Category: Inflation

Economics Update

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So, we have some mixed news on the state of consumers, consumer sentiment improved slightly, though it is still near historic lows, and incomes have fallen.

Since consumers are generally deleveraging, I would place more importance on the latter, case in point, is February automobile sales continuing to drop, with the replacement for the US auto fleet, fleet size divided by monthly sales, hitting 27 years.

Obviously, this is not a sustainable number, and I would expect car sales to improve at some point, though whether this in time for the Big 3 (Big 2½) is anyone’s guess.

In any case, it apperas that Japan is heading back toward a deflationary situation, with their January CPI figures showing no change.

In energy and currency, the dollar is up and oil and other commodities are down.

Economics Update

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Since we’ve already covered the Geithner political suicide pact economic plan, let’s lead off with housing.

Happy, happy, joy, joy, home sales rose 5.1% in February relative to January, seasonally adjusted, though people not so closely attached to the realty industry have noted that it’s
really a pretty modest rise, or note that home sales have fallen year over year, and that about 45% of these sales are distressed in some manner.

I would say that year over year is the only metric to apply, because the so called “seasonal adjustment” if it ever were valid, has become meaningless in the current collapsing market.

Internationally, we have another member of the 0% benchmark club, as the Bank of Israel has cut its benchmark rate to 0.50%.

In currency and commodities, the dollar is down, because people are less concerned about safe havens, so there is less dollar flight to safety, and copper and oil rose.

It appears that these markets like Geithner’s plans, because, they are over paid and over bonused trader types, I guess.

Economics Update

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So, the commodities markets surged as a result of the Fed’s quantitative easing, which means that they are expecting inflation there, which has, among other things, put oil at a 4-month high,

The fact that the 2009 US budget deficit has just been revised higher may also be contributing to traders’ positions.

Of course, Bernanke is primarily interested in preventing deflation, so this is a good thing, though I wonder how effective he will be.

Case in point: investors requested only $4.7 billion out of $200 billion available for the Fed small business and consumer lending program, the TALF.

It’s a confidence problem, and I really think that the first step to restoring confidence needs to be removing the malefactors in finance who screwed this up in the first place.

The dollar rose today, largely on the belief that yesterday’s drop indicated a time for profit taking.

Economics Update

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So, we saw a
0.4% increase in the consumer price index in February, which is the highest rate since July, even if that is just a 5% rate.

Truth be told, I’m not sure if this is good news, reduced possibility of inflation, or a sign that the dollars that are flooding our economy are creating an inflation spiral.

In either case, we have another indicator that the real estate market is no where near a turn around, the bump in February building permits not withstandint: the Architecture Billings Index remains near a record low, and this is a leading indicator.

The spike in jump in mortgage applications does not really mean much, as it is primarily refi activity driven by low mortgage rates.

Internationally, we have a number of developments:

In energy, oil fell on the pessimistic report from the Federal reserve despite assurances of the House of Saud that OPEC will really follow the quota this time….really…for sure. (I don’t believe it either)

Finally, the news that the Fed is printing about a trillion more dollars pushed the dollar down.

The Mess That Greenspan Made: The Great Inflation Moderation that Wasn’t

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Tim at The Mess That Greenspan Made has a great post on how the Federal Reserve, and Alan “Bubbles” Greenspan, succeeded in making a laughing stock of inflation results through the use of imputed rent (owner’s equivalent rent) in the CPI data.

Not only is inflation higher, but the swings in inflation, driven as they are by the aggressive policies of the Federal Reserve to drive down wages manage inflation, are much more extreme.

In essence, as I’ve noted before the Fed has made itself look good.

BTW, you can get more information, in mind numbing detail, from Shadow Stats.

Economics Update

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Well, we have another Asian economy cratering in Q4 of 2008, with Taiwan’s GDP shrinking at an 8.36 annual rate. Unsurprisingly, they are now predicting a contraction for 2009.

This is “post Berlin Wall coming down shock-treatment elderly begging in streets” numbers.

In the US, producer prices posted a large gain, 0.8%, or about a 9½% inflation rate. I’m not certain if this is good or bad news, as the concern right now is deflation, but the impetus for the jump seems to be massive cash infusions from the Fed and the Treasury, which implies that we may be tiptoeing toward Zimbabwe.

Still, the jobless report was brutal, with initial claims remaining at 627,000, and continuing claims jumping to 4.99 million, the highest number ever.

I wouldn’t expect manufacturing or building to be a part of a recovery any time soon though, as the Philadelphia Fed’s Business Outlook Survey hit a record low, as did the Architecture Billings Index (ABI).

Note that the ABI typically presages construction activity 9-12 months ahead.

Additionally, I think that we are near seeing some of the non AIG insurance giants failing, with the first indicator being that Prudential Financial Inc. being excluded from the Federal Reserve’s commercial paper program, because Fitch Ratings downgraded them.

Note that Prudential Financial Inc. is the parent of Prudential Insurance, and that the insurance division can still use the “Commercial Paper Funding Facility,” for a while, at least.

The dollar fell a bit today, largely on reduced concerns about the smaller nations in the Euro zone going completely broke.

In energy, oil rose, though it is still well below $40/bbl, because of a surprise drop in inventory.

Economics Update

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Well, the obvious lede here is the weekly initial jobless claims, which dropped 8000 to 623,000, still well within OMFG territory, and the four-week moving average, which is to my mine a better and less noisy metric, jumped from 583,500 to 607,500, while continuing claims rose to 4.81 million…..Ouch.

We have some more numbers for the real estate bloodbath too, with the NAR reporting that median home prices declined in Q4 of 2008 by 12.4% as compared to Q4 of 2007.

Foreclosures fell in January, but this is largely because the GSEs have put a temporary moratorium.

More telling is the fact that foreclosures and short sales accounted for 45% of sales in Q4.

Mortgage rates are down this week to 5.16%, which is still above the 4 and change percent from last month, so I do not expect this to do much to the market.

We do have a bright spot, with , it was +1% over December as opposed to the expected -.8%, but look as the chart on the right shows, it’s still very grim.

It’s worth noting that some of the increase is because retail gasoline prices have been trending higher (bottom chart), which along with increased spending for food and for clothing, were largely responsible for the increase.

In currency, the Yen and the dollar strengthened as investors fled to their relative safety, and in energy, oil fell below $34/bbl on high inventories and low demand.

Economics Update

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The budget deficit is exploding, with the annual total now looking to be around $1 trillion:

The excess of spending over revenue in January rose to $83.8 billion, compared with a $17.8 billion surplus in the same month a year earlier. Spending gained 30.6 percent, while revenue dropped 11.4 percent. Corporate tax revenue in the past four months is down 44.3 percent from a year earlier

, and if we weren’t at risk of entering a deflationary spiral, I’d be concerned about inflation.

Speaking of deflationary spirals, the trade deficit hit a 6 year low, not because we are exporting more, but because no one is buying anything.

No one is borrowing to finance, or refinance their homes either, with U.S. mortgage applications falling to an 8-year low.

Overseas, we have the Bank of England predicting that inflation in the UK will be ½% two years from now. Me, I’m expecting deflation, and the stagnant GDP that goes along with it.

The UK economy is even more heavily underwater, than that of the US, so it’s likely to get even worst there.

Further east we have the Russian bond market completely seizing up.

In energy and currency, we have oil down on reports of diminishing demand, and the dollar up on reports that the conference committee has cut a stimulus deal. (More on that later)

Economics Update

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Consumer spending fell for the 6th straight month in December, and all of 2008 turned in just 3.6% increase, the worst year over year number since 1961.

The Institute for Supply Management’s factory index was better than expected, but still an anemic 35.6, but better than the consensus prediction of 32.5, but 50 is neutral, so anything under 50 signifies more contraction.

In inflation, the “Treasury Real Yield” is at a 16 month high.

The Treasury Real Yield is the spread between TIPS (Treasury Inflation Protected Securities) and regular treasuries, and is a measure of investor expectations of inflation….Which means that they are expecting more inflation…..Which is a good thing in this topsy-turvey economy.

Meanwhile in the Celtic kitten, Ireland is looking at injecting €8 billion into its troubled banks.

In Russia, and it looks like speculators are betting very heavily against the Ruble, which just hit a new low.

With Russia having already burnt through about 1/3 of its reserves in an unsuccessful attempt to maintain the currency, this could get very ugly.

Shrinking consumer demand has oil prices dropping again, and has pushed the dollar down against the Yen and Euro, though it improved against the sick man of Europe, the British Pound.

Economics Update

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Well, the jobless numbers are out, and they are not pretty with initial claims running at 588,000,continuing claims rising 159,000 to 4.776 million, which is the highest number recorded since the 1967, when they started collecting the data, and the 4 week moving average rose by 24,250 to 542,500.

Additionally durable goods orders fell by 3.7% in 2008.

And if you are wondering if there is a segment of the banking industry that won’t need a bailout, stop wondering.

There isn’t a segment of the banking industry that is not in trouble, as regulators are not moving to inject capital into credit unions, which are traditionally the most conservative, and the safest of the bank like institutions.

The fact that new home sales have fallen to the lowest level ever recorded (recording started in 1963) probably has a lot to do with this.

Also, freight truck tonnage is cliff diving. (H/T Calculated Risk)

Meanwhile, the most healthy of the Big 3 (Big 2½) auto makers, Ford, just reported a larger-than-expected $5.9 billion loss in the last quarter.

In international finance New Zealand is aggressively dropping its benchmark interest rates too, with their central bank 150 basis points (1½%) to the record low of 3.5%.

About the only good news is that it appears that deflationary expectations are easing, as the spread between 10 year Treasury Inflation Protected Securities (TIPS)and 10 year nominal securities has risen about 1% for the first time since November 10.

Meanwhile, the dollar was mixed today, and oil fell on the housing news.

Economics Update

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You know that old saying about releasing bad news on a Friday, because everyone is looking toward the weekend?

It’s one of those Fridays.

Let’s start with Ireland, where the Anglo Irish Bank, the 3rd largest in that country has been declared insolvent and nationalized. I’m beginning to think that the “Celtic Tiger” is on its way back to poetic poverty, particularly now that places like Poland and Slovakia are cheaper labor markets.

In the world of recession/deflation, we have the CPI falling 0.7% and industrial production falling 2% in December.

I’m beginning to think that the US will start to resemble Ireland…Without the Poetry bit.

We also have a couple of updates courtesy of Calculated Risk, with Los Angeles Area Port Traffic falling sharply and office vacancy rate rising in Q4.

Note that there are predictions of a 30% drop in office rents, and that exports are dropping more than imports, so this is not a turn around on the deficit.

In retail, we have Toyota North America announcing cuts in production, and Circuit City is going to liquidate, as in, no more Circuit City, no kidding.

In currency, more bailouts to banks means more concerns about the dollar, so it fell today.

In energy, oil was up slightly today, but down most of the day, after the IEA predicted that demand would continue to fall, and retail gasoline was up again, which means that it’s gone up around $0.20/gal since New Years day.

Economics Update

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The big news was the employment data, which I blogged on earlier, but here is the rest:

Wholesale inventories, and wholesale prices fell sharply in November. Even so, the “stock-to-sales ratio” rose because of less buying.

Looks like wholesale deflation to me.

Oil fell on the jobs news, because the unemployed don’t consume much oil.

The Dollar was mixed, losing against the Pound and Yen, and gaining against the Euro.

Economics Update

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Will the last home builder please turn off the lights?

Because existing home sales fell 8.6% from October, new home sales fell 2.9%, home prices fell by 13.2%, and foreclosures and short sales were 45% of all sales.

Consumer sentiment improved more than forecast last month though, driven largely by the expectation of lower prices.

In currency, the dollar was largely mixed, though both the Yen and Pound were down.

It should be noted that the Yen is off a historic high, and the pound is near a historic low, it’s about to reach parity with the Euro, so the dynamics are different.

As to why the Pound is falling, it might be that the U.K. economy is shrinking at a pace not seen in 17 years, 0.6%, which is worse than
the US figure of -0.5% for the quarter.

EVen more than the US, the UK bought into the idea of the finance industry as an engine for the economy, and they are reaping the whirlwind.

Oil is down again.

Also, here is a story that I think we will see more of in the next few months,* there has been a default by Global Investment House (GIH) in Kuwait on a $200 million loan, one of the larger investment houses in the Arab world.

They aren’t going under just yet, but I think that this is the first crack in the armor of the petro-Arab investment houses.

*Because I am just so good at making predictions.†
†Considering my record, this may actually be a sign to go the other way….Or not.‡
‡Disclaimer: Matthew G. Saroff disclaims any responsibility for any actions taken as a result of the information displayed on any pages of this website.

Economics Update

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The big news, the Fed basically giving up and lowering its rates to what is effectively zero, I just posted, but that’s not the only central bank news today.

The European Central Bank is considering cutting its overnight deposit rate, and the Bank of Japan is looking at ‘quantitative’ monetary easing, things like buying commercial paper outright.

I think that we may see the printing presses cranking up fairly soon, and as I’ve said before, this might not be a bad thing: inflating our way out of the housing crunch as a way to staunch the bleeding in the credit bubble. (I think I just violated some regulations on mixing metaphors, and the English Instructor Swat Team will come after me, red pencils blazing)

In any case, the Federal reserve cutting rates by ¾% has pushed the dollar down today and pushed treasury yields down to new lows.

That second one is part of the goal, the idea that lower yields will move people to more risky investments, but since people have already accepted negative yields, I’m not sure that it will make a difference.

In the mean time, those who worry about a deflationary spiral, are not relaxed folks today, with the CPI in the United States dropping by 1.9% (non-seasonably adjusted) and 1.7% (seasonably adjusted), the biggest drops since 1932 and 1947 respectively.

Anytime you hear an economic statistic, followed by, “since 1932,” it is not a good thing….I’m just saying…

Needless to say, this is hitting with real estate too, with housing construction starts falling 18.9% in November, to 625K, the lowest number since records started being kept on this in 1959.

Anytime you hear an economic statistic, followed by, “since 195,” or, “since records started being kept,” it is not a good thing either….I’m just saying…

In Southern California, one of the areas hardest hit by the housing bubble, prices are down 5% for October-November, and 35% from November last year.

I’ve seen a few stories about how selling is picking up in California, but this really is people scavenging foreclosures and oft-mentioned the dead cat bounce.

In energy, OPEC meeting opened with calls to cut production by 2 million bbl/day, which, along with the falling dollar and Fed rate cut, pushed oil up, but only by a bit less than a dollar.

Retail gasoline was up again today, but still has not moved more than a penny above its recent low.

Economics Update

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Well, retail sales numbers for November are grim, down 7.4% from November 2007, and that’s with an adjustment for a late Thanksgiving that is probably excessive, so it is likely worse.

Consumer sentiment rose, but is still at a pretty awful number.

We also saw wholesale prices fall, which can be either good news, moderating inflation, or bad news, deflation.

Overseas, we have the EU found agreement on an economic stimulus pack, with even Angela Merkel backing off Hoovernomics by a half step.

In Japan, a new economic stimulus package has been announced.

Russia, however, is being hammered by low oil prices, and senior officials are now saying that the nation is in recession.

As to currencies, the dollar was mixed, up versus the Pound, down a smidge versus the Euro, and at a 13 year low versus the Yen.

I’m not sure how much of this is all just a reaction to the Senate auto bailout follies, and the the same goes for the price of oil, which was down, but was likely driven by yesterday’s filibuster.

Additionally, retail gasoline is now below $2 a gallon in the lower 48, with New York State crossing that line today.

This is Not the Onion

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It appears that the The Reserve Bank of Zimbabwe has issued a statement commending the US and UK central banks for following its lead: See also here):

As Monetary Authorities, we have been humbled and have taken heart in the realization that some leading Central Banks, including those in the USA and the UK, are now not just talking of, but also actually implementing flexible and pragmatic central bank support programmes where these are deemed necessary in their National interests.

That is precisely the path that we began over 4 years ago in pursuit of our own national interest and we have not wavered on that critical path despite the untold misunderstanding, vilification and demonization we have endured from across the political divide.

Yet there are telling examples of the path we have…For instance, when the USA economy was recently confronted by the devastating effects of Hurricanes Katrina and Rita, as well as the Iraq war, their Central Bank stepped in and injected life-boat schemes in the form of billions of dollars that were printed and pumped into the American economy.

(emphasis in original central bank statement)

I don’t know about you, but I’m very relieved that a bank that has engineered a 231 million percent inflation rate (and that’s just the official number) has endorsed our monetary policy.

Economics Update

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Well, it looks like the deflationary trap may be here, with the CPI down 1% last month, and core CPI falling 0.1%, the first drop since 1982.

The fact that housing starts and requests for building permits are falling off reinforces the idea that we are heading towards a major downturn.

Of course, it’s not just residential real estate. We are now seeing that mortgage backed securities for commercial properties are seeing increasing insurance costs and delinquencies.

In the larger world of the credit crunch, Calculated Risk’s Credit Crisis Indicators are largely unchanged.

BTW, S&P has downgraded monoliner bond insurer Ambac again.

In energy, oil fell again, on high inventory reports.

In currency, the dollar fell in response to continued news of a recession.

Let’s see…Anything else??? Oh…Yeah, the Dow closed below 8,000 for the first time in 5 years, 7,997.28.

Economics Update

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Well, I’ll be referencing some mora alarming economic data in another post, but let’s have at the routine stuff, shall we?

First, the U.S. Producer Prices Index fell by 2.8%, the most on record. Note: this is not a, “low inflation, hurray,” thing. This is a, “prices are falling off a cliff like they were in 1932,” thing.

Part of this, of course is falling oil prices, so it’s no surprise that oil hit 21-month low today.

Not unsurprisingly, we also see the home builders’ sentiment index falling to a 9 month low.

Honestly, if I were surveying home builder sentiment, my worry would be them tossing themselves out of windows.

Out of force of habit, because the fundamentals of the U.S. economy do not merit it any more, people continue to flee to the dollar in times of uncertainty, so the dollar strengthened today.

Oh, and if you follow stock prices, Fannie Mae is facing delisting from the New York Stock Exchange.