The New Economy
Stocks plunge in final hour of trading: The stock market was directionless for most of Friday until the last hour of trading, when it sank like a stone. The Dow Jones Industrial average lost 100 points in the final 15 minutes alone. Some traders blamed end-of-the month rebalancing of portfolios; others pointed to automated trading programs for kicking in and exaggerating the loss. In the end the Dow was down nearly 209 points, or 1.4 percent, its biggest one-day decline since April. The Standard & Poors 500 index also fell 1.4 percent and the tech-heavy Nasdaq declined 1 percent.
Despite the late plunge, and the old adage about getting out of the stock market in May, stocks were still up for the month. That's the sixth month in a row for the venerable Dow.
Government bond yields rose, with the benchmark 10-year Treasury note edging up to 2.13 percent, its highest level in more than a year. Mortgage rates, which usually move in tandem with the 10-year note, also are up to their highest levels in a year.
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Personal income unchanged in April, but consumers are upbeat: Personal income among US households went unchanged in April. Consumer spending dipped slightly, falling 0.2 percent, according to data from the US Commerce Department. Both reads were slightly below analysts’ expectations, and some see it as a sign that the spending cuts stemming fro the “sequester” in Washington finally may be catching up with consumers. We believe consumer spending is slowing in lagged response to the large decline in real disposable income in [the first quarter of 2013], which owed to the tax increases, as well as some income shifting into [the last quarter of 2012] to get ahead of those tax increases,” Barclays Research economist Dean Maki wrote in an e-mailed analysis.Analysts also take the slowdown as a hint that the Federal Reserve won’t slow its asset purchases, but warn that such a decision will likely hinge more on the labor market than anything else. “On a more fundamental basis, labor market conditions will be the key factor for the consumer, and evidence concerning job growth therefore will remain the paramount economic variable for some time,” Josh Shapiro, US economist for MFR, Inc. in New York, wrote in his analysis of the numbers. ( Continue… )
Let me tell you something about Americans. We like to win. No, we love to win. And in our minds at least, we do it all the time.
But these days, when it comes to manufacturing, we've been doing less winning than we like. We really hate losing, but it sets us up for the one thing we might like nearly as much as we like winning: a comeback.
The first time I heard a Chrysler ad say, "This was once a country where people made things. Beautiful things. And so it is again," I saw a room full of men trying not to weep at an SUV commercial. Chrysler (or more accurately Wieden+Kennedy) knew what they were saying with that one.
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And they weren't far from the truth. This is what American manufacturing is today: a chance to combine two things that we as Americans love very much – winning and making a comeback. ( Continue… )
Already a bright spot in the economy, the housing market is starting to shine even more. Home prices have notched their largest increase since the housing bubble burst.
The S&P/Case-Shiller composite home price index of 20 cities rose 1.1 percent in March, and 10.9 percent since last year, beating analysts’ expectations of a 10.2 percent annual gain. That’s the index’s biggest increase since April 2006.
“This update was the strongest in years,” IHS Global Insight US economists Patrick Newport and Stephanie Karol wrote in an e-mailed analysis. “Seasonally adjusted prices were up in all 20 cities for the fourth straight month; prices were up from a year earlier in all 20 cities for the third straight month; five cities posted their largest month-on-month gain in over seven years; twelve cities saw double-digit increases from a year earlier; and all three major indexes rose at double-digit rates from a year earlier.”
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Seasonally adjusted prices rose in all of the index’s 20 cities for the fourth month in a row. Non-seasonally adjusted, only New York and Minneapolis posted monthly declines. ( Continue… )
The differing attitudes of men and women toward financing retirement may not be as stark as other differences denoted in the 1992 bestseller “Men are from Mars, Women are from Venus.”
Both sexes are equal when it comes to having saved for retirement: 66 percent, according to the most recent Retirement Confidence Survey from the Employee Benefit Research Institute. They're statistically equal when it comes to having an individual retirement account (46 percent for men, 47 percent for women) and contributing to a workplace retirement savings plan (40 percent, 36 percent).
But there's one big area where they differ: confidence.
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When the survey's 1,254 adults were presented with the statement “you will have enough money to live comfortably through your retirement years," 17 percent of males agreed. Only 10 percent of females agreed. ( Continue… )
Durable goods on the rise: According to the Commerce Department, orders for durable goods from manufacturers jumped by 3.3 percent ($7.15 billion) in April, far exceeding analysts’ expectations. Most of that increase ($5.09 billion) was in orders for transportation equipment. Also, orders for vehicles increased 1.9 percent. Aircraft orders rebounded as well, by 26 percent. The only dim spot in the report was shipping of durable goods, down by 0.6 percent.
“We are probably in for another month or two of declining shipments during the spring,” Paul Edelstein, director of financial economics at IHSGlobal Insight, wrote via e-mail analysis. “But if orders continue on their current pace, shipments should rebound in the summer. But clearly, the mini-boom in manufacturing over the previous two quarters is over, and the sector is settling into a softer growth trajectory that is more consistent with the overall economy.”
P&G brings back former CEO: If the current chief executive officer isn't working out, why not bring back the former guy? That's the strategy Procter & Gamble Co. is using, announcing Thursday that former CEO A.G. Lafley would take the reins of the maker of Tide, Crest, Pampers, and other household products. He replaces CEO Bob McDonald, who will retire June 30.
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Although it has a commanding presence in US households, P&G has struggled to grow sales in emerging markets overseas – a strategy that Mr. Lafley himself initiated before he retired in 2009. The sudden leadership move may have more to do with morale than strategy. Known as a charismatic leader, Lafley told the Associated Press that he would continue the company's strategic course, which has reaped some results recently by cutting costs, introducing new products, and focusing on core developed markets as well as developing ones.
On Friday, the day after the announcement, P&G's stock jumped up 4 percent.
Jobless claims get back on track: Following an unexpected rise two weeks ago, the number of people applying for unemployment benefits dropped by 23,000 to 340,000 claims last week, according to the Labor Department. Continuing claims, meanwhile, fell to 2,912,000 from 3,024,000 from the week before, their lowest level since 2008. “Continuing claims have been steadily improving in recent months and now stand 11.7% below year-ago levels,” Barclays Research economist Cooper Howes wrote in an e-mailed analysis. “This week’s data cover the survey week for the May BLS employment report and, in our view, suggest that the separation side of the labor market has improved since April.”
Bernanke goes to Congress: Federal Reserve chief Ben Bernanke testified before Congress’s Joint Economic Committee Wednesday. In wide-ranging remarks, he warned that withdrawing Fed stimulus too soon could stall economic recovery. The Fed chief pointed to fiscal policies as a drag on growth – “In particular the expiration of the payroll tax cut, the enactment of tax increases, the effects of the budget caps on discretionary spending, the onset of sequestration, and the declines in defense spending for overseas military operations are expected, collectively, to exert a substantial drag on the economy this year,” he said.
You can read Bernanke’s full testimony on the Fed’s website.
Things get worse Abercrombie & Fitch. On the heels of the controversy surrounding the apparel brand’s exclusion of plus-sized customers, Abercrombie & Fitch posted dismal financial numbers for the first quarter, with same-store sales plunging 15 percent. Abercrombie stock fell 10 percent on the news. CEO Mike Jeffries blamed most of the loss on inventory shortages.
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We’ve been hearing consistently good news on the housing front for a solid year now. Prices are up, sales are accelerating, and new construction is coming along. But while this week brought another round of positive signs, the United States is still a long way from what can be considered a “normal” housing market.
Both new and existing home sales improved last month. New home sales increased 2.3 percent in April to a seasonally adjusted annual rate of 454,000 homes (March was also revised upward to a 444,000 rate), according to a joint release from the US Census Bureau and the Department of Housing and Urban Development. That’s a 29 percent increase from the level seen a year ago.
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“Not only did we have the increase in April, about as expected, but we had upward revisions for prior months and an acceleration in new home buying even compared to last year,” David Berson, chief economist for insurer Nationwide, said in a phone interview. "The level of sales and pace is the best that we’ve seen since the middle of 2008, when the economy was just beginning to fall into the Great Recession.” ( Continue… )
If you’re a Tumblr user or Yahoo investor worried about what the new Yahoo-Tumblr deal will mean for you, it may help to think of the old thought experiment: What happens when an almost immovable object (Yahoo) gets hit by a nearly irresistible force (Tumblr)?
Or in corporate terms: Is there synergy when big and slow meets cool and broke?
The $1.1 billion deal is a bold attempt by Yahoo to jump-start its growth and, eventually, its profits. If chief executive Marissa Mayer can make the deal work, she will have taken a major step toward making Yahoo relevant again as an Internet powerhouse.
Tumblr’s 117 million users give Yahoo a real social media platform; a link to mobile traffic (12 million unique visitors in March, according to ComScore); and fast growth. Its number of users doubled in a year and its mobile users have tripled.
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The risks remain immense for both companies, however, because their audiences are so different. In one fell swoop, Yahoo should see its audience swell by 50 percent. But it’s paying a pretty penny for the privilege. The Sunnyvale, Calif., company is paying $1.1 billion for a six-year-old company, started in the founder’s mother’s New York apartment, whose revenues are estimated to have been $13 million last year. ( Continue… )
Facebook IPO one year later: The initial public offering that was supposed to signal a new era for social media turned instead into one of the most botched IPOs in US history. The stock fell by more than half its opening price in a matter of months. Investors weren't convinced Facebook could translate all its online activity into a big revenue stream.
In the past year, the social media giant has staged a comeback. Chief executive Mark Zuckerberg has made a big effort in improving Facebook's mobile experience and generating ad revenue from it. The company reported that in less than a year, about 30 percent of its total ad revenue – some $375 million in the first three months of 2013 – came from mobile ads. The mobile ad industry is expected to skyrocket in the next several years, so Facebook can expect strong growth, analysts say.
But investors don't seem convinced. On Friday, Facebook stock closed at $26.25, still 31 percent below the $38 per share price it opened at one year ago.
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Consumer sentiment soars: The University of Michigan’s index of consumer sentiment rose to 83.7 in its initial May reading. If it holds, that would be the highest level for the index since 2007, before the Great Recession took hold. Both consumers’ economic expectations and current conditions improved, outpacing analysts’ expectations. ( Continue… )
It worked like a 21st century Trojan horse for journalists.
Using search codes, Bloomberg reporters could tell if clients had logged into their Bloomberg market terminals and what types of functions they had used. With more than 315,000 terminals strategically placed in trading rooms around the world – and at the Federal Reserve, the US Treasury, and at the White House – Bloomberg offered its journalists a wide, if limited, look at what traders and policymakers were interested in.
Further denting Bloomberg's reputation, the Financial Times reported Tuesday that more than 10,000 private messages between traders at the world’s largest banks and their clients were viewable on the Internet for several years.
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Bloomberg apologized for the online snooping, which had been going on since the news organization's early days. “The error is inexcusable," Matthew Winkler, editor-in-chief of Bloomberg News, wrote in a Monday editorial announcing that the publication had stopped the practice last month. And the company explained that the private messages, released by the client banks for Bloomberg's internal research, had been accidentally uploaded on the Internet by an employee. ( Continue… )
IRS apologizes to tea party groups: The Internal Revenue Service apologized Friday for singling out groups with "Tea Party" or "Patriot" in their tax-exempt status applications for additional scrutiny during the 2012 election. White House spokesman Jay Carney said that the IRS's actions, which were taken by low-level workers in Cincinnati, were "inappropriate" and that the Obama administration supports a full investigation.
From 2010 to 2012, the workers chose some 75 groups for extra inquiry because of the words in their names. The extra inquiries, sent to some 300 groups in all, included burdensome questionnaires and, in some cases, improper requests for donors' names, Lois Lerner, the head of the IRS unit that oversees tax-exempt groups, said in a conference call with reporters. "It was an error in judgment, and it was not appropriate, but that's what they did,"
Bernanke warns of banking risks: Federal Reserve chief Ben Bernanke spoke in Chicago Friday, defending the central bank's ability to protect the United States from another financial crisis and warning of the risks of a "shadow banking" system made up of various financial services. According to Mr. Bernanke, the Federal Reserve is taking steps to identify and monitor these services, including regular stress tests for banks. “Shocks of one kind or another are inevitable, so identifying and addressing vulnerabilities is key to ensuring that the financial system overall is robust,” Bernanke said in his speech at the Chicago Fed's annual conference.
Dow passes a milestone: The Dow Jones Industrial Average closed above the 15000 mark for the first time ever Tuesday, gaining 87 points to end at 15056.20. It was the first time the Dow had hit a milestone since 2007, when it first broke 14,000. The S&P 500 also hit a new record this week, as optimistic economic indicators and a good round of first-quarter corporate earnings reports buoyed the market. Whether the Dow’s hot streak will continue is anybody’s guess. Analysts warn that corporate earnings are likely to cool over the rest of the year, and the full brunt of the federal budget cuts under the sequester are expected to take hold this summer. For more on the market, read business editor Laurent Belsie’s May 13 Monitor cover story.
Consumer credit rises: Consumer credit increased $8 billion to $2.8 trillion in March, marking the measure’s 19th consecutive monthly increase. Nonrevolving credit, such as auto and student loans rose $9.7 billion, while revolving credit, mostly credit card debt, fell by $1.7 billion. “This decline was not unexpected, as higher payroll taxes coupled with looming fiscal uncertainty have put a damper on income growth and consumer spending,” Erik Johnson, senior US economist with IHS Global Insight, wrote in an e-mailed analysis. “The stop and go pattern in credit card usage seen over the past couple of years is likely to continue. Elevated unemployment and the increase in payroll taxes will leave households reluctant to run up big credit card balances.”
Job Openings and Labor Turnover Survey (JOLTS) remains flat: There were 3.8 million job openings in the US in March, changing little from February, according to data from the Bureau of Labor Statistics. Year over year, job openings decreased for nondurable goods manufacturing and the federal government, while job openings increased in accommodation and food services.
Jobless claims keep falling: The number of people applying for unemployment benefits fell by 4,000 to 323,000 last week, lower than analysts expected and the reading’s lowest level since November 2007. Continuing claims also fell, by 27,000, and the uninsured unemployment rate held steady for the third week in a row at 2.3 percent. “The claims data indicate that the pace of layoffs is easing despite an apparent slowdown in real GDP growth,” Barclays Research analyst Dean Maki wrote in an e-mailed analysis “This suggests that companies see the slowing in growth as somewhat temporary, and are responding to it by reducing hours worked and hiring at a less rapid pace – both of which were evident in the April employment report – rather than increasing the pace of layoffs.”
Budget surplus: The federal government posted a $122.9 billion budget surplus in April, nearly doubling the size of the surplus posted a year ago.