The State of the US Economy and Why You Care

1. The State of the US Economy and Why You Care By Mary C. Kelly, PhD

2. The State of the US Economy and Why You Care By Mary C. Kelly, PhD

3. What you care about: • Do I have a job? • Do my friends have jobs? • Do I have investments? Are they down? • Are gas prices increasing? • Am I upside down on my house? • Are my taxes going to increase?

4. What economists care about: • Unemployment figures…. • Unemployment: 8.5% • Jobless rate: 8.1% • Doesn’t measure discouraged workers or • Underemployment • 227,000 new jobs in Feb 2012 • Stock market is back to….

5. What economists care about: • Gas prices are going up, increasing prices of everything… • One out of four houses is upside down (the mortgage is • more than the house’s current value)… • Housing market is very soft. 30 year fixed rates averaged • 3.88% Jan 16-20, 2012, the lowest on record • Refinancing is very difficult, cumbersome, and repetitive • More government legislation regulating lending institutions – more than 2,300 pages of Dodd-Frank legislation.

6. What economists care about: • Taxes are going to increase: Over $1 Trillion of annual deficits as well as more of the same in the next few years. • w ww.usdebtclock.org • $15.5 Trillion Debt  • $150,000 per taxpayer  • Top 5% of Americans pay 58.66% of Income taxes collected • Bottom 50% of Americans pay no federal taxes  • The LafferCurve

8. What economists look at besides their crystal ballLeading Economic indicators • Average weekly hours (manufacturing) – • Adjustments to the working hours of existing employees are usually made in advance of new hires or layoffs, which is why the measure of average weekly hours is a leading indicator for changes in unemployment.

9. Leading Economic indicators • Average weekly jobless claims for unemployment insurance – • The CB reverses the value of this component from positive to negative because a positive reading indicates a loss in jobs. The initial jobless-claims data is more sensitive to business conditions than other measures of unemployment, and as such leads the monthly unemployment data released by the Department of Labor.

10. Leading Economic indicators • Manufacturer's new orders for consumer goods/materials – • This component is considered a leading indicator because increases in new orders for consumer goods and materials usually mean positive changes in actual production. The new orders decrease inventory and contribute to unfilled orders, a precursor to future revenue.

11. Leading Economic indicators • Vendor performance (slower deliveries diffusion index) – • This component measures the time it takes to deliver orders to industrial companies. Vendor performance leads the business cycle because an increase in delivery time can indicate rising demand for manufacturing supplies. Vendor performance is measured by a monthly survey from the National Association of Purchasing Managers (NAPM). This diffusion index measures one-half of the respondents reporting no change and all respondents reporting slower deliveries.

12. Leading Economic indicators • Manufacturer's new orders for non- • defense capital goods - As stated above, new orders lead the business cycle because increases in orders usually mean positive changes in actual production and perhaps rising demand. This measure is the producer's counterpart of new orders for consumer goods/materials component (#3). • Building permits for new private housing units – • Building permits mean future construction, and construction moves ahead of other types of production, making this a leading indicator.

13. Leading Economic indicators • The Standard & Poor's 500 stock index – • The S&P 500 is considered a leading indicator because changes in stock prices reflect investor's expectations for the future of the economy and interest rates. The S&P 500 is a good measure of stock price as it incorporates the 500 largest companies in the United States.

14. Leading Economic indicators • Money Supply(M2) – • The money supply measures demand deposits, traveler's checks, savings deposits, currency, money market accounts and small-denomination time deposits. Here, M2 is adjusted for inflation by means of the deflator published by the federal government in the GDP report. Bank lending, a factor contributing to account deposits, usually declines when inflation increases faster than the money supply, which can make economic expansion more difficult. Thus, an increase in demand deposits will indicate expectations that inflation will rise, resulting in a decrease in bank lending and an increase in savings.

16. Leading Economic indicators • Interest rate spread (10-year Treasury vs. Federal Funds target) – • The interest rate spread is often referred to as the yield curve and implies the expected direction of short-, medium- and long-term interest rates. • Read More http://www.investopedia.com/university/conferenceboard/conferenceboard2.asp#ixzz1ojFzJihH

17. Lagging Economics Indicators • The average duration of unemployment (inverted) • The value of outstanding commercial and industrial loans • The change in the Consumer Price Index for services • The change in labour cost per unit of output • The ratio of manufacturing and trade inventories to sales • The ratio of consumer credit outstanding to personal income • The average prime rate charged by banks

18. Concurrent Economic Indicators • Number of employees on non-agricultural payrolls • Personal income less transfer payments • Industrial production • Manufacturing and trade sale

19. Changes in the yield curve have been the most accurate predictors of downturns in the economic cycle. This is particularly true when the curve becomes inverted, that is, when the longer-term returns are expected to be less than. • Index of consumer expectations - This is the only component of the leading indicators that is based solely on expectations. This component leads the business cycle because consumer expectations can indicate future consumer spending or tightening. The data for this component comes from the University of Michigan's Survey Research Center, and is released once a month.

20. What keeps me awake at night: • Hard to start and sustain a business • Taxes • US Debt • Greece, Ireland, Portugal, Spain, Italy • Iran’s Nuclear Ambition • Israeli response • Syria

21. The Good: • 75% growth rate 4th quarter 2011 • Consumer confidence is up • US has been growing for 32 months • American consumer account for 70% of every dollar spent in US economy • Housing values don’t matter as much as people think

22. The Bad: • Retirees are suffering • Millions of retirees did everything right: • They saved • Invested in stocks, then shifted to bonds and CDS – in bundled mortgages – to get steady stream of income • Because of lower interest rates, retirees are not getting rates of return on investments • Retirees not able to spend on travel, entertainment, restaurants, housing • Retirees looking for higher rates and vulnerable to scams

23. What to do protect yourself: • Save 10% of income, with some as cash. • Save 10% for retirement in protected accounts ROTH IRA, 401 (k). • Adjust accounts yearly. • Eliminate all debt except housing and car payments. • Manage credit cards.

24. THANK YOU !