US GDP Growth Holds at 2.5% in Q2, Corporate Profits at Record High, Key Inflation Index Falls

The Bureau of Economic Analysis released new data today showing that corporate profits reached an all-time nominal high in the second quarter of 2013. Profits before tax rose to 12.53 percent of GDP from 12.22 percent in the previous quarter, as the following chart shows. That was just fractionally short of the all-time high of 12.60 percent reached in the final quarter of 2011. At the same time, the BEA confirmed that GDP grew by 2.5 percent, the same as the August estimate.



Meanwhile, proprietors’ income was flat in Q2. Popular discussions often treat proprietors’ income as a proxy for the income of small business. It includes the current income of unincorporated businesses that have the legal forms of proprietorships, partnerships, and tax-exempt cooperatives. It does not perfectly match up with small firm size because some small firms are incorporated and some proprietorships, partnerships, and cooperatives are large.



Proprietors’ income has lagged behind corporate income in recent decades. In the 1950s and 1960s, the shares of corporate profits and proprietors’ income were roughly the same. Now, corporate profits are half-again greater. The gap between the two hit an all-time high in Q4 2011, when corporate profits reached 168 percent of proprietors’ income. (This earlier post discussed some of the reasons for the increasing disparity between large and small-business profits, including changes over the years in tax and healthcare policy.)

In addition to data on GDP and its components, the latest BEA report included new estimates of inflation based on the national income accounts. The broadest measure of inflation, the GDP deflator, grew at just a 0.6 percent annual rate in Q2. The deflator for personal consumption expenditures, closely watched by the Fed, actually fell at a 0.1 percent annual rate. Previously the PCE deflator had been estimated to have been unchanged in the quarter.

Overall, the latest report on GDP and its components contained few surprises. Compared with August’s second estimate, today’s third estimate shows the same overall rate of growth of real GDP, at 2.5 percent. Inventory accumulation and the growth of exports were slightly less rapid than previously estimated. Those changes were offset by slightly faster growth of consumer spending and a slightly less rapid decrease in the government’s contribution to GDP.

Follow this link to view or download a classroom-ready slideshow with charts of the latest GDP, profits, and inflation data.

Whatever Became of the Money Multiplier?

If you are teaching or taking an introductory macroeconomics course this fall, you will, at some point, encounter the money multiplier. The multipier posits that there is a stable ratio between M2, the stock of ordinary money in the economy, which consists of currency and bank deposits, and the monetary base, also known as high-powered money, which consists of paper currency issued by the Fed plus reserve balances that commercial banks hold on deposit at the Fed.

Your textbook will go on to explain that the money multiplier gives the Fed great power over the economy. The Fed is able to use open market operations (purchases and sales of government bonds) to control the monetary base. The monetary base, in turn, serves as the raw material from which banks create ordinary money for the rest of us. If the money multiplier has a value of, say, eight, then banks can and will create eight dollars of deposit money for each dollar of high-powered money. Add in the assumption that the quantity of money in circulation powerfully influences investment and consumption spending, and you can see why we obsess so much about quantitative easing, who will win appointment as the Federal Reserve Chair, and every comma in every press release that issues from the stately Eccles building on Constitution Avenue.

There is just one problem. As the following chart shows, something has gone badly wrong with the money multiplier in recent years. For most of the 1990s and 2000s, it was steady as a rock. From 1994 to 2007, the 12-month moving average of the multiplier stayed in a narrow range, between 8.0 and 8.4. Then it fell off a cliff. By July of this year, it had reached a record low of 3.24.



What happened? To answer that question, we need to look a little more closely at the textbook explanation of how the money multiplier is supposed to work, at some features of the banking system that the multiplier model downplays, and finally, at some recent research. >>>Read more

US Working Age Poverty Remains Near Record High in 2012

The Bureau of the Census released data for U.S. poverty rates and family income today. The headline poverty rate for all individuals was essentially unchanged from 2011, at 15 percent. The poverty rate reached an all-time low of 11.3 percent in 2000. Median family income declined from $51,100 to $51,017, a change that is not statistically significant.

One of the most striking trends in recent poverty data has been the rise in poverty among the working-age population. As the following chart shows, when the government first began to publish poverty data, the elderly were the poorest segment of the population, with children in second place. Since that time, poverty rates among the elderly have fallen dramatically, while those of children have changed little. Meanwhile, the poverty rate for working-age individuals (defined as 18 to 65 years) has risen, and has continued to rise during the current economic recovery. It reached 13.7 percent of the population in 2010, and has not showed a statistically significant change from that level since.



One might wonder why working-age poverty would not have decreased as a result of the gradual fall in unemployment rates. Another data series helps explain why it has not.>>>Read more

What Does the U-6 "Broad Unemployment Rate" Really Tell Us?

During the recent deep recession and slow recovery, U-6, an alternative measure of unemployment issued by the Bureau of Labor Statistics, has received increased attention. People often refer to U-6, which includes several groups of workers in addition to the officially unemployed, as the “broad unemployment rate.” No doubt, part of its popularity stems from the simple fact that the broad measure of joblessness makes the employment situation look worse than the standard one, and bad news attracts readers and viewers. Beyond that, thought, just what does U-6 really add to our understanding of labor market conditions?



What U-6 tells us

The main contribution of U-6, as I see it, is to remind us that those whom the BLS defines as unemployed—those who are not working for pay even an hour a week but have looked for work within the last four weeks—are not the only ones who suffer when labor markets are weak. U-6 brings in two groups of people who feel  labor market distress even though they do not fit the official definition of unemployed:>>>Read more

Poor Credit Auto Loans - A Ray of Light for Bad Credit Borrowers

Bad credit score has become a common phenomenon. Almost, everyone has had his/her share of encounter with the dreaded bad credit history. It acts as a major deterrent in getting credit. Loans become difficult because of bad credit. But, it never means that you cannot get an auto loan with bad credit history. Thankfully, poor credit car financing is very easy.
Initially, lenders refrained from offering poor credit auto loans. They considered bad credit borrowers very risky and that's why rejected most applications with bad credit. But, with changing times, lenders have understood that many Americans are dealing with bad credit. And, it's common sense to offer poor credit auto loans to such a large population.
If you want an auto loan with bad credit, it is important that you convince the lender of being a low risk credit borrower. If he is assured of the safety of his investment, he will easily offer you a poor credit auto loan. Here's how you can get yourself a poor credit auto loan.
Your Budget Sets Your Boundary
When you prepare a budget, you know the exact amount of money that you can spend on buying a car. It will help you to choose a car without much trouble. With a budget in hand, comparing auto loans programs for poor credit will become very easy. You can easily ascertain if the monthly payments are affordable or not with the help of budget.
Get Your Documents Ready
After deciding on your budget, you must get together all your documents. Lender will require you to have Income and Employment Proof. You can use your current pay stubs for this purpose. He may also want to see receipts of utility bills. All this will give him a picture of your debt repaying ability.
A Used Car is a Better Option
A new car is expensive than a used car. So, when you buy a new car, you will have to pay more. When you have a poor credit score, your interest rates may not be very low and so, it's best to avoid a new car.
It's better to search for a car after getting approved for a poor credit auto loan. It is possible that the lender may want you to buy a car from a specific dealer only. If this happens, all your hard work of searching a car will go waste. Hence, apply for a car loan first.
However, do remember to buy a used car after getting it inspected by your trusted mechanic. Also, check the car title. Do not buy any car that has been salvaged or flooded.
Apply with Sub-prime Lenders
When you are ready with your budget and documents, it's time to apply for a car loan. Now, traditional lenders and banks may reject your car loan application for having bad credit. This is because they usually offer auto loans to borrowers with good credit scores. So, you must not waste time in applying with all lenders.
Instead, devote some of your time in research. Search lenders who offer poor credit auto loans and have a high approval ratio. You can easily avail a poor credit auto loan from sub-prime lenders. These lenders have expertise and experience in dealing with bad credit scores. They are able to handle credit issues better than anyone else.
Web to Your Rescue
You can find many sub-prime lenders with the help of internet. There are numerous online car financing companies that have huge network of sub-prime lenders. All you need to do is search for a reputed car financing company and apply on its website for a poor credit car loan. Once you apply by submitting an online car loan application form, the company will search a lender for you.
Compare and Then Sign the Contract
When you apply with online sub-prime lenders, you will get several poor credit auto loan quotes. Now, it's your time to choose the best option for you. Choose a car loan quote by considering important factors like interest rates, loan terms and conditions, pre-payment penalties, additional fees, charges, etc. You can make use online car loan calculators to calculate exact monthly payments.
You must choose a poor credit car loan program that offers you great ease. You have to make regular monthly payments to pay-off your low credit automobile loan. It will improve your credit ratings and help you in availing lowest possible rates in future. So, search for that perfect poor credit auto loan and start improving your credit score.

US Unemployment Rate Falls to 7.3 Percent in August, a New Low for the Recovery

The U.S. unemployment rate edged down from 7.39 percent in July to 7.28 percent in August, according to data released today by the Bureau of Labor Statistics. The decrease did not, however, reflect an across-the-board strengthening of the labor market. According to the BLS household survey, the civilian labor force, the number of unemployed, and the number of employed all decreased slightly for the month, both before and after seasonal adjustment. The labor force participation rate and the employment-population ratio also decreased on the month.

The BLS also publishes data on a broader measure of unemployment and undermployment known as U-6. That measure takes into account people who are working part-time but would prefer full-time work, and so-called marginally attached workers. The latter incude people who have not looked for work because they think none is available and people who would like a job and are available for work, but who did not look for work in the previous four weeks because of study, family responsibilities, or other reasons. Both involuntary part-time workers and marginally attached workers decreased for the month, bringing U-6 to 13.7 percent. As the chart shows, that also was a new low for the recovery.

 
According to the separate survey of business establishments, the number of payroll jobs grew by 169,000 during August. The establishment survey excludes farm workers and the self-employed, does not correct for workers holding two jobs, and differs in other details of methodology. It is not unusual for the household employment data and the payroll jobs data to point in opposite directions. >>>Read More

Follow this link to view or download a classroom-ready slideshow with charts of the latest jobs data

Brazil's Volatile Real: Why Currency Fluctuations are Painful

Brazil’s volatile currency, the real, is back in the news. Two years ago, the real hit all-time highs against the dollar. The rise prompted Brazil’s finance minister, Guido Mantega, to accuse the central banks of advanced countries, the Fed in particular, of conducting a “currency war” at his country’s expense.  Now the real is heading back toward the lows it reached in 2008, at the depth of the global financial crisis. One might think that if a strong real is bad, then a weak real must be good, but that has not been the reaction. Instead, the recent depreciation has caused Brazil’s central bank president to complain about the “adverse winds” from a strong dollar.

Why are currency fluctuations, regardless of direction, so painful, and not just for Brazil? The traditional notion is that exchange rate movements, whether appreciation or depreciation, produce roughly equal gains and losses. Some of them come from the effects on trade in goods and services. When a country’s currency appreciates, its exporters find it harder to sell their products abroad and domestic producers have a harder time competing with imports. They are losers. Meanwhile, firms that use imported inputs and consumers of imported goods are winners. There are also financial effects. People whose foreign currency assets exceed their foreign currency liabilities gain from appreciation of the domestic currency, and those with foreign currency liabilities greater than foreign currency assets lose.>>>Read more

Bad Credit Auto Loan - How Can You Get a Better Rate?

You can improve your credit by availing bad credit auto loans. The Internet offers various bad credit auto loans for those with bad credit, yet on the lookout for loans to rebuild their credit history.
Auto loans for people with bad credit
You can receive bad credit auto loans even if your credit position is good. However, rules governing such credit are very different. You need to pay more down payment and higher interest rates too. Rather, you may have to pay almost half of total cost of the vehicle as down payment. Repayment period of loan could range between two to five years.
How can such loans help my credit position?
Normally, creditors increase cost of vehicles under bad credit auto loans intentionally. This of course does not provide much help to your financial position. You can overcome this situation by checking actual value of car. Thereafter, you can accept an increase of $200 to $500 on total cost of vehicle. If your creditors quote similar value for your vehicle, you can accept such auto loans to improve your credits.
If your credit situation is grim, it is difficult receiving any form of credit. Your bad credit auto loans can affect your interest rates ion credit cards, mortgages, etc. These improve your overall credit position and help you come out of bad credit slowly.
Where to look for such loans
The Internet is the main source for obtaining such bad credit auto loans. There are various websites of car dealers on the Internet. You can answer few questions on their website and send your application for purchasing cars to concerned dealer. Dealers dealing in such loans do not charge fees and after careful consideration of all factors, they decide whether to issue you loan or not. You can only take loan offered to you, as you cannot check about company.
Sometimes, you can obtain bad credit auto loans by applying directly for auto loan. Although most auto companies do not favor people with bad credit, yet few are ready to take risk. You can therefore receive loans through them.