Category Archives: Economic News

Consumer Financial Protection Bureau Proposes Rules to Regulate Debt Collection Companies

Posted on February 22, 2012 by admin

On February 16, the Consumer Financial Protection Bureau (CFPB) released a proposed expansion of the authority of the nonbank supervision program , whose mission is to ensure that nonbank financial institutions follow federal consumer financial regulations and to investigate potential risks to consumers from financial institutions.  The proposed rule will expand the CFPB’s authority to include supervision of the largest debt collection services and consumer reporting agencies, subjecting these businesses to federal regulation for the first time.  The proposed rule is available for public comment for 60 days after its publication. The CFPB was created under the authority of the Dodd-Frank Wall Street Reform and Consumer Protection Act in response to the 2007 recession.  The Bureau assembles the majority of federal consumer financial protection authority in one place. Its mission is to protect consumers who are in the market for financial products and services and to supervise consumer financial businesses that had not been subjected previously to federal oversight.  The CFPB protects American consumers from abusive, deceptive, and unfair financial practices.  The CFPB has already issued guidelines for revised, easier-to-read credit card agreements . The Bureau is authorized to investigate any type of business that may be violating the law, but it has limited direct supervisory authority.  The Dodd-Frank Act specifies that the CFPB would have the authority to supervise “larger participants” in some nonbank financial markets. However, the Bureau must define what kind of businesses are “larger participants” by a rule, the initial version of which must be issued by July 21, 2012. Approximately 30 million American consumers are the subject of debt collection, with the average amount of debt being $1,400.  The CFPB will regulate three types of debt collection companies: those that collect debts for clients for a fee; those that buy debts and collect the proceeds for themselves, and attorneys that acquire debt payments through litigation.  Many companies use all three methods to collect debt payments. The proposed rule issued on the 16 th would give the CFPB authority over debt collection companies with more than $10 million in annual receipts, an estimated 175 businesses in the debt collection market.  Although they constitute only approximately 4% of the debt collection businesses, the larger providers bring in 63% of the total annual receipts for the industry. The proposed rule would also cover the largest credit reporting companies, including consumer report resellers and specialty consumer reporting companies.  Credit reports and credit scores influence the lives of many American consumers by determining eligibility for mortgages, credit cards, and other types of credit.  The three top credit reporting companies alone hold information about 200 million Americans and the industry issues an estimated 3 billion reports a year. The proposed rule would give the CFPB supervision over consumer reporting agencies with more than $7 million in annual revenue, representing approximately 30 consumer reporting agencies. The affected agencies make up only 7% of the market, but account for an estimated 94% of the market’s annual receipts. Continue reading →

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Consumer Financial Protection Bureau to Supervise Payday Lenders

Posted on February 21, 2012 by admin

On January 5, the Consumer Financial Protection Bureau (CFPB) opened a new initiative, the nonbank supervision program, which is designed to ensure that nonbank financial institutions comply with consumer financial regulations.  As with the Bureau’s bank supervision program, the nonbank program enforces federal laws and examines potential risks to consumers from financial businesses. A nonbank institution is a company that provides financial products, but is not a chartered thrift, bank, or credit union.  Examples of nonbanks include mortgage lenders and servicers, payday lenders, loan modification and mortgage relief services, private education lenders, and money services companies.  The nonbank supervision program is authorized to supervise small businesses as well as large corporations. The thousands of nonbanks in the country make up a major segment of the financial marketplace.   Approximately 20 million Americans use payday loan services while about 200 million rely on credit reporting agencies to give credit scores.  Fourteen percent of Americans have one or more debts that are subject to debt collections agencies and nonbank lenders offered 2 million new mortgages in 2010. During an investigation the agency will examine a business’s compliance with federal law through interviews with employees and observing the business’s operations.  They will also examine the nonbank entity’s internal processes for detecting and preventing violations of federal law.  Businesses that are found to be in violation of the laws will be subject to corrective actions, including requiring that the company strengthen its processes to prevent violations. When applicable, the agency will enforce laws through appropriate legal actions. The CFPB has pulled examiners from various agencies, including the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the Office of the Comptroller of the Currency, state banking regulatory agencies, and industry.  The CFPB examiners will operate from field offices in San Francisco, New York, Chicago, and Washington, D.C. and will work to understand the business practices in different regional markets. The CFPB was formed in response to the 2007 financial crisis and was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The CFPB brings together most federal consumer financial protection authority under one roof. Its focus is on protecting Americans in the market for consumer financial products and services.  Among other responsibilities, the agency supervises providers of consumer financial products that had previously escaped federal oversight.  One of its first initiatives was to redesign credit card statements to make them easier for the average consumer to read and understand.  It is designed to protect Americans from deceptive, unfair, and abusive financial practices. Continue reading →

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Energy Prices Rise 6.1% in Last Year While Food Prices Up 4.4%

Posted on February 21, 2012 by admin

On February 17 th the Bureau of Labor Statistics ( BLS ) released the Consumer Price Index for January.  The report for January showed an average 0.2% increase in the cost of goods, which was slightly less than the consensus of 0.3%.  The year-on-year index, or the trailing 12 months, shows an increase of 2.9%.  When looking more closely at the categories, the report shows that many of the prices rose by between 2% and 3% with the exception of food and energy.  These two rose by 4.4% and 6.1% respectively As can be seen, the indexes for food and energy prices are very volatile, they can swing because of a good crop year, changes in the weather, or a decision by OPEC.  Since the prices for such goods often change without regard to demand from consumers, they are left out of some of the CPI calculations.  This “core” inflation indicator is what the Fed watches.  As we can see in the latest FOMC Minutes , the Fed is seeking a modest 2% inflation for the year 2012 (average inflation since the BLS started collecting data in 1913 is just over 3%).  When we look at the change for just the core data (items less food and energy) there was a change of 2.3% for the trailing 12 months ending in January 2012.  As long as the Fed can keep things on track, they should have no problem meeting their goal of 2% inflation. This report, which is released every month, follows the prices of a set basket of goods.  The average change of the cost goods is reported in a month-to-month, and a year-to-year change.  This economic indicator is the most widely used indicator to determine inflation.  By looking at the basket of goods (made up of 40% commodities and 60% services), the BLS can see how the costs of living have changed.  The Fed will then use this information to adjust the monetary policy in order to encourage inflation, or encourage deflation. Besides determining how much buying power the dollar has (if the value of the dollar goes down, inflation goes up) the CPI can give investors and consumers a good picture of what the economy is doing.  In the event of rapid inflation there is too much money available, and the costs of good would be rising to meet the demand.  In the event of deflation, as seen in 2009, there is not enough money is available, and consumers are not able to keep buying and keep the economy moving.  In the event of hyperinflation (a very sharp rise in the price of goods) lending institutions would need to rapidly raise their rates to stay profitable, which would discourage borrowing.  In order to maintain order, and to keep the money moving, while keeping the cost of goods growing at a healthy rate, the Fed monitors the CPI and adjusts the money supply and interest rates as needed. Continue reading →

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Weekly Jobless Claims Continue to Decline

Posted on February 17, 2012 by admin

Continuing information about the job market suggests a stronger economy is on the horizon for 2012. In the most recent U.S. Department of Labor release , initial jobless claims declined by 13,000 for the week of February 11, 2012 to a total of 348,000 initial jobless claims. The initial jobless claims report collects data on the number of Americans who apply for unemployment benefits during a specific week.  The recent decline follows the continuing decline in initial jobless claims since the most recent week marks the 10th time in the last 11 weeks that initial jobless claims have declined.  Initial jobless claims can fluctuate for a variety of reasons, including reactions from the general public to specific types of jobs or layoffs.  Looking at one week’s data may not prove to be a reliable indication of the health of the economy if taken into consideration by itself. In addition to the week’s decline in initial jobless claims, the four-week average of initial jobless claims has also declined by 1,750.  This four-week average provides a better indication of the job market since it is not as volatile a measure as a weekly statistic.  Monthly payroll growth may also be up in addition to a decrease in continuing claims. These pieces of data taken together all indicate an increase in the strength of the economy. A healthy number of initial jobless claims, usually considered by economists to be fewer than 400,000, provides a positive influence on the economy.  When more individuals are employed, consumers are more likely to feel confident in their potential to earn money and will be more likely to sift part of their earnings into the economy through consumer spending.  This analysis is particularly true around the holidays, and even more so after the holidays as retailers promote increased savings and discounted products. Additionally, some businesses may need to clear out inventory to make way for new seasonal items, and they may attempt to entice consumer with better sales. When consumer spending is on the rise, stocks will increase in value as companies see increased profit margins.  Investors will recognize the increase in consumer confidence and the availability of disposable income and will be more likely to invest money into new projects. Although one particular week’s reporting of initial jobless claims is not enough to warrant a positive prospective of the economy, when taking together with other important factors, the recent report points to signs of a healthy economy. Continue reading →

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Fed Sees US Economy Treading Water

Posted on February 16, 2012 by admin

Recently the Federal Open Market Committee (FOMC) released the minutes from the January 24 th and 25 th meeting.  The bottom line is things are not looking up, nor are they looking down.  The board was split about the overall direction of the US economy, and on what should be done in the short-term in order to influence positive direction in the long-term. The main focus of the latest meeting was a debate on the direction of the economy.  The members were split on the pace of the economic recovery and what should be done to hasten it.  The board agreed that GDP growth will accelerate through 2013, but at the same time unemployment will remain high.  It is no surprise that the announcement also confirmed that the Federal Reserve Rate will remain low through late 2014.  This news has been announced in the past, and comes as no shock to investors.  The FOMC did make as firm of a projection on inflation as they could, targeting 2% inflation in the medium-term.  They feel this number will allow for the most economic growth, while stimulating employers to continue to hire. The housing market is still in turmoil ( falling home prices , record low new home sales , and declining mortgage applications are just a few of the factors in the turmoil) and is providing no clear picture on when it will really start to pick back up.  Combine that with troubles with the European economy, and the FOMC is rightfully skeptical about a quick paced recovery for the US economy.  There was even some debate about a QE3 ( Quantitative Easing 2 was in late 2010), but there was really no substance behind it, nor any reason that another round would do any good to the economy. After the release of the latest minutes, the stock market took a tumble.  The saying “No News is Good News” certainly does not apply to the US economy.  When individuals and companies are putting their money on the line, they want a good clear picture that things are looking up.  When a lack of confidence is displayed by what is supposed to be a committee of the most intelligent economists around, investors pull their money.  Until there is a clear path defined, and a good projection set forth by the FOMC, we can expect a slow, bumpy recovery. Made up of 12 members of the Federal Reserve System, the FOMC meets 8 times per year, or about every six weeks.  Three weeks after each meeting, the minutes are released.  Four times per year the minutes are accompanied by a press release describing the most important aspects of the meeting and discussing the current economic projection (all documents can be viewed here ).  During their meetings they discuss where the economy has been, where it is going, and what needs to be done to keep it on track.  This can mean a multitude of different actions and desired results, but the most anticipated from each meeting is whether or not the Federal Reserve rate will be changed, and how many, if any, treasuries will be bought up. Continue reading →

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January Retail Sales Increase 5.5% Year Over Year

Posted on February 15, 2012 by admin

The U.S. Census Bureau recently released its figures for retail sales and food service in January 2012. Consumer spending on post-holiday sales helped to boost sales by 0.4% from December 2011, but the increase was smaller than hoped. The survey covers different kinds of retail establishments that sell goods and services to consumers.   January Sales Figures: January’s sales amount to $401.4 billion, which was a 5.8% increase over January 2011. Similarly, the November through January sales were up 6.3% from the same time period in 2011. The retail sales portion of the statistics show that retail sales were up 0.4% from December 2011 and 5.5% from this time last year.  Food and drink services increased 8.2% from January 2011. Auto sales were one of the weakest components of the figures with an increase of only 1.1% following a more robust 2.5% in December 2011. Gasoline sales increased 1.4% following a 2.6% drop in December. Excluding autos and gasoline, retail sales increased 0.6%, after a reduction of 0.2% in December. The Census Bureau’s retail and food service figures are based on a random sample of about 5,000 retail and food establishments that are used to represent the more than 3 million retail businesses in the U.S. The firms surveyed account for around 65% of the total dollar volume estimate. Why Consumers Care: Retail sales account for two-thirds of the total U.S. economy, so these figures have a big impact on the U.S. economy as a whole, particularly the stock market. Investors look to these survey results as a way of gauging how the economy is doing and how confident consumers are with their economic situation. If the economy is showing robust growth, investors are more likely to feel confident investing their money. In addition, strong retail growth gives a boost to stocks, while having a negative influence on bonds because of fears of inflation. Knowing which retail sectors showed strong and weak growth also helps to guide investors’ decisions about where to invest their money. Predictions:   The January sales figures came in at lower than most economists’ predictions. In a Bloomberg survey of 75 economists, predictions ranged from no change to 2%, with a median prediction of 0.8% — double the actual figures. The sluggish figures indicate that consumers are spending, but are being cautious in their spending. Continue reading →

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Jobless Claims Press Release

Posted on February 10, 2012 by admin

The U.S. Department of Labor has indicated that jobless claims decreased last week, providing yet another positive indication for the state of the economy. According to the jobless claims report , initial claims fell by 15,000 during the week of February 4. The total number of initial claims last week was 358,000. This statistic provides an important statistical figure that indicates a healthy economy. Economists typically look for jobless claims to be under 400,000. However, according to DailyFinance , it is rare for claims to be under 370,000.  When jobless claims are below 400,000 and maintain this low level, companies see enough demand that they wish to retain employees to meet this demand.  Moreover, the economy is more likely to grow and, as a result, companies are more likely to create additional jobs. The recent data demonstrates that jobless claims have dropped nine times during the last 10 weeks.  Although a weekly jobless claims report provides less reliability due to weekly fluctuations, the four-week average has also decreased to a rate of 375,750 claims. The decreasing number of jobless claims is an important indication of the health of the economy.  Lower unemployment rates indicate a stronger job market. When investors can gauge the state of the job market, they are more likely to invest when the job market seems positive.  A higher rate of employment is associated with a higher rate of demand. Additionally, when more workers are employed, people are more likely to spend the money that they receive because they are comfortable with their current income. In other words, a higher demand leads to a healthier, more stable and productive economy. From the data, analysts may speculate that the downside of a continuing decrease of jobless claims is that qualified employees may eventually run out and employers may have to increase wages to entice qualified employees to the job or to retain current qualified employees.  This situation can result in wage inflation, raised interest rates and a decrease in bond and stock prices. The jobless claims report is based on a weekly statistic.  However, when it is analyzed together with the four-week average, the new jobless claims information indicates an impending positive outlook and growth in the economy.  These data figures must always be looked at as a whole, rather than as a single unit in order to provide a clearer picture of the current state of the economy. Continue reading →

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Consumer Sentiment Index Shows Unexpected Decline in February

Posted on February 10, 2012 by admin

According to the preliminary Reuters/University of Michigan Consumer Sentiment Survey, consumer sentiment in February showed an unexpected decline disappointing expectations.  Analysts expected to see a reading of 76.0 for the past two weeks, but the actual number was closer to 72.5, indicating a slight decrease in consumer sentiment compared to January’s final reading of 75.0.  To put these results in context, consider that consumer sentiment has averaged 85 since the survey began in 1978 and averaged in the high 60’s during recessions.  This preliminary estimate of February consumer sentiment suggests that US is pulling out of the recession but that the economy has a way to go until it returns to a “normal” state. The University of Michigan’s Consumer Survey Center partners with Reuter to determine the consumer sentiment index. Data is collected by questioning 500 households every month about their financial conditions, their perceptions of the economy and their attitudes related to the economy. The survey asks in-depth questions to derive important information regarding consumers’ feelings about the economy. This information helps investors and consumers to gauge the confidence that households have about the economy. If the households indicate positive feelings about the economy and the consumer sentiment index rises, businesses can anticipate a higher demand because consumers are more confident about the state of the economy. In other words, if consumers feel comfortable with their jobs and are receiving income, they are typically more likely to spend their money and place it back into the economy. If the consumer sentiment index decreases, as was the case in the beginning of February, this may indicate that consumers are concerned about the state of the economy and may hesitate to spend money. If demand decreases, businesses are less likely to accumulate inventories and more likely to lay off employees. According to the data, consumer sentiment is most aligned with consumer’s feelings regarding inflation and employment conditions. While other factors may affect the consumer sentiment index, such as war, political happenings or other non-financial matters, consumers are most influenced by their perception that their dollar is worth less. Similarly, a fear of losing employment may also play a role in determining consumer sentiment. Due to the fact that information regarding the consumer sentiment index is released on a monthly basis for the previous month, the information contained in the report is less recent than other reports indicating the state of the economy, such as the jobless claims report. For this reason, the report should be taken into consideration with other economic indicators to surmise an opinion on the economy. Continue reading →

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Jobless Claims Picture Improves in January

Posted on February 6, 2012 by admin

The Department of Labor (DOL) recently released jobless claims for the week ending January 28 th .  The Bureau of Labor Statistics (BLS) also released the unemployment numbers for January.  These two measures help to suggest that the overall employment situation for the country is improving.  The surveys measure different aspects of who is working and who is not, and in both reports, the numbers are looking positive. In the month of January the unemployment number dropped by 243,000, representing a 0.2% decrease over the December numbers.  This brought the overall percentage of unemployed to 8.3%.  The unemployment rate has been steadily declining since August, having fallen 0.8% in that time period.  There is some skepticism of this number, since it measures those who are filing ongoing unemployment claims.   The Employment Situation measures those who are actively looking for a job and filing ongoing unemployment claims.  This number shows economist and investors how many people really do want to work, but are unable to find employment in the field they desire.  The portion of the population who no longer file claims, but are still not working, because they have simply given up or their benefits have run out, are not included in these unemployment numbers.  Precisely the reason the DOL also reports jobless claims numbers. For the last week of January, initial jobless claims fell by 12,000 to 367,000, slightly lower than what was expected.  More importantly than the number, though, is to look at the 4-week average.  For the third week in a row the 4-week average has declined, and this chart shows that the overall trend for the past 2 years is a considerable decline.  The jobless claims report measures those who have recently become unemployed and are filing their initial claim.  The number accurately measures those who are becoming unemployed, and will help to provide a more realistic estimate of the total number of people who are currently without employment.  Based on these numbers economists and investors can get a feel for how many people are currently without a job. As the jobless claims and unemployment claims continue to go down, the economy will continue to gain strength.  A healthy workforce is the only way the economy can also be healthy, and as corporations are realizing more profits and more demand, they have no choice but to hire more workers.  These workers in turn cause greater production for the corporations.  There is a cyclical drive, and people slowly returning to work is what sets that cycle in motion.  While the claims tick down, we can compare them to the recent releases of the how the housing markets and manufacturing jobs are doing to get a feel for where the economy is going.  At this point all indications are that America is getting back to work, and things are looking better.  But they are taking a much slower pace than many people would like them to take. Continue reading →

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US Manufacturing Makes Gains in January

Posted on February 2, 2012 by admin

The Institute for Supply Management’s Manufacturing Index report shows that despite a continued slump in home sales, the economy is in a slow but steady recovery.  January was a good month for manufacturers, showing a 1 point increase over December bringing the Purchasing Manager’s Index (PMI) to 54.1%.  This number is right on track for an economy that is full on in recovery, yet still a slow and steady recovery.  The number sparks confidence in investors that the economy is in fact moving in the right direction, and gives them a positive outlook for the future. The PMI is the overview of the report, the rest is broken down into more defined sub-sectors of the industry.  This report, as mentioned, shows a number over 50% meaning the economy is in expansion.  The expansion makes for a bullish stock market, while the slow recovery makes for a bullish bond market.  As the number creeps higher, the stock market too as that is a sign that corporate profits are on their way up encouraging people and institutions to invest more money.  At the same time, the bond market does not do as well with a rapid increase in the PMI.  With a number just above 50% the market will perform well in both markets as the overall GDP rises.  Historically the PMI rarely rises above 60%, so while this number appears low, it is a good healthy number. The full report shows a mix of ups and downs from the various sub-sectors.  While their indices vary little from December to January, it is important to note that the difference between those reporting “lower” numbers and “higher” numbers in areas such as pricing, employment, and new orders, are mostly in the positive (e.g. 27% report higher, while 20% report lower leaves a net of 7%).  This reflects well for the sentiment of the industries, helping investors to conclude that US manufacturing is strong and will continue to be strong.  The ISM comes out once per month and measures the health of 300 manufacturing firms in areas such as employment, production, orders, inventory, and more.  The overall number is given as a percentage, over 50 meaning the economy is expanding, while under 50 means the economy is contracting. Like the housing market indices, the ISM is closely watched by investors.  The rise in PMI was encouraged by a jump in employment numbers.  This signals that the management of the US manufacturing industries sees stronger months ahead.  Investors look at these numbers and see that the economy should continue to gain strength and momentum as we come out of the winter months and into the spring and summer.  The economic recovery is moving slowly, but manufacturers, investors, and other employers are seeing movement in a positive direction, and predict the continuing strength in all areas. Continue reading →

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