Posts Tagged ‘economic growth’

Stagflation Rears Its Ugly Head

Wednesday, September 21st, 2011

The Consumer Price Index (CPI) climbed by 0.5 percent in July, according to a Labor Department report.  That came after a decrease of 0.2 percent the previous month.  Rising inflation cuts consumers’ buying power.  Average pay, when adjusted for inflation, fell in July and has declined by 1.3 percent in the last year.  Over the last 12 months, prices have gone up 3.6 percent.  Core prices over the last year have risen 1.8 percent — the largest increase since December of 2009. 

“Once again, the consumer was pushed to the wall by rising retail costs,” said Joel Naroff, chief economist at Naroff Economic Advisors.  “It’s bad enough that workers are not getting any pay increases but the surge in retail prices is cutting into spendable income.”  Although many economists and the Federal Reserve expect that higher food and energy prices will prove short lived, that offers little good news to Americans who must find the money to pay for food and gas.  “This is not welcome news for Fed officials who are trying to justify QE3,” First Trust analysts said.

The news also raises the specter of stagflation, a circumstance when the inflation rate is high and the economic growth rate is slow.  Writing for CBS Money Watch, Dan Burrows says that “Prices are growing rapidly but the economy is not.  Sound familiar?  It’s called stagflation — something we haven’t had in three decades — and markets are getting more jittery about its possibility with each passing data point.  A stagnant economy plus inflation equals stagflation, and it could actually be worse for American households this time around, should it come to pass.  Yes, inflation rates of three percent to four percent are nothing compared to the double-digit inflation Americans lived with in the 1970s and early 1980s.  But then households were in much better shape back then because they carried much less debt, be it through mortgages, home equity loans, credit cards or student loans.”

The Hill’s Vicki Needham writes that “The energy index has risen 19 percent over the past year.  Overall, food prices increased 0.4 percent in July, with larger increases in dairy and fruit prices.  The cost of meat, coffee and vegetables all increased.  The core index, excluding volatile food and energy, was up 0.2 percent, slightly below the 0.3 percent increase in each of the previous two months.  Prices are up 3.6 percent from a year ago, the same amount as in May and June.  Core prices are 1.8 percent higher than they were a year earlier, the largest increase in two years, with rent and the rising cost of hotels pushing up housing prices by the most in three years.  Although prices are up, the index of core prices, used by the Federal Reserve to gauge inflation, is within the target range of 1.5 and two percent.  Core consumer inflation is expected to remain between 1.5 and 1.8 percent this year, the Fed has said.  The cost of apparel increased sharply last month, as clothing prices were up 1.2 percent, the third consecutive month of increases.  Clothing costs have increased 3.1 percent during the past 12 months, the largest yearly increase since July 1992.”

With an economy sluggish, and many calling a recession inevitable, the latest CPI number fits with recently released Producer Price Indexes (PPI) which showed prices rising throughout different levels of production.  While recessions are usually deflationary, rising measures of inflation have sparked fears of stagflation.

Surprisingly, the Chicago area was relatively immune to July’s inflationary numbers.  Consumer prices in metropolitan Chicago declined 0.4 percent in July from June as energy prices fell, according to the Labor Department.  With the exception of food and energy, prices were also down 0.4 percent.  Compared with last year, prices rose 3.2 percent and there was a 17.8 percent spike in energy costs.  When food and energy are taken out of the equation, prices rose 1.6 percent compared with last year.  Food prices remained the same as June, but rose 3.5 percent from July 2010.  Energy prices declined one percent from June as gasoline prices dropped 4.2 percent.  Gas prices were 37.3 percent higher than in 2010.  The biggest price declines were in education and communication, down 3.8 percent; clothing was down 2.6 percent; and transportation was down 1.7 percent.  Housing costs rose 0.5 percent.

Economy Reaches Stall Speed

Tuesday, August 23rd, 2011

The American economy expanded at a snail’s pace of just 1.3 percent in the 2nd quarter, according to a report from the Department of Commerce. Growth in the first three months of 2011 was reduced to 0.4 percent from an earlier reading of 1.9 percent.

“Today’s first look at GDP in the 2nd quarter confirms what we already knew:  The economy isn’t growing as fast as it needs to,” said Commerce Secretary Gary Locke.  “Experts have repeatedly warned that if this uncertainty continues, our economy will pay the price.  We can’t afford to return to the same failed policies that brought us here.  We must build on the progress we’ve made over the last two years and reach a balanced compromise that will reduce our debt and at the same time strengthen our job-creating ability and global competitiveness for the future.”

Soaring gas prices and meager income gains caused consumers to limit their spending in the spring.  The abrupt slowdown means the economy in 2011 will likely grow at a slower pace than in 2010.  Additionally, economists don’t expect growth to pick up enough in the 2nd half to cut the unemployment rate, which rose to 9.2 percent In June.  Economists originally thought that a Social Security payroll tax cut would spur adequate growth to reduce the unemployment rate.  Unfortunately, the lion’s share of that money was spent filling up gas tanks as gas prices soared.  In an unfortunate twist, employers pulled back on hiring because Americans spent less.  Thanks in part to high gas prices, consumer spending was virtually flat throughout the spring.  It grew a mere 0.1 percent, after experiencing 2.1 percent growth in the winter.  Spending on long-lasting manufactured goods — primarily autos and appliances — declined 4.4 percent.

Usually reliable government spending fell for the 3rd consecutive quarter.  State and local governments also slashed spending, the seventh time in eight quarters since the recession officially came to an end.  Corporate spending on equipment and software grew 5.7 percent in the 2nd quarter, down from the 1st quarter’s impressive 8.7 percent pace and below 2010’s double-digit gains.  Additionally, American incomes are not growing.  After-tax incomes, adjusted for inflation, rose just 0.7 percent, similar to the 1st quarter and the weakest numbers since the recession ended.

Kathy Bostjancic, director for macroeconomic analysis at the Conference Board, said the poor new data could push the American economy back into recession.  Although she said that the chances of that are still low. “Anemic consumption, still declining state and local government spending, tepid business investment, and soft housing activity all combined to offset some strength in exports,” she said.  “Concerns about the weak labor market and rising food and energy prices continue to weigh on consumer confidence.”  In June, the Federal Reserve cut its estimate of economic growth for the year.  The Fed now thinks that the economy will grow between 2.7 percent and 2.9 percent, down from an April estimate of 3.1 percent to 3.3 percent.

The economy is struggling to recover from the recession that lasted from 2007 to 2009, a time when the GDP contracted.  According to a government report, the recession was even worse than originally estimated.  Between the last few months of 2007 and the middle of 2009, the economy declined by 5.1 percent.  That is one percentage point more than previous estimates.

Writing in the Washington Post’s “Political Economy” column, Neil Irwin says that “But even if the number comes in somewhat higher than economists are expecting, it will be no cause for celebration.  The U.S. economy is capable of growing at about 2.5 percent a year over the longer term, as the population increases and workers become more productive.  But when the economy grows at that rate, the labor market can only tread water — accommodating the rise in the labor force, but unable to put the millions of Americans still unemployed back to work.  So, what happens to employment when the nation’s economic growth stays below that 2.5 percent rate, as it has in the 1st half of this year?  The U.S. jobless rate has risen for three months straight.  Among the major culprits in keeping job seekers out of work are the financial struggles faced by state and local governments that are cutting tens of thousands of jobs and billions of dollars in spending each month to balance their budgets.  State and local government cutbacks subtracted 1.2 percentage points from 1st quarter GDP, the Commerce Department has estimated.  Friday’s GDP release shows the amount of drag in the 2nd quarter.  States were able to delay those cutbacks when they received hundreds of billions of dollars from the federal government in 2009 to ride out the recession.  That money has all been spent, and now states are being forced to slash spending and raise taxes to comply with balanced-budget requirements.  Congress has given little serious consideration to reviving the stimulus program.”

Some economists see the light at the end of the tunnel.  “The pace of fiscal retrenchment is likely to pick up in coming years,” said Jan Hatzius, Goldman Sachs’ chief economist, “and this year’s experience confirms our view that this adjustment is likely to weigh on GDP growth.”

How Will President Obama Impact Commercial Real Estate? Part 2

Monday, December 22nd, 2008

So what to make of President-Elect Obama’s progressive economic policies?  What his critics miss are some of the most intriguing features of his plan — providing companies with tax credits for hiring new employees; raising the investment expensing limit for small businesses; eliminating the capital gains rate for investing in small businesses; and the massive infrastructure rebuilding plans to fix roads, bridges and schools.  The last initiative has the potential to create millions of new jobs for the construction trades.

Although it will take time, we believe that the incoming president’s stimulus plans are visionary and ultimately will succeed.  In time, these progressive programs will lead to a wealthier middle class, increased consumer spending and overall economic growth.

http://nreionline.com/research/real-estate-community-unfavorably-obama-victory/

http://www.costar.com/News/Article.aspx?id=9AC9C706FEA405FD83297485144907A7

http://www.marketwatch.com/news/story/Commercial-real-estate-stocks-rally/story.aspx?guid=%7BF3669FE9-C7E9-4D5C-9A85-AE7FECF0E5DF%7D