Posts Tagged ‘economic stimulus’

Britain Slides Into Double-Dip Recession

Monday, April 30th, 2012

Europe’s financial woes have spread across the English Channel as the United Kingdom slid into its first double-dip recession since the 1970s. Britain’s GDP fell 0.2 percent from the 4th quarter of 2011, when it declined 0.3 percent, according to the Office for National Statistics (ONS).

As anti-austerity backlash grows on the Continent, Prime Minister David Cameron said the data was “disappointing” and promised to shore up growth without backtracking on the UK’s biggest fiscal squeeze since World War II.  “I don’t seek to excuse them, I don’t seek to try to explain them away,” Cameron said.  “There is no complacency at all in this government in dealing with what is a very tough situation, which frankly has just got tougher.”  Cameron said “We have got to rebalance our economy.  We need a bigger private sector.  We need more exports, more investment.  This is painstaking, difficult work but we will stick to our plans, stick with low interest rates and do everything we can to boost growth, competitiveness and jobs in our country.”

Opposition leader Ed Miliband said the figures are “catastrophic” and asked Cameron why this had happened.  “This is a recession made by him and the chancellor in Downing Street.  It is his catastrophic economic policy that has landed us back in recession,” Miliband said.

The Bank of England is in the last month of economic stimulus and the fall-off in output comes as prospects dim in the Eurozone, Britain’s biggest export market.  “This isn’t supportive of the fiscal consolidation program, so the government is likely to be concerned about that,” said Philip Rush, an economist at Nomura International in London.  “The data were bad, and that supports the view that the Bank of England will do a final £25 billion of quantitative easing in May.”

According to ONS, output in the production industries decreased by 0.4 percent; construction fell by three percent.  Output of the services sector, which includes retail, increased by 0.1 percent.  The decline in government spending contributed to the particularly large fall in the construction sector.  “The huge cuts to public spending – 25 percent in public sector housing and 24 percent in public non-housing and further 10 percent cuts to both anticipated for 2013 — have left a hole too big for other sectors to fill,” said Judy Lowe, deputy chairman of industry body CITB-ConstructionSkills, said.

The UK’s last double-dip recession, defined as consecutive quarterly drops in GDP, was in 1975. At that time, Labour Prime Minister Harold Wilson was in office and Margaret Thatcher was elected leader of the opposition Conservatives.  UK Treasury forecasters and the International Monetary Fund (IMF) believe the economy will grow 0.8 percent this year, the same as last year.  According to Chancellor of the Exchequer George Osborne, the UK’s economic situation is “very tough” and the government should stick to its plans of eliminating a majority of the deficit by 2017.  “The one thing that would make the situation even worse would be to abandon our credible plan and deliberately add more borrowing and even more debt.  It’s taking longer than anyone hoped to recover from the biggest debt crisis of our lifetime,” Osborne said. “The one thing that would make the situation even worse would be to abandon our credible plan and deliberately add more borrowing and even more debt.”

Chris Williamson, chief economist at Markit, said: “The underlying strength of the economy is probably much more robust than these data suggest.  The danger is that these gloomy data deliver a fatal blow to the fragile revival of consumer and business confidence seen so far this year, harming the recovery and even sending the country back into a real recession.”

Not everyone agrees that the data indicates a double-dip recession.  Writing in the Telegraph, Philip Aldrick says that “Economists have been questioning the reliability of the ONS numbers for a while now, but the latest data drew the debate sharply into focus.  At -0.2 percent, the GDP reading was considerably worse than the consensus of 0.1 percent growth.  The ‘discrepancy’, as Goldman Sachs’ Kevin Daly described it, was ‘unbelievable’ because much of the recent survey data – from the Bank of England’s agents’ reports to the purchasing managers’ indices – have been encouraging.  Andrew Goodwin of the Ernst & Young ITEM Club agreed.  ‘Our reaction is one of disbelief,’ he said.  ‘The divergence is virtually unprecedented and must raise significant question marks over the quality of the data.’  They are not alone.  No lesser institution than the Bank of England has queried the ONS data.  Last week, minutes to the Monetary Policy Committee meeting damningly noted: ‘The sharp falls in construction output in December and January were perplexing, and the Committee was minded not to place much weight on them.”

Bernanke: No QE3

Wednesday, October 5th, 2011

Federal Reserve Chairman Ben Bernanke, in a long-awaited speech in Jackson Hole, WY, announced no new steps the Fed will take to prop up the shaky U.S. economy.  Rather, he expressed optimism that the economy will continue to recover, based on its inherent strength and from assistance provided by the central bank.  Bernanke restated the Fed’s determination to keep the federal funds rate “exceptionally low” for a minimum of two years.  He did not say what many had been hoping to hear: that the Fed would begin another round of quantitative easing – usually referred to as QE3.

 Bernanke said that he expected inflation to remain at or below two percent.  Additionally, he acknowledged that the recent downgrade of the nation’s AAA credit rating had undermined both “household and business confidence.”  He implied that there was only so much more the Fed can do to stimulate the economy, and that the time has come for Congress and the Obama administration to create “policies that support robust economic growth in the long term,” to reform the nation’s tax structure and to control spending.

“In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus.  We discussed the relative merits and costs of such tools at our August meeting.  We will continue to consider those and other pertinent issues, including, of course, economic and financial developments, at our meeting in September,” Bernanke said.  He went on to clarify the Fed’s guidance about how long interest rates will remain exceptionally low.  “In what the committee judges to be the most likely scenarios for resource utilization and inflation in the medium term, the target for the federal funds rate would be held at its current low levels for at least two more years.”

As Bernanke delivered his remarks, the government cut its estimated 2nd quarter GDP growth to a paltry rate of one percent, a revision from the 1.3 percent previously reported.  The revision was expected and primarily due to weaker exports.  In more positive news, private spending and investment in April through June were slightly higher than initially estimated.  The GDP grew by an annual rate of just 0.4 percent in the 1st quarter.  The 2nd half of 2011 is expected to be somewhat stronger, but a major driver of the economy — consumer spending — remains weak amid slow hiring and sluggish income gains.

“This economic healing will take a while, and there may be setbacks along the way,” Bernanke said.  “Although the issue of fiscal sustainability must urgently be addressed, fiscal policymakers should not, as a consequence, disregard the fragility of the current economic recovery.  Although important problems certainly exist,  the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years,” Bernanke said. “It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals.”

“Economic performance is clearly subpar, and from that standpoint the case for some sort of further economic-policy assistance is just being made by the poor performance,” said Keith Hembre, chief economist and investment strategist in Minneapolis at Nuveen Asset Management.  Although Bernanke said the Fed has stimulus tools left, “the threshold to utilizing them is going to require fairly different conditions than what we have today,” such as lower inflation or a return of financial instability, Hembre said.

Bernanke also used the occasion to scold Congress for its tardiness in resolving the deficit debate. “The country would be well served by a better process for making fiscal decisions,” Bernanke said at the Federal Reserve Bank of Kansas City’s annual economic symposium.  “The negotiations that took place over the summer disrupted financial markets and probably the economy, as well, and similar events in the future could, over time, seriously jeopardize the willingness of investors around the world to hold U.S. financial assets or to make direct investments in job-creating U.S. businesses.”  Bernanke implied that a return to economic prosperity is at stake.  “I do not expect the long-run growth potential of the U.S. economy to be materially affected by the crisis and the recession if — and I stress if — our country takes the necessary steps to secure that outcome,” he said.  The budget process, according to Bernanke, would be more effective if negotiators set “clear and transparent budget goals” and established “the credibility of those goals.” 

Bernanke reassured investors that United States prospects for growth are sound over the long term and that the Fed has tools to aid the recovery if needed, even though he is not planning another stimulus at this time.  “What no action will do is give confidence to investors that things are not as bad as many people perceive, otherwise he would’ve acted,” Keith Springer, president of Springer Financial Advisors in Sacramento, CA, said.  “Investors will eventually see the positives.”

November Unemployment Matches 1980s Record

Wednesday, December 22nd, 2010

November Unemployment Matches 1980s RecordWith the U.S. unemployment rate rising to 9.8 percent in November,  the Department of Labor is concerned that economic recovery isn’t progressing as quickly as it would prefer.  For the 19th consecutive month, unemployment has stayed above nine percent — the longest streak on record, beating out previous highs in the 1980s.   Despite optimistic predictions that the nation would add 150,000 jobs in November, just 39,000 new jobs were added during the month, bringing unemployment up from 9.6 percent to 9.8 percent.

The Federal Reserve has decided to stay the course, saying the “economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment.”   Worries about steady high unemployment were the main motivation behind the Fed’s decision to launch a second round of economic stimulus in November with a new bond-buying program.  Progress on reducing unemployment has been “disappointingly slow,” according to the Fed.

The persistent level of high unemployment shows that many Americans are still suffering, even though the National Bureau of Economic Research says the recession officially ended in June 2009.   The economy lost more than eight million jobs during the recession.  “To anyone around the dinner table, it means little,” says Lawrence Mishel, president of the liberal Economic Policy Institute.  “The fact is, unemployment is going to remain flat for a year.”

“With the jobless rate stuck at 9.8 percent, the economy needs all the help it can get,” said Sung Won Sohn, economist at California State University.  Because nearly 40 percent of the unemployed have been jobless for more than six months, there is growing fear that the cause may be more profound than the deepest recession in more than 70 years.

Cornerstone Packs a Powerful Economic Punch

Tuesday, April 7th, 2009

Cornerstone’s  impact on Grayslake and Lake County goes far beyond the jobs, residences, shopping and entertainment opportunities it creates.  We specifically designed the project to create positive financial benefits for the schools that will serve the 650-acre mixed-use community.

Cornerstone will benefit local school districts’ financial health at a time when the tax revenues that support education are shrinking and teachers are being laid off in many communities.  A true lifestyle development, Cornerstone is expected to generate $50 million in surplus revenues to Fremont Elementary School District 79, Mundelein High School District 120 and Grayslake High School District 127 over its 12-year development period.  The school districts will continue to receive millions in annual tax benefits from Cornerstone once the development is completed.cornerstone_brochure3

Grayslake Mayor Tim Perry has been extremely supportive of Cornerstone throughout our approval process with the village.  Perry notes that, “Cornerstone is the kind of development that until now, we could only dream of.  During a time of little development anywhere, Grayslake and all of Lake County are very fortunate to be the focus of such economic stimulus.”

That economic stimulus is expected to total $2.2 billion.