Monday, February 28, 2011

March Economic Indicators: Tracking the Recovery

The Lehmann Letter (SM)

There’s no doubt the economy is recovering.

But some measures are recovering more rapidly than others.

Earnings are back to where they were before the recession and the stock market is chugging along. Consumer confidence and consumer credit are rising and firms are rebuilding inventories.

Examine the March indicators below, however, and you’ll see that most indicators have not returned to pre-recession levels. They are improving, but they’re not where they were. Employment is the most notorious. Yet housing, autos, industrial production, capacity utilization and capital expenditures also remain far from their earlier tops.

This letter will keep you posted.


March 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
Census…….……..Housing starts…….Wed, 16th
BLS…………….Producer prices……. Wed, 16th
Census……………...Inventories…….. Fri, 11th
BLS…………….Consumer prices.….. Thu, 17th
Fed………..Industrial production…….Thu, 17th
Fed……….Capacity utilization……….Thu, 17th
Conf Bd……….Leading indicators….Thu, 17th

NAR………Existing-home sales….Mon, 21st
Conf Bd….Consumer confidence….. Tue, 29th

Census………..New-home sales……...Wed, 23rd
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

Friday, February 25, 2011

Consumer Confidence: Strong Finish for Month

The Lehmann Letter (SM)

All eyes this week have been on Libya and the price of oil. But that should not distract our attention from a strong report that appeared a few days ago.

The Conference Board announced that its index of consumer confidence had popped up to 70.4 in February:

If you examine the chart you will see that consumer confidence plunged to the high 20s in the depths of the recession and has struggled to recover more normal levels. The reading of 70.4 is a solid advance and tells us that households are markedly more upbeat than they have been.

Consumer Confidence

(Click on chart to enlarge.)

Recessions shaded

As we move into the month of March the following question becomes paramount: Will households’ confidence continue its upward trajectory and ignite spending despite any surge in fuel prices?

Stay tuned.

(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, February 24, 2011

$100 Oil: Inflationary Omen?

The Lehmann Letter (SM)

With oil at $100 a barrel, can inflation be far behind?

We hope not. No one wants another inflationary surge. But are there credible grounds for optimism?

And, after all, didn't a spike in oil prices send inflation surging twice in the 1970s? Once, when OPEC pushed oil from $3 a barrel to $10 a barrel in 1973, and again when OPEC raised its price from $10 a barrel to $30 a barrel in 1979. The CPI climbed by 12% after the first episode and by 16% after the second. Is that an omen for today?

Probably not. Keep in mind that OPEC piled on in the 1970s. It did not lead the inflationary charge. In 1972-73 and in 1978-79 consumer borrowing and spending rose massively, generating a surge in demand for residential construction, automobiles and everything else. Rapidly rising demand pushed capacity utilization toward 90%, raising costs throughout the economy. Inflation began to rise sharply before OPEC contributed to the spike in prices.

Today's background is very different. Household demand, especially for homes and autos, is stuck in neutral. Consumers have been repairing their balance sheets, and are now only timidly borrowing and spending. Capacity utilization remains below 80%, so rising costs don't threaten. Finally, oil is a less important ingredient in today's economy. So we shouldn't be prematurely alarmed that inflation is about to repeat its 1970s climb.

But we should be afraid of what rising gasoline prices might do to still-fragile household spending. When consumers pay more for fuel, less is available for everything else. Moreover, they know that, and gasoline's bump might cool consumer confidence. That would be too bad, because consumer confidence is only now climbing out of the doldrums.

Let's stay tuned and hope that oil heads south soon.

© 2011 Michael B. Lehmann

Thursday, February 17, 2011

Is Good News Cause for Concern?

The Lehmann Letter (SM)

There was more good economic news today.

The Conference Board reported that its Leading Economic Indicators rose again in January:

Although January’s gain was small, it follows upon strong increases in November and December. Taken together these improvements are part of a continuing pattern of economic expansion.

A growing economy always raises the question: Will rising demand generate inflation? That is especially relevant because of recent commodity-price increases.

Yesterday the Bureau of Labor Statistics (BLS) reported that wholesale prices grew by 9.6% annually in January:

And today the BLS reported that January consumer prices rose 4.8% annually:

Those numbers are higher than we’ve experienced lately but are still not cause for concern because borrowing and spending remain weak despite the economy’s recovery. Robust inflation requires robust borrowing and robust demand to bid prices rapidly upward.

But even if escalating inflation is not yet upon us, rising commodity-input prices could pose a threat for US businesses. They may have to pay more for the raw materials they purchase without being able to pass on the increased costs to their customers. Why? Because weak demand may exacerbate competitive pressures that prevent businesses from raising prices. That would squeeze their profit margins and their earnings.

© 2011 Michael B. Lehmann

Wednesday, February 9, 2011

Households Borrow More: A Good Beginning

The Lehmann Letter (SM)

Residential real estate was ground zero for the recent recession. When the housing bubble burst, everything else imploded with it.

But the implosion affected more than housing. It also hobbled household balance sheets: Liquid assets were down, home values plunged, debt was up and net worth fell. These reversals motivated households to limit borrowing and buying order to conserve cash and repay debt. That inhibited household spending which, in turn, delayed economic recovery and expansion.

That's why this letter has focused on consumer credit. Although consumer credit excludes mortgages, consumer credit is an important measure of household borrowing. As you can see in the chart, consumer credit turned negative during the recession as households desperately tried to repay their debts in order to resuscitate their balance sheets.

Consumer Credit

Recessions shaded

Lately there have been small increases in consumer borrowing. This week's report from the Federal Reserve is most encouraging:

Consumer credit grew by $73.2 billion in December: Its best gain in a long time. If this encouraging trend has legs, we can be optimistic that households are borrowing and spending again.

(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, February 4, 2011

No Happy Face: Anemic Job Growth

The Lehmann Letter (SM)

There's no way to paint a happy face on the January employment report released this morning by the Bureau of Labor Statistics:

Job growth, at 36,000, was essentially flat. The unemployment rate fell to 9.0% from 9.4%, repeating December's large drop. Yet that begs the unanswered question: Is the decline in the unemployment rate due to an improvement in the employment picture, or is it due to discouraged workers dropping out of the labor force? Since these numbers are based on surveys that are subject to large subsequent revisions, we will have to wait for the answer. But the fact remains: Today's job-growth report is week.

Take a look at the chart and you'll see that an expanding economy, such as the one we enjoyed from 2003 to 2007, generates 200,000 new jobs a month. That indicates how far we have to go before we can say that we have a strong and healthy economy.

Job Growth

(Click on chart to enlarge.)

Recessions shaded

And that's not all. The average workweek fell slightly. A longer workweek typically precedes employment gains because employers usually ask their current employees to work longer hours before hiring new workers. We need to see a longer workweek, not a stagnant work week.

The stock market is up because corporate earnings are strong. But employment has not kept 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