Tuesday, September 26, 2006

Silicon Valley on the Rebound

Silicon Valley is rebounding - a good sign for the future of Northern California........

Valley jobs keep climbing

Silicon Valley's economy continued to turn in modest job growth in August -- a heartening sign of the region's ongoing recovery from the tech bust of 2000, economists said.
The California Employment Development Department said the addition of 2,600 jobs in Santa Clara and San Benito counties -- a gain of 0.3 percent from July -- marked the first time since 2000 that the region's employment had climbed each month since January.....

Steven Cochrane of Moody's Economy.com found another encouraging note in ``the best January-to-August showing since 2000.'' The state revised the region's non-farm job numbers for July upward by 2,000 jobs, from 873,100 to 875,100. ``That's another good indicator,'' he said. Earlier this year, the EDD had revised the previous month's job gains downward for three consecutive months.....

The unemployment rate in the San Jose-Sunnyvale-Santa Clara metropolitan statistical area -- a region that also encompasses San Benito County -- was 4.7 percent in August, down from 5.0 percent in July 2006 and 5.4 percent in August 2005, the EDD reported.

By Scott Duke Harris
Mercury News

Friday, September 22, 2006

A 4th Quarter Consumer Rally?

The Fed Could Go Into Hibernation This Winter
Inflation worries are easing, and the overall economy is holding up well

Excerpts from Businessweek OCTOBER 2, 2006

THE NEWEST DEVELOPMENT helping to keep the Fed on hold is the drop in oil prices, which is a win-win situation for both economic growth and inflation....

Now, crude prices have dropped 19% from their mid-July peak of $77 per barrel, and wholesale gasoline prices have plunged 35% since early August, a decline that should translate fully into pump prices. Those developments are easing inflation worries in addition to boosting the purchasing power of consumers. The lift could be substantial -- and well-timed for the holiday buying season. The National Retail Federation is already predicting a solid 5% gain in holiday sales vs. 2005.Costlier energy acted like a tax hike on consumer incomes, but now households are getting a "tax cut." Based on a back-of-the-envelope estimate, a 20% drop in gas prices from the third quarter to the fourth quarter could free up some $65 billion in households' aftertax income, which could be either spent or saved. If only half of that money were spent, it would add almost 1.5 percentage points to the fourth quarter's increase in real consumer spending, measured at an annual rate. A stimulus of that size could lift the quarter's overall economic growth by about one full percentage point.........

DESPITE WORRIES about a wider impact of the housing downturn, consumers continue to show life in the third quarter. Outlays for both goods and services, adjusted for inflation, began the quarter with the largest monthly increase of the year, and the key components of the August retail sales data that go into the government's measure of overall consumer spending showed another healthy advance. In fact, household buying is set to make a larger contribution to economic growth this quarter than it did last quarter.

Through the second quarter, newly updated numbers from the Federal Reserve show few signs that household wealth is suffering as a result of the weakness in home prices. Overall net worth last quarter hit a record,............Homeowners' equity, the net of real estate values minus home mortgages, continued upward, although at a slower pace. The stock market has since turned around, which should give a strong boost to third-quarter net worth.

Doesn't sound like consumer doom and gloom to me. Did you note home equity and household wealth hit an all time high? More to come............

Wednesday, September 20, 2006

Fed is Finally Getting It

It is possible to have non inflationary growth in our economy and it's also
nice to see The Fed finally listening to the markets. The futures markets are predicting almost zero chance of any further rate hikes this year and some (myself included) even believe that a rate cut is possible in the first half of 2007. Stay tuned........

"What started out as a pause in rate increases last month began to look more like a full halt Wednesday. The Federal Reserve left its short-term interest rate target at 5.25% for a second consecutive meeting. It also warned that it remains concerned about inflation, and thus if it changes rates soon, it is more likely to raise them than lower them.
The statement accompanying its decision suggested that the Fed has grown more confident since deciding last month to end two years of steady rate increases. It cited the quickening decline in housing activity and easing inflation pressure from energy.

Investors, however, increasingly expect the Fed not just to remain on hold, but to cut rates at least once by next June and again by December 2007. Ten-year Treasury bond yields have fallen, ending Wednesday at 4.73%, down from 5.25% in late June. Those expectations may not match the Fed's, at least for now. Indeed, its statement did little to hint a rate cut would be on the table in the near term and financial markets pulled back slightly in their anticipation of one.
Stocks, meanwhile, which have been rallying because of falling oil prices and on hopes the Fed is finished raising rates and the economy escapes recession, extended their winning streak. The Dow Jones Industrial Average rose 72.28 points Wednesday to 11613.19, just 110 points short of its January 2000 record."

From the WSJ - By GREG IPSeptember 21, 2006

Sunday, September 17, 2006

Gas Prices Going Down

Lower Gas Prices are good news for the American Economy.

Excerpt from James D Hamilton - Econobrowser

Gasoline prices will fall even more

"At the start of this month,
I joined others in predicting that U.S. gasoline prices would soon be below $2.50 a gallon. The price has already dropped 20 cents to $2.60 a gallon since then, and it now appears likely to go down at least another 30 cents from here.

crude oil prices can be quite hard to predict, retail gasoline prices are at times a little easier, because it often takes some time for price declines in crude oil or bulk gasoline to work their way down to the retail level. A useful advance indicator of where retail prices are headed is the NYMEX gasoline futures contract, which yesterday traded down to $1.55. This futures price does not include taxes or the wholesale and retail markup, which in recent years have averaged about 60 cents a gallon. Using that 60 cents benchmark, a retail gasoline price below $2.20 a gallon appears to be quite reasonable to anticipate."


Saturday, September 16, 2006

Housing Prices in UK Accelerate

Did you know that home prices in California and the UK have a 98% correlation this century? CA followed the UK into the slowdown with about a year lag, and it will follow it out as well. The recovery started this spring in Britain, does that mean a spring bounce for CA in 2007?

http://www.rics.org/Property/Residentialproperty/ Residentialpropertymarket/market_surveys.htm

"House prices accelerate despite interest rate hikeHouse prices rose for the fifth consecutive month in August, up at the fastest pace since May 2004 says RICS' UK housing market survey published today, (14 September 2006).
35% more Chartered Surveyors reported a rise than fall in August, up from 30% in July.
RICS estate agents reported that price rises are being driven by a combination of would-be buyers returning to the market and limited availability of new property coming onto the market.
Buyer enquiries accelerated at the fastest pace since September 2003, rising for the fifteenth consecutive month in August; above trend economic growth and a firm labour market is encouraging would-be buyers to re-enter the market.
Newly agreed sales showed a strong rise in August, up at the fastest pace since last November."

Inflation is not a threat

Tame Consumer-Price Report Points to End of Rate Increases

Inflation hawks often use the headline CPI number to scare up worries about inflation. This despite the fact that it's backward looking, overstated, and the Fed uses the core number to take out volatile food and energy.
But even the CPI is trending down. This is a good sign for our economy.

"A tame reading on consumer prices lifted financial markets Friday amid hopes that waning inflation would allow the Federal Reserve to end its long march toward higher interest rates. The benign inflation figure, though, was largely the result of a small and anomalous statistical adjustment.
Easing fuel prices helped slow the increase in the Labor Department's consumer-price index to 0.2% in August from July, compared with 0.4% in July from June. The index, which measures inflation at the retail level, stood 3.8% above its year-earlier level, down from 4.1% in July. Core prices excluding food and energy, a measure watched closely by investors and the Fed, also rose 0.2% in August. Core prices were 2.8% higher than a year earlier, up from 2.7% in July.

The core-inflation figure cheered financial markets, because it suggested that a string of higher readings earlier this year may have come to an end. Before rounding, though, the core price index rose 0.242%, not far off a 0.3% rise that would have been more likely to stoke inflation worries."


With thanks to the WSJ By MARK WHITEHOUSE September 16, 2006; Page A2

State job statistics stir hope

Despite the pundits of negativism, the fifth largest economy in the world appears to be in pretty good shape www.sacbee.com/103/story/24208.html

"You know it's election season when the monthly release of state data as dreadfully dry as "non-farm payroll" figures gets the political PR machines all excited.
"In August, California added 37,000 new jobs," said Gov. Arnold Schwarzenegger. "This is terrific news for all Californians."
He's right. California did add about 37,000 new jobs to its payroll last month, according to the latest figures released by the state Employment Development Department."

But what about the "housing crash" in California taking the state down?

"It's time to heave a sigh of relief, say economists, because the housing market downturn did not become a crisis. July was a rough month. Only about 6,600 jobs, seasonally adjusted, got added to the state's payroll that month, and economists were getting jittery.
But in August, California's labor market behaved itself, with sectors like service and retail picking up the slack created by the cooling-down construction sector. Unemployment was up, but by just 0.1 of a percentage point. Although construction lost 3,800 jobs, 10 other sectors -- including leisure and hospitality, and professional and business services -- added 40,700 jobs."

And the state's capital?

"The four-county Sacramento area saw its unemployment rate drop to 4.2 percent in August (down 0.3 of a percentage point from July), and the region saw 18,100 extra jobs join its payroll in the last year.
"Sacramento is typically one of the top-notch job markets in the state," said David Lyons, a labor market economist with the state Employment Development Department. "We certainly don't have any looming areas of concern."

Sounds like things are not so bad afterall.

Thanks to Sacramento Bee By Mehul Srivastava - Bee Staff Writer
Published 12:00 am PDT Saturday, September 16, 2006