Category: Economy

Economics Update

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It’s jobless Thursday, and initial claims fell slightly to a still awful 472,000, in the middle of the 450-485k range it has been been in, with one exception, for the past 6 months, while the less volatile 4-week moving average fell to 485,500 last week from 488,000, and continuing claims fell to 4.46 million, and the people on emergency UI fell as well.

It’s a lot of press about improvement, but this is not even treading water, this is a number in which payrolls continue to fall.

Pending home sales rose slightly in July, and beat estimates, but the market is still pretty much dead.

Someone Has a Clue

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Specifically, Laura Tyson, who is calling for another round of stimulus.

Of course, you can find a lot of people calling for another round of stimulus, but what makes Ms. Tyson different from people like Nobel prize winning economist Paul Krugman, and Nobel Prize winning economist Joseph Stiglitz is the fact that people at the White House actually listen to her, she is a member of the White House’s Economic Recovery Advisory Board.

Of course, that paragraph raises a question for me: Why is the White House studiously freezing out people like Nobel Prize winning economists Krugman and Stiglitz?

It would seem to me that these are the sort of people one should listen to.

Economics Update

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The lede has to be the ADP report showing that private employers cut 10,000 jobs in August.

Obviously, we will get the official numbers from the Feds on Friday.

On the other hand, manufacturing grew more than expected in August.

It’s kind of a mixed bag news day, with consumer spending increasing, but real incomes fell for the first time in over 6 months and the Conference Board’s consumer confidence beat estimates.

I’m not sure exactly what they are spending money on though, because car sales had the weakest August in 27 years, which would imply an aversion to big ticket purchases.

In real estate, the Case-Shiller home price index rose in June, though that’s probably more a result of the now-expired tax credit than anything else, mortgage applications rose slightly, though, unsurprisingly, more so for refinance than it did for home purchases, and construction spending was significantly lower than estimates.

In the “these are real lives that are being f%$#ed with” category, bankruptcy filings fell in August, though they still remain at a near 5 years high.

Finally, Canada’s economy slowed significantly in the 2nd quarter.

Economics Update

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Well, they just revised the 2nd quarter GDP, and it went from an initial reading of 2.4% to a 1.6%, though it should be noted that a lot of this was driven by a surge in imports.

Still, this is not an economy expanding, first the US is one of the few nations on earth that applies hedonic adjustments to GDP, and the rate does not even cover growth in population.

But the banks can meet their bonus payments, and who cares about ordinary people.

Well maybe the people who sell stuff to, or make stuff for, ordinary people might care, because the ordinary people, as reported by the Thomson Reuters/University of Michigan’s Surveys of Consumers, are not in a spending mood:, as consumer sentiment fell again.

Economics Update

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It’s jobless Thursday, and initial claims fell back to what seems to be its sweet-spot, 473,000, with the less volatile 4-week moving average rising by 3250 to 486,750, and continuing claims falling by 62,000 to 4.46 million, though emergency claims, which are not counted as continuing, rose by 268,000 to 5.86 million, so we are still seeing a jobless non–recovery, with initial claims about 100,000 more than what would be required for a recovery in the job market.

In real estate, foreclosures fell, but delinquencies rose in the 2nd quarter, which likely indicates that people are still doing worse, but the various moratoria, as well as what Atrios accurately calls the, “Treasury’s predatory lending program,” aka HAMP, is pushing the problem down the road.

Oh, and the Dow is below 10K again, which means nothing in the greater scheme of things.

Economics Update

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Yep, and the news is not any improvement over yesterday.

New home sales came out today for July, and they hit a 40-year low, and the price of a new home fell to a 7 year low.

When juxtaposed with the fact that , you can see how things get ugly.

And the consumer is continuing to deleverage, which is one reason why consumer credit card debt has fallen to an 8 year low, though part of this is the 2005 bankruptcy laws, which is driving people to default on their mortgages in favor of paying down credit card debt:

Changes to the US bankruptcy code, enacted in 2005, are coming back to haunt banks, according to Yra Harris, a veteran trader at Praxis Trading.

Harris told CNBC that banks lobbied hard for changes to the bankruptcy code, but the legislation is now having the effect of encouraging consumers to do all they can to pay down their credit cards, while leaving their mortgage payments on the backburner.

Karma is a bitch.

In many states, mortgages are non-recourse loans, so once they have the house, they cannot go after the consumer, while in every state, credit card companies can attach wages, etc., so, rather unsurprisingly, consumers are running the numbers and making their choices.

Said consumers are not spending.

I’m beginning to think that absent a 20-40% devaluation in the value of the US dollar, we won’t be out of this mess for a decade or more.

I Hate It When a Complete Asshole Agrees with Me

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Case in point, House Minority leader John Boehner calling for Tim Geithner to be fired:

U.S. House Republican leader John Boehner called on President Barack Obama to fire Treasury Secretary Timothy Geithner and the other remaining members of the president’s economic team.

In a speech today to the City Club of Cleveland, Boehner said Obama’s stimulus policies are failing to create jobs.

It would make me wonder about whether I was being too tough on Timothy “Eddie Haskell” Geithner, but I am reassured by the words of this guy:

[MSNBC Commentator Jim] Cramer during Tuesday’s Stop Trading! took issue with comments from a key House Republican, who called on President Obama to fire his economic team.

Minority Leader John Boehner of Ohio said during a speech in Cleveland that the president should get rid of Treasury Secretary Timothy Geithner and White House economic adviser Larry Summers for starters. But Cramer stepped in to defend Geithner.

Boehner’s comments were “outrageous,” the “Mad Money” host said. “Geithner’s done a remarkable job.”

While I am troubled that I agree with John Boehner on this, I am reassured that I am still on the other side of the issue from Jim Cramer.

Jon Stewart showed just what Cramer’s opinions are worth.

Holy Crap

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Scary picture h/t Calculated Risk

They, whoever “they” are, were predicting that existing home sales would be fall post tax credit to an annual rate of something north of 4½ million.

Well, they were wrong. Existing home sales fell to 3.83 million, a 15 year low, and the 27.2% drop was the biggest since they, whoever “they” are, started collecting data.

What’s more, housing inventory has risen from 8.9 months to 12.5 months since May.

The thing is, this was foreseeable. Everything that has been done in terms of real estate has been about extend and pretend.

Whether it’s the fraud perpetrated on desperate people through HAMP, or the ruinously wasteful home buyer tax credits, this has all been about propping up housing prices in the short term in the hope that the banks can nickel and dime small consumers to generate enough profits to dig themselves out of their hole.

They keep pushing the sh%$ up hill, expecting to reach the crest of the hill, and it ain’t happening, and now this pile is collapsing back down on us.

Recovery my ass.

Krugman Channels Williams Jennings Bryan

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Is it just me, or does his most recent OP/ED have some significant thematic similarities to William Jennings Bryan’s Cross of Gold speech.

Here is the first ‘graph of Krugman:

As I look at what passes for responsible economic policy these days, there’s an analogy that keeps passing through my mind. I know it’s over the top, but here it is anyway: the policy elite — central bankers, finance ministers, politicians who pose as defenders of fiscal virtue — are acting like the priests of some ancient cult, demanding that we engage in human sacrifices to appease the anger of invisible gods.

Here is the last ‘graph of Bryan:

If they dare to come out in the open field and defend the gold standard as a good thing, we shall fight them to the uttermost, having behind us the producing masses of the nation and the world. Having behind us the commercial interests and the laboring interests and all the toiling masses, we shall answer their demands for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.

Note, I am not making accusations of any sort of misappropriation of work. I am suggesting that two people, attempting to address similar problems, deflation and recession, have, 114 years apart, come to very similar conclusions, and expressed them in similar ways.

In any case, both Bryan’s speech, and Krugman’s OP/ED should be read. They are both very good.

Great Google Moogly!

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It’s been too ugly for too long
H/t Calculated Risk

Remember how I said that unemployment has been stuck between about 450,000 and 480,000 initial claims a week?

Well, not any more, today’s numbers were up by 12,000 to ½ a million initial claims, with the 4 week moving average rose by 8,000 to 482,500.

Of course, since the article was written by a financial journalist, which means that they feel the need to be a cheerleader, and they are innumerate, they found someone to say that the 13 K drop, to 4.48 million, in continuing claims as, “an encouraging sign,” but later they note that the number of people on emergency benefits, “increased 260,105 to 4.75 million in the week ended July 31.” (the week prior to this one)

Let me explain this slowly for the financial journalists who might read this The people who are on continuing claims are in the 26-week window, if they go beyond that, they are no longer counter as having a continuing claim, they are counted as being on emergency benefits, so the falling number of continuing claims is not people getting jobs, it’s people being unemployed even longer.

In any case, this is really grim. The already inadequate stimulus is winding down, and job losses are once again accellerating, and we have an election in 2½ months, and if the Republicans take power, they will drive the country even further into the ditch.

Yes, a half assed stimulus, which was then watered down by the dickwads in the Senate was such a good idea.

Economics Update

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Capacity Utilization


Industrial Production
H/t Calculated Risk

Retail sales rose, but missed forecasts for July, the comment of an economist quoted in the story, “The numbers are consistent with a sluggish consumer profile,” is kind of well duh thing.

Hopefully the indications that the big banks are relaxing their lending standards for small businesses for the first time in 4 years.

This is good news, since banks have increasingly attempted to move small business customers from loans to corporate credit cards, where the fees and interest, and hence bank profits, are higher.

On the consumer side, credit card delinquencies fell to the lowest level this year, which could mean that more people are getting back on their feet (good), or that more consumers are deleveraging (mostly bad, see Thrift, Paradox of).

I’m inclined to believe that it is mostly the latter, particularly since bankruptcy filings hit a 5-year high in the 2nd quarter.

We are seeing some good news in industrial production and capacity utilization, which continue a relatively robust recovery, though a lot of this gain was increased electricity consumption from a record breaking July, though a fair amount is also autos which is an unambiguously good sign. (See also the chart pr0n)

The New York Fed’s economic activity index rose in August, but again, it missed forecasts.

In the land of the blithering idiots inflation hawks, the UK district is reporting that British CPI rose at a 3.1% annual rate, down from June’s 3.2% rate, which has the inflation hawk piggies squealing that they are missing the 2% target, but as Krugman would say, we are in a liquidity trap, we need more inflation so that real interests rates (interest – inflation) is low enough to foster growth.

I would go further than Krugman, and say that both the Bank of England and the Fed should have a 6-8% target inflation rate for the next 4 years or so.

And then we have real estate, where the market seems to be deflating like the Hindenberg* following the expiration of the home buying tax credit.

Housing starts rose, but fell well short of forecasts in July, home prices flattened out in June, and home builder confidence fell in August.

*I know that the Hindenberg did not deflate, it burnt and crashed. That’s my point of this mangled metaphor, OK?

Economics Update (a Day Late)

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It’s jobless Thursday, and initial jobless claims rose to the highest level in 6 months, 484,000 claims, the highest number since February 20, well over forecasts of 465,000.

Additionally, the 4 week moving average jumped to 473,500 from 459,250 , though continuing claims fell by 18,000 to 4,452,000, though, as always, that reflects discouraged workers, as well as people going past the 26 week window.

In real estate, foreclosures rose again, and RealtyTrac is not anticipating a peak until some time in 2011, and mortgage rates fell to the4.44% (!), the lowest since Freddie Mac started its survey in 1971.

Economics Update

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Consumers are continuing to deleverage, (Thrift, Paradox of) with outstanding consumer debt falling for the 5th straight month, so people are still not spending.

On the brighter side, rail traffic increased in July YoY, though business productivity fell for the first time in 1½ years in the 2nd quarter. Additionally, this report shows that household income fell.….Not good.

It’s not surprising that the National Federation of Independent Business’s optimism index fell for the 2nd straight month.

Meanwhile, the June Job Openings and Labor Turnover (Jolts) report showed hiring slowing in June.

Finally, despite record breaking low rates, mortgage were flat this week.

The Federal Open Market Committee Released its Statement Today

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They kept interest rates at effectively 0%, which is not a surprise.

What was a bit of a surprise, though they did telegraph is were the facts that their statement was significantly more downbeat, and they effectively put a halt to their gradual monetary tightening:

Federal Reserve officials made their first attempt to bolster the economy in more than a year, saying they will maintain their holdings of securities to stop money from draining out of the financial system.

The central bank will reinvest principal payments on mortgage assets it holds into long-term Treasuries after judging that “the pace of economic recovery is likely to be more modest in the near term than had been anticipated,” the Federal Open Market Committee said in a statement after meeting today in Washington.

So, as opposed to simply retiring their securities, they will roll them over, though I would differ with their characterization of 2-year treasuries are “long term”.

It’s a mild improvement on their earlier position of gradual tightening, but I’m with Paul Krugman:

I know: it’s a heck of a way to make policy. In a better world, the Fed would look at the state of the economy and do what was right, not the minimum necessary. But wishing for that kind of world is like wishing that Ben Bernanke were running the place.

Heh.

Krugman worked with Bernanke at Princeton, and because of this, he has been rather gentle with him, but I think that he is losing patience.

Full statement after break:

Press Release
Federal Reserve Press Release

Release Date: August 10, 2010

For immediate release

Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be more modest in the near term than had been anticipated.

Measures of underlying inflation have trended lower in recent quarters and, with substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.1 The Committee will continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh.

Voting against the policy was Thomas M. Hoenig, who judges that the economy is recovering modestly, as projected. Accordingly, he believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted and limits the Committee’s ability to adjust policy when needed. In addition, given economic and financial conditions, Mr. Hoenig did not believe that keeping constant the size of the Federal Reserve’s holdings of longer-term securities at their current level was required to support a return to the Committee’s policy objectives.

1. The Open Market Desk will issue a technical note shortly after the statement providing operational details on how it will carry out these transactions. Return to text

If They Believe It, It’s Wrong

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Because they are always wrong about everything:

The U.S. economy will improve slowly and another round of fiscal stimulus probably wouldn’t be effective, former Treasury secretaries Paul O’Neill and Robert Rubin said.

Truth be told, I haven’t followed Paul O’Neill closely, but Bob Rubin should be on trial for a long history of fraud, and should not be taken seriously since he drove Citi into the ditch.

Mo stimulus, Mo stimulus, Mo stimulus!

Seriously, these guys are the Washington Generals of finance.

No, And What Is He Smoking?

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James Pethokoukis, whose work I have not followed, but appears to have a fair amount of respect from the blogs that I read, is reporting that a number of sources in the Obama administration saying that the GSEs (Fannie Mae and Freddie Mac), will, at taxpayer expense, engage in a massive program of principal reduction to underwater homeowners:

Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. ……

The motivation, apparently, is electoral politics:

The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie. …

If you go to the article, and I suggest that you do, because I am just relying on my gut, you also see that investment bankers are talking to their clients to insurance themselves against such a possibility.

I take the statements of investment bankers with a grain of salt. Their job is to make people buy and sell securities, since they profit each time.

That being said, here is my take:

  • HAMP is an abject failure, because, once again, Barack Obama, as well as Tweedle Dum and Tweedle Dumber (Geithner and Summers) decided that banks were their “partners”, and they just needed some incentives and no oversight.
    • Additionally, the abject failure of HAMP is not beginning to hit the news, which might lead to damage control.
  • Obama is concerned about losses in November.
  • Notwithstanding what the teabaggers say, Obama is NOT a socialist, he is very much a corporatist, and the idea of this sort of massive government bailout to ordinary people is an anathema to him. He honestly does not want the government to be that activist.
  • Obama is, and remains, terrified of Republican accusations of socialism.

So, it ain’t gonna happen. We may see something to fix HAMP, my suggestion would be bankers arrested and made to do the perp walk, but it will be something relatively minor.

Devaluing the dollar, as Roosevelt did, or massive debt forgiveness is simply not in the cards.

Heck, he can’t even bring himself to bring back bankruptcy cramdown for home mortgages.

The NFP is Out

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And Non-Farm Payroll fell by 131,000 last month, though that is because the US Census cut 143,000 temp jobs.

In the private sector, the seasonally adjusted private payrolls rose 71,000, less than the predicted 90K, and well under the 125-150K necessary to keep up with workforce growth.

Additionally, the May and June numbers were revised down by about 97K.

Why people aren’t running around with their hair on fire about this, I simply do not understand.

Economics Update

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It’s jobless Thursday, and initial jobless claims rose again, by 19,000 to 479,000, with four-week moving average increased by 5,250 to 458,500, and continuing claims fell by 34,000 to 4.54 million, though a lot of this may be people running out their string on normal benefits.

I would note that this number has been bouncing between 450K and 480K for a few months, and that this number is around 100,000 more than is needed for a recovery in employment.

Meanwhile, in central bank land, the Bank of England kept its benchmark rate at ½%, effectively 0%, and it’s asset purchase program, aka quantitative easing, aka printing money, remains essentially unchanged.

Finally, the 30-year fixed mortgage rate hit an all time low, 4.49%. (!)

Economics Update

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Well, in the “why do they do this any more” department, we have the ADP private employment survey, which predates the official US DoL figures by all of 2 days, saying that private payrolls will increase by a rather unimpressive 42 thousand.

The total figure will be much worse, of course, since the US Census is still shedding the temporary workers they hired for their 2010 enumeration.

On the GDP front, it appears that the inventory data which contributed to a large portion of recent GDP gains was wildly over optimistic.

On the other hand, the Institute for Supply Management’s Non-Manufacturing index rose in July rose to 54.3 from 53.8, beating expectations, in June, and mortgage applications, including purchase applications, rose again.