US economy only slightly down on predictions
July 29, 2005
While US economic growth slowed down a bit, to 3.4 percent, in the second quarter according to a preliminary estimate from the Commerce Department, Treasury Secretary John Snow said on Friday that the economy is on the right path.
Growth was just off the predicted 3.5 percent for the quarter ending in June.
The report showed consumer spending up 3.3 percent, after a 3.5 percent growth rate in the first quarter. Spending on durable goods, including automobiles, was up by 8.3 percent in the quarter.
Exports were up by 14.5 percent while imports fell 2 percent. Corporate investment rose by 9.3 percent on the quarter, but inventories were down.
Second quarter consumer inflation was up, with the personal consumption expenditure price index up at an annual rate of 3.3 percent, an increase from 2.3 percent in the first quarter.
On the other hand, the core PCE price index, which takes food and energy costs out of the equation, was only up at a rate of 1.8 percent in the quarter, down from the 2.4 percent growth of the first quarter.
While announcing the second quarter results, the Commerce Department revised growth figures from previous years downward, primarily due to lower estimates of investment in information technology and software.
Commerce said that between 2001 and 2004, the economy actually grew at a rate of 2.8 percent per year rather than by the previously announced 3.1 percent per year.
CAFTA passes in tough vote
July 28, 2005
The Republican-controlled US House of Representatives voted 217-215 early on Thursday morning to approve the Central America Free Trade Agreement (CAFTA).
Then, in the afternoon, the US Senate voted 56-44 to send the bill to President George W. Bush for his signature.
The vote in the House was divided very much along party lines, with only 15 Democrats voting for the bill and 27 Republicans opposing it.
Mr. Bush had mounted an all-out effort on Wednesday to mobilize support for the bill, and House leaders held the vote open for an hour while it persuaded enough Republican representatives to vote for the bill to assure its passage.
Two Republicans later said that they tried to vote against the bill, but one said that a faulty computer would not record his “no” vote and another said she was unable to get to Washington from her home district in time to vote due to bad weather.
If those votes had been cast, the bill would have been defeated on a tie vote.
The bill gets rid of tariffs on US goods exported to Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic while it expands the duty-free access goods from those countries already enjoys in the US market.
Regional banks report expanded growth
July 27, 2005
The twelve regional bank districts of the United States Federal Reserve issued their reports on economic conditions in their areas on Wednesday. The twelve districts are centered in Boston; New York City; Philadelphia; Cleveland, Ohio; Richmond, Virginia; Atlanta; Chicago; St. Louis, Missouri; Minneapolis; Kansas City; Dallas; and San Francisco.
All twelve areas reported expanded economic growth. Retails sales were up at least some in most areas, although New York reported some softening in July, Boston reported that retailers had not been able to pass along all their higher energy costs to customers, while St. Louis reported mixed results by both retailers and auto dealers.
In most other areas, car sales were good. Tourism was up generally. Housing activity was generally described as robust although some regions reported a slight cooling of activity. Parts of Southern California saw houses staying on the market longer and prices not going up as fast as they had been.
The Richmond district reported that in the Washington, DC, area the housing market was described as “not as frenzied” as earlier and that some Virginia properties were taking longer to sell. The New York region reported some slippage in real estate prices, while the Boston region reported that home prices in Massachusetts were going from “hot” to “normal”.
DeLay predicts CAFTA will pass
July 27, 2005
US House of Representatives Majority Leader Tom DeLay, predicted on Tuesday that the US-Central America Free Trade Agreement (CAFTA) will pass on Tuesday night despite what he called a “tough vote”.
House Democratic Leader Nancy Pelosi said that she believed that over 90 percent of House Democrats would vote against the bill as being bad for workers, as only 7 of the 200 Democratic House members have come out in public support of the legislation.
The comments from both legislators came after President George W. Bush met with House Republicans on Tuesday morning to urge them to support CAFTA, which would lower trade restrictions between the United States and several Central American nations, including Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic.
Mr. Bush has had a difficult time persuading legislators to vote for the trade agreement because besides the opposition of most Democrats who say that the agreement does not contain enough protections for workers in regions where workers have traditionally not had many rights, Republicans from states with significant textile and sugar industries also oppose the agreement.
Besides Mr. Bush, Secretary of State Condoleeza Rice also spent Tuesday morning lobbying legislators for votes for the agreement.
Consumer confidence falls in CB index
July 26, 2005
The Conference Board index of consumer sentiment shows that consumer confidence in the United States fell in July as people said that they were less optimistic about their job prospects.
In a report issued Tuesday, figures showed that the index of consumer sentiment fell from a revised 106.2 in June, a three-year high, to 103.2 in June. Analysts had expected the July figure to be 106.0.
While 22.5 percent of the consumers surveyed said that jobs were “plentiful”, the same figures as in June, the number of those saying that jobs were “hard to get” rose from 22.5 percent in June to 23.8 percent in July.
Analysts still characterize confidence as “healthy” and say that the decline is not a cause for worry.
While changes in confidence generally have been seen as leading indicators of changes in economic growth - when confidence grows, so does the economy - because consumer spending accounts for two-thirds of economic activity in the United States, recent years have seen the correlation weaken to the extent that consumers now are more likely to say that things are getting worse but still go out and spend their money for large purchases such as cars and houses.
Labor unions fragment and disperse
July 25, 2005
Two large unions announced Monday that they will break with the AFL-CIO and said that they would organize a labor coalition of their own in an attempt to stem recent losses in union membership in the United States.
The break came during the 50th anniversary convention of the AFL-CIO.
One of the breakaway unions, the Service Employees International Union (SEIU), was the AFL-CIO’s largest affiliate at a membership of 1.8 million members, was joined by the Teamsters in the largest break in union ranks in the US since the 1930s.
In announcing the break, Teamsters president James P. Hoffa said that unions needed more members in order to change a climate that has undermined workers’ rights in the US.
He criticized the AFL-CIO for moving in the opposite direction of what he said is needed. Meanwhile, AFL-CIO president John Sweeney criticized the break as an insult to rank-and-file union members and claimed that the break will hurt “the hopes of working families for a better life.”
Many labor experts concur, saying that a split will weaken the labor movement politically.
Two other unions, the United Food and Commercial Workers and UNITE HERE, a group of textile and hotel workers, joined the Teamsters and the SEIU in boycotting the AFL-CIO convention, a move that is said to signal their readiness to also leave the coalition.
The four groups together make up around one-third of the AFL-CIO’s membership of 13 million.
Booming housing market may be cooling
July 19, 2005
The US Commerce Department reported on Tuesday that new starts on houses and apartments totaled 2 million in June, the same rate as in May.
While single family housing starts fell by 2.5 percent in June, this was offset by a rise of 14.2 percent in starts of apartment buildings.
The June figure was well below the increase of 1.1 percent in total housing starts that analysts had anticipated.
Along with a revised decline of 1.1 percent in housing starts in May, some analysts think that the booming US housing market may be on the verge of cooling off.
However, analysts say that they do not foresee a huge drop in housing activity because although mortgage rates have begun to rise, they are still at levels very attractive to home buyers.
Rates are near a 40-year low and this, coupled with low supplies and the country’s strong economic growth will keep activity strong for at least the next few months, according to one analyst with Global Insight.
Another analyst said that in his opinion, it would take a significant jump in mortgage rates to cool off the housing market in the foreseeable future.
Greenspan to make last semi-annual report to Congress
July 18, 2005
When Federal Reserve Chairman Alan Greenspan addresses the US Congress on Wednesday and Thursday in his semi-annual testimony on the economy, investors will be waiting to see what, if anything, he says about the continuing string of interest rate rises in the US.
Most analysts feel that there will be no news that the rate rises will stop in the near future, and that the fourth quarter is the earliest that the Fed might halt the series of quarter-point hikes, and in fact some analysts feel that Mr. Greenspan will actively promote a continuation of the rate hikes to Congress.
Additionally, Mr. Greenspan is expected to address the boom in housing prices as well as the current “conundrum” concerning low long-bond prices, but he will likely paint an overall positive picture of the US economy.
Perhaps the most notable thing, however, about Mr. Greenspan’s semi-annual report to Congress is the fact that it will likely be his final time to deliver the report, as he is set to retire as chairman of the Fed on January 31, 2006.
Manufacturing boosted by industrial production figures
July 15, 2005
US industrial production rose in June at its fastest rate in 16 months, according to the Federal Reserve. Production by factories, mines, and utilities was up 0.9 percent on the month, doubling expectations and tripling the May increase.
Over half of the gain came from utility output, which grew 5.3 percent on the month and reflected higher temperatures in June after a mild May, as more energy was needed to run air conditioners.
Manufacturing grew by 0.4 percent in June, slightly behind May’s 0.5 percent, fueled by a jump of 2.9 percent in production at automobile factories. Mining output, which includes oil production, rose by 0.4 percent in June.
Spending up as inflation flat
July 14, 2005
The US economy got two bits of good news on Thursday as new data showed that retail sales were up and inflation remained in check.
The consumer spending figure is especially important since it accounts for around 70 percent of all US economic activity and is thus an important indicator of the economy’s health.
According to the Department of Commerce, retail sales grew by 1.7 percent in in June, above the 0.9 percent forecast by Wall Street.
The core rate of inflation, which excludes food and energy prices, grew at a very small 0.1 percent.
Deficit drops in May but still on for record annual high
July 13, 2005
While the US trade deficit showed a dip in May, according to the US Department of Commerce, the reduction is likely a temporary one brought about by temporary drops in the price of oil.
The trade deficit fell by 2.7 percent in May to $55.3 billion. Besides the drop in oil prices for the month, the decline was helped by strong exports, which reached a new high of $106.9 billion.
Export sales of agricultural products, consumer goods, and industrial supplies all hit new record highs in the month. In addition, imports fell by 0.9 percent in May, to $162.2 billion.
A major share of the drop in imports had to do with the lower cost of oil during the month. Despite the fall in the trade deficit in May, the deficit for the year to date is at an annual rate of $681.6 billion, 10 percent higher than the record trade deficit registered in 2004.
Additionally, despite improvements elsewhere, the US trade deficit with China was at its highest level in six months, up 7.1 percent to $15.8 billion.
This circumstance will likely only increase US pressure on China to revalue its currency, which some believe is undervalued by as much as 40 percent.
US Department of Labor reports more jobs filled
July 12, 2005
According to the US Department of Labor on Tuesday, there were fewer job openings in the United States in May but more jobs were filled. Openings were up in the leisure/hospitality sector as summer drew near, but they were down in construction, manufacturing, government, and education/health services, among other sectors.
Job openings fell by 3.1 percent in May to 3.465 million, from the 2.576 jobs that opened in April. Meanwhile, hirings were up 3.7 percent in May, to 4.798 million. They had been at 4.538 in April. Trade/transportation/utilities hirings fell in May, as did hirings in the education/health sector, but they were up in construction, manufacturing, professional/business services, leisure/hospitality, and government.
Some of the drop in job openings in May came on a drop of 3 percent in separations - voluntary resignations and retirements as well as firings. There were 4.425 million separations in May, after 4.562 million in April. Only the leisure/hospitality sector had an increase in separations in May.
Representative denies Congressional rewrite of SO Act
July 8, 2005
One of the authors of the Sarbanes-Oxley act, which requires companies which trade on public exchanges to show that they have adequate oversight of their accounting practices in order to avoid fraudulent activities, admitted at a conference in London on Thursday that some of the provisions of the act are “excessive”.
US Representative Michael Oxley defended the principle of federal requirements for investor-friendly rules, however. Some have said that such regulation should be left to the states. He said that the act had been rushed through Congress following the accounting scandals that led to the downfall of Enron and WorldCom.
Mr. Oxley allowed that if he had another chance to write the legislation, he would include more flexibility for smaller firms. He also said, however that Congress will not look at the issue again and that while the Securities and Exchange Commission is looking at instituting different rules for smaller companies, their second look will not bring reform of the current rules.
One of the criticisms of Sarbanes-Oxley is the fact that it does not exempt smaller companies from its requirements. The business lobby has been vocal in its belief that compliance with the act costs too much.
US Senate approves Central American Trade Agreement
July 1, 2005
The US Senate on Thursday voted to approve the Central American Trade Agreement (Cafta).
Cafta is a hotly debated trade deal, promoted by its supporters as a way of aiding free markets and democratic governments in the region but raising fears of competition among sugar producers in the United States, who see Central American countries as a source of imported sugar.
Sugar producers, however, have been put on notice that if they block the trade pact, they could see other consequences.
Senator Pat Roberts of Kansas has told representatives of the sugar industry that if Cafta fails due to their efforts, they can expect price supports for their products to be cut in the next round of farm legislation.
Earlier in the day, the Senate decided to postpone until October a vote on a bill that would put a 27.5 percent tariff on imported Chinese goods if Beijing does not revalue the renminbi within six months.
The decision gives the Bush administration another few months to pursue less coercive measures to convince China to revalue its currency.
ISM figures help push dollar rally
July 1, 2005
The US dollar was strong on Friday after the release of data from the Institute of Supply Management that showed its manufacturing index up to 53.8 in June when it had not been expected to rise above May’s figure of 51.4.
Another factor in the dollar’s strength were comments from the Federal open market committee that make it sound like the Fed will continue to raise interest rates at the current pace for the foreseeable future.
Some analysts took this to indicate that US interest rates might reach 4.25 by the end of 2005. The dollar gained 1.1 percent to $1.1958 in relation to the euro, a 13-month high. It was up 0.8 percent for the day and 2.2 percent for the week to ¥111.64 against the yen, and up 1.1 percent on the day and 2.9 percent on the week in relation to sterling, to $1.7705.
The US dollar gained 1.4 percent to C$1.2416 against the Canadian dollar. The Australian dollar lost 2.4 percent for the week to the US dollar, to $0.7516, while the New Zealand dollar lost 3.1 percent to $0.6834 in relation to the greenback.