Economic Figures Disappointing
Brian Ford analyzes the week's business news
Brian Ford joins us now from RBC Wealth Management for his analysis of business and financial news. Good morning, Brian.
Ford: Hello, Wayne. How are you doing there?
Alright. Well, you know we reporters often are accused of only wanting to report bad news and, believe me, we have been searching for some good news on the economic front this morning. And, realistically, boy, the economic news all last week was just plain grim.
Ford: Yeah, it wasn't pretty. You know, Wayne, actually I get a lot of criticism on a regular basis because I tend to try to report the good side of things and people want me to be more realistic. So, let's be realistic, Wayne. It's a very pessimistic mood amongst investors, both of the individual investors, as well as those who run companies. You know, let's just face it, the information that came out last week about existing home sales and new home sales, Wayne, were terrible. They were awful. Some of the worst numbers that we've seen in fifteen, twenty years or so. It led to the third straight down week amongst stock indices; it's leading to some wishful thinking among some analysts that President Obama may see that things are serious enough that he may extend the tax cuts that are due to expire here at the end of December, which we think would be a very positive economic development. But, we'd have to see that. The other major thing that happened last week, Wayne, was the GDP--the gross domestic product--was revised downward for the second quarter of 2010, from around two-and-a-half percent to just over one-and-a-half percent. Now, the market didn't really flinch much at that because these reports change so often from their initial reading. There're actually whispers of a much lower revision to this number, which means the one point six number that came out was actually better than some had feared. Again, Wayne, it's all about expectations. But, clearly the fact that these numbers change so often doesn't breed a lot of confidence.
Heard about something called quantitative easing number two, or QE2. Is that a new rock band or something?
Ford: I like that, Wayne, that's good. Let's talk about Ben Bernanke and the QE2 and, no, the fed chief is not taking a luxury vacation on a cruise ship right now, although he might like the idea of getting out of Washington for a while. No, Wayne, the QE2 is your new word and your listners' new word for the day. We've learned about things like subprime mortgage, and Alt-A loans and all that. So, QE2--it stands for quantitative easing 2, or the second time around for the Fed to try to goose the economy. Last week at a Fed retreat in Jackson Hole, Wyoming, Bernanke basically said that the Fed was ready to reload its weapons and come at the lackluster economic recovery in the U.S. with more ammunition. Remember, they've already lowered interest rates to zero, effectively. Previously, they were buying U.S. Treasury and mortgage-backed securities in open markets to keep their prices up; now they're likely to do it again. That confidence inspired some traders, or maybe more likely it spooked some short sellers who covered their bets on Friday and drove stocks up over one point five percent just on Friday along. Another option for the Fed, that may not be as visible to consumers is that the Fed may lower the interest rate they charge to banks who borrow money directly from the Fed.
What's the story on interest rates?
Ford: Well, you know this is interesting, Wayne. I was looking at this. Low rates have not made as much a difference as we may have thought. The national mortgage average, a little bit surprisingly, is still above six percent for homeowners, according to the Fed. However, the thirty-year U.S. government bond is trading at just over three-and-a-half percent. That's a big difference. What's going on here? Isn't there supposed to be an earth-shattering kaboom or refinancing activity. Well, yes and no. Many people still are engaged in the process of what we'll call de-leveraging their own balance sheet. Footnote, that means that credit card balances are down and consumer spending is down by a pretty surprising amount in the last month or two. But, basically, here's the deal, Wayne. People can refinance their home right now if their house is worth less than they paid for it, if they have too little equity in the home, and banks are not lending it to them. One analyst noted that really the only, the two major factors are going to be wage growth and better employment opportunities, rather than low interest rates. Those are the two factors that are going to help the most and he sees that both of these factors may still be a long ways off, still.
The birth rate in this country is the lowest in a hundred year. Now, the easy guess is, well families feel they just can't afford to have more children just now. But is there data to back that up?
Ford: Well, there is. This is an interesting byproduct of this recession I hadn't thought about, but I was reading about over the weekend. The National Center for Health Statistics--so, it's official, Wayne, it's not just you and me making this up--shows that the birth rate of the U. S. in 2009 was the lowest in 100 years. Now, that's quite a change from just 2007 when there were more babies born in this country than any other year in our history. That's a fact in and of itself. Clearly, some families did decide to hold off having children last year because of money issues. But, interestingly you know, birth to women over the age of 40 were up a lot. I guess a lot of biological clocks ticking. Strange, though, that other countries in recession like Britain, France and Germany saw positive birth rates last year; and the UK, in fact, was the highest birth rate since in over 35 years. That's hard to figure. This is an on-going concern in places like Asia, where they worry whether there will be enough young people to support an aging population in the future. I think we're a ways off worrying about that; but, still an interesting trend to monitor.
OK, well, Brian, next Monday's a holiday. So, we'll talk to you again in two weeks.
Ford: That'll be great, Wayne. Have a good holiday.