Friday, November 27, 2015

Gloomy Friday

As Black Friday looms, the question on most economists' minds is, What kind of holiday retail season are we in for? Here's one negative sign: Consumers report slightly lower intended holiday spending in 2015 than they reported in 2014, according to the 16th annual holiday spending survey conducted by the Consumer Federation of America and Credit Union National Association. 

In this year's survey, 38 percent of the respondents said they would reduce their spending this year, up from 33 percent last year. Both this year and last, 10 percent of those surveyed said they would spend more.

People do feel a bit more confident of their economic security this year, though. For the first time since the question was asked back in 2012, more than half of those surveyed said they had sufficient extra funds to “pay for an unexpected expense of $1,000."

Thursday, November 26, 2015

Thoughts for Thanksgiving Day

“Be thankful for what you have; you'll end up having more. If you concentrate on what you don't have, you will never, ever have enough.” ~ Oprah Winfrey

“We have been the recipients of the choicest bounties of Heaven; we have been preserved these many years in peace and prosperity; we have grown in numbers, wealth and power as no other nation has ever grown.” ~ Abraham Lincoln

"When asked if my cup is half-full or half-empty, my only response is that I am thankful I have a cup." ~ Sam Lefkowitz

Wednesday, November 25, 2015

Enter the Earnings Recession

It's official: We are in an earnings recession. With 98 percent of the S&P 500 companies having reported third-quarter earnings, profits shrunk by 1.7 percent, according to FactSet. They fell 0.4 percent in the second quarter, and the two consecutive quarters of contraction fit the common definition of an earnings recession, just as two consecutive quarters of shrinking GDP constitute an economic recession.

It may not get better any time soon. FactSet’s projections for the fourth quarter forecast another contraction, with S&P 500 earnings expected to be down another 4.3 percent.

The primary culprit in all of this is the energy sector, reeling from the falling price of oil. Energy sector profits fell 57 percent in the third quarter, after falling 56 percent in the second and 57 percent in the first. Goldman Sachs estimated that S&P 500 profits will rise 10 percent in 2016, largely because they expect a recovery in energy profits.

Tuesday, November 24, 2015

GDP Notches Upward

Good news out this morning from the Bureau of Economic Analysis: The second revision to the third quarter GDP number shows that the economy expanded at a rate of 2.1 percent. The first estimate for that figure had been a somewhat disappointing 1.5 percent.

The upward revision to GDP was primarily caused by an upward revision to private inventory investment. American business' investment in their inventories declined in the third quarter - but by a much smaller margin than was previously estimated. Businesses accumulated $90.2 billion worth of inventory in the third quarter, instead of the $56.8 billion reported last month.

Some downward movement: Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at a 3.0 percent rate, down from the 3.2 percent rate estimated last month. Growth in exports was also revised downward, to a slower 0.9 percent rate of increase.

Monday, November 23, 2015

The Global Dividend Picture

The third quarter was a big one for dividends around the world, according to figures compiled by Henderson Global Research. There was nearly $300 billion paid out in the quarter, up 2.3 percent from the same period a year earlier.

The rise among North American stocks was even stronger than that. There was $116.5 billion paid out in dividends by North American companies, an increase of 20 percent from the year earlier. That includes $10 billion paid out by Kraft and Heinz as part of their merger.

But the most dramatic increase was in Japan, where the yearly increase was a whopping 70 percent. Meanwhile, Henderson warns that in China, dividends might decline in 2015 for the first time ever.

Friday, November 20, 2015

New Businesses Creating Fewer Jobs

There's a disquieting statistic out this week from the Labor Department that might explain why the economy still doesn't feel like it's firing on all cylinders. The number of jobs created by new businesses is down 18 percent from a decade ago. And it's still falling: That figure is down 7 percent from the fourth quarter of 2014.

At the same time, the number of job losses due to business closures is down 21 percent from 2005. It looks like the current economy is incurring less risk-taking on either side of the equation.

Another factor is that small businesses still don't have as much access to capital as they once did. Banks held roughly $590 billion of small-business loans in the third quarter, according to the FDIC, which is down 17 percent from 2008.

Thursday, November 19, 2015

Is the Fed Ready to Raise Rates?

Rising interest rates in December became a much stronger possibility yesterday, when the Fed released the minutes from its last meeting. The central bank released a statement explicitly saying it would consider raising rates “at its next meeting” in mid-December. That’s the most direct statement we’ve had yet on the subject, ever since interest rates went to near-zero back in 2008.

The new statement said the Fed would be “monitoring global economic and financial developments.” That seems like a far less cautious statement than it issued in mid-September, when the Fed warned that “recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” 

Fed officials say they want to be “reasonably confident” that U.S. inflation will rise back to 2% before they begin raising rates. October’s inflation reading was the first positive one in three months – potentially the last step toward the Fed raising rates.