Income Drops as Job Losses Mount!

Daily Forex Fundamentals | Written by ecPulse.com | Mar 27 09 15:31 GMT |

Mounting job losses continued to weigh down on Americans' income and accordingly their spending remained subdued, meanwhile tightened credit conditions and falling home values are still leading the economy deeper into recession amid the worst financial crisis since the Great Depression. Personal income declined in February by 0.2 percent down from the prior revised rise of 0.2 percent and below median estimates of a 0.1 percent drop, meanwhile consumer spending rose 0.2 percent inline with median estimates and down from the prior revised rise of 1.0 percent. The drop in personal income came on the back of falling compensation which dropped 0.3%, while wages and salaries dropped 0.4 percent; disposable income accordingly dropped 0.1%. The saving rate rose in February by 4.2 percent down from the prior rise of 4.4 percent. Also the Federal Reserve Bank favorite indicator for inflation, core personal consumption expenditures rose in February by 0.2% inline with the prior revised estimate and the expected estimate as well, however core PCE rose an annualized 1.8 percent above the prior revised estimate of 1.7% and the expected 1.6% rise. While PCE deflator rose 1.0 percent from a year earlier up from the prior revised estimate of 0.8 percent. The U.S. economy remained weak over the course of the first three months of this year, following the 6.3 percent contraction reported back in the fourth quarter of 2008, as consumers continued to retrench their spending, however we might expect the economy to contract over a decreased pace over the course of this quarter, as the post holiday discount season boosted spending, which counts for nearly 2/3 of economic growth. Yet on the other hand we can't forget that the unemployment rate is continuing to rise, as the unemployment rate surged in February to a 25-year high at 8.1 percent, and the number is still expected to rise further over the upcoming months, as companies continue to feel the pressure from the worst financial crisis since the Great Depression. That should lead us to expect that consumer spending will remain subdued for a while before it starts to recover, and accordingly we should expect the world's largest economy to remain weak at least over the course of this year, while next year should start to show the effects of all the measures taken so far whether from the Fed or the Government. The Fed continued to support financial markets over the course of last year, especially after the failure of Lehman Brothers which indeed marked a catastrophe for global financial markets, as credit markets froze and economies fell in recession. The Fed indeed slashed their interest rates down to zero, while they continued to flood the financial system with liquidity, yet since that was deemed to be too little for a crisis of such magnitude, the Fed decided to undertake a $300 billion quantitative easing measure, in which they will purchase long term treasuries in a bid to reduce long term interest rates and accordingly help revive lending. Meanwhile the Treasury created several important measures aimed at stabilizing financial markets and economic activity, the last was the Public-Private Investment Program, which should be able to remove some of the pressures off banks' balance sheets in a bid to stabilize the financial system, as that would hopefully lead to recovery. Meanwhile speculations continue to mount that President Obama is preparing a program to help the auto industry, as the worst environment for the industry since the 1980s hampered automakers with losses, the auto industry is not the only one that needs help, but rather every other sector in the economy is in great need for help, even if little! Stocks dropped in today's early session as the income report continued to signal the ongoing weakness in economic activity, as the Dow Jones Industrial Average index dropped so far by 118.28 points or 1.49% as it was last trading at 7806.28, while the S&P 500 index was down 13.99 points or 1.68% and was last trading at 818.87, and the NASDAQ Composite index was also down by 29.99 points or 1.89% and was last trading at 1557.01, data as of 09:45 New York time. The University of Michigan released today its consumer confidence index for the month of March, the index rose to 57.3 from the prior estimate of 56.6, the economic conditions index rose to 63.3 from 62.3, while the economic outlook index rose to 53.5 from the prior estimate of 53.0. The 1-year inflation expectations declined to 2.0 percent from the prior estimate of 2.2 percent, while the 5-year inflation expectations index also declined to 2.6 percent from the prior estimate of 2.8 percent. Rising stock markets in March ignited by the optimism wave that dominated everyone must have had its share on confidence, however we shouldn't get too excited, as the economy is still very weak and the outlook is still full of uncertainty… Ecpulse disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk