Is The Economy Finally Improving?

July 17, 2009
Is The Economy Finally Improving?
Economic News and Information for Consumers

There was finally some decent news today regarding the outlook for the economy.  Earnings reports came in from numerous industry heavyweights including Mattel and Goldman Sachs, both showing strong earnings. More importantly though is data that came from the housing industry.

Housing starts have begun to increase for the first time in many months.  This is a great sign because it shows that builders are confident enough to invest and break ground in new areas.  They would only do so if they believe that the economy was on its way to turning around.

Some factors that could be affecting this new turnaround could be interest rates and tax incentives.

Interest rates continue to hover around 5%, which is extremely low though some would rather see rates at 4.5%.  The threat of inflation is on every one’s mind so buyers probably want to take advantage of low rates while they can.  It’s very possible that we could see rates like we had in the ’70s in coming years.

Tax incentives come from state and federal sources.  The federal tax incentive is an $8000 tax credit for first time homebuyers, this is a refundable credit that expires at the end of the year.  Many states are also offering incentives.  For example, California offers a $10000 tax break for those that buy a new home.  There is one caveat though, this money is due to run out very soon.

The economy will improve eventually but not until housing takes off again.  We expect employment to follow last.

Unemployment to be at least 10% through next year

July 15, 2009
Unemployment to be at least 10% through next year
Economic News and Information for Consumers

Do you think the unemployment picture is going to get better?  The FOMC says no, in fact, no improvement through all of next year.  Can you wait that long?

The economy isn’t quite recovering they way the Fed had hoped or expected.  Initially Obama had said that the stimulus package would prevent unemployment from rising above 8%.  That number is long gone as nationwide we hit 10% rather easily.  In some areas, like California, we have 13%, which when adding in part time workers and those that have given up looking for work should be closer to 16%.

Unemployment is largely affected by the retail market.  When people aren’t buying, jobs are lost, when jobs are lost, people aren’t buying.  It’s a nasty cycle that needs to be stopped through opening up credit markets and fixing the housing debacle.

Credit markets should have eased by this time but they haven’t because banks have held onto free government money instead of loaning to consumers as they were supposed to do.  This was another massive problem of lack of oversight.

Furthermore, banks are holding onto extensive inventories of foreclosed homes until the money they received through the TARP program also runs out.  Some sources believe this could happen later this year though that will differ from bank to bank.

When these problems are fixed, we’ll see employment numbers improve.  Until that time, they will likely continue to move upward.

U.S. Inflation Fears Level Market

July 14, 2009
U.S. Inflation Fears Level Market
Economic News and Information for Consumers

The Commerce reported today that wholesale inflation jumped 1.8% in June, which is almost double what the market thought was going to happen.  After taking out food and fuel the rate is .5%, also well above what the street had wanted.

Why the market is surprised is well, surprising.  The government has taken actions to increase spending more than  all previous administrations combined.   Yesterday the U.S. surpassed the $1 Trillion debt mark, which is just a number but still a significant one because it has never happened before and is poised to keep rising.

Why is inflation important?  Everything gets more expensive, which can stall even the best of economic recoveries.  Furthermore, the only way out of inflation is to have another recession and we definitely don’t need another one of those.

But even more worrisome is the overall impact inflation will have on mortgage rates.  Currently 30 year rates are just under 5% for many banks but this can easily skyrocket like rates did in the ’70s.  If you think rates are high when they reach 6% just wait until they double that mark because it can definitely happen with the spending we’ve had going on in the government.

If you’re in the market to buy a home, you’ll need to balance rates, price and government incentives for first-time home buyers.  Remember the $8000 tax credit expires at the end of the year.

Your GM Warranty - Dealers Disappear

July 13, 2009
Your GM Warranty - Dealers Disappear
Economic News and Information for Consumers

Concerned about your GM auto warranty?  You should be but not because the warranty is no longer good.

GM warranties have been backed by the government so they will continue to be good.  They also survived through bankruptcy so no problem there.  The bigger issue is where you’ll have your car or truck serviced because many dealerships will be closing their doors forever.

Where you purchased your GM vehicle may not exist in a year so you’ll need to pick up and drive farther.  If you’re in a population dense area like Los Angeles, this is probably not a problem for you.  It’s more those in remote areas where you could be forced to drive many more miles than your accustomed to.  Ask your local dealer if they made the cut and hopefully they’ll be forthright with you.  Remember, your warranty is still good.

GM emerges from bankruptcy this week, hopefully as a leaner more competitive company though it will take many years to assess this financial move and whether or not it helped.  In theory, it should.

This debacle started with $4 gas last Summer, which crushed GM’s truck sales, then came the recession and credit markets ceasing to a halt.  This was the final blow to GM that saw their sales slide worse than at any time in the company’s history.  GM was also removed from the DOW but is applying soon to re-enter.

If you like GM vehicles, now might be the time to get a new one.  Deals are abundant and credit has begun to ease.

Oil Prices Drop With Consumer Sentiment

July 10, 2009
Oil Prices Drop With Consumer Sentiment
Economic News and Information for Consumers

64.6, that’s the consumer sentiment reading that comes from Reuters and University of Michigan Survey.  This is down from 70.8 in June.

This reading basically tells us that consumers don’t feel very good about spending money.  If consumers don’t feel like opening their wallets, retail tanks.  This results in more job losses and the snowball effect goes on.

Oil, which was making a rebound last month has suddenly fallen to about $60 per barrel.  The only reason for the increase last month was speculation (and greed), that the economy was going to improve.  The market is supposed to be a forward-looking entity so any positive news can drive oil prices up.

The thought is that if the economy is improving, more people and industry will increase their use of oil/gas. For now, there are no signs of recovery so oil continues to drop.

When will we see recovery in retail and the general economy?  The housing debacle started this mess so it’s also the way out.  Unfortunately, the housing market has been bogged down with lengthy moratoriums designed to keep people in their homes.  This has done little more than to stall any recovery.  We have people still living in homes they cannot afford, not making payments and contributing little to any recovery.  If you can live for free, would you?

The next part of the problem has been the TARP money that banks received earlier in the year.  These funds were basically free to banks, with the intention that banks would loan out the money and ease credit markets.  This didn’t happen.  Instead, banks have held this free cash along with their foreclosed homes.  They use the foreclosed homes as write-offs until the TARP money runs out, which should be around the end of this year.

If you’re looking for a home, remember that over 70% of the inventory has been held back.  When this inventory is eventually released, prices will continue to drop.

State Jobless Claims Drop, But…

July 9, 2009
State Jobless Claims Drop, But…
Economic News and Information for Consumers

Jobless claims unexpectedly dropped for the period by about 50,000.  This is the first time claims have gone under 600,000 for months.  The stock market took the news lightly for a couple of reasons.

First, there is still significant unemployment so a drop of 50,000 may sound good but people are still losing their jobs, homes, cars and savings.

Second, continuing claims are still growing and quickly approaching seven million unemployed or almost 10% unemployment.  This number is much higher in specific hard-hit states like California, Nevada and Florida.  Even this number is likely higher because many people have gone off unemployment and found part-time work.  Some analysts believe it could be as high as 16%.

Last, the 4th of July weekend probably affected the actual numbers because government offices were closed in observance of the holiday.  We won’t really know the true impact for another week or two.

Regardless of the numbers, the market is reacting cautiously to any optimism because none of it has really panned out.  For a brief time we had oil quickly approaching $75 per barrel.  This was solely based on optimism that the economy was improving.  Now speculators are less sure of themselves so the price has dropped below $60 per barrel.

Housing is still a big problem.  Foreclosures are increasing as rates reset and people lose their jobs.  But even with this, available homes for sale is decreasing due to moratoriums and other hold-back reasons.  This stall is effectively slowing down any type of economic recovery.

It’s likely that banks have decided to hold onto their free TARP money and repossessed homes.  Only when the money runs out will they place the properties on the market.   It’s a good business decision for the banks but it’s not good for the economy.

Google’s New Operating System To Change Economy

July 8, 2009
Google’s New Operating System To Change Economy
Economic News and Information for Consumers

Google released today that they will be launching a new operating system in 2010, initially for smaller notebooks but undoubtedly the spread will be rapid.

If you’re not completely familiar with operating systems, you’re not alone.  Most people don’t think about them much but every time Microsoft comes out with a new one the “must haves” run out and make the purchase.  Of course it’s the last release that really gave Microsoft a black eye.

Windows Vista was an absolute mess from the very beginning.  Problems cleared up later with patches and other fixes but the early releases were devastating with frequent crashes, lost information and extremely slow start-up times.  Plus the system really wasn’t all that intuitive and that’s coming from an early Vista user.

In later machines the problem was fixed but the damage had already been done.  Microsoft did research to bolster support for Vista but that fell dead too, so they moved on to Windows 7, which is due for release very soon.

Of course many are so upset with Microsoft they might just wait to see what Google does and that could be a devastating blow for Microsoft’s bottom line.

We’ve always envisioned Google as being something between Microsoft and Apple, maybe they’ll be the one to ultimately win this battle given operating systems really aren’t all that important anymore.  Downloading the application from Google might just be the thing to do.

If you’re already a gmail, analytics, feedburner user then you’re probably very excited about the prospect of Google’s new operation system.  The only fallback of course is that Google will be tracking some of your data so they can somehow make revenue from it.  Does this bother you?  Not me, I could have used Microsoft’s Outlook for email but was an early adopter of Gmail.  I could care less about the small text ads at the top because I ignore them anyway.

Check back in 2010 and get ready for the Google OS.

California In Serious Trouble With IOU’s

July 7, 2009
California In Serious Trouble With IOU’s
Economic News and Information for Consumers

California has struggled financially for many years but 2009 could be the worst one yet, at least until 2010 rolls around.

It may be hard to believe but the state has still not approved a budget for this year.  What’s the problem?  There are too many expensive programs that Californians voted in and not enough money to pay for them.  Some of those in charge believe that raising taxes is the answer but reality tells us that we can’t get water from a rock.

California has much higher unemployment than the rest of the country, with housing that has been absolutely crushed over the last year.  For you optimists, there is no end in sight, no improvement in retail and jobs continue to wither away.

Given California is unable to pay its bills, it has begun to issue IOU’s to those servicing the state.  Many of these IOU’s have gone to the “big banks” that have been providing funds to the state for certain projects and cash flow needs.  But now, banks have said enough is enough.  As of Friday, IOU’s from the state will no longer be accepted effectively stopping necessary cash flow for California.  Can you blame the banks?  We can’t because the possibility of getting their money back is becoming more and more slim.

One analyst believes this could be the beginning of a collapse for the state yet we’re not sure what a collapse looks like.  It’s very possible that programs will simply shut down without notice, which is really dependant on what the state decides to pay and what they decide to let sit until it dies.

We probably won’t know the real effect of this debacle for months but those wanting payment on their IOU’s will feel it immediately.

Gas Prices Slide > 5 Week Low

July 6, 2009
Gas Prices Slide > 5 Week Low
Economic News and Information for Consumers

This Summer might just not match up to last like we thought.  We saw prices last year get well over $4/gallon.  This sudden rise was the catalyst to ruin the  auto industry and throw consumers into a tailspin where they no longer wanted to drive or purchase anything retail unless it was absolutely necessary, like food and that’s about it.

This year the traders somehow believed that we were out of the woods with the current recession.  We’re not sure what data they were looking at because unemployment will undoubtedly break 10% nationwide, the big auto makers have gone bankrupt, foreclosures are rapidly increasing even with moratoriums coming in and out and the risks of war is ever-growing with North Korea’s growing defiance of the world community.

For a while, prices went up bringing gas to over $3 per gallon but the speculators no longer have the rosy picture they did just a month ago.  In fact, they now believe any recovery is far off much like billionaire Buffet said in the last couple of weeks, basically mentioning that there are absolutely no signs of recovery. He should know because the businesses he owns are tied directly to the consumer.

Finally prices are beginning to reflect where the economy is.  However, we believe fuel should be under $2 consistently, mortgage rates should fall to 4% or lower and banks should finally release homes that have been sitting in their inventory for many months.  It’s the true solution to solving our economic woes.

$1000 Fine For No Health Insurance

July 2, 2009
$1000 Fine For No Health Insurance
Economic News and Information for Consumers

If we think of auto insurance and how that works in the U.S., consider that health insurance could soon be the same way.

In California if you drive without auto insurance or sufficient insurance (meaning you’re from another state but your limits are not to California standards),  you’ll be hit with some massive fines but probably not as much as you’d be hit with if you opted out of health insurance.

Senate Democrats have unveiled a new bill that will do just that.  If you don’t have affordable insurance, you’ll be hit with the fine.  The goal of course is to raise approximately $36 billion over the next 10 years, not to necessarily help people find insurance that works for their budget.

Of course the first question we ask is if people can’t afford health insurance, how can they afford to pay the massive fine?  Apparently the government says they will provide subsidies to the poor and middle-class, but those who don’t sign up will still be hit with the fine regardless of financial position.

The plan started in Massachusetts and now has gained traction in the Senate.

Obama’s health care plan looks to create health plans for 50 million Americans who are not currently covered.  The cost of the plan and how it will be paid for has not yet been established.

How do you feel about the possibility of fines for not having health insurance?  Sound off below:

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