Friday, March 30, 2012

April Publication Schedule

The Lehmann Letter (SM)

Here are some of the economic indicators we’ll examine in April, together with their release dates.

Will everything except housing look rosy? Or will weak housing restrain the other indicators? Better yet, will housing break out of its slump?

We’ll see.

ECONOMIC INDICATOR PUBLICATION SCHEDULE

April 2012

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

Quarterly Data

BEA……….GDP ……..…..……Fri, 27th

Monthly Data

ISM..Purchasing managers’ index…Mon, 2nd

BEA.New-vehicle sales.(Approximate).Wed, 4th

Fed.Consumer credit..(Approximate).Fri, 6th

BLS………….Employment…….… Fri, 6th

BLS………...Producer prices……. Thu, 12th

BLS……….Consumer prices.….... Fri, 13th

Census…….......Inventories….....Mon, 16th

Fed……….Capacity utilization……Tue, 17th

Census……...Housing starts…….Tue, 17th

NAR………Existing-home sales….Thu, 19th

Conf Bd…….Leading indicators….Thu, 19th

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

Conf Bd….Consumer confidence.. Tue, 24th

Census……….Capital goods…….. Wed, 25th

*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

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann

Thursday, March 29, 2012

Profits: Strong Growth May Be Over

The Lehmann Letter (SM)

The headline economic news this morning is GDP's strong 3.0% growth in 2011's final quarter.

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Of greater interest to this letter is the estimate of last quarter's after-tax corporate profits. They were $1,493.9 billion, down slightly from the previous quarter.

Let's discuss this in light of yesterday's report that manufacturing profits and profit margins have fallen slightly. Place the most recent number on the chart and it seems that profits for all businesses may have reached a plateau of about $1,500 billion. That’s bad for the stock market.

Corporate Profits
(Click on chart to enlarge)

(Recessions shaded)

Yesterday's letter reported that manufacturing profit margins had fallen slightly. The chart below shows that profit margins for all businesses also have topped off.

Corporate Profits Margins
(Click on chart to enlarge)

(Recessions shaded)

All of these observations reinforce yesterday's conclusion: The strong season of corporate-earnings growth is over unless there are robust gains in sales volume. Profit margins have reached their limit.

This dims the stock market's outlook.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann

Wednesday, March 28, 2012

Business Investment: Tough Row to Hoe

The Lehmann Letter (SM)

A robust economic expansion requires strong household and business expenditures. That's why this letter has followed consumer auto purchases and homebuilding so closely. But business investment in new plant and equipment is also important.

Each month the Census Bureau issues a report on new orders for all durable goods, and within that report the Census Bureau also informs us of business orders for these goods. For instance, the Census Bureau breaks out business orders for new cars from all such orders.

Lately new orders for nondefense capital goods have fluctuated around $80 billion a month:

http://www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf

That's not bad and, as the chart reveals, this number is strongly higher than the recession’s $50 billion trough.

Is this good enough?

Nondefense Capital Goods
(Click on chart to enlarge)

(Recessions shaded)

The historical record says: No. New orders doubled between 1980 and 1990 and doubled again between 1990 and 2000. Peak to peak, that trend would have brought new orders to about $150 billion by 2010. Instead they peaked at $80 billion. Now, following the recession, new orders are back to $80 billion again. Will they reach $160 billion in this decade?

These numbers indicate how rapidly business investment in new plant and equipment must grow in order for business investment to share its traditional role as an important stimulus to aggregate demand.

It's a tall order, but it has to happen if we are to have the rapid economic growth required to restore full employment and sustain a growing stock market.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann

Tuesday, March 27, 2012

Consumer Confidence and the Presidential Election

The Lehmann Letter (SM)

Today the Conference Board announced that its index of consumer confidence “…now stands at 70.2 (1985=100), down from 71.6 in February.”

http://www.conference-board.org/press/pressdetail.cfm?pressid=4441

The chart places these readings in perspective. The index hit an all-time low in the recession and is erratically climbing out of the trough. We hope it continues northward and pulls the economy up with it. But what will that mean for the presidential election this fall?

Consumer Confidence
(Click on chart to enlarge)

(Recessions shaded)

A little history is in order. When Ronald Reagan first ran for the presidency in 1980 he asked the electorate, "Are you better off today than you were four years ago?" Take a look at the chart and compare 1976 with 1980. Candidate Reagan knew the answer was "No." Voters, unhappy with surging inflation and interest rates, turned the incumbent - President Jimmy Carter - out of office.

Four years later President Reagan once again asked, "Are you better off today than you were four years ago?" Take another look at the chart and you can see that consumer confidence rose from around 60 to about 100 from 1980 to 1984. President Reagan was returned to office in a landslide.

Consumer confidence bumped along at approximately 60 when President George H. W. Bush ran for reelection in 1992. Candidate Bill Clinton benefited from those low numbers and won the election. Then President Clinton, like Ronald Reagan before him, won re-election when consumer confidence rose from 60 in 1992 to 100 in 1996.

But consumer confidence is not always dispositive. It was at record highs of around 140 when Al Gore lost to George W. Bush in 2000. Although Vice-President Gore was not the incumbent, he probably hoped that consumer satisfaction would rub off on him. It did not.

What does all this mean for President Obama's re-election chances? Since it does not appear that consumer confidence will pop back up above 100 by November, the president must hope for consumer confidence's continued improvement. He will be pleased if it rises above 80 and he will be disappointed if it falls back below 60.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann

Monday, March 26, 2012

Manufacturers' Profits: Stock-Market Trouble?

The Lehmann Letter (SM)

Manufacturers' profits are not closely followed in the news media, but today's Census Bureau report is worth noting:

http://www2.census.gov/econ/qfr/current/qfr_mg.pdf

As you can see from the charts, manufacturers' profits and profit margins recovered strongly from the recession and are now at record highs. You can also see the strong growth trend over the past 20 years. This is especially striking for profit margins because margins exclude all sales-volume growth. For decades manufacturers earned six cents on each dollar of sales. Lately their profit margin has grown to almost ten cents. That's a remarkable gain.

Manufacturers' Profits
(Click on chart to enlarge)

(Recessions shaded)

Manufacturers' Profits Margins
(Click on chart to enlarge)

(Recessions shaded)

But the latest data from the Census Bureau show that both profits and profit margins have stalled. Total profits fell a little and margins are now slightly under nine cents. Although that's not a severe decline, it does raise a question. Are manufacturers now adding employees sufficiently rapidly to dampen productivity gains and deplete profit margins. In other words, will rising employment costs squeeze profit margins?

This is important because it's clear that the recent recession boosted productivity and profit margins when employers reduced their labor forces more rapidly than their output fell. Sad to say, it was the rise in unemployment that reduced costs and swelled margins. But that's no longer possible now that the mass layoffs are over.

If profit margins have stopped growing, what will boost total profits? Growing sales volume is the only source of potential gain. That raises the big question: Is the economy growing rapidly enough to spur sales volume and continued total-profit improvement? Or will profits top out along with profit margins?

That should be of concern to investors who are relying on earnings growth to prolong the current bull market in stocks.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann

Friday, March 23, 2012

Housing: Three Strikes and You’re Out

The Lehmann Letter (SM)

Here is today's Census Bureau announcement on February new-home sales:

“Sales of new single-family houses in February 2012 were at a seasonally adjusted annual rate of 313,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 1.6 percent (±23.9%) below the revised January rate of 318,000, but is 11.4 percent (±17.8%) above the February 2011 estimate of 281,000.”

You can find the release at:

http://www.census.gov/construction/nrs/pdf/newressales.pdf

Notice that sales were 11.4% above last year's level. That may be cause for cheer until you look at the chart.

New Home Sales
(Click on chart to enlarge)

(Recessions shaded)

We continue to bump along the bottom.

Analysts have been pointing to housing-activity improvements over the last year and rising stock-market values for homebuilders. But today's announcement illustrates the problem of percentages. Start from a small base and percentage improvements can seem large. Look at the historical trends, as the chart does, and that puts things in perspective.

This week housing starts, existing-home sales and new-home sales were all down. Today's new-home sales announcement was strike number three. Sure, all of these were ahead of where they were last year at this time. But, once again, we have yet to see a powerful upward trend such as the one we've observed for new-vehicle sales.

Financing a new car and financing a new home are entirely different matters. You need a stable income to finance a new car. You need a good balance sheet to finance a new home. There is a world of difference between the two.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann

Thursday, March 22, 2012

Europe's Progress

The Lehmann Letter (SM)

Take a look at today's New York Times article on Europe's progress since the depths of its fiscal and financial crisis:

http://www.nytimes.com/2012/03/22/business/economy/us-finance-leaders-see-much-reduced-risk-from-europe.html?_r=1&ref=todayspaper

This letter has commented that Europe's recent concerted action toward Greece had similarities to Europe's actions a century ago toward recalcitrant debtor nations. Back then it was known as gunboat diplomacy. Using the threat of force European nations, on behalf of their bondholders, would seize the customs revenues of debtor nations. Then, over a number of years, they would skim off what was needed to satisfy the claims of these bondholders.

There are no gunboats today, but Europe placed Greece under similar stress. Greec desperately wanted to avoid a calamitous default on its debts because that would have instigated a massive flight of capital out of Greece. In order to obtain relief from its debts and additional funds from Europe to repay those debts, Greece had to agree to provide the European nations with control over much of Greece's finances. Europe now has first call on Greece's tax revenues and can reorder Greek priorities with respect to Greece's budget.

That has given creditors confidence that Greece's restructured debts will be repaid. As a result capital markets are now relieved that Europe will be able to manage the difficult finances of weaker nations such as Spain and Portugal.

It also means that Europe has taken a hard and unsympathetic posture toward nations whose fiscal irresponsibility has compromised their finances. Europe has said that it will force these nations through a contractionary ringer, obliging them to cut government spending as they raise taxes, despite the consequence of rising unemployment and economic misery. Europe has said: Put your fiscal house in order, or else!

As this letter said in an earlier comment, this is reminiscent of "the rules of the game" that prevailed under the gold standard a century ago. Nations were obliged to institute contractionary policies in order to maintain par value for their currencies. Today's nations must practice contractionary policies in order to remain functioning members of the European Union.

Taking the long view, this is all part of Europe's plan to bring its weaker southern and eastern periphery into the mainstream of European life. The European Union was generous in providing funds to these smaller and poorer European nations in order to assist them in building their infrastructure and refashioning their economies. These policies swiftly brought Ireland, Portugal, Spain, Greece, and the former satellites of the Soviet bloc out of severe backwardness. Now Europe is saying to them: We will continue to help you, but you won't get a free ride. Greece is an object lesson and a deterrent. Behave yourselves and you will get the benefit of European civilization. Indulge yourself and you will suffer the consequences.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann

Wednesday, March 21, 2012

Existing-Home Sales: Still Depressed

The Lehmann Letter (SM)

This morning the National Association of Realtors announced there were 4.59 million existing homes sold in February, at a seasonally adjusted annual rate, down from an upwardly revised 4.63 million in January:

http://www.realtor.org/press_room/news_releases/2012/03/ehs_feb

Once again the chart puts matters in perspective. These are weak numbers that may remain weak for quite some time.

Existing-Home Sales
(Click on chart to enlarge)

(Recessions shaded)

The Realtors' announcement speaks optimistically about consumer buying power, job gains and renewed household formation. But, as this letter has stated on many occasions, households compromised their balance sheets - too much debt, too little liquidity and not enough net worth - during the boom in order to acquire homes. Liquidity and net worth eroded further in the collapse as home-prices fell and households desperately attempted to repay their debts. Household balance sheets remain impaired today despite households' best efforts to retire debt, improve liquidity and boost net worth.

To repeat: Real estate remains ground zero for the economy's problems. Consumers won’t buy homes at a robust pace until households feel confident about their balance sheets. Consumers don't want to take on excessive debt and impair future liquidity with payment obligations. Until these facts change, real estate and residential construction can't improve. And that's enough to slow the economy's forward momentum.

On Friday the Census Bureau will announce February new-home sales. Curb your enthusiasm.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann

Tuesday, March 20, 2012

Housing Starts: No Good News

The Lehmann Letter (SM)

Housing Starts: No Good News

The Census Bureau had a little difficulty posting its full PDF release on housing starts this morning. This month’s report had not replaced last month’s. When it’s up you should be able to find it at:

http://www.census.gov/construction/nrc/pdf/newresconst.pdf

Nonetheless a capsule summary disclosed 698,000 starts in February. Take a look at the chart and you’ll see that anything around 700,000 is better than the 600,000 level that has prevailed for over a year. Then take a look at where we are, where we were and where we need to go and you’ll have a feel for the problem.

Housing Starts
(Click on chart to enlarge)

(Recessions shaded)

Tomorrow we’ll look at the February report for existing-home sales and on Friday we’ll look at new-home sales. Let’s hope for better news.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann

Monday, March 19, 2012

Real-Estate Releases

The Lehmann Letter (SM)

Look for three real-estate releases this week, listed below with the links to last month’s releases:

Housing Starts -

Tuesday, March 20, 8:30 EDT from the Census Bureau

http://www.census.gov/construction/nrc/pdf/newresconst.pdf


Sales of existing homes -

Wednesday, March 21, 10:00am EDT from the National Association of Realtors -

http://www.realtor.org/press_room/news_releases/2012/02/ehs_jan


Sales of new homes –

Friday, March 23, 10:00am EDT from the Census Bureau -

http://www.census.gov/construction/nrs/pdf/newressales.pdf


This letter has consistently observed that the expansion won’t be robust until real estate wakes up. Problem is: Residential real estate is a balance-sheet item, an asset. It’s not a perishable, like strawberries. Inventory remains – to depress the market. It isn’t thrown out to clear the way for new growth. Housing prices must start to rise to encourage many buyers. And other potential buyers are still repairing their balance sheets: Building liquidity and boosting net worth. Mortgage lenders, who are much tougher than they were during the earlier boom, want to see that.

That’s why residential real estate and building have lagged as other indicators –such as auto sales – have moved sharply north lately. It will take many months of steady improvement before we’re anywhere near normal again.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann

Friday, March 16, 2012

Gasoline and Autos

The Lehmann Letter (SM)

Today's business news was not good. February reports on inflation and production showed the former up and the latter flat.

The Bureau of Labor Statistics said that consumer prices (CPI) rose 0.4%, which translates to a 4.8% annual rate:

http://stats.bls.gov/news.release/cpi.nr0.htm

And the Federal Reserve reported no change in industrial production and a slight decline in capacity utilization to 78.7%:

http://www.federalreserve.gov/releases/g17/Current/default.htm

If you read the bulletins linked above you will learn that gasoline and autos were mostly responsible for the reports. You have noticed the jump in fuel prices at the pump and, of course, the CPI reflected this. Automobile production rose in January and fell in February, and that skewed the industrial-production report.

But one month does not constitute a trend. Gasoline prices and auto production fluctuate. There should be little concern at this time about runaway inflation and falling production.

Besides - as is usually the case - the charts help put everything in perspective.

CPI
(Click on chart to enlarge)

(Recessions shaded)

Although 4.8% is a somewhat higher rate of inflation than we've had in recent months, the chart makes clear that consumer prices have fluctuated between 0% and 5% for about 20 years. No upward trend has developed.

Capacity Utilization
(Click on chart to enlarge)

(Recessions shaded)

Capacity utilization - the rate at which industry uses its plant and equipment - is now just below 80%. We need to see continued growth here. A stall would not be good. You can tell that a rate above 80% will finally signal a return to industrial well-being.

This letter will continue to report on these indicators.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann

Thursday, March 15, 2012

Producer Prices: No Cause for Concern

The Lehmann Letter (SM)

Today the Bureau of Labor Statistics announced that producer (wholesale) prices had risen by 0.4% in February, or 4.8% at a seasonally adjusted annual rate:

http://stats.bls.gov/news.release/ppi.nr0.htm

Take a look at the chart and you will see that this is no cause for concern. The index of prices at the wholesale (not retail) level has averaged 5% or less for quite some time. Despite the recent rise in gasoline prices we are nowhere near the sharp gains of the 1970s

Producer Prices
(Click on chart to enlarge)


(Recessions shaded)

Tomorrow the Bureau of Labor Statistics releases its February report for consumer prices (CPI).

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann

Wednesday, March 14, 2012

The U.S. International Deficit: A Dilemma

The Lehmann Letter (SM)

Today the Department of Commerce announced that the US current-account deficit grew to $124.1 billion in last year's fourth quarter:

http://www.bea.gov/newsreleases/international/transactions/transnewsrelease.htm

If you put this number in perspective by placing it on the chart, it appears unremarkable. If you take a longer view, you might think that matters look pretty good. The current-account deficit plunged for 20 years and then moved back toward positive territory during the recent recession. Was that a good sign?

US Current Account Deficit
(Click on chart to enlarge)


(Recessions shaded)

Therein lies the dilemma. During the boom years our economy was on a borrowing binge - both public and private. Our government borrowed, but so did the private sector. We borrowed from the rest of the world in order to buy homes and cars and travel to places from which we were borrowing: More prosperity here at home meant greater indebtedness to lenders abroad. That's why the line in the chart went south.

We stopped borrowing as much when the economy shrank during the recession: Less borrowing from abroad went along with less spending here at home. That's why the chart went north for a while.

Now that the economy is recovering, we are beginning to borrow more here at home and abroad. Our current account deficit is growing and the line in the chart is falling once more.

We have become so dependent on debt that we can't expand without borrowing overseas. More prosperity at home goes along with our greater indebtedness to the rest of the world.

Expect this dilemma to sharpen as the economy gains strength.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann

Tuesday, March 13, 2012

The Inventory/Sales Ratio: A Little-Discussed Number

The Lehmann Letter (SM)

Last month this letter observed that businesses' robust and steady inventory build-up was another sign of a strengthening recovery. More goods on the shelf signal an optimistic sales outlook for the months ahead.

Now let's examine the relationship between inventories and sales. How does it compare with historical experience?

The chart shows that the ratio has fallen over the past 20 years as businesses' drive for efficiency has enabled them to expand sales with a smaller proportion of goods on the shelf. A smaller inventories/sales ratio means that sales have grown more rapidly than inventories.

Focusing on the most recent years, the ratio remained below 1.3 except for the recession-spike.

Inventory/Sales Ratio
(Click on chart to enlarge)

(Recessions shaded)

Today's report from the Census Bureau shows no divergence:

http://www.census.gov/mtis/www/data/pdf/mtis_current.pdf

In January, the latest available month, inventories were 1.27 times larger than sales. This fits the trend of normal, steady growth for both inventories and sales.

It's a good sign.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehman

Monday, March 12, 2012

Forecasting Difficulty

The Lehmann Letter (SM)

The Federal Reserve has the best economic and forecasting staff of any large organization. Nonetheless today's economy presents a challenge to the Fed.

Take a look at the following quotes from this article in today's New York Times:

http://www.nytimes.com/2012/03/12/business/as-fed-meeting-nears-it-awaits

“…The Fed is not sure how fast the economy is growing. Some of the main measures, which produce a murky picture in the best of times, are now telling divergent stories. In particular, people do not appear to be buying enough goods and services to sustain the rising pace of job creation.

“The Fed’s chairman, Ben S. Bernanke, testified before Congress last month that job growth would probably slow because the other measures tended to be more accurate. But he added that the reverse also could be true. And the Fed would like to know the answer before it decides whether it should promise new efforts to improve growth.

“…The Fed is already engaged in an immense campaign to improve growth, which it has said it plans to continue for the next three years. The central bank is holding short-term interest rates near zero, and it has amassed a $2.5 trillion portfolio of Treasury securities and mortgage-backed securities to pull down long-term rates. Any new program probably would amount to only a modest increase in the scale of the overall effort.”

When the Fed's chairman gives his best guess of the economy future but then says that the reverse could also be true, you know forecasting is difficult. That difficulty notwithstanding, the article also says that the Fed plans to maintain its economic stimulus for three more years. That's a good indication of the current economy's weak recovery.

This letter has long maintained that we can't have a robust economy without robust residential real estate. There doesn't seem to be any reason to change that view.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann

Friday, March 9, 2012

Good News at Home and Abroad

The Lehmann Letter (SM)

We should rejoice with strong domestic and European developments.

Today's employment report from the Bureau of Labor Statistics is excellent:

http://stats.bls.gov/news.release/empsit.nr0.htm

Our economy added 227,000 jobs in February and the unemployment rate held steady.

Look at the chart and you can see that this is the kind of number associated with economic expansion. For three months job gains have been over 200,000.

Job Growth
(Click on chart to enlarge)


(Recessions shaded)

And today's headlines in The New York Times and The Wall Street Journal report important progress - a milestone - in resolving the Greek debt crisis.

http://www.nytimes.com/2012/03/09/business/global/deadline-nears-for-greek-bond-swap.html?_r=1&ref=todayspaper

http://online.wsj.com/article/SB10001424052970203961204577269643946192330.html?mod=ITP_pageone_0

The vast majority of Greek-debt holders have agreed to accept losses as part of an overall settlement of the Greek financial crisis. Technically that's a default, but it's a sign of order instead of the chaos.

Europe is taking care of business.

Let's hope the coming months continue to bring good news.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehman

Thursday, March 8, 2012

Profit Margins and Profits

The Lehmann Letter (SM)

Yesterday the Bureau of Labor Statistics confirmed the slowing pace of productivity growth last year:

http://stats.bls.gov/news.release/prod2.nr0.htm

Don’t confuse productivity growth with production growth. The former measures efficiency; the latter measures output.

Productivity growth = Output growth / Labor input growth.

That’s why efficiency is a synonym for productivity. Both words indicate the rate at which output improves compared with the rate at which labor input increases. Productivity grows when output gains more rapidly than labor-time. More output per hour-of-work means more output per capita: The key to per-capita gains in income.

Productivity advanced during the slump and early recovery as employers shed workers more rapidly than output fell. Now employers must hire workers more workers to achieve additional output gains and, as labor growth catches up with output growth, productivity-growth suffers.

You can imagine that improved productivity benefits profit margins. Efficiency has a nice ring to it. Sure enough: The top chart illustrates recent strong profit-margin gains.

Ratio: Implicit Price Deflator to Unit Labor Costs
(Click on chart to enlarge)

(Recessions shaded)

But profit-margin gains have begun to stall as productivity gains have slowed. The ratio in the chart above, after improving for 20 years, may have reached its limit. Don’t expect further profit-margin improvement.

After-tax Corporate Profits
(Click on chart to enlarge)

(Recessions shaded)

Total profits are the product of profit margins multiplied by sales volume (profit margins X sales volume). Since it appears that profit margins have risen to their limit, sales volume must now grow strongly for earnings to continue their upward march. If sales growth is not robust, most of the biggest profit-gains (see the bottom chart) are behind us.

Can we reasonably expect strong sales growth in an economy with a weak residential-real-estate sector? That’s a question stock-market investors should keep in mind.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann

Wednesday, March 7, 2012

Three in a Row: Another Great Consumer-Credit Report

The Lehmann Letter (SM)

This letter drew attention to strong consumer-credit gains for November and December. This afternoon the Fed released another great report:

http://www.federalreserve.gov/releases/g19/current/default.htm

In January consumer credit grew by $213.6 billion at a seasonally-adjusted annual rate. Examine the chart and you can see just how strong this report is, especially
since it follows the $244.8 billion and $231.6 billion increases of the prior
months.

We like to see strong consumer-credit growth because rising borrowing is a sign of rising spending.

(Keep in mind that these numbers reflect changes in automobile loans and credit card balances. They do not include mortgage credit of any kind.)

Consumer Credit

(Click on chart to enlarge)


(Recessions shaded)

Returning to the chart you can see that consumer credit grew by about $100 billion a month in the boom years of 2003 - 2007. That perspective makes three months of $200 billion gains seem especially impressive.

Let's hope subsequent months are equally strong.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann

Tuesday, March 6, 2012

Big Milestone: New-vehicle Sales Regain 15 Million

The Lehmann Letter (SM)

The recovery regained a big milestone in February with yesterday's Commerce Department report of 15.0 million new-vehicle sales:

http://www.bea.gov/national/index.htm#gdp

(Scroll down to Supplemental Estimates, click on Motor vehicles, and open Tab #6 at bottom of Excel spreadsheet)

If you update the chart was that number you will see that sales have increased by more than 50% since their recession lows. More important, we are closing in on the 16-17 million plateau that prevailed before the recession.

New-vehicle Sales
(Click on chart to enlarge)

(Recessions shaded)

This is a true sign that consumers are coming back. It also serves to highlight the emerging gap between housing and everything else. Residential real estate remains in the doldrums while other indicators gain ground.

Today's letter also hoped to report on consumer credit, but January's data have not been released as of this writing. We'll try again tomorrow.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann

Monday, March 5, 2012

Waiting for Data

The Lehmann Letter (SM)

On Friday the Bureau of Labor Statistics will issue its key employment report. Everyone has their eyes and ears tuned for that.

Today and tomorrow, however, the Commerce Department and Fed should issue (publication dates are flexible) their lesser-known reports on new-vehicle sales and consumer credit: Important indicators of household demand.

Tomorrow’s letter should be able to report on these. Stay tuned.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann

Friday, March 2, 2012

Europe’s Central Bank Helps Out

The Lehmann Letter (SM)

This letter has expressed optimism over Europe’s long-term prospects. An article in today’s Wall Street Journal, entitled “Europe's Bond Sales Mark ECB Success Story,” (ECB = European Central Bank) sustains that optimism:

http://online.wsj.com/article/SB10001424052970204571404577255531548237386.html?mod=ITP_moneyandinvesting_0

The article begins:

“Buyers lined up for auctions of government debt Thursday, helping drive down borrowing costs for countries across the euro zone and providing strong evidence that the wave of cash injected into lenders by the European Central Bank is finding its way to stressed governments.”

Europe’s central bank is working in conjunction with Europe’s governments to ease Europe’s fiscal crisis. Let’s wish them well.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann

Thursday, March 1, 2012

PMI: What’s That?

The Lehmann Letter (SM)

On the first of each month the Institute of Supply Management (ISM) issues its Purchasing Managers’ Index (PMI) on manufacturing. Purchasing managers assess manufacturing output by determining the ease with which businesses can obtain industrial inputs: Easy = a slack economy, Difficult = a robust economy. The PMI index, as you can see in the chart, records expanding conditions when it exceeds 50 and contracting conditions when it falls below 50.

Today’s PMI index for February was 52.4, down slightly from January’s 54.1:

http://www.ism.ws/ISMReport/MfgROB.cfm?navItemNumber=12942

The accompanying announcement said, in part: “Comments from the panel continue to reflect a generally positive outlook for the next few months."

Capacity Utilization
(Click on chart to enlarge)


(Recessions shaded)

Remember that any report over 50 signifies expansion, so the slight decline is no cause for concern. Manufacturing activity has expanded for 2 ½ years. But you may ask, “Why has manufacturing’s expansion slowed? The chart reveals more robust gains immediately after the recession’s end.” That’s because industry was busy restocking depleted inventories. Now progress is slower.

Take heart that the ISM’s survey revealed “… a generally positive outlook for the next few months.”

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann