The Lehmann Letter ®
Today’s San Francisco Chronicle ran an excellent article by Carolyn Said on the housing market’s current state: http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2009/05/26/MNRB17JFHB.DTL .
Its message: Don’t be too optimistic.
There are plenty of conventional reasons to fear weak demand, such as rising unemployment and tight credit. But what about an historical analysis that shows that homes remain overpriced despite their recent drop? Or that recent purchases by bottom-fishers present a distorted image?
The supply side has even greater problems: The end of foreclosure moratoriums, imminent mortgage-interest-rate resets, banks’ inventories of foreclosed homes and the large number of underwater homes.
Read this article to see why the foreclosure crisis continues to grip the housing market. Until that grip weakens, we can’t expect relief at ground zero.
© 2009 Michael B. Lehmann
Tuesday, May 26, 2009
Consumers Confident?
The Lehmann Letter ®
Today the Conference Board announced (http://www.conference-board.org/economics/ConsumerConfidence.cfm ) that consumer confidence jumped in May after making a good gain in April.
Confidence now stands at 54.9. You can see that it was less than 30 earlier in the year.
Consumer Confidence
(Click on chart to enlarge)
Is this the light at the end of the tunnel?
We’ll 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
Today the Conference Board announced (http://www.conference-board.org/economics/ConsumerConfidence.cfm ) that consumer confidence jumped in May after making a good gain in April.
Confidence now stands at 54.9. You can see that it was less than 30 earlier in the year.
Consumer Confidence
(Click on chart to enlarge)
(Recessions shaded)
Is this the light at the end of the tunnel?
We’ll 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, May 19, 2009
Silver Lining?
The Lehmann Letter ®
Today the Census Bureau announced (http://www.census.gov/const/newresconst.pdf ) that April housing starts fell to a post-WWII low of 458,000.
You can see for yourself by posting this figure in the chart below
Housing Starts
(Click on chart to enlarge)
Where’s the silver lining in that number?
It appears when you disaggregate the 458,000 starts into its single-family and apartment-house components.
The single-family component seems to have hit bottom. There were 368,000 single-family starts in April, which was slightly better than any month since the beginning of the year. It doesn’t look like this number will drop below 350,000. That’s good.
But apartment-house construction is another matter. That sank to 78,000 from 135,000 the month before and 310,000 a year ago. It remains to be seen whether that low figure is an anomaly and apartment-house construction snaps back, or whether this activity collapses too.
We’ll 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
Today the Census Bureau announced (http://www.census.gov/const/newresconst.pdf ) that April housing starts fell to a post-WWII low of 458,000.
You can see for yourself by posting this figure in the chart below
Housing Starts
(Click on chart to enlarge)
(Recessions shaded)
Where’s the silver lining in that number?
It appears when you disaggregate the 458,000 starts into its single-family and apartment-house components.
The single-family component seems to have hit bottom. There were 368,000 single-family starts in April, which was slightly better than any month since the beginning of the year. It doesn’t look like this number will drop below 350,000. That’s good.
But apartment-house construction is another matter. That sank to 78,000 from 135,000 the month before and 310,000 a year ago. It remains to be seen whether that low figure is an anomaly and apartment-house construction snaps back, or whether this activity collapses too.
We’ll 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
Monday, May 18, 2009
Still Ground Zero
The Lehmann Letter ©
The stock market jumped this morning and all the indicators remain higher three hours before the market’s close.
But ground zero – the foreclosure crisis – remains ground zero.
Foreclosures continue to mount and about one-third of the nation’s homes are now worth less than the mortgages that financed them. That, combined with unemployment’s continued rise, spells future trouble.
It’s true that buyers are swooping in to snap up troubled properties as previous owners abandon them to foreclosure. But that has not yet been sufficient to stabilize home prices or stop additional foreclosures. Since effective preventive legislation no longer seems likely, it appears that the foreclosure crisis will gradually work its way out. Too bad, because there was an alternative: Mortgages could have been crammed down to affordable levels while the government saved the mortgage-holders harmless. Now that does not appear likely.
Housing is this recession’s root, as this blog’s author said in an article appearing in yesterday’s San Francisco Chronicle:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/05/17/INH117INUT.DTL
Until the housing crisis is resolved, it’s hard to see how the overall crisis will be resolved.
© 2009 Michael B. Lehmann
The stock market jumped this morning and all the indicators remain higher three hours before the market’s close.
But ground zero – the foreclosure crisis – remains ground zero.
Foreclosures continue to mount and about one-third of the nation’s homes are now worth less than the mortgages that financed them. That, combined with unemployment’s continued rise, spells future trouble.
It’s true that buyers are swooping in to snap up troubled properties as previous owners abandon them to foreclosure. But that has not yet been sufficient to stabilize home prices or stop additional foreclosures. Since effective preventive legislation no longer seems likely, it appears that the foreclosure crisis will gradually work its way out. Too bad, because there was an alternative: Mortgages could have been crammed down to affordable levels while the government saved the mortgage-holders harmless. Now that does not appear likely.
Housing is this recession’s root, as this blog’s author said in an article appearing in yesterday’s San Francisco Chronicle:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/05/17/INH117INUT.DTL
Until the housing crisis is resolved, it’s hard to see how the overall crisis will be resolved.
© 2009 Michael B. Lehmann
Thursday, May 14, 2009
Inventory Bright Spot
The Lehmann Letter ©
Yesterday the Census Bureau released March data for business sales, inventories and the inventory/sales ratio: http://www.census.gov/mtis/www/mtis_current.html
You can see that the inventory/sales ratio has stabilized at about 1.45 after rising from around 1.25.
(Click on chart to enlarge.)
Both sales and inventories continue to fall, but at last business has been able to reduce inventories more than sales. That has stopped the ratio’s rise.
Business doesn’t want a higher-than-necessary ratio of inventories to sales because business doesn’t want to tie-up cash in goods on the shelf. Business would rather run lean and put its cash to better use.
The rising ratio indicated that sales were falling so rapidly that business inadvertently wound up with more goods than required. A stable and falling ratio is a sign that business has brought its inventories under control.
That had to occur for business to stop cutting production. Why produce more if inventories are currently excessive?
The stabilizing inventory/sales ratio may be an omen that production will soon stop falling.
© 2009 Michael B. Lehmann
Yesterday the Census Bureau released March data for business sales, inventories and the inventory/sales ratio: http://www.census.gov/mtis/www/mtis_current.html
You can see that the inventory/sales ratio has stabilized at about 1.45 after rising from around 1.25.
(Click on chart to enlarge.)
Both sales and inventories continue to fall, but at last business has been able to reduce inventories more than sales. That has stopped the ratio’s rise.
Business doesn’t want a higher-than-necessary ratio of inventories to sales because business doesn’t want to tie-up cash in goods on the shelf. Business would rather run lean and put its cash to better use.
The rising ratio indicated that sales were falling so rapidly that business inadvertently wound up with more goods than required. A stable and falling ratio is a sign that business has brought its inventories under control.
That had to occur for business to stop cutting production. Why produce more if inventories are currently excessive?
The stabilizing inventory/sales ratio may be an omen that production will soon stop falling.
© 2009 Michael B. Lehmann
Friday, May 8, 2009
Are Things Looking Up?
The Lehmann Letter ©
Today the Bureau of Labor Statistics reported that private payroll employment fell by 539,000 in April. That’s better than the 600,000+ losses of the past several months but, as you can see from the following chart, job losses remain severe when compared with earlier recessions.
Job Growth
(Click on chart to enlarge)
(Recessions shaded)
Yesterday the Federal Reserve announced that consumer credit fell at a $133.2 billion annual rate in March. That maintains the negative streak evident in the chart below. Households are repaying their debts, which provides evidence of the drop in spending.
Consumer Credit
(Click on chart to enlarge)
(Recessions shaded)
On Monday the Commerce Department releaseded the April new-vehicle sales rate of 9.3 million. Sales have been below 10 million since the turn of the New Year. The next chart indicates the severe nature of this slump.
New-Vehicle Sales
(Click on chart to enlarge)
(Recessions shaded)
Last Friday the Institute for Supply Management reporteded that its manufacturing Purchasing Managers’ Index rose to 40.1 in April. Any reading below 50 indicates contraction, and the index has been below 50 for a year. In December the index fell to a low of 32.9 and has been rising ever since, indicating that manufacturing is contacting at a slower rate. The chart reveals the severity of the current situation.
Purchasing Managers’ Index
(Click on chart to enlarge)
(Recessions shaded)
Bottom Line: Were in the trough of a bad recession. It may not be getting worse, but it’s not getting better in a hurry. Demand and production remain weak and layoffs continue.
(The charts were 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
Today the Bureau of Labor Statistics reported that private payroll employment fell by 539,000 in April. That’s better than the 600,000+ losses of the past several months but, as you can see from the following chart, job losses remain severe when compared with earlier recessions.
Job Growth
(Click on chart to enlarge)
(Recessions shaded)
Yesterday the Federal Reserve announced that consumer credit fell at a $133.2 billion annual rate in March. That maintains the negative streak evident in the chart below. Households are repaying their debts, which provides evidence of the drop in spending.
Consumer Credit
(Click on chart to enlarge)
(Recessions shaded)
On Monday the Commerce Department releaseded the April new-vehicle sales rate of 9.3 million. Sales have been below 10 million since the turn of the New Year. The next chart indicates the severe nature of this slump.
New-Vehicle Sales
(Click on chart to enlarge)
(Recessions shaded)
Last Friday the Institute for Supply Management reporteded that its manufacturing Purchasing Managers’ Index rose to 40.1 in April. Any reading below 50 indicates contraction, and the index has been below 50 for a year. In December the index fell to a low of 32.9 and has been rising ever since, indicating that manufacturing is contacting at a slower rate. The chart reveals the severity of the current situation.
Purchasing Managers’ Index
(Click on chart to enlarge)
(Recessions shaded)
Bottom Line: Were in the trough of a bad recession. It may not be getting worse, but it’s not getting better in a hurry. Demand and production remain weak and layoffs continue.
(The charts were 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
Thursday, May 7, 2009
Muddling Through
The Lehmann Letter ©
Today the government released the results of its stress test of the nations’ banks. The Findings: Some banks will require more capital if the economy deteriorates more than forecast. Others will not.
But the most important and apparently overlooked point is that the nations’ major banks have survived the crisis. The bailout worked.
Moreover, the banks’ enhanced capital requirement is a safety cushion. The banks will take on more capital even if worst does not come to worst. They’ll be safe either way.
That’s a much rosier set of circumstances than that perceived six months ago. Last fall there was talk of systemic collapse. You don’t hear that today.
So we’ve muddled through.
But what about the Japanese precedent? Their banks muddled through the 1990s with impaired balance sheets, unable to do the lending expected of them. They, too, wrestled with difficulties brought on by asset deflation.
Will our banks also under-perform in the coming decade because of the lingering consequences of our asset deflation?
We’ll see.
© 2009 Michael B. Lehmann
Today the government released the results of its stress test of the nations’ banks. The Findings: Some banks will require more capital if the economy deteriorates more than forecast. Others will not.
But the most important and apparently overlooked point is that the nations’ major banks have survived the crisis. The bailout worked.
Moreover, the banks’ enhanced capital requirement is a safety cushion. The banks will take on more capital even if worst does not come to worst. They’ll be safe either way.
That’s a much rosier set of circumstances than that perceived six months ago. Last fall there was talk of systemic collapse. You don’t hear that today.
So we’ve muddled through.
But what about the Japanese precedent? Their banks muddled through the 1990s with impaired balance sheets, unable to do the lending expected of them. They, too, wrestled with difficulties brought on by asset deflation.
Will our banks also under-perform in the coming decade because of the lingering consequences of our asset deflation?
We’ll see.
© 2009 Michael B. Lehmann
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