Saturday, August 13, 2011

What's going on with our economy in the U.S.?

U.S. Consumer Confidence Drops to Three-Decade Low Amid Economic Headwinds

From Bloomberg Business

By Jillian Berman - Aug 12, 2011 10:39 AM ET

What you see below is not the entire article. I’ve only copied out bits and pieces from the article that Jillian Berman authored for Bloomberg.

Confidence among U.S. consumers plunged in August to the lowest level since May 1980, adding to concern that weak employment gains and volatility in the stock market will prompt households to retrench. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment slumped to 54.9 from 63.7 the prior month. The gauge was projected to decline to 62, according to the median forecast in a Bloomberg News survey.

The biggest one-week slump in stocks since 2008 and the threat of default on the nation’s debt may have exacerbated consumers’ concerns as unemployment hovers above 9 percent and companies are hesitant to hire.

Rising pessimism poses a risk household spending will cool further, hindering a recovery that Federal Reserve policy makers said this week was already advancing “considerably slower” than projected.

“The mood is very depressed,” said Chris Christopher, an economist at IHS Global Insight Inc. in Lexington, Massachusetts. “Consumers are very fatigued and very uncertain. In the short term, people are going to pull back on spending.”

A report from the Commerce Department today showed sales at U.S. retailers climbed 0.5 percent in July, the most in four months, indicating consumers are holding up even as employment slows. Purchases excluding automobiles rose more than forecast.

Limited employment gains are a headwind for consumers. U.S. employers added 117,000 jobs in July as the unemployment rate fell to 9.1 percent. The cost of gas, which reached $3.70 earlier this month, could also be eating into Americans’ wallets.

Consumer spending dropped in June for the first time in almost two years as savings climbed, the Commerce Department reported earlier this month. The economy grew at a 1.3 percent annual rate following a 0.4 percent gain in the prior quarter that was less than earlier estimated, Commerce Department figures showed.

Limited jobs gains and elevated gas prices are heightening the risk for slow growth in the second half of the year, said Donnie Smith, chief executive officer of Tyson Foods Inc. (TSN)

“Unemployment’s still over 9 percent, gas prices continue to take a bigger piece of disposable income with the average price of unleaded peaking at almost $4 a gallon in May,” Smith said on an Aug. 8 conference call with analysts. “These macroeconomic factors have, of course, affected consumer behavior in both the foodservice and the retail channels.”

Springdale, Arkansas-based Tyson, the biggest U.S. meat producer, said it will lose money in the chicken business this quarter as a weak economy eroded demand.

Joel’s comments on what’s going on in the economy and how what’s going on might affect the reprographics industry, going forward:

Yesterday, my wife said , “if retail sales were up, then how can consumer confidence be down?” My response to her: “well, could it be that the wealthiest 5% of the population (whose combined net worths are a huge chunk of the total population’s net worth) have increased their spending and that the amount they spent offsets the likelihood that those who are less fortunate are spending less?” Do the “numbers” always tell the “real” story? The GDP numbers did not tell the real story; as it turned out, they were incorrectly calculated and were much lower than previously published. (The Recession was deeper than we were originally told.) Astounding to note that the country’s largest meat producer is experiencing slackening demand for chicken. Doesn’t everyone eat chicken? Isn’t chicken one of the most affordable food products? What, people are buying clothing and electronics and not chicken? The numbers seem whacko to me. I’ve grown skeptical of everyone’s numbers and forecasts.

Home mortgage financing rates are at an all time low. In “normal times,” this, alone, would spur sales in the residential housing market. But, as we know, that’s not been happening, primarily because a) many people don’t have jobs and can’t qualify for a mortgage because of that, b) many people, who would be home buyers, can’t buy a home because they cannot sell their existing home at a price that would make sense for them to sell, and c) some who would like to buy a home cannot buy a home because they cannot qualify for financing under the more stringent qualification rules most lenders are requiring. So, what difference does it make that mortgage financing is at an all time low. None. No help, no relief for the beleaguered residential housing market.

Don’t know if you saw the article that said that Fannie Mae and Freddie Mac are going to be calling for proposals from financial groups to “take out” large chunks (bulk packages) of foreclosed properties. A bunch of investors are going to get some very sweet deals. Kind of like what happened when the Resolution Trust Corporation (an agency of the Fed Govt) sold off real estate (commercial, industrial and residential) that ended up being owned by the government after the government took over a bunch of failed Savings & Loans back around 1991-3. Back then, I remember a brand new (see thru) office building in Houston, 200,000 sq ft, that the RTC put on the market for only $10,000,000. (That worked out to $50 per sq ft.) Well, anyway, maybe what Fannie and Freddie are planning to do, but, will that help to substantially reduce the inventory of unsold homes? What will the investors who buy those properties do with those properties? Will they flood the market at ridiculous prices and further exacerbate the situation of lower home prices around the country?

So, the stock market has fallen by around 15% (or so), the past few weeks. That’s going to hurt the mind-set of middle America, people who have a lot of their money tied up in 401-K’s. That’s also likely to affect the risk tolerance of real estate developers.

Any perceived slow-down in the economy going forward is probably going to cause large companies to put a hold on expansion projects, which could likely cause even more of a slowdown in the A/E/C Industry than we are already, and have been, experiencing. The other day, a financial analyst asked me my opinion about the outlook for reprographers over the next 6 months and the next 12 months. My own personal view is that I don’t see anything that presents a story for a rosy outlook. Even though I’m, by nature, the “eternal optimist”. Batten the hatches, hunker down.

Here’s another perspective on the economy:

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