The Lehmann Letter ©
Here’s the publication schedule for some of May 2009’s most important economic indicators.
PUBLICATION SCHEDULE
May 2009
Source (* below)…………Series Description…………Day & Date
Quarterly Data
BLS……………………Productivity………………………..Thu, 7th
BEA…………………………GDP……………………...……Fri, 29th
Monthly Data
ISM………………….Purchasing managers’ index……….Fri, 1st
Fed……………………..Consumer credit….(Approximate).Thu, 7th
BLS………………………….Employment………………… Fri, 8th
Census……………………...Balance of trade………………Tue, 12th
Census……………………...Retail trade…………………….Wed, 13th
Census……………………...Inventories……………………..Wed, 13th
BLS………………………….Producer prices……………….Thu, 14th
Fed…………………………..Industrial production………….Fri, 15th
Fed………………………….Capacity utilization…………….Fri, 15th
BLS………………………….Consumer prices……………...Fri, 15th
Census……………………..Housing starts………………….Tue, 19th
Conf Bd…………………….Leading indicators…………….Thu, 21st
Conf Bd…………………….Consumer confidence…………Tue, 26th
NAR…………………………Existing-home sales…….…….Wed, 27th
Census……………………..New-home sales……………….Thu, 28th
Census…………………….Capital goods……………….…..Thu, 28th
BEA..........….Personal Income & Consumption……….Mon, June 1
* BEA = Bureau of Economic Analysis of the U.S. Department of Commerce
* BLS = Bureau of Labor Statistics of the U.S. Department of Labor
* 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
© 2009 Michael B. Lehmann
Thursday, April 30, 2009
No Cramdowns
The Lehmann Letter ©
Today, by a 45 – 51 vote, the U.S. Senate refused to enact legislation permitting bankruptcy judges to reduce mortgage debtors’ outstanding loan balances. This is a defeat for President Obama, who had counted on judicial authority to motivate mortgage lenders to modify mortgage contracts. The thinking: If judges have the authority to cram down loan balances, lenders are more likely to modify mortgages in the borrower’s favor. Outcome: Fewer foreclosures and a quicker end to the mortgage crisis.
Naturally the banking industry lobbied hard against the legislation. The banks, no doubt, viewed it as confiscatory. But would the banking industry have been more amenable if the Obama Administration had offered to save the banks harmless in the event of judicially-mandated cramdowns? For instance: Suppose the federal government had agreed to compensate the banks for any losses suffered in the course of a bankruptcy proceedings. Perhaps the banks would have been more amenable.
More important, would that have swayed the handful of additional senators required to enact the legislation?
© 2009 Michael B. Lehmann
Today, by a 45 – 51 vote, the U.S. Senate refused to enact legislation permitting bankruptcy judges to reduce mortgage debtors’ outstanding loan balances. This is a defeat for President Obama, who had counted on judicial authority to motivate mortgage lenders to modify mortgage contracts. The thinking: If judges have the authority to cram down loan balances, lenders are more likely to modify mortgages in the borrower’s favor. Outcome: Fewer foreclosures and a quicker end to the mortgage crisis.
Naturally the banking industry lobbied hard against the legislation. The banks, no doubt, viewed it as confiscatory. But would the banking industry have been more amenable if the Obama Administration had offered to save the banks harmless in the event of judicially-mandated cramdowns? For instance: Suppose the federal government had agreed to compensate the banks for any losses suffered in the course of a bankruptcy proceedings. Perhaps the banks would have been more amenable.
More important, would that have swayed the handful of additional senators required to enact the legislation?
© 2009 Michael B. Lehmann
Thursday, April 23, 2009
Rebound Vs. Trough
The Lehmann Letter ©
Rebound Vs. Trough
Today the National Association of Realtors announced that March existing-home sales fell slightly to 4.57 million: http://www.realtor.org/rmodaily.nsf/pages/News2009042301 .
The big picture helps interpret this number, and the chart below serves as illustration.
Existing-Home Sales
(Click on chart to enlarge)
(Recessions shaded)
It appears that home sales have plateaued at slightly under 5 million, where they’ve fluctuated over the past several months. Homes sales may not fall further, but there is no evidence (yet) of rebound.
The same is true for other recently-released economic data. Descent may have ceased, but that is not to say that ascent has begun.
At this stage the recovery looks more like an “L” than a “V.”
Stay tuned.
(The chart was 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.)
© 2009 Michael B. Lehmann
Rebound Vs. Trough
Today the National Association of Realtors announced that March existing-home sales fell slightly to 4.57 million: http://www.realtor.org/rmodaily.nsf/pages/News2009042301 .
The big picture helps interpret this number, and the chart below serves as illustration.
Existing-Home Sales
(Click on chart to enlarge)
(Recessions shaded)
It appears that home sales have plateaued at slightly under 5 million, where they’ve fluctuated over the past several months. Homes sales may not fall further, but there is no evidence (yet) of rebound.
The same is true for other recently-released economic data. Descent may have ceased, but that is not to say that ascent has begun.
At this stage the recovery looks more like an “L” than a “V.”
Stay tuned.
(The chart was 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.)
© 2009 Michael B. Lehmann
Tuesday, April 21, 2009
What Good Is Economics?
The Lehmann Letter ©
The April 27 issue of BusinessWeek carries a story with the provocative title, What Good Are Economists Anyway? http://www.businessweek.com/magazine/content/09_17/b4128026997269.htm?chan=top+news_top+news+index+-+temp_dialogue+with+readers
It’s written in BusinessWeek’s folksy style and, perhaps, should have had the title: What Good Is Economics Anyway? But there it is, nonetheless, a devastating critique of the profession’s inability to deal with current events. Worse yet, it is also a devastating critique of the profession’s inability to put current events in a meaningful historical context. Because of that economists don’t even have the right tools to make their analysis, let alone the ability to conduct the analysis.
It’s as if you asked a fundamentalist preacher to explain natural selection. Or asked an Aristotelian astronomer, who believed the earth was at the center of the universe, to explain our heliocentric solar system. He couldn’t do it. Not because he was not smart enough, but because he had been trained to see things in a way that precluded him from arriving at the answer.
Economics is a static, timeless analysis, not a historical analysis. Economics tries to emulate physics in an attempt to achieve theoretical rigor. Unfortunately, economic events unfold over historical time, altering institutional parameters and thereby confounding simplistic analysis. That’s why consumer sentiment often provides a more accurate forecast than professional economists.
© 2009 Michael B. Lehmann
The April 27 issue of BusinessWeek carries a story with the provocative title, What Good Are Economists Anyway? http://www.businessweek.com/magazine/content/09_17/b4128026997269.htm?chan=top+news_top+news+index+-+temp_dialogue+with+readers
It’s written in BusinessWeek’s folksy style and, perhaps, should have had the title: What Good Is Economics Anyway? But there it is, nonetheless, a devastating critique of the profession’s inability to deal with current events. Worse yet, it is also a devastating critique of the profession’s inability to put current events in a meaningful historical context. Because of that economists don’t even have the right tools to make their analysis, let alone the ability to conduct the analysis.
It’s as if you asked a fundamentalist preacher to explain natural selection. Or asked an Aristotelian astronomer, who believed the earth was at the center of the universe, to explain our heliocentric solar system. He couldn’t do it. Not because he was not smart enough, but because he had been trained to see things in a way that precluded him from arriving at the answer.
Economics is a static, timeless analysis, not a historical analysis. Economics tries to emulate physics in an attempt to achieve theoretical rigor. Unfortunately, economic events unfold over historical time, altering institutional parameters and thereby confounding simplistic analysis. That’s why consumer sentiment often provides a more accurate forecast than professional economists.
© 2009 Michael B. Lehmann
Thursday, April 16, 2009
Housing Starts
The Lehmann Letter ®
The Census Bureau published March housing starts figures today: http://www.census.gov/const/newresconst.pdf .
The data were worse than February and a little better than January.
Here’s what’s happening: Single-family starts are stuck at about 350,000 and apartment-house construction wobbles at around 150,000, adding up to a miserable half-million total.
Look at the chart and you’ll see that’s lower than any other post-WWII recession.
Can housing escape this rut?
Housing Starts
(Click on chart to enlarge)
(The chart was 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.)
© 2009 Michael B. Lehmann
The Census Bureau published March housing starts figures today: http://www.census.gov/const/newresconst.pdf .
The data were worse than February and a little better than January.
Here’s what’s happening: Single-family starts are stuck at about 350,000 and apartment-house construction wobbles at around 150,000, adding up to a miserable half-million total.
Look at the chart and you’ll see that’s lower than any other post-WWII recession.
Can housing escape this rut?
Housing Starts
(Click on chart to enlarge)
(Recessions shaded)
It’s hard to see how until the foreclosure-crisis abates. As long as foreclosures continue to overwhelm the industry, prices will continue to drop. That undermines builders and buyers. It’s difficult to build new homes and entice buyers to purchase them as long as the prices of existing home continue to fall and the market remains glutted with vacant homes.
Today the Obama administration launched its mortgage-rescue plan, designed to prevent foreclosure and keep owners in their homes. Is it is as good as we can realistically expect under the prevailing political circumstances? Yes. Is it sufficient to “stop” the foreclosures? We’ll see.
It’s hard to see how until the foreclosure-crisis abates. As long as foreclosures continue to overwhelm the industry, prices will continue to drop. That undermines builders and buyers. It’s difficult to build new homes and entice buyers to purchase them as long as the prices of existing home continue to fall and the market remains glutted with vacant homes.
Today the Obama administration launched its mortgage-rescue plan, designed to prevent foreclosure and keep owners in their homes. Is it is as good as we can realistically expect under the prevailing political circumstances? Yes. Is it sufficient to “stop” the foreclosures? We’ll see.
(The chart was 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.)
© 2009 Michael B. Lehmann
Wednesday, April 15, 2009
The Foreclosure Crisis
The Lehmann Letter ©
Today’s Wall Street Journal carried a grim story by Ruth Simon: http://online.wsj.com/article/SB123975395670518941.html#mod=todays_us_page_one .
“Banks Ramp Up Foreclosures
“Some of the nation's largest mortgage companies are stepping up foreclosures on delinquent homeowners. That will likely lead to more Americans losing their homes just as the Obama administration's housing-rescue plan gets into gear…..
“Some mortgage companies had stopped foreclosing on borrowers as they waited for details of the Obama administration's housing-rescue plan, announced in February, which provides incentives for mortgage companies and investors to reduce borrowers' payments to affordable levels. Others had temporarily halted foreclosures while they put their own programs in place, or in response to changes in state laws.
“Now, they have begun to determine which troubled borrowers are candidates for help, and to move the rest through the foreclosure process.
“The resulting increase in the supply of foreclosed homes could further depress home prices and put additional pressure on bank earnings as troubled loans are written off.
“Some of the mortgage companies are themselves receiving funds under the government's financial-sector bailout, which could make their actions politically sensitive. But mortgage companies say they are taking steps to keep borrowers in their homes, and are only resorting to foreclosure when there are no other options……….”
The article goes on to provide additional detail and comment.
It’s all very sad on a number of levels.
First and foremost, millions of families and their lives are being uprooted and disrupted. It’s true that some were gullible and others were culpable. But it’s also true that the mortgage originators share the blame.
Secondly, the entire economy suffers because the residential-real-estate collapse is at the heart of the economic crisis. The bubble burst in 2006, initiating an asset deflation and recession that continue to engulf us and will continue to do so for some time.
Some say that the residential-real-estate market must touch bottom before it and the economy can recover. True enough. But wouldn’t it be better for the banks to continue to work with the federal government to keep the largest possible number of homeowners in their homes? Even if the government can’t save the banks completely harmless when they re-write stressed mortgages, the re-write may still be superior to foreclosure. If it’s not, why don’t the banks urge amended legislation that they could live with: Legislation that could stop the foreclosures and protect the banks. That way the residential real-estate market could touch bottom at a higher level, and spare everyone from a deeper than necessary recession.
© 2009 Michael B. Lehmann
Today’s Wall Street Journal carried a grim story by Ruth Simon: http://online.wsj.com/article/SB123975395670518941.html#mod=todays_us_page_one .
“Banks Ramp Up Foreclosures
“Some of the nation's largest mortgage companies are stepping up foreclosures on delinquent homeowners. That will likely lead to more Americans losing their homes just as the Obama administration's housing-rescue plan gets into gear…..
“Some mortgage companies had stopped foreclosing on borrowers as they waited for details of the Obama administration's housing-rescue plan, announced in February, which provides incentives for mortgage companies and investors to reduce borrowers' payments to affordable levels. Others had temporarily halted foreclosures while they put their own programs in place, or in response to changes in state laws.
“Now, they have begun to determine which troubled borrowers are candidates for help, and to move the rest through the foreclosure process.
“The resulting increase in the supply of foreclosed homes could further depress home prices and put additional pressure on bank earnings as troubled loans are written off.
“Some of the mortgage companies are themselves receiving funds under the government's financial-sector bailout, which could make their actions politically sensitive. But mortgage companies say they are taking steps to keep borrowers in their homes, and are only resorting to foreclosure when there are no other options……….”
The article goes on to provide additional detail and comment.
It’s all very sad on a number of levels.
First and foremost, millions of families and their lives are being uprooted and disrupted. It’s true that some were gullible and others were culpable. But it’s also true that the mortgage originators share the blame.
Secondly, the entire economy suffers because the residential-real-estate collapse is at the heart of the economic crisis. The bubble burst in 2006, initiating an asset deflation and recession that continue to engulf us and will continue to do so for some time.
Some say that the residential-real-estate market must touch bottom before it and the economy can recover. True enough. But wouldn’t it be better for the banks to continue to work with the federal government to keep the largest possible number of homeowners in their homes? Even if the government can’t save the banks completely harmless when they re-write stressed mortgages, the re-write may still be superior to foreclosure. If it’s not, why don’t the banks urge amended legislation that they could live with: Legislation that could stop the foreclosures and protect the banks. That way the residential real-estate market could touch bottom at a higher level, and spare everyone from a deeper than necessary recession.
© 2009 Michael B. Lehmann
Tuesday, April 14, 2009
Will The Ball Bounce?
The Lehmann Letter ©
Today President Obama, Fed Chairman Bernanke and Christina Romer, Chair of the President’s Council of Economic Advisors, all expressed hope that the economy may be bottoming out.
A few days ago Laurence Summers, Chair of the President’s National Economic Council, said that the economy no longer looked like a ball that had rolled off the edge of the table.
The Big Question: Will the ball land with a thud, like a baseball, or bounce like a tennis ball?
There has been some good news and the stock market has perked up, but a number of important questions remain. Here are two.
First: Has residential real estate hit bottom and when, and how swiftly, will it recover? Residential real estate led us into the trough and we won’t emerge from the trough until real estate snaps back. How will we know? When the foreclosures stop, home prices begin to rise nationwide and construction and new-home sales perk up. There are signs of life in some markets associated with purchases of foreclosed properties, but that’s not enough.
Second: Have households’ balance sheets mended sufficiently for households to resume robust borrowing and spending? Households’ balance sheets suffered when home and stock-market values plunged and indebtedness did not. The result: Net worth fell and liquidity dried up. Households won’t return to their spending ways until their balance sheets are repaired. And that will take time.
The ball may have stopped falling, but don’t expect a bounce.
© 2009 Michael B. Lehmann
Today President Obama, Fed Chairman Bernanke and Christina Romer, Chair of the President’s Council of Economic Advisors, all expressed hope that the economy may be bottoming out.
A few days ago Laurence Summers, Chair of the President’s National Economic Council, said that the economy no longer looked like a ball that had rolled off the edge of the table.
The Big Question: Will the ball land with a thud, like a baseball, or bounce like a tennis ball?
There has been some good news and the stock market has perked up, but a number of important questions remain. Here are two.
First: Has residential real estate hit bottom and when, and how swiftly, will it recover? Residential real estate led us into the trough and we won’t emerge from the trough until real estate snaps back. How will we know? When the foreclosures stop, home prices begin to rise nationwide and construction and new-home sales perk up. There are signs of life in some markets associated with purchases of foreclosed properties, but that’s not enough.
Second: Have households’ balance sheets mended sufficiently for households to resume robust borrowing and spending? Households’ balance sheets suffered when home and stock-market values plunged and indebtedness did not. The result: Net worth fell and liquidity dried up. Households won’t return to their spending ways until their balance sheets are repaired. And that will take time.
The ball may have stopped falling, but don’t expect a bounce.
© 2009 Michael B. Lehmann
Thursday, April 9, 2009
Consumer Credit & The Fed’s Forecast
The Lehmann Letter ©
The Federal Reserve released two sobering items this week.
On April 7 the Fed reported (http://www.federalreserve.gov/releases/g19/Current/) that consumer credit fell at an $88.8 billion annual rate in February. Household’s consumer debt has barely budged since mid 2008.
The chart shows that consumer credit had been growing at about $100 billion annually for the past 15 years. Now, you can see, it’s dipped sharply downward. Households are repaying their debts rather than initiating new borrowing.
When consumers feel good, they borrow and spend. When they don’t, they don’t. And that’s bad for the economy. We need all the borrowing and spending we can get right now.
Consumer Credit
(Click on chart to enlarge)
“In the forecast prepared for the meeting, the staff revised down its outlook for economic activity. The deterioration in labor market conditions was rapid in recent months, with steep job losses across nearly all sectors. Industrial production continued to contract rapidly as firms responded to the falloff in demand and the buildup of some inventory overhangs. The incoming data on business spending suggested that business investment in equipment and structures continued to decline. Single-family housing starts had fallen to a post-World War II low in January, and demand for new homes remained weak. Both exports and imports retreated significantly in the fourth quarter of last year and appeared headed for comparable declines this quarter. Consumer outlays showed some signs of stabilizing at a low level, with real outlays for goods outside of motor vehicles recording gains in January and February. Financial conditions overall were even less supportive of economic activity, with broad equity indexes down significantly amid continued concerns about the health of the financial sector, the dollar stronger, and long-term interest rates higher. The staff's projections for real GDP in the second half of 2009 and in 2010 were revised down, with real GDP expected to flatten out gradually over the second half of this year and then to expand slowly next year as the stresses in financial markets ease, the effects of fiscal stimulus take hold, inventory adjustments are worked through, and the correction in housing activity comes to an end. The weaker trajectory of real output resulted in the projected path of the unemployment rate rising more steeply into early next year before flattening out at a high level over the rest of the year. The staff forecast for overall and core personal consumption expenditures (PCE) inflation over the next two years was revised down slightly. Both core and overall PCE price inflation were expected to be damped by low rates of resource utilization, falling import prices, and easing cost pressures as a result of the sharp net declines in oil and other raw materials prices since last summer.”
The consumer-credit numbers fit right in with this weak prognosis.
(The chart was 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.)
© 2009 Michael B. Lehmann
The Federal Reserve released two sobering items this week.
On April 7 the Fed reported (http://www.federalreserve.gov/releases/g19/Current/) that consumer credit fell at an $88.8 billion annual rate in February. Household’s consumer debt has barely budged since mid 2008.
The chart shows that consumer credit had been growing at about $100 billion annually for the past 15 years. Now, you can see, it’s dipped sharply downward. Households are repaying their debts rather than initiating new borrowing.
When consumers feel good, they borrow and spend. When they don’t, they don’t. And that’s bad for the economy. We need all the borrowing and spending we can get right now.
Consumer Credit
(Click on chart to enlarge)
(Recessions shaded)
On April 8 the Fed released its minutes from the March 17 and 18 meeting of its Open Market Committee (http://www.federalreserve.gov/monetarypolicy/fomcminutes20090318.htm ).
The Fed’s staff economic outlook said (emphasis added):
On April 8 the Fed released its minutes from the March 17 and 18 meeting of its Open Market Committee (http://www.federalreserve.gov/monetarypolicy/fomcminutes20090318.htm ).
The Fed’s staff economic outlook said (emphasis added):
“In the forecast prepared for the meeting, the staff revised down its outlook for economic activity. The deterioration in labor market conditions was rapid in recent months, with steep job losses across nearly all sectors. Industrial production continued to contract rapidly as firms responded to the falloff in demand and the buildup of some inventory overhangs. The incoming data on business spending suggested that business investment in equipment and structures continued to decline. Single-family housing starts had fallen to a post-World War II low in January, and demand for new homes remained weak. Both exports and imports retreated significantly in the fourth quarter of last year and appeared headed for comparable declines this quarter. Consumer outlays showed some signs of stabilizing at a low level, with real outlays for goods outside of motor vehicles recording gains in January and February. Financial conditions overall were even less supportive of economic activity, with broad equity indexes down significantly amid continued concerns about the health of the financial sector, the dollar stronger, and long-term interest rates higher. The staff's projections for real GDP in the second half of 2009 and in 2010 were revised down, with real GDP expected to flatten out gradually over the second half of this year and then to expand slowly next year as the stresses in financial markets ease, the effects of fiscal stimulus take hold, inventory adjustments are worked through, and the correction in housing activity comes to an end. The weaker trajectory of real output resulted in the projected path of the unemployment rate rising more steeply into early next year before flattening out at a high level over the rest of the year. The staff forecast for overall and core personal consumption expenditures (PCE) inflation over the next two years was revised down slightly. Both core and overall PCE price inflation were expected to be damped by low rates of resource utilization, falling import prices, and easing cost pressures as a result of the sharp net declines in oil and other raw materials prices since last summer.”
The consumer-credit numbers fit right in with this weak prognosis.
(The chart was 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.)
© 2009 Michael B. Lehmann
Saturday, April 4, 2009
Have We Hit Bottom?
The Lehmann Letter ©
The March employment numbers were terrible: 663,000 jobs lost and the unemployment rate up to 8.5%. In addition, the workweek and overtime continue to contract. We will be very fortunate if the unemployment rate remains below 10%.
But other economic indicators tantalized us this week. For instance:
The Purchasing Managers’ Index rose to 36.3 in March from 35.8 in February, and both those numbers were better than December’s 32.9. Yet we should keep in mind that any number below 50 signals contraction. So the slight improvement indicates that manufacturing is shrinking at a steady pace rather than an accelerating pace.
New-vehicle sales improved to 9.8 million in March from 9.1 million in February. Keep in mind, however, that both those numbers are lower than anything we’ve seen for the last 25 years.
Earlier editions of the Lehmann Letter reported that housing starts and homes sales as well as new orders for nondefense capital goods had shown slight improvement, although they too were well below their earlier highs.
Does all this mean we’ve hit bottom? Maybe. But even if we have, there’s a long way to go before we are out of the ditch.
© 2009 Michael B. Lehmann
The March employment numbers were terrible: 663,000 jobs lost and the unemployment rate up to 8.5%. In addition, the workweek and overtime continue to contract. We will be very fortunate if the unemployment rate remains below 10%.
But other economic indicators tantalized us this week. For instance:
The Purchasing Managers’ Index rose to 36.3 in March from 35.8 in February, and both those numbers were better than December’s 32.9. Yet we should keep in mind that any number below 50 signals contraction. So the slight improvement indicates that manufacturing is shrinking at a steady pace rather than an accelerating pace.
New-vehicle sales improved to 9.8 million in March from 9.1 million in February. Keep in mind, however, that both those numbers are lower than anything we’ve seen for the last 25 years.
Earlier editions of the Lehmann Letter reported that housing starts and homes sales as well as new orders for nondefense capital goods had shown slight improvement, although they too were well below their earlier highs.
Does all this mean we’ve hit bottom? Maybe. But even if we have, there’s a long way to go before we are out of the ditch.
© 2009 Michael B. Lehmann
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