April 29, 2011

U.S. Economic Engine Slows in 1st Quarter

US Department of labor
The U.S. Economy ended 2010 with a strong quarter. In the 4th quarter of last year, the economy expanded at a 3.1% rate. For the first quarter of 2011, that expansion rate dramatically slowed and according to the United States Department of Labor in a report they released yesterday that was titled: Productivity and Costs, 4th Quarter and Annual Averages 2010, Revised. The U.S. output for the 1st quarter of this year (which covers the January through March period) expanded at just a 1.8% rate. This is another example of how analyst can totally blow their estimates. At the beginning of this year, they were predicting a 4% GDP expansion rate for the first quarter. Obviously they are now giving new estimates, citing the middle east turmoil, steadily rising oil and gas prices, and rising commodity prices, analyst are now rushing to change their forecast and have the public forget about their last one. Kind of like the weather when the weather man says dress warm, its going to rain, only to have it become a nice sunny day. Yet, we are suppose to listen again to the next forecast!

Wheat Futures Continue to Climb

When I checked the commodity levels in the NY times yesterday, Wheat was at $8.41 per bushel. Keep in mind, countries around the world that included Jordan, Egypt, India and others experienced rioting in 2008 when Wheat was just over $9 per bushel. The rioting was largely attributed to rising food prices that was led by Wheat. In many of these countries, where the majority of the population is poor, a rise in food prices could be the matter of survival, leading to a feeling of organization to protest the exorbitant prices. I'm watching Wheat prices carefully; the high in a 52 week period reached $9.50 per bushel, and the current prices are steadily marching towards that direction. I've seen them climbing the past few weeks.

One exception in Commodity prices that I've generally observed recently is the falling prices prices of sugar futures. Interestingly enough, as I've watched other major commodity staples rising, Sugar has actually been declining. In the past few weeks, I've watched the price of sugar futures go from $28 to $23 per pound. To follow Sugar Prices or see other Commodity performance and charts, I visit www.indexmundi.com Obviously, oil continues to make production more expensive, as the cost of transporting goods or operating machinery has also risen in price. The added costs to run farm equipment and to ship goods, has become more expensive over the past several months, but for some odd reason, sugar continues to fall. The New York Times Business section reserves a portion of their newspaper for reporting on commodity prices. While I've watched most rise, it has been very interesting to simultaneously, watch sugar fall. I will keep a close eye on this situation for any further developments and will blog what I see in a future post.

Global Oil Prices March Higher

Oil Barrels ready for the Oil Commodity Market
With the growing middle classes of China and other countries around the world, the increase global demand for oil and speculation of inflation across the board, has all contributed to the rise in oil prices. Consumers and businesses will have less discretionary income, since more will go to pay for oil related costs. On the other-side however, as the U.S. economy slowly improves, more people will go back to work, and more cars will be driven I personally have followed oil prices for the past 7 years. From what I see, these prices which currently stand at $112 per barrel, won't be going down anytime soon. As summer approaches and people begin to travel and take vacations, the added demand may send gas prices and oil prices up even higher. I learned not to be mislead by news reports or Analysts predictions. As a matter fact, here is a post I did on Goldman Sachs a couple weeks ago where they were publicly advising their clients to sell oil, saying short term prices would be going down. I completely disagreed and was somewhat outraged, as I felt Goldman Sachs was trying to pull a fast one on the public (Not like that has ever happened before right?) Here's a link to that particular post: Goldman Sachs Bearish on Oil, Yeah Right! I don't believe that for a second.

One could also look at the drop in home prices that continues to weight both on the market, and on consumer sentiment. Winter blizzards across the Midwest that have occurred in the past couple of months, shut many businesses temporarily, and even halted construction projects. The effect of this included a slow of investment dollars into non-residential construction projects, things like retail shops or business offices. This should cause prices in non-residential structures continue to fall as the added inventory means more competition to sell these building. With added competition, there will be sellers who drop their prices to appear more attractive to buyers. If others follow suite, prices will decline as a whole, much like what has already been happening in the U.S. real estate market. I've watched the 30 year fixed interest rate each day, and recently saw it currently stands at 4.77&. This is slightly higher than before, and indicates that loans for Mortgages may be going up. As more loans are demanded, the Interest rate goes up, since this means the lender can charge more for the loan and most likely get it (from increased demand for loans. I keep a close eye on many things in the market, but commodity prices, oil prices, unemployment situation, mortgage rates, lending rates, and stock market levels are some of the areas I focus closely on day in and day out. From what I can tell, the rest of this year should show expansion in GDP, but any unforeseen events like massive tornadoes or uprisings could quickly change that.

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