THE BE YOUR OWN ECONOMIST ® BLOG
Recently the Federal Reserve announced that it would provide assistance to investment banks, such as Merrill Lynch, Goldman Sachs and Lehman Brothers, as well as commercial banks such as Citibank, Bank of America and Wells Fargo, by exchanging U.S. Treasury securities in the Fed’s portfolio for less-secure securities, including mortgage-backed, in the investment banks’ and commercial banks’ portfolios. Both investment banks and commercial banks benefit if they can swap lower-value securities for higher-value securities.
The investment banks (called shadow banks by those who accuse them of reckless borrowing and lending) now have a benefit previously reserved for commercial banks. That prompted some observers to ask, “Shouldn’t the investment banks be regulated like commercial banks if the Fed extends commercial-bank benefits to the investment banks?”
Today’s New York Times (http://www.nytimes.com/2008/03/29/business/29regulate.html?adxnnl=1&ref=todayspaper&adxnnlx=1206810825-jlYwIO2HagML52mFHEJHwA) began the answer to that question. In an article by Edmund L. Andrews entitled “Treasury Dept. Plan Would Give Fed Wide New Power,” the lead paragraph said:
“The Treasury Department will propose on Monday that Congress give the Federal Reserve broad new authority to oversee financial market stability……..”
The article went on to say:
“While the plan could expose Wall Street investment banks and hedge funds to greater scrutiny, it carefully avoids a call for tighter regulation.”
We’ll see how Congress and the Treasury Department resolve the tension between oversight and regulation. But there’s a historical irony insofar as commercial banking and investment banking activities were both part of regular bank operations – and therefore subject to the Fed’s control - until the Glass-Steagall Act separated them in 1933. The objective: Make commercial banks safer by forbidding them to engage in investment banking. The irony exists because now we’re trying to make investment banking (shadow banking) safer by bringing it back under the Fed’s control.
Before 1933 and Glass-Steagall most large banks carried on both commercial banking and investment banking functions. Today’s JP Morgan Chase (commercial bank) and Morgan Stanley (investment bank) are the successors of JP Morgan, an institution that combined commercial banking and investment banking operations under one roof.
Here’s what happened. Commercial banks are centuries old. They made short-term self-liquidating loans to businesses that wished to acquire inventories for prompt resale. These commercial loans were called self-liquidating because the sale of the inventories provided the proceeds for the loans’ repayment. A modern example might be a retailer borrowing from the bank to purchase toys for the Christmas season, followed by the prompt repayment of the loan from Christmas revenues.
Investment banking arose in the 19th century to provide railway funding. Railroads were huge undertakings that required large amounts of capital for construction and rolling stock. They could not build on a pay-as you-go basis. The road had to be completed before any revenue could be generated. That made it difficult for railways to raise the necessary funds. The investment banks assisted by buying the railways’ stocks and bonds, and paying for those securities by issuing checking accounts to the railways in exchange. This was known as securities underwriting, and the investment banks resold the securities to their customers.
Banks engaged in both commercial banking and investment banking, but investment banking was much riskier because the securities could fall in value before resale while the checking account the bank had issued would not. That’s what happened in the Great Depression. Stocks lost 90% of their value from 1929 to 1933, wiping out banks’ assets and their ability to meet their obligations (depositors’ checking accounts).
Congress passed and President Roosevelt signed the Glass-Steagall Act in 1933 in order to avoid similar disasters in the future. Henceforth banks would have to decide if they wished to be commercial banks or investment banks. If they wished to be commercial banks, they could no longer underwrite corporate securities. If they wished to be investment banks they could not issue checking accounts or hold bank deposits for customers. The idea was to keep bank deposits safe by removing them from the fluctuations of the stock market. Investment banks would have to work with their own funds or borrowed funds.
The Glass-Steagall Act was repealed in 1999, but commercial banking and investment banking activities remain separate under the law. That’s why the current attempt to bring “shadow banking” (i.e. investment banking) under the Fed’s purview is so ironic. It once was under the Fed’s oversight, until investment banking was separated from commercial banking to protect depositors. Now that investment banking has evolved to the point that it borrows huge sums to fund risky investments, and thereby threatens the solvency of the commercial banks, we’re bringing investment banks back under the Fed’s control.
© 2008 Michael B. Lehmann
Saturday, March 29, 2008
Tuesday, March 25, 2008
Glimmer of Hope?
THE BE YOUR OWN ECONOMIST ® BLOG
Yesterday the National Association of Realtors reported (http://www.realtor.org/press_room/news_releases/2008/existing_home_sales_rise_in_february.html) February existing-home sales were 2.9% higher than January’s, although 23.8% below a year ago. Prices were 8.9% lower than last year.
Some analysts were encouraged by these data and expressed the view that falling prices may, at last, have attracted buyers into the market. Perhaps the long slump may be coming to an end.
According to Lawrence Yun, the Realtor’s chief economist:
“We’re not expecting a notable gain in existing-home sales until the second half of this year, but the improvement is another sign that the market is stabilizing. Buyers taking advantage of higher loan limits for both FHA and conventional mortgages will unleash some pent-up demand. As inventories are drawn down, prices in many markets should go positive later this year.”
Today Standard & Poor’s released (http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_032544.pdf) January data for its S&P/Case-Shiller Home Price Indices. The report said:
“The 10-City Composite set yet another new record, with an annual decline of 11.4%. The 20-City Composite recorded an annual decline of 10.7%.
“’Unfortunately it does not look like early 2008 is marking any turnaround in the housing market, after the declining year recorded throughout 2007,’ says David M. Blitzer, Chairman of the Index Committee at Standard & Poor's. ‘Home prices continue to fall, decelerate and reach record lows across the nation. No markets seem to be completely immune from the housing crisis, with 19 of the 20 metro areas reporting annual declines in January and the remaining – Charlotte North Carolina – eking out a benign 1.8% growth rate. Looking deeper into the data, you can see that 16 of the metro areas are also reporting record low annual growth rates. The monthly data show that every one of the MSAs has now declined every month since September 2007, marking five consecutive months. On top of that, the declines have increased through time, in general, as 13 of the 20 MSAs reported their single largest monthly decline in January.’”
Clearly, the optimism is not universal.
Who’s right?
We’ll see. Just remember we’re in a bear market for real estate. And, just as in the stock market, there can be bear traps that fool premature optimists with temporary price increases. This is a severe price deflation that will be compounded by recession when that development is at last acknowledged by the powers that be.
Stay tuned.
© 2008 Michael B. Lehmann
Yesterday the National Association of Realtors reported (http://www.realtor.org/press_room/news_releases/2008/existing_home_sales_rise_in_february.html) February existing-home sales were 2.9% higher than January’s, although 23.8% below a year ago. Prices were 8.9% lower than last year.
Some analysts were encouraged by these data and expressed the view that falling prices may, at last, have attracted buyers into the market. Perhaps the long slump may be coming to an end.
According to Lawrence Yun, the Realtor’s chief economist:
“We’re not expecting a notable gain in existing-home sales until the second half of this year, but the improvement is another sign that the market is stabilizing. Buyers taking advantage of higher loan limits for both FHA and conventional mortgages will unleash some pent-up demand. As inventories are drawn down, prices in many markets should go positive later this year.”
Today Standard & Poor’s released (http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_032544.pdf) January data for its S&P/Case-Shiller Home Price Indices. The report said:
“The 10-City Composite set yet another new record, with an annual decline of 11.4%. The 20-City Composite recorded an annual decline of 10.7%.
“’Unfortunately it does not look like early 2008 is marking any turnaround in the housing market, after the declining year recorded throughout 2007,’ says David M. Blitzer, Chairman of the Index Committee at Standard & Poor's. ‘Home prices continue to fall, decelerate and reach record lows across the nation. No markets seem to be completely immune from the housing crisis, with 19 of the 20 metro areas reporting annual declines in January and the remaining – Charlotte North Carolina – eking out a benign 1.8% growth rate. Looking deeper into the data, you can see that 16 of the metro areas are also reporting record low annual growth rates. The monthly data show that every one of the MSAs has now declined every month since September 2007, marking five consecutive months. On top of that, the declines have increased through time, in general, as 13 of the 20 MSAs reported their single largest monthly decline in January.’”
Clearly, the optimism is not universal.
Who’s right?
We’ll see. Just remember we’re in a bear market for real estate. And, just as in the stock market, there can be bear traps that fool premature optimists with temporary price increases. This is a severe price deflation that will be compounded by recession when that development is at last acknowledged by the powers that be.
Stay tuned.
© 2008 Michael B. Lehmann
Sunday, March 23, 2008
Sound of the Next Bubble Bursting?
THE BE YOUR OWN ECONOMIST ® BLOG
Friday’s New York Times and Wall Street Journal carried stories of last week’s commodity-price retreat.
The Times article (http://www.nytimes.com/2008/03/21/business/21commodity.html?_r=1&oref=slogin), “Oil and Gold Prices Continue to Slide,” began with the paragraph:
“Oil, gold and other major commodities fell sharply on Thursday, capping their steepest weekly drop in a half-century, as investors fled what many had believed to be the last safe haven in turbulent markets.”
The story also said:
“Seeking to make sense of the sharp declines, some analysts on Thursday saw a bubble bursting….In their view, investors are growing increasingly worried that a recession will cause a worldwide drop-off in demand for raw materials.
“But other analysts said growth in China, India and developing economies would likely keep prices elevated for energy, metals and food…..”
The Wall Street Journal’s (http://online.wsj.com/article/SB120600696799251567.html), “Red-Hot Commodities Cool As Investors Scurry for Cash,” reported:
“Analysts point out that some regular consumers of commodities -- jewelry buyers, food companies and factory owners -- have slowed their purchases on the belief that prices have risen too fast. Copper buyers in China, for example, have backed away from purchasing the metal and are waiting for cheaper prices, Mr. O'Neill says.
“Others see more price rises ahead. "This is a strong cyclical pullback" amid "a structural rally driven by the rising costs of adding new production capacity," says David Greely, senior energy economist at Goldman Sachs. He agrees that some investors have exited commodity trades to raise cash for other areas.”
There’s obviously disagreement between those analysts who see a bubble bursting and those who merely see price volatility in a week of general market turmoil. The former say the boom is over. The latter say this is merely a pause in a continuing upward spiral.
What if the pessimists are correct? The real-estate bubble burst and the stock market has fallen. Is this the latest pop in a series of bursting bubbles? Is this one more sign of impending worldwide recession?
The commodity-price inflation derived from the global boom. All those manufactures required iron ore, coal, copper, petroleum and a host of other inputs for their production. Now that the world economy is beginning to cool, a bursting of the commodity bubble should not surprise us.
Residential real estate and the stock market paved the way. If commodities begin to sag, it could be the latest sign of impending global gloom.
Stay tuned.
© 2008 Michael B. Lehmann
Friday’s New York Times and Wall Street Journal carried stories of last week’s commodity-price retreat.
The Times article (http://www.nytimes.com/2008/03/21/business/21commodity.html?_r=1&oref=slogin), “Oil and Gold Prices Continue to Slide,” began with the paragraph:
“Oil, gold and other major commodities fell sharply on Thursday, capping their steepest weekly drop in a half-century, as investors fled what many had believed to be the last safe haven in turbulent markets.”
The story also said:
“Seeking to make sense of the sharp declines, some analysts on Thursday saw a bubble bursting….In their view, investors are growing increasingly worried that a recession will cause a worldwide drop-off in demand for raw materials.
“But other analysts said growth in China, India and developing economies would likely keep prices elevated for energy, metals and food…..”
The Wall Street Journal’s (http://online.wsj.com/article/SB120600696799251567.html), “Red-Hot Commodities Cool As Investors Scurry for Cash,” reported:
“Analysts point out that some regular consumers of commodities -- jewelry buyers, food companies and factory owners -- have slowed their purchases on the belief that prices have risen too fast. Copper buyers in China, for example, have backed away from purchasing the metal and are waiting for cheaper prices, Mr. O'Neill says.
“Others see more price rises ahead. "This is a strong cyclical pullback" amid "a structural rally driven by the rising costs of adding new production capacity," says David Greely, senior energy economist at Goldman Sachs. He agrees that some investors have exited commodity trades to raise cash for other areas.”
There’s obviously disagreement between those analysts who see a bubble bursting and those who merely see price volatility in a week of general market turmoil. The former say the boom is over. The latter say this is merely a pause in a continuing upward spiral.
What if the pessimists are correct? The real-estate bubble burst and the stock market has fallen. Is this the latest pop in a series of bursting bubbles? Is this one more sign of impending worldwide recession?
The commodity-price inflation derived from the global boom. All those manufactures required iron ore, coal, copper, petroleum and a host of other inputs for their production. Now that the world economy is beginning to cool, a bursting of the commodity bubble should not surprise us.
Residential real estate and the stock market paved the way. If commodities begin to sag, it could be the latest sign of impending global gloom.
Stay tuned.
© 2008 Michael B. Lehmann
Friday, March 21, 2008
The Veil of Money
THE BE YOUR OWN ECONOMIST ® BLOG
Eighty years ago neoclassical economists concerned themselves with the “veil of money.” They wished to part the financial curtain that obscured the real economy. We continue to adjust for inflation when observing GDP, so that price changes do not distort our picture of real-output changes. Neoclassical economists knew that financial turmoil affected output, but they relegated that knowledge to the study of business cycles. In the long run, the money supply could rise or fall and inflation would surge or ebb accordingly. Real-output growth, however, depended upon the availability of the factors of production and technology’s advance.
Lately there’s been so much focus on the financial crisis, and the Federal Reserve’s (Fed’s) and federal government’s (fed’s) attempts to deal with that crisis, that these events tend to crowd out other economic news. The Fed’s and fed’s efforts also lull us into believing that the financial crisis is a stand-alone problem. If Fed chairman Ben Bernanke and Treasury Secretary Henry Paulson can rescue the commercial banks and investment banks, then the worst must be behind us.
Maybe……
But this may also be a good time to lift the veil of money and review what’s happened in the real economy lately……
On Monday the Fed reported that (http://www.federalreserve.gov/releases/g17/Current/default.htm)
industrial production and capacity utilization (the operating rate) both fell. They are now below where they were at the end of last fall. Mining, manufacturing and public utility activity is shrinking.
The next day the Census Bureau announced (http://www.census.gov/const/newresconst.pdf) that single-family housing starts fell to 707 thousand. You have to go back to the 1990-91 recession to find a lower number. They stood at 1.837 million at the beginning of 2006 and have been declining ever since.
At the start of the month the Commerce Department released its auto-sales figures (http://www.bea.gov/national/index.htm#gdp). For the first two months of this year the automobile manufacturers sold 15.3 million vehicles at a seasonally-adjusted annual rate. That’s a figure reminiscent of 10 years ago.
Yesterday the Conference Board said (http://www.conference-board.org/economics/bci/pressRelease_output.cfm?cid=1) that its index of leading economic indicators had declined for the fifth straight month. Some of the ingredients in this index are financial, but most are not. Not only is the real economy shrinking, but the economic indicators that forecast the real economy’s direction indicate that the real economy will shrink further.
Even if the veil of financial conditions improves, the real economy beneath that veil is in retreat. The glut of unsold homes is the underlying problem from which all other problems – real and financial – stem. The glut depresses residential construction and the cluster of industries surrounding residential construction. It also erodes homeowners’ wealth as home prices plunge. That further depresses consumption expenditures.
Until the Fed and the feds mobilize a rescue package that deals with the glut of unsold homes, the economy must wait for market forces to gradually remove the glut. But waiting for market forces to correct the problem exacerbates matters as more distressed and foreclosed properties come on the market. Act quickly or suffer slowly, it’s a policy decision.
© 2008 Michael B. Lehmann
Eighty years ago neoclassical economists concerned themselves with the “veil of money.” They wished to part the financial curtain that obscured the real economy. We continue to adjust for inflation when observing GDP, so that price changes do not distort our picture of real-output changes. Neoclassical economists knew that financial turmoil affected output, but they relegated that knowledge to the study of business cycles. In the long run, the money supply could rise or fall and inflation would surge or ebb accordingly. Real-output growth, however, depended upon the availability of the factors of production and technology’s advance.
Lately there’s been so much focus on the financial crisis, and the Federal Reserve’s (Fed’s) and federal government’s (fed’s) attempts to deal with that crisis, that these events tend to crowd out other economic news. The Fed’s and fed’s efforts also lull us into believing that the financial crisis is a stand-alone problem. If Fed chairman Ben Bernanke and Treasury Secretary Henry Paulson can rescue the commercial banks and investment banks, then the worst must be behind us.
Maybe……
But this may also be a good time to lift the veil of money and review what’s happened in the real economy lately……
On Monday the Fed reported that (http://www.federalreserve.gov/releases/g17/Current/default.htm)
industrial production and capacity utilization (the operating rate) both fell. They are now below where they were at the end of last fall. Mining, manufacturing and public utility activity is shrinking.
The next day the Census Bureau announced (http://www.census.gov/const/newresconst.pdf) that single-family housing starts fell to 707 thousand. You have to go back to the 1990-91 recession to find a lower number. They stood at 1.837 million at the beginning of 2006 and have been declining ever since.
At the start of the month the Commerce Department released its auto-sales figures (http://www.bea.gov/national/index.htm#gdp). For the first two months of this year the automobile manufacturers sold 15.3 million vehicles at a seasonally-adjusted annual rate. That’s a figure reminiscent of 10 years ago.
Yesterday the Conference Board said (http://www.conference-board.org/economics/bci/pressRelease_output.cfm?cid=1) that its index of leading economic indicators had declined for the fifth straight month. Some of the ingredients in this index are financial, but most are not. Not only is the real economy shrinking, but the economic indicators that forecast the real economy’s direction indicate that the real economy will shrink further.
Even if the veil of financial conditions improves, the real economy beneath that veil is in retreat. The glut of unsold homes is the underlying problem from which all other problems – real and financial – stem. The glut depresses residential construction and the cluster of industries surrounding residential construction. It also erodes homeowners’ wealth as home prices plunge. That further depresses consumption expenditures.
Until the Fed and the feds mobilize a rescue package that deals with the glut of unsold homes, the economy must wait for market forces to gradually remove the glut. But waiting for market forces to correct the problem exacerbates matters as more distressed and foreclosed properties come on the market. Act quickly or suffer slowly, it’s a policy decision.
© 2008 Michael B. Lehmann
Saturday, March 15, 2008
The Flu and the Fed(s)
THE BE YOUR OWN ECONOMIST ® BLOG
There’s been so much bad news lately, how does one adequately describe the situation?
It feels like the economy has caught a bad case of the flu. The nose isn’t running like an open spigot (yet), but there’s a sniffle and feeling of chill and some aches and pains. You know that tomorrow will be horrible and there’s nothing you can do to prevent that turn of events. You’re about to spend a few days in bed.
The Fed(s), i.e. the federal government and the Federal Reserve have done what they believe to be prudent. Yet it has that “too little, too late” feel. As if we have a “two-bucket” fire but only one bucket of water. We throw the water on the flames and fetch another bucket. Too bad, because now we wave a three-bucket fire and only two buckets of water. And so it goes…….. Always a bucket short.
Why? Because the remedies are not adequately focused on the ailment. The Fed’s 2000/2001 easy-money policy is the root cause of today’s predicament. That policy stimulated a housing sector that was not in a slump and required no stimulation. The consequent residential-construction boom created an asset-inflation and a glut of homes. Now we are locked in an asset deflation that will not end until the market absorbs those excess homes. Moreover, the financial system remains polluted by the toxic waste, aka mortgage-backed securities, that financed and enabled the asset inflation.
Meanwhile, our fiscal-policy remedies are broad-based, not narrowly focused. The tax rebate will give consumption a boost, but will not reduce the glut of homes. The Fed is driving down the federal-funds rate and providing liquidity to the banks by exchanging Treasury securities for mortgage-backed securities, but it can’t compel reluctant lenders to advance funds to those they deem not credit-worthy.
There surely is a limit to what can be done. There is, after all, a glut of homes. The Fed can only push so hard on its string. But the federal government could sponsor a massive mortgage-purchase program that took the toxic-waste off lenders hands and stopped the foreclosures. It’s true that would validate moral hazard and entail more deficit-spending and federal borrowing. So what? Why moralize? Maybe the benefit is worth the cost. Isn’t that kind of directly-focused use of funds better than a broad-brush rebate?
Once again, there is no magic wand that can make the glut of homes go away. Wealth will be destroyed as home prices fall to equilibrium. But why fiddle as Rome burns? Let’s use all the buckets we have to douse as much flame as possible. Rome may end up scorched, but at least it will be standing.
© 2008 Michael B. Lehmann
There’s been so much bad news lately, how does one adequately describe the situation?
It feels like the economy has caught a bad case of the flu. The nose isn’t running like an open spigot (yet), but there’s a sniffle and feeling of chill and some aches and pains. You know that tomorrow will be horrible and there’s nothing you can do to prevent that turn of events. You’re about to spend a few days in bed.
The Fed(s), i.e. the federal government and the Federal Reserve have done what they believe to be prudent. Yet it has that “too little, too late” feel. As if we have a “two-bucket” fire but only one bucket of water. We throw the water on the flames and fetch another bucket. Too bad, because now we wave a three-bucket fire and only two buckets of water. And so it goes…….. Always a bucket short.
Why? Because the remedies are not adequately focused on the ailment. The Fed’s 2000/2001 easy-money policy is the root cause of today’s predicament. That policy stimulated a housing sector that was not in a slump and required no stimulation. The consequent residential-construction boom created an asset-inflation and a glut of homes. Now we are locked in an asset deflation that will not end until the market absorbs those excess homes. Moreover, the financial system remains polluted by the toxic waste, aka mortgage-backed securities, that financed and enabled the asset inflation.
Meanwhile, our fiscal-policy remedies are broad-based, not narrowly focused. The tax rebate will give consumption a boost, but will not reduce the glut of homes. The Fed is driving down the federal-funds rate and providing liquidity to the banks by exchanging Treasury securities for mortgage-backed securities, but it can’t compel reluctant lenders to advance funds to those they deem not credit-worthy.
There surely is a limit to what can be done. There is, after all, a glut of homes. The Fed can only push so hard on its string. But the federal government could sponsor a massive mortgage-purchase program that took the toxic-waste off lenders hands and stopped the foreclosures. It’s true that would validate moral hazard and entail more deficit-spending and federal borrowing. So what? Why moralize? Maybe the benefit is worth the cost. Isn’t that kind of directly-focused use of funds better than a broad-brush rebate?
Once again, there is no magic wand that can make the glut of homes go away. Wealth will be destroyed as home prices fall to equilibrium. But why fiddle as Rome burns? Let’s use all the buckets we have to douse as much flame as possible. Rome may end up scorched, but at least it will be standing.
© 2008 Michael B. Lehmann
Tuesday, March 11, 2008
Rabbits & Hats
THE BE YOUR OWN ECONOMIST ® BLOG
Today (http://www.federalreserve.gov/newsevents/press/monetary/20080311a.htm) the Federal Reserve announced its willingness to swap $200 billion of U.S. Treasury securities in its portfolio for a variety of securities (including mortgage backed) in primary dealers’ portfolios for 28 days at a time. This bolsters the dealers because they get to exchange suspect securities in their portfolios for the gilt-edged U.S. Treasury securities in the Fed’s portfolio. That enhances the dealers’ balance sheets and the willingness of others to conduct business with them. Credit markets should ease. (Primary dealers are large financial institutions – including banks – that make markets in securities.)
Here is the key paragraph from the Fed’s announcement:
“The Federal Reserve announced today an expansion of its securities lending program. Under this new Term Securities Lending Facility (TSLF), the Federal Reserve will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS. The TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally. As is the case with the current securities lending program, securities will be made available through an auction process. Auctions will be held on a weekly basis, beginning on March 27, 2008. The Federal Reserve will consult with primary dealers on technical design features of the TSLF.”
The Fed has pulled another rabbit from its hat and the stock market jumped. But will this action be sufficient to thaw the chill that has befallen the credit markets?
Prof. Paul Krugman has his doubts. In an article in yesterday’s New York Times (http://www.nytimes.com/2008/03/10/opinion/10krugman.html?_r=1&oref=slogin), that anticipated today’s Fed’s action, he put it this way:
“What’s going on? Mr. Geithner described a vicious circle in which banks and other market players who took on too much risk are all trying to get out of unsafe investments at the same time, causing ‘significant collateral damage to market functioning.’
“A report released last Friday by JPMorgan Chase was even blunter. It described what’s happening as a 'systemic margin call,' in which the whole financial system is facing demands to come up with cash it doesn’t have……….
“The Fed’s latest plan to break this vicious circle is — as the financial Web site interfluidity.com cruelly but accurately describes it — to turn itself into Wall Street’s pawnbroker. Banks that might have raised cash by selling assets will be encouraged, instead, to borrow money from the Fed, using the assets as collateral. In a worst-case scenario, the Federal Reserve would find itself owning around $200 billion worth of mortgage-backed securities.
“Some observers worry that the Fed is taking over the banks’ financial risk. But what worries me more is that the move seems trivial compared with the size of the problem: $200 billion may sound like a lot of money, but when you compare it with the size of the markets that are melting down — there are $11 trillion in U.S. mortgages outstanding — it’s a drop in the bucket.
“The only way the Fed’s action could work is through the slap-in-the-face effect: by creating a pause in the selling frenzy, the Fed could give hysterical markets a chance to regain their sense of perspective. And to be fair, that has worked in the past.
“But slap-in-the-face only works if the market’s problems are mainly a matter of psychology. And given that the Fed has already slapped the market in the face twice, only to see the financial crisis come roaring back, that’s hard to believe.”
Will the Fed’s action today be sufficient to restore confidence in the credit markets? It seems unlikely because of the underlying fundamental problem: The credit crisis stems from the mortgage crisis which stems from the glut of homes on the market. The residential-real-estate glut is not a financial mirage, but the obvious consequence of an asset inflation that has become an asset deflation. Mortgage-backed securities have become toxic waste because the value of their underlying assets has melted away. Until the deflation has run its course and home prices have stabilized, it’s difficult to see how the financial markets can fully recover.
© 2008 Michael B. Lehmann
Today (http://www.federalreserve.gov/newsevents/press/monetary/20080311a.htm) the Federal Reserve announced its willingness to swap $200 billion of U.S. Treasury securities in its portfolio for a variety of securities (including mortgage backed) in primary dealers’ portfolios for 28 days at a time. This bolsters the dealers because they get to exchange suspect securities in their portfolios for the gilt-edged U.S. Treasury securities in the Fed’s portfolio. That enhances the dealers’ balance sheets and the willingness of others to conduct business with them. Credit markets should ease. (Primary dealers are large financial institutions – including banks – that make markets in securities.)
Here is the key paragraph from the Fed’s announcement:
“The Federal Reserve announced today an expansion of its securities lending program. Under this new Term Securities Lending Facility (TSLF), the Federal Reserve will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS. The TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally. As is the case with the current securities lending program, securities will be made available through an auction process. Auctions will be held on a weekly basis, beginning on March 27, 2008. The Federal Reserve will consult with primary dealers on technical design features of the TSLF.”
The Fed has pulled another rabbit from its hat and the stock market jumped. But will this action be sufficient to thaw the chill that has befallen the credit markets?
Prof. Paul Krugman has his doubts. In an article in yesterday’s New York Times (http://www.nytimes.com/2008/03/10/opinion/10krugman.html?_r=1&oref=slogin), that anticipated today’s Fed’s action, he put it this way:
“What’s going on? Mr. Geithner described a vicious circle in which banks and other market players who took on too much risk are all trying to get out of unsafe investments at the same time, causing ‘significant collateral damage to market functioning.’
“A report released last Friday by JPMorgan Chase was even blunter. It described what’s happening as a 'systemic margin call,' in which the whole financial system is facing demands to come up with cash it doesn’t have……….
“The Fed’s latest plan to break this vicious circle is — as the financial Web site interfluidity.com cruelly but accurately describes it — to turn itself into Wall Street’s pawnbroker. Banks that might have raised cash by selling assets will be encouraged, instead, to borrow money from the Fed, using the assets as collateral. In a worst-case scenario, the Federal Reserve would find itself owning around $200 billion worth of mortgage-backed securities.
“Some observers worry that the Fed is taking over the banks’ financial risk. But what worries me more is that the move seems trivial compared with the size of the problem: $200 billion may sound like a lot of money, but when you compare it with the size of the markets that are melting down — there are $11 trillion in U.S. mortgages outstanding — it’s a drop in the bucket.
“The only way the Fed’s action could work is through the slap-in-the-face effect: by creating a pause in the selling frenzy, the Fed could give hysterical markets a chance to regain their sense of perspective. And to be fair, that has worked in the past.
“But slap-in-the-face only works if the market’s problems are mainly a matter of psychology. And given that the Fed has already slapped the market in the face twice, only to see the financial crisis come roaring back, that’s hard to believe.”
Will the Fed’s action today be sufficient to restore confidence in the credit markets? It seems unlikely because of the underlying fundamental problem: The credit crisis stems from the mortgage crisis which stems from the glut of homes on the market. The residential-real-estate glut is not a financial mirage, but the obvious consequence of an asset inflation that has become an asset deflation. Mortgage-backed securities have become toxic waste because the value of their underlying assets has melted away. Until the deflation has run its course and home prices have stabilized, it’s difficult to see how the financial markets can fully recover.
© 2008 Michael B. Lehmann
Saturday, March 8, 2008
If It Wasn’t For Bad News, There Wouldn’t Be Any News At All
THE BE YOUR OWN ECONOMIST ® BLOG
Today’s Wall Street Journal headline (http://online.wsj.com/article/SB120489597965119543.html?mod=todays_us_page_one) said it all: “Jobs Data Suggest U.S. Is in Recession.” There it was: the R-word. Big and bold, splashed across the front page.
The article informed us the economy lost 63,000 jobs last month. The chart reveals job growth has been shrinking for some time. Now we know we’re in negative territory and the number of jobs is falling. Only the quickest are getting seats.
Job Growth
(Click on chart to enlarge)
Recessions shaded
On Monday the Institute for Supply Management reported its February Purchasing Managers’ Index (manufacturing index) at 48.3. Anything under 50 signals contraction. The next chart also portrays a downward trend and a recent fall into negative territory.
Purchasing Managers’ Index
(Click on chart to enlarge)
Recessions shaded
The latest data are no fluke or mere statistical noise. Employment and manufacturing have been weakening for more than a year. The most recent reports confirm the trend. The new revelation is that these measures are finally contracting (i.e. negative). That explains the conclusion that recession has arrived.
Some analysts believe that any downturn will be brief and that the year’s second half will bring a rebound. That’s hard to accept if the residential-real-estate collapse remains at the heart of the problem. Why should deepening recession boost real-estate markets? How can the rest of the economy recover if real estate does not? Are the optimists putting too much hope in the Fed and its interest-rate cuts?
In a March 5 New York Times op-ed piece (http://www.nytimes.com/2008/03/05/opinion/05roach.html?_r=1&scp=2&sq=stephen+s.+roach&st=nyt&oref=slogin) entitled “Double Bubble Trouble,” Stephen S. Roach compared our experience to Japan’s:
“Japan’s experience demonstrates how difficult it may be for traditional policies to ignite recovery after a bubble. In the early 1990s, Japan’s property and stock market bubbles burst. That implosion was worsened by a banking crisis and excess corporate debt. Nearly 20 years later, Japan is still struggling.
“There are eerie similarities between the United States now and Japan then. The Bank of Japan ran an excessively accommodative monetary policy for most of the 1980s. In the United States, the Federal Reserve did the same thing beginning in the late 1990s. In both cases, loose money fueled liquidity booms that led to major bubbles.
“Moreover, Japan’s central bank initially denied the perils caused by the bubbles. Similarly, it’s hard to forget the Fed’s blasé approach to the asset bubbles of the past decade, especially as the subprime mortgage crisis exploded last August.
“In Japan, a banking crisis constricted lending for years. In the United States, a full-blown credit crisis could do the same.
“The unwinding of excessive corporate indebtedness in Japan and a “keiretsu” culture of companies buying one another’s equity shares put extraordinary pressures on business spending. In America, an excess of household indebtedness could put equally serious and lasting restrictions on consumer spending.
“Like their counterparts in Japan in the 1990s, American authorities may be deluding themselves into believing they can forestall the endgame of post-bubble adjustments…...”
The optimists say it can’t happen here; that Japan’s circumstances are too dissimilar to ours: Their crash was deeper, their banks slower to write off bad loans, their central bank slower to reduce interest rates, and so on. But, as Mr. Roach points out, there are some similarities.
(The charts are taken from http://www.beyourowneconomist.com. [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of Economic Indicators.)
© 2008 Michael B. Lehmann
Today’s Wall Street Journal headline (http://online.wsj.com/article/SB120489597965119543.html?mod=todays_us_page_one) said it all: “Jobs Data Suggest U.S. Is in Recession.” There it was: the R-word. Big and bold, splashed across the front page.
The article informed us the economy lost 63,000 jobs last month. The chart reveals job growth has been shrinking for some time. Now we know we’re in negative territory and the number of jobs is falling. Only the quickest are getting seats.
Job Growth
(Click on chart to enlarge)
Recessions shaded
On Monday the Institute for Supply Management reported its February Purchasing Managers’ Index (manufacturing index) at 48.3. Anything under 50 signals contraction. The next chart also portrays a downward trend and a recent fall into negative territory.
Purchasing Managers’ Index
(Click on chart to enlarge)
Recessions shaded
The latest data are no fluke or mere statistical noise. Employment and manufacturing have been weakening for more than a year. The most recent reports confirm the trend. The new revelation is that these measures are finally contracting (i.e. negative). That explains the conclusion that recession has arrived.
Some analysts believe that any downturn will be brief and that the year’s second half will bring a rebound. That’s hard to accept if the residential-real-estate collapse remains at the heart of the problem. Why should deepening recession boost real-estate markets? How can the rest of the economy recover if real estate does not? Are the optimists putting too much hope in the Fed and its interest-rate cuts?
In a March 5 New York Times op-ed piece (http://www.nytimes.com/2008/03/05/opinion/05roach.html?_r=1&scp=2&sq=stephen+s.+roach&st=nyt&oref=slogin) entitled “Double Bubble Trouble,” Stephen S. Roach compared our experience to Japan’s:
“Japan’s experience demonstrates how difficult it may be for traditional policies to ignite recovery after a bubble. In the early 1990s, Japan’s property and stock market bubbles burst. That implosion was worsened by a banking crisis and excess corporate debt. Nearly 20 years later, Japan is still struggling.
“There are eerie similarities between the United States now and Japan then. The Bank of Japan ran an excessively accommodative monetary policy for most of the 1980s. In the United States, the Federal Reserve did the same thing beginning in the late 1990s. In both cases, loose money fueled liquidity booms that led to major bubbles.
“Moreover, Japan’s central bank initially denied the perils caused by the bubbles. Similarly, it’s hard to forget the Fed’s blasé approach to the asset bubbles of the past decade, especially as the subprime mortgage crisis exploded last August.
“In Japan, a banking crisis constricted lending for years. In the United States, a full-blown credit crisis could do the same.
“The unwinding of excessive corporate indebtedness in Japan and a “keiretsu” culture of companies buying one another’s equity shares put extraordinary pressures on business spending. In America, an excess of household indebtedness could put equally serious and lasting restrictions on consumer spending.
“Like their counterparts in Japan in the 1990s, American authorities may be deluding themselves into believing they can forestall the endgame of post-bubble adjustments…...”
The optimists say it can’t happen here; that Japan’s circumstances are too dissimilar to ours: Their crash was deeper, their banks slower to write off bad loans, their central bank slower to reduce interest rates, and so on. But, as Mr. Roach points out, there are some similarities.
(The charts are taken from http://www.beyourowneconomist.com. [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of Economic Indicators.)
© 2008 Michael B. Lehmann
Thursday, March 6, 2008
Smoking In Bed and Fiddling While Rome Burns
THE BE YOUR OWN ECONOMIST ® BLOG
Suppose somebody sets his or her home on fire while smoking in bed. Should the fire department turn around and say, “Sorry, we’re not rescuing anyone dumb as you. Smoke in bed…….pay the price. We’re heading back to the station house. Deal with it on your own.”
No doubt some of us would feel that way. Besides, what better way to teach a lesson to all the other morons out there. If they see the first bozo’s house go up in flames, that may teach them a lesson about (not) smoking in bed.
From thoughts such as these stems the notion of “moral hazard.” Assist those who indulge in foolish risk, and risky behavior is abetted. Let the perpetrators suffer the consequences, and risky behavior is prevented.
Sounds simple. But no fire department asks, “How did the fire start?” before it quenches the flames, let alone rescues the victims. There are a number of reasons for this, but one of them certainly is that no one wants the entire neighborhood to burn down. The surest way to prevent the neighborhood’s destruction is to save the smoker’s house. The collective good is more important than teaching the dummies a lesson.
And that brings us to the mortgage crisis. Some have said that a bailout creates a moral hazard by rewarding speculators. Better to let the lenders foreclose on these properties than to save foolish borrowers from their own stupidity. But others have pointed out that wholesale foreclosures put additional downward pressure on home prices as lenders dump foreclosed properties on the market for whatever they may bring. That just leads to a cascade of additional foreclosures on properties abandoned because their value has fallen below that of the mortgage. Far better – from the collective point of view - to save the loan and the borrower, and keep the property off the market and thereby prevent property prices from falling further. Don’t fiddle by moralizing while Rome burns.
Recent news accounts indicate that we may be moving away from the individual culpability and moral-hazard perspective to a broader consideration based on society’s benefit. For instance, only two days ago, a March 4 New York Times article (http://www.nytimes.com/2008/03/04/business/04paulson.html?_r=1&oref=slogin) carried the headline “Relief for Homeowners Is Given to a Relative Few” and the subheading said, “Some analysts predict foreclosures will end up in the millions.” The article reported, “But while the data showed an increase in forbearance, it also showed that only a tiny fraction of troubled borrowers are getting either a reduction in their interest rate or in their loan amount,” and “…industry executives acknowledged that many and perhaps most of the loan modifications so far simply stretched out the original repayment terms.” Moreover, Secretary of the Treasury Henry Paulson “…reiterated his opposition to proposals for a government bailout of subprime borrowers, which would also bail out many lenders.” That’s the moral-hazard perspective.
But just a day later (yesterday), on March 5, the Times (http://www.nytimes.com/2008/03/05/business/05housing.html) headline read, “Bush and Fed Step Toward a Mortgage Rescue.” The lead paragraph said, “However much they might oppose it on ideological grounds, the Bush administration and the Federal Reserve are inching closer toward a government rescue of distressed homeowners and mortgage lenders.” The article went on to report that. “Representative Barney Frank, chairman of the House Financial Services Committee….proposed legislation last week to allow the F.H.A. to insure up to $20 billion in troubled mortgages if the lenders first agree to forgive a big part of the original loan amounts.”
Perhaps the powers-that-be won’t let Rome burn in order to prevent moral hazard.
© 2008 Michael B. Lehmann
Suppose somebody sets his or her home on fire while smoking in bed. Should the fire department turn around and say, “Sorry, we’re not rescuing anyone dumb as you. Smoke in bed…….pay the price. We’re heading back to the station house. Deal with it on your own.”
No doubt some of us would feel that way. Besides, what better way to teach a lesson to all the other morons out there. If they see the first bozo’s house go up in flames, that may teach them a lesson about (not) smoking in bed.
From thoughts such as these stems the notion of “moral hazard.” Assist those who indulge in foolish risk, and risky behavior is abetted. Let the perpetrators suffer the consequences, and risky behavior is prevented.
Sounds simple. But no fire department asks, “How did the fire start?” before it quenches the flames, let alone rescues the victims. There are a number of reasons for this, but one of them certainly is that no one wants the entire neighborhood to burn down. The surest way to prevent the neighborhood’s destruction is to save the smoker’s house. The collective good is more important than teaching the dummies a lesson.
And that brings us to the mortgage crisis. Some have said that a bailout creates a moral hazard by rewarding speculators. Better to let the lenders foreclose on these properties than to save foolish borrowers from their own stupidity. But others have pointed out that wholesale foreclosures put additional downward pressure on home prices as lenders dump foreclosed properties on the market for whatever they may bring. That just leads to a cascade of additional foreclosures on properties abandoned because their value has fallen below that of the mortgage. Far better – from the collective point of view - to save the loan and the borrower, and keep the property off the market and thereby prevent property prices from falling further. Don’t fiddle by moralizing while Rome burns.
Recent news accounts indicate that we may be moving away from the individual culpability and moral-hazard perspective to a broader consideration based on society’s benefit. For instance, only two days ago, a March 4 New York Times article (http://www.nytimes.com/2008/03/04/business/04paulson.html?_r=1&oref=slogin) carried the headline “Relief for Homeowners Is Given to a Relative Few” and the subheading said, “Some analysts predict foreclosures will end up in the millions.” The article reported, “But while the data showed an increase in forbearance, it also showed that only a tiny fraction of troubled borrowers are getting either a reduction in their interest rate or in their loan amount,” and “…industry executives acknowledged that many and perhaps most of the loan modifications so far simply stretched out the original repayment terms.” Moreover, Secretary of the Treasury Henry Paulson “…reiterated his opposition to proposals for a government bailout of subprime borrowers, which would also bail out many lenders.” That’s the moral-hazard perspective.
But just a day later (yesterday), on March 5, the Times (http://www.nytimes.com/2008/03/05/business/05housing.html) headline read, “Bush and Fed Step Toward a Mortgage Rescue.” The lead paragraph said, “However much they might oppose it on ideological grounds, the Bush administration and the Federal Reserve are inching closer toward a government rescue of distressed homeowners and mortgage lenders.” The article went on to report that. “Representative Barney Frank, chairman of the House Financial Services Committee….proposed legislation last week to allow the F.H.A. to insure up to $20 billion in troubled mortgages if the lenders first agree to forgive a big part of the original loan amounts.”
Perhaps the powers-that-be won’t let Rome burn in order to prevent moral hazard.
© 2008 Michael B. Lehmann
Tuesday, March 4, 2008
March Publication Schedule & Web Sources
THE BE YOUR OWN ECONOMIST ® BLOG
Here’s March’s tentative economic-indicator publication schedule, followed by a list of web sources. Future postings will discuss these indicators.
You can use the WEB SOURCES listing (below) to find the data on your own and read the accompanying press release. The addresses take you to the source’s home page and the steps tell you how to navigate the site. That way (rather than provide a direct link to the data) you can become familiar with these sites and find additional information on your own.
PUBLICATION SCHEDULE
March 2008
Source (* below)…………Series Description…………Day & Date
Quarterly Data
BEA……………………International Transactions….......…Mon, 17th
BEA…………………………GDP……………………...……Thu, 27th
BLS…………………………Productivity……………...……Wed, 5th
Monthly Data
ISM………………….Purchasing managers’ index……….Mon, 3rd
Fed…………………………..Consumer credit……..……….Wed, 5th
BLS………………………….Employment……………………Fri, 7th
Census……………………...Balance of trade………………Tue, 11th
Census……………………...Retail trade…………………….Thu, 13th
Census……………………...Inventories……………………..Thu, 13th
BLS………………………….Consumer prices……………...Fri, 14th
Fed…………………………..Industrial production………….Mon, 17th
Fed………………………….Capacity utilization…………….Mon, 17th
Census……………………..Housing starts………………….Tue, 18th
BLS………………………….Producer prices……………….Tue, 18th
Conf Bd…………………….Leading Indicators…………….Thu , 20th
NAR…………………………Existing-home sales…….…….Mon, 24th
Conf Bd…………………….Consumer confidence…………Tue, 25th
Census…………………….Capital goods……………….…..Wed, 26th
Census……………………..New-home sales……………….Wed, 26th
BEA…………………………Personal income………………Fri, 28th
* BEA = Bureau of Economic Analysis of the U.S. Department of Commerce
* Census = U.S. Bureau of the Census
* Conf Bd = Conference Board
* Fed = Federal Reserve System
* ISM = Institute for Supply Management
* NAR = National Association of Realtors
WEB SOURCES
Index of Leading Economic Indicators: http://www.conference-board.org/
Step 1: Click on "Economics" in the left-hand menu bar
Step 2: Click on "Economic Indicators" under "Economics" in the left-hand menu bar
Step 3: Click on link under "U.S. Leading Indicators"
Gross Domestic Product: http://www.bea.gov/
Step 1: Click on "Gross Domestic Product" under "National"
Step 2: Click on "National Income and Product Accounts Tables" under "Gross Domestic Product (GDP)"
Step 3: Click on "list of all NIPA Tables"
Step 4: Click on "Table 1.1.6. Real Gross Domestic Product..." and "Table 1.1.1. Percent Change..."
Step 5: Scroll down to line 1 in both tables and go to the last column on the right
Industrial Production & Capacity Utilization: http://www.federalreserve.gov/
Step 1: Click on "All Statistical Releases" under "Recent Statistical Releases" and then click on "Industrial Production and Capacity Utilization" under "Principal Economic Indicators" in the upper left
Step 2: Click on "Current Monthly Release"
Step 3: Find the latest monthly data in the table next to "Total index" and "Total industry"
Institute For Supply Management Index: http://www.ism.ws/
Step 1: Click on "ISM Report on Business" in left-hand menu bar
Step 2: Click on “Latest Manufacturing ROB” and find the latest PMI
Producer Prices:http://stats.bls.gov/
Step 1: Click on “Producer Price Indexes” under “Inflation & Consumer Spending” in left-hand menu bar
Step 2: Note "Finished goods" under "Latest Numbers" in upper right and multiply by 12 to put the data on an annual basis
Business Capital Expenditures (Nondefense Capital Goods): http://www.census.gov/
Step 1: Click on "Economic Indicators" in the lower right
Step 2: Click on "PDF" on the left under "Advance Report on Durable Goods Manufacturers' Shipments and Orders"
Step 3: Scroll down to Table 1 and find new orders for nondefense capital goods near the bottom
Inventories, Sales & Inventory/Sales Ratio: http://www.census.gov/
Step 1: Click on "Economic Indicators" in the lower right
Step 2: Click on "HTML" on the left under "Manufacturing and Trade Inventories and Sales"
Step 3: Scroll down to Table 1 and subtract previous month's inventories from latest month's and multiply by 12 to obtain inventory change, and then obtain the most recent inventory/sales ratio
Consumer Price Index: http://stats.bls.gov/
Step 1: Click on “Consumer Price Index” under “Inflation & Consumer Spending” in left-hand menu bar
Step 2: Note "CPI-U..." at the top under "Latest Numbers" in upper right and multiply "SA" by 12 to put the data on an annual basis
Employment Data (Total Non-farm Payroll Employment) (Unemployment Rate) (Manufacturing Workweek): http://stats.bls.gov/
Step 1: Click on “National Employment” under “Employment & Unemployment” in right-hand menu bar
Step 2: Click on (HTML) following “Employment Situation Summary” under "Economic News Releases"
Step 3: Click on “Employment Situation Summary” under “Table of Contents”
Step 4: Scroll down to Table A and find the unemployment rate for all workers in the latest month, the change in nonfarm employment in the last column and manufacturing hours of work for the latest month
Personal Income: http://www.bea.gov/
Step 1: Click on "Gross Domestic Product" under "National"
Step 2: Click on "National Income and Product Accounts Tables" under "Gross Domestic Product (GDP)"
Step 3: Click on "list of all NIPA Tables"
Step 4: Click on "Table 2.6 Personal Income..."
Step 5: Scroll down to line 1
Consumer Confidence: http://www.conference-board.org/
Step 1: Click on the "Economics" in the left-hand menu bar
Step 2: Click on "Economic Indicators" under "Economics" in the left-hand menu bar
Step 3: Click on link under "Consumer Confidence Index"
Consumer Credithttp://www.federalreserve.gov/
Step 1: Click on "All Statistical Releases" under "Recent Statistical Releases" and then click on "Consumer credit -- G19" under "Household Finance" in the upper right
Step 2: Click on "Current Release"
Step 3: Go to "Amount ... billions of dollars" and subtract previous month from current month & multiply by 12 to obtain seasonally adjusted dollar amount at annual rate
Housing Starts: http://www.census.gov/
Step 1: Click on "Economic Indicators" in the lower right
Step 2: Click on "PDF" on the left under "Current Press Release" under "Housing Starts/Building Permits"
Step 3: Scroll down to "Housing Starts"
Home Sales (Existing-Home Sales): http://www.realtor.org/
Step 1: Click on "Research" in the left-hand menu bar
Step 2: Find "Existing-Home Sales" under "Housing Indicators"
Home Sales (New-Home Sales): http://www.census.gov/
Step 1: Click on "Economic Indicators" in the lower right
Step 2: Click on "PDF" on the left under "Current Press Release" under "New Home Sales"
Retail Sales: http://www.census.gov/
Step 1: Click on "Economic Indicators" in the lower right
Step 2: Scroll down to "Advance Monthly Sales for Retail and Food Services" and click on "HTML" on the left under "Current Press Release"
© 2008 Michael B. Lehmann
Here’s March’s tentative economic-indicator publication schedule, followed by a list of web sources. Future postings will discuss these indicators.
You can use the WEB SOURCES listing (below) to find the data on your own and read the accompanying press release. The addresses take you to the source’s home page and the steps tell you how to navigate the site. That way (rather than provide a direct link to the data) you can become familiar with these sites and find additional information on your own.
PUBLICATION SCHEDULE
March 2008
Source (* below)…………Series Description…………Day & Date
Quarterly Data
BEA……………………International Transactions….......…Mon, 17th
BEA…………………………GDP……………………...……Thu, 27th
BLS…………………………Productivity……………...……Wed, 5th
Monthly Data
ISM………………….Purchasing managers’ index……….Mon, 3rd
Fed…………………………..Consumer credit……..……….Wed, 5th
BLS………………………….Employment……………………Fri, 7th
Census……………………...Balance of trade………………Tue, 11th
Census……………………...Retail trade…………………….Thu, 13th
Census……………………...Inventories……………………..Thu, 13th
BLS………………………….Consumer prices……………...Fri, 14th
Fed…………………………..Industrial production………….Mon, 17th
Fed………………………….Capacity utilization…………….Mon, 17th
Census……………………..Housing starts………………….Tue, 18th
BLS………………………….Producer prices……………….Tue, 18th
Conf Bd…………………….Leading Indicators…………….Thu , 20th
NAR…………………………Existing-home sales…….…….Mon, 24th
Conf Bd…………………….Consumer confidence…………Tue, 25th
Census…………………….Capital goods……………….…..Wed, 26th
Census……………………..New-home sales……………….Wed, 26th
BEA…………………………Personal income………………Fri, 28th
* BEA = Bureau of Economic Analysis of the U.S. Department of Commerce
* Census = U.S. Bureau of the Census
* Conf Bd = Conference Board
* Fed = Federal Reserve System
* ISM = Institute for Supply Management
* NAR = National Association of Realtors
WEB SOURCES
Index of Leading Economic Indicators: http://www.conference-board.org/
Step 1: Click on "Economics" in the left-hand menu bar
Step 2: Click on "Economic Indicators" under "Economics" in the left-hand menu bar
Step 3: Click on link under "U.S. Leading Indicators"
Gross Domestic Product: http://www.bea.gov/
Step 1: Click on "Gross Domestic Product" under "National"
Step 2: Click on "National Income and Product Accounts Tables" under "Gross Domestic Product (GDP)"
Step 3: Click on "list of all NIPA Tables"
Step 4: Click on "Table 1.1.6. Real Gross Domestic Product..." and "Table 1.1.1. Percent Change..."
Step 5: Scroll down to line 1 in both tables and go to the last column on the right
Industrial Production & Capacity Utilization: http://www.federalreserve.gov/
Step 1: Click on "All Statistical Releases" under "Recent Statistical Releases" and then click on "Industrial Production and Capacity Utilization" under "Principal Economic Indicators" in the upper left
Step 2: Click on "Current Monthly Release"
Step 3: Find the latest monthly data in the table next to "Total index" and "Total industry"
Institute For Supply Management Index: http://www.ism.ws/
Step 1: Click on "ISM Report on Business" in left-hand menu bar
Step 2: Click on “Latest Manufacturing ROB” and find the latest PMI
Producer Prices:http://stats.bls.gov/
Step 1: Click on “Producer Price Indexes” under “Inflation & Consumer Spending” in left-hand menu bar
Step 2: Note "Finished goods" under "Latest Numbers" in upper right and multiply by 12 to put the data on an annual basis
Business Capital Expenditures (Nondefense Capital Goods): http://www.census.gov/
Step 1: Click on "Economic Indicators" in the lower right
Step 2: Click on "PDF" on the left under "Advance Report on Durable Goods Manufacturers' Shipments and Orders"
Step 3: Scroll down to Table 1 and find new orders for nondefense capital goods near the bottom
Inventories, Sales & Inventory/Sales Ratio: http://www.census.gov/
Step 1: Click on "Economic Indicators" in the lower right
Step 2: Click on "HTML" on the left under "Manufacturing and Trade Inventories and Sales"
Step 3: Scroll down to Table 1 and subtract previous month's inventories from latest month's and multiply by 12 to obtain inventory change, and then obtain the most recent inventory/sales ratio
Consumer Price Index: http://stats.bls.gov/
Step 1: Click on “Consumer Price Index” under “Inflation & Consumer Spending” in left-hand menu bar
Step 2: Note "CPI-U..." at the top under "Latest Numbers" in upper right and multiply "SA" by 12 to put the data on an annual basis
Employment Data (Total Non-farm Payroll Employment) (Unemployment Rate) (Manufacturing Workweek): http://stats.bls.gov/
Step 1: Click on “National Employment” under “Employment & Unemployment” in right-hand menu bar
Step 2: Click on (HTML) following “Employment Situation Summary” under "Economic News Releases"
Step 3: Click on “Employment Situation Summary” under “Table of Contents”
Step 4: Scroll down to Table A and find the unemployment rate for all workers in the latest month, the change in nonfarm employment in the last column and manufacturing hours of work for the latest month
Personal Income: http://www.bea.gov/
Step 1: Click on "Gross Domestic Product" under "National"
Step 2: Click on "National Income and Product Accounts Tables" under "Gross Domestic Product (GDP)"
Step 3: Click on "list of all NIPA Tables"
Step 4: Click on "Table 2.6 Personal Income..."
Step 5: Scroll down to line 1
Consumer Confidence: http://www.conference-board.org/
Step 1: Click on the "Economics" in the left-hand menu bar
Step 2: Click on "Economic Indicators" under "Economics" in the left-hand menu bar
Step 3: Click on link under "Consumer Confidence Index"
Consumer Credithttp://www.federalreserve.gov/
Step 1: Click on "All Statistical Releases" under "Recent Statistical Releases" and then click on "Consumer credit -- G19" under "Household Finance" in the upper right
Step 2: Click on "Current Release"
Step 3: Go to "Amount ... billions of dollars" and subtract previous month from current month & multiply by 12 to obtain seasonally adjusted dollar amount at annual rate
Housing Starts: http://www.census.gov/
Step 1: Click on "Economic Indicators" in the lower right
Step 2: Click on "PDF" on the left under "Current Press Release" under "Housing Starts/Building Permits"
Step 3: Scroll down to "Housing Starts"
Home Sales (Existing-Home Sales): http://www.realtor.org/
Step 1: Click on "Research" in the left-hand menu bar
Step 2: Find "Existing-Home Sales" under "Housing Indicators"
Home Sales (New-Home Sales): http://www.census.gov/
Step 1: Click on "Economic Indicators" in the lower right
Step 2: Click on "PDF" on the left under "Current Press Release" under "New Home Sales"
Retail Sales: http://www.census.gov/
Step 1: Click on "Economic Indicators" in the lower right
Step 2: Scroll down to "Advance Monthly Sales for Retail and Food Services" and click on "HTML" on the left under "Current Press Release"
© 2008 Michael B. Lehmann
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