Thursday, June 30, 2011

USA & Global Economy: Expansion Slowing (Review, GDP Charts) *June 2011 Month End Economic Review*

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USA and Global Economy: Monthly Economic Review


Overall, both the USA and Global Economy continue expanding, but at a slowing rate.

Global Uncertainties
1) First concern since March has been high oil prices resulting from the Libyan revolution and other Arab uprisings (Arab Spring) creating actual and potential supply disruptions. U.S. crude and Brent crude closed the month down at $94.87 and $111.56, from the May 31 close of $103.16 and $116.27, respectively. Oil prices continue below the highs in May. Persistent higher gas prices have become a drag on USA and Global economic growth. The current downtrend in oil prices is welcome relief and hopefully will begin to mitigate the negative economic effects of the past months.
2) Second concern recently has been the EU sovereign debt crisis, which waxes and wanes in its effect on equity and credit markets. This problem is chronic, systemic, and therefore a long-term issue. Currently the sovereign debt and fiscal effectiveness of Greece is in the forefront, but Italy is now becoming news and Portugal, Ireland, Spain, and even Belgium are in the near background. In addition, the peripheral Euro Zone countries, Eastern Europe, are ongoing sovereign debt problems.
3) Third concern is the catastrophic earthquake and tsunami that hit Japan, the world's third largest economy. The resulting nuclear radiation crisis and the negative economic impact of this crisis and possible global implications have begun to show in economic output both for Japan and on the worldwide economy. Japan is officially in a recession as of the quarter ended 3-31-11 with a negative GDP for 2 consecutive quarters.
4) Fourth concern is the USA debt of $14+ trillion and the debt ceiling being reached on August 2, 2011. More discussion is below in USA Uncertainties.
5) Fifth concern, a medium-term and long-term uncertainty, is the growing demand by emerging national economies (e.g. BRIC: Brazil, Russia, India, China) for commodities, including oil and food, which then increases prices for governments, businesses, and consumers worldwide.

USA Uncertainties
1) The deteriorating USA economic data. This appears to be mostly the result of persistent higher oil prices, which are discussed above. USA Q1 2011 GDP (final estimate by the Bureau of Economic Analysis) of +1.9% is inadequate and borderline dismal. However, the USA GDP has grown for 7 consecutive quarters through Q1 2011, but the growth is not adequate.A double-dip recession is possible, but still does not appear probable. Continued inadequate (slow to very slow) economic growth is probable.
2) The USA funded debt of $14+ trillion and the heated political and social debate over both the debt and debt ceiling. Now Fitch has stated that the USA would be placed on "watch negative" if Congress did not raise the debt ceiling by August 2. The S&P cut the USA to a long-term negative outlook for sovereign credit and Moody's has warned the USA to resolve the debt ceiling political deadlock or a short-term negative outlook rating is imminent. In addition, if spending is actually cut by any material amount, this will negatively impact the economy (and already has), rightly or wrongly, regardless of political beliefs. August 2 is the deadline and a bi-partisan resolution of this problem does not currently appear probable.
3) The USA unemployment and underemployment rates that remain high. USA weekly unemployment insurance claims have been at 400,000+ for 12 consecutive weeks. The USA economy is not generating an adequate number of new jobs.
4) The Federal Reserve policies and the end of quantitative easing (QE2) as of June 30, 2011. The Fed is ceasing most monetary intervention and support for the second time since the Financial Crisis in the autumn of 2008. The extent of this impact, much debated, will be seen later this summer. Hopefully, the negative impact will be minimal and then can be removed as a concern. Chairman Bernanke stated at the April Federal Reserve press conference that he thought it was unlikely that the end of quantitative easing would have any significant effect on markets or the economy.
5) USA residential real estate continues in a market depression and commercial real estate is not much better.
6) USA consumer confidence remains at historically low levels
7) USA financial system continues with problems and weaknesses, including a foreclosure fiasco and crisis. The worst does appear to be over.
8) The USA cannot stop deficit spending therefore the USA has an ever increasing national debt.
9) USA local and state governments are in fiscal crisis and there are less government workers, which negatively affects the economy.
There does appear to be a Day of Reckoning for the USA on the horizon, although no one really knows when. The aftermath of the Credit Bubble and Great Recession will linger for years.

USA and World Economic Data
Below are March blog post headlines from Boom Doom Economy,  Financial ControlsBaidu Planet, Matrix Markets, and Neo Solomon summarizing select economic data and news, in approximately reverse chronological order. This is not a comprehensive list of key economic data. It is selected economic data that gives a general idea of the overall economic conditions, with the exceptions and additional concerns and uncertainties noted in the preceding paragraph. Much is lagging economic data from May and even April. However, trends can be ascertained and it does appear that economic expansion did continue in both the USA and on a Global scale, but at a slower pace.

USA and World GDPs
Further below is the historical and projected USA GDP per the U.S. Bureau of Economic Analysis. Also further below are the projected GDPs for the World, USA, the Euro Area, China and Japan per the latest IMF World Economic Outlook. The economic data for June and July will now begin and should indicate continuing, but slow to very slow, economic expansion. Q4 2010 was better than initially projected for the USA and Global economy, but not as robust as hoped for. In Q1 2011 there was a pronounced slowing of USA and Global economic expansion. The pace of the economic expansion further slowed in Q2 2011. Q3 2011  is the concern now and is clouded by the high oil prices, the EU sovereign debt crisis, the USA debt ceiling, and ongoing Middle East turmoil.

USA Positive Economic Data and News
● USA Weekly Unemployment Claims Dip to 428,000 (Video, Charts) *4-week average 426,750*
● S&P 500 Drops 7 of Past 8 Weeks (Chart) *European debt crisis weighs on markets* [Equity markets have rallied significantly in past week]
● Bernanke Conducts June 2011 Federal Reserve Press Conference (Video, Review) "We'll see greater growth going forward"
● USA Industrial Production Ekes Out Post-Great Recession High (Chart) *Highest since August 2008*
● Fed Beige Book: "USA Economic Activity Generally Continued to Expand" (Review) "Labor markets continued to improve"
● USA Services Sector: Growth Continues in May (Chart) *Non-Manufacturing Index expands for 18th month*

USA Neutral and/or Negative Economic Data and News
● Bank Failure Friday: FDIC Seizes 1 Bank (Charts) *2011 Totals: Failures 48, Cost $3.83B*
● USA GDP Growth Final Estimate +1.9% in Q1 2011 (GDP Charts) *Qtly GDP $15.02 trillion annualized is all-time high*
● USA Weekly Leading Index at 28-Week Low (Charts) *Annualized growth rate at 25-week low*
● Federal Reserve Lowers USA GDP Projection for 2011 (Charts) *Unemployment rate estimate raised*
● U.S. Could Face European-Style Debt Crisis *USA borrows 40 cents of every dollar it spends*
● Federal Reserve: "Recovery Continuing at Moderate Pace, Though Somewhat More Slowly" (GDP Chart) *Labor market weaker*
● USA Monthly Leading Index at Post-Recession High! (Chart) "Expanding economic activity in coming months"
● USA Consumer Sentiment Drops in June (Charts) "Renewed concerns about outlook for the economy"
● USA Monthly Retail & Food Sales Dip in May (Charts) *First decrease since June 2010*
● Americans' Lost Trillions in Household Wealth (Chart) *Down $7.7 trillion since Spring 2007*
● USA Consumer Credit Increases (Charts) *Revolving credit lowest since August 2004*
● Moody's Warns USA on Debt Ceiling
● USA Unemployment Rate Rises to 9.1% (Charts) *Jobs growth a meager +54K in May*
● USA Manufacturing PMI Plunges to 20-Month Low (Chart) *USA economy expands for 24th month*
● USA Consumer Confidence Plunges in May (Charts) "A more pessimistic outlook"
● USA Problem Bank List Continues Extremely High (Chart) *FDIC Quarterly Banking Profile*
● USA Economy Damaged More Than Expected by Japan Earthquake

Global Positive Economic Data and News
● Higher Capital Requirements Approved for World's Largest Banks (Review) *Safety buffer for Too Big To Fail*
●Japan Industrial Production Jumps Up in May *+5.7% highest since March 1953*
● Global Growth Projected to Remain Strong (GDP Charts) *The World Bank: Global Economic Prospects*
● Global Economic Expansion Shows Slight Improvement in May (Chart) "Recovery entering a softer growth phase"
● Global Services Growth Rises Slightly in May (Chart) "Rate of expansion was still only modest"

Global Neutral and/or Negative Economic Data and News
● Mild Slowdown of the Global Expansion and Increasing Risks (Video, GDP Charts) *IMF World Economic Outlook Update*
● China Manufacturing Growth Nearly Stalls in June (Chart) *At 11-month low: "demand is cooling"
● Why Austerity Doesn't Matter: Greece Is Still Going to Default (Slideshow) *Some European countries can't pay their debt*
● Fitch Sees Risk of Greece & USA Debt Defaults *U.S. Treasury securities could be downgraded*
● Italy's Credit Rating May Be Downgraded by Moody's *Crisis could affect Spain, Portugal, Belgium*
● China Monthly Leading Economic Index at New High! (Chart) "Slower trend consistent with moderate growth"
● S&P Hands Greece World's Lowest Credit Rating *Lower than Pakistan and Ecuador*
● Global Manufacturing Growth at 8-Month Low in May (Chart) *23rd month of expansion*
● China Manufacturing Index Dips in May (Chart) "Moderation rather than meltdown in growth"

USA Real GDP % by Quarter (Chart) The chart below is the annualized percentage change of the Real GDP (seasonally adjusted at annual rate) from the preceding quarter (QoQ), a common GDP measure. As can be seen, there was a negative dip into the Great Recession beginning Q3 2008, a rebound peaking in Q4 2009. The Q4 2010 +3.1% is now the recent recovery peak. The chart covers the USA Quarterly GDP as reported by the Bureau of Economic Analysis from Q1 2005 through the latest quarter reported.


International Monetary Fund: GDP Growth Projections by Year (Chart) Below is the IMF GDP Growth Projections by Year for the World, USA, the Euro Area, Japan, and UK. These projections are from the June 2011 IMF World Economic Outlook Update.



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USA Weekly Unemployment Claims Dip to 428,000 (Video, Charts) *4-week average 426,750*

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United States Department of Labor: Unemployment Insurance Weekly Claims Report
*** Updated June 30, 2011 for the week ended June 25, 2011 Claims ***


Official Statement by the U.S. Department of Labor (Seasonally Adjusted Data) In the week ending June 25, the advance figure for seasonally adjusted initial claims was 428,000, an decrease of 1,000 from the previous week's unrevised figure of 429,000. The 4-week moving average was 426,750, an increase of 500 from the previous week's unrevised average of 426,250. The advance seasonally adjusted insured unemployment rate was 2.9 percent for the week ending June 18, an increase of 0.1 from the prior week's revised rate of 3.0 percent. The advance number for seasonally adjusted insured unemployment during the week ending June 18 was 3,702,000, a decrease of 12,000 from the preceding week's revised level of 3,714,000. The 4-week moving average was 3,703,500, a decrease of 11,250 from the preceding week's revised average of 3,714,750.


Trend In the short-term, the weekly unemployment insurance claims are mostly level. The intermediate-term (6 months) is upwards. The long-term (12 months) trend continues downwards. The current weekly unemployment claims (preliminary) are above 400,000 for the 12th consecutive week and after being below 400,00 for 4 consecutive weeks. 2011 average weekly claims of 415,231 year-to-date are lower than 2010 average weekly claims of 457,481

Cycle History USA weekly unemployment claims reached a Great Recession cyclical peak of 651,000 for the week ended March 28, 2009. A Post-Great Recession cyclical low of 371,000 was set for the week ended February 26, 2011.

USA Weekly Unemployment Insurance Claims: 4-Week Moving Average (Chart) The chart below shows the 4-week moving average from the week ended March 12, 2011 through the latest week reported. The 4-week moving average is considered a better, smoother measure of trend. The Post-Recession cyclical low has been 388,500 for the week ended March 12, 2011, the beginning of the chart.


USA Weekly Unemployment Insurance Claims (Chart) The chart below shows the total weekly unemployment claims from the week ended February 26, 2011 through the latest week reported. The Post-Recession cyclical low has been 371,000 for the week ended February 26, 2011, the beginning of the chart.


Commentary Overall, the reports continue disappointing in that weekly unemployment claims are not trending to and below 400,000. The latest weekly unemployment claims (preliminary) is the 12th consecutive week above 400,000 after 4 consecutive weeks below. The current claims (preliminary) continue above the Post-Great Recession cyclical low of 371,000 for the week ended February 26, 2011. The 4-week moving average (preliminary) continues above the Post-Great Recession cyclical low of 388,500 for the week ended March 12, 2011. The 2011 average weekly claims is 415,231 (preliminary) is less than the 2010 average weekly claims was 457,481.

Weekly claims first dropped below 500,000 in this Great Recession Cycle for the week ended November 21, 2009 at 477,000. Weekly claims have been below 500,000 since November 21, 2009 with only one exception (504,000 for the week ended August 14, 2010). Claims over 500,000 clearly indicate GDP growth is slowing, if not stalling or contracting, while claims less than 400,000 indicate at least a modest economic expansion is underway.


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Tuesday, June 28, 2011

Japan Industrial Production Jumps Up in May *+5.7% highest since March 1953*

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Japanese automakers restarted production lines in May


Japanese factory output jumped by the most in almost 60 years in May as manufacturers restore supply chains damaged by the massive earthquake and tsunami in March, the latest evidence the economy is headed for a "V-shaped" recovery from the disaster. Industrial output rose 5.7 percent in May, above the median market forecast for a 5.5 percent increase and a 1.6 percent gain in April, the Ministry of Economy, Trade and Industry said. It was the second-biggest increase on record after a 7.9 percent rise in March 1953. Output tumbled a record 15.5 percent in March after a magnitude 9.0 earthquake and a deadly tsunami struck Japan's northeast coast on March 11, triggering a nuclear disaster.

"The report shows that the auto industry is a strong driving force” in boosting production, said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “The post-quake shock is running its course and production is undergoing a V-shaped recovery.” "Forecasts for June are still high, but are not so high for July, suggesting a slight slowdown in the front loading of production," said Shunji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities. "Still the trend is healthy. Things are moving in line with the BOJ's scenario. It may be necessary for the BOJ to do something more to support small firms in areas damaged by the quake, but the need for broad-based monetary easing doesn't seem that strong."

The gain in transport equipment output was the biggest since comparable data became available in 1998. Carmakers are hiring temporary workers, signaling the industry’s recovery from the earthquake. Toyota Motor, the world’s biggest carmaker, said last week it would employ as many as 4,000 workers from mid-July as it prepares to ramp up production in October. Nissan has said it has begun hiring as many as 200 temporary workers to help boost output. “The recovery has been fast,” Nissan’s Chief Executive Officer Carlos Ghosn said on June 22. “Today we are near normal production levels” in Japan, he said.

“Production by the manufacturing industry will likely return to the pre-quake level by summer, but the risk will be a slowdown in the recovery pace after then,” Hiroshi Shiraishi, an economist at BNP Paribas SA in Tokyo, said before the report. “Power supply problems could continue over several years and uncertainties surrounding the overseas economy are growing.”

The official statement of the Japanese Ministry of Economy, Trade, and Industry regarding the May Indices of Industrial Production was, "Industrial Production in May increased 5.7% from the previous month, showing an increase for the second consecutive month. It showed a decrease of 5.9% from the previous year. The index in May was 88.8 (seasonally adjusted)". Key points of the report were:
♦ Industries that mainly contributed to the increase are as follows: 1.Transport equipment, 2.General machinery, 3.Chemicals (excl. Drugs), in that order.
♦ Commodities that mainly contributed to the increase are as follows: 1.Large passenger cars, 2.Small passenger cars, 3.Large trucks, in that order.
♦ Production, Shipments, Inventory increased, Inventory Ratio decreased.
♦ According to the Survey of Production Forecast in Manufacturing, Production is expected to increase in June and July.
♦ Industrial Production is on a recovery trend after the Great East Japan Earthquake.






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