Tag Archives: federal reserve

fulton

Home prices increase by most in 7 years

U.S. home prices jumped 12.1 percent in April from a year ago, the most since March 2006. More buyers and a limited supply of available homes have lifted prices in most cities across the country, a sign of a broad-based housing recovery.

“The increase in the number of people looking for a new home often runs parallel to a jump in home prices,” said Doug Fulton, CEO of Fulton Homes. “We are seeing steady growth in all of our communities, so it was no surprise to see the data from this new report. It’s great that more people are buying new homes, but it’s even more encouraging that more people are visiting our communities and showing serious interest in our homes.”

The Standard & Poor’s/Case-Shiller 20-city home price index released Tuesday also rose 2.5 percent in April from March, the biggest month-over-month gain on records dating back to 2000.

All cities except Detroit posted gains in April from March. That’s up from only 15 cities in the previous month.

Prices rose from a year earlier in all 20 cities for the fourth straight month. Twelve cities posted double-digit gains. San Francisco, Las Vegas, Phoenix and Atlanta all had price increases over the past year of more than 20 percent, while Detroit and Los Angeles showed gains of nearly that much. Minneapolis posted a 15 percent gain.

The housing recovery is looking more sustainable and should continue to boost economic growth this year, offsetting some of the drag from higher taxes and federal spending cuts. Steady job gains and low mortgage rates have encouraged more people to buy homes.

David Blitzer, chairman of the index committee, said the housing recovery should continue even with mortgage rates rising. Borrowing rates have jumped after Federal Reserve Chairman Ben Bernanke said last week that the Fed could slow its bond-purchase program, which is intended to keep long-term interest rates low.

“Home buyers have survived rising mortgage rates in the past,” Blitzer said, “often by shifting from fixed rate to adjustable rate loans.”

Blitzer said the bigger issue for the housing market is banks’ willingness to lend. A recent survey by the Fed suggested some banks are easing credit standards.

Still, Stan Humphries, chief economist at real estate data provider Zillow, said rising rates and an increase in the number of sellers should temper price gains in the coming months.

“The national housing recovery is strong and sustainable, but pockets of volatility will emerge,” he said. “Buyers expecting home values to continue rising at this pace indefinitely may be in for a shock.”

The index covers roughly half of U.S. homes. It measures prices compared with those in January 2000 and creates a three-month moving average. The April figures are the latest available.

Prices are rising because demand is up and fewer homes are available for sale. That’s made builders more optimistic about their prospects, leading to more construction and jobs.

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Rising gas prices could curtail consumer spending

Higher gas prices are crimping consumer spending and slowing the already-weak U.S. economy. And they could get worse in the coming months.

The Federal Reserve this week took steps to boost economic growth. But those stimulus measures are also pushing oil prices up. If gas prices follow, consumers will have less money to spend elsewhere.

The impact of the Fed’s actions “is likely to weigh on the value of the U.S. dollar and lift commodity prices,” said Joseph Carson, U.S. economist at AllianceBernstein. “We would not be surprised if (it) fueled more inflation in coming months, squeezing the real income of U.S. workers.”

Americans are already feeling pinched by high unemployment, slow wage growth and higher gas prices.

Consumers increased their spending at retail businesses by 0.9 percent in August, the Commerce Department reported Friday. But that was largely because they paid more for gas. Excluding the impact of gas prices and a sizeable increase in auto sales, retail sales rose just 0.1 percent.

Perhaps more telling is where Americans spent less. Consumers cut back on clothing, electronics and at general merchandise outlets — discretionary purchases that typically signal confidence in the economy.

Gas prices have risen more than 50 cents per gallon in the past two months. The national average was $3.87 a gallon on Friday. Most of the increase took place in August, which drove the biggest one-month increase in overall consumer prices in three years, the Labor Department said Friday in a separate report.

“Consumers were not willing to spend much at the mall since they are feeling the pump price pinch,” said Chris Christopher, an economist at IHS Global Insight.

Weaker retail sales will likely weigh on growth in the July-September quarter. Economists at Bank of America Merrill Lynch slashed their third-quarter growth forecast to an annual rate of only 1.1 percent, down from 1.5 percent. That’s not nearly fast enough to spur more hiring, which has languished since February.

The Fed is hoping to kick-start growth with a series of bold steps announced Thursday that could make borrowing cheaper for years.

It plans to spend $40 billion a month to buy mortgage bonds to make home buying more affordable. It also pledged to keep short-term interest rates near zero through at least mid-2015.

And Fed Chairman Ben Bernanke said the Fed will continue its efforts — and intensify them if necessary — until the job market improves “substantially.”

The announcement ignited a two-day stock market rally that sent the Dow Jones industrial average to its highest level since December 2007, the first month of the Great Recession.

But the Fed’s actions also helped move oil prices briefly above $100 a barrel Friday for the first time since May. They fell back slightly, but were still up 74 cents to $99.04 a barrel in mid-afternoon trading.

Carson noted that the Fed’s previous rounds of bond-buying pushed up commodity prices and fueled greater inflation. That weakened the ability of U.S. consumers to spend and likely slowed growth, he said.

He expects the same thing to happen again.

The Fed’s moves can push up oil prices in several ways. The Fed creates new money to pay for its mortgage bond purchases. That increases the amount of dollars in circulation and can lower their value. Oil is priced in dollars, so the price tends to rise when the dollar falls. That’s because it costs more for overseas investors to purchase dollars to buy oil.

Lower interest rates also push investors out of safer assets, such as bonds, and into riskier investments, such as oil, in hopes of a greater return. And if the Fed’s moves accelerate growth, that would increase demand for oil and gas and also raise their prices.

Higher gas prices are eating up a bigger share of Americans’ incomes than in previous years. Spending at the pump accounts for 8.2 percent of the typical family’s household income, according to Fred Rozell of the Oil Price Information Service. That’s just below last year’s 8.3 percent.

Those represent the biggest slice of household income spent on gas since 1981. The typical household spends about $342 per month on gasoline. Before gasoline prices began rising in 2004, households spent less than $200 per month, Rozell said, under 5 percent of median income.

Average gas prices are higher this year than last year. But Americans are using less by driving more fuel-efficient cars and driving less.

Meanwhile, average wages, adjusted for inflation, have been flat for the past year, the Labor Department said Friday. That adds to the squeeze on consumers.

One silver lining is that weakness should eventually push prices back down, economists note. That’s because people cut back on oil and gas consumption when prices rise.

“Unless the economic data rapidly improve, the gains in oil … prices are unlikely to be sustained,” Julian Jessop, an analyst Capital Economics, said.

Ben Bernanke

Are You Happy? Ben Bernanke Wants To Know

Ben Bernanke wants to know if you are happy.

The Federal Reserve chairman said Monday that gauging happiness can be as important for measuring economic progress as determining whether inflation is low or unemployment high. Economics isn’t just about money and material benefits, Bernanke said. It is also about understanding and promoting “the enhancement of well-being.”

Bernanke and Fed policymakers rely on reports on hiring, consumer spending and other economic data when making high-stakes decisions about the $15 trillion U.S. economy. The Fed’s dual mandate is to maintain low inflation and full employment.

“We should seek better and more-direct measurements of economic well-being,” Bernanke said Monday in a video-taped speech shown to a conference of economists and statisticians in Cambridge, Mass. After all, promoting well-being is “the ultimate objective of our policy decisions.”

Bernanke acknowledged that many people aren’t too happy right now. Unemployment rose in July to 8.3 percent, and economic growth has slowed sharply from the start of the year. He called the recovery “frustratingly slow” when he testified to Congress on July 17.

Aggregate statistics can mask important information about how individual Americans are faring, Bernanke says.

His speech Monday was the latest foray into a relatively new specialty in economics known as “happiness studies.” Bernanke attracted widespread notice when he spoke about the economics of happiness in a May 2010 commencement address at the University of South Carolina.

In that speech, he said research has found that once basic material needs are met, more wealth doesn’t necessarily make people happier.

“Or, as your parents always said, money doesn’t buy happiness,” Bernanke said then. “Well, an economist might reply, at least not by itself.”

In his remarks Monday, Bernanke turned to the more practical — and difficult — task of measuring a subjective emotion. So far, most efforts have involved surveys in which people are asked about whether they are happy and what contributes to their happiness.

Those surveys have found some consistent answers: physical and mental health, the strength of family and community ties, a sense of control over one’s life, and opportunities for leisure activity.

The Kingdom of Bhutan has been tracking happiness for four decades. The tiny Himalayan nation stopped tracking gross national product in 1972 and instead switched to measuring Gross National Happiness.

Bernanke on Monday sketched out a few other questions he would like to know: How secure do Americans feel in their jobs? How confident are Americans in their future job prospects? How prepared are families for financial shocks?

These indicators “could be useful in measuring economic progress or setbacks as well as in explaining economic decision-making,” Bernanke said.

It’s safe to say that Bernanke wouldn’t expect a great deal of optimism if those questions were asked now.

The Fed has said it plans to keep its key short-term interest rate near zero until late 2014, an indication that it expects the economy to stay weak for another two and a half years. And Fed policymakers appeared to signal after its two-day meeting last week a growing inclination to take further steps to lift the economy out of its slump.

Bernanke’s own definition of happiness might baffle some. He called it a “short-term state of awareness that depends on a person’s perceptions of one’s immediate reality, as well as on immediate external circumstances and outcomes.”

It’s not exactly how the classic comic strip Peanuts described it when it said, “Happiness is a warm puppy.” But perhaps Bernanke’s version can be measured more easily in surveys.

Economic concepts

Understanding Economic Concepts, Applying In A Global Perspective

Within the past few decades we have become a global economy, which adds great opportunity but also risk. Our global economy is affected by many more factors today and is connected deeply with other countries. How does this affect the United Sates?

It can affect us in many ways. Before analyzing our global economy it’s important to understand the basics of economics and apply them today in a global perspective. Even though, government and other country’s policies differ, it is still important to understand the basic concepts.

Some of the key economic concepts to be familiar with are: supply and demand, fiscal policy, monetary policy, economic indicators, business cycles, inflation, deflation and stagflation.

Supply and demand

In regards to supply and demand, the supply is the amount available of a particular good or service, and the demand is what buyers are willing to pay for that particular good or service.

The price of the good or service is the primary element that can control the supply or demand of the good or service. Typically if a business lowers the price of a good or service the demand will increase. Whereas, by raising the price of a good or service, the demand will decrease.

Fiscal and monetary policy

Fiscal policy is another major influence in our economy. This is when the government, under the direction of congress, influences our economic activity by taxing, borrowing or spending. Monetary policy on the other hand, controlled by the Federal Reserve, can increase or decrease the U.S. money supply. The Federal Reserve has many tools to assist with monetary policy:

1) Reserve requirement for banks
2) Increase or decrease the discount rate
3) Open-Market Operation (the purchase and sale of U.S. Treasury securities)
4) Margin requirements

With these tools the FED can act immediately to tighten credit or encourage it. Many times both fiscal and monetary policy are used together to control inflation in the hopes of having real economic growth.

Economic indicators

Our economic activity can be measured by several factors and by using some leading indicators we can get a better feel on its activity. Some indicators that are important to track are: the average weekly hours of manufacturing production workers, average weekly new claims for unemployment, building permits for new housing, stock prices and our nation’s money supply. These allow us to see trends in our economic activity.

Business cycles

For many years economist have used business cycles to learn about trends in the market place. Typically, they can track expansion and contraction activity. Through research and historical market studies we have been able to provide an estimate on the time frame that our economy is in an expansion period or how long it has been in a contraction period. This may help investors to understand what stage we are at in the business cycle (Peak or Trough).

Inflation, deflation and stagflation

Next is understanding how our economy may react to an inflationary, deflationary or stagflation period. Each of these is very different and will cause our government, consumers and investors to treat their money differently.

During an inflationary period, we will experience a general increase of prices. This process will decrease the purchasing power of our U.S. dollar, hence, will slow spending. Whereas, in a deflationary period we will experience the opposite and see a decrease in the general level of prices. Usually consumers will spend more during these times. Stagnation is another concern and occurs when the production of a good has become stagnant and the price continues to rise. This can be very dangerous and cause an economic recession or even a depression. All of these must be in balance. If they get out of hand they can cause major shifts in our economy.

Having a general understanding of economic concepts can help investors learn about why our economy shifts and some of the important factors that need to be considered when investing in our evolving global economy.

For more information about the economic concepts discussed in this column, visit jacobgold.com.

Securities and investment advisory services offered through ING Financial Partners, Inc. Member SIPC. Jacob Gold & Associates, Inc. is not a subsidiary of nor controlled by ING Financial Partners, Inc.This information was prepared by Michael Cochell of Jacob Gold & Associates, Inc. and is for educational information only. The opinions/views expressed within are that of Michael Cochell of Jacob Gold & Associates Inc. and do not necessarily reflect those of ING Financial Partners or its representatives. In addition, they are not intended to provide specific advice or recommendations for any individual. Neither ING Financial Partners nor its representatives provide tax or legal advice. You should consult with your financial professional, attorney, accountant or tax advisor regarding your individual situation prior to making any investment decisions.