AUGUST 13, 2010

Job Losses Continue in July

The economy lost 131,000 net jobs in July, versus market expectations of a much lower loss of 63,000 jobs. The drop was driven by the layoff of 143,000 temporary census workers, and a net total of 202,000 displaced government employees.

The private sector added 71,000 jobs in July, bringing net private-sector job growth to 630,000 this year. Although better than the previous two months’ job figures, private-sector job creation in July still fell below the normal pace of growth.

The construction sector lost 11,000 jobs while financial services lost 17,000 jobs—a large chunk coming from the real estate sector. Growth continued in the manufacturing sector, which added 36,000 jobs, reaching a net total of 161,000 jobs so far this year, with 21,000 attributed to the auto industry. The production of motor vehicles has been increasing as the auto industry scrambles to replenish inventory following a sharp reduction in manufacturing last year.

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AUGUST 6, 2010

By Leena Kapila, Securities Supervisor

The U.S. dollar declined against almost every major currency last week. The dollar has been particularly weak against the Japanese yen, hitting an eight-month low that is only slightly above 15-year lows of 84.82 yen to the dollar. With low growth forecasts for the U.S. economy, further dollar weakness may continue. The Federal Reserve is expected to focus on stimulating growth and lowering unemployment at its policy meeting later this month.

The dollar often has been used as a safe-haven currency during the global economic recession—particularly earlier this year as the sovereign debt crisis struck the euro zone. But weaker-than-expected U.S. economic data—unemployment remains high and consumer confidence remains low—together with stronger-than-expected figures for Japanese exports—has led more investors to embrace the yen as the new safe-haven currency of choice. The recent strengthening of the yen against the dollar has sped the shift in investor appetite.

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JULY 30, 2010

By Josh Silverman, Director, Term Funding & Risk Management

The National Association for Business Economics (NABE) recently released its quarterly business conditions survey, and the results show that hiring improved during the second quarter, although the pace of growth slowed.

The NABE’s July 2010 Industry Survey report was based on responses from 84 NABE members regarding business conditions in their firm or industry. The key takeaway from the report is that more firms are planning on hiring, but the pace of economic recovery is expected to continue to slow in the months ahead. Highlights from the report include:

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JULY 30, 2010

Home Resales Dip

Source: National Association of Realtors

Existing home sales fell 5.1 percent in June to a seasonally adjusted annual rate of 5.37 million units—the weakest pace since March. June’s sales drop was better than Wall Street had expected; however, the consensus forecast had called for a 9.9-percent drop. Year-over-year sales were up 10 percent.

Inventories rose 2.5 percent to 3.99 million in June—an 8.9-month supply at the current pace of sales and the highest level since August 2009. Supplies are soon expected to reach 10 months, and home prices will deteriorate further if inventories remain high.

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JULY 23, 2010

By Dwight Brown, CFC Derivatives Supervisor

Overall corporate profits have recovered from declines experienced during the recession. Profit levels through Q1 2010 were 5.7 percent higher than Q4 2007. And yet the labor market is far from its pre-recessionary level, having lost a net 7.5 million jobs over the same period. Despite the rebound in profits, companies remain on the sidelines pending stabilization of economic conditions.

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JULY 23, 2010

Industrial Production Edges Up Slightly

Industrial production edged up 0.1 percent in June, marking the fourth straight monthly increase in overall production. Although the increase was relatively soft, it did beat analyst expectations of a 0.2-percent drop for the month. Production during Q2 increased at a 6.6-percent annualized rate, down slightly from Q1’s 7-percent rate.

The small gain for June was concentrated entirely in mining and utilities, where output rose 0.4 percent and 2.7 percent, respectively. The utility output gain, spurred mostly by one of the warmest Junes on record, followed a 5.6-percent jump in May. Manufacturing dropped 0.4 percent for the month, the largest drop this year. Capacity utilization was unchanged at 74.1 percent. Manufacturers have helped lead the economy out of the recession, but continued growth will depend on recovery of the labor market over the next several quarters.

Source: Federal Reserve

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JULY 23, 2010

By John Grant, Senior Consultant, CFC Financial Advisory Services

Distribution plant inflation fell to 2 percent in 2009, a rate more commonly seen before the cost run-up began five years ago. Since 2004, inflation has had a significant impact on cooperatives’ capital plant expenditures.

Leading up to 2004, the annual increase in the cost for distribution plant averaged around 2 percent. Between 2004 and 2008, however, costs rose dramatically—by 6 to 12 percent per year. Had that spike not occurred—and if the cost had instead increased by a steady 2 percent per year over that five-year period—plant costs would be nearly 30 percent less than they are now.

One big reason for the dramatic cost increase has been international economic growth. From 2004 to 2008, the emerging economies in Asia underwent a boom in growth. China and India experienced particularly significant growth: The International Monetary Fund reported 2006 growth rates of 11.1 percent and 9.7 percent, respectively. This level of growth resulted in price increases across the board—not only for raw materials used for power plant construction, but also for finished products like transformers, wire and poles.

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JULY 16, 2010

FINANCIAL FEATURE

By Josh Silverman, Director, Term Funding & Risk Management

Even though the Federal Reserve continues to hold short-term interest rates at a range of zero to 0.25 percent and the economy is growing, the overall availability of credit continues to be tight—especially for small businesses and consumers. Fed Chairman Ben Bernanke is particularly concerned about the lack of available credit for small businesses, which account for about 60 percent of job creation.

In a speech at the Fed’s forum on restoring credit to small businesses, Bernanke said the scarcity of credit is slowing the economic recovery and keeping the unemployment rate close to 10 percent. During a typical recovery, small businesses create jobs at a faster pace than large firms. That has not recently been the case, in part because many small businesses cannot get loans.

In his prepared remarks, Bernanke said “making credit accessible to sound small businesses is crucial to our economic recovery and so should be front and center among our current policy challenges.” Bernanke also noted that “the formation and growth of small businesses depends critically on access to credit.” According to a recent bank survey by the Fed, however, lending standards among local banks—the lending institutions that small businesses rely upon—remained restrictive during the first quarter. Interestingly, the survey also revealed that major banks eased loan conditions to large firms during the first quarter, indicating that credit for big, investment-grade companies is becoming more available.

Banks say they are restricting credit because of an uncertain regulatory climate pending the passage of the U.S. financial reform bill and the likelihood of new capital requirements from international regulators. Additionally, some lenders have said current lending standards reflect more normal conditions following a period of lax standards. Demand for credit also has been depressed, with a still-fragile economy making many small businesses reluctant to hire and invest. It is a challenging cycle, as credit availability needs to improve in order to stimulate the recovery; but weak economic fundamentals are making cautious lenders less willing to supply credit.

JUNE 11, 2010

By Josh Silverman, Director, Term Funding & Risk Management

In prepared testimony to the House Budget Committee on June 9, Federal Reserve Chairman Ben Bernanke said the European sovereign debt crisis likely will have only a “modest” impact on recovery efforts in the United States if financial markets continue to stabilize.

“Although the recent fall in equity prices and weaker economic prospects in Europe will leave some imprint on the U.S. economy, offsetting factors include declines in interest rates on Treasury bonds and home mortgages as well as lower prices for oil and some other globally traded commodities,” he said. Read More »

JUNE 11, 2010

Census Hiring Paces Employment Gains

Bureau of Labor Statistics

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U.S. employers added jobs in May at the fastest pace in a decade, although gains were mostly a result of temporary government hiring for the 2010 census. Of the 431,000 net jobs created in May, 411,000 were linked to census hiring. The private sector, a better gauge of the labor market, only added 41,000 jobs—a disappointing performance following strong gains in March and April. The pickup in hiring, in addition to more workers dropping out of the labor force, brought the unemployment rate down to 9.7 percent from 9.9 percent. A 0.3-percent increase in aggregate hourly earnings and a 0.1-hour increase in the average work week were positive notes in May’s employment report.

Wall Street was disappointed by the payroll figures, as the consensus forecast was for an additional 536,000 jobs and greater job creation in the private sector. Following nearly two years of continual job losses, the U.S. economy has added 982,000 jobs this year and is expected to continue to add jobs throughout 2010. Read More »