Low interest rates will prevail through most of 2010 as the U.S. economy expands modestly and the unemployment rate remains stuck in double digits

We see real Gross Domestic Product settling into a 2 percent path for much of 2010 and be closer to 3 percent in 2011. With such sluggish growth, the unemployment rate will likely peak at 10.8 percent in the first quarter and remain at or above 10 percent for almost all of next year.

For many, the tough jobs market will obscure how the economy will be regaining its footing. While many national economic statistics will show improvement, “Main Street” is not “Wall Street” and we will not see people spending aggressively as their overwhelming concern will be for their jobs. In short, this recovery will be a long, slow healing process.

Signs of economic recovery may be illusory since policy makers are seem to be medicating the economy with record federal deficits and a zero interest rate policy coming from the Federal Reserve.

It is uncertain how much strength the economy has without that support although we do not see the Fed tightening rates until late in 2010, as inflation is around 2 percent. Nor do we expect tax hikes, except for healthcare, beyond those already scheduled for 2013. Read the rest of this entry »

The Conference Board Consumer Confidence Index, which had increased in November, rose again in December. The Index now stands at 52.9 (1985=100), up from 50.6 in November. The Expectations Index increased to 75.6 from 70.3 last month. The Present Situation Index, however, declined to 18.8 from 21.2 in November.

“Consumer Confidence posted yet another moderate gain in December as expectations for the short-term future increased to the highest level in two years (Index 75.8, Dec. 2007). The Present Situation Index, however, continued to lose ground and remains at a 26-year low (Index 17.5, Feb. 1983). A more optimistic outlook for business and labor market conditions was the driving force behind the increase in the Expectations Index. Regarding income, however, consumers remain rather pessimistic about their short-term prospects and this will likely continue to play a key role in spending decisions in early 2010,” according to Lynn Franco, Director of The Conference Board Consumer Research Center

Consumers’ assessment of current-day conditions declined further in December. Those claiming business conditions are “bad” increased to 46.6 percent from 44.5 percent, while those claiming conditions are “good” decreased to 7.0 percent from 8.1 percent. Consumers’ appraisal of the job market was mixed. Those claiming jobs are “hard to get” decreased to 48.6 percent from 49.2 percent, while those claiming jobs are “plentiful” decreased to 2.9 percent from 3.1 percent.

Consumers’ short-term outlook improved in December. Those anticipating business conditions will improve over the next six months increased to 21.3 percent from 19.7 percent, while those expecting conditions will worsen decreased to 11.9 percent from 14.6 percent.

The outlook for the labor market was also more upbeat. The percentage of consumers expecting more jobs to become available in the months ahead increased to 16.2 percent from 15.8 percent, while those expecting fewer jobs decreased to 20.7 percent from 23.1 percent. The proportion of consumers anticipating an increase in their incomes decreased to 10.3 percent from 10.9 percent.

Las Vegas remains the one market that has not seen a glimmer of hope so far this year. Prices have declined for 38 consecutive months, with a peak-to-trough reading of -55.4%. It is now barely 5% above its January 2000 level. This compares to its peak in August 2006, when the average home price was 135% above that same level, according to the Standard & Poor’s/Case-Shiller Home Price Index.

However, the index’s data through October 2009 show that the annual rate of decline of the 10-City and 20-City Composites improved compared to last month’s reading. This marks approximately nine months of improved readings in these statistics, beginning in early 2009.

The report shows the annual returns of the 10-City and 20-City Composite Home Price Indices, declining 6.4% and 7.3%, respectively, in October compared to the same month last year. All 20 metro areas and both Composites showed an improvement in the annual rates of decline with October’s readings compared to September.

“The turn-around in home prices seen in the Spring and Summer has faded with only seven of the 20 cities seeing month-to-month gains, although all 20 continue to show improvements on a year-over-year basis. All in all, this report should be described as flat.” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. Read the rest of this entry »

In November, employers took 1,797 mass layoff actions involving 165,346 workers. Mass layoff events and associated initial claims both decreased over the month to their lowest levels since July 2008. The number of manufacturing events, at 481, decreased by 138 over the month, and associated initial claims, at 56,243, decreased by 14,329.

Consumer spending rose for a second straight month in November as incomes recorded their biggest gain in six months, according to a report issued by the Commerce Department today.

The Commerce Department said spending increased 0.5 percent after rising by a slightly downwardly revised 0.6 percent in October. Consumer spending in October was previously reported to have increased 0.7 percent.

Today’s report showed spending adjusted for inflation rose 0.2 percent in November, adding to the prior month’s 0.4 percent gain. Personal income increased 0.4 percent last month, the largest increase since May, after rising 0.3 percent in October.

While consumer spending is key to the recovery, it remains to be seen whether the past couple of months will have much of an impact. There are strong seasonal factors attached to recent numbers; and, nothing has changed positively on the employment front, notwithstanding fewer headcount reductions in recent months.

The data clearly was the latest evidence that households were starting to feel a bit more comfortable spending after a long period of restraint following the most painful U.S. recession in 70 years, but it is not at all clear that gains will be sustained without the support of government stimulus programs. The economy, as measured by the Gross Domestic Product, grew at an annual rate of 2.2 percent in the third quarter as government programs such as the popular “cash for clunkers” bolstered spending.

Data early this month showed a strong rise in retail sales in November, with gains spread across nearly all categories.

Real disposable income climbed 0.2 percent in November after rising by the same margin in October. The rise in income saw savings increasing to an annual rate of $525.1 billion, but the savings rate was unchanged at 4.7 percent from the prior month.

Commerce Department data also showed the personal consumption expenditures price index, excluding food and energy, rising 1.4 percent from a year ago in November. The index, which is a key inflation gauge monitored by the U.S. Federal Reserve, increased 1.4 percent in October.