What the Fed Said

The Lehmann Letter (SM)

Yesterday’s Letter featured The New York Times’s assessment of the Federal Reserve’s economic outlook as expressed at the latest meeting of the Federal Open Market Committee. (Minutes released with three-week delay.)

Here’s what the Fed said:

“Minutes of the Federal Open Market Committee

June 19-20, 2012”

http://www.federalreserve.gov/monetarypolicy/fomcminutes20120620.htm

“Staff Economic Outlook

“In the economic projection prepared by the staff for the June FOMC meeting, the forecast for real gross domestic product (GDP) growth in the near term was revised down. The revision reflected data indicating a slower pace of private-sector job gains, more-subdued retail sales, a lower trajectory for personal income, greater restraint in government purchases, and weaker net exports than the staff anticipated at the time of the previous projection. Moreover, recent adverse developments in Europe and tighter domestic financial conditions led the staff to revise down somewhat the medium-term forecast for real GDP growth. With the drag from fiscal policy anticipated to increase next year, the staff projected that the growth rate of real GDP would not materially exceed that of potential output until 2014 when economic activity was expected to accelerate gradually, supported by accommodative monetary policy, further improvements in credit availability, and rising consumer and business sentiment. Increases in economic activity were anticipated to narrow the wide margin of slack in labor and product markets only slowly over the projection period, and the unemployment rate was expected to still be elevated at the end of 2014….”

Once again: There’s little cause for optimism in the Fed’s forecast.

(Summer season: The Lehmann Letter will be in summer-vacation mode during July and August.)

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

© 2012 Michael B. Lehmann

Sad Commentary

The Lehmann Letter (SM)

Yesterday the Fed released the minutes for its most recent Federal Open Market Committee meeting:

http://www.federalreserve.gov/newsevents/press/monetary/20120711b.htm

They elicited a sad commentary in an article in this morning’s New York Times:

“Fed Is Torn on Tipping Point for Action”

http://www.nytimes.com/2012/07/12/business/economy/federal-reserve-officials-show-disappointment-with-growth.html?_r=1&ref=todayspaper

The article begins:

“Federal Reserve officials agreed at a meeting in June that unemployment would remain elevated for another five to six years, but most did not regard that as reason enough to expand the Fed’s efforts to stimulate growth, according to an official account published on Wednesday.

“The American economy is stuck in a new kind of normal, somewhere between crisis and prosperity, and economic policy makers are struggling to define their role. The Fed, which has responded forcefully each time the economy tips back toward recession, remains divided over whether it should try with similar urgency to return the economy to prosperity.”

To repeat: The new normal is five/six years of above-normal unemployment.

That’s a sad commentary.

(Summer season: The Lehmann Letter will be in summer-vacation form during July and August.)

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

© 2012 Michael B. Lehmann

Consumer Credit’s Good Report

The Lehmann Letter (SM)

On Monday the Federal Reserve reported that consumer credit grew by a whopping $205.4 billion in May:

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

Household spending must grow strongly for a robust recovery, and households must borrow to finance it. This shows they are.

Consumer Credit

(Click on chart to enlarge)

(Recessions shaded)

The chart as well as the latest report, which provides data for the past three quarters, are all upbeat.

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

© 2012 Michael B. Lehmann

Europe: Doubters Take Note

The Lehmann Letter (SM)

  

The euro’s doubters should take note.

Last weekend France and Germany commemorated the fiftieth anniversary of their declaration of friendship, first  announced at a 1962 meeting of President Charles de Gaulle of France and Chancellor Konrad Adenauer of Germany.

According to a July 8 article in The New York Times:

“Germany and France Celebrate Their Bond”

http://www.nytimes.com/2012/07/09/world/europe/germany-and-france-celebrate-their-bond.html?_r=1&ref=todayspaper

Chancellor Angela Merkel of Germany, with French President Francois Hollande by her side, said:

““The European economic and currency union, as founded 20 years ago, has proved itself not strong enough yet,” she said. “Our generation has to draw the right lessons from that.” It is important, she said, to put the “finishing touches on a political level of the economic and monetary union — it’s a herculean task, but Europe is up to it.””

It is significant that the leaders of Europe’s most powerful states publicized their bonding of fifty years ago to declare their vision of where Europe will be fifty years hence: United in both economy and polity.

The euro’s doubters should take note.

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

© 2012 Michael B. Lehmann

Autos: Revising Our Expectations Downward?

The Lehmann Letter (SM)

Is it time to revise our expectations downward?

There was an upbeat reaction at the beginning of the month to motor-vehicle manufacturers’ June sales.

And on July 5 the Commerce Department released its estimate of 14.0 million new-vehicle sales at a seasonally-adjusted annual rate:

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

The chart tells you that this is a big improvement over the recession lows of less than 10 million. There’s been a big pop up.

But now – it seems – we’ve stalled.

New-Vehicle Sales

(Click on chart to enlarge)

(Recessions shaded)

New-vehicle sales have averaged around 14million for the first-half of the year. The growth trend is over.

Is it time to revise our expectations downward?

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

© 2012 Michael B. Lehmann

Employment: What Can You Say?

The Lehmann Letter (SM)

What can you say when you’ve already said so much?

We need 250,000 more jobs a month – month after month, year after year – to drive down the unemployment rate. It’s just not happening.

And today’s employment report from the Bureau of Labor Statistics did nothing to change that assessment.

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

The report begins:

“Nonfarm payroll employment continued to edge up in June (+80,000), and the unemployment rate was unchanged at 8.2 percent, the U.S. Bureau of Labor Statistics reported today….”

The second number can’t head south until the first number goes north.

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

© 2012 Michael B. Lehmann

Europe: Not Yet Toast

The Lehmann Letter (SM)

The casual observer of European events is tempted to throw up his or her hands in despair and conclude: THEY’RE TOAST!

Not so fast. Don’t be dragged into the details. Keep the big picture in focus. Every crisis has brought new progress. New challenges have brought new solutions.

You needn’t be thoroughly familiar with current events in order to see history, as well as progress, unfolding. A stronger Europe is being forged before our eyes.

See, for instance, this article that appeared in July 3’s New York Times.

“Europe’s Banking Chief Wields New Power in Crisis”

http://www.nytimes.com/2012/07/03/world/europe/european-central-bank-head-draghi-has-new-powers.html?_r=1&ref=nicholaskulish

The article’s opening paragraphs said:

“The spotlight in the European debt crisis has now shifted decisively toward the influential leader of the European Central Bank, Mario Draghi, who emerged from the recent summit meeting in Brussels with new powers and stronger backing to address the Continent’s financial woes.

“Political leaders took significant strides toward making the central bank more like the United States Federal Reserve, giving it authority to oversee the euro zone’s largest banks and, once that new regulator is in place as soon as the end of this year, a likely role in rescuing Spanish banks with capital directly from the European rescue funds.

“Many of the longer-run plans under discussion, like European deposit insurance, would mean shifting further responsibilities toward the bank, arguably giving Mr. Draghi the most influential executive powers in Europe.”

These are just pieces of the final puzzle. But they are falling into place.

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

© 2012 Michael B. Lehmann