Echo

Showing posts with label Daily Data Releases. Show all posts
Showing posts with label Daily Data Releases. Show all posts

Treasury receipts still falling at a 13% annual rate

Thursday, August 6, 2009

As of August 4, 2009, the Daily Treasury Statement (DTS) shows that the 1-month cumulative sum of income tax receipts (withheld plus paid taxes) is dropping at a 13% annual pace. The severely weak labor market is cutting wages, which in turn, drags consumer spending.

Remember, though, that the reduced tax withholding also serves as an automatic stabilizer to workers - falling tax payments mitigates the recession's effect on disposable income and spending.

This is the most up-to-date macroeconomic information out there, as most of the reports are 1-2 months old at the time of release. And the implication of this DTS is: that personal income and spending, which just released this week for June (see Econompic's take on the BEA's report), are likely to be weak into July.

Rebecca Wilder

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Willy Wonka's chilling job market

Friday, May 8, 2009

This is what the labor market looks like to me:




The April employment report was nothing short of awful. The unemployment rate surged four-tenths of a percent to 8.9%, and the nonfarm payroll was reported to have shed another 539k jobs. In total, the unemployment rate almost doubled and the payroll slashed 5.7 million jobs since the cyclical peak, December 2007.

The chart below illustrates the payroll loss by sector for the big 3 recessions – those that lasted 16 months or more (April marked the 16th month of recession in the current cycle).



  • In the big 3, the current cycle is seeing record job in construction, manufacturing, trade, transportation and utilities, financial activities, professional and business services, leisure and hospitality, and other services.
  • The “last men standing” in this cycle – those industries that added jobs over the cycle – span just three industries mining and logging (<1% of the total payroll), education and health services, and government. Government is a risk, as the bulk of states and local governments are seeing budget shortfalls.
  • May 2009 is the 17th recession month in the current cycle, making it the longest recession since 1933. There is much job loss left in the pipeline; and although labor market is not expected to emulate that of the Great Depression, it does seem steal the spotlight from the 73-75 and 81-82 recessions.
The rate of job loss likely hit its peak, but the job destruction is still very troubling.

Rebecca Wilder

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World economic reports (May 1- 7): the economic decline abates

Thursday, May 7, 2009

This week's peek at the global economy shows some economic calm. The signs of hope remain mostly in the soft data - US and China purchasing managers surveys posting consecutive monthly growth - while the hard data - export growth, inflation, and unemployment - continue to deteriorate. Going forward, the story that "economies are declining less quickly" is gaining some momentum. And for some, a turning point may be on the horizon.

GS (green shoot): Trend in China's purchasing manager survey probably saw a cyclical low

Source data courtesy of Sinolize.com

The chart illustrates China's manufacturing (MPMI) and non-manufacturing (NPMI) indices through April 2009. The manufacturing index marked its fifth consecutive month of growth, while the non-manufacturing index took its second consecutive bump. The two sectors continue to deteriorate - the MPMI and NMPMI indices remain below 50 - but at a slowing rate.

GS: Same story in the US

The chart illustrates the Institute for Supply Management's monthly surveys of activity in manufacturing (ISM pmi) and services (ISM Services) through April. The story has gone global (see a nice post here at Global Economy Matters): production is still contracting, but at a falling rate.

In the US, the ISM pmi index dates back to 1948 and tracks well recession activity. As long as it doesn't double dip, the ISM pmi is currently 40.1, then the economy and manufacturing will likely be expanding in coming months (values over 41.2 indicate overall economic expansion). I should stress that the uncertainty of the outcome in the auto sector makes double dipping a real possibility.

GS/Uh-oh: Export decline slows in South Korea, but quickens in India (click on chart to enlarge)

The chart illustrates export and import growth through April for South Korea and through March for India. Trade flows took a quick U-turn, as imports (signal of domestic economic conditions) and exports (signal of foreign economic conditions) cam crashing down. On the bright side, South Korea's export sector - export growth is highlighted in the chart: -33% and -19% over the year in India and South Korea, respectively - has tentatively stabilized since January 2009.

Uh-oh: the lagging indicator, unemployment, is surging across the board

The chart illustrates the annual change in the unemployment rate through March for Japan, Eurozone, and Germany, and through April for Australia (the current unemployment rates are listed in the legend). The evidence suggests rapid decline in labor conditions across the board. Germany is slow to get there (the harmonised measure), but the unemployment rate will rise further.

Uh-oh: another lagging indicator, prices, fall hard on energy

The chart illustrates the most recent inflation rate compared to the same rate just one year ago for Switzerland, Japan, Taiwan, South Korea, and Thailand. Prices are falling into the red for each economy except in South Korea, whose inflation rate slowed to its lowest level in 14 months.

These indicators are typical of a turning point. Some hard data (exports in Korea) show improvement, while others (prices and unemployment) are lagged to the economy and will continue to decline for some time.

Rebecca Wilder

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World economic reports (April 16-23): expected to slide through 2009

Thursday, April 23, 2009

Today's weekly reports are slightly more positive than last week. However, I avoided the trade reports all together, which undoubtedly would have dragged down the sentiment. Although there are a growing number of positive reports out there, global economies are still very much in the red zone, -1.3% in 2009 according to the IMF.

China's retail sales rebound in March

China's retail sales grew 14.7% in March 2009. Much of the draw on retail sales, measured in current prices, has been driven down by the slowing - now negative - rate of inflation (see next chart); however, weak demand surely played its part as well. The March rebound is one of the numerous pointing to a bottom in the Chinese recession.

Inflation continues to fall; some areas go negative


Inflation around the world is low and going negative in some areas (China). This is primarily an energy story, since core inflation, growth in all prices except food and energy, in Canada and the Eurozone are still rising at a 2% and 1.5%, respectively. However, prices move at a lag, and eventually weak demand will drag down core inflation as well.

According to some measures, home value in the UK and US are stabilizing

In April, UK home values grew for the third consecutive month, slowing the annual rate of decline to -7.3%. In another report across the Atlantic, February US home values grew for the second consecutive month, slowing the annual decline to -6.5%. Amazingly, this gain in US home prices was not widely reported in the media. I'll take this as good news, but this is just two data points; and there are lots of reasons to think that home values will fall further (like the inventory of existing homes is still very elevated).

The FHFA index (this week's report) shows price movements on homes tied to conforming loans guaranteed by Fannie Mae and Freddie Mac. Therefore, it is missing much of the market tied to non-conforming loans; the S&P Case-Shiller index is thought to capture better the housing market as a whole since it includes homes tied to non-conforming loans. See this WSJ article for a broad description of the two indices. I imagine the true price is somewhere in betweeen the two.

The Bank of Canada reaches its "effective" lower bound

The Bank of Canada lowered its policy rate (the overnight rate) to just 0.25%, joining the near-zero lower bound club. The policy announcement reported that "the recession in Canada will be deeper than anticipated, with the economy projected to contract by 3.0 per cent in 2009. The Bank now expects the recovery to be delayed until the fourth quarter and to be more gradual." The Wall Street Journal discusses the Bank of Canada's unprecedented statement that "the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target."

Policy, Policy, Policy. That is what this cycle is all about. From China to the U.S., and everywhere in between, central banks are pushing hard and governments are spending. However, in spite of the positive policy shifts, the IMF released this week its World Economic Outlook, where world growth, measured using purchasing-power parity (PPP) weights, is expected to contract 1.3% in 2009. If I had to choose, I'd go with the World Bank's forecast, which is -0.6% in 2009 on a PPP basis.

Rebecca Wilder

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Weekly unemployment claims and the boy who cried wolf

Thursday, April 16, 2009

According to the Department of Labor today, weekly claims fell by 53,000 to their lowest level in almost three months, adding to the list of reports that beat expectations as the consensus expected a rise to 660,000. Here is what the Wall Street Journal's Real Time Economics blog has to say:

Forecasters love tracking jobless claims because they’re a timely read on the labor market, but also because they have historically been a great way to determine when declines in economic activity are nearing an end.

Robert J. Gordon, an economics professor at Northwestern University who sits on the committee tasked with dating recessions, is one who finds enormous value in this series. Going back to the late 1960s, he has found that the four-week average of new claims peaks about a month before the declared end of recessions with remarkable accuracy.

As of right now, the four-week average claims series peaked at a level of 659,500 in the week ended April 4. If that number holds, based on the series’ past performance it would mean the recession ended somewhere between late March and early May – a far more optimistic read on the economy than any consensus forecast (the latest WSJ survey of economists shows on average they expect the recession to end in September). “The end of the tunnel may only be weeks away,” says Mr. Gordon.

Of course, that’s a pretty big “if.” First of all, the current recession – which began in December 2007 – has been longer and by many measures more severe than any other postwar recession, so it remains to be seen whether jobless claims will have the same predictive power they’ve shown in the past. Secondly, the weekly series is volatile and could well keep rising as the nation’s unemployment rate, now 8.5%, heads towards the double-digits many expect.

“A clear down-turn in claims would be a strong signal of a turn in the broad economy, but we think that is still a few months off,” said Ian Shepherdson, an economist with High Frequency Economics, in a note following the release.

RW: As the chart suggests, I would take this reading with a grain of salt; because at the time, a peak in the 4-week moving average would have been apparent in December 2008, or even in March 2009. Frankly, nobody will really know, or be able to say with certainty, that claims peaked until well after they had already done so. Nevertheless, it is one of the the most current economic information out there, and this week's report was if nothing else "not bad".

Rebecca Wilder

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Today's CPI report: core gain is likely to be short lived

Wednesday, April 15, 2009

Deflation is winning the battle, as prices – at least energy prices - catch up to aggregate demand. In March, the consumer price index fell 0.1% on a seasonally adjusted basis amid a 3% decline in energy costs, leaving core prices up 0.2% over the month. Some notable shifts indicate that this gain in the core index may be short lived:

  • Housing fell 0.1% over the month on hotel lodging (-2.4%), and fuels and utilities (-1.4%). So far, rents are still rising, +0.2% over the month. However, the sharp economic decline is dragging down rental prices regionally, and we expect this to pass through to the national CPI. And at roughly 30% of CPI index, falling rents present a clear downside risk to inflation going forward.
  • The number of (relatively) positive auto reports just increased: new vehicle prices rose 0.6% over the month. Put this together with the inventories reports, and you get the following story: the stock of unsold cars (inventories) is falling due to a shortage of production over demand, resulting in higher prices. However, sales are still falling, and we expect the pressure on prices to remain minimal at best.
  • Tobacco and smoking products prices surged 11% over the month, accounting for over 60% of the monthly bump in overall prices. This is not seasonally adjusted and incorporates tax increases, so we expect that the price gains will be short lived.

All said, the monthly gain in core prices was not sufficient enough to keep the annual inflation rate above 0. The non-seasonally adjusted price index fell 0.4% over the year, its first decline since 1955. Cause for concern will undoubtedly be sweeping through the markets. However, deflation itself is still a remote concern, since for now price declines are a form of price discovery to clear the market of goods and services when incomes are falling. The bigger concern is the economy; and that is still declining.

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Retail sales show an economy that is falling less quickly

Tuesday, April 14, 2009

The Census Bureau released its advanced retail sales report; and for March, this was a pretty miserable report:

advance estimates of U.S. retail and food services sales for March, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $344.4 billion, a decrease of 1.1 percent (±0.5%) from the previous month and 9.4 percent (±0.7%) below March 2008. Total sales for the January through March 2009 period were down 8.8 percent (±0.5%) from the same period a year ago. The January 2009 to February 2009 percent change was revised from -0.1 percent (±0.5%)* to +0.3 percent (±0.3%)*.
What I see in the report is a really weak 4th quarter of 2008 compared to an even weaker first quarter in 2009. However, you will notice that the story is consistent with the “economy is falling slightly less quickly” story, at least in consumer spending. In Q1 2009, retail sales, which account for roughly 31% of overall GDP, fell at a smaller 1.2% over the quarter compared to the 7.1% tumble seen in Q4 2008. Retail sales are about 45% of aggregate personal consumption expenditures, which in turn, were 69% of total GDP in Q4 2008, so 0.45*0.69=0.31.

The report clearly highlights the downside risks to consumer spending; but nevertheless, is consistent with slight improvements in some of the economic indicators. However, the March report illustrates the clear downside risk of job loss, economic uncertainty, and overly levered households to consumer spending.

Rebecca Wilder

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FDIC closes two more banks this week

Saturday, April 11, 2009

And the saga goes on. The FDIC, coming back from a week off, closed two more banks on April 10, 2009, New Frontier Bank, Greeley, CO and Cape Fear Bank, Wilmington, NC. The total number of institutions that have failed, including commercial banks, saving and loan institutions, and other thrift failures, in 2009 stands at 23.

Rebecca Wilder

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TALF off to a snail-speed start

Wednesday, April 8, 2009

Today, the NY Fed released information on the second round of the Term Asset-Backed Securities Loan Facility (TALF) - it's new program designed to jumpstart consumer and small-business lending via the asset markets backed by these loans (ABS). Requests for TALF loans fell 64% to just $1.7 billion since the program's premier on March 17-19.

There were $811 million in requests for funds linked to purchase ABS backed by auto loans and $897 million for those backed by credit card loans, but that's it. There have been requests for neither loans to buy ABS backed by student loans nor ABS backed by small business; and furthermore, the program was extended to include ABS backed by equipment, floorplan, and mortgage servicing advances, which also received no takers.

This is a very slow start. Bloomberg cites the following as hindering the program:

  • TALF investors are subject to a provision in February’s $787 billion fiscal-stimulus law that makes it tougher for recipients of federal bailout funds or Fed emergency loans to hire skilled workers from abroad.
  • John Ryding (founder of RDQ Economics LLC in New York ) said the coming expansion of the TALF to include older, distressed mortgage securities will be more important than the first phase, which only includes newly issued securities tied to consumer and business loans.
  • Weaker consumer demand for credit could also be limiting demand for TALF deals. The pace of borrowing by U.S. consumers fell in February. (this is what I initially argued).
Work visas? Man, Congress may have shot itself in the foot on this one. Overall, it looks like there are problems; technical or not, they're there. Wonder how PPIP will pan out.

Rebecca Wilder

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Wholesaler report shows encouraging signs on inventories

Today, the Census Bureau released the following report on merchant wholesaler sales and inventories:

February 2009 sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $319.7 billion, up 0.6 percent (+/-0.7%)* from the revised January level and were down 14.3 percent (+/-1.6%) from the February 2008 level.

Total inventories of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations but not for price changes, were $419.3 billion at the end of February, down 1.5 percent (+/-0.4%) from the revised January level, and were down 1.7 percent (+/-0.9%) from a year ago.
The chart illustrates the investment to sales (I-S) ratio for the manufacturing (released last week) and wholesale sectors. Overall, the data indicate that production is coming line with demand, even falling faster, across both sectors as their I-S ratios fall to 1.45 and 1.31, respectively.

In the newest wholesale report, the rate at which firms draw on inventories is increasing; in February, inventories fell for the first time on an annual basis since 2002, -1.7%. This is bad for Q1 2009 GDP since inventories draw is a drag on GDP, but it does suggest that the point at which firms start adding to inventories might have inched closer. The quicker that inventories fall, the sooner must firms start adding to them again (assuming some positive demand for the goods). However, this is just one data point - let's wait for a trend to get excited.

The final part of the puzzle will be released on Tuesday when the Census Bureau reports Business Inventories, which includes retail.

Rebecca Wilder

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Economic reports around the world (April 1-7): still scary

This week, economic reports around the world tell the story of an ongoing economic contraction. Overall this week's reports suggest that there is still a lot for global policymakers to worry about.

EXPORT GROWTH IS STILL IN THE RED ZONE

The chart below illustrates monthly exports through March for South Korea and Taiwan, and through February for Malaysia and Indonesia (export numbers are not seasonally factored and listed in $US). Over the year the annual growth rates show ongoing weakness.

INFLATION FALLS - STILL MOSTLY ON ENERGY AND COMMODITIES....

The chart below illustrates annual inflation rates through March for Thailand, South Korea, Switzerland, and Taiwan. Serious weakness in global demand has dragged down energy and commodity prices, taking inflation to deflation in some cases. However, eventually this will pass through to core prices (prices ex energy and food) at a lag, and core inflation (which is still very positive in the US) will fall, too. Switzerland is now negative, -0.4%, and Taiwan and Thailand have experienced deflation for two and three consecutive months, respectively.


UNEMPLOYMENT IS WEAK IN THE EUROZONE AND THE US

The chart below illustrates the annual change in the unemployment rate for the Eurozone through February and the US through March. Both registered 8.5% unemployment rates in each respective month, or a serious deterioration in labor market conditions over the year.

The labor market is generally lagged to overall economic conditions - it takes a while for firms to internalize the economic situation, firing late and hiring late. So these economies may be recovering well-before the unemployment rate starts to decline (jobless recovery).

BUT IT DOES LOOK LIKE THE ECB IS WAY LATE

The chart below illustrates the policy rates for the European Central Bank (ECB) and the Bank of Japan (BoJ). The ECB cut by 25 bps to 1.25%, and the Bank of Japan left its rate unchanged at 0.1%. Given the previous chart, which illustrates the sharp decline in labor market conditions across the Eurozone, it seems that the ECB started to ease too late. Perhaps it is because wages are a little stickier in Europe.


ANOTHER OMINOUS SIGN OF WEAKNESS IN CONSUMER SPENDING

The chart below illustrates annual retail sales growth through February for Germany and Hong Kong. Hong Kong sales are clearly tumbling, falling 13.9% over the year. German retail sales growth, however, are quite volatile; it's 5.3% decline does not show any weakness beyond normal activity since early 2007. Interesting.

THE LANDSLIDE IN UK INDUSTRIAL PRODUCTION CONTINUES

The chart below illustrates UK industrial production in levels and its growth over the year. Nosedive. According to jka online blog, the sector breakdown was:

Consumer non durables, (-5%), textiles (-5.4%) and food and drink (-4%) were relatively lightly hit. Fuel products, the only sector showing growth up by just 1%.


Auf Wiedersehen, Rebecca Wilder

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My faves for the day (April 7, 2009)

Tuesday, April 7, 2009

It’s another Fed week!

Tim Duy at Time Duy’s Fed Watch (via Economist’s View) confirms the Fed’s commitment to price stability, but is worried:
Bottom line: The conduct of Fed policy is consistent with a commitment to
the existing inflation target. The increase in the monetary base, in this
framework, was necessary to prevent expectations from shifting in the direction
of deflation. But credibility works both ways; they need to remain ready to
withdraw liquidity should inflation pressures emerge.
And Scott Sumner at TheMoneyIllusion blog is annoyed with the Fed’s tendency to leave their policies unannounced:
So you have one side warning of high inflation if the monetary base remains
at the current high levels, and others saying we won’t get any inflation at all
if the money is pulled out of circulation later. In a sense both sides are
right. So why doesn’t the Fed clearly say that it plans to leave just
enough money in circulation to keep long run price levels 2% or 3% (per year)
higher than current price levels? Isn’t that what the Fed wants?
RW: This is also a nice description of a recent debate among economists regarding the ability of the Fed to create or the possibility create too much inflation (See also Duy’s post earlier in the week)

John Ashkroft at the jka on economics blog notices that the UK manufacturing cycle is comparably bad (this is a great blog, with lots of pretty charts and pictures - I highly recommend it):
UK manufacturing output fell by 13.8% in February compared to prior year, the
largest decline since the manufacturing shut down of 1980/81. Comparing the
cycles, the slow down is clearly surpassing the recession of the 1990’s but is
yet to equal the drastic manufacturing shut down of the 1980’s. It's getting
close!
RW: See what Simon Johnson said about Mandelson being interviewed by Jon Snow.

And the WSJ’s Real Time Economics blog notes the ECB’s insistence that the G-20 IMF aid is helicopter money:
The decision by leaders from the Group of 20 largest economies to boost the
Special Drawing Rights of the International Monetary Fund is like creating
“helicopter money for the globe,” a key member of the European Central Bank
Executive Board was quoted as saying Tuesday.
RW: Of course it is, but this remark just reiterates the ECB’s abhorrence of the inflation monster to a point where it will not ease sufficiently to fight the economic contraction.

This one is all over the blogosphere. Barry Eichengreen and Kevin H. O’Rourke over at VoxEU (via Naked Capitalism) rebuke the fact that the current cycle is less severe than the Great Depression (worth a look for the charts!):

To sum up, globally we are tracking or doing even worse than the Great
Depression, whether the metric is industrial production, exports or equity
valuations. Focusing on the US causes one to minimise this alarming fact. The
“Great Recession” label may turn out to be too optimistic. This is a
Depression-sized event.

That said, we are only one year into the current crisis, whereas after 1929 the world economy continued to shrink for three successive years. What matters now is that policy makers arrest the decline. We therefore turn to the policy response.

RW: Policy.

This is why Mish Shedlock has 3,416 Google Reader subscribers to his blog, Mish’s Global Economic Trend Analysis: he’s bright and sarcastic, too:
It's earnings season and banks are going to pretend they are making money
(or losing less than they are), and the Treasury does not want to interrupt
those lies with stress test results.
In a trader’s world, this is good news, Tom Petruno at MONEY & CO.:
Today’s sell-off was attributed by some analysts to a further unraveling of
the "fear trade" that briefly helped drive gold above $1,000 in February. In
theory, investors’ growing sense of hope ab
out an economic recovery in the
second half of the year -- as signaled by the stock market’s rebound -- is
reducing the appetite for havens including gold and Treasury securities.
And they’re off. First Western country to declare annual DEFLATION: Switzerland. From the UK Telegraph (hat tip, Reader Steve!):
Watch Switzerland closely. It is tipping into deflation, the first Western
country to succumb to Japan's disease…Swiss consumer prices fell 0.4pc in March
(year-on-year). Swiss CPI will be minus 1pc a
t least by July, nearing the level where
spending psychology changes. By the time you have a self-feeding spiral, it is
too late
RW: Will save commentary about this for perhaps another day. I would like to reiterate how much I enjoyed the discussion today between Mark Thoma and Scott Sumner; a gregarious pair. Thank you for indulging us all. Please see David Beckworth’s blog, Macro and Other Market Musings for a smart analysis.

And FOX presents us with some nice entertainment: The Best TV Jingles Ever

Another brilliant moment by Kerry, from Kerry Hawkins Photography and Design:


Rebecca Wilder

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My faves for the day (April 1, 2009)

Wednesday, April 1, 2009

James Hamilton at Econbrowser has serious concerns with the Fed's intervention in the swath of credit markets. I especially like this paragraph, where he criticizes its beefing up of the securitization industry:

But the whole premise behind those Aaa ratings-- that securitization could isolate a "safe" component of a pool of fundamentally risky loans-- was deeply flawed. It is impossible to diversify away aggregate or systemic risk. All that the device did was to mislead investors into thinking they were protected from those nondiversifiable risks and push those risks onto the taxpayers and the Fed. Before we decide that securitization is the road out of our present difficulties, I would like a detailed and convincing explanation of why the past mistakes are not going to be repeated again.
RW: The Fed is playing with fire; and although I agree with its quantitative easing policies in order to preserve price stability, Prof. Hamilton, of course, raises some valid questions. The Bank of Japan has engaged in quantitative easing, and history measured the merits (lack of) of their policies (here's one paper); but the credit easing direction is a new monetary path, one to be written in future history books. The truth is: nobody know how this will play out.

But David Altig over at the Atlanta Fed has a slightly different view about the merits of Fed policies on the Macroblog.

Tim Manni at the HSH blog notes the following:
Yet, it’s puzzling how, and why, our lawmakers were so insulted by these contractually-promised bonuses, especially when just months earlier most of them rewarded their subordinates with a year-end “thank you” during one of the worst recession in decades.
If given the choice between really bad news (i.e., the sky is falling) and just bad news (i.e., my basement was flooded), I take my basement any day. the WSJ Real Time Economics blog reports on the ISM manufacturing survey:
The Institute for Supply Management’s overall index edged up for the third straight month, the latest sign that the manufacturing sector is close to bottoming out. But the index is still indicative of shrinking factory activity. How long will the sector take to stop contracting and show growth?
RW: When this index "edges up" to 36.3, it simply means that manufacturing is contracting less quickly. Look for a number above 50 to indicate expansion again.

And I have been making this point for quite some time (here and here) about real money balances in the U.S. Here's Lawrence Kudlow on Kudlow's Money Politic$:
Behind all these numbers is a very easy-money position from the Fed. Please note the following two charts, which foreshadow economic recovery in the second half of this year. First, the Milton Friedman M2 money supply adjusted for inflation is up 22 percent at an annual rate over the past six months.
And Alice Cook at UK Bubble notices that oil prices are up:
The oil price has started to edge up. Prices are up 24 percent since they bottomed out in February. It doesn't look like much on this chart, but that is because the recent decline is overshadowed by the huge run up in prices during the first half of last year.
RW: This will certainly hurt an already battered consumer.

Uh-oh, Macro Man suggests that March's equity rally was just noise on his Macro Man blog:
Macro Man's return forecasting model took another leg lower last month, and is now essentially forecasting zero returns for US equities over the next year. It's a scant compensation for 40% plus volatility! So while Macro Man reckons there may be some good tactical trading opportunities in stocks, he has difficulty buying into "hold-able" view.
And Forbes tells us the 10 things to buy before the economy improves.

RW: Personally, I think that any durable good (i.e., a car) should dominate the top 10, but nevertheless, designer shoes is number 8. I must admit, I have indulged.

And a photo from the illustrious Kerry Hawkins at Kerry Hawkins Photography and Design


TTFN, Rebecca Wilder

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My faves for the day (March 21, 2009)

Saturday, March 21, 2009

From MarketBeat at the WSJ, The New New Plan — Same As the Old Plan.:

So who gets left out in the cold? The taxpayer, natch. According to the Wall Street Journal’s report, mortgage-backed securities will be purchased through several investment funds, and the government will act as a co-investor, matching private investments on a dollar-for-dollar basis. For bad loans, the government could offer as much as 80% of the financing.

“What would be a better plan? Seize the insolvent banks, write down the assets to market levels, and make the banks’ bondholders pay for most of the losses by converting a percentage of the bonds to equity,” writes Henry Blodget on BusinessInsider.com. “Then sell off and/or re-privatize the banks, which will now be well-capitalized.”
RW: Hmm. I suspect that the FDIC is not prepared nor does it have the resources to seize all of the insolvent banks, especially those the size of Citi. When all was said and done, the FDIC will have lost $10.7 billion after closing IndyMac, sifting through its assets, and selling of the good stuff. The latest details of Geihtner's Financial Stability Plan haven't even emerged in full yet, but what is out there is receiving some skepticism.

Oh, and I see that Edward Harrison over at Credit Writedowns agrees, Does the FDIC have enough money?:
My personal view is that the IndyMac bailout by the FDIC is the first of many to come. The FDIC does NOT have adequate capital to meet all of these bailouts. Many in the markets understand this and are selling shares in any questionable banks. I reckon this could lead to a run 0n some of the more vulnerable players, triggering another IndyMac-like rescue until the U.S. government steps in and raises the FDIC capital.
Brad Sester writes a nice piece about the reltaion between the Fed's buying of agencies and the selling of agencies by global central banks, Did the Fed bail out China by buying Treasuries?:
Actually, it makes more sense to think of the Fed as substituting for China in the market for Agencies — and other central banks — than to think of the Fed as bailing out China and other central banks. The end of the foreign central bank bid, as global reserve growth slowed and central banks shifte dto Treasuries — has had a big impact on the Agency market. That wasn’t helping the US housing market.
Traders always talk about the baltic dry index (the cost to ship raw materials) as a leading indicator of economic activity. The Financial Ninja noticed that the baltic has been crashing, Baltic Dry, Global Trade: The Rally in Equities Isn't Real:
The Baltic Dry Index (BDI) has been losing steam during this rally in equities. A sustainable trend changing rally in equities would be accompanied by an increase in BDI.
RW: Although there is dim light in some of the dark economic reports, its more like a 5-watt light bulb rather than a bright 200-watter.

Spencer has something to say about inflation over at the Angry Bear, DEFLATION ?:
Did you know that over the last six months the compound growth of the total CPI was -5.0%. Of course that is up from January when it was - 5.8%.You have to go back to 1948 to find actual deflation like this, when it bottomed at -4.2%.
RW: I agree, deflation is clearly the bigger threat, especially with the ongoing slack building in the economy (growing idle resources). But eventually, and only when the economy turns around and returns closer to potential output, the Fed must unwind this base (it doesn't turn into money until banks lend out the funds, and right now it is still mostly base, with $778 billion in banking reserves). I assume that we will get a little spurt of inflation when we come out of this thing, as the Fed is unlikely to pull a BoJ in 2000 - raising interest rates too early.

Uh-oh, James over at BubbleMeter reports Karl Case's predictions on the U.S. Housing Market, noting that Case has a tendency to see the rosier side of things, Karl Case on the housing market outlook:
The U.S. housing market slump is nowhere near over and home prices will probably keep falling well into next year, one of the property market's best-known economists said...."I did not think it was probable that we would have a home price decline of this magnitude," he said.

RW: There is a real chance that home values undershoot their equilibrium (whatever that may be).

And I hope that the photographer Kerry Hawkins keeps the spring shots coming; we could all use a break from the doom and gloom!


Rebecca Wilder

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Are economic conditions improving? Americans hear that they are

Thursday, March 19, 2009

News readers are hearing a larger share of good economic news according to the Pew Research Center for the People & The Press:

After months of bleak economic news, an increasing proportion of Americans now say they are hearing a mix of good and bad economic news, while fewer say they are hearing mostly bad news. As has been the case for the last few months, very few say they are hearing mostly good news about the economy.
As I said this morning, the recent U.S. indicators - retail sales, housing starts, and inflation - are offering glimmers of economic hope. But the good news should probably be better described as "slightly less bad" news, as we are still in the middle of Q1 2009 and many forecasters still are calling for a decline until the third quarter of 2009.

The Wall Street Journal consensus forecast is listed here (which is a paid subscription) and includes -5.2% U.S. growth in Q1 2009, -1.9% growth in Q2 2009, and just 0.4% growth in Q3 2009. So the "good" economic news better represents a falling rate of U.S. economic decline in Q1 and Q2, rather than an actual recovery.

Another thing to think about is that financial markets (at least equities) improved over the last couple of weeks, which survey participants might confuse for "good economic news".


Rebecca Wilder

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Housing starts surprised the consensus!

Tuesday, March 17, 2009

It seems like some of the economic reports are looking slightly-less foreboding these days, suggesting that the rate of aggregate decline is probably falling. Today, the Census Bureau released February's report on new residential construction:

Privately-owned housing starts in February 2009 were at a seasonally adjusted annual rate of 583,000. This is 22.2 percent above the revised January 2009 estimate of 477,000.
The February bounce was 130,000 starts better than the level expected by the consensus (you can see the Bloomberg consensus here by clicking on the indicator in question), revealing some upside risk to the gloomy economic outlook if this trend continues.

The chart illustrates the number of total residential housing units started and the number of single-family units started. The 22% monthly bump in housing starts was driven by the first sizable increase in single-family units since 2007 (sizable meaning greater than the single 0.15% monthly in May '08), 1.1%.

However, starts are down sharply, almost 50% since just last year, so take the monthly bump with some grain of salt. Nevertheless, it is good news. The more ominous part of the report shows that housing completions are still way above starts, indicating that construction jobs are likely to be cut in March and April.

The chart illustrates the housing completions minus housing starts and the monthly growth in construction payroll (from the BLS establishment survey). The two series are negatively correlated, -0.53. As completions move farther away from new housing starts, construction payroll declines faster.

Completions are probably still far enough away from new construction to slash more construction jobs in March and April. However, the rate at which the construction payroll declines will probably slow if starts continue to rise and catch up with completions.

Rebecca Wilder

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Industrial production: not out for the count yet

Monday, March 16, 2009

The industrial production report indicates that manufacturing, mining, and utilities production is now below the average 2002 level. February industrial production fell 1.4% (consensus -1.2%), with a 0.7% cut in manufacturing output, a 0.4% slash in mining production, and a 7.7% slice in utilities. Although the report suggests further economic drag coming from the industrial sector, there is a very dim positive number that shines between the mountains of red ink.

Production of motor vehicles and parts rose 10.2% over the month. It’s not difficult pull off a double-digit monthly growth rate when production is down almost 50% off its peak; but nevertheless, for an industry that has fallen to just 3.3% of personal consumption, or 2% below its 2000-2007 average, in one little year, a nudge in the up direction is good news for growth.

However, something’s always gotta give, and in a recession it’s oil and gas well drilling, which is down 15.2% in February and over 30% off its peak in just five months. The problem here is: as production falls, so too does investment in drilling equipment and jobs. There is a growing risk to the level of capital equipment investment, hence GDP, in this sector in coming quarters.

Overall, the report suggests that there is an upside risk to economic growth: auto production. In spite of the dismal February auto sales report, 40% down over the year, the industrial production monthly bounce suggests that firms might believe it time to start re-filling auto inventories.

Rebecca Wilder

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Economic news around the world: not good....still

Wednesday, March 11, 2009

The global central bank easing continues. The Bank of England is very near its lower bound, 0%. From Bloomberg:

The Bank of England opens a new front in its effort to ward off deflation today as it prepares to buy government bonds with newly created money. The central bank said today it will purchase 2 billion pounds ($2.7 billion) of gilts, its first deployment in a three- month plan that may see it spend 75 billion pounds. The results of the operation will be released after 2:45 p.m. in London.

And Trichet leaves room for further cuts on anemic fourth growth numbers after the ECB announcement to cut its refi rate to 1.5%. From Reuters (Trichet comment):
"We did not decide ex ante that we were at the lowest level. If justified by facts, figures...if some of the risk that I am mentioning are materialising, I don't exclude that the policy rate could be changed and could go down."

The retrenchment in global demand is passing through to Malaysia's exports in January:
Malaysia's January exports plunged 27.8 per cent year-on-year, hitting their lowest level since 2001 amid falling demand from key trading partners, according to official data released Friday.

China also showing a sharp decline in exports, with anemic demand for imports. In February, exports fell at a 26% annual rate and imports at a 24% rate. And according to Bloomberg, the Chinese government plans to take action:
The government has halted the yuan’s gains against the dollar and plans to cut export taxes to zero as demand dries up because of the global slump. Premier Wen Jiabao is relying on a 4 trillion yuan ($585 billion) stimulus package to propel economic expansion after the weakest growth in seven years threw millions out of work.

Economists react to the sharp drop in China's February inflation rate. From WSJ's Real Time Economics:
Inflationary pressures have weakened significantly in China during recent months, despite continued government efforts to boost domestic consumption in an attempt to build a more sustainable growth path for the economy. Steps taken thus far have involved direct subsidies for low-income households. For an average middle-class household, the habit of saving still outshines any temptation to spend. The central bank needs to cut interest rates now so that the incentives to save will diminish. — Sherman Chan, Moody’s Economist.com

And the Bank of Japan is holding on - February money supply is still growing, M2 at a 2.1% rate and M3 at a 1.1% rate. But is this enough to offset the downward price pressures coming from a strong yen, slumping exports, and anemic domestic demand?

Rebecca Wilder

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Merchant wholesalers and manufacturing data point toward a long haul on inventory draw

Tuesday, March 10, 2009

Manufacturing and wholesale sales and inventory data tell the following story: inventory build likely subtracted from GDP in January; sales are anemic; firm production is still probably too high for the negative sales growth; and firms will probably be drawing on inventories for quite some time (i.e., no production).


Here is what the Census Bureau reported today about merchant wholesaler sales and inventory activity for January:
January 2009 sales
of merchant wholesalers, except manufacturers’ sales branches and offices,after adjustment for seasonal
variations and trading-day differences but not for price changes, were $326.1 billion, down 2.9 percent (+/-0.9%) from the revised December level and were down 15.4 percent (+/-1.1%) from the January 2008 level. The December preliminary estimate was revised downward $0.3 billion or 0.1 percent.
...

Total inventories
of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations but not for price changes, were $424.2 billion at the end of January, down 0.7 percent (+/-0.4%) from the revised December level, but were up 1.0 percent (+/-0.9%) from a yea
r ago.
The news is not good (of course). The chart (above) lists the inventory and sales activity in wholesale and manufacturing markets since January 2007. As you can see, sales are declining at a faster rate, -2.9%, than are inventories, -0.7%; this suggests that production is probably still too high for the weak demand for wholesale goods. Hence, the inventory to sales ratio continues its unfettered surge.

The final piece of the January inventory puzzle comes out on Thursday, when the report on total business (retail + manufacturing + wholesale) sales and inventories is released.

But the outlook for GDP is grim. Even if the decline in sales slows substantially, firms will be drawing on inventories over the near term; that's the rational course of action. Therefore, expect for inventories to subtract from Q1 2009 GDP, rather than add to it (like in Q4 2008).

Rebecca Wilder

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U.S. manufacturing woes spread to Canada...quickly

Saturday, February 7, 2009

Largely unnoticed yesterday by the U.S. media is: that the struggling U.S. manufacturing industry - manufacturing cut a whopping 207,000 jobs in the U.S. January establishment survey - is bringing the Canadian labor market down. Yesterday, 1.5 hours before the U.S. release, Statistics Canada released the following:

Employment fell by 129,000 in January (-0.8%), almost all in full time, pushing the unemployment rate up 0.6 percentage points to 7.2%. This drop in employment exceeds any monthly decline during the previous economic downturns of the 1980s and 1990s.
This is an awful report. As a comparison, the U.S. population is roughly nine times the size of the Canadian population; and therefore, a 129,000 decline in Canadian payroll compares to more than 1,000,000 jobs lost over the month in the U.S. This blows the U.S. decline, 598,000, out of the water.

But on the ever-so-slightly brighter side, the Canadian report was not as broad-based as was the U.S. report. Although the headline number, -129,000 job cuts, is massive, the job loss was concentrated almost entirely in the manufacturing sector, 101,000 jobs slashed. The service sector job loss paled by comparison with 9,000 jobs lost.

While oil was surging in the middle of 2008, Canada resisted the U.S. contraction on strong commodity-based profits, incomes, and employment. But now the commodities markets are declining sharply, and there is no offset to the contraction in manufacturing.

This chart illustrates the sharp increase in the unemployment rate in the U.S. and Canada. Relative to a long-run level, the U.S. unemployment rate is probably slightly higher, but Canada's unemployment rate rose 1.4% since Jan. 2008, or its biggest annual decline since 1992.

The BLS conducts two surveys of the U.S. labor market: the household survey that is used to calculate the unemployment rate, and the establishment survey that is used to calculate the nonfarm payroll by sector. Canada conducts just one survey, the Labour Force Survey (LFS), from which it extracts both industry payroll and employment detail. The illustrations compare the joint employment declines across the U.S. and Canada using the comparable LFS and household survey.

This chart illustrates the sharp decline in annual employment growth in the U.S. and Canada. Note that this is not the payroll number from the establishment survey in the U.S., but the employment number from the household survey.

Canada's employment fell into negative territory in January for the first time since 1992. On the other hand, U.S. annual employment growth has been negative since June 2008 (after revisions), but the 2.88% annual decline is the biggest since 1954 (55 years, over half a century).

The Canadian and the U.S. labor markets are now quickly declining contemporaneously. The strength from the commodity markets that drove employment and earnings in Canada during the first half of 2008 is now gone. The near-term outlook for countries hangs in the balance, but more importantly, tied to the stabilization of the U.S. manufacturing sector.

Rebecca Wilder

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