Author: economycommentator

U.S. Economy Growth

The U.S. economy’s growth is expected to slow somewhat at the start of 2012, following a burst of rapid growth during the fourth quarter of last year. According to the USA TODAY’s survey of economists, the current state will keep unemployment rates at around the same place they are now.

The survey continued, explaining that the economy will grow at approximately a 2.2% annual rate during the first half of the coming year. The government will release reports on fourth-quarter GDP later this week.

Diane Swonk, Mesirow Financial chief economist, explained that the slower growth will result from the fact that last year’s bounce-back won’t be able to maintain itself. She said: “The little improvement we saw was partly catch-up; the retail recovery at Christmas was more hype than reality. Consumer confidence is still at recession levels, just not at depression levels.”

Still, there are some positive sides to the upcoming year. The risk of an additional U.S. recession is decreasing significantly, while the debt crisis in Europe will only affect a quarter of a percentage point in America’s growth this year.

Jeffrey Lacker on Monetary Stimulus

Next week, U.S. central bankers will convene amongst predictions that 2012’s growth will not be sufficient to reduce the nation’s current unemployment rate of 8.5%. Explored options include additional monetary stimulus, as well as having the central bank loosen up on certain markets.

Jeffrey Lacker, President of the Federal Reserve Bank of Richmond, sees no reason to institute either of these measures unless the economy encounters severe inflation or a dramatic growth slump. “I am still where I was a month or two ago when I said I didn’t see a compelling case for further stimulus,” he said. “The record of the last year and a half is that stimulus raised inflation and didn’t do much for growth on a sustained basis. And I think if we did it again, that is what would happen.”

He continued, stating that this year should bring “more modest expectations for monetary policy.”

“My takeaway from 2011 is the lesson that the impediments to more rapid U.S. growth are likely to be deeper and more persistent than we thought a year ago,” Lacker added. “I am expecting only a modest improvement for 2012.”

JPMorgan’s Dimon on US Recovery and the European Central Bank

In an interview with CNBC yesterday, Jamie Dimon, CEO of JPMorgan Chase said the United States is currently going through a “mild recovery,” that is “broad and strengthening.”

“When you look at all the sectors- corporate, middle market, business, consumer,” he continued, “for the most part theu’re better than they were a year ago, and we even think housing is near the bottom if you look at rental prices, supply and demand, household formation. So I hope we have a growing economy.”

He added that banks “have a lot of issues sitting on them right now including Europe, which may be the largest of them. We would like to see Europe solve its problems.”

The European Central Bank’s recently instituted three-year-deposit facility “removed a lot of issues about liquidity.” However, in order to make real progress, the Bank should be combining efforts with the EU to resolve the region’s financial crises.

“It’s fair for the ECB to say this is not our issue, it’s a government issue,” Dimon said. He went on to say, though, that the European Union could come back with the valid claim that they need the Bank’s help when it comes to liquidity for sovereign debt in countries like Italy and Spain. Dimon stressed the importance of acting immediately, before the situation spirals further out of control.

Paul Chew and U.S Exports in 2012

Brown Advisory’s head of investments Paul Chew recently rocked the financial boat by saying that the EU crisis will have a very minor impact on American businesses this year. He explained that the rising market demand for United States exports will balance any small decrease in European demand.

“A European recession would clearly hurt U.S. exports to Europe, but the U.S. economy us not overly exposed as the EU only represents approximately 20% of the total U.S. export market,” Chew said.

He went on to explain that S&P 500 gains are currently increasing beyond historical averages, in comparison to the more sluggish GDP. The earnings are also reducing new hires and preserving tight cost restraints.  GDP has jumped a mere 1.4%, while S&P 500 earnings have reached 15%.

Last year’s trends, namely volatility and thematic investing, do not interest Chew as much for the upcoming year, as he sees equity valuations as “relatively compelling.”

U.S. Automobile Industry Shows True Recovery

In contrast to many struggling industries, the auto market has managed to dramatically increase its sales, jobs and product innovations thanks to better quality and bottled consumer demand.

Many potential car purchasers have been hesitant due to the recession, but showrooms are filling up again now that owned U.S. vehicles are more than ten years old, on average. According to experts, the volatile economy has also encouraged car buyers to feel more comfortable with large purchases.

“And that’s a big behavioral change from what we saw in ’08 and ’09. That’s good for the industry,” said Jesse Toprak of TrueCar.com.

Toprak added that vehicles sales are likely to reach $12.8 million this year, seeing as last year around 11.8 million cars and trucks were sold across the nation, to both businesses and private customers. Before the recession, more than 16 million vehicles were sold every year. Still, the slow but steady recovery of the industry has boosted U.S. economy, and especially the Great Lakes and Rust Belt regions.

U.S. Economic Optimism Boosts Asia’s Stocks

According to Andrew Pease of Russell Investment Group, “The U.S. economy is in better shape than Europe and that’s positive.” Pease is a Sydney-based senior investment strategist for the firm’s Asia-Pacific region. “Given the huge clouds hanging over the global markets from Europe and uncertainties in the Chinese property market, it’s very hard to be optimistic at this stage. Investors are also pricing in increased geopolitical risks.”

Still, as optimism towards the U.S. economy heightens, Asian stocks rise as well. Asia’s determined growth has also lessens concerns regarding the region’s real estate industry.

The MSCI Asia Pacific Index increased 0.14 point, or 0.1%, to 110.54 in Tokyo. Japan’s Nikkei 225 Stock Average also gained 0.5%, and South Korea’s Kospi Index rose 0.9%.

U.S. Criticizes China’s Trade Restrictions

The United States recently said that China’s trade restrictions and “interventionist policies” in various markets have created problems for American businesses in dealing with Asia.

According to the U.S. Trade Representative’s office, “numerous sectors” of the Chinese economy discriminate against foreign business. The institute’s annual report, which discussed Chinese compliance with World Trade Organization rules, called the government’s continuous intervention a “troubling trend.”

“China seems to be embracing state capitalism more strongly, rather than continuing to move toward the economic reform goals that originally drove its pursuit of WTO membership,” the report stated.

The USTR report was directed at Congress one day after China’s 10th anniversary of joining the WTO. Since then, China has become the largest exporter and the second-largest importer in the world. In 2001, trade in goods like appliances, toys, tools and clothing was around $510 billion, while today’s market has reached nearly $3 trillion.

Small Businesses Create Thousands of Jobs But Labor Market Remains Shaky

According to a recent survey, U.S. small businesses have created 55,000 jobs this month, though employees worked less hours and earned smaller amounts of money. Based on responses from around 71,000 small businesses, the survey covered the period between October 24th and November 23rd.

Payrolls processing company Intuit said the small business employment rise in November compared to October’s revised 60,000 count, which was reported previously as a 30,000 gain.

The average work week for such employees dropped 0.3% to 24.9 hours, and the average monthly salary fell 0.18%, to $2,637.

“Total comparison is down, part time workers aren’t getting as many hours, and there are fewer hourly employees who are working full time,” explained Susan Woodward, an economist involved in the survey’s development.

“Overall, this data is the best we could hope for given the uncertainty of the situation in Europe.”

 

Obama Accuses China of Intentionally Lowering its Currency Value

This weekend, President Barack Obama spoke at the Asia-Pacific Economic Cooperation summit in Honolulu, stating that China is now a “grown up” economy, and must learn to act more responsibly on its currency.

“We welcome China’s peaceful rise,” he said, but Beijing should cease “gaming” the international economic system and help level the field for foreign businesses from the U.S. and around the world.  He added that China is deliberately keeping its national currency at a low point in order to support Chinese exporters.

“Most economists estimate that the renminbi (yuan0 is devalued by 20 to 25 percent,” he said. “That means our exports to China are that much more expensive and their imports into the United States are that much cheaper.”

U.S. Economy Adds 80,000 Jobs

In the month of October, the U.S. economy added 80,000 jobs, and unemployment rates fell slightly, from 9.1% to 9.0%, revealing that while the going is slow, the world’s greatest economy is on a stable path to recovery.

Furthermore, the economy did not falter in the face of August’s incidents, including the downgrade to the US credit rating and the EU debt crisis. Still, the pace of recovery remains slow.

The revisions of the past few months reveal the risk of depending on the initial employment data.

“You want to see revisions to the upside if one expects firming labor conditions. Weaker labor markets normally create downward revisions. The trend is moving in the right direction,” said Eric Green of TD Securities in New York.