Tuesday, November 30, 2010

December Publication Schedule

The Lehmann Letter (SM)

Here’s a schedule for some of December’s most important data releases.

This letter will pay special attention to employment, homes and autos, capacity utilization and consumer confidence.


December 2010

Source(* below)Series Description.Day & Date

Quarterly Data

BLS……………Productivity………….…Wed, 1st

BEA…International Transactions…Thurs, 16th

BEA…………………GDP…………...……Wed, 22nd

BEA……………….Profits…………...……Wed, 22nd

Monthly Data

ISM…Purchasing managers’ index……Wed, 1st

BLS…………………….Employment………… Fri, 3rd

BEA….New-vehicle sales…(Approximate).Mon, 6th

Fed…...Consumer credit…(Approximate).Tue, 7th
Census…………………...Inventories…….. Tue, 14th
BLS………………….Producer prices……. Tue, 14th
BLS………………….Consumer prices.….. Wed, 15th
Fed……………..Industrial production…….Wed, 15th
Fed…………….Capacity utilization……….Wed, 15th
Census……….……..Housing starts……….Thu, 16th
Conf Bd……….Leading indicators……….Fri, 17th

NAR………………Existing-home sales….Wed, 22nd
Census…………..New-home sales……...Thu, 23rd
Census………….Capital goods………….. Thu, 23rd

Conf Bd……….Consumer confidence….. Tue, 28th

* 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, November 29, 2010


The Lehmann Letter (SM)

Today's New York Times and Wall Street Journal carried stories on the Irish rescue package:



Let's hope that calm returns to world currency and sovereign-debt markets.

Of almost equal importance, however, is the evidence that Europe has once again found its way through the thicket and bound itself together ever more firmly. Expressed fears that the Euro-zone would come apart have not materialized.

Over the past 65 years Europe has transformed itself from the wreckage of World War II into a novel and forward-looking political entity. For centuries the European nations had been at each other's throats. Now they work together for mutual economic, social and political improvement. Trace their history from the birth of the European Payments Union in 1950, through the 1957 Treaty of Rome that created the Common Market, the Single European Act of 1986 that dismantled trade barriers, to the 1992 Maastricht Treaty that established the European Union, the Euro and the European Central Bank, and you see a solid record of progress.

Compromise and accommodation are the most important ingredients in this accomplishment. The European nations have subordinated their individual interests in order to achieve a common goal that they knew would eventually generate maximum benefit for all. That's why there is little evidence of backsliding and dissolution despite the stresses and strains of periodic crises. Perhaps we, on our side of the ocean, could learn something from the folks over there and their devotion to the common weal.

© 2010 Michael B. Lehmann

Wednesday, November 24, 2010

Business Equipment Expenditures Look Rosy

The Lehmann Letter (SM)

The Census Bureau reported some good news today regarding business investment:


New orders for business equipment rose in October.

But the chart provides an even stronger impression of recovery. October orders were $70.8 billion, a dramatic improvement from their $50+ billion low.

New Orders for Business Equipment

Click on chart to enlarge.)

Recessions shaded

If you use your mind's eye to update the chart with the latest $70 billion reading, you can see that businesses are planning for a brighter future.

That's an important sign that businesses are willing to increase production. It offsets the sluggishness in consumer demand for homes and cars.

So we have a struggle. Can business optimism prevail over households' pessimism? 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.)

© 2010 Michael B. Lehmann

Wednesday, November 17, 2010

Inflation: Bittersweet News

The Lehmann Letter (SM)

Inflation remained low last month (2.4%) and low over the past year (1.2%) the Bureau of Labor Statistics announced today:


Consumer Prices

(Click on chart to enlarge.)

Recessions shaded

Gasoline (9.5%) and fuel oil (14.5%) accounted for all of the inflationary pressure in the last 12 months. Inflation would have been negligible without them.

Since imports account for most of our energy needs, this tells us that inflation is not a cause for concern within our domestic economy. That's a function of demand's slow growth at home. Here's why.

When demand grows rapidly and pulls production up with it, the economy strains to supply the goods and begins to operate less efficiently. Think of your car's engine as an analogy. It speeds up when you depress the accelerator, but you get fewer miles per gallon. That's expensive. The same thing happens to the economy. If we make the economy grow too fast, it does so in a less efficient and more costly fashion. That's the supply-side lesson.

We have looked at the supply-side in this month's letters and yesterday's letter showed that the economy still has plenty of slack. We're running at a smooth 50 mph, not an overheated 80. That holds costs and inflation down but, of course, does not provide a job for all who need one.

So today's low-inflation news is bittersweet. The low inflation that we enjoy today is a consequence of not running our economy fast enough to generate full employment.

(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.)

© 2010 Michael B. Lehmann

Tuesday, November 16, 2010

Capacity Utilization

The Lehmann Letter (SM)

This month's letters are focused on the supply side: Production, costs and prices.

The objective: To determine whether or not output is growing in a sustainable fashion and whether or not rising costs and prices threaten.

(Recall that last month’s letters found demand’s bedrock indicators - real estate, motor vehicles and borrowing - to be weak and directionless.)

Yesterday's letter reported that manufacturers, wholesalers and retailers continued to rebuild inventories on the expectation of rising sales. That's a good sign.

This morning the Fed announced that capacity utilization remained flat in October:


Capacity utilization hasn't changed since July. This mirrors industrial production’s record, which also hasn't grown since July.

Capacity utilization answers this question: What is the current level of output expressed as a percentage of the maximum? Industrial production and capacity utilization have remained flat for a quarter-year, and that is not a good sign. To some extent warm fall weather was responsible because electric output slumped as customers turned off their heaters. But manufacturing didn't do much either.

Capacity Utilization

(Click on chart to enlarge.)

Recessions shaded

So we will need to keep our eyes on the chart and remain vigilant. Capacity utilization that hovers under 75% is not a sign of robust growth. Historically 80% is a good marker of an economy running close to its full capacity. Anything above 85%risks rising costs and inflationary pressure.

The Bureau of Labor Statistics is scheduled to release its report on consumer prices tomorrow morning. That will provide an opportunity to measure costs and prices.

(The chart was taken from http://www.beyourowneconomist.com. [Click on Seminars a
nd then Charts.] Go there for additional charts on the economy and a list of economic indicators.)

© 2010 Michael B. Lehmann

Monday, November 15, 2010


The Lehmann Letter (SM)

This morning the Census Bureau announced that September sales and inventories (stocks of goods on shelves) had increased for manufacturers as well as wholesalers and retailers:


That's good news on two grounds:

1. These businesses continue to show sales gains.

2. They also show sustained optimism as they rebuild their stocks of goods in anticipation of future sales growth.

Inventories piled up on the shelves as sales slumped during the recession. That's why the Inventory/Sales ratio rose precipitously. The ratio began to drop in 2009 when businesses slashed inventories to bring them in line with depleted sales. In 2010 as sales began to recover businesses started to restock their shelves once more.

This morning's report provides evidence that the trend continues. Business sales are growing and inventory-restocking is climbing even more rapidly. Businesses are selling and they anticipate selling even more in the near future. That's good news.

© 2010 Michael B. Lehmann

Thursday, November 11, 2010

Profit Margins

The Lehmann Letter (SM)

Yesterday's letter said that rising commodity prices and inflation overseas would not boost inflation in the US. That's because domestic borrowing, spending and demand remain weak.

But rising commodity prices could nonetheless squeeze American firms' profit margins. US businesses must compete in product markets even if - or especially if - demand for their output is weak. At the same time they must purchase inputs on the open market as the cost of those inputs rises. That means American corporations’ profit margins will be squeezed by the rising prices they must pay for materials and the weak prices they receive for their products.

If domestic producers can't pass higher costs on to their customers, they'll be in the worst of both worlds. But that doesn't necessarily mean that we'll have rising inflation here at home.

© 2010 Michael B. Lehmann

Wednesday, November 10, 2010


The Lehmann Letter ©

Today's Wall Street Journal has a lead article on commodity prices and inflation:


Investors are concerned that rising commodity prices will boost inflation throughout the economy. In the past soaring inflation squeezed profit margins and thereby generated a stock-market retreat.

But today's commodity-price surge may not lead to overall inflation and stock-market decline.

In past business cycles, such as the inflationary surges in the early and late 1970s, booming demand here at home - driven by robust borrowing and spending - pulled prices upward. Commodity prices led the charge higher, but that was in response to hyper-strong demand here at home.

Now borrowing, spending and demand are weak here at home. Strong demand in China and other emerging markets is responsible for rising commodity prices. That could affect us in two ways. First, prices on our imports of Chinese finished goods may rise, contributing to domestic inflation. Second, the general rise in commodity prices could boost costs for our producers. But neither of these scenarios for potential inflation find their way around the boulder in the road: Weak demand here at home. That's why rising commodity prices are not now reminiscent of past inflationary surges.

That doesn't mean there is no potential trouble down the road. It does, however, mean there's no automatic connection between the surge in commodity prices and escalating inflation in our own economy.

Tomorrow's letter will discuss the implications of commodity inflation on profits and the stock market in a weak non-inflationary economy.

© 2010 Michael B. Lehmann

Monday, November 1, 2010

Supply-Side Indicators

The Lehmann Letter ©

Over the past couple of months this letter has focused on the demand-side data in an attempt to evaluate the forces that could pull us out of the economic ditch. Conclusion: It will be a long, slow haul.

Consequently past editions of this letter concluded that growing profit margins rather than growing sales volume (earnings = margins X volume) had driven the recent stock market run-up and that slow sales-volume growth imperiled future stock-market gains.

See today's Wall Street Journal for a front-page article that takes a like-minded view: http://online.wsj.com/article/SB10001424052748704477904575586181999090898.html?mod=ITP_pageone_0

It reinforces a similar article in Sunday's New York Times: http://www.nytimes.com/2010/10/31/your-money/31fund.html?_r=1&scp=1&sq=Paul%20Lim&st=cse

If sales-volume growth faces a rocky future, what about the profit-margin growth that fueled the stock market's recent jump?

This month's letters will focus on the most important and readily accessible supply-side indicators in order to discern the production, cost and inflation trends that influence profit margins.

For instance, this morning's Institute for Supply Management's October Purchasing Managers' Index rose modestly to 56.9% from September's 54.4% (anything over 50% indicates expansion): http://www.ism.ws/ISMReport/MfgROB.cfm

The Index reports purchasing managers' ease or difficulty in obtaining manufacturing inputs. A rising Index indicates a stronger economy.

But rising output can also signal rising costs, a squeeze on profit margins and rising prices (inflation). Are we headed toward an inflationary profit-margin crunch? This month's letters will track these indicators to find a clue.

Here’s the publication schedule for some of November 2010’s most important supply-side indicators.


November 2010

Source (* below)……Series Description……Day & Date

Quarterly Data

BEA……….…GDP……..……Tue, 23rd

Monthly Data

ISM...Purchasing managers’ index….Mon, 1st

BLS…………….Employment……… Fri, 5th
Census………...Inventories…………..Mon, 15th
BLS…………….Producer prices…….Tue, 16th
Fed…………….Capacity utilization….Tue, 16th
BLS…………….Consumer prices…..Wed, 17th
Census……….Capital goods…..…..Wed, 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
* Fed = Federal Reserve System
* ISM = Institute for Supply Management

© 2010 Michael B. Lehmann