WASHINGTON - It's been a long time since the market for new homes has looked this good.
Rising rents and a healthier job market are inspiring more Americans to consider buying.
Builders are responding to the demand by laying plans for more homes this year than at any other point in past 3 1 / 2years.
And banks are helping both by approving more loans.
All that points to a better year for the housing market, though a full recovery could take several years.
"We're doing so much more business than we have in years," said Ed Kopal, who runs a construction company in East Texas and has seen his business more than double this year compared with 2011.
Others, too, foresee more enthusiasm among buyers after four sluggish years.
Builders requested a seasonally adjusted annual rate of 747,000 permits to build homes in March, the Commerce Department said Tuesday. The pace hasn't been that high since September 2008.
Of those requested, 462,000 permits were to build single-family homes. That's 12 percent more than just six months ago. Still, the figure remains far below the 800,000 permits a year that signify a stable new-home market.
Builders are seeing more demand for apartments, too. Over the past six months, permits to build apartments have surged 68 percent, to 285,000 permits. A healthy number is closer to 400,000 a year.
Rents are rising, which has spurred construction for both kinds of homes.
In Philadelphia, rents have increased nearly 15 percent over the past year through February, while home values have dropped 5.4 percent, according to real estate website Zillow.
Minneapolis rents are up nearly 10 percent; home prices are down nearly 7 percent. Baltimore has seen rents rise 8.6 percent and home values drop 4 percent.
In Chicago, median rents in the past 12 months have risen 8.6 percent, or more than $100 a month. In the same period, the median home price has fallen 11 percent, to just $154,600.
So while apartment developers are chasing higher rents, renters are seeing more incentive to buy homes. A survey of homebuilders has shown an increasing amount of foot traffic at open houses across the country since September.
Kennon Reinard and her husband were among those who felt the time was right. The couple has rented a two-bedroom apartment in Chicago for the past six years. Over the past month, they looked at 14 houses before making an offer of nearly $260,000 on a four-bedroom home on the Northwest side of the city.
"We've always wanted a house, but we never thought we could afford one," said Kennon Reinard, 33. "But we started noticing friends buying houses last summer and, when we checked it out, we realized we could own a whole home with a backyard without paying that much more than what we're paying in rent."
The Reinards and other potential homebuyers have another reason to feel good about trading rent payments for a mortgage: The job market has strengthened since last summer.
The unemployment rate has fallen from 9.1 percent in August to 8.2 percent last month. Employers have added an average of 212,000 a month from January through March.
More jobs and a better outlook among buyers could also make 2012 the first year since the housing bubble began to burst in 2006 that construction adds to growth -- rather than detracts.
Record-low mortgage rates have helped persuade buyers. The average rate on a 30-year fixed-rate loan is just above the 3.87 percent level reached in February -- the lowest since long-term mortgages were first offered in the 1950s.
Banks are also seeing more qualified buyers apply for loans. Two of the nation's biggest banks -- JPMorgan Chase and Wells Fargo -- approved more mortgage applications in the first-quarter, based on their recent earnings reports.
"The ones buying now are older, they've saved up for a while, they have good jobs, they are not risky," said Karen Mayfield, senior vice president of Bank of the West, a national bank lender based in San Francisco.
Among the most basic requirements needed for homebuyers: good FICO credit scores typically above 700, substantial down payments, stable job histories and thorough documentation.
The Reinards had been socking away a portion of their paychecks for all the years they rented and both have solid credit histories. They are coming to their closing in May with a down payment of more than $25,000.
"We feel very safe in our jobs," Reinard said. "We've been pretty financially responsible so we got thumbs up after all the checks."
by Derek Kravitz - Apr. 17, 2012 01:55 PM AP Economics Writer
U.S. housing market boosted by jobs, higher rents
Showing posts with label economy. Show all posts
Showing posts with label economy. Show all posts
Thursday, April 19, 2012
Tuesday, March 27, 2012
Bernanke says US job market weak despite gains
Is this a precipice for more QE3?
WASHINGTON - Fed chairman Ben Bernanke says that the U.S. job market remains weak despite three months of strong hiring and that the Federal Reserve's existing policies will help boost economic growth.
Bernanke's comments Monday to a group of economists in Arlington, Va., drove stocks higher. Many took his cautious words about the economy to mean the Fed is likely to stick to its plan to hold short-term interest rates at record lows through 2014.
Though the hiring has helped support consumer confidence and incomes, "we have not seen that in a persuasive way yet," Bernanke said. The Fed needs to "remain cautious" in deciding what its next moves should be, he said.
Further job gains will likely require stronger consumer and business demand, Bernanke said in a speech to the National Association for Business Economics' spring conference.
The association has 2,500 member economists who work for corporations, universities, the government and trade associations. Bernanke was addressing the group for the first time since 2008.
After Bernanke spoke, the Dow Jones industrial average rose 160 points, its third-biggest gain of the year. Broader indexes also increased.
The surge in hiring since December had led some economists to predict that the Fed might consider raising rates earlier than planned. But many took Bernanke's cautious tone as a firmer commitment to the late-2014 timetable.
And some viewed the speech as a signal that the Fed might take further steps, if the economy falters, to try to further drive down long-term borrowing rates. The goal would be to encourage more spending by consumers and businesses.
Robert Dye, chief economist at Dallas-based Comerica bank, said the Fed might extend a program of shuffling its investment portfolio to shift more of its holdings into long-term Treasuries. That could help lower long-term rates. Or the Fed could launch another round of bond buying.
"The chairman is very much keeping additional monetary-policy options on the table," said Dye, who attended the NABE conference.
Employers added an average of 245,000 jobs a month from December through February. The unemployment rate has fallen nearly a full percentage point since summer, to 8.3percent.
Still, the economy grew at an annual pace of just 3 percent in the October-December quarter. Economists think growth has slowed in the January-March quarter to around a 2 percent annual rate.
Bernanke said the combination of modest economic growth and rapid declines in unemployment is something of a puzzle. Normally, it takes roughly 4 percent annual growth to lower the rate by 1 percentage point over a year.
He offered some reasons for the unexpected decline in unemployment. Employers may be hiring rapidly because they cut too many jobs during the recession. He also said that government revisions may later show stronger economic growth over the past year.
But Bernanke cautioned that he doesn't expect the unemployment rate to keep falling at its current pace without much stronger growth and more robust hiring. He noted that the rate is still roughly 3 percentage points higher than its average over the 20 years preceding the recession.
"Despite the recent improvement, the job market remains far from normal," Bernanke said. "The number of people working and total hours worked are still significantly below pre-crisis peaks."
Bernanke also expressed concerns about the millions who have been out of work for more than six months. Those long-term unemployed Americans have made up more than 40 percent of the unemployed since December, he said. In the severe 1981-82 recession, long-term unemployment never exceeded 25 percent.
"Long-term unemployment is particularly costly to those directly affected, of course," Bernanke said. "But in addition, because of its negative effects on workers' skills and attachment to the labor force, long-term unemployment may ultimately reduce the productive capacity of our economy."
The Fed is concerned that the recovery could falter, as it did last year. Americans aren't seeing big pay increases. Gas prices are high. And Europe's debt crisis could weigh on the U.S. economy.
As long as inflation remains tame, analysts think the Fed will likely hold interest rates down to give the economy more support. Most economists don't think Fed officials will change their interest-rate policy at their next meeting on April 24-25 and will ease credit only if the economy slows further. While the recent job-market gains may continue, analysts think the record-low rates will continue as well, at least through this year. The Fed could reconsider the timetable next year, if the job gains prove more enduring.
But for now, most economists sense the Fed is committed to its plan.
"The clear tone of Chairman Bernanke's statement is that he is defending the Fed's current highly accommodative position," said David Jones, chief economist at DMJ Advisors.
by Martin Crutsinger - Mar. 26, 2012 06:27 PM AP Economics Writer
Bernanke says US job market weak despite gains
WASHINGTON - Fed chairman Ben Bernanke says that the U.S. job market remains weak despite three months of strong hiring and that the Federal Reserve's existing policies will help boost economic growth.
Bernanke's comments Monday to a group of economists in Arlington, Va., drove stocks higher. Many took his cautious words about the economy to mean the Fed is likely to stick to its plan to hold short-term interest rates at record lows through 2014.
Though the hiring has helped support consumer confidence and incomes, "we have not seen that in a persuasive way yet," Bernanke said. The Fed needs to "remain cautious" in deciding what its next moves should be, he said.
Further job gains will likely require stronger consumer and business demand, Bernanke said in a speech to the National Association for Business Economics' spring conference.
The association has 2,500 member economists who work for corporations, universities, the government and trade associations. Bernanke was addressing the group for the first time since 2008.
After Bernanke spoke, the Dow Jones industrial average rose 160 points, its third-biggest gain of the year. Broader indexes also increased.
The surge in hiring since December had led some economists to predict that the Fed might consider raising rates earlier than planned. But many took Bernanke's cautious tone as a firmer commitment to the late-2014 timetable.
And some viewed the speech as a signal that the Fed might take further steps, if the economy falters, to try to further drive down long-term borrowing rates. The goal would be to encourage more spending by consumers and businesses.
Robert Dye, chief economist at Dallas-based Comerica bank, said the Fed might extend a program of shuffling its investment portfolio to shift more of its holdings into long-term Treasuries. That could help lower long-term rates. Or the Fed could launch another round of bond buying.
"The chairman is very much keeping additional monetary-policy options on the table," said Dye, who attended the NABE conference.
Employers added an average of 245,000 jobs a month from December through February. The unemployment rate has fallen nearly a full percentage point since summer, to 8.3percent.
Still, the economy grew at an annual pace of just 3 percent in the October-December quarter. Economists think growth has slowed in the January-March quarter to around a 2 percent annual rate.
Bernanke said the combination of modest economic growth and rapid declines in unemployment is something of a puzzle. Normally, it takes roughly 4 percent annual growth to lower the rate by 1 percentage point over a year.
He offered some reasons for the unexpected decline in unemployment. Employers may be hiring rapidly because they cut too many jobs during the recession. He also said that government revisions may later show stronger economic growth over the past year.
But Bernanke cautioned that he doesn't expect the unemployment rate to keep falling at its current pace without much stronger growth and more robust hiring. He noted that the rate is still roughly 3 percentage points higher than its average over the 20 years preceding the recession.
"Despite the recent improvement, the job market remains far from normal," Bernanke said. "The number of people working and total hours worked are still significantly below pre-crisis peaks."
Bernanke also expressed concerns about the millions who have been out of work for more than six months. Those long-term unemployed Americans have made up more than 40 percent of the unemployed since December, he said. In the severe 1981-82 recession, long-term unemployment never exceeded 25 percent.
"Long-term unemployment is particularly costly to those directly affected, of course," Bernanke said. "But in addition, because of its negative effects on workers' skills and attachment to the labor force, long-term unemployment may ultimately reduce the productive capacity of our economy."
The Fed is concerned that the recovery could falter, as it did last year. Americans aren't seeing big pay increases. Gas prices are high. And Europe's debt crisis could weigh on the U.S. economy.
As long as inflation remains tame, analysts think the Fed will likely hold interest rates down to give the economy more support. Most economists don't think Fed officials will change their interest-rate policy at their next meeting on April 24-25 and will ease credit only if the economy slows further. While the recent job-market gains may continue, analysts think the record-low rates will continue as well, at least through this year. The Fed could reconsider the timetable next year, if the job gains prove more enduring.
But for now, most economists sense the Fed is committed to its plan.
"The clear tone of Chairman Bernanke's statement is that he is defending the Fed's current highly accommodative position," said David Jones, chief economist at DMJ Advisors.
by Martin Crutsinger - Mar. 26, 2012 06:27 PM AP Economics Writer
Bernanke says US job market weak despite gains
Tuesday, February 7, 2012
Arizona housing experts guarded but hopeful
No one at this year's Urban Land Institute conference predicted when metro Phoenix's housing market will rebound.
The annual Arizona conference, where real-estate industry leaders convene and predict the market's movements, has been the most important summit on Valley real estate since the beginning of the housing boom nearly a decade ago. But this year, the conversations and atmosphere were different.
The many experts who spoke were more low-key and pragmatic than they'd been during the last five years. Few offered any guesses at when home prices might rebound to boom levels.
That may have been because so many past predictions have been wrong.
At the conference in 2007, the forecast was for metro Phoenix home prices to recover to boom levels by 2010. Instead, prices continued to drop until late last year.
Year after year, as the housing crash and economic downturn worsened, analysts and investors tried to forecast when the market would rebound. By 2011, the mistaken predictions had become a subject of some wry humor.
This year's panel discussions with local and national real-estate investors and developers, held last week in downtown Phoenix, revolved more around hope that the housing market had finally bottomed out. That's because, just as housing helped pull down the rest of the real-estate market, economists and experts believe its recovery will help lead other sectors out of the crash. This idea was echoed again and again during the event.
"Many people believe we are three-fourths through the foreclosures," said Greg Vogel, CEO of Land Advisors, during a discussion on homebuilding. "There's anticipation this spring will be better for housing."
Housing
Metro Phoenix home prices ticked up at the end of last year but are still below 2000's level.
No one at the ULI conference ventured a guess at how long it would take the region's median existing home price to rebound to $267,000, the record it reached in late 2006. The last home-price prediction from the event was last year, when housing analysts called for metro Phoenix home prices to return to pre-boom levels by 2015.
Phoenix's current median existing-home price is $120,000, where it was in 1999. The last pre-boom median is considered to be the 2003 figure -- $155,000.
"Phoenix is in the middle of the pack for a housing recovery," said Steve Hilton, chairman of Scottsdale-based Meritage Homes, comparing the region with other parts of the country.
Homebuilding
For the past few years, the consensus at the ULI conference was that foreclosures would have to slow for home prices to climb and for homebuilding -- a major Valley industry and a source of many jobs -- to begin recovering to pre-boom levels.
Fewer than 7,000 homes were built across the Valley last year, according to the Phoenix Housing Market Letter. That compares with a record 64,000 in 2006. A pre-boom building pace for new homes in the region is closer to 35,000.
Homebuilders at the conference agreed building will pick up this year but said it will be a while before buyers go back out to the fringes of metro Phoenix, no matter how inexpensive the home is or how low gas prices go.
"There are fringe parts of Phoenix where we couldn't make a profit on a new home even if the land was free," said Hilton.
Builders and investors continue to buy land in metro Phoenix in anticipation of the homebuilding market's recovery.
Vogel said $95 million was spent on Phoenix-area home lots ready for construction in 2011.
Apartments
Investors are also buying metro Phoenix apartments again. Developers are building multifamily housing projects, but only in prime central locations. These are positive signs, but none of the apartment experts went as far to say the market was on the rebound.
New complexes, with smaller units and pricier-than-average rents, are going up in central Scottsdale and Phoenix's Biltmore area.
Alliance Residential is building apartments at 25th Street and Camelback Road, where Donald Trump once planned a condominium tower.
Jay Hiemenz of Alliance said when his company committed to the site last year "it was a leap of faith" because Phoenix's apartment market was still struggling.
But Jerry Brand of apartment developer Greystar said Phoenix has great rent-growth potential during the next few years due to the region's increase in renters who either lost homes to foreclosure or don't want to buy no matter how low prices and interest rates fall.
Commercial real estate
Metro Phoenix's retail market started to struggle as soon as residential foreclosures jumped, and it became evident too many speculative homes had been built. Empty shopping centers still dot the Valley in neighborhoods with too many empty homes.
Dan Gardiner, a retail expert with Phoenix Commercial Advisors, said new retail centers went up on the region's fringes right behind the construction of new homes. But when no one moved into the houses, the retailers left or decided not to move in.
He said those neighborhoods will have to fill up before retailers return to those suburbs.
The markets for office and industrial space are more closely tied to Phoenix's job market than its housing market. As the region lost jobs during the recession, offices and warehouses emptied out. The vacancy rate for Valley office space is hovering around 20 percent, according to Phoenix real-estate brokerages.
These two sectors of the real-estate industry are expected to be the last to recover, and the timing depends on metro Phoenix's job growth.
"It's all about putting butts in seats for the office market," said Pete Bolton, managing director of Grubb & Ellis Phoenix. "Phoenix continues to be a cheaper alternative than California for companies transporting and warehousing products."
Christopher Toci of Cushman & Wakefield joked that his market predictions for office and industrial from a few years ago would be correct if you turned them upside down now -- his forecasts for increases were about as big as the market's actual decreases in leasing and sales.
The final takeaway from the conference was that growth would continue in metro Phoenix, but it would be slower than expected and different from past cycles.
"The balance between new housing near new jobs is more important than ever," said Steve Betts, chairman of ULI Arizona.
Unlike last year or 2009, the experts gave up on predicting the timing of a recovery and focused on the first real positive market signs they have seen in years.
"The new homes we sold in 2005, we re-bought in 2007," said Drew Brown, chairman of Scottsdale-based DMB Associates, developer of Verrado in Buckeye and DC Ranch in Scottsdale. "Now, we are finally selling those homes again."
by Catherine Reagor - Feb. 3, 2012 11:21 PM The Republic | azcentral.com
Arizona housing experts guarded but hopeful
The annual Arizona conference, where real-estate industry leaders convene and predict the market's movements, has been the most important summit on Valley real estate since the beginning of the housing boom nearly a decade ago. But this year, the conversations and atmosphere were different.
The many experts who spoke were more low-key and pragmatic than they'd been during the last five years. Few offered any guesses at when home prices might rebound to boom levels.
That may have been because so many past predictions have been wrong.
At the conference in 2007, the forecast was for metro Phoenix home prices to recover to boom levels by 2010. Instead, prices continued to drop until late last year.
Year after year, as the housing crash and economic downturn worsened, analysts and investors tried to forecast when the market would rebound. By 2011, the mistaken predictions had become a subject of some wry humor.
This year's panel discussions with local and national real-estate investors and developers, held last week in downtown Phoenix, revolved more around hope that the housing market had finally bottomed out. That's because, just as housing helped pull down the rest of the real-estate market, economists and experts believe its recovery will help lead other sectors out of the crash. This idea was echoed again and again during the event.
"Many people believe we are three-fourths through the foreclosures," said Greg Vogel, CEO of Land Advisors, during a discussion on homebuilding. "There's anticipation this spring will be better for housing."
Housing
Metro Phoenix home prices ticked up at the end of last year but are still below 2000's level.
No one at the ULI conference ventured a guess at how long it would take the region's median existing home price to rebound to $267,000, the record it reached in late 2006. The last home-price prediction from the event was last year, when housing analysts called for metro Phoenix home prices to return to pre-boom levels by 2015.
Phoenix's current median existing-home price is $120,000, where it was in 1999. The last pre-boom median is considered to be the 2003 figure -- $155,000.
"Phoenix is in the middle of the pack for a housing recovery," said Steve Hilton, chairman of Scottsdale-based Meritage Homes, comparing the region with other parts of the country.
Homebuilding
For the past few years, the consensus at the ULI conference was that foreclosures would have to slow for home prices to climb and for homebuilding -- a major Valley industry and a source of many jobs -- to begin recovering to pre-boom levels.
Fewer than 7,000 homes were built across the Valley last year, according to the Phoenix Housing Market Letter. That compares with a record 64,000 in 2006. A pre-boom building pace for new homes in the region is closer to 35,000.
Homebuilders at the conference agreed building will pick up this year but said it will be a while before buyers go back out to the fringes of metro Phoenix, no matter how inexpensive the home is or how low gas prices go.
"There are fringe parts of Phoenix where we couldn't make a profit on a new home even if the land was free," said Hilton.
Builders and investors continue to buy land in metro Phoenix in anticipation of the homebuilding market's recovery.
Vogel said $95 million was spent on Phoenix-area home lots ready for construction in 2011.
Apartments
Investors are also buying metro Phoenix apartments again. Developers are building multifamily housing projects, but only in prime central locations. These are positive signs, but none of the apartment experts went as far to say the market was on the rebound.
New complexes, with smaller units and pricier-than-average rents, are going up in central Scottsdale and Phoenix's Biltmore area.
Alliance Residential is building apartments at 25th Street and Camelback Road, where Donald Trump once planned a condominium tower.
Jay Hiemenz of Alliance said when his company committed to the site last year "it was a leap of faith" because Phoenix's apartment market was still struggling.
But Jerry Brand of apartment developer Greystar said Phoenix has great rent-growth potential during the next few years due to the region's increase in renters who either lost homes to foreclosure or don't want to buy no matter how low prices and interest rates fall.
Commercial real estate
Metro Phoenix's retail market started to struggle as soon as residential foreclosures jumped, and it became evident too many speculative homes had been built. Empty shopping centers still dot the Valley in neighborhoods with too many empty homes.
Dan Gardiner, a retail expert with Phoenix Commercial Advisors, said new retail centers went up on the region's fringes right behind the construction of new homes. But when no one moved into the houses, the retailers left or decided not to move in.
He said those neighborhoods will have to fill up before retailers return to those suburbs.
The markets for office and industrial space are more closely tied to Phoenix's job market than its housing market. As the region lost jobs during the recession, offices and warehouses emptied out. The vacancy rate for Valley office space is hovering around 20 percent, according to Phoenix real-estate brokerages.
These two sectors of the real-estate industry are expected to be the last to recover, and the timing depends on metro Phoenix's job growth.
"It's all about putting butts in seats for the office market," said Pete Bolton, managing director of Grubb & Ellis Phoenix. "Phoenix continues to be a cheaper alternative than California for companies transporting and warehousing products."
Christopher Toci of Cushman & Wakefield joked that his market predictions for office and industrial from a few years ago would be correct if you turned them upside down now -- his forecasts for increases were about as big as the market's actual decreases in leasing and sales.
The final takeaway from the conference was that growth would continue in metro Phoenix, but it would be slower than expected and different from past cycles.
"The balance between new housing near new jobs is more important than ever," said Steve Betts, chairman of ULI Arizona.
Unlike last year or 2009, the experts gave up on predicting the timing of a recovery and focused on the first real positive market signs they have seen in years.
"The new homes we sold in 2005, we re-bought in 2007," said Drew Brown, chairman of Scottsdale-based DMB Associates, developer of Verrado in Buckeye and DC Ranch in Scottsdale. "Now, we are finally selling those homes again."
by Catherine Reagor - Feb. 3, 2012 11:21 PM The Republic | azcentral.com
Arizona housing experts guarded but hopeful
Economist sees hope for Ariz. recovery
Arizona State University economist Dennis Hoffman projected sustained but modest growth for Arizona through this year, but he said that the economic recovery should accelerate.
“When this state gets cooking, it’s cooking, and I think the winds are beginning to change,” he said Friday at the annual economic-forecast meeting of Westmarc, a West Valley coalition of business owners, government leaders and educators, at ASU’s West campus.
A year ago, Hoffman told Westmarc members that he was seeing the first “signs of life” in the state’s economy but did not expect much improvement until at least 2013.
Hoffman, director of ASU’s L. William Seidman Research Institute, sounded more upbeat this year, especially with a report showing that the national unemployment rate had dropped to 8.3 percent.
“The nation, at least temporarily, appears to be raining jobs,” he said. “We’ve created a lot of jobs in the last month.”
Consumer spending is expected to remain in the modest range, and some analysts predict that housing starts will stay in the “trough” for a prolonged period, but Hoffman again is picking up on winds of change.
“There is a buzz in the air,” he said, speaking of real-estate trends. “It may be a low buzz right now — it may be beginning to accelerate — but it’s a different attitude, in my experience, from 2009 to 2010 or even 2011.”
He put chances at a double-dip recession below 15 percent, although risks from the European financial crisis, the potential for worldwide political shocks and other unexpected events could affect that outlook.
Hoffman noted that an understanding of the Great Recession and its place in history is crucial to any forecasts for the economy.
“It absolutely sets the stage for Arizona and provides some understanding of where we’re likely to go from here,” he said.
A chart showing recessions in the post-World War II era underscored his point. In prior recessions, the economy tended to roar back, at points even exploding with growth, after about two years. Four years after the start of this recession, the nation is struggling to get back to prior levels of consumption.
“When I look at (this chart), it says very clearly to me that this recession, both in depth and duration, is simply unlike any recession that we’ve experienced in the postwar period,” Hoffman said.
The huge drop in household wealth — estimates put the loss in home-equity wealth at $7.38 trillion — is a major cause of the slow recovery.
“Never has household wealth evaporated the way it did this time,” Hoffman said. “Consumption is determined by how we view our wealth portfolio. So we have a vicious cycle — no spending, no jobs.”
Employment also plummeted, and people stopped moving to Arizona, an outcome that was a shock to one of the fastest-growing states in the country.
But the labor market is improving, and Arizona ranks seventh in the nation among states that are adding jobs.
“Clearly, it’s getting better,” Hoffman said.
by Lesley Wright - Feb. 3, 2012 03:42 PM The Republic | azcentral.com
Economist sees hope for Ariz. recovery
“When this state gets cooking, it’s cooking, and I think the winds are beginning to change,” he said Friday at the annual economic-forecast meeting of Westmarc, a West Valley coalition of business owners, government leaders and educators, at ASU’s West campus.
A year ago, Hoffman told Westmarc members that he was seeing the first “signs of life” in the state’s economy but did not expect much improvement until at least 2013.
Hoffman, director of ASU’s L. William Seidman Research Institute, sounded more upbeat this year, especially with a report showing that the national unemployment rate had dropped to 8.3 percent.
“The nation, at least temporarily, appears to be raining jobs,” he said. “We’ve created a lot of jobs in the last month.”
Consumer spending is expected to remain in the modest range, and some analysts predict that housing starts will stay in the “trough” for a prolonged period, but Hoffman again is picking up on winds of change.
“There is a buzz in the air,” he said, speaking of real-estate trends. “It may be a low buzz right now — it may be beginning to accelerate — but it’s a different attitude, in my experience, from 2009 to 2010 or even 2011.”
He put chances at a double-dip recession below 15 percent, although risks from the European financial crisis, the potential for worldwide political shocks and other unexpected events could affect that outlook.
Hoffman noted that an understanding of the Great Recession and its place in history is crucial to any forecasts for the economy.
“It absolutely sets the stage for Arizona and provides some understanding of where we’re likely to go from here,” he said.
A chart showing recessions in the post-World War II era underscored his point. In prior recessions, the economy tended to roar back, at points even exploding with growth, after about two years. Four years after the start of this recession, the nation is struggling to get back to prior levels of consumption.
“When I look at (this chart), it says very clearly to me that this recession, both in depth and duration, is simply unlike any recession that we’ve experienced in the postwar period,” Hoffman said.
The huge drop in household wealth — estimates put the loss in home-equity wealth at $7.38 trillion — is a major cause of the slow recovery.
“Never has household wealth evaporated the way it did this time,” Hoffman said. “Consumption is determined by how we view our wealth portfolio. So we have a vicious cycle — no spending, no jobs.”
Employment also plummeted, and people stopped moving to Arizona, an outcome that was a shock to one of the fastest-growing states in the country.
But the labor market is improving, and Arizona ranks seventh in the nation among states that are adding jobs.
“Clearly, it’s getting better,” Hoffman said.
by Lesley Wright - Feb. 3, 2012 03:42 PM The Republic | azcentral.com
Economist sees hope for Ariz. recovery
Sunday, December 18, 2011
Valley rises in economic rankings - USATODAY.com
The Phoenix region, which had one of the worst-performing economies among the nation's 100 largest metro areas, finally is moving rapidly in a positive direction.
Metro Phoenix rankings
This is how the Phoenix region ranked among the nation's 100 largest metro areas for improvements from the second quarter ending in June to the third quarter ending in September.
Real-estate owned properties:* Second.
Housing prices: Seventh.
Unemployment rate**: 19th.
Employment: 26th.
Gross metropolitan product: 94th.
*This refers to the properties owned by banks or other lending institutions per 1,000 properties that have mortgages.
**This ranking is based on a one-year percentage-point change in the rate. The Phoenix-area rate in the third quarter was 8 percent.
Source: Brookings Institution's Mountain Monitor report
A Brookings Institution Mountain Monitor report being released today puts metro Phoenix among the top 20 of the metro areas for its overall economic performance and improvement between the second and third quarters.
That's a dramatic turnaround from its placement among the 20 or 40 worst, where it has been for the past year.
The finding is based on four indicators: changes in the number of jobs, unemployment rates, economic output (gross metropolitan product) and housing prices. The time periods for the changes varies with each indicator and ranges from several months to several years.
Mark Muro, a Washington, D.C.-based senior fellow at Brookings' Metropolitan Policy Program, credits the turnaround to the national growth of two segments of the Phoenix area's economy, high-tech and manufacturing, which help offset Phoenix's real-estate crash, as well as subtle improvements in housing and employment.
"The Phoenix area has a lot of wreckage from the real-estate mess, but you do participate in those important technology and manufacturing segments," he said.
In contrast, the Tucson area, with fewer of those industries, remained in the bottom fifth for its overall economic performance. It is also more dependent on now-stagnant federal dollars.
"They (Tucson) have just as significant real-estate shrapnel, but they have a thinner economy. They have fewer drivers to offset the real-estate crash," Muro said of Tucson.
The Brookings report ranks the Phoenix area 26th among the metro areas for job gains between the second and third quarters, with a gain of 0.6 percent, compared with a national metro average of 0.1 percent.
"It (job growth) may not feel great, but it's something and it's better than what is going on in a lot of places," Muro said.
Arizona State University economist Lee McPheters said Wednesday that job growth in the second half of the year has come faster than in the first half and that the region will probably end the year in 10th place for the most job gains among metro areas.
Although the Phoenix area's housing market remains in pain, Muro said a drop in lender-owned properties and rise in housing prices over the quarter helped boost Phoenix's overall ratings.
Brookings research shows that the Phoenix area's housing prices have fallen 56 percent from when they peaked in the fourth quarter of 2006 to the third quarter of 2011.
But since hitting their low point in the second quarter of 2011, prices have risen almost 2 percent.
The number of lender-owned properties per 1,000 properties that have mortgages has fallen to 9.3 in the third quarter from 11.4 in the previous quarter.
The third quarter not only brought progress for the Phoenix area but for the entire intermountain West, which consists of Arizona, Colorado, Utah, New Mexico, Nevada and Idaho.
All the states began to see signs of recovery after idling for most of the year, Brookings said. And even struggling Las Vegas landed in the middle.
By Betty Beard, The Arizona Republic Dec 15, 2011
Valley rises in economic rankings - USATODAY.com
Metro Phoenix rankings
This is how the Phoenix region ranked among the nation's 100 largest metro areas for improvements from the second quarter ending in June to the third quarter ending in September.
Real-estate owned properties:* Second.
Housing prices: Seventh.
Unemployment rate**: 19th.
Employment: 26th.
Gross metropolitan product: 94th.
*This refers to the properties owned by banks or other lending institutions per 1,000 properties that have mortgages.
**This ranking is based on a one-year percentage-point change in the rate. The Phoenix-area rate in the third quarter was 8 percent.
Source: Brookings Institution's Mountain Monitor report
A Brookings Institution Mountain Monitor report being released today puts metro Phoenix among the top 20 of the metro areas for its overall economic performance and improvement between the second and third quarters.
That's a dramatic turnaround from its placement among the 20 or 40 worst, where it has been for the past year.
The finding is based on four indicators: changes in the number of jobs, unemployment rates, economic output (gross metropolitan product) and housing prices. The time periods for the changes varies with each indicator and ranges from several months to several years.
Mark Muro, a Washington, D.C.-based senior fellow at Brookings' Metropolitan Policy Program, credits the turnaround to the national growth of two segments of the Phoenix area's economy, high-tech and manufacturing, which help offset Phoenix's real-estate crash, as well as subtle improvements in housing and employment.
"The Phoenix area has a lot of wreckage from the real-estate mess, but you do participate in those important technology and manufacturing segments," he said.
In contrast, the Tucson area, with fewer of those industries, remained in the bottom fifth for its overall economic performance. It is also more dependent on now-stagnant federal dollars.
"They (Tucson) have just as significant real-estate shrapnel, but they have a thinner economy. They have fewer drivers to offset the real-estate crash," Muro said of Tucson.
The Brookings report ranks the Phoenix area 26th among the metro areas for job gains between the second and third quarters, with a gain of 0.6 percent, compared with a national metro average of 0.1 percent.
"It (job growth) may not feel great, but it's something and it's better than what is going on in a lot of places," Muro said.
Arizona State University economist Lee McPheters said Wednesday that job growth in the second half of the year has come faster than in the first half and that the region will probably end the year in 10th place for the most job gains among metro areas.
Although the Phoenix area's housing market remains in pain, Muro said a drop in lender-owned properties and rise in housing prices over the quarter helped boost Phoenix's overall ratings.
Brookings research shows that the Phoenix area's housing prices have fallen 56 percent from when they peaked in the fourth quarter of 2006 to the third quarter of 2011.
But since hitting their low point in the second quarter of 2011, prices have risen almost 2 percent.
The number of lender-owned properties per 1,000 properties that have mortgages has fallen to 9.3 in the third quarter from 11.4 in the previous quarter.
The third quarter not only brought progress for the Phoenix area but for the entire intermountain West, which consists of Arizona, Colorado, Utah, New Mexico, Nevada and Idaho.
All the states began to see signs of recovery after idling for most of the year, Brookings said. And even struggling Las Vegas landed in the middle.
By Betty Beard, The Arizona Republic Dec 15, 2011
Valley rises in economic rankings - USATODAY.com
Sunday, December 4, 2011
Who exactly are the wealthiest 1%? Study takes a look - USATODAY.com
WASHINGTON — American households with taxable incomes over $343,927 -- the wealthiest 1percent of the country -- are in the national spotlight.
So who are these people?
CEOs, other executives, Wall Street bankers and other financiers make up 45percent of the 1percenters, according to a 2010 review of tax returns by three economists.
The study, by Bradley Heim of Indiana University, Jon Bakija of Williams College and Adam Cole of the Treasury's Office of Tax Analysis, was the first to closely analyze occupations of households at the top of the income ladder.
It supports the argument that dramatic increases in executive compensation and stock options have played a significant role in the increase in income inequality, Bakija said.
Between 1979 and 2005, finance professionals in the top 1percent tripled their share of national income -- from 0.82percent to 2.77percent.
Executives and CEOs increased their share by 74percent -- from 3.65percent to 6.35percent.
"Looking at the evidence, I think it's fair to say it looks like tax policy has very little to do with this increasing concentration at the very top," Heim said.
Even within the 1 percent group, there are wide variations in income, with billionaires at the top end and dual-income professionals such as physicians and lawyers on the bottom, economists say.
"I think there's this kind of perception that the top 1percent are made up of high-flying finance people," Heim said. "The group is a lot more heterogeneous than you might expect."
The study by Bakija, Heim and Cole found the top 1percent includes medical professionals (15.7percent), lawyers (8.4percent), computer, mathematics, engineering and technical workers (4.6percent), salespeople (4.2percent), workers in blue-collar and miscellaneous service jobs (3.8percent) people working in real estate (3.2percent) business operations workers (3percent), entrepreneurs (2.3percent), professors and scientists (1.8percent), and arts, media and sports professionals (1.6percent).
Some in the top 1percent are superstars within their profession, the study's authors say.
Only 12.5percent of the 1percenters studied by Bakija, Heim and Cole didn't have a spouse. Among the 38percent who listed an occupation for their spouse on their tax returns, the top occupations were executives and medical professionals.
Understanding income equality and the reasons behind the growing gap have major public-policy implications, Bakija said.
"The government has promised huge spending for the future, especially on health care for the elderly, and we're going to have to pay for it somehow," he said. "How do we pay for it? Do we raise taxes or do we cut spending? How much can we raise taxes before it becomes counterproductive? This is part of that debate."
by Brian Tumulty USA Today Dec 4, 2011
Who exactly are the wealthiest 1%? Study takes a look - USATODAY.com
So who are these people?
CEOs, other executives, Wall Street bankers and other financiers make up 45percent of the 1percenters, according to a 2010 review of tax returns by three economists.
The study, by Bradley Heim of Indiana University, Jon Bakija of Williams College and Adam Cole of the Treasury's Office of Tax Analysis, was the first to closely analyze occupations of households at the top of the income ladder.
It supports the argument that dramatic increases in executive compensation and stock options have played a significant role in the increase in income inequality, Bakija said.
Between 1979 and 2005, finance professionals in the top 1percent tripled their share of national income -- from 0.82percent to 2.77percent.
Executives and CEOs increased their share by 74percent -- from 3.65percent to 6.35percent.
"Looking at the evidence, I think it's fair to say it looks like tax policy has very little to do with this increasing concentration at the very top," Heim said.
Even within the 1 percent group, there are wide variations in income, with billionaires at the top end and dual-income professionals such as physicians and lawyers on the bottom, economists say.
"I think there's this kind of perception that the top 1percent are made up of high-flying finance people," Heim said. "The group is a lot more heterogeneous than you might expect."
The study by Bakija, Heim and Cole found the top 1percent includes medical professionals (15.7percent), lawyers (8.4percent), computer, mathematics, engineering and technical workers (4.6percent), salespeople (4.2percent), workers in blue-collar and miscellaneous service jobs (3.8percent) people working in real estate (3.2percent) business operations workers (3percent), entrepreneurs (2.3percent), professors and scientists (1.8percent), and arts, media and sports professionals (1.6percent).
Some in the top 1percent are superstars within their profession, the study's authors say.
Only 12.5percent of the 1percenters studied by Bakija, Heim and Cole didn't have a spouse. Among the 38percent who listed an occupation for their spouse on their tax returns, the top occupations were executives and medical professionals.
Understanding income equality and the reasons behind the growing gap have major public-policy implications, Bakija said.
"The government has promised huge spending for the future, especially on health care for the elderly, and we're going to have to pay for it somehow," he said. "How do we pay for it? Do we raise taxes or do we cut spending? How much can we raise taxes before it becomes counterproductive? This is part of that debate."
by Brian Tumulty USA Today Dec 4, 2011
Who exactly are the wealthiest 1%? Study takes a look - USATODAY.com
Sunday, November 6, 2011
Global survey hints at uptick in worker unhappiness
A tough global economy has made workers thankful just to have jobs, right?
Not exactly.
A new global survey indicates employee dissatisfaction is on the rise -- and that could lead to a musical-chairs dash of worker turnover once the economic outlook eventually brightens.
"What's surprising is that the percentage of workers who say they're seriously considering leaving has jumped dramatically, even in the face of a 9percent unemployment rate," said Pete Foley, North American employee-research leader at Mercer, a human-relations consulting and outsourcing firm that conducted the survey of 30,000 workers in 17 nations. "People are feeling a lot of angst right now."
Some 32 percent of U.S. workers said they're considering leaving their jobs, up from 23 percent who said the same in 2005, prior to the recession.
Nor is dissatisfaction limited to the U.S. In fact, it's been increasing faster in Brazil, India and other emerging nations, which might reflect rising expectations and better job opportunities in those places.
"Loyalty is eroding pretty much everywhere," Foley said.
He considers this a function of companies asking workers to do more while scaling back promotions, pay raises and benefits. "Employees have seen a lot of takeaways," he said.
Even among fence-sitters who aren't sure they're ready to quit, dissatisfaction is widespread and can lead to apathy. "They're not necessarily planning to leave, but they're less satisfied and committed," he said.
Because corporate executives often believe they can't pay more or promote, benefits can play a bigger role in motivating workers, Foley said. In the U.S., the most valued benefits are still focused around health care and retirement, he said, but employers also should think of other ways to make jobs more attractive, especially for younger workers who might have different preferences.
They tend to favor things like flexible schedules more than their older colleagues. "Maybe it means Ping-Pong tables in the breakroom or more attractive workplaces," Foley said. "But it also could mean doing a better job communicating the value of more traditional benefits to them."
Bank switch takes work
Plenty of people are upset with big banks and some might be tempted to switch to small community banks or credit unions. But it's smart to look before you leap, because breaking up can be hard to do.
Smaller banks and credit unions typically have most of the same financial products or services that most consumers need. Often these institutions, especially credit unions, offer slightly higher interest rates on deposit accounts and lower rates on loans.
Perhaps you might find them to be more personable, too -- and less likely to unveil objectionable fees. Much of the current big-bank backlash stems from Bank of America's plan to charge debit-card customers $5 a month --a proposal that has since been scrapped.
At any rate, you will need to put some effort into switching. Once you find a new bank or credit union, it's smart to open your checking account with a small amount of money, until you're comfortable everything is working properly. You'll also need to order new checks, debit or credit cards and other items.
You'll need to take an inventory of your auto-deposit and auto-withdrawal connections and switch them over. It's also wise to get copies of past or current statements from your existing bank before closing the account. Also, make sure you won't trigger fees for leaving, which might apply to Individual Retirement Accounts, for example.
Once everything is in order and your last checks have cleared, close the account. Green America, a non-profit group focused on building a "socially just and environmentally sustainable society," offers a guide on how to "break up with your mega bank." It's available at greenamerica.org/go/toolkit, though you must register for it.
Bond stability
A sluggish economy is frustrating for job seekers, retailers and others. But bond investors are finding it somewhat comforting.
Todd Curtis, portfolio manager of the Tax-Free Trust of Arizona, isn't too worried about rising interest rates or municipal defaults hurting the prices of bonds owned by his mutual fund anytime soon.
"I think we're in a flat market," he said during a recent shareholder meeting in Phoenix attended by roughly 100 fund shareholders and others. "We've really stayed right where we were."
Most Arizona municipalities sport healthy credit ratings despite the tough economy, and interest-rate increases are still at least a year or two away, Curtis indicated. Both factors bode well for the fund, which counts $290million in assets and pays dividends exempt from both state and federal taxes for Arizona residents.
Valley economist John Lucking, also speaking at the shareholder meeting, said he expected an economic climate next year similar to the current situation. If there are negative surprises, Lucking predicted they would emanate from the European debt situation. He believes the housing market could be a source of positive surprises.
by Russ Wiles The Arizona Republic Nov. 5, 2011 12:10 PM
Global survey hints at uptick in worker unhappiness
Not exactly.
A new global survey indicates employee dissatisfaction is on the rise -- and that could lead to a musical-chairs dash of worker turnover once the economic outlook eventually brightens.
"What's surprising is that the percentage of workers who say they're seriously considering leaving has jumped dramatically, even in the face of a 9percent unemployment rate," said Pete Foley, North American employee-research leader at Mercer, a human-relations consulting and outsourcing firm that conducted the survey of 30,000 workers in 17 nations. "People are feeling a lot of angst right now."
Some 32 percent of U.S. workers said they're considering leaving their jobs, up from 23 percent who said the same in 2005, prior to the recession.
Nor is dissatisfaction limited to the U.S. In fact, it's been increasing faster in Brazil, India and other emerging nations, which might reflect rising expectations and better job opportunities in those places.
"Loyalty is eroding pretty much everywhere," Foley said.
He considers this a function of companies asking workers to do more while scaling back promotions, pay raises and benefits. "Employees have seen a lot of takeaways," he said.
Even among fence-sitters who aren't sure they're ready to quit, dissatisfaction is widespread and can lead to apathy. "They're not necessarily planning to leave, but they're less satisfied and committed," he said.
Because corporate executives often believe they can't pay more or promote, benefits can play a bigger role in motivating workers, Foley said. In the U.S., the most valued benefits are still focused around health care and retirement, he said, but employers also should think of other ways to make jobs more attractive, especially for younger workers who might have different preferences.
They tend to favor things like flexible schedules more than their older colleagues. "Maybe it means Ping-Pong tables in the breakroom or more attractive workplaces," Foley said. "But it also could mean doing a better job communicating the value of more traditional benefits to them."
Bank switch takes work
Plenty of people are upset with big banks and some might be tempted to switch to small community banks or credit unions. But it's smart to look before you leap, because breaking up can be hard to do.
Smaller banks and credit unions typically have most of the same financial products or services that most consumers need. Often these institutions, especially credit unions, offer slightly higher interest rates on deposit accounts and lower rates on loans.
Perhaps you might find them to be more personable, too -- and less likely to unveil objectionable fees. Much of the current big-bank backlash stems from Bank of America's plan to charge debit-card customers $5 a month --a proposal that has since been scrapped.
At any rate, you will need to put some effort into switching. Once you find a new bank or credit union, it's smart to open your checking account with a small amount of money, until you're comfortable everything is working properly. You'll also need to order new checks, debit or credit cards and other items.
You'll need to take an inventory of your auto-deposit and auto-withdrawal connections and switch them over. It's also wise to get copies of past or current statements from your existing bank before closing the account. Also, make sure you won't trigger fees for leaving, which might apply to Individual Retirement Accounts, for example.
Once everything is in order and your last checks have cleared, close the account. Green America, a non-profit group focused on building a "socially just and environmentally sustainable society," offers a guide on how to "break up with your mega bank." It's available at greenamerica.org/go/toolkit, though you must register for it.
Bond stability
A sluggish economy is frustrating for job seekers, retailers and others. But bond investors are finding it somewhat comforting.
Todd Curtis, portfolio manager of the Tax-Free Trust of Arizona, isn't too worried about rising interest rates or municipal defaults hurting the prices of bonds owned by his mutual fund anytime soon.
"I think we're in a flat market," he said during a recent shareholder meeting in Phoenix attended by roughly 100 fund shareholders and others. "We've really stayed right where we were."
Most Arizona municipalities sport healthy credit ratings despite the tough economy, and interest-rate increases are still at least a year or two away, Curtis indicated. Both factors bode well for the fund, which counts $290million in assets and pays dividends exempt from both state and federal taxes for Arizona residents.
Valley economist John Lucking, also speaking at the shareholder meeting, said he expected an economic climate next year similar to the current situation. If there are negative surprises, Lucking predicted they would emanate from the European debt situation. He believes the housing market could be a source of positive surprises.
by Russ Wiles The Arizona Republic Nov. 5, 2011 12:10 PM
Global survey hints at uptick in worker unhappiness
Saturday, October 29, 2011
Economy picked up over summer
The U.S. economy grew at its fastest clip in a year during late summer as consumers and businesses shrugged off fears of a new recession, according to government data released Thursday that helped drive the stock market to its best day since August.
Investors were also cheered by overnight news that European leaders have reached an agreement on how to address their continent's debt crisis, and the Standard & Poor's 500 stock index ended the day up 3.4 percent. European markets were up even more sharply, with the German Dax index up 5.3 percent.
The agreement in Europe still has many details to be filled in, and the 2.5 percent pace of U.S. economic expansion in the third quarter isn't enough to bring unemployment down quickly even if it is sustained. But on both sides of the Atlantic, the news on Thursday offered a sense of relief: Maybe the world isn't falling apart, after all.
"The Europeans told us they're doing what they can do to take the immediate fear of financial collapse off the table, and the GDP numbers tell us that the U.S. economy did not collapse in the third quarter," said Jerry Webman, chief economist at OppenheimerFunds. "Together, they are a kind of sigh of relief."
Over the summer, uncertainty over Europe's future and a downgrade of U.S. debt helped drive a period of confidence-rattling volatility on global financial markets. But now that the broadest measure of economic activity for that period is in, it appears that U.S. consumers and businesses took the events in stride.
Gross domestic product rose at a 2.5 percent annual pace in the July-through-September quarter, the Commerce Department said, considerably better than the 1.3 percent gain in the second quarter and the 0.9 percent rate of growth for the first half of 2011.
If there is to be a dip back into recession, as some analysts have feared, it appears it did not start in the third quarter.
But GDP was not strong enough to represent a "catch-up" effect that could bring the unemployment rate down substantially over time. Rather, 2.5 percent is somewhere around the treading-water rate of U.S. economic growth - the approximate rate of economic expansion that would be expected, given an ever-increasing labor force and rising worker productivity, but not enough to put many of the 14 million unemployed Americans back to work.
In another sign that the economy is not falling into recession, the number of new people filing claims for unemployment insurance benefits edged down last week, to 402,000 from a revised 404,000 the previous week.
Growth was bolstered during the quarter by a rebound in some of the factors that had held the economy back in the first half of the year. Automobile-supply chains that had been disrupted by the Japanese earthquake in the spring reopened, and oil prices moderated after spiking early in the year.
The details of the new report on GDP, which aims to capture the value of goods and services produced within U.S. borders during the quarter, were generally more favorable than expected. Spending by American consumers rose at a 2.4 percent annual rate, better than analysts had forecast, suggesting that even as their confidence has been walloped, Americans continued going to stores.
But the ailing job market and stagnant incomes could weigh on consumer spending in the months ahead, and few analysts expect households to drive rapid growth any time soon.
"The acceleration in consumer spending was driven by a drop in the saving rate, not by stronger income growth," Nigel Gault, chief U.S. economist at IHS Global Insight, said in a report.
Business investment was a source of particular strength in the third quarter, as it has been for most of the past two years. Spending on equipment and software rose at a rate of 17.4 percent, and spending on structures such as office buildings and factories rose at rate of 13.3 percent.
A major question for the future will be whether the onset of a new wave of volatility and uncertainty in financial markets worldwide leads businesses to become more cautious in their capital-spending plans in the final months of the year. At least through late summer, they were in expansion mode.
In Europe, leaders announced a 50 percent reduction in Greece's loan repayments to private lenders, a $1.4 trillion rescue fund to keep credit flowing to other troubled nations and a bank-recapitalization program designed to boost reserves by the middle of next year.
But behind the rhetoric, many details remain to be worked out. Banks must agree to the latest bailout for Greece, which still would leave its gross debt at 120 percent of its economy by 2020, down from 160 percent. The rescue-fund firewall relies on leveraging the European Financial Stability Facility rather than new government contributions. And European banks still could remain short of capital for the next eight months, threatening the flow of credit to consumers.
The effects of Europe's ills have damaged U.S. interests, from multinational companies to major exporters. Individual investors have plenty of reason for concern, as the enthusiasm from earlier agreements has given way to pessimism and stock-market dives.
by Neil Irwin Washington Post Oct. 28, 2011 12:00 AM
Economy picked up over summer
Investors were also cheered by overnight news that European leaders have reached an agreement on how to address their continent's debt crisis, and the Standard & Poor's 500 stock index ended the day up 3.4 percent. European markets were up even more sharply, with the German Dax index up 5.3 percent.
The agreement in Europe still has many details to be filled in, and the 2.5 percent pace of U.S. economic expansion in the third quarter isn't enough to bring unemployment down quickly even if it is sustained. But on both sides of the Atlantic, the news on Thursday offered a sense of relief: Maybe the world isn't falling apart, after all.
"The Europeans told us they're doing what they can do to take the immediate fear of financial collapse off the table, and the GDP numbers tell us that the U.S. economy did not collapse in the third quarter," said Jerry Webman, chief economist at OppenheimerFunds. "Together, they are a kind of sigh of relief."
Over the summer, uncertainty over Europe's future and a downgrade of U.S. debt helped drive a period of confidence-rattling volatility on global financial markets. But now that the broadest measure of economic activity for that period is in, it appears that U.S. consumers and businesses took the events in stride.
Gross domestic product rose at a 2.5 percent annual pace in the July-through-September quarter, the Commerce Department said, considerably better than the 1.3 percent gain in the second quarter and the 0.9 percent rate of growth for the first half of 2011.
If there is to be a dip back into recession, as some analysts have feared, it appears it did not start in the third quarter.
But GDP was not strong enough to represent a "catch-up" effect that could bring the unemployment rate down substantially over time. Rather, 2.5 percent is somewhere around the treading-water rate of U.S. economic growth - the approximate rate of economic expansion that would be expected, given an ever-increasing labor force and rising worker productivity, but not enough to put many of the 14 million unemployed Americans back to work.
In another sign that the economy is not falling into recession, the number of new people filing claims for unemployment insurance benefits edged down last week, to 402,000 from a revised 404,000 the previous week.
Growth was bolstered during the quarter by a rebound in some of the factors that had held the economy back in the first half of the year. Automobile-supply chains that had been disrupted by the Japanese earthquake in the spring reopened, and oil prices moderated after spiking early in the year.
The details of the new report on GDP, which aims to capture the value of goods and services produced within U.S. borders during the quarter, were generally more favorable than expected. Spending by American consumers rose at a 2.4 percent annual rate, better than analysts had forecast, suggesting that even as their confidence has been walloped, Americans continued going to stores.
But the ailing job market and stagnant incomes could weigh on consumer spending in the months ahead, and few analysts expect households to drive rapid growth any time soon.
"The acceleration in consumer spending was driven by a drop in the saving rate, not by stronger income growth," Nigel Gault, chief U.S. economist at IHS Global Insight, said in a report.
Business investment was a source of particular strength in the third quarter, as it has been for most of the past two years. Spending on equipment and software rose at a rate of 17.4 percent, and spending on structures such as office buildings and factories rose at rate of 13.3 percent.
A major question for the future will be whether the onset of a new wave of volatility and uncertainty in financial markets worldwide leads businesses to become more cautious in their capital-spending plans in the final months of the year. At least through late summer, they were in expansion mode.
In Europe, leaders announced a 50 percent reduction in Greece's loan repayments to private lenders, a $1.4 trillion rescue fund to keep credit flowing to other troubled nations and a bank-recapitalization program designed to boost reserves by the middle of next year.
But behind the rhetoric, many details remain to be worked out. Banks must agree to the latest bailout for Greece, which still would leave its gross debt at 120 percent of its economy by 2020, down from 160 percent. The rescue-fund firewall relies on leveraging the European Financial Stability Facility rather than new government contributions. And European banks still could remain short of capital for the next eight months, threatening the flow of credit to consumers.
The effects of Europe's ills have damaged U.S. interests, from multinational companies to major exporters. Individual investors have plenty of reason for concern, as the enthusiasm from earlier agreements has given way to pessimism and stock-market dives.
by Neil Irwin Washington Post Oct. 28, 2011 12:00 AM
Economy picked up over summer
Thursday, October 27, 2011
Sarkozy Turns to Hu for China Aid as Europe Expands Rescue Fund
Oct. 27 (Bloomberg) -- French President Nicolas Sarkozy said he plans to call Chinese President Hu Jintao today to discuss China contributing to Europe's efforts to resolve the region's debt crisis.
The European Financial Stability Facility will be worth $1.4 trillion after European leaders agreed to leverage existing guarantees by as much as five times, Sarkozy estimated when speaking to reporters at a briefing in Brussels at 4 a.m. local time after the end of a summit of European leaders. Chinese support for the effort would be welcomed, Sarkozy said. The presidents will speak about noon Brussels time, he said.
Chinese Premier Wen Jiabao has signaled willingness to aid the European Union as financial turmoil within the region threatens to crush export demand in China's biggest market. The expansion of the rescue fund and a deal for bondholders to take 50 percent losses on Greek debt may help Sarkozy and German Chancellor Angela Merkel to convince the world that Europe is getting to grips with the crisis.
"China will need time to evaluate this plan very carefully," said Shen Jianguang, a Hong Kong-based economist for Mizuho Securities Asia Ltd. "What worries China is that there is so much disagreement among European policy makers. It doesn't want to be seen spending money on a plan that even Europeans don't want to support."
Sarkozy and Hu's conversation comes a day before a planned visit to Beijing by Klaus Regling, chief executive officer of the EFSF, to court investors. China has the world's largest foreign currency reserves at more than $3.2 trillion.
Sovereign Bonds
The EFSF, established last year to sell bonds to finance loans for distressed euro nations, has since also gained the authority to buy sovereign bonds on the secondary and primary markets, offer credit lines to governments and recapitalize banks as the Greece-triggered debt troubles have spread. The EFSF said Regling's visit to China this week is linked to the fund's original debt-issuance role.
"It is a normal round of discussion with important buyers of EFSF bonds," Christof Roche, spokesman for the Luxembourg- based facility, said by e-mail yesterday. He declined to comment further when contacted by Bloomberg News by telephone. Agence France-Presse reported that Regling will travel on to Tokyo, citing a European Union official in Asia.
China may be willing to respond to a European request to help them fund a package to solve the euro region's debt crisis, AFP said, citing unidentified government officials familiar with the situation.
Chinese Reserves
A press official at the People's Bank of China said he wasn't aware of the issue and asked for faxed questions, which weren't immediately answered. The Ministry of Foreign Affairs and the State Administration of Foreign Exchange, which manages China's foreign-exchange reserves, didn't immediately respond to faxed questions.
Calls to the press office of China Investment Corp., the nation's $300 billion sovereign wealth fund, weren't immediately answered.
Europe is facing international calls to end a debt crisis that President Barack Obama has said "is scaring the world" and U.S. Treasury Secretary Timothy F. Geithner has described as a "catastrophic risk." With a Group of 20 meeting looming on Nov. 3-4, euro-area government heads gathered in Brussels yesterday for the 14th time to tackle troubles that began in Greece two years ago, then engulfed Ireland and Portugal and now threaten Spain and Italy.
Premier Wen said last month that while China was willing to help, that developed nations also needed to put "their own houses in order."
European Responsibility
In Canberra today, Australian Treasurer Wayne Swan echoed that sentiment. "We think it's appropriate that the international community look at what resources the International Monetary Fund has available to it," Swan told reporters. "But in the first instance, any bailout fund in Europe is a responsibility of the Europeans."
Bank of Korea Governor Kim Choong Soo said today the nation hasn't been approached to and hasn't considered joining the effort. Indonesian Vice Finance Minister Mahendra Siregar said the nation hasn't been asked to aid in Europe's effort.
The question of leveraging the AAA rated EFSF has arisen because of the political hurdles in countries such as Germany, the biggest European economy, to increasing the national guarantees that back the fund.
Aid Package
As part of its original role, the EFSF is providing 17.7 billion euros under Ireland's aid package of 67.5 billion euros and 26 billion euros under Portugal's rescue of 78 billion euros. So far, the EFSF has sold two five-year bonds and one 10-year security, all in the first half of this year. The Japanese government bought more than a fifth of the inaugural issue in January.
On Oct. 13, the EFSF announced changes to its bond-sale program for the two countries in the second half of 2011. Instead of selling four "benchmark" bonds in the period, as outlined in mid-May, the fund will sell one security for Ireland valued at 3 billion euros and delay issues planned for Portugal until "early 2012."
The EFSF may have to finance more than 70 billion euros of a planned second aid package for Greece. The initial Greek rescue of 110 billion euros in May 2010 was composed of loans directly from euro-area governments and the IMF.
by Jonathan Stearns and Helene Fouquet Bloomberg News Oct 27, 2011
Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/10/26/bloomberg_articlesLTPGNJ0YHQ0X.DTL#ixzz1bzpDPC4m
Sarkozy Turns to Hu for China Aid as Europe Expands Rescue Fund
The European Financial Stability Facility will be worth $1.4 trillion after European leaders agreed to leverage existing guarantees by as much as five times, Sarkozy estimated when speaking to reporters at a briefing in Brussels at 4 a.m. local time after the end of a summit of European leaders. Chinese support for the effort would be welcomed, Sarkozy said. The presidents will speak about noon Brussels time, he said.
Chinese Premier Wen Jiabao has signaled willingness to aid the European Union as financial turmoil within the region threatens to crush export demand in China's biggest market. The expansion of the rescue fund and a deal for bondholders to take 50 percent losses on Greek debt may help Sarkozy and German Chancellor Angela Merkel to convince the world that Europe is getting to grips with the crisis.
"China will need time to evaluate this plan very carefully," said Shen Jianguang, a Hong Kong-based economist for Mizuho Securities Asia Ltd. "What worries China is that there is so much disagreement among European policy makers. It doesn't want to be seen spending money on a plan that even Europeans don't want to support."
Sarkozy and Hu's conversation comes a day before a planned visit to Beijing by Klaus Regling, chief executive officer of the EFSF, to court investors. China has the world's largest foreign currency reserves at more than $3.2 trillion.
Sovereign Bonds
The EFSF, established last year to sell bonds to finance loans for distressed euro nations, has since also gained the authority to buy sovereign bonds on the secondary and primary markets, offer credit lines to governments and recapitalize banks as the Greece-triggered debt troubles have spread. The EFSF said Regling's visit to China this week is linked to the fund's original debt-issuance role.
"It is a normal round of discussion with important buyers of EFSF bonds," Christof Roche, spokesman for the Luxembourg- based facility, said by e-mail yesterday. He declined to comment further when contacted by Bloomberg News by telephone. Agence France-Presse reported that Regling will travel on to Tokyo, citing a European Union official in Asia.
China may be willing to respond to a European request to help them fund a package to solve the euro region's debt crisis, AFP said, citing unidentified government officials familiar with the situation.
Chinese Reserves
A press official at the People's Bank of China said he wasn't aware of the issue and asked for faxed questions, which weren't immediately answered. The Ministry of Foreign Affairs and the State Administration of Foreign Exchange, which manages China's foreign-exchange reserves, didn't immediately respond to faxed questions.
Calls to the press office of China Investment Corp., the nation's $300 billion sovereign wealth fund, weren't immediately answered.
Europe is facing international calls to end a debt crisis that President Barack Obama has said "is scaring the world" and U.S. Treasury Secretary Timothy F. Geithner has described as a "catastrophic risk." With a Group of 20 meeting looming on Nov. 3-4, euro-area government heads gathered in Brussels yesterday for the 14th time to tackle troubles that began in Greece two years ago, then engulfed Ireland and Portugal and now threaten Spain and Italy.
Premier Wen said last month that while China was willing to help, that developed nations also needed to put "their own houses in order."
European Responsibility
In Canberra today, Australian Treasurer Wayne Swan echoed that sentiment. "We think it's appropriate that the international community look at what resources the International Monetary Fund has available to it," Swan told reporters. "But in the first instance, any bailout fund in Europe is a responsibility of the Europeans."
Bank of Korea Governor Kim Choong Soo said today the nation hasn't been approached to and hasn't considered joining the effort. Indonesian Vice Finance Minister Mahendra Siregar said the nation hasn't been asked to aid in Europe's effort.
The question of leveraging the AAA rated EFSF has arisen because of the political hurdles in countries such as Germany, the biggest European economy, to increasing the national guarantees that back the fund.
Aid Package
As part of its original role, the EFSF is providing 17.7 billion euros under Ireland's aid package of 67.5 billion euros and 26 billion euros under Portugal's rescue of 78 billion euros. So far, the EFSF has sold two five-year bonds and one 10-year security, all in the first half of this year. The Japanese government bought more than a fifth of the inaugural issue in January.
On Oct. 13, the EFSF announced changes to its bond-sale program for the two countries in the second half of 2011. Instead of selling four "benchmark" bonds in the period, as outlined in mid-May, the fund will sell one security for Ireland valued at 3 billion euros and delay issues planned for Portugal until "early 2012."
The EFSF may have to finance more than 70 billion euros of a planned second aid package for Greece. The initial Greek rescue of 110 billion euros in May 2010 was composed of loans directly from euro-area governments and the IMF.
by Jonathan Stearns and Helene Fouquet Bloomberg News Oct 27, 2011
Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/10/26/bloomberg_articlesLTPGNJ0YHQ0X.DTL#ixzz1bzpDPC4m
Sarkozy Turns to Hu for China Aid as Europe Expands Rescue Fund
Greece to get 100 bil euros in more rescue loans
BRUSSELS, Belgium - European leaders agreed this morning on a crucial plan to reduce Greece's debt and provide it with more rescue loans so that the faltering country can eventually dig out from under its debt burden.
After a marathon summit, EU President Herman Van Rompuy said that the deal will reduce Greece's debt to 120 percent of its GDP in 2020. Under current conditions, it would have grown to 180 percent.
That will require banks to take on 50 percent losses on their Greek bond holdings - a hard-fought deal that negotiators will now have to sell to individual bondholders.
Van Rompuy also said the eurozone and International Monetary Fund - which have both been propping the country up with loans since May 2010 - will give the country an additional $140 billion. That's slightly less than the amount agreed upon in July, presumably because the banks will now pick up more of the slack.
"These are exceptional measures for exceptional times. Europe must never find itself in this situation again," European Commission President Jose Manuel Barroso said after the meetings.
The question of how to reduce Greece's debt load had proved the sticking point in European leaders' efforts to come up with a grand plan to solve its debt crisis.
But it was just one of three prongs necessary to restore confidence in Europe's ability to pay its debts and prevent the 2-year-old crisis from pushing the continent and much of the developed world back into recession.
The first details of such a plan emerged hours earlier, when European Union leaders announced they would force the continent's biggest banks to raise $148 billion by June - partially to ensure they could weather the expected losses on Greek debt.
Van Rompuy also announced that the eurozone would boost the firepower of their bailout fund to about $1.4 trillion to protect larger economies, such as Italy's and Spain's, from the market turmoil that has pushed three countries to need bailouts.
"We have reached an agreement which I believe lets us give a credible and ambitious and overall response to the Greek crisis," French President Nicolas Sarkozy told reporters as the meeting broke this morning. "Because of the complexity of the issues at stake, it took us a full night. But the results will be a source of huge relief worldwide."
Efforts to increase the clout of the bailout fund got a boost earlier in the day when German Chancellor Angela Merkel won a strong endorsement from German lawmakers for her plan to reinforce the fund.
Italian Prime Minister Silvio Berlusconi, meantime, came to Brussels with plans to change his country's pension system and take other steps to balance the budget. Other European leaders had pressed him to accelerate those steps to help build confidence that his nation can manage its large levels of public debt.
Because the plan to shore up the banks applies to European economies both inside and outside the euro area, the initiative was the subject of deliberations by the full EU.
Along with increasing bank capital, the plan calls for a new effort by governments to ensure that banks have the funds they need to operate.
European banks rely heavily on short-term loans, and the vulnerability of that funding played a role in the recent collapse of the French-Belgian Dexia bank.
Concerns about the European economy have caused many investors, including U.S.-based money-market funds, to pull out of European banks. This development has raised banks' operating costs and generated fear that Dexia would be just the first in a series of casualties.
The new plan asks the European Central Bank, the European Investment Bank and other agencies to "urgently explore" a guarantee system so that banks could wean themselves from short-term loans, which often must be renewed weekly or even daily.
Under the plan, banks would have to set aside capital equal to 9 percent of their assets. That represents a significant increase from the 5 percent level used as a standard by the European Banking Authority, when it recently analyzed whether the region's financial firms could weather a new economic downturn.
One concern about increasing relative capital levels is that banks could reach the 9 percent threshold by decreasing their total assets, in other words reducing how much money they loan to businesses, consumers and governments. This pullback could stymie economic growth at a time when it is already slowing in much of Europe.
To head off this prospect, the bank capital plan calls for heightened oversight by regulators to ensure that banks don't achieve the new targets by selling off assets or restricting new loans.
by Associated Press Oct. 27, 2011 12:00 AM
Greece to get 100 bil euros in more rescue loans
After a marathon summit, EU President Herman Van Rompuy said that the deal will reduce Greece's debt to 120 percent of its GDP in 2020. Under current conditions, it would have grown to 180 percent.
That will require banks to take on 50 percent losses on their Greek bond holdings - a hard-fought deal that negotiators will now have to sell to individual bondholders.
Van Rompuy also said the eurozone and International Monetary Fund - which have both been propping the country up with loans since May 2010 - will give the country an additional $140 billion. That's slightly less than the amount agreed upon in July, presumably because the banks will now pick up more of the slack.
"These are exceptional measures for exceptional times. Europe must never find itself in this situation again," European Commission President Jose Manuel Barroso said after the meetings.
The question of how to reduce Greece's debt load had proved the sticking point in European leaders' efforts to come up with a grand plan to solve its debt crisis.
But it was just one of three prongs necessary to restore confidence in Europe's ability to pay its debts and prevent the 2-year-old crisis from pushing the continent and much of the developed world back into recession.
The first details of such a plan emerged hours earlier, when European Union leaders announced they would force the continent's biggest banks to raise $148 billion by June - partially to ensure they could weather the expected losses on Greek debt.
Van Rompuy also announced that the eurozone would boost the firepower of their bailout fund to about $1.4 trillion to protect larger economies, such as Italy's and Spain's, from the market turmoil that has pushed three countries to need bailouts.
"We have reached an agreement which I believe lets us give a credible and ambitious and overall response to the Greek crisis," French President Nicolas Sarkozy told reporters as the meeting broke this morning. "Because of the complexity of the issues at stake, it took us a full night. But the results will be a source of huge relief worldwide."
Efforts to increase the clout of the bailout fund got a boost earlier in the day when German Chancellor Angela Merkel won a strong endorsement from German lawmakers for her plan to reinforce the fund.
Italian Prime Minister Silvio Berlusconi, meantime, came to Brussels with plans to change his country's pension system and take other steps to balance the budget. Other European leaders had pressed him to accelerate those steps to help build confidence that his nation can manage its large levels of public debt.
Because the plan to shore up the banks applies to European economies both inside and outside the euro area, the initiative was the subject of deliberations by the full EU.
Along with increasing bank capital, the plan calls for a new effort by governments to ensure that banks have the funds they need to operate.
European banks rely heavily on short-term loans, and the vulnerability of that funding played a role in the recent collapse of the French-Belgian Dexia bank.
Concerns about the European economy have caused many investors, including U.S.-based money-market funds, to pull out of European banks. This development has raised banks' operating costs and generated fear that Dexia would be just the first in a series of casualties.
The new plan asks the European Central Bank, the European Investment Bank and other agencies to "urgently explore" a guarantee system so that banks could wean themselves from short-term loans, which often must be renewed weekly or even daily.
Under the plan, banks would have to set aside capital equal to 9 percent of their assets. That represents a significant increase from the 5 percent level used as a standard by the European Banking Authority, when it recently analyzed whether the region's financial firms could weather a new economic downturn.
One concern about increasing relative capital levels is that banks could reach the 9 percent threshold by decreasing their total assets, in other words reducing how much money they loan to businesses, consumers and governments. This pullback could stymie economic growth at a time when it is already slowing in much of Europe.
To head off this prospect, the bank capital plan calls for heightened oversight by regulators to ensure that banks don't achieve the new targets by selling off assets or restricting new loans.
by Associated Press Oct. 27, 2011 12:00 AM
Greece to get 100 bil euros in more rescue loans
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