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 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:

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:

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 [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of economic indicators.)

© 2010 Michael B. Lehmann

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