What is wrong with the US economy?

[Gokul43201]

In our area, people are abandoning their SUV's and large vehicles in favor of smaller ones like the Honda Civic (conventional and hybrid) and Toyota Prius.

And don't forget scooters: http://www.msnbc.msn.com/id/24620567/

With the average price of gas closing in on $4 a gallon, many cash-strapped motorists are turning to fuel-stingy motor scooters and smaller motorcycles. Dealers across the nation report brisk sales this spring, particularly for those that get from 75-120 miles per gallon.
...
Sales of name-brand scooters such as Honda, Yamaha, Vespa and Suzuki rose 24 percent in the first quarter of the year, said Mike Mount, spokesman for the Motorcycle Industry Council trade group — noting that it's not exactly a hot sales period because of cool weather in much of the nation.

Now that's a lifestyle change!

 

[Gokul43201]

The Dow fell 358 points and the Nasdaq, a whopping 80 points - I think the second largest single day loss in the last 12 months. The largest was the nearly 400 point day, about 2-3 weeks ago.

 

[russ_watters]

4% is no big deal, in fact the cost of gasoline is less than 2% of my income. But 13%?!

Mine's about 5.5% of take-home and I'm certainly feeling it, but it isn't a huge problem.

 

[russ_watters]

The Dow fell 358 points and the Nasdaq, a whopping 80 points - I think the second largest single day loss in the last 12 months. The largest was the nearly 400 point day, about 2-3 weeks ago.

Here's the data: http://finance.google.com/finance?cid=983582&client=news

There were two others: On Aug 9 it was down 387, Feb 29, 370.

One day rarely matters much - what matters right now is that it is down 12% in the past 6 weeks. In Jan it lost 12% in about 2 weeks. That one was the big one that we're now back just below the level of.

We have a 1-2 punch going, with the financial companies continuing to report losses (even after they keep saying the write-downs are over), plus fuel prices are getting to be more of a corporate concern, hitting the already crappy car companies (GM), shipping companies and airlines.

Early summer is typically worst for gas prices - we'll see if that holds true this year. If it does, the economy will come booming back in the fall (as economists are currently predicting). That'll add quite a late twist for the election outlook (a little like in 2000, but much closer to the election).

 

[Art]

Early summer is typically worst for gas prices - we'll see if that holds true this year. If it does, the economy will come booming back in the fall (as economists are currently predicting). That'll add quite a late twist for the election outlook (a little like in 2000, but much closer to the election).

The latest I've read is that crude is expected to reach $170 bbl in the next couple of months. If this keeps up the world economy will be in serious trouble.

The spike in the price of oil followed comments from the producers' organisation Opec about the prospect of oil at $170 a barrel this summer.

Oil producer Libya added to the pressure after signalling it may cut output, while a falling US dollar also pushed up the price of crude.

Analysts said a raft of bad news about the health of corporate America, the impact of higher oil on company profits and fears about US financial sector hurt investor confidence.

"I felt we were going to have a garden variety recession, but if oil goes up goes up to $170 and stays in the $170 area, who knows," said Al Goldman, chief market strategist at Wachovia Securities.

http://news.bbc.co.uk/2/hi/business/7476269.stm

 

[mheslep]

...If this keeps up the world economy will be in serious trouble.

http://news.bbc.co.uk/2/hi/business/7476269.stm

trouble +1
Total:
trouble, troubling: 25

 

[WarPhalange]

Can I just ask who's seeing the profits from such high oil prices? Who's getting paid $140 for a barrel of oil? What are that person's expenses in turn?

 

[Astronuc]

The people who own the oil/gas or oil/gas leases are the ones making money. If you bought gas leases a few years ago, you'd be making money.


Research In Motion hit after forecast disappoints
BlackBerry maker plans to step up spending as it faces new competition

SAN FRANCISCO (MarketWatch) -- Shares of Research In Motion slid more than 10% in early trading Thursday, a day after the wireless device maker signaled that future earnings may come under pressure as it ramps up spending to sustain its breakneck growth rate.

After the closing bell Wednesday, the maker of the popular BlackBerry line of smart phones reported that both revenue and net income more than doubled for its first fiscal quarter ended May 30. But the company (RIMM) also issued a lower-than-expected earnings forecast for the current quarter, during which it will come under increased pressure from competing products such as a faster, cheaper iPhone, which will hit the market next month.

They double their profit, but poeple expected more, to just doubling profit was not good news.

The stock has soared more than 65% over the last five months as investors banked on continued strong sales of the popular BlackBerry devices. . . . .

The company managed to continue its strong run for the first fiscal quarter, which ended May 31. RIM reported earnings of $482.5 million, or 84 cents a share, for the period compared to earnings of $223.2 million, or 39 cents a share, for the same quarter last year.
Revenue grew more than 100% to $2.24 billion from $1.08 billion last year.

While that seems fine, RIMM expressed concern that they may not be able to sustain that, so now investors are worried that the stock is now over-valued.


U.S. stocks sink; GM falls nearly 11%
Brokers no longer 'attractive,' says Goldman Sachs; oil tops $140 a barrel

NEW YORK (MarketWatch) -- U.S. stocks fell sharply Thursday with the blue-chip index enduring its worst June so far since 1930, and plunging to its lowest finish since Sept. 11, 2006, after getting slammed hard as crude soared to new highs and Goldman Sachs disparaged U.S. brokers and advised selling General Motors Corp.

"We're going to move in the opposite direction of oil, and General Motors is going to go out of business, at least according to Goldman Sachs," said Art Hogan, chief market strategist at Jefferies & Co.

. . . .

Cautious outlooks from Research In Motion Ltd., Oracle Corp. and Nike Inc. added to the gloom.
. . . .

Well Goldman Sachs could be taken down brokerage stocks in hopes of snapping up a good bargain.

Apparently Algerian Energy Minister Chakib Khelil, who serves currently as president of OPEC, said oil prices could jump as high as $150 to $170/bbl this summer, according to reports, so oil traders jumped to get oil at $140/bbl. Apparently one Libya's ministers is pushing for oil at $150/bbl.

http://www.bloomberg.com/apps/news?pid=20601087&refer=&sid=aBzD.V1iluuA

http://marketplace.publicradio.org/apheadline_detail.php?story_id=D91I10V01&group=ap.online.headlines.business

Declining issues outnumbered advancers by about 6 to 1 on the New York Stock Exchange, where consolidated volume amounted to 5.11 billion shares, up from 4.72 billion shares on Wednesday.

Tokyo, Friday, June 27 - The Nikkei 225 Average dropped 315.12 points to 13,507.20 in the early minutes.

London, Thursday, June 26 - Pan-European stock index closes at its lowest level since October 2005 as markets tumble.

The Fed will have to strengthen the dollar, or at least keep it from falling further in order to keep oil prices down, or prevent them from climbing further.


On the bright side - metals and mining stocks are doing well, and energy is mixed.

Gold for August delivery ended up $32.80 at $915.10 an ounce on the New York Mercantile Exchange. Gold had started to fall back from the $900 mark.

Anheuser Busch may sell of some assets to spoil InBev's offer of ~$65/share. If AB sells assets, they could pay down debt or spend the cash on stock holders in a one time special dividend. Some analysts expect AB may take the InBev offer at $70/share.

Certainly there are bargains in the equities markets - if you've got the money.

 

[Astronuc]

Floods may push corn inventories to historical low
USDA to report acreage; analysts warn of $10 corn and possible supply crisis

. . .

The loss of acreage could slash U.S. corn production and push the 2009 season's year-end stocks to the lowest level since just after World War II, analysts said. And the real damage is likely to be even worse than what Monday's 8:30 a.m. EDT report will show, as it's still too early to evaluate the full impact of the flooding.

"The report is already obsolete," said Elaine Kub, a grains analyst at commodities-information provider DTN. Many acres could be abandoned at a later date and the acreage situation will be worse than the report sounds, she said.

The acreage report is likely to show that the U.S. will harvest 77 million acres of corn in the 2009 season, down 1.8 million from the USDA's March report, according to an estimate from Shawn Hackett, president of agriculture futures brokerage Hackett Financial Advisors.
. . .
Corn yields are also expected to be hurt by the Midwest flooding, which by some estimates was the worst since 1993.

Shrinking acreage and falling yields could push 2009 year-end corn inventories to as low as 300 million bushels, down 80% from the previous year, Hackett projected. This will be the lowest inventory level the U.S. has seen since 1947.

The USDA, without fully considering the impact of flooding, projected in early June that corn year-end stocks would stand at 673 million bushels in 2009, down 53% from a year ago and the lowest in 13 years. . . . .

This will be troublesome if food prices escalate well above incomes.

I've noticed that local restaurants, cafes, delis and other food places are less busy, and emergency food demand is up. Not a good sign.

 

[russ_watters]

The people who own the oil/gas or oil/gas leases are the ones making money. If you bought gas leases a few years ago, you'd be making money.

They aren't fundamentally different from stocks (and much of that actually is just stocks). So really, it's about half of the population of the US who sees that profit.

 

[Astronuc]

They aren't fundamentally different from stocks (and much of that actually is just stocks). So really, it's about half of the population of the US who sees that profit.

Umm - there is a big difference. I imagine that few in the bottom 90% has any significant equity in oil/gas leases or rights. In much of the west, the mineral rights are owned by very few people. Most land owners west of the Mississippi do not own the mineral rights under their property. The why people in Texas, Oklahoma, Colorado and most, if not all western states, may find an oil right on their property or next door.

For example - http://www.lavetaforsale.com/Mineral-Rights.php

Meanwhile, the economy sheds jobs and some formerly hot companies are downsizing or not expanding.

ADP shows biggest job loss in nearly 6 years
Private-sector jobs decline by 79,000 in June

The ADP National Employment Report® is a measure of nonfarm private employment, based on a subset of aggregated and anonymous payroll data that represents approximately 392,000 of ADP's 500,000 U.S. business clients and roughly 24 million employees working in all 19 of the major North American Industrial Classification (NAICS) private industrial sectors.

http://www.adpemploymentreport.com/


Starbucks to close 600 U.S. stores, cut 12,000 jobs [not inlcuded in the 79,000 lost jobs above]

Blockbuster drops bid for Circuit City

But Yahoo shares are up after news (rumors) that MS is considering a new bid.

 

[Gokul43201]

Meanwhile, the economy sheds jobs and some formerly hot companies are downsizing or not expanding.

ADP shows biggest job loss in nearly 6 years
Private-sector jobs decline by 79,000 in June

http://www.adpemploymentreport.com/

I would wait for the Labor Department numbers that should come out tomorrow. ADP is known to have large error bars.

 

[russ_watters]

Umm - there is a big difference. I imagine that few in the bottom 90% has any significant equity in oil/gas leases or rights.

You imagine? Could you at least elaborate a little on what this "big difference" is?

The way I see it, it is pretty simple: If Exxon owns drilling rights to East Bumblefrick and I own .001% of Exxon, I own .001% of the drilling rights to East Bumblefrick.

In much of the west, the mineral rights are owned by very few people. Most land owners west of the Mississippi do not own the mineral rights under their property.

I didn't know that, but in any case, that has nothing to do with what I said.

 

[Gokul43201]

Labor Dept. says we dropped 62,000 jobs. Unemployment still at 5.5%. But the interesting news from the market is that financials are outperforming other sectors.

 

[Jimmy Snyder]

Unemployment still at 5.5%.

I made a wager that it would be at 5.2% this month. No one took me up on it so I won't be eating that steak dinner. Thus the downward economic spiral continues.

My wife was in Canada recently and she brought me a bottle of wine called "Peace", and yet is also called "Icewine". It's a 2006 Chardonnay from VQA of British Columbia. Perhaps you are familiar with it. I have never tasted such sweet wine except for the sacramental wine in the synagogue. It's not bad wine, but I really don't like it. The bottle will slowly drain though she will never see me drinking it. Someday the bottle will be empty and that will be the end of that.

 

[B. Elliott]

June 9, 2008
Rural U.S. Takes Worst Hit as Gas Tops $4 Average
http://www.nytimes.com/2008/06/09/business/09gas.html
By CLIFFORD KRAUSS
4% is no big deal, in fact the cost of gasoline is less than 2% of my income. But 13%?!

I didn't think to calculate mine till I read this, but mine is currently about 14%.

 

[edward]

It looks like problems in the housing market are far from being over. Indymac a subsidiary of Countrywide financial has just been seized. Fanny mae and Fredide mac stock is down.

http://ap.google.com/article/ALeqM5iWxtfjpQDpa7Wc4t3xQQf84g16XgD91S1G4O0

 

[Jimmy Snyder]

This story may support Russ Waters' thesis.

http://www.msnbc.msn.com/id/25657232"

 

[hagopbul]

the wrong in US economy is greed...

 

[Gokul43201]

What a June it's been! Inflation numbers just came out from the Labor Dept - 5.0%

But July has to be better. We've had a $10 drop in crude prices in less than 2 days, thanks to positive inventory numbers. What better news can the markets ask for?

I wonder what might happen to the argument of sound economic fundamentals if the Government has to intercede in the markets to unprecedented levels?

 

[Gokul43201]

But July has to be better. We've had a $10 drop in crude prices in less than 2 days, thanks to positive inventory numbers. What better news can the markets ask for?

And on that note, what a day it's been! I imagine it's among the top 5 for this year.

 

[Bujingyun]

All due to over-borrowing.

 

[Jimmy Snyder]

Hopes for a recession were dealt a very hard blow today.

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.9 percent in the second quarter of 2008 (that is, from the first quarter to the second quarter), according to advance estimates released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.9 percent.

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm"
I don't know how these things work, but I doubt the NBER is going to declare a recession with a negative 1.9% decrease. Don't give up hope though, the previously reported 0.6% increase in the last quarter of 2007 has been revised to a positive 0.2% decrease.

 

[Gokul43201]

Hopes that May unemployment numbers were a statistical blip were dealt a very hard blow today.

http://news.bbc.co.uk/2/hi/business/7537463.stm

People hoping for 5.2% or better should not give up hope though. There's still many more months left in the future.

 

[russ_watters]

Not sure how the Q2 GDP numbers flew under the radar. I didn't even see them when they came out and I was looking for them! (I knew they were out this week).

WASHINGTON — The economy expanded less than expected this spring, and actually shrank in the final months of 2007, the Commerce Department said Thursday in a report raising concern the nation is headed toward, or is already in, a recession.
The gross domestic product, the broadest measure of U.S. goods and services, increased at a 1.9% annual rate in the April-to-June quarter, buoyed by $78 billion in federal tax rebate checks and the strongest exports in decades. Growth was slower than economists predicted, but was up from the 0.9% pace of the previous quarter. The economy contracted at a 0.2% rate in the final months of 2007 — its worst showing since the 2001 recession.

Still, the quarter ended June 30 may be the high point for the year. In a recent survey by USA TODAY, 54 top economists predicted growth will slow to a barely perceptible 0.2% annual rate by the end of 2008.

http://www.usatoday.com/money/economy/2008-07-31-gdp-jobless_N.htm?loc=interstitialskip

 

[Jimmy Snyder]

Hopes that May unemployment numbers were a statistical blip were dealt a very hard blow today.

http://news.bbc.co.uk/2/hi/business/7537463.stm

People hoping for 5.2% or better should not give up hope though. There's still many more months left in the future.

That would be me. What were you hoping for?

 

[Gokul43201]

That would be me. What were you hoping for?

I was hoping to land a post-doc. Thanks for inquiring.

 

[russ_watters]

Income stats for 2007 are out: http://www.census.gov/hhes/www/income/histinc/h03AR.html

Second table has inflation adjusted values. The USA Today article on it says the median rose 1.3%, from '06 to '07, but that must not be inflation adjusted: incomes actually rose for only two of the five fifths of the population they bracket (3/5 and 4/5 - the middle class). Incomes dropped about 1% for the lowest bracket and a big 2.9% for the top bracket - no doubt the drop at the top was due to the loss of investement income from the housing/finance funk. And the top 5% lost a whopping 7%.

This isn't what I expected - I expected small but across the board increases (though I didn't think about the effect of the sub-prime mess on the wealthy) and I'm a little confused about why we didn't see it: the GDP rose a healthy 3.2% in 2007. So where'd that money go?

 

[Gokul43201]

Population growth (that's only about 1%)? Foreign investors?

 

[quadraphonics]

Foreign investors?

It turns out it went to Canada

"Foreign direct investment capital inflows from Canada into the United States increased by 500 percent between 2006 and 2007, jumping from $6.6 billion to $39 billion.
Foreign direct investment from the United Kingdom into the United States more than doubled between 2006 and 2007, rising from $11 billion to $27 billion.
Switzerland, Singapore, Australia, and Belgium all substantially increased their investment in the United States between 2006 and 2007. "

www.ofii.org/docs/FDI_2007.doc[/URL]