The Federal Reserve stands ready to offer additional monetary support to a U.S. economy that has slowed significantly in recent months, Fed Chairman Ben Bernanke told lawmakers on Tuesday (July 17).
Reuters reported that Bernanke told the Senate Banking Committee the recovery was being held back by tighter financial conditions due to Europe’s debt crisis and uncertainty surrounding U.S. fiscal policy.
Financial markets had looked forward to Bernanke’s testimony for any signs the central bank was moving closer to a third round of bond purchases to support the economy. But the Fed chief hewed closely to the message of watchful waiting that the central bank’s policy panel delivered in June, and yielded few new clues.
“Reflecting its concerns about the slow pace of progress in reducing unemployment and the downside risks to economic growth, the committee made clear at its June meeting that it is prepared to take further action,” Bernanke said in his prepared remarks on the Fed’s semi-annual monetary policy report.
The Fed has held overnight borrowing costs near zero since December 2008 and has bought $2.3 trillion in government and mortgage-related debt in an effort to push long-term interest rates lower.
As the recovery faltered, it has promised to hold rates at rock bottom levels until at least last 2014 and has extended the average maturity of bonds in its portfolio in a further effort to depress long-term borrowing costs.
Despite the Fed’s support, the economy is growing too slowly to lower unemployment. U.S. gross domestic product expanded at a tepid 1.9% annual rate in the first quarter, and economists think its second quarter performance was even weaker.
Bernanke told lawmakers recent deterioration in the labor market suggests the nation’s 8.2% jobless rate will come down all too gradually, admitting for the first time that the softness could not be explained away by purely seasonal factors.
U.S. consumer sentiment cooled again in early July to its lowest level in seven months as Americans took a dim view of their finances and job prospects, a survey released on Friday showed.
According to Reuters, the Thomson Reuters/University of Michigan’s preliminary reading on the overall index on consumer sentiment fell to 72.0 from 73.2 in June, frustrating economists’ expectations for a slight gain to 73.4.
It was the lowest level since December 2011.
Only 19% of consumers expected to be financially better off in the coming year, the lowest proportion recorded by the survey. Americans were also gloomy about their longer-term prospects with 39% anticipating their situation would be better in five years.
“The greatest concern to consumers is that wage and job growth will remain depressed over the foreseeable future, and that these meager gains are likely to be further diminished in the years ahead by rising taxes and benefit cutbacks,” survey director Richard Curtin said in a statement.
The gauge of consumer expectations slipped to 64.8 from 67.8, also the lowest since last December.
While there was widespread recognition of an economic slowdown, that did not have a large impact on consumers’ economic outlook, and the barometer of current economic conditions rose to 83.2 from 81.5.
News of job losses was mentioned twice as frequently as job gains, the opposite of what was seen in the first six months of the year.
Americans can’t seem to shake their uneasy feeling about the economy.
The Associated Press reported that consumer confidence fell in June for the fourth straight month as worries about the economy outweighed relief at the gas pump, according to a private research group.
The Conference Board said Tuesday that its Consumer Confidence Index is at 62. That’s down from the 64.4 reading in May and the 63.2 analysts were expecting. The index remains well below the 90 reading that indicates a healthy economy — a level it hasn’t been near since the recession began in December 2007. But it’s far from the all-time low of 25.3 reached in February 2009.
The indicator is widely watched because consumer spending, including major items like health care, accounts for 70% of U.S. economic activity. The index illustrates that Americans are worried about hiring, home values, the stock market and a worsening European economy that some fear will hurt the U.S.
“Consumers were somewhat more positive about current conditions, but slightly more pessimistic about the short-term outlook,” said Lynn Franco, director of Economic Indicators at The Conference Board in a statement. “If this trend continues, spending may be restrained in the short-term.”
Worries about job and income growth seemed to weigh the heaviest on consumers in the index survey, which is based on a poll conducted from June 1 through June 14 with about 500 randomly selected people nationwide.
Still, Americans have some reasons to be optimistic. A widely watched home price index, released Tuesday, offered some hope for the housing market. Home prices rose in nearly all major U.S. cities in April, according to The Standard & Poor’s/Case-Shiller home price index. That’s the second straight month that prices have increased in a majority of U.S. cities.
Shoppers also are getting some relief at the gas pump. Gas prices have falling from their peak in early April. Gasoline prices fell 4 cents over the weekend to a national average of $3.41 per gallon, according to auto club AAA, Wright Express and the Oil Price Information Service. And experts say gas could fall another 11 cents by July 4, next week
The darkening clouds of the slowing economy could provide a bright spot for consumers: gasoline at $3 a gallon — or less — by autumn
USA Today reported that nationally, regular gasoline averages $3.47 a gallon, down 47 cents from this year’s high in April and well below the $5-a-gallon fears fanned earlier this year by energy speculators, Middle East tensions and oil refinery glitches that crimped supplies.
Those issues appear to be over, at least for now. Thursday, benchmark West Texas Intermediate crude oil fell 4 percent to $78.20 a barrel, the lowest price since early October and off 20% year-to-date. Coupled with slumping wholesale gasoline contracts for fall delivery, “the market is suggesting gas below $3 by Halloween, and certainly by Thanksgiving,” says Tom Kloza of the Oil Price Information Service.
With production up, oil inventories at 21-year highs and tepid consumer demand, gas prices have fallen for 11 weeks. They’re expected to drop more sharply after the peak summer driving season.
“Demand just isn’t there,” says Brian Milne of energy tracker Televent DTN, noting an Energy Department report that demand for fuel over the past four weeks has fallen 5% below year-ago levels. “It’s been dreadful.”
Barring supply disruptions heading into hurricane season — which helped drive pump prices to an all-time $4.11 high in July 2008 — consumers could soon be filling up at prices not seen since December 2010.
The expected slump in gas prices could have far-ranging impact, from consumer spending to the presidential elections, where debate over the swift price run-up early this year dominated much of the debate over which political party and energy policy could keep a lid on prices. Now, economists say plunging prices could provide a bit of a floor on the sputtering economy.
“You’re talking about roughly $114 billion in extra consumer spending power, and that’s a big deal if overall consumer spending is up 2% to 2.5% this year,” says Nigel Gault, chief U.S. economist at economic forecasters IHS Global Insight.
The Federal Reserve on Wednesday (June 20) took another unconventional step to boost the economy, and Fed Chairman Ben Bernanke said the central bank stood ready to take more action if needed.
MarketWatch reported that in the statement following its two-day meeting, the Fed said it would extend its holdings of long-term government bonds by $267 billion in another effort to bring down borrowing costs.
The Fed, which is selling an equal amount of short-term securities to hold steady the size of its $2.9 trillion balance sheet, is extending the “Operation Twist” program that was due to end in June through the end of the year.
Bernanke told reporters at his press conference that he was watching the labor market closely.
“We still do have considerable scope to do more and we are prepared to do more,” Bernanke said. “If we’re not seeing sustained improvement in the labor market that would require additional action.”
Keeping “Operation Twist” in place “should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative,” according to the central bank.
Recent economic data have been disappointing. At the moment, economists are forecasting a 2% growth rate in the second quarter. This would be the fourth quarter out of five where growth was at or below 2% — too slow a pace of growth to make a dent in the high unemployment rate.
In a statement, the Fed said that consumer spending has slowed, adding that it expected economic growth to pick up “very gradually.” “Consequently, the Fed anticipates that the unemployment rate will decline only slowly,” the statement said. The Fed’s now forecasting an unemployment rate between 8% and 8.2% this year — basically, no improvement from June’s level of 8.2%.
The Fed also noted that housing remained depressed. “Strains in global financial markets continue to pose significant downside risks to the economic outlook.”
“The Fed is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions,” the Fed said in what amounts to adopting an easing bias.
The Dow Jones Industrial Average closed Tuesday at a five-week high, which indicates markets had priced in a good part of the Fed’s action already.
Retail sales fell for a second straight month in May and wholesale prices dropped by the most in three years, raising prospects of additional monetary policy easing from the Federal Reserve to spur economic growth.
According to Reuters, the reports on Wednesday (June 12) added to a raft of other data, including employment and manufacturing, pointing to a downshift in the economic recovery. Consumer spending had been one of the key pillars of support for the economy in the first quarter, and the sales data led a number of economists to cut forecasts for second-quarter growth.
Analysts said the darkening outlook opened the door a bit wider to the possibility of a third round of so-called quantitative easing at a Fed meeting next week.
“We still believe the Fed would prefer to wait a bit longer on QE3 to see how the domestic and global situations play out, but the weak data certainly strengthen the argument for action,” said Michelle Girard, senior economist at RBS in Stamford, Connecticut.
Retail sales slipped 0.2% as demand for building materials sagged and declining gasoline prices weighed on receipts at service stations, a Commerce Department report showed. April’s sales were revised to show a 0.2% drop instead of the previously reported 0.1% gain.
Motor vehicle sales rose 0.8%, a surprise given that manufacturers reported weak unit sales during the month. Excluding autos, sales fell 0.4%, the biggest decline in two years, after dropping 0.3% the prior month.
Federal Reserve Chairman Ben Bernanke cited significant risks to the U.S. economic recovery but stopped short of signaling Fed action to combat them during testimony on Capitol Hill Thursday (June 7), according to an Associated Press report.
When asked whether the Fed is planning to take more measures to boost growth, Bernanke said he and his colleagues “are still working” on that question ahead of their June 19-20 meeting. The main question they need to answer, he said, is whether the economy will be strong enough to make material progress on bringing down unemployment.
“We have a number of different options” for action if they decide to move, he told Congress’s Joint Economic Committee. “At this point I really can’t say anything is off the table.”
In his prepared testimony, he said the risks to the recovery included the financial turmoil in Europe and uncertain U.S. fiscal policy, and he said the Fed remained “prepared to take action” to protect the U.S. economy and financial system if stresses escalate.
In all, Bernanke’s comments were more restrained than those offered this week by some other Fed officials, including remarks Wednesday evening by Fed Vice Chairwoman Janet Yellen, who laid out detailed arguments for why the Fed might take new actions to bolster the economy and protect it from risks to growth. She said risks to the economic outlook may require the Federal Reserve to take additional steps to “insure against adverse shocks.”
Other Fed officials also have spoken openly about the possibility of taking further action in the wake of a stream of disappointing economic data, including last week’s disappointing May jobs report. They will update their forecasts for economic growth at the coming meeting and Bernanke will hold a press conference afterward.
The U.S. economy looks poised to continue growing at a “moderate” pace this year, the Fed chief said at the hearing. He pointed to headwinds constraining the recovery, including a weak housing market and concerns about the health of the European banking system. And he warned that the recovery may now be at a point where faster economic growth is needed to produce significant improvements in the job market.
The U.S. economy expanded at a moderate pace between early April and late May, though turmoil in Europe and political uncertainty in the U.S. worried some employers, the Federal Reserve said in a report released Wednesday (June 6).
As reported by The Wall Street Journal, the economy expanded at a moderate or modest pace in the central bank’s 12 districts, the Fed said in its latest beige-book report, based on anecdotes collected from business contacts and economists spread across the nation.
Hiring was steady and manufacturing continued to expand in most districts, with particular strength in auto and steel manufacturing, the Fed said in the report.
“Economic outlooks remain positive, but contacts were slightly more guarded in their optimism,” the beige book noted. For instance, while manufacturers experienced gains in production and new orders in most regions, “contacts in a number of districts were concerned that a slowdown in Europe and domestic political uncertainty may affect future business conditions.”
The report noted steady growth or improvements in many corners of the economy, including consumer spending, travel and tourism, agricultural conditions, loan demand and credit conditions, and residential and commercial real estate. Over all, wage pressures and price inflation were “modest,” and overall cost pressures eased as the price of energy declined, the Fed noted.
To view the entire article in The Wall Street Journal click here.
Confidence among U.S. chief executive officers in the first quarter climbed to the highest level in almost three years, a private survey shows.
Bloomberg News reported that the Young Presidents’ Organization said last week that higher expectations for the economy, sales and labor market helped push up its Global Pulse Index of U.S. sentiment to 65.1, the strongest since the survey began in July 2009, from 62.2 in the prior three months. Readings greater than 50 show the outlook was more positive than negative. The Dallas-based group’s gauge of sales in the coming 12 months advanced to 71, the highest since records began, from 67.8 in the previous quarter.
Fifty-six percent of the executives surveyed said the economy would improve in the next six months, up from 51% in the prior period. More optimism among businesses may help encourage faster growth in payrolls, which grew in April at the slowest pace in six months.
“Confidence among U.S. CEOs shrank in the second and third quarters of last year in response to a variety of factors, but that has changed over the past two quarters,” Stephen Slifer, YPO Global Pulse economic adviser and chief economist at NumberNomics, said in a statement. “GDP is growing again.”
While the Labor Department’s data showed a weaker-than-projected 115,000 gain in April employment, according to the Bloomberg News survey median, the YPO’s employment index increased to 61.6, also the highest since records began, from 59.8. A measure of capital spending plans climbed to 63 in the first quarter from 60.5 in the prior three months.
The gain in the U.S. gauge helped boost it above the YPO’s Global Confidence Index, which increased to 63.8 at the beginning of 2012 from 61.2 in the fourth quarter.
The non-profit service organization’s findings for the U.S. were based on responses to an electronic survey conducted during the first half of April.
The U.S. economy will grow faster than expected this year, despite the headwinds of higher gas prices and Europe’s financial crisis, according to USA Today’s quarterly survey of economists.
Their median estimates are higher than in January for everything from this year’s business investment to hiring.
Economists think job growth for the rest of the year will be about 20% stronger than they did after Christmas.
The economy is strengthening enough that two-thirds expect the Federal Reserve to raise interest rates sooner than its late-2014 target, although none expects it to happen at this week’s Fed meeting Tuesday and Wednesday.
The biggest reason: Consumers have bought more vehicles and gone out to eat more often, even though gas prices had been expected to make them spend less, says Jeff Rosen, an economist at Briefing Research in Chicago.
“Things are getting better,” Rosen says. “The economy is picking up and hiring is going to be on the rise.”
Median estimates — the point where half are below and half above — of the 50 economists surveyed forecast:
•The economy will grow 2.5% this year vs. their 2.3% forecast three months ago.
•Employment gains averaging 185,000 new jobs a month through December, 29,000 more than economists forecast in January.
•Unemployment averaging 8% in the fourth quarter vs. 8.2% now.
•Regular gasoline at an average of $4 a gallon on July 4 and $3.80 on Election Day. Sunday’s average was $3.86, according to AAA.
To read the entire article in USA Today click here.