Daily Journal of Commerce Archives - Page 17 of 20 • Rutherford Investment

Slow Recovery In US Continues

but employment and consumer spending remain weak

Published May 14, 2012

At the start of the second quarter, the U.S. economy is struggling. Corporate profits provided a surprisingly strong uptick, at greater than 6 percent growth – in line with the 10-year average. However, employment numbers were disappointing. Wages and salaries were weak. The average hourly wage rose only a penny month over month, and the average work week was firm at 34.5 hours. These numbers suggest weak personal income growth and suggest why retail sales disappointed in April. These results are especially discouraging for a consumer-led economy.

The depth of the recession makes a recovery especially difficult. The U.S. lost nearly 8.8 million jobs from 2008 to 2010, more than the previous four recessions combined. Three years into the recovery, the U.S. employs 5 million fewer workers than before the recession.

The construction industry has been hit especially hard because the housing sector remains a big part of the issue. The construction industry employed 7.5 million people when the recession hit. By June 2010, that number was down to 5.5 million, and it has barely begun to recover. Construction workers make up a disproportionate share of the 4.4 million Americans who have been out of work a year or longer.

Even the small amount of private-sector growth is being offset by public-sector job cuts. Most of those have come at the local level, especially schools. While male-dominated industries like construction suffered big hits at the beginning of the recession, the tide has turned. Early in the recession the unemployment rate for men was 2.6 percent higher than for women, but now the rates are nearly equal.

The May […]

May 14th, 2012|Categories: Daily Journal of Commerce|Comments Off

Market And Economy Continue In Uptrend

Published April 9, 2012
For the first quarter of 2012, markets showed strong growth. The S&P was up 12.1 percent, 6.2 percent from the same time a year ago. The Dow was up 8.1 percent, 7.2 percent from a year ago, and the NASDAQ was up 18.7 percent, 11.2 percent from a year earlier.

However, volumes were light – not what an investor would want to see. NYSE volume was the lowest since the fourth quarter of 2007, and down 14.5 percent from a year ago as investors remained cautious. The DJ world, excluding the U.S. was up 10.8 percent, demonstrating that despite all the news, growth outside the U.S. was strongest, with emerging markets showing particular strength.

The strength in the U.S market was a reflection of the economic gains in the U.S. economy. While GDP growth in the fourth quarter of 2011 was slightly below expectations, nevertheless the growth was a revised 3.0 percent. January 2012 personal spending rose .4 percent, followed by February’s .8 percent.

Some of the spending increase came from higher energy prices, which rose 3.6 percent in February alone, the
largest gain in a year. Federal Reserve officials acknowledged that the increase in fuel costs would “push up
inflation temporarily,” but they anticipated that prices would return to their long-term target. The core PCE
index, which excludes food and energy prices, moved up 1.95 year over year in February after moving up .1
percent in January. These numbers are within the Feds target range.

Personal saving fell to 3.7 percent, from 4.3 percent in the prior month. A lower savings rate could be a sign of higher consumer confidence, and indeed a separate report […]

April 9th, 2012|Categories: Daily Journal of Commerce|Tags: consumer confidence, economic gains, energy prices, existing home sales, federal reserve officials, fuel costs|Comments Off

Market In A Confirmed Uptrend

Published March 12, 2012
For the week ending March 2, the Nasdaq and the S&P 500 advanced 0.4 percent and 0.3 percent, respectively, but the Dow retreated a fraction. Both the Nasdaq and the S&P 500 have climbed in eight of the year’s first nine weeks; the Dow has risen six of the first nine.

For the year through March 2, the Dow is up 6.8 percent, the S&P is up 9.3 percent and the Nasdaq is up 14.2 percent. The market continues to be “in a confirmed uptrend,” according to Investor’s Business Daily.

The Dow crossed the 13,000 milestone, the ninth time it has done so since 2007. Along the way the index has sunk below and bounced above 12,000, 11,000, 10,000, 9,000, 8,000 and 7,000 more than 300 times. So it is not hard to see why a number contains no magic.

The Dow remains more than 1,000 points below its record high of 14,164.53, set in October 2007. The S&P remains 15 percent below its record close of 1,565.15, set the same month. U.S. gross domestic product grew 3 percent in the fourth quarter of 2011. The GDP is the broadest measure of all goods and services produced in the economy. This was up slightly from estimated growth of 2.8 percent. Economists surveyed by the Dow Jones Newswire had expected 2.7 percent.

The latest report also included positive revision for household income in the last half of 2011, a potentially positive sign of stronger consumer spending to follow. Americans started spending more freely as the unemployment rate began to edge down. Personal expenditure rose 2.1 percent in the fourth quarter, more than anticipated.

Last […]

March 13th, 2012|Categories: Daily Journal of Commerce|Tags: disposable income, federal reserve, household finances, household income, unemployment rate|Comments Off

Markets’ Solid Starts Bode Well For 2012

Published February 10, 2012

There is an old saw about the equity markets: As January goes, so goes the year. But like many old saws, there is a basis in fact for this one. Note that the S&P jumped 4.4 percent for the month, with the tech-heavy NASDAQ up 8 percent.

In addition, the “first five days” theory holds that the S&P has never fallen in a year when the first five days of the year see gains of 1.8 percent or more. In the first five days of 2012, the Dow rose 1.8 percent.

The Dow index has matched the direction of January performance in 92 percent of years since 1970. In 85 of the Dow’s 114 years – 75 percent of the time – the January effect has held true.

Reasons for optimism have emerged. Most recently, the unemployment rate fell to 8.3 percent from 8.5 percent a month earlier and 9.1 percent as recently as August.

This is because net job creation in January was 243,000 – more than expected. Moreover, December job growth was revised upward, as was November from 100,000 originally to 157,000.

These jobs were created in the private sector; business added 257,000 jobs as the public sector continued layoffs. Small businesses added 95,000 jobs, while medium-size firms added 72,000. Large companies added only 3,000 jobs. Most Americans work at businesses ranging in size from small to medium; these are the ones that banks are becoming more willing to lend to.

Factory orders are up for the second consecutive month. Factory orders grew in Germany for the first time in four months. Orders also grew in Austria, Britain, Norway and Sweden. Northern Europe’s […]

February 13th, 2012|Categories: Daily Journal of Commerce|Tags: dow index, job creation, nasdaq, recession, unemployment rate|Comments Off

Positive Outlook For 2012 Economy

Published January 9, 2012
2011 started with hope that the economy would recover and unemployment would drop. After a roller coaster of a year, the broad market ended flat but with a positive outlook for 2012.

In the first quarter of 2011, the S&P finished up 5 percent; however, hopes were soon dashed. The “Arab Spring” may have brought optimism to North Africa, but it created uncertainty in world politics. A strong earthquake and tsunami in Japan interrupted the global supply chain. The ongoing debt crisis in Europe brought extreme volatility, apprehension and aversion to our markets.

Political problems in Washington led to a downgrade of our debt, but more importantly dashed American and foreign belief that our political leaders could fashion a way forward. Our own housing problems were not solved and prices continued to decline. In the third quarter, the S&P fell 14.33 percent.

The S&P 500 index finished the year almost exactly where it started: At the end of 2010, the index stood at 1,257.64; at the end of 2011, it was 1,257.60. The Dow Jones industrial average was much better, rising 5.5 percent on the year, outdistancing all other equity indices worldwide.

This seemingly flat performance of the broad market masked the extreme volatility of the year. On 35 trading days, the market closed with a gain or loss of 2 percent or more, making 2011 the most volatile on record for stocks.

Last year, $6.3 trillion in value was wiped out of markets. The euro ended the year as the worst performing currency. The United Kingdom’s FTSE index fell 5.5 percent, while European blue chips fell 11 percent. The Nikkei lost 17.3 […]

January 9th, 2012|Categories: Daily Journal of Commerce|Tags: dow jones industrial average, financial risk, global supply chain, tsunami in japan|Comments Off

Stocks Surge On Hopes Of Resolution Of Europe Debt Issues

Published December 12, 2011
As officials continue to struggle to save the European Union, save the euro and resolve sovereign and bank debt issues, global leaders are making concessions.

The long simmering sovereign debt crisis in Europe has brought the EU to the verge of breakup. Some analysts have been predicating its demise in the very near future. Meanwhile, the fate of the euro also hangs in the balance.

Both of these matters threaten the stability of Europe, politically and financially. European leaders have long struggled to find a solution, but without success. The problem is difficult because all member states must agree to any proposed solution.

Germany and France have emerged as the dominant voices of the struggle, but even French sovereign debt is under siege. Other peripheral, AAA-rated European countries have found their debt under attack, S&P has warned them all. Clearly an answer is needed.

A European summit was scheduled for Dec. 9. In the days leading up to the meeting, some developments have occurred and some concessions have been made.

Angela Merkel, the German chancellor, wants tougher rules written into the treaties governing the European Union. However obtaining these consents will be a long process that may last years. Nicolas Sarkozy, the French president, although generally supportive, has reservations.

One wonders how the treaties could be amended without the common effort of the French and Germans.

Others want the European Central Bank to back up European banks and sovereign states. But the ECB has maintained that this is beyond the mandate of the ECB. Anyway, the Germans do not support this notion, because they know they will be the ultimate backstop. Additionally, a recent auction […]

December 16th, 2011|Categories: Daily Journal of Commerce|Tags: debt crisis, debt issues, european banks, european summit, governing the european union, sovereign debt|Comments Off

What’s Up In Europe?

Published November 11, 2011
Previously, Europe was in the lurch, and U.S. markets were whipsawed by events in Athens. Turmoil ensued in Greece, one of the smaller economies in Europe, as the government called for a referendum on the European bailout, which may in fact turn out to be a referendum on the Greek role in the European Union.

At stake was whether Greece would continue to be part of the European Union. Markets throughout the world took a giant gasp as the future of the EU was called into question. U.S. markets tumbled. Could a country even leave the EU? What did this mean for the euro?

By the end of the week, the Greek government survived, barely. George Papandreou, the Greek prime minister, said he would form a new government and he might not be the leader. A vote on the future of the EU would not be held and for the moment, the euro would go on.

Italy was up next in the spotlight, and its failure would be a much more important event. Its economy is much larger than Greece’s. By some indications, it is a stronger economy, but one-year bonds there now command a 6 percent interest rate. When compared to 32 percent for Greece, this is a strong indication that investors do not believe the Italian economy can long survive. The German bonds, of the same maturity, command about 0.25 percent to borrow. Investors pay the Germans to hold their money.

When Italy, Greece, Spain and Portugal joined the EU, they were allowed to borrow at the interest rate of countries in the EU. The rates were a fraction of […]

November 14th, 2011|Categories: Daily Journal of Commerce|Comments Off

Stocks Suffer Worst Quarter Since 2009

Published October 11, 2011
The Dow Jones industrial average ended the third quarter of 2011 down 12 percent – the largest decline, by percentage, since the first quarter of 2009. That was after Lehman Brothers collapsed, and fear reigned supreme. Secretary of the Treasury Timothy Geithner said that March 2009 was when we looked into our grave.

The first quarter of 2009 is not a good reference point for a quarter, the current one, that started on a good note and saw some improvement in gross domestic product, consumer confidence and manufacturing output.

In August, household incomes fell. This was the first monthly decline in overall personal income since October 2009. Real disposable income is actually down for the year 2011. Personal spending was flat in inflation adjusted terms.

Each time the market tried to rally, it was crushed. September was the fifth straight month of market declines, the longest string since March 2009. However, that month also marked the beginning of a two-year market rally.

Worries persisted about the European debt crisis, which has drug on for over a year. Talk of a double dip recession gained currency, though such a predication was rejected by Warren Buffett. The global economy appears to be slowing, with the notable addition of China to the watch list.

The periodic good news followed by headlines of bad news led to one of the most volatile periods for stocks ever. In the quarter, the Dow moved by more than 200 points a day 18 times, and more than 400 points on four consecutive days. Investors’ nerves and confidence were rattled.

Financial stocks were among the hardest hit, with many banks falling by […]

October 12th, 2011|Categories: Daily Journal of Commerce|Tags: disposable income, double dip recession, lehman brothers, timothy geithner, warren buffett|Comments Off

Economic Growth Slows; Bernanke Takes Congress To Task

Published September 9, 2011
After rolling through Labor Day, we continue to have high unemployment. It’s at 9.1 percent, and even President Obama says it will remain high through 2012. If so, Republicans are salivating over the opportunity to retire the president after only one term.

The pundits already are expecting Republicans to gain enough seats to take control of the Senate. Because of Democrats’ large victory in 2006, they have about twice as many seats to defend as Republicans. This gives the Republicans a big advantage going into the elections, so it is their election to lose.

As if high unemployment wasn’t enough bad news, housing starts have been moribund, the Philly Fed index fell to its lowest level since March 2009 – the recent market bottom. The consumer confidence index tumbled as well, to its lowest level since April 2009; the drop was far bigger than anticipated. As the global economy slows, and fears of the European debt crisis continue, worries over another
recession have put a damper on the markets. According to David Kelly, chief market strategist at JP
Morgan Funds, “… the market is an engine flooded with liquidity but without a spark.”

Economic growth is surely slowing not only in the U.S. but globally as well. Economic forecasters are
expecting GDP to grow from 1.5 percent to 2.9 percent next year. At 1.5 percent, we are not in a
recession; however, it will feel a lot like one. Employment really needs GDP growth of 2.5 percent to
reduce unemployment.

What will the market do between now and the end of 2011? As always, the pundits are divided. While
the case can be made for the S&P of […]

September 14th, 2011|Categories: Daily Journal of Commerce|Tags: consumer confidence index, debt crisis, global economy, jp morgan funds, recession|Comments Off

US Congress Reveals Itself A Circus

Published August 5, 2011
“You can always count on Americans to do the right thing – after they’ve tried everything else.” –
Winston Churchill

All eyes have been on the U.S. Congress … unfortunately. The world has lost confidence in our ability to manage and pass laws. As we crawfished toward a resolution of the debt ceiling crisis, we no longer looked like a country with strong leadership, but rather like a banana republic.

As David E. Sanger wrote in the New York Times on Aug. 1, “… the brush with default has added a new dimension. It has left America’s creditors and allies alike wondering what had changed in American politics that a significant part of the country’s political elite was suddenly willing to risk the nation’s reputation as the safest place for the rest of the world to invest.

“It raised questions about whether the United States now faces brinkmanship over a variety of issues
between an emboldened conservative movement and a president whose authority is under challenge,”
Sanger continued. “And for all the talk on the right about ‘American exceptionalism,’ especially among
members of the Tea Party, it put doubts in the minds of many about whether America’s military and
economic dominance is something the country is still willing to pay for – and will always survive.
“The new head of the International Monetary Fund, Christine Lagarde, seemed to give voice to that
concern when she noted on CNN that in the past there was always ‘a positive bias towards the United
States of America, towards Treasury bills.’ The events of the past few weeks, she said delicately, are
‘probably chipping into that very positive bias.’ ”

Democrats […]

September 14th, 2011|Categories: Daily Journal of Commerce|Tags: american politics, conservative movement, treasury bills, winston churchill|Comments Off