U.S. job growth above expectations in July

While the forecast was for July growth of just 100,000 jobs the actual number was over fifty per cent higher at 160,000. This is the most workers to be hired in the last five months. At the same time unemployment rose slightly to 8.3 per cent.


The increased unemployment may cause investors to believe that there could still be government attempts to stimulate the economy later. However the high employment numbers led to double digit gains in the DOW Jones index this morning (August 3rd) Even though more people have given up the search for work the jobless rate rose from 8.2 per cent to 8.3 per cent last month.


One can expect the Democrats to crow about the big increase in job numbers and the Republicans to complain about the slight increase in unemployment. Numbers from one month however fail to tell much about longer term trends.


Employment figures for May and June were revised downward slightly and indicate that 6,000 fewer jobs were generated than reported ealier. In spite of the July increase in jobs many economists think that at the next policy meeting of the Fed in September a third round of quantitative easing through bond purchases may be initiated.


To stimulate borrowing and investment interest rates have been kept almost at zero by the Federal authorities. They have also pumped almost $2.3 trillion into the economy. In spite of these actions the U.S. economy is slowing down and growing only slowly during 2012.


The economic situation may hurt Obama's reelection chances, A recent Ipsos/Thomson Reuters poll shows 36 per cent of registered voters believe that Romney has a better economic plan than Obama. This contrasts with only 31 per cent who think that Obama has the better plan. While the economy is an important issues no doubt other issues as well will play an important role in the election. For more see this article.

U.S. aluminium producer Alcoa sees earnings drop 81 per cent

   Weak global demand for aluminium has caused earnings to drop over 80 per cent for Alcoa a large U.S. producer. The drop is over the first half of 2012.
    In spite of the large drop results were still better than many analysts predicted. Profit in the first half of this year were 8 cents a share. Revenues were down 5 per cent compared to the same period in 2011. The second quarter of this year included losses of 2 million due to costs of fixing environment damage, costs of fire damage, and restructuring costs.
   There is growing demand from auto and aerospace industries for aluminium. The CEO Klaus Kleinfeld expects global demand to rise a total of 7 per cent for the year an upgrade from a 3 per cent forecast earlier in the year. Over the past year aluminium prices have dropped 18 per cent. In response major producers have been reducing output. For more see this article.
 

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U.S.economy , profit rates, investment and internal funds

In a recent post Doug Henwood of the Left Business Observer provides an interesting analysis of the relationship between profit and investment. Henwood includes onegraph that shows profit rates from the nineteen fifties until now and another that shows the relationship between internal funds and capital investments over the same time period. Both graphs are for non-financial institutions.

Until 2011 the rate of profits have been rising during the recovery. But they perhaps have peaked now. Economic recovery seems to be slow in the U.S. Henwood notes that neo liberal policies were successful in restoring profit rates close to what they had been earlier.

One of Henwood's graphs is interesting because it shows that even though there is plenty of cash to invest with strong corporate cash flows, companies are investing at a rate that one would expect during low profit levels periods even though levels are still high.

In my view, one of the main reasons for the lack of investment is the considerable uncertainty about the economic future. In this situation companies simply will not take the risk of investing. They will wait until the future is more certain and promising. Even though actual profit rates are high and many companies are doing quite well even during this period of low growth, the future is just too uncertain and so investment lags even though the present rate of return on capital is high.

CBO warns politicians not to ignore coming fiscal cliff

The Congressional Budget Office warns that if the spending cuts and tax hikes go ahead as scheduled next January there will likely be a recession in the U.S. However they predicted that by the second half of the year there would be a rebound to an annual 2.3 growth rate. For the full year growth would be just .5 per cent.

While there is plenty of worry about the debt situation in Greece, the so called fiscal cliff facing the U.S. at the end of this year seems to be conveniently ignored. The political deal arranged last year would see an immediate cut of 1.2 billion from government spending while billions in tax cuts also expire. Consumer demand for many items would obviously contract.

Most analysts expect a new deal will be reached by the two parties yet it seems that both parties are concentrating on the coming elections rather than facing up to the issue. If the scheduled policies are removed or offset the CBO estimates the U.S. economy could grow at 4.4 per cent a respectable growth rate given the U.S. situation.

Ben Bernanke warned back in April::“The size of the fiscal cliff is such that there is, I think, absolutely no chance that the Federal Reserve could or would have the ability whatsoever to offset that effect on the economy,” The politicians should get moving on this issue or they will find they are faced with a crisis in November. For more see this article.

Is Barack Obama the Austerity President?

   He is according to Derek Thompson whose article in The Atlantic is titled: "Barack Obama, Austerity President". To some extent the title is meant to be provocative rather than accurate. Indeed the article shows that the real austerity is at the state level of government rather than the federal level.
    Thompson may be right that federal spending and federal employment grew at the slowest rate since the nineteen fifties. Federal employment is even in decline. But Adam Hersh an economist points out:. "The real collapse of spending has been at the level of state and local public services and investments," "Even as the economy grew 4.2% since the start of the Obama administration, state and local spending contracted 5.2%."
    The austerity is hitting now at the state level. Americans will have to wait until after this fall's election before austerity gets into higher gears as deficit reduction and cuts in social programs will be top on the agenda. The real austerity president will take office late this year. For more see this link. Derek Thompson is an editor and covers business for the Atlantic.

U.S. economy exceeds expectations but stocks slump on Europe worries

While some economic data released recently about the U.S. economy exceeded expectations U.S. stock indices went down today. Both Fitch Ratings and Moody's Investors Service said that the recent agreement at the summit of European leaders has not done much to relieve pressures on those European governments that are struggling with huge debts and high borrowing costs.

The warnings were enough to reverse a rally that has been going on in U.S. for a couple of weeks in spite of the fact U.S. indicators show the economy is outperforming expectations the most in nine months. An Economic Surprise Index went to 85.7. This is the highest since March 9.

November unemployment although still very high, hit the lowest level in two years. Manufacturing is also growing quickest in five months. Nevertheless Ben Bernanke head of the Federal Reserve said that there were significant downside risks facing the U.S. economy. For much more see this article.

U.S. Stocks Decline (Nov 21, 2011)

  The failure of the Super Committee to come up with budget cuts and the continuing problems with European debt spurred a sharp decline in stock markets as of this posting in the middle of the session. The S and P 500 index dropped sharply. There is concern about triggering the automatic cuts should the Super Committee fail to make a deal, a prospect that appears quite likely. The S and P has lost a total of 5.5 per cent in just four days.
   The Dow Jones Index also declined to 11,507 or 2.5 per cent. In Canada stocks were down as well. See this article. The same worries as in the U.S. are factors in the decline. Stocks in Europe are also declining  Rising costs of financing debts in France concern investors. Germany has reported that it is expanding at a lower rate. The rising costs of borrowing for many countries is leading to investors selling off more and more risky assets.
  In the U.S. financial stocks are being hit very hard by worries that financial problems in Europe are going to impact U.S. banks as well. Some analysts claim that chances of a U.S. recession are increasing and others are predicting a bullish market. For much more detail see this Bloomberg article.

Obama. Market polls are good, People polls not so good.

While the markets may have recovered certainly the unemployment rate is still quite high and no doubt many consumers are struggling with debt and mortgage payments. Companies have been slashing expenses, and shedding workers while there will be little pressure on wages. Not surprisingly profits are bounding back. This is what the markets see not the suffering of the unemployed and debt ridden workers. This is from msnbc.

Why ‘Obamanomics’ is working
Ignore polls, watch the markets: Economy is perking up



By Mike Dorning


A Bloomberg national poll in March found that Americans, by an almost 2-to-1 margin, believe the economy has gotten worse rather than better during the past year. The Market begs to differ. While President Obama's overall job approval rating has fallen to a new low of 44 percent, according to a CBS News Poll, down five points from late March, the judgment of the financial indexes has turned resoundingly positive. The Standard & Poor's 500-stock index is up more than 74 percent from its recessionary low in March 2009.

Mortgage rates are low. "We've had a phenomenal run in asset classes across the board," says Dan Greenhaus, chief economic strategist for Miller Tabak + Co., an institutional trading firm in New York. "If Obama was a Republican, we would hear a never-ending drumbeatWhile the markets may have recovered certainly the unemployment rate is still quite high and no doubt many consumers are struggling with debt and mortgage payments. Companies have been slashing expenses, and shedding workers while there will be little pressure on wages. Not surprisingly profits are bounding back. This is what the markets see not the suffering of the unemployed and debt ridden workers. This is from msnbc.

Why ‘Obamanomics’ is working
Ignore polls, watch the markets: Economy is perking up



By Mike Dorning


A Bloomberg national poll in March found that Americans, by an almost 2-to-1 margin, believe the economy has gotten worse rather than better during the past year. The Market begs to differ. While President Obama's overall job approval rating has fallen to a new low of 44 percent, according to a CBS News Poll, down five points from late March, the judgment of the financial indexes has turned resoundingly positive. The Standard & Poor's 500-stock index is up more than 74 percent from its recessionary low in March 2009.

Mortgage rates are low. "We've had a phenomenal run in asset classes across the board," says Dan Greenhaus, chief economic strategist for Miller Tabak + Co., an institutional trading firm in New York. "If Obama was a Republican, we would hear a never-ending drumbeat of news stories about markets voting in favor of the President."