WASHINGTON (AP) - Fears that the economic recovery is fizzling grew Thursday after the government and private sector issued weak reports on a number of fronts.
Unemployment claims are up, home sales are plunging without government incentives and manufacturing growth is slowing.
Meanwhile, 1.3 million people are without federal jobless benefits now that Congress adjourned for a weeklong Independence Day recess without passing an extension. That number could grow to 3.3 million by the end of the month if lawmakers can't resolve the issue when they return.
All of this worries economists. As jobless claims grow and benefits shrink, Americans have less money to spend and the economy can't grow fast enough to create new jobs. Some are revising their forecasts for growth in the third quarter. Others are afraid the country is on the verge of falling back into a recession.
"We find the level and direction in jobless claims somewhat troubling and the increase is likely to feed double-dip fears," said John Ryding, an economist at RDQ Economics in a note to clients.
New claims for benefits jumped by 13,000 to a seasonally adjusted 472,000, the Labor Department said Thursday. The four-week average, which smooths fluctuations, rose to 466,500, its highest level since March.
Claims have remained stuck above 450,000 since the beginning of the year. Requests for unemployment benefits dropped steadily last year after reaching a peak of 651,000 in March 2009. Economists say they will feel more confident about sustained job growth when initial claims fall below 425,000
Adding to that is the growing number of people who stand to lose government support while they search for work.
For the third time in as many weeks, Senate Republicans blocked a bill Wednesday night that would have continued unemployment checks to people who have been laid off for long stretches. The House is slated to vote on a similar measure Thursday, though the Senate's action renders the vote a futile gesture as Congress prepares to depart Washington for its holiday recess.
During the recession, Congress added up to 73 weeks of extra benefits on top of the 26 weeks typically provided by states. Democrats in the House and Senate want them extended through November. Republicans want the $34 billion cost of the bill to be paid for with money remaining from last year's stimulus package. Democrats argue that it is emergency spending and should be added to the deficit.
Some economists say they may revise their forecasts for growth in the third quarter if the benefits are not extended.
"People whose benefits are going to run out will simply not have the spending power necessary to help drive growth," said Dan Greenhaus, chief economic strategist at Miller Tabak.
The housing market is also weighing on the economy. The number of buyers who signed contracts to purchase homes tumbled 30 percent in May, the National Association of Realtors said. And construction spending declined 0.2 percent in May as residential building fell, the Commerce Department said.
Both were affected by the expiration of government incentives to buy homes. Buyers had until April 30 to sign sales contracts and qualify for tax credits.
The tax credit's impact also showed up in the jobless claims report. Greater layoffs by construction firms fueled the increase, a Labor Department analyst said.
Separately, the Institute for Supply Management, an industry trade group, said its manufacturing index slipped in June. But it is still at a level that suggests growth in the industrial sector, which has helped drive the economic recovery.
Surveys released Thursday in China showed a slowdown in factories' growth as exports faltered and analysts worry that cutbacks in government lending will cool the economy's rapid rise. Reports from Markit Economics also indicated that manufacturing sector growth in India, South Korea, Australia and Taiwan was slowing.
The industrial sector's growth also cooled slightly in the 16 countries using the euro and the United Kingdom.
The troubling information on the economy comes a day before the Labor Department is scheduled to release the June jobs report. That is expected to show a modest rebound in private-sector hiring. Overall, employers are expected to cut a net total of 110,000 positions, but that includes the loss of about 240,000 temporary census jobs. Private employers are projected to add 112,000 jobs, according to a survey of economists by Thomson Reuters.
That would be an improvement from May, when businesses added only 41,000 workers. But the economy needs to generate at least 100,000 net new jobs per month to keep up with population growth, and probably twice that number to bring down the jobless rate.
The unemployment rate is expected to edge up to 9.8 percent from 9.7 percent in May.
Layoffs are rising in the public sector, as states and local governments struggle to close persistent budget gaps. New York City approved a budget Tuesday that cuts about $1 billion in spending and would eliminate 5,300 jobs from the city's 300,000-person work force.
Thursday, July 1, 2010
WASHINGTON (AP) - Fears that the economic recovery is fizzling grew Thursday after the government and private sector issued weak reports on a number of fronts.
Today has turned into a stock market roller coaster ride. I think the market may be somewhat oversold. It needs time to digest the data. I wouldn't be surprised to see a temporary bump before we continue downward. Just after this pic, prices started to drop again.
The pending home sales index is a leading indicator for sales of existing homes, which are recorded at the time of the closing.
The Labor Department said Thursday that new claims for jobless benefits jumped by 13,000 to a seasonally adjusted 472,000. The four-week average, which smooths fluctuations, rose by 3,250 to 466,500, its highest level since March.
WASHINGTON (Reuters) - New claims for state unemployment aid unexpectedly rose last week, heightening fears the U.S. economic recovery is stalling.
Initial claims for state unemployment benefits increased 13,000 to a seasonally adjusted 472,000, the Labor Department said on Thursday.
Analysts polled by Reuters had expected claims to slip to 452,000 from the previously reported 457,000, which was revised slightly up to 459,000 in Thursday's report.
Wednesday, June 30, 2010
The national debt will reach 62 percent of gross domestic product (GDP) by the end of this year, the nonpartisan Congressional Budget Office (CBO) said Wednesday.
The budget office said the debt will reach its highest percentage of GDP since the end of World War II. The jump is driven by lower tax revenues and higher federal spending in the recent recession.
And while the national debt would stabilize at 67 percent of GDP over the next decade if current law were maintained, extending tax cuts enacted during the administration of President George W. Bush and keeping growth in appropriations in line with inflation would mean that the debt would reach almost 90 percent of GDP by 2020.
Moody's Investors Service put Spain's Aaa credit rating on review for a possible downgrade because of flagging economic prospects, challenging fiscal targets and rising funding costs.
The move follows Fitch Ratings' downgrade of Spain from the coveted top rating late last month. That one-notch cut added pressure to the euro and stocks.
WASHINGTON (MarketWatch) -- U.S. private-sector firms created 13,000 more jobs in June, according to the ADP employment report released Wednesday. Job growth was "disappointingly weak," said Joel Prakken, chairman of Macroeconomic Advisers, which produces the report from anonymous payroll data supplied by ADP. Private-sector job growth was revised higher in May to 57,000 from 55,000 earlier. Economists are expecting nonfarm payrolls to fall by 130,000 when the government reports its estimates on Friday, including the loss of some 250,000 temporary workers at the Census Bureau. Private-sector employment has increased five months in a row.
Tuesday, June 29, 2010
This is what launched the Tea Party movement, when Rick Santelli ranted about being compelled to pay someone else's mortgage. How ironic that Steve Liesman, Rick's colleague and opponent that day, would write this.
For American taxpayers, now on the hook for some $145 billion in housing losses connected to Fannie Mae and Freddie Mac loans, that amount could be just the tip of the iceberg.
That's a BIG drop, much more than I was expecting. Perhaps America is awakening to the awful reality that they made the most catastrophic error of a generation in November 2008! Hope doesn't buy much at the grocery store!
WASHINGTON (MarketWatch) -- U.S. consumers are increasingly worried about jobs and the economy, the Conference Board said Tuesday, as it reported that its consumer confidence index plummeted to 52.9 in June - the lowest level since March -- from a downwardly revised 62.7 in May. "Increasing uncertainty and apprehension about the future state of the economy and labor market, no doubt a result of the recent slowdown in job growth, are the primary reasons for the sharp reversal in confidence," said Lynn Franco, director of Conference Board's consumer research center. "Until the pace of job growth picks up, consumer confidence is not likely to pick up." Earlier this month the government reported that nonfarm payrolls grew by a seasonally adjusted 431,000 in May, but most of the new jobs were temporary jobs at the U.S. Census, with very weak private-sector hiring.
Monday, June 28, 2010
U.S. consumers resumed spending at a gradual pace in May thanks to a healthy rise in incomes and continued low prices.
Consumer spending, a key growth engine for the U.S. economy, was up 0.2% last month after a flat reading in April, the Commerce Department said in a report Monday. Incomes rose 0.4% in May, helped by slow improvements in the jobs market, following a 0.5% increase in April.
Alas, the latest desperation attempt from the Fed! It amazes me that despite quantitative easing being an abject failure everywhere central bankers have tried it, they keep doing it anyway!
from Ambrose Evans-Pritchard at the UK Telegraph:
Bernanke began putting the script into action after the credit system seized up in 2008, purchasing $1.75 trillion of Treasuries, mortgage securities, and agency bonds to shore up the US credit system. He stopped far short of the $5 trillion balance sheet quietly pencilled in by the Fed Board as the upper limit for quantitative easing (QE).
Investors basking in Wall Street's V-shaped rally had assumed that this bizarre episode was over. So did the Fed, which has been shutting liquidity spigots one by one. But the latest batch of data is disturbing.
The ECRI leading indicator produced by the Economic Cycle Research Institute plummeted yet again last week to -6.9, pointing to contraction in the US by the end of the year. It is dropping faster that at any time in the post-War era.
The latest data from the CPB Netherlands Bureau shows that world trade slid 1.7pc in May, with the biggest fall in Asia. The Baltic Dry Index measuring freight rates on bulk goods has dropped 40pc in a month. This is a volatile index that can be distorted by the supply of new ships, but those who watch it as an early warning signal for China and commodities are nervous.
Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely because the Fed is soon going to have to the pull the lever on "monster" quantitative easing (QE)".
"We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy. Think the unthinkable," he said in a note to investors.
Roberts said the Fed will shift tack, resorting to the 1940s strategy of capping bond yields around 2pc by force majeure said this is the option "which I personally prefer".
A recent paper by the San Francisco Fed argues that interest rates should now be minus 5pc under the bank's "rule of thumb" measure of capacity use and unemployment. The rate is currently minus 2pc when QE is factored in. You could conclude, very crudely, that the Fed must therefore buy another $2 trillion of bonds, and even more if Europe's EMU debacle goes from bad to worse. I suspect that this hints at the Bernanke view, but it is anathema to hardliners at the Kansas, Richmond, Philadephia, and Dallas Feds.
Societe Generale's uber-bear Albert Edwards said the Fed and other central banks will be forced to print more money whatever they now say, given the "stinking fiscal mess" across the developed world. "The response to the coming deflationary maelstrom will be additional money printing that will make the recent QE seem insignificant," he said.
Despite the apparent rift with Europe, the US is arguably tightening fiscal policy just as hard. Congress has cut off benefits for those unemployed beyond six months, leaving 1.3m without support. California has to slash $19bn in spending this year, as much as Greece, Portugal, Ireland, Hungary, and Romania combined. The states together must cut $112bn to comply with state laws.
The Congressional Budget Office said federal stimulus from the Obama package peaked in the first quarter. The effect will turn sharply negative by next year as tax rises automatically kick in, a net swing of 4pc of GDP. This is happening as the US housing market tips into a double-dip. New homes sales crashed 33pc to a record low of 300,000 in May after subsidies expired.
It is sobering that zero rates, QE a l'outrance, and an $800bn fiscal blitz should should have delivered so little. Just as it is sobering that Club Med bond purchases by the European Central Bank and the creation of the EU's €750bn rescue "shield" have failed to stabilize Europe's debt markets. Greek default contracts reached an all-time high of 1,125 on Friday even though the €110bn EU-IMF rescue is up and running. Are investors questioning EU solvency itself, or making a judgment on German willingness to back pledges with real money?
Clearly we are nearing the end of the "Phoney War", that phase of the global crisis when it seemed as if governments could conjure away the Great Debt. The trauma has merely been displaced from banks, auto makers, and homeowners onto the taxpayer, lifting public debt in the OECD bloc from 70pc of GDP to 100pc by next year. As the Bank for International Settlements warns, sovereign debt crises are nearing "boiling point" in half the world economy.
Fiscal largesse had its place last year. It arrested the downward spiral at a crucial moment, but that moment has passed. There is a time to love and a time to hate, a time for war and a time for peace. The Krugman doctrine of perma-deficits is ruinous - and has in fact ruined Japan. The only plausible escape route for the West is a decade of fiscal austerity offset by helicopter drops of printed money, for as long as it takes.
Some say that the Fed's QE policies have failed. I profoundly disagree. The US property market - and therefore the banks - would have imploded if the Fed had not pulled down mortgage rates so aggressively, but you can never prove a counter-factual.
The case for fresh QE is not to inflate away the debt or default on Chinese creditors by stealth devaluation. It is to prevent deflation.
Bernanke warned in that speech eight years ago that "sustained deflation can be highly destructive to a modern economy" because it leads to slow death from a rising real burden of debt.
At the time, the broad money supply war growing at 6pc and the Dallas Fed's `trimmed mean' index of core inflation was 2.2pc.
We are much nearer the tipping today. The M3 money supply has contracted by 5.5pc over the last year, and the pace is accelerating: the 'trimmed mean' index is now 0.6pc on a six-month basis, the lowest ever. America is one twist shy of a debt-deflation trap.
There is no doubt that the Fed has the tools to stop this. "Sufficient injections of money will ultimately always reverse a deflation," said Bernanke. The question is whether he can muster support for such action in the face of massive popular disgust, a Republican Fronde in Congress, and resistance from the liquidationsists at the Kansas, Philadelphia, and Richmond Feds. If he cannot, we are in grave trouble.
Paul Krugman today in a NYT editorial:
We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.
To be fair to Krugman, he says that this Depression will be because we haven't spent enough! Hurry, someone, feel his forehead!