Economic Indicators, Stock Market & Investment Reports
Second quarter GDP swelled 3.3 percent at an annual rate, revised up from the 1.9 percent in previous reports, the Commerce Department said on Thursday. That came on the heels of 0.9 percent growth in the first quarter, meaning the economy grew at more than a 2 percent annual rate during the first half of the year.
U.S. stocks posted solid gains Thursday, with the major indexes surged more than 1 percent led a rally in financial, retailers, and oil refiners shares. The surprisingly strong U.S. growth reading was welcoming news released at a time when many economists thought it would shrink.The upward revision to GDP was largely due to increased exports and larger inventory accumulation. The strength in the quarter was also fueled by stimulus checks that brought extra cash in consumers' wallets.The economy still has to face challenges in the months ahead. Weak consumer fundamentals is expected in the second half of the year as the effects of federal stimulus checks fade, while export growth will probably cool as the global economy slows and the U.S. dollar strengthens.Two consecutive quarterly declines in GDP is the popular definition of recession, though the National Bureau of Economic Research uses a more complicated gauge to make its official determination, usually several months after the fact.Gross Domestic Income (GDI)
Although revised second quarter gross domestic product (GDP) figures suggest the U.S. is nowhere near a recession and may even have grown faster than its non-inflationary potential, gross domestic income (GDI) shows significant weakness. GDI advanced just 1.9 percent at an annual rate last quarter after contracting the two previous quarters. Thursday’s report is the first to show first quarter GDI in the red.
Gross domestic income is an alternate measure the Federal Reserve looks at. Fed officials have in the past highlighted GDI as perhaps a better measure than GDP. Fed paper released last year indicates that real-time GDI has done a substantially better job recognizing the start of the last several recessions than has real-time GDP.
Therefore, despite of GDP growth, the forecasts of a shrinking economy may not be so far off the mark after all.
GDP Vs. GDI
GDP is a consumption-based measure, adding up consumer, business and other spending and investment as well as net exports. GDI is income-based, adding up things like personal income and corporate profits. GDI is included in quarterly GDP report, but not in the first, or “advance,” estimate, so Thursday’s report was the first for second quarter GDI.
In theory, the two should equal each other, but they don’t always. In recent quarters, net exports seem to be the main reason, since they go directly into GDP but only indirectly into GDI. In addition, GDI more heavily reflects corporate profits than GDP does. Before-tax corporate profits grew slightly in the second quarter after falling the previous two quarters.
U.S. consumer confidence rose in August, the second consecutive month of gains, the Conference Board reported Tuesday. The August consumer confidence index rose to 56.9 from a July reading of 51.9.
The percentage of consumers saying jobs are "hard to get" rose to 32 percent in August from 30.2 percent in July. Meanwhile, the percentage of consumers expecting business conditions to worsen over the next six months fell to 25.8 percent from 32.4 percent.
The level remained relatively low and job concerns persisted. The results showed that consumers had a bleak view of the current economy, but harbored better hopes for the future. They may be showing signs of improvement by early next year.
The index was based on a survey of 5,000 U.S. households conducted by TNS for the New York-based Conference Board, a business research organization. The index uses 1985 as its benchmark, setting the index at 100. Any score above 50 means growth, while a score below 50 signals a decline.
Confidence measures are generally viewed as a barometer of consumer spending, which accounts for two-thirds of the U.S. economy. However, economists note that consumers do not always act in accordance with their statements to surveys.
The index of U.S. leading economic indicators fell 0.7 percent in July, pointing to "slow growth the rest of the year, and possibly an economy grinding to a halt," the Conference Board, a private-research firm, reported Thursday, August 21, 2008. The index decline has been the sharpest since the credit crunch began at the end of last summer, August 2007.
Five of the ten indicators declined in July, led by building permits and stock prices. Building permits, a sign of future construction, fell 18 percent in July, while work began on the fewest houses in 17 years. A 0.25 percentage point drag came from the Standard & Poor's 500 index; its July average was down to 1257.3 from June's 1341.2.
The big declines in the leading index were partly offset by gains in consumer expectations and the interest rate spread, which marks the difference between the Federal Funds rate and the yield on 10-year U.S. Treasury bonds.
The leading index predicts the direction of the economy over the next three to six months. The index decreased at a 1.8 percent annual pace over the past six months with seven of the 10 indicators falling over that period. A decline of around 4 percent to 4.5 percent at an annual pace is one signal a recession is imminent, according to the Conference Board. The gauge met that requirement in January, when it dropped at a 4.7 percent pace.
"The numbers are consistent with the weak economy right now, probably an economy in recession,'' James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, said in a Bloomberg Television interview.
The leading index decline reinforces the darkening outlook for growth. The worst housing recession in a quarter century, rising job cuts and shrinking access to credit raise the risk that consumer spending will falter by year-end. The contraction in consumer spending, in turn, will halt the economic expansion.
Seven of the ten economic indicators that make up the index are known ahead of time. They are stock prices, jobless claims, building permits, consumer expectations, the yield curve, supplier delivery times and factory hours. The Conference Board estimates the remaining three, which are new orders for consumer goods, bookings for capital goods, and the money supply adjusted for inflation.
Inflation is running at the fastest pace in 17 years. U.S. consumer prices are up 5.6 percent over the past year, the largest year-over-year increase since the period ending in January 1991. Consumer prices jumped by 0.8 percent in July 2008, the Labor Department reported Thursday. The rise was only slightly lower than the 1.1 percent surge in June 2008 that had been the second-highest monthly increase in the last 26 years.
The core consumer price index, which excludes volatile food and energy prices, rose 0.3 percent for the second straight month. The core CPI has risen 2.5 percent in the past year, the highest 12-month change since February 2008.
The biggest price surges came in the energy and food sectors. The increases in consumer prices are not limited to energy and food as the high increases spread also to other areas; clothing costs jumped by the largest amount in a decade, airline fares rose sharply, and the cost of hotel rooms and tobacco products also climbed.
In July, energy prices jumped by 4 percent, driven upward by a 4.1 percent rise in gasoline prices, which last month were 37.9 percent higher than a year ago. Food prices jumped 0.9 percent in July. Over the past 12 months, food prices have risen by 6 percent, the biggest jump in decades.
Experts are likely to see a CPI retreat in August, versus these July highs, amid continued consumer weakness and falling energy prices.
The new inflation report puts the Federal Reserve in a difficult spot, caught between a desire to keep interest rates low until the economy shows signs of rebounding and the growing threat of inflation.
Sen. Charles Schumer, D-N.Y., noting the news on inflation, rising jobless claims, soaring mortgage foreclosures and falling real incomes, said, "If this administration were competing in the 'bad economic policy' Olympics, they'd receive four gold medals today."
These inflation numbers are very bad news for the average American as high inflation reduces their purchasing power.
The Federal Open Market Committee decided on Tuesday, August 05, 2008, to keep its target for the federal funds rate charged on overnight loans between banks at 2 percent, pointing to continued uncertainty about inflation amid renewed concern over economic weakness. "Although downside risks to growth remain, the upside risks to inflation are also of significant concern," the Fed said.
Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters.
The consumer price index rose 5 percent in June from a year earlier, a 17-year high. Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities, and some indicators of inflation expectations have been elevated. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain. The Fed cut interest rates aggressively over the past year, from 5.25 percent last September, and launched numerous direct-loan programs for financial institutions, with the hope of offsetting the credit strains and boosting the economy. But the moves have only partially improved conditions in key lending markets. Rates for a 30-year fixed mortgage, for instance, are higher than they were a year ago as banks tighten their standards and mortgage giants Fannie Mae and Freddie Mac struggle through market turmoil. The higher costs and decline in mortgage availability are threatening to exacerbate the housing downturn. Tumbling home values could restrain consumer spending even further.
At the same time, banks are facing steep losses from mortgages. Their weaker state means they will have less capital to lend to consumers and businesses to help them out of the economic slowdown.
The renewed market turmoil, from the crisis over Fannie and Freddie to the waves of fear in financial markets, is weighing on some Fed officials and raising doubts about a quick turnaround for the economy.
The Fed is currently trying to juggle three balls in the air at the same time: maintain price stability, promote an environment conducive to economic growth and rescue the financial system from catastrophic failure. This leaves the direction and timing of future interest rate changes highly uncertain.
Unemployment Rate Jumped To Four-Year High
The unemployment jumped to 5.7 percent in July, up from 5.5 percent reading in June 2008, the Labor Department reported on Friday, August 1, 2008. It’s the highest unemployment rate in four years since March 2004. There were 8.8 million people unemployed in July, up from 7.1 million last year.
Job Bleeding
Employers cut jobs in July for the seventh straight month. The non-farm jobs vanished by 51,000 in the month, which were the heaviest in industries hard hit by the slow housing market, the clampdown on credit and the shaky financial sector. The jobs cut led by losses in manufacturing, construction and retail sectors. This latest report brought job losses in the first seven month this year to 463,000.
A weakening labor market intensifies pressure on consumers, who are already confronted with declining home prices, tight lending standards, and expensive energy and food. The deteriorating employment situation sends the strongest signal that the economy is in a recession.Analysts predict more jobs could disappear over the rest of this year as energy prices and the end of tax-rebates are likely to trigger the further declines. There's growing worry that consumers will cut back on spending later this year, further hurting the economy.
