Confidence among American consumers unexpectedly slumped in March, which may signal a cooling in spending, the biggest part of the economy.
According to a report by Bloomberg, the Thomson Reuters/University of Michigan preliminary sentiment index for March fell to 71.8, the lowest level since December 2011, from 77.6 in February. The gauge was projected to increase to 78, according to the median estimate of 67 economists surveyed by Bloomberg.
Concern may be starting to mount over the damage that automatic across-the-board federal spending cuts will cause the economy and hiring. That may keep tempering optimism created by record stock prices, a hiring pickup, and a housing rebound that have so far helped propel bigger-than-forecast gains in spending.
“There was a little bit of a sequester-news related dip in confidence,” said Jim O’Sullivan, chief U.S. Economist at High Frequency Economics in Valhalla, New York. “Certainly on the minus side you have fiscal tightening, but on the plus side you’ve got the improving labor market.”
Forecasts ranged from 70 to 82.5, according to the Bloomberg survey. The index averaged 64.2 during the recession ended in June 2009, and 89 in the five years prior to the 18- month slump.
Consumers in today’s confidence report said they expect an inflation rate of 3.3% over the next 12 months, the same as in the prior two months. Over the next five years, Americans expected a 2.9% rate of inflation, down from February’s 3%.
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Sales at U.S. retailers rose in February by the most in five months as an improved job market and stronger household finances cushioned the effect of higher payroll taxes, according to a report by Bloomberg.
The 1.1% advance exceeded all projections in a Bloomberg survey and followed a revised 0.2% gain in January, Commerce Department figures showed today in Washington. The median forecast was for a 0.5% advance. Sales excluding the volatile categories of autos and gasoline rose 0.4%.
Progress in the job market is shoring up sentiment and spurring demand at merchants including Costco Wholesale Corp., easing the burden of a two percentage-point increase in the levy that funds Social Security. The boost to household wealth from home values and stock prices has also helped consumers maintain spending in the face of higher fuel prices.
“It shows some steady underlying strength,” said Terry Sheehan, an economic analyst at Stone & McCarthy Research in Princeton, New Jersey, the second-best forecaster of retail sales in the last two years, according to data compiled by Bloomberg. “These numbers are cause for cautious optimism.”
Eight of 13 major categories showed increases last month, led by a 5% jump in receipts at gasoline stations that reflected higher fuel costs. Sales also climbed at building materials outlets, auto dealers and general merchandise stores.
Spending increased 1.1% at auto dealerships in February after a 0.3% drop a month earlier.
Pent-up demand for motor vehicles contributed to the increase as an aging fleet and cheap borrowing drew customers to dealer lots. Cars and light trucks sold at a faster pace in February, pushing the annualized rate of sales to 15.3 million from 14.4 million a year ago, according to data from Ward’s Automotive Group.
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Friday’s jobs report showed that U.S. labor markets are making progress, but likely not enough to convince Federal Reserve officials that it’s time to pull back on the easy-money programs they’ve put in place to rev up economic growth and hiring.
According to a report by The Wall Street Journal, when the Fed next meets March 19-20, officials are likely to acknowledge job-market improvements in recent months. But their recent comments suggest they are unlikely to shift from their plan to purchase $85 billion per month of Treasury and mortgage-backed securities to help keep short-term interest rates pinned near zero.
Much of the research coming out of the Fed in recent months has found notable benefits from bond buying in the form of lower long-term interest rates, which help to drive spending and investment, particularly interest-sensitive sectors like housing. However internal and outside critics worry the programs could fuel higher inflation or market instability
Top Fed officials have made clear that the labor market’s health is their primary worry right now, and it’s the main factor in determining how long they will continue the bond-buying program. The Fed has said it wants to see “substantial progress” in the job market before pulling back on bond buying, which would require several more encouraging job reports like Friday’s.
Payroll gains have averaged 205,000 per month for the past four. That’s one important sign of progress, but Fed officials have reservations about concluding too quickly that the job market has healed or that the outlook for job growth has turned substantially better.
The unemployment rate, at 7.7% in February, is little changed since September, when it was 7.8%. Fed Vice Chairwoman Janet Yellen in a speech Monday, said “the unemployment rate is probably the best single indicator of current labor market conditions.”
Other details in Friday’s unemployment statistics suggested a job market not yet back to full health. More than 100,000 Americans left the labor force in February and the share of the population that’s employed, at 58.6%, hasn’t improved in the past year. Meantime, the share of workers who have been unemployed for six months or more inched up in February, as did the number of Americans who wanted full-time work but could only find part-time jobs.
President Barack Obama and Senate Republicans had a constructive conversation about fiscal policy and other matters on Wednesday (March 6) night, a White House spokesman said, but neither the administration nor the GOP on Thursday predicted a quick agreement about taxes and spending.
According to a report by MarketWatch, Obama “said that there seemed to be sincere interest in avoiding constant crisis, sincere interest expressed by the participants in the dinner,” White House press secretary Jay Carney told reporters at a regular briefing.
But he followed up by saying, “We’re not naive about the challenges that we still face. They exist and there are differences.”
Sen. Pat Toomey, a Pennsylvania Republican who was one of a group of Republican senators that dined with Obama at a Washington restaurant on Wednesday night, said Thursday that the meeting was “very cordial” and “substantive.” He also underscored Republicans’ push for deep spending cuts and the party’s opposition to tax increases, which lawmakers will wrestle with beginning next week as each party offers fiscal 2014 budgets.
“Unless we curb the spending and bring spending under control,” Toomey said after a speech at the Heritage Foundation, “we’re not going to have the kind of growth we need.”
Early next week, House Budget Committee Chairman Paul Ryan, a Wisconsin Republican, is planning to unveil his plan to balance the government’s budget in 10 years. A competing blueprint is expected from Senate Budget Committee Chairman Patty Murray, a Washington Democrat.
Given the parties’ fundamental disagreement over tax increases, the documents will set the stage for more wrangling over fiscal policy just as the government approaches a late-March deadline to pass separate stopgap funding. Without passing a short-term bill by March 27, the government would face a partial shutdown. The House has passed a bill to avert the shutdown by funding the government through the end of the current fiscal year on Sept. 30, and the Senate is preparing to act on that measure.
Automatic budget cuts set to go into effect this week will slow the already sluggish U.S. economy even further, Federal Reserve Chairman Ben Bernanke warned senators Tuesday (Feb. 26).
According to a report by CNN Money, the recovery is already moderate as it is, and upcoming cuts add an additional “significant” burden, Bernanke said in prepared testimony.
Forecasts from the Congressional Budget Office suggest that deficit-reduction policies — including the automatic cuts taking effect Friday — will slow the U.S. economy by 1.5 percentage points this year. Bernanke cited those figures in his testimony, a semi-annual report to Congress.
“Besides having adverse effects on jobs and incomes, a slower recovery would lead to less actual deficit reduction in the short run for any given set of fiscal actions,” he said in prepared testimony.
Bernanke has long warned lawmakers that monetary policy, which the Federal Reserve oversees, can only do so much to boost the U.S. economy. He said Congress needs to reduce the deficit over the long term without threatening short-term economic growth.
“The sizes of deficits and debt matter, of course, but not all tax and spending programs are created equal with respect to their effects on the economy,” he said.
Bernanke urged Congress to consider tax and spending policies “that increase incentives to work and save, encourage investments in workforce skills, advance private capital formation, promote research and development, and provide necessary and productive public infrastructure.”
“Although economic growth alone cannot eliminate federal budget imbalances, in either the short or longer term, a more rapidly expanding economic pie will ease the difficult choices we face,” he said.
Bernanke also came to the hearing prepared to defend the Fed’s stimulus efforts against its critics.
Under more normal circumstances prior to the Great Recession, the Fed typically operates by lowering interest rates to spur economic growth, or vice versa.
But with short-term rates already parked near zero, the Fed has turned to alternative policies that include purchasing mortgage-backed securities and long-term Treasury bonds.
Those bond purchases are intended to lower interest rates even further. But they worry many observers who wonder if the Fed will be able to pull back the policy when the economy eventually gets going again at a stronger pace.
Responding to those criticisms, Bernanke said Tuesday that he “remains confident that it (the Fed) has the tools necessary to tighten monetary policy when the time comes to do so.”
The nation’s economy and job-creating engine will start to purr later this year as business activity picks up — more than offsetting federal government cutbacks, predict economists surveyed by USA Today.
After starting the year slowly, the economy will shift into a higher gear this summer and then grow for the next nine months at the fastest pace in three years, according to the median estimates of 46 economists.
“I think we’re really on the verge of this becoming a self-sustaining recovery,” said Richard Moody, chief economist at Regions Bank.
The economists expect average monthly job gains of 171,000, with the pace quickening late this year. They expect unemployment to fall from 7.9% to 7.5% by year’s end. In October, economists surveyed predicted average monthly gains of 155,000 jobs.
Several said they raised their forecasts in part after the government this month revised up its estimate of average monthly job growth from 153,000 each of the past two years to 175,000 in 2011 and 181,000 in 2012.
The revisions reflect a job market that’s expanding more rapidly than previously believed, Moody said.
The first half of 2013 is expected to be sluggish as government spending cuts dampen growth and a payroll tax increase crimps consumer spending. Those surveyed expect the economy to grow at less than a 2% annual rate the first six months of 2013.
But Congress and the White House averted a worse fate by agreeing in January to keep income taxes stable for households earning less than $450,000 a year. Thirty-seven percent of the economists are more optimistic about this year’s outlook than they were three months ago.
What’s more, the economists expect the effects of the federal cuts to fade by the fourth quarter, with growth picking up to a 2.7% pace. They said the housing market is rebounding, a rising stock market is boosting consumer wealth, the European financial crisis is easing and corporate America is cash-rich.
Economists are increasingly, but still cautiously, optimistic about growth in the year ahead with hiring expected to pick up in coming months.
According to an Associated Press report, a quarterly survey by the National Association for Business Economics released Monday (Jan. 28) shows half of the economists polled now expect real gross domestic product — the value of all goods and services produced in the United States — to grow between 2% and 4% in 2013. That’s up from 36% of respondents who felt the same way three months earlier.
About half expect sluggish or negative performance, down from 65% in October.
The latest survey was conducted between Dec. 20 and Jan. 8 and asked 65 economists and others who use economics in the workplace about conditions at their firms or industries. It found that 34% of firms now expect to expand their payrolls in the next six months, the highest percentage since April of last year. Meanwhile, 2% said they expect their companies to cut payrolls through layoffs, while 14 percent see payrolls trimmed through attrition.
A quarter of respondents also said employment grew at their firms in the fourth quarter, which is comparable to the levels seen in the first half of 2012. The same percentage also reported a rise in wages at their firms in the final three months of the year, up 10 percentage points from the last survey.
Overall sales growth was stable in the fourth quarter with results mixed across industries. For instance, growth slowed in the services, finance, insurance and real estate sectors, but rose in the transportation, utilities, information and communications sectors.
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A measure of the U.S. economy designed to signal future activity increased in December from November, suggesting growth may strengthen in 2013.
The Conference Board said Thursday (Jan. 24) that its index of leading indicators rose 0.5% in December, the best showing since September. In November, the index was unchanged. The gauge is designed to anticipate economic conditions three to six months out.
A decline in applications for unemployment benefits, gains on Wall Street and increases in applications for building permits drove the index higher in December.
Conference Board economist Kenneth Goldstein said the rebound in the leading index suggested an improving outlook in contrast to a few months ago when the expectations were not so optimistic.
“Housing, which has long been a drag, has turned into a positive for growth, and will help improve consumer balance sheets and strengthen consumption,” Goldstein said. “However, for growth to gain more traction we also need to see better performance on new orders and an acceleration in capital spending.”
Five of the 10 indicators that make up the index were positive factors in December. Consumers’ dim outlook for business conditions and weaker expectations for manufacturing orders held back the index.
The index is derived from data that for the most part have already been reported individually.
The U.S. economy is expected to grow by 2.5% in 2013, improving to 3.5% growth in 2014, top Fed official Charles Evans said on Monday (Jan. 14).
According to Reuters, Evans also forecast the U.S. unemployment rate would be 7.4% this year, easing to about 7% in 2014.
“One good indicator of labor market improvement would be if we saw payroll employment increase by 200,000 each month for a number of months. We’ve been averaging about 150,000, but it’s been very uneven … we need a higher pace of employment growth and less volatility in that pace,” Chicago Fed President Evans said.
The creation of 1 million jobs over six months would be a “substantive” improvement, but bringing unemployment down to the key level of 6.5% was likely to take much longer, probably until mid-2015, he said, speaking at the Asian Financial Forum in Hong Kong.
The U.S. Federal Reserve’s decision last year to tie monetary policy to specific economic conditions should help boost the recovery without letting inflation take hold, said Evans, a chief architect of the policy.
It also provides additional accommodation by assuring markets that rates will remain low even after the economy perks up, he said.
“Given more explicit conditionality, markets can be more confident that we will provide the monetary accommodation necessary to close the large resource gaps that currently exist,” he said. “Additionally, the public can be more certain that we will not wait too long to tighten if inflation were to become a substantial concern.”
Last month, the Fed ramped up asset purchases aimed at spurring growth, and pledged to keep rates near zero until the unemployment rate drops to 6.5%, as long as inflation expectations do not climb above 2.5%.
Evans, who rotates into a voting spot on the Fed’s policy-setting panel this year, had been pushing for exactly such a threshold-based policy for more than a year, saying the Fed needed to take a much more activist role in trying to meet its mandate to boost employment.
The U.S. will become the world’s top producer of oil within five years, a net exporter of the fuel around 2030 and nearly self-sufficient in energy by 2035, according to a new report from the International Energy Agency.
It’s a bold set of predictions for a nation that currently imports some 20% of its energy needs, according to a report by the Los Angeles Times.
Recently, however, an “energy renaissance” in the U.S. has caused a boost in oil, shale gas and bio-energy production due to new technologies such as hydraulic fracturing, or fracking. Fuel efficiency has improved in the transportation sector. The clean energy industry has seen an influx of solar and wind efforts.
By 2015, U.S. oil production is expected to rise to 10 million barrels per day (bpd) before increasing to 11.1 million bpd by 2020, overtaking second-place Russia and front-runner Saudi Arabia. The U.S. will export more oil than it brings into the country in 2030.
Around the same time, however, Saudi Arabia will be producing some 11.4 million bpd of oil, outpacing the 10.2 million from the U.S. In 2035, U.S. production will slip to 9.2 million bpd, far behind the Middle Eastern nation’s 12.3 million bpd. Iraq will exceed Russia to become the world’s second largest oil exporter.
At that point, real oil prices will reach $125 a barrel. By then, however, the U.S. won’t be relying much on foreign energy, according to the IEA’s World Energy Outlook.
Globally, the energy economy will undergo a “sea change,” according to the report, with nearly 90% of Middle Eastern oil exports redirecting toward Asia.
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The U.S. created a better-than-expected 171,000 jobs in October and hiring rose faster in the prior two months than previously believed, but the politically sensitive unemployment rate edged up slightly to 7.9%, the government said Friday.
CBS MarketWatch reported that the October employment report, which came out just four days before the presidential election, is unlikely to change the trajectory of the race. Republicans will point to the rise in unemployment while Democrats can cite stronger job gains in the past four months.
Yet the improvement in hiring is a welcome sign to Wall Street that the U.S. economy is still continuing to expand at a moderate pace of around 2% or so.
The increase in net hiring last month exceeded market expectations. Economists surveyed by MarketWatch had forecast a net increase of 120,000 jobs in October, based on the Labor Department’s survey of roughly 440,000 business establishments. The survey was conducted before Sandy and the storm did not affect the numbers.
The unemployment rate, drawn from a separate survey of about 60,000 households, was expected to edge up to 7.9% from 7.8%. The household survey is viewed as a less reliable indicator of near-term hiring trends than the so-called establishment report, however.
Consumer spending in the U.S. climbed more than forecast in September, a sign the biggest part of the economy was picking up as the quarter drew to a close.
Bloomberg reported that household purchases, which account for about 70% of gross domestic product, rose 0.8%, the most since February, after advancing 0.5% in August, a Commerce Department report showed today (Oct. 29) in Washington. Incomes climbed 0.4%, the most since March.
The acceleration in spending may help the world’s largest economy overcome a slowdown in exports and business investment as global growth slackens and concern mounts about the so-called fiscal cliff. At the same time, a drop in saving to finance purchases indicates bigger gains in employment are required to provide the income needed to sustain spending.
“The strength in September gives consumer spending a good lift for the fourth quarter,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Conn. “The housing market seems to have turned. Consumers are clearly feeling better and are going out and spending a bit more.”
Equity markets in the U.S. were closed today as Hurricane Sandy barreled toward New York City. Risks posed by the storm, expected to come ashore late today in southern New Jersey and potentially affect 60 million people, were deemed too great to require workers to travel.
U.S. retail sales rose in September as Americans bought more cars and gasoline, while a gauge of consumer spending pointed to stronger-than-expected economic growth in the third quarter.
Reuters reported that retail sales increased 1.1%, the Commerce Department said on Monday (Oct. 15), beating expectations after an upwardly revised 1.2% rise in August.
Retail sales outside of autos, gasoline and building materials — a barometer of consumer spending known as core retail sales — rose 0.9% last month.
That was well above the 0.3% gain expected by analysts in a Reuters poll, and suggests consumers did more to drive economic growth in the July-September period than economists had expected.
Consumer spending drives about two-thirds of the U.S. economy.
Sluggish demand and a punishing drought restricted the economy to a 1.3 percent annual growth pace in the April-June period. Before the retail sales report was released, economists were expecting growth to accelerate to a 1.6% pace in the third quarter, according to a Reuters poll.
The details of the report showed broad strength across retailers, with sales of motor vehicles and parts up 1.3%. Receipts at gasoline stations rose 2.5%, reflecting an increase in prices paid at the pump.
Other categories were also strong, with sales at electronics retailers up 4.5%, while sales at food and beverage stores rose 1.2%.
The Federal Reserve said today that the U.S. economy was expanding “modestly” last month, supported by improvements in housing and auto sales, even as the labor market showed little change.
“Consumer spending was generally reported to be flat to up slightly since the last report,” the Fed said in its Beige Book business survey, which is based on accounts from the 12 district Fed banks. Conditions in manufacturing were “somewhat improved,” according to the report, which provides anecdotal evidence on the health of the economy two weeks before the Federal Open Market Committee meets in Washington on Oct. 23-24.
Bloomberg reported that the Beige Book provides support for Fed Chairman Ben S. Bernanke’s view that economic growth isn’t strong enough to bring about a quick healing of the labor market. A Labor Department report last week showed that while the unemployment rate unexpectedly declined in September, payroll growth slowed.
The Fed on Sept. 13 announced a third round of quantitative easing, with purchases of $40 billion a month of mortgage debt, and said its benchmark interest rate was likely to stay low through the middle of 2015.
The report’s description of the economy is not as positive as Beige Books earlier in the year, which used the word “moderate” to describe the pace of expansion, said Dana Saporta, U.S. economist at Credit Suisse Group AG in New York. “In Fed parlance, modest is a step down from moderate,” she said.
Confidence among U.S. consumers fell in August by the most in 10 months as households grew more pessimistic about their employment prospects and the economic outlook.
Bloomberg reported that the Conference Board’s index decreased to 60.6 from a revised 65.4 in July, figures from the New York-based private research group showed today. The 4.8-point decrease was the biggest since October. The reading was less than the most- pessimistic forecast in a Bloomberg survey in which the median projection was 66.
Rising gasoline prices, a jobless rate that’s been above 8% since the start of 2009 and limited income gains are keeping consumers glum. Persistent pessimism raises the risk of a pullback in household purchases that account for about 70% of the world’s biggest economy.
“The consumer is still very cautious,” said Jim O’Sullivan, chief U.S. economist for High Frequency Economics Ltd. in Valhalla, New York, who projected a drop in sentiment. “The labor market is still relatively weak. There’s a lot of uncertainty about policy ahead of the election” and fuel costs have accelerated, he said.
This month’s confidence reading was the lowest since November. Estimates for the Conference Board gauge ranged from 61 to 68 in the Bloomberg survey of 77 economists. The measure averaged 53.7 during the 18-month recession that ended in June 2009.