Falling supply and rising demand will dramatically increase rental rates as Americans adjust their perceptions about home ownership. Image: CC kodiax2/Flickr

After about a decade of very low rent inflation, rising rents are emerging as a consequence of economic recovery. Rental vacancy rates have been dropping sharply, and rental market analysts are warning that double-digit rate increases are on the horizon. Further economic recovery may be at stake as rising rents feed inflation and subtract further from consumer spending already under stress from rising gas and food prices.

Why rental vacancy rates are falling

Rental rates have increased on average less than 1 percent per year over the past decade, according to the Commerce Department. During the recession, people who couldn’t afford to live on their own either doubled or tripled up with roommates or moved back in with their parents. Now many of these people are back on the market looking for their own place to rent. Millions of people who lost their homes in the foreclosure crisis, which continues, are also looking for apartments. Rental vacancy rates dropped from 10.3 percent in the third quarter to 9.4 percent in the fourth quarter of 2010. The 1.3 percent decline was the second-largest on record and the lowest rental vacancy rate since 2003. As rental vacancy rates continue to drop, rents will rise and the overall trend will accelerate.

How high will rents rise?

Rental rates are rising rapidly in every major U.S. metropolitan area and posing a major inflation risk. In the past three months, rents for primary residences are up 2 percent. Overall rents have increased 1 percent. In the next year, rents are expected to rise anywhere from 3 to 10 percent. In high-demand rental markets, such as San Diego, Seattle and Boston, increases could top 10 percent in the next two years. Housing costs account for 40 percent of the Federal Reserve’s core inflation calculation. Rising rents are expected to double the U.S. inflation rate from 0.8 percent in 2010 to 1.6 percent this year. By the end of the year, the U.S. inflation rate could reach 2 percent– the rate of inflation the Fed shoots for without factoring in housing, gas and food prices.

The challenge to meet rental demand

The housing crisis has changed the perception of home ownership in the U.S. as home prices continue to decline. Americans understand the economics of housing better now, and as long as a home isn’t a good investment, more will choose to rent. Rising rents are a function of supply and demand. Nearly 80 million aging baby boomers and 4.5 million people who lost their homes to foreclosure are entering the rental market. Yet multifamily rental construction starts plunged from nearly 350,000 units annually before the 2008 financial collapse to barely 100,000 annually. According to the Center for American Progress, more than 40 million new rental units may be needed in the next 30 years. In the short term, a lack of long-term financing options has few developers willing to risk building more rental housing.

Sources

CNNMoney.com

Daily Finance

CNBC

Huffington Post

As TARP ends, a Treasury official defended the program as he faced critics who said it helped Wall Street, not Main Street. Image: Alan Cordova/Flickr

The Troubled Asset Relief Program was a success, according to the man in charge of the infamous government bailout program. In the final hearing on TARP before the Congressional Oversight Panel March 4, Timothy Massad, the U.S. Treasury official in charge of the program, said it prevented a collapse of the financial system and will cost taxpayers less than originally proposed. But critics on the panel said TARP helped Wall Street, not Main Street, and in terms of economic recovery the program was a failure.

Why Treasury believes TARP was a success

The Troubled Asset Relief Program ended March 4 after spending about $411 billion to bail out Wall Street banks, the U.S. auto industry and homeowners at risk of foreclosure. Timothy Massad, acting assistant secretary for the Treasury Department’s Office of Financial Stability, told the Congressional Oversight Panel for TARP that the program helped back the U.S. economy away from the brink of a depression at a time when no other government tools existed to do so. Congress authorized $700 billion for TARP at the height of the financial crisis in October 2008. About $475 billion will ultimately be spent. Initially, the cost to taxpayers was projected at $341 billion, but TARP is estimated to end up costing just $25 billion. Big Wall Street banks, such as Goldman Sachs, Citigroup and Bank of America, have paid back their bailout money. The government has recovered $277 billion in TARP money so far.

Why critics say TARP was a failure

The Congressional Oversight Panel pointed out the severely underperforming TARP-funded Home Affordable Modification Program as evidence that government bailout funds benefited Wall Street but left the rest of America in the lurch. Two years ago the administration said that HAMP would help up to 4 million homeowners avoid foreclosure. However, only about 600,000 homeowners have received loan modifications to date. The oversight panel estimated that the program would prevent less than 800,000 foreclosures, information House Republicans are using to justify killing HAMP. Massad warned against doing so. He said that killing the program would prevent tens of thousands of at risk homeowners from getting help at a time when the housing and employment markets have such a long way to go.

Moral hazard and the status quo

Critics of TARP on the oversight panel contend that TARP condoned moral hazard by assuring Wall Street banks that they are indeed “too big to fail.” Knowing they will be bailed out in future crises will encourage Wall Street banks to continue taking unnecessary risks to maximize profits. TARP critics refused to acknowledge Massad’s claim that TARP was a success because the banking system has returned to the status quo, unemployment remains unacceptably high and the U.S. economy remains weak. Joseph Stiglitz, a Nobel Laureate on the oversight panel, said that in the ultimate objective of economic recovery, TARP was a “dismal failure.”

Sources

MarketWatch

ABC News

Reuters

Measuring the GDP is difficult; is it even worth coming up with the number? Image: Flickr / michaelreuter / CC-BY

The Gross Domestic Product forecast in the United States has recently been downgraded. In many news reports, the GDP is seen as the biggest indicator for how well the economy is doing. However, the GDP is an outdated and inaccurate way of measuring economic growth.

The basics of GDP

The Gross Domestic Product is a single number that encompasses the entire value of goods and services produced in one country. GDP began as a measurement of the standard of living in various countries, but it is used in several other ways. Gross Domestic Product is usually figured by adding up private consumption, gross investment, government spending and exports (minus the gross amount imported). GDP was first calculated in 1934 for a report given to Congress by economist Simon Kuznets. The Federal Reserve bases many of its monetary decisions, at least partially, on the GDP figure.

Inflation, consumer price and the GDP measure

Since it was first created, the measure of Gross Domestic Product has had limitations. The Bureau of Economic Analysis releases a number referred to as “real” GDP that adjusts the number for inflation. Without that adjustment, the GDP would always appear to be growing with the rate of inflation. The Consumer Price Index, which is a measure of the inflation or deflation of the cost of most household goods, also has no effect on the GDP. So if the cost of household goods goes up by 400 percent, it is seen as a growth of the GDP, despite the fact that the average American has less disposable income.

Why the GDP is like a credit card

The biggest limitation of the GDP measure is that it does not take into account any negative numbers. To translate the GDP in terms of a household budget, it would be as if you measured the health of your household finances based on how much money you spent — both in cash and on your credit cards. The repayment on those cards that would eventually come due, the damage to your budget and the possibility you wouldn’t make your mortgage payment are all left on the cutting room floor. Measuring the economic growth of the United States — or any country — based solely on GDP is too simplistic to be accurate.

Sources

The Money Alert
Blogging Stocks
Investopedia

Americans are saving more, even though the average income is inching up. Image: Flickr / krasi / CC-BY

Each month, the federal government releases a report on consumer saving and spending rates. These two rates are seen as indicators of consumer sentiment and economic growth. The January spending report is also being seen as a referendum on the payroll tax cut.

January personal income

The United States Commerce Department’s monthly report on personal income and spending contained a few surprises. Overall, personal income increased about 1 percent to $133.2 billion. Overall, that equals about $428 per person in increased spending power in the United States. Increased costs of fuel, food and housing mean that disposable income increased by less — about 0.7 percent. Some figures put the increase in “real” disposable income at even less — about 0.4 percent.

Smaller increases in personal spending

While personal income did go up during the month of January, personal spending did not go up at the same rate. Overall consumer spending in the United States went up by about 0.2 percent. The remaining increase in personal income was put in savings. As a whole, Americans saved about $677.1 billion in January of 2011. This puts the personal savings rate at more than the increase in personal income. This higher savings rate indicates that consumers are being much more cautious with their money. The decreased tax burden does not necessarily translate to spending, as the taxes are showing up in small amounts in paychecks, rather than as a lump-sum payment.

What the numbers mean

Economists put heavy stock in the spending and saving rates reported month-by-month. Rarely are the estimations of monthly income, savings and spending economists offer entirely correct. The real importance in these numbers could be the changing attitude of the American consumer. For several years before the economic collapse, Americans were spending more money than they had. The increased savings rate technically will slow down overall economic recovery because it means less money is going into the economy. For long-term recovery, however, a high savings rate means that individuals have a reduced need for credit and high-risk financial products. This reduced demand means the U.S. financial system could develop a more stable base and weather future downturns more easily.

Sources

CNN Money
Census.gov
Bloomberg

Credit standards are loosening as banks compete for loans, consumer spending increases and the lending business returns to normal. Image: CC channelR/Wikimedia Commons

Banks are continuing a trend of loosening credit standards in the U.S. According to a Federal Reserve survey, competition among banks to make loans to large companies is forcing them to ease credit terms. Banks are also making it easier for consumers to get credit cards.

Lending gains momentum

Competition among banks to make loans to prime corporate borrowers is increasing. In response, banks are easing lending standards, a sign that lack of credit will be less of a drag on economic recovery in 2011. Fifty-seven banks responded to the annual Federal Reserve survey, taken between Dec. 22 and Jan. 11, about credit quality. The consensus was that lending gained momentum in the fourth quarter, and there are signs that the trend will continue. About 80 percent of the banks surveyed anticipate an improving market for commercial loans to large and medium-sized firms. About 70 percent anticipate improvements in lending to smaller firms.

Consumer spending re-emerges

The Fed survey reported that 50 percent of banks anticipate improvement in the quality of consumer loans in 2011. At the same time, consumer spending beat forecasts in December, according to the Commerce department. Consumer spending rose 0.7 percent in December after a 0.3 percent bump in November. The Commerce Department also reported that incomes increased 0.4 percent for the second consecutive month. Economists expect the positive trend in consumer spending to continue with the payroll tax holiday and rising incomes. The U.S. economy expanded at a 3.2 percent annual pace in the fourth quarter, up from a 2.6 percent gain in the third quarter.

Credit card limits rise, credit score minimum drops

As the U.S. economy continues to improve, banks are making it easier for consumers to get credit cards. About 13 percent of banks in the Fed survey said approval standards for new credit cards loosened. About 14 percent of banks reduced the minimum credit score necessary to qualify for a credit card. About 11 percent increased credit card limits for consumers, and about 8 percent increased credit limits for businesses. Credit analysts are predicting that more borrowers will make on-time payments in 2011, banks will have fewer losses and the lending business will slowly return to normal.

Sources

Financial Times

MarketWatch

Bloomberg

CreditCards.com

A double dip in the housing market is imminent, analysts say, as home prices dropped further than expected in October. Image: CC johpan/Flickr

Home prices dipped lower than expected from September to October according to an industry report. The Standard & Poor’s/Case-Shiller home price index released Tuesday also reported that October’s plunge in home prices was the greatest year-over-year drop since December 2009. Analysts blamed the end of the homebuyer tax credit and warned of a double-dip in the housing market.

The Case-Shiller home price index

In October month-to-month home prices fell in 18 of 20 markets surveyed by the Case-Shiller home price index. Housing industry experts had predicted a flat October following a weak September. The decline in value hit faster and harder than expected after the end of the homebuyer tax credit last summer. Home prices in the 20 markets fell 1.3 percent from September to October, an annualized decline of 15 percent. Atlanta was hit hardest with a 2.1 percent drop in home prices. Five other markets, including Charlotte, N.C.; Miami; Portland, Ore.; Seattle and Tampa, Fla., hit all-time lows since the housing market collapsed in 2007.

Housing market double-dip

The chairman of the S&P/Case-Shiller home price index committee said the housing market is poised on the edge of the double-dip analysts have been warning about. Home prices in October have dropped 30 percent since peaking in July 2006. A backlog of foreclosures waiting in the wings will continue downward pressure on home prices in 2011. Inventory of homes for sale is up 50 percent over December 2009. Millions of homeowners planning to sell are standing by for signs that the housing market will recover.

Housing market winners and losers in 2011

The sustained decline in home prices is bad news for Realtors. However, news about a housing market double-dip is good news for homebuyers. The Case Shiller home price index reported that sales volume was down 25 percent from December 2009 as potential homebuyers wait for the housing market to bottom out. But there’s a catch. The depressed housing market is a drag on economic recovery as it is inextricably connected to high unemployment and low consumer confidence. Even though economists are optimistic about 2011 economic growth, home prices are expected to decline as much as 3 percent further in 2011.

Sources

Bloomberg

CNN

Wall Street Journal

Weekly U.S. jobless claims used to be a reliable indicator of recovery, but current conditions defy a statistical explanation. Image: CC public15/Flickr

Finding good news when it comes to the U.S. unemployment rate requires extremely low expectations. Jobless claims rose last week, but not as much as economists expected. Employment has been growing steadily as the number of people filing for unemployment insurance has held steady, but not enough to budge the 9.6 percent U.S. unemployment rate.

Why the unemployment rate won’t budge

Jobless claims rose a whisker last week, by 2,000 to 439,000, according to the Labor Department. But the Associated Press reports that less than 440,000 people a week have filed for unemployment insurance in three of the past four weeks — the lowest numbers in two years. Over the past month, jobless claims dropped by 16,000 to an average of 443,000 per week — a 4.2 percent average decrease. According to AP, the trends are a signal that more people are getting hired than fired. But economists say jobless claims must fall below 425,000 a week to put a dent in the unemployment rate.

The plight of the unemployed

As hundreds of thousands of freshly unemployed workers file jobless claims every week, the number of people who had been collecting unemployment fell by 48,000 in the week ending Nov. 6. That doesn’t necessarily mean they got hired. People whose unemployment benefits have expired that have moved to federal unemployment extension programs  rose by 121,000 the last week of October. Meanwhile, up to 2 million people will lose benefits when the emergency extensions expire at the end of November. Another 2 million will lose benefits in the next few months. It’s unlikely a lame-duck congress will be able to pass another federal unemployment extension.

Statistics fail to offer clarity

Economists keep close track of weekly firings in the form of jobless claims because the numbers used to be a consistent indicator of economic recovery when they drop. But Bloomberg reports that during the current tepid economic recovery, that relationship appears to be reliable no longer. Companies added 159,000 jobs in October, the fourth straight month more than 100,000 jobs were created. Yet some companies continue to lay off workers while others are hiring. Forty-two states and U.S. territories reported rising jobless claims, while 11 reported a decline. Amid all the confusion, the key statistic that matters, the 9.6 percent unemployment rate, remains stubbornly unchanged.

Sources

Associated Press

Bloomberg

Forbes

Keynesian economics lie at the center of the political debate over government spending, deficit reduction and economic recovery. Image: CC Ivy Dawned/Flickr

Keynesian economics advocates using government spending in hard times to stimulate consumption and economic growth. A wave of austerity measures sweeping through Britain signals that Keynesian economics are being abandoned in the birthplace of John Maynard Keynes. American conservatives are using the example of Britain and the struggling U.S. economy to declare Keynesian economics dead.

Keynesian economics 101

Keynesian economics is based on the cycle of money. Spending by one person creates earnings for another in a healthy economy. During the Great Depression people stopped spending, the cycle of money stopped, and the economy tanked. Keynes argued that the government must spend to revive the cycle of money. He was ridiculed by proponents of laissez-faire capitalism, the most popular economic theory of the time. Keynes’ ideas were taken to heart by the Roosevelt administration, which spent to build roads, dams and other public works projects. Then World War II came along with massive government defense spending and the U.S. economy boomed for 50 years.

Europe rejects Keynesian economics

The global financial crisis exposed massive government deficits in Europe as the continent’s economy crashed. U.S. Treasury Secretary Timothy Geithner recommended Keynesian economics to European governments. Instead, Europe is heading the other way with austerity measures. Britain is cutting $130 billion in spending that will erase 500,000 jobs and affect the military, pensioners, the middle class and the poor. Nobel Prize winner Joseph E. Stigliz told The Guardian that the British government’s plan will result in less growth, less tax revenue and higher national debt.

Keynesian economics and the midterm election

A U.S. economy that remains sluggish despite billions in government stimulus has conservatives arguing that the Obama administration should follow Britain’s example. Right wing pundits eagerly anticipating Republican gains in Congress are trumpeting the 2010 midterm election as the official declaration that Keynesian economics have failed. The White House cautions that an abrupt end to government economic stimulus will extend the downturn. Conservatives argue that the economy has stabilized, and it’s time to wean the country from deficit spending.

Sources

Wisegeek.com

New York Times

National Review

The Fed is expected to launch another round of quantitative easing, a move some consider a risky gamble that won't work. Image: CC banspy/Flickr

A much-anticipated second round of quantitative easing from the Federal Reserve is expected this week. In a move known as “QE2,” the Fed is expected to buy Treasury securities to flood money into the economy, make it easier to borrow and spend, and reduce the likelihood of deflation. Some experts think QE2 is a risky move that could weaken the Fed and trigger inflation without having the desired effect.

QE2: Money from nothing

The Federal Reserve Open Market Committee will meet to discuss monetary policy Tuesday while the country is conducting midterm elections. The Fed has been waiting until after the election to announce additional measures to stimulate the economy. Most experts, traders and investors expect the Fed’s next move to be another round of quantitative easing. Fed chairman Ben Bernanke has said that deflation is emerging as the biggest threat to economic recovery. QE2 is an attempt to prevent deflation. By buying Treasurys, the Fed is essentially creating money from nothing and infusing it into credit markets. In theory, interest rates will stay low, lending will increase, and the economy will be stimulated.

QE2 the Fed’s only remaining option

The first round of quantitative easing began when the economy collapsed at the end of the Bush administration. The Fed purchased more than $1 trillion in bad home loans that were packaged and sold as securities that no investors would touch. Quantitative easing was considered effective in slowing the economy’s decline. The rebound has yet to happen, however, with an anemic 2 percent growth rate in the third quarter. QE2 may be the only arrow left in the Fed’s quiver.

QE2 a ‘dangerous gamble’

Quantitative easing comes with high risk, and some are warning that runaway inflation could be the consequence if the Fed pulls the trigger. Thomas M. Hoenig, president of the Federal Reserve Bank of Kansas City, recently called QE2 a “dangerous gamble” and a “bargain with the devil.” But grandstanding politicians demonizing government spending have deprived the Fed of fiscal policy in the form of economic stimulus. Economist James K. Galbraith told the New York Times that government stimulus would work. He said quantitative easing would do nothing but flood banks with more cash they won’t lend.

Sources

USA Today

New York Times

Bloomberg

Ben Bernanke's Fed has pumped nearly $2 trillion into the economy since 2008, to little effect. Image: CC Gage Skidmore/Flickr

Federal Reserve chairman Ben Bernanke has hinted that the Fed will begin another round of quantitative easing, known as QE2, to stimulate the economy. The mere possibility that the Fed will buy more Treasuries to pump money into the economy has devalued the dollar, lowered treasury yields, boosted stocks and raised the price of oil, gold, silver, corn and other commodities. Yet unemployment remains persistently high, which is the primary threat to economic recovery, according to Bernanke.

Bernanke says QE2 will prevent deflation

Having lowered interest rates to nearly zero, quantitative easing is the only arrow left in the Fed’s quiver to battle high unemployment. In a speech in Boston Friday, Bernanke said high unemployment is a scourge that could start feeding on itself by causing a debilitating cycle of deflation. CNNMoney.com reports that rather than focus on the Fed’s traditional mission to limit inflation, Bernanke said it was time to seriously consider that inflation is too low. In theory, quantitative easing — pumping more money into the economy — triggers inflation by weakening the dollar. The Fed has increased the money supply by purchasing nearly $2 trillion in assets since 2008, to little effect.

How QE2 has affected the economy

Investors expect the Fed to announce QE2 at its Nov. 2-3 meeting. The Associated Press reports that since Bernanke started hinting at such a move, anticipation of QE2 has profoundly affected the economy. The price of oil is up 10 percent. Americans are paying $400 million more per week for gas. Gold has risen 11 percent. Corn futures are up more than 30 percent. The average interest rate on a 30-year fixed mortgage has fallen to 4.19 percent, the lowest since the 1950s. The unemployment rate remained stuck near double digits.

Why QE2 isn’t likely to succeed

In Boston Bernanke justified QE2. In theory, the combination of a weaker dollar and low interest rates would increase spending, boost corporate revenue, create jobs and drive down unemployment. Kevin Giddis of Morgan Keegan, told CNNMoney.com that more quantitative easing won’t work because it hasn’t yet. “I don’t think buying securities is going to pull the economy out of a ditch,” he said. “The market is not buying it. We’ve made money available freely for a while now. The Fed has to start thinking way outside the box. This is not a war where conventional weapons can be used.”

Austerity measures aimed at deficit-financed social programs drew mobs of protesters in 12 European capitals Wednesday. Image: CC Teemu Mantynen/Flickr

Europe roiled with strikes and marches as citizens protested austerity measures — which cut government spending, benefits and public services and could increase taxes –  taken by governments trying to climb out of the European debt crisis. Europeans are upset that while governments spent billions to rescue banks, ordinary citizens were being forced to accept the consequences of austerity. Meanwhile, a top U.S. Treasury official warned European governments that economic recovery, not austerity, should be the priority.

Austerity draws a crowd

In a day of austerity protests on Wednesday, hundreds of thousands of people marched across Europe. Reuters reports that the protests were led by trade unions, which say austerity will slow economic recovery and punish the poorest citizens. Trade unions organized protests in 12 European capitals to demonstrate against spending cuts and pension and labor market reforms. In Brussels, Belgium, a crowd of about 60,000 gathered from across Europe, waving union flags and carrying banners saying “No to austerity” and “Priority to jobs and growth.”

Austerity targets social programs

The austerity protests in Brussels coincided with a proposal from the European Union Commission for new penalties that punish member states gripped by unemployment for running up deficits to fund social programs. As reported in the Huffington Post, the EU proposal, sponsored primarily by Germany, is receiving stiff resistance from France, which wants politicians to decide on sanctions, not a set of rules carved in stone. Elsewhere in Europe, Greek doctors and railway employees walked out. Spanish workers shut down trains and buses. In Ireland, a man blocked the Irish parliament with a cement truck in protest of the country’s massive bank bailouts.

U.S. urges Europe to go light on austerity measures

Amid all the austerity protests, a top U.S. Treasury official visiting Frankfurt implored European officials to exercise restraint. The Wall Street Journal reports that Americans and Europeans disagree about whether stimulus or austerity is the solution to a weak global recovery. The U.S. is urging more stimulus as Europe heads further toward tax increases and spending cuts. U.S. Treasury Undersecretary for International Affairs Lael Brainard said with weak global demand and low inflation, supporting a lasting recovery, not austerity, must continue as the primary objective.

Michelle Obama may be smiling here, but Carla Bruni-Sarkozy claims Obama told her in confidence that being the first lady is hell. (Photo Credit: CC BY/Chuck Kennedy/Wikimedia Commons)

Being a world leader is a high-pressure job, no doubt. President Obama discovered this when he stepped into the United States’ economic minefield, and he has the gray hair to prove it. That same pressure of misstep weighs heavily upon the shoulders of First Lady Michelle Obama, too. According to the London Daily Mail, a new biography about French First Lady Carla Bruni-Sarkozy says Michelle Obama told her in confidence that being first lady is hell. Specifically, the Michelle Obama/hell statement in the Bruni biography is as follows: “Don’t ask! It’s hell! I can’t stand it!”

Michelle Obama, Bruni and the hell of conflict

Media sources hint that the relationship between Michelle Obama and Carla Bruni-Sarkozy – while cordial in front of cameras – is strained when the flashbulbs fade. Rumors are that the pair attempts to outdo each other in terms of clothing and public image, although such a contentious relationship has not been confirmed. And it never will be if the U.S. and French administrations have anything to say about it. Such scandal will be saved for the pages of the biography “Carla and the Ambitious” and a recent unauthorized biography penned by Besma Lahouri. Lahouri’s allegations regarding Bruni-Sarkozy’s rock-star lifestyle before her marriage to French President Nicolas Sarkozy sit alongside the supposed proclamation Bruni-Sarkozy once uttered that Michelle Obama is “the only one able to challenge (her) for world’s sexiest and most glamorous first lady.”

The first lady is so very far away

Despite media campaigns that attempt to connect the first ladies of the United States and France with the concerns of the common people, the very nature of the job creates layers of separation between world leaders and the public. Michelle Obama encourages children to exercise daily in a recent television campaign, but the reality is that average children will never be able to go out and play with Sasha and Malia, regardless of how friendly and inviting Mrs. Obama comes across. The same holds true for Carla Bruni-Sarkozy and the French people, although there are some differences. While Michelle Obama comes from a background of law and higher education, Bruni-Sarkozy was a high-fashion model. She’s also a professional singer who has allegedly been connected via the bedroom to numerous titans of rock ‘n’ roll. Bruni-Sarkozy is (allegedly) quoted in the Lahouri biography as saying “On top of that, you expect me to be subtle? I am a femme fatale, my dear.”

Perhaps Michelle Obama’s right. It’s hell to be a first lady.

Sources:

London Daily Mail

Mo Rocca 180° exposes shocking Michelle Obama scandal

Current market conditions are making dividend-paying stocks a cheap long-term investment, but the end of Bush tax cuts could spoil the party. Image: Thinkstock

Investors are shopping for dividend-paying stocks in an unusual market environment. Record-low interest rates make putting money in bank accounts illogical. Despite a sputtering economic recovery, companies sitting on huge piles of cash can afford generous dividend payouts. The number of companies paying more in dividends than the average bond yield is at a 15-year high. The dividend tax rate is low. Dividend-paying stocks can provide a revenue stream and serve as a hedge against inflation. But if the Bush tax cuts expire, the value of dividend-paying stocks could sharply drop.

Dividend-paying stocks are hot right now

Dividend-paying stocks are hot right now because of several factors. Historically, bond yields far outstrip that of stock dividends. But more U.S. stocks are paying more than bonds than at any time in at least 15 years, according to Bloomberg. Companies raised payouts by 6.8 percent in the second quarter. Increasing worker productivity during the downturn has made companies cash-rich. Dividend-paying stocks are cheap, thanks to record-low interest rates, a projected growth in profits of 36 percent in 2010 — the fastest pace in two decades — and a slowing economy. A 10 percent drop in the S&P 500 since April also pushed up dividend yields relative to share price. It’s giving investors the opportunity to buy stocks that pay more than bonds, at inexpensive price-to-earnings multiples.

Why dividend-paying stocks are popular

Investors see stock dividends as a safety net in a recession and a hedge against inflation during a recovery as well, according to Linda Stern at ABC News. During a recession, if stock prices go down and bonds lose value, investors can always cash a dividend check. During an economic recovery, if inflation kicks in, dividends can follow suit. However, dividend-paying stocks carry risk. Stern uses Bank of America and Citicorp stocks, which saw generous dividends disappear during the credit crunch, as an example. Plus, if the Bush tax cuts are allowed to expire on Dec. 31, dividends could again be taxed like ordinary income — at rates as high as 39.6 percent. Currently the dividend tax rate is  15 percent — the same as capital gains.

How to pick dividend-paying stocks

Now is the time to look at dividend-paying stocks as a long-term investment, according to Matt Theal at MarketWatch. Theal said investors should look for companies that pay dividends higher than the return in the credit markets. Currently 68 companies in the S&P 500 yield more than 3.78 percent, the average rate in the credit markets since 1995. Theal used a stock-screener to search for S&P 500 companies paying a dividends yield of 3.78 percent that sell under 12 times earnings. The screen returned 25 companies, including Bristol-Myers, Excelon Corp., Reynolds American Inc. and Verizon Communications Inc.

Consumer confidence posted a modest gain in August -- data that bumped stocks and eased concerns that anemic consumer spending will derail economic recovery. Charlie Brewer/Flickr photo.

The Conference Board’s monthly report on its consumer confidence index showed that the metric used to gauge economic outlook actually bumped up a couple of points in August. The modest gain gave the stock market a jolt into positive territory Tuesday morning.

Consumer confidence index beats forecast

Consumer confidence rose in August to beat predictions. Bloomberg reports that the increase in the consumer confidence index to 53.5 from a five-month low of 51 in July could be a sign the biggest part of the economy may avoid a further slide that could effectively end a stalled economic recovery. But even with the increase, an economist told Bloomberg that the August consumer confidence figure is at a “stunningly low level.” Even so, higher confidence brings a ray of hope that consumer spending — 70 percent of the U.S. economy — will recover. To do that, companies need to start hiring more. Yet according to the Labor Department, companies created an average of 51,000 jobs from May through July — down from 200,000 the previous two months.

Consumer confidence report details

In addition to the consumer confidence index, the Conference Board report contains other details. MarketWatch reports that more consumers are pessimistic about the present situation of the economy, yet optimistic that conditions will improve. The Conference Board’s present-situation index — a measure of attitudes about business climate and job opportunities — dropped to 24.9 in August from 26.4 in July. The expectations index — a measure of expectations for a better business climate and more job creation — rose to 72.5 in August from 67.5 in July. Consumers planning to buy a home within six months moved to 2 percent from 1.9 percent. People planning to buy a car rose to 5 percent from 4.7 percent. An economist told MarketWatch that despite the August gains, consumer confidence is at “incredibly depressed levels,” compared with previous economic recoveries.

Bump in index doesn’t guarantee consumer spending

A consumer confidence index above 90 indicates a healthy economy, according to the Associated Press. Yet the August bump put the brakes on a sliding stock market Tuesday morning. About two stocks rose for every one that fell on the New York Stock Exchange. Like all recent market rallies, this one is expected to be short-lived. Most economic reports show economic growth is slowing, and the slight uptick in consumer confidence doesn’t guarantee an increase in consumer spending. A high unemployment rate continues to motivate consumer saving and debt reduction — behavior considered virtuous from a personal finance standpoint. But until the job market recovers and people open their wallets, the late-summer slump could continue for the rest of the year and drag the U.S. economy into a double-dip recession.

Bacon prices on the rise could mean the economy is magically recovering. (Photo Credit: CC BY-SA/w:User:Porge/Wikipedia)

It may be disheartening that the price for a pint of beer in Europe has risen to $6.30 due to harvest problems and a Russian wheat crisis, reports the London Telegraph. But here’s something to really take the sizzle out of your day: bacon prices are stampeding onward and upward. According to CNBC, bacon is currently 20 percent more expensive than it was a year ago. While grease-loving foodies who may need payday loans before their next pay day aren’t in hog heaven over this sorrowful state of swine affairs, researchers claim this is actually a good sign for the U.S. economy.

Bacon now costs approximately $4 per pound

The Department of Agriculture claims that the steep bacon price increase over the past year is the result of a classic supply-and-demand situation. There’s a shortage of pork bellies, as pig farms have trimmed their herds during the recession. Tomatoes are currently ripe, so BLT sandwiches are a hot item – and thus there’s a need for more bacon. The National Review has gone so far as to call this culinary conundrum “Obama’s Next Crisis.”

One man’s crisis, another man’s baby steps to recovery

The National Review, in its swine sorrow, has failed to see the silver lining. Consumers are looking to invest more of their carefully hoarded money in bacon and bacon-related products – essentially, luxury items. It’s a step in the right direction, for when people reach for luxury items, things tend to be going better as a whole, economically. Rich Nelson of market research firm Allendale, Inc. said that “They may not be buying steak instead of hamburger, but they will put bacon on their hamburger or other things.” Restaurants know this, so bacon is often a newly featured item on tried-and-true recipes.

Demand will fatten the herd

Pig farmers will no doubt respond to increased demand by expanding their hog stocks. Nelson speculates that by mid-2011, bacon prices will begin to drift down. In the interim, some consumers may settle for the generic bacon brands, which are generally fattier and leave eaters with less meat after cooking as the fat melts away. Jason Mosely of the Mr. Baconpants blog and podcast sounds the clarion call – “Your BLT deserves the best bacon you can afford!” – while bacon book author Heather Lauer tells CNBC that if bacon prices are indeed a sign of America’s economic recovery, perhaps the charge will forever remind Americans of the greatness of bacon. Then everyone will celebrate Sept. 4 with patriotic fervor, for that is International Bacon Day. Really and truly, it is.

Sources:

CNBC

“The only problem with bacon is that it makes you thirsty… for more bacon.”

The latest jobs report shows a continued high U.S. unemployment rate stuck in limbo between job gains and job losses. Nick Hewett/Flickr photo.

The latest jobs report detailing the U.S. unemployment rate for July reflects the ongoing battle between the bad news and the good news. The unemployment rate held steady at 9.5 percent. But the U.S. economy had more job loss than economists expected. The U.S. economy added 71,000 jobs in July, but lost 131,000. Manufacturing added 36,000 jobs, but those gains are the lowest of the year as orders and production decline. Average hourly earnings increased, average hours worked rose and productivity increased. But increasing productivity is another factor holding back hiring.

U.S. unemployment rate stuck in limbo

Companies in the U.S. added workers in July for a seventh straight month. However, The Wall Street Journal reports that taking into account revisions to prior months this year, the U.S. economy added an average of less than 100,000 jobs a month in the first seven months, a level that’s not strong enough to offset the job loss that would bring unemployment down. Jobs report data for June was also revised downward. Jobs fell 221,000 that month, more than the 125,000 job loss previously reported. Only 31,000 jobs were added to the private sector in June. The 131,000 job loss in July far exceeded the 60,000 economists polled by Dow Jones Newswires were expecting.

U.S. economy: work is  good if you got it

July’s jobs report did contain a few bright spots. Daily Finance reports that the average workweek increased by 0.1 hour to 34.2 hours. Average hourly earnings increased 4 cents to $22.59 per hour. U.S. productivity continues to increase at a robust rate — 3 percent in the last 12 months and 4 percent in the first quarter of 2010. Higher U.S. productivity is boosting corporate earnings. Companies are sitting on huge piles of cash. High productivity and more efficient business models are good for stock prices, but that means many companies don’t feel they have to hire more workers.

Fed ponders what to do about unemployment

The jobs report could determine what the Federal Reserve does next to influence the unemployment rate. Bloomberg reports that options outlined by Fed chairman Ben Bernanke last month include further reducing the 0.25 percent rate the Fed pays on banks’ reserve deposits.  Expanding the amount of assets on the Fed’s near-record $2.3 trillion balance sheet — a broad gauge of Fed lending to the financial system to hold down borrowing costs, is also an option.

Americans at odds with themselves about unemployment

Meanwhile, much like the good news/bad news in the jobs report, the conflicting opinions of the public cancel each other out. More than seven in 10 Americans say the U.S. economy is still mired in recession, according to a Bloomberg National Poll. Seven of 10 Americans also said reducing unemployment is the government’s top priority. But more than half are skeptical of the stimulus program and wary of more spending.

New home sales in June beat forecasts, but they were still the second lowest on record as the U.S. housing market drags on economic recovery. pnrwa/Flickr photo.

New home sales exceeded gloomy forecasts in June, rebounding from a record low in May. But because new home sales fell so low after the home buyer tax credit expired last spring, June’s numbers were still the second lowest on record. Some believe that the worst of the post-tax-credit slump is over. Others think that increasing foreclosures and the stubbornly high U.S. unemployment rate offset the positive news.

New home sales beat forecast, but that’s not saying much

The Commerce Department said on Monday that new home sales jumped 23.6 percent to a 330,000 unit annual rate from a downwardly revised 267,000 units in May. CNBC reports that the pace of new home sales in June was still the second lowest since records started being kept in 1963. However, the percentage increase was the largest increase since May 1980, and partially offset the historic 36.7 percent decline in May. Even so, economists expect a weak U.S. housing market to be a drag on U.S. economic recovery for much of the year.

Record-low mortgage rates stanch the bleeding

New home sales weren’t as bad as expected, in part because of the lowest mortgage rates on record. Bloomberg reports that record low mortgage rates are a serving as a stabilizer for the U.S. housing industry that triggered the worst recession since the 1930s. However, increasing foreclosures are swelling the number of unsold existing homes, putting pressure on prices and keeping buyers on the sidelines as unemployment hovers near 10 percent and the economy cools. New home prices are continuing to fall. The median price for new home sales decreased 0.6 percent from June 2009 to $213,400.

U.S. housing market continues to drag on economic recovery

New homes sales made up about 7 percent of the U.S. housing market last year. Taragana.com reports that number is down from a portion of about 15 percent before the housing crisis. Weak new home sales mean there are fewer jobs in the construction industry, which has historically driven economic recoveries. Each new home built creates, on average, three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the National Association of Home Builders. The effect is felt across multiple industries.

Senate Democrats mustered the votes to break a Republican filibuster on an unemployment benefits extension. Wikimedia Commons photo.

An extension of unemployment benefits for millions of jobless Americans overcame a Republican filibuster in the Senate Tuesday. About 2 million Americans have run out of jobless benefits since legislation stalled at the end of May. The U.S. unemployment rate is stuck at 9.5 percent. There are five times more people looking for work than there are available jobs. Most Democrats say unemployment benefits are an effective way to stimulate the economy. Some Republicans say unemployment benefits discourage people from looking for jobs.

Unemployment benefits escape Republican filibuster

The Senate voted 60-40 to break the Republican filibuster on the unemployment benefits extension. The vote took place minutes after Carte Goodwin was sworn in as the new Democratic senator from West Virginia to replace the late Robert C. Byrd. The New York Times reports that even after the vote, Democrats accused Republicans of needlessly stalling the unemployment extension by using their procedural power to delay the vote by another day rather than allow final consideration. Republicans said Democrats were forced to extend unemployment benefits because their efforts at lowering the U.S. unemployment rate with job creation had failed.

Unemployment benefits extended through November

The legislation extends unemployment benefits through November and retroactively covers people whose benefits have expired. USA Today reports that the House could pass the bill Wednesday and send it to President Obama for signing. Republicans said they wanted to help lower the U.S. unemployment rate, but only if the bill’s $33.9 billion price tag was offset with budget cuts elsewhere. On Monday, Obama accused Republicans of seeking to control federal spending “on the backs of the unemployed” while not demanding a way to pay for extending Bush administration tax cuts for the wealthy.

Unemployment benefits and economic recovery

The Congressional Budget Office says extending jobless benefits, which average nearly $310 a week, is the most efficient way for government policymakers to stimulate a weak economy. The unemployed spend their benefits on basic needs such as rent, food, gas and electricity. According to the CBO, every $1 spent on benefits generates 70 cents to $1.90 in economic growth.

Unemployment vote hardens political divide

Obama’s personal involvement in passing the unemployment extension has further hardened Republican opposition to virtually any attempt to govern the country. The Los Angeles Times reports that Tuesday’s Senate vote only increased the political divide in Congress and almost assured that any further domestic aid before November will be nearly impossible. Yet Democrats intend to press forward with new initiatives to promote job creation.

Unemployed Americans used as pawns in a political game

As November’s midterm elections draw closer, Democrats hope legislation like the extension of unemployment benefits will have an effect on job creation and economic recovery — as well as their chances for reelection. Republicans are trying to sabotage any Democratic achievements at all costs, in hopes that a fragile economy will improve their chances to regain control of Congress.

Even rich people are feeling the pinch during this recession. Coins are slipping through their fingers like sands in the hourglass. (Photo Credit: ThinkStock)

Spending has stimulated the recent recessionary economy, and rich people have largely been the ones doing the spending. But now the New York Times reports that even the big spenders have roped in their purchases. The Federal Reserve has acknowledged that America’s economic recovery has slowed. If conditions worsen, experts believe that another stimulus may be necessary.

If rich people spend, jobs are created

Demand for goods and services creates the need for additional jobs, and spending – particularly that of the top 5 percent of U.S. income earners – indicates demand. That top 5 percent, which includes those earning $210,000 or more annually, accounts for “one-third of consumer outlays, including spending on goods and services, interest payments on consumer debt and cash gifts,” according to Moody’s. As 60 percent of America’s economic fortunes depend upon consumer spending, that one-third is of super-sized significance. Gallup found that those earning $90,000 or more – their “upper income” classification – spent $145 per day in May 2010. That was up 33 percent more than  May 2009. Unfortunately, the numbers for June 2010 were significantly lower, reports the Times. Rich people spent a mere $119 per day. Were they leaning upon bank loans more than was their custom?

Luxury businesses on the rocks

Early in 2010, luxury business showed strong numbers. As summer set in, reservations at hotels like the Four Seasons and Ritz Carlton fell. Sales at luxury retailers like Neiman Marcus and Saks Fifth Avenue slowed at about the same time. Rich people are spending less and buying less Real Estate in Manhattan and the Hamptons. Sure, those who aren’t rich are forced to be more frugal and use the occasional fast loan, but if rich people stop spending, it’s panic time.

Going where the Dow takes you

Considering their greater level of personal financial investment, rich people look at different indicators than the average person when it comes to evaluating the financial weather. The Dow Jones is a benchmark that means more to those who are extensively invested. When the numbers finally climbed back above 10,000 after being mired in the 7,000s months before, they psychological affect was palpable. Spending rose in all avenues, including car sales. Luxury vehicle dealers did well, but of late, some luxury auto dealers have enacted layoffs of 15 percent of more of sales staff. Even for those rich people who can still afford to spend, the psychological impact of looking like a glutton while the majority of the country pinches its pennies keeps them from spending more, according to studies by the Institute for Policy Studies in Washington.

What is the sign of economic apocalypse?

It could be that “apocalypse” casts too dark a pall, but consider this. Linda Stasiak, a high-end skin care product saleswoman, has found that the one single item that has experienced the top sales increase is the $15.95 tube wringer. It’s designed to squeeze each and every drop out of a tube – because today, even rich people are feeling the squeeze. Fast loans for tube squeezers, anyone?

Sources:

New York Times

Has the recession changed our perception of wealth?

Many business victims of the Ireland recession resemble this boarded-up UK pub (Photo: Geograph)

It was just a year ago that Ireland was in recession and losing a job every five minutes. Now the Wall Street Journal reports that the nation has officially exited the recession, based upon export-driven domestic product growth of 2.7 percent for Q1 2010. However, Ireland’s road to economic recovery remains long. One of the hardest-hit euro zone countries in the recent global recession, Ireland’s GDP had fallen by more than 14 percent entering 2010. As the New York Times indicates, a tremendous deficit and 13 percent unemployment have prompted Irish Prime Minister Brian Cowen to warn that there’s no easy way out of the economic quagmire.

Ireland and the recession: Investor confidence required

Ireland and its recession have continued largely because the country is paying much more on its benchmark bonds than more economically healthy euro zone countries, says the Times. This has given investors pause and has not reduced guaranteed loan borrowing, making it all the more difficult for Dublin to take care of business. Ireland’s primary goal is to restore investor confidence through deficit reduction, but higher taxes, lower salaries for public workers and the fallout of the burst housing bubble – including an uptick in the origination of low cost loans – have made it difficult for Ireland’s population to wait patiently.

Hanging their hat on exports

Ireland attracted companies like Intel, Microsoft, Facebook and LinkedIn to address previous recessionary woes, but this time, the Irish government is depending upon an export revival, according to the Times. Wage and energy cost decreases – as well as a falling euro – have “improved competitiveness,” writes the Times, but that may not create enough jobs. In fact, wage cuts have driven young workers away. They want instant money, not the promise of a better Ireland in 10 to 15 years, when experts predict future infrastructure spending will resume.

Prime Minister Cowen gritting teeth over 2012 elections

The long, hard road to economic recovery via tough deficit reduction may be the only way that Ireland will escape recession. However, politics are often a “What have you done for me lately?” arena. Prime Minister Cowen, despite his promise that he will not cut public salaries further in Ireland’s next budget, is on the ropes after the haymaker of public opinion. Irish voters may have had enough.

Sources:

Wall Street Journal

New York Times

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