Monday, January 31, 2011

February Economic Indicator Publication Schedule

The Lehmann Letter (SM)

Attitudes about the economy are upbeat.

Last Friday the Bureau of Economic Analysis released its advance estimate for 2010 fourth-quarter GDP growth:

The number looked good: A 3.2% gain at an annual rate.

But signs of weakness remain, especially in residential real estate.

A list of important economic indicators and their February publication schedules appears below. The Lehmann Letter will review those that merit particular attention.


February 2011

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

Quarterly Data

BEA…………………GDP…………..……Fri, 25th

BLS………….Productivity……………Thu, 3rd

Monthly Data

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

BLS…………….Employment………… Fri, 4th

BEA..New-vehicle sales.(Approximate).Mon, 7th

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

NAR………Existing-home sales….Wed, 23rd
Conf Bd….Consumer confidence….. Tue, 22nd

Census………..New-home sales……...Thu, 24th
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

© 2011 Michael B. Lehmann

Thursday, January 27, 2011

Capital Goods: Pause or Stall?

The Lehmann Letter (SM)

Is the economic recovery on track for rapid expansion, or is the good news just a head feint?

This letter has noted that some of the most important indicators are still in the doldrums. There are encouraging signs, yet they remain too few to indicate a trend. Yesterday's letter featured an example: New-home sales are up, but have not broken into optimistic territory.

This morning's Census Bureau report on durable goods further illustrates the problem:

Here are December, November and October 2010 data on new orders for nondefense capital goods (machinery and equipment): $61.4 billion, $65.5 billion and $71.3 billion. Since the most recent month is presented first, these figures are not encouraging.

Removing volatile orders for aircraft smoothes the numbers: $65.0 billion, $64.1 billion and $62.2 billion.

That's better: It looks like a slight upward trend. (Remember: Most recent data first.)

Now place these numbers in historical perspective by using your mind’s eye to update the chart.

New Orders for Nondefense Capital Goods

(Click on chart to enlarge.)

Recessions shaded

There is no doubt the situation has improved. Yet it's also apparent that it's too early to call a positive trend. For that to happen there has to be clear movement up from $60 billion toward $80 billion.

It's not that we're stuck in a rut. It's just too early to proclaim that the expansion is proceeding at a robust pace.

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

© 2011 Michael B. Lehmann

Wednesday, January 26, 2011

Home Sales Up: But Is It a Trend?

The Lehmann Letter (SM)

This morning the Census Bureau announced in December new-home sales of 329,000:

That was a 17.5% improvement over November's 280,000. Good news.

New Home Sales

(Click on chart to enlarge.)

Recessions shaded

But the chart, once again, illustrates the problem of dealing with percentages when starting from a small base. The 17.5% gain sounds impressive until you post 329,000 on the chart. Then it doesn't seem like much.

The trend line has to surge well above 400,000, heading toward 600,000, before we can say that new-home sales have left the bad news behind them.

It's symptomatic of residential real estate's depressed condition that observers are willing to focus so easily on any scrap of good news.

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

© 2011 Michael B. Lehmann

Tuesday, January 25, 2011

Dow Milestone

The Lehmann Letter (SM)

The stock market was down in mid-session-trading today, but the Dow recently passed an important milestone. It's now higher than the peak reached 11 years ago.

The Dow closed above 11,700 in 2000 at the height of the dot-com boom, and went on to close over 14,000 in 2007 with the peak of the real-estate bubble. The Dow has been trading in a range for over a decade, and must rise another 25% to break out of that range.

The NASDAQ's story is different. It's at 2,700, about half of where it was at the dot-com peak, and has not done as well as the blue-chip Dow. The NASDAQ is heavily weighted by technology and small-capitalization firms that suffered severely in the dot-com collapse. More than a decade has gone by, yet they still show the damage.

The S&P 500, which most observers believe to be the stock market's best representative, is still about 25% below both its 2000 and 2007 peaks. Think of the S&P as lying between the blue-chip Dow and the small-cap NASDAQ. Its 500 stocks represent the market's spectrum from small to large firms.

What does this mean? It demonstrates the damage done by the dot-com boom of over a decade ago. Stock market valuations raced ahead of earnings (the P/E soared) and then crashed back to earth. Investors curbed their enthusiasm in the ensuing decade, returning P/E valuations and the stock market to more modest levels. Then the Great Recession crushed the stock market once again.

Investors have been - and remain - cautious, and rightfully so. Fool me once, shame on you. Fool me twice, shame on me. That's why it will take a while for the stock market to break out of its range.

© 2011 Michael B. Lehmann

Thursday, January 20, 2011

Inflation: Don't Worry Yet

The Lehmann Letter (SM)

Rapidly rising commodity prices have generated concern that economic recovery will bring escalating inflation.

Last week the Bureau of Labor Statistics announced that consumer prices rose at a 6% annual rate in December, although they increased by only 1.2% when food and energy are excluded:

That highlights commodities' role. Primary products such as raw materials, foodstuffs and fuels have accounted for most of the gains.

The developing worlds' rapid economic recovery is responsible for the surge in primary-product prices. As the Chinese economy expands it gobbles up minerals (iron ore, bauxite), fuels (oil, coal) and food (wheat, corn). Consequently world primary-product prices have risen swiftly despite slower recovery in the developed economies of Europe and the United States.

That raises the question: Will these price increases kindle inflation here at home? After all, rapidly rising food, energy and raw-material prices accompanied swiftly rising inflation in the 1970s.

But the 1970s do not serve as a precedent. Rapidly rising demand, stoked by runaway private borrowing, bid prices upward in that decade. Today's economy is beset by weak, not strong, demand. It's hard to see how prices can shoot upward while demand remains stagnant. The depressed residential construction and automobile industries, for instance, provide weak markets for building materials, steel, glass and a host of other inputs. That will restrain those prices.

Also keep in mind that consumer prices include services, such as rent, as well as commodities. Prices of these services respond to changes in demand here at home, and that demand remains flat.

It's difficult to contemplate severe domestic inflation without stronger growth in domestic demand.

© 2011 Michael B. Lehmann

Wednesday, January 19, 2011

Statistical Paradox

The Lehmann Letter (SM)

This morning's Census Bureau housing report illustrates why economic forecasting is not easy:

Building permits leapt upward to their highest level in nine months while housing starts fell to their lowest level since WWII.

New building permits indicate construction projects that are about to commence. The problem is: Some projects will not start and will eventually be abandoned.

That's why housing starts are a better indicator of what will actually happen.

Truth be told: They move together over the cycle.

Housing Starts
(Click on chart to enlarge.)

Recessions shaded

That said, this morning's report that 635,000 building permits were issued in December is very good news. Let's hope they bear fruit.

Compare that with the report that said 529,000 housing units were started in December.

The chart puts this wide disparity in context. If building permits are an omen, that would be a great sign that an upward trend has begun.

But when your mind’s eye places 529,000 on the chart, it's hard to paint a happy face.

These are paradoxical reports. Forecasting is a tough business. We can only hope for the best.

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

© 2011 Michael B. Lehmann

Friday, January 14, 2011

Strong Showings

The Lehmann Letter (SM)

This morning's statistical releases included strong gains in industrial production and capacity utilization as well as a big jump in business sales.

You can find the Federal Reserve's capacity-utilization report at:

Just scroll down to the second blue banner titled "Percent of capacity" and look under December 2010. You'll see that it was 76.0 and made a nice jump up from earlier months that seemed stuck in the 75% range.

It may look like much ado about nothing, but if you place 76% on the chart it appears that capacity utilization is climbing out of the ditch. That's good news because capacity-utilization data answers this question: What is the current industrial operating rate expressed as a percentage of the maximum? You can see the recent recession's severity and that any reading below 75% is in the doldrums. Capacity utilization must rise into the 80s before we can say that American industry is once again operating at a healthy rate.

It's true that we have a ways to go before we breathe a sigh of relief. But we're headed in the right direction.

Capacity Utilization

(Click on chart to enlarge.)

Recessions shaded

This morning's other report is available from the Census Bureau at:

Scroll down to Table 1 and compare adjusted sales for October and November. Run your eye to the right and you'll see that, despite the growth in inventories, the inventory/sales ratio dropped sharply. This means that business's restocking of goods on the shelf couldn't keep up with the growth in sales volume. That's a nice problem to have.

These are good, solid and strong reports. They augur well for the New Year.

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

© 2011 Michael B. Lehmann

Thursday, January 13, 2011

Autos Accelerating

The Lehmann Letter (SM)

The latest Detroit auto show, with its new cars and new concepts for future models, is emblematic of the domestic industry's turnaround. Ford is strong and Chrysler and GM have successfully emerged from their restructurings. It's a new day.

This morning's New York Times published an article by Bill Vlasic and Nick Bunkley describing the benefits accruing to Big Three autoworkers from the industry's recent success:

The Commerce Department recently reported that December new-vehicle sales rose to 12.5 million: (Scroll down to Motor vehicles under Supplemental Estimates. See table 6 at the bottom of the Excel spreadsheet and look at column I.)

Now update the chart with that 12.5 million figure, and you can gauge the rebound's strength.

New-Vehicle Sales

(Click on chart to enlarge.)

Recessions shaded

The chart also reveals how far automakers must climb before they reach their former plateau. (These figures are for all makes - domestic and imported - sold in the US.) It will be a while before sales hit 15 million, let alone the 17-million average the industry enjoyed for over a decade.

Over half a century ago the head of GM said that what is good for America is good for GM and vice versa. In the 1960s GM was the world's biggest and most prosperous carmaker. It had a stellar reputation for efficiency and progressiveness.

Now GM must rebuild, as must all firms that sell in the US market. They will need new vehicles that represent new ideas.

But part of the industry's future is beyond its control. The big question is: Will American households once again channel so many of their assets and so much of their debt toward the automobile?

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

© 2011 Michael B. Lehmann

Wednesday, January 12, 2011

President Obama's Re-Election Campaign

The Lehmann Letter (SM)

Tonight President Obama speaks to the nation from Tucson regarding the awful events of last weekend. Let us hope his words help heal and move the political discourse to a higher and calmer plane.

Meanwhile the business of politics rolls on. Today's Wall Street Journal carried an article by Jonathan Weisman and Laura Meckler entitled "Obama Begins Gearing Up Re-Election Bid:"

An historical view of the chart highlights the difficulty facing the president.

Consumer Confidence

(Click on chart to enlarge.)

Recessions shaded

Consumer confidence hovered at a low of 60 when Presidents Jimmy Carter and George H. W. Bush ran for re-election in 1980 and 1992. Both suffered defeat.

Contrast those outcomes with the good fortunes of Presidents Ronald Reagan and Bill Clinton when they stood for re-election in 1984 and 1996. Consumer confidence had popped back up to 100 and both men won easily.

Some observers point out that Presidents Reagan and Clinton suffered setbacks in the mid-term Congressional elections of 1982 and 1994. Yet those setbacks did not impair their re-election two years later. These observers draw on that experience to forecast that President Obama's 2010 mid-term congressional setback will not necessarily impede his re-election.

But the chart counsels caution. It shows us that Presidents Reagan and Clinton, and Pres. George W. Bush in 2004, won re-election handily with consumer confidence at a strong showing of 100. Consumer confidence now hovers slightly below 60. What are the chances it will pop back up to 100 in the next two years?

Recall that Presidents Reagan, Clinton and George W. Bush had the good fortune of an economy recovering sharply from recession. The economy snapped back for Pres. Reagan in 1984 when the Federal Reserve allowed interest rates to fall after the Fed successfully employed high interest rates to stop runaway inflation. President Clinton enjoyed the beginnings of the dot-com boom in his 1996 reelection bid. George W. Bush benefited in 2004 from the launch of the real-estate bubble.

All of these presidents won re-election when strong economies lifted consumer confidence. They were not responsible for their good fortune, yet they benefited from that good fortune. The economic outlook is not so rosy for President Obama. How likely is it that the economy and consumer confidence will show great strength in the next two years? So much depends on economic circumstances beyond the president's control.

The president has a tough row to hoe.

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

© 2011 Michael B. Lehmann

Monday, January 10, 2011

More Good News on Consumer Credit

The Lehmann Letter (SM)

Friday's employment report overshadowed another report released that day. The Federal Reserve announced that consumer credit grew by $16.8 billion at an annual rate in November:

That was a small but important gain. Total consumer credit outstanding peaked at $2,561.1 billion in 2008. By the end of last year's third quarter (September 30, 2010) consumer credit outstanding had fallen to $2,394.6 billion, a loss of almost $200 billion. Now it's back up to $2,403.0 billion, reflecting small but important gains in October and November. (Multiply monthly gains by 12 to obtain the annual change.)

If this trend holds, it means that households are borrowing again to purchase automobiles, furniture, appliances, home furnishings and all the other items we put on our credit cards. That's significant because, as the numbers illustrate, consumers spent two years paying back their debts as they reduced their purchases of these items. (Keep in mind that consumer credit does not include first and second mortgage loans.)

As this letter said last month: Households have been repaying their debts in a desperate attempt to bolster their balance sheets by reducing liabilities and building liquidity. That seems like a good sign until one realizes that reducing expenditures is a time-tested method for paying down debt and conserving cash. That's one reason this recession has been so intractable. People have stopped buying in order to bolster their balance sheets. Demand can't fully recover until this process concludes.

Consumer Credit

Click on chart to enlarge.)

Recessions shaded

The chart illustrates the problem’s significance. After growing by $100 billion monthly through 2008, consumer credit began falling by $100 billion monthly during the recession.

If the latest positive numbers hold, it could be the beginning of an important positive trend.

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

© 2011 Michael B. Lehmann

Friday, January 7, 2011

103,000 & 9.4%

The Lehmann Letter (SM)

This morning the Bureau of Labor Statistics reported that December nonfarm payroll employment grew by 103,000:

That's disappointing because monthly job growth of 100,000 is insufficient to restore full employment in the long run. Population growth and improved productivity (greater output per worker enables employers to shed employees) require 100,000 new jobs per month merely to provide employment for new job seekers. 100,000 can't also absorb the currently unemployed.

Paradoxically the December unemployment rate did drop sharply from 9.8% to 9.4%. But that rate is determined by responses to a survey that asks, "Are you currently employed and, if not, are you looking for work?" If the number seeking employment falls significantly (because discouraged responders leave the labor force, return to school and so forth) while the number of employed grows modestly, the survey response can indicate a sharp drop in the unemployment rate despite employment's meager improvement.

That's why the economy requires monthly gains of over 200,000 new jobs to generate sustained employment improvement, i.e. the return of full employment at a rate of 5% or less.

Job Growth

(Click on chart to enlarge.)

Recessions shaded

The chart reveals great improvement over the depths of the recession when the economy lost more than 500,000 jobs monthly. The chart also shows that job growth briefly popped up to 400,000 early in the recovery when some employers realized that they had laid off too many employees.

But now the tough work has begun: Consistently adding more jobs, month after month, in sufficient numbers to restore full employment. The unemployment rate can wobble month-to-month. We hope to cut it in half.

(PS - The report also showed that the workweek stopped growing lately. Let's hope that's a momentary pause. Employers generally ask their employees to work longer hours before they hire new hands. That's why a longer workweek provides an omen of future employment. A stagnant workweek does not.)

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

© 2011 Michael B. Lehmann

Thursday, January 6, 2011

Happy New Year!

The Lehmann Letter (SM)

The New Year is off to a good start. Most economic indicators are looking up and a spirit of optimism prevails.

Tomorrow morning the Bureau of Labor Statistics will release its December employment report. Popular interest will focus on the unemployment rate, but most economists will direct their attention to the number of jobs created. Anything over 100,000 will bring a smile; over 200,000 will generate a big grin.

As population and the labor force grow, the economy must generate 100,000 jobs per month just to keep the unemployment rate from rising. An increase of more than 200,000 will reduce the rate. And keep in mind that jobs must also be found for the discouraged workers who have left the labor force but will return to it as the unemployment rate falls. So it's a complicated mix that causes the unemployment rate to wobble month-to-month. What we are hoping for: Solid job gains month after month, year after year, that will finally drive the unemployment rate below 5%. Then, and only then, can we relax and say that full employment has returned.

So we will all look expectantly at tomorrow's job-growth number, hoping that a robust report will mean a happy new year for those hurt most by the recession.

© 2011 Michael B. Lehmann