December 2009

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 »

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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.

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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.

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The economy, as measured by the Gross Domestic Product, grew at a 2.2 percent pace in the third quarter, as the recovery got off to a weaker start than previously estimated.

The Commerce Department’s new reading for the July-to-September quarter was slower than the 2.8 percent growth rate estimated a month ago. Economists were predicting that figure wouldn’t change.

The main factors behind the downgrade: consumers didn’t spend as much, commercial construction was weaker, business investment in equipment and software was a bit softer and companies cut back more on inventories.

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Real average hourly earnings fell 0.5 percent from October to November 2009. This decline stemmed from a 0.5 percent increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers more than offsetting a 0.1 percent increase in average hourly earnings. Over the year real average hourly earnings decreased 0.1 percent.

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