Friday, July 29, 2011

Month’s End

The Lehmann Letter SM

July concluded on dismal notes.

Default talks in Washington are not resolved and the Commerce Department reported that second-quarter GDP grew at a puny 1.3%.

Today’s New York Times carried a good article on the slow recovery. It finds that weak household balance sheets have impeded the recovery:

http://www.nytimes.com/2011/07/29/business/economy/as-growth-slows-us-recovery-seems-to-repeat-a-pattern.html?_r=1&ref=todayspaper

We may avoid default in the coming days, but household balance sheets will require more time to repair.

© 2011 Michael B. Lehmann

Wednesday, July 27, 2011

Housing Starts

The Lehmann Letter SM

A flurry of excitement accompanied the Census Bureau's announcement last week that June housing starts had risen to 629,000. The Bureau's bulletin reported that this was a 14.6% improvement over May’s figure.

By now, however, readers of this letter know that they must examine the chart to put recent data in perspective.

Housing Starts

(Click on chart to enlarge)



(Recessions shaded)

And the chart clearly shows that housing starts remain in the doldrums. June's reading remains too small to generate lasting excitement. If it's the beginning of a trend, housing starts will commence rising toward 1 million. We must wait and see.

(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.)

© 2011 Michael B. Lehmann

Friday, July 15, 2011

Production Stalls

The Lehmann Letter SM

Go to http://www.federalreserve.gov/releases/g17/current/ to view this morning's Federal Reserve report on June industrial production and capacity utilization.

At year's mid-point industrial production is barely higher than it was at the start of the year. Capacity utilization, which measures current output as a percentage of the maximum, is actually lower.

Capacity Utilization

(Click on chart to enlarge)



(Recessions shaded)

The chart reveals a good bounce since recession's bottom. But capacity utilization has leveled off at about 77% since the beginning of the year. This seems to be further evidence that the economy's expansion has stalled.

The big question: When will these events begin to affect earnings and the stock market? So far both have been riding high on improved profit margins. But that can't last indefinitely. Production must grow for profits and the stock market to maintain their upward trend.

(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.)

© 2011 Michael B. Lehmann

Thursday, July 14, 2011

Auto Sales Slump

The Lehmann Letter SM

Readers of this letter are familiar with its focus on residential real estate and its view that the economy won't be back to full speed until real estate recovers.

But new-vehicle sales are also symptomatic of the economy's ills. Households' impaired balance sheets limit their ability to buy new cars by borrowing more. Earlier this month the Commerce Department reported June auto sales of 11.4 million at a seasonally-adjusted annual rate.

New-Vehicle Sales

(Click on chart to enlarge)



(Recessions shaded)

The chart makes clear that recovery has stalled: 11.4 million is not part of an upward trend. A close examination of the data only exacerbates concern. New-vehicle sales peaked at 13.4 million in February and have been heading south ever since. Sales haven't been this low since an identical 11.4 million reading in August of 2010. There's been no progress over the last year.

It is possible that temporary factors such as the Japanese earthquake and tsunami have skewed the data. Time will tell. But all of us should be concerned that weak auto sales only confirm the economy's slack state.

(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.)

© 2011 Michael B. Lehmann