Wednesday, September 17, 2008

Back in the Real World


Rumors of a government fix for the mortgage crisis fueled today’s stock-market rally. It was a sigh of relief that Washington might finally deal with the root of the matter.

But even if the financial system does not freeze up, a recession continues to unfold.

Today the Conference Board announced ( that its index of leading economic indicators declined again in August. This was the third decline in the last four months. The index, which now measures 100.8 (2004 = 100.0), is 2.7 percent below its year-ago level. Note, moreover, that the index is about where it was in 2004. The economy has stalled.

Earlier in the week the Federal Reserve reported ( a drop in industrial production and capacity utilization. Industry was operating at 81.2 percent of its maximum-rated capacity in August of 2007. Now that figure is down to 78.7 percent for August 2008. Factory output has fallen, and as a result industry is using a smaller share of its capacity. Expect business investment in new pant and equipment to contract as a result.

Also this week the Census Bureau said ( that work began on 895,000 housing units in August, of which 630,000 were single-family and 251,000 were apartments. A year earlier those figures were 1.337 million and 968,000 and 332,000 respectively. Note especially the 30 percent decline in single-family starts.

With respect to the overall data, the chart below reveals that we need return to the 1990-91 recession for figures that are so anemic.

Housing Starts

(Click on chart to enlarge)

(Recessions shaded)

Finally, early in the month the Bureau of Economic Analysis reported 13.7 million motor-vehicle sales for August. Compare that to the 16.2 million of a year earlier and what you see in the chart below. It’s been 15 years since sales dipped consistently below 15 million.

New-vehicle Sales

(Click on chart to enlarge)

(Recessions shaded)

The economy is contracting. Calmer financial markets will not stop that trend.

(The charts were taken from [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of Economic Indicators.)

© 2008 Michael B. Lehmann

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