One of the most interesting debates regarding monetary policy is emanating from the Federal Reserve members themselves. The Federal Reserve’s current monetary policy program includes an $85.0-billion monthly asset-purchase program. Recent comments made by many of the Federal Reserve members indicate that they are as unsure about the current monetary policy program as the rest of us.
Increasingly, it appears that more Federal Reserve members are leaning toward reducing and even eliminating the current aggressive monetary policy program of bond buying, and doing so sooner rather than later.
Conversely, there are still several Federal Reserve members who currently vote on monetary policy and want to continue the asset-purchase program, as they don’t see an economic recovery coming anytime soon.
This divergence makes it extremely difficult to predict the future of monetary policy. This is important, because when the Federal Reserve indicates that it will begin reducing its bond-purchasing program, it will have large ramifications throughout various markets.
Personally, I have been of the opinion that the Federal Reserve will begin to reduce its aggressive monetary policy program, or at least indicate that it plans to do so, later this summer or early fall. This shift in monetary policy, I believe, will cause many assets to decrease in price, with bonds being sold off and stocks getting hit as well.
Economically, there are many mixed and conflicting data points. Both vehicle sales and housing are strong points in the economy; however, manufacturing still continues to lag. As well, the recent survey by the Federal Reserve Bank of Philadelphia indicated that current manufacturing conditions are weak, but that business owners are optimistic … Read More
There is simply nowhere else to put your money to work, which is why the stock market continues to edge upward to new record highs.
You can earn a yield of 0.23% on a two-year U.S. Treasury, 0.79% for five years, 1.90% for 10 years, and up to 3.13% if you extend it to 30 years. (Source: “United States Government Bonds,” Bloomberg, May 17, 2013.)
Of course, unless you have tens of millions of dollars to invest, I highly doubt you, or anyone for that matter, would be happy with these petty returns on bonds.
You could always go out and buy Spanish 10-year bonds yielding 4.29% as of Friday. Heck, you can do this out of your own kindness and help Spain out of its financial crisis, with an unemployment rate at over 25% and massive debt loads that will hinder the country for decades.
Or you can simply invest in higher-yielding U.S. blue chip companies, such as General Electric Company (NYSE/GE), Johnson & Johnson (NYSE/JNJ), and The Procter & Gamble Company (NYSE/PG), which all offer dividend yields of more than three percent.
The reality is that investors have been rushing into the stock market and not wanting to miss out on the Wall Street party, which appears to be attracting many party goers.
JPMorgan Chase & Co. (NYSE/JPM) is the party organizer and the biggest bull on Wall Street after coming out with a year-end target of 1,715 for the S&P 500. Now with over seven months left in the year and with the index already at 1,660 as of last Friday, another 55 points in this frothy … Read More
Pop the champagne; it’s time to rejoice and toast this month’s jobs numbers, isn’t it? The S&P 500 edged up to another record high above 1,600, while the Dow is seriously eyeing 15,000.
I did think those targets for the two indices were achievable, but not this early in the year.
You can thank the Federal Reserve and the astounding job creation for the high jobs numbers—of course, I’m being sarcastic to a degree.
According to the United States Department of Labor, job creation tallied 165,000 jobs in April, better than the Briefing.com estimate of 135,000. The March reading was also revised upward to 138,000 new jobs from the previous muted reading of 88,000. The 165,000 new jobs is decent, but let’s be realistic: that number is no reason for the S&P 500 to be trading at a record high. The truth of the matter is that we need to see a higher job creation number.
The unemployment rate fell to a four-year low of 7.5%, much better than the Briefing.com estimate of 7.7%. Again, great, but I think the drop has more to do with job seekers leaving the search.
Yes, the job creation numbers are a myth as far as the real strength of the labor market.
The Labor Department estimates there are 11.7 million people unemployed, but in reality, it is probably twice that because many workers have quit looking for work out of frustration.
In fact, a closer examination of the job creation numbers from the Labor Department tells us another story—not what is in the headlines and not what the government wants you to know…. Read More
The latest meeting by the Federal Reserve was quite significant regarding its monetary policy program, and many economists will now need to revise their analyses.
The key sentence in the Fed’s statement was, “The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.” (Source: Board of Governors of the Federal Reserve System web site, May 1, 2013, last accessed May 2, 2013.)
Why is this so significant? For the past few months, many economists and analysts have been expecting that the Federal Reserve would begin to discuss when it would be appropriate to begin reducing its aggressive monetary policy program, specifically the monthly $85.0 billion bond-buying level.
Many were thinking that at this meeting the Federal Reserve would indicate that at some point in the future it would begin reducing its aggressive monetary policy stance. While the Fed did indicate that it might be prepared to reduce bond buying and lower monetary policy measures, this is the first mention in its press releases that an increase is possible.
In my opinion, this indicates that the Federal Reserve now believes that additional monetary policy might be necessary, whereas we all had been hoping that the U.S. economy would begin to improve. Clearly, the recent data has shown otherwise.
Job creation remains very weak, and various sectors, such as manufacturing, do not indicate that they will increase their level of production anytime soon. Internationally, we are also seeing continued weakness in many countries, which can only put downward pressure on our own economy.
With … Read More
George Soros knows a thing or two about making money from big bets. In 1992, Soros made a $10.00 short wager on the British pound and walked away with a billion dollars in profits.
Soros is now convinced Germany needs to rethink its strategy toward the sustainability of the eurozone and, in a draconian manner, believes the country should leave the euro.
Of course, should this happen, the 17-country eurozone would collapse, triggering a massive economic Armageddon and financial crisis in Europe that would ultimately generate chaos for the global economy.
Now, I doubt Germany or France—the two pillars integral to the eurozone—will exit the euro, but the reality is that the situation in the economic zone remains in a financial crisis with little hope of revival.
The problem is that the eurozone is firmly in a financial crisis and recession, trying to find its way out.
Greece, Portugal, Spain, and Italy are a drag on the ability of the eurozone to get out of its financial crisis. The unemployment rate in Greece and Spain is over 25% and worsening.
Italy just formed a new government, but there’s tons of work left for that debt-ridden country before it can exit its own financial crisis that has been building for years.
With all of this bad news, it’s not surprising to see people in the eurozone feeling the despair. According to the European Commission, economic morale in the eurozone remains weak after declining in March and April. (Source: Emmot, R., “Economic mood in euro zone sours again in April,” Reuters, April 29, 2013.)
And it appears that the solution will again … Read More
Consistent jobs growth remains an issue here in the U.S.
We also know that the lack of jobs is a worldwide problem that is only made worse by the world’s growing population and the stalling global economy.
The reasoning behind this worldwide jobs problem is simple.
Jobs are created when the economy expands, which drives the need for more workers. Of course, modern technology, industrial efficiencies, and the increased use of robots all combine to pressure jobs growth, and I expect this pressure to continue.
Just take a look at China. In that country’s vast manufacturing landscape, the key driver is the masses of unskilled workers who are required to toil at their workstations for 12 hours or more each day.
China’s companies can make use of robotics to help in many of the assembly areas, but it seems that these companies use human labor instead—perhaps because creating jobs for the masses is a goal of communist China.
According to the International Monetary Fund (IMF), China’s unemployment rate has managed to hold pretty steady at just over four percent since 2003. In 2012, the unemployment rate was 4.1%, the same as in 2010 and 2011, and the estimate for 2013. (Source: “China: Unemployment rate from 2003 to 2013,” Statista web site, last accessed April 23, 2013.)
But in the more industrialized countries, like the United States and countries in Europe, there has been a move toward modern industrial techniques and the use of robotics.
And while America struggles to create jobs growth, the situation is extremely dismal in Europe.
As I commented in these pages a few weeks back, the … Read More
The eurozone and the euro are still around, but the more I see what is happening in that region, the more I think something must be done, given the financial crisis.
You have the eurozone in a recession and a financial crisis specifically driven by turmoil in Spain, Italy, Portugal, Greece, Cyprus, and Ireland.
Greece is broke, and it could take decades to recover from its financial crisis. Heck, Greece may have to go and ask for another round of bailout money if the financial crisis in the eurozone holds.
The financial crisis in Cyprus is a red flag that needs to be watched. And despite the small size of Cyprus’ economy, the country is a mess, with no recourse but to seek more bailout funds or risk a default and exit the euro.
The two pillars of the eurozone, Germany and France, are stalling. Germany contracted 0.6% in the fourth quarter and is another negative quarter away from a recession. France is in a similar predicament and will need to wrench its way out of its potential financial crisis.
Even big-time investor George Soros, who knows a thing or two about economies in trouble having made a billion dollars shorting the pound decades ago, is pretty convinced that Germany needs to rethink its strategy and consider leaving the euro to avoid its own financial crisis.
The problem that arises is that Germany is the major reason why the eurozone is still intact, when it maybe should have looked at kicking out Greece and Cyprus.
But as long as Germany is staying in the eurozone, the probability of survival, in … Read More
The stock market finally did the right thing last Friday after the disastrous non-farm jobs market reading. Now there are some who suggest the extremely poor jobs market reading forces the Federal Reserve to maintain its controversial bond-buying program and maintain record-low interest rates, driving the flow of easy money—but the jobs market numbers were horrendous. I sure wouldn’t be buying jobs-related stocks at this time.
A mere 88,000 new jobs were created in March, according to the United States Department of Labor. (Source: “Economic News Release: Employment Situation Summary,” Bureau of Labor Statistics web site, April 5, 2013.) Briefing.com had estimated the country would generate 185,000 new jobs in March, so we were short by nearly 100,000 jobs.
This is not something to push aside. In February, an upwardly revised 268,000 jobs were created, some 180,000 more than in March. You don’t have to be an economist to figure out something is wrong with the jobs market picture, but then you would realize this, as I have been bearish towards America’s jobs market despite the optimism that was surfacing.
The 88,000 new jobs were so bad that it was well below the monthly average of 169,000 over the past 12 months, based on data from the Bureau of Labor Statistics.
The unemployment rate edged lower to 7.6%—but you can ignore this, as more workers decided to stop looking for work, which was the reason for the decline.
The Department of Labor says there are 11.7 million unemployed, but readers of Investment Contrarians know that this number is not realistic, but erroneous. In reality, there are likely over 20 million … Read More
In President Obama’s election debates and his State of the Union address, a key part of the talk focused on getting Americans back to work. Despite what you are sometimes hearing about the improving jobs market, the reality is that jobs remain somewhat scarce.
By the time you read this, you will know what the non-farm payrolls reading is and, by all accounts, it will not be that good for the jobs market. Briefing.com estimates the creation of 185,000 new jobs in March, which would be well below the 236,000 created in February. This is not what we want to see in the jobs market. The unemployment rate is predicted by Briefing.com to nudge up to 7.8%, from the current 7.7%. Again, not great.
In my estimate, the jobs market is moving along, but not at a rate that will lower the unemployment numbers anytime soon.
The private Automatic Data Processing (ADP) Employment Change reading reported on Wednesday foreshadowed America’s fragile jobs market, as a mere 158,000 new jobs were created in March, well below the Briefing.com estimate of 200,000 and the upward revised 237,000 new jobs in February. The interesting fact was that 74,000 of the new jobs were generated by small businesses with under 50 employees, while a mere 47,000 new jobs were created by large companies with over 500 employees, according to ADP. (Source: “National Employment Trends,” Automatic Data Processing, Inc. web site, last accessed April 4, 2013.)
The March ADP reading was the lowest since 148,000 in October 2012. In fact, since March 2012, there have only been three months with over 200,000 new jobs created. … Read More
The Federal Reserve is intent on keeping this Fed-induced stock market rally intact for perhaps another few years.
At the Federal Reserve monthly meeting this past Wednesday, the Federal Reserve reconfirmed its program of maintaining near-zero interest rates and its $85.0 billion monthly bond-buying strategy. As I recently discussed, the environment of low rates will offer little choice for investors who have to weigh low-yielding fixed-income investments against stocks. In other words, the equities market will continue to be driven, at least in part, by the cheap money. This will be great for the people who have the funds, but it will be horrific for those with lower income and who may be dependent on income from their investments. But for the government it’s great news, especially when it’s carrying so much debt—well, the government can thank the Federal Reserve.
Faced with the uncertainties in the jobs market and job creation, the Federal Reserve suggested it would maintain its record-low interest rates until the country’s unemployment rate falls to 6.5%. The problem is that the Federal Reserve predicts this will not occur until sometime in 2015, so that’s another two years of easy money and the building up of massive national debt. Remember what I said about the sequestration cuts and how they are well below the interest paid on the debt? Imagine the payments when interest rates ratchet higher! It’s not going to be pretty. The Federal Reserve has created this situation, which could inevitably blow up.
In reality, achieving an unemployment rate of 6.5% may not happen until after 2015, based on current job generation. According to the … Read More
The Dow Jones Industrial Average is firing on all cylinders, trading at a record high. The S&P 500 is also close to its all-time record. Technology and small-cap stocks are blazing along. The amount of new stock market wealth created in the first week of March and in 2013 has been great. Add in the better-than-expected jobs numbers and a decline in the unemployment rate to 7.7%, and you would think that the U.S. economy is back, loaded and ready to go. But we may be closer to a financial crisis than most think.
Here’s the problem: the creation of stock market wealth is heavily weighted with the institutional money and the top one to five percent of the wealthiest Americans. (I use the wider range of the top earners, since you have to be doing fairly well to be in this group.)
There’s an old saying—“Money makes money.” But let me put it another way: making money on $1.0 million is a lot easier than making money on $1,000. Earn two percent on $1.0 million, and you’d have an extra $20,000. Make two percent on $1,000, and you only have $20.00, just enough for a dinner for two at McDonald’s Corporation (NYSE/MCD). All I’m saying is don’t be fooled by the new headlines talking about how well America is doing, as a financial crisis is still possible.
The housing market is booming, but we all know that the rally in prices is partially due to rich investors and institutions buying cheap properties from those who had to sell or be foreclosed on due to a lack of funds to … Read More
Oil is one of the most volatile of the commodities and fluctuates with the prospects of the global economy and of course the happenings in the Middle East.
Yet, if you really look forward, how can you not like oil given the growth in China and, more importantly, the emerging growth in India?
In June 2012, when oil prices fell below $80.00 and some were saying to sell, I was positive, as the chart suggested support would surface and the weakness was not a trend.
The U.S. Energy Department increased its projections for crude oil prices for this year, citing that global oil consumption would rise to a record in 2013. (Source: Shenk, M., “U.S. Energy Department Raises 2013 Oil Forecast,” Bloomberg News January 8, 2013.)
Take a look at the price chart for the spot West Texas Intermediate (WTI) futures contract. After trading at $115.00 in May 2011, oil prices slid despite multiple attempts at rallying back to the $100.00 level. The spot WTI is again back below its 50-day moving average (MA), but I expect there will be decent support at the lower trendline and the 200-day MA.
The chart is displaying what is looking like a bullish flag formation setting up, which means higher oil prices could be coming to back over $100.00 in the best-case scenario based on my technical analysis. You need to also be watchful of the $80.00 support level, which was breached on several occasions; but in each case, a rally followed.
Chart courtesy of www.StockCharts.com
I believe oil will continue to hold above at least $80.00 a barrel going forward and will … Read More
Today, all eyes will be focused on the February non-farm jobs numbers report. I will be keenly watching to see if the economy can churn out jobs in spite of the somewhat sluggish recovery in America and the weak demand from the European and Chinese economies.
The private Automatic Data Processing (ADP) Employment Change, which is more closely correlated with the more important non-farm jobs numbers reading, was positive at 198,000 new jobs created in February, but not overwhelming versus the upwardly revised 215,000 in January. The number beat the Briefing.com estimate of 150,000 jobs, but it was the lowest reading since October 2012. In fact, the ADP jobs numbers have declined in the last three straight months, which is not exactly a good sign.
The market needs to see the jobs numbers steadily improve. While we likely are far away from the 500,000 or so new jobs needed each month that indicate a healthy economy, we still need to see jobs growth to continue at close to the current level and for the unemployment rate to hold below eight percent in order to offer any hope of a sustained jobs recovery.
Chart copyright Lombardi Publishing Corporation 2013; data source: Automatic Data Processing web site, last accessed March 7, 2013
Yet the reality is the jobs numbers are not good. There are roughly 22.3 million or so Americans looking for work that are unemployed or underemployed and about 12.3 million fully unemployed. The fact is that these are not good jobs numbers, as many of these people are taking minimal wage jobs just to fight off the creditors and put … Read More
With the relative calm in the eurozone lately, one might be led to believe that the worst is over and economic growth is about to ignite. Nothing could be further from the truth.
The latest data on the eurozone show that unemployment increased in January to a record high of 11.9%. This is the highest unemployment rate since 1995, when the 17 nations within the eurozone started to keep record. (Source: Brittain, A., “Unemployment Worsens in Euro Zone,” Wall Street Journal, March 1, 2013.)
Recent elections in Italy revealed the growing anger from the eurozone’s citizens at the country’s lack of economic growth. Italy experienced one of the largest increases in unemployment within the eurozone for January, jumping to 11.7%, an increase of 0.4% from December.
While the European Central Bank (ECB) and politicians in every country have been trying to re-ignite economic growth, the fact is that the eurozone reported a decline in its gross domestic product (GDP) of 0.6% from the third quarter to the fourth quarter 2012.
This isn’t just far from economic growth; it’s a serious contraction. This should worry Americans, because our own economic growth is stalling. If the major industrialized nations have no economic growth, who’s going to pull us out of the quagmire our economy is in?
The ECB still has some ammunition left in its arsenal, since inflation is actually receding. The latest inflation numbers for the eurozone showed an annual rate of 1.8% in February, a decrease from the two-percent level in January. With the ECB holding its main interest rate at 0.75%, there is room for additional monetary easing.
The … Read More
Bank stocks are providing excellent leadership this year. In fact, if it weren’t for the credit crisis that surfaced in 2008, financial institutions, such as banks, credit, and insurance companies may still be playing Russian roulette on their balance sheet as far as risk.
It now appears that bank stocks are cutting down on the amount of risk that they are willing to take on. The Goldman Sachs Group, Inc. (NYSE/GS) is now at a point where the potential loss that can occur from trading is at a seven-year low. The other major Wall Street banks are also seeing a reduction in their risk. (Source: LaCapra, L.T., “Goldman trims risk-taking to lowest level in 7 years,” Reuters, March 1, 2013.)
The major bank stocks all closed 2012 near their respective 52-week highs and have started 2013 with a bang, with the KBW Bank Index up 5.8%, slightly below the comparative return of the S&P 500 and the Dow, but above the NASDAQ. The attraction to the bank stocks has been driven by an improving banking industry that is assuming less risky businesses while shoring up their balance sheets and producing stronger units.
The chart of the Philadelphia Bank Index below shows the upward move of bank stocks from their 2011 bottom. Bank stocks staged a nice rally but retrenched in March to May 2012 on the European bank concerns, and Moody’s Investor Services downgraded the sector. The group has since staged a rally back above the 50- and 200-day moving averages (MAs). But there was some topping on the charts, followed by the recent selling, as indicated by the blue … Read More
The current Federal Reserve monetary policy initiative is truly historic in proportion. Not only has the Federal Reserve held interest rates at extremely low levels for an extended period of time, it has also embarked on an asset-purchasing program in the amount of $85.0 billion per month.
Clearly, this type of monetary policy program is unsustainable. While many people have been warning of the dangers, an interesting paper that will be presented at the upcoming U.S. Monetary Policy Forum will state similar concerns; however, what’s fascinating is who the authors are.
Amongst the four economists, one is a former Federal Reserve governor, Fredric Mishkin; two are former Federal Reserve economists, David Greenlaw and Peter Hooper; and the fourth author is James Hamilton, an economics professor at the University of California whose work has been used by Federal Reserve Chairman Ben Bernanke to justify certain monetary policy initiatives. (Source: Zumbrun, J., “Economists Warn Fed Risks Losing Control Amid Budget Deficits,” Bloomberg, February 22, 2013.)
These economists certainly have the kind of background, knowledge, and experience that can’t be ignored. Their assertion is that the explosion in the Federal Reserve’s balance sheet, in addition to the unsustainable fiscal policies, could result in a loss of control over the monetary policy system.
With the Congressional Budget Office (CBO) estimating at current projections for revenues and expenses, the government will run budget deficits of approximately $700 billion for the next 10 years. This type of irresponsible management of fiscal policy by Washington is inexcusable.
While the Federal Reserve is attempting to reduce the unemployment rate through monetary policy, Washington’s inability to get its fiscal … Read More
Traders appear to have forgotten the massive economic mess happening across the Atlantic in the eurozone. Remember Greece? The European debt crisis took Greece down with two separate bailouts. It has been so dire for this beautiful country on the Mediterranean Sea that Greece required a second bailout to make the payments on its first emergency loan.
The reality is that the eurozone financial crisis is still around; the eurozone problem is not going away.
Consumer confidence in the eurozone came in at -23.9 in January, which was an improvement over the -26.5 in December, but the region has a long road ahead. (Source: European Commission web site, last accessed February 15, 2013.) The problem with the eurozone is not only tied to the massive debt loans that have impacted Greece, Spain, Ireland, Portugal, and Italy; it’s also tied to the ongoing recession and high unemployment rate.
The eurozone has recorded three straight months of contraction in its economy, contracting 0.6%, or about 2.5% on an annualized basis, in fourth quarter 2012, according to data from Eurostat. What was also a red flag were the economies of the eurozone’s two largest members: Germany, which shrunk by a worse-than-expected 0.6% in the fourth quarter, and France, whose economy contracted by 0.3% in the fourth quarter. My major concern is that the mess in the weak countries is driving down growth and pushing up the unemployment rate in France and Germany, the two pillars holding up the eurozone. Capital Economics suggested France and Germany will face another recession in 2013.
At the same time, a major issue is the region’s super-high unemployment … Read More
The recession is over, and the U.S. economy is showing some encouraging signs of economic renewal.
Shoppers are hitting the malls and stores, helping to drive up retail sales. I’d stick with the top department stores, like Macys, Inc. (NYSE/M), or discounters, such as Wal-Mart Stores, Inc. (NYSE/WMT), which will continue to rebound.
The housing sector has been sizzling since the recession, with a superlative rise in housing starts, building permits, and home prices. Homebuilder stocks, including the developers of residential real estate, are sizzling on the charts—Toll Brothers, Inc. (NYSE/TOL) and Hovnanian Enterprises, Inc. (NYSE/HOV), especially.
Since the recession, the jobs market is showing some growth, with the unemployment rate holding just below eight percent. As the jobs market recovers, look to some of the staffing companies, such as Robert Half International Inc. (NYSE/RHI), Manpower Inc. (NYSE/MAN), and Kelly Services, Inc. (NASDAQ/KELYA), to deliver.
So, America appears to be headed in the right direction since the recession hit; but underneath all of the economic jargon and positive media headlines about the “Great Recovery” in America’s economic engine, there’s still a sense that many people are still trapped in economic despair, feeling the impact of the recession.
After scanning through “Diminished Lives and Futures: A Portrait of America in the Great-Recession Era,” I can see that uneasiness and worry remains a real issue in the minds of Americans. (Source: Szeltner, S., et al., Worktrends February 2013, Rutgers, The State University of New Jersey web site, last accessed February 12, 2013.)
Some of the key findings of the research were as follows:
• About 90% of the respondents remained worried about … Read More
In America, politicians mistakenly believe they can have it all. To stimulate economic growth, politicians have continually made big promises, without any way to pay for them. This type of imbalance has led to a government debt level that now exceeds $16.0 trillion—an absolutely insane amount.
With the government debt limit about to be hit yet again, we must ask ourselves: do Americans want to be European?
With the current level of tax and spending imbalance, government debt is set to grow higher and higher, even with a slight increase in economic growth.
This point was best explained by the Swedish Prime Minister, Fredrik Reinfeldt, when he stated on Bloomberg TV, “It’s not sustainable for a country to try to have European levels of expenditure with taxation levels like the United States has.” (Source: Carlstrom, J., “Sweden Warns U.S. Against Targeting Welfare With Tax Deficit,” Bloomberg Businessweek, January 25, 2013.)
This point is essential for all Americans to consider. Economic growth is flat in the U.S.; and while politicians talk a big game, we must consider how we’re going to pay for all of these promises. The more government debt increases, the more constraint it puts on the future for all Americans, lowering potential economic growth levels.
To put the difference into context, the European commission estimated that the budget deficit for Sweden will be 0.3% of gross domestic product (GDP) in 2013, as compared to a budget deficit for the U.S. of 7.3% of GDP. Even the European Union (EU) as a whole will only have a budget deficit of 3.2% of GDP. (Source: Ibid.)
The advantage of having … Read More
I was reading that Apple Inc. (NASDAQ/AAPL) would produce at least one of its computer products in the United States. This is great news for jobseekers, but Apple will continue to manufacture the remainder of its products outside of the U.S. in low-cost global manufacturing regions, such as China, Asia, Mexico, Eastern Europe, and Latin America. The reality is that companies have to control costs, especially given the slower revenue growth amid corporate America.
The jobs numbers are not good. There are 22 million or so Americans looking for work who are unemployed or underemployed, with about 12 million being fully unemployed. These are not good jobs numbers, as many of these people are taking minimum-wage jobs just to fight off the creditors and put food on the table. The poor jobs numbers climate is also hindering the eurozone.
Jobs growth is showing signs of wanting to edge higher with the unemployment rate holding at 7.8% in December, with 155,000 workers managing to find full-time work, which was slightly ahead of Briefing.com’s estimate of 150,000.
The official unemployment rate is 7.8%, but I wonder about the validity of the jobs numbers as far as an accurate reflection of the nation’s jobs situation. My thoughts are that the unofficial unemployment rate is much higher than the reported rate. The official jobs numbers don’t include the millions of Americans that have dropped out of the labor force, tired of pounding the pavement to get shut out of jobs or working at minimum-wage jobs.
As I have said in this newsletter before, the millions of jobs that have vanished from the U.S. landscape … Read More
We have nearly eight percent of Americans pounding the pavement, but it is more likely double that if you count the workers actually unemployed or underemployed. But the problem of high unemployment is not only an ongoing issue in America; it’s a problem that is found in pockets all around the world, from the rust belt in Ohio to the massive manufacturing plants in China.
Japan, which used to have an unemployment rate of about one percent, is currently struggling to find jobs for its citizens. The country’s unemployment rate stood at 4.1% in November 2012, according to the Ministry of Internal Affairs & Communications. By comparison, Japan’s unemployment rate averaged a mere 2.7% from 1953 to 2012, which is why the current rate is a concern. (Source: “Japan Unemployment Rate,” Trading Economics web site, last accessed January 23, 2013.) Japan’s efforts to lower its unemployment rate continue to be hindered by the country’s stalled economic growth.
The unemployment problems are becoming a global issue. According to the International Labour Organization (ILO), the amount of unemployed in the world could set a record this year and could continue to rise higher until 2017. The report from the ILO estimates 202 million people will be searching for work this year, based on its Global Employment Trends report. (Source: Barnato, K., “World Unemployment to Hit Record High in 2013,” CNBC, January 22, 2013.)
Surging unemployment remains a thorn in Europe’s side, with a super-high unemployment rate encompassing the eurozone and the entire continent. In the eurozone, the unemployment rate was 11.8%, or about 18.8 million unemployed, in November, the highest number since … Read More
Japan, under newly elected Prime Minister Shinzo Abe, will aggressively try to get the country’s economy back on track after more than two decades of economic stalling, but it will not be easy. Armed with a new stimulus spending of $116 billion, the hope is that the stimulus spending will drive consumer spending and help revitalize an economy that has been in a comatose state. (Source: “Japanese government approves $116bn stimulus package,” BBC News, January 11, 2013.)
Abe is looking to add significant stimulus, including a whopping $2.4 trillion over the next 10 years to try to drive Japan’s gross domestic product (GDP) growth to spur its comatose economy. (Michael Schuman, “Will Japan’s New Prime Minister Start a Debt Crisis?,” Time, December 17, 2012, last accessed January 14, 2013.) But it will not be easy, as the past decades have shown.
Japan entered a technical recession in the third quarter of 2012, with its GDP growth contracting 0.9% and continuing to be impacted by decades of stagnant growth. In fact, from 1980 to 2010, Japan’s average GDP growth was a minuscule 0.6%.
The new stimulus sounds great, but there’s a problem, as the country’s debt levels represent some of the highest in the world and make the U.S. situation seem like a cakewalk.
Japan’s debt as a percentage of its GDP was a humongous 208% in 2011—the worst in the world, according to the International Monetary Fund. Greece, with its financial crisis, is comparatively better at 161%, and the U.S., with its crippling debt levels, is relatively strong at 103% in 2011. (Source: “List of Countries by Public Debt,” Wikipedia … Read More
When oil prices recently fell to below $80.00, I said don’t sell.
The U.S. Energy Department increased its projections for crude oil prices for this year, adding that global oil consumption will rise to a record high in 2013. (Source: “U.S. Energy Department Raises 2013 Oil Forecast,” Bloomberg, January 8, 2012.)
Take a look at the price chart for the December West Texas Intermediate (WTI) futures contract. After trading at $115.00 in May 2011, we have seen oil prices slide, despite multiple attempts at rallying back to the $100.00 level. The spot WTI is trying to hold at its 50-day moving average (MA), currently above its 200-day MA of $85.08.
Yet the chart is displaying what looks like a bullish flag formation setting up, which means that higher oil prices could be coming, rising above $100.00 in the best-case scenario, based on my technical analysis. You need to be watchful of the $80.00 support level, which was breached on several occasions, but in each case, there was a rally after.
Chart courtesy of www.StockCharts.com
I believe oil will continue to hold above at least $80.00 a barrel going forward and will rally as the global economy strengthens. If you extend the oil futures contract to 2021, the current prices range from $83.00 to $96.00, so I’m not that worried and don’t have the urge to go and sell.
Helping to add support will be the continued erosion in the major economies in the eurozone, along with its impact on the U.S. and China.
Also add in the geopolitical issues in the Middle East. Iran and North Korea are real threats … Read More
Japan just elected in Shinzo Abe of the Liberal Democratic Party as Prime Minister, and based on what we are hearing, Abe is looking to spend significant stimulus, including a whopping $2.4 trillion over the next 10 years to try to boost the country’s gross domestic product (GDP) growth and drive Japan out of its comatose economy. (Michael Schuman, “Will Japan’s New Prime Minister Start a Debt Crisis?,” Time, December 17, 2012.) While this all sounds great, there’s a problem. Japan’s debt levels are some of the highest in the world and make the U.S. situation seem like a cakewalk.
Japan’s debt as a percentage of its GDP was a humongous 208.2% in 2011, the worst in the world, according to the International Monetary Fund (IMF). Greece, with its financial crisis, was comparatively better at 160.8%, and the U.S., with its crippling debt levels, was relatively strong at 102.9% in 2011. (Source: “Country Comparison: Public Debt,” CIA World Factbook, last accessed December 17, 2012.)
The problem is that the newly elected Liberal Democratic Party appears to want to spend the country into a financial abyss in order to pump up the country’s GDP growth.
Japan continues to be in an economic abyss, void of any GDP growth.
Along with its minimal growth, the country is mired in a multi-decade-long comatose state that requires major resuscitation. Despite producing some of the top brands in the world in electronics and cars, along with an efficient workforce and technological innovation, Japan’s GDP growth contracted 0.9% in the third quarter, or 3.5% on an annualized basis; and it appears set for another recession, given … Read More
The Federal Reserve concluded its latest meeting on Wednesday by enacting additional monetary policy measures and a historic change in the way the central bank communicates its intentions.
With “Operation Twist” ending this December, the Federal Reserve decided to continue its monetary policy program of purchasing $45.0 billion of long-term treasuries each month. This is in addition to the ongoing monetary policy program of purchasing $40.0 billion of mortgage-backed bonds per month. (Source: Press release, Federal Reserve web site, last accessed December 12, 2012.)
This action by the Federal Reserve is not really a new monetary policy initiative, but a continuation of the existing plan, Operation Twist. The Federal Reserve still sees a weak American economy that it believes needs additional stimulus.
What is new for the Federal Reserve is that this $45.0 billion per month will not be financed by selling short-term debt, but will be outright purchases of long-term treasuries. Instead of sterilizing the bond purchases, this will now be outright money printing.
Another change for the Federal Reserve is that it no longer uses a calendar for an end date; it now looks for quantitative metrics based on which it will look to end its monetary policy programs. The guidelines they set out are for easy monetary policy “…at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s two percent longer-run goal, and longer-term inflation expectations continue to be well anchored.” (Source: Press release, Federal Reserve web site, last accessed December 12, 2012.)
Since the … Read More
Federal Reserve Chairman Ben Bernanke has spoken, and to no one’s surprise, the printing of money in America will continue and intensify under the soon-to-be newly launched “Quantitative Easing 4” program, or “QE4.” So now we have had several Federal Reserve programs to keep the flow of money going, and now it looks like there will be more money printing.
Under this aggressive money printing strategy, the Federal Reserve will pursue a more aggressive stimulus strategy in September that will involve the additional monthly buying of $45.0 billion in longer-term treasuries on top of the existing $40.0 billion monthly buying of mortgage-backed bonds under QE3. (Source: Press release, Federal Reserve, December 12, 2012.) The concern is that the additional buying of bonds will add another trillion dollars to the Federal Reserve’s balance sheet in 2013, driving the amount up to $4.0 trillion and keeping the money-printing machine going.
While the aggressive move by the Federal Reserve is needed to make sure the U.S. economic recovery doesn’t falter, many are concerned that the easy money will drive inflation higher. Of course, this has yet to happen, as consumers appear more worried about paying down debt levels than spending. The Federal Reserve suggests it would keep interest rates near zero as long as the unemployment rate hovers above 6.5% and inflation remains manageable.
The market view on the Federal Reserve appears to be unfavorable, based on the initial reaction following the announcement of QE4. Based on the Federal Reserve’s assessment, there’s concern that the U.S. jobs picture and economy may be worse than we expect. “Although the unemployment rate has declined somewhat … Read More
The labor picture remains precarious. On one hand, Citigroup, Inc. (NYSE/C) announced it was cutting 11,000 jobs worldwide, as the financial services sector continues to be hard hit; while on the other hand, Apple Inc. (NASDAQ/AAPL) announced it would produce at least one of its computer products in the United States.
Wall Street was relieved last Friday after the much-anticipated jobs readings offered much-needed hope that job creation in America continues to be on track.
Job growth is showing signs of wanting to edge higher, as the unemployment rate made a surprising decline to 7.7% in November; 146,000 workers managed to find full-time work, which was well above the 80,000 jobs estimated by Briefing.com.
And while I’m pleasantly surprised with the drop in the unemployment rate and continued job creation, the decline in the unemployment rate was attributed to fewer people looking for work, according to the Labor Department. Many people during Hurricane Sandy did not search for work.
Let’s take a closer look at the unemployment rate based on data from the Bureau of Labor Statistics. The November reading was the lowest reading since a 7.3% unemployment rate in December 2008, but the number remains well below the four-percent level we saw during 2006 and 2007. On the plus side, the unemployment rate has improved from the recession high of 10.0% in October 2009, which was the highest level since the 10.8% during the December 1982 recession.
The trend of the unemployment rate shows the improvement since August 2011, when over nine percent of Americans were officially unemployed.
It took close to five years for the unemployment rate to … Read More
The Federal Reserve has embarked on a path that is historically unprecedented in monetary policy initiatives, in the hope of reviving the U.S. economy from the depths of the most recent recession. Since 2008, the Federal Reserve has bought $1.0 trillion in long-term treasuries and approximately $900 billion in mortgage-backed securities, all in the hope of stimulating the American economy.
Everyone should know, at least by now, that there are definite limits to what monetary policy can do. It’s unfortunate that so much of the burden in reviving the American economy has been left to the shoulders of the Federal Reserve. A large amount of the blame for the current economic circumstances has to be placed on politicians in Washington. With the current fiscal cliff fiasco, once again, we are witnessing the ineptitude of our elected officials in their ability to resolve structural issues that are fundamentally crucial to the long-term economic stability and vitality of America.
Having said that, the Federal Reserve does have a dual mandate that must be met, and it is enacting monetary policy in a way in which it considers appropriate, considering the lack of action from Washington.
The next Federal Reserve meeting will be held December 11–12, and it will be extremely important. At this meeting, the monetary policy program called “Operation Twist” will end. This monetary policy initiative involved selling short-term treasuries to fund purchases of long-term treasury securities at a rate of $45.0 billion per month.
For the Federal Reserve, one issue with an extension of this monetary policy program is that the amount of short-term treasuries left to sell will soon … Read More
The results of PNC Wealth Management’s annual Christmas Price Index were recently released, and it’s not looking good for consumers. If you want to financially re-create “The Twelve Days of Christmas,” in which a rich lover goes to town on a shopping spree, you’ll have to shell out a little bit more this year.
According to the 29th annual survey, it will cost $25,431.18 to purchase one set of each of the gifts given in the song. That represents a 4.8% increase from last year, a 3.5% increase in 2011, and a 9.2% increase in 2010. This year also represents a 101% increase over the $12,623.10 price tag from the original 1984 survey results.
Now granted, the Christmas Price Index is not a serious economic indicator, and the average consumer is not going to throw down cash for eight maids-a-milking, five golden rings, or a partridge in a pear tree…but it does go to show the disconnect between the inflation rate and what consumers are really paying.
Considering the modest economic growth we’ve had, the increase is a little unexpected. The Christmas Price Index would have been even higher in 2012, except that minimum wage hasn’t increased.
At 4.8%, the 2012 Christmas index significantly outpaced the government-tracked Consumer Price Index (CPI), which rose 2.2% in October from the year-earlier period. (Source: News release, “Consumer Price Index – October 2012,” Bureau of Labor Statistics, last accessed November 30, 2012.)
Digging a little deeper, month-over-month, the shelter index increased 0.3%, its largest increase since March 2008; the food index increased 0.2% in October, with the index for food-at-home rising 0.3%, its largest … Read More
No one said austerity measures would be an easy pill to swallow. But, after decades of overspending, they’re become an unwanted necessity. And the fed-up workers of Europe are uniting!
Protests broke out Wednesday across Europe in a coordinated day of action over ongoing austerity policies. While some of the largest and most violent protests took place in Spain, Portugal, Greece and Italy also took to the streets.
Over the last three years, Spain, Portugal and Greece have all slashed spending on pensions, public sector wages, hospitals, and schools in an effort to get public finances back on track.
It hasn’t kicked in yet. In Portugal and Greece—both rescued with European funds and under strict austerity programs—the economic downturn increased in the third quarter. Portuguese unemployment jumped to a record 15.8%. In Spain and Greece, one in four of the workforce is jobless. (Source: Tisera, F., and Alvarena, D., “Anti-austerity marches turn violent across southern Europe,” Reuters, November 14, 2012.)
In an effort to stem the economic slide of the U.S. housing collapse that first surfaced in 2005, the Federal Reserve initiated quantitative easing in November 2008. To date, the Federal Reserve has printed off close to $3.0 trillion. That number climbs by an additional $85.0 billion each month. It was supposed to increase lending, create more jobs, kick start housing, and lower the unemployment rate.
What has really happened? After three rounds of austerity measures, unemployment is rising, company profits are falling, financial markets are fragile, and the housing sector is still in disarray. What has it done? It’s created a weak dollar and an anemic economy…. Read More
Japan continues to be in an economic abyss, void of any gross domestic product (GDP) growth. There’s minimal growth and the country is mired in a multi-decade-long comatose state; it requires major resuscitation. Despite producing some of the top brands in the world in electronics and cars, along with an efficient workforce and technological innovation, Japan’s GDP growth contracted 0.9% in the third quarter, or 3.5% on an annualized basis, and appears set for another recession since GDP growth is estimated to fall in the fourth quarter. (“Japan Economy Shrinks 0.9% in Third-Quarter, Points to Recession.” CNBC via Reuters, November 12, 2012.)
The problem is that Japan’s government has pushed expansive fiscal and monetary policy to try to re-ignite what used to be the pearl of the orient; but so far, it has probably helped to prevent a deep recession, rather than drive GDP growth.
The country’s interest rates are already at zero, so there’s little space to maneuver. Given that interest rates have been at zero percent since 2010, the failure of the country to rebound is puzzling. Consider that the high point for interest rates since 2005 was a rate of just over 0.5% in 2007. (Source: “What is the Japanese yen (JPY)?,” GoCurrency, last accessed October 22, 2102.) That’s seven years with extremely low interest rates and not much has improved with the country and GDP growth.
Some argue that Japanese banks could be looser in their lending policies, but this could lead to some potential credit issues down the road. Just think of what happened here.
The Markit/JMMA Japan Manufacturing Purchasing Managers Index (PMI) came in … Read More
By the time you are reading this, either Barack Obama or Mitt Romney will have won the race to be the 45th President of the United States.
Yet I will remind the winner that there’s not much time to rejoice in the victory, as there’s plenty of work ahead, which will dictate the direction of America over the next four years in relation to debt, job creation, economic growth, and foreign policy.
Whoever has won, they need to work on job creation at a much stronger rate than the current pace. All those promises that were made during the election campaign must now be acted upon. We need to create strong job creation and sustained jobs growth, while lowering the unemployment rate. The Federal Reserve is cautious about job creation into 2013. Obama and Romney have different strategies for lowering the unemployment rate and increasing job creation. But the reality is that unless Americans are put back to work, the economic recovery will likely stall and add to a possible financial crisis.
The most immediate concern for the next president will be what to do about the pending fiscal cliff on January 1, 2013, which calls for $607.0 billion in automatic budget cuts to avert a financial crisis. The Congressional Budget Office (CBO) recently warned that the U.S. economy could contract in 2013 if the spending cuts are allowed, which would impact job creation. (Source: Congressional Budget Office, last accessed November 6, 2012.) I expect the same.
At a round table meeting of the Group of Twenty Finance Ministers and Central Bank Governors (G-20), there was talk of the U.S. … Read More
Nothing motivates like fear. Barack Obama won the U.S. presidential election on November 4, 2008, and gun sales surged. For the week of November 3, 2008, the Federal Bureau of Investigation (FBI) received more than 374,000 requests for background checks on gun purchasers, a 49.0% increase over the same period in 2007. (Source: “Gun sales surge after Obama’s election,” CNN, November 11, 2008.)
The surge was attributed to fears that a Democratic president and Democratic-controlled Congress would restrict firearm ownership. Similar surges accompanied the election of Bill Clinton, the last Democratic president.
Fast-forward to 2012 and it’s déjà vu. In August, firearm sales checks were up 27.8% year-over-year to 1.04 million. (Source: “August sees 27.8% increase in firearms sales checks,” Buckeye Firearms Association, September 6, 2012.) In September, they were up 14.7% to 1.07 million. This marks the 28th straight month that the National Instant Criminal Background Check System (NICS) figures have increased year-over-year. (Source: “September 2012 NSSF-Adjusted NICS Background Checks Up 14.7 Percent,” National Shooting Sports Foundation, last accessed October 26, 2012.)
In fact, gun ownership is near a 20-year high, generating $4.0 billion in commercial gun and ammunition sales. With an estimated 300 million guns, America is the most heavily armed nation in the world. (Source: “Behind America’s Gun Boom: Inside the Comeback At Sturm, Ruger,” Forbes October 17, 2012.)
Is there any truth to support a Second-Amendment crisis under Obama?
Since 2008, the few times Obama has done anything related to guns, it has been to expand the rights of gun owners. He signed a law that allows people to bring their guns into national parks (source: … Read More
With the recent steps taken by the European Central Bank (ECB) to stem the financial crisis within the eurozone, the situation will get worse before it gets better, as I have stated several times. One of the concerns for investors is the possibility that the financial crisis could spread to the strong nations within the eurozone. It appears that this is indeed the case, as new data from Germany show that unemployment is rising at a much faster rate than anyone expected.
The seasonally adjusted number of people unemployed in Germany rose 20,000 in October, which was higher than the 10,000 expected from a Bloomberg survey. The unemployment rate also increased from a rate in August of 6.8% to 6.9% in both September and October. (Source: “German Jobs Machine Falters For First Time in Three Years,” Bloomberg, October 30, 2012.)
Many international investors have been hoping that the German economy would be able to withstand the financial crisis that is spreading from the weaker eurozone nations and would pull that union up out of its trough. It appears that the massive level of weakness is pulling down the strong nations within the eurozone.
To put the data in context, Germany is still a strong economy. Unemployment there is still much lower than the rest of the eurozone, and even lower than in America. But we should all be aware of any changes in trends. Up until now, the situation was that Germany has been able to withstand the financial crisis stemming from the weaker eurozone nations. If the situation worsens, it could have a dramatic impact on worldwide markets.
Of … Read More
I love baseball, but when the commissioner of Major League Baseball (MLB) Allan H. “Bud” Selig makes $19.0 million annually along with half a million dollars for expenses, you have to wonder about the sanity of the value assigned to various jobs. Then there is Vikram S. Pandit, the CEO of Citigroup, Inc. (NYSE/C) who was recently forced to resign. In 2011, the bank was saved by the government and was recovering, but Pandit still made around $14.0 million. I’m sure Pandit will not be hurting for money or needing to work to pay the bills.
Then there are the 22.7 million or so Americans who are unemployed or underemployed, with about 13 million fully unemployed, all looking for work. These are not good jobs numbers, as many of these people are taking minimum-wage jobs just to fight off the creditors and put food on the table. President Obama and Governor Romney have both emphasized the need to drive up the jobs numbers in their campaign and debate speeches. I hope they are serious in their intentions.
The key non-farm payrolls jobs numbers for September were good, with the unemployment rate breaking below the eight percent threshold; albeit, the reading is still much higher than it was in the pre-recession era. We not only need jobs; we also need good skilled jobs numbers.
The official unemployment rate is 7.8%, but I wonder about the validity of the jobs numbers as far as an accurate reflection of the nation’s jobs situation. My thoughts are that the unofficial unemployment rate is most likely much higher than the reported rate. The reality is … Read More
In a week’s time, we will know who the next President of the United States will be; this will be critical, giving us an indication of where America is heading as far as policy and the impact on the economic recovery. The latest poll by CNN has the race to the White House in a dead heat, with Governor Mitt Romney slightly ahead at 48% of the votes and President Obama at 47%. In the key Ohio race, support for Obama has fallen from 52% on October 2 to the current 48%, according to CNN.
At this point, based on my unbiased view, I don’t really care who wins, but I do want something to be done about job creation, the $16.2 trillion in U.S. debt, and the pending “fiscal cliff.”
Whether you are a Democrat or a Republican, there is a commonality: we need to get the country fixed and get it going on the correct path to the economic recovery and jobs for all. The unemployment rate fell below eight percent in September, but the reading is well below the four percent level we saw in 2006 and 2007. The unemployment rate has improved from the recession high of 10.0% in October 2009, but needs to work its way lower for a sustained economic recovery.
What concerns me is the current lack of focus on the pending fiscal cliff on January 1, when the terms of the Budget Control Act of 2011 are scheduled to go into effect, resulting in automatic spending cuts across the board and tax increases that will threaten the economic recovery.
Of course, there … Read More
Three strikes and you’re out! Too bad the Federal Reserve doesn’t follow this; otherwise, Chairman Ben Bernanke would be on the phone with Wall Street looking for another job.
The key stock indices surged to their highest levels in years after the Federal Reserve launched a third round of quantitative easing (QE3) at the September meeting; yet the follow-through has been non-existent, as stocks are back where they were prior to the announcement.
All quotations and figures in this article are from a Federal Reserve press release regarding the Federal Open Market Committee meeting in September 2012, dated September 13, 2012 (http://www.federalreserve.gov/newsevents/press/monetary/20120913a.htm).
At that meeting, the Fed said, “Information received since the Federal Open Market Committee (FOMC) met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated.”
The Fed is spending $40.0 billion a month to buy mortgage-backed securities and, in theory, to lower the financing rates. This is the theory, but the yield on the 10-year Treasury stands at 1.76% versus 1.84% prior to the establishment of QE3. Something isn’t working.
But maybe it’s still too early to judge the success of QE3. Give it a few months to filter through the system and we’ll see. Jobs creation is expected to be a major benefactor of QE3.
The Federal Reserve recognizes that the jobs market continues to be problematic and needs to be addressed despite the unemployment rate falling to 7.8% in September. We still have over 22 million Americans looking for work.
“The Committee seeks to foster maximum … Read More
Watching the presidential debate on Tuesday, one thing was clear: both President Obama and Governor Mitt Romney were focusing on the jobs market. This was not a surprise.
Wall Street is not hiring, technology companies are firing, and the manufacturing sector is losing jobs to cheap overseas plants in China and Mexico, where wages are dirt cheap.
We are seeing more college graduates work at low-level jobs just to pay the bills, never mind their massive student loans. The reality is that given the dire situation in the jobs market, it will likely take years to resolve, and the mounting student loans will take decades to pay off.
Whether you sided with Obama or Romney, there is one common enemy, and that is the lack of strong and sustained jobs growth in America’s jobs market.
Obama is telling us about the surprise decline in the unemployment rate to 7.8% in September; while encouraging, the rate is well below that of the previous year.
Let’s take a closer look at the unemployment rate, based on data from the Bureau of Labor Statistics. The reading was the lowest since a 7.3% unemployment rate in December 2008, but the number remains well below the four percent level we saw during 2006 and 2007. The unemployment rate has improved from the recession high of 10.0% in October 2009, which was the highest level since the 10.8% in the December 1982 recession.
The trend of the unemployment rate, as you can see in the graph below, shows the improvement since August 2011, when over nine percent of Americans were officially unemployed in the jobs market. … Read More
While Black Friday is another seven weeks away, there is already mounting speculation on how good the holiday shopping season will turn out to be for the retail sector.
A strong fourth-quarter for the retail sector could boost the country’s gross domestic product (GDP) growth, since consumer spending accounts for about 70% of the GDP. The second-quarter GDP (third estimate) reflected the current stalling in U.S. consumer spending, as the GDP growth of 1.3% was well below the estimate of 1.7%. This represented the slowest rate of growth since the third quarter of 2011. (Source: “Economic Calendar,” Yahoo! Finance.)
Given this, you kind of have to wonder about the underlying strength of the consumer spending. GDP is estimated to grow at 2.7% in the U.S. in 2013. (Source: “2013 Economic Statistics and Indicators,” Economy Watch, October 5, 2012.) This implies a slight rise in consumer spending.
The retail sector is showing improvement in sales, but consumer spending on durable goods was horrible in August, when spending on non-essential goods and services cratered 13.2% (source: U.S. Census Bureau News, U.S. Department of Commerce, September 27, 2012), versus the -5.0% estimate and the -4.1% in July (source: “Economic Calendar,” Yahoo! Finance). Even when you eliminate the transportation portion, consumer spending on durable goods fell 1.6%, again worse than the -0.2% estimate and revised -1.3% in July.
The reality is that America as a whole needs to spend and drive retail sales, but this is not happening. The poor reading indicates hesitancy in consumer spending in the retail sector on non-essential goods and services that, in my view, is a key component of … Read More
Questions are being asked following last week’s announcement of the Federal Reserve’s new monetary policy that will provide economic stimulus through monthly mortgage-backed securities totaling $40.0 billion per month. Central bankers are now voicing a concern similar to what I’ve stated numerous times; can this monetary policy be effective in lowering the unemployment rate?
Obviously, the Federal Reserve is doing what the majority of voting regional bank presidents feel is best for the American economy. I don’t doubt their sincerity at all; I just doubt the efficacy of the monetary policy stance. I’m not alone, as two loud voices continue to raise similar doubts: Richmond Federal Reserve President Jeffrey Lacker, who was the lone dissenting vote in an 11-to-1 approval for last week’s new monetary policy initiative, and Dallas Federal Reserve President Richard Fisher, who is not a voter in this current year. But Fisher did just announce that, had he voted, he also would not have approved of this new monetary policy stance.
Richmond Federal Reserve President Jeffrey Lacker has publicly stated that he believed additional quantitative easing through such a new monetary policy stance would do little to help the unemployment situation.
Dallas Federal Reserve President Fisher has been one of the most interesting central bank members to listen to; he presents an eloquent and thoughtful argument with a great combination of economic data and common sense. I do respect him for his congenial method of disagreeing with the majority. I wish that more public figures would take lessons on how to present a thoughtful argument without having to resort to a shouting match. This is part of … Read More
Japan’s economy has been in a comatose state for over two decades, and the country continues to face hurdles that threaten the next several years. And just when Japan’s gross domestic profit (GDP) growth was showing some life, the eurozone mess surfaced and wreaked havoc.
From 1981 to 2010, Japan’s average GDP growth was 2.2% with a high of 9.4% in March 1988; but this seems to now be in the distant past, based on the soft projections going forward.
In the second quarter, Japan’s GDP growth was a meager 0.3%, well below the 0.6% estimate and the promising 1.3% in the first quarter. Over the past decade, Japan’s GDP growth expanded at a snail’s-pace average of 0.2% quarterly.
In the following chart, take a look at the comparative GDP growth over the past five years between China and Japan; notice the significant difference in GDP growth between the two countries.
Chart copyright Lombardi Publishing, 2012; data source: www.data.worldbank.org
Japan is blaming its stagnant GDP growth on the economic stalling in Europe, along with the high level of the yen and its impact on exports.
And just like the U.S., Japan relies on domestic private consumption, but that accounts for about 60% of Japan’s economy versus about two-thirds for the U.S.
Japan was the second largest economy in the world, before it was surpassed by China in 2010. The country has an unemployment rate of over four percent—something that was not a norm in the country’s boom days. In June, the unemployment rate was 4.3%, which is much better than the 8.3% in the U.S. but well below Japan’s long-term … Read More
On the surface, the latest monthly release of the jobs data from the Bureau of Labor Statistics shows tepid job gains. The unemployment rate did drop to 8.1% from 8.3% the previous month, but that was due to a drop in the labor force participation rate. The total for non-farm jobs created for the month of August was 96,000, far below what this country needs to lower the unemployment rate through job creation—not lowering the numbers through people who are giving up looking for work.
However, this unemployment rate is slightly misleading, not only because the government is not counting the millions of people who have dropped out of the labor force, but also because some parts of the labor force have an extremely low unemployment rate, which is not reflected in the total. For example, if we look at the unemployment rate for people with a bachelor degree or higher, the rate is 4.1%. That is quite low for an economy that is barely growing. While the Federal Reserve might consider additional monetary stimulus to bring the total unemployment rate down, I think that action misses the real point behind the numbers—more money is not going to help increase the education and skill level of America’s unemployed workforce.
Some analysts might point to the high number of low-paying, low-skilled jobs. I would agree that is a problem, but it stems from the fact that there isn’t an excess of highly skilled people who are out of work. In fact, in many industries there are massive shortages. Don’t forget, the unemployment rate can’t ever be at zero. So an unemployment … Read More
A eurozone recession is coming.
In Europe, all eyes will be focused on the European Central Bank (ECB) meeting today. The early betting line is that ECB President Mario Draghi will announce that the central bank will put in place a program of unlimited buying of government bonds with maturities of up to three years of eurozone countries that are struggling with high yields, such as Spain and Italy.
While the move is helping to lift the euro along with optimism, I consider the speculated ECB move a band-aid solution for a much deeper structural problem that has engulfed Europe. The move will help to control short-term interest rates and aid the debt-laden countries, such as Spain, Italy, Ireland, and Portugal; but in the longer term, the plan offers very little.
What I feel needs to be done is the eurozone needs to be restructured and rebalanced. You cannot continue to save the weak countries for the sake of keeping the eurozone intact. Greece has received hundreds of billions in aid and is nowhere close to being a net contributor to the eurozone. The same goes for the other debtor countries that continue to drag the eurozone down.
Spain’s recession picked up steam in the second quarter, with gross domestic product (GDP) contracting 0.4% quarter-on-quarter, according to the country’s statistical office. GDP growth in the first quarter fell 0.6% year-on-year. Spain is in a mess, hampered by its recession, high debt, surging and unsustainable high bond yields, declining growth, and its significant unemployment rate of close to 25%. Spain will likely require a full bailout to avoid a collapse in … Read More
I can guarantee you that a key point of discussion in the build-up to the presidential election will be the jobs market.
In my view, despite all the fuss about the July job numbers, job creation is dead.
Just ask the 12.7 million or so Americans searching for work or the over 23 million or so who are unofficially unemployed. These are real people looking for appropriate work in the jobs market. Moreover, there are also the millions working part-time or underemployed.
Wall Street is not hiring, technology companies are firing, and manufacturing is losing jobs to cheap overseas plants, where workers are willing to work for dirt-cheap wages.
We are seeing more college graduates working at low-level jobs just to pay the bills. And the reality is that given the dire situation in the jobs market, it could take years to resolve. There are also the mounting student loans that will take decades to pay, but then that’s another story.
The media pointed to the July jobs market numbers showing the creation of 163,000 new jobs, but the unemployment rate edged higher to 8.3%. The chart shows the inconsistency and the fact there needs to be a steady rise in jobs to cut into the unemployment rate.
Chart copyright Lombardi Publishing Corporation,
2012; Data Source: Bureau of Labor Statistics
The jobs market is even worse when you consider that the consensus among economists is that the country would need to add 500,000 jobs monthly to make a dent in the unemployment rate and get it moving towards full employment at around six percent.
President Barack Obama has … Read More
Markets were disappointed following the decision of both the Federal Reserve and European Central Bank (ECB) to inject monetary stimulus into their respective economies. And like the Fed, the ECB will look to the bond market for help as it considers another bond-buying program for Spain in hopes of driving down yields with the country facing a financial crisis.
Yet the problem is that Spain needs help now, as the 10-year Spanish bond traded at an unsustainable yield of 7.2% on Friday, which could force the country to seek a bailout to avoid a worsening of the financial crisis. Spain says it doesn’t need a bailout but a loan.
ECB chief Mario Draghi said the central bank would help Spain once it formally requests a bailout. Spain has already received about $130 billion to avert a financial crisis in its fragile banking system. My view is the ECB wants to see Spain put together a tough austerity program in exchange for a bailout, but Spain is trying to avoid this.
A tough austerity program would bind Spain’s spending (but isn’t this needed?). The country is declining in its economic strength. Its economy has fallen to 12th in the world in 2011, according to the International Monetary Fund (IMF). Previously, Spain’s economy was the ninth largest, but with its financial crisis it has since been surpassed by Russia, Canada, and India. Regardless, a collapse in Spain would be devastating.
The thought of tough austerity measures in Spain is causing civil unrest. Just like Greece, the country is facing a financial crisis, a second recession, and an unemployment rate of 25%. The … Read More
Since the beginning of the economic downturn, all eyes have been focused on the unemployment rate. Still hovering at over eight percent, with an even higher rate of underemployed and those who have given up looking for work, serious questions have been raised on how to increase job creation.
A new report by the Government Accountability Office states that the federal government has spent $18.0 billion on 47 different job-training and search programs for 2009, the latest period available. This is, I believe, a good idea in theory, but very poor execution. As we’ve seen, the unemployment rate remains stubbornly high, and job creation is still extremely low. With so much money spent on job creation, why is the unemployment rate so high?
First of all, the track record for job creation is not well known because of poor record-keeping techniques by the government. But this overshadows a much larger problem when it comes to job creation, and that is how the government allocates capital into specific job categories. According to the Labor Department, for one of the largest programs for job creation, only 38% of unemployed people who went through the retraining system obtained jobs for which they were trained. Translated, this means a misallocation of resources.
Trying to reduce the unemployment rate is extremely important for the economy. However, I don’t believe that government bureaucrats can actually determine which jobs and industries need workers. I believe the companies themselves know far more about the employment situation than the government. It’s a simple concept, especially since job creation ultimately comes from the private sector.
I think retraining is crucial … Read More