May 28, 2017

Sharp Fall for Orders of Durable Goods

Manufacturing continues to struggle, and its weakness could prevent economic growth from picking up in the July-September quarter.

Orders for durable goods dropped 7.3 percent in July, the Commerce Department said Monday, the steepest drop in nearly a year. But excluding the volatile transportation category, orders fell only 0.6 percent. Both declines followed three straight months of increases.

Durable goods are items meant to last at least three years.

Economists tend to focus on orders for so-called core capital goods. Those orders fell 3.3 percent, but the drop followed four straight months of gains.

Core capital goods can show businesses’ confidence in the economy. They include items that point to expansion — including machinery, computers and heavy trucks — while excluding volatile orders for aircraft and military equipment.

The big drop suggested the third quarter was off to a weaker start than some had hoped. While economists cautioned that this was just one month of data, a few lowered their growth estimates for the July-September quarter after seeing the durable goods report. Economists at Barclays Capital now predict third-quarter growth at an annual rate of 1.9 percent, down from their previous forecast for 2.1 percent.

“At the very least, it is a reminder that the expected pickup in economic growth in the second half of the year will be gradual,” said Paul Ashworth, an economist at Capital Economics.

One bright spot was that unfilled orders for durable goods rose to their highest level since record-keeping began in 1992. Those are orders that were placed in previous months but had yet to be shipped. The increase suggested that output could remain steady in the coming months, despite the weak month of orders in July.

And orders for autos and auto parts rose 0.5 percent, the second monthly gain. Auto sales jumped 14 percent in July compared with a year earlier.

Manufacturing has slumped this year, hurt by weakness overseas that has dragged on American exports. But there have been signs that factory activity could pick up in the second half.

Article source: http://www.nytimes.com/2013/08/27/business/economy/sharp-fall-for-orders-of-durable-goods.html?partner=rss&emc=rss

Muted Fears of Contagion as Asian Currencies Fall

The most affected large economies have been those of India and Indonesia, two countries where many domestic and foreign investors are now rushing for the exits, exchanging local currencies for dollars. After months of decline, both countries’ currencies dropped further on Thursday, with the Indonesian rupiah and the Indian rupee falling about 2 percent before recovering some of their losses.

Some Asian business leaders say they still hope the region can escape largely unscathed from the broader troubles afflicting emerging markets this summer. Sofjan Wanandi, the tycoon who is the longtime chairman of the Indonesian Employers’ Association, said in a telephone interview on Thursday that he believed Indonesia’s currency troubles were a result of a temporary failure by the government to formulate a response and communicate it clearly.

“We know the economy is O.K., but the government is not taking quick action,” he said, adding that he and other business leaders were working with the government on a policy statement to be issued on Friday. “After that, we hope this will all be calmed down,” he said.

The currencies of Malaysia, the Philippines and Thailand also declined, although by less than 1 percent. Stock markets across most of the region fell on Thursday, but share prices rebounded slightly in India after days of decline there.

At this point, fears of a continent-wide crisis, like in 1997, have been minimized. But economists are still cautious. “Between the two countries, Indonesia has a far better balance of economic growth and a greater chance of revival,” HSBC, referring to India and Indonesia, said on Wednesday in a research report that cautioned investors against buying Indian government bonds.

Largely unaffected on Thursday and in recent weeks have been the currencies of Asia’s two largest economies, China and Japan. The Japanese yen has been little changed over the last month, despite weakening marginally this week, and the value of the Chinese renminbi, heavily managed by China’s central bank, has stayed flat as well. Both countries have begun economic stimulus programs in recent months, although they have done so with very different styles.

China’s stock market has even posted a small rally this month on signs that an economic slowdown may be less severe than expected this autumn, although worries persist about next year.

The preliminary purchasing managers’ index in China, compiled by the research firm Markit and released by the British bank HSBC on Thursday, showed a swing to expansion from contraction in August. The increase, to a four-month high, easily beat analysts’ expectations.

HSBC’s preliminary survey offers one of the earliest indications each month of how the Chinese economy is doing, and Thursday’s reading is likely to solidify expectations that a stabilization that began to show in July has continued into August.

The reading “adds to the number of green shoots indicating a stabilizing economy since July,” Li Wei and Stephen Green, economists at Standard Chartered, wrote in a note, adding that government-led measures aimed at shoring up economic growth, like tax breaks for small businesses and efforts to speed up railway construction, appeared to have begun to take effect.

After years of double-digit expansion rates, the economy has now settled into a slower pace of growth of around 7.5 percent this year. And despite Thursday’s unexpectedly strong survey results, some analysts said the picture could well cloud again next year.

Indonesia and other countries in Southeast Asia have been hurt by their dependence on slower-growing China. They have also been hit by China’s gradual shift away from industries dependent on commodity imports from Asian neighbors, like steel production, and toward service industries.

With chronic trade deficits and a dependence on foreign investment, Indonesia and particularly India have faced the biggest problems in the region. The government of India has resorted to increasingly desperate measures in the last two weeks, like steeply raising taxes on imports of silver and gold, but it has been unable to halt the decline of the rupee, which is down more than 7 percent in August and more than 20 percent since the start of May.

Daily steep declines in the rupee are making it much harder for Indian companies to repay their foreign loans, many of them denominated in dollars. The rupee’s decline has also made real estate and other projects in India less attractive for foreign investors who count their profits and losses in dollars, prompting many of them to pull out as well.

As the Federal Reserve mulls tightening monetary policy in the United States in response to early signs of economic recovery there, rising interest rates on Treasury securities and other American financial instruments are drawing money away from emerging markets around the world.

Indonesia has tried to undertake some difficult overhauls this summer, most notably raising retail gasoline prices in June to limit government subsidies for the country’s millions of drivers. Economists say they expect Indonesia’s trade deficit to start shrinking in the coming months and its government finances to improve as families avoid unnecessary trips and buy less fuel as a result.

Bettina Wassener contributed reporting.

Article source: http://www.nytimes.com/2013/08/23/business/global/currencies-drop-as-dollars-flee-asia.html?partner=rss&emc=rss

No Clarity From Fed on Stimulus, Upsetting Wall St.

The confusion over exactly when the Federal Reserve will begin scaling back its huge economic stimulus efforts only deepened Wednesday, with the release of a summary of the deliberations at the central bank’s last meeting in late July.

There were hints that some members of the divided committee are comfortable with beginning to ease the Fed’s program of buying $85 billion a month in government bonds and mortgage securities as soon as their next meeting in mid-September. But there were also indications that another camp within the policy-setting group favors waiting until December, or even later.

The only thing that was clear is that the Fed intends to keep Wall Street — and the rest of the world — guessing.

For one thing, a number of participants at the Federal Open Market Committee raised concerns that economic growth in the second half of the year would prove disappointing, which would tend to encourage them to delay any changes in their current policy,

In June, the Fed’s chairman, Ben S. Bernanke, indicated the stimulus program could be scaled back this year if economic data continued to be relatively positive. But he avoided setting any target dates to begin what many investors refer to as the Fed’s coming “taper.”

The minutes of the meeting did little to clarify the issue. While “a few members emphasized the importance of being patient and evaluating additional information before deciding on any changes to the pace of asset purchases,” a few others “suggested that it might soon be time to slow somewhat the pace of purchases,” the summary of the July 30-31 meeting said.

As a result, longtime Fed watchers came up with analyses so different from one another that it seemed as if they might be reading different documents.

In a report issued shortly before the stock market closed, IHS Global Insight concluded that “the Fed is unlikely to taper at the mid-September meeting,” and predicted a move in December instead.

One minute later, experts at Barclays offered their view that the minutes of the July meeting “do not alter our outlook for a tapering of purchases in September.”

Other institutions, like Goldman Sachs, hedged their bets. “Over all, we think this information is consistent with September tapering, but this is by no means certain,” the firm said.

With Mr. Bernanke all but certain to step down as Fed chairman early next year, most analysts expect the Fed to initiate the tapering process before he leaves office, and to do so at one of the meetings remaining this year — either September or December — where Mr. Bernanke is scheduled to conduct a news conference after the session. The committee will also meet in October, but Mr. Bernanke is not scheduled to address the media then.

On Wall Street, investors were just as uncertain as economists. After selling off immediately after the minutes were released at 2 p.m., stocks briefly rallied, only to fall back more deeply into negative territory by the end of the trading day. The most widely followed measure of the stock market among professionals, the Standard Poor’s 500-stock index, fell 9.55 points, or 0.58 percent, to 1,642.80. The Dow Jones industrial average lost 105.44 points, or 0.7 percent, to 14,897.55. The Nasdaq composite index declined 13.80 points, or 0.38 percent, to 3,599.79.

Bond prices also dropped after the release of the Fed’s minutes, sending interest rates higher. The price of the Treasury’s 10-year note fell 20/32, to 96 20/32, while its yield rose to 2.89 percent, its highest level since July 2011. It was at 2.82 percent late Tuesday. While the difference between a start to the tapering on bond purchases in September vs. December might not seem very significant to most people, the Fed’s decision-making is already affecting such things as the value of 401(k) retirement accounts, mortgage rates for home buyers and currency values in many emerging markets of the world.

By pumping $85 billion a month into the economy through the bond purchases, the Fed has helped push up prices for many kinds of assets, especially stocks. The indications that the infusions might soon come to an end has generated increased volatility both on Wall Street and in stock exchanges around the world.

Article source: http://www.nytimes.com/2013/08/22/business/economy/fed-closer-to-easing-back-stimulus-but-still-no-consensus-on-timing.html?partner=rss&emc=rss

Fed Closer to Easing Back Stimulus, but Still No Consensus on Timing

The minutes of the central bank’s Federal Open Market Committee meeting late last month, released Wednesday, showed hints that some committee members were more comfortable with easing back sooner rather than later on the Fed’s program of purchasing $85 billion a month in government bonds and mortgage-backed securities.

In June, the Fed’s chairman, Ben S. Bernanke, indicated the stimulus program could be scaled back later this year if economic data continued to be positive, but he left investors guessing as to whether that might begin as soon as September or be delayed until December or even later.

While “a few members emphasized the importance of being patient and evaluating additional information before deciding on any changes to the pace of asset purchases,” a few others “suggested that it might soon be time to slow somewhat the pace of purchases,” the summary of the July 30-31 meeting said.

Still, it was clear from the minutes that big doubts remained about the economy’s underlying strength, and any change in policy remained contingent on the economic data that will come out before their next meeting on Sept. 17-18.

Despite continued strength in housing and auto sales, a number of participants indicated “that they were somewhat less confident about a near-term pickup in economic growth than they had been in June.”

“Tapering is certainly on their minds, but they don’t want to lock themselves in,” said Dean Maki, chief United States economist at Barclays, in an interview prior to the release of the minutes.

He noted that to achieve the Fed’s annual forecast of growth for 2013, the economy would have to expand at 3.25 percent to 3.5 percent in the second half of 2013. Few observers expect that to happen, although the growth is expected to be better than the 1.4 percent rate of the first half of 2013.

Since Mr. Bernanke and the Federal Reserve first indicated that stimulus efforts might be eased, trading in both developed countries and in emerging markets has been volatile.

The asset purchases and ultralow interest rates made it to cheap to borrow in many countries, while also propping up stock markets around the world. That era is coming to an end but the minutes reveal that members are concerned about that the pace is properly telegraphed to investors.

In particular, the policy-makers emphasized that while the bond purchase would soon be scaled back, any uptick in interest rates was years away.

Another focus was how the economy and the housing sector, in particular, would handle rising interest rates, which moved up sharply in the wake of Mr. Bernanke’s comments following the June meeting.

“While recent mortgage rate increases might serve to restrain housing activity, several participants expressed confidence that the housing recovery would be resilient in the face of the higher rates,” the minutes said.

They cited factors such as pent-up housing demand, banks’ increased willingness to make mortgage loans, healthy consumer confidence and the fact that rates remain low by historical standards, even after the recent run-up.

Another topic of discussion was the impact of the sharp reductions in government spending mandated by Congress earlier this year, with committee members noting the cuts had caused slower growth in sales and equipment orders.

Overall, the concerns about the U.S. economy in the second-half were spurred by the increase in mortgage rates, higher oil prices, slower growth in key export markets abroad and the possibility the federal budget cuts will continue to crimp growth.

Article source: http://www.nytimes.com/2013/08/22/business/economy/fed-closer-to-easing-back-stimulus-but-still-no-consensus-on-timing.html?partner=rss&emc=rss

Trade Gap Falls, Hinting At Pickup in U.S. Growth

The Commerce Department said on Tuesday that the United States trade gap fell more than 22 percent, to $34.2 billion, in June from May. That is lowest level since October 2009.

American companies shipped more aircraft engines, telecommunications equipment, heavy machinery and farm goods. As a result, exports rose 2.2 percent to a record high of $191.2 billion.

Imports declined 2.2 percent to $225.4 billion, in part because oil imports fell to the lowest level in more than two years.

Economists said the steep drop in the trade deficit would most likely lead the government to revise its economic growth estimate for the April-June quarter.

“We could see a sizable upward revision,” said Jennifer Lee, a senior economist at BMO Capital Markets.

Last week the government said the economy grew at a lackluster 1.7 percent annual rate in the second quarter, in part because trade cut nearly a full percentage point from growth.

But after seeing the June trade figures — which were not factored into last month’s growth estimate — some economists said growth could be closer to a 2.5 percent annual rate. The government reports its second estimate of growth for the April-June quarter on Aug. 29.

A smaller trade deficit lifts economic growth because it means consumers and businesses are spending less on foreign goods than companies are taking in from overseas sales.

Many economists say they think overall growth has started to rebound in the July-September quarter. Some say growth could come close to a 3 percent annual rate. A crucial reason is that several export markets, including Europe, are seeing improvement.

For June, United States exports to the 27-nation European Union rose 1.5 percent. That helped shrink the deficit with the region to $7.1 billion.

The deficit with China fell 4.3 percent, to $26.6 billion, while America’s deficit with Japan rose 2.2 percent, to $5.5 billion in June.

Article source: http://www.nytimes.com/2013/08/07/business/economy/trade-gap-falls-suggesting-faster-us-economic-growth.html?partner=rss&emc=rss

Orders for Durable Goods Rose 3.3 Percent in April

Orders for durable goods, items expected to last at least three years, rose 3.3 percent last month from March, the Commerce Department said on Friday. That followed a 5.9 percent decline in March.

A measure of business investment plans increased 1.2 percent, and the government revised the March figure to show a 0.9 percent gain, instead of a slight decrease.

Companies ordered more machinery and electronic products last month, typically signs of confidence. More spending by businesses could ease fears that manufacturing could drag on the economy later this year.

Factories had been counting fewer orders at the start of the year, in part because slower global growth had reduced demand for exports. Economists had also worried that across-the-board federal spending cuts and higher taxes might prompt businesses to cut back on orders.

Paul Ashworth, an economist with Capital Economics, said the April report suggested that economic growth was holding up. He predicts growth in the April-June quarter will be at a rate of 2 to 2.5 percent, close to the 2.5 percent rate reported for the January-March quarter.

Still, the payoff from the pickup in business investment may not come until the end of the quarter, because the government looks at shipments when it measures the gross domestic product, not orders.

In addition, shipments of goods that signal investment plans fell in April, reflecting weaker demand at the start of the year.

“Business investment appears to have started the second quarter on a weak note but should rebound over the final two months of the quarter,” Mr. Ashworth said.

The April increase pushed total orders to $222.6 billion on a seasonally adjusted basis, or 6.5 percent above the level of a year ago.

Orders for transportation goods gained 8.1 percent, reflecting a 16.1 percent jump in demand for commercial aircraft and a 53.3 percent increase in orders for military aircraft. Orders for motor vehicles increased 1.9 percent.

Excluding the volatile transportation category, orders rose 1.3 percent in April. That followed a 1.7 percent decline in March.

Still, other reports showed that factories continued to struggle in April.

The Institute for Supply Management reported that factory activity barely expanded in April, held back by weaker hiring and less company stockpiling.

And manufacturing output dropped 0.4 percent last month, the Federal Reserve reported this month. Auto companies produced fewer cars, factories made fewer consumer goods and most other industries reduced output.

The overall economy grew at an annual rate of 2.5 percent in the January-March quarter, buoyed by the fastest rise in consumer spending in more than two years.

Article source: http://www.nytimes.com/2013/05/25/business/economy/orders-for-durable-goods-rose-3-3-percent-in-april.html?partner=rss&emc=rss

Tech Companies Lead S.&P. to New High

Technology companies led the Standard Poor’s 500-stock index to a new closing high on Monday.

The stock market has recovered all the ground it lost over the previous two weeks, when worries over slower economic growth, falling commodity prices and disappointing quarterly earnings battered financial markets.

The S. P. 500 index rose 11.37 points, to close at 1,593.61. The 0.7 percent increase nudged the index above its previous closing high of 1,593.36, reached on April 11.

“The market has had a terrific run,” said Philip Orlando, chief equity strategist at Federated Investors, noting that the S. P. 500 is up 12 percent since the start of 2013. “At the beginning of the year, I thought we were going to 1,660,” he said, referring to all of 2013. “We’re only about 5 percent from that.”

A pair of economic reports encouraged buying. Wages and spending rose in the United States last month, and pending home sales hit their highest level in three years.

The Dow Jones industrial average gained 106.20 points, to 14,818.75, up 0.7 percent. Microsoft and I.B.M. were among the Dow’s best performers, rising more than 2 percent each. I.B.M. alone accounted for a third of the Dow’s increase. The index is just 46 points below its own nominal high of 14,865 reached on April 11.

Technology’s popularity on Monday was a change from earlier this month, when it lagged the rest of the market. Concerns about weak business spending and slower overseas sales have cast a shadow over big tech firms, said Marty Leclerc, the managing partner of Barrack Yard Advisors, an investment firm in Bryn Mawr, Pa.

Revenue misses from I.B.M. and other big companies have highlighted the technology industry’s vulnerability to the world economy. But Mr. Leclerc says he thinks companies with steady revenue and plenty of cash look appealing over the long term.

Information technology stocks rose the most of the 10 industry groups in the S. P. on Monday, up 1.6 percent. It is the only group that remains lower over the last year, down 2 percent, against the S..P’s gain of 14 percent.

The Nasdaq composite rose 27.76 points to 3,307.02, an increase of 0.9 percent. Apple, the biggest stock in the index, surged 3 percent to $430.12.

The number of Americans who signed contracts to buy homes reached the highest level since April 2010, according to the National Association of Realtors. Back then, a tax credit for buying houses lifted sales. In a separate report, the government said Americans’ spending and income both edged up last month.

A handful of companies reported earnings on Monday. The Eaton Corporation’s quarterly net income beat Wall Street estimates, helped by its acquisition of Cooper Industries, an electrical equipment supplier, though its revenue fell short. Eaton shares climbed 3 percent to $60.28.

Eaton’s results followed a larger pattern this earnings season. Of the 274 companies that have turned in results, seven of 10 have beaten analysts’ estimates for earnings, according to SP Capital IQ. But when it comes to revenue, six of 10 have missed estimates. The divergence suggests companies are squeezing more profits out of cost-cutting, instead of higher sales.

McGraw-Hill, the parent company of Moody’s and Standard Poor’s, surged after news that the ratings agencies had settled lawsuits dating back to the financial crisis that accused them of concealing risky investments. McGraw-Hill gained 3 percent to $53.45, while Moody’s jumped 8 percent to $59.69, the biggest gain in the S. P. 500.

In the market for government bonds, the price of the benchmark 10-year Treasury note was barely changed, falling 1/32 from Friday to 103, while its yield was even at 1.67 percent.

Article source: http://www.nytimes.com/2013/04/30/business/daily-stock-market-activity.html?partner=rss&emc=rss

Economix Blog: The Incredible Shrinking Budget Deficit

For four years, during and in the wake of the recession, the federal budget deficit ballooned to more than $1 trillion. But because of belt-tightening in Washington and a strengthening economy, it has started shrinking — and fast.

The number crunchers at Goldman Sachs have lowered their estimates of the deficit both this year and next, on the back of higher-than-expected revenues and lower-than-projected spending. Analysts started the year projecting that the deficit in the current fiscal year would be about $900 billion. Earlier this year, they lowered the estimate to $850 billion. Now they have lowered it again, to $775 billion, or about 4.8 percent of economic output.

“Spending in the fiscal year to date is lower than a year ago and the nominal growth rate is lower than it has been in decades,” the Goldman economists wrote in a note to clients. “Revenues have also exceeded expectations, with a 12 percent gain fiscal year to date. What is more notable is that the strength in revenues preceded the payroll tax hike at the start of the year, and the spending decline does not seem to reflect sequestration, which has just started to take effect.” To translate: the deficit could come in even smaller than currently anticipated because of spending cuts and higher tax rates.

On the face of it, this sounds like something to applaud: The growing economy is bolstering tax revenue and reducing the need for spending on programs like unemployment insurance. Washington has gotten its act together. The budget is finally coming back into balance. Indeed, Goldman now expects the budget deficit to fall to just 2.7 percent of economic output by the 2015 fiscal year. Many economists consider budget deficits that small to be sustainable — particularly if the federal government is investing in public goods like schools and roads — with the accrued debt paid off by later years’ economic growth.

But a number of budget experts are booing rather than applauding, including the fiscal hawks at the International Monetary Fund. Last week, the fund nudged down its estimates for United States growth in 2013 and 2014. It said it saw many bright spots in the American economy, including the strength of the private sector, but it criticized Washington for imposing too much austerity, too soon, and thus sapping strength from the recovery and preventing the unemployment rate from coming down faster.

“The growth figure for the United States for 2013 may not seem very high, and indeed it is insufficient to make a large dent in the still-high unemployment rate,” the fund said. “But it will be achieved in the face of a very strong, indeed overly strong, fiscal consolidation of about 1.8 percent of G.D.P. Underlying private demand is actually strong, spurred in part by the anticipation of low policy rates under the Federal Reserve’s ‘forward guidance’ and by pent-up demand for housing and durables.”

The fund’s economists specifically dinged “sequestration,” the $85 billion in mandatory budget cuts that Congress promised to undo, but failed to undo, earlier this year. “While the sequester has decreased worries about debt sustainability, it is the wrong way to proceed,” the fund said. “There should be both less and better fiscal consolidation now and a commitment to more fiscal consolidation in the future.”

In its note, Goldman Sachs did specify a few trends that could widen the deficit this year, like a “negative economic surprise.” The investment bank did not elaborate much on what that economic surprise could be, but troubles in the emerging economies that are driving global growth, higher gas prices and an intensification of the financial troubles in Europe seem like plausible candidates, as do natural disasters like hurricanes and droughts.

Article source: http://economix.blogs.nytimes.com/2013/04/22/the-incredible-shrinking-budget-deficit/?partner=rss&emc=rss

Fed Weighs a Reaction to Stirrings of Recovery

The economy added an average of 187,000 jobs a month from September to February, slightly faster than the average monthly pace from 2004 to 2006, the best years of the last economic upswing. The government plans to release a preliminary estimate Friday morning of March job creation.

Some Fed officials have suggested in recent weeks that if economic growth continues on its present trajectory, the central bank should begin to roll back its economic stimulus campaign by the middle of the year, ahead of expectations.

But the Fed’s chairman, Ben S. Bernanke, and his allies remain wary that another surprising spring will be followed by another disappointing summer. Janet L. Yellen, the Fed’s vice chairwoman, who is viewed as a potential successor to Mr. Bernanke, reflected that caution in a speech on Thursday.

“I am encouraged by recent signs that the economy is improving and healing from the trauma of the crisis, and I expect that, at some point, the F.O.M.C. will return to a more normal approach to monetary policy,” she said, referring to the Federal Open Market Committee, which sets policy for the central bank.

For now, she said, the Fed needs to remain focused on reducing unemployment.

Ms. Yellen also commented obliquely on her own future. Asked whether the economics profession, and central banks, needed more women in positions of power, she responded that such a need was “something we’re going to see increase over time, and it’s time for that to happen.”

The Fed announced last year that it intended to hold short-term interest rates near zero so long as the unemployment rate remained above 6.5 percent. It also said that it would buy $85 billion a month in Treasury and mortgage-backed securities to accelerate the decline. By expanding its asset holdings, the Fed continuously increases the scale of its effort to stimulate the economy.

Stronger data has raised hopes that the economy is once again growing fast enough to reduce the unemployment rate, which stood at 7.7 percent in February, little changed from 7.8 percent in September. But more than 20 million Americans are unable to find full-time jobs and it is not yet clear that the recent uptick in the economy is sustainable. The yield on the 10-year Treasury note fell to 1.77 percent on Thursday, indicating that some investors are pessimistic about the economy’s prospects.

In recent months, weekly claims for unemployment benefits have declined. But the Labor Department reported on Thursday that claims spiked in the latest week to the highest level in four months, although it cautioned that the estimate was unusually imprecise because the week included Easter.

“House prices are going up more than I would have expected six months ago,” Ms. Yellen said. “I think it’s making people feel a whole lot better.” She added: “I don’t have any doubt that our policies are contributing to the lowest interest rates, whether it’s borrowing for a car or borrowing for a mortgage. I believe that that is not only caused by our policy, but our policy is contributing.”

John C. Williams, the president of the Federal Reserve Bank of San Francisco, said on Wednesday in Los Angeles that he might support a reduction in the volume of the Fed’s asset purchases by summer and a suspension of the program before the end of the year.

“I’m hopeful that the economy has finally shifted into higher gear,” said Mr. Williams, who supported the purchases last year.

Esther L. George, president of the Federal Reserve Bank of Kansas City, reiterated on Thursday her view that the Fed should scale back immediately. Ms. George cast the sole dissenting vote at the last two meetings of the Fed’s policy-making committee. She told an audience in El Reno, Okla., on Thursday that she was more concerned than her colleagues that the Fed’s efforts to suppress borrowing costs could result in financial instability and faster inflation.

Ms. Yellen and other officials, however, seem inclined to postpone any decisions. The pace of economic growth has remained weak relative to the pace of job growth. The most recent round of federal spending cuts has only just begun to show results. And Fed officials have overestimated the strength of the recovery repeatedly in recent years, only to find the economy needed still more help. Caution may now dictate doing more rather than less.

Article source: http://www.nytimes.com/2013/04/05/business/economy/fed-weighs-a-reaction-to-stirrings-of-recovery.html?partner=rss&emc=rss

California Braces for Setback in Federal Cuts

And then came the automatic federal budget cuts known as sequestration.

As the $85 billion in spending cuts slowly roll out nationwide, California officials are girding themselves for a blow not only to the state’s large military industry but also to its nascent economic recovery. Still, experts say, it will most likely slow down, though not derail, the state’s economic growth.

The cuts, which began to take effect on Friday and will accelerate as time passes, will amount to a loss of an estimated $9 billion for California this year. The military industry will incur the biggest reduction, $3.2 billion, but education, social programs and other areas that were hit particularly hard by California’s budget turmoil in recent years will also face cuts.

State officials await word from Washington on exactly how the cuts will be put in place in the weeks and months ahead, hoping that the long-term ripple effects on California’s consumers and businesses will become clearer.

“It’s very frustrating for a state like California, where we’ve had housing-market and job-market gains beginning to solidify here,” said Jason Sisney, the director of state finance at the nonpartisan California Legislative Analyst’s Office. “And just as that’s happening, we have the federal government taking actions that could impede that recovery.”

Despite the size of military and federal programs in California, the state’s $2 trillion economy is larger and more diverse than the economies of other states, and less dependent on federal workers.

“California will be an average state,” said Stephen Levy, the director of the Center for Continuing Study of the California Economy. “We won’t be hit less, and we won’t be hit more.”

Jerry Nickelsburg, an economics professor and expert on the California economy at the Anderson School of Management at the University of California, Los Angeles, said: “But is it sufficient to choke off the recovery in California? I think the answer is no. Will it slow the growth of the California economy? The answer is yes.”

Because the automatic budget cuts had been set up to force Democrats and Republicans to negotiate over cuts and spending — and not to be actually put in place — California officials, like their counterparts in other state capitals, have received only general guidance so far from the Office of Management and Budget on how to carry out the cuts. But in the coming weeks, federal agencies are expected to provide details on their respective spending cuts.

“As we learn more the specifics on how they’re going to do that, then we will have a better sense of how it will impact the state,” said H. D. Palmer, a deputy director at the California Department of Finance.

State officials could have to adjust for the cuts in the state budget revision scheduled for May. In January, Gov. Jerry Brown announced the first balanced budget in years, thanks largely to a temporary tax surcharge that voters approved in November.

The budget cuts are expected to be felt strongly in the San Diego area, where the military industry plays a significant role in the economy. According to the White House, California’s 64,000 civilian military workers will be furloughed starting next month, most likely by losing a day of work a week over several months. The White House estimates that the furloughs will total a $400 million reduction in gross pay this year.

Military contractors in the area are also bracing for cuts.

Marion C. Blakey, the president of the Aerospace Industries Association, a trade group based in Arlington, Va., said larger contractors could absorb the loss of an anticipated order. But smaller members, she said, could be forced to lay off highly paid engineers, and in that way dampen the regional economy.

“These are companies that often do not have the resilience and flexibility to take this kind of body blow,” Ms. Blakey said, adding that these were typically highly specialized companies incapable of quickly shifting their businesses. “As an industry, we are very concerned about the third and fourth tier in the supply chain, and California has a lot of those kinds of companies.”

Article source: http://www.nytimes.com/2013/03/06/us/california-braces-for-setback-in-federal-cuts.html?partner=rss&emc=rss