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Transcript of 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
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.
What economists care about:
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 care about:
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.
Leading Economic indicators
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
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.
Leading Economic indicators
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.
Leading Economic indicators
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.
Leading Economic indicators
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
Leading Economic indicators
◦ 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 !