do i have a job? do my friends have jobs? do i have investments? are they down? are gas prices...

The State of the US Economy and Why You Care

By Mary C. Kelly, PhD

Do I have a job?

Do my friends have jobs?

Do I have investments? Are they down?

Are gas prices increasing?

Am I upside down on my house?

Are my taxes going to increase?

What you care about:

1. Unemployment figures….◦ Unemployment: 8.5%◦ Jobless rate: 8.1%◦ Doesn’t measure discouraged workers or ◦ Underemployment◦ 227,000 new jobs in Feb 2012

2. Stock market is back to….

What economists care about:

3. Gas prices are going up, increasing prices of

everything…

4. One out of four houses is upside down (the

mortgage is

◦ more than the house’s current value)…

◦ Housing market is very soft. 30 year fixed rates averaged

◦ 3.88% Jan 16-20, 2012, the lowest on record

◦ Refinancing is very difficult, cumbersome, and repetitive

◦ More government legislation regulating lending institutions –

more than 2,300 pages of Dodd-Frank legislation.


5. Taxes are going to increase: Over $1 Trillion of

annual deficits as well as more of the same in the

next few years.

◦ w ww.usdebtclock.org

◦ $15.5 Trillion Debt

◦ $150,000 per taxpayer

◦ Top 5% of Americans pay 58.66% of Income taxes collected

◦ Bottom 50% of Americans pay no federal taxes

◦ The LafferCurve


What economists look at besides their crystal ball

Leading Economic indicators

Average weekly hours (manufacturing) –

◦ Adjustments to the working hours of existing

employees are usually made in advance of new

hires or layoffs, which is why the measure of

average weekly hours is a leading indicator for

changes in unemployment.

Average weekly jobless claims for unemployment

insurance –

◦ The CB reverses the value of this component from

positive to negative because a positive reading

indicates a loss in jobs. The initial jobless-claims data is

more sensitive to business conditions than other

measures of unemployment, and as such leads the

monthly unemployment data released by the

Department of Labor.


Manufacturer's new orders for consumer

goods/materials –

◦ This component is considered a leading indicator

because increases in new orders for consumer

goods and materials usually mean positive

changes in actual production. The new orders

decrease inventory and contribute to unfilled

orders, a precursor to future revenue.


Leading Economic indicators Vendor performance (slower deliveries diffusion

index) –

◦ This component measures the time it takes to deliver orders

to industrial companies. Vendor performance leads the

business cycle because an increase in delivery time can

indicate rising demand for manufacturing supplies. Vendor

performance is measured by a monthly survey from the

National Association of Purchasing Managers (NAPM). This

diffusion index measures one-half of the respondents

reporting no change and all respondents reporting slower

deliveries.

Manufacturer's new orders for non-◦ defense capital goods - As stated above, new orders

lead the business cycle because increases in orders usually mean positive changes in actual production and perhaps rising demand. This measure is the producer's counterpart of new orders for consumer goods/materials component (#3).

Building permits for new private housing units –◦ Building permits mean future construction, and

construction moves ahead of other types of production, making this a leading indicator.


The Standard & Poor's 500 stock index –

◦ The S&P 500 is considered a leading indicator

because changes in stock prices reflect investor's

expectations for the future of the economy and

interest rates. The S&P 500 is a good measure of

stock price as it incorporates the 500 largest

companies in the United States.


Money Supply(M2) –

◦ The money supply measures demand deposits, traveler's checks,

savings deposits, currency, money market accounts and small-

denomination time deposits. Here, M2 is adjusted for inflation by

means of the deflator published by the federal government in the

GDP report. Bank lending, a factor contributing to account

deposits, usually declines when inflation increases faster than the

money supply, which can make economic expansion more difficult.

Thus, an increase in demand deposits will indicate expectations

that inflation will rise, resulting in a decrease in bank lending and

an increase in savings.


Interest rate spread (10-year Treasury vs. Federal Funds target) – ◦ The interest rate spread is often referred to as the

yield curve and implies the expected direction of short-, medium- and long-term interest rates.

Read More http://www.investopedia.com/university/conferenceboard/conferenceboard2.asp#ixzz1ojFzJihH


◦ The average duration of unemployment (inverted)

◦ The value of outstanding commercial and industrial loans

◦ The change in the Consumer Price Index for services

◦ The change in labour cost per unit of output

◦ The ratio of manufacturing and trade inventories to sales

◦ The ratio of consumer credit outstanding to personal

income

◦ The average prime rate charged by banks

Lagging Economics Indicators

◦ Number of employees on non-agricultural payrolls

◦ Personal income less transfer payments

◦ Industrial production

◦ Manufacturing and trade sale

Concurrent Economic Indicators

Changes in the yield curve have been the most accurate predictors of downturns in the economic cycle. This is particularly true when the curve becomes inverted, that is, when the longer-term returns are expected to be less than.

Index of consumer expectations - This is the only component of the leading indicators that is based solely on expectations. This component leads the business cycle because consumer expectations can indicate future consumer spending or tightening. The data for this component comes from the University of Michigan's Survey Research Center, and is released once a month.

Hard to start and sustain a business Taxes US Debt Greece, Ireland, Portugal, Spain, Italy Iran’s Nuclear Ambition Israeli response Syria

What keeps me awake at night:

75% growth rate 4th quarter 2011

Consumer confidence is up

US has been growing for 32 months

American consumer account for 70% of

every dollar spent in US economy

Housing values don’t matter as much as

people think

The Good:

Retirees are suffering

Millions of retirees did everything right:

1. They saved

2. Invested in stocks, then shifted to bonds and CDS – in

bundled mortgages – to get steady stream of income

3. Because of lower interest rates, retirees are not getting

rates of return on investments

4. Retirees not able to spend on travel, entertainment,

restaurants, housing

5. Retirees looking for higher rates and vulnerable to scams

The Bad:

1. Save 10% of income, with some as cash.

2. Save 10% for retirement in protected

accounts ROTH IRA, 401 (k).

3. Adjust accounts yearly.

4. Eliminate all debt except housing and car

payments.

5. Manage credit cards.

What to do protect yourself:

THANK YOU !

do i have a job? do my friends have jobs? do i have investments? are they down? are gas prices...

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