Economic Indicators, Stock Market & Investment Reports

6.29.2008

U.S. Consumer Confidence Plunged to 16 Year Low


The Conference Board, a private business-backed research group, announced on June 24 that its index of consumer confidence for the month sank to a 16-year low. The drop in the U.S. consumer confidence index to 50.4 in June leaves the index only just above prior cycle-lows of 47.3 in February, 1992, and 50.1 in May, 1980.




Scarce jobs, enormous gas prices, higher food prices, sinking home values have shaken consumers. The plunge in the consumer confidence index shows also deepening worries about inflation. The U.S. consumer confidence report provided a few more fresh records of public dreariness over growth and inflation prospects. Lower consumer confidence tends to result in lower consumer buying, which is a drag on the economy further down.


Current pessimism is focused straight on economic and inflation developments, as was the case through the stagflation years of the 1970s and the difficult 1980-1982 period. Throughout the 2001 recession, in contrast, the confidence drop that year reflected pessimism associated with the September 11 terrorist attacks rather than the economy in specific. Likewise, in the 1990 recession, public pessimism reflected concerns about the impending Gulf War in the aftermath of Iraq's invasion of Kuwait.

6.28.2008

Stagflation Threat: Inflation Accelerates While U.S. Economy Is Slowing Down


The U.S. overall consumer prices rose an unadjusted 4.2% in the year ended in May 2008. As expected, the largest contributor is increase in energy prices and food prices, which increased by 17.4% and 5.1% respectively from a year ago.

Core Inflation

Meanwhile “core” inflation has risen an unadjusted 2.3% over the last 12 months. The core inflation is increasingly seen as irrelevant. It measure inflation that excludes certain items which face volatile price movements and is most often calculated by taking the Consumer Price Index (CPI) and excluding certain items from the index, usually energy and food products as if their price increases are temporary. The core rate was introduced during the Nixon Administration, after the first oil shock

Import Inflation

Historically, recessions kill inflation because they hammer the job markets, depressing demand. This time the pressures are coming from outside the U.S. as global demand and prices are surging. The push is not only from oil, but also from a variety of commodities and other imports. Imports are already getting more expensive. Prices of imported raw materials, autos and other consumer goods are up. Weaker dollar pull further import prices.

The US overall Import Price Index rose 17.8% over the past 12 months ended in May, led by petroleum prices which were up 68.8% over the year. That was the biggest rise for petroleum import prices since an 82.5% rise for the year ending in February 2003. The cost of foreign goods excluding petroleum climbed at an annual rate of 6.6% in May, the fastest increase since 1990.

Global inflation has already hit a nine-year high of 4% annually, and it will rise further as the latest jump in oil prices works its way through world markets. Growth in emerging markets, fueled by booming domestic demand in China and hot Asian economies, is zipping along at about 7%. The high growth has been steamed from past easy monetary policies in emerging-market economies.

Stagflation Threat

The overall-inflation rate is dangerously high and the fastest pace since January. It indicates US economy could be afflicted with a stagflation, an expression generally used in the 1970s to describe the coexistence of high inflation and stagnant economic growth with high unemployment. Many economists have qualified their stagflation references in recent weeks with phrases such as mild stagflation, to differentiate current risks with the rampant inflation and high interest rate environment of the 1970s.

Inflation could play a big role in the economic growth outlook. Keeping inflation under wraps may require an extended period of weak growth. Lifting interest rates to fight inflation would risk extending the housing slump and the credit crunch, and it would lessen the chances for a solid recovery.

Chart: The Economist


6.09.2008

More Pain As American Jobs Vanished and Unemployment Surged


Unemployment posts its biggest monthly increase in 22 years (since February, 1986) as it jumped from 5.0 to 5.5 percent in May. The household survey indicated the number of
unemployed rose by 861,000 last month to 8.5 million. A year ago, the unemployment rate was 4.5 percent and the number of unemployed stood at 6.9 million.

The jobless rate is now at its peak in 3.5 years (since October 2004).




Job Losses


The report indicated 49,000 American non-farm jobs vanished in May. This last fall sustained the series of declines that now totals 324,000 for the first five
months of 2008. Payrolls declined in construction for the 16th month out of the last 20; and for manufacturing, this marked the 23rd consecutive month of net job losses for the period ending in May.



The shrinking payrolls, combined with the big jump in the unemployment rate reports put
instant downward pressure on capital market.

Workers will find it harder to get a job, a raise, or a bonus. The job losses and sharp rise in the unemployment add more burden to households as they have suffered from falling house prices, expensive borrowing, and soaring gasoline prices. These combined factors will continue to depress consumer spending. The job figures validate the American economy is already in a possibly long and deep recession.

6.05.2008

Culprits and Tolls of Record High Oil Price


Crude Oil price on the New York Mercantile Exchange spiked to a record high $131 a barrel on May 28, 2008. Within the two month prior to the record high, the oil price soared almost 30%. People are still difficult to digest that the oil price has been twice as expensive a year ago.



Culprits


As the oil prices hit the record high, people are looking for culprits that cause the surge. Many people believe supply and demand are driving the high oil price. As the world economy grows, especially in China, oil consumption follow through, which in turn bring to soaring in the oil prices. Meanwhile the U.S. domestic demand doesn’t show any sign of declining due to lack of substitute for oil.

Speculators and energy traders have been blamed for contributing to the painful run-up in oil prices. It’s true that oil future trading has shot up for the past five years as investors have poured money into oil and other commodities in searching a hedge against inflation and stock market slump. Inevitable, these market forces have driven the prices.

Other reports suggested that a week dollar has play role in the oil debacle. Considering that the dollar depreciation has not been as much as the oil price spike, the exchange rate effect might be moderate.



Tolls

Commuters of the middle and lower middle classes feel most of the pain of this oil price upsurge that is translated to soaring gas at the gas pump stations. Gas prices rose to a new record near $3.99, and are likely to hit $4 a gallon soon. Consumers don’t have other choices but keep pumping their cars with the high price gas. Households have to share the burden, as the expensive oil prices have increased almost of consumer goods.

This oil price run up has shaking businesses hard, especially automotive and airline industries. Automakers witness drastic drop in their sales in the past one year. General Motors decided to close four factories. Airlines feel direct blow of the oil rise; United Airline just said that it would scale back its operation by reducing its fleet. Other business sectors can’t escape from the heat of oil price; they have to pass through the escalated cost of energy to their costumers in order to survive.


This historic surge in oil prices inevitable would worsen U.S. economy that has been suffering from free falling house price and prolong the recession.

Chart: BusinessWeek

6.02.2008

House Prices Plunge

Since sub-prime mortgage bubble burst in 2007, house prices have persistently declined. The sub-prime mess, which was originated by high interest rate, has adversely affected the financial market. Since then the credit market has gotten dry as lenders apply more prudent lending standards and are busy to consolidate their books.

Recent data from the S&P/Case-Shiller National Home Price Index for 20 cities revealed that home prices are falling at accelerated rate. After dropping 5.4% in the forth quarter of 2007, home prices fell again 7% in the first quarter ending on March 31th, 2008. As the end of the first quarter, the prices have declined 16.6% since their 2006 peak and have fell a record 14.1% from a year earlier.


Although house prices have become more affordable and mortgage rates have declined in the past few months, the demand of houses has been weak. Credit crunch has been the major culprit. Banks have been consolidating their balance sheet and tightening credit standards that have made more difficult for home buyers to get new mortgages.

Homeowners' net-worth has shrink significantly as their house prices decline. To compensate the declining net-worth, they need to set aside a larger amount of their disposable income. The declining house value has also left the owners with almost no opportunity to use their houses to tap home equity loan, which was traditionally source of extra cash. As the households feel poorer, they curb discretionary spending. As a result, these households’ misery would keep slowing down economy in the foreseeable future.

Chart: BusinessWeek