President And Chairman Bernanke To Help Sub-Prime Lenders
August 31, 2007
The continued housing problems in the US economy could be over, if new measures promised by President Bush and the Federal Reserve announced today come to fruition.
At a speech today, President George W Bush unveiled a combination of different measures to assist homeowner finding themselves in repayment difficulties, after rising foreclosures have lead to liquidity problems at many major lenders.
The moves include changes in taxation laws that would enable borrowers to rearrange their repayment plans with lenders, whilst taking the same line as the Federal Reserve in saying they were not responsible for ‘bailing out speculators’.
The sub-prime mortgage sector has been the worst hit in recent years, after successive interest rate rises have exposed sub-standard lending practices. As a result, lenders across the nation are facing a dramatic shortage of liquidity, leading to a so-called ‘credit crunch’.
Meanwhile, Chairman of the Federal Reserve Ben Bernanke led analysts to believe that interest rates would be cut at the next meeting of the Federal Reserve to “promote general financial stability’.
With interest rates being cut further, the Federal Reserve can make repayments on risky sub-prime mortgages less expensive, whilst helping banks borrow money at a more affordable rate to ease liquidity pressures.
Having already invested billions of dollars in emergency funds into the banking system over the last month, the Federal Reserve has been praised by analysts as working well to help the sub-prime crisis and the fallout for major mortgage lenders.
The news buoyed markets today, that had until now been plagued by uncertainty and volatility over the future of the world economy. However, after the announcements of today, trade on major world exchanges rebounded to reflect a positive impact on investor confidence.
Whilst the moves have been seen as yet another temporary measure, the outlook for the sub-prime market looks undoubtedly better than it did just a day ago.
US Economy Growing According To Official Figures
August 30, 2007
The US economy has seen some rare good news, with the announcement that its economy grew beyond analyst expectations over the second quarter despite the ongoing unrest in the sub-prime lending sector.
In figures released today by the US Commerce Department, the US economy was said to have grown at an annual rate of 4% over the second three month period of the year, compared to just 0.6% in the first quarter of the year.
Analysts had widely predicted that the economy would have grown over the period, but only by 3.4%, suspecting the problems in lending and a less ready supply of credit to hamper growth over the period.
On the back of today’s results, analysts are now forecasting growth for the remaining six months to fall, with excessive worry and apprehension in the lending markets likely to hit business growth.
With lenders facing growing defaults and consequently liquidity difficulties, capital investment is likely to be less readily available, having a knock on effect on both consumers and businesses planning expansion.
Despite the positive news, US markets failed to be inspired with confidence remaining rock bottom from the sub-prime fallout. Morning trade soon fell back into red, after a brief flurry into positive trading.
Additionally, with the market facing a credit crunch environment, investors are taking a step back from risky stock investments as businesses look set to feel the heat.
It is widely held that the Federal Reserve will continue to cut interest rates at the next available opportunity, despite today’s news, which is not likely to be strong enough to prevent the move.
Experts are hoping that a cut in interest rates could stimulate further growth within the US economy, whilst helping to ease the tight-credit environment and liquidity shortage plaguing major lenders.
Dow Jones In Turnaround To Positive Trade
August 29, 2007
The Dow Jones came out all guns blazing this morning after renewed promises of a Federal Reserve interest rate cut reached the market.
After a torrential day of sell offs on the exchange yesterday, analysts had predicted that markets would continue on a downward trend throughout the course of the day.
Indeed, morning markets in Europe had traded nervously after heavy losses yesterday on the US exchanges, and Asian markets closed down off the back of the US news.
However, analysts are beginning to forecast a pending interest rate cut as the Federal Reserve gears up to its next policy meeting, which would help ease the situation for sub-prime lenders.
The sub-prime market which lends to those with less than perfect credit records has been the source of much controversy and woe for the mortgage markets, sufficient to see many major lenders sent to the verge of liquidation.
After mortgage lenders allowed sub-prime borrowers to exceed their borrowing limit, the number of defaults and foreclosures have risen with interest rates in recent months.
Furthermore, with this tying up bank liquidity, markets worldwide were thrown into turmoil over the possibility of a credit crunch, which analysts were fearing could lead to a global recession.
However, after renewed predictions about the next move of the Federal Reserve, markets traded strongly towards the close of the day.
The main US index, the Dow Jones, had gained back much of yesterday’s losses, coming to rest up 247.44 points. The index currently sits at 13289.3, with upwards momentum to the end.
Meanwhile, the smaller NASDAQ stock exchange was also up, gaining 62.52 points on the day to take it to 2563.2 for trading tomorrow.
Results from both markets helped turnaround trading in Europe, which had been cautious as to the impact of the US situation.
US Consumers Choose To Stay At Home
August 28, 2007
US consumer confidence over the course of August has declined, in the wake of ongoing turbulence on the stock exchange and poor housing results, according to a study released today.
The study conducted by the Conference Board in New York reflected consumer confidence had fallen through a decline in their Consumer Confidence Index, reflecting growing consumer unrest at the health of financial markets.
The index dropped over the course of the month from 111.9 in July to 105.0, which was still beyond widespread expectations. Nevertheless, the drop in figure shows that consumers are beginning to take note of the wider economic situation.
With consumers less confident about the health and near future of their economy, businesses could be in for lower sales, which in turn could lead to further economic worries for the US authorities to content with.
The housing market has remained sluggish over the last month, with the release of figures suggesting total home sales had fallen to a five-year low over the last week epitomising the worsening situation.
Meanwhile, the sub-prime mortgage market is continuing to haunt lenders with liquidity problems and rising foreclosures, which have led to continuing pressures on credit.
The fallout from the mortgage lending crisis has led to unrest in stock markets across the world, which has dismissed fears of further Federal Reserve interest rates.
With an adverse effect on economic growth arising through interest rate rises, the news may come as a mixed blessing, taking care of much of the threat of overheating from within the economy.
However, analysts are predicting that the knock-on effect of falling consumer confidence could hit struggling businesses hard, with the potential to lead to a full blown recession in conjunction with the sub-prime problem.
The Dow Jones today did nothing to inspire confidence, further deflating consumers as it shed over 2% on its value.
US Housing Market Far From Out Of The Woods
August 27, 2007
The troubled US housing market has again today been in the limelight, after a significant survey revealed home sales had fallen to a five year low.
The study, conducted by the National Association of Realtors, showed that to the year on July, house sales nationwide had fallen to their lowest level since 2002, further emphasising the extent of the problem facing the US economy.
Numerically, sales fell over July to 5.75 million units over the year - down 0.2% from last month’s figures. After positive news of housing growth last week, the underlying problems in housing were again brought to the fore.
Just last week it was announced that the number of new build sales in the US economy had actually increased, despite analyst expectations. Whilst many saw this as a potential turnaround in fortune, analysts were quick to point out the ongoing nature of the situation.
The housing market has been the source of significant unrest in the US economy over the last year, leading to fears of a credit crunch on global scale.
With a lack of demand for housing, construction companies have been forced to lose staff at a rapid rate, reporting poor sales and mounting losses.
Meanwhile, rising interest rates have left many lenders exposed in the already risky sub-prime mortgage lending sector, with increasing defaults leading to liquidity problems.
As such, stock markets across the globe have been thrust into turmoil, with worldwide investor confidence hitting new lows. After extensive rescue packages by the Federal Reserve, and with many lenders on the brink of liquidation, the US economy as whole, and indeed the wider global economy, has been left feeling the heat from the US market.
And with today’s added reminder of the state of the market for housing, it is unlikely that the stock markets will recover any time soon.
US Housing Market In Turnaround
August 24, 2007
The US housing market may be experiencing something of a turnaround, according to a series of official figures released today.
In figures released today by the US Commerce Department, the number of new properties sold in the US over the course of last month increased by 2.8%, up to 870,000 for the year.
The figures appear to show a turnaround in the fortunes of the housing market, which has been a major contributor to the US’ economic woes over the last few months.
Furthermore, with the ongoing crisis in the sub-prime lending market still dragging down US growth and consumer confidence, analysts were shocked to discover home sales had actually increased over the course of July.
Particularly after the 4% decrease in home sales in June, analysts had widely forecast yet more negative growth for new home sales in the US economy.
Additionally, the US Commerce Department added momentum to reports of a potential economic recovery with the news that factory output had grown by almost 6% over the course of July.
The rise takes US factory output to a ten-month high, and was well received on the US stock exchanges, as was the news of the upturn in housing, as complimentary indicators of economic progress.
After the recession forecast by leading mortgage lender Countrywide just yesterday, investor confidence in the US economy had hit new lows, with stock market volatility and corporate investment significantly down on the year.
However, some experts are predicting that the recent recovery on the stock markets, combined with the perceived upturn in economic activity could be enough to jolt the economy back on track over the coming months.
Despite the apparent upturn today, many investors will still exercise caution as the full extent of the sub-prime crisis begins to unfold over the coming months.
Federal Reserve Bails Out Lenders Again
August 23, 2007
A consortium of mortgage lenders from the US and Europe have received a loan of around $2 billion from the Federal Reserve, it was announced today.
The loan was granted to a number of banks and lending institutions from the US and from within Europe, as a means of reducing liquidity problems in the short term.
Amongst some of the lenders were high profile banks such as Bank of America, Deutsche Bank and Citigroup, all of which have been hit badly after the problems from the sub-prime sector.
The US sub-prime mortgage lending sector has been a source of woe for mortgage lenders and market investors across the world over the last few months.
After credit was too readily made available, rising interest rates pushed repayments out of reach for many in the sub-prime sector, leading to rising defaults and extreme cash flow problems.
As a result investors worldwide have feared the potential for a credit crisis, with banks too short of funds to lend money to consumer and business borrowers alike. Were a so-called “credit crunch” to materialise, analysts have predicted we could be in for a global recession, with many businesses unable to finance expansion.
The move to borrow from the Federal Reserve was considered highly unorthodox, particularly given the stigma attached to central bank borrowing within the finance market.
Of the banks involved, only German giant Deutsche Bank refused to disclose the size of its loan, with many of the other notable lenders accepting $500 million each.
While this may provide short term finance for lending, analysts are quick to point out that this is still far short of a long-term solution, and with the US sub-prime still causing problems for lenders, there is no telling when this global volatility will come to rest.
US Tax Proposal Rejected By Business
August 22, 2007
Proposals for wide ranging tax reform in the US, which would prevent businesses moving funds between countries has been dismissed by business this week.
The proposed reforms would stop companies with foreign subsidiaries from moving funds out of the US tax free through provisions of favourable international treaties.
However, business leaders have criticised the measures, claiming that to introduce any more rigorous provisions would be to the detriment of commerce both domestically and on an international level, whilst turning away potential corporate investors from the US.
The House of Representatives has already passed a measure to the Senate, which would tax this kind of movement of funds at 30%, generating substantial revenue for the US coffers as a legitimate anti-avoidance measure if it passes through the Senate.
The proposals will be debated in the Senate next month, where Senators will argue and discuss the merits of such a bill. However, many analysts are predicting that the bill could come under fire in the largely Republican Senate.
The measures have been criticised by business leaders, who have widely argued that should the proposals become law, they would undermine investor confidence in the US economy.
Additionally, rather than being seen as an underhand practice, experts site the movement of funds through other countries as a ‘legitimate practice’, taking advantage of international treaties to which the US has agreed in order to minimise tax liability and gain a competitive edge over other similar scale businesses.
While these companies are not breaking the law, Congress has argued that it would be a good way to clamp down on the apparent loophole, whilst raising more funds for the public treasury.
The bill has passed through Congress and is scheduled for attention in the Senate next month, before it can become law.
US Home Repossessions Up
August 21, 2007
The number of houses being repossessed in the US has dramatically increased over the course of July, according to figures released today.
The report today, released by property think tank RealtyTrac, reflected a significant jump in the number of homes repossessed by mortgage lenders in the US last month, thought to be as a result of the growing unrest in the sub-prime sector.
After poor housing market performance over the last few years, banks and mortgage lenders lightened lending policies in the risky sub-prime sector, focusing on mortgages to those with a poor credit history.
However, with rising defaults and now growing repossessions as the sub-prime sector collapses, many major national lenders have been left facing liquidation, prompting fears of a credit crunch of global proportions.
According to the figures, repossessions increased by 93% on the year in July, showing a significant 9% rise from even last month’s figures, which analysts have blamed almost entirely on the sub-prime sector and rising interest rates.
Amongst the most startling of indicators from today’s report came with the finding that roughly 1 in 693 households were associated with foreclosure filings over the course of last month.
Also released today in a separate report were figures showing a decline in employment within construction industries, reflecting the severity of the market in housing.
The news has come as no surprise to analysts, who have already felt the wrath of the sub-prime crisis through torrential sell-offs on stock exchanges around the world during the course of last week.
However, the fear now is that markets will falter from this weeks rebound to slide back into red, as investors settle to the reality of rising foreclosures and tighter credit policies worldwide.
Analysts are predicting after a day of mixed trading results across the globe, investors could begin to lose confidence as the week progresses.
NAFTA Summit Underway
August 20, 2007
The North American Free Trade Agreement (NAFTA) summit has today got underway, with leaders from all three sides to the agreement meeting in Montebello, Canada.
The trilateral agreement, encompassing the US, Canada and Mexico, was designed to allow free trade throughout the north American continent, and has seen growth in trade between the nations rise by roughly 10% year on year since its inception in 1994.
President Bush, President Felipe Calderon of Mexico and Prime Minister Stephen Harper of Canada, in attendance at the summit, are set to discuss the current economic climate, as well as ways to refine the NAFTA agreement.
The agenda is thought to include options for modernisation of the agreement, with stock market volatility and security also likely to feature in discussions between the three North American premiers.
However the NAFTA is not without its critics, and hundreds of thousands of protestors have gathered near the site of the summit, angry at the impact of the agreement on manufacturing jobs within the US and the environmental impact of increased trade. Additionally, anti-capitalist protestors are also thought to be in attendance.
Despite the overwhelming trade benefits generated over the years, critics claim the loss of around 1 million manufacturing jobs to Mexico have cost the US economy dearly. However, many analysts have attributed cheaper Mexican labour costs and free market economics to the perceived job cuts.
The Democrats have also heavily criticised the agreement, highlighting the difference in the degree of enforcement of labour laws within the three countries to the agreement paves the way for unfair market conditions.
The environment is also scheduled for discussion, with ways in which trade can be made more environmentally-friendly set to be considered.
While many critics site the environmental damage of such widespread trade agreements, the NAFTA signatories look set to continue to develop environmental policy for trade within the continent.
Federal Reserve Cuts Primary Discount Rate
August 17, 2007
The US Federal Reserve has today announced it has cut the primary discount rate of interest, at which it lends to banks and mortgage lenders.
The news comes after a week of poor trading on stock markets around the world off the back of major doubts about the future of the world economy.
Analysts had feared that growing defaults and liquidity problems spawned by the rogue sub-prime lending market in the US would lead to a global credit crunch, whereby businesses and prospective home owners would be faced with tougher lending policies in a bid to preserve resources.
Last week, the Federal Reserve announced its decision to inject more cash into the banking system as an emergency aid measure.
Today’s news, which sees rates fall from 6.25% to 5.75% are designed to make it easier and cheaper for banks to borrow from the central reserve, which in turn should help ease concerns over credit availability.
After poor trading on world markets this morning, investors were buoyed by this complimentary measure, created to add further weight to the cash aid pledged last week.
After weeks of poor trade across the world, most major markets were sent soaring off the back of the news, which will prove to be a relief for shareholders and investment plans - particularly corporate pension funds, which have been hit badly over the last few days.
The Federaql Reserve strategy has been welcomed by analysts, if not considered extremely unorthodox. The Federal Reserve had not been expected to make any ammendments to interest rates before its September meeting.
The last time the Federal Reserve made any interest rate changes between its six-weekly meetings was September 11th 2001, highlighting the urgency with which the Reserve considers its actions in saving the ailing mortgage market.
Existing Home Sales In US Fall
August 16, 2007
Existing home sales in over 80% of US states have fallen over the course of the second quarter, according to a report released by real estate analysts.
The figures released show a decline in the sale of existing homes across 41 states from the period April to June this year. At the same time, prices had fallen in one third of surveyed areas, painting a bleak picture of the US housing market.
The report released by the National Association of Realtors underlined the extent of the slowdown in housing, which has seen the market hit its lowest point in almost two decades.
The US housing market has long been associated with trouble for the Federal Reserve and the US economy in a wider context. With homes now a ‘buyers market’ thanks to widespread apprehension about investing and mortgage lending, house builders and realtors are particularly suffering as a result of the slowdown.
Furthermore, the troubled sub-prime lending market has continued to underline market fears about liquidity and mortgage borrowing, adding further weight to the widespread decline in existing home sales.
With growing foreclosures in the sbu-prime sector, many would-be homeowners are being forced to reconsider, turning to renting property as opposed to making the investment.
Florida was among the worst hit states in the slowdown, seeing a decrease of 41.3% in existing home sales over the year. The state of Nevada was also badly affected, with the downturn amounting to 37.5% on this time last year.
On top of the downturn in sales, the national average house price fell by one and a half percent over the period, currently standing at $223,800.
Of the largely downward trend only six states reported any kind of positive growth in their housing markets, of which Wyoming, Iowa and North Dakota saw the most growth.
US Price Inflation Marginally Up
August 15, 2007
US inflation has fallen of the course of July, according to official figures released today.
The Consumer Price Index, which reflects the value of a typical consumer spend, grew by just 0.1% over the month, according to the figures released by the Labor Department today.
Analysts have attributed the falling cost of fuel through the decreased price of crude oil could be a major factor in suppressing inflation, a claim that is given further weight by the core rate of inflation on the month.
The core rate of inflation, calculated without including food and fuel prices, was shown to have risen by 0.2%, showing the impact of the falling oil price on US consumer inflation.
Additionally, today’s figures reflected a fall of 1.7% in petrol at the pump, showing the knock on effect of import crude oil prices on daily life, and the dramatic impact of lowering prices on US consumer inflation.
The news was well received by the Federal Reserve today, who have chosen to maintain interest rates at 5.25% to keep inflation under control for an unusually long period of time.
Analysts have predicted that today’s figures should be sufficient to maintain interest rates at their current level for next month, after the Federal Reserve meet to determine their next step.
The Federal Reserve, the central authority responsible for setting interest rates in the US, are expected to maintain interest rates for the fourteenth consecutive month after today’s indication that inflation is under control.
However, the Federal Reserve have been criticised for their lack of intervention in markets over the last year, where interest rates have remained solid despite changing economic circumstances.
The Federal Reserve will meet at the beginning of next month to discuss interest rate policy for the coming thirty days.
US Trade Deficit Shrinks
August 14, 2007
The trade deficit in the US economy has declined over the course of June according to official figures released today.
The trade deficit, which reflects the degree to which imports outweigh experts to the economy, has narrowed over June to the lowest deficit in four months.
Figures released today reflect a fall of over one and a half percent in the deficit between total imports and total exports in the US economy.
Strong exports in agriculture and car manufacturing are largely responsible for closing the gap on imports fuelled largely by crude oil and cheap manufacturing imports from the Far East, particularly China.
The deficit was announced to have fallen to $58.1 billion in June from $59.2 billion in May - a 1.7% fall in the gap.
Analysts had forecast a slight increase in the deficit over the course of the month, with the continuing high price of oil imports favoured to overtake any growth in output.
However, the growth in manufacturing and agriculture seems to have accelerated beyond even ambitious expectations to take the US economy closer to the black and a trade surplus.
Exports and imports through June were both recorded as record highs, whilst the high-profile deficit with China increased to the highest level this year, growing by 5.7% from the previous month.
The US have criticised Chinese measures to artificially weaken the yuan, which only serves to make Chinese imports more attractive to US markets.
Meanwhile exports across goods and services sectors were up to $134.5 billion over June, helping to drive down the gap which has led to a devaluation in the US currency.
Despite the narrowing trade deficit, the US Labor Department has intimated that the cost of production has increased by 0.6% over the month, driven largely by increasing fuel prices.
US Consumer Sales On The Up In July
August 13, 2007
The US retail sector has shown a welcome growth over the course of July, rising beyond analyst expectations for the period according to figures released today.
The ongoing mortgage and housing market problems were thought to be having a negative impact on consumer spending, with forecasts showing only moderate growth as a result.
However, today’s figures appear to blatantly contradict expert opinion and analyst forecasts, reflecting an upturn in spending nationwide.
The predicted 0.2% increase was beaten by a more considerable 0.3% increase in total US retail sales, whilst smashing the 0.7% drop in sales over the previous month.
The figures released today by the US Commerce Department reflect resilience in US consumer spending, whilst also posing to conflict the overall impression of a struggling US economy.
With total retail sales attributable to almost sixty-six percent of the US economy, it was feared that a slowdown in spending caused by mortgage problems could ultimate hamper the economy as a whole.
Rising mortgage costs derived from increased sub-prime lending were considered to potentially dampen disposable income and consumer spending, threatening to stint economic growth and development, according to industry analysts.
Furthermore, with the recent threat of a global credit crunch, it was thought that consumers would shy away from spending in order to preserve resources for the event of credit scarcity.
However, with today’s figures, it would appear that consumers are remaining on track to support the full burden of the economy.
Core retail sales (i.e. excluding cars, fuel and building materials) were up to 0.6% through July, increasing by 0.2% points from June’s figure.
While today’s figures have been well received, experts have forecast that the full impact of sub-prime lending and the recent credit crunch fears could begin to take their toll over the coming months.
Unemployment Benefits Increase Over July
August 10, 2007
The number of people claiming welfare unemployment benefits in the US economy grew over the course of July, according to figures released today.
The US Labor Department announced today that claims for unemployment insurance had risen to 316,000 last week, making it the highest level since the end of June.
The news comes as economic conditions in the US seem to be worsening, with both Wall Street and big business exercising caution and prudence in their affairs.
The ongoing sub-prime lending saga has created global uncertainty, prompting fears of a potential credit crunch around the world.
A credit crunch, where banks are less likely to lend money through liquidity problems to other banks, businesses and consumers, is projected unless drastic recovery measures are initiated in the US housing market.
The potential for a credit crunch is thought to be the reason behind abysmal consumer spending in the US, and the ongoing lack of new home buying nationwide.
With the potential for recession in the global economy on the cards, the European Central Bank and the Federal Reserve plunged money into banking sectors, which has seen major share sell-offs and diving market confidence.
It is thought that tightening credit could be behind the increasing job cuts in the US, whilst the lack of consumer spending is thought to be a derivative of both credit crunch fears and increasing lay-offs.
The struggling auto industry, aside from the housing market, is thought to be one of the main contributors to increasing job cuts, whilst the number of state unemployment benefits paid out in the last week in July rose to over 2.55 million in the worst week of the month.
Chairman of the Federal Reserve Ben Bernanke has suggested that the resilience of the labour market and economy as a whole will ultimately see it through in spite of poor economic indicators.
Federal Reserve Rumoured To Help Mortgage Lenders
August 9, 2007
The Federal Reserve are rumoured to be following in the footsteps of the European Central Bank in supporting US mortgage lenders, amidst fresh fears of a global credit crunch.
The Federal Reserve, responsible for US monetary policy, is thought to be considering financial aid for mortgage lenders, many of whom have been driven to bankruptcy over lax lending in the risky sub-prime market.
The sub-prime market, which lends to borrowers with poor credit histories, has been the focus of international scandal and worldwide economic crisis, after it was unveiled that spiralling bad debts and foreclosures had arisen as a result of lending too far beyond salary levels with impractical rates of interest.
The news comes after the European Central Bank today announced the most considerable aid package to the financial market since the terrorist attacks of 9/11 in 2001, where banks and insurance companies were badly hit, and worldwide growth tailed off significantly.
The aid package, totalling over 95 billion euros, will come in the form of a cash injection to avoid liquidity problems, and an impending credit crunch, which many experts fear will plunge us into a global recession.
Fears as to a lack of credit availability and a potential global recession have prompted speculation as to the imminence of the Federal Reserve’s intervention in the struggling US financial markets, particularly after the measures announced by the European Central Bank today.
Without assistance in US financial markets, many mortgage lenders and banks could be facing problems in liquidity terms, making it more difficult for lenders to lend money, and borrowers to obtain the funding they need.
As a result, it is feared that economic growth across the globe will slowdown, possibly leading to a recession, unless finance is readily available for business growth and personal funding.
US Prices Change Little Over June
August 8, 2007
Price growth over the month of June changed very little as inflating food prices were cancelled out by falling fuel prices, according to figures released today.
The US Labor Department reported that the consumer price increased 0.2% in June following a 0.7% surge in May, reflecting a slowdown in price growth over the last month.
Gasoline prices, which hit a record of over $3 in middle and late May, fell steadily in June, dropping by about 1.1%. The government reported that pump prices were down 1.1% in June, which sees the first price drop since a 3% fall in January of this year.
The change in consumer inflation was welcome news for non-supervisory workers, who saw their inflation-adjusted weekly wages rise 0.5% in June - the best in over eight months.
Food costs, however, rose 0.5%, reflecting higher costs for poultry, beef, pork and dairy products within the economy, and was a major driving force behind inflationary threats last month.
Excluding the volatile food and gas prices, June saw an increase in the core rate by 0.2%.
This will be welcome news at the Federal Reserve which is hoping that an economic slowdown will promote declining cost pressures over the coming months.
Stripping out food and energy, prices have remained moderate for other sectors. For June, clothing prices fell by 0.6 percent while new car prices were the same as in previous months. Airline ticket prices, however increased by 0.9 percent, as a result of the astronomical cost of crude oil in recent months.
The 2.3% increase in construction activity was better than the small decline that analysts had expected. It pushed home building to a seasonally adjusted annual rate of 1.434 million units.
Federal Reserve Chairman Ben Bernanke is scheduled to deliver the central bank’s midyear economic forecast to Congress. Financial markets expect that he will continue to signal that interest rates, which have not been changed for more than a year, will remain steady for perhaps the rest of this year as the economy looks to get back on track.
US Interest Rates Hold Fast
August 8, 2007
The Federal Reserve yesterday announced its decision to maintain interest rates at 5.25% for the thirteenth consecutive month.
The US Federal Reserve made the announcement that interest rates would remain constant as analysts predicted, even in the face of apparent deep-rooted economic problems.
In spite of growing worldwide concern as to the health of the US economy, the Federal Reserve made its announcement yesterday as anticipated by analysts, maintaining interest rates at their current, consistent level yet again.
Interest rates in most major world economies have been raised over the last year or so in order to reign in global economic growth and avoid an international recession.
The US economy has very much bucked this trend, with interest rates remaining unchanged for over a year as problems within the housing market and sub-prime mortgage lending continue to cause problems for economic growth and recovery.
With many of the major US mortgage lenders approaching financial ruin through the lax regulation of the sub-prime market, and defaults rapidly increasing, housing appears to be the main catastrophe within the US economy.
Despite comments from the Federal Reserve over the last few days as to the lack of impact of recent events in the US economy, indicators from the various US institutions have painted quite a different picture.
The Bank Of England Governor Mervyn King offered some support to the US economy in a statement made today, in which he proclaimed the recent events in the US had fallen short of an international crisis, and that the problems with the US housing and lending markets weren’t likely to have a disastrous effect on other markets.
The news comes as little consolation after volatile trading figures and some poor company results over the last few weeks derived as a direct result of the US situation.
US Worker Productivity Performs Below Analyst Expectations
August 7, 2007
US worker productivity has grown at the fastest rate in over a year, despite still falling short of many analyst predictions, according to figures announced today.
The figures released by the US government today indicated that productivity amongst the American labor force had grown to 1.8% on the year over the course of last month.
However, this is still below the 2.0% mark most analysts had been predicting in the run up to the announcement, putting a damper on the positive result for the US economy.
Labour costs remained consistent over the period in which productivity increased, which has been taken as a positive step for inflation in the US economy.
The growth in productivity comes as the most substantial growth since the first quarter of last year, where productivity saw an increase of 2.5% according to Labor Department Statistics.
The news has been taken well on major stocks markets across the world as a sign of some potential recovery within the US economy, echoing a rally on the Dow Jones earlier on in the day.
After months of prolonged struggling within the US economy, the increase in productivity is considered by some to be a step in the right direction for the US, which has helped rally investor confidence over the course of today.
However, a cross section of analysts had anticipated 2% growth on the year, after 0.7% over the first quarter of 2007. The growth is seen as falling short of the level it should have reached according to other economic indicators, presenting further underlying concern behind today’s positive news.
The Federal Reserve are expected to keep interest rates at a consistent 5.25% later on today, which is also expected to result in a bounce on the Dow Jones.
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