The Lehmann Letter (SM)
Here’s the publication schedule for some of June 2010’s most important economic indicators, together with some thoughts to accompany the data.
Go to http://www.beyourowneconomist.com/ and click on Seminars, then click on Economic Indicators to navigate the sites that provide the data and click on Charts for a visual presentation that you can update.
• Everyone knows that housing led us into the recent recession. But what will lead us out? Home sales and construction have only just begun to recover. Recent reports of large jumps in activity failed to disclose that we remain far below pre--recession levels. The same is true for new-vehicle sales.
• Neither has consumer confidence recovered pre-recession levels. Nor are households making robust use of consumer credit. Households won't begin to spend heavily until they are willing to borrow heavily.
• Here are the key consumer-demand indicators we'll examine and the June days and dates on which we can expect them to appear. They will give us up-to-the-minute information on demand's recovery.
• Stay tuned to future editions of this letter as the story unfolds.
Source (* below)…Series Description…Day & Date
BEA…New-vehicle sales…(Approximate).Fri, 4th
Fed…Consumer credit…(Approximate).Mon, 7th
Census…Retail trade……………………Fri, 11th
Census…Housing starts…………………Wed, 16th
NAR…Existing-home sales…………Tue, 22nd
Census…New-home sales………………Wed, 23rd
Conf Bd…Consumer confidence……… Tue, 29th
* 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
* NAR = National Association of Realtors
• Now for a logical question: If demand is so weak, why are corporate-earnings so strong? Because productivity (output per hour of work) jumped as employers reduced their workforces by more than they curtailed output. The remaining workers had to produce more per hour, boosting profit margins. That's why the stock market did well for so long despite the weak economy.
• We will also check on manufacturing activity and inventories as well as overall employment and capital expenditures to understand how strongly supply is responding to demand. The following indicators are key.
Source (* below)……Series Description………Day & Date
Quarterly Data
BLS……………………….Productivity………………Thu, 3rd
BEA…………………………GDP………………………Fri, 25th
Monthly Data
ISM……Purchasing managers’ index………Tue, 1st
BLS……………Employment………………Fri, 4th
Census………Inventories…………………Fri, 11th
Fed…………………Industrial production………….Wed, 16th
Fed………………Capacity utilization…………….Wed, 16th
BLS………………Producer prices………………Wed, 16th
BLS……………Consumer prices……………Thu, 17th
Conf Bd………Leading indicators…………Thu, 17th
Census………Capital goods………………Thu, 24th
* 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
• Finally, can we rely on international trade to help pull us out of the ditch? Probably not. It hasn't helped in the past, so we shouldn't count on it now.
• We'll fully explore the reasons as we examine the following.
Source (* below)……Series Description………Day & Date
Quarterly Data
Census………….US international transactions……Thu, 17th
Monthly Data
Census……………………Balance of trade……………Thu, 10th
* Census = U.S. Bureau of the Census
Here is a complete calendar of the June indicators mentioned above.
June 2010
PUBLICATION SCHEDULE
Source (* below)……Series Description………Day & Date
Quarterly Data
BLS………………………Productivity……………………Thu, 3rd
Census……US international transactions……Thu, 17th
BEA…………………………GDP……………………Fri, 25th
Monthly Data
ISM……………Purchasing managers’ index……….Tue, 1st
BEA…New-vehicle sales………(Approximate).Fri, 4th
BLS……………….Employment………………… Fri, 4th
Fed………Consumer credit…(Approximate).Mon, 7th
Census………Balance of trade……………… Thu, 10th
Census………Retail trade…………………….Fri, 11th
Census……Inventories…………………….. Fri, 11th
Fed…………Industrial production………….Wed, 16th
Fed…………Capacity utilization…………….Wed, 16th
Census………Housing starts………………….Wed, 16th
BLS…Producer prices………………. Wed, 16th
BLS..Consumer prices……………... Thu, 17th
Conf Bd……Leading indicators…………Thu, 17th
NAR…………Existing-home sales……….Tue, 22nd
Census……..New-home sales……………….Wed, 23rd
Census…….Capital goods……………. Thu, 24th
Conf Bd…Consumer confidence…… Tue, 29th
* 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
© 2010 Michael B. Lehmann
Monday, May 31, 2010
Friday, May 21, 2010
No Meltdown
The Lehmann Letter (SM)
The stock market rose sharply today, providing hope that we will avoid a repeat of 2008's financial meltdown. No meltdown: No recession. Let's hope that we are putting fear to rest.
Here's how the fear works. Greece defaults on its bonds. Western European banks have Greek bonds in their portfolios. Greece's default casts suspicion upon Portuguese, Irish, Italian and Spanish bonds. A flight from sovereign (the government) debt ensues and Portuguese, Irish, Italian and Spanish bonds’ values collapse. This leads to a general collapse in the value of government bonds around the globe.
Some bonds suffer sharp drops in prices. Other bonds escape with only a small decline in value. One way or the other, as bond prices plunge interest rates rise. The sharp rise in interest rates together with the suspicion cast on all banks that hold government debt (i.e. all banks) drastically shrinks lending. Some businesses can't borrow at the higher rates, while other banks stop lending to conserve their capital. Recession ensues.
If investors are convinced, as they should be, that Europe will avoid what happened to the United States in 2008. Stay tuned.
© 2010 Michael B. Lehmann
The stock market rose sharply today, providing hope that we will avoid a repeat of 2008's financial meltdown. No meltdown: No recession. Let's hope that we are putting fear to rest.
Here's how the fear works. Greece defaults on its bonds. Western European banks have Greek bonds in their portfolios. Greece's default casts suspicion upon Portuguese, Irish, Italian and Spanish bonds. A flight from sovereign (the government) debt ensues and Portuguese, Irish, Italian and Spanish bonds’ values collapse. This leads to a general collapse in the value of government bonds around the globe.
Some bonds suffer sharp drops in prices. Other bonds escape with only a small decline in value. One way or the other, as bond prices plunge interest rates rise. The sharp rise in interest rates together with the suspicion cast on all banks that hold government debt (i.e. all banks) drastically shrinks lending. Some businesses can't borrow at the higher rates, while other banks stop lending to conserve their capital. Recession ensues.
If investors are convinced, as they should be, that Europe will avoid what happened to the United States in 2008. Stay tuned.
© 2010 Michael B. Lehmann
Monday, May 17, 2010
Mid-Month Review
The Lehmann Letter (SM)
Three leading indicators illustrate the difficulty of this recovery.
If you go to the Bureau of Economic Analysis website at http://www.bea.gov/national/index.htm#gdp and scroll down to "Underlying Detail Tables" and then look at "Motor vehicles," you will find an Excel table. Click on tab number six to see new-vehicle sales.
You will notice that new-vehicle sales have been fluctuating in a narrow range around 11 million at a seasonally-adjusted rate for the first four months of this year. Now take a look at the chart below to put these numbers in historical perspective.
New-Vehicle Sales
(Click on chart to enlarge.)
Recessions shaded
The collapse is over, but true recovery has not yet begun. We need to move up to and past 15 million vehicles before we can say the auto industry has recovered.
Now take a look at the Federal Reserve's latest figures on capacity utilization:
http://www.federalreserve.gov/releases/g17/Current/default.htm
Then compare them to the table below.
Capacity Utilization
(Click on chart to enlarge.)
Recessions shaded
Once again the trend is positive. Capacity utilization had fallen below 70% and is now up to 73.7%. But we used to call 75% a recession figure. Industry won't reach normal operating levels until capacity utilization rises back to 80%.
Our last set of data is the least encouraging:
http://www.federalreserve.gov/releases/g19/current/g19.htm
The Federal Reserve reports that consumer credit continues to shrink at a substantial rate. Before the 2008-2009 recession we had become accustomed to households borrowing for the purchase of automobiles and other durable goods around $100 billion per month at a seasonally adjusted annual rate. The chart below and the recent data tell us that consumer credit is now contracting each month by as much as it used to grow. Households continue to cut back.
Consumer Credit
(Click on chart to enlarge.)
Recessions shaded
All of this illustrates, once again, that the technical use of the word recovery is not the same as a conventional use of the word expansion. Recovery means we are no longer heading south. But some of the most important data show that the economy is not yet expanding rapidly enough to put us back at pre-recession levels.
(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.)
© 2010 Michael B. Lehmann
Three leading indicators illustrate the difficulty of this recovery.
If you go to the Bureau of Economic Analysis website at http://www.bea.gov/national/index.htm#gdp and scroll down to "Underlying Detail Tables" and then look at "Motor vehicles," you will find an Excel table. Click on tab number six to see new-vehicle sales.
You will notice that new-vehicle sales have been fluctuating in a narrow range around 11 million at a seasonally-adjusted rate for the first four months of this year. Now take a look at the chart below to put these numbers in historical perspective.
New-Vehicle Sales
(Click on chart to enlarge.)
Recessions shaded
The collapse is over, but true recovery has not yet begun. We need to move up to and past 15 million vehicles before we can say the auto industry has recovered.
Now take a look at the Federal Reserve's latest figures on capacity utilization:
http://www.federalreserve.gov/releases/g17/Current/default.htm
Then compare them to the table below.
Capacity Utilization
(Click on chart to enlarge.)
Recessions shaded
Once again the trend is positive. Capacity utilization had fallen below 70% and is now up to 73.7%. But we used to call 75% a recession figure. Industry won't reach normal operating levels until capacity utilization rises back to 80%.
Our last set of data is the least encouraging:
http://www.federalreserve.gov/releases/g19/current/g19.htm
The Federal Reserve reports that consumer credit continues to shrink at a substantial rate. Before the 2008-2009 recession we had become accustomed to households borrowing for the purchase of automobiles and other durable goods around $100 billion per month at a seasonally adjusted annual rate. The chart below and the recent data tell us that consumer credit is now contracting each month by as much as it used to grow. Households continue to cut back.
Consumer Credit
(Click on chart to enlarge.)
Recessions shaded
All of this illustrates, once again, that the technical use of the word recovery is not the same as a conventional use of the word expansion. Recovery means we are no longer heading south. But some of the most important data show that the economy is not yet expanding rapidly enough to put us back at pre-recession levels.
(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.)
© 2010 Michael B. Lehmann
Monday, May 10, 2010
Europe Revisited
The Lehmann Letter (SM)
The stock market rebounded sharply today in response to the European rescue package. The European Union pledged $750 billion to defend the euro against the prospects of sovereign-debt default. The stronger economies of Europe will bail out the weaker. The weaker nations, in turn, will have to reduce the likelihood of default by enhancing their tax revenues and reducing expenditures.
We will see if this is enough to alleviate concern. And once again there is the impression of "muddling through." But, seen in historical context, there is another point of view. World War I and World War II and the events leading up to those wars were disastrous for Europe. A new yet middle-aged leadership emerged after the end of those debacles. These seasoned leaders were internationalists who had to suppress their views in the nationalistic inter-war years. By 1950 they were leading Europe in a new direction: A series of trans-national agreements that built a customs union, and then an economic union and then a single-currency union. They built and are building a true European Union.
Compromise and accommodation and patience have been key. The willingness and ability of stronger nations such as Germany and France to accommodate the needs of weaker states on the periphery has also been key. The attempt to bring in the former states of the Soviet bloc has been remarkable.
These daunting challenges over the past 60 years and the clear success in meeting them puts the current crisis in perspective. It should also make us confident that Europe will do what is necessary to secure its future.
© 2010 Michael B. Lehmann
The stock market rebounded sharply today in response to the European rescue package. The European Union pledged $750 billion to defend the euro against the prospects of sovereign-debt default. The stronger economies of Europe will bail out the weaker. The weaker nations, in turn, will have to reduce the likelihood of default by enhancing their tax revenues and reducing expenditures.
We will see if this is enough to alleviate concern. And once again there is the impression of "muddling through." But, seen in historical context, there is another point of view. World War I and World War II and the events leading up to those wars were disastrous for Europe. A new yet middle-aged leadership emerged after the end of those debacles. These seasoned leaders were internationalists who had to suppress their views in the nationalistic inter-war years. By 1950 they were leading Europe in a new direction: A series of trans-national agreements that built a customs union, and then an economic union and then a single-currency union. They built and are building a true European Union.
Compromise and accommodation and patience have been key. The willingness and ability of stronger nations such as Germany and France to accommodate the needs of weaker states on the periphery has also been key. The attempt to bring in the former states of the Soviet bloc has been remarkable.
These daunting challenges over the past 60 years and the clear success in meeting them puts the current crisis in perspective. It should also make us confident that Europe will do what is necessary to secure its future.
© 2010 Michael B. Lehmann
Friday, May 7, 2010
+290,000
The Lehmann Letter (SM)
Today’s employment report was terrific:
http://stats.bls.gov/news.release/empsit.nr0.htm
Nonfarm payroll employment grew by 290,000 with gains across almost all sectors of the economy. The unemployment rate rose to 9.9% from 9.7% as more people reentered the labor force. (The rate will rise if the labor force grows faster than employment.)
The stock market may be down, but news of strong job growth is a great way to end the week.
© 2010 Michael B. Lehmann
Today’s employment report was terrific:
http://stats.bls.gov/news.release/empsit.nr0.htm
Nonfarm payroll employment grew by 290,000 with gains across almost all sectors of the economy. The unemployment rate rose to 9.9% from 9.7% as more people reentered the labor force. (The rate will rise if the labor force grows faster than employment.)
The stock market may be down, but news of strong job growth is a great way to end the week.
© 2010 Michael B. Lehmann
Thursday, May 6, 2010
Europe
The Lehmann Letter (SM)
The stock market fell sharply today, and most commentators attributed the drop to events in Europe. Pessimists fear that Greece's debt problems are an omen of what will befall Europe as Portugal, Spain and perhaps other nations threaten default on their debts. Sovereign debt defaults would imperil the banks that hold those debts and might plunge the world economy into another financial crisis and recession.
But it's difficult to believe that the European Union will let that happen. While it is true that Germany has expressed reluctance to bail out Greece, not coming to Greece's rescue would be calamitous. World markets have made that clear.
Moreover the nations of Europe have done a wonderful job since the end of World War II of drawing together in order to mold their collective future. The European Union and the euro are the chief examples. Time after time Europe has overcome obstacles and improved its political and economic well-being. There has been back and fill, but in the end they have met the challenges. It is likely they will do so once again.
That observation leaves another possible explanation for the recent stock market slump. Perhaps, hidden behind the news of Europe, is the realization that momentum may have carried the stock market too far. Is the outlook for earnings and the economy as rosy as the recent market run-up seemed to indicate?
© 2010 Michael B. Lehmann
The stock market fell sharply today, and most commentators attributed the drop to events in Europe. Pessimists fear that Greece's debt problems are an omen of what will befall Europe as Portugal, Spain and perhaps other nations threaten default on their debts. Sovereign debt defaults would imperil the banks that hold those debts and might plunge the world economy into another financial crisis and recession.
But it's difficult to believe that the European Union will let that happen. While it is true that Germany has expressed reluctance to bail out Greece, not coming to Greece's rescue would be calamitous. World markets have made that clear.
Moreover the nations of Europe have done a wonderful job since the end of World War II of drawing together in order to mold their collective future. The European Union and the euro are the chief examples. Time after time Europe has overcome obstacles and improved its political and economic well-being. There has been back and fill, but in the end they have met the challenges. It is likely they will do so once again.
That observation leaves another possible explanation for the recent stock market slump. Perhaps, hidden behind the news of Europe, is the realization that momentum may have carried the stock market too far. Is the outlook for earnings and the economy as rosy as the recent market run-up seemed to indicate?
© 2010 Michael B. Lehmann
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