery.
Falling gas prices in April were part of the reason for the drop in spending. Purchases of gas, electricity and other energy goods and services dropped 4.4%.
Excluding volatile energy and food prices, spending was unchanged last month after a 0.1% increase in March.
Consumers are a crucial factor in U.S. economic growth, and April’s drop signals the second-quarter slowdown most economists have projected as automatic federal budget cuts begin taking place.
Consumer spending increased at a 3.4% annual rate in the first three months of the year, nearly double the pace of the fourth quarter, the Commerce Department reported on Thursday.
That spending helped the U.S. economy grow at a 2.4% annual rate in the first quarter despite higher taxes and the looming threat of federal spending cuts.
Lower energy costs helped keep inflation in check last month.
The Commerce Department’s personal consumption expenditure price index dropped 0.3% in April after dropping 0.1% the previous month.
The core price index, which factors out energy and food costs, was up less than 0.1% in April compared to an increase of 0.1% in March.
Year over year, the core price index, a key measure of annual inflation, was up just 1.1% in April. That’s well below theFederal Reserve’s 2% target.
Consumers continued to save in April at the same 2.5% rate as the previous month.
The U.S. economy grew at a 2.4% annual rate in the first quarter, the Bureau of Economic Analysis reported today (May 30).
That basically confirms what the agency said a month ago, when it released its initial estimate for gross domestic product growth in the quarter. Then, it reported the economy had expanded at a 2.5% pace.
Now, with more data and two reports about what went on in the first three months of the year, its clear that growth did not hit the 3.2% rate that economists had once expected.
But BNP Paribas SA economist Yelena Shulyatyeva tells Bloomberg News that “the economy is still OK.” She expects it will “pick up in the second half as the sequestration effect fades.” By that, she’s referring to automatic federal spending cuts that appear to have been holding growth back.
The economy barely expanded in fourth-quarter 2012, when there was growth at a 0.4% annual rate. It has, however, registered at least slight growth for 15 straight quarters.
Also today, the Employment and Training Administration reported there were 354,000 first-time claims for unemployment insurance last week — up 10,000 from the previous week.
Since late 2011, claims have basically stayed in a range from the mid-300,000s to just under 400,000.
Despite recent improvement in the job market, the Federal Reserve needs to continue its stimulus efforts to avoid endangering the recovery, Fed chairman Ben S. Bernanke told Congress on Wednesday (May 22).
The New York Times reported that while acknowledging the risks of historically low interest rates and the Fed’s aggressive policy of buying government bonds to help stimulate the economy, Bernanke said in testimony that “a premature tightening of monetary policy could lead interest rates to rise temporarily but also would carry a substantial risk of slowing or ending the economic recovery.”
After his opening statement, however, Bernanke seemingly opened the door a bit wider to tapering down.
Under questioning by Rep. Kevin Brady, a Texas Republican who chairs the Joint Economic Committee, Bernanke said the Fed could prepare to “take a step down” in the next few meetings if the outlook for the labor market improved.
“It’s dependent on the data,” he said. “If the outlook for the labor market improves, we would respond to that.”
Brady asked if the tapering could begin before Labor Day, prompting Mr. Bernanke to say, “I don’t know.”
“We are buying a certain amount of assets each month,” he continued. “We are looking for increased confidence and in steps respond to that.”
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American consumers have denied themselves so much for so long — putting off buying homes, cars and other purchases — that their pent-up demand is poised to kick-start a sluggish economy.
As reported by USA Today, four years into the recovery, stronger job growth, some loosening in bank lending and more stable household finances are finally paving the way for many Americans to move into their own homes, fill them with furniture and trade in creaky 10-year-old cars.
Last week, a measure of consumer sentiment showed buying attitudes toward appliances and other durable goods at the highest level since mid-2007. And the government reported that April retail sales solidly beat estimates despite huge federal spending cuts — a development that UBS economist Maury Harris partly attributed to an unleashing of pent-up demand.
Harris estimates that over the next five years, Americans’ catch-up consumption will boost annual consumer spending growth by a percentage point and increase economic growth by half a point to more than 3% from about 2%.
“People have put things off,” says IHS economist Chris Christopher. Now, he says, they’re “feeling a little better.”
In the aftermath of the housing crash and recession, annual household formation was halved to 500,000 in 2008 and 2009 as Americans moved in with relatives and friends. Young adults aged 18 to 34 accounted for most of the drop, many of whom were unemployed, according to the Cleveland Federal Reserve Bank.
As a result, there were 2.3 million fewer households last year than there should have been based on population growth, Harris estimates. He expects those deferred households to sprout over the next five years — based on the recovery from the early 1980s recession — increasing household formation by 465,000 annually.
Housing starts, in turn, are expected to rise from 780,000 in 2012 to 990,000 this year and 1.2 million in 2014, Standard & Poor’s predicts.
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Like a horror movie with multiple sequels, The Economy: Spring Swoon IV probably won’t be as surprising or as scary as its predecessors.
Repeating the pattern of the past three years, the U.S. is cooling off as the weather turns warmer, with job growth slowing, retail sales falling and manufacturing output dropping after gross domestic product surged an estimated 3% in the first quarter. What’s different this time? The slowdown isn’t unexpected: Economists surveyed by Bloomberg have had it penciled into their forecasts for at least a month.
The deceleration is coming in response to an identifiable cause — the biggest federal budget tightening in more than 60 years — rather than inchoate fears about a break-up among countries that use the euro, a Treasury-debt default or a hard landing for China’s economy. And the U.S. looks better prepared to withstand it, thanks in part to a rebounding housing market.
“There definitely has been a slowdown in the past month,” said Russ Koesterich, global chief investment strategist at New York-based BlackRock Inc., the world’s largest money manager with $3.8 trillion in assets. “I don’t think it is going to be as dramatic or necessarily as frightening as some of the ones we had back in ’10, ’11, and ’12, which were really exacerbated by a lot of geopolitical issues.”
That’s good news for the stock market. While shares may fall in response to weaker data, a sell-off “would represent a potentially attractive buying opportunity,” said Jerry Webman, chief economist at New York-based OppenheimerFunds Inc., which has $208 billion in assets under management.
Koesterich agrees. He sees stocks suffering a “mild correction” of 5% to 10% during the next few months before resuming their advance.
“The market can end the year higher than it is today, but we’re probably going to see some lower prices first,” with the Standard & Poor’s 500 Index over 1,600 by the close of 2013, he said. The stock gauge was 1,555.25 on April 19, down 2.1%t for the week but up 9% this year.
Retail sales in the U.S. unexpectedly fell in March by the most in nine months as employment slowed, showing households ended the first quarter on softer footing, according to a Bloomberg report.
The 0.4% decrease, the biggest since June, followed a 1% gain in February, Commerce Department figures showed today in Washington. The median forecast of 85 economists surveyed by Bloomberg called for an unchanged reading in March. Department stores and electronics dealers were among the weakest showings.
The figures may prompt economists, who are projecting consumer spending climbed in the first quarter at the fastest pace in two years, to reduce growth estimates. A pickup in hiring and bigger increases in wages will be needed to ensure any slowdown proves temporary as federal budget cuts and an increase in the payroll tax restrain the expansion.
“Households are now making those difficult choices on how to adjust spending,” said Ellen Zentner, a senior economist at Nomura Securities International Inc. in New York, who projected sales would drop. “We have no steam going into the second quarter.”
Another report showed consumer confidence unexpectedly declined in April. The Thomson Reuters/University of Michigan preliminary index of sentiment fell to 72.3, a nine-month low, from 78.6 a month earlier. This month’s reading was lower than all 69 estimates in a Bloomberg survey that called for no change from the March number.
Several Federal Reserve officials said the central bank should begin tapering its quantitative easing program later this year and stop it by year end, minutes of their March meeting showed.
Bloomberg reported that the Federal Open Market Committee (FOMC) members “thought that if the outlook for labor market conditions improved as anticipated, it would probably be appropriate to slow purchases later in the year and to stop them by year-end,” according to the record of the March 19-20 FOMC meeting released today in Washington ahead of the regularly scheduled 2 p.m. time.
Fed officials, who met before a Labor Department report last week showed payroll growth in March was the slowest in nine months, debated how and when to curtail asset purchases that have swollen its balance sheet to a record $3.22 trillion. The committee, led by Chairman Ben S. Bernanke, decided at the gathering to press on with $85 billion in monthly bond buying until the labor-market outlook has “improved substantially.”
“Clearly the Fed was contemplating the timing of a tapering in asset purchases,” said Nathan Sheets, former international-finance director at the Fed and now global head of international economics at Citigroup Inc. in New York. “But my feeling is the last week’s employment report has put such discussions on hold. They must now be in wait-and-see mode to see what happens with the labor market.”
The Fed meeting was held before the Labor Department’s jobs report showed the economy added 88,000 jobs in March, less than the most pessimistic forecast in a Bloomberg survey. A shrinking labor force helped reduce the unemployment rate to a four-year low of 7.6 percent.
American employers hired at the weakest pace in nine months in March, a sign that tax hikes that kicked in early this year as part of Washington’s austerity drive could be stealing momentum from the economy.
Reuters reported that the economy added just 88,000 nonfarm jobs last month, the Labor Department said on Friday.
“The U.S. economy just hit a major speed bump,” said Marcus Bullus, trading director at MB Capital in London.
Some of the weakness appeared due to tax hikes enacted in January. While prior reports have pointed to relatively buoyant retail sales in January and February, Friday’s data showed retailers actually cut staff in March by 24,100, making it the hardest-hit sector last month.
Moreover, the government said hiring in the retail sector was weaker in January and February than initially thought.
The report rattled investors, sending U.S. stocks lower and putting them on pace for their poorest weekly performance this year. Benchmark Treasury debt yields fell to their lowest this year and the dollar declined against a basket of currencies.
It was unclear whether across-the-board federal budget cuts that began in March played a role in the weak pace of hiring, although nervousness over the cuts might have made businesses shy about taking on more staff.
Some economists cautioned against reading too much into the report, though the data nonetheless raised questions over whether the strong hiring seen in the winter actually meant the economy had shifted into a higher gear.
“We don’t think there is enough signal here to conclude the U.S. economy is wobbling. Rather, it appears that the underlying trend has not improved as much as the January-February data suggested,” said Julia Coronado, chief North America economist at BNP Paribas in New York.
March’s slowdown in job growth could make policymakers at the Federal Reserve more confident about continuing a bond-buying stimulus program. Prior advances in the labor market recovery had fueled discussion at the central bank over whether to dial back the purchases, perhaps as soon as this summer.
“This could give them the green light to stay with this policy longer,” said Brian Rehling, chief fixed income strategist at Wells Fargo Advisors in St. Louis.
Consumer spending in the U.S. climbed in February by the most in five months as incomes rose, signaling an improving job market is spurring demand, according to a Bloomberg report.
Household purchases, which account for about 70% of the economy, gained 0.7% after a 0.4% advance the prior month that was bigger than previously estimated, a Commerce Department report showed today in Washington. The median estimate in a Bloomberg survey of 78 economists called for a 0.6% rise. Incomes increased 1.1%, more than projected, sending the saving rate up from a five-year low.
Labor market progress and an increase in household wealth linked to rising home values and stocks are helping Americans cushion the fallout of higher payroll taxes and costlier fuel. Strength in purchases is one reason economists project the economy picked up this quarter after slowing to a 0.4 percent annual rate in the final three months of 2012.
“The economy is in a very good place right now ahead of the fiscal restraint,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “This recovery is sustainable. Consumers are in the driver’s seat.”
Stock markets in the U.S. were closed today for the Good Friday holiday.
Projections for spending ranged from gains of 0.3% to 0.9%. The January reading was previously reported as an increase of 0.2%.
Consumers’ confidence has wobbled in March — but economists’ confidence is rising quickly.
USA Today reported that even as the Conference Board reported Tuesday (March 27) that budget fights in Washington dragged down its consumer confidence index for March, economists are quietly raising forecasts for first-quarter economic growth to as much as a 3% annual clip.
That’s well above the 1.8% median in a USA Today survey of economists last month. Economists’ improving outlooks also come despite the increases in middle-class payroll taxes and top-bracket income-tax rates on Jan. 1 and the beginning of sharp federal spending cuts on March 1.
The conflict is about watching what people do, not what they say.
Forecasts have been raised both because consumers have spent more than expected and because business executives who had reported being rattled by the uncertainty from Washington have raised investment anyway.
The latest evidence was the 5.7% gain in durable-goods orders for February announced Tuesday, said Michael Hanson, an economist at Bank of America Merrill Lynch. Faster jobs growth has also helped, said UBS economist Drew Matus.
“Jobs trump Washington folly,” Matus said. “The primary driver is that people aren’t worried about being laid off any more.”
The latest forecasters to change their first-quarter outlooks include:
• Bank of America Merrill Lynch, which says the economy is growing at a 3% annual clip this quarter, up from a 1% forecast at the end of the year. The bank says richer consumers, buoyed by rising stocks and home prices, are leading the way.
• Barclays, which said Tuesday that the durable goods report put first-quarter growth on a 2.6% annual pace, up from 1.5% in December.
• JPMorgan Chase raised its forecast to 2.7% from 2.3% Tuesday, citing more inventory growth.
• IHS Global Insight, which is up to 2.9% projected growth from 1.0% in mid-January.
The government estimates the economy grew only 0.1% in the fourth quarter, but a new estimate due Thursday is expected to be as high as 0.7%.
The Conference Board said its consumer confidence index fell 8.3 points to 59.7 this month, on a scale in which 100 reflects the level of confidence in 1985. But the index rose 9.6 points last month, leaving confidence about the same as two months ago.
Consumers are wavering between worrying about Washington and feeling better about their own finances amid recovering housing and job markets.
An example of the latter is Tuesday’s Standard & Poor’s/Case-Shiller Index report, showing January home prices staged their biggest 12-month gain since 2006, said Conference Board economist Ken Goldstein.
Consumers who have been replacing worn-out cars as that industry recovers from the recession need furniture and appliances too, he said.
“I’m not sure they’ve really made up their mind,” Goldstein said.
“If it was just about the economy, and about economic indicators, we would not be seeing the zig-zag in consumer confidence. My guess is that consumers will decide that they’ve waited so long to buy appliances and furniture that they will decide it’s time.”
Federal Reserve officials Wednesday (March 20) acknowledged the recent pick-up in economic growth, noting in particular “labor market conditions have shown signs of improvement,” but the central bank made no change in its ongoing aggressive stimulus programs.
The Los Angeles Times reported that Fed policymakers, after their two-day meeting, voted 11 to 1 to keep buying $85 billion of Treasury and mortgage securities every month.
And as expected, they left the short-term interest rate at near zero, where it has been since late 2008. Fed policymakers repeated they would keep the interest rate at that level as long as the jobless rate is above 6.5% and the inflation outlook remains close to its target rate of 2%.
Most Fed officials don’t see the unemployment rate, currently 7.7%, reaching 6.5% until 2015.
Despite the recent improvement in the economy, the Fed’s updated economic outlook actually forecast growth this year to come in slightly less than the central bank’s previous projections in December.
That is presumably because of the federal spending cuts that kicked in March 1 under sequestration, something the Fed pointed to in its statement Wednesday, saying “fiscal policy has become somewhat more restrictive.”
The Fed reduced its forecast for economic growth this year, saying the economy would expand at no greater than 2.8%, down from a projected maximum of 3% made in December.
At the same time, the Fed lowered its projection for the unemployment rate, saying it would range from 7.3% to 7.5% by the fourth quarter. The forecast in December was 7.4% to 7.7%.
The latest statement from the Fed, coming after a two-day policy meeting, has been eagerly anticipated as the economic recovery has accelerated in recent weeks.
Job growth in February exceeded analyst expectations. The economy added 236,000 net new jobs that month and the unemployment rate fell to 7.7%, the lowest level since the end of 2008.
Since 2008, the Fed has been engaged in unprecedented attempts to stimulate the economy by keeping short-term interest rates near zero and dramatically expanding its balance sheet.
The central bank’s latest, and most ambitious, effort began in the fall as the Fed began purchasing $85 billion in bonds a month to hold down long-term interest rates in hopes of increasing spending by businesses.