Archive for July, 2010

‘Shrooming

Wednesday, July 21st, 2010

I have an amazing crop of mushrooms appearing in my yard.  Every morning when I go out to fetch the newspapers, a new stand of them is there to surprise me, three to four inches high, having sprung up overnight.  They remind me of the plethora of surprising economic news announcements that greet me once I begin scanning the headlines in the papers I had just gathered off the lawn.  Of late, the most pronounced similarity they share is the lack thereof.  In fact, they seem to arise almost in opposition to each other.  Half the reports and opinions are positive, the other half are negative, and the rest just don’t seem to know what’s happening!  One of our favorites here at Atlas Indicators is produced by the Economic Cycle Research Institute (ECRI).  They have a better track record than any other group we know of and lately one of their main indicators has been falling persistently.  It’s called the Weekly Leading Index and is now at a one-year low with an annualized growth rate which just recently dipped below the zero line and is now at -9.8%.  ECRI says this doesn’t necessarily portend we are about to fall back into recession, but it definitely points to a substantial slowing.  Given the current level of employment, housing sales, and retail spending, I would argue it won’t need to be a recession to feel like one.  Some economists have lately dismissed ECRI’s data, complaining that it garners too much credibility.  To this ECRI recently pointed to an International Monetary Fund study that concluded “the record of failure [among economists] to predict recessions is virtually unblemished.”  A mycologist will point out that when mushrooms appear, the fungus which actually is growing in the underlying soil is dying, and shoots up what we see in a last-ditch attempt to spread its spores.  We will move this indicator’s needle one more notch into negative territory accordingly.

Limbo Party

Tuesday, July 20th, 2010

Do you remember Chubby Checker exhorting everyone to “limbo lower now” as we all partied in our stocking feet to a stack of 45’s in someone’s basement?  No?  Well, you should have been there, but I digress.  To keep up with its demands for spending money, our government conducts frequent auctions, selling Treasury Bills, Notes, and Bonds.  Despite the size of these offerings, demand continues to be strong, thereby preventing rates from rising.  In fact, given the concerns about economic health both here and (especially) abroad, huge amounts of money crowd onto the auction floor seeking the safety and liquidity our currency currently offers.  We are seen as the ultimate refuge in uncertain times.  Still, again echoing Mr. Checker, one must ask of interest rates, “How low can you go?”  Recently the Treasury Department completed a series of auctions that realized extremely low rates.  For instance, 3-year notes went off at 1.055%, the lowest yield in history, in the face of strong demand.  Three-month bills sold at auction to yield .15%.  That means if you invested $10,000 in one, at maturity you would bring home an extra $3.75!  Of course that’s taxable.  Six-month bills fared not much better, yielding .2%.  Ten-year bond yields fell below 3% at times this July and 30-year paper sank below 4%.  Imagine earning less than 4% for thirty years and apparently anxious to do so.  Many folks ask us here at Atlas Indicators when we think rates may move back up, when do we think inflation will take hold.  With rates where they are now and continuing to drop, perhaps our focus should be on deflation instead.

Final First Quarter GDP

Tuesday, July 20th, 2010

The Commerce Department’s final revision to our nation’s first quarter Gross Domestic product (GDP) saw further downgrades from the initial April report of a 3.2% growth rate.  The May revision lowered that to 3.0% and now it has settled in at a 2.7% annual pace.  Turns out we imported more than originally thought which is a minus to GDP even though exports increased a bit, helping to offset the drop.  Also shifted downward were both “personal consumption expenditures” and “final sales of domestic product.”  If that technical jargon somehow sounds not so good to you, you’re right.  A weak trend to sales is not what one would expect to see if our economy is emerging from the recession as we are told unless, of course, we have already emerged and are now starting to sink into a new one.  With the fourth quarter of last year posting a substantial 5.6% increase in GDP, having that followed by a growth rate cutting it by over half isn’t all that hot. All eyes will now turn to the preliminary second quarter estimate of GDP due the end of July.  It will be followed, as usual, by revisions released toward the end of August and September.  Expectations are for a better showing this next go-round.  If we don’t get something substantial, more talk of a double dip will certainly surface.  Back to back recessions will not prove helpful to either employment or incumbents if a second one should manifest by year’s end.

May Federal Deficit

Monday, July 19th, 2010

The Treasury Department reported its federal budget deficit for May which surprised many by being less than expected.  Our government only spent $135,900,000,000 more than they collected in the month.  The country’s budget is on a fiscal year calendar which that begins every October, so we now have eight months on the books.  The Treasury has spent $935,000,000,000 more than it collected during the first two-thirds of the year.  Many have been quick to point out that this is an improvement over last year.  Fiscal year-to-date, the Treasury has reduced its deficit by 5.7%.  By this time last year the Treasury reported outlays of the federal government had totaled $2,365,086,000,000.  This year it has been cut to $2,281,556,000,000! While an improvement, the government still managed to spend 69.4% more than it has collected in taxes.  Imagine if you were to do the same and needed a loan to continue your profligate ways.  What bank would lend the money to you and, if you did find one to provide the advance, at what rate?  Some companies can get financing of this sort, but it is usually because they are developing and/or producing something of value.  Since the government is not in the business of production this indicator will remain at 6 o’clock until the growing deficit trend is reversed, and that will probably make for a long wait.

May’s Leading Indicators

Thursday, July 15th, 2010

The Conference Board’s Leading Economic Index (LEI) grew 0.4% in May.  The difference between short-term interest rates and long-term interest rates, as measured by the Federal Funds Rate and 10-year Treasury yields respectively, provided the biggest push for the indicator.  With the Federal Funds Rates near zero and likely to remain there for an extended period, the Federal Reserve’s policy will continue to help this indicator.  The money supply also helped add to the index.  As the crisis in Europe continues to develop our country is seen as the safest place to keep reserves.  This current flight to safety may have been a contributing factor to the growing money stock.  In normal environments, the extra money held on deposit would be lent out.  Time will tell if banks will lend the excesses or not.  While it is not a large part of LEI, building permits for new private homes are interesting to look at these days.  They fell 36,000 to 574,000 on an annualized basis the month after the home buyer stimulus expired.  The LEI has been growing since April 2009 but is starting to show signs of fatigue.  The chief economist of The Conference Board, Bart van Ark, said “the index points to continued, though slower, U.S. growth for the rest of the year.”  This parallels what another indicator we follow, ECRI, has been saying for several months.

Which Way Did They Go?

Wednesday, July 14th, 2010

I seem to recall an old Bugs Bunny cartoon featuring a hunting dog who repeatedly asked, “Which way did they go, George.  Which way did they go?”  If you remember it, don’t raise your hand; just tell me later, lest people learn just how old we both are.  Anyway, recently I decided to see how many Americans there were per the 1960 census.  The answer: 179,323,175.  Today our population is estimated at 309,715,000 which means it has grown over 72% in the last 50 years.  I find that odd since new home sales recently came in at the lowest level we’ve seen in roughly that same period of time.  Where did everyone go?  In fact, the recent unemployment number just showed a slight gain because over 650,000 people dropped off the rolls.  They didn’t find a job; they just stopped being counted.  If we actually counted all the folks who have disappeared from the pool of potential workers, our unemployment rate would be well over 10%.  Which way did these people go, these potential consumers?  Did they retire?  Is there a veritable army of early-outs about to apply for truncated Social Security benefits?  I don’t know where they are, but you can bet we’ll find them one of these days.  If I knew who George was, I’d ask him.  Would you happen to know which way he went?

May New Home Sales

Tuesday, July 13th, 2010

Don’t say we didn’t warn you.  Last month we wrote that the new home sales figure was likely to have seen its peak in April.   May’s new home sales number confirmed this.  After surging 14.8% in April from an upwardly revised March, it has now set a new record of a different sort.  Annualized sales went into free fall, off 33% to 300,000 units, the slowest pace on record, and they have been keeping track of this data point since 1963.  As if that wasn’t bad enough, the previous two months of sales were revised down by a combined 108,000 homes.  The inventory of new homes shot up to 8.5 months from 5.8 months in April.  This will not be good for construction; builders will be reluctant to add to their current stock.  The actual supply now sits at 213,000 homes.  This is the lowest number of new homes available since 1970.  If sales do begin to pick up and monthly supply looks better, home builders will have some catching up to do.  In the meantime, they will need to find non-stimulated buyers to mop up the current inventory.  One way to do that is with price adjustments–downward.   Perhaps the housing market’s feet will find a firmer foundation with lower prices producing equilibration in lieu of government stimulation.