State of the Union: Lower Expectations for Living Standards

“Thought it is barely above the poverty line, many Americans believe that they can live on $24,000 a year. The number is implausibly low, but perhaps a sign that many people have set their financial aims downward since the start of the Great Recession.

A new Gallup poll on financial security in the U.S. shows that:

About seven in 10 Americans, including a majority of those making more than $24,000 a year, say they have enough money to do what they need to do. However, it is not until Americans reach $48,000 a year in annual income that a majority say they can handle a substantial purchase or unexpected major expense.

It is safe to suppose that a major purchase would include something as basic as a car, and that an unexpected major expense would include a long illness. So, it is a powerful irony that so many Americans believe that they could go broke on incomes that are just below the national average household income of $51,000.

The federal government sets poverty thresholds at various levels based on family size. The threshold for a family of four is $23,021. So, put simply, based on Gallup’s data, Americans who can live on $24,000 a year sit just above the level at which people are considered abjectly poor.

One has to wonder if the $24,000 threshold would have been nearly as low in 2007, before the economy was gutted and unemployment was well above 15%, when people who work part time but would like to work full time and those who gave up on finding work were included. Whatever equity these people had in real estate likely was demolished. In many cases, hope for social advancement, base on income at least, was extinguished.

The data leads to one other conclusion, which is that the economic recovery will hit its limits as people who make more than $48,000 run through the portion of their incomes devoted to discretionary spending. At some point…”

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“For all the news that sales of personal computers (PCs) and laptops are declining, chipmakers are doing all right, thank you very much. Semiconductor sales rose 4.6% in May to post their largest month-over-month gain in three years.

Sales totals come from the Semiconductor Industry Association (SIA), which said that total sales reached $24.7 billion in May. That was up 1.3% from the $24.4 billion in sales toted up in May 2012. Year to date, chip sales are up 1.5%.

Monthly sales growth was highest in the Asia Pacific region, up 5.9%, followed by the Americas, where sales rose 5.6%. Sales in Japan grew by 0.9%, while sales in Europe rose just 0.3%.

Year-over-year Japanese sales fell 18.4%, but they rose 5.8% in Asia Pacific. Sales in the Americas rose 3%, and European sales rose a scant 0.1%.

On the basis of a three-month moving average, Asia Pacific sales were up 9.8%, European sales rose 5.5%, Americas sales rose 2.9% and Japanese sales fell 3.6%….”

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“The Institute for Supply Management (ISM) has released its Report on Business for the month of June, and the numbers are pretty bad. In fact, the June report appears to be a four-year low at 47.0. The ISM represents that this is the worst reading since May of 2009. The ISM is trying to signal that the news is not as bad as might appear. It shows that future optimism did not flinch, suggesting the drop in current conditions could be temporary.

Tuesday’s report was positive on the jobs component and on the purchase volumes. The report sentiment represents that business impediments had a less favorable tone compared to last month. “No difficulties” was still the most popular response, but working capital shortages increased and skilled labor shortages decreased. Here is a breakdown of some of the data:

• The six-month outlook came in at 66.1….”

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“General Motors and Honda plan to team up in an effort to bring zero-emission hydrogen fuel-cell technology to the mass market by the end of the decade, the makers formally announced Tuesday morning.

Both GM and Honda have already begun fielding small test fleets of hydrogen-powered vehicles—as have a number of competitors including Toyota and Mercedes-Benz—but the goal of the new effort is to help solve resolving technical hurdles while driving costs down to mass-market levels. The makers also hope that by making a serious commitment to fuel cell technology they will encourage the energy industry to expand the availability of hydrogen, something essential to encourage consumer acceptance.

“The widespread use of future fuel cell vehicles requires a significant advance in cost reduction…and in the refueling infrastructure that will support them,” Tetsuo Iwamura, president of American Honda Motor Co., was expected to say according to remarks prepared for a Tuesday news conference. “Two companies can do more together than the simple sum of our individual efforts.”….”

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“DETROIT (TheStreet) — Once again in June, automakers are reporting strong sales led by double-digit increases in pickup truck sales, a sign of the reviving economy and the strength of the home construction market.

Ford (F_) said sales rose 13% to 235,643 units, its best total in June since 2006. F-Series sales rose 24% to 68,009, F-Series’ best June since 2005. Chrysler said sales rose 8% to 156,686 units, its best June total since 2007. Ram truck sales rose 23% to 30,935, tops among Chryslerbrands…”

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“The Federal Reserve’s economic forecasts are probably too high, says Mohamed El-Erian, CEO of fund giant Pimco.

The central tendency of predictions by Fed policymakers calls for economic growth of 2.3 to 2.6 percent for this year and 3 to 3.5 percent for 2014. Gross domestic product expanded only 1.8 percent in the first quarter.

Fed Chairman Ben Bernanke said June 19 that the central bank would probably start tapering its quantitative easing later this year if the economic expansion matches its projections.

Editor’s Note: The Final Turning Predicted for America. See Proof.

“If the forecasts prove correct, which, unfortunately, we question given current economic realities, the Fed would have a positive reason to exit gradually from its prolonged highly experimental monetary policies,” El-Erian told The New York Times in an email.

“It is also apparent that the Fed is getting more concerned about the ‘costs and risks’ of its policy experimentation.”

Interest rates spiked after Bernanke’s June 19 comments, sending the 10-year Treasury yield to a 22-month high of 2.66 percent last Monday. The yield stood at 2.49 percent mid-day Monday.

While the rate increase may have created some bargains among Treasurys, El-Erian said, “investors should also note that markets remain vulnerable to technical overshoots and, thus, quite a bit of volatility.” ….”

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“Zynga Inc. ZNGA +9.45% founder Mark Pincus is turning to the chief of MicrosoftCorp.’s MSFT -0.54% videogame business to save his company.

On Monday, Mr. Pincus said he is giving up the CEO reins next week to Don Mattrick, the current head of Microsoft’s Xbox division.

Mr. Pincus will remain as Zynga’s chairman and chief product officer. He and Mr. Mattrick will report directly to the board and will form a new executive committee to help manage the company’s operations.

“Don is unique in the game business,” said Mr. Pincus in a statement. “He can execute in multiple domains—hardware, software and network.”…”

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Forget the 3 seats, I’ll take the whole company please…

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“Sen. Bernard Sanders, I-Vt., told CNBC on Monday he’s “very disappointed” interest rates on federally subsidized Stafford student loans doubled overnight, soaring from 3.4 percent to 6.8 percent after Congress failed to reach a deal that would have prevented such an increase.

“I think that it is totally absurd for the middle class of this country and for our entireeconomy,” Sanders said of the student loan rate increase. “The idea of allowing rates to float up to 7 or 8 percent is preposterous.”

(Read More: Yet Another Drawback to Student loans)

Sanders said that to compete in the global marketplace, American youth must obtain a college education. Given the rising cost of higher education, though, Sanders said it’s become more difficult for students to afford college. Therefore, he said availability of a low interest rate loan is essential for the education of the low and middle classes….”

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“Alcoholic beverage company Constellation Brands Inc reported lower-than-expected quarterly earnings on Tuesday, citing higher costs for grapes and other items.

Shares of the world’s biggest branded wine maker, whose labels include Robert Mondavi and Ravenswood, fell 2.2 percent to $52 in premarket trading even though it raised its forecast for the full fiscal year….”

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“WASHINGTON (AP) — U.S. home prices jumped 12.2 percent in May from a year ago, the most in seven years. The increase suggests the housing recovery is strengthening.

Real estate data provider CoreLogic said Tuesday that home prices rose from a year ago in 48 states. They fell only in Delaware and Alabama. And all but three of the 100 largest cities reported price gains.

Prices rose 26 percent in Nevada to lead all states. It was followed by California (20.2 percent), Arizona (16.9 percent), Hawaii (16.1 percent) and Oregon (15.5 percent).

CoreLogic also says prices rose 2.6 percent in May from April, the fifteenth straight month-over-month increase.

Steady hiring and low mortgage rates have encouraged more Americans to buy homes. Greater demand, a limited number of homes for sale and fewer foreclosures have pushed prices higher. Prices are still 20 percent below the peak reached in April 2006, according to CoreLogic.

Sales of previously occupied homes topped the 5 million mark in May for the first time in 3 ½ years. And the proportion of those sales that were “distressed” was at the lowest level in more than four years for the second straight month. Distressed home sales include foreclosures and short sales. A short sale is when a home sells for less than what is owed on the mortgage.

Home sales are expected to increase in the coming months. That’s because the number of people who signed contracts to buy homes rose in June to the highest level since December 2006. There’s generally a one- to two-month lag between a signed contract and a completed sale….”

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“NEW YORK (AP) — American Realty Capital Properties Inc. is buying American Realty Capital Trust IV Inc. in a cash-and-stock deal valued at about $3.1 billion.

Shares of ARCP nearly doubled in premarket trading on Tuesday.

ARCP, a real estate investment trust, said that the deal — along with other recent transactions — will make it the second-biggest net lease REIT. After the transaction closes, ARCP will own 2,579 single tenant properties in 48 states and Puerto Rico.

Last month ARCT IV announced that it would pay $1.45 billion to GE Capital for properties leased mostly to restaurant chains like KFC, Burger King and Wendy’s. The deal includes 986 net lease properties in 47 states…”

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“West Texas Intermediate traded near the highest level in almost two weeks on speculation that U.S. crude stockpiles shrank for the first time in a month, signaling increased demand in the world’s largest oil consumer.

Futures were up as much as 0.4 percent after rising yesterday amid signs of U.S. economic growth and concern that unrest in Egypt may spread and disrupt Middle Eastern oil supplies.Crude inventories probably fell by 2.63 million barrels last week, a Bloomberg News survey showed before a government report tomorrow. The American Petroleum Institute is to release separate supply data today. U.S. factory orders may have risen 2 percent in May, a separate Bloomberg survey showed.

“The U.S. durable goods and factory orders data is the main focus for the day and will be interesting to see after decent PMI manufacturing data yesterday that showed there is good growth in the country, especially in the manufacturing sector,” Myrto Sokou, an analyst at Sucden Financial Ltd. in London, said by phone today.

WTI for August delivery was at $98.22 a barrel, up 23 cents, in electronic trading on the New York Mercantile Exchange at 11:13 a.m. London time. The volume of all futures traded was 160 percent above the 100-day average. The contract climbed $1.43 to $97.99 yesterday, the highest close since June 19.

Brent for August settlement rose 12 cents to $103.12 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade was at a premium of $4.96 to WTI. The spread was $5.01 yesterday, the narrowest closing gap since Jan. 4, 2011, after dropping below $5 in intraday trading….”

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“Shares of technology companies are rallying as investors see capital spending for their products strengthening along with the economy, consistent with the Federal Reserve’s latest growth forecasts.

Tech stocks capped their best 10 weeks of relative performance since 2009 last week, and the Guggenheim Standard & Poor’s 500 Equal-Weight Technology exchange-traded fund has outpaced the Guggenheim S&P 500 Equal-Weight ETF (RSP) by 4.8 percentage points since April 19. The gains show a “hand off” is starting, as investors move into industries that could outperform benchmarks later in the economic expansion, said Brian Jacobsen, who helps oversee $221.2 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin.

“If the Fed is confident enough to begin taking the training wheels off the economy, then that should benefit tech stocks,” he said. Wells Fargo maintains an overweight recommendation on the sector partly because capital spending on these products would improve with increased assurance about the durability of the expansion, he said.

The Federal Reserve Bank of San Francisco’s Tech Pulse Index, which tracks the health of the U.S. information-technology industry, is showing an improvement in investment, consumption, employment, industrial production and shipments. The index rose to 98.96 in May, the highest since 2008.

Unprecedented Stimulus…”

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“The dollar climbed to the highest in almost a month against the yen as signs of improvement in the U.S. economy buoyed speculation the Federal Reserve will start scaling back asset purchases this year.

The greenback approached the strongest level in almost a month versus the euro before a report economists said will show factory orders gained by the most in three months. Data this week is forecast to indicate a drop in the unemployment rate as companies in the world’s biggest economy continued to add jobs. Australia’s dollar weakened as the Reserve Bankflagged declines in the currency after keeping borrowing costs unchanged at a meeting today.

“The dollar is likely to stay underpinned if data continues to improve,” said Roberto Mialich, a senior currency strategist at UniCredit SpA (UCG) in Milan. “We see scope for the Fed to be able to start tapering the policy accommodation this year before Fed Chairman Bernanke departs early next year.”

The dollar was little changed at 99.67 yen as of 9:07 a.m. in London after reaching 99.91 yen, the most since June 5. The U.S. currency was at $1.3058 per euro. It touched $1.2985 on June 26, the strongest level since June 3. Europe’s shared currency was little changed at 130.17 yen after climbing to 130.64, the highest since June 11. The Australian dollar dropped 0.5 percent to 91.92 U.S. cents.

The U.S. Commerce Department will say orders placed with factories climbed 2 percent in May following a 1 percent gain in the previous month, according to the median estimate of economists surveyed by Bloomberg News. If confirmed, that would be the biggest advance since February.

Job Gains….”

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“European stocks retreated, following yesterday’s rally for the Stoxx Europe 600 Index, as investors awaited a report on American factory orders. U.S. index futures and Asian shares climbed.

Fresenius Medical Care AG plunged the most in more than 4 1/2 years as the U.S. Medicare program proposed cutting spending on dialysis. Telefonica Deutschland Holding AG fell 3.8 percent as Commerzbank AG lowered its recommendation for the mobile-phone operator. Dialog Semiconductor Plc rose 4 percent after the German maker of chips used in Apple Inc.’s iPhone agreed to buy IWatt Inc. for as much as $345 million.

The Stoxx 600 slipped 0.6 percent to 286.55 at 12:15 p.m. in London. The equity benchmark advanced yesterday as euro-area factory output contracted in June less than estimated andJapanese manufacturers turned optimistic for the first time since the third quarter of 2011. Standard & Poor’s 500 Index futures added 0.3 percent today, while the MSCI Asia Pacific Index gained 0.9 percent.

“Markets need a major catalyst to revive the uptrend,” said Benedict Goette, chief executive officer of Compass Capital AG in Zurich, which helps oversee about 700 million Swiss francs ($738 million). “We expect that the correction will continue.”

The Stoxx 600 advanced 1.7 percent last week as China sought to ease a cash crunch. The gauge still lost 5.3 percent in June after Federal Reserve Chairman Ben S. Bernanke said the central bank could reduce stimulus measures if the U.S. economy improves in line with its forecasts.

Factory Orders

In the U.S., a Commerce Department report at 10 a.m. in Washington will show that orders placed with U.S. factories rose 2 percent in May, according to the median forecast of 61 economists in a Bloomberg survey. They rose 1 percent in April….”

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