For the first time ever, the ESA has released their annual report for public consumption. Highlighting the details of how the big amounts of publisher money was spent, the report covers: “federal work, a state-by-state breakdown and goes into other initiatives, like anti-piracy and general research endeavors. There are no answers to why organizations like Activizzard and LucasArts left, but it does give a fairly comprehensive understanding of what the lobby group does to protect its clients.”

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Riding with Robots writes “Scientists have been using the robotic spacecraft Cassini to explore what looked to be huge lakes of hydrocarbons on the surface of Saturn’s planet-sized moon Titan. But they couldn’t be entirely sure that the features were actually liquid lakes, and not simply very smooth, solid material. Now, new findings seem to confirm that the observations really do show extensive seas of liquid ethane and other hydrocarbons. In fact, Titan seems to have an entire ‘water’ cycle of ethane evaporation, rain and rivers.”

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Filed under: Major movement, Bad news, S and P 500, Housing

In this series, we take a look at the 25 stocks on the S&P 500 Index (SPX) that have turned in the worst performance during the past decade — what went wrong, and what happens next.

The suspense is over — National City Corporation (NYSE: NCC) is the fourth and final Ohio-based regional bank to appear on our list of laggards. Based out of Cleveland, National City appeared to be faring well in the late 1990s. The bank had just completed some key acquisitions, and the stock was locked in a long-term uptrend. However, the next decade would prove considerably more challenging.

What went wrong? At number 6 on our list of SPX underdogs, NCC gave up 87% of its value from June 30, 1998 through June 30, 2008. The stock peaked at $40 in November 2005, and then edged sideways … until it ran headlong into the subprime tsunami.

The first warning from NCC came in March 2007, when the bank stated it would retain $1.6 billion previously set aside for non-conforming loans. In a filing with the Securities and Exchange Commission, NCC said it had recorded $11 million in write-downs through the first two months of the year, and suggested that a further write-down was “likely” before the loans were transferred.

Of course, this warning looks ridiculously optimistic in retrospect, but investors’ reaction was somewhat tepid — the full scale of the mortgage crisis hadn’t yet sunk in. The mood was a tiny more serious last September, when NCC announced it would lay off 1,300 employees and suspend issuing home equity loans through brokers. The bank also said it may have to keep some of its mortgage debt on the books, due to an utter lack of demand among investors, and would most likely swallow a $30-million bookkeeping charge on the loans’ diminished value.

Last January, continued fallout in the finance sector prompted NCC to slash an additional 900 mortgage jobs, and cut its dividend by nearly half. The stock’s resulting drop would set the pace for the entire first half of 2008.

On April 3, NCC caught a bit of a break when Morgan Stanley raised its rating on the stock from “underweight” to “equal-weight.” The analyst justified the upgrade by noting, “We believe the market has largely priced in expectations of accelerated credit deterioration and reserve build in the bank’s higher-risk portfolio, with the stock now trading in line with our 12-month price target.” Since that research note was released, the stock has lost an additional 52%. NCC cut its dividend again later that same month, dropping it from 21 cents to 1 penny per share.

Most recently, NCC found itself in the hot seat after the failure of IndyMac heightened anxiety levels. The bank denied it was on the verge of collapse, and asserted that it had $12 billion of excess short-term liquidity.

What next? National City shares recently caught a boost from a sector-wide bounce in banking stocks, but multiple layers of resistance hang overhead — most notably from the stock’s 10-week moving average, which looms in the $5 region. Plus, fundamental challenges remain. In its second-quarter earnings report on July 24, NCC confessed to a $1.76-billion loss, much wider than what analysts were anticipating. However, Chief Executive Peter Raskind assured investors that the bank is on solid footing, asserting that “We have no intention or plan, or need at this point, to raise additional capital.”

Meanwhile, analysts seem fond of the shares. A full 50% of NCC’s analyst thoughts are of the “buy” or better variety, according to Zacks. Following the second-quarter earnings release, Citigroup analyst Keith Horowitz reiterated his own “buy” thought, citing the bank’s “strong capital position to handle problem assets.”

Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer’s Investment Research. She’s featured in the weekly video series Option Basics on SchaeffersResearch.com.

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Filed under: Major movement, Bad news, S and P 500, Housing

In this series, we take a look at the 25 stocks on the S&P 500 Index (SPX) that have turned in the worst performance during the past decade — what went wrong, and what happens next.

The suspense is over — National City Corporation (NYSE: NCC) is the fourth and final Ohio-based regional bank to appear on our list of laggards. Based out of Cleveland, National City appeared to be faring well in the late 1990s. The bank had just finished some key acquisitions, and the stock was locked in a long-term uptrend. However, the next decade would prove considerably more challenging.

What went wrong? At number 6 on our list of SPX underdogs, NCC gave up 87% of its value from June 30, 1998 through June 30, 2008. The stock peaked at $40 in November 2005, and then edged sideways … until it ran headlong into the subprime tsunami.

The first warning from NCC came in March 2007, when the bank stated it would retain $1.6 billion previously set aside for non-conforming loans. In a filing with the Securities and Exchange Commission, NCC stated it had recorded $11 million in write-downs through the first two months of the year, and recommended that a further write-down was “likely” before the loans were transferred.

Of course, this warning looks ridiculously optimistic in retrospect, but investors’ reaction was somewhat tepid — the full scale of the mortgage crisis hadn’t yet sunk in. The mood was a tiny more serious last September, when NCC announced it would lay off 1,300 employees and suspend issuing home equity loans through brokers. The bank also stated it might have to keep some of its mortgage debt on the books, due to an utter lack of demand among investors, and would most likely swallow a $30-million accounting charge on the loans’ diminished value.

Last January, continued fallout in the finance sector prompted NCC to slash an additional 900 mortgage jobs, and cut its dividend by nearly half. The stock’s resulting drop would set the pace for the entire first half of 2008.

On April 3, NCC caught a bit of a break when Morgan Stanley raised its rating on the stock from “underweight” to “equal-weight.” The analyst justified the upgrade by noting, “We believe the market has largely priced in expectations of accelerated credit deterioration and reserve build in the bank’s higher-risk portfolio, with the stock now trading in line with our 12-month price target.” Since that research note was released, the stock has lost an additional 52%. NCC cut its dividend again later that same month, dropping it from 21 cents to 1 penny per share.

Most recently, NCC found itself in the hot seat after the failure of IndyMac heightened anxiety levels. The bank denied it was on the verge of collapse, and asserted that it had $12 billion of excess short-term liquidity.

What next? National City shares recently caught a boost from a sector-wide bounce in banking stocks, but multiple layers of resistance hang overhead — most notably from the stock’s 10-week moving average, which looms in the $5 region. Plus, fundamental challenges remain. In its second-quarter earnings report on July 24, NCC confessed to a $1.76-billion loss, much wider than what analysts were anticipating. However, Chief Executive Peter Raskind assured investors that the bank is on solid footing, asserting that “We have no intention or plan, or need at this point, to raise additional capital.”

Meanwhile, analysts seem fond of the shares. A full 50% of NCC’s analyst thoughts are of the “buy” or superior variety, according to Zacks. Following the second-quarter earnings release, Citigroup analyst Keith Horowitz reiterated his own “buy” thought, citing the bank’s “strong capital position to handle problem assets.”

Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer’s Investment Research. She’s featured in the weekly video series Option Basics on SchaeffersResearch.com.

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Filed under: Forecasts, Employees, Walt Disney (DIS), Walgreen Co (WAG), UAL Corp (UAUA), Economic data, Housing, Recession

The unemployment rate is a relatively modest 5.5%. But that’s because companies have figured out how to convert full-time employees who have benefits like health care into part-time ones who lack benefits and whose hours can be cut back at will. This is a great deal for companies and a lousy one for workers. And it is ultimately bad for investors.

The New York Times reports that 3.7 million Americans have seen their full-time jobs cut to part-time ones — the highest number on record (the government started keeping track of this over 50 years ago). This record joins a host of others we’ve seen this year: record gasoline prices (over $4 a gallon), record Federal budget deficits ($490 billion for 2009), record Federal borrowing ($9.8 trillion soon to hit $10.6 trillion), a record decline in housing prices (15.8%), and a record weak dollar (down 71% to $1.5757 since January 2001 when one euro bought 92 cents).

The newly minted part-time workers are largely Hispanic men. Specifically, the Times points out that 73% of those who were forced into part-time work from the spring of 2007 to the spring of 2008 were men and 35% percent were Hispanic. The industries with the most part-time jobs were construction (28%), retail (14%) and professional and business services (13%).

The Times brings the part-time statistics to life with interviews. Here are two:

• Marvin L. Zinn, a Walgreen (NYSE: WAG) clerk, got his pay cut $100, or 15%, every two weeks from $650 to $550 as his weekly hours have dropped from 44 to 37.5. So what? He’s carrying $2,000 in credit card debt to buy food; he’s deferred dental work; and he stopped going to church because he states he can’t afford to drive there.
• Ron Temple, a baggage loader for UAL Corp. (NASDAQ: UAUA), earned more than $20 an hour, plus health and flight benefits until he decided to go part-time as the lesser of three evils after being offered the choice of a layoff or transfer to another city. His bi-weekly pay dropped $780, or 58%, from $1,350 to $570 and he gave up some benefits. Temple and his wife — who makes $1,000 each two weeks at a cancer clinic — struggle to make their $1,753 monthly mortgage payment — they’re running up credit card balances — $2,700 so far. They don’t go out to restaurants and they purchase cheap generic groceries through a program at their church.

The beauty of this arrangement for companies is that they don’t pay health care benefits to many of their part-time workers. The Times reports that in retail, for example, 16% receive health insurance through their employers, while over 50% of full-time retail workers are covered.

What does this mean for the economy and investors? The thing about having 70% of Gross Domestic Product (GDP) dependent on consumer spending is that economic growth in the U.S. can only happen if consumers keep spending more money. Consumers can only spend more money if they get paid more or they have the ability to borrow more. With housing prices down, people can’t borrow more money from the equity in their homes. And with more people taking pay cuts, consumer spending has only one place to go.

That downward trajectory in consumer spending will mean that companies that depend on consumers will make less money. The Walt Disney Company (NYSE: DIS) announced Wednesday that while it made 62 cents a share — beating estimates by two cents — it forecast declining ad revenues at ABC and ESPN since automakers, consumer electronics and financial-services companies are cutting back. And these industries are slicing back ad spending because consumers have less to spend and the companies themselves are cratering under a pile of debt.

Declining fortunes for these companies means more layoffs and shifts from full-time to part-time employment. Since workers are the very consumers who drive U.S. GDP growth, we’re at the beginning of a long cycle of hurting workers, shrinking profits, debt write-offs and declining prices of goods financed with debt. And until we can create a post-bubble economy, such painful economic adjustments will continue to be a natural part of how we adjust to debt-driven expansion.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

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Filed under: Forecasts, Employees, Walt Disney (DIS), Walgreen Co (WAG), UAL Corp (UAUA), Economic data, Housing, Recession

The unemployment rate is a relatively modest 5.5%. But that’s because companies have figured out how to convert full-time employees who have benefits like health care into part-time ones who lack benefits and whose hours can be cut back at will. This is a great deal for companies and a lousy one for workers. And it is ultimately bad for investors.

The New York Times reports that 3.7 million Americans have seen their full-time jobs cut to part-time ones — the highest number on record (the government started keeping track of this over 50 years ago). This record joins a host of others we’ve seen this year: record gasoline prices (over $4 a gallon), record Federal budget deficits ($490 billion for 2009), record Federal borrowing ($9.8 trillion soon to hit $10.6 trillion), a record decline in housing prices (15.8%), and a record weak dollar (down 71% to $1.5757 since January 2001 when one euro bought 92 cents).

The newly minted part-time workers are largely Hispanic men. Specifically, the Times points out that 73% of those who were forced into part-time work from the spring of 2007 to the spring of 2008 were men and 35% percent were Hispanic. The industries with the most part-time jobs were construction (28%), retail (14%) and professional and business services (13%).

The Times brings the part-time statistics to life with interviews. Here are two:

• Marvin L. Zinn, a Walgreen (NYSE: WAG) clerk, got his pay cut $100, or 15%, each two weeks from $650 to $550 as his weekly hours have dropped from 44 to 37.5. So what? He’s carrying $2,000 in credit card debt to buy food; he’s deferred dental work; and he stopped going to church because he says he can’t afford to drive there.
• Ron Temple, a baggage loader for UAL Corp. (NASDAQ: UAUA), earned more than $20 an hour, plus health and flight benefits until he decided to go part-time as the lesser of three evils after being offered the choice of a layoff or transfer to another city. His bi-weekly pay dropped $780, or 58%, from $1,350 to $570 and he gave up some benefits. Temple and his wife — who makes $1,000 every two weeks at a cancer clinic — struggle to make their $1,753 monthly mortgage payment — they’re running up credit card balances — $2,700 so far. They don’t go out to restaurants and they purchase cheap generic groceries through a program at their church.

The beauty of this arrangement for companies is that they don’t pay health care benefits to many of their part-time workers. The Times reports that in retail, for example, 16% receive health insurance through their employers, while over 50% of full-time retail workers are covered.

What does this mean for the economy and investors? The thing about having 70% of Gross Domestic Product (GDP) dependent on consumer spending is that economic growth in the U.S. can only happen if consumers keep spending more money. Consumers can only spend more money if they get paid more or they have the ability to borrow more. With housing prices down, people can’t borrow more money from the equity in their homes. And with more people taking pay cuts, consumer spending has only one place to go.

That downward trajectory in consumer spending will mean that companies that depend on consumers will make less money. The Walt Disney Company (NYSE: DIS) announced Wednesday that while it made 62 cents a share — beating estimates by two cents — it forecast declining ad revenues at ABC and ESPN since automakers, consumer electronics and financial-services companies are cutting back. And these industries are slicing back ad spending because consumers have less to spend and the companies themselves are cratering under a pile of debt.

Declining fortunes for these companies means more layoffs and shifts from full-time to part-time employment. Since workers are the very consumers who drive U.S. GDP growth, we are at the beginning of a long cycle of hurting workers, shrinking profits, debt write-offs and declining prices of goods financed with debt. And until we have the ability to create a post-bubble economy, such painful economic adjustments will continue to be a natural part of how we adjust to debt-driven expansion.

Peter Cohan is President of Peter S. Cohan & Associates. He also instructs management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

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Filed under: Major movement, Bad news, S and P 500, Housing

In this series, we take a look at the 25 stocks on the S&P 500 Index (SPX) that have turned in the worst performance during the past decade — what went wrong, and what happens next.

The suspense is over — National City Corporation (NYSE: NCC) is the fourth and final Ohio-based regional bank to appear on our list of laggards. Based out of Cleveland, National City appeared to be faring well in the late 1990s. The bank had just completed some key acquisitions, and the stock was locked in a long-term uptrend. However, the next decade would prove considerably more challenging.

What went wrong? At number 6 on our list of SPX underdogs, NCC gave up 87% of its value from June 30, 1998 through June 30, 2008. The stock peaked at $40 in November 2005, and then edged sideways … until it ran headlong into the subprime tsunami.

The first warning from NCC came in March 2007, when the bank said it would retain $1.6 billion previously set aside for non-conforming loans. In a filing with the Securities and Exchange Commission, NCC stated it had recorded $11 million in write-downs through the first two months of the year, and recommended that a further write-down was “likely” before the loans were transferred.

Of course, this warning looks ridiculously optimistic in retrospect, but investors’ reaction was somewhat tepid — the full scale of the mortgage crisis hadn’t yet sunk in. The mood was a little more serious last September, when NCC announced it would lay off 1,300 employees and suspend issuing home equity loans through brokers. The bank also said it might have to keep some of its mortgage debt on the books, due to an utter lack of demand among investors, and would most likely swallow a $30-million record-keeping charge on the loans’ diminished value.

Last January, continued fallout in the finance sector prompted NCC to slash an additional 900 mortgage jobs, and cut its dividend by almost half. The stock’s resulting drop would set the pace for the entire first half of 2008.

On April 3, NCC caught a bit of a break when Morgan Stanley raised its rating on the stock from “underweight” to “equal-weight.” The analyst justified the upgrade by noting, “We believe the market has largely priced in expectations of accelerated credit deterioration and reserve build in the bank’s higher-risk portfolio, with the stock now trading in line with our 12-month price target.” Since that research note was released, the stock has lost an additional 52%. NCC cut its dividend again later that same month, dropping it from 21 cents to 1 penny per share.

Most recently, NCC found itself in the hot seat after the failure of IndyMac heightened anxiety levels. The bank denied it was on the verge of collapse, and asserted that it had $12 billion of excess short-term liquidity.

What next? National City shares recently caught a boost from a sector-wide bounce in banking stocks, but multiple layers of resistance hang overhead — most notably from the stock’s 10-week moving average, which looms in the $5 region. Plus, fundamental challenges remain. In its second-quarter earnings report on July 24, NCC confessed to a $1.76-billion loss, much wider than what analysts were expecting. However, Chief Executive Peter Raskind assured investors that the bank is on solid footing, asserting that “We have no intention or plan, or need at this point, to raise additional capital.”

Meanwhile, analysts seem fond of the shares. A full 50% of NCC’s analyst thoughts are of the “buy” or better variety, according to Zacks. Following the second-quarter earnings release, Citigroup analyst Keith Horowitz reiterated his own “buy” opinion, citing the bank’s “strong capital position to handle problem assets.”

Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer’s Investment Research. She’s featured in the weekly video series Option Basics on SchaeffersResearch.com.

Permalink | Email this | Linking Blogs | Comments

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Filed under: Forecasts, Industry, Economic data, Housing, Federal Reserve, Recession

There have been few positive data points for the U.S. economy of late, and a modest GDP report is hardly a cause for a party, but all things considered, the Federal Reserve, business executives and investors will take it, blended bag as it is.

The U.S. economy grew at a modest 1.9% pace in Q2, the U.S. Commerce Department announced Thursday, as the world’s largest economy received a mild, if temporary, boost from federal tax rebate checks. Still, economists surveyed by Bloomberg News had expected the economy to grow at a 2.4% rate in Q2.

Further, revised Commerce Department data indicates the economy contracted 0.2% in Q4 2007, the first drop in real gross domestic product since the 2001-2002 recession. The U.S. economy grew 0.9% in Q1.

Economist David H. Wang, not a part of the Bloomberg News survey, told BloggingStocks Thursday the Q2 U.S. GDP report is a blended bag, concerning overall U.S. economic health.

“On the one hand, the 1.9% figure is not that bad. I actually am a little surprised that it was that high, given high energy prices and the pullback in retail sales,” Wang stated. “On the other hand, you can see in the Q2 data the continued drag of the housing sector’s recession, with the Commerce Department now saying the economy contracted 0.2% in Q4. Housing is taking at least 1 percentage point off GDP, probably closer to 1.2-1.3 percentage points, and it’s hard to project a sustained recovery without a turnaround in housing, given the sectors it affects.”

Meanwhile, inflation inched higher in Q2. The personal consumption expenditure price index increased to a 4.2% annual rate, with core prices, which exclude the often-volatile food and energy component, rising to 2.1%, slightly above the U.S. Federal Reserve’s target zone. Few economists anticipate the the PCE data to influence the Fed at its meeting next Tuesday: the Fed is expected to keep its benchmark, short-term interest rate the same at 2%.

Modest U.S. growth in past year

In the past 12 months, the U.S. economy has grown 1.8%, a modest rate and one that’s well below the nation’s productive capacity, Wang said. In Q2, the economy grew 3% in nominal terms to an annualized rate of $14.26 trillion.

In Q2, spending on services rose 1.1%, non-durable goods increased 4%, business fixed investment rose 2.3%, while capital spending fell 3.4%, and housing spending plunged 15.6%. Overall government spending climbed 3.4%; state and local government spending increased 1.6%.

Also in Q2, exports surged 9.2%, and imports declined 6.6%. Wang said the U.S. economy “would be in a deep recession without strong export sales.”

“Exports remain the bright spot of the U.S. economy, the one saving grace,” Wang said. “Exports are keeping unemployment lower than what it would be, given sluggish conditions in other sectors, and the tightness of credit. The key now is identifying a growth engine for the U.S. economy. Whether it’s infrastructure, renewable energy, education, technology, or a new sector, we need a growth engine to appear to increase GDP growth and start a sustainable recovery.”

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Filed under: Forecasts, Employees, Walt Disney (DIS), Walgreen Co (WAG), UAL Corp (UAUA), Economic data, Housing, Recession

The unemployment rate is a relatively modest 5.5%. But that’s because companies have figured out how to convert full-time employees who have benefits like health care into part-time ones who lack benefits and whose hours can be cut back at will. This is a great deal for companies and a lousy one for workers. And it is ultimately bad for investors.

The New York Times reports that 3.7 million Americans have seen their full-time jobs cut to part-time ones — the highest number on record (the government started keeping track of this over 50 years ago). This record joins a host of others we’ve seen this year: record gasoline prices (over $4 a gallon), record Federal budget deficits ($490 billion for 2009), record Federal borrowing ($9.8 trillion soon to hit $10.6 trillion), a record decline in housing prices (15.8%), and a record weak dollar (down 71% to $1.5757 since January 2001 when one euro bought 92 cents).

The newly minted part-time workers are largely Hispanic men. Specifically, the Times points out that 73% of those who were forced into part-time work from the spring of 2007 to the spring of 2008 were men and 35% percent were Hispanic. The industries with the most part-time jobs were construction (28%), retail (14%) and professional and business services (13%).

The Times brings the part-time statistics to life with interviews. Here are two:

• Marvin L. Zinn, a Walgreen (NYSE: WAG) clerk, got his pay cut $100, or 15%, every two weeks from $650 to $550 as his weekly hours have dropped from 44 to 37.5. So what? He’s carrying $2,000 in credit card debt to buy food; he’s deferred dental work; and he stopped going to church because he says he can’t afford to drive there.
• Ron Temple, a baggage loader for UAL Corp. (NASDAQ: UAUA), earned more than $20 an hour, plus health and flight benefits until he decided to go part-time as the lesser of three evils after being offered the choice of a layoff or transfer to another city. His bi-weekly pay dropped $780, or 58%, from $1,350 to $570 and he gave up some benefits. Temple and his wife — who makes $1,000 every two weeks at a cancer clinic — struggle to make their $1,753 monthly mortgage payment — they’re running up credit card balances — $2,700 so far. They don’t go out to restaurants and they purchase cheap generic groceries through a program at their church.

The beauty of this arrangement for companies is that they don’t pay health care benefits to many of their part-time workers. The Times reports that in retail, for example, 16% receive health insurance through their employers, while over 50% of full-time retail workers are covered.

What does this mean for the economy and investors? The thing about having 70% of Gross Domestic Product (GDP) dependent on consumer spending is that economic growth in the U.S. can only happen if consumers keep spending more money. Consumers can only spend more money if they get paid more or they have the ability to borrow more. With housing prices down, people can’t borrow more money from the equity in their homes. And with more people taking pay cuts, consumer spending has only one place to go.

That downward trajectory in consumer spending will mean that companies that depend on consumers will make less money. The Walt Disney Company (NYSE: DIS) announced Wednesday that while it made 62 cents a share — beating estimates by two cents — it forecast declining ad revenues at ABC and ESPN since automakers, consumer electronics and financial-services companies are cutting back. And these industries are cutting back ad spending because consumers have less to spend and the companies themselves are cratering under a pile of debt.

Declining fortunes for these companies means more layoffs and shifts from full-time to part-time employment. Since workers are the very consumers who drive U.S. GDP growth, we are at the beginning of a long cycle of hurting workers, shrinking profits, debt write-offs and declining prices of goods financed with debt. And until we can create a post-bubble economy, such painful economic adjustments will continue to be a natural part of how we adjust to debt-driven expansion.

Peter Cohan is President of Peter S. Cohan & Associates. He also instructs management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

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Filed under: Forecasts, Industry, Economic data, Housing, Federal Reserve, Recession

There have been few positive data points for the U.S. economy of late, and a modest GDP report is hardly a cause for a party, but all things considered, the Federal Reserve, business executives and investors will take it, blended bag as it is.

The U.S. economy grew at a modest 1.9% pace in Q2, the U.S. Commerce Department announced Thursday, as the world’s largest economy received a mild, if temporary, boost from federal tax rebate checks. Still, economists surveyed by Bloomberg News had expected the economy to grow at a 2.4% rate in Q2.

Further, revised Commerce Department data indicates the economy contracted 0.2% in Q4 2007, the first drop in real gross domestic product since the 2001-2002 recession. The U.S. economy grew 0.9% in Q1.

Economist David H. Wang, not a part of the Bloomberg News survey, told BloggingStocks Thursday the Q2 U.S. GDP report is a blended bag, concerning overall U.S. economic health.

“On the one hand, the 1.9% figure is not that bad. I actually am a little surprised that it was that high, given high energy prices and the pullback in retail sales,” Wang said. “On the other hand, you can see in the Q2 data the continued drag of the housing sector’s recession, with the Commerce Department now saying the economy contracted 0.2% in Q4. Housing is taking at least 1 percentage point off GDP, probably closer to 1.2-1.3 percentage points, and it’s hard to project a sustained recovery without a turnaround in housing, given the sectors it affects.”

Meanwhile, inflation inched higher in Q2. The personal consumption expenditure price index increased to a 4.2% annual rate, with core prices, which exclude the often-volatile food and energy component, rising to 2.1%, slightly above the U.S. Federal Reserve’s target zone. Few economists anticipate the the PCE data to influence the Fed at its meeting next Tuesday: the Fed is expected to keep its benchmark, short-term interest rate the same at 2%.

Modest U.S. growth in past year

In the past 12 months, the U.S. economy has grown 1.8%, a modest rate and one that’s well below the nation’s productive capacity, Wang said. In Q2, the economy grew 3% in nominal terms to an annualized rate of $14.26 trillion.

In Q2, spending on services rose 1.1%, non-durable goods increased 4%, business fixed investment rose 2.3%, while capital spending fell 3.4%, and housing spending plunged 15.6%. Overall government spending climbed 3.4%; state and local government spending increased 1.6%.

Also in Q2, exports surged 9.2%, and imports declined 6.6%. Wang said the U.S. economy “would be in a deep recession without strong export sales.”

“Exports remain the bright spot of the U.S. economy, the one saving grace,” Wang stated. “Exports are keeping unemployment lower than what it would be, given sluggish conditions in other sectors, and the tightness of credit. The key now is identifying a growth engine for the U.S. economy. Whether it’s infrastructure, renewable energy, education, technology, or a new sector, we need a growth engine to appear to increase GDP growth and begin a sustainable recovery.”

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