Economy grew nearly twice as fast this summer, helped by stronger consumer and business spending.
Contracts to buy US homes fell for 3rd straight month after sluggish peak sales season.
Here are the top financial stories of the day:
1) Stocks surge on European debt deal, GDP growth-From the AP
Stocks are surging after European leaders agreed on a deal to slash Greece's debt load and prevent the financial crisis there from engulfing larger countries like Italy. The Dow Jones industrial average had its biggest gain since Aug. 11th.
Stronger U.S. economic growth and corporate earnings also drove markets higher. Commodities and Treasury yields soared as investors took on more risk.
The Dow jumped 340 points, or 2.9 percent, to close at 12,209. It was its highest close since July 28.
The S&P 500 rose 43 points, or 3.4 percent, to close at 1,285. The Nasdaq gained 88, or 3.3 percent, to 2,739.
Nine stocks rose for every one that fell on the New York Stock Exchange. Volume was heavy at 6.5 billion shares
2) U.S. Economic Growth Accelerates-From The Wall Street Journal
The U.S. economy grew 2.5% in the third quarter, a pace nearly twice that of the second quarter but too slow to create enough jobs to bring down the nation's high unemployment rate anytime soon.
The rise in gross domestic product—the sum of all goods and services produced—suggests the U.S. regained its footing after events earlier this year, including a spike in gasoline prices and waves of stock-market turmoil, led wary consumers and businesses to pull back on spending.
Thursday's report from the Commerce Department, along with news of an agreement to tackle Europe's debt woes, cheered markets and reaffirmed most economists' conviction that the U.S. isn't sinking back into recession. A spurt of spending by businesses on equipment and software, which surged 17.4% in the period, suggested companies aren't paralyzed by uncertainty. Spending by consumers also climbed, suggesting worries about the job market didn't stop them from shopping.
"The economy just turned out to be more resilient to the negative shocks than many of us feared," said Justin Wolfers, an economist at the University of Pennsylvania's Wharton School who not long ago said a recession was "on the table." He now says an economic contraction in 2011 is highly unlikely, but like other economists cautioned against too much optimism. Growth would have to be above 3% to substantially cut into the nation's 9.1% unemployment rate, economists say.
"If the economy grew at this rate forever the unemployment rate wouldn't fall. We'd be stuck where we are," Mr. Wolfers said.
Paul Ballew, chief economist at Nationwide, said, "I think it's fair to say that this takes away" talk of a recession in the near term. But the economy remains fragile and big risks linger, he added, and the latest growth report merely confirms a longer-term trend of growth in the low-2% range that is likely to carry into next year.
Economists pointed out another troubling trend in Thursday's report: Consumers are spending more even as their wages stagnate and they save less, a trend that economists say is unsustainable and makes Americans vulnerable to crises.
Consumer spending rose 2.4% in the third quarter, after rising 0.7% in the earlier quarter. If consumers cut back on spending—which constitutes about 70% of economic activity—it would hurt growth.
Amid a slow and uneven economic recovery, companies have been more willing to spend on equipment than on people. Nonresidential fixed investment, a measure of business spending, rose 16.3% last quarter after rising 10.3% in the second quarter. In another positive sign for U.S. businesses, exports rose 4%.
Atlas Machine & Supply Inc. has seen a 15% increase in total sales this year, said Rich Gimmel, president of the Louisville, Ky., equipment maker. But sales are coming from businesses that want to replace old equipment rather than expand. "Nobody is doing this like they did in the early '80s where you had this groundswell of optimism" about the recovery, Mr. Gimmel said. "It's more of a begrudging, 'Demand may come back but I'm not sure how sustainable it's going to be, so I'm going to spend just enough to keep up.' "
Because of such sentiment, Mr. Gimmel said, the only hiring he plans for coming months is replacing employees who retire. "There still is that psychological barrier that we're not sure and our customers are not sure that this is going to be sustainable," Mr. Gimmel said.
The lack of expansion has left many Americans out of work or in part-time jobs.
Betsy Armacost hasn't had full-time work since November 2007, when she lost her job at a casino and hotel in Atlantic City, N.J. Ms. Armacost, who is 56 years old, has made do with a string of temporary jobs, most recently, as a part-time telemarketer.
At the casino, Ms. Armacost earned about $600 a week and received health benefits. Since losing her job, she moved from her rented Atlantic City condo to Myrtle Beach, S.C. In a good week, she brings home about $230 from her telemarketing work.
She spends nearly every dollar she brings home: $170 a week pays for her new home, a motel room. She fears what will happen if she loses her job or can't find full-time work. "Every day is like—crisis," she said. "I've tapped out all my friends. Some of them won't even talk to me anymore."
But budget cuts by state and local governments—even in wealthy areas— signal more gloom for employment, as well as for the nation's economic growth. State and local governments subtracted 0.16 of a percentage point from growth last quarter.
The government of Maryland's Baltimore County is offering employees early retirement packages in a bid to trim 200 jobs. The move is designed to save at least $15 million a year out of a roughly $1.6 billion operating budget, a county spokesman said.
The county's tax revenue is declining and it also is dealing with substantial cuts in state and federal aid. As recently as five years ago, the county received $45 million a year in state aid for road projects; this year that aid is $1.9 million, Democratic County Executive Kevin B. Kamenetz said.
Economic uncertainty and a dreary job market, meanwhile, has been a barrier to housing, which showed little improvement last quarter, according to the GDP report. A separate report Thursday showed the Pending Home Sales Index, produced by the National Association of Realtors based on contract signings, fell 4.6% to 84.5 in September. The index is 6.4% higher than it was a year ago.
3) Contracts to buy homes fell 4.6% in Sept.-From USA Today
The number of Americans who signed contracts to buy homes fell for the third straight month in September after the spring-and-summer peak buying season failed to entice new buyers.
The National Association of Realtors said Wednesday that its index of sales agreements fell 4.6% last month to a reading of 84.5.
A reading of 100 is considered healthy. The last time the index reached that high was in April 2010, the final month that buyers could qualify for a federal tax credit that has since expired.
Contract signings are usually a reliable indicator of where the housing market is headed. There's typically a one- to two-month lag between a contract and a completed deal.
But the Realtors group said a growing number of buyers have canceled contracts after appraisals showed that the homes were worth less than the buyers had bid. A sale isn't final until a mortgage is closed. That means more "pending" sales aren't turning into final sales.
"It is especially troubling given the big August decline in long-term interest rates," said Pierre Ellis, an analyst at Decision Economics.
Homes are the most affordable they've been in decades. Long-term mortgage rates are hovering at record lows near 4%. Prices in some metro areas have been cut in half. Still, sales in most areas remain weak.
In part, that's because loans are harder to get. Many lenders are requiring 20% down payments and strong credit scores to qualify.
Sales for previously occupied homes are on pace to match last year's 4.91 million sold, the fewest since 1997. In a healthy economy, Americans would buy roughly 6 million homes each year.
In September, sales of new homes rose after four straight monthly declines. But that was largely because builders had cut their prices in the face of depressed demand. This year is shaping up as the worst for new-home sales on records dating to 1963.
The number of people who signed home contracts had risen in both May and June before falling 7% over the past three months.
Contract signings fell across the U.S. September's index fell 2.1% in the West, 4.7% in the Northeast, 5.5% in the South and 6.2% in the Midwest.
Quote of the Day from Dave Ramsey.com:
Proverbs 14:8 — The wisdom of the prudent is to give thought to their ways.
No comments:
Post a Comment