Category: Inflation

Economics Update

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Really just a few data points here, with housing starts falling sharply, 22%, in February, and we are seeing uptick on the producer price index.

The former is a mark of sanity, there are still too many homes, new, used, and foreclosures, out there, and if you are building houses without a buyer committed ahead of time, you are nuts in most parts of the country.

As to the PPI, it’s all volatility in commodities, so I would not worry right now, which is what the FOMC said yesterday in its statement as well.

Economics Update

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The final numbers for US GDP in the 3rd quarter came in, and they were slightly lower than estimates, with a 2.6%, as opposed to the 2.7% forecast, growth rate, while core inflation was at a 50 year low.

So I don’t think that either inflation or a robust recovery are around the corner, particularly with oil rising above $90/bbl, a 2 year high, which has in turn driven gasoline prices near to $3.00/gallon.

Unfortunately, the dollar has continued to fatten up versus the Euro, because people see more pain and woe from Ireland, Greece, Portugal, Spain, and Italy.

This Ain’t a Bad Thing

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The folks at the Financial Times blog, FT Alphaville, are running around like chickens with their heads cut off because inflation is approaching 3¼%:.

They refer to the number as “dismal”, and note that, “While today’s reading won’t surprise the BoE — it expects inflation to average 3.2 to 3.3 per cent in the fourth quarter and circa 3.5 per cent early in 2011 — there’s bound to be (further scepticism) that the inflation genie will be back in the bottle by the end of 2011.”

These are people who do not understand.

This financial crisis is because too many people owe too much debt, and lack the wherewithal to dig themselves out of this hole.

Inflation serves to devalue the currency and so devalue the debt.

It’s not a bad thing when we are in a liquidity trap, it’s a good thing.

It’s more than a good thing, it’s essential to recovery.

More Invisible Bond Vigilantes

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Treasury yields fell today, after rising sharply on news of the Obama-Republican tax deal:

Treasuries rose, following the biggest two-day slump in two years, as yields at the highest level in six months lured investors on prospects the Federal Reserve will discuss a possible extension of purchases.

Ten-year notes rallied before the Fed meets next week to review its program to buy $600 billion of U.S. debt through June. The yield advantage of 10-year Treasuries over Japanese bonds increased to the widest in five months, boosting the allure of U.S. assets. Treasuries tumbled the past two days, pushing 10- year yields up by 35 basis points, the most since Sept. 19, 2008, when they fluctuated following the bankruptcy of Lehman Brothers Holdings Inc.

Those invisible bond vigilantes are a fickle lot.

Economics Update

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Well, if you think that the run up to the Federal Reserve’s quantitative easing (printing money) might lead to inflation, you thought wrong, with inflation at 0.2% in October, and the core rate at 0% for the 3rd straight month, and the year over year change was an anemic 0.6%.

The problem is that there isn’t enough inflation.

We also have real estate news, all bad, with housing starts falling, house prices in the US falling 2.8% in September (down 0.8% in the UK), mortgage applications falling, and the AIA’s: Architecture Billings Index, an indicator of future commercial construction, falling in October.

Holy Sh%$

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Treasury has sold its inflation protected securities with a negative yield for the first time ever:

Inflation-protected securities sold at negative yields for the first time ever on Monday as traders anticipate that the Federal Reserve will start a new round of asset purchases.

Analysts said that asset purchases by the Fed would lead to a higher inflation rate and a positive return on the bonds.

The $10 billion auction of the five-year bonds sold at a negative yield of 0.550 percent, according to the Treasury Department. The results of the auction of the securities, known as TIPS, came as indexes on Wall Street edged higher, buoyed by recent strong corporate earnings and a rise in housing sales. The previous lowest yield for the TIPS was in the auction on April 26, when the yield was 0.550 percent.

“It is saying that there is a true demand for inflation securities, because people perceive the quantitative easing program is enabling a higher inflation rate in the future,” said Tom di Galoma, head of fixed-income rates trading at Guggenheim Partners.

Basically, this means that “the market,” a nebulous thing whose predictive powers I think are overrated, is nonetheless predicting deflation.

Time to break out those helicopters, Ben.

Economics Update

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Catching up on the economic number dump, first we have the Federal Reserve’s so-called Beige Book, which shows that growth has continued, but it is very sluggish.

This is reinforced by the fact that consumer confidence fell in October, factory production and capacity utilization fell in September, for the first time in a year, though home builder confidence rose (to a truly pathetic 16 where 50 is neutral), and housing starts rose.

We also have some importing news out of China, with their central bank making a surprise increase in its benchmark rate, and Chinese government published new statistics showing that its growth slowed and inflation edged up.

Certainly, it looks like the Central bank is concerned about inflation, and the statistics, even considering the general unreliability of official government statistics, indicate a problem.

One interesting effect of the rate hike is that it should place additional upward pressure on the Yuan.

Economics Update

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Unemployment Claims 2008-Present

Things aren’t getting better, they are just running out of people to lay off.
H/t The Washington Independent.

It’s jobless Thursday, and initial unemployment claims are back in the 450K-480K “sweet” spot, with initial claims rising 13,000 to 462K, the 4 week moving average rising 2¼K to 459,000, though both continuing and emergency claims fell.

Seeing as how the number really needs to be below 300,000 for any meaningful recovery in jobs, we remain in a bad place.

In non-existent inflation land, we saw producer prices rise 0.4% in September, though that was largely on food, the core rate was 0.1%, and the price of imports fell by 0.3%, even as the trade deficit rose.

I would note here to all the free trade fetishists, we have a deflation problem in our economy right now, and most of it is being imported.

Meanwhile, the us dollar has fallen to a low for the year.

Economics Update

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It’s jobless Thursday, and the initial claims numbers are out, with initial claims falling to 450,000, the 4 week moving average falling to 464,750 last week’s 478,250, continuing claims falling 84,000 to 4.49 million, and emergency claims fell by over 500,000, which is all a good thing, though the story also mentions that the Federal Reserve Bank of Philadelphia’s general economic index missed expectations, remaining in the contractionary range, while the New York Fed’s Empire State Index fell but remained in positive territory.

In terms of other general measures, we have conflicting data, with inventories rising strongly, retail sales rising in more sedately, and the NFIB’s small business confidence rising modestly to an anemic 88, while on the other side we see industrial growth slowing in August.

Real estate, on the other hand is pretty grim in the post-tax credit days, with home repossession spiking, and CoreLogic’s home price index showing no year over year gain for the first time in five months, and home mortgage applications fell this week.

On the inflation front, the Producer Price Index came out, and while there is still little inflation in the core rate, but food and energy costs are rising more sharply, though still well below a 6% annual rate.

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

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Well, if consumers are 70% of the economy, the fact that the Thomson Reuters/University of Michigan consumer confidence index numbers fell to a nearly 1 year low.

This, along with a falling consumer price index, which indicates that a deflationary spiral may be nearer than we would like, are not good news.

Additionally, notwithstanding heroic/stupid efforts to prop up the housing bubble, home builder confidence has hit a 15 month low.

On the brighter side, Moody’s survey of commercial real estate prices is rose in May, and the National Association for Business Economics’ latest survey of employers is showing that employers are looking to hire more than they were a year ago, though admittedly, that is not saying much.

So, Are We Going to Repeat 1937?

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Why this picture does not scare the powers that be defies understanding
H/t Calculated Risk

Well, a quick rundown of this week’s data seems to indicate that if we listen to the austerity fetishists, we are.

In employment, the Thursday unemployment claims data indicates a continued weakening of the employment picture, with initial claims rising 13K to 472K, at least 100K more than what we need to see for meaningful job growth, and both the 4-week moving average and the continuing claims numbers went in the wrong direction too.

Additionally, the official job numbers for June came out, and the non-Farm payroll fell by 125,000, though the drop was because of the US Census winding down its temporary positions.

Private employment rose by an anemic 83,000, and the unemployment rate fell from 9.7% to 9.5%, though the latter was largely from people leaving the rolls because they had given up looking, and the hourly workweek fell.

Additionally, the Institute for Supply Management’s Manufacturing Index fell from 59.7 to 56.2, a 6-month low, though any number over 50 still shows expansion, and the Chicago Purchasing Managers’ index fell slightly as well.

Also, in yet another indication that the economy is running out of steam because the stimulus is running out, small business lending from the SBA has cratered following the expiration of its bonus program to lending banks.

Of course, the inflation hysterics hawks are saying that the bond markets are mad as hell, and that they are not going to take it any more, but if this were true, mortgage rates would not have fallen to their lowest rates in 50 years.

I would note that we are seeing the same thing in real estate, with 31% of all home sales being foreclosure or short sales, up from 1% at the height of the bubble, and these foreclosures are selling for a 27% discount relative to regular sales, which indicates that a recovery, either in price or in volume is still far away.

Economics Update

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This is not an expanding home market
H/t Calculated Risk

Well, so much for green shoots, it’s jobless Thursday, and new claims rose by 25K this week to 471,000, with the 4 week moving average rising by 3K to 453,500, though the continuing claims number fell by 40K to 4,630,000.

It should be noted that the continuing claims number does not count those on emergency UI, like yours truly.

Additionally, it should be noted that the Conference Board’s Index of Leading Economic Indicators posted its 1st drop since March 2009. It should be noted that this is a volatile metric, and a folks who know economics generally want at least 3 months up or down before they declare a trend.

Additionally, real estate is looking dicey.

We have, “One in 7 US homeowners late paying or in foreclosure,” actually 14.01%, in the 1st quarter of the year, with 10% of home owners late 90+ days, and the AIA’s Architecture Billings Index shows continued contraction in April, though this indicator for future commercial construction is did improve in comparison to March.

Additionally, mortgage purchase applications fell to a 13 year low, even as low rates kick-started the demand for refinancing.

Note that this is despite near record low mortgage rates.

We are also seeing continuing erosion in the prices of commercial property.

On the plus side, the Philadelphia Bank of the Federal Reserve’s Manufacturing Activity Index rose in May, and Japan’s economy grew faster than expected.

On the inflation side, the CPI fell by 0.1% in April, and the core rate, which excludes food and energy, has risen .9% over the past 12 months, which is actually worrying, as it indicates a risk of a deflationary spiral/lost decade.

Read the Shrill One

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He comments on the IMF’s latest report on the fiscal situation worldwide, and notices something buried in the footnotes, that the large structural deficits currently forecast are due to depressed demand and economic activity causing deflation, not government spending.

The solution is therefore for governments to engage in stimulus activities of the sort that put an end to the great depression, while (hopefully) avoiding that whole “World War” thing:

It takes careful reading to discover what’s really going on:

The persistence of deficits reflects permanent revenue losses, primarily from a steep decline in potential GDP during the crisis, but also due to the impact of lower asset prices and financial sector profits.

(emphasis mine)

Aha. Most people who look at the IMF report will, I suspect, read it as telling a tale of government profligacy getting us into a hole. But what the report actually says is quite different: it says that the financial crisis has made us permanently poorer, which among other things reduces revenue, and governments have to tighten their belts to make up for that loss.

He is correct when he says that the IMF’s burying the lede means that , “[T]he report isn’t literally misinformation, but in practice it’s likely have that effect.”

Economics Update (a Day Late)

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It was jobless Thursday, and the news is generally good, with applications for initial unemployment claims falling again, falling by 11k to a seasonally adjusted 448K, though the 4 week moving average rose slightly, and the continuing claims fell slightly to 4.65 million.

Additionally, the The Federal Reserve Bank of Chicago’s national activity index rose in March, foreclosures fell in the 1st quarter, though things like foreclosure moratoriums and mandatory arbitration may have contributed to this, and Japanese consumer spending and wages rose in March, though prices continue to fall.

Also, 30 year mortgage rates fell slightly this week, which moderates concerns about increasing interest rates.

Additionally, US treasurys rose, and yields fell slightly in the latest 7-year auction, implying that rates remain stable.

Energy and currency are largely being driven by Greece.

People are less concerned about a Greek default, which has reduced demand for the dollar as safe haven, driving the dollar lower, and the lower dollar has drive oil prices higher.

Economics Update

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It’s jobless Thursday, and initial unemployment claims fell by 24,000 to 456,000, not as good as forecast, and the 4-week moving average rose slightly, while continuing claims fell by 40,000 to 4.65 million, though, as always, the last number does not count those (like me) collecting extended unemployment benefits.

In inflation land, we had the producer price index rise by 0.7% in March, giving an annual rate of inflation of over 8½%, though the year over year increase is 6%, and for the core rate, which strips out food and energy, the increase was only 0.1% for the month and 0.9% year over year.

Of concern is the fact that food prices rose by 2.4% in March, a 26 year high.

In real estate, the Architecture Billings Index fell, indicating future contraction in the construction of commercial real estate, while mortgage applications rose, largely on lower rates.

In home sales, we saw a 6.8% spike last month. This was almost certainly driven by the home buyer tax credit that is due to expire on April 20, so we’ll see what the April, and May numbers look like.

In energy and currency, oil rose slightly on good earnings reports, and the Euro took a hit on new Greek deficit numbers.

Economics Update

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Well, we have mostly good news today, with the Summary of Commentary on Current Economic Conditions, aka “The Beige Book”, showed the economy picking up steam in March.

Additionally, the retail sales report for March rose more than expected, and diesel fuel consumption rose indicating increased transportation activities, and the US trade deficit rose, which also indicates an increase in demand.

On the down side, the National Federation of Independent Business’ index of small business optimism fell in March, and since this is where most jobs are created, it does not bode well for jobs in the near term.

In real estate, mortgage applications fell for the 6th straight week, which is not surprising, as mortgage rates have been trending higher and the FHA has started to charge more for mortgage insurance to replenish its depleted reserves.

Finally, inflation seems to remain well under control with the March CPI rising by only 0.1%

Economics Update

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H/t Calculated Risk

The news in in real estate so far this week, with U.S. commercial real e3state prices rising for the 3rd straight month, though, as the Graph pr0n clearly shows, if you own commercial property, and you need to roll over your 5 year mortgage, you are still in a world of hurt, as you are at least 30% under water.

In residential real estate though, it was just plain grim, with existing home sales falling, though the snopocalypse might have something to do with that, and the number of homes for sale jumped by nearly 10%.

In more general economic news, the Chicago Bank of the Federal Reserve’s national activity index fells last month, which might also be snow related.

Meanwhile, on the other side of the pond, prices fell in the UK for the first time on 6 months, indicating that the pressures toward deflation continue apace.

In currency, we have the problems with Greece pushing the Euro lower, while in energy, oil rose slightly, to $81.91/bbl, and the price of retail gasoline continues to climb, to $2.81/gallon, up about 80¢ from a year ago.

Economics Update

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H/t Calculated Risk

It’s Jobless Thursday, and initial jobless claims fell by 5,000 to 457,000, which is less bad, you need to be under 400K for any real job growth, and the less volatile 4 week moving average fell, though continuing claims fell slightly.

Meanwhile, the CPI was flat in February, with a 0.1% increase in the core inflation rate, which omits food and energy.

In real estate, the 30-year fixed mortgage rate is basically unchanged, at 4.96%.

It will start going up once the TALF expires in a few months.

Finally, oil fell and the dollar rose, probably as a correction for the large swings in response to yesterday’s Federal Reserve statement.

Economics Update

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Yeah, I know, It’s no longer daily. A new job does that, and it’s de rigeur on Thursday, because that’s when the unemployment data comes out.

In this case, it’s down 6k to 642K, but the 4 week moving average rose 5,000 to 475,500, and continuing claims, which I am no longer a part of were flat at 4.56 million.

Basically, dropping jobless claims don’t mean rising employment until some point below 400K a week, so don’t get your hopes up.

BTW, not getting their hopes up is what small businesses are doing right now, with the National Association of Independent businesses’ index of small business optimism falling to the 2nd lowest level ever recorded, and the Manpower Survey of hiring managers was down slightly, though their Asian numbers were somewhat improved.

In real estate, foreclosure rose by “only” 6% year over year, leading to paroxysms of prodigious positivism by the Panglossian press, but it means that foreclosures are still rising.

Meanwhile, in China, they are freaking out over their inflation levels, which have risen to a 2.7% annual rate (merciful heavens, get me the smelling salts).

Actually, if the PBC raises rates to reign in inflation, I don’t see how they could keep their peg against the dollar, because higher rates push just about any currency up.