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.
Editor’s Note: The following is an excerpt from a Sunday feature in Indiana’s Elkhart Truth offering a snapshot of the area’s economy as it recovers from the devastating unemployment and impact on its manufacturing base during the “Great Recession.” To view the entire article click here.
No one seems ready to exhale.
Most everyone can point to signs of an economic rebound around Elkhart County, with new jobs, business expansions and brightening attitudes about the future, but many are still holding their breath. While they see the community improving, they worry about a number of events and possibilities that could reverse the recovery.
Alex Strati, president for the northern region at Old National Bank, explained the hesitancy that consumers and businesses owners are feeling. The headwinds created by the presidential election and climbing fuel prices are giving people pause but, at the same time, the steady, upward performance of the stock market is giving them confidence about their investments.
Indeed, the bank has budgeted for growth this year, although that growth is anticipated to be modest.
“I really do think we are on the right track,” Strati said. “It’s much better than it was.”
Other professionals in the area hold similar opinions. They, too, believe things are better but challenges remain.
Pain at the Pump
With gas prices surpassing $4 a gallon and three suppliers hiking the price of their products as a result, Bill Dawson, vice president and general manager at Clean Seals Inc. in South Bend, is fearful another recession could bloom.
“If oil prices keep going up, it will derail what we have done,” he said.
He has met with his employees and prepared them for the possibility that if the economy sinks, everyone will take a pay cut. The smaller paychecks and fewer hours that were the norm during the recession could return if fuel prices drag down the recovery.
What happens at the pump ripples through the entire economy, Dawson noted. Consumers will be putting more money into their gas tanks and have less to spend on clothes, extra food and leisure activities like eating out.
Looking at his Elkhart County-based customers, Dawson believes fuel costs will eventually whack the recreational vehicle industry. Not only will gas crimp how much money consumers have for making a discretionary purchase of a motorhome or travel trailer, it will force manufacturers to pay more for every component that goes into a unit.
“I’m not trying to paint doom and gloom,” he said. “I think the economy is headed up but it’s very fragile.”
Even if the gas crisis eases and the economy continues to strengthen, Dawson doubts Elkhart County will boom like it once did. Still, he admires the work ethic and willingness to change to meet the demands.
“I don’t know of any place that has people like Elkhart County,” he said.
Looking for Workers
The people he sees walking along Middlebury Street in the afternoon draw special admiration from Scott Welch, president and CEO of Elkhart-based Welch Packaging Group Inc. In fact, he said he wants to hug them because they are making the effort to get and keep a job.
Surprisingly in the city with 12.1 percent unemployment, Welch said he is having trouble finding good candidates to fill the 10 to 15 positions he has open locally. Many of the people who submit applications, he said, have work histories that indicate they collect a paycheck until they qualify for unemployment. Then they quit.
“We’re trying to find people who want to work for the next 10 to 20 years and we’re not finding a very big pool,” Welch said.
The problem was common when unemployment was 4 to 5 percent and, after being dormant for the past couple of years, has cropped up again. It has reached such a point that recently Welch called company officials into a brainstorming session to figure out ways to attract people.
Over time, the difficulty finding workers could mean projects will get shifted from the Elkhart plant to Welch Packaging’s other operations across the Midwest. Plants in Cleveland, Chicago and Toledo, for example, Welch said, do not share Elkhart’s unique problem of finding people to employ.
“We have the work if we have the people,” he said.
To view the entire article click here.
U.S. consumers boosted their spending in February by the most in seven months. But Americans’ income barely grew, and the saving rate fell to its lowest point in more than two years.
The Associated Press reported that the Commerce Department said Friday (March 30)that consumer spending rose 0.8% last month. Income grew 0.2%, matching January’s weak increase. And when taking inflation into account, income after taxes fell for a second straight month.
Still, consumers are spending more after the best three-month hiring stretch in two years. Paul Dales, an economist at Capital Economics, suggested that estimated annual growth for the economy in the current January-March quarter may be revised up — to around 2.5%, compared with earlier estimates of about 2 percent.
Dales cautioned, though, that at some point, consumers won’t be able to draw further on their savings. Further job gains are needed to boost consumers’ income.
Some of the higher spending last month reflected surging gas prices. But consumers spent more on other goods and services, too. After excluding inflation, which was due mainly to gas prices, spending rose a solid 0.5%.
Consumer spending drives 70% of economic activity.
Stocks rose on Monday (March 26), rebounding from last week’s decline, after Federal Reserve Chairman Ben Bernanke suggested the central bank would continue supportive monetary policies, even as the unemployment rate improves.
The U.S. economy needs to grow more quickly if it is to produce enough jobs to bring down the unemployment rate further, Bernanke told a gathering of the National Association for Business Economics.
“Further significant improvements in the unemployment rate will likely require a more rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies,” he said.
Jim Russell, chief equity strategist at U.S. Bank Wealth Management in Cincinnati, said Bernanke’s comments reinforced investors’ perception that the Fed’s policy would remain accommodative and possibly include further quantitative easing, or QE3.
“The mandate of the Fed regarding unemployment has not been fulfilled, and Bernanke is looking under every rock to responsibly fulfill that portion of the mandate,” Russell said. “He continues to leave QE3 on the table, which will be used on an as-needed basis.”
The uneven U.S. economic recovery will have to pick up in order to quickly bring down an unacceptably high jobless rate, Federal Reserve Chairman Ben Bernanke said on Wednesday (Feb. 29).
“The job market is far from normal,” he said in comments prepared for delivery to the House of Representatives Financial Services committee.
MSNBC reported that Bernanke’s remarks suggested another round of Fed bond buying to stimulate growth is not off the table as policymakers assess whether job market gains will persist.
The drop in the unemployment rate, which fell to 8.3% in January, is more rapid than would be expected given the economy’s sluggish rate of growth, Bernanke said.
“Continued improvement in the job market is likely to require stronger growth in final demand and production,” he said.
Sustaining a highly accommodative monetary policy stance is consistent with the Fed’s goals of achieving full employment with low and steady inflation, he said. The Fed believes rates near zero will be appropriate through at least late 2014, he added.
A recent rise in oil prices due to geopolitical tensions may raise inflation for a time and curb consumption, Bernanke said.
“Gasoline prices have moved up … a development that is likely to push up inflation temporarily while reducing consumers’ purchasing power,” he said.
At its last policy-setting meeting in late January, the Fed said it isn’t likely to raise benchmark interest rates – which have hovered near zero since December 2008 – until at least late 2014.
Bernanke, in a press conference following the meeting, left open the possibility the central bank could launch another round of bond buying if the weak recovery falters or if inflation begins to fall below the Fed’s 2% target.
The job market is looking a little brighter at the start of the new year.
The Associated Press reported that weekly unemployment benefit applications have fallen to levels last seen more than three years ago. Holiday sales were solid. Service companies grew a little faster in December. And many small businesses say they plan to add jobs over the next three months.
The mix of private and government data released Thursday sketched a picture of an economy that is slowly strengthening, stoking optimism one day ahead of the government’s important read on December job growth.
“Businesses have increased hiring to meet the underlying pick-up in (consumer) demand,” said Neil Dutta, an economist at Bank of America Merrill Lynch.
The mostly positive reports had little impact on financial markets. Traders seemed more focused on the debt crisis in Europe, which could slow U.S. growth later this year. The Dow Jones industrial average dropped 37 points in midday trading. Broader indexes were mixed.
Weekly applications for unemployment benefits dropped to a seasonally adjusted 372,000 last week, the Labor Department said Thursday. That’s 11% lower than the same time last year.
The four-week average, which smooths fluctuations, fell to 373,250 — the lowest level since June 2008.
When applications drop below 375,000 — consistently — they generally signal that hiring is strong enough to reduce the unemployment rate.
Banks are lending again.
USA Today reported that after three years of Scrooge-like underwriting following 2008’s financial crisis, banks have turned on the spigot, boosting lending at annual rates as high as 8.2% since July, according to Federal Reserve statistics.
Lending had fallen from mid-2008 through this year’s second quarter, deepening what became the worst recession since the Great Depression. The data seem to allay fears that making banks keep more capital on their books as a cushion against future downturns and loan losses will take away the cash flow businesses need to keep the recovery moving.
Among the reasons: The economy is improving, while smaller banks have positioned themselves to pick up slack left as bigger banks remain cautious, says Stuart Hoffman, chief economist at Pittsburgh-based PNC Financial. The most bullish part of the upturn is that it occurred when banks knew the Fed was preparing for last week’s preliminary announcement of tougher new capital standards, he says.
“What the Fed did was well-advertised,” Hoffman says. “As for any sudden negative effect on lending, that’s not going to happen.”
The sharpest improvement has come in business lending, raising hopes that it can spur increased capital investment, the seed corn of business expansions. Commercial and industrial loans grew at an annualized pace of more than 20% in August and more than 15% in October, the best growth since early 2008. In between, commercial lending dropped 19% in 2009 and an additional 9% last year.
Even small businesses have seen a difference, says Bill Dunkelberg, chief economist of the National Federation of Independent Business. In a monthly NFIB survey, only 3% of small-business owners say lack of credit is their most important problem, trailing taxes, regulation and still-sluggish demand.
The last one especially is making entrepreneurs wary of borrowing, he says: Only 12% think business will be better in six months than it is now.
USA Today reported that amall businesses are also missing out on the cheap money that homeowners are seeing, he says, with commercial loan rates above 6%.
“Two-thirds of business owners say, ‘Who wants a loan?’ ” says Dunkelberg, who is also chairman of a small Pennsylvania bank. “In thirty years, I’ve never seen anything like it. The banks all have money to lend, but there’s a shortage of eligible customers coming in.”
The fewest workers in three years filed claims for U.S. jobless benefits last week, indicating the world’s largest economy is strengthening heading into 2012.
Bloomberg reported that the number of applications for unemployment payments dropped by 19,000 to 366,000 in the week ended Dec. 10, less than the lowest forecast of economists surveyed by Bloomberg News and the least since May 2008, according to Labor Department figures issued today in Washington. Other reports showed manufacturing accelerated this month after pausing in November.
“The U.S. economy, unlike the rest of the world, is gathering momentum as we head toward year-end,” said Eric Green, chief market economist at TD Securities Inc. in New York. “The labor market is improving sharply,” he said, and “we look for gains in industrial production.”
A reduction in firings may pave the way for an increase in employment that will help spur consumer spending, which accounts for about 70% of the economy. Lean inventories and growing demand may probably spark gains in production that will keep factories at the forefront of the expansion.
The Federal Reserve is holding off on any new actions to help the economy because stronger growth is giving it time to gauge the impact of steps it’s already taken. The Associated Press reported that Fed policymakers made the announcement after a two-day meeting.
In a statement released Wednesday, the officials said the economy has strengthened and consumers have stepped up spending. But they said the economy continues to face significant downside risks, including strain in global financial markets — a reference to the crisis in Europe.
The Fed left open the possibility of taking further steps later to try to boost the sluggish economy. But it gave no hint as to what those moves might be.
The vote was 9-1. Charles Evans, the president of the Chicago Federal Reserve Bank, dissented. The statement said he wanted to take stronger action.
After their September meeting, the policymakers said they would shuffle the Fed’s investment portfolio to try to further reduce long-term interest rates. And in their previous meeting in August, they had said they plan to keep short-term rates near zero until at least mid-2013, unless the economy improved.
The Fed repeated the mid-2013 target in its statement Wednesday, and also said it was continuing its program to rebalance its portfolio to try to lower long-term rates.
The Fed has kept its key short-term interest rate at a record low since December 2008. This is the rate that banks charge on overnight loans. It serves as the benchmark for millions of business and consumer loans.
Later today, the Fed will also release its economic forecasts and Chairman Ben Bernanke will hold a news conference.
The debt crisis in Europe could force the Fed to lower its economic projections. The Greek prime minister’s surprise move to call a referendum on the country’s latest rescue plan sparked fears that the debt deal could unravel, that Greece could default on its debt and that the crisis could infect the global financial system.
Even if Europe dodges a financial catastrophe, many economists think it’s headed for a recession that would affect the U.S. and global economies. The Fed expressed such concerns after its August meeting.
Still, the Fed remains deeply divided over what, if any, action to take next. The actions taken in August and September were adopted on 7-3 votes, the most dissents in nearly 20 years.
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.”
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.”
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.
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.”