Category: Recession

Economics Update

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We have some pieces of good news. The 1st is that non-farm productivity rose at a 6.4% annual rate, the highest rate since 2003, the 2nd is that wholesale inventories fell at more than twice the predicted rate, and the 3rd is that the Hotel Industry’s Pulse index (HIP) rose in July, for the first time in 19 months.

Both of these numbers are generally positive, though the numbers for productivity include a reduction in hours worked and worker pay, and a reduction in inventories is only a good thing to the degree to which we get to the end of that process.

On the less encouraging side of the spectrum, we have demand for US Treasuries increasing, which indicates a return to risk aversion, and the Baltic Dry Index has fallen for a 9th straight day, which indicates a big drop in international trade.

In energy, we have oil falling below $70/bbl, and in currency, the dollar fell, particularly against the Yen.

Economics Update

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Something that everyone misses about this economy is that it is really all about jobs. Note that I am currently looking for a job, which makes me more aware of this.

Actually, it’s not everyone who does not get that it’s about jobs, ordinary people get it, which is why consumer confidence fell in July.

In any case, we should glad that we don’t live in the UK, because “The Street”, their version of Wall Street, owns their economy even more than that great vampire squid wrapped around the face of humanity,* Goldman Sachs, owns our economy, and so the UK’s GDP fell by 0.8% in the 2nd Quarter, and 5.6% year over year, the largest slump ever recorded for Old Blighty.

The problem is that without jobs, there is no recovery, and the recovery programs spend a lot of times of the relative health of financial cephalopods,† not the return of jobs.

It’s beginning to increasingly look like real estate will lag any recovery, with major increases in the number of rental units and the vacancy rate, which has spiked to 10.6% as people who cannot sell their homes continue to rise, and US home vacancies hit 18.7 on bank seizures and walk-aways.

Still, the traders are optimistic, which is driving oil up and the dollar down.

*Alas, I cannot claim credit for this bon mot, it was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm, The Great American Bubble Machine.
†You know, cephalopods, as in vampire squids, like Goldman Sachs

Economics Update, One Day Late

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Normally, I don’t comment on stock market swings, but the Dow closing above 9000 for the first time since January allows me to invoke this Dragonball Z meme, sorry.*

Yes, I know that this should have been done yesterday, but once I got all the links together, we had heavy thunder storms, and so I shut down for the evening.

In any case, yesterday was unemployment claims Thursday, and new claims are up by 30K to 554K, but note that these numbers are all seasonally adjusted, which means that they really are not particularly valid, since the July shutdowns of GM and Chrysler happened in the spring of this year, so for this week, and to a lesser degree next week, we are flying blind on these statistics.

That being said, I think that the numbers on continuing claims are still valid, or at least more valid, and those numbers fell 88K to 6.225 million.

In any case, 550,000 weekly new unemployment claims, or for that matter anything over 400,000 new claims, is a grim picture, and so we are still well within the “grimness event horizon.”

I would also note that downward pressure on the continuing claims numbers is coming from people who are exhausting their unemployment benefits, and as Peter Boockvar at The Big Picture notes, the number of people on emergency unemployment benefits, which cut in after 26 weeks, are way up, but they are not counted in the continuing claims numbers.

So, I would not put a whole bunch of credence in the normally reported unemployment numbers until probably the August 7 numbers.

In terms of more general economic news, we have credit card charge offs rising again in June, hotel revenues down and vacancies up, and on a conference call, the CEO of UPS noted that he is not seeing any signs of recovery in his shipping business.

On the plus side, Canadian consumer confidence rose in July, and there was a surprise jump in U.K. retail sales, largely on increased purchases of clothing, which means that the Brits are poor, but not poorly dressed.

In real estate, existing home sales rose in June, but it should be noted that 1/3 of these are distressed sales, either foreclosures or short sales, and it should also be noted that prices are still falling off a cliff, down 15.4% year over year.

Mortgage rates are marginally lower, probably in reaction to Bernanke’s testimony before the Congress.

In the area of news that sounds important, but that I cannot for the life of me suss out what it means, it appears that Swiss banks are running out of vault space for gold bullion.

Finally, oil rose and the dollar fell yesterday.

*OK, I’m really not sorry, not one little bit.

Economics Update

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It appears that Ben Bernanke has a mentioned a secret plan to win the war in Vietnam protect the US dollar from inflation,* which will prevent inflation when the economy recovers, and this has driven Treasuries higher, and their yields lower:

Fed officials said in a report submitted as part of Bernanke’s testimony that policy will be “tightened” when the labor market improves, an economic recovery takes hold and pressures holding down inflation “diminish.” The comments follow a rally in stocks and a rebound in corporate earnings that have stoked speculation the worst recession in half a century is ending.

I’m not an economist, but I still think that one way to get out of this mess is to inflate our way out of this, which will have the effect of devaluing the debt which is holding back our economy.

I understand that it can (*cough* Zimbabwe *cough*) get out of hand, but it seems to me that too many people are under water for any recovery now.

Considering the fact that Americans are paying down their debt at the fastest rate since 1952, I do not see an alternative.

IMHO, We are in a deflationary trap, and creating inflation is the way out of it.

In any case, Bernanke’s statements about inflation boosted the US dollar, and his statements about recovery boosted crude oil prices.

*It’s a “Tricky Dick” Nixon reference, OK?

Economics Update

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The obvious lede here is that the leading economic indicators have risen for the 3rd straight month.

3 straight months is supposed to indicate that that a recovery is likely.

I’m not sure just what the recovery is supposed to be, as in the nonsensically titled article, “Commercial property price drop may signal bottom,” which takes the position that a -7.6% price decline in May, which followed a -8.6% decline in April, (-16.2% in 2 months!!), a -29% year over year decline, and -34.8% decline from peak is not the next tsunami in real estate and banking.

The fact that commercial mortgage defaults have hit a20-year high would seem to mitigate against any recovery any time soon in the commercial real estate sector.

In any case, commercial lender CIT, not to be confused with Citi, managed to cut a deal which staved off bankruptcy, and this calmed investors, which increased their optimism and appetite for risk, which
pushed the dollar to a 6 week low, and drove oil prices up, though retail gasoline, which lags oil prices, fell to an 8 week low.

Economics Update

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Housing starts rose from May to June, but as Barry Ritholtz notes, “The year-over-year data is much clearer: New Starts down 46%, Permits down 52%.” (The graph to the right illustrates this pretty well)

In either case, the housing data was better than expected, which drove oil up, bonds down (and thus their yields rose), and increased the spread between the 2 and 10 year notes.

The dollar rose today, but both the dollar and Yen have fallen more this week than they have since May, indicating an increase appetite for risk.

Still, the number that worries me is the fact that June video game sales are at a 9 year low.

When gaming geeks are cutting back, everyone is cutting back.

Economics Update

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Yeah, it’s actually yesterday’s….What can I say.

Since Thursday is new jobless day, we lead with the fact that new claims for unemployment fell to a 6 month low, though it must noted that these are seasonally adjusted figures, and the still accounts for the spike from the July shutdowns of the GM and Chrysler, which happened earlier this year.

We have two other indices moving in opposite directions, with the Philadelphia Fed industrial index falling, and the NAHB builder confidence index rising, but I’m more inclined to go with the Philly Fed, it’s an index of activity, not sentiment, and also because RealtyTrac is reporting that foreclosure filings hit a new record for the first half of the year.

Mortgage rates stayed pretty much flat over the last week.

In energy, retail gasoline continues to fall, hitting a 2 month low, and crude oil fell on demand concerns.

The dollar fell as well, on increased optimism by investors, who have moved their money to more speculative ventures.

Economics Update

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Well, in the real economy, we have the Federal Reserve releasing yet more down numbers on industrial production and capacity utilization.

The most of the rest of today’s (and yesterday’s, I was not blogging yesterday) news today basically has to do with inflation, with increasing energy prices being responsible for increased retail and wholesale sales, producer prices rising 1.8% in June, and Consumer price rising 0.7% in June, though for the CPI, it was only 0.2% when the more volatile food and energy segments were taken out, and the CPI was down 1.4% year over year, the biggest drop since 1950.

We also have the yield curve slope hitting highs.

The yield curve slope is the difference in interest rates between 2-year and 10 year treasury bills, and is an indicator of market concerns about inflation, so it means that the bond market is seeing inflation out there in the medium term.

I’m not sure where this inflation would come from though, because this year’s back to school sales season is looking as anemic as the 2008 Christmas shopping season.

In any case, good corporate returns for Intel, and obscene returns for Goldman Sachs have left people optimistic, and so the US dollar fell, and, with the help of an anemic inventories report, oil rose above $61/bbl.

Economics Update

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Interesting day. Not a whole bunch of news, but what I saw looks like it might mean more than it seems.

First, we have 10-year treasuries spiking, because bond investors believe that the economy will not be recovering this year.

We may also have S&P warning of a lending bubble in China, with the possibility of a “sharp deterioration in banks’ assets,” over the next few months as a result.

I think that if the bond market is right, and that is a big if, then the expansion of lending in China does have a real possibility of a significant hang-over in the next few months.

It does seem that pessimism is ruling energy and currency too, with retail gasoline having its biggest 2 week drop since the end of last year, and crude oil closing at a 2 month low.

Additionally, demand for a safe haven has driven the dollar higher.

Economics Update

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So, the Michigan swurvey of consumer sentiment is down. Perhaps the average person knows something that the “green shoots” folks don’t, or maybe it’s that average people pay more attention to the unemployment rate, which is a lagging indicator.

One interesting thing is that U.S. trade deficit in May fell to its lowest level in a decade, and it was falling imports, along with an increase in exports, that appears to have driven this.

The implication here, assuming that this is not a 1 month blip in the stats, is that the US is lagging the rest of the world in economic recovery, which is not what it has been historically.

It does seem that investors are heading for safety, which drove bond prices up, and bond yields down.

These concerns have led to the biggest weekly drop in oil prices in 6 months, and a strengthening of the Yen and dollar, as a result of demand and safety concern.

Economics Update

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Thursday is new jobless claims day, and new jobless claims fell by 52K, to 565K,, bringing the number down below 600K for the first time since late January of this year. (Full disclosure here, one of those 565,000 people was me, if anyone knows of mechanical engineering openings in the greater Baltimore, MD area, it would be greatly appreciated.)

The other shoe dropping is that continuing claims hit an all time high, rising by 159 to 6.88 million.

Also note that these numbers are the seasonally adjusted numbers, and actual claims increased by 17K to 577.5K, and the seasonal adjustment includes a correction for auto factory shutdowns for model changes, which occurred early this year for GM and Chrysler, because of the bankruptcies.

Ain’t statistics grand?

A slightly more realistic metric than the massaged jobs claim data is the fact that retail sales missed expectations in June.

The fact that retailers were selling less than expected led to wholesalers drawing their inventories to the lowest levels since August 2007.

The big news in central bank land is that the Bank of England neither cut its rates nor increased its bond purchases, which had the effect of driving treasuries down, and their yields up.

In any case, it appears that the bogus job numbers (see above) have halted the slide in crude oil prices, with prices settling at $60.41/bbl.

The Bank of England’s move not to cut rates or buy bonds (print money) any faster had the effect of weakening both the dollar and the Yen.

Economics Update

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Consumer borrowing has fallen for the 4th straight month, as households continue to deleverage.

The real question is whether this is a long term or a temporary change in consumer behavior.

In banking, interest rates are falling again, with yields on treasuriess falling as more people flock to their relative safety, and falling interest rates on mortgages have boosted mortgage applications.

In currency, concerns over unrest in China have driven both the Yen and the dollar up vs the Euro, though the dollar is has fallen to a 5 month low vs. the Yen.

I think that the currency traders are more sanguine about Japan than about the US.

In energy, increased inventories and concerns about future demand drove the priuce of oil down to near 60.

Economics Update

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So much for green shoots. We now know that delinquencies in loans and credit cards have hit an all time high, and records for this have been kept for 35 years.

We’re also machine orders in Japan falling for the 3rd straight month.

So, we are seeing a continuing pullback in both manufacturing and consumers, so perhaps the focus on reviving the banking incumbents was a bit short sighted.

In real estate, we have the pending home sales rising slightly, and mortgage rates falling, though it must be noted on all home sales reports that the percentage of distressed sales, foreclosures and short sales, has been increasing, so any increase in sales reflects this phenomenon.

In any case, fears of a continued recession have pushed up the dollar and the Yen, while depressing the price of crude oil.

Economics Update

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Scary Picture of the Day
H/T Calculated Risk

Today is the official unemployment numbers, and they are worse than expected. Non-Farm payroll fell by 467K, and unemployment (U-3) rose to 9.5%.

For those of you following the more expansive, and to my mind, more accurate, U-6, it rose to 16.6%.

Unemployment is hitting new highs in the Euro zone too, which is why the ECB is keeping its rates at 1%.

It’s no wonder that a CNN/Opinion Research Corporation survey showed that people are getting more pessimistic about the economy.

We do have a bit of good news, with factory orders rising in May, and
mortgage rates falling this week.

In energy, both crude oil and wholesale gasoline prices fell, on the weak employment numbers and expanding inventory.

The investor flight to safety has strengthened the dollar.

Economics Update

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Unemployment Rate Actual data vs. the Summers-Geithner Stress Test Assumptions
H/T Calculated Risk

The obvious lede is the various corporate measures of job cuts, with ADP Employer Services saying that there were 393K private-sector jobs cut, Challenger, Gray & Christmas saying that planned job cuts in June were 74,393, and the Monster Employment Index (PDF) moderating somewhat for June.

These are a bit better than May, but only in “the 2nd derivative is improving” way.

Jobs are still being cut, when you need to job growth to match the growth of the work force.

In related “2nd derivative” news, there is CNN trumpeting the fact that the Institute for Supply Management’s (ISM) manufacturing index rose for the 6th straight month:, while Bloomberg correctly notes that what this really means is that Manufacturing in U.S. Shrank at Slower Pace in June.

Falling less slowly is not improvement.

I am so sick of hack Panglossian journalists.

We also have mortgage applications falling to a 7 month low, which indicates that right now the housing market is in a death dance with economic recovery.

Any recovery will bump interest rates a few points, but that will kill any recovery in real estate……Catch 22.

If you want some good news, industrial sentiment rose in Japan, but it’s a “2nd derivative” thing too, with the index rising to minus 48 in June from minus 58 in March.

The only really good news, is that Calculated Risk’s June Economic Summary in Graphs is out, so there is some good chart pr0n for the wonks.

In energy, we have US Diesel inventories up, along with both oil and gasoline falling on increasing inventories.

Finally, the dollar fell, though I can’t tell if this is China’s suggestion of an alternate reserve currency, or because all the “2nd derivative” stuff make investors feel less of a need for a safe haven.

Economics Update

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Case-Shiller data vs. the Stress Test Assumptions
H/T Calculated Risk


Default rates on mortgages, Also
H/T Calculated Risk

Uh-oh, consumer confidence fell in June, largely based on job concerns.

The reporter interviews an analyst who is surprised about this, because of , “the fact that the S&P 500 is close to 40 percent off its March lows.”

The fact is that the general public is better at recognizing a dead cat bounce than this analyst, because they are concerned about jobs, which are still being lost.

Meanwhile in the world of real estate, or perhaps we should call it unreal estate, the
Case-Shiller index posted an 18.1% year over year drop, and delinquencies on prime mortgages going off the charts.

We also got GDP numbers for the 1st quarter from the UK, and we have their economy falling off a cliff, down 2.4% for the quarter, and 4.9% year over year.

Maybe the good news is that there U.K. house prices rose in June, following May’s increase, up 0.9%, though it’s still down 9.3% year over year.

Until I see year over year numbers below 2%, I don’t see any green shoots, just the 2nd derivative of price going positive.

In any case, the crappy consumer confidence report drove oil down and the dollar up, as there are concerns about reduced demand for oil, and a flight to safety in dollars.

Economics Update

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Generally, the news has been pretty good, with personal income rising and consumer confidence hitting the highest level in over a year.

Additionally, we are seeing more signs of a credit thaw, with the 3 month dollar LIBOR falling below 0.6%.

In energy, we have an offer of amnesty on the table in Nigeria, which has driven oil lower.

This has led to a decreased perception of risk, which, along with some statements by China’s central bank, drove the dollar down.

One wonders how bank failure Friday will shake out tonight.

Economics Update

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It looks like the divergence between new and existing home sales is distressed sales
H/t The Mess That Greenspan Made

New unemployment claim numbers are out, and they posted a surprise gain, rising 15K, to 627K, as opposed to the predicted drop to 600K, while continuing claims rose slightly, and the 4 week moving average was basically unchanged.

We also have the revised figures for the 1st quarter GDP, which fell at a 5.5% annual rate, a slight upward revision from the 5.7% estimate last month.

Meanwhile, yesterday’s Fed statement appears to have fears of increasing interest rates, so 2-Year Treasuries rose, meaning that the yield fell.

Additionally, the Fed announced that it is extending its emergency facilities from October to February, so the sh&^pile for cash has at least 5 more months life.

The jobs numbers served to drive the dollar up as investors looked for safe havens, and oil rose on more reports of Nigerian unrest.