Fed Chairman Promises … Something
- Aug 30, 2010
August 30, 2010
By Dees Stribling, Contributing Editor
Fed Chairman Ben Bernanke’s speech in Jackson Hole on Friday was, as usual, eagerly anticipated and then read line-by-line, word-by-word to figure out what the Fed might do next. That’s always a problematic task, since the chairman tends to deal in such statements as the economy “remains vulnerable to unexpected developments.”
Deflation is on the chairman’s mind, however. He used the word six times during the speech at the Federal Reserve Bank of Kansas City Economic Symposium (the formal event name for Jackson Hole), compared with exactly zero times during his speech on Aug. 21, 2009, the last time he spoke at Jackson Hole.
In his understated way, the chairman also touched on the housing market, which he called “generally depressed.” But–underneath all that bank-ese–he was actually as optimistic (almost) as the National Association of Realtors on the market’s prospects.
“Going forward, improved affordability–the result of lower house prices and record-low mortgage rates–should boost the demand for housing,” Bernanke said, adding the usual caveats.”However, the overhang of foreclosed-upon and vacant housing and the difficulties of many households in obtaining mortgage financing are likely to continue to weigh on the pace of residential investment for some time yet.”
GDP Revised Down, Spending Remains Anemic (Except on Imports)
Almost at the same time as the chairman was making his remarks at scenic Jackson Hole, the U.S. Department of Commerce reported on Friday that second quarter 2010 gross domestic product growth was in fact at an annualized rate of 1.6 percent, not the initial 2.4 percent estimate. Growth during 1Q10 was at a 3.7 percent annualized rate.
Much of the 2Q10 growth, such as it was, involved businesses buying new machinery, computers and software. Trouble is, most of those items came across the ocean in cargo containers; imports to the United States vastly outstripped exports during 2Q10 (a 32.4 percent increase vs. a 9.1 percent increase).
Consumers actually spent more during 2Q10 than the previous quarter, increasing at a 2 percent annualized rate, compared with a 1.9 percent annualized increase during 1Q10. But most of that extra spending during the second quarter wasn’t at the mall or at strip centers or even over the Internet. The United States experienced a hotter summer than usual, so many millions of people cranked up their air conditioning more than usual, thus spending more on electricity.
U.S. Business Execs Turned Glum Over the Summer
The intractable heart of U.S. economic woes remains unemployment, and business leaders aren’t expecting to do much hiring in the near future, according to the latest quarterly survey by accountancy Grant Thornton. Its Business Optimism Index dropped to 58.4 in August after peaking in May at 67.6, a level the index hadn’t seen since 2006.
Only 34 percent of the 350 senior executives surveyed by Grant Thornton expected the economy to improve in the next six months. More to the point, only 38 percent said they would increase hiring over the same period (and there could be a lot of overlap with the pervious number). Some 46 percent said hiring would remain the same, while 15 percent said hiring would taper off for them.
Never mind the economy’s anemic growth in 2Q10 or the Fed chairman’s tepid statement, Wall Street decided on Friday to bounce back above the psychologically satisfying 10,000 mark, with the Dow Jones Industrial Average up 164.84 points, or 1.65 percent, to end at 10,150.65. The S&P gained 1.66 percent and the Nasdaq advanced 1.65 percent.