Page 10A
BUSINESS
East Oregonian
Saturday, July 16, 2016
U.S. economy looks resilient White House:
Budget deicit
as retailers, industry surge
to rise to $600B
By MARTIN CRUTSINGER
and PAUL WISEMAN
AP Economics Writers
WASHINGTON
—
Americans spent more
money at retailers and facto-
ries revved up production in
June, offering encouraging
signs of the U.S. economy’s
resilience in the face of
global headwinds.
Industrial production shot
up 0.6 percent, fueled by a
big rebound in auto output.
It was the best showing since
last August. Meanwhile,
retail sales also rose 0.6
percent last month, three
times the gain in May, with
demand strong in a number
of areas.
Inlation
pressures
remained modest, with
consumer prices climbing
0.2 percent in June. Prices
are up just 1 percent from a
year ago, still well below the
Federal Reserve’s 2 percent
target.
The new reports Friday
came a week after the
government’s blockbuster
jobs report, which showed
the economy created 287,000
jobs in June. It marked a
major bounce back after a
dismal gain of just 11,000
jobs the previous month.
May’s result, coupled with a
lackluster showing in April,
had raised worries that the
U.S. jobs machine was
starting to sputter.
Analysts said the strong
job growth in June and solid
consumer spending should
provide good momentum for
the economy heading into the
second half of the year.
The economy grew at an
anemic 1.1 percent rate in the
irst quarter, as measured by
the gross domestic product,
held back by a slowdown
in consumer spending and
troubles in manufacturing.
Analysts are hopeful that
GDP growth strengthened
to 2 percent or better in the
second quarter, and many are
looking for further accelera-
tion in the current quarter.
“It is beyond doubt that
consumers have shaken off
their winter blues,” said Chris
G. Christopher Jr., director
AP Photo/Rogelio V. Solis
An assembly line of new 2016 Altimas await backseat installations at the Nissan
Canton Vehicle Assembly Plant in Canton, Miss. On Friday, the Federal Reserve
reported U.S. industrial production increased 0.6 percent for June.
of consumer economics at
IHS Global Insight. “Despite
rising
gasoline
prices,
consumers are opening their
wallets.” Christopher said
that consumer spending and
housing would help bolster
growth going forward.
Chris Rupkey, chief inan-
cial economist at MUFG
Union Bank, said he believed
GDP would be closer to 3
percent in the spring quarter,
led by a surge in consumer
spending.
“Economic growth is
through the roof in the
second quarter,” Rupkey
said. “There are a lot of
dollars going through cash
registers out there.”
Analysts
were
also
encouraged by the latest
improvement in industrial
production, which followed
a 0.3 percent decline in May.
The key manufacturing
sector showed a 0.4 percent
increase, which relected a
jump in autos and auto parts.
Utility output expanded 2.4
percent, stemming from
higher electricity production
as warmer weather boosted
demand for air conditioning.
Even
the
country’s
beleaguered energy sector
recorded gains. Mining,
which covers oil production,
inched up 0.2 percent. It was
the second small monthly
increase after eighth straight
monthly declines as this
sector struggled with a
plunge in oil prices.
Manufacturing
overall
has struggled for more than
a year amid weakness in
global markets and a strong
dollar, which has also hurt
exports by making American
products more expensive
overseas.
Jennifer Lee, senior
economist at BMO Capital
Markets, said she believed
manufacturing was starting to
show “upward momentum.”
Other economists, however,
cautioned against reading too
much into June’s rebound,
contending that obstacles
remained in manufacturing.
“The bulk of manu-
facturing faces the same
problems today that it faced a
year ago — too much inven-
tory in the system at home
and too strong of a dollar ...
in the world market,” said
Michael Montgomery, U.S.
economist at Global Insight.
The report on consumer
prices showed a 0.2 percent
gain in core inlation, which
excludes the volatile cate-
gories of food and energy.
Over the past 12 months,
core inlation has risen 2.3
percent.
The Fed, which meets July
26-27, wants to see evidence
that inlation is ticking up
before raising short-term
U.S. interest rates again. In
December, it raised rates for
the irst time since 2006. But
it has hesitated to follow up
with more increases.
The American job market
looked weak in May before
rebounding in June. And
Britain’s June 23 decision
to leave the European Union
has rattled inancial markets
and raised uncertainty about
the global economy.
For June, food prices
fell for a second straight
month. Energy prices rose
1.3 percent, including a 3.3
percent increase in gasoline
prices. New car and truck
prices fell for the third
straight month and are down
3.1 percent over the past
year. Clothing prices fell 0.4
percent in June.
Are stocks the new bonds?
Why investors are buying now
By MARLEY JAY
AP Markets Writer
N
EW YORK — As
bond yields plunge
to record lows and
investors look for income,
they’re pouring money into
stocks, sending the market to
its own record highs.
Once upon a time, if
you were an investor who
wanted a steady stream of
income, you would probably
think of U.S. Treasury
bonds. Backed by the solid
credit of the U.S. govern-
ment, those bonds were
considered ultra-dependable
forms of income that
wouldn’t lose value.
You couldn’t count on
stocks to pay you a return
like that. The dividends
stocks paid were usually
smaller, and you also ran the
risk of losing some of your
investment if the stock price
declined.
Now that stocks, broadly
speaking, actually pay
more than many bonds
do, investors’ thinking has
changed.
“Stocks have become
the new bonds,” says Jack
Ablin, chief investment
oficer at BMO Private
Bank. “Income investors
have opted to invest in
equities versus lower-
yielding bonds.”
The drop in bond yields
has been dramatic. At the
start of 2014 the yield on the
10-year Treasury note was 3
percent, and a decade ago it
was twice that much. Now
it’s around 1.6 percent.
The dividend yield on
S&P 500 stocks, meanwhile,
hasn’t changed much over
the last few years. It’s
around 2.1 percent, far
more than what the 10-year
Treasury pays.
There are several factors
behind the plunge in bond
yields. Investors have tended
to buy bonds when they
feel jittery or when they
anticipate the U.S. economy
is slowing down, but these
days they also are driven to
buy bonds when they feel
the alternatives are worse,
or if they’re worried about
disruptions in the global
economy. When demand
for bonds increases, it sends
yields lower.
Investors have locked
to Treasury bonds as they
worried about everything
from the U.S. economy to
a slowdown in China to
Britain’s recent vote to leave
the European Union. And
central banks including the
Fed have bought bonds in
recent years in an effort to
stimulate the economy by
keeping long-term interest
rates low.
There are many other
markets for bonds, but
the U.S. government is
considered the gold standard
because of the country’s
rock-solid credit.
If you think yields are
low here, just look at other
countries. The yield on the
United Kingdom’s 10-year
note is about 0.8 percent,
France’s is 0.2 percent, and
in Japan and Germany, those
yields are negative, which
means investors actually
pay for the privilege of
continuing to own them.
“We’ve got a much
higher yield,” says Scott
Wren, global equity
strategist for Wells Fargo’s
Investment Institute. “That
attracts money.”
That difference means
it may be a long time
before yields on U.S.
government bonds go
much higher. Faced with
poor prospects for income
from bonds, investors have
poured money into stocks,
especially those that pay
high dividends and appear
less likely to lose value in a
downturn.
The stocks that pay the
largest dividends are phone
companies and utilities, and
investors have clamored for
them all year. The prices of
S&P 500 phone and utility
companies have soared
about 20 percent in 2016,
far more than the rest of the
market. Even with those
gains, phone companies still
pay a dividend yield of 4.3
percent and utility compa-
nies pay 3.3 percent, still
way more than the 10-year
Treasury note.
There have been other
periods where stocks had
bigger yields than bonds.
Often, it meant stocks had
dropped sharply in value,
such as the inancial crisis of
2008-2009 or the European
debt crisis of 2012. This
time is different: the quest
for income has helped push
stocks to all-time highs, and
high demand may keep them
there.
That’s also partly because
large companies in the U.S.
look pretty good compared
to the markets of Europe
and Japan, where growth
is sluggish or nonexistent,
or China, where economic
growth is slowing down.
All the while, the U.S.
economy has steadily
churned along. Despite a
lot of nervousness from
investors, it hasn’t run out of
steam yet.
“The growth we have in
the U.S. might be modest
or slow, but it’s pretty
dependable,” Wren says.
“Generally we have better
economic growth than these
other developed countries.”
That said, it would likely
take a lot more growth in the
U.S. than we have now, as
well as the usual side effect
of growth, inlation, to get
bond yields much higher
than they are.
Ablin, of BMO, said it
may be some time before
investors go back to thinking
of bonds in the same way
they used to.
“Yields would have to
rise appreciably to make
bonds more competitive
with dividend yields,” Ablin
said.
WASHINGTON (AP)
— The White House on
Friday predicted that the
government’s budget deicit
for the soon-to-end iscal
year will hit $600 billion,
an increase of $162 billion
over last year’s tally and a
reversal of a steady trend
of large but improving
deicits on President Barack
Obama’s watch.
The
disappointing
igures, while expected,
come after the deicit has
steadily declined since the
huge $1.4 trillion deicit
Obama inherited after the
deep 2007-2009 recession
and the associated iscal
crisis.
The improving economy,
tax increases on higher-in-
come earners and cuts to
annual agency budgets
have helped close the gap
over Obama’s tenure. Many
economists say the longer-
term picture is troubling
and warn that the rising
debt will be a drag on the
economy in the future.
The
budget
and
economic update also
oficially downgrades the
White House’s view of the
economy, predicting growth
of 2.2 percent this year
instead of the 2.7 percent
growth rate it predicted in
its February budget. But
it also says inlation will
stay in check, predicting
a 1.1 percent increase in
consumer prices versus the
1.4 percent it forecast in the
winter.
“Over the last seven
years, the administration
and the American people
have worked to rebuild our
economy and ensure that
it is the strongest, most
durable economy in the
world,” the director of the
Ofice of Management and
Budget, Shaun Donovan,
said in a blog post accom-
panying the report. “The
President’s Budget builds
on that progress. It makes
critical investments in our
domestic and national secu-
rity priorities.”
Neither
Democrat
Hillary Clinton nor Donald
Trump has focused much
on deicits and debt in their
presidential
campaigns,
but the rising igures may
lend more urgency to the
issue.
Trump has promised
huge tax cuts that analysts
say would pour trillions
of dollars of debt onto
the government’s books.
Clinton has promised tax
increases on the wealthy
but would turn around
and spend the money on
infrastructure, subsidizing
college education and other
initiatives.
BEO reports higher earnings,
watching wheat harvest
East Oregonian
HEPPNER — BEO
Bancorp and its subsidiary,
Bank of Eastern Oregon,
is reporting 33.8 percent
higher earnings so far in
2016 compared to this time
a year ago.
The company pulled in
a net income of $815,000,
or $0.67 per share, for the
second quarter of 2016
and $1.597 million in total
earnings for the year to date.
That tops last year’s second
quarter income of $724,000,
or $0.58 per share, and
$1.194 million over the irst
six months of 2015.
Total assets, net loans,
deposits and shareholder’s
equity are also up compared
to last year. President and
CEO Jeff Bailey said they
are pleased, though there’s
cause for caution moving
forward.
“Wheat harvest is a
little early this year as the
continued dry conditions
and the hot spell in April
appear to be translating
into a below average crop,”
Bailey said. “This coupled
with lower commodity
prices across the board are
a bit concerning, but all
part of the cyclical nature of
agriculture.
Bailey said they will
continue to eye their loan
portfolio to make sure they
are protected against poten-
tial future losses.
Chief Operations Oficer
Gary Propheter said that,
while interest rates stay rela-
tively stagnant, the deposit
base for the bank continues
to be solid. He said it will
be interesting to see how
the global economy affects
interest rates over the next
year.
Bank of Eastern Oregon
operates 13 branches
and ive loan production
ofices in 12 Eastern
Oregon counties, and
one county in eastern
Washington. Branches are
located in Arlington, Ione,
Heppner, Condon, Irrigon,
Boardman, Burns, John
Day, Prairie City, Fossil,
Moro and Enterprise, as
well as Pasco. Loan produc-
tion ofices are located
in Ontario, Pendleton,
Island City, Lakeview, and
Madras.