Weekly Economic Commentary: Week of February 21

WEEKLY ECONOMIC COMMENTARY

Stone & McCarthy Research Associates

WEEK OF FEBRUARY 21, 2012

Here we go again. Just as the economy seems to be building momentum, an old foe is poised to take some steam out of the growth engine. As was the case in early 2011, oil and gasoline prices are once again rising sharply. And like a year ago, the catalyst for the rise is coming from geopolitical tensions. In early 2011, it was the Arab Spring with Libya in the forefront that threatened to curtail supply and roil the oil market. This time, it is the saber-rattling over Iran that is doing much the same thing.

To be sure, the current oil price spike may not have as much of an impact on economic activity as it did during the first half of last year when growth nearly ground to a halt. Back then the economy was considerably more vulnerable than it is now. Housing was still in a free-fall, debt burdens were more onerous, a Japanese earthquake and tsunami caused severe supply disruptions, and the sovereign debt crisis had a more pronounced shock effect on the financial markets. And while the job engine was cranking up, the unemployment rate was nearly a full percentage point higher, sustaining an elevated level of job insecurity.

Still, the resumption of rising oil prices cannot be ignored. According to the Energy Information Administration (EIA), the price of regular unleaded gasoline jumped from $3.39 a gallon to $3.52 between the weeks of January 23 and February 13, and another increase almost certainly took place this week. As the chart shows, the price is well below the peak of nearly $4 a gallon reached in early May of last year, but it stands well above the $3.19 a gallon in effect a year ago. In March 2011, it hit the current level of $3.52 before moving up steadily to the May peak of nearly $4 a gallon. It was in March, however, that households began to feel the pain, contributing to a downshifting in spending over subsequent months. Retail sales increased by a negligible 0.2 percent in April after posting an average monthly gain of 0.9 percent from January through March and then stalled out completely in May when gasoline stations accounted for 11.65 percent of total retail sales. In 2010, that share was more than a full percentage point lower, at 10.45 percent.

Although other factors were at work, the slide in gasoline prices over the second half of the year contributed significantly to a recovery in consumer spending. By December, prices at the pump had fallen to $3.23 a gallon, lessening the bite on household budgets. During that month, service stations accounted for only 11.09 percent of retail sales. On a dollar for dollar basis, the spike in oil prices over the first five months of last year absorbed most, if not all, of the savings consumers received from the 2 percent payroll tax cut enacted in late 2010. The question is whether the extra cash derived from the extension of the tax cut this year - approved by Congress today (Friday) - will again be poured down the fuel tank. At this juncture, it's too early to tell.

Clearly, if gasoline prices soar to or above the $4 level, which many industry analysts believe, the impact will be palpable. The increase since the start of the year is already beginning to put a squeeze on spending budgets. In January, the share of gasoline to total retail sales rose to 11.20 percent from 11.09 percent in December, as the $605 million increase in service station sales accounted for fully 40 percent of the $1.53 billion gain in total retail sales during the month. Keep in mind though that disposable personal income is nearly $100 billion higher than it was last May, so consumers have more of a cushion to absorb a gasoline price increase than was the case then. Simply put, a $4 price at the pump would take less of a bite on household budgets, and less of a toll on discretionary spending. The January retail sales data highlights this prospect.

Overall, retail sales for the month rose by a disappointing 0.4 percent, well short of the expected gain of 0.7 percent or so. But the shortfall was due primarily to a surprising drop in auto dealer sales, which slumped by 1.1 percent. That fall-off, which follows a strong 2.5 percent increase in December, does not square with the muscular increase in unit car sales reported by the industry for the month. Sales of new light vehicles surged from 13.496 million in December to 14.133 million in January, which was the strongest selling pace since August 2009 when the "cash for clunkers" program was in effect. It may be that the sales mix during the month shifted towards lower priced vehicles, which might explain the discrepancy between unit and dollar sales. There is also a difference between the seasonal adjustment factors applied to unit versus dollar sales. In any event, the auto dealer component of retail sales tends to be highly volatile and subject to sizeable revisions in subsequent months, so the weakness in January may turn out to be more statistical than real.

More to the point, rising gasoline prices have so far not curtailed most other purchases. Retail activity in January excluding the volatile auto and price-driven gasoline components staged a solid 0.6 percent increase in January, driven largely by sales of full-priced merchandise, including those sold at department stores. One of our favorite barometers of discretionary spending trends is the propensity of households to eat at restaurants and other dining establishments outside the home. Here the evidence is compelling that frivolous spending has not yet been a victim of climbing gasoline prices. In January, sales at food services and drinking places rose by a solid 0.6 percent, lifting the year-over-year increase to 8.2 percent. An annual increase of that magnitude has not been seen since December 2006, a year before the onset of the Great Recession.

No doubt, the impact of climbing gasoline prices is being diluted by the unseasonably warm weather, which lowered the cost of heating homes in January. That cost won't be known until the January figures on personal incomes and consumption is released later this month, which will provide more detail on total energy expenditures, including heating. More important is that the report will also provide greater insight into how well incomes are holding up. By all accounts, household paychecks should be keeping pace with the climb in gasoline prices, reflecting the robust gain in net job creation last month as well as the longer hours put in by workers. The point to emphasize is that households are in better shape to withstand higher energy prices than they were a year ago, although some impact will surely be felt particularly if gasoline prices surge well beyond the $4 a gallon threshold.

Keep in mind too that household finances are steadily improving. The ongoing rally in the stock market, up more than 20 percent since October 1, is playing a role by boosting the value of household portfolios, including 401(K) holdings. Flusher nest eggs and a strengthening labor market combined with historically low mortgage rates and an array of government support programs may finally be succeeding in helping homeowners cope with the tidal wave of foreclosures that has crippled the housing industry since 2007. According to the Mortgage Bankers Association (MBA), the overall mortgage delinquency rate declined in the fourth quarter to its lowest level since the third quarter of 2008. During the period, the overall delinquency rate stood at 7.58 percent, down significantly from 7.99 percent in the third quarter and considerably below the 10.06 peak reached in the first quarter of 2010.

Significantly, the share of loans 30-89 days past due - often described as early-stage delinquencies - is down more than 100 basis points from its peak of 5.59 percent in the first quarter of 2009. In good part, this reflects improved mortgage underwriting standards of the past few years, but we believe it has more to do with the improvement in fundamental economic conditions, particularly on the labor front. Historically, early-stage delinquencies bear a close relationship with the unemployment rate as can be seen in the following chart. We expect this rate to decline further as the jobless rate continues to fall over the balance of the year.

That said, it will be a while before the foreclosure wave subsides. Although early-stage delinquencies may be falling, the pipeline of foreclosures remains almost filled. According to the MBA, the foreclosure inventory rate -- the share of all loans in the process of foreclosure -- declined only slightly in the fourth quarter, from 4.43% to 4.38%. That's off the peak of 4.64% set in the fourth quarter of 2010, but still quite elevated by historical standards. The average from the first quarter of 1979 through the third quarter of this year was 1.32%. Indeed, the foreclosure inventory rate of 4.38% in the fourth quarter translates into 1.879 million loans in the MBA survey. Another 1.523 million loans in the survey were 90 days or more past due in the fourth quarter. Using MBA's assumption that their survey covers 88% of outstanding mortgages, that translates into a total of 3.651 million loans either 90 days or more past due or in the process of foreclosure. Again, that's down from a peak of 4.865 million in the first quarter of 2010, but it is still a formidable shadow inventory of homes overhanging the market that will put downward pressure on home prices for some time to come. Progress is being made, but the housing industry is far from out of the woods.

JPT022012-299

WEEKLY ECONOMIC COMMENTARY

Stone & McCarthy Research Associates

WEEK OF FEBRUARY 13, 2012

This time it's for keeps. That's what kids say when they really, really mean it. For sure, there are few kids among economic professionals who earn their living by forecasting the direction of the economy. But this time they seem to really, really mean it when they say that the economy is gaining momentum and heading for a self-sustaining expansion. Of course, they really, really meant it back in early 2010 and 2011 when they asserted much the same thing, only to wind up embarrassed when events didn't exactly go their way. Are they setting themselves up for another round of disappointing results? Or is the recovery this time for keeps?

Time will tell, as usual, but there is little question that a more optimistic sentiment has once again taken hold in the forecasting community. True, hardly anyone is predicting a blockbuster upturn this year. Certainly not the administration, which remains on the defensive following three years of underperformance relative to expectations and what now seems like bold predictions made by the president at the start of his four-year term. But even the president and his advisors are starting to feel more upbeat - and for good reason. Granted, the target of a 6 percent unemployment rate is out of reach; but that lofty goal was made before anyone realized how deep the recession would turn out to be, which drove the jobless rate to far higher levels than expected. While many reputable political analysts believe that the rate remains too elevated to salvage the president's election prospects this November, others believe that the direction underway will be just as important in swaying the voters.

If the latter is the case, Obama has reason to cheer. With last week's report showing a drop in the national unemployment rate to 8.3 percent in January, the downward movement from its nearby peak of 9.1 percent seen in August has been an eye-opener. Indeed, the 0.8 percentage point drop ranks among the steepest declines for a five-month period observed during postwar recoveries. Still, the labor market appeared to crank up twice before during the current recovery, only to fizzle out as the economy stalled. The latest example was just over a year ago, when the rate plunged by an even larger 0.9 percent between November 2010 and March 2011 and then stagnated over the next seven months. If that pattern repeats in coming months, the administration's hopes will no doubt be deflated again. However, there are positive signs pointing to continued progress as the year unfolds.

For one, the latest drop in the unemployment rate occurred for the right reason. For the most part, the erratic drop from the cyclical peak of 10 percent in October 2009 reflected as much a shrinking of the labor force as an increase in job creation. That led many skeptics to believe the statistical drop in the jobless rate was more an illusion than a fact. After all, if someone drops out of the labor force, he or she is no longer counted as unemployed. Between October 2008 and the end of last year, the size of the labor force fell by roundly 1 million workers, even as the population grew by more than six million. That discrepancy resulted in an ever-larger pool of folks outside of the labor market, notwithstanding the drop in the unemployment rate. But January's rate decline occurred despite a huge 508 thousand increase in the labor force. For once, companies expanded payrolls at an even faster rate.

To be sure, one-month does not make a trend and the labor force has a tendency to show wide gyrations from month to month. But if we keep an eye on the most important determinant of unemployment, the demand for workers by companies, things are looking much better than was the case a year ago. According to the latest figures issued by the Labor Department, the number of job openings surged in December, the latest month available. During the month, companies posted 3.37 million job openings, the highest since August 2008 and up from 3.12 million in November. As the chart shows, the trend has been decidedly upward since last spring, albeit in a jagged fashion. Likewise, the number of quits - a sign that workers are feeling more confident in job prospects elsewhere - has also been trending higher.

Unfortunately, actual hiring has not kept pace with the increase in job openings. Indeed, new hires actually fell in December, reversing most of the previous month's increase. There is no simple explanation for this lag. It may be that companies are having a hard time finding workers with the right skills needed for the jobs they want filled. A decline in labor mobility may also be a factor. The depressed housing market has kept many families stuck in hard-to-sell homes, preventing them from moving to where the jobs are. That said, it usually takes between 1-3 months for a company to fill a job listing. Assuming past patterns hold, the surge in job openings in December may largely explain the stronger-than-expected increase in net job creation in January reported last week. What's more, it may well portend another upside surprise in job growth in February assuming, of course, that the job openings surge in December holds up.

Another way of gauging the improvement in job prospects is to compare the number of job openings with the number of people seeking jobs. Many view this comparison as a barometer of the slack in the labor force. In December, there were 3.88 unemployed workers for every job opening, down from 4.27 in November. As can be seen in the chart, it's the first time this ratio has dipped below 4 since December 2008, and the latest month is well under the 6.93 high reached during the recession trough in July 2009. Simply put, some slack in the labor force has been taken up, which suggests that workers may soon be in a better bargaining position to obtain bigger pay raises. Still, there is a long way to go before a healthy balance between demand and supply of workers is established. A more normal ratio, representing a healthy job market, is one in which the ratio of job openings to unemployed workers is under 2. It will be a while before that threshold is reached.

One other portent of stronger hiring in coming months is simply that companies have squeezed as much output out of the existing workforce as possible. In the first quarter of 2010, nonfarm productivity surged to 6.2 percent compared to a year earlier, the highest since the fourth quarter of 1961 - nearly fifty years - following a robust annual increase of 5.3 percent in the previous quarter. Since then, however, it has been all downhill. By the fourth quarter of 2011, the year-over-year growth rate in nonfarm productivity slowed to a miniscule 0.5 percent. Needless to say, companies will have a hard time meeting demand by boosting productivity in the quarters ahead. For job seekers, that's good news as it offers hope that the latest surge in job openings is a manifestation of the growing need for labor.

So the pillars for an improving labor market would seem to be in place. The only question is, will the demand needed to sustain the recent strength in job creation remain firm. This is where the rubber meets the road, and where many skeptics believe is the Achilles heel of the recovery. Clearly, the retrenchment of consumer spending after sporadic bursts in both 2010 and 2011 played a major role in stalling out the nascent pickup in job growth during those years. Keep in mind though that households were firmly in the grip of a deleveraging process, paring debt that was aggressively acquired during the housing bubble years and required an outsize fraction of income to service. With debt repayments came spending restraint, particularly since real incomes were virtually stagnant during the period. The Federal Reserve, of course, exerted heroic efforts to stem the deleveraging tide, pushing interest rates down to rock-bottom levels, hoping to get consumers spending again.

In hindsight, those efforts were not successful, as households shunned debt-fueled spending in favor of restoring healthy balance sheets. This is a certainly a beneficial long-run development that even the Fed acknowledges, but it hampers the recovery in the short-run. That's especially the case when it is reinforced by fiscal austerity from federal as well as state and local governments, which has clearly been underway in recent years. However, the fruitless quest by the Fed to encourage consumers to borrow again may finally be bearing results. In the most recent two months, consumers have taken on an astonishing amount of new debt - to purchase autos, finance education and even to add balances to credit cards. In November and December, consumer credit jumped by a whopping $40 billion, the largest two-month increase in more than a decade.

To be sure, the latest borrowing binge has generated mixed feelings among analysts. Some believe that it is a temporary fluke related to holiday shopping and a desperate attempt to make ends meet until incomes can catch up. That may well be the case, particularly since the December borrowing surge seems inconsistent with the unchanged spending pattern seen during the month. But that's the half-empty view. Those who see consumer behavior through a half-full glass note that the borrowing upsurge was accompanied by a similar eye-opening increase in consumer confidence. Throw in the surprisingly strong employment numbers, and a case can be made that households are feeling better about prospects and are willing to take on more debt to satisfy pent-up demand for cars and other discretionary items.

So the question remains, is this recovery for keeps? Certainly, the internal dynamics are looking good - better job growth begets more income and confidence, leading to stronger demand that feeds back into more hiring. But the loop can easily be disrupted again by events beyond our control, such as another financial upheaval related to the never-ending European debt crisis, a spike in oil prices or an escalation of tensions in the Middle East with Iran at the center. Then there is the threat of a homegrown disturbance associated with ongoing squabbling in Washington during an election year. We remain hopeful that a deal can be forged in extending the payroll tax cut and long-term unemployment benefits, but time is running short as Congress goes on holiday recess at the end of next week. It looks like a permanent fix is not in the offing before then, but the odds favor at least a temporary extension that would avoid a confidence-shattering event. We hear that a bill with the ungainly moniker "The Temporary Payroll Tax Cut Continuation Act" is in the hopper for consideration next week. Stay tuned.

JPT021012-274

Weekly Economic Commentary: Week of February 6

WEEKLY ECONOMIC COMMENTARY

Stone & McCarthy Research Associates

WEEK OF FEBRUARY 6, 2012

Conventional wisdom has it that the economy will downshift in the current quarter from the 2.8 percent growth rate it posted in the final three months of 2011. While we concur with that prospect, the slowdown may be less severe than most expect. True, consumers - which account for about 70 percent of total activity - will probably not match the spending pace set in the fourth quarter of last year. One reason is simply based on arithmetic; real personal consumption declined in December, leaving it slightly below the average for the quarter. Hence, consumers will have to climb out of hole before a positive growth rate is reached. That's probable, but the monthly gains won't be large enough to bring the quarterly average up to the 2 percent gain set in the fourth quarter.

Secondly, an outsize fraction of the fourth-quarter increase in GDP was due to inventory restocking by businesses. Inventory accumulations accounted for more than 1.9 percent of the 2.8 percent overall growth rate during the period, something that is clearly unsustainable. But here is where the conventional wisdom may not hold up. Most believe that companies are now fully stocked and, wary of sales prospects, will meet demand by pulling merchandise off their shelves rather than increase orders for more goods. That line of reasoning would certainly be credible if demand turns out to be as weak as feared. Happily, however, such is not the case. As reported this week, auto sales hit the highest pace since May 2008, exports are holding up surprisingly well according to manufacturing reports, and new orders at factories jumped to a four-month high. The upshot: manufacturing activity as measured by the Institute for Supply Management index, surged to a nine month high in January. What's more, the purchasing managers surveyed in the report said that not only are their companies still adding to inventories, new orders for their goods are rising even faster. From our lens, this does not suggest a major reversal of the inventory buildup that boosted growth towards the end of last year.

To be sure, the case for a slowdown in the early part of 2012 is still compelling. The consumer-spending pullback in December reflected an attempt by households to shore up balance sheets. Recall that holiday purchases were financed largely by drawing down savings and piling on more debt, including padding credit card balances. By all accounts, this was a temporary deviation from a pattern underway throughout the recovery, namely one in which households are focused on paying down debt and rebuilding a savings cushion. We do not have data on consumer borrowing for December yet, but it is clear that consumers decided to stash a larger share of their paychecks into savings during the month. The personal savings rate, which fell from over 4 percent during the summer to 3.5 percent in November, leaped back to 4 percent in December. Odds are, the rate will move higher in coming months, even as households continue to reduce debt from still-high levels relative to incomes. That combination is a recipe for a slower spending pace during the early part of 2012.

But like the speculation regarding inventories, the logic for a sharp pullback in consumption may be undercut by emerging developments. Keep in mind that households can shore up balance sheets and still keep their wallets open if incomes are growing fast enough. Sadly, that was not the case throughout most of 2011, particularly when inflation is taken into account. Real disposable incomes edged up by a tepid 0.9 percent during the year, half the 1.8 percent gain registered in 2010 as rising energy, food and commodity prices cut deeply into purchasing power during the spring and summer months. But fortunes started to pick up late in the year, reflecting a combination of slowing inflation and faster income growth, propelled by an improving job market. In the fourth quarter, real disposable incomes turned positive again amid tangible signs that even stronger gains loom ahead.

That brighter prospect received strong support from the government's latest monthly jobs report released on Friday. The report just about blew away the consensus estimate for job creation, which was for a gain of roundly 135 thousand in nonfarm payrolls and for an unemployment rate to remain at a stubbornly elevated 8.5 percent in January. Had the consensus been correct, it would have solidified the notion that the job market is showing steady if slow improvement, with the operative word being "slow". But Friday's report may spur economists to start thinking of different adjectives to describe the job market. In January, the economy generated 243 thousand net new jobs, far stronger than expected even as back figures were revised higher; the revisions added 60 thousand workers to payrolls during November and December. Meanwhile, the separate survey of households shows that the intractably high unemployment rate is not so intractable after all. In January, the jobless rate fell again for the fifth consecutive month, declining to 8.3 percent from 8.5 percent in December. That's the lowest since January 2009 and down by nearly a full percentage point over the past five months.

It is hard not to wax superlatives over the latest job numbers. Ordinarily, economists like to parse these reports to find reasons for caution, citing the age-old adage that the "devil is in the details." This time, however, the details are as impressive as the headlines; in some cases, even more so. For one, the outsize gain in jobs last month was not skewed by one or two industries. The increase was broad-based, with virtually every super sector participating in the hiring spree. One measure of industry participation is the diffusion index, which tracks the percentage of private industries expanding payrolls; a number of 50 indicates that as many industries are adding jobs as are shedding them. In January, the index hit 64.1, the highest since last April and a level usually associated with a healthy labor market. Indeed, just about the only sector that continues to retrench is the government, where another 14 thousand pink slips were issued in January. The layoffs here are concentrated mainly among municipal workers, as financially-strapped local governments continue to purge the ranks of teachers and other educational workers. Sadly, this trend shows no signs of easing in the near term.

Elsewhere, however, the positive surprises were in abundance. The factory sector, which is supposed to be feeling the heat from the global slowdown and the aforementioned inventory pullback, added a robust 50 thousand jobs on top of the 32 thousand gained in December. Autoworkers are benefiting immensely from the sudden revival in car and truck sales, but the factory floors are humming due to solid orders from overseas as well as from domestic companies revving up capital outlays. Clearly, manufacturers have stressed productivity over the years, finding that they can produce goods with far fewer workers than in the past. Hence, although more than 400 thousand manufacturing jobs have been created during the recovery, that pales in comparison to the 2.3 million jobs lost during the recession. Those jobs will never be fully recovered, but even a more productive manufacturing sector will need more labor as output increases.

Indeed, the objective of operating with as mean and lean a staff of workers may have gone as far as it can go in this cycle. Not only have manufacturers added a robust 50 thousand net new jobs in January, they are requiring workers to put in much longer hours. During the month, the average workweek on the factory floor jumped to 41.9 hours from 41.6 hours in December. This is a huge monthly increase and, as the chart shows, the workweek now matches the longest for any month in more than sixty years. Needless to say, you can squeeze just so much output out of given workforce; with hours stretched to such lengths, future production gains will require companies to take on a proportionately larger number of new workers.

Even the ailing construction industry is starting to pick up hiring again. For the first time since 2006, hiring has exceeded layoffs for three consecutive months. In January, construction payrolls increased by 21 thousand following a 31 thousand gain in December and a much smaller 1 thousand increase in November. The December/January increase was the largest for a two-month period since March/April 2006, the tail end of the housing bubble. To be sure, like manufacturing the 2.2 million construction jobs that evaporated during the housing bust will not be recovered in the foreseeable future. But the long drought seems to be over for these beleaguered workers. And, while the shrunken housing sector has a much smaller influence on the overall economy than it did at the peak of the housing bubble five years ago, it still has knock-on effects on other industries. One example: the rebound in light truck sales in recent months may well be a direct result of newly-employed contractors in the construction industry needing vehicles to transport supplies and materials.

Crossing over to the household survey, which generates the unemployment rate, the news is just as positive as it is in the establishment survey. The headline drop to 8.5 percent will, no doubt, garner most attention in the business media, but it is important to note that the decline occurred for the right reason. In recent months, skeptics pointed out - rightly so - that the fall in the unemployment rate was due less to a pickup in job growth than an increase in the number of workers dropping out of the labor force. That charge cannot be leveled at the January report. True, the labor force participation rate fell again, but only because the Labor Department adjusted the composition of the labor force to account for new population controls coming out of the latest Census count. In effect, more workers aged 55 and over are now included, an age group that has a lower proportion in the labor force.

Looking at the larger picture, the employment/population ratio remained unchanged from the previous months and the labor force actually increased by 508 thousand in January. The good news is that under the household survey employment jumped by an even larger 847 thousand, moving 339 thousand workers off of the unemployment rolls. The Labor Department also adjusts its measure of household employment to more closely mimic the definition of nonfarm payrolls generated in the establishment survey. According to this adjusted gauge, employment surged by over 1 million workers last month, far greater than the 243 thousand gain posted in the establishment survey. The household gains have been stronger for the past six months, leading many to believe that the establishment figures have some catching up to do.

We hate to end an otherwise sterling jobs commentary on a down note, but it would be remiss of us not to point out that the wounds in the labor market still run deep and the healing process is only in its early innings. The most troubling element continues to be the plight of the long-term unemployed, which hardly improved last month. There remain 5.5 million workers who have been out of a job for more than six months, which is a whopping 43.3 percent of unemployed people. This is the same share as two years ago, and off only slightly from the record 44.7 percent of last May. When Fed chairman Bernanke says progress on the labor front has been frustratingly slow, this is the metric he is most concerned about. Hopefully if the surprisingly vigorous increase in job creation in January continues, it will start to trickle down to the hardest cases as well.

JPT020312-237

Weekly Economic Commentary: Week of January 30

WEEKLY ECONOMIC COMMENTARY
Stone & McCarthy Research Associates
WEEK OF JANUARY 30, 2011

The Federal Reserve commanded center stage this week, holding its regular policy-setting meeting and delivering on its highly-telegraphed promise to reveal the interest rate forecast of the 17 members of the Federal Open Market Committee over the next three years. Chairman Ben Bernake has long been an advocate of more transparency in the policy making process; this week, he followed through in spades, particularly with the remarkable honesty and openness with which he conveyed his thoughts in the press conference following the FOMC meeting. True, nothing terribly exciting or surprising came out of the policy session, but the markets nonetheless drew comfort just from the reaffirmation that the Fed will be keeping rates at rock-bottom levels over the foreseeable future, and stands ready to take more action if the economy falters.

Although not a surprise, the Fed formally revealed its intention to keep interest rates at its current near-zero level through at least late 2014. That's more than a year beyond the guidance it had previously announced, which extended through the middle of 2013. Not all of the Fed officials agreed with this timetable. When asked when the first rate hike would occur, six projected a policy firming before 2014 and six thought that it would happen later, with four looking to pull the trigger no earlier than 2015 and two in 2016. These projections, of course, are contingent on the economy's performance. Make no mistake, should the pace of growth, job creation and inflation deviate significantly from expectations, the Fed will act accordingly, lifting rates sooner or later than the given timetable. The point is, these interest-rate projections are just that - projections, not commitments.

As the table presented after the FOMC meeting shows, the Fed does not have high hopes for the economy over the next year or two. It actually revised lower its growth forecast for 2012 and 2013 from the one presented in November, although it also lowered its expectation for the unemployment rate. Overall, the Fed was slightly more upbeat about recent economic data, saying that the economy was "expanding moderately, notwithstanding some slowing in global growth". But it remained very cautious about the outlook, pointing out in its policy statement that, "While indicators point to some further improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment has slowed, and the housing sector remains depressed. Inflation has been subdued in recent months, and longer-term inflation expectations have remained stable." The Statement also said, "Strains in global financial markets continue to pose significant downside risks to the economic outlook."

We were particularly interested in the Fed's views on inflation, both the outlook and the constraint it would impose on future policy decisions. As noted, it expects inflation to moderate next year and beyond, saying it " anticipates that over coming quarters, inflation will run at levels at or below those consistent with the Committee's dual mandate" which is to promote price stability and maximum employment. What does it consider to be price stability? For the first time, the Fed gave a specific goal of 2 percent as the desired long run inflation rate, as measured by the personal consumption deflator. In the fourth quarter, the PCE deflator stood 2.6 percent above the level of a year earlier, but the pace slowed sharply over the second half of the year. Compared to the third quarter, the deflator increased by a 0.7 percent annual rate. As the above table shows, the Fed expects the PCE deflator to increase between 1.4 and 1.8 percent in 2012.

From our lens, the Fed's moderating inflation outlook combined with its belief that unemployment will remain unacceptably high in coming years opens the door for another round of quantitative easing. To be sure, Bernanke was cautious in the outlook for further accommodation in policy. But in the press conference following the FOMC meeting, he was specific in that the Fed would undertake more asset purchases "if warranted," although such action was not yet decided upon. He said he was "not ready to declare" the economy had entered a new, stronger phase" and that the FOMC was "prepared to take further steps if the recovery is faltering." Another round of asset purchases was "certainly on the table," and added that, "if conditions warrant, we will certainly consider using it."

Interestingly, Bernanke's guarded assessment of the economy may have seemed overly cautious a month or so ago when most indicators showed increasing vigor and pointed to a solid start to 2012. As a result of this apparent momentum, the odds seem to favor no further Fed action was needed to nourish the recovery. But incoming data over the past few weeks suggest that Bernanke may be correct in looking through the stronger data, believing they were more of a temporary blip rather than the start of a stronger growth trend. For example, the holiday shopping season did not live up to the heightened expectations promised by the blockbuster sales reported over the Black Friday weekend. Excluding autos, retail sales in December actually declined for the first time since May of 2010. Meanwhile, conditions in Europe deteriorated significantly, with knock-on effects on U.S. exports. Housing remains in the doldrums, with a slight uptick in starts and homebuilder sentiment offset by continued softness in sales and home prices.

As it turns out, the first snapshot of the economy's fourth-quarter's performance was somewhat disappointing. The Commerce Department released its advance estimate of GDP on Friday, and the result was weaker than expected. During the period, the economy grew at a 2.8 percent annual rate, a tad below the consensus forecast of a 3 percent growth rate. For the year as a whole, real GDP increased by 1.7 percent, down from 3.0 percent in 2010. By itself, the slowdown is not out of the ordinary, as the first full year of a recovery is usually the strongest, benefiting from a bounce-back from recession. But the first-year rebound was anemic by cyclical standards and the second-year slowdown merely highlights the sub-par nature of this ongoing recovery. The 2.8 percent growth rate in the fourth quarter does not even equal the economy's long-term growth trend of 3 percent.

The disappointing headline reading on GDP sounded a negative chord in the financial markets on Friday, adding to the downbeat news coming from overseas. But more than the headline, the details of the GDP report were particularly disturbing to those in the optimistic camp. Simply put, most of the gain in the fourth quarter came from a $58 billion inventory buildup. That contributed fully 1.94 percent to the overall 2.8 percent GDP increase. Excluding this volatile category, real final sales rose at an anemic 0.8 percent annual rate, the weakest since the first quarter of the year. Dragging down growth, business investment slowed considerably and government spending on both the federal and state and local levels posted outright declines. The Federal retrenchment was entirely in defense spending, which slumped by 12.5 percent and seems to have been related to the pullback of troops from Iraq. State and local spending fell by another 2.6 percent, marking the fifth consecutive quarter of falling outlays.

Aside from inventories, the biggest contribution to the GDP gain came from consumers. But even here, the news is not that encouraging. During the period, personal consumption increased at a 2.0 percent pace, better than the 1.7 percent and 0.7 percent increases posted in the third and second quarters, respectively. But the lion's share of the gain was for autos, which spurred a 14.8 percent advance in durable goods purchases. That's not a sustainable trend, as it reflects primarily a rebound from the summer when auto parts were in short supply due to the Japanese earthquake. In the much larger services sector, which accounts for 64 percent of total consumption, outlays increased by only 0.2 percent, the smallest gain since the third quarter of 2009. Keep in mind that the service sector is also the largest source of employment, so a slowdown here is not auger well for the job market.

What's more, the modest pick-up in personal consumption was driven largely by an increased usage of consumer debt and a pullback in the savings rate. We would feel more comfortable if spending was supported entirely by growing wages and salaries, with some left over to build up savings and repay debt. Since just the opposite took place in the fourth quarter there is a good chance that households will slow their spending in the first quarter, which more than anything will restrain growth during the period. We suspect that the potential for a consumer retrenchment weighed heavily in Bernanke's cautious assessment of economic prospects in coming quarters. The chairman has often expressed concern with the condition of household balance sheets, which are still highly leveraged.

We concur with that assessment, but are encouraged by two developments in the fourth quarter that may limit the extent of a spending pullback. First, the aforementioned slowing in inflation means that households got more bang for the buck for every dollar of income earned. Real disposable income increased for the first time since the opening quarter of last year, rising by 0.8 percent. That's not much, but the underlying trend in nominal incomes is also rising. Moreover, a greater share of the increase is coming from wages and salaries and less from government subsidies. Excluding transfer payments, real disposable income rose by a solid $60 billion, following a decline of $23.2 billion in the third quarter and a small $3.1 billion increase in the second quarter.

Simply put, the economy received a big lift from inventories last quarter, which is not likely to be repeated in the current quarter. That alone strongly suggests a pending slowdown in GDP during the opening months of the year. However, some of the drags that occurred last quarter should not be as severe, such as the eye opening drop in defense spending. It should also be noted that housing made a modest contribution to growth in the fourth quarter, which supports the notion that the long and pernicious drag from the residential sector is over. Another positive omen: while business investment spending slowed in the fourth quarter, it picked in the closing month of the year. Both new orders and shipments of nondefense capital goods, excluding aircraft, posted solid gains in December according to a government report released this week. No doubt, this week's data poured some cold water on the more optimistic expectations that had been building a few weeks ago. We suspect, however, that the fundamentals continue to improve and will support a decent growth rate in the neighborhood of 2 ½ percent this year. Unfortunately, that's not enough to significantly lower unemployment and, if inflation continues to recede as expected, the odds favor more Fed intervention in the foreseeable future.

JPT012712-176

Weekly Economic Commentary: Week of January 23

WEEKLY ECONOMIC COMMENTARY
Stone & McCarthy Research Associates
WEEK OF JANUARY 23, 2012

With the onslaught of incoming data rounding out activity for December it is almost time to close the books on 2011. To be sure, the fourth-quarter GDP report will not be released until next Friday, and that first estimate will be revised several times in coming months as information on missing pieces becomes available. But most key ingredients are already accounted for, providing us with a reasonably good picture of how the year wound up. In a nutshell, there were more positives than negatives during the closing months of the year, leaving the economic glass slightly more than half full.

Admittedly this is a modest accomplishment. At this stage of a cycle - more than two years into a recovery - the economy would ordinarily be expected to follow a much stronger growth path, gobbling up unused labor and productive resources and prodding policymakers into thinking about anti-inflation measures. But an array of natural and manmade shocks have prevented a normal recovery from materializing; what's more, the glass has been more than half empty for so long that there is little danger of it overfilling anytime soon. Instead, we are left wondering if more obstacles loom ahead, which would impede even the modest progress that seems to be underway.

The most visible and immediate threat is the intractable European debt crisis that continues to defy a solution. So far, the U.S. economy has not been deeply affected, although exports are already starting to suffer as a result of the sharp slowdown among our European trading partners. In November, exports to Europe, which accounts for more than 20 percent of total U.S. goods exports, plunged by more than $2 billion. The setback left European exports a mere 5.2 percent higher than a year-earlier; as recently as April, they were growing at more than a 25 percent annual rate. Needless to say, the pronounced drop in sales to Europe has made a dent in total merchandise exports, which are now growing at less than half the pace of six months ago.

No doubt, exports have been one of the few shining lights in the recovery, supporting a solid rebound in factory production that led the U.S. out of the Great Recession. Over the past 2-½ years, manufacturing output has increased at a 6 percent annual rate, more than double the 2.4 percent pace during the 2001-2009 expansion and an outsize premium relative to the 2.4 percent growth rate in GDP. The production rebound has spurred an equally impressive increase in factory jobs. Over the same period, manufacturers have added a sizeable 334,000 workers to payrolls, which actually understates the influence of this sector on the labor market. Keep in mind that when a new factory opens or expands, it tends to attract a Walmart, auto dealer or similar establishment with its own staffing needs. The reverse is usually not the case.

The good news is that factories continued to rev up as the year drew to a close, despite the throttling down of exports. As reported this week, total industrial production increased by a solid 0.4 percent, more than reversing a 0.3 percent drop in November that was dragged down by a drop in auto output, a volatile sector. The December gain was also held back by an aberrational drop in utility output due to unseasonably warm weather that slashed electricity consumption. More to the point, manufacturing output rebounded by a robust 0.9 percent, the strongest monthly increase in a year. The gain was broadly based, including a bounce back in auto output. But perhaps the most encouraging aspect of the report was the continued gain in business equipment output, which may fill the void left by the expected slowdown linked to weakening exports.

Along with exports, capital spending has been one of the few bright spots in the recovery. Since the recession ended, spending on equipment and software has increased at a robust 13.7 percent annual rate. Not only is that the strongest pace registered in all but one expansion since 1960 (the 13.9 percent in the 1971-73 upturn), it kicked in at a much earlier stage of the recovery than usual. Normally, capital spending picks up several quarters after a recession ends, following a rebound in consumer spending that eats up unused capacity. The quick revival this time was sparked by a huge replacement demand for aging equipment and software, as the collapse in capital spending during the recession was the longest and steepest ever recorded during the post war period. While special tax incentives also fueled the upsurge, companies enjoyed a robust gain in profits and cash flow that easily financed the spending increase. Exceptionally low borrowing costs and a receptive bond market also helped. Except for the expired tax incentives, these favorable conditions remain mostly in place, so the recovery in capital spending should continue to support growth in the coming year.

Clearly, the U.S. will have to rely more on internal sources to drive growth in 2012 than was the case over the past two years. Not only is Europe on the cusp of a recession, if not already in one, most emerging market nations - the fastest growing export destination for U.S. products - are also experiencing weaker growth. China - the third largest export market for U.S goods - has cooled down considerably, thanks to aggressive anti-inflation steps taken by the government; growth in Brazil has stagnated, and other developing Latin American countries are suffering from falling commodity prices, a normal cyclical response to weakening global demand. What's more, the sovereign debt struggles of the weaker euro zone members have sent the region's currency on a deep slide. Although it recovered somewhat this week, the euro recently hit a 16-month low. That's because uncertainty over how the debt woes will play out has caused investors and traders to flee the currency and place their funds in safer havens, particularly dollar-denominated assets. As a result, the dollar has strengthened, which makes U.S. goods more expensive on the global market place, reinforcing the drag on exports.

The question is whether the U.S. can find enough strength among domestic sources to drive the recovery on to a faster growth track. Most economists expect that growth will speed up from the tepid 1.8 percent pace estimated for 2011. Few, however, believe that the acceleration will be anything but modest. We concur. There are still too many headwinds that are visible, and some that remain under the radar, including the risk of a "credit event" should the euro debt crisis spread to the U.S. financial system. As encouraging as the relatively strong holiday shopping season was, we are skeptical that consumers can sustain more than a trend-like pace of expenditures over the next several quarters. Indeed, households took on an astonishing amount of new credit in November and sharply drew down savings to finance their holiday purchases. If that behavior is a sign that consumers are more confident in their financial position and income prospects, the spending outlook becomes more positive. If, however, consumers borrowed more and drew on savings just to make ends meet in the face of lagging incomes, some payback can be expected with a spending cutback a likely outcome.

At best, therefore, the huge household sector promises a mixed bag of possible outcomes. Our sense is that some pullback will take place in the first quarter, but it will be more of a pause than a fundamental retrenchment based on worsening income or balance sheet conditions. By all accounts, the job market is improving, a trend confirmed by this week's report of a sharp drop in initial claims for unemployment benefits. To be sure, even a pickup in job growth in coming months will not fatten the collective paychecks of workers as much as would ordinarily be the case. With so much competition for jobs coming from a huge pool of unemployed and underemployed workers, labor has little bargaining strength to push for significant pay raises. That said, hourly earnings are creeping up as are hours worked. In December, average hourly earnings of all private workers rose by 0.2 percent, which is spot on with the average monthly pace for 2011 as a whole. The big difference, however, is that workers got to keep all of the increase because inflation was flat in December.

Indeed, the purchasing power of households should enjoy a boost from both growing labor income as well as slowing inflation in 2012. The December reading for the consumer price index was the third consecutive month in which the CPI was either flat or showed a decline. Falling energy, particularly gasoline, prices contributed importantly to the leveling out of the inflation rate but the core CPI, which excludes volatile energy and food prices, has been exceptionally tame as well, rising by just 0.1 percent in December. Taking a longer perspective, the overall CPI stood 3 percent higher than its year-earlier level, down sharply from the 3.9 percent pace seen as recently as September.

True, the core CPI edged up to a 2.2 percent annual rate in December, more than double the pace that prevailed at the end of 2010. However, it would be misguided to view this increase as the seeds of an inflation flare-up that warrants a countermove by the Federal Reserve. Keep in mind that throughout 2010 and the early months of 2011, the major objective of the Fed was to prevent the U.S. from falling into a deflationary spiral that is extremely difficult to arrest once it gets underway. Hence, while a doubling of the core inflation rate may seem ominous on the surface, it actually represents a success story for the Fed, as it moves the nation further away from the deflationary precipice. As it is, the current inflation rate is well within the Fed's target zone, giving it the flexibility to retain an easy monetary policy for as long as it takes to get the economy on a firmer growth path.

However, while the Fed has been successful in staving off deflation, it has been equally unsuccessful in lifting housing activity out of the doldrums. As this week's figures on housing starts illustrates, 2011 was the worst year on record for new single-family construction and permits. The ongoing housing depression, fueled by a huge pipeline of foreclosures, weak sales, persistent home price declines and restrictive credit conditions, was both the catalyst for the recession and the major drag on growth throughout the recovery. The good news is that the housing meltdown hit bottom several months ago, and a modest revival is getting underway. Sales are picking up, homebuilder sentiment is improving and new construction for single-family homes has turned the corner. Single-family starts increased for the third consecutive month in December, accompanied by a similar run-up in building permits. Homebuilding stocks have been one of the best performing sectors in the market over the past three months, reflecting investor confidence that housing is no longer the caboose holding back the economy's growth engine. No doubt, the removal of housing as an impediment to growth would be a welcome development for a recovery that faces enough hurdles as it is.

JPT012012-128

Weekly Economic Commentary: Week of January 17

WEEKLY ECONOMIC COMMENTARY
Stone & McCarthy Research Associates
WEEK OF JANUARY 17, 2012

The euphoria that accompanied last week's better-than-expected employment report subsided this week, thanks largely to escalating concerns over the European debt crisis, highlighted by a looming ratings downgrade of the sovereign debt of several EU nations. This tapering off in investor expectations is not all that bad, in our view, as it brings perceptions more in line with reality. Keep in mind that the markets' tend to overreact to changing events, often setting themselves up for disappointment when conditions do not live up to expectations. During the early months of both 2010 and 2011, most pundits were certain that the economy was moving onto a fast track, finally leaving bitter memories of the Great Recession in the dust. Alas, after a fast start following strong finishes to the previous years, the economy eventually sputtered and left overly optimistic investors in a veil of tears. In both years, stock prices rallied through the spring, and then went into a tailspin before recovering in later months when a fresh burst of optimism filled the air.

Perhaps investors, wary of past disappointments, are adopting a more sober attitude this time, one that is more in line with unfolding developments and sensitive to the array of uncertainties that lie ahead. As was the case in 2009 and 2010, the economy ended 2011 on a stronger footing, sparking optimism that the recovery was finally entering a self-reinforcing stage of faster growth and robust job creation. But unlike the start of the previous two years, the markets are approaching 2012 with some trepidation. And for good reason, as it is impossible to ignore the powerful headwinds that continue to stand in the way of a more robust recovery. Clearly, the European debt crisis tops the list, creating uncertainty over its ramifications for global growth as well as for the financial system. Ironically, conditions in the European markets actually seemed to stabilize in recent weeks following the aggressive - and surprising - move by the ECB to provide more than 500 banks with a huge $640 billion of three-year loans at a rock bottom 1 percent rate.

This massive injection of liquidity - and promises of more to come - did have a soothing effect on market fears as it temporarily lessened the threat of a liquidity crisis that could lead to a growth-stifling credit crunch. It also raised hopes that the banks would use a big portion of their newfound liquidity to invest in sovereign debt, thus easing the deficit-financing struggles of the weaker nations in the region. Indeed, there are indications that both Spain and Italy, two of the more debt-ridden members at the heart of the crisis, benefited from the European Central Bank actions. Both countries conducted debt auctions this week, obtaining funds at significantly lower rates than in previous sales. But widespread reports on Friday that S&P would soon downgrade the debt of many countries using the euro dashed hopes that the crisis was close to being resolved.

The news should not have come as a surprise, as the rating agency had issued such a warning on December 5, which sent the markets reeling at the time. Underscoring S&P's concern is the ongoing dissonance among European leaders over how to ease the crisis as well as the diminishing prospects for European growth. The latter fear was reinforced this week by incoming economic reports, which revealed that growth in the EU actually contracted in the fourth quarter. More and more, it looks like Europe is on the cusp of a recession, if not already in one. The embattled euro continued to slide, hitting a 16-month low of $1.23 on Friday, and yields on Spanish and Italian debt surged in the secondary market following news of the imminent downgrade. Simply put, the European debt drama has entered another chapter and it remains unclear how this sorry tale will eventually end.

That's not good news for the U.S. economy for a number of reasons. The most immediate consequence of the recession-prone European region is that it will curtail U.S. exports, which has been one of the bright spots of the recovery over the past year. On a broader scale, if European banks take a big hit to their balance sheets due to losses on debt holdings or from soured loans, American banks would surely be impacted as they are closely linked with their European counterparts via derivative contracts and other transactions. The globalization of the financial markets has been one of the primary engines of growth over the past two decades, but like most transformative events it has a downside as well as an upside. Since the 2008 financial crisis, governments and policy makers have been grappling with the downside for the first time and are still searching for the right solutions to a new problem.

Assuming that the European crisis does not accelerate to the point that results in a break up of the single currency zone, the U.S. should be able to weather the storm. But the crisis is clearly not going away anytime soon, and its lingering effects are one reason to be cautious about the U.S. economic outlook for the coming year. The others are mainly homegrown. Keep in mind that the recent sources of optimism - a strengthening job market, firmer consumer spending and improving household confidence - are eerily similar to the events that transpired over the past two years. On Friday, the Reuters/University of Michigan Consumer Sentiment Index was released, revealing a sharp improvement in the mood of households in early January. This follows a solid jump in December that was mirrored by the Conference Board's measure of consumer confidence. As the chart shows, similar increases were observed around the turn of the year in both 2010 and 2011, suggesting a sustained pickup in economic growth that never materialized.

Not surprisingly, in both instances households believed that job prospects were improving, reflecting strengthening reports on the labor market. In December 2010, for example, the unemployment rate fell by a sizeable 0.4 percent to 9.4 percent, beginning a four month stretch that left the rate almost a full percentage point lower than the 9.8 percent November level. That was accompanied by a burst of job creation through the spring, which was slashed by more than half over the summer months. Likewise, households entered 2012 riding a similar wave of optimism about the job market. As reported last week, the unemployment rate plunged by 0.5 percent in December to 8.5 percent, the lowest since February 2009. Equally encouraging was a pickup in job creation to 200 thousand, which far exceeded the 130 average monthly gain over the January-November period.

The question is whether households are setting themselves up for another round of disappointment, similar to the setbacks they faced in 2010 and 2011 that turned optimism into despair. Indeed, the sparse bucket of data released this week struck a sobering note, helping to defuse the market euphoria following last week's upbeat jobs report. For one, initial claims for jobless benefits jumped up in the first week of January, interrupting an extended period of persistent declines that nurtured hopes of a strengthening labor market. The increase supported the claim by skeptics that December's solid jobs report reflected mainly an outsize increase in hiring of couriers delivering goods purchased online over the holiday season. Their argument is that these temporary workers would be laid off after the seasonal bulge, leading to a lengthening of the unemployment lines once again.

For another, the retail sales figures for December suggest that the hoopla surrounding the holiday shopping season was more hype than substance. On Thursday, it was reported that retail sales in December edged up by a miniscule 0.1 percent, weaker than expected and hardly representative of a blockbuster sales season. If not for a solid 1.5 percent gain in auto sales, the picture would be worse. Excluding the auto sector, retail sales actually fell 0.2 percent in the final month of the year, the first such decline in eighteen months. Since consumers account for about 70 percent of total economic activity, from this perspective it would seem that there is not much momentum driving growth as the curtain rises on 2012.

We agree that the economy is not riding a wave of momentum that will generate a sustained pace of above trend growth in the immediate future. However, the threat of an abrupt slowdown based on this week's reports is also greatly exaggerated. A one-week spike in unemployment claims is not enough to draw any conclusions about labor market conditions, especially around the turn of the year when seasonal influences can distort the fundamental trend. There was a sufficient amount of positive elements in the December jobs report - higher earnings and a longer workweek, for example - to indicate that the recent strengthening in the job market is real. What's more, recent surveys of small businesses show a marked improvement in confidence and actual conditions. If small businesses are about to ramp up hiring, a major missing cylinder in the job-creating engine will be in place. These companies are not always included in the first calculation of payrolls by the Labor Department, which may explain why back figures on jobs are now being revised up more frequently.

With regards to the latest retail sales figures, here too it is tempting to jump to conclusions that may not reflect actual developments. True, the December reading was weak on the surface, but the November increase was revised up from 0.2 percent to 0.4 percent and October from 0.6 percent to 0.7 percent. What this tells us is that consumers frontloaded their holiday shopping plans, lured by aggressive price discounts and promotions. Even with the December slowdown, retail sales for the fourth quarter staged an impressive 7.9 percent annual rate of gain, much stronger than the 4.7 percent increase posted in both the second and third quarters. Keep in mind also that part of the nominal sales weakness in December can be attributed to lower prices, particularly at gasoline stations. Hence, in real terms, retail sales probably showed a larger gain. One other fact to consider is that gift cards play an ever-larger role during the holiday season, and these are not recorded as sales until they are actually exchanged for merchandise. If past trends continue, this could result in a solid boost to sales in January.

To be sure, households still have many fences to mend before they feel comfortable about aggressively stepping up their spending propensities. Home values continue sag, sapping housing equity and leaving millions of homeowners with more debt than their homes are worth. Savings are still too low. After rising from a low point of under 1 percent in 2005 to over 8 percent during the recession, the savings rate stabilized around 5 percent in 2010 and most of 2011. However, it fell to 3.5 percent over the past three months, and households will probably strive to rebuild a financial cushion, which will restrain spending. That said, the urgency to repair balance sheets should gradually fade as the economy continues to improve and instill a greater sense of confidence in job and income prospects. One sign that households are feeling more comfortable with their financial condition is the astonishing increase in consumer borrowing that took place in November. During the month, consumer credit surged by $20.4 billion, the largest monthly increase since November 2001. That included a $5.6 billion jump in installment credit, the third consecutive monthly gain. We doubt that the love affair with credit cards has returned in full bloom, but just the fact that households are willing to use plastic again after nearly three years of repayments is a sign that consumers are getting a bit tired of being overly frugal. If that sentiment persists, the economy has a good chance of weathering the storms blowing in from overseas.

JPT011312-097

J.P. Turner & Company Exceeded Their Fundraising Goal for The Empty Stocking Fund

For the fourth year in a row, J.P. Turner raised more than $10,000 for the charity.

For J.P. Turner owners Tim McAfee and Bill Mello, the holidays are a time for showing appreciation to their employees and registered representatives and encouraging them to help those less fortunate.

For the fourth consecutive year, McAfee and Mello spearheaded a campaign to raise $10,000 for The Empty Stocking Fund, a charitable organization that provides Christmas presents to underprivileged children in the Atlanta area, by matching employee contributions dollar for dollar.

Without hesitation, donations poured in from home office employees and representatives across the country – from Florida to New York, Iowa to California– in support of the campaign. The firm once again exceeded its goal of  $10,000 and, as a result, helped provide gifts for nearly 520 children this Christmas. Over the past four years, J.P. Turner has raised more than $40,000 for the organization, and helped to ensure more than 2,000 Atlanta-area children had presents under the tree Christmas morning.

“Tim and Bill’s generosity is inspiring,” said Dean Vernoia, chief operating officer. “Most people use the current state of the economy as an excuse to do less for their employees and their community– Tim and Bill don’t. They understand the importance of investing in people inside their firm and in their community. The fact that we once again exceeded our goal was not surprising to me. All of us are just trying to pay forward the generosity they continue to show us during these tough economic times.”

“This year, The Empty Stocking Fund distributed gift packages consisting of two toys or gifts, a book and a pair of socks for 53,660 metro Atlanta children living in poverty - 3,300 more than last year (and with one less day). Demand was so high that, for the first time in recent history, The Empty Stocking Fund had to make a second, mid-season purchase to ensure we were able to serve every family that came to us for assistance,” explained Manda Hunt, program director. “Without the continued financial support of companies like J.P. Turner & Co., this last-minute increase wouldn’t have been possible and we might have had to turn hundreds of families away empty-handed.”

The Empty Stocking Fund has been bringing holiday cheer to metro Atlanta’s underprivileged children since 1927. Each year, the generous contributions received from thousands of Atlanta citizens along with local businesses and foundations enable the non-profit organization to provide gifts for tens of thousands of children from birth to13 years of age living in Clayton, Cobb, DeKalb, Douglas, Fayette, Fulton, Gwinnett, Henry and Rockdale counties. To learn more about the Empty Stocking Fund visit www.emptystockingfund.org. The Empty Stocking Fund is still in need. Donations are accepted year round. Please consider making a donation today.

J.P. Turner & Company, LLC, is a full-service investment banking, securities brokerage and advisory services firm headquartered in Atlanta with some 200 branch offices nationwide. The firm was named One of the Best Places to Work in Georgia for 2010 and 2011 by Georgia Trend Magazine. J.P. Turner was founded in 1997 by Bill Mello and Tim McAfee, who have assembled a strong leadership team composed of seasoned financial brokers and advisors, like themselves, that truly understand the challenges faced by independent representatives in the field. The company is a member of SIPC, TICA and the National Investment Banking Association. J.P. Turner has been consistently voted one of the top 50 independent broker/dealers by Investment News. For additional information on J.P. Turner & Company visit www.jpturner.com.