Finance Column » Your Money This Week » Charlie Brown and the Fed

Charlie Brown and the Fed

By Mark Hamrick · Bankrate.com
Monday, July 7, 2014
Posted 6 am ET

© lev radin/Shutterstock.comLike Lucy's prank that dogged Charlie Brown every time he tried to kick the football, we find ourselves in the all-too-familiar situation of being fooled again by overly ambitious expectations for the U.S economy.

It's an embarrassing position shared by the brightest minds at the Federal Reserve, who only last month had to downgrade their growth expectations for this year. That's because we now believe the economy contracted at a nearly 3 percent annual rate during the first three months of the year.

The second half of the year is here, with just a smattering of economic reports due this week:

  • The Labor Department releases its job-openings report for May, Tuesday at 10 a.m. (All times Eastern.)
  • The Federal Reserve reports on May consumer credit, Tuesday at 3 p.m.
  • The Federal Reserve releases minutes of its June policy-setting meeting, Wednesday at 2 p.m.
  • The Treasury Department releases the June federal budget statement, Friday at 2 p.m.

Economic pulse-check

The heart is beating, but the patient is still struggling.

Lindsey Piegza, chief economist for Sterne Agee, calls this a "more of the same" economy. She expects growth in the just-completed second quarter to come in at "a little under 2 percent." Even for the remainder of this year, Piegza doesn't expect the gross domestic product growth rate to rise above 2 percent.

Bankrate Audio

Safe and shrewd summer car tips

Old car? Here's how to cope with its stalling and bad tires -- or just get a good lease deal on a new model.

Mark Hamrick

Washington Bureau Chief, Bankrate.com

Jim Travers

Associate Editor, Consumer Reports

Tara Baukus Mello

Auto writer, Bankrate.com

Laura Dunn

Editor, Bankrate.com

Transcript

(OPEN)
Mark Hamrick: From Bankrate.com, This is "Your Money This Week."
I'm Mark Hamrick in Washington.

Summer brings vacation season, and for many Americans that means it's time to hit the open road. We're going to give you an auto information tune-up.

We begin with Jim Travers of Consumer Reports, who stands by with a guide on how to prevent roadside emergencies, and tells us what to do if one does occur.

And then Bankrate's Tara Baukus Mello gives us the lowdown on auto leasing. She tells us why they've become increasingly popular and how a lease can get you inside of a car for a lower monthly payment than it would cost to buy.

So, buckle up.

All of that and more coming up on "Your Money This Week."
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(TRANSITION MUSIC)

Nothing can take the fun out of a trip otherwise intended to be for pleasure than a breakdown on the road. But there are some things you can do to try to head-off a roadside emergency. And what to do if one does take place?

We talked with Jim Travers of Consumer Reports.

To begin, I asked Jim about some of the most common troubles people experience on the road.

Jim Travers: Well, you know, there are all kinds of things. It could be a tire failure, you know, it could be something as simple as running out of gas. There have certainly been very high profile recalls lately centered around faulty ignition switches. But really, it is the more mundane type of stuff like tire emergencies that might surprise you.

Mark Hamrick: OK, well, let's talk first of all about what happens if you have a stalled engine? This can happen for any number of different reasons including, as you say, running out of gas. And then the key would be how do you stop the car?

Jim Travers: Sure. Well, in the case of a stalled engine, the first thing you want to do is you want to make sure you are not panicking and moving the key back and forth. You do not want to risk locking the ignition up. So you want to keep the ignition in the "on" position. You will still have steering, it is just going to be harder to turn the wheel.

The other thing you are going to want to do is, obviously, try to get the car over to the side of the road slowly -- or as quickly as you can without, you know, again, any jerky sort of motions. And obviously, staying calm, watching out for traffic.

In terms of getting on the brakes, you do want to apply the brakes, but you want to avoid pumping the brakes. Because what that is going to do without the engine is that you will use up the power-assist that you have built up and once that is gone, then you lose the power brakes, as well.

Mark Hamrick: Now the other problem that a lot of us have had -- I have had it happen -- is you lose a tire, you have a blowout, you are on the highway. What do you do to get out of harm's way?

Jim Travers: Well, again, the first thing, of course, is to stay calm, and then you want to hold firmly to the wheel but you do not want to be doing a death grip type of thing. And you want to watch your mirrors, look for an opening in traffic, turn on your directional signal, do all that sort of normal stuff, and ease your way over to the side of the road. Avoid doing anything really quick, any jam on the brakes or really quick turns of the steering wheel, because that could cause you to lose control of the car. What you want to do is everything as smoothly as you can to ease your way over to the side of the road and slowly bring the car to a stop.

Mark Hamrick: And you know, more and more, people are having to resort to these replacement tires that are sort of one step short of a regular tire. But I guess the deal there is you install the tire, or have it installed for you if you have some roadside assistance, and then you have to make sure that you do not drive beyond the sort of recommended trip that is associated with that particular temporary tire, right?

Jim Travers: Right, Mark, and that is where a lot of people get themselves into trouble. You know, people think these temporary spares -- or "doughnuts" as they are sometimes called -- have the same kind of abilities in terms of speed, mileage and everything else as a conventional tire. But they -- you know, they are only designed to go limited distances, and you do need to pay attention to the speed limit that is posted right on the tire and in your owner's manual. You know, a lot of them, you are not supposed to go faster than 50, maybe 55 miles an hour. And you see people all the time on these temporary spares doing 70 miles an hour in the rain and everything else.

Mark Hamrick: Yeah, that could cause a problem that is even worse than what you had when you had the blowout, right?

Jim Travers: Yeah, exactly, it could.

Mark Hamrick: And I guess the key here is with all these issues, you know, you do not want necessarily to cause further damage to the car than what has already caused your immediate problem. The most important thing is to get off the road, and if that does cause some interim damage, it is better to do that than, you know, be caught in a situation where you are at risk of then being in a collision or something that is worse.

Jim Travers: Absolutely. You know, your own safety and the safety of those around you is really what is the primary concern here.

Mark Hamrick: Jim, I am thinking about the fact that a lot of people are heading out on the road this summer and into the fall -- Labor Day weekend is always a big time. What should you do, at minimum, to make sure that your car is prepared to hit the road?

Jim Travers: Well, you know, it is a good idea to just do a walk-around safety check. And frankly, this is not a bad idea to do on a regular basis, at least once a month anyway. You know, we normally -- you know, to start with at least checking your tire pressures once a month, and go by whatever is in your owner's manual. You cannot go by what is on the wall of the tire. You need to go with what is specifically for your car. And you will find a placard either by the driver's door or in the owner's manual.

So make sure your pressure is correct, and do not forget to do the spare. This is something a lot of people overlook sometimes, you know? You may forget about your spare and let it quietly ride back there for five years or more. But it is important to make sure -- because all tires are going to lose air over time. The last thing you want is a spare that is flat when you need it.

You also want to check to make sure all the lights, the directional signals, the horn and all that stuff is working. You know, have a friend or a relative make sure that the blinkers are blinking, both front and rear when you try them. Do not forget things like the license plate light. And then also look around for any kind of evidence of leaks or fluids on the ground around the car that might be indicative of a leak. You want to make sure that that kind of stuff gets taken care of, because even a small leak could turn into a bigger one and a bigger problem once you are a long ways from home.

Mark Hamrick: Well, Jim, this is all great advice. I am just thinking about the fact that it would only take a couple of minutes, maximum, for people to do this and obviously, they can save themselves a world of heartache and worse just by doing this before they head out on the road. Jim, thanks so much for your time.

Jim Travers: Mark, thank you very much for having me.

Mark Hamrick: Jim Travers. He's associate editor with Consumer Reports. He spoke with us from his office in Yonkers, New York.

(TRANSITION)

Our second segment is on car leases.
If you watch television much at all, you can't escape the commercials….

Announcer in commercial: You have your holiday traditions. We have ours. See your Honda dealer today for special leasing or low financing on a new Honda. (music fades)

Mark Hamrick: We're not pitching Honda, per se. But that is an example of the kind of ads you'll hear looking to turn consumers' heads, urging them to lease a new car.

Our resident expert on all things automotive is Bankrate's Tara Baukus Mello. I asked her whether, in fact, leases are catching on.

Tara Baukus Mello: Well, leases have increased in popularity over the last few years. There had been a decline, and they are more popular now. We are starting to see automakers offer a lot of those lease specials you see in advertisements. So, I think that is helping to increase the interest in leasing. Of course, the economy is turning, and people are more interested in getting into new vehicles, whether they are purchasing or leasing them. So, that is increasing the interest in leasing as well.

Mark Hamrick: My sense is that you can drive a car of a certain quality at a lower monthly price point using the lease than you would if you went through a traditional financing arrangement, and that's not to really address the issue of whether it is good economics or works well for everybody. But is that indeed the case, that essentially, you could pay more -- or rather, pay less for, let's say, a three-year lease than you might if you were looking to buy the car outright with -- uh, you know, financing the car at the same time.

Tara Baukus Mello: That is absolutely right. You are essentially getting more for your dollar by leasing a car, because you do not own it at the end of the lease. So, you are paying less in terms of a monthly payment. Even if it is not a lease special, you are still paying less than you would in terms of purchasing the same identical vehicle. And that appeals to a lot folks because you might be interested in driving a car that is a little bit out of your budget. And to your point, in terms of the economics, the general rule of thumb that I try to share with people is: You want to spend no more than 25 percent of your household income on your cars. And that is all of your cars, the gas, the insurance, the repairs, everything that is associated with those vehicles. So, that 25 percent can get you into a bit more of a car if you want something at a little bit more expensive taste, say, and don't want to go over that 25 percent budget.

Mark Hamrick: So, that is sort of the economics-baseline consideration. Let us say that a person has decided that, at minimum, this is something they want to explore. What is the walking-around knowledge that they really need to know, if indeed they are ready to walk into a dealership or conduct some business online?

Tara Baukus Mello: Well, a lot of folks find leasing kind of intimidating. There are a lot of terms in leases that are different than the terms when you are purchasing a vehicle. So, getting some sort of Leasing 101 knowledge, which you can find on Bankrate and elsewhere online in terms of what the different vocabulary means, that's a great thing to start. It is great to keep in mind that leases have specifics, for example, they have a mileage requirement. So, you need to know how many miles you're going to drive in a year so you don't exceed that mileage requirement, otherwise you're going to be paying a price per mile that you go over it. That can make a lease very expensive at the end.

Mark Hamrick: Sort of, pay me now or pay me later kind of a thing, right?

Tara Baukus Mello: Yes, you make sure that you are sticking within those terms of the lease.

Mark Hamrick: What kind of person or consumer do you think is or is not a good candidate for a lease?

Tara Baukus Mello: The key thing to think is the typical terms of the lease. So, I mentioned mileage a moment ago, and you want to be careful that you are not exceeding the mileage of the lease, and if you think you are, negotiate that up front. For example, if it is a 10,000-mile lease, ask for 12,000 miles if you think that you are going to exceed that. If you are somebody who likes to drive a new car every couple of years, it is a great way to get in that newer vehicle without having that high monthly payment of owning the vehicle, that you mentioned before.

One of the groups of people that does not necessary think about leasing but can be great candidates for leasing are senior citizens. These are folks who might be interested in and might find great benefits in the latest safety technology. And by getting into a new car every couple of years, they are not spending that same high payment that they would be on buying that car, but they are still taking advantage of the latest safety technology.

Mark Hamrick: So, Tara one of the great things that you have done for Bankrate is to highlight some of the vehicles that might be more compelling vehicles for lease -- things that people really ought to take a look at if they are in this market. Can you talk about a few of those vehicles that you have spotted out there?

Tara Baukus Mello: Sure, absolutely. You'll see lease advertisements pretty regularly in -- out there. And the important thing to keep in mind when you're seeing an advertisement for $199 a month or a certain fee, is to essentially read the fine print. Talk with the dealer or go on the automaker website and see exactly what is being offered.

I did talk with the folks at Swap-A-Lease, which is a lease-trading service where you can pick up someone's lease that they don't want anymore, and they identified a couple of vehicles that have huge savings rate now. The Buick Verano, which is a small luxury sedan, has recently dropped in its lease payment by almost 17 percent. So, the average monthly lease payment for that vehicle, currently, is around $321. It's been a pretty big drop. A more mainstream vehicle, the Toyota Camry, the mid-size sedan that I mentioned earlier -- that's had a 13 percent drop, down to an average monthly lease payment of $316, about. And for those who want to go a little bit bigger but can't quite afford it, another big drop has been with the Mercedes Benz C-Class, which is a small luxury sedan. That monthly lease payment has dropped by about 13 percent as well, to around $422 a month.

Mark Hamrick: Well, pun intended, Tara, you have given us a new lease on the car ownership experience, and I appreciate that very much. Your knowledge in this field is remarkable, and we are all better for it. So, thank so much for your time.

Tara Baukus Mello: Thanks so much, have a great day.

Mark Hamrick: Tara Baukus Mello, who writes about cars for Bankrate. And, you can read more about the subject on our website, Bankrate.com.

You can also see all kinds of information on car loans and use some of our terrific online calculators. They can help you to make good financial decisions when it comes to car ownership.

(TRANSITION)

Being smart, financially, has been made easier by the smartphone.
And Bankrate's Laura Dunn tells us, when it comes to saving on trips, yes, there's an app for that.

Laura Dunn: What's better than taking a road trip? Saving on road trips!

Sure, you can save money on airline tickets when you opt for a road trip, but why stop there? Why not save on lodging, food, gas and other expenses, too? All you'll need is your smartphone.

When using Google Maps, plug in your destination from Point A to B. Once you select "route options" choose "avoid tolls." Another great app is Waze (with a "z"), which is designed to help you avoid traffic jams.

Find the most efficient route for multiple destinations by using the app, Route4Me.

Another popular smartphone app is Gas Buddy, which helps travelers navigate the best-priced fuel in their area.

To find deeply-discounted hotels last-minute, use the app, Hotel Tonight. Since hotels don't want empty rooms on their hands, they discount up to 70 percent.

Or, for camping out, check out FreeCampgrounds.com to find free or inexpensive camping grounds.
For more tips on travel discounts, check out Bankrate.com. I'm Laura Dunn.

This week in business history:
(Donkey Kong sound)

Recognize that sound? It's from the Donkey Kong video game. The Nintendo-created game was released July 9, 1981.

Yes, there was a time before home video consoles that people played video games in places like arcades, pizza joints and bars. And Donkey Kong was a favorite that migrated to the home video game console format. It was during this time that video game arcades were raking in billions of dollars in North America alone. And that's a lot of quarters.

(CLOSING THEME)
(CLOSE)

You've been listening to "Your Money This Week."

For more on this and other personal finance issues, visit Bankrate.com. 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.

Embed Audio

What's the Fed looking at?

The Federal Reserve's outlook for growth this year is now slotted in a range of between 2.1 percent and 2.3 percent, and it's likely that forecast will have to be reduced further in a few months, Piegza says. As she puts it: "The Fed revising down their forecast is a consistent factor of inconsistency."

In forecasting growth, the Fed must be frustrated that the football keeps getting moved away.

Factors watched for a rate hike

Even with the recently lackluster growth, experts have looked for the Federal Reserve to raise rates next year. John Silvia, chief economist for Wells Fargo, says that timetable "is probably being pushed out." He points to comments coming recently from regional Fed presidents "that any tightening or raising of the federal funds rate would probably be later in 2015 than earlier."

Among the things the Fed, led by Chair Janet Yellen, wants to see is better employment data, including declines in the numbers of long-term unemployed and under-employed, as well as rising incomes.

With the Fed meeting minutes due this week, we'll be curious to see how the discussion is shaping up about the tools the central bank is identifying for how it might "normalize" monetary policy.

Current tools ineffective?

Even as the Fed has continued to expand its balance sheet in recent months, the U.S. economy has underperformed. That could be one of the biggest surprises involving the economy this year, says Silvia, who notes "how insensitive the economic growth numbers have been to continued low interest rates over time."

Sectors typically seen as beneficiaries of low rates, such as equipment and software spending, construction spending and residential construction spending, have failed to surge as might have otherwise been expected, Silvia says.

This week in business history: Donkey Kong

A superstar in the video game world, Nintendo's Donkey Kong, was released on July 9, 1981. That was before video consoles became mainstays in homes. Back then, people went to arcades, pizza joints and bars to play video games, and arcades were raking in billions of dollars -- or, a lot of quarters -- in North America alone.

Donkey Kong marked the first appearance of the popular character now known as Mario.

© Barone Firenze/Shutterstock.com

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