Report: Economy Shows Modest Growth in 3Q

A summer of modest economic growth is helping dispel lingering fears that another recession might be near. Whether the strength can be sustained, though, is far from clear.

The Associated Press reported that buoyed by a resurgent consumer and strong business investment, the economy expanded at an annual rate of 2.5% in the July-September quarter, the government said Thursday (Oct. 27).

The expansion, the strongest quarterly growth in a year, came as a relief after anemic growth in the first half of the year and weeks of wild stock market shifts.

The economy must grow at nearly double the third-quarter pace to lower high unemployment, which has been near 9% for the more than two years since the recession officially ended.

And though consumer spending was triple the level of the second quarter, Americans earned less, on an inflation-adjusted basis, in the July-September period. That meant that many people financed their spending binges by cutting back on savings. Few economists think that can continue.

Economists believe that growth in consumer spending, which accounts for about 70% of economic activity, will be restrained until incomes start growing at healthier levels. That is unlikely until hiring picks up.

Paul Ashworth, chief U.S. economist for Capital Economics, predicts that growth will cool off in the fourth quarter and next year.

Nonetheless, the report on U.S. gross domestic product, or GDP, sketched a more optimistic picture for an economy that only two months ago seemed destined for another recession.

And it was delivered on the same day that European leaders announced a deal in which banks would take 50% losses on Greek debt and raise new capital to protect against defaults on sovereign debt. Stocks surged on the European deal and maintained their gains after the report on U.S. growth was released.

“This has been a morning of encouraging news,” said Jennifer Lee, a senior economist for BMO Capital Markets. “The fourth quarter may see some pullback in U.S. economic growth … but the positive details underlying the GDP report should help ease fears of a U.S. recession..somewhat.”

 

Report: Pump Prices Heading for 8-Month Low

Gasoline is tumbling to an eight- month low as reduced U.S. growth causes pump prices to follow crude oil’s decline after lagging behind since April.

Prices may drop 20 cents to $3.19 a gallon by early November, according to the median estimate of eight analysts in a survey by Bloomberg News. Gasoline has fallen 15% from this year’s high of $3.985 on May 4, according to Heathrow, Florida-based AAA, the largest U.S. motoring organization. West Texas Intermediate oil, the most-traded U.S. crude grade, retreated about 30% over the same period.

“The worry that the economy could slip back into a recession is putting pressure on oil prices, and prices at the pump are coming off,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, an oil-industry researcher and former trader for Vitol Group, the world’s biggest independent oil trader, said in a telephone interview on Oct. 4.

Oil Prices Crude oil for November delivery traded today as low as $81.79 on the New York Mercantile Exchange, down from its 2011 peak of $113.93 reached on April 29. Pump prices have dropped to $3.39 a gallon from the high in May, according to AAA data.

“Gasoline prices are going to bottom out pretty soon and it will be supply-driven,” Sander Cohan, an analyst with Energy Security Analysis Inc. in Wakefield, Massachusetts, a global energy-forecasting and consulting firm, said by phone on Oct. 5.

“Everybody knows demand is pretty awful and there’s shutdowns for economic reasons like Trainer and I think you will see a lot of quiet shutdowns where maintenance is dragged on for months.”

Bernanke: Fed Poised to Inject Further Stimulus

Federal Reserve Chairman Ben Bernanke says the economic recovery “is close to faltering” and the central bank is prepared to take further steps to support it, according to an Associated Press report.

The economy is growing more slowly than the Federal Reserve had expected, Bernanke said Tuesday (Oct. 4) before the congressional Joint Economic Committee. He said the biggest factor depressing consumer confidence is poor job growth.

“We need to make sure that the recovery continues and doesn’t drop back and that the unemployment rate continues to fall downward,” Bernanke said.

Stocks came off their morning lows after Bernanke inferred that the Fed could adopt additional stimulus measures in the coming months.

Bernanke offered his grim assessment after the economy barely grew in the first half of the year and it created no net jobs in August. Consumer confidence fell this summer to the lowest point since the recession. Europe’s debt crisis has also intensified.

After their September meeting, Fed policymakers warned of significant downside risks to the economic outlook. As a result, the Fed voted to shift $400 billion of the Fed’s investment portfolio from short- to longer-term Treasurys to try to drive down long-term rates.

In August, the Fed said it planned to keep short-term rates at record lows until at least mid-2013, assuming the economy remained weak.

Both decisions drew three dissenting votes on the Fed’s policy committee. The three dissents, all from regional Fed bank presidents, were the most dissents in nearly 20 years.

Republican leaders in Congress also urged Bernanke and the Fed against taking action to lower rates. The GOP lawmakers and Bernanke have clashed in recent months over how best to invigorate the economy.

On Tuesday, Bernanke wasn’t shy in offering Congress more advice: He reiterated his warning that lawmakers should not cut spending sharply while the economy is weak.

 

Bernanke Surprised by ‘Cautious Consumers’

Federal Reserve Chairman Ben Bernanke said Thursday (Sept. 29) that he’s surprised by how cautious consumers remain more than two years since the recession officially ended. But he offered no hints of further steps the Fed might take to try to boost the weak economy.

The Associated Press reported that Bernanke noted that several factors have kept consumers from spending more: from high unemployment and falling home values to still-heavy debt loads and higher gasoline prices.

“Even taking into account the many financial pressures they face, households seem exceptionally cautious,” Bernanke said in a speech in Minneapolis to the Economic Club of Minnesota.

Bernanke said that higher prices for gas, cars and other consumer goods were due, in part, to temporary factors, such as supply disruptions stemming from Japan’s earthquake and nuclear crisis. As those factors continue to ease, the Fed chief said he expects inflation to moderate in the coming months.

He reiterated that the Fed will consider a range of options at its next policy meeting Sept. 20-21. Some economists have said the Fed must take further steps to drive down long-term interest rates and help the economy avoid another recession.

Bernanke’s remarks Thursday were similar to those he made last month in a speech in Jackson Hole, Wyo. As he did in that speech, Bernanke said he supported Congress’ push to reduce budget deficits over the long run. But he cautioned against cutting spending excessively while the economy remains so weak.

Congress, he said, “should not … disregard the fragility of the economic recovery.”

 

Bernanke Tries to Ease Markets; No New Stimulus

The chairman of the U.S. Federal Reserve Ben Bernanke offered no new stimulus for the American economy Friday (Aug. 26), disappointing analysts and economists who had been hoping for measures to counter a slowing in growth.

In a speech during the bank’s annual meeting in the resort of Jackson Hole, Wyoming, Bernanke did hint that Congress may need to act to stimulate hiring and growth, according to CBC.com.

Congress, however, has been focused on reducing the national budget deficits and less occupied with new spending to try to energize the economy. A plan lawmakers passed this month means annual deficits are expected to be reduced by $3.3 trillion US over the next decade through spending cuts.

Bernanke left open the possibility of future action by the Fed, saying it “is prepared to employ its tools as appropriate to promote a stronger economic recovery.”

He announced its monetary policy committee will expand its meeting in September from one day to two in order to study and discuss options to for additional monetary stimulus.

The Fed chairman said record low interest rates will promote growth over time but that the weak economy requires further help in the short run.

His speech followed the release of a government report that the economy grew at an annual rate of just 1% this spring and 0.7% for the first six months of the year. The report predicted only slightly healthier expansion in the second half.

Bernanke said he’s optimistic that the job market and the economy will return to full health in the long run.

 

Poll: Optimism Improves on Economy, Obama

Americans are growing more optimistic about the U.S. economy, a sentiment that is benefiting President Barack Obama despite public disenchantment with his handling of rising gasoline prices and swollen government budget deficits.

An Associated Press-GfK poll shows that more than 2 out of 5 people believe the U.S. economy will get better, while a third think it will stay the same and nearly a fourth think it will get worse, a rebound from last month’s more pessimistic attitude. And, for the first time since the 100-day mark of his presidency, slightly more than half approve of Obama’s stewardship of the economy.

Both findings represent a boost for Obama, though he still must overcome ill will over government red ink and the price of gas at the pump, now hovering around $4 a gallon.

But the public’s brighter economic outlook also could signal a boost to the current recovery, which relies to a great degree on consumer behavior. A public that is confident about economic performance is more likely to spend more and accelerate the economy’s resurgence.

The poll was conducted May 5-9 in the aftermath of the U.S. commando raid that killed Osama bin Laden, the al-Qaida leader behind the Sept. 11, 2001, terrorist attacks. The spike in public esteem for Obama as a result of that successful clandestine mission may have helped Obama’s standing on issues other than national security.

The poll coincides with renewed attention in Washington to the nation’s growing debt and the federal government’s long-term budget deficits, so any positive signs from the public could help Obama push his policy proposals. A bipartisan team of lawmakers is working with Vice President Joe Biden to identify spending cuts. Meanwhile, lawmakers also are discussing major structural changes to the tax system and to the government’s mammoth benefits programs of Medicare, Medicaid and Social Security.

The results of the AP-GfK poll stood out because other surveys taken after bin Laden’s death, while showing a spike in support for the president, continued to indicate dissatisfaction by a majority for his handling of the economy. Still, like the AP-GfK poll, other surveys also found American attitudes about the state of the nation improving.

Forty-five percent of those polled in the AP-GfK survey said the country was now moving in the right direction, an increase of 10 percentage points from five weeks ago. And attitudes about life in general remained positive, with 4 out of 5 respondents saying they were happy or somewhat happy with their circumstances.

“Once you hit bottom the only one way to go is up,” said John Bair, 23, a photographer and filmmaker from Pittsburgh. “Everybody that I come in contact with seems to be on the upswing. I consider that a pretty good thing.”

15 Million Competing for 3.25 Million Jobs

Companies planning to ramp up hiring this year will have an added luxury: their choice from a flood of applicants, without having to pay a premium for top talent.

Unemployment remains near double digits, and there are nearly five unemployed workers competing for each available job. That is giving employers more confidence, while at the same time enabling them to keep wages low, The Associated Press reported.

The lack of opportunities over the past three years means it’s risky for job seekers to be choosy, particularly for those who have been out of work for more than six months. All that makes for a buyers’ market, leaving hiring managers with little incentive to negotiate.

“They don’t have to pay higher wages to get who they want,” said Heidi Shierholz, an economist at the liberal Economic Policy Institute.

Employers advertised 3.25 million jobs in November, the Labor Department said Tuesday (Jan. 11). That’s 39% higher than the number of jobs advertised in July 2009, a month after the recession ended. But it’s still far below the 4.4 million openings posted in December 2007, when the downturn began.

Perhaps more important is the number of people competing for those jobs. With 15 million unemployed in November, the ratio was 4.6 unemployed workers for every open job. The ratio reached 6.3 in November 2009, the highest since the department began tracking job openings in December 2000. Still, in a healthy economy, it would fall to between 1.5 and 2, economists say.

Those figures don’t factor in under-employed workers or people with jobs who may test the hiring waters.

While openings are up 39% from the low point during the recession, monthly hiring has risen only 4% to 4.2 million in the same period.

“It is disappointing that 17 months into the recovery, the hires rate still remained at depressed levels,” said Henry Mo, an economist at Credit Suisse.

Economists don’t agree on the reasons for the gap. Some say the unemployed lack the right skills for the available jobs. Others cite the housing slump, which makes it harder for those out of work to sell their homes and relocate to take a job.

Shierholz said the sheer number of applications from the vast pool of unemployed, and a more demanding attitude from employers could partly explain the delays.

Companies “think they should be able to get perfect, super-qualified workers for very cheap,” she said.

The good news is that economists expect a lot more jobs in the months ahead. Some are projecting more than double the 1.1 million jobs added in 2010.

• Ford Motor Co. said Monday that it will add more than 7,000 workers in the next two years, including 750 engineers to work on hybrid and electric vehicles.
• Discount-store operator Dollar General Corp. said last week that it will open 625 stores and hire more than 6,000 workers in 2011.
• Union Pacific, the nation’s largest railroad, plans to hire as many as 4,000 people this year. The company is seeking diesel mechanics, track workers, conductors and engineers. Most of the new hires will replace workers who are retiring or leaving, but about 1,000 will be new positions. Already, the company is seeing plenty of interest. ”Many applicants not only meet but exceed the qualifications needed,” said Tom Lange, a spokesman. “Overall, it’s a very strong applicant pool.”
• Spirit AeroSystems, an aircraft parts manufacturer, plans to hire about 200 people in the first three months of this year, for its plants in Wichita, Kan., and Tulsa, Okla. The company is ramping up its operations in preparation for stronger orders from Boeing, one of its main customers, according to Ken Evans, a spokesman.

Reports Indicate Economy Heads Upward

Ball State University economist Michael Hicks believes the American economic recovery is  heating up, pointing out that job creation is up and layoffs are down.

The Department of Labor announced today (Jan. 7) that the private sector added 103,000  jobs in December, reducing the unemployment rate from 9.8% to 9.4%. Hicks says those job numbers will be revised upward in the coming month as more data become available, according to a news release.

Another encouraging report, released on Thursday, found that that fewer people applied for unemployment benefits over the past month than in any four-week period in more than two years.

“The economy is beginning to grow at a faster rate,” says Hicks, director of Ball State’s Center for Business and Economic Research in Muncie Ind. “In order for the economy to grow at the pace we want, even this jobs number will have to double to perhaps 225,000 new positions monthly. We clearly aren’t out of the woods, but in a month with an enormous snowfall on the East Coast — which typically keeps people indoors and companies closed — these are good figures that ought to encourage new hiring in the coming months.”

Hicks says that a lower national unemployment rate should mean that Indiana will see better job growth, most particularly in manufacturing over the year.

Bernanke: U.S. Economic Outlook ‘Uncertain’

Federal Reserve Chairman Ben Bernanke told Congress today (July 21) the economic outlook remains “unusually uncertain,” and the central bank is ready to take new steps to keep the recovery alive if the economy worsens.

Testifying before the Senate Banking Committee, Bernanke also said record low interest rates are still needed to bolster the economy. He repeated a pledge to keep them there for an “extended period,” the Associated Press reported.

Bernanke downplayed the odds that the economy will slide back into a “double-dip” recession. But he acknowledged the economy is fragile.

Given that, the Fed is “prepared to take further policy actions as needed” to keep the recovery on track, he said. He didn’t mention specific action being explored by the Fed policymakers. But they still have options beyond holding rates at record lows — including reviving some crisis-era programs.

Bernanke is trying to send Congress, Wall Street and Main Street a positive message that the recovery will last in the face of growing threats. At the same time, he wants to assure Americans that the Fed will take new stimulative actions if necessary.

Wall Street wasn’t convinced. Shortly before Bernanke spoke, the Dow Jones industrial average was up about 20 points. Within minutes, stocks began falling and the Dow was down more than 100 points.

The recovery, which had been flashing signs of strengthening earlier this year, is losing momentum. And fears are growing that it could stall.

Consumers have cut spending. Businesses, uncertain about the strength of their own sales or the economic recovery, are sitting on cash, reluctant to beef up hiring and expand operations. A stalled housing market, near double-digit unemployment and an edgy Wall Street shaken by Europe’s debt crisis are other factors playing into the economic slowdown.

“In short, it look likes our economy is in need of additional help,” said the committee’s chairman, Sen. Chris Dodd, D-Conn. And, Sen. Richard Shelby of Alabama, the highest-ranking Republican on the panel, said the economic outlook has become a “bit more clouded.”

With little appetite in Congress to provide a major new stimulus package, more pressure falls on Bernanke to keep the recovery going.

Bernanke and his Fed colleagues have cut their forecasts for growth this year.

If the recovery were to flash serious signs of backsliding, the Fed could revive programs to buy mortgage securities or government debt. It could lower the interest rate paid to banks on money left at the Fed or cut the rate banks pay for emergency Fed loans. The Fed also could create a new program to spark more lending to businesses and consumers in a bid to lure them to ratchet up spending and grow the economy.

Bernanke said the debt crisis in Europe, which has rattled Wall Street, played a role in the Fed’s “somewhat weaker outlook.” Although financial markets have improved considerably since the depth of the financial crisis in the fall of 2008, conditions have become “less supportive of economic growth in recent months,” he explained.

As a result, Bernanke said progress in reducing the nation’s unemployment rate, now at 9.5%, is now expected to be “somewhat slower” than thought. Unemployment is expect to stay high, in the 9% range, through the end of this year, under the Fed’s forecast.

High unemployment is a drag on household spending, Bernanke said, although he believed both consumers and businesses would spend enough to keep the recovery intact.

Bernanke also said it would take a “significant amount of time” to restore the nearly 8.5 million jobs wiped out over 2008 and 2009.

And, Bernanke said the housing market remains “weak” and noted that the overhang of vacant or foreclosed houses are weighing on home prices and home construction.

Given the weak recovery, inflation is not a problem, Bernanke said. However, Bernanke didn’t talk about deflation, a prolonged and destabilizing drop in prices for goods, the values of stocks and homes and in wages. Although most economists think the prospects of deflation are remote, some Fed officials have expressed concern about it.

To strengthen the economy, many economists predict the Fed will hold a key bank lending rate at a record low near zero well into 2011, or possibly into 2012. Doing so, would help nip any deflationary forces.

And keeping that bank rate at super low levels also would mean rates on certain credit cards, home equity loans, some adjustable-rate mortgages and other consumer loans would stay at their lowest point in decades.

Ultra-low lending rates, however, haven’t done much lately to rev up the economy. Consumers and businesses are cautious and aren’t showing an appetite to spend as lavishly as they usually do in the early stages of economic recoveries.

Bernanke, meanwhile, welcomed Congress’ new revamp of financial regulations signed into law by President Barack Obama on Wednesday. The new law, he said, “will place our financial system on a sounder foundation and minimize the risk of a repetition of the devastating events of the past three years.”

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