Webmaster
12-24-2011, 08:19 AM
By Rich Miller
Bloomberg News
WASHINGTON — Federal Reserve Chairman Ben Bernanke finally may be catching a break: His easy-money policies are showing signs of speeding up the economic rebound three years after he cut interest rates to zero.
Housing may be nearing a bottom as record-low mortgage rates tempt more buyers into the market and confidence among homebuilders climbs to the highest since May 2010. Autos, another part of the economy sensitive to interest rates, are reviving, with carmakers reporting in November their highest sales pace in more than two years.
Banks also are starting to put more of their money to work, expanding commercial and industrial loans last quarter by the most since Lehman Brothers went bankrupt in September 2008.
"When the Fed sprinkles happy dust on the economy, we always respond," said Allen Sinai, co-founder and chief global economist and strategist at Decision Economics in New York. "The happy dust has been out there a long, long time, and I think it finally may be settling in some places."
Since the recovery began in June 2009, households have focused on saving rather than spending, while banks have concentrated on rebuilding capital instead of lending. That may be changing, as both have made progress in rebuilding their balance sheets, Sinai said.
He sees growth accelerating in the range of 2.5 to 2.75 percent next year from 1.5 to 2 percent this year, when the economy was hit by what Bernanke called "some elements of bad luck." These include a run-up in oil prices caused by the Arab Spring and a sell-off in the stock market triggered by Europe's debt crisis.
Lou Crandall, chief economist at Wrightson ICAP in Jersey City, N.J., is even more optimistic than Sinai. Crandall — the most-accurate forecaster of the U.S. economy as of Dec. 1, based on Bloomberg calculations — predicts growth next year of just over 3 percent, as companies become more confident about the outlook and expand their businesses.
The resilience of the economy will lift corporate earnings and stock prices, Sinai said. Operating profits of companies in the Standard & Poor's 500 index will rise by an average of 8 to 10 percent in 2012 and the stock gauge will end the year at 1,400, he forecasts.
Uncertainty persists
Big risks remain. The economy may be buffeted in the second half of next year by what Ethan Harris at Bank of America Merrill Lynch calls a "policy-uncertainty shock." The co-head of global economic research in New York sees growth slowing to just over 1 percent in the third and fourth quarters of 2012, as households and companies wait to see what happens to former President George W. Bush's income-tax cuts, which are scheduled to expire at the end of 2012.
Europe also is a concern. The sovereign-debt turmoil there and a deceleration in emerging-market growth may be "poised to knock us off course," Federal Reserve Bank of Dallas President Richard Fisher said last week.
The economy appears to be ending 2011 with the fastest expansion of the year, said Michael Feroli, chief U.S. economist for JPMorgan. He forecasts growth of 3.5 percent in the fourth quarter, compared with what he said will be a downwardly revised 1.5 percent in the third.
The Commerce Department already cut its third-quarter estimate to a 2 percent annual rate on Nov. 22 from 2.5 percent.
It was the late Nobel laureate economist Milton Friedman who first spoke of monetary policy affecting the economy with "long and variable lags," as consumers and companies gradually adjust spending in response to changes in interest rates.
Transmission of this policy to the economy "has been gummed up" during the recovery, as households held back on spending and banks restrained lending, said Paul Ballew, chief economist at Nationwide Mutual Insurance and a Fed adviser.
Now, "it's starting to free up a bit."
With their balance sheets fortified, banks have increased commercial and industrial loans by an average annual pace of almost 10 percent in the third quarter, the highest since the comparable quarter in 2008, compared with a 1.7 percent decline in the past four years, based on Fed data.
Record-low rates
Consumers also are in better financial shape, thanks to reductions in debt and the Fed's record-low interest rates. Household-debt payments as a share of disposable income stood at 11 percent in the third quarter, the lowest since 1994 and down from a peak of 14 percent set in 2007, according to data from the central bank.
That has freed up money for spending, and the automobile industry is a beneficiary. U.S. light-duty car and truck sales rose to an annualized rate of 13.6 million in November, the best month since August 2009, based on data from Autodata.
"We're going to breach 14 million" for 2012 as a whole, said Ballew, a former director of global market and industry analysis for General Motors in Detroit. He reckons sales this year will come in just below 13 million.
"It's a good time to buy," he said. "Affordability is at an extremely high level, and auto-loan rates are at the lowest they've ever been."
Pent-up demand
The average age of cars and light trucks on the road today has risen to 10.6 years, Jenny Lin, senior economist at Ford, said in Dec. 1 conference call. That's above the 7-to-7.5 years Ballew says is the long-term average.
"We are going to see more and more of this pent-up demand realized," Lin told analysts and reporters.
The story is much the same in housing. Low mortgage rates and the steep drop in prices have made homes more affordable than they've been in years, said Thomas Lawler, a former economist with government-backed mortgage company Fannie Mae, who now is an independent housing consultant.
There's also a lot of pent-up demand in this market, as many young adults have put off moving away from their parents because of the tough economic times, he added.
"Residential-investment spending has hit a bottom, and it probably will pick up a little bit next year," he said.
"Bernanke was right; there was an element of bad luck this year," Crandall said. "Things don't look bad for the U.S. in 2012."
from: http://seattletimes.nwsource.com/html/businesstechnology/2017083540_fedanalysis24.html
Bloomberg News
WASHINGTON — Federal Reserve Chairman Ben Bernanke finally may be catching a break: His easy-money policies are showing signs of speeding up the economic rebound three years after he cut interest rates to zero.
Housing may be nearing a bottom as record-low mortgage rates tempt more buyers into the market and confidence among homebuilders climbs to the highest since May 2010. Autos, another part of the economy sensitive to interest rates, are reviving, with carmakers reporting in November their highest sales pace in more than two years.
Banks also are starting to put more of their money to work, expanding commercial and industrial loans last quarter by the most since Lehman Brothers went bankrupt in September 2008.
"When the Fed sprinkles happy dust on the economy, we always respond," said Allen Sinai, co-founder and chief global economist and strategist at Decision Economics in New York. "The happy dust has been out there a long, long time, and I think it finally may be settling in some places."
Since the recovery began in June 2009, households have focused on saving rather than spending, while banks have concentrated on rebuilding capital instead of lending. That may be changing, as both have made progress in rebuilding their balance sheets, Sinai said.
He sees growth accelerating in the range of 2.5 to 2.75 percent next year from 1.5 to 2 percent this year, when the economy was hit by what Bernanke called "some elements of bad luck." These include a run-up in oil prices caused by the Arab Spring and a sell-off in the stock market triggered by Europe's debt crisis.
Lou Crandall, chief economist at Wrightson ICAP in Jersey City, N.J., is even more optimistic than Sinai. Crandall — the most-accurate forecaster of the U.S. economy as of Dec. 1, based on Bloomberg calculations — predicts growth next year of just over 3 percent, as companies become more confident about the outlook and expand their businesses.
The resilience of the economy will lift corporate earnings and stock prices, Sinai said. Operating profits of companies in the Standard & Poor's 500 index will rise by an average of 8 to 10 percent in 2012 and the stock gauge will end the year at 1,400, he forecasts.
Uncertainty persists
Big risks remain. The economy may be buffeted in the second half of next year by what Ethan Harris at Bank of America Merrill Lynch calls a "policy-uncertainty shock." The co-head of global economic research in New York sees growth slowing to just over 1 percent in the third and fourth quarters of 2012, as households and companies wait to see what happens to former President George W. Bush's income-tax cuts, which are scheduled to expire at the end of 2012.
Europe also is a concern. The sovereign-debt turmoil there and a deceleration in emerging-market growth may be "poised to knock us off course," Federal Reserve Bank of Dallas President Richard Fisher said last week.
The economy appears to be ending 2011 with the fastest expansion of the year, said Michael Feroli, chief U.S. economist for JPMorgan. He forecasts growth of 3.5 percent in the fourth quarter, compared with what he said will be a downwardly revised 1.5 percent in the third.
The Commerce Department already cut its third-quarter estimate to a 2 percent annual rate on Nov. 22 from 2.5 percent.
It was the late Nobel laureate economist Milton Friedman who first spoke of monetary policy affecting the economy with "long and variable lags," as consumers and companies gradually adjust spending in response to changes in interest rates.
Transmission of this policy to the economy "has been gummed up" during the recovery, as households held back on spending and banks restrained lending, said Paul Ballew, chief economist at Nationwide Mutual Insurance and a Fed adviser.
Now, "it's starting to free up a bit."
With their balance sheets fortified, banks have increased commercial and industrial loans by an average annual pace of almost 10 percent in the third quarter, the highest since the comparable quarter in 2008, compared with a 1.7 percent decline in the past four years, based on Fed data.
Record-low rates
Consumers also are in better financial shape, thanks to reductions in debt and the Fed's record-low interest rates. Household-debt payments as a share of disposable income stood at 11 percent in the third quarter, the lowest since 1994 and down from a peak of 14 percent set in 2007, according to data from the central bank.
That has freed up money for spending, and the automobile industry is a beneficiary. U.S. light-duty car and truck sales rose to an annualized rate of 13.6 million in November, the best month since August 2009, based on data from Autodata.
"We're going to breach 14 million" for 2012 as a whole, said Ballew, a former director of global market and industry analysis for General Motors in Detroit. He reckons sales this year will come in just below 13 million.
"It's a good time to buy," he said. "Affordability is at an extremely high level, and auto-loan rates are at the lowest they've ever been."
Pent-up demand
The average age of cars and light trucks on the road today has risen to 10.6 years, Jenny Lin, senior economist at Ford, said in Dec. 1 conference call. That's above the 7-to-7.5 years Ballew says is the long-term average.
"We are going to see more and more of this pent-up demand realized," Lin told analysts and reporters.
The story is much the same in housing. Low mortgage rates and the steep drop in prices have made homes more affordable than they've been in years, said Thomas Lawler, a former economist with government-backed mortgage company Fannie Mae, who now is an independent housing consultant.
There's also a lot of pent-up demand in this market, as many young adults have put off moving away from their parents because of the tough economic times, he added.
"Residential-investment spending has hit a bottom, and it probably will pick up a little bit next year," he said.
"Bernanke was right; there was an element of bad luck this year," Crandall said. "Things don't look bad for the U.S. in 2012."
from: http://seattletimes.nwsource.com/html/businesstechnology/2017083540_fedanalysis24.html