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Economix Blog: What’s Behind the Lack of Confidence

October 19, 2011 by Leave a Comment

Economists are scrambling to understand why Americans are so pessimistic about the economy. As I describe in an article in Wednesday’s paper, a leading theory blames the funk on the collapse in housing prices, which has erased a vast amount of wealth and convinced many Americans that they will never recover financially.

A new paper from the Federal Reserve Bank of Boston makes an important refinement in this theory. The authors report that even in areas like Orlando, where housing prices have fallen most sharply, the loss of confidence is not pervasive.

The people who are most glum are the ones who say that they or someone close to them have “lost a lot of money in the real estate market.” Those people, hit hardest by the crisis, have lost faith in the value of home ownership.

But the rest of the population has not. They still want to own homes.

And there’s another wrinkle. Even among those who lost of a lot of money, the reaction varies. Younger people reported a loss of confidence, but the effect diminished with age. Respondents older than 58 said that they now viewed housing as an even better investment in the aftermath of the crash.

The authors, Anat Bracha and Julian Jamison, both are researchers at the Boston Fed’s Center for Behavioral Economics. They conducted the study by adding questions to the July and August editions of the Michigan consumer survey, which is based on interviews with 2,000 Americans each month.

Restricted in the number of questions they could pose, the authors did not differentiate between people who lost a lot of money and those who were affected by such a loss by someone close to them. Nor did they attempt to quantify the extent of losses, relying instead on the judgment of the respondents.

The result shows at a minimum that for people who considered the crisis a big deal, a frequent consequence is a loss of faith in home ownership.

Why are older homeowners more likely to retain their confidence? The authors speculate that their long-held beliefs may be less malleable. Another possibility is that they are less interested in the investment potential of their homes, and more inclined to evaluate their homes primarily as places to live.

Article source: http://feeds.nytimes.com/click.phdo?i=5b9484979df15454638e1fff9d6e2dcf

Filed Under: Economy News Tagged With: , ,

Economix Blog: Giving the Fed a Good Grade

September 23, 2011 by Leave a Comment

It’s been a rough week for the Federal Reserve, as its latest plan to stimulate growth was greeted by the sound of falling stock prices.

But here’s a bit of good news for the Fed: A new study by the Federal Reserve Bank of Cleveland finds that the central bank’s previous effort to push growth, announced in August, has had a positive impact.

The Fed announced after the August meeting of its policy-making committee that it intended to hold short-term interest rates near zero until the middle of 2013. The statement was its latest effort to reduce the cost of borrowing, in this case by giving lenders the confidence that money would remain cheap for another two years.

“The Committee was attempting to alter the expectations of market participants,” the Cleveland Fed said in its report. “It worked. Since the announcement, forecasts for a variety of interest rates have fallen, at least in part due to the lower expectations for future interest rates.”

Source: Federal Reserve Board, via Federal Reserve Bank of Cleveland

Central banks generally avoid specific statements about long-term plans, to preserve flexibility and to avoid the need for apologies. But the Fed’s August statement culminated a gradual move in the direction of talking about the future. Beginning in 2009, the Fed said that it would maintain rates near zero for “an extended period,” language it repeated until August. Earlier this year, the Fed’s chairman, Ben S. Bernanke, defined an “extended period” as meaning at least two meetings of the policy-making committee.

Fed officials decided to go even further after concluding that the risk of backtracking was low because there was little prospect the economy would recover sufficiently in the next two years to put significant upward pressure on wages and prices.

The decision was controversial. Three of the 10 committee members dissented, the largest bloc of dissent in almost two decades. They expressed concern that the majority was underestimating the danger of inflation, overestimating the benefits of low interest rates — and that the announcement might persuade some consumers and business to wait before borrowing, in the confidence that rates would remain low and the hope that the economy would improve.

The Cleveland Fed study does not resolve those concerns, but it does point to clear evidence that the announcement has succeeded in reducing interest rates.

Specifically, by convincing investors that short-term rates would remain low, the Fed succeeded in lowering rates on longer-term debt — which are based in large part on expectations about the level of short-term rates throughout the longer period. Rates on the benchmark 10-year Treasury note, for example, declined by about 0.20 percentage points.

Moreover, the study found that the announcement also reduced market expectations about future interest rates for mortgage borrowers and corporations, suggesting that the Fed may succeed in reducing the cost of borrowing across a wide swath of the economy.

Markets now anticipate, for example, that corporations with good credit will be able to borrow at 4.80 percent at the end of 2012, down from an expectation of 5.60 percent before the Fed’s announcement.

Source: Blue Chip Financial Forecasts, via Federal Reserve Bank of Cleveland

Of course, one great caveat looms over all of the Fed’s efforts: Reducing the cost of borrowing does not make loans any easier to get. Federal regulators reported Thursday that mortgage loan originations fell by 12 percent last year, despite the historically low level of interest rates.

Article source: http://feeds.nytimes.com/click.phdo?i=b6aa04423cdc9dc6c4a62567cee7d887

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Europe’s Bailout Squabbles Add to Market Uncertainty

August 29, 2011 by Leave a Comment

By insisting that it receive collateral from Greece in return for aid, Finland is threatening to upend an agreement that euro zone countries made in July to expand the European Union bailout fund.

That agreement is crucial to restoring confidence among bondholders that Europe can find a lasting solution to its sovereign debt troubles. But the continued squabbling in Europe has alarmed policy makers around the world, and the dispute over collateral provides one more measure of market uncertainty this week as the summer lull ends and trading regains a more normal volume.

Spain and Italy, whose beleaguered economies are receiving support from the European Central Bank, are scheduled to conduct debt auctions this week.

The possibility that euro zone members will not agree on an expansion of the bailout fund is a concern for the Federal Reserve Bank of New York, according to a person briefed on issues there. Matthew Ward, a spokesman for the New York Fed, declined to comment.

Christine Lagarde, president of the International Monetary Fund, warned European leaders on Saturday that their fractiousness was threatening the common currency.

“The current economic turmoil has exposed some serious flaws in the architecture of the euro zone, flaws that threaten the sustainability of the entire project,” Ms. Lagarde, the former finance minister of France, said in Jackson Hole, Wyo., where makers of economic policy were meeting.

Finland would contribute less than 2 percent of the guarantees provided to the fund, known as the European Financial Stability Facility. But the country’s demands, the subject of intense negotiations in recent days, threaten to derail the fragile consensus that is preventing Greece from defaulting on its debt.

Finland is the most vivid example of the way parochial domestic politics can become Continental problems, threatening the unity of the 17 euro zone members as they face their deepest crisis ever. But Germany, the Netherlands and Austria — all wealthy countries with strong economies — also harbor deep opposition to bailing out Greece, Portugal, Ireland or any other country that may become overwhelmed by debt.

Finland is just one of 17 countries whose parliamentary approval is needed for the expanded bailout fund and whose domestic politics could upset the process. And Finland points to a bigger governance problem in Europe, said James D. Savage, a professor at the University of Virginia who has published a book on European monetary union.

“You have all these multiple veto points, so they can’t come to a reasonable conclusion, at least not easily,” Mr. Savage said. “You have increasingly less efficient decisions that are being made.”

Even if European leaders solve the Finnish problem, analysts in the United States say traders have accepted that Europe may face similar squabbles in the future.

“This specific issue is just part of a broader mural that Europe will be wrestling with for years to come,” said Ward McCarthy, the chief financial economist at Jefferies Company, an asset management and investment banking firm based in New York. “The general perception is that European financial issues are not going to be resolved soon and they will provide periodic disruptions to global financial markets for years.”

Officials from European finance ministries spent much of Friday in long-distance negotiations about the collateral issue but did not reach an agreement. Conflicting reports about the negotiations have fed market confusion. The news media in Germany and other countries reported on Friday that Finland had dropped its demands, but the reports were swiftly denied by Finnish officials.

The climate created by the collateral dispute could make it more difficult for the European Central Bank to continue to defend Italy and Spain in bond markets and contain their borrowing costs. This month the bank has spent 36 billion euros ($52 billion) intervening in debt markets in an effort, so far successful, to cap bond yields for the two countries.

Jack Ewing reported from Frankfurt and Louise Story from New York.

Article source: http://www.nytimes.com/2011/08/29/business/global/finland-casts-doubt-on-aid-for-greece.html?partner=rss&emc=rss

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Factory Activity Plummets And Home Resales Slump

August 18, 2011 by Leave a Comment

Other data released on Thursday also showed that consumer inflation rose at its fastest rate in four months in July and that more Americans than expected filed claims for jobless benefits last week.

Stock markets worldwide tumbled on the weak economic data, which stoked concerns that the recovery was on the rocks.

Still, economists said they did not believe that the sharp drop in manufacturing activity signaled that the nation’s economy was sliding back into recession.

“Without a strong rebound in the coming months, this will be taken as a very worrying development for policy makers charting the outlook for the second half of the year,” said Peter Newland, a senior economist at Barclays Capital in New York.

“That said, ‘hard’ data so far available for the third quarter have taken a clearly stronger tone and timely jobless claims data are not indicative of a dramatic weakening in the economy,” he added.

Data including retail sales and industrial production suggested the economy found some momentum early in the third quarter after barely growing in the first half of the year.

The president of the Federal Reserve Bank of New York, William C. Dudley, said on Thursday that the risk of a double-dip recession was “quite low.”

“The risks have risen a little bit, but I think we very much still expect the economy to recover.” The agency expects growth to be significantly firmer than it was during the first half of the year, he told New Jersey business leaders.

In one positive report, the Conference Board said its index of leading economic indicators rose 0.5 percent in July. The increase, which followed a gain of 0.3 percent in June, was lifted by the money supply and interest rate components, the board said.

Ken Goldstein, an economist at the board, said that growth was modest, especially in nonfinancial indicators.

Despite the risks, he said, “the economy should continue to expand at a modest pace through the fall.”

The Philadelphia Federal Reserve Bank’s business activity index fell to minus 30.7 in August, the lowest level since March 2009 when the economy was in recession, from 3.2 in July.

That was much worse than economists’ expectations for a reading of plus 3.7. Any reading below zero indicates a contraction in the region’s manufacturing.

“This report clearly reflects the fact that businesses cut their outlook as a result of the debt limit crises and the resulting downgrade of the U.S. credit rating,” said Steven Ricchiuto, chief economist at Mizuho Securities in New York.

“I would not read too much into this in terms of the outlook on the economy since manufacturing had been on the rebound in autos and exports and the economy was stuck in first gear for two years.”

A second report showed sales of previously owned homes fell 3.5 percent in July, to an annual rate of 4.67 million units, the lowest in eight months. Economists had expected home resales to rise to a 4.9 million-unit pace.

Separate data from the Labor Department showed initial claims for state unemployment benefits increased 9,000, to 408,000. Another report from the department showed the Consumer Price Index increased 0.5 percent in July, the largest gain since March, after falling 0.2 percent in June.

Gasoline, which rose 4.7 percent after falling 6.8 percent the previous month, accounted for about half of the rise in C.P.I. last month.

But core C.P.I. — excluding food and energy — rose 0.2 percent after rising 0.3 percent in June.

Morgan Stanley cut its global growth forecast and said that the United States and its major export partner the euro zone were “dangerously close to recession.” In a research note that spooked investors, it lowered its United States estimate to 1.8 percent growth in gross domestic product for 2011 from 2.6 percent and for next year to 2.1 percent from 3.0 percent.

The jobless claims data covers the survey week for August nonfarm payrolls. Claims dropped by 14,000 between the July and August survey periods, but there are fears that turbulence in the financial markets could have slowed hiring this month.

“Initial claims were a bit higher than expected, indicating a generally sluggish trend for hiring although still better than where we stood during the second quarter,” said Avery Shenfeld, an economist at CIBC World Markets in Toronto.

Despite the spike in consumer inflation last month, which also reflected a 0.4 percent rise in food prices, inflation generally remains contained.

New motor vehicle costs were unchanged after five consecutive months of hefty gains. This probably reflects an improvement in supplies as disruptions caused by the March earthquake in Japan fade. Motor vehicle production rebounded sharply in July.

In the 12 months to July, core C.P.I. increased 1.8 percent — the largest increase since December 2009. This measure has rebounded from a record low of 0.6 percent in October, and the Fed would like to see that closer to 2 percent.

Overall consumer prices rose 3.6 percent year-on-year, rising by the same amount for a third consecutive month.

Within the core C.P.I. basket, shelter costs rose 0.3 percent, the largest gain since June 2008, after advancing 0.2 percent in June. Shelter has increased since October as a persistently weak housing market drives Americans into renting.

The increase in apparel prices slowed to 1.2 percent from June’s 1.4 percent increase.

Article source: http://feeds.nytimes.com/click.phdo?i=cbc8b5b3eda972ab4e3d4b0a8e58f890

Filed Under: Business News Tagged With: , ,

Economic Memo: A Recovery That Repeats Its Painful Precedents

July 29, 2011 by Leave a Comment

Earlier this year, as the economy began to sputter, Ben S. Bernanke, the chairman of the Federal Reserve, was asked about the historical evidence that recoveries from financial crises were always painfully slow.

Mr. Bernanke responded that the pattern was clear but the reasons were not. He suggested that a nation that made the right choices could do better. History is not destiny.

It seems increasingly unlikely that the United States will prove his point. The government is expected to report Friday that the economy expanded at a rate below 2 percent in the first half of the year — well below the nation’s long-term average and too slowly to recover the losses sustained during the recession.

Twenty-five million Americans still could not find full-time jobs last month. And hopes for the second half of the year are under the cloud of a political crisis that has cast doubt on the government’s willingness to pay its bills.

Roughly four years since the start of the financial crisis, and two years since the official end of the resulting recession, what has taken hold in their wake is a new kind of great moderation — an era of slow growth.

“The problem is that some persistent and deep currents are restraining our progress,” John C. Williams, president of the Federal Reserve Bank of San Francisco, said on Thursday.

Perhaps the most important is the closely linked combination of housing and consumer spending. It is a longstanding pattern that the Americans recover from recessions by building more homes and filling them with things. But there is no need to build homes while millions sit empty.

The San Francisco Fed estimates that construction may not return to the average level of prebubble activity before 2016, sidelining a major industry.

The decline in housing prices has made people feel and act less wealthy. Broad measures of wealth have bounced back from the depths of the recession, but the gains are driven by the stock market, which means they are concentrated in a relatively small share of families. For the vast midsection of Americans who counted their home as their primary investment, there has been no comparable recovery.

Those without jobs are spending even less. The widely quoted unemployment rate of 9.2 percent is also one of the narrowest measures of the problem. The share of people who cannot find full-time work is almost twice as high. Job growth in May and June was basically flat, although there are some signs of increased hiring in July.

The result: The San Francisco Fed estimates that spending per person per month remains about $175 below its prerecession trend.

“We did a pretty good job of fixing bank balance sheets, but I think that household balance sheets are the ones that have suffered the most,” said Mark Thoma, a professor of economics at the University of Oregon. “We could have done much more to help households.”

The government, another engine of past recoveries, also is dragging on this one. Reductions in government spending reduced the pace of growth in the first quarter by more than one percentage point, and the cuts have continued.

Last week, the Federal Aviation Administration furloughed 4,000 employees and suspended construction projects employing thousands more because much of the agency’s funding had been waylaid by a dispute between the House and Senate.

State and local governments cut workers during the first half of the year almost as fast as private businesses added them. Federal stimulus spending is largely complete. Tax breaks are scheduled to expire in December. And economists say the political battle over federal spending appears to be shaking corporate confidence and delaying hiring and investments. Banks and other corporations are hoarding cash as a reserve against market disruptions. Companies like automakers and mobile home manufacturers, whose customers finance their purchases, are fretting the consequences of an increase in interest rates.

“We’ll only be able to discern the full impact in retrospect,” said Louis Crandall, chief economist at the market research firm Wrightson ICAP. “But there is real reason to worry that this is a distraction.”

Even a temporary disruption in the flow of federal payments could greatly magnify the impact. The forecasting firm Macroeconomic Advisers projects that a one-month standoff will tip the economy back into recession.

And if the government is forced to default on debt payments, Mr. Bernanke has warned of catastrophic consequences for financial markets and the broader economy.

Article source: http://feeds.nytimes.com/click.phdo?i=a875d0c47f17eace2e586d1ee14a82a4

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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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Jobless Claims Ease Amid Weak Growth

May 22, 2011 by Leave a Comment

The reports suggested growth was being hampered by a combination of bad weather at home and supply disruptions caused by the March earthquake in Japan, and analysts said the economy should regain momentum by the second half of the year.

“What you are looking at is second-quarter growth which may be a little softer than what people are expecting, but that’s going to be temporary,” said Rudy Narvas, an economist at Société Générale in New York.

First-time claims for state unemployment benefits fell 29,000 to 409,000 last week, the Labor Department said.

While the initial claims decline was more than economists’ expectations for a fall to 420,000, for a sixth straight week they remained above the 400,000 level that is normally associated with stable job growth.

The claims data covered the survey period for the government’s closely watched employment report for May, which will be released early next month. Claims rose by 5,000 in the April and May survey periods, indicating a loss of momentum in the pace of labor market improvement.

“Based on this and other incoming data, we look for a gain of 190,000 in May nonfarm payrolls and a 210,000 increase in private payrolls,” said Michael Gapen, a senior United States economist at Barclays Capital in New York.

The drop eased fears that a large increase the jobless rate last month reflected a fundamental deterioration in the jobs market, buttressing the view that the increase was because of auto plant shutdowns and other one-time factors.

In a separate report, the Philadelphia Federal Reserve Bank said its business activity index — a gauge of factory activity in the mid-Atlantic region — slumped to a seven-month low.

The flow of orders and shipments slowed significantly, while unfilled orders and inventories dropped. Employers, however, added workers.

Economists said this suggested that much of the slowdown in factory activity in the region last month reflected supply chain disruptions at motor vehicle assembly plants, which should prove to be temporary. A Fed report on Tuesday showed that motor vehicle output dropped 8.9 percent in April, causing manufacturing activity to contract for the first time in 10 months.

Estimates for second-quarter economic growth currently range from a 3 percent to 3.5 percent annual pace, but some analysts have started trimming forecasts as the impact of the supply chain disruptions becomes more evident.

The economy grew at a 1.8 percent rate in the first three months of this year, after growing at a 3.1 percent clip in the fourth quarter.

Although some of the factors hindering growth may prove temporary, housing will remain a headache.

Sales of previously owned homes fell 0.8 percent last month to an annual rate of 5.05 million units, the National Association of Realtors said. Housing is buckling under the weight of foreclosed properties, which are depressing prices.

“The economy is not going to grow at a 3 percent pace or more on a sustainable basis until we clear this backlog of foreclosed properties and housing begins to recover,” said Mark Vitner, a senior economist at Wells Fargo Securities.

The data suggested the Federal Reserve will be in no hurry to shift from its easy monetary policy stance.

Mortgage delinquencies 90 days past their due date in the first quarter were the lowest since the beginning of 2009, the Mortgage Bankers Association said.

Article source: http://feeds.nytimes.com/click.phdo?i=2e99a585a6399a266137e95d2999d206

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Economix: Super Sad True Jobs Story

May 2, 2011 by Leave a Comment

Today's Economist

Nancy Folbre is an economics professor at the University of Massachusetts Amherst.

What happens when the most successful no longer need the less successful? In Gary Shteyngart’s entertaining new dystopian novel, “Super Sad True Love Story,” low net-worth individuals begin to rebel. Everyone else continues shopping.

A similar (but nonfictional) story seems to be unfolding about jobs.

Once upon a time, economic recovery led to expanded employment of the United States population. Not anymore. The percentage of adults employed has declined sharply during the last two recessions and failed to increase much in their aftermath.

As Alan Krueger of Princeton pointed out, the employment-to-population rate remains at about 58 percent, about the same as in December 2009 and far lower than the peak of 65 percent achieved before the 2001 recession.

The unemployment rate does not provide as clear an indicator of employment trends, because it is strongly affected by individuals’ decisions to drop out of the labor force (which includes only those who are working for pay or seeking paid employment).

As Catherine Rampell reported in a recent Economix post, more than 45 percent of those unemployed in January reported they had been looking for jobs for 27 or more weeks. Many other workers in this situation simply give up and stop looking for paid employment – and thus are not counted as unemployed.

Concerns about the sputtering and laggard performance of the Great American Jobs Machine arose well before the Great Recession. In a terrific overview published by the Federal Reserve Bank of New York in 2005, the economists Richard B. Freeman and William M. Rodgers III reviewed several possible explanations.

While they mentioned job losses due to offshoring as one important factor, they emphasized that displacement effects have been difficult to measure. The possible trade-offs between job creation in the United States and in other countries are even more difficult to quantify.

But a recent article by David Wessel of The Wall Street Journal provided startling evidence of the impact of globalization. His analysis of data from the Commerce Department indicates that major multinational corporations cut their employment in the United States by 2.9 million during the 2000s while increasing employment overseas by 2.4 million.

This is a big change from the 1990s, when those corporations added 4.4 million jobs in the United States and 2.7 million abroad.

Mr. Wessel pointed out: “The growth of their overseas work forces is a sensitive point for U.S. companies. Many of them don’t disclose how many of their workers are abroad. And some who do won’t talk about it.”

Among the chief executives willing to go on the record was Jeffrey Immelt of General Electric, who emphasized that his company goes abroad in search of new markets rather than cheap labor. “Today we go to Brazil, we go to China, we go to India, because that’s where the customers are,” said Mr. Immelt, who is also chairman of President Obama’s Council on Jobs and Competitiveness.

But the motives for multinational disinvestment in the United States seem far less important than the consequences. Globalization weakens the link between economic recovery, increased profits and job creation in the United States.

Macroeconomic models of these relationships based on historical data are increasingly obsolete. As Deepankar Basu and Duncan Foley argued in a recent Political Economy Research Institute paper, the correlation between output growth and employment growth in the United States has declined in recent years.

Foreign-owned businesses may locate in the United States, helping compensate for declining investment by American multinationals. But as all businesses become more footloose, they have less incentive to support public spending on education, health, human services or social safety nets, including unemployment insurance.

Unneeded as workers, the unemployed also become superfluous as consumers and burdensome as citizens.

Cutting unemployment benefits (as was just accomplished in Michigan and is well under way in Florida) becomes just another means of cutting losses.

Super sad no-love story. Wish it weren’t true.

Article source: http://feeds.nytimes.com/click.phdo?i=c14c5132d2b0c31cc1ab28119d7f995d

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Stocks & Bonds: Shares Rise on Optimistic Outlook

April 16, 2011 by Leave a Comment

Merck Company and DuPont led gains in the Dow Jones industrial average. Charles Schwab, the brokerage firm, rallied 2.1 percent as earnings and sales exceeded analysts’ estimates. Google fell 8.3 percent, the most since 2008, after earnings fell short of projections. Bank of America fell 2.4 percent as executives said profitability from lending might come under pressure.

The Standard Poor’s 500-stock index rose 5.16 points, or 0.39 percent, to 1,319.68, trimming its weekly loss to 0.6 percent. The Dow Jones industrial average rose 56.68 points, or 0.46 percent, to 12,341.83. The Nasdaq composite index was up 4.43 points, or 0.16 percent, to 2,764.65.

“The economy continues to expand and the recovery is sustaining,” said Russ Koesterich, the head of investment strategy for scientific active equities at BlackRock in San Francisco. “It’s not going to be a bad earnings season. It’s just that a lot of the good news is already baked in. It’s going to be a choppy market with an upward bias.”

Stocks turned higher after the Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 69.6, higher than forecast, from March’s 67.5 reading, which was the lowest since November 2009. The gauge was projected to rise to 68.8, according to the median forecast of 66 economists surveyed by Bloomberg News.

Manufacturing in the New York region expanded in April at the fastest rate in a year. The Federal Reserve Bank of New York’s general economic index rose to 21.7 from 17.5 in March. Economists projected 17, based on the median forecast in a Bloomberg News survey.

A separate report showed industrial production increased more than forecast in March, led by a rebound in consumer goods manufacturing. Output rose 0.8 percent, the fifth straight gain, the Federal Reserve said.

Merck gained 1.9 percent, to $34.51. The company will split sales for the arthritis drug Remicade with Johnson Johnson, ending an arbitration dispute that helped drive Merck shares down over the last year.

Charles Schwab advanced 39 cents, to $18.61. The brokerage firm beat estimates, helped by interest revenue and higher fees for managing assets.

Google slumped $47.81, to $530.70. A first-quarter hiring binge and increased marketing led to the biggest jump in operating expenses in three years.

Bank of America fell 31 cents, to $12.82. ’The company reported first-quarter profit excluding some items of 17 cents a share, missing the average analyst estimate by 35 percent.

Higher oil prices and supply disruptions from Japan’s March 11 earthquake prompted Thomas Lee, an equity strategist at JPMorgan Chase, to cut his 2011 profit estimate for the S. P. 500.

Alan M. Gayle, senior investment strategist at RidgeWorth Capital Management in Richmond, Va., said: “The market is unforgiving. Investors have raised their expectations on what constitutes good corporate performance. Yes, the economy is growing. The question is, What is going to convince the market to break into new highs? So far earnings have not been too inspiring.”

Interest rates were lower. The Treasury’s benchmark 10-year note rose 24/32, to 101 25/32, and the yield fell to 3.41 percent from 3.50 percent late Thursday.

Article source: http://feeds.nytimes.com/click.phdo?i=db332f9ddffc8b0c01b9e7d35977e76e

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