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Jobs Reports Lift Wall St. to Slight Gain

September 5, 2013 by

More evidence of improving job growth helped the stock market post slim gains on Thursday, but it weighed on the bond market, where the yield on the Treasury’s 10-year note jumped to 3 percent for the first time in more than two years.

The Labor Department reported that the four-week average of applications for unemployment benefits fell to its lowest point since October 2007, two months before the recession officially began. And a survey from the payroll company ADP showed that American businesses added 176,000 jobs in August.

The encouraging news came a day before the government reports on employment growth in August. Many investors believe that solid growth will prompt the Federal Reserve to start tapering off its economic stimulus program later this month.

The Fed’s stimulus has helped drive a bull market in stocks that has lasted more than four years.

The improving job market means that “the Fed probably lays out a tapering schedule in September,” said Philip J. Orlando, chief equity strategist at Federated Investors.

While stock trading may be volatile in the coming weeks, Mr. Orlando said, investors will ultimately see the reduced stimulus as a positive sign because it means that the economy is strong enough to expand without the Fed’s help. “It should leave stocks in great shape,” he said

The Dow Jones industrial average rose 6.61 points, or less than 0.1 percent, to close at 14,937.48. The Standard Poor’s 500-stock index rose 2 points, or 0.1 percent, to 1,655.08. The Nasdaq composite index gained 9.74 points, or 0.3 percent, to 3,658.78.

Some retail stocks were among the bigger gainers for the day. Costco rose $3.12, or 2.8 percent, to $114.62 after the discount store chain said revenue at stores open at least a year rose 4 percent in August, slightly faster than Wall Street’s expectations. Walgreens rose 70 cents, or 1.4 percent, to $50.19 after reporting a 4.8 percent increase in sales last month.

In government bond trading, the price of the Treasury’s 10-year note fell 26/32, to 95 25/32, while its yield climbed to 3 percent, from 2.90 percent late Wednesday. The 10-year yield is the highest it has been since late July 2011, as bond traders anticipate that the Federal Reserve will cut back on its stimulus. The yield has risen sharply from a recent low of 1.63 percent in early May.

Rising yields on Treasury notes over the last few months have pushed up mortgage rates and other interest rates. The average fixed rate on a 30-year mortgage rose to 4.57 percent this week.

Stocks slumped in August, partly because of investors’ concern that the Fed would start winding down its stimulus program and higher interest rates would harm the economy. The S. P. 500 index fell 3.1 percent in August, its biggest monthly decline since May 2012.

It appears, however, that investors are getting more comfortable with higher borrowing costs.

“We don’t anticipate that a gradual rise in rates will choke off the economy,” said David W. Roda, regional chief investment officer for Wells Fargo Private Bank. “We are still looking at very low rates historically.”

Among the stocks on the move on Thursday, Conn’s fell $7.95, or 12 percent, to $60.36 after the consumer finance company reported second-quarter earnings that missed Wall Street expectations.

Groupon rose 36 cents, or 3.5 percent, to $10.66 after Morgan Stanley raised its recommendation on the stock to “overweight” as the company adjusted its business model.

Article source: http://www.nytimes.com/2013/09/06/business/daily-stock-market-activity.html?partner=rss&emc=rss

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High & Low Finance: Homeownership May Actually Cause Unemployment

May 9, 2013 by Leave a Comment

But maybe it isn’t nearly as good as had been thought.

A new study by two economists concludes that rising levels of homeownership in a state “are a precursor to eventual sharp rises in unemployment in that state.” As more homes are owned, in other words, fewer people have jobs.

The study, by David G. Blanchflower of Dartmouth and Andrew J. Oswald of the University of Warwick in England, does not argue that homeowners are more likely to lose jobs than are renters. But it does argue that areas with high and rising levels of homeownership are more likely to be inhospitable to innovation and job creation and to have less labor mobility and longer commutes to work.

“We find that a high rate of homeownership slowly decimates the labor market,” Professor Oswald said.

At the simplest level, the authors of the study, released by the Peterson Institute of International Economics, point to the fact that the five states with the largest increase in homeownership from 1950 to 2010 — Alabama, Georgia, Mississippi, South Carolina and West Virginia — had a 2010 unemployment rate that was 6.3 percentage points higher than in 1950. The unemployment rates in the five states where homeownership went up the least — California, North Dakota, Oregon, Washington and Wisconsin — rose 3.5 percentage points during the period.

Such statistics are not persuasive by themselves, and the professors know it. Many factors obviously influence unemployment rates in any given state. North Dakota’s current boom stems from energy deposits, which would have been there no matter who owned the land.

But they say that the statistics show those patterns no matter how much they control for other variables and that the same picture emerges if they look at employment growth rather than unemployment rates. They say the pattern existed before the crash of the housing market that began in 2007 and that the statistics are not dependent on including the more recent period.

If that is true, why have few noticed it before? “The time lags are long,” they write, up to five years before a rise in homeownership hurts an area’s unemployment rate. “That gradualness may explain why these important patterns are so little known.”

Nonetheless, the idea is not new. Professor Oswald pointed to some of the data as far back as 1996, saying that in Europe as well as the United States a higher proportion of homeownership seemed to be associated with a higher level of unemployment. But other researchers soon concluded that the evidence did not support the thesis that homeowners were more likely to be unemployed than renters, and the correlation was largely ignored.

If the correlation is real, what could be the cause? The professors say they believe that high homeownership in an area leads to people staying put and commuting farther and farther to jobs, creating cost and congestion for companies and other workers. They speculate that the role of zoning may be important, as communities dominated by homeowners resort to “not in my backyard” efforts that block new businesses that could create jobs. Perhaps the energy sector would be less freewheeling in North Dakota if there were more homeowners.

Homeownership, in economists’ jargon, creates “negative externalities” for the labor market.

In Finland, there was something of a test of the thesis, the professors say. Finland changed its housing laws in the 1990s in ways that discouraged homeownership, putting the changes into effect at different times in different regions. “While homeowners are less likely to experience unemployment,” concluded Jani-Petri Laamanen, an economist at the University of Tampere who analyzed the Finnish housing market, “an increase in the rate of homeownership causes regional unemployment to rise.”

Until the credit crisis, homeownership was generally viewed in the United States as an unquestionably good thing. President George W. Bush, like his predecessors, boasted of a rising homeownership rate in his administration. He summarized the consensus in 2005 when he proclaimed June to be “National Homeownership Month.”

“The spread of ownership and opportunity helps give our citizens a vital stake in the future of America and the chance to realize the great promise of our country,” he wrote. “A home provides children with a safe environment in which to grow and learn. A home is also a tangible asset that provides owners with borrowing power and allows our citizens to build wealth that they can pass on to their children and grandchildren.”

Homeownership, the president concluded, is “a bedrock of the American economy, helping to increase jobs, boost demand for goods and services, and build prosperity.”

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2013/05/10/business/homeownership-may-actually-cause-unemployment.html?partner=rss&emc=rss

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Claims for Jobless Benefits Inch Higher

March 21, 2013 by Leave a Comment

WASHINGTON — The number of Americans filing new claims for jobless benefits edged higher last week, the Labor Department said Thursday, but the four-week average dropped to its lowest level in five years and pointed to ongoing healing in the labor market.

Initial claims for state unemployment benefits rose 2,000 to a seasonally adjusted 336,000. Economists polled by Reuters had expected 342,000 first-time applications last week.

The four-week moving average for new claims, a measure of labor market trends, fell 7,500 to 339,750, the lowest level since February 2008.

Still, while layoffs have ebbed over recent months, companies have been cautious about adding new employees and the Federal Reserve has appeared worried that belt tightening by the government could dampen progress made in the labor market.

The Fed on Wednesday pressed forward with its aggressive policy stimulus, pointing to still-high unemployment, fiscal headwinds out of Washington and risks from abroad.

The Fed action came despite a rash of recent data showing the economy gathering strength. Retail sales have been stronger than expected, manufacturing output has picked up and employment growth has quickened, with the jobless rate dropping to 7.7 percent last month from 7.9 percent in January.

Last week, the number of people still receiving benefits under regular state programs after an initial week of aid rose 5,000 to 3.053 million in the week ended March 9.

The previous week’s claims figure was revised to show 2,000 more applications than previously reported.

Separately, a private group said home resales in the United States hit a three-year high in February and prices jumped, adding to signs of an acceleration in the housing market recovery, even though the supply of properties on the market increased.

The National Association of Realtors said existing home sales increased 0.8 percent to an annual rate of 4.98 million units last month, the highest level since November 2009. The January sales pace was revised up a 4.94 million units from the previously reported 4.92 million units.

Homes took about 74 days to sell in February, according to the median estimate, down from 97 days from a year ago.

The rise in sales last month was the latest indication that the housing market was gaining more ground. Data this week showed builders broke ground on more houses in February and permits for future construction approached a five-year high.

“With buying conditions remaining very supportive to demand and overall economic fundamentals continuing to improve, we expect the momentum in housing activity to improve further, providing a supportive backdrop for the recovery more generally,” said Millan Mulraine, a senior economist at TD Securities in New York.

Article source: http://www.nytimes.com/2013/03/22/business/economy/claims-for-jobless-benefits-inch-higher.html?partner=rss&emc=rss

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Today’s Economist: Laura D’Andrea Tyson: The Tradeoff Between Economic Growth and Deficit Reduction

December 14, 2012 by Leave a Comment

DESCRIPTION

Laura D’Andrea Tyson is a professor at the Haas School of Business at the University of California, Berkeley, and served as chairwoman of the Council of Economic Advisers under President Bill Clinton.

The economy is continuing to recover from its deepest recession since the Great Depression, but the pace of recovery is frustratingly slow. The question is why, and the answer has profound implications for fiscal policy and for the debate over deficit reduction and economic growth that has transfixed Washington.

Today’s Economist

Perspectives from expert contributors.

Since 2010, annual growth of gross domestic product has averaged about 2.1 percent. This is less than half the average pace of recoveries from previous recessions in the United States since the end of World War II, according to a recent study by the Congressional Budget Office. Both potential G.D.P., a measure of the economy’s underlying capacity, and actual G.D.P. have grown unusually slowly compared with previous recovery periods.

Slow G.D.P. growth has meant slow growth in employment. Payroll employment has been expanding at a rate of about 150,000 jobs per month during the last two years, only slightly above the growth of the labor force. Employment growth has been largely consistent with overall G.D.P. growth and with the “jobless” pattern of the 1990-91 and 2001 recoveries.

In both this recovery and the previous two, the rebound in employment growth has been weaker and later than the rebound in G.D.P. growth. But G.D.P. growth in the current, jobless recovery has been slower. Another salient difference is that the loss of jobs in the most recent recession was more than twice as large as in previous recessions, so a slow recovery has also meant a much higher unemployment rate.

Why has G.D.P. growth been so tepid compared with previous recoveries? Most economists believe that weak aggregate demand is the primary culprit. The 2008 recession resulted from a systemic financial crisis rooted in an asset bubble that gripped the housing market with particular ferocity. Private sector demand contracts sharply and recovers slowly after such crises.
The large and persistent decline in private-sector demand that began the 2008 recession and that explains the painfully slow recovery is apparent in the private-sector financial balance — net private saving, the difference between private saving and private investment.

The private-sector financial balance swung from a deficit of −3.7 percent of G.D.P. in 2006, at the height of the boom, to a surplus of about 6.8 percent in 2010 and about 5 percent today. This represents the sharpest contraction and weakest recovery in private-sector demand in the post-World War II period.

Growth in two components of private demand — consumption and residential investment — has been especially slow in this recovery compared with the average for previous recoveries. This is not surprising.

Residential investment is still depressed as a result of overbuilding during the 2004-8 housing boom and the tsunami of foreclosures that followed. Large losses in household wealth, deleveraging from excessive debt, weak growth in wages and household income, and a decline in labor’s share of national income to a historic low have combined to constrain consumption growth. Wobbly consumer confidence and the concentration of most income gains at the top of the income distribution have also contributed.

The recovery of business investment demand has followed a different pattern. Indeed, the growth of business investment has been slightly stronger during the current recovery than the average for previous ones. But after plummeting to new lows during the recession, the ratio of net business investment to G.D.P. remains depressed by historical standards. Lower net investment compared with the economy’s capital stock is a major reason that the growth rate of potential G.D.P. has been so slow.

Throughout the recovery, business surveys have identified lackluster customer demand and weak sales prospects as the primary factors holding down business investment. Business confidence has remained subdued as a result of uncertainty about the future growth of markets both at home and abroad and more recently about the future course of United States fiscal policy.

Limits on credit availability were also significant deterrents to investment, especially by small and medium-size firms at least through 2010, when banks began to ease their commercial loan terms.

Weak investment demand cannot be explained by low profits and high taxes: the profit share of national income has hit a historic peak and taxes on investment income are at historic lows.

Another factor contributing to the slow pace of the current recovery relative to previous recoveries has been the relatively weak growth of government spending on goods and services by both state and local governments and by the federal government.

Indeed, the contraction in state and local government spending and the associated decline in public-sector employment have been major headwinds restraining G.D.P. growth.

The increase in federal government purchases of goods and services in the 2009 stimulus bill mitigated but did not offset the effects of weak private-sector demand through 2010. But since then, the slowdown in such purchases has been a drag on G.D.P. and employment growth.

After three years of recovery, the economy is still operating far below its potential and long-term interest rates are hovering near historic lows. Under these circumstances, the case for expansionary fiscal measures, even if they increase the deficit temporarily, is compelling.

A recent study by the International Monetary Fund finds large positive multiplier effects of expansionary fiscal policy on output and employment under such circumstances.

And more output and employment now would mean higher levels in the future, because stronger demand now would encourage more private investment and stem the loss of skills and productivity resulting from long-term unemployment and the drop in the labor force participation rate.

The rationale for expansionary fiscal policy is particularly compelling for federal investment spending in areas like education and infrastructure that have large multiplier effects on the current level of output and employment and strong returns over time.

By the same logic, the $600 billion of revenue increases and spending cuts scheduled for next year — the so-called fiscal cliff — would have large negative effects on demand, output and employment and would reduce future potential output as well.

The fiscal cliff packs a powerful punch: there will be 3.4 million fewer jobs by the end of 2013 if Congress allows these policies to take effect.

The economy does not need an outsize dose of fiscal austerity now; it does need a credible deficit-reduction plan to stabilize the debt-to-G.D.P. ratio gradually as the economy recovers. As I contended in an earlier Economix post, the plan should have an unemployment-rate target or trigger that would postpone deficit-reduction measures until the target is achieved. (In a move that signals its abiding concern about the recovery’s strength and resilience, the Federal Reserve has just announced an unemployment-rate target for monetary policy, committing to keep short-term interest rates near zero until the unemployment rate falls to 6.5 percent.)

The goal of deficit reduction is to ensure the economy’s long-term growth and stability.

It would be the height of fiscal folly to kill the economy’s painful recovery from the Great Recession in pursuit of this goal.

Article source: http://economix.blogs.nytimes.com/2012/12/14/the-trade-off-between-economic-growth-and-deficit-reduction/?partner=rss&emc=rss

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Report Shows a Mere 80,000 Jobs Added in U.S. in October

November 4, 2011 by Leave a Comment

Employers added 80,000 payroll positions on net, slightly less than what economists had expected. That compares to 158,000 jobs in September, a month when the figure was helped by the return of 45,000 Verizon workers who had been on strike.

Friday’s report also showed that job growth in September and August was significantly stronger than the Labor Department initially believed it was, giving economists hope that October’s employment growth may have been better than this first estimate suggests, too.

“The underlying momentum of the economy is better now than we thought it was a few months ago,” said Augustine Faucher, the director of macroeconomics at Moody’s Analytics. “We’re doing O.K., even if we’re not doing great. The odds of a double-dip recession are lower at least.”

But even without a second recession, frustration over the sluggish recovery could still be toxic for President Obama’s re-election campaign.

October’s job gains were just barely enough to keep up with population growth, and so did not significantly reduce the backlog of 14 million unemployed workers.

The unemployment rate was 9 percent in October, slightly lower than September’s 9.1 percent but about where it has been for the last seven months. By contrast, in the year before the recession began in December 2007, the jobless rate averaged about half that, at 4.6 percent.

“It will take years for the U.S. job market to return to its pre-recession glory,” said Jason Schenker, president of Prestige Economics.

Among the biggest challenges is the army of millions of Americans who have been out of work for months or even years.

The average length of time an unemployed worker has been pounding the pavement is still unusually high, at 39.4 weeks, just shy of the all-time high of 40.5 weeks recorded in September. People who have been out of work for longer spells have significantly more trouble getting rehired for complicated reasons, including stigma and skill deterioration.

“In interviews they say they’re concerned that my base of skills has been antiquated,” said Sarah Hoppe, 43, a former account manager in Toledo, Ohio, who was laid off in July 2009.

“I tell them I have a good mind and an infinite capacity to learn,” she said, but employers still pass her over. “It’s absolutely demoralizing.”

Economists and politicians typically view the monthly jobs number as a key indicator of the nation’s economic health. But with so many potential game-changers on the horizon both in Europe and at home, the latest report may say little about what Americans should expect going forward.

The fate of heavily indebted Greece has been up in the air for about a year and a half now, and this week the political wrangling in Athens has been particularly contentious. Economists worry that if the bailout deal there falls through, a potential Greek default could set off a domino effect that brings down other fiscally troubled countries such as Italy and triggers another global financial crisis.

“The outlook ahead remains for modest growth, but risks remain to the downside without a convincing resolution of the euro zone crisis, which is conspicuously absent at present,” said Nigel Gault, chief United States economist for IHS Global Insight.

Mitigating these worries, however, is the case of MF Global, an American financial services company that filed for bankruptcy this week after making bad investments in European markets. The bankruptcy did not rattle markets as much as some economists had feared.

“We had a primary dealer file for bankruptcy this week without seeing any of the waves from 2008 related to Bear Stearns and Lehman Brothers,” said John Ryding, the chief economist at RDQ Economics, referring to two banks whose failures sent global financial markets into a tailspin.

Another potential wild card is Congress’s panel on deficit reductions, the so-called “supercommittee.” Talks have stalled, and the committee has less than three weeks before an alternative (and more draconian) plan would automatically kick in.

If government spending cuts are put into effect too quickly, they could be a severe drag on economic growth and could derail the fragile recovery, economists have said. Already governments at various levels have been steadily paring back, and have laid off, on net, 323,000 workers in the last year.

There are other domestic policy unknowns, too. Congress has not yet decided whether a 2 percent payroll tax cut and federal extensions of unemployment benefits — both set to expire in January — will be renewed. Many economists are pushing for both stimulus measures to continue.

Even if such potential shocks do not materialize, the economic outlook is still troubling.

On Wednesday, the Federal Reserve issued a downward revision in its forecast for output growth next year. Fed officials also said they expected an average unemployment rate of 8.5 to 8.7 percent in 2012. They did not announce any new stimulus measures, however, and the chairman, Ben S. Bernanke, instead strongly hinted that Congress should be doing more to boost the recovery.

Besides the upward revisions to previous job growth numbers, there were other positive signs in the latest jobs report.

Employment in temporary help services rose slightly. Employers often use temp workers before taking the plunge and hiring permanent staff.

Hourly earnings also rose by 5 cents, after a gain of 0.3 percent in September.

The length of the average workweek, however, remained flat at 34.3 hours, where it has been stuck for about a year. Companies usually work their existing employees harder before hiring additional workers, and so the stagnant workweek is not a particularly good sign for job growth.

Article source: http://feeds.nytimes.com/click.phdo?i=1470d97397032cbc504fcfb47f792e98

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U.S. Jobless Claims Fall Under Key Level

July 28, 2011 by Leave a Comment

WASHINGTON — First-time claims for state unemployment benefits fell more than expected last week, dropping below the important 400,000 level for the first time since April, according to a government report on Thursday.

At the same time, a private trade group said sales of existing homes rose unexpectedly in June, and both statistics gave investors a reason for optimism.

Jobless claims dropped 24,000, to a seasonally adjusted 398,000, the Labor Department said.

The drop below the 400,000 level that is normally associated with stable job growth will be welcome news for the economy after a recent string of weak data. Employment growth stumbled badly in May and June, with the increase in nonfarm payrolls totaling only 43,000.

Economists had forecast that claims would fall to 415,000. The prior week’s figure was revised to 422,000 from 418,000.

The government was expected to report on Friday that the economy grew at a 1.8 percent annual rate, according to a Reuters survey, after a tepid 1.9 percent pace in the first three months of the year.

On Wednesday, the Federal Reserve said growth had slowed in much of the country in June and early July.

Pending sales of existing homes unexpectedly rose in June from May and rose sharply from a year ago, data from a real estate trade group showed on Thursday.

The National Association of Realtors Pending Home Sales Index, based on contracts signed in June, was up 2.4 percent to 90.9 from 88.8 in May. The index was up 19.8 percent from a year ago.

Economists polled by Reuters ahead of the report were expecting pending home sales to fall 2.0 percent.

The association’s senior economist, Lawrence Yun, said despite the uptick, the latest monthly reading showed tight credit and economic uncertainty were still constricting the market.

“The best way to ensure a more solid recovery in housing is to simply return to normal, sound credit standards so more creditworthy home buyers can get a mortgage,” he said.

At the Labor Department, an official said there were no special factors in last week’s jobless claims data.

The four-week moving average of claims, considered a better measure of labor market trends, fell 8,500, to 413,750.

A total of 7.65 million people were claiming unemployment benefits in the week ended July 9 under all programs, up 320,152 from the previous week.

Article source: http://feeds.nytimes.com/click.phdo?i=b8d6e0b1c01c566eb0f5e677d615d524

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Economix: On Jobs, the U.S. Is Turning Into Europe

July 25, 2011 by Leave a Comment

Hide your kids, and hide your wives. Economists’ worse fears have come true: The United States has been slowly turning into Europe.

CATHERINE RAMPELL

CATHERINE RAMPELL

Dollars to doughnuts.

One of many reasons blamed for (Western) Europe’s stagnant growth in recent decades has been that so many European adults are not working, and are effectively not employable because they have been out of jobs for so long. The United States, on the other hand, has had a much higher share of its population in gainful employment. In fact, between 1980 and 2000, the percent of adults working was on average about 10 percentage points higher in the United States than in Europe.

But that gap is closing, according to a new paper from the Federal Reserve Bank of New York. A chart is worth a thousand words:

DESCRIPTIONFederal Reserve Bank of New York

The gap had been narrowing even before the Great Recession, largely as a result of social and economic policy changes in Western Europe. For example, the authors note, in the mid-2000s Germany and Italy deregulated markets for temporary hiring, which enabled more people to find jobs. Reductions to Europe’s traditionally generous pensions have also encouraged workers to work later in life.

Meanwhile, in the decade before the financial crisis, employment growth in the United States was relatively weak. In particular, while more women were joining labor markets in Europe — perhaps partly because of policy incentives, and partly because of changing cultural norms — more women were dropping out of the labor market in the United States. Here are the employment-to-population ratios for women that resulted:

DESCRIPTIONFederal Reserve Bank of New York Source: Organization for Economic Cooperation and Development. Note: Europe is defined as the 15 countries in the European Union before the 2004 expansion into Eastern Europe.

The trends were slightly different for male workers. In both the United States and Europe, the share of men working generally dropped over the last decade. But the decline was bigger in the United States.

Finally, the recession nearly closed the gap between employment-rates in Europe in the United States.

But while an extraordinarily generous safety net may have held back growth in Europe in the decades before the recession, the authors suggest that it paradoxically helped protect Europe from the huge job losses that the United States experienced during the Great Recession. They write:

The employment rate fell by only 1 percentage point in Europe, despite an output decline of almost 4 percent. In contrast, output decreased less dramatically in the United States (by 2.5 percent), but the country lost many more jobs — the employment rate declined 4.0 percentage points. This difference is likely due in part to European restrictions on firing workers and programs that encourage work sharing, most notably in Germany (see, for example, a recent analysis by the Federal Reserve Bank of Cleveland).

It’s not clear whether the gap between employment-population ratios in the United States and Europe will continue to shrink. Certainly it does not help that the United States has been accumulating a huge underclass of long-term unemployed workers. As we’ve noted before, the longer people are out of work, the harder it is to find them a new job.

Which is exactly the experience Europe had seen, and that the United States hadn’t learned from, in decades past.

Article source: http://feeds.nytimes.com/click.phdo?i=9e13200ba2b76afa2dc2124971bd057b

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