Employment Report

The Lehmann Letter (SM)

Stocks stabilized this morning as the Bureau of Labor Statistics reported that July’s unemployment rate remained virtually unchanged at 9.1% and that nonfarm employment grew by 117,000:

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

We’ll see if stocks hold steady through the close.

Job growth

(Click on chart to enlarge.)



Recessions shaded

A glance at the chart reveals that 117,000 new jobs, while better than some recent reports, is not up to the 200,000 – 300,000 usually associated with periods of expansion. The economy remains weak.

(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

Doom & Gloom

The Lehmann Letter (SM)

The chickens are coming home to roost.

As this blog has stated, rising profit margins have buoyed earnings. Now we need growing sales volume to carry earnings forward. But sales volume can’t grow in a weak economy. Residential construction must expand to transform weakness into strength. And that won’t happen until household balance sheets recover. Which won’t be soon…………

© 2011 Michael B. Lehman

August Economic Indicators

The Lehmann Letter (SM)

The blogger is on vacation, returning to the office on August 15.

But he’s not too far away to escape the news. Now that the debt increase has been resolved for the moment, some are making dire forecasts that reflect their view of the settlement.

As this letter has observed throughout the year, the economy is in a fragile state. It is hard to imagine that – under the current political circumstances – we could have reasonably expected an outcome sufficiently expansionary to overcome the economy’s inherent weakness. Growth will be weak until household balance sheets are repaired. That will take a while.

Here are August’s economic indicators.

ECONOMIC INDICATOR PUBLICATION SCHEDULE

August 2011

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

Quarterly Data

BLS……………Productivity …..……Tue, 9th

BEA…………………….GDP …..……Fri, 26th

Monthly Data

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

BEA.New-vehicle sales.(Approximate).Wed, 3rd

BLS………….Employment………… Fri, 5th
Fed Consumer credit..(Approximate).Fri, 5th
Census…….......Inventories…….... Fri, 12th
Fed……….Capacity utilization……Tue, 16th
Census……...Housing starts…….Tue, 16th
BLS………...Producer prices……. Wed, 17th
BLS………….Consumer prices.….. Thu, 18th
NAR………Existing-home sales….Thu, 18th
Conf Bd…….Leading indicators….Thu, 18th

Census……..New-home sales…...Tue, 23rd
Census……….Capital goods…….. Wed, 24th

Conf Bd….Consumer confidence.. Tue, 30th

*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. Lehman

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

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

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

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