What a week in Wall Street! Mixed news in the financials, unemployment and housing.
J.P Morgan reported profits that were up 36% for the second quarter mostly as a result of their stable and more conservative business model, but their results continue to show difficulty in the lending operations. Goldman posted their best quarter but by increasing risk since most of the revenue increase came from its investment banking and trading operations. Citi, Bank of America and GE showed how they continue to struggle as their business models continue to adapt to new the economic reality in the financial sector.
Surprisingly, housing starts were up 3.6% in June, and unemployment claims dropped 47,000 to 522,000 last week although unemployment remains at 9.4%. In addition, the Federal Reserve continues to increase the money supply by increasing its holdings in treasury and mortgage backed securities.
What do these numbers mean for the US economy and the business environment?
Well, we need a stable financial sector before we can have sustainable economic growth. Good news in the financial sector should be positive for the business environment. However, the financial sector continues to struggle with lending and profits and revenue did not come from the right places! We need to see consumer and business lending increase before we can see sustainable economic growth. US small and mid-size businesses rely of short term and long term lending to support their short term operations. Without credit availability, new projects are delayed and layoffs become necessary; which in turn, increases unemployment.
Because the government remains the only sector where spending seems to be growing, business will be more likely to survive by doing business with the government! We will transition from a B2B economy to a Business to Government economy over the next few years. Lack of credit availability will prevent the consumer from supporting US economic growth. It will be up to the government to pick up the consumer spending lost due to difficulties in the credit markets.
So, what does it all mean for businesses and consumers? Businesses should turn their production of goods and services to match the needs and wants of government spending while consumers should retrain themselves to match the skills that will be needed in the new economy. Sectors providing goods and services to infrastructure development, green or alternative technology and business services should prosper.
Tell me what your thoughts are regarding these numbers and the business environment. Feel free to elaborate and agree or disagree with my views and the views of other bloggers!
