Category: Inflation

Economics Update

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The Bush administration is now, finally, predicting a slowing economy, with a GDP growth rate of 1.6%…though with a higher prediction of inflation at 3.8%, it’s a net contraction, which is why they are also predicting an increase in the unemployment rate.

Given this environment, it is unsurprising that home prices fell in May by 0.9%, 15.8% year over year, which is grim.

What is surprising is that Consumer confidence was up a bit, to 51.9 from 51.0, but even 51.9 is very pessimistic.

We may be seeing a bottom of consumer pessimism, which is different from seeing a bottom to the credit crisis.

The slowdown seems to be driving the price of oil down, as well as the price of retail gasoline, and falling energy prices seem to be bolstering the dollar versus foreign currencies, though the bad news on Japanese unemployment, a 2 year high, may have contributed to this.

Still, the banks are buying lots of money from the Federal Reserve to deal with the liquidity problems, $75 billion this time, so we ain’t out of the woods.

For your amusement, a cartoon:

Economics Update

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While the Federal Reserve is afraid to say the word, it appears from their latest report that we are seeing stagflation.

Jobless benefit claims just spiked above 400,000, up 34,000 from last week to 406,000, the highest reading since March.

Again, let me note that the weekly numbers have a lot of noise, but this news still sucks.

What’s more we have increasing evidence that the downturn is not “decoupled”, but is effecting other economies, with consumer and corporate confidence in Europe coming in well below expectations.

Not surprisingly, the bad news out of Europe, which points to interest rate moderation there, has bolstered the dollar.

Some real estate numbers came out today, and they are not good.

home sales fell 2.6% from may, and are now at an annual rate of 4.93 million/year, the lowest rate since 1998.

If you are wondering what might happen when mortgage rates rise, you should break out the popcorn, because it looks like that show might be starting soon. Rates went up 0.37% last week to 6.63% for a 30 year fixed mortgage.

Because of all this, I am not surprised thatthe number of vacant homes has remained at more than 2.2 million.

Energy was flippity floppity today, with oil up by about a dollar, and retail gasoline prices down again.

Economics Update

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Well, the Europeans, or at least the Germans promise to be in major freak out mode for a while, as producer prices are increasing at 6.7%, and this means that the Germans, the largest economy in Europe, will be screaming for rate hikes, because it was only 80 years ago that you needed a wheelbarrow or marks to buy a loaf of bread.

Unsurprisingly, this drove the dollar down too, though a contributing factor may be a report published in the financial times that sovereign wealth funds are looking to reduce exposure to the dollar.

There is no stampede, but people are tiptoeing toward the exits on the dollar.

I’m not sure how related it is, sovereign wealth funds hold a big chunk of GSE debt, but Freddie Mac has filed with the SEC to sell stock in order to raise new capital.

In energy, dribbled down a bit* to settle at $128.88/bbl, and retail gasoline fell about a penny.

In investment banking, Merrill Lynch lost $4.9 billion, and Citi lost $2.5 billion, though the latter was better than expected, and Citi will continue paying a dividend, which strikes me as foolish.

In real estate, evidence, in Orange County at least, that commercial real estate is comatose. A 91% drop in building, a 62% increase in vacancy, and a 2.5% decrease in rents.

It’s grim in the UK too, with mortgage lending falling 32% year over year, with near certainty of the central bank increasing rates.

The UK is beginning to look like the San Diego of Europe.

*No Apology for the pun.

Economics Update

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Weekly unemployment filings are up 16K from last week, which is not good, but better than forecast, though, as I’ve said before, the weekly data is noisy and not very useful.

On the other hand, the Philadelphia Fed Business Outlook Survey is definitely downbeat, though not as grim as I would have anticipated.

China has problems. While its growth rate slowed to only 10.1% annually(!), inflation remained well above 7%.

Honestly, I think that the fix here is simple, let the Yuan rise some, which would decrease the relative cost of imported energy, and slow exports to cool down the economy, but I do not expect the Chinese central bank to do this.

Housing starts jumped 9.1%, only because of change in NY City building codes, allowing for more multi-residential building. Otherwise it would have been -4%, and construction of single-family homes dropped by 5.3%, hitting a 17 year low.

Seeing as how the Europeans have inflation concerns too, and are talking about ratcheting up rates, it;s not surprising that the dollar fell today.

Oil continues its slide, dropping below $130/bbl for the first time in over a month, though retail gasoline holds at yesterday’s record.

Economics Update

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The Consumer Price Index CPI, just
jumped 1.1% in June. For the past 12 months, it’s been 5.5%.

Considering how bogus the CPI stats have become, I’d be inclined to at at least 3% to both numbers, but but I’m an engineer, not an economist, dammit!*

On the other hand, oil is now down about $11 over two days, which would explain why the dollar is holding steady for now, though we are not seeing any good news at the pump, as we hit a new record again.

Industrial production in June was up by 0.05%, which beat expectations, though part of that number was a rebound from the strike at American Axle in May.

Mortgage applications were up 1.7% last week, though I’m not sure how much of this is low rates, and worry about rising rates, and noise.

Let me finish that I will have a separate post on the GSE’s and how their possible reduction/elimination of dividends may have led to the SEC’s restrictions on naked shorting.

*I LOVE IT when I get to go all Doctor McCoy!!!

Economics Update

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Well, it appears that it’s been an unsettled day, likely because of concerns about the GSE(s), which will get its own post, and as a result, oil hit a new intra day high, $47.50/bbl, before settling to $143.84/bbl.

Note that in addition to uncertainty in Iran and Nigeria, there is now a possibility of a strike in Brazil.

Gasoline prices fell though, finishing below $4.10/gal for the first time in a week.

In currency, uncertainty has driven the dollar down, but there is a bit of a bright side to all of this, because the falling dollar is pushing the trade deficit down.

The problem is that once the dollar settles down to a more sustainable level, there will be a high inflation interregnum where imports prices will go up, but there will be no domestic businesses to pick up the slack.

Nothing on US real estate today, but in the UK, their housing crash is the worst since the Great Depression.

Additionally, we have a monetary picture that appears to point toward a vicious deflationary recession spiral.

Chart pr0n:

Economics Update

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The Bank of England has decided to hold interest rates steady. It’s not like they had much of a choice. Inflation is heating up, and they are in the middle of a house bubble collapse that rivals ours, so doing nothing was the only option.

If they raised rates, they make the housing crash even worse, if they lower rates, inflation gets worse.

Their inaction appears to have strengthened the dollar, since it points towards few hikes by the European Central Bank too.

In employment, initial applications for unemployment are down from last week (it’s a noisy measure), but it’s still much worse than last year, and teen summer employment is the worst in 40 years, “If the average holds, total summer hiring in May, June, and July would be about 1.2 million, which would be the smallest gain in teen summer employment since 1958.”

In energy, retail gasoline prices fell a bit, but crude oil spiked above $140 again, because of tensions in Nigeria and the US and Iranian saber rattling.

In real estate, mortgage rates are a bit higher this week.

Economics Update

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In case you are wondering about inflation, retail gasoline just hit a new high, breaking $4.10/gallon, even thoughoil prices backed off a little bit.

FWIW, it’s not just oil. BHP Billiton and China’s Baosteel just negotiated a 96.5%rate hike.

The currency markets are predicting that the ECB won’t raise rates again, so the dollar strengthened a bit.

Finally, in real estate, we are seeing soaring home equity line of credit delinquencies.

Economics Update

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I’ve been saying this for a while, but as I am an engineer, not an economist, dammit,*, but still, I have to wonder why it’s taken so long for the Bank for International Settlements to see that the world economy is in serious trouble, with a possibility of a world wide recession.

When one considers spiking oil prices and a new record for gasoline prices, the news is not going to be good.

Given the dollar’s rather unclear future, along with increased Euro-Zone inflation, which implies more rate hikes, and hence downward pressure on the dollar, things are pretty twitchy out there.

The Chicago Purchasing Manager Index is up, to 49.6 from 49.1 last month, but any number below 50 still represents a contraction.

We can wait for tomorrow’s Institute for Supply Management’s June manufacturing survey to get a better picture.

*I LOVE IT when I get to go all Doctor McCoy!!!

My Prediction on Fed Rate Setting

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Even if inflation were not an issue, and it is, they would not cut rates, because they have already cut them so far that the market is no longer effected by this.

The economic news lately has been awful, so they won’t raise rates.

Thus, they will do nothing, though my guess is that their statement will be more hawkish on inflation.

We will know in about 14 hours.

Economics Update

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Consumer confidence plunges to the 5th lowest level ever, 50.4, as opposed to the predicted 57, from 58.1 last month.

Considering that home prices are down yet again, this time the Case-Shiller index was down 1.4% from March, and 15.3% year over year, it’s natural that people won’t feel confident.

These numbers spooked the currency markets too, with the dollar trending down.

Oil prices are up again, largely because of concerns of instability in Nigeria, though retail gas prices are down $0.003 from yesterday.

And just in case you are wondering, energy inflation is hitting prices more generally, with Dow Chemical raising prices 25%, even though it raised prices 20% last month, and UPDATE: Lowe’s is seeing “unprecedented” price hikes from its suppliers.

Stagflation, here we come.

As to the “stag” part, the fact that Toyota is scaling back its sales goals because of weakness in the economy, even though there are are months long waiting lists for the Prius, would indicate that no one is making good sales right now.

In the interest of fairness though, there are reports that Toyota is cutting back on Prius shipments to the US, because they can get more money in Europe.

Economics Update

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Well, I’d be worried if I had to job search, because about 1/3 of employers surveyed by the Business Roundtable expect layoffs in the next 6 months.

Needless to say oil heading back up, and the dollar heading down would indicate that those 1/3 of executives surveyed are being prudent, even if retail gasoline prices fell for the 2nd day in a row, which hasn’t happened in quite a long time.

Currency gets even more interesting when one realizes that the Chinese Yuan has gained 20% vs the dollar since it’s been allowed to “kind of sort of float” against the dollar by pegging to a basket of currency, it’s gone from 1 Yuan= $0.1208 to 1 Yuan=$0.1453.

What’s more, it looks like a strong Yuan may be the only way for the Chinese to keep their inflation down, by cooling off exports and lowering the cost of imports, particularly food and fuel, so they may continue to take actions to strengthen their currency, essentially exporting their inflation to us.

Real estate continues to suck too, with mortgage application volume falling last week and the Architecture Billings Index dropping two points.

Economics Update

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We now have the Fed’s report on national industrial activity, and the may disappoints, with activity falling 0.2% when an 0.1% increase had been predicted by economists.

I’m not sure if it factors in inflation, but if it does not, then those numbers are absolutely horrific, as the producer price index rose 1.4% in May, which is grim….Over the last year, the PPI has gone up 7.2%.

Note that this is going on while housing starts fell 3.3%, which is the lowest rate since March of 1991, 17 years.

No wonder that the builders’ confidence survey just hit a record low, matching the record established in December of last year.

Of course, that doesn’t take into account that the National Association of Realtors isn’t getting the numbers that they report right. They claimed that NJ home sales were up 4% in the Q1 when they were down 30%….that’s a hell of a “mistake”.

It’s no wonder that Goldman Sachs is suggesting that banks may need to raise another $65 billion to cover mortgage losses.

It’s even less of a wonder that investors are waiting for more dividend cuts from banks. No profit should mean no dividends.

Of course, the Fed is continuing to let banks get free money for sh%$ pile assets, this time to the tune of $75 billion.

There is good news in energy though, with both oil and retail gasoline coming down a bit today.

The standard wisdom would suggest that this was because of a strengthening dollar, but the greenback fell today.

Economics Update

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Well, we now know that in May, foreclosure was up 48% over a year ago, which is why we are seeing stories about places where foreclosures are a majority of sales, and banks are becoming more flexible on prices on the property that they have assumed.

Increasingly, it looks like the bump in house sales was just a bump in sales of lender own properties.

If interest rates go up, this will get worse, and May data points to increased inflation. It exceeded expectations again.

That’s why Fed Governor Plosser is calling for a quick rate hike. He is worried about the dreaded stagflation.

The Real Misery Index

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The inestimable Barry Ritholtz notes that the Hedonically-Adjusted, Well-Spun, Nominal Misery Index, the sum of unemployment and inflation, is really 6 pounds of fertilizer in a 5 pound bag, and that if we used the same standards, because both numbers have been massaged into irrelevancy, and that if you used the metrics in place in 1980 or so, we would be at about the same number:

That’s right, we would be looking at 12% inflation and 9% unemployment under some measures.

Another Corporate Voice Challenges Employment Stats

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This time, it’s Dow Chemical CEO Andrew Liveris, who made news last week when they announced across the board price increases, says that, “he thinks the U.S. is underestimating the level of inflation in the economy and he expects the rise in energy costs is beginning to destroy demand.”

The “demand destroying” will become even more true when interests rates finally rise.

Another part of the unsustainably low rates that created the mess that Alan “Bubbles” Greenspan made.