Tag Archives: Economy

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.

 

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.

 

More Loans Reflect Consumer Confidence on the Rise

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Consumers Using their Cards More

Consumer confidence in the US economy may be rising, if increasing use of credit cards and other forms of borrowing is any indication.

More Car and College Loans

October saw consumers borrowing more for the second straight month taking more loans to buy more cars and to pay college fees. They seem to be charging more as well to their credit cards. The increase in buying points to the chance that consumers are more comfortable with the economy and are willing to spend more in expectation of the coming holiday season.

Borrowing Going Up!

The Federal Reserve announced on Wednesday that consumer borrowing went up by $7.6 billion. The gains of September and October reversed what had been a continuing steep decline in borrowing since August, when it fell by its largest amount in 16 months.

Unemployment Coming Down

There are other signs of an improved overall economy in the US. In November the unemployment rate went down to 8.6%, its lowest in two and a half years. There have also been 100,000 more jobs generated in the last five consecutive months, the first time that has happened since April 2006.

The borrowing report of the Federal Reserve includes car loans, student loans and credit cards. It does not include, home equity loans, mortgages and other loans which are connected to real estate transactions.

Feds Dudley Promoting Tools to Boost US Economy

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William Dudley

William Dudley, president of the Federal Reserve Bank of New York, expressed his view that there should be more aid for US homeowners, emphasizing that the central bank has not yet “run out of ammunition.”

“We cannot be satisfied with the current state of the economy or the outlook for the next few years,”

said Dudley, in a speech at the U.S. Military Academy in West Point, N.Y.

Low Interest Rates

The Federal Reserve Bank has been using many of its traditional methods to help boost the sluggish economy, including maintaining record low interest rates since December 2008 so that both businesses and consumers would feel more confident about borrowing money.

Unfortunately the low interest rates have not yet had the desired effect, and the economy is still lagging in a slump. Since the interest rates cannot go below zero, this tool is no longer an option for the Feds.

Operation Twist

This is the reason the Feds began a process called “quantitative easing” in a recently launched program called “Operation Twist.” Quantitative easing is major asset purchasing, whose goal is to bring down long-term interest rates to even lower levels, including mortgages.

Dudley said last Thursday that he believes the economy still has a long journey ahead before it arrives at full recovery, and is convinced that another boost from the Feds may be in order.

Unemployment Too High

Dudley’s forecast was for the US gross domestic product to grow only 2.75% in the coming year, which will not be enough to bring down the unemployment rate and get people back to work.

“I am deeply unhappy with the current forecast of prolonged high unemployment,” he said.

How Widespread Is This Economic Decline?

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Recession HereThe Federal Reserve’s announcement that it would maintain interest rates very low for at least two years indicates that the Fed expects a real recession of at least a year.

Meanwhile concerns about the global economy cut off Europe’s stock market rally and has not stopped the Wall Street decline as of this morning. In Germany, the DAX fell 1 percent to 5854 while the English FTSE 100 index of top English shares fell by .7 percent to 5124. France’s CAC-40 dropped by 1.9 percent to 1153.

Another sign rocked the financial community when the U.S. Government released a report that the U.S. economy grew much less than expected during the first half of 2011. This indicates a significantly greater chance of recession.

Another major market worry is the European Debt Crisis. Italy and Spain may well need bailouts and investors have ceased to purchase their bonds. The ECB (European Central Bank) has begun buying these countries’ bonds worth billions of Euros. This action has helped alleviate the high yields on Italian and Spanish bonds which dropped to approximately 5%.

What we see is an across the board fall, in not only the American stock markets, but also across the European markets. This is consistent with a worldwide recession starting in American and Europe and spreading to Asia and the Middle East.