The New Economy
Retail sales underwhelm: Retail sales rose 0.2 percent in August, according to the US Commerce Department. Analysts had expected 0.4 percent growth for the month. Core sales (excluding autos, building materials, and gasoline) also grew 0.2 percent for the month.
Despite the underwhelming report, retail sales have risen 13 of the past 14 months, and analysts guess that retail sales won’t have much of an impact on the Federal Reserve’s decision whether to scale back its stimulus efforts in the coming weeks. "A smaller than anticipated increase in retail sales in August adds to evidence that the US economy is likely to have slowed in the third quarter, but the recovery nevertheless continues, suggesting the Fed remains on course to start tapering its stimulus next week,” Markit chief economist Chris Williamson wrote via e-mailed analysis.
Consumer sentiment tumbles: Americans’ feelings about the economy were the dreariest since April, according to the latest monthly read of the University of Michigan’s Consumer Sentiment Index. The index fell 5.3 points in mid-September. Consumers’ outlook on current conditions fell 3.4 points, while the index measuring their overall economic outlook fell 3.4 points. “This is not a good report,” MFR, Inc. economist Joshua Shapiro wrote in his e-mailed analysis of the release. “It is very obvious that Americans are still cautious and their mood has soured recently.” ( Continue… )
Midway leasing talks end: Chicago pulled out of talks aimed at leasing the city's second-busiest airport after one bidder dropped out. The bids didn't meet expectations. "At the end of the day, those thinking of investing in Midway just did not clear the bar I set for the city, which I believe is a high bar," Chicago Mayor Rahm Emanuel said, according to Reuters. The city needs to do something to raise cash, since it faces a huge pension bill starting in 2015. Under Former Mayor Richard J. Daley, the city privatized its parking meters and Skyway toll bridge. Those deals were criticized for not bringing the city enough revenue. But Mayor Emanuel's press secretary left the door open to a possible Midway Airport leasing deal down the line.
Unemployment rate falls: The US unemployment rate notched down to 7.3 percent in August, the Labor Department reported Friday, but the drop was due more to people giving up their job search than a surge in jobs. In all, the economy added 169,000 jobs for the month, below expectations, and previous months totals were revised downward. The weak report threw some doubt into whether the Federal Reserve would remove some of its extraordinary support for the economy starting later this month. Another concern, as reported by Monitor reporter Mark Trumbull, the gap between the unemployment rates for men and women is growing again.
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Jobless claims fall (again): The number of initial unemployment claims by US workers fell by 9,000 to 323,000 claims last week, bringing the four-week moving average down to 328,000. “A claims level of 328K ... has historically been consistent with a stronger labor market environment than other evidence is pointing to,” MFR Inc. economist Joshua Shapiro wrote in an e-mailed analysis. “Possible explanations include that businesses are laying off fewer workers but hiring also remains sub-par, that the claims data will rebound, or that the labor market really is better than most other data would indicate. Time will tell what the answer is.” ( Continue… )
For a sector of the labor force that toils in mostly low-paid, low-visibility jobs, part-time workers have been getting a lot of attention lately:
In a little over a month, the White House, a US senator, the AFL-CIO, the US Chamber of Commerce, and numerous publications have weighed in on a disturbing trend. As Sen. Susan Collins (R) of Maine pointed out early in August, the “overwhelming majority” of jobs created so far this year were part time. Critics were quick to blame the pending health-care law, because employers don’t have to offer health benefits to those who work less than 30 hours a week.
Will health-care reform turn us into a nation of part-time workers?
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On Friday, that political firestorm got the statistical equivalent of a good soaking. New jobs numbers from the Bureau of Labor Statistics (BLS) suggested that 60 percent of this year’s new jobs are part-time, a majority but not Senator Collins’s overwhelming majority. And all those people who wanted to work full time but were getting their hours cut? Their numbers declined to a five-month low. ( Continue… )
Has the housing market hit a snag? A run of lackluster housing numbers this week has analysts wondering if the housing market recovery has lost momentum. Home prices rose in June, but at a slower pace, according to the S&P Case-Shiller Home Price indices. The 10-city composite index rose 1.1 percent in June; the 20-city index rose 0.9 percent. Year over year, the 10- and 20-city composites have risen 11.9 percent and 12.1 percent since June 2012, respectively. Wednesday, the National Association of Realtors (NAR) reported that pending home sales fell for the second straight month. Mortgage applications, too, continued their downward trend, with the four-week moving average hitting its lowest level since May 2011.
“The softness [in pending home sales] is likely to raise fears about whether the recovery in US housing will prove durable to the rise in mortgage rates observed since early May," Barclays Research economist Michael Gapen wrote in an e-mailed analysis. "Our view has been that the recovery in housing may slow due to the sizable fiscal drag in place during 2013 and higher mortgage rates, but that housing fundamentals were strong enough to prevent a sharp correction in activity”
Personal income and spending lag: Personal income ticked up 0.1 percent in July, but wages fell 0.3 percent, according to the US Bureau of Economic Analysis (BEA). Spending remained flat from June. “Wages took a hit in July, while spending hardly grew and the saving rate remained unchanged,” IHS Global Insight economist Chris Christopher wrote via e-mailed analysis. “It is becoming very evident that even though the housing market is gaining some traction and auto sales are looking up, there is not a tremendous amount of income support to keep consumer spending ... growing at very robust rates.” ( Continue… )
Microsoft CEO to retire, market cheers: When Microsoft CEO Steven Ballmer announced Friday that he will retire within the next 12 months, or as soon as a replacement is found, Microsoft stock shot up as much as 9 percent. Wall Street has not been enamored with Microsoft since Mr. Ballmer succeeded founder Bill Gates as CEO in 2000. The software company's value has fallen by more than half in that time – from $601 billion to $270 billion. And while some of that decline can be attributed to the popping of the dot-com bubble, it's also true that Microsoft has fallen behind in key areas of high-tech growth, including Internet search, smartphones, and social media.
Analysts blame Ballmer for underestimating the competitive threats from the likes of Apple and Google. The company is now having to play catchup with the Windows phone and Bing, which have failed to gain much traction in the marketplace. Even the newest iteration of its flagship software, Windows 8, has met with underwhelming sales, forcing the company to rework the interface in an update due out Oct. 17.
"There is never a perfect time for this type of transition, but now is the right time," Mr. Ballmer said of his upcoming retirement in a statement. He did not groom a successor. The company's search committee, which will include Mr. Gates, will look for the struggling company's next leader.
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Fed minutes released: The Federal Reserve released the minutes from its July meeting, as investors and financial markets looked for clues that the Fed would ease up on its bond purchases in the near future. The minutes gave little signal either way, but reiterated, “If economic conditions [improve] broadly as expected, the Committee [will] moderate the pace of its securities purchases later this year.” But the Fed will continue its support for the moment, buying approximately $40 billion in mortgage-backed securities and $45 billion in Treasury securities each month. For more on the Fed minutes, read Monitor reporter Mark Trumbull’s Wednesday story. ( Continue… )
Sales of new single-family homes took a big slide in July, according to the US Census Bureau. Sales dropped 13.4 percent from June to a 394,000 annualized pace, their lowest level in nine months. The figure was well below analysts’ expectations of a 490,000 pace.
The dip casts a pall over the US housing recovery following a recent spate of encouraging data. June’s new home sales numbers, which had hit a five-year high, were revised sharply downward (along with May's). Earlier this week, July’s existing home sales report was impressive, surging 6.5 percent from June and 17.2 percent from a year ago. Year over year, new home sales were still up 6.8 percent from July 2012.
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Why the huge monthly drop? Favorite culprits of many analysts are accelerating prices, surging mortgage rates, and a gulf between reported homebuilder optimism and actual construction activity.
“The reported plunge in July, combined with downward revision to earlier data, stand in stark contrast to the recent strong gains in the homebuilder survey,” says Joshua Shapiro, chief US economist with MFR, Inc., in an e-mailed analysis. “While the July result might prove to be an outlier, it is certainly a warning signal that conditions in the housing market are nowhere near as rosy as homebuilders, real estate agents, and their enablers in the media are so keen to represent.”
Prices for new homes also slid slightly, edging down to an average $257,200 in July from $258,500 in June. Still, that’s up from $237,400 in July 2012 – an indication that the market for new homes is still growing, albeit more slowly than anticipated.
It's too early to tell if July is just a negative blip in an otherwise positive trend. If August numbers confirm the slowdown, then analysts will begin focusing more intently on the potential effects of the bounce in mortgage rates and a possible pullback (or "tapering") in the US Federal Reserve's program to keep interest rates low.
“Data from the Mortgage Bankers Association show that mortgage applications for home purchase have weakened in recent months, suggesting that higher interest rates are having an impact on individual demand for homes, and also highlighting the fact that speculative demand continues to be the main driver of the existing home market,” Mr. Shapiro writes.
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The housing recovery continues to speed along, and last month, a key indicator came up big. But can it last?
Existing home sales surged 6.5 percent to a 5.39 million annualized rate in July compared with June, according to the latest data released by the National Association of Realtors (NAR). That’s the highest level since November 2009, when a home buyer’s tax credit was first introduced to boost sales. Last month's gains were felt in all four regions. Single-family home sales jumped 6.2 percent. The multifamily home category, which is traditionally more volatile and includes co-ops and condominiums, increased by 8.6 percent. Total existing home sales are up 17.2 percent since a year ago.
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The possible reason? The inventory squeeze that real estate agents have been pointing to as hampering the sales pace in some regions may be starting to ease up.
“We viewed lean inventories as the main factor slowing the pace of sales in recent months,” Michael Gapen, an analyst at Barclays Research, wrote via e-mailed analysis. “Inventories of existing homes were below 2 [months’ supply] for five consecutive months between November and March, a streak not seen in the US in more than a decade. In recent months, however, inventory levels have begun to normalize as new supply has come onto the market, although the level of inventories still remains lean by historical standards. We continue to expect that existing home sales will gradually improve as labor markets heal and housing demand firms.”
The months’ supply of homes stayed at 5.1 months in July, and the median amount of time a home sat on the market was 42 days – up from 37 days in June.
There were more hopeful signs in the makeup of the July sales figures. The proportion of foreclosures is decreasing, making up 15 percent of home sales in July. And the role of investors (as opposed to buyers looking for homes to live in) is diminishing. Investment sales made up 16 percent of sales in July, a drop from a 17 percent share in June and a 22 percent share in February. “Demand for homes to live in was even stronger than the headline number suggests since investors played a smaller role than they have in the past,” IHS Global Insight economist Patrick Newport wrote in an e-mail analysis.
But despite July’s robust numbers, there are a few things that concern analysts going forward. Mortgage applications have been falling sharply since June, which could portend a drop-off in sales next month. Some analysts, including economist Lawrence Yun at the NAR, argue that rising interest rates and accelerating prices could "diminish the pool of eligible buyers.” And it’s still unclear how much a rapid rise in interest rates (which are still low by historical standards) would affect the market.
However, the bottom line is still cautiously optimistic. “The housing market remains in a recovery phase, albeit one that could be tempered by higher mortgage rates and worsening affordability,” Mr. Gapen wrote. “Low inventories had been cutting two ways, supporting home price appreciation and home building, but reducing the pace of existing home sales. We believe the recovery in housing will prove resilient to any broader slowing in the economy and the recent rise in mortgage interest rates to date, but we will be watching for any signs of weakness or fragility as a result of the significant rise in real interest rates over the past several months."
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Newspaper starts up, online news pioneer cuts back: Long Beach Register gathered staff to begin producing at least 16 pages of content for the first edition, due Monday. The newspaper, owned by the Orange County Register, reflects the owner's optimism that print journalism can prosper in the 21st century. The Register faces stiff competition from the port city's existing paper, the Long Beach Press-Telegram, which has an average weekday circulation of some 55,000. The upstart paper expects to distribute 10,000 copies a day, wrapped around the Orange County Register.
AOL, meanwhile, is cutting 500 jobs over the weekend from Patch, its network of hyperlocal news websites. The layoffs started Friday, with 350 of the division’s 1,000 total workers receiving pink slips. AOL employs 5,500 total workers; the Patch layoffs would mean a 9 percent cut of the workforce.
AOL is also planning to shutter or consolidate 150 out of 900 local Patch sites. The company may attempt to find corporate buyers for some of the sites.
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Consumer sentiment surprises, in a bad way: The University of Michigan’s consumer sentiment index fell to 80.0 in its preliminary August reading, far below analysts’ expectations of an 85.0 reading. Consumers were pessimistic about both their present and future financial situations, and 38 percent of those surveyed reported they were worse off financially than they were a year ago (the highest percentage since January of this year). ( Continue… )
At first glance, July’s retail sales numbers, released Tuesday by the US Commerce Department, aren’t particularly impressive. But the actual breakdown tells a different story.
Retail sales rose a combined 0.2 percent in July, after climbing 0.6 percent in June. That would seem like a setback, and indeed, analysts expected a bigger gain (about 0.3 percent). But core retail sales, a closely watched measure that excludes autos and gasoline, increased 0.5 percent after going flat in June. The report heartened economists, who take it as a promising sign of accelerating consumer spending.
“This is a relatively good report,” Chris Christopher, an economist with IHS Global Insight, wrote via e-mailed analysis. “Consumers made a comeback in July. The gains in clothing, sporting, department, general merchandise and restaurants in July after a poor showing in June are pointing to renewed strength on the back-to-school shopping season and consumer spending for the third quarter. In addition, both grocery stores and restaurants posted significant gains.“
One notable drag came from auto sales, which dropped 1 percent in July on the heels of a very strong June. Barclays economist Peter Newland characterized the drop as “partial payback for strong gains in May and June,” rather than a weakening of the industry.
Strong gains in grocery stores, sporting goods, and other "core" categories are seen as a reliable reflection of longer-term spending trends, so many analysts take such gains as a promising sign for further economic growth. Gasoline also fared well, with a 0.9 percent increase.
The biggest losses came in furniture sales, which fell 1.4 percent. Electronics and building materials also slid, by 0.1 percent and 0.4 percent, respectively.
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Critics want to blame the system itself. They point out how it will run through its surplus funds by 2033 – and how, after that, it will only have enough to provide 75 percent of promised benefits. They depict Social Security as one more failed government program or, as Texas Gov. Rick Perry once put it, a Ponzi scheme.
But compared with Washington’s budget processes, Social Security is a model of fiscal rectitude. While Congress has failed to rein in spending and engaged in expensive off-budget wars at the same time that it was cutting taxes for the rich, Social Security has operated under a 30-year bipartisan agreement that not only fully funded existing benefits but also built up a $2.6 trillion surplus in anticipation of today's retiree bulge.
How has Washington rewarded that fiscal prudence? Congress and various administrations have raided these surplus monies in order to make their overspending appear less egregious in the budget books. ( Continue… )