Amid freezing weather across much of the county, the coming week brings economic data that could get a warm reception. We have a full slate of economic reports and a Federal Reserve meeting.
Reports due include:
-December new home sales, due Monday at 10 a.m. (all times Eastern)
-January consumer confidence, due Tuesday at 10 a.m.
-Federal Reserve statement, due Wednesday at 2 p.m.
-Fourth quarter Gross Domestic Product, due Thursday at 8:30 a.m.
-December personal incomes and spending, due Friday at 8:30 a.m.
Let's start with what might be an under-appreciated part of the U.S. economy story of late: the rising temperature of economic growth. The Commerce Department is to release the first estimate of Gross Domestic Product for the fourth quarter of last year. Remember how in the third quarter, growth was pegged at a healthy 4.1 percent? The final three months of the year also likely had the economy zipping along, thanks to consumer spending.
"All in all, the fourth quarter is expected to show one of the strongest overall gains in recent years," says Jeffrey Rosen, chief economist with Briefing.com, who believes the economy expanded at an annual rate of 3.5 percent during the period.
A Hawaiian shirt for Ben Bernanke?
As for the Federal Reserve, it will likely acknowledge that the economy has been expanding at a moderate pace, including in the job market. That's even though bad weather may have cooled jobs creation during December. The central bank also is expected to announce a further pullback in its bond purchases, putting that so-called "quantitative" easing on track to end later this year.
The meeting marks an end to Chairman Ben Bernanke's tenure. Since he's a die-hard baseball fan, maybe Bernanke will head off with his wife to spring training and warmer temperatures, or to some other destination where monetary policy is not part of the game plan.
There will be no spring break for Bernanke successor Janet Yellen. Her first regularly scheduled meeting looms in March, and it will include a news conference.
The week ahead also will tell us how consumers are feeling and acting with reports from The Conference Board and the Commerce Department.
This week in business history:
Our moment back in time zips around the world to when the automotive age was still in its infancy.
On Jan. 30, 1920, the Japanese automaker Mazda was founded under a different name (Toyo Cork Kogyo Co. Ltd.). Nearly a century later, it employs tens of thousands of workers around the world. Mazda now boasts production facilities in the U.S., China, Russia, Mexico and South Africa.
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FED UPDATE: Low rates to linger, Fed head says
Mark Hamrick and Greg McBride discuss the rate-setting Federal Open Market Committee meets at least eight times a year. Its members include the Board of Governors of the Federal Reserve System, the president of the Federal.
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Mark Hamrick: From Bankrate.com, "This is Your Money This Week."
We connect the dots between what's happening in the world and your wallet.
I'm Mark Hamrick reporting from Washington.
The first Federal Reserve meeting of the New Year is at hand this week.
It will be the final meeting where Chairman Ben Bernanke presides. The central bank has begun to adjust its policy to reflect an improving economy. What about the economy this year? And what does that mean to interest rates.
We'll chat with economist Joel Naroff, who is upbeat in his outlook for the U.S. economy this year. For one, he expects workers to see better incomes ahead.
And Amanda Rowe takes a look at the cost of rent.
And we take a look at this week in business history.
All of that and more coming up on "Your Money, This Week."
The Federal Reserve meets this week for the last time under the chairmanship of Ben Bernanke. And it does so after an employment report released earlier this month, raised questions about jobs creation in December.
Our guest is economist Joel Naroff with Naroff Economic Advisors. I asked whether the employment report changed the way the Fed is viewing things.
Joel Naroff: Well, I do not really think that the weak jobs report will change things. I think what the Fed was focusing on much more was the unemployment rate, and that dropped to 6.7. Whether it is sustained or not, we will see. But the reason the Fed looks at the unemployment rate is that the missing link in this recovery has been worker incomes. And they have been going nowhere, especially when you adjust them for inflation. And the basic reason is there are so many people out there looking for jobs that businesses do not have to give wage increases. As the unemployment rate comes down and as it approaches 6 percent, you will see labor shortages starting to pop up, and that will require businesses to once again bend for workers.
So, while the jobs number was weak, everybody knows those numbers are crazy. They bounce around -- we get a really weak number. I would expect a very strong number when the January data come out. I think they will look at the low unemployment rate and say, "Hey, things are getting better, jobless claims are coming down." We saw that, and that says the labor market is firming, and this economy should start accelerating as we go through the second half of the year.
Mark Hamrick: So Joel, I had heard from a number of people that that decline to 6.7 percent, the unemployment rate, was at least somewhat suspect because people were exiting the labor force essentially not looking for jobs. Do you think it is a little better-looking than that?
Joe Naroff: I do. I think the key issue is this labor force participation rate debate is the fact that, first of all, the labor force participation rate has been coming down for eleven years now. So this is not a new trend. It may be coming down a little bit faster, but it still has been coming down for 11 years. And the other thing is that the extended unemployment benefits have artificially raised the labor force by keeping people in the labor force, because they have to look for jobs as they are receiving benefits. As they drop off, the labor force goes down.
When you take a look at things where people are unemployed because they cannot find work and there are economic reasons, that number is not going up. So I think this is a real number. It may not be 6.7, it may be 6.8 or even 6.9. But even if that is the case, by the time we get to the end of this year, we should be at 6 percent or below 6 percent, and that is approaching full employment and that is what the Fed, I think, is going to be thinking about.
Mark Hamrick: So in that context, in the December meeting, Chairman Bernanke announced that the Fed is beginning to reduce monthly asset purchases, which most recently, I believe, have been put at about $75 billion a month. And he also signaled at that time that if things continue along basically a solid path that they will continue to reduce that number. So do you expect that to happen again then here at the January meeting?
Joe Naroff: I think that is the case. I think the Fed would like to signal that they believe the economy is continuing to firm. Everybody would have liked to have seen 250,000 jobs created in December. But one month does not make a trend and I think they understand that. And some of the other data are saying that conditions are getting better. Indeed, the forecast for fourth-quarter GDP, which come out the day after the Fed makes its decision, are likely to be pretty good. I think if we had 4 percent in the third quarter and 2.5 percent to 3 percent in the fourth quarter, that says this economy is moving forward and the Fed can continue its tapering process.
Mark Hamrick: So the so-called tapering process involves -- still -- further expansion of the Fed's balance sheet to the extent that it continues to purchase these bonds. But nevertheless, the extent of purchases is declining. So what impact is that having on the broader economy, I guess, on the one hand where the asset sheet continues to be quite large but the expansion of the asset sheet is not as, let's say, expansive as it was before?
Joe Naroff: Well, the interesting thing about all of this is the fact that, since the meeting, longer-term rates have actually come down rather than gone up. You would think the opposite would be the case. I think what the markets are now beginning to focus on, more than simply what the Fed is doing, is where the economy is going. If we get a very strong January employment report, which is what I expect even if the unemployment rate goes up, I think the markets will simply be saying, "Hey, this economy is beginning to firm." And if that is the case, we know the Fed is going to keep tapering. We know that growth is going to lead to, more than likely, somewhat higher inflation, and interest rates will move.
So I think the situation is, despite the fact that the Fed is tapering, they are still buying a lot. But the markets are moving away from its intense focus on the Fed to more fundamental economic factors.
Mark Hamrick: So if the economy is continuing to strengthen and we get basically solid GDP numbers -- the measurement of growth that we watch most closely -- would you expect the interest rates that all of us actually have to pay to generally rise this year?
Joe Naroff: I expect that they will. I think that, you know, part of that is the tapering process, but part of it is the idea that if I am correct on this unemployment rate forecast and it gets below 6 percent by the end of 2014 and we start seeing wage increases begin to accelerate, then the markets will be pricing in some higher inflation. And that is likely, in combination with the Fed's tapering, to lead to a rise in interest rates, especially in mortgage rates.
Mark Hamrick: So another event that is fairly momentous here in the January meeting is this is the so-called last hurrah for Chairman Ben Bernanke. He steps away as chairman after this. And we know that his successor is Janet Yellen. A lot of people have almost made the point that one is essentially the same as the other. Do you think too much is made of that? Or should we expect that, essentially, he is handing a playbook to her and she is going to run the playbook?
Joe Naroff: Well, I think you have to keep in mind that Janet Yellen has not been just one other member of the Fed for the past few years. She has really been a key member and has taken part in all of the discussions. And, you know, she will run the Fed as she feels she needs to. The idea that Mr. Bernanke started the tapering process is an indication that he was backing away from what was the previous policy. And every Fed chair simply looks at the economy and looks at what they need to do to make sure that economic growth is as strong as it can be, given their dual mandate of controlling inflation at the same time.
So I am not worried about playbooks. Janet Yellen knows what to do. She has been around long enough, she is incredibly smart. She will just have her own style of operation, and the economy will ultimately dictate what the Fed does.
Mark Hamrick: So, on that very question, Joel, to wrap things up, if we are having this conversation a year from now and we look back on 2014, what do you think will have surprised people about the economy and what now would be the next 12 months?
Joe Naroff: Well, my view is that the big surprise will be on the wages side. I do not think businesses see this coming yet, I do not think most people see it coming. We have had high unemployment for so long and wage restraints for so long that nobody thinks about it. If we get to below 6 percent, that will trigger bidding for workers, that will trigger faster income growth and faster economic growth. And that is something that I do not think right now most people are expecting. And if that is the case, tapering will end this year, and a year from now we may be saying, "Is the Fed going to raise interest rates at its January meeting?"
Mark Hamrick: Well, that is a very good thought to end up with, and an optimistic one at that. Joel, thanks so much for your time. Great to speak with you.
Joe Naroff: Thanks for having me.
Mark Hamrick: Joel Naroff, with Naroff Economic Advisors.
He spoke with us from his home north of Philadelphia.
Mark Hamrick: Most of the time, when we focus on the housing market, we talk about the cost of homeownership, or the costs associated with buying a home.
Bankrate's Amanda Rowe says in many cases, the options aren't getting less expensive.
Amanda Rowe: Many factors are driving up the price of homeownership this year. Some consumers will turn to renting instead of buying, but it might not necessarily be the less expensive option.
Thanks to the rising cost of buying a home, rentals are gaining popularity. As a result, rental rates are increasing faster than inflation. A recent study found that one in four households spends more than half of their income on rent.
Rentals don't include just condos and apartments. With more and more families turning to renting as an option, they are causing a spike in the demand for and availability of single-family homes for rent.
Rental popularity isn't skyrocketing everywhere. It's more likely to rise in areas with stronger job growth. It's simple: where the jobs are is where the people are, and those people need housing.
So, is this the market to rent or is the market to buy? There is no one size fits all answer other than to do what's best for your personal needs.
For more on this and other personal finance tips, visit Bankrate.com. I'm Amanda Rowe.
Mark Hamrick: Finally, our look at this week in business history....
On January 30, 1920, the automotive age was still in its infancy.
And this was the day that the Japanese automaker Mazda was founded, although under a different name.
It continues to employ tens of thousands of workers around the world. Mazda now boasts production facilities in the U.S., China, Russia, Mexico and South Africa.
You've been listening to Your Money, This Week.
Thanks to our guest, economist Joel Naroff.
If you enjoyed the podcast please check us out on iTunes and rate and subscribe to our program.
We're hoping you can help us get the word out. Also check out our other podcast, Special Report, with breaking news and special features.
For more on this and other personal finance issues, visit Bankrate.com. And you can follow us on Twitter @bankrate and I'm at @hamrickisms.
Thanks to Producer Lucas Wysocki, for his work in the studio.
I'm Mark Hamrick. From all of us here at Bankrate, here's hoping you have a great week.