Posts Tagged ‘unemployment’
Monday, October 3rd, 2011
ADP, a leading payroll services company, is reporting that private companies added 114,000 jobs in July.
Many analysts had projected an increase in hiring from June, but it is not likely that the unemployment rate will decline even if job growth rose sharply. ADP’s forecasts are frequently used to measure how the labor economy is performing, but the firm has had its share of missteps, with some estimates on target and others varying sharply from actual government-issued data. In June, ADP projected that more than 140,000 jobs were added. The official government report showed that the labor economy had experienced anemic growth during the month, with a net total of only 18,000 jobs created. Many economists and industry believe that private employers likely added more jobs than previously projected during July.
Not all the news was good, however. Employers announced 66,414 planned layoffs in July, an increase of 60.3 percent over the 41,432 announced in June, according to a report from consultants Challenger, Gray & Christmas, Inc.
Any gain or loss in jobs above 100,000 is considered statistically noteworthy by economists. Expectations were rather low, however, given the recent bad news about GDP, consumer spending and manufacturing recently. “We still expect that actual payrolls may have risen by around 50,000 in July,” according to Capital Economics. “That would be better than the previous two months, but hardly reason for cheer.” “This pace of job creation usually implies a steady unemployment rate,” according to ADP’s employment report. Capital Economics said that the latest job gains would not reduce the unemployment rate. “We are in a process of discovery over whether the slowdown we have seen since March in the U.S. is over and we are entering a new phase of faster growth or that we are in a slump,” said Francisco Torralba, economist at Morningstar Investment Management.
Recently released Institute of Supply Management (ISM) numbers indicate an economy that continues to move barely at a snail’s pace. The non-manufacturing ISM report showed expanding business activity, new orders and employment, but at a slowing pace. Planned layoffs reached a 16-month high while the private sector added 114,000 jobs in June, most of them in the small business and the services sector. “Today’s report shows modest job creation for the month of July at a rate of half what is needed for meaningful employment and economic recovery,” said Gary C. Butler, Chief Executive Officer of ADP. Approximately half of June’s private sector job additions came from small business, which added 58,000 employees, and medium businesses (+47,000). These statistics mesh with the Challenger, Gray & Christmas job-cuts report, which showed planned layoffs hitting a 16-month high on a “sudden and unexpected burst” in downsizing by large companies. Merck, Borders, Cisco, Lockheed Martin, and Boston Scientific announced plans to cut 38,000 jobs in July, 58 percent of the 66,414 announced. According to Dave Rosenberg, who is viewed by many as a perma-bear, it will be really hard for a self-sustaining recovery to pick up. “The overhang of excessive debt burdens is still with us today and the problem with the government stimulus programs that were put into place is that they were not designed properly; the multiplier impacts never did kick in,” said Rosenberg. “So we can’t ‘grow’ our way out. Now government sectors in nearly every jurisdiction are tightening their fiscal belts. Companies and banks retain their extreme stash of cash, if we dare suggest, because they see the economic environment that we do and want to survive the next downturn.”
In the meantime, 400,000 Americans filed for first time unemployment claims in the last week of July, according to the Department of Labor. Coupled with a revision of initial claims in the previous week to 401,000, the latest update means claims have yet to dip below the 400,000 mark for 17 weeks.
Writing for The Hill, Vicki Needham says that “Economists say these figures are in line with the economy’s slowing expansion and are expecting growth to accelerate through the second half of the year as temporary factors such as high gas prices fade. While companies aren’t hiring, consumers are being cautious with their money, spending less for the first time in 20 months. Consumer spending rose only 0.1 percent in the 2nd quarter and households tucked away more savings.”
Tags: ADP, Borders, Boston Scientific, Capital Economics, Challenger, Cisco, consumer spending, Department of Labor, GDP, Gray & Christmas, Inc., Institute of Supply Management, jobs, July Jobs Numbers Disappoint, layoffs, Lockheed Martin, manufacturing, Merck, Morningstar Investment Management, unemployment
Posted in Economics, General | No Comments »
Monday, September 26th, 2011
Mark Zandi of Moody’s Analytics,
who often discusses the economy, recently said something disturbing and fascinating about the possibility of a double-dip recession. According to Zandi, it could be the only recession that we will ourselves into. Zandi was talking about gloomy expectations that make people so nervous that in terms of economics, they freeze. His remarks are a reminder that while we regularly report economic data – unemployment, cost of living, home prices, trade deficits – there are other measures of our economy that are, by definition, subjective. Do we feel secure? Do we have confidence in the future to the point where we’re willing to spend money and take risks?
According to Dennis Jacobe of the Gallup Organization, “We’re a lot less confident than we normally are. Three out of four right now will say the economy is getting worse. And that’s a number that approximates the numbers of late 2008. I think the American people don’t see the economy that most of us economists and the public policymakers see. Americans see high unemployment rates and are concerned about losing their job. They’re concerned about higher food prices and higher energy prices, even though we say that there’s not much inflation. They’re worried about the housing market. And then on top of that, they’re worried about things like politics and the confrontational kind of stalemate in D.C.
“That certainly had an impact according to our numbers,” according to Jacobe. And what we see happening over the last several weeks is interesting in the sense that the average American, middle and lower income American, has been fairly pessimistic for quite a while with all these things that have been bothering them. But what we’ve seen happen recently is that things like the confrontation over the debt ceiling bill and on other kinds of things seem to have troubled upper-income Americans. Now, they’re also affected by what’s happening on Wall Street and what’s happening internationally with the problems in Europe and those kind of things, but when upper-income people also get very pessimistic, that’s when our numbers get up to three-quarters or 80 percent of Americans being worried.
“There really isn’t. And, you know, I think that one of the things that’s happening is that we’re not paying enough attention to consumer psychology as opposed to Wall Street and investor psychology. People all the time talk about how that affects Wall Street and how when Europe has had financial problems, they thought – people thought back to 2008 and the financial crisis and all those kind of things. But the average American is affected by the same kind of thing. They saw tremendous financial shock in 2008 and early 2009. And they saw that in their lives and in terms of not only credit access, but also in terms of their jobs and their job security. And I think people forget that when a lot of these things happen, like the budget confrontation, that that brings back memories of those days and those troubles. And that has a major impact on consumer psychology. So the statement like Zandi made makes a lot of sense in the sense that consumers actually are impacted today differently than, say, in years past,” Jacobe said.
“The trouble is people are so shell-shocked and haven’t really gotten over the recession,” according to Zandi. “They’re extraordinarily nervous, and when anything goes off script even a little bit they freeze, and that’s where we are right now and why we are so close to recession.”
In discussing the recent Standard & Poor’s downgrade of the United States’ credit rating from AAA to AA+, Zandi believes that there is a logical apprehension that a financial market selloff could feed on itself, doing real economic damage if it drags on. Wary households might respond by cutting back on spending, and anxious businesses would be even more cautious about investing and hiring. This could cause a double-dip recession, which would only intensify the nation’s fiscal troubles. Federal Reserve policymakers are certain to take this into account. S&P might even downgrade other nations’ sovereign debt, since the U.S. government provides vital support to the entire global financial system. This could increase borrowing costs for homebuyers seeking mortgages and businesses that want to expand. The impact on lending rates would be small, a few basis points at most. Financial markets should be able to weather the S&P downgrade, with little lasting economic impact. “Fundamentally the United States does not deserve a downgrade, because policymakers have made significant strides toward fiscal responsibility. The debt-ceiling deal was a vital step that doesn’t solve the nation’s problems, but it goes more than halfway,” Zandi said.
One idea that Zandi has to stimulate the economy is to take back unspent dollars from the American Recovery and Reinvestment Act (ARRA) and spend it on projects or on short-term stimuli like food stamps. This is easier said than done and might create more problems than it fixes. “It’s meaningful, but it’s not a game-changer,” Zandi said. “From an economic and political perspective, I’m not sure that would make a lot of sense to do. A lot of this spending has generated a lot of planning, a lot of environmental designs. They’re counting on the money. If you’re going to divert it, you’re going to create all kinds of problems for them.”
Tags: American Recovery and Reinvestment Act, Cost of living, D.C., Double-dip recession, Energy prices, Federal Reserve, Food prices, food stamps, Gallup Organization, home prices, inflation, Mark Zandi, Moody’s Analytics, S&P credit downgrade, Sovereign debt, stalemate, stimulus bill, Trade deficit, unemployment, Wall Street, Washington
Posted in Economics, General | No Comments »
Monday, August 22nd, 2011
Standard & Poor’s may have downgraded the United States credit rating from AAA to AA+ and the bears may have taken over Wall Street, but the Berkshire Hathaway chairman and billionaire Warren Buffett believes that the nation deserves a AAAA rating.
In a recent appearance on CNBC, Buffett said that he still believes that the United States’ debt is AAA and that he’s not changing his mind about Treasuries based on Standard & Poor’s downgrade. “If anything, it may change my opinion on S&P,” according to the Oracle of Omaha. “I wouldn’t dream of putting it anywhere else,” Buffett said, noting that at Berkshire, the only reason he’s sold Treasuries in the past is to purchase stocks or make acquisitions. Berkshire is still buying T-bills, even though yields have declined. “If I have to buy (Treasuries) at a zero percent yield, I will,” he said. “I don’t like it, but we’ll do it.”
Buffett has something of a vested interest in criticizing Standard & Poor’s. Berkshire Hathaway is one of the biggest shareholders in Standard & Poor’s main competitor Moody’s with about 28 million shares. But the billionaire has long urged people to make their own decisions about an investment’s prospects without relying on credit rating agencies. Buffett said the action doesn’t change his view on the soundness of U.S. Treasury bills. At least $40 billion of Berkshire Hathaway’s approximately $48 billion cash and equivalents is in U.S. Treasury bills, and Buffett won’t consider investing it elsewhere.
According to Buffett, America’s leaders may have a difficult time agreeing on the country’s financial future and the value of the dollar may slide, but that won’t keep the world’s richest nation from paying its debts. The United States has a GDP of about $48,000 per person, and the Federal Reserve can always print more money. “Our currency is not AAA, and in recent months the performance of our government has not been AAA, but our debt is AAA,” Buffett said.
Writing on the InvestorPlace.com website, Jeff Reeves says that “Before you scoff that Buffett is just a bygone relic of an era during which stocks like General Electric truly did have bulletproof dividends and it would have been unfathomable for stocks like General Motors to go bankrupt, consider this: In September 2008, the depths of the financial crisis when nobody knew which bank would fail next, Buffett and Berkshire dumped $5 billion into preferred stock of Goldman Sachs. Thanks to the 10 percent interest on those shares, Berkshire Hathaway earned a cool $500 million per year in dividends before Goldman bought back the stock several months ago. What’s more, the investment bank paid a hefty 10 percent premium to buy back those preferred shares. Maybe it was crazy to jump into banks headfirst when the market was going haywire in 2008. But it was awfully profitable for Buffett. You might think it’s crazy to stick to your buy-and-hold strategy now, or to continue to rely on U.S. Treasury Bonds. But take a deep breath and remember that not everyone is screaming and running for the hills. Yes, persistent problems with unemployment, the political bickering in Congress and the flatlining of our American economy are serious issues. But they are hardly new.”
Not everyone agrees with Buffett. According to the Equity Master website, “We must say that we do not agree with Mr. Buffett. We are not arguing with the credibility of S&P, whose reputation admittedly became tainted when it gave the highest rating to many mortgaged backed securities in the months leading up to the demise of Lehman. But that does not mean that the U.S. is without some serious problems. Indeed, the U.S.’ mounting debt is a huge cause for concern and the government’s latest move to raise the debt ceiling is only likely to postpone an eventual default and not entirely extinguish it. Moreover, the claim that the U.S. can pay its debt because it can print more money is a dangerous one to make. Printing money never really solved America’s problems. The two big quantitative easing programs and their failure to revive the sagging U.S. economy is testimonial to the fact. One thing that it will certainly do is bring down the value of the dollar and cause inflation to accelerate posing a fresh set of problems for the U.S. So, while criticisms can be piled on S&P, downgrading of the U.S.’ credit rating is something that the world’s largest economy had a long time coming.”
Firstpost agrees that Buffett is wrong. “Among other things, he said that the U.S. deserved a AAA credit rating when the S&P decided to bring it down to AA+. He also believes the U.S. will avert a double-dip recession. Well, Mr. Buffett, you are already half-wrong. A slow-growing nation with a 100 percent debt-to-GDP ratio cannot be AAA by any stretch of economic logic. It makes India’s 70-72 percent debt-GDP ratio look like the epitome of prudence. As for the other half of your prediction – that the U.S. will avoid a double-dip recession – the jury is out on that one, but the recession wasn’t the reason for the S&P downgrade anyway. There are two reasons, or maybe three, why the U.S. is in a mess. One is that it is overleveraged – in deep debt – both at the level of government and the common people. Two, the law that the U.S. can indefinitely live beyond its means has a flaw. It was built on the assumption that dollar debts can be paid off by printing more of the green stuff forever.”
Tags: AAA credit rating, Bear market, Berkshire Hathaway, Buy-and-hold strategy, CNBC, congress, Double-dip recession, Federal Reserve, financial crisis, GDP, General Electric, General Motors, Goldman Sachs, Lehman Brothers, Moody’s, Political bickering, Quantitative easing, Standard & Poor’s, T-bills, The Oracle of Omaha, Treasuries, unemployment, Wall Street, Warren Buffett
Posted in Economics, General | 1 Comment »
Monday, May 2nd, 2011
The Federal Reserve is unlikely to follow the European Central Bank’s (ECB) recent decision to raise interest rates and will hold off until there is looming inflation. The ECB’s move may be the first of several this year as high oil costs drive consumer prices above its target. That’s not to say that some members of the Fed’s policy-setting committee are not proposing an increase in the overnight lending rate by three quarters of a percentage point by the end of 2011.
Fed Chairman Ben Bernanke and New York Fed president William Dudley both believe that the economy is still to weak to remove support. “The old analogy that the Federal Reserve removes the punch bowl just when the party gets going doesn’t apply here because, well, there is no party,” said Bernard Baumohl, chief global economist at the Economic Outlook Group in Princeton, NJ. “There’s not even a balloon in sight.”
Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, also sees the ECB’s move as having minimal impact on the Fed. “I don’t see that a move by the ECB has any particular influence on our policy posture here in the United States,” Lockhart said. “Obviously by increasing the differential between short-term rates in the U.S. and short-term rates in the eurozone, you can see some influence” because “exchange markets are affected by short-term rates. I think some of the dollar selloff reflects some extent of that.”
The ECB “will hike twice in quick succession in April and June to satisfy the core economies’ demand for tighter policy,” said Stuart Thomson, a Glasgow-based money manager at Ignis Asset Management, which oversees about $120 billion. “But the sensitivity of the peripheral economies to higher rates, both in terms of overall debt and proportion of consumer loans tied to variable interest rates, means the central bank will pause over the summer.”
The Frankfurt-based ECB raised its refinance rate to 1.25 percent from just one percent, the first increase since July 2008. The ECB also boosted other rates by a quarter point, raising its marginal lending facility rate to two percent and its overnight deposit facility rate to 0.5 percent. According to ECB President Jean-Claude Trichet, “We did not decide it was the first of a series of rate increases,” emphasizing that the central bank will “always do what is necessary” to assure that inflation expectations across the 17-nation eurozone are given due consideration.
The ECB has forked over billions of dollars in the last year, purchasing bonds from troubled European nations such as Greece, Ireland and Portugal – all of which have been bailed out by the European Union – to assure that they stay afloat. The bank, whose intention is to focus on inflation is raising interest rates to combat rising prices, a major concern in Germany, which is the ECB’s most influential member.
“The ECB has decided that it will tighten policy for the core countries like Germany that are doing well and leave the non-standard measures support in place for the periphery countries,” said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc. “The rate increase is appropriate and there will be another one as early as June.”
Tags: Ben Bernanke, Dennis Lockhart, Economic Outlook Group, European Central Bank, European Union, Euros, Eurozone, Federal Reserve, Federal Reserve Bank of Atlanta, Germany, Greece, Ignis Asset Management, inflation, interest rates, Ireland, Jean-Claude Trichet, New York Fed, Overnight lending rate, Portugal, Royal Bank of Scotland Group Plc, unemployment, William Dudley
Posted in Economics, Financing, General | No Comments »
Wednesday, March 30th, 2011
The Federal Reserve‘s second round of stress tests requires the 19 largest U.S. banks to examine their capital levels against a worst-possible-case scenario of another recession with the unemployment rate hovering above 8.9 percent. The banks were instructed to test how their loans, securities, earnings, and capital performed when compared with at least three possible economic outcomes as part of a broad capital-planning exercise. The banks, including some seeking to increase dividends cut during the financial crisis, submitted their plans in January. The Fed will complete its review in March.
“They’re essentially saying, ‘Before you start returning capital to shareholders, let’s make sure banks’ capital bases are strong enough to withstand a double-dip scenario,’” said Jonathan Hatcher, a credit strategist at New York-based Jefferies Group Inc. Regulators don’t want to see banks “come crawling back for help later,” he said.
The review “allows our supervisors to compare the progress made by each firm in developing a rigorous internal analysis of its capital needs, with its own idiosyncratic characteristics and risks, as well as to see how the firms would fare under a standardized adverse scenario developed by our economists,” Fed Governor Daniel Tarullo said. Although Fed policymakers aren’t predicting another slump any time soon, they want banks to be prepared for one. In January, the Federal Open Market Committee forecast a growth rate of 3.4 percent or more annually over the next three years, with the jobless rate falling to between 6.8 percent and 7.2 percent by the 4th quarter of 2013. Unemployment averaged 9.6 percent in the 4th quarter of 2010.
The new round of stress tests are being overseen by a financial-risk unit known as the Large Institution Supervision Coordinating Committee (LISCC). The unit relies on the Fed’s economists, quantitative researchers, regulatory experts and forecasters and examines risks across the financial system. Last year, the LISCC helped Ben Bernanke respond to an emerging liquidity crisis faced by European banks. “The current review of firms’ capital plans is another step forward in our approach to supervision of the largest banking organizations,” Tarullo said. “It has also served as an occasion for discussion in the LISCC of the overall state of the industry and key issues faced by banking organizations.”
At the same time, Bernanke expressed his support for the Dodd-Frank Act, which will add new layers of regulation to the financial services industry, as well as the Consumer Protection Act. “Dodd-Frank is a major step forward for financial regulation in the United States,” Bernanke said, noting that the Fed is moving swiftly to implement its provisions. Additionally, the Fed wants banks to think about how the Dodd-Frank Act might affect earnings, and how they will meet stricter international capital guidelines. Banks will have to determine how many faulty mortgages investors may ask them to take back into their portfolios. Standard & Poor’s estimates that mortgage buybacks could carry a $60 billion bill to be paid by the banking industry.
In the meantime, the big banks are feeling adequately cash rich to pay dividends to their stockholders. Bank of America’s CEO Brian T. Moynihan said that he expects to “modestly increase” dividends in the 2nd half of 2011. “We’d love to raise the dividend,” James Rohr, CEO of PNC, said. “We’re hopeful of hearing back in March from the regulators.” JPMorgan CFO Douglas Braunstein told investors that the bank asked regulators for permission to increase the dividend to 30 percent of normalized earnings over time. Braunstein said that JPMorgan’s own stress scenario was more severe than the Fed’s, and assumed that the GDP fell more than four percent through the 3rd quarter of this year with unemployment peaking at 11.7 percent.
Clive Crook, a senior editor of The Atlantic, a columnist for National Journal, and a commentator for the Financial Times, believes that United States fiscal policy itself merits examination. Writing in The Atlantic, Crook says that “Fiscal policy needs a hypothetical stress test, just like bank capital. Let’s be optimistic and suppose that the deficit projections do hold, and that a debt ratio of 80 percent can be comfortably supported at full employment. What happens when we enter the next recession with debt at that level? Assume another really serious downturn, and another 30-odd percentage points of debt. Worried yet? That’s why the problem won’t wait another ten years, and why sort-of-stabilizing at 80 percent won’t do.”
Tags: Bank of America, Bank stress tests, Ben Bernanke, capital, Capital levels, Consumer Protection Act, Daniel Tarullo, Dividends, Dodd-Frank Act, Earnings, Federal Open Market Committee, Federal Reserve, financial crisis, financial reform, financial services, GDP, Inc., industry, Jeffries Group, JPMorgan Chase PNC Financial Services Group, Large Institution Supervision Coordinating Committee, loans, Mortgage buybacks, recession, Regulators, securities, Standard & Poor’s, Stockholders, unemployment, Wall Street reform
Posted in Economics, General | No Comments »
Monday, March 21st, 2011
January’s big snowstorms on the East Coast contributed to the creation of just 63,000 jobs nationally in that month. In February, however, businesses started to hire workers. The economy added 192,000 jobs, the best showing since May of last year, the Bureau of Labor Statistics reported Friday. The unemployment rate – which is politically important — fell from nine percent to 8.9 percent. Economists said the employment numbers were “solid” but not “ebullient.”
The optimistic view is that the economy has at long last turned the corner. “I think the economy has not only turned the corner: I am expecting the employment gains to accelerate slightly,” said Sung Won Sohn, a professor of finance at California State University, Channel Islands. “We have definitely reached the point where the economy is self-sustaining.” Sohn thinks that the Federal Reserve can halt its monetary stimulus program for the economy. “There is a growing possibility they will cut short their bond-buying program before the end of June,” he said. Improved job growth would also help cut the federal budget deficit, since income-tax revenues would rise and requests for unemployment benefits will be reduced. States and cities would get a boost for the same reasons. “The chances are the revenue projections may be slightly better than the government anticipates,” according to Sohn.
Other economists were not as sanguine about the pace of recovery. “If we see 200,000 jobs added in March, April, and May, that will convince market participants that the recovery is self-sustaining,” said John Canally, economist at LPL Financial in Boston. “You can’t make that call just by looking at February, because the numbers may have been distorted by the weather.” According to Canally, the most accurate indications of how the weather affected the numbers were in construction, which gained 22,000 jobs in February after falling 33,000 in January; transportation, which added 22,000 jobs compared with losing 44,000 in January; and leisure and hospitality, which added 21,000 jobs after dropping 3,000 the previous month. “All of those swings are because of the weather,” he said.
Manufacturing added 33,000 jobs in February, primarily in producing durable goods such as washing machines and refrigerators. This comes as no surprise to Frank Fantozzi, president of Planned Financial Services in Cleveland. “In talking to our corporate clients, we were hearing there was definitely hiring going on and activity improving,” Fantozzi said. “My litmus test is when our corporate clients from manufacturing to services send me e-mails saying they are looking to hire someone and asking if we have anyone in our network who would qualify.”
Not surprisingly, the Obama administration was cheered by the February numbers. “We are seeing signs the initiatives put in place by this Administration – such as the payroll tax cut and the investment tax credit – are creating the conditions for sustained growth and job creation,” said Austan Goolsbee, chairman of the Council of Economic Advisers. Republicans countered, suggesting that the improvement was because they had convinced the Obama administration to extend the Bush-era tax cuts for two years. “Removing the uncertainty caused by those looming tax hikes provided much-needed relief for private-sector job creators in America,” said House Speaker John Boehner (R-OH).
According to Esmael Adibi, an economist at Chapman University in California, “Three sectors – construction, financial activities and government – are taking the oomph out of the recovery. Job creation is what is going to bring housing back, but with this pace of job creation, we’re not going to see a quick turnaround.”
Tags: Austan Goolsbee, Bureau of Labor Statistics, Bush-era tax cuts, California State University, Channel Islands, Chapman University, Council of Economic Advisers, Durable goods, Federal budget deficit, Federal Reserve, LPL Financial, manufacturing, Obama administration, Planned Financial Services, recovery, Representative John Boehner, Republicans, Snowstorms, Stimulus program, unemployment
Posted in Economics, General | No Comments »
Wednesday, February 16th, 2011
President Obama recently took a short stroll from the White House and through Lafayette Park to give a speech in what might be termed enemy territory – the U.S. Chamber of Commerce. The subject was jobs and what the Chamber can do to jump start hiring by the companies that form its membership. Noting that American companies are sitting on approximately $2 trillion in cash, the president challenged the Chamber to invest some of that money by hiring Americans who are out of work.
“Many of your own economists and salespeople are now forecasting a healthy increase in demand. So I want to encourage you to get in the game,” Obama said, referencing the tax credits his administration negotiated to spur new investments. “As you all know, it is investments made now that will pay off as the economy rebounds. And as you hire, you know that more Americans working means more sales, greater demand and higher profits for your companies. We can create a virtuous cycle. Not every regulation is bad; not every regulation is burdensome on business,” he said. “Moreover, the perils of too much regulation are matched by the dangers of too little.”
Relations between the president and the Chamber – one of the nation’s most powerful lobbying groups — have been chilly and the speech was an effort to find common ground. Since the Democrats’ defeat in the November mid-term election, Obama has been trying to mend fences with big business. One part of that strategy was to hire Bill Daley, a former Chamber board member and JP Morgan Chase executive, as his new chief of staff to replace Rahm Emanuel. Additionally, he named General Electric CEO Jeffrey Immelt to head an economic advisory panel dedicated to job creation. According to the president, “I will go anywhere anytime to be a booster for American business, American workers and American products, and I don’t charge a commission.”
The Chamber gave the president a warm welcome, with the organization’s president Thomas Donohue expressing the body’s “absolute commitment” to working with the White House on turning around the economy and creating new jobs. “Our focus is finding common ground to ensure America’s greatness in the 21st century,” he said. “America works best when we work together.”
The president’s remarks came on a day when several Illinois firms warned that they are planning to lay off employees or close facilities. For example, Kmart is planning to close several stores in Illinois. Gold Standard Baking, Inc., will close a commercial bakery in Chicago, slashing 73 jobs. Another 67 employees are likely to be laid off at Itasca-based C. D. Listening Bar Inc., which sells DVDs, CDs, books and video games online at DeepDiscount.com. AGI North America, LLC, a paperboard box manufacturing company in Jacksonville, is closing at the end of March, putting 70 employees out of work. Gray Interplant Systems, Inc. – a warehousing and storage company in Peoria and Mossville – is planning to lay off 167 employees in April.
So why are American companies not hiring – or not hiring on their home turf? According to the Chamber’s Donohue, it’s a variety of reasons, including new regulations contained in the Patient Protection and Affordable Care Act and the Dodd-Frank financial reform bill. Additionally, companies are holding onto their cash to fund future acquisitions. Consolidation makes new regulatory burdens easier to bear. Once companies’ regulatory costs are clear and under control, they can begin hiring, he said. Finally, demand remains relatively low. Once spending improves, the Chamber believes that companies will have no choice but to invest in additional personnel to meet that demand. As consumer and business spending grows, so should jobs.
And, the jobs are going elsewhere. The Economic Policy Institute, a Washington think tank, says American companies created 1.4 million jobs abroad in 2010, compared with less than 1 million in the United States. The additional 1.4 million jobs would have cut the unemployment rate to 8.9 percent, according to Robert Scott, the institute’s senior international economist.
Tags: Bill Daley, Chief of staff, Dodd-Frank financial regulation bill, Economic Policy Institute, economy, General Electric, Healthcare law, investment, Jeffrey Immelt, jobs, JP Morgan Chase, Lafayette Park, lobbyists, November mid-term election, Patient Protection and Affordable Care Act, President Barack Obama, Rahm Emanuel, Regulation, tax credits, U.S. Chamber of Commerce, unemployment, White House
Posted in Economics, General, Green, Office, Student Housing | No Comments »
Tuesday, February 8th, 2011
New-home construction fell 4.3 percent in December compared with November to its lowest level in more than a year to a seasonally adjusted rate of 529,000 starts for 2010. December saw the lowest level of new home starts since October of 2009, according to Department of Commerce statistics. Starts ended the year 8.2 percent below December of 2009 and the chance that the numbers will rise anytime soon is highly unlikely.
December’s poor showing reflects a decline in single-family housing starts, which comprise the lion’s share of new residential construction, with construction falling nine percent to 417,000 units, the lowest level since May of 2009. Demand for new housing is a victim of the recession and the large supply of existing homes on the market. The high number of foreclosures also has impacted new residential construction. Stricter lending standards and the fear of unemployment are also slowing new home sales. Sales were boosted for a time last year when the federal government offered a first-time homebuyer tax credit. Once that incentive expired, sales declined.
Another reason behind the slow pace of new home sales is likely the surplus of foreclosed homes that are on the market at extremely attractive prices. Prices in 20 major metropolitan areas declined during the same time period, according to the Standard & Poor’s Case-Shiller Home Price Index. The index is only 3.3 percent above its nadir, which it reached in April 2009 and has fallen 1.6 percent from a year ago. There are several areas, however, where prices have stabilized and are not reflected in the Case-Schiller Index.
The slowdown in new home construction also raises the issue of what is happening to the acres of developed land that are shovel-ready? In some cases, new builders are buying the vacant lots from banks and developing lower-cost housing than the original concept. Builders are buying lots at 50 percent their original prices from lenders who want to move distressed construction loans off their books. Developments are being revived in markets such as Florida, California, Las Vegas, Utah and the suburbs of Washington, D.C., according to Brad Hunter, chief economist for Metrostudy, a Houston-based housing researcher. “This is a natural progression of the cycle,” Hunter said. “Projects fail, the price of the asset drops until it reaches a point where it’s profitable for someone else to pick it up and remarket it. They reposition the project and then what was formerly infeasible, is feasible.”
Developers are building smaller, more efficient homes that cost less to build, according to Tom Dallape, principal at the Hoffman Company, an Irvine, CA-based brokerage advisory company. “They’re tailoring them to the market,” he said. “The average new house used to be 3,000 square feet. Today, it’s 2,100.”
In another example, a homebuilder sold 1,300 acres of land and more than 1,500 homes sites — property once valued at $110 million for just $12.7 million. That amounts to just 12 cents on the dollar and is symptomatic of the level of financial pain banks must endure to stabilize themselves in a insecure economy.
Tags: Building permits, Construction industry, Department of Commerce, Existing homes, First-time homebuyer tax credit, foreclosures, Lending standards, Metrostudy, New home construction, recession, recovery, Single-family houses, Standard & Poor’s Case-Shiller Home Price Index, unemployment, Wells Fargo Securities
Posted in Development, General, Residential | No Comments »
Thursday, January 13th, 2011
Although the Washington, D.C., residential market has held up surprisingly well over the past few years in an environment hammered by unemployment and foreclosures, there is a question of whether the nation’s capital will spur recovery or if the rest of the country will drag down the local market. Washington’s relatively low unemployment rate and availability of well-paying jobs has helped cushion the city’s housing market. During the 3rd quarter, the District of Columbia’s average home price rose 3.1 percent over the 2nd quarter to $410,839, according to Delta Associates, a real estate research firm. That is 6.2 percent higher than average home prices during the 3rd quarter of 2009. The region’s foreclosure rate as of September was 2.1 percent, according to CoreLogic. Nationally, the foreclosure rate was 3.3 percent.
According to Mark Zandi, chief economist at Moody’s Analytics, more than 4 million homes were in or near foreclosure nationally in 2010. That’s over and above the 6.2 million homes that were foreclosed between 2007 and 2010. Those 10.2 million foreclosures equal the combined populations of Vermont and North Carolina. Approximately 57 percent of economists and real estate experts surveyed by Macro Markets don’t think that home prices will recover until 2012; another 35 percent believe that real recovery won’t happen until 2013.
In recent testimony before the Congressional Oversight Panel, Treasury Secretary Timothy Geithner said that 24 percent of homes in the United States are under water – which puts their owners in the unenviable position of being unable to refinance or sell. “The most important thing that’s going to affect the trajectory of home prices, the overall number of foreclosures, the ability of people to stay in their homes, is what the government is able to do to get the unemployment rate down,” Geithner said.
Tags: Congressional Oversight Panel, CoreLogic, Delta Associates, District of Columbia, foreclosures, housing market, Macro Markets, Moody’s Analytics, Timothy Geithner, Under water, unemployment, Washington DC
Posted in Economics, Financing, Residential | No Comments »
Tuesday, January 4th, 2011
Existing home sales in November rose at a slower pace than anticipated, spurred in part because of the end of a government tax credit aimed at encouraging first-time homeowners to buy. According to the National Association of Realtors (NAR), sales rose 5.6 percent over October to an annual rate of 4.68 million. Economists had predicted that sales would climb to 4.75 million for the year, according to Bloomberg News. When compared with November of 2009 – when the tax credit was still available – home sales had fallen by 25 percent. The tax credit, which was worth as much as $8,000, lifted existing home sales to a two-year high of 6.49 million one year ago.
Reduced prices and lower mortgage rates have made houses and condominiums more affordable, and these factors are likely to have propped up sales to some extent after the government tax credit expired. The unemployment rate – which is still in the 10 percent range nationally – is also depressing existing house sales. “Housing is going to remain dead in the water through the middle of 2011,” said Mark Vitner, senior economist at Wells Fargo Securities LLC. “Foreclosures coming back on the market will put downward pressure on prices.”
November existing home sales rose in the Northeast, the South and the Midwest; the West had the best showing, reporting a 12 percent increase. The median price rose slightly to $170,600 from $170,000 compared with November of 2009. Distressed sales, including foreclosures and short sales, totaled one-third of all sales. NAR officials predict that total existing sales for the year will be in the 4.8 million range, the lowest level recorded since 1997. Lawrence Yun, the NAR’s chief economist, expects sales to rise to 5.2 million in 2011, which he describes as a “sustainable” rate.
The bottom line is that the existing home market still favors buyers and is likely to remain that way for some time. Douglas Yearley, CEO of Toll Brothers, Inc., a large luxury homebuilder, said “As the economy improves, we believe our buyers are going to come right back out. It’s still a buyers’ market and you still need some incentives.”
Tags: Bloomberg News, Buyers’ market, Department of Commerce, Distressed sales, Existing home sales, foreclosures, Government tax credit, Great Recession, Housing market meltdown, LLC, Median house price, National Association of Realtors, short sales, Standard & Poor’s 500 Index, Supercomposite Homebuilder Index, unemployment, Wells Fargo Securities
Posted in Economics, Financing, Residential | No Comments »