Category Archives: Economy

US and European Economies Diverging as US Market Gains Momentum

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US Economy Going Up

Analysts are predicting that 2012 should be a better year for the US in terms of the economy, even as Europe continues its economic shrinkage along with a great deal of the world.

Positive Feelings

The US has in recent days experienced a surge in confidence, less lay-offs, and improved holiday purchasing, leading economists to have an optimistic view towards the coming year. Maury Harris of UBS Securities and Dean Maki of Barclays Capital both see a growing divergence between the US and European markets, observing that the world’s largest economy is accelerating while the 17-member European market is heading into recession, while growth in emerging markets is slowing.

“There is a sense of decoupling,” said Harris, chief economist at UBS Securities in New York, whose team was the most accurate in forecasting the U.S. economy in the two years through September. “We can still have a decent year here in the U.S. even with the rest of the world slowing down.”

Improved Spending

Fueling the improvement in the US economy is an improved job market and more easily accessed credit and confidence. These forces should help promote more spending among US households, while the debt crisis in Europe forces more “belt-tightening” there. The housing market is also stabilizing, adding strength to the overall economy, while people begin to consider new car purchases now that the economy is on the upswing, helping companies likes General Motors.

Online Gambling Gets Boost from Obama

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A new opinion dated from September but only revealed to the public last Friday

State Lotterys Can Now Sell On-Line

reinterprets an old law which could clear the way for many on-line gambling sites to prosper, bringing to the government much needed tax revenues.

Wire Act Forbids Online Gambling

Under what is called the “Wire Act” of 1961 all forms of internet gambling was deemed illegal and could land the operators of such websites with fines and/or jail time facing civil and/or criminal charges. The act forbids wagers made through telecommunication which cross state lines or extend over international borders.

Only for Sporting Events

This Friday it was announced that the Justice Department’s Office of Legal Counsel under the Obama administration has a new interpretation of the Wire Act, stating that the law only applies to bets made on a “sporting event or a contest,” and does not apply to the state’s use of the internet to sell state lottery tickets to adults within its own borders or abroad.

“The United States Department of Justice has given the online gaming community a big, big present,” said I. Nelson Rose, a gaming law expert at Whittier Law School who consults for governments and the industry.

The question arose when the states of Illinois and New York wanted to know if the sale of their own state’s lottery tickets violated the provisions of the Wire Act.

Now Its Legal?

But the conclusion written by Assistant Attorney General Virginia Seitz would nevertheless eliminate “almost every federal anti-gambling law that could apply to gaming that is legal under state laws,” Rose wrote on his blog at www.gamblingandthelaw.com.

“The ordinary meaning of the phrase ‘sporting event or contest’ does not encompass lotteries,” Seitz wrote. “Accordingly, we conclude that the proposed lotteries are not within the prohibitions of the Wire Act.”

Fourth Quarter Looking Good for Economy

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Analysts are expecting close to a 3.5% growth during the 4th quarter of 2011. After a lackluster 3rd quarter, this news is giving a happy feel to the holiday season.

Feds Will Ignore for Now

It is expected also that due to the good 4th quarter showing the Federal Reserve Bank will not be easing their monetary policy, at least in the immediate future.

There are still fears that not all will be well, especially considering the difficult situation in Europe which will hinder US economic growth and the fiscal burden here at home, it might not be feasible for the economic improvement to be able to sustain itself.

Home Sales Up

Adding to the optimism is the data about home sales for last month, which showed a rise of 4 percent, to a seasonally adjusted annual rate of 4.42 million sales. The number is lower than the 6 million sales economists believe is a number more consistent with a healthy housing market, but it is still an improvement. It is considerably ahead of the data from 2008, now recognized as the worst year for housing in 13 years.

The data is collected and analyzed by the National Association of Realtors, which has had to revise many of its numbers due to several factors, including “changes in the way the Census Bureau collects data, population shifts and some sales being counted twice.”

Major Data Revisions Needed

The NAR is a private trade group which helps economists take the pulse of the US housing market. They say that they had to revise down its sales from 2007 until this October by about 14%, from 24.8 million down to about 21.3 million.

John Ryding is an economist at RDQ Economics. He labeled the data revisions as “massive” and said that this is a perfect example of how economic data can often be unreliable.

 

Consumer Debt Down Says Federal Reserve

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In what bodes well for US households and the economy, the US Federal Reserve revealed that total household debt for Americans is slowly heading south, a positive sign that debt holders are managing to reduce the debt they incurred during the boom years of the US economy.

Long Road Ahead

There is still, however, a long way to go. Hope can be found in the fact that consumers lowered their overall debt by $40 billion in the third quarter of 2011, but there is still a long road ahead as the debt still pending totals over $13 trillion dollars, still reminding us of the good old days when US consumers went on a collective borrowing binge. Where is the money still owed? Everywhere- from credit cards to car loans to mortgages.

Mortgages Reach Five-Year Low

Look at the bright side: the debt is going down, slowly but surely. Mortgages have shown the best improvement, reaching a five-year low during 2011’s third quarter. There are several factors pushing down mortgage debt, say the experts, including foreclosures, bankruptcies and a less than vigorous demand for houses. Banks are also lending a hand: burned from the subprime fire, the banks are hesitant, to say the least, to lend out their hard-earned dollars, creating a low-flow situation of mortgage credit.

“The process is still ongoing,” says Greg Daco, economist at IHS Global Insight. “The decline in home prices has reduced movement and activity in the housing market both on the selling side and on the buying side. People don’t want to sell because they’re waiting for prices to stabilize or go up, and people don’t want to buy because they’re waiting for prices to continue to fall.”

Increase in Small Business Loans Bodes Well for Economy

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PayNet President William Phelan said last Monday that there is good reason to be hopeful about the economy as he sees that small businesses have increased borrowing so that they can re-tool themselves during the lean years of the recession. These small businesses are now more confident, profitable, showing lower-risk loan profiles, and are spending more in anticipation of expansion.

 Borrowing Up

William Phelan of PayNet

Phelan was speaking at the 2011 Reuters Manufacturing and Transportation Summit. He said that there is increased borrowing for new investment among small businesses. They have consolidated, added technology to increase their efficiency, and outsourced many tasks so as to keep hiring down to a minimum.

“What we’ve been undergoing is a new economic order,” he said. “The economy is adaptable, and it’s adapted to the new reality.”

Trend of Double-Digit Gains

The borrowing statistics are based on the Thomson Reuters/PayNet Small Business Lending Index. This index measures the general amount of financing to small businesses and it has shown 15 months of double-digit gains, with a 20% increase this past October.

“There’s underlying strength in the U.S. economy that’s not being reported by stock market indices,” said Phelan. “Profits drive confidence, and we’re not seeing that profitability reported anywhere because these are privately owned companies.”

Betting the Barn on Better Days to Come

Phelan added that small businesses which are borrowing now are essentially making a four year bet; they would not take such a chance if they did not feel that there are important signs of consumer demand going up and an economic recovery in sight.

PayNet is a Chicago based firm providing risk management tools to the commercial banking industry. The data it presents are based on commercial leases and loans of over 19 million contracts whose value is about $900 billion.