Deller's two cents: A few weeks ago I commented on a lot of companies and banks sitting on a lot of cash and I feared that companies might go on a buying frenzy rather than invest in new production and hiring people. Well, Intel just bought McAfee (known for its anti-virus software) for $7.68 billion. I hope we don't see a rash of these....
Economic Week in Review: Recovery losing momentum August 20, 2010
The U.S. economy continues in sputter mode.
While July saw some improvements in industrial production and housing starts, the most recent initial unemployment claims rose for a third straight week. For the week ended August 20, the S&P 500 Index fell 0.7%, to 1,072 (for a year-to-date total return-including price change plus dividends-of about -2.7%). The yield of the 10-year U.S. Treasury note dropped 6 basis points to 2.62% (for a year-to-date decrease of 123 basis points).
Prices for finished goods rise
The producer price index for finished goods rose 0.2% in July, following a 0.5% decline in June. Food prices rose, primarily because of a surge in vegetable prices, although home heating oil and gasoline prices dropped. Excluding food and energy, prices ticked up 0.3%; almost half the advance came from higher auto prices. Prices for finished goods advanced 4.2% for the 12 months ended in July, their ninth consecutive year-over-year increase. Much of the increase in manufacturers' prices is not being passed on to consumers, many of whom are still struggling with unemployment.
A modest increase in housing starts
Housing starts rose 1.7% to an annual rate of 546,000 units in July, below expectations but slightly better than the 537,000 rate in June.
Multifamily starts, with five or more units, led the way with a 17.3% increase while single-family starts declined about 4%. The South was the only region in the country to experience an overall loss. Total housing starts were down 7.0% from a year ago, when consumers were incentivized by the first-time homebuyers' tax credit. Permits for upcoming construction declined about 3% for the month.
Industrial production rebounds
Industrial production rose 1.0% in July, better than expected, following a 0.1% decline in June. Auto manufacturing, mining, and utilities helped lift production higher. Motor vehicle and parts production jumped nearly 10% in July, partly because General Motors didn't shut its plants for annual maintenance as it's done in the past. Despite broad-based improvement within manufacturing, analysts expect a solid, but slowing, pace of industrial production as companies better align their inventory levels with demand.
Weekly jobless claims highest in nine months
Initial claims for unemployment for the week ended August 14 rose to 500,000, higher than expected and the most since November. Jobless claims have risen for three consecutive weeks. Analysts said businesses continue to cut costs and may not be as confident as before in the economy.
"When you surpass 500,000 in new applicants for unemployment insurance, that's usually a bad sign for the strength of the recovery,"
said Vanguard economist Roger Aliaga-Díaz. "However, in this particular case, the number may not represent a sustained trend upwards-it could be related to temporary factors such as the ongoing expiration of Census jobs or a spike in the labor force as more workers get back into the market."
Index of leading indicators inches up
The Conference Board's index of leading indicators increased 0.1% in July, slightly below analysts' expectations, hinting at a slower economic recovery. Boosting the index were factors such as longer workweeks for factory workers and longer delivery times by suppliers.
The biggest drags included lower consumer expectations and fewer building permits. "The improvement is negligible," said Mr. Aliaga-Díaz.
"It signals future growth rates remaining at current levels, which are positive but well below normal for this stage of the recovery. We should expect a very slow and subdued recovery. This is consistent with what we're seeing from our proprietary leading economic index."
The economic week ahead
Next week, a series of reports will offer more insight into the direction of the U.S. economy. The highlight of the week will be the release of growth domestic product figures on Friday. Other reports released next week include figures on existing-home sales (Tuesday) and new-home sales and durable goods (Wednesday).
--
Steven C. Deller
Professor and Community Development Economist Department of Agricultural and Applied Economics
515 Taylor Hall --- 427 Lorch Street
University of Wisconsin-Madison/Extension Madison, WI 53706
608-263-6251
"Conformity can be costly in a world of uncertainty"
Nobel winning economist Douglass North
Recently published: Targeting Regional Economic Development For more info: http://www.routledge.com/9780415775915
