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Getbig Main Boards => Politics and Political Issues Board => Topic started by: SAMSON123 on June 21, 2010, 12:27:19 PM
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Economy Weak, Data Look Even Weaker
by Rex Nutting
Monday, June 21, 2010
No one thought this recovery would be quick or easy, and it hasn't been. The U.S. economy has been growing, but it's still too fragile to stand on its own.
The economic data to be released in the coming week are expected to be a mixed lot, while the Federal Reserve holds its regular meeting to assess how much progress is being made in the economy. The likely conclusion from the Federal Open Market Committee? Not enough.
The FOMC is expected to maintain its exceptionally low interest-rate policy amid persistently high unemployment and low inflation.
The recovery hasn't been derailed by Europe, or by the fiscal crisis in the states, or by the collapse in home buying after the tax credit expired. Not yet, anyway. The Fed will take no chances.
"Economic reports next week will be mixed," wrote Brian Bethune and Nigel Gault, top U.S. economists for IHS Global Insight. The two reports on home sales are expected to diverge sharply due to timing of the expiration of the home-buyers' tax credit. Orders for durable goods are expected to be weak on the surface, but stronger in the details.
The trend in the economy is exceptionally hard to read. The monetary and fiscal stimulus was intended to artificially boost growth for a while until the economy could run on its own.
Now that the support is being withdrawn, we're holding our breath to see if the wobbly economy can right itself.
Housing
The housing market is the most troublesome part of the economy. "The tax-credit had the effect of front-loading sales into the first half of the year," wrote Aaron Smith and Ryan Sweet, economists for Moody's Economy.com.
To qualify for the credit, a buyer needed to sign a purchase contract on a home by April 30, and needs to close by June 30.
Sales of new homes, which are recorded at the time of the signing, are expected to fall off a cliff in May. After rising nearly 50% in March and April, sales probably plunged 20% in May to a seasonally adjusted annual rate of 405,000, according to a survey of economists conducted by MarketWatch.
"Still, the sales pace should remain above the lows set last fall," said Smith and Sweet.
Sales of existing homes, by contrast, are measured at the time of the closing, so it's likely that sales will strengthen through June, and then weaken. In May, sales probably rose about 6% to a seasonally adjusted annual rate of 6.11 million, our survey says.
The big question is what happens to home sales in the second half of the year after the hangover is gone. Falling sales would depress prices, which could mean weaker consumer spending as home owners feel their wealth evaporating again.
"The argument against a steep drop-off is that the fundamental backdrop for home sales improved because of a pickup in job growth and lower mortgage rates," Sweet and Smith said.
Durables
The theme of the past few months has been: Housing is weakening, but manufacturing is booming.
May's data on durable goods orders could throw the second part of that meme into doubt. Economists say new orders will fall 1.4% in May after rising 2.8% in April. Is manufacturing also fading out on us?
Relax, economists counsel. These numbers are very volatile month-to-month, mostly because of aircraft, which tend to be booked in large chunks.
It was a dry month for Boeing, so total orders probably fell. The rest of the factory sector did fine, however. "The rebound marches on," said Bethune and Gault. "May should be better than it will look on the surface," just as April wasn't as good as it looked.
The key number to watch in this report is what economists call core capital goods orders, which measures capital investment goods excluding both aircraft and defense goods.
"We should see more strength in the underlying data," said David Greenlaw, an economist for Morgan Stanley, who notes a "bizarre seasonal pattern" recently of significant weakness in the core component in the first month of the quarter, followed by a rebound in the next two months. Machinery, in particular, should bounce back from a 7% decline in April.
Manufacturing is benefiting from three strong trends: Rising exports, higher demand for investment goods, and the need to rebuild depleted inventories.
Ultimately, however, production needs to match consumption.
"With the recent gains, industrial production now appears to be running ahead of demand," wrote John Silvia, chief economist for Wells Fargo Securities. With consumer spending likely to weaken along with housing, "this could set up a sharper pull back in output later this year."
Rex Nutting is Washington bureau chief of MarketWatch.
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And guess what - its only going to get way worse.
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Jindal vs. Obama: Time to End the Drilling Moratorium
The Foundry ^ | 6-21-10 | Mike Brownfield
First there was Hurricane Katrina, then there was the Deepwater Horizon disaster. Louisiana Gov. Bobby Jindal now says that the newest threat to the economy of his state is President Barack Obama’s moratorium on deepwater drilling.
Jindal today joined in support of oil service companies who are suing to halt the six-month ban on drilling in the Gulf of Mexico, issued by the Minerals Management Service on May 30. A federal district court judge is hearing arguments on the lawsuit today and will rule no later than Wednesday.
In an amicus brief filed with the court, Jindal argues that the moratorium is disastrous to his state’s economy:
The State of Louisiana, more than any other public or private entity, has been most adversely affected by the Deepwater Horizon disaster. The drilling moratorium imposed by [the government] will only compound the State’s problems, effectively turning an environmental disaster into an economic catastrophe for the State. Every day the moratorium is in effect costs the State untold millions of dollars.
To put numbers on it, Jindal states that Louisiana is vulnerable to the moratorium because it is home to 19 active refineries, which “rely significantly on offshore production in the Gulf of Mexico for their raw materials.” The offshore oil and gas industry, which has a $3 billion per year economic impact on the state, includes salaries and wages of workers on the rig, as well as secondary industries including those who do business with the oil industry, such as boat companies, tool rental companies, food service, and others. As Jindal argues in his brief:
Because of the pervasiveness of the oil and gas industry in Louisiana, the entire economy is affected, from grocery stores and restaurants to banks and schools.
Jindal points to studies showing that within five months, the moratorium will result in a layoff of 3,339 Louisiana workers and a loss of 7,656 additional jobs, while the state expects to lose more than 20,000 existing and potential new jobs over the next 12 to 18 months.
The governor of Louisiana isn’t the only one pointing out the tremendous impact of the drilling ban. Last Tuesday, 19 Gulf lawmakers, including Democrat Rep. Charlie Melancon (LA), held a press conference demanding an end to the moratorium. (Today, Melancon gave President Obama a “C” for his response to the oil spill crisis.) There’s good reason for the uproar over the moratorium. The Heritage Foundation’s Nick Loris writes:
According to Burt Adams of the National Ocean Industries Association, in the Gulf Coast, more than 200,000 jobs are tied to the offshore drilling industry and 35,000 workers are directly involved each day when the rigs are in use. The American Petroleum Institute forecasts that if the drilling ban continues, more than 120,000 jobs could be lost in the Gulf Coast and key resources abandoned or moved elsewhere.
Jindal notes that the government’s sole argument for the duration of the ban is that they need “time to step back and investigate both the root causes of the Deepwater Horizon disaster and to implement safety measures.” Given the consequences of the ban, one might hope that the Obama administration can offer more reason than that to justify the economic harm it is piling on Louisiana and the Gulf region.