Signs of a slow but steady recovery

[Kurt]

Vanguard usually not known for going out on a limb.

Vanguard − Economic Week in Review: Signs of a slow but steady recovery

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Economic Week in Review: Signs of a slow but steady recovery

Several recent reports provided hope that the economy may indeed be in the beginning stages of recuperating. The number of jobs lost in May was far fewer than expected. Demand for durable goods seemed to be on the rise again, and construction spending picked up. Personal income increased significantly in April, while consumer spending declined slightly. The U.S. savings rate reached a 14-year high. For the week ended June 5, the S&P 500 Index rose 2.3% to 940.1 (for a year-to-date total return of about 5.4%). The yield of the 10-year U.S. Treasury note increased 37 basis points to 3.84% (for a year-to-date increase of 1.59 percentage points).
Job losses fall significantly

According to the government's latest employment report, 345,000 jobs were cut during the month of May?the smallest number since Lehman Brothers collapsed last September. This number was significantly lower than the 520,000 expected by analysts. Several industries added jobs during the month, including education, leisure and hospitality, and health services. Fewer cuts in other areas, such as construction and business services, also contributed to the improvement. Despite the slowdown in job cuts, the nation's unemployment rate rose 0.5% for the month, to 9.4%, reaching a 26-year high. Still, the sharp decrease in losses may indicate that the job market is slowly improving.
Saving trend continues

Personal income saw its largest increase in 11 months, jumping 0.5% in April. Despite a rise in income, personal spending fell 0.1% as consumers continued to forego discretionary spending, preferring to hang on to their extra dollars. The savings rate?measured as a percentage of disposable income?rose 5.7% for the month, marking its highest level since February 1995.
Manufacturing outlook brightens

The Institute for Supply Management's (ISM) manufacturing index was up for the fifth consecutive month in May. The index, which measures the activity of our nation's factories, reached 42.8 for the month, 2.7 points higher than April. Although a reading of less than 50 indicates economic contraction, the fact that the index is steadily rising is a good sign.
The ISM's index of nonmanufacturing goods?a measure of the U.S. services industry, including banks, restaurants, and hotels?was also up in May. However, despite an increase in the overall number, drops in both new orders and business activity were less encouraging.
Construction spending on the rise

Construction spending gained ground for the second consecutive month in April. The 0.8% increase surprised analysts, who had expected a decline of about 1.3%. Spending in the private sector jumped 1.4% for the month, with increases in both residential and nonresidential construction. Public construction spending fell slightly, indicating that state governments are still cutting back. Still, the rise in overall spending is a good sign for the economy.
Increased demand for durable goods

Factory orders in April were up less than expected; however, the 0.7% jump was a big improvement from March's decline of 1.9%. Orders for durable goods?which include big-ticket items that are intended to last at least three years, such as cars and appliances?increased 1.7% for the month, their biggest gain since the start of the recession in December 2007. Nondurable goods orders fell 0.1% for the month.
Productivity higher than expected

Growth in U.S. nonfarm business productivity?which is defined as output per work hour?was revised upward to 1.6% for the first quarter, a significant jump from the Labor Department's original estimate of 0.8%. Output declined less than originally anticipated, which led to the revision. Labor costs, a key indicator of inflationary pressures, were also adjusted, sliding from 3.3% to 3.0%.
Consumer debt falls farther than expected

Consumer credit declined by $15.7 billion in April, more than the $6.0 billion that analysts had expected. Revolving credit led the decline, down 8.6% for the month; however, nonrevolving credit also fell 7.1%. These numbers are a reflection of tightened lending standards and weakened consumer demand.
The economic week ahead

Next week will be somewhat light in terms of economic news. On Wednesday, the Federal Reserve will release its latest Beige Book, which provides a summary of current economic conditions in each of the 12 Federal Reserve regional districts. The latest report on international trade will also be released on Wednesday, while updates on retail sales and business inventories will be provided on Thursday.

 

[Lynnie]

Kurt, this came up in conversation last night over wine and such. Feeling things are getting better, we are predicting a longer than normal recovery period.

 

[Susan Horn]

I am hopeful that a longer, slower recovery period may result in a more lasting and sustainable and healthy recovery over the long term. Genius think- and do-tank leader Amory Lovins and many others see great potential for a thriving and abundant future. I like to get inspired with what Lovins is doing at www.rmi.org One of many oases of intelligent, viable, really happening good news in a vast ocean of negativity!

 

[Lynnie]

I am hopeful that a longer, slower recovery period may result in a more lasting and sustainable and healthy recovery over the long term. Genius think- and do-tank leader Amory Lovins and many others see great potential for a thriving and abundant future. I like to get inspired with what Lovins is doing at www.rmi.org One of many oases of intelligent, viable, really happening good news in a vast ocean of negativity!

My sentiments exactly. I am a believer that everything happens for a reason; the best reason. I'm hopeful that a slower recovery will promote greater wealth and decision-making to sustain the wealth. Good lessons for all of us! ;-)

 

[hnooe]

My sentiments exactly. I am a believer that everything happens for a reason; the best reason. I'm hopeful that a slower recovery will promote greater wealth and decision-making to sustain the wealth. Good lessons for all of us! ;-)

I agree..extending the recovery is the best thing possible--we had the emergency surgery, now it bed rest and therapy, a little at a time. I am hoping the financial/banking safeguards are more thorough and stricter, and finally we realize that there is nothing now that is too big too fail!

 

[Kurt]

Vanguard − Economic Week in Review: Positive news offers hopeful signs

Economic Week in Review: Positive news offers hopeful signs

Stocks rose modestly this week on the strength of several encouraging economic reports. Total business inventories dropped 1.1% in April, retail sales rose in May for the first time in three months, and the U.S. trade deficit expanded in April. "A widening trade deficit is a particularly positive development because it is a good leading indicator of a recovery, with the United States likely to rebound ahead of the rest of the world," said Vanguard economist Roger Aliaga-Diaz. For the week ended June 12, the S&P 500 Index rose 0.7% to 946.2 (for a year-to-date total return of 6.1%). The yield of the 10-year U.S. Treasury note decreased 3 basis points to 3.81% (for a year-to-date increase of 1.56 percentage points).
Business inventories shrink

Business inventories continued their slide, falling 1.1% in April, the eighth consecutive monthly decline. Inventories of motor vehicles dropped 2.4%, while total retail stocks fell 1.0% overall. With business sales falling at a more modest 0.3%, the inventory/sales (I/S) ratio, which measures the number of months it would take to reduce inventories to zero, now stands at 1.43, versus 1.46 at the beginning of the year. Economists see the drop in the I/S ratio as a positive sign for the economy once demand picks up.
Retail sales gains fuel hope

Retail sales in May saw their first monthly increase since February, according to data released by the Commerce Department on Thursday. The positive news was somewhat tempered by the fact that more than half the gain was caused by rising prices at gasoline stations. Other factors contributing to the spike in sales were building materials, which rose 1.3% for the month, and auto sales, which benefited from bargain-hunting consumers. The news was less positive for sporting goods, hobby, and department stores, which led declines. While core sales (excluding autos and gasoline) remained flat (0.1%), this was a sharp improvement over the consistent declines of most of 2008 and could signal that the recession is bottoming out.
U.S. trade deficit widens

The U.S. global trade deficit widened to $29.2 billion in April, a slight increase from March's $28.5 billion deficit. While U.S. imports fell by 1.4%, the decline was more than offset by a 2.3% drop in exports. The auto sector contributed heavily to the expansion of the trade deficit, as exports fell 2.7% while imports rose 0.9%. April's news marked the second consecutive monthly expansion of the trade deficit, which narrowed considerably in 2008.
Fed survey indicates continued economic softness

The Federal Reserve's Beige Book, an anecdotal survey of regional economies, cast doubt on the recent spate of hopeful economic signs. The June report revealed generally weaker economic conditions from mid-April through the end of May in all regions of the country. There were, however, several bright spots in the report, including five districts reporting that the pace of their regional declines was moderating. In addition, the residential real estate market showed signs of improvement, and some manufacturers were more optimistic about the outlook going forward. Despite these silver linings, the overall sentiment of the report was that the United States would likely remain in recession through late 2009.
The economic week ahead

Next week's news features a number of key reports that should give a clearer picture of the current state of the U.S. economy. On Tuesday, government policymakers release the latest data on producer prices, industrial production, and new residential construction. Reports due out late in the week include the Consumer Price Index (Wednesday) and consumer confidence (Thursday).

 

[Kurt]

Vanguard − Economic Week in Review: Tame inflation, inklings of a turnaround

Economic Week in Review: Tame inflation, inklings of a turnaround

The latest economic reports detailed the recession's downward pressure on prices and production, but also hinted at the beginnings of a recovery—production is declining less rapidly, housing starts surprisingly surged, and the index of leading indicators rose for the second month in a row. For the week ended June 19, the S&P 500 Index fell 2.6% to 921.3 (for a year-to-date total return of about 3.3%). The yield of the 10-year U.S. Treasury note fell 2 basis points to 3.79% (for a year-to-date increase of 1.54 percentage points).
Prices fall at fastest annual rate in decades

In May, both producer prices for finished goods (which can eventually show up in retail prices) and consumer prices rose from their April levels, by 0.2% and 0.1%, respectively. Compared with a year earlier, however, these price gauges declined at the fastest rate in about 60 years—consumer prices by 1.3%, producer prices by 5.0%—reflecting the impact of the global recession and lower energy prices.
Output decline slows, with capacity at another record low

Industrial production—the output of the nation's factories, mines, and utilities—fell by 1.1% in May, continuing a recent overall slowing in the rate of decline. The rate of capacity utilization, a measure of how intensively resources such as factory equipment are being used, declined to another record low: Manufacturing capacity use stood at 65.0% in May, the lowest rate since recordkeeping started in 1948.
Leading indicator surges for a second straight month

The Conference Board's index of leading economic indicators—a composite of ten statistical measures such as new orders and hours worked that's designed to forecast economic activity—rose strongly in May, by 1.2%, on the heels of an equally strong gain in April (1.1%, revised upwards). The Conference Board noted that even after a recovery starts in earnest, job growth will lag—a point made as well as President Obama, who said in an interview that he expects the unemployment rate to hit 10% this year.
New residential construction moves higher again

The construction of new homes rebounded in May, growing by 17.2% to an annualized rate of 532,000 units. The increase, which was far above expectations and followed a 12.9% decline in April, was driven mainly by multifamily units—a volatile category that was also responsible for the previous drop. By comparison, new construction of single-family homes rose in May for the third straight month by 7.5%, to 401,000 homes. Compared with a year ago, however, total starts (single and multifamily) were more than 45% lower.
The economic week ahead

The current state of the housing market will be in full view, with reports on existing-home sales on Tuesday and new-home sales on Wednesday. Also on Wednesday, the durable-goods report will be released and the Federal Open Market Committee will meet. On Thursday, the third and final estimate of first-quarter real gross domestic product will be announced, followed by a report on personal income and spending on Friday.

 

[Kurt]

Vanguard − Economic Week in Review: Green shoots and greenbacks

Economic Week in Review: Green shoots and greenbacks

It's cold comfort for the millions who have lost their jobs, but the latest economic reports continue to suggest that a recovery—slow and modest, but recovery nonetheless—is in the offing. Some analysts see "green shoots" in recent data, while others are more cautious. For the week ended June 26, the S&P 500 Index fell 0.3% to 918.9 (for a year-to-date total return of about 2.9%). The yield of the 10-year U.S. Treasury note fell 28 basis points to 3.51% (for a year-to-date increase of 1.26 percentage points).
GDP: The picture gets a little rosier

The U.S. economy contracted sharply in the first three months of 2009, but not as sharply as originally thought. Final figures for the real gross domestic product (GDP) showed a 5.4% decline at an annualized rate for the quarter—a sobering figure, to be sure, but significantly better than the 6.1% decline estimated in April.
Personal income: A handout from Uncle Sam

A deluge of economic stimulus money from the federal government poured into Americans' wallets in May, pushing personal incomes up 1.4%. Most of the $250 stimulus checks went to those receiving Social Security or veterans' benefits. With those one-time payments factored out, incomes rose just 0.1%. Indeed, wages and salaries were down 1.1% in May, and have declined in seven of the last eight months. The savings rate, as a percentage of disposable income, rose to 6.5%—its highest level in almost 16 years.
"Consumers are experiencing a sharp 'deleveraging' process as a result of the tight credit conditions in the market," said Vanguard economist Roger Aliaga-Diaz. "High credit card interest rates and fees, lower credit limits, and poor personal credit ratings are encouraging households to stop borrowing and pay down debt."
Housing: A buyer's market, but for how long?

After more than a year of woeful tidings, the housing sector finally got a little good news this spring. Sales of existing homes posted their second consecutive monthly gain in May, rising 2.4% to 4.8 million units on an annualized basis. The market was strongest in the Northeast and Midwest, flat in the South, and relatively weak in the West. It's still a buyer's market, though, as the median selling price of an existing home is down 16.8% from where it stood a year ago.
Sales of new homes dipped a bit in May, but have remained fairly stable for most of the year. Purchases fell 0.6% to 342,000 (annualized), but the median price of a new home rose 10.9%, to $224,904. The inventory of new homes available for purchase was down 36% from where it stood a year earlier, leading some forecasters to think new-home prices could surge if demand picks up in the next few months.
The Fed: No news is good news?

As expected, the nation's central bankers stayed on the sidelines during their latest meeting. Anticipating "a resumption of sustainable economic growth" in the near future, the Federal Open Market Committee voted unanimously to keep its target rate for federal funds in the 0%-to-0.25% range "for an extended period."
"There remains considerable slack in the economy, notwithstanding concerns about inflation from the Fed's massive liquidity injections," said Mr. Aliaga-Diaz. "Right now, deflationary pressures from falling asset prices and salaries are still a reality. The Fed will be very cautious before returning to a tightening mode. We shouldn't expect that to happen before hard economic data and employment numbers start to show a clear improvement."
Durable goods: An unexpected surge in demand

Advance orders for durable goods rose 1.8% in May, defying consensus expectations for a decline. While the manufacturing sector remains fairly weak, there were notable upticks in demand for machinery, civilian aircraft, computers, and other products. Shrinking inventories likewise gave analysts reason to think a rebound may be underway. If so, it's a slow one, as industrial production declined in May to its lowest level since 1998, with almost a third of the nation's manufacturing capacity unused.
The economic week ahead

Fireworks and hot dogs may be on most Americans' minds next week, but economists will have some important data to review. Due for release are reports on consumer confidence (Tuesday), construction spending and manufacturing (both on Wednesday), factory orders and the employment situation (both on Thursday).

 

[hnooe]

Great thread Kurt....gives a great week to week gauge of things--refer to it often!

 

[Chickpea]

I am going to stay that I am cautiously optimistic - I also think we will see (hopefully) smarter ways of growing/developing.