Wednesday, June 16, 2010

Conflicting Signals

The Lehmann Letter (SM)

Today's major statistical releases confirm the conflicted state of today's economy.

The Fed announced that American industry operate at 74.7% of capacity in May:

That means that the manufacturing, mining and public utilities sectors are producing 74.7% of their maximum output. That looks pretty good when you impose that number on the chart below. It appears that industry is making a snappy comeback from recent lows. We are not yet up to the 80% level that indicates good health, but halfway there from the 70% lows we reached at the depths of the recession.

Capacity Utilization

(Click on chart to enlarge.)

Recessions shaded

So much for the good news. The bad news was that the Commerce Department's report that May housing starts had fallen to 593,000:

Plug that number into the chart below and you will see that residential construction remains in the doldrums. The temporary housing tax credit gave building a boost, but that's gone now. Residential construction is stuck in a rut. Housing won't recover and expand strongly until the overhang of distressed, foreclosed and vacant properties is resolved.

Housing Starts

(Click on chart to enlarge.)

Recessions shaded

Industry may be stronger because manufacturers liquidated their inventories and must now produce in order to sell. Remember, however, that real estate got us into this mess. We can't have a vibrant economy until its problems are resolved.

(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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