Europe's May Day

The Lehmann Letter (SM)

  

Take a look at today's New York Times article about May Day rallies across Europe protesting that continent's austerity policies:

http://www.nytimes.com/2012/05/02/world/europe/austerity-intensifies-may-day-protests-in-europe.html?_r=1&ref=todayspaper

Nations across Europe have been tightening their fiscal belts: Reducing expenditures and raising taxes. These policies have shrunk aggregate demand, contracting output, employment and income. It is a classic "rules of the game" policy, designed to maintain uniform currency levels - i.e. preserve the euro - in the face of investor skepticism. Nations hope that investors won't dump their bonds if they are confident that budgets will be balanced.

The consequences are clear. Today's New York Times carries a story about the recession in Holland:

http://www.nytimes.com/2012/05/02/business/global/euro-stress-crosses-border-into-netherlands.html?ref=todayspaper

Yesterday's Wall Street Journal published a story about recession in Spain:

http://online.wsj.com/article/SB10001424052702304050304577375312057039088.html?KEYWORDS=%22Europe+In+Slump+Rethinks+Austerity%22

French presidential elections, concluding soon, will determine France's willingness to maintain austerity. Irish voters will also have their say.

Germany, Europe's principal austerity advocate, continues scolding its weaker compatriots. Chancellor Angela Merkel must respect the wishes of her own citizens: They are tired of bailing out the profligate nations on Europe's fringe. Perhaps Chancellor Merkel can convince her electorate to feel the rest of Europe's pain and ease demands for austerity.

But no one in a position of leadership is suggesting that Europe forsake its long-run project and abandon the euro.

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

© 2012 Michael B. Lehmann

Purchasing Managers’ Index in Perspective

The Lehmann Letter (SM)

This morning’s report from the Institute of Supply Management that its April Purchasing Managers’ Index (PMI) rose slightly to 54.8 is good news:

http://www.ism.ws/ISMReport/MfgROB.cfm

But once again we turn to our chart for perspective. Any reading over 50 is good because it shows that manufacturing is growing, and you can see that the PMI has been above 50 since the recession. This indicates that manufacturing continues to expand, but not at a robust rate.

Purchasing Managers’ Index

(Click on chart to enlarge)

(Recessions shaded)

The PMI reached toward 60 immediately after recession’s end as businesses restocked their inventories. That jump in orders bumped the PMI upward. Then it settled into a long, slow upward climb of readings just above 50.

Today’s report is good, but not great. And that’s OK. The coming months will reveal whether or not manufacturing has begun to grow more rapidly.

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

© 2012 Michael B. Lehmann

May Publication Schedule

The Lehmann Letter (SM)

  

Many are concerned that the expansion is slowing and may slow further.

Here are the economic indicators – together with their publication schedule – that we’ll examine in May.

Slowdown? Probably not. Slow expansion? Probably.

We’ll try to avoid semantic quibbles.

ECONOMIC INDICATOR PUBLICATION SCHEDULE

May 2012

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

Quarterly Data

BLS………Productivity…………..Thu, 3rd

BEA……….GDP & Profits..…..……Thu, 31st

Monthly Data

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

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

Fed. Consumer credit..(Approximate).Mon, 7^th

BLS………….Employment…….…   Fri, 4th

BLS………...Producer prices……. Fri, 11^th

BLS……….Consumer prices.….... Tue, 15^th

Census…….......Inventories…..... Tue, 15^th

Fed……….Capacity utilization……Wed, 16^th

Census……...Housing starts…….Wed, 16^th

NAR………Existing-home sales….Tue, 22nd

Conf Bd…….Leading indicators….Thu, 17^th   

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

Conf Bd….Consumer confidence.. Tue, 29th

Census……….Capital goods…….. Thu, 24^th

*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

© 2012 Michael B. Lehmann

GDP OK

The Lehmann Letter (SM)

Today's GDP number was OK. The Commerce Department reported that gross domestic product grew by 2.2% in the first quarter:

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

That's not bad. We had smaller numbers for several quarters in 2011, as the chart indicates.

There were, however, some components of interest. Household expenditures on durable goods, such as motor vehicles, grew strongly. That's not surprising since new-vehicle sales have been robust in recent months. Residential construction's vigorous performance was of greater interest because the housing numbers have not been especially encouraging. Perhaps the first quarter's good winter weather permitted an unseasonably large amount of construction activity. Housing starts did pop up a bit in January and February and builders may have done an unusually large amount of work on structures in progress.

There were also some disappointing negative numbers. Business investment in plant and equipment fell after showing recent strength. Sadly, too, both federal and state and local government spending continued to slide. It's too bad that we've chosen to curtail government expenditures while the private sector continues to struggle.

GDP Change

(Click on chart to enlarge)

(Recessions shaded)

But all in all and all things considered, this has not been a bad quarter.

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

© 2012 Michael B. Lehmann

France’s Next President?

The Lehmann Letter (SM)

This morning’s New York Times covered a press conference by Francois Hollande, France’s Socialist candidate for president:

http://www.nytimes.com/2012/04/26/world/europe/hollande-says-hell-seek-new-fiscal-treaty-if-elected-in-france.html?_r=1&ref=todayspaper

One might think that he would advocate a radical departure from the policies of Nicolas Sarkozy, the incumbent, with respect to European solidarity.

But it’s hard to find them in this story. Here’s an extensive excerpt:

“In the first news conference of his campaign, Mr. Hollande said that he would propose four modifications to the European Union treaty, favored by Germany and approved in March but not yet ratified. Most significant, perhaps, he called for the creation of collective euro bonds, but to be used to finance industrial infrastructure projects, not to consolidate debt, which the Germans oppose.

“He said he would also call for a financial transaction tax, as his rival, President Nicolas Sarkozy has done, and for loosening up regulations to allow unused European Union structural funds to be spent on growth. Finally, he urged the European Investment Bank to place a greater emphasis on job creation in its allocation of financing.

“The main risk to Europe now, Mr. Hollande said, “is that the European economy remains in a recession because not enough credit is provided to companies.” He said that increased growth would help shrink debt, and that other European leaders were coming closer to his argument that increased growth is “ultimately a more effective way of reaching the same goal of controlling the debt and reducing deficits.””

There is no mention of additional fiscal stimulus, i.e. permitting peripheral nations such as Spain an increase in their budget deficits in order to stimulate aggregate demand. There is no mention of struggling with Angela Merkel of Germany, Europe’s champion of fiscal conservatism. And, most important, there is no suggestion of breaking up the euro-zone and derailing Europe’s march toward greater cohesion.

Could it be that, if elected, Mr. Hollande, the Socialist candidate, will stay the course just as Mr. Sarkozy has: Putting European solidarity above all other long-run goals.

It would not be surprising.

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

© 2012 Michael B. Lehmann

Capital Goods: More Bifurcation

The Lehmann Letter (SM)

This morning the Census Bureau reported that capital-goods orders were down in March:

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

This letter has always focused on a portion of that report: New orders for nondefense capital goods, a measure of business (not household) investment in new equipment.

The chart shows that these orders have popped up strongly since the recession. This provides more evidence of our bifurcated recovery: Everything but housing seems to be doing well.

March's $73 billion was down sharply from February's $81.6 billion. There is always noise in the data, and this statistic is particularly volatile because of its inclusion of new aircraft orders. So the real story remains: Business capital expenditures have recovered sharply from the recession.

Nondefense Capital Goods

(Click on chart to enlarge)

(Recessions shaded)

But we should pay attention to the chart. Business capital expenditures are supposed to exceed their previous peaks by a great deal. If this series is to do as well as it did in the 1980s and 1990s, it has to move up to the $100 billion range. That's a tall order.

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

© 2012 Michael B. Lehmann

More Bifurcation: New Home Sales and Consumer Confidence

The Lehmann Letter (SM)

This morning's bulletins provide additional signs of bifurcation.

New-home sales remain in the doldrums:

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

While consumer confidence has moved up and out of recession's trough:

http://www.conference-board.org/data/consumerconfidence.cfm

Update the charts with these new numbers.

There were 328,000 new homes sold in March, a dip from February's revised 353,000. The chart reveals that those are not bad numbers. There is no sign of a double dip. At the same time you can see that a true expansion has not yet begun.

Consumer confidence was 69.2 in April, about the same as March's 69.5. That seems, like new-home sales, to indicate a plateau. But the chart shows us that there has been some recovery from recession lows.

New Home Sales

(Click on chart to enlarge)

(Recessions shaded)

Consumer Confidence

(Click on chart to enlarge)

(Recessions shaded)

Here is a fair way to summarize: Neither of these indicators provides evidence of robust expansion, but they do tell different stories. Households are more confident than they were several years ago. Unfortunately this confidence has not helped housing. New-home sales are barely higher.

This is evidence of the bifurcated economy. Everything except housing is trying to head north. Unfortunately, without housing, the economy can't move quickly ahead.

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

© 2012 Michael B. Lehmann