The Lehmann Letter (SM)
Today’s positive report on manufacturing from the Institute of Supply Management gave the stock market a boost. But it’s positive news from housing and autos that will signal the economy’s escape from its current morass.
• Here are the key consumer-demand indicators we'll examine and the September days and dates on which we can expect them to appear. They will give us up-to-the-minute information on demand's recovery.
Source (* below)……Series Description……Day & Date
BEA….New-vehicle sales…...(Approximate).Wed, 8th
Fed………..Consumer credit…...(Approximate).Wed, 8th
Census……….……..Housing starts………….Tue, 21st
NAR………………Existing-home sales…….Thu, 23rd
Census…………..New-home sales………...Fri, 24th
Conf Bd………….Consumer confidence….. Tue, 28th
• Production, employment and capital expenditures are important, but they’re not likely to lead the charge. Here’s what to watch.
Source (* below)……Series Description……Day & Date
Quarterly Data
BLS…………..Productivity…………….Thu, 2nd
BEA………..….GDP…………………….Thu, 30th
Monthly Data
ISM……….Purchasing managers’ index…….Wed, 1st
BLS…………………….Employment………… Fri, 3rd
Census…………………...Inventories……….. Fri, 10th
Fed……………..Industrial production……….Wed, 15th
Fed…………….Capacity utilization………….Wed, 15th
BLS………………….Producer prices……. Thu, 16th
BLS………………….Consumer prices….….. Fri, 17th
Conf Bd……….Leading indicators……….Thu, 23rd
Census………….Capital goods………….. Fri, 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
© 2010 Michael B. Lehmann
Wednesday, September 1, 2010
Monday, August 30, 2010
No More Rabbits In The Hat
The Lehmann Letter (SM)
Everyone wonders: Why is this recession so much worse than earlier recessions? Why is it dragging on for so long? Why is the recovery so weak?
To answer that, we must familiarize ourselves with earlier recessions and recoveries.
•Before the 1990s Dot-Com Boom. Household spending on homes and autos led the business cycle after World War II. As borrowing and spending surged, inflation and interest rates rose. That brought an end to the boom, and recession began. When inflation and interest rates fell due to recession, and encouraged renewed borrowing and spending, a new expansion began. That's why recessions were brief, recovery strong and unemployed workers in construction and manufacturing were quickly recalled to work.
•The 1990s Dot-Com Boom. In the early 1980s the Fed brought an end to the earlier boom-bust cycle and its inflationary bias. The economy slumped going into the 1990-91 Gulf War and remained weak for a couple of years after that. But the dot-com boom brought surging recovery and expansion without inflation. This time business, not households, led the charge as industry invested in personal computers, software applications and the Web. The economy and employment recovered and expanded sharply. We had pulled a rabbit out of the hat.
•The 2000-2001 Dot-Com Bust and the 2002-2007 Real-Estate Boom. Shrinking business capital expenditures, not contracting household purchases, generated the 2000-2001 dot-com recession. Once again concerns about a weak recovery and expansion arose, but the 2002-2007 real-estate bubble generated another expansion. That was the second rabbit we pulled from the hat.
•The Present Predicament. The bursting of the 2002-2007 real-estate bubble led to the present doldrums. The economy has passed from asset inflation to asset deflation, and the economy will remain weak as long as asset deflation prevails. We can't snap back quickly the way we did in the 1960s and 1970s when falling interest rates released an economy that had been temporarily stalled by rising inflation and interest rates. Nor is there a high-tech expansion available to rescue the economy; nor will low interest rates produce another asset inflation. There are no more rabbits in the hat.
Once upon a time we were blessed by a self-correcting business cycle that always brought snappy recovery and expansion from each recession. When that failed, the 1990s dot-com boom and the 2002-2007 real-estate bubble rescued us. Now we're in a jam and it could be a long time before we pull out of it. To repeat, there are no more rabbits in the hat.
© 2010 Michael B. Lehmann
Everyone wonders: Why is this recession so much worse than earlier recessions? Why is it dragging on for so long? Why is the recovery so weak?
To answer that, we must familiarize ourselves with earlier recessions and recoveries.
•Before the 1990s Dot-Com Boom. Household spending on homes and autos led the business cycle after World War II. As borrowing and spending surged, inflation and interest rates rose. That brought an end to the boom, and recession began. When inflation and interest rates fell due to recession, and encouraged renewed borrowing and spending, a new expansion began. That's why recessions were brief, recovery strong and unemployed workers in construction and manufacturing were quickly recalled to work.
•The 1990s Dot-Com Boom. In the early 1980s the Fed brought an end to the earlier boom-bust cycle and its inflationary bias. The economy slumped going into the 1990-91 Gulf War and remained weak for a couple of years after that. But the dot-com boom brought surging recovery and expansion without inflation. This time business, not households, led the charge as industry invested in personal computers, software applications and the Web. The economy and employment recovered and expanded sharply. We had pulled a rabbit out of the hat.
•The 2000-2001 Dot-Com Bust and the 2002-2007 Real-Estate Boom. Shrinking business capital expenditures, not contracting household purchases, generated the 2000-2001 dot-com recession. Once again concerns about a weak recovery and expansion arose, but the 2002-2007 real-estate bubble generated another expansion. That was the second rabbit we pulled from the hat.
•The Present Predicament. The bursting of the 2002-2007 real-estate bubble led to the present doldrums. The economy has passed from asset inflation to asset deflation, and the economy will remain weak as long as asset deflation prevails. We can't snap back quickly the way we did in the 1960s and 1970s when falling interest rates released an economy that had been temporarily stalled by rising inflation and interest rates. Nor is there a high-tech expansion available to rescue the economy; nor will low interest rates produce another asset inflation. There are no more rabbits in the hat.
Once upon a time we were blessed by a self-correcting business cycle that always brought snappy recovery and expansion from each recession. When that failed, the 1990s dot-com boom and the 2002-2007 real-estate bubble rescued us. Now we're in a jam and it could be a long time before we pull out of it. To repeat, there are no more rabbits in the hat.
© 2010 Michael B. Lehmann
Wednesday, August 25, 2010
Housing & Asset Deflation
The Lehmann Letter (SM)
Today the Census Bureau confirmed housing’s predicament:
http://www.census.gov/const/newressales.pdf
July sales of new homes fell to a new low of 276,000. This bad news follows directly on the heels of yesterday's word of the drop in existing-home sales.
New Home Sales
Click on chart to enlarge.)
Recessions shaded
And the chart makes clear that new-home sales have been stumbling around the bottom for the past year. To date all hopes of recovery have been premature.
Here's why.
1. We are in the midst of an asset deflation brought on by the reaction to the earlier housing boom. Since high interest rates did not cause the housing bust, low interest rates can't cure it.
2. Today's high unemployment is a consequence of housing's slump, not the cause of it. So don't expect falling unemployment to help any time soon. The causation will run the other way: Rising employment must wait for housing's recovery.
3. Households are busy re-liquefying their balance sheets. That won't permit large down payments and new mortgage-debt obligations.
4. There's a glut of homes on the market and the rising tide of foreclosures will sustain that glut in the near future. This will discourage homebuilders and new-home sales.
Only a massive mortgage write-down, funded by the federal government, could have alleviated this disaster. And that didn't happen.
So now it will take a long, long time to dig our way out.
(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
Today the Census Bureau confirmed housing’s predicament:
http://www.census.gov/const/newressales.pdf
July sales of new homes fell to a new low of 276,000. This bad news follows directly on the heels of yesterday's word of the drop in existing-home sales.
New Home Sales
Click on chart to enlarge.)
Recessions shaded
And the chart makes clear that new-home sales have been stumbling around the bottom for the past year. To date all hopes of recovery have been premature.
Here's why.
1. We are in the midst of an asset deflation brought on by the reaction to the earlier housing boom. Since high interest rates did not cause the housing bust, low interest rates can't cure it.
2. Today's high unemployment is a consequence of housing's slump, not the cause of it. So don't expect falling unemployment to help any time soon. The causation will run the other way: Rising employment must wait for housing's recovery.
3. Households are busy re-liquefying their balance sheets. That won't permit large down payments and new mortgage-debt obligations.
4. There's a glut of homes on the market and the rising tide of foreclosures will sustain that glut in the near future. This will discourage homebuilders and new-home sales.
Only a massive mortgage write-down, funded by the federal government, could have alleviated this disaster. And that didn't happen.
So now it will take a long, long time to dig our way out.
(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, August 24, 2010
Housing
The Lehmann Letter (SM)
Housing
Today the National Association of Realtors announced a big drop in July existing-home sales. These data can vary sharply from month to month and the expiration of the housing-tax-credit had an effect. But the continued housing slump is cause for concern.
And it's not just existing-home sales that have been hit hard. New-home sales and residential construction are also in the doldrums. Residential real estate is in a slump.
Prevailing rock-bottom interest rates highlight the slump. They should stimulate building and buying, but they can't do the job. Households’ balance sheets are so illiquid and debt burdens so heavy, who can blame them for sitting on the sidelines?
In past business cycles, rising interest rates choked off housing and falling interest rates revived housing. But we've just come off a new post-World War II phenomenon: The housing-asset inflation and deflation. Be prepared for a very slow and weak recovery.
© 2010 Michael B. Lehmann
Housing
Today the National Association of Realtors announced a big drop in July existing-home sales. These data can vary sharply from month to month and the expiration of the housing-tax-credit had an effect. But the continued housing slump is cause for concern.
And it's not just existing-home sales that have been hit hard. New-home sales and residential construction are also in the doldrums. Residential real estate is in a slump.
Prevailing rock-bottom interest rates highlight the slump. They should stimulate building and buying, but they can't do the job. Households’ balance sheets are so illiquid and debt burdens so heavy, who can blame them for sitting on the sidelines?
In past business cycles, rising interest rates choked off housing and falling interest rates revived housing. But we've just come off a new post-World War II phenomenon: The housing-asset inflation and deflation. Be prepared for a very slow and weak recovery.
© 2010 Michael B. Lehmann
Thursday, July 22, 2010
August Publication Schedule
The Lehmann Letter (SM)
Everyone knows that housing led us into the recent recession. But what will lead us out? Here are the key August consumer-demand indicators that you can follow for up-to-the-minute information on demand's recovery.
Go to http://www.beyourowneconomist.com/ and click on Seminars, then click on Economic Indicators to navigate the sites that provide the data and click on Charts for a visual presentation that you can update.
• Home sales and construction remain in the doldrums. Consumer confidence and consumer credit are down, too. Households won't begin to spend heavily until they are willing to borrow heavily.
• Here are the key consumer-demand indicators we'll examine and the August days and dates on which we can expect them to appear. They will give us up-to-the-minute information on demand's recovery.
• Stay tuned to future editions of this letter as the story unfolds.
Source (* below)……Series Description……Day & Date
BEA….New-vehicle sales…...(Approximate).Wed, 4th
Fed………..Consumer credit…...(Approximate).Fri, 6th
Census…….………....Retail trade…….……….Fri, 13th
Census……….……..Housing starts………….Tue, 17th
NAR………………Existing-home sales…….Tue, 24th
Census…………..New-home sales………...Wed, 25th
Conf Bd………….Consumer confidence….. Tue, 31st
* BEA = Bureau of Economic Analysis of the U.S. Department of Commerce
* Census = U.S. Bureau of the Census
* Conf Bd = Conference Board
* Fed = Federal Reserve System
* NAR = National Association of Realtors
• We will also check on manufacturing activity and inventories as well as overall employment and capital expenditures to understand how strongly supply is responding to demand. The following indicators are key.
Source (* below)……Series Description……Day & Date
Quarterly Data
BEA……………….………GDP…………...……Fri, 27th
Monthly Data
ISM……….Purchasing managers’ index…….Mon, 2nd
BLS…………………….Employment………… Fri, 6th
BLS………………….Consumer prices….….. Fri, 13th
Census…………………...Inventories……….. Fri, 13th
Fed……………..Industrial production……….Tue, 17th
Fed…………….Capacity utilization………….Tue, 17th
BLS………………….Producer prices……. Tue, 17th
Conf Bd……….Leading indicators……….Thu, 19th
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
© 2010 Michael B. Lehmann
Everyone knows that housing led us into the recent recession. But what will lead us out? Here are the key August consumer-demand indicators that you can follow for up-to-the-minute information on demand's recovery.
Go to http://www.beyourowneconomist.com/ and click on Seminars, then click on Economic Indicators to navigate the sites that provide the data and click on Charts for a visual presentation that you can update.
• Home sales and construction remain in the doldrums. Consumer confidence and consumer credit are down, too. Households won't begin to spend heavily until they are willing to borrow heavily.
• Here are the key consumer-demand indicators we'll examine and the August days and dates on which we can expect them to appear. They will give us up-to-the-minute information on demand's recovery.
• Stay tuned to future editions of this letter as the story unfolds.
Source (* below)……Series Description……Day & Date
BEA….New-vehicle sales…...(Approximate).Wed, 4th
Fed………..Consumer credit…...(Approximate).Fri, 6th
Census…….………....Retail trade…….……….Fri, 13th
Census……….……..Housing starts………….Tue, 17th
NAR………………Existing-home sales…….Tue, 24th
Census…………..New-home sales………...Wed, 25th
Conf Bd………….Consumer confidence….. Tue, 31st
* BEA = Bureau of Economic Analysis of the U.S. Department of Commerce
* Census = U.S. Bureau of the Census
* Conf Bd = Conference Board
* Fed = Federal Reserve System
* NAR = National Association of Realtors
• We will also check on manufacturing activity and inventories as well as overall employment and capital expenditures to understand how strongly supply is responding to demand. The following indicators are key.
Source (* below)……Series Description……Day & Date
Quarterly Data
BEA……………….………GDP…………...……Fri, 27th
Monthly Data
ISM……….Purchasing managers’ index…….Mon, 2nd
BLS…………………….Employment………… Fri, 6th
BLS………………….Consumer prices….….. Fri, 13th
Census…………………...Inventories……….. Fri, 13th
Fed……………..Industrial production……….Tue, 17th
Fed…………….Capacity utilization………….Tue, 17th
BLS………………….Producer prices……. Tue, 17th
Conf Bd……….Leading indicators……….Thu, 19th
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
© 2010 Michael B. Lehmann
Wednesday, July 21, 2010
July Disappoints
The Lehmann Letter (SM)
The stock market slumped today in response to Fed Chairman Ben Bernanke's congressional testimony. The Chairman let Congress know that the outlook is not rosy.
But you need not have waited for Mr. Bernanke's testimony to reach a similar conclusion. Just take a look at housing starts and auto sales.
The Census Bureau announced 549,000 housing starts in June. Picture that number in the chart below. You can see the double-dip. Housing starts fell below 600,000, then snapped back only to fall below 600,000 again. The problem is clear. The tax incentive provided a temporary stimulus that has now expired. Mortgage rates are low, but that can't offset the overhang of unsold homes on the market and the flood of foreclosed homes that will soon join them. It's difficult for builders to make and sell new homes when so many existing properties glut the market.
Housing Starts
(Click on chart to enlarge.)
Recessions shaded
Auto sales present a similar problem. The Commerce Department reported June sales of 11.1 million new vehicles at an annual rate. You can see from the chart below that new-vehicle sales are stuck in the 11 million range. That's far below the 16 or 17 million sales plateau that prevailed before the recession.
New-Vehicle Sales
(Click on chart to enlarge.)
Recessions shaded
Residential construction and automobile production are important industries. Think of the activities that depend on them: Everything from lumber and building materials to kitchen appliances and furniture and furnishings to steel, glass and rubber tires. The economy can't be healthy until this entire constellation is restored to its higher plane.
Why aren't households borrowing and spending to purchase the homes and cars? Because they're protecting their balance sheets. Most consumers are trying to conserve liquidity and reduce debt. Those goals stand in direct contradiction to additional home and auto purchases. The recovery can't turn robust until this situation takes a turn for the better.
(The charts were 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
The stock market slumped today in response to Fed Chairman Ben Bernanke's congressional testimony. The Chairman let Congress know that the outlook is not rosy.
But you need not have waited for Mr. Bernanke's testimony to reach a similar conclusion. Just take a look at housing starts and auto sales.
The Census Bureau announced 549,000 housing starts in June. Picture that number in the chart below. You can see the double-dip. Housing starts fell below 600,000, then snapped back only to fall below 600,000 again. The problem is clear. The tax incentive provided a temporary stimulus that has now expired. Mortgage rates are low, but that can't offset the overhang of unsold homes on the market and the flood of foreclosed homes that will soon join them. It's difficult for builders to make and sell new homes when so many existing properties glut the market.
Housing Starts
(Click on chart to enlarge.)
Recessions shaded
Auto sales present a similar problem. The Commerce Department reported June sales of 11.1 million new vehicles at an annual rate. You can see from the chart below that new-vehicle sales are stuck in the 11 million range. That's far below the 16 or 17 million sales plateau that prevailed before the recession.
New-Vehicle Sales
(Click on chart to enlarge.)
Recessions shaded
Residential construction and automobile production are important industries. Think of the activities that depend on them: Everything from lumber and building materials to kitchen appliances and furniture and furnishings to steel, glass and rubber tires. The economy can't be healthy until this entire constellation is restored to its higher plane.
Why aren't households borrowing and spending to purchase the homes and cars? Because they're protecting their balance sheets. Most consumers are trying to conserve liquidity and reduce debt. Those goals stand in direct contradiction to additional home and auto purchases. The recovery can't turn robust until this situation takes a turn for the better.
(The charts were 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
Friday, July 2, 2010
On Vacation
The blogger is taking some time off and will post intemittently through mid August.
Have a good summer!
Have a good summer!
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