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GDP revision may give the Fed food for thought

fredgraph

Vanguard’s Economic Week in Review

With plenty of signs out this week pointing to momentum in the economy—improvements in factory activity, consumer confidence, new-home sales, and personal income—the downward revision to first-quarter gross domestic product came as a surprise. On June 19, Federal Reserve Chairman Ben Bernanke had rattled markets by mentioning that “letting up a bit on the gas pedal” with the Fed’s bond purchases might be appropriate later this year if the economy keeps improving. But this week’s GDP revision, along with reassuring statements from the central banks of Europe and China, helped allay market concerns about an imminent change in monetary policy.

As of midafternoon Friday, the S&P 500 Index was up about 1% for the week to 1,613, while the yield on the 10-year U.S. Treasury note was basically flat at 2.49%. The week’s final figures will be posted here after the markets close.

First-quarter GDP estimate is lowered

The Commerce Department again lowered its estimate for economic growth in the first quarter of 2013. Its latest reading indicated that economic output grew 1.8% on an annualized, inflation-adjusted basis. That was well above the 0.4% reported for the fourth quarter of 2012, though considerably below the previous estimate of 2.4%.

Consumer spending remained the largest contributor to growth despite January tax increases, but to a lesser extent than earlier estimated. Winter utility bills accounted for a considerable part of the rise. Business spending and inventories also drove growth for the period. Disappointing, though, were a quarter-over-quarter deceleration in fixed investment spending and acceleration in inventories.

Government spending was less of a drag on growth in the first quarter than in the fourth quarter of 2012, thanks to a slower decline in defense spending.

“The Fed has made clear it will implement policy consistent with current economic conditions,” said Vanguard economist Andrew J. Patterson, “and a sharp downward revision in GDP such as this, especially considering much of the revision was due to downwardly revised consumer spending, may quell some fears of the central bank tightening policy too soon.”

GDP: Under the hood
4Q 2012 1Q 2013
Real GDP growth
+0.4% +1.8%
Major components: Contributions/subtractions
Consumer spending +1.3% +1.8%
Business spending and inventories +0.2% +1.0%
Trade (exports minus imports) +0.3% –0.1%
Federal, state, and local government spending –1.4% –0.9%

Annualized quarterly change, rounded.
Get a closer look at GDP and its components.

Consumer confidence reaches five-year high

Consumers surveyed by The Conference Board about the present economic situation and their expectations for the next six months were more optimistic in June, pushing the Consumer Confidence Index up to 81.4, its highest level since January 2008. That compares with 74.3 in May and 58.4 in January. It should be noted, though, that June’s survey results were collected before the recent market volatility.

SubscribeThe present-conditions component of the index rose by 4.4 points, with more respondents saying jobs were “plentiful” and fewer characterizing current business conditions as “bad.” Consumers were even more enthusiastic about the short-term outlook for employment and business conditions, pushing that measure up by 8.9 points.

The picture was more muted for income and buying plans. Fewer consumers in June said they expected their income to increase over the next six months, and more indicated their income was likely to stay the same. In keeping with those guarded expectations, consumers’ buying plans remained more or less flat.

For durable goods, a solid repeat performance

May orders for long-lasting manufactured goods surprised analysts by rising $8.0 billion, matching April’s 3.6% gain. A significant part of that increase came from the volatile transportation equipment segment, as orders rose 10.2%, led by nondefense aircraft and parts. (Aircraft orders at Boeing rose from 51 in April to 232 in May, according to the company’s website.)

The Commerce Department data showed more modest increases in orders for many other segments. Notably, orders for core capital goods rose more than 1% for the third month in a row. This category—which includes machinery, computers, and software—is watched closely as a proxy for business spending. Orders for motor vehicles and parts were an exception to the upward trend, falling 1.2% in May despite strong vehicle sales in recent months.

New-home sales remain on the mend

Sales in May of new single-family homes reached a seasonally adjusted annual rate of 476,000, up 2.1% from April and 29.0% from May 2012. Some regions fared far better than others; monthly sales climbed 40.7% in the Midwest and 20.7% in the Northeast but slumped 9.0% in the South.

The inventory of new homes for sale remained near cyclical lows. Although it edged up a little in May to 161,000 units, that level represented a tight 4.1 months of supply at the current sales rate. The median sales price for a new home in May was $263,900, 3.2% lower than in April but 10.3% higher than in May 2012.

Income rise joined by more spending and saving

Personal income rose 0.5% in May—more than expected—mostly because of increases in interest and dividend income as well as government transfer payments such as Social Security income, the Commerce Department reported. Consumer spending rose 0.3%, a welcome development given its importance to the economy and April’s disappointing reading. Higher earnings also allowed consumers to save a little more: The savings rate rose to 3.2% in May and was adjusted upward for April from 2.5% to 3.0%.

The economic week ahead

Monday brings a construction spending report along with the ISM Index on manufacturing. Reports are due out Tuesday on factory orders and Wednesday on the ISM Non-Manufacturing Index. Import and export data will be released Wednesday and the closely watched monthly employment report Friday.

Summary of major economic reports
Date Report Actual
value
Consensus
expected value
10-year note yield S&P 500 Index
June 24 +5 bp –1.2%
June 25 Durable-Goods Orders (May)
Source: Commerce Department
+3.6% +0.9% +3 bp +0.9%
Consumer Confidence (June)
Source: The Conference Board
81.4 76.8
New-Home Sales (May, annualized)
Source: Commerce Department
476,000 464,000
June 26 Real Gross Domestic Product (Q1 annual rate)
Source: Commerce Department
+1.8% +2.5% –5 bp +1.0%
June 27 Initial Jobless Claims (week ended June 22)
Source: Labor Department
346,000 336,000 –6 bp +0.6%
Personal Income (May)
Source: Commerce Department
+0.5% +0.2%
Personal Spending (May)
Source: Commerce Department
+0.3% +0.4%
June 28
Weekly change

bp=basis points. 100 basis points equal 1%. For example, if a bond’s yield rises from 5.0% to 5.5%, the increase is 50 basis points.

Notes

  • The economic statistics presented in this report are subject to revision by the agencies that issue them. For more information on the reports mentioned in this article, read our Guide to major U.S. economic reports.
  • All investing is subject to risk, including possible loss of the money you invest.
  • Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index

 

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6 Businesses That Thrive In A Recession

gold-digger

Recessions mean everyone suffers? Well, not necessarily true at all and some businesses thrive during a recession and see the opportunities that it throws up really help them flourish. When most others who did well in the good times stall, these are the businesses that people should invest in.

Sin Industries

Where you would have once purchased a new TV, or taken a holiday to the wine region of France, people will scale down their luxuries in a recession. Fortunately for them most sin is cheap and though they may bypass the new electrical goods, it’s a good time to own an off-licence or sell cigarettes; all of which improve in sales during recession. Chocolate also becomes an alternative to a good night out and does well. The only morally dubious industry to suffer is gambling, which relies on extra cash to do well and takes advantage of the happy go lucky feeling of the good times. All that being said, mobile gambling is currently thriving during the recession.

 

The Constants

There are some businesses that just continue as usual and there is no boom or bust cycle. Pharmaceutical companies, grave diggers, waste disposal companies and healthcare companies are all constants that do well either way. People get sick, are taxed and die whether times are good or bad.

Discount Retailers

Those who can sell goods at a lower price will obviously do well when people are watching their pockets. Discount retailers benefit greatly during a recession as they allow people to save, something they may not care for significantly in the good times. People will purchase more expensive items when things are good, but may lower their quality when looking for goods in bad times.

These companies also benefit from economies of scale and so can offer cheap goods at great prices to consumers. Though people don’t shop there as an ideal, they still do so during recessions.

Freelancers and Freelance Service Providers

Instead of bringing someone in during a storm and paying them a full wage, business providers and freelancers are taken on as they cost less. These freelance providers don’t require health insurance, a roof, canteen facilities and all the extras that add up in business and so thrive during bad times.

Property Management

Letting agents and others in the property management game do well in recessions as people find it harder to get mortgages to purchase a house. These businesses do well from the increased rental market and so make plenty during recessions.

Debt Settlement

Anyone involved in the area of money collection does well during the bad times. As businesses close, people lose money and need to employ professional services to get their investment back. This means that they will employ people in this area including debt collection companies, legal representatives and others, who all do well when things are down.

These examples of companies, who do well during the bad times, show that there is opportunity in the bad times as well as the good ones.

Cormac Reynolds writes for http://snap-edition.co.uk/ and has written numerous articles on how businesses can succeed during recessions.

 

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Congressional Reform Act of 2012

Warren Buffett, in a recent interview with CNBC, offers one of the best quotes about the debt ceiling:”I could end the deficit in 5 minutes,” he told CNBC. “You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congressare ineligible for re-election.

The 26th amendment (granting the right to vote for 18 year-olds)
took only 3 months & 8 days to be ratified! Why? Simple!
The people demanded it. That was in 1971 – before computers, e-mail, cell phones, etc.

Of the 27 amendments to the Constitution, seven (7) took one (1) year
or less to become the law of the land – all because of public pressure.

Warren Buffet is asking each addressee to forward this email to
a minimum of twenty people on their address list; in turn ask
each of those to do likewise.

In three days, most people in The United States of America will
have the message. This is one idea that really should be passed
around.

Congressional Reform Act of 2012

1. No Tenure / No Pension.

A Congressman/woman collects a salary while in office and receives no
pay when they’re out of office.

2. Congress (past, present & future) participates in Social
Security.

All funds in the Congressional retirement fund move to the
Social Security system immediately. All future funds flow into
the Social Security system, and Congress participates with the
American people. It may not be used for any other purpose.

3. Congress can purchase their own retirement plan, just as all
Americans do.

4. Congress will no longer vote themselves a pay raise.
Congressional pay will rise by the lower of CPI or 3%.

5. Congress loses their current health care system and
participates in the same health care system as the American people.

6. Congress must equally abide by all laws they impose on the
American people.

7. All contracts with past and present Congressmen/women are void
effective 12/1/12. The American people did not make this
contract with Congressmen/women.

Congress made all these contracts for themselves. Serving in
Congress is an honor, not a career. The Founding Fathers
envisioned citizen legislators, so ours should serve their
term(s), then go home and back to work.

 

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