Posts Tagged ‘unemployment rate’

The Truth About Those Unemployment Numbers

Monday, October 29th, 2012

The nation’s unemployment rate fell to 7.8 percent in September, the lowest level reported since January of 2009.  That is a 0.4 percent decline from the 8.1 percent reported for the previous month, yet represents a slight hiring slowdown after the Department of Labor revised the July and August numbers upwards by 86,000.  A total of 114,000 jobs were added in September.

Despite the good news, the fact remains that the American work force is now down six million individuals from its 2007 levels. After adding those six million to the total, the unemployment rate rises to 11 percent.  These individuals are also known as “underutilized workers. Approximately one-third of that six million are actively looking for work; the rest have left the work force due to retirement, disability or another reason.  All told, 161.79 million American are currently employed.

Most people don’t realize that the jobs report actually collects data from two separate surveys.  In one, 140,000 employers report how many people are on their payrolls; in the second, 873,000 households report the number of members who have jobs.  While the employer-generated statistic reported in September was expected by economists, the household survey results were a surprise.  It reported the highest number of jobs filled since June of 1983.  It is not uncommon for the surveys to deviate from each other.   Here is how the household survey works is taken: an individual in the chosen household is asked if they own a business; do they work for pay; are they self-employed; do they work part time or full time.

Additionally, suggestions that the federal government had “cooked the books” are “nonsense”, according to New York Time s columnist and Nobel Price-winning economist Paul Krugman. “Job numbers are prepared by professional civil servants at an agency that currently has no political appointees,” Krugman wrote in a recent column.  “Furthermore, the methods the bureau uses are public – and anyone familiar with the data understands that they are ‘noisy,’ that especially good (or bad) months will be reported now and then as a simple consequence of statistical randomness.  And that, in turn, means that you shouldn’t put much weight on any one month’s report.”

June 2012: Jobs Fizzle

Monday, July 16th, 2012

80,000 was the number. 200,000 is what we need for this to feel like a recovery. And 8.2 is the number that keeps hanging on.  The nation’s unemployment rate was unchanged at 8.2% (that’s 13 million unemployed workers) for the second consecutive month, the Labor Department said Friday.  Businesses added just 84,000 jobs, while governments cut 4,000. Monthly job growth averaged 226,000 in the first quarter but slowed dramatically to an average 75,000 a month in the second quarter.

In response, the Dow Jones industrial average fell 124.20 points to close at 12,772.47, wiping out the Dow’s gain for the week, and Treasuries rose as investors moved their money into lower-risk assets. And the Presidential campaigns took the opportunity to issue a number of extrapolations and the usual host of inaccuracies and overreaches. The Democrats claimed that the unemployment rate has been trending down since hitting 10.10% in October 2009; what they forget to point out is that that’s because of the large numbers of discouraged workers – almost 1 million — who’ve stopped looking for jobs. The Republicans, on the other hand, said that the jobs report proves that the Obama administration’s policies haven’t worked, forgetting that the US was hemorrhaging 700,000 jobs a month when Obama took office. According to Politifact, Obama’s record is 22 consecutive months of private-sector job growth, beginning in Feb. 2010, during which the number of jobs grew by almost 3.16 million, or about 143,000 per month.

Putting the candidates aside, the reasons for the anemic job numbers have started to sound like a bad drinking-game song being played by the pundits as they make the circuit of the talk shows: The warm weather drew construction and manufacturing activity into January and February, but dampened spring hiring; the manufacturing sector contracted for the first time in three years in June;  retail sales were weak, Corporate profits fell in the first quarter of 2012,  the first decline since 2008, according to the Commerce Department; the European Central Bank cut interest rates – a sign of nervousness about their prospects; the end-of-year fiscal cliff sent ripples through the public and private sectors with its specter of higher taxes and reduced government spending; a lame-duck Congress couldn’t pass a Jobs Bill; Republican governors made draconian cuts and instituted public-worker layoffs at the state level; and the Administration didn’t put a big enough stimulus in place which is creating an undertow. Take your pick.

So, are there any bright spots? A few.  Friday’s report showed ticks upward in average hourly earnings (to $23.50, from $23.44 in May) and the length of the typical private sector workweek (34.5 hours, from 34.4). Also, a curious fact is that the number of teens in the workforce spiked by 140,000 to 4,528,000, or 3.2% of the entire U.S. workforce:  So why are teens making out so well in this first month of summer while everyone else, well, isn’t? The Daily Kos reports from 5 May 2012:  President Obama’s Jobs program, which is lining up commitments from the private sector and from government to create summer jobs and internships for young people, has announced commitments for 90,000 paying jobs, up from the 70,000 previously announced in January.

Median Family Wealth Slid 40 Percent During Recession

Tuesday, June 19th, 2012

While the American public was bailing out Wall Street, those same taxpayers saw their families’ net worth decline by nearly 40 percent. The recession took roughly 20 years of Americans’ wealth, according to government data, with middle-class families faring the worst.  According to the Federal Reserve, the median net worth of families plummeted by 39 percent in just three years, from $126,400 in 2007 to $77,300 in 2010.  That means that American families median worth has reverted to 1992 levels.

The study is one of the most comprehensive examinations of how the economic downturn altered family finances.  Over three short years, Americans watched progress that took a generation to accumulate fade away.  The dream of retirement that relied on the expected rise of the stock market proved deceptive.  Homeownership, once viewed as a source of wealth, became a burden because the market collapsed.  The findings emphasize how deep the wounds of the financial crisis are and how healing is impossible for many families.  If the recession set Americans back 20 years, economists say, the road ahead is certain to be a long one.  And so far, the country has experienced only a halting recovery.  “It’s hard to overstate how serious the collapse in the economy was,” said Mark Zandi, chief economist for Moody’s Analytics.  “We were in free fall.”

Net worth is defined as the value of assets like homes, bank accounts and stocks, minus mortgage and credit card debt. The Fed found that median home equity declined from $95,300 in 2007 to $55,000 in 2010, a 42.3 percent drop.  Home equity is defined as the home’s value minus how much is owed on the mortgage.  According to the Fed, median incomes fell from $49,600 in 2007 to $45,800 in 2010, a 7.7 percent drop.

Additionally incomes fell the most among middle-class families.  The wealthiest 10 percent saw their median income decline 1.4 percent over the three years, while families in the second and third quartiles experienced a drop of 12.1 percent and 7.7 percent.  The lowest-income Americans saw their paychecks fall by 3.7 percent.  Families were less confident about how much income they could expect in the future.  In 2010, slightly more than 35 percent said they did not “have a good idea of what their income would be for the next year,” an increase over the 31.4 percent reported in 2007.

Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices,” according to the Fed.  The survey’s findings cast a harsh light on the damage done to the economy by the recession and which helps to explain the exasperatingly slow pace of recovery.  The housing market’s collapse was at the core of the recession, during which the economy contracted approximately 5.1 percent between the 3rd quarter of 2007 and the 2nd quarter of 2009, and the unemployment rate soared 4.5 percent to 9.5 percent.  “Housing was of greater importance than financial assets for the wealth position of most families,” the Fed said.  “A substantial part of the declines observed in net worth over the 2007-10 period can be associated with decreases in the level of unrealized capital gains on families’ assets.”

Incomes improved in late 2011 but have begun falling again this year,  said Gordon Green, cofounder of Sentier Research.  The decline is larger and more unrelenting than in the recovery after the 2000 recession, when family incomes returned to previous levels within 18 months, Green said.  “Incomes went down more during two years of this recovery than during the recession itself,” he said.  “I don’t think we’ve seen anything like this.”

The impact a given family felt depended on where they live, how much they earn and what kind of investments they had, said Scott Hoyt, an economist at Moody’s.  “Richer people owned more bonds that didn’t get killed,” Hoyt said.  “For middle-income households, their primary asset is their house at the low end and the government stimulus backstopped incomes.”

Household net worth reached a high point of $66 trillion before the recession hit in December 2007 and sank to just $54 trillion in 2008, according to the Fed.  It was $63 trillion in the 1st quarter this year, but that doesn’t reflect the stock market’s volatility since then.  The Fed estimates Americans lost $7 trillion in home equity because of the housing bust that followed a significant increase in mortgage defaults after 2006.

House Prices At 2002 Levels

Monday, May 14th, 2012

The S&P/Case-Shiller home price index of 20 cities revealed a 3.5 percent decline when compared with last year.  Home prices are now at their lowest levels since November 2002.  “Nine (housing markets) hit post-bubble lows,” said David Blitzer, spokesman for S&P, including Atlanta, Charlotte, Chicago, Las Vegas and New York.  “While there might be pieces of good news in this report, such as some improvement in many annual rates of return, February 2012 data confirm that, broadly-speaking, home prices continued to decline in the early months of the year,” Blitzer said.

The primary challenge continues to be foreclosures and other distressed property sales, according to Pat Newport, an analyst for IHS Global Insight.  “We still have six million homeowners who are late on their payments,” he said.  “We’ll still have lots of foreclosures, which will depress prices.”  The good news is that some of the worst hit of the index’s 20 cities appear to be on the mend.

“Some (cities) which have declined considerably over the last five to six years now have begun to exhibit an uptick in home prices,” said Luis Vergara, a director with Mission Capital Advisors.  Phoenix prices climbed 3.3 percent year-over-year.  Miami recorded a gain of 0.8 percent over 2011.  Even Las Vegas appears to be turning more positive, with home prices down only 8.5 percent, compared with a drop of nine percent in January.

The weakening may be due to the typical pattern of minimal interest during winter and greater interest in housing during the spring and summer. According to S&P, the unadjusted series is a more reliable indicator.  House prices have fallen by more than one-third from their peak when the bubble burst.  The glut of distressed properties on the market have slowed the market, as has the unemployment rate and tough credit conditions, which have offset the benefit of mortgage rates near or at record lows.

“The broad prospect for home prices is at best flat over the course of the year,” said Tom Porcelli, chief economist at RBC Capital Markets.  “And as much as we have had progress with the supply and demand imbalance, it is still a challenge to gather any momentum here.”

According to the Commerce Department, March home sales fell 7.1 percent to a seasonally adjusted 328,000-unit annual rate.  February’s sales pace was revised higher to 353,000 units, the best showing since November of 2009, from the previously reported 313,000 units.  “The conditions in housing are still extremely weak, but there are some very subtle, less negative, signs suggesting stabilization there,” said Sean Incremona, economist at 4Cast Ltd.

Stabilizing home values are necessary for a sustained rebound in the housing industry by giving prospective buyers confidence. Near record-low borrowing costs and additional hiring may help the market absorb foreclosures, which may mean housing will no longer hinder economic growth.  “Mortgage rates are very, very low, but you really need to see strong job growth,” said Scott Brown, chief economist at Raymond James & Associates, Inc.  “It’s still a very long way to go before we get a full recovery.”

The latest reports indicate that homebuilders are still trying to get back on their feet.  The National Association of Home Builders/Wells Fargo sentiment index in April declined to a three-month low.  This measure of anticipated sales for the next six months was not good news.  Sales of existing houses fell in March for the third time in the last four months.  Home purchases fell 2.6 percent to a 4.48 million annual rate from 4.6 million in February, according to the National Association of Realtors.  The average rate on a 30-year fixed-rate mortgage hit an all-time low of 3.87 percent in February and was little changed at 3.90 percent in the week ended April 19, according to Freddie Mac.

Writing for the Index Universe website, Cinthia Murphy says that “A number of encouraging economic indicators such as an improving job market and slowly growing demand for homes loom as factors that some hope should start to help underpin housing values, even if consumer confidence remains low for now.  A clear recovery in housing is deemed crucial for a full-fledged economic recovery in the U.S. after the credit crisis of 2008 sent housing as well as the financial markets sharply lower.  U.S. housing was at the center of that crisis, and much of the developed world remains mired in slow, debt-constrained, growth.

Michael Feder, CEO of Radar Logic, a real estate data and analytics firm, thinks Case-Shiller is underselling the momentum in the housing recovery. Radar Logic’s 25-city index, which tracks daily activity, is expected to show a month-over-month increase of nearly two percent during February, Feder said.  The difference frequently comes when the market is turning, though Feder acknowledges that the mild winter may have created some demand.  Another thing to look at is investment buyers coming into the market, which Feder believes could create something of a “mini-bubble” in prices given their willingness to pay premiums.  News of that willingness spreads pretty quickly.  While it can draw in some fence-sitters who have been waiting for a bottom, there is little evidence of that to date, Feder said.

Bernanke Defends Fed Policy on Job Growth, Inflation

Wednesday, February 22nd, 2012

Although the economy has improved in the past year, Federal Reserve Chairman Ben Bernanke told lawmakers that they still must cut the growing budget deficit.  “We still have a long way to go before the labor market can be said to be operating normally,” Bernanke said in testimony to the Senate Budget Committee.  “Particularly troubling is the unusually high level of long-term unemployment.”

According to Bernanke, the 8.3 percent unemployment rate understates the weakness of the labor market.  He reminded the committee that it is necessary to also consider other measures of the labor market, including underemployment.  Although the jobless rate has fallen five months in a row, it is still higher than the 5.2 to six percent that the Fed believes is consistent with maximum employment.  The percentage of the unemployed who have been jobless for 27 weeks or longer rose to 42.9 percent in January, compared with 42.5 percent in December, according to the Department of Labor.

“Over the past two and a half years, the U.S. economy has been gradually recovering from the recent deep recession,” Bernanke said.  “While conditions have certainly improved over this period, the pace of the recovery has been frustratingly slow, particularly from the perspective of the millions of workers who remain unemployed or underemployed.”

At the same time, Bernanke cautioned the Senators against holding back short-term economic growth by cutting the budget too much in the name of controlling the deficit.

The upbeat jobs data – the private sector added 243,000 jobs in January, sending the unemployment rate down to 8.3 percent – caused some Senators to ask about the Fed’s monetary policy as the economy shows more signs of life.  The Federal Open Markets Committee (FOMC) recently said that it expected to keep interest rates at historically low levels through late 2014.  Bernanke said the strategy is a reaction to concerns that low interest rates might set off inflation by noting that prices did not rise significantly during 2011.

Rather, Bernanke said that the Fed is consciously taking a “balanced approach” to spur economic growth with low inflation.  Previously, Bernanke told the House Budget Committee that the Fed would not sacrifice its two percent inflation goal to jump start employment.  ‘Over a period of time we want to move inflation always back toward 2 percent,” Bernanke told Representative Paul Ryan (R-WI), the committee’s chairman.  “We’re always trying to bring inflation back to the target.”

Bernanke offered a strong defense of the Fed’s inflation goal after Ryan suggested it should tolerate higher inflation to assure maximum employment.  “In looking at the two sides of the mandate, the rate of speed, the aggressiveness, may depend to some extent on the balance between the two objectives,” Bernanke said.  “We are always trying to return both objectives back to their mandate.”  Ryan, who has backed legislation to require the Fed focus exclusively on stable prices, said that he is “greatly concerned to hear the Fed recently announce that it would be willing to accept higher-than-desired inflation in order to focus on the other side of its dual mandate.”

Also during his testimony, Bernanke reiterated a promise to prevent Europe’s financial crisis from harming the American economy. “We are in frequent contact with European authorities, and we will continue to monitor the situation closely and take every available step to protect the U.S. financial system and the economy,” Bernanke told the Senate Budget Committee.

Santa Brings More Than 200,000 New Jobs in December

Monday, January 16th, 2012

The United States added more than 200,000 jobs in December of 2011, building on a strengthening employment market that dominated the second half of the year.  This brought the unemployment rate down to 8.5 percent from the revised 8.7 percent, which had been predicted in November.  The primary growth was in transportation — primarily courier services that hired for the holidays — healthcare and manufacturing, according to the U.S. Bureau of Labor Statistics.

“It would have been even better without the drag from Europe,” said John Canally, economic strategist at LPL Financial, a stock brokerage firm. “The Europe situation created uncertainty, and uncertainty was used as a reason not to hire until now.”  The year ended even more strongly than economists had predicted.  They had forecast that employers would add a net 150,000 jobs in December, according to a survey by Factset. They also had predicted that the unemployment rate would tick up to 8.7 percent from November’s 8.6 percent; this is the lowest rate since March 2009.

In the end, November’s unemployment rate was revised up in this report, to 8.7 percent.  The better-than-expected monthly gain of 219,000 private-sector jobs means American businesses have replaced more than three million of the 4.2 million private-sector jobs that were lost the past 13 months. The private-sector jobs gained since employment bottomed in February of 2010 marks the strongest recovery since the 1990-1992 recession, when U.S. businesses added 4.2 million jobs in the same amount of time.

The new job numbers highlight the fact that the U.S. economy is on its way to recovery even as strains in Europe persist,” said David Watt, senior currency strategist at RBC Capital in Toronto. The fact that the labor market is gaining traction should be good news to the Obama administration, whose economic policies are relentlessly attacked by the political opposition.

This string of better-than-anticipated economic indicators has highlighted the stark contrast between the recovery in the world’s biggest economy and Europe, which faces bad times for months or even years.  Even with the good news, the American economy needs an even faster pace of job growth over a sustained period to make a noticeable dent in the pool of the 23.7 million people who remain out of work or underemployed in the wake of the 2007-09 recession.

December marked the 15th consecutive month that employment numbers have risen. Marcus Bullus, trading director at MB Capital, said: “That’s one hell of a number. Such an impressive fall in both the number of jobless Americans and the unemployment rate will cheer everyone bar Republican spin doctors.  The Obama administration could be forgiven for showboating over this convincing evidence that America’s economy is pulling away from Europe’s.  From a market perspective, strong US data like this will add to optimism, but nobody doubts the considerable downward pressure the Eurozone will continue to place on the global marketplace during 2012.”

Automatic Data Processing’s (ADP) numbers for December are even more impressive, saying the government added 325,000 jobs in December.  ADP’s figures do not always match the government’s, and economists warned that seasonal factors could have boosted the figures. Even so, all the major measures of the job market appear to be on the upswing.

Lasting payroll gains are needed to chip away at joblessness and support household spending, which accounts for approximately 70 percent of the world’s largest economy. The labor market figures come on the heels of recent data showing increased manufacturing and a rebound in consumer sentiment that show the U.S. is barely impacted by Europe’s debt crisis.  “You got the trifecta — more people working, wages up and the average work week up,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc., who accurately forecast the December payroll gains.  “You can’t really argue that that isn’t a sign of significant improvement in the job market.”

Yearly benchmark revisions showed the unemployment rate averaged 8.9 percent in 2011, down from 9.6 percent and 9.3 percent in the previous two years. It still ranks as the worst three-year period since 1939 to 1941.

Writing in the Wall Street Journal, Phil Izzo says the increase is “for real.” According to Izzo, “While the unemployment rate has been falling in part due to people leaving the labor force, a large portion of this month’s number appears to come from people finding jobs.

“The unemployment rate is calculated based on people who are without jobs, who are available to work and who have actively sought work in the prior four weeks. The actively looking for work’ definition is fairly broad, including people who contacted an employer, employment agency, job center or friends; sent out resumes or filled out applications; or answered or placed ads, among other things. The rate is calculated by dividing that number by the total number of people in the labor force.

“The key to the drop in the broader unemployment rate was due to a 371,000 drop in the number of people employed part time but who would prefer full-time work, that comes on top of big drops in that category over the past two months. That number could reflect people having their hours increased or part-time workers moving on to full time work,” Izzo concluded.

Job Creation Strengthens, But Unemployment Increases?

Wednesday, January 11th, 2012

American companies added 244,000 jobs to the economy in April, the fastest pace in five years.  In an ironic twist, however, the unemployment rate climbed to nine percent, according to the Department of Labor.  The unemployment rate fell to 8.8 percent in March after dropping continuously since November’s rate of 9.8 percent rate. Economists had predicted that just 186,000 jobs would be added, so the numbers show that the economy is gaining strength.  “What we’re seeing is a sustained pick-up in hiring and it suggests that businesses have gained enough confidence to look past short-term fluctuations in demand,” said Aaron Smith, a senior economist at Moody’s Analytics.

“Headwinds remain, but not enough to derail the recovery or set us back momentarily,” said Diane Swonk, chief economist at Mesirow Financial in Chicago, although she remains cautious about the outlook.  According to Swonk, the increase in new unemployment claims were reported in the weeks after the April jobs surveys.  Job losses in the public sector could intensify, with more teachers getting laid off as the school year ends and local governments deal with budget shortfalls.

The number of officially unemployed Americans totaled 13.75 million in April, an increase over the 205,000 reported in March, according to the Labor Department.  “At this point, coming out of a recession this deep, we should be getting unambiguously huge growth, of 300,000 to 400,000 (new jobs) a month,” said Heidi Shierholz, a labor economist at the Economic Policy Institute.  “And it’s just nowhere near that.  We’re still in a rocky place.”

April’s job growth was in multiple sectors.  For example, the retail industry added 57,100, approximately half at general merchandise stores.  Manufacturing added 29,000 more workers in April.  Since December 2009, factory payrolls have risen by 250,000, according to the Labor Department.  Business and professional services, whose wages tend to be higher than average, grew by 51,000, with consulting businesses, computer services and architectural firms experiencing growth.  Educational and health services, and the leisure industry, each also added nearly as many jobs.  Even the construction industry saw a small gain in April.  Government was the sole employment group that declined; its payrolls contracted by 24,000, primarily due to cuts at state and public agencies.

According to Austan Goolsbee, Chairman of the White House Council of Economic Advisers, “The last three months we’ve added more than a quarter million jobs, on average, every month.  That’s very heartening and the fact that it was, really, across a whole lot of industries.”

According to Heather Boushey, an economist at the Center for American Progress, a non-profit think tank in Washington, D.C., “We need to see job growth break above 300,000 a month and stay at that level for many months before the unemployment rate will begin to come back down.  Today’s report provides a number of data points that point toward caution in interpreting the data positively in anticipation of that level of jobs growth returning anytime soon.  The average hours worked for production and nonsupervisory employees was 33.6 hours per week in April, the same as in March.  This remains below the 2000s recovery peak of 33.9 hours per week, and far below the late 1990s peak of 34.6 hours per week.  At the same time, employers shed 2,300 temporary workers, which either means they are hiring permanent employees or they are no longer seeing an increase in demand.

Economic Indicators Showing Signs of Life

Wednesday, January 11th, 2012

Leading economic indicators (LEI) rose 0.9 percent in October, a sign that the U.S. economy is likely to see accelerated growth and not slip into a feared double-dip recession.  According to The Conference Board, its index of leading economic indicators rose significantly faster than the revised 0.1 percent rise in September and the 0.3 percent increase in August.  After growing at an anemic pace of just 0.9 percent in the first six months of 2011, the economy grew 2.5 percent in the July – September quarter.  Some analysts are looking for even stronger growth in the 4th quarter.

Economists said the October gain and other positive reports recently should ease fears that the nation is in danger of slipping into a double-dip recession.  According to Conference Board economist Ken Goldstein, the latest leading indicators report was pointing “to continued growth this winter, possibly even gaining a little momentum by spring.”

The leading economic indicators is a subjective gauge of 10 indicators designed to signal business cycle highs and lows.  Among the 10 indicators, nine made positive contributions in October, led by building permits, the interest-rate spread, and average weekly manufacturing hours.  The sole negative contribution came from faster supplier deliveries.

Increases in consumer spending, manufacturing and homebuilding — along with fewer job losses — highlight an economy that is weathering the turbulence in financial markets caused by the European debt crisis.  Even so, a nine percent unemployment rate and political gridlock over deficit-cutting are hurting confidence, which may hamper a further pickup in the pace of growth.  “The economy looks to be getting better despite the continued drumbeat of negativity in financial markets,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc., who accurately forecast the gain.  “That speaks to U.S. resiliency.  If we can put some of these fiscal issues behind us, even for a short period of time, we might be able to come back.”

Another positive sign can be found in the University of Michigan’s six-month index of consumer expectations which rose to 56.2 in November, a five-month high, compared with 51.8 in October.  A word of caution — the measure remains below the 80.5 average of the previous expansion that ended in December 2007.

October’s results suggest strong ongoing economic activity, said Millan Mulraine, TD Securities’ economics strategist.  “On the whole, this report underscores the positive tone of the recent flow of economic reports pointing to a meaningful pick-up in overall economic activity during the quarter,” Mulraine said.  “And while the economy remains vulnerable to missteps in Europe and Washington, there is every indication that the recovery is slowly moving into the clear, building on the momentum from the last quarter.”

According to Ataman Ozyildirim, an economist at The Conference Board, “The October rebound of the LEI — largely due to the sharp pick-up in housing permits — suggests that the risk of an economic downturn has receded. Improving consumer expectations, stock markets, and labor market indicators also contributed to this month’s gain in the LEI as did the continuing positive contributions from the interest rate spread.  The Coincident Economic Index also rose somewhat, led by higher industrial production and employment.”

Companies Are Stocking Up on Durable Goods

Wednesday, November 30th, 2011

American companies ordered more heavy machinery, computers and other long-lasting manufactured goods in September, an encouraging sign for the shaky economy.  The increase in demand for these durable goods suggests businesses are staying with investment plans, despite slow growth and a lack of consumer confidence.

Durable goods are products expected to last a minimum of three years.  Core capital goods are products that have nothing to do with defense or aircraft.  The gains are driven by tax breaks given to businesses for investments made this year, an incentive Congress approved last December to boost the lethargic economy.

“Demand for big ticket items seems to be alive and well,” said John Ryding, an analyst at RDQ Economics.  “Outside of the volatile transportation sector, the gains in durable orders were broad based in September, and point to a manufacturing sector that continues to expand at a solid rate.”

“Despite the understandable concern about economic growth, businesses are still investing,” said Jennifer Lee, senior economist at BMO Capital Markets.

Robust demand for core capital goods is a strategic reason why economists expect an annual growth rate of 2.4 percent in the 3rd quarter.  That would be a major improvement from the first six months of the year, when the economy expanded at just 0.9 percent, the worst growth since the recession ended more than two years ago.  A 2.4 percent growth rate could ease fears that the economy is on the verge of sliding back into a recession.  Even so, the growth rate needs to nearly double to make a substantial dent in the unemployment rate, which remained stuck at 9.1 percent in September for the third consecutive month.

“Manufacturing is in pretty decent shape, and this ends the quarter on a high note,” said Brian Jones, a senior U.S. economist at Societe Generale, who accurately forecast demand for non-transportation equipment.  “We’ve got decent momentum going into the 4th quarter.”  Orders for computers and related products jumped as much as six percent.  A Commerce Department report is projected to show the world’s largest economy grew at a 2.5 percent annual pace in the 3rd quarter, an increase of the 1.3 percent rate in the previous three months.  Societe Generale’s Jones said the gain in durable goods demand has the potential to bring GDP growth for last quarter closer to three percent.

Boeing, the largest American aircraft maker, received 59 airplane orders in September, compared with 127 the preceding month.  September’s decline came on the heels of a 25 percent gain in August.  Orders for non-defense capital goods excluding aircraft jumped 17 percent at an annualized rate compared with an 11 percent increase in the previous three months, an indication that business investment is picking up.

Additional indicators show that manufacturing, which accounts for approximately 12 percent of the economy, continues to grow.  The Institute for Supply Management’s factory index rose a full point to 51.6 in September, compared with 50.6 in August.  A level greater than 50 indicates that expansion is taking place.  Industrial production advanced in September on demand for items such as cars and computers, according to the Federal Reserve.

According to Mike Shea, Managing Partner and Trader at Direct Access Partners LLC, “The number wasn’t bad, and having a decent number in durables is far better than having a bad number, since with the overhang of Europe, if we were getting lousy data here, then we wouldn’t have anything to hang our hats on.  If not for what was going on in Europe, this market would be running on all cylinders.  The summit in Europe is the tradable event.  We could have one hundred percent earnings positive surprises today, we could have great economic data come out, all of that could come in rosy domestically, but if the news out of Europe is judged to be bad, none of what happens in the U.S. will matter.  This market will not shrug off a lousy plan coming out of Europe.  It will not shrug off any plan that is not fundamentally based in reality.”

Companies Are Stocking Up on Durable Goods

Wednesday, November 2nd, 2011

American companies ordered more heavy machinery, computers and other long-lasting manufactured goods in September, an encouraging sign for the shaky economy.  The increase in demand for these durable goods suggests businesses are staying with investment plans, despite slow growth and a lack of consumer confidence.

Durable goods are products expected to last a minimum of three years.  Core capital goods are products that have nothing to do with defense or aircraft.  The gains are driven by tax breaks given to businesses for investments made this year, an incentive Congress approved last December to boost the lethargic economy.

“Demand for big ticket items seems to be alive and well,” said John Ryding, an analyst at RDQ Economics.  “Outside of the volatile transportation sector, the gains in durable orders were broad based in September, and point to a manufacturing sector that continues to expand at a solid rate.”

“Despite the understandable concern about economic growth, businesses are still investing,” said Jennifer Lee, senior economist at BMO Capital Markets.

Robust demand for core capital goods is a strategic reason why economists expect an annual growth rate of 2.4 percent in the 3rd quarter.  That would be a major improvement from the first six months of the year, when the economy expanded at just 0.9 percent, the worst growth since the recession ended more than two years ago.  A 2.4 percent growth rate could ease fears that the economy is on the verge of sliding back into a recession.  Even so, the growth rate needs to nearly double to make a substantial dent in the unemployment rate, which remained stuck at 9.1 percent in September for the third consecutive month.

“Manufacturing is in pretty decent shape, and this ends the quarter on a high note,” said Brian Jones, a senior U.S. economist at Societe Generale, who accurately forecast demand for non-transportation equipment.  “We’ve got decent momentum going into the 4th quarter.”  Orders for computers and related products jumped as much as six percent.  A Commerce Department report is projected to show the world’s largest economy grew at a 2.5 percent annual pace in the 3rd quarter, an increase of the 1.3 percent rate in the previous three months.  Societe Generale’s Jones said the gain in durable goods demand has the potential to bring GDP growth for last quarter closer to three percent.

Boeing, the largest American aircraft maker, received 59 airplane orders in September, compared with 127 the preceding month.  September’s decline came on the heels of a 25 percent gain in August.  Orders for non-defense capital goods excluding aircraft jumped 17 percent at an annualized rate compared with an 11 percent increase in the previous three months, an indication that business investment is picking up.

Additional indicators show that manufacturing, which accounts for approximately 12 percent of the economy, continues to grow.  The Institute for Supply Management’s factory index rose a full point to 51.6 in September, compared with 50.6 in August.  A level greater than 50 indicates that expansion is taking place.  Industrial production advanced in September on demand for items such as cars and computers, according to the Federal Reserve.

According to Mike Shea, Managing Partner and Trader at Direct Access Partners LLC, “The number wasn’t bad, and having a decent number in durables is far better than having a bad number, since with the overhang of Europe, if we were getting lousy data here, then we wouldn’t have anything to hang our hats on.  If not for what was going on in Europe, this market would be running on all cylinders.  The summit in Europe is the tradable event.  We could have one hundred percent earnings positive surprises today, we could have great economic data come out, all of that could come in rosy domestically, but if the news out of Europe is judged to be bad, none of what happens in the U.S. will matter.  This market will not shrug off a lousy plan coming out of Europe.  It will not shrug off any plan that is not fundamentally based in reality.”