The Fed just released minutes of special meetings of the Federal Reserve Board of Governors in March to address the "funding difficulties" of Bear Stearns and its eventual takeover by JP Morgan Chase (JPMC). While markets had been aware of a Sunday, March 16 meeting, the governors also met on Friday, March 14. The Fed actually approved on Friday, March 14 an extension of credit to JPMC on Friday to assist Bear Stearns. This measure was also approved for potential use by other primary dealers than JPMC.
This approval had to be made under emergency procedures since fewer than five Board members were available as Governor Mishkin was in transit from Helsinki, Finland.
The March 16 minutes indicated that a number of financial firms had been invited to invest in Bear Stearns and the JPMC was not solely approached.
"Although many potential investors had been invited to invest, Bear Stearns had determined that JPMC was the most suitable bidder."
The Fed granted JPMC an 18-month exemption from certain capital requirements for bank holding companies so as to be able to assist Bear Stearns.
The March 16 minutes help clarify the Fed's view of the urgency of the Bear Stearn's situation and why it established a new credit facility for primary dealers.
"The Board's decision to establish a facility for primary securities dealers was based on recent, rapidly changing development. These developments demonstrated that there had been impairment of a broad range of financial markets in which primary dealers finance themselves. The available evidence also indicated that the dealers might have difficulty obtaining necessary financing for their operations from alternative sources."
The March 16 meeting also approved a request by the Federal Reserve Bank of York to lower the discount rate from 3.5 to 3.25 percent. -- R. Mark Rogers
Personal income is the dollar value of income received from all sources by individuals. Personal outlays include consumer purchases of durable and nondurable goods, and services. Why Investors Care
| Released on 6/27/08 For May 2008 | |||||||||||||||||||||||||
| |||||||||||||||||||||||||
Highlights
Personal income got another huge spike from income tax rebate checks and a sizeable portion of those checks appears to be going into spending - even if for higher priced gasoline. Headline inflation has heated up more but core inflation is staying cool. Personal income in May jumped 1.9 percent, following a 0.3 percent rise in April. The boost in May topped the consensus forecast for a 0.4 percent gain. While the huge gain from income tax checks is important, a rebound in wages and salaries actually should be more comforting. The wages and salaries component rebounded 0.3 percent, following a 0.1 percent dip the month before.
On the spending side, personal consumption soared 0.8 percent in May after rising 0.4 percent in April. The market had forecast an increase of 0.7 percent for personal spending. But spending was led by a 1.2 percent boost in nondurables which includes gasoline. Durables slipped 0.2 percent while services posted a 0.7 percent gain.
Higher gasoline prices are having a very negative impact on headline inflation as the headline PCE price index worsened to 0.4 percent in May from 0.2 percent the month before. However, the core PCE price index was unchanged at 0.1 percent in May and came in better than the consensus expectation for a 0.2 percent rise. Year on year, headline PCE inflation came in at 3.1 percent while that for the core was 2.1 percent.
Putting today's numbers into the big picture for the economy, real personal consumption posted a healthy 0.4 percent gain, following a 0.2 percent increase the month before. The spending in May was quite good in real terms despite higher gasoline prices. This gives second quarter GDP a good foundation for modest growth, providing good evidence that we will avoid recession throughout the first half of the year.
Today's report shows the income tax rebate checks working to boost the consumer sector although higher gasoline prices are offsetting somewhat. Inflation is still a problem but on a two-track path with headline inflation getting hotter while core inflation is modest.
| ||||||||||||
Highlights
There may not be a recession but it feels like one -- and a very deep one -- to the consumer. The Reuters/University of Michigan consumer sentiment index slipped further in the final June report, to 56.4 for a 3 tenth dip from mid-month and a 3.4 point drop from May. This is the third lowest reading for the series which goes all the way back to 1952 (lowest readings are 52.7 April 1980 and 51.7 May 1980).
The expectations component, which is the leading component, came in at 49.2, up 2 tenths from mid-month but down nearly 2 points from May. Other lows for the expectations component are 50.9 in October 1990 and several 44 readings through 1979 and 1980. The current conditions component, in data going back to 1978, is at its lowest since the early 80s, down 1.1 points from mid-month to 67.6 for a nearly 6 point drop from May. Low for this component is 61.7 in May 1980. The records speak for themselves.
One reason for the deep weakness in sentiment is inflation. Inflation expectations are severely elevated but at least steady, at 3.4 percent one year out and 5.1 percent five years out. Gas prices during the July 4 weekend will be a big factor in these readings for July.
A slowly contracting jobs market is definitely another reason behind the unusual weakness in confidence as of course are troubles in the financial sector and financial markets. But the economy is expanding -- and at an increasing rate based on quarter-to-quarter GDP data and on early indications for the second quarter which will benefit from very strong consumer spending in April and May. Stimulus checks may not be helping confidence but they have boosted retail sales and made for a rare surge in personal income in data reported earlier this morning.
But of all economic data, consumer confidence measures, including both today's report and Tuesday's report from the Conference Board, are the weakest. The consumer in fact, based on these numbers which go back as far as any data set, appears to be in a deep and rare depression. Consumer confidence data don't always match up with changes in consumer spending, such as now, but these reports if nothing else suggest that the consumer will hunker down in the months ahead, spending less on discretionary items and more on basic goods. There was no significant reaction in the financial markets, at least not immediately, but these results will erode demand for risk and strengthen demand for safety -- a minus for stocks and a plus for Treasuries.
The Reuter's/University of Michigan's Consumer sentiment index sank further to 56.7 for the mid-June reading from 59.8 in May. June's figure is the lowest on record since the series began in 1952. The second lowest reading was 57.6 for February 1975. For the latest month, one-year inflation expectations slipped 1 tenth but remained high at 5.1 percent while 5-year expectations were unchanged at 3.4 percent.
Consumer sentiment Consensus Forecast for final June 08: 56.9
Range: 55.9 to 58.0
![[Chart]](http://www.nasdaq.com/econoday/reports/US/EN/New_York/consumer_sentiment/year/2008/yearly/06/chart.gif) | Consumer sentiment is mainly affected by inflation and employment conditions. However, consumers are also impacted by current events such as bear & bull markets, geopolitical events such as war and terrorist attacks. Investors monitor consumer sentiment because it tends to have an impact on consumer spending over the long run (although not necessarily on a monthly basis.) |
No comments:
Post a Comment