Good News About America

So General Motors announced Tuesday that it earned a $1.3 billion profit in the second quarter of this year, its strongest performance since 2004 and a half-billion dollar increase over last quarter’s profit of $865 million. Revenue increased as well, to $33.2 billion. GM ended the quarter with $32.5 billion in cash and marketable securities on hand, setting it up for an initial stock offering. It has also obtained a $5 billion line of credit.

GM has already repaid $6.7 billion in Treasury Department loans, but the rest of the $50 billion bailout was converted into equity; the US owns 60.8% of GM. The government is expected to begin selling its stake in GM as soon as the initial public offering is made, which could come as early as Friday.

In related news, Ford posted a $2.6 billion profit for the second quarter; Chrysler lost $172 million, which was a $25 million improvement over the previous quarter (and a huge improvement over the fourth quarter of last year, when it lost $2.7 billion).

The commerce department reported today that new home sales increased 23.6% in June, although they still trailed sales from a year earlier; there were 20,000 more home sales than economists were expecting.

Housing sales are expected to remain low for several months, after people rushed to complete home purchases before the April 30th deadline for the homebuyers tax credit.

The encouraging news on housing, along with better than expected earnings from FedEx,  pushed the Dow Jones up 72 points.

Last week, initial unemployment claims fell by the largest number in two months, about 19,000. The number of new jobless claims was a seasonally adjusted 457k, slightly below expectations of 460k. New claims peaked at 651k in March of last year, but many economists believe they need to fall to 425k to signal sustained job growth.

Yesterday, the Commerce Department released official figures on Q1 2010; the GDP grew at an annual rate of 2.7%, normally considered a healthy rate but much slower than the 5.6% growth experienced in Q4 2009.

Last week, the Federal Reserve released the Beige Book, which is published eight times per year and summarizes current economic conditions, and the Flow of Funds report, which is released quarterly and tracks the flow of money throughout the country.

You can go read the whole thing yourself, if you have some time to kill, but here’s a quick summary:

Beige Book:

• Improved economic activity in all 12 districts
• Increased retail sales in April and May
• Increased vehicle sales
• Improved tourism activity (but some cancellations due to Gulf oil spill)
• Increased business spending
• More construction
• Less consumer lending but more real estate lending
• Crop planing ahead of the norm
• Slight improvement in labor market conditions

Flow of Funds:

• Private debt contracted at an annual rate of 2.5 percent in the first quarter, while government debt expanded
• Home mortgage debt fell at an annual rate of 3.75%
• Consumer credit contracted at an annual rate of 1.5%
• Nonfinancial business debt was flat
• State and local debt expanded at an annual rate of 4.25%, while federal debt increased at an annual rate of 18.5% (below the rate seen in 2009)
• At the end of the first quarter, the total domestic non-financial debt was $35 trillion, of which government debt made up $10.5 trillion.
• Household net worth was an estimated $54.6 trillion, up $1.1 trillion from the previous quarter

Rather than reinvent the wheel providing my own commentary, I’ll point you to Five Thirty Eight, which has bunches of charts.

Testifying before the House Budget Committee this morning, Federal Reserve Chairman Ben Bernanke expressed optimism about the economy, saying

“Although the support to economic growth from fiscal policy is likely to diminish in the coming year, the incoming data suggest that gains in private final demand will sustain the demand in economic recovery,”

The stock market, which rallied at the end of trading yesterday, continued to rise, with the Dow Jones, S&P 500, and Nasdaq all climbing over a percent on Wednesday morning.  Investors were reassured by Bernanke’s testimony that the European debt crises was unlikely to be a serious drag on the US economy, as well as an official report showing a 50% spike in Chinese exports for May, compared to last year.  Stocks in Europe and China climbed as well.

With the recent expiration of the homebuyers tax credit, new home sales hit a six-month high, and the decline in inventory has lead to a 2.7% increase in construction activity in April, the largest single-month increase since August 2000.   The country’s largest homebuilder reported last month that it expects to be profitable this year, after recording losses in 14 straight quarters.

Tomorrow morning’s job report is expected to show yet another month of increased job growth – another 513,000 jobs added in May.  Businesses reluctant to spend money have been managing to increase productivity with the same number of workers, but with increases in productivity leveling off, additional workers may be needed.

In other news, contrary to claims that car sales would crash as soon as “Cash for Clunkers” ended, May marked the seventh straight month of year-over-year sales increases as Ford, GM, and Chrysler all saw strong gains over the same month last year.

Overall, reports seem to indicate cautious optimism; new jobs are being added at a fairly slow rate (approximately 400,000 of May’s jobs came from the census) as businesses wait for stronger signs of economic growth before increasing their hiring.  Unemployment is expected to drop only slightly to 9.8%, after rising last month as many people reentered the job market.