U.S. Consumers, Businesses Taking it Slow

Well, the US economy is having a lackluster performance so far and the anemic growth is expected to last until the end of the year. Economists however are expecting US to bounce back on 2013 once the fiscal cliff hump is over.

WASHINGTON (MarketWatch) — The U.S. manufacturing sector has contracted, consumers are watching their wallets and lawmakers in the nation’s capitol are fiddling their thumbs.

Not a recipe for a stronger economy.

The latest batch of economic data is expected to show the U.S. muddling along. Consumers are spending too much on necessities such as gas and big-ticket manufactured goods are no longer flying off the shelves. A modestly improved housing market is not expanding fast enough to offset downward pressures on the nation’s growth, either.

MarketWatch consensus

DATE	REPORT	CONSENSUS	PREVIOUS
Sept. 25	Consumer confidence index	65.0	60.6
Sept. 26	New home sales	380,000	372,000
Sept. 27	Weekly jobless claims	375,000	382,000
Sept. 27	Durable goods orders	-5.3%	4.1%
Sept. 27	GDP revision	1.7%	1.7%
Sept. 28	Personal income	0.2%	0.3%
Sept. 28	Consumer spending	0.5%	0.4%
Sept. 28	Core PCE price index	0.1%	0.0%
Sept. 28	UMich consumer sentiment	78.9	79.2

Economists expect those trends to persist to the end of the year. The hope in 2013 is that lackluster global growth will gain more of a shine and that Washington won’t fall off a so-called fiscal cliff by letting big tax increases and spending cuts take effect in January as scheduled.

“Once we get over that at the end of the year, we are clearly expecting some confidence to come back to consumers and businesses,” said Yelena Shulyatyeva, an economist at BNP Paribas.

Cautious consumer

The big report of the week focuses on consumer spending — by far the biggest source of economic growth.

Americans likely increased purchases by 0.5% in August, the Commerce Department is expected to report on Friday. Incomes probably rose by 0.2%, according to economists surveyed by MarketWatch.

The headline, however, may turn out to be deceiving. Gas prices spiked in August and consumers had to shell out more to fill up their tanks. That’s not the kind of spending that helps an economy grow.

Indeed, gas stations last month reported their biggest increase in sales in nearly three years. Stripping out gas, retail spending rose a modest 0.3% in August, with auto purchases accounting for the bulk of sales. Consumers spent the same or less on a wide array of goods.

In any case, spending cannot outpace income growth for long, regardless of how consumers use their money. That would require them to go deeper into debt, something most Americans want to avoid given all the economic uncertainty.

“Most of the increase in spending has come out of savings,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research. “I think consumer spending is likely to slow further.”

Down to business

Businesses, for their part, have already reined in spending. Key export markets such as Europe and China have slowed and fear of the fiscal cliff could prompt companies to withhold investment and hiring until next year.

Further evidence of corporate caution could come with the latest report on durable goods. Orders for these long-lasting and typically expensive goods — computers, appliances, tractors — probably fell 4.5% in August, according to the MarketWatch survey.

Granted, most of the decline is likely to derive from a drop in aircraft orders, a volatile category that often skews the report. Yet orders for durable goods outside of autos and airplanes have been soft since the end of spring. That’s a clear sign of weakness.

The best news this week, once again, will probably come from reports on home prices and new home sales. Sales have risen sharply in 2012 after falling to a record low in the prior year — and rising demand is causing prices to catch up. People who have been holding off on buying a home don’t want to wait so long as to put the dream of ownership out of reach.

“Once manufacturing was a driver and housing was a laggard,” Shulyatyeva said. “Now they’ve switched.”

Yet housing is just starting to bounce off what appeared to be a bottomless pit and the market is not as important as it once was. Jim O’Sullivan of High-Frequency Economics calculates new-home construction accounts for just 2.5% of the economy now compared to a peak of 6.3% in 2005.

As a result, Dutta believes the modest improvement in housing is far too small to do the overall U.S. economy all that much good.

“The recovery story in housing is overdone,” he said. 

Jeffry Bartash is a reporter for MarketWatch in Washington.

http://www.marketwatch.com/story/us-consumers-businesses-taking-it-slow-2012-09-23

What are Hot Money in the Stock Market?

http://www.flickr.com/photos/36613169@N00/388322867

To put it simply, these are the foreign investments inflow in Philippine Stock Market. They are so called hot money because they can be pulled out easily from the stock market. The top five foreign investors came from the US, the United Kingdom, Singapore, Luxembourg and Hong Kong. Data from the Bangko Sentral ng Pilipinas (BSP) showed that as of August 19, 2011 FPI or hot money yielded a net inflow of $3.065 billion, up 99.6 percent from $756.58 million a year ago. 


The stock market recently experienced downturns in the month of August. It went down heavily and small investors like me sweated profusely waiting for the chaos to stop. Thankfully, this week we have seen some upswing in the market and I think the bullish market is about to unfold. 


The bloody August we have experienced is because of the hot money pulled out from the stock market. The foreign investors got scared because they fear that US might go in recession again. Coupled with the US Debt downgrade and European Debt Crisis, foreign investors pulled out their money from the stock market.


Foreign investors are unlike the average Filipino investors; they (foreign investors) are not that concerned about the losses recorded as long as they can still get some value out of the market.


There is nothing wrong with the fundamentals of our stock market. The problem is most of us Filipinos do not know how to invest in the stock market. There is no real or new money coming into the market, particularly for long term investment. 


What drives the stock market right now are the hot money from foreign investors that have the funds to move the market.We’re part of the global economy so we really cannot limit our exposure to foreign funds. There is a limit of liquidity we can get from Filipino investors. So it is best to open our market to foreigners. It will actually help the economy as a whole because it means that investors have confidence in our economy and we should encourage them to come in and leave when they want. I think the important thing is to manage the inflow and outflow of foreign funds so that it doesn’t come in as hot money which will give the market a boost at one point and also expose the market to global risk.


http://www.manilatimes.net/index.php/business/6227-hot-money-inflows-nearly-double-halfway-through-august
http://www.philstar.com/Article.aspx?articleId=715842&publicationSubCategoryId=63

Potential Consequences Had The U.S. Defaulted

By Marc Davis, Investopedia.com

With little time to spare, the U.S. government dodged a disastrous default on its debts, as the House and Senate passed an emergency bill to raise the country's debt ceiling and President Obama quickly signed it into law. The new legislation authorizes an increase of $2.4 trillion in additional government borrowing.

But what exactly would've happened or could've happened if a bi-partisan deal on raising the country's debt ceiling was not consummated? A default means that some or all of the people, businesses, institutions and governments that the U.S. owes money to would not be paid. They may be paid eventually, but not in the immediate wake of today's deadline when the U.S. would've  theoretically run out of money.

The Worst-Case Scenario
A worst-case scenario is depicted below, but none of this or only some of it might've occurred if the U.S. had defaulted.   Depending on how quickly and comprehensively the post-default problems were resolved, the U.S. economy may not have suffered a long-term crippling injury. In the most extreme case, it could take years or a decade or more for the economy to recover sufficiently after a government default for the U.S. to regain its formerly stable economic footing.

Money would continue to come in to the government, but not at the necessary rate to pay all its obligations because the debt ceiling of $14.3 trillion - the amount of money the U.S. may borrow, as mandated by law - would have been reached if the ceiling had not been raised.

Consequently, the government would have had to decide who gets paid and who doesn't. Entitlement programs might have been among the first to feel the cash crunch. Social Security, Medicare and Medicaid recipients might have been short changed.   Military veterans who receive pensions and other retired government workers, including legislators, judges, federal attorneys and others might have seen a reduction in their monthly checks. Defense contractors - the big firms that manufacture weaponry, aircraft, seagoing vessels - may also have been hit with partial payments of what the government owed them, or payment might have been suspended entirely until more money became available.

Another immediate consequence of a default is a lowering of America's credit rating by the major ratings agencies, Moody's and Standard & Poor's. That means with U.S. Treasuries deemed more risky, higher interest rates would have to be offered to attract lenders. The result of higher rates would ripple through the entire U.S. and global economies.

Impact on the Individual Consumer
For the individual consumer, there'd be higher rates for credit card purchases, mortgages, consumer loans of every variety. For businesses, both mature and start-up, higher rates would be charged for loans to expand, replenish inventory, purchase new technologies, hire more personnel. Stock prices would decline accordingly as economic growth is hampered. Venture capital, used to finance new businesses, would also become scarce as the economy slows, adding another obstacle to growth and employment.

Government funding of many programs which once stimulated economic growth would be curtailed or stopped. These would include government subsidies to industries such as agriculture, energy, transportation. Government grants and loans to college- and university-bound students would dry up, preventing gifted or financially strapped young people from getting a higher education and thus limiting their job opportunities.

As stock and real estate prices declined, endowment portfolios of colleges and universities would shrink, further limiting the funding of scholarship programs and student loans.

Primary research in technology, the sciences and medicine could also be impacted as both government and private sector money dried up.  There may be a reduction in the development and testing of new drugs. Patents for high tech inventions and copyrights for computer software applications, may not come as frequently as they did when these sectors were powerful drivers of a booming economy. 

Much needed infrastructure repair and rebuilding will of necessity be put on hold until more money became available to finance these projects.

A final result if this worst-case scenario had come to pass in all its horrifying economic damage, the U.S. standard of living would have declined unpleasantly, and the country's preeminent position in the world of economic stability and reliability, as a prime source of innovation in the sciences and technology, and as the most powerful nation militarily as a bulwark against war and aggression would be severely weakened. 

But, that's only if the worst occurs.

The Bottom Line
Almost all economists and a majority of both Democrats and Republicans and most political independents agree that the debt crisis had to be resolved andU.S. debt obligations had be paid. The points of disagreement were in the methods and numbers - should taxes go up or remain where they are, should tax loop holes and deductions be eliminated, where should government expenses be cut?  

These are the questions that the nation must confront again, if and when the higher debt ceiling is reached, which seems inevitable according to a consensus of economists if spending continues at its current pace and new government revenues are not obtained. If these problems are not solved, you can anticipate some or maybe all of the above calamities to befall the country with varying degrees of severity should the U.S. default on the new $2.4 trillion addition to the debt ceiling.