Today's Indicators

by Dollars and Sense

U.S. July existing home sales pace fastest in two years. But, as this Bloomberg article says, "The number of previously-owned unsold homes on the market jumped 7.3 percent to 4.09 million in July, a "notable" increase, according to Lawrence Yun, the Realtors' chief economist. At the current sales pace, it would take 9.4 months to sell those houses, the same as in June." And much of this is foreclosure-driven.

Also, oil prices have reached their higheest leevels this year. As more and more people argue that the old relationship between risk and the US dollar (more risky investing means a lower dollar) is breaking down, it's interesting to see some commodities (which gain on dollar weakness) maintaining this movement.

Meanwhile, more worries (courtesy of Economist's View) on commercial property. This, as well as the fact that prime lending is now failing at a greater rate than subprime, and will continue to do so as unemployment remains very high, must be considered when evaluating the state of the property market. There's a real chance that a dive in prime home lending or commercial property lending--or both--may take the whole sector back down, and with it, prospects for economic recovery.

Labels: commercial property, consumer prices, economic indicators, Economist's View, existing home sales, Inflation, oil prices

 

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8/21/2009 09:21:00 AM 0 comments

 

UK CPI Unexpectedly High, Retail Prices Down

by Dollars and Sense

From The Guardian

Higher-than-expected inflation defies City forecasts
CPI unchanged at 1.8%, compared with predictions of 1.5%
RPI -1.4% from -1.6% a month earlier
Julia Kollewe guardian.co.uk, Tuesday 18 August 2009
The City was caught on the hop today with data showing higher-than-expected inflation last month.

Consumer prices were unchanged in July from June, keeping the annual rate at 1.8% – defying analysts' forecasts of a fall to 1.5%--government figures showed this morning. Sterling rose by half a cent against the dollar on the news, while government bond prices dropped. But the City and the Bank of England still expect inflation to dip to 1% or below in coming months.

The largest upward effect on consumer prices came from computer games and DVDs where prices rose this year but fell in July last year, the Office for National Statistics said. This pushed inflation in the communications category to its highest rate since the start of last year.

There was also less discounting on furniture and clothing in the July sales than last year, probably because furniture prices were not hiked as much as normal in June, the ONS said.

These factors offset falling meat and vegetable prices and smaller price increases at restaurants and cafes than a year ago. Food price inflation hit its lowest rate in two years, while inflation at hotels and restaurants was the slowest since records began in 1997.

George Buckley at Deutsche Bank said: "The consumer price index (CPI) has proved to be a bit more sticky than we thought it would be. However, I do think the rate of inflation will fall quite sharply in August and September, and that is not because we are expecting any specific price falls between now and then but rather we are expecting the big rises in energy prices from a year ago will drop out of the comparison--base effects alone that will take inflation possibly down to around 1% in a couple of months' time."

Read the rest of the article

Labels: consumer prices, economic indicators, Inflation, retail sales, United Kingdom

 

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8/18/2009 09:37:00 AM 0 comments

 

US Housing Starts, PPI, Retailer Earnings

by Dollars and Sense

From Reuters:

U.S. housing starts, producer prices fall in July
Tue Aug 18, 2009 9:09am EDT

WASHINGTON (Reuters) Ground breaking for new U.S. homes fell unexpectedly in July, but a rise in single-family home construction for a fifth straight month kept hopes alive the economy was poised to recover from recession.

The Commerce Department on Tuesday said housing starts fell 1 percent to a seasonally adjusted annual rate of 581,000 units, well below market expectations for 600,000 units.

June's housing starts were revised up to 587,000 units from the previously reported 582,000 units. Groundbreaking for single family homes, the worst-hit part of the housing market, rose 1.7 percent to an annual rate of 490,000 units--the highest since October.

"The single-family sector continued to edge higher and that was the silver lining of the report," said Michelle Meyer, an economist at Barclays Capital in New York.

U.S. stock index futures pared gains, while U.S. government debt prices trimmed losses after the weak housing and prices data.

While data has pointed to the likely end of the recession, analysts have warned of a weak recovery as rising unemployment crimps consumer spending.

A higher-than-expected quarterly profit reported by Home Depot Inc on Tuesday helped ease investor fears as the world's largest home-improvement chain partly offset weak sales with cost cutting.

No. 2 U.S. discount retailer Target Corp also reported better than expected results.

Compared to July last year, housing starts dropped 37.7 percent. New building permits, which give a sense of future home construction, fell 1.8 percent to 560,000 units in July, and were down 39.4 percent from a year ago.

The inventory of total houses under construction fell to record low 609,000 in July, the department said, while the total number of permits authorized but not yet started also hit a record low at 102,300.

A separate report from the Labor Department showed U.S. producer prices fell 0.9 percent versus a 1.8 percent gain in June. Compared with the same period last year, producer prices were a record 6.8 percent lower in July.

Core producer prices, which exclude food and energy costs, edged 0.1 percent lower in July compared with a forecast for a 0.1 percent rise, and after a 0.5 percent increase in June.

The core producer price index stood 2.6 percent higher measured on a year-on-year basis, versus a forecast for a 2.8 percent advance.

(Reporting by Lucia Mutikani and Alister Bull; Editing by Neil Stempleman)

Labels: corporate earnings, economic indicators, Home Depot, housing market, housing starts, Inflation, producer price index, Target

 

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8/18/2009 09:15:00 AM 0 comments

 

This Week's Economic Indicators

by Dollars and Sense

The first important reading of the week already came in from the Far East: Japan joined Germany and France in pulling out of recession, at least temporarily. It chalked up a .9% increase in GDP in the second quarter.

Tomorrow a few reports in the US will concern inflation, as July producer prices are announced. July US housing starts are also scheduled.

The other thing to watch in the middle of the week is Thursday's UK retail sales. This indicator has been jumping all over the place since the meltdown last autumn.

Manufacturing data from euro country and euro-zone economies come in on Friday, as does US existing home sales. And the US initial claims make their weekly appearance of Thursday

Labels: economic indicators, employment, Inflation, retail sales, unemployment

 

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8/17/2009 10:07:00 AM 0 comments

 

Indicator Watch, Friday

by Dollars and Sense

Michigan Consumer Survey (Reuters)

Consumer prices (Reuters)

Industrial Production (FT), with this caveat; note the abysmal capacity utilization rate: 68%!

Labels: Calculated Risk, consumer confidence, CPI, economic indicators, industrial production, Inflation, University of Michigan Survey

 

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8/14/2009 10:12:00 AM 0 comments

 

Consumer Spending Up Because Prices Are Higher

by Dollars and Sense

Another "green shoot" that has brown splotches all over it: the latest report of higher consumer spending for June appears to be the result of higher prices for basic goods like food and energy, rather than any newfound desire of consumers to part with their dwindling stash of greenbacks.

From the NYTimes:

Higher Costs Spur Rise in U.S. Consumer Spending

Even though the broader economy may be scraping the bottom, American consumers are still struggling with falling wages and higher living expenses.

That was the picture painted Tuesday by the government's monthly report on personal incomes and consumer spending. While consumers spent more in June, they did so because prices of food and energy were rising, and not because they were ready to spend freely again.

Personal incomes sagged as employers continued to cut wages and reduce working hours. And the personal saving rate, which had been rising, dropped sharply from a month earlier as one-time transfer payments from the government stopped arriving in people's bank accounts.

"Consumers are not spending any more money," Steven Ricchiuto, chief economist at Mizuho Securities, said. "They're still consolidating." Personal income fell back 1.3 percent in June, just a month after a one-time $250 payment to Social Security recipients lifted it by the same amount. And in a sign of continuing troubles for American workers, private wages and salaries fell for a fourth month, slipping a seasonally adjusted $28.6 billion after a $11.3 billion drop a month earlier.

Private wages and salaries have fallen for each of the last 10 months as businesses trimmed costs by freezing pay, imposing salary cuts and reducing the work week. Personal income has dropped by a seasonally adjusted $372 billion since September.

"Wage and hour cuts are big right now," Adam York, an economist at Wells Fargo, said. "The economy remains fairly weak, and the labor market even weaker. We've lost 6 million jobs, and unemployment is rapidly heading toward 10 percent. There's just not a lot of wage pressure out there right now."

Labels: Inflation, military spending

 

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8/04/2009 12:15:00 PM 0 comments

 

Hyperinflation or Deflation?

by Dollars and Sense

Interesting piece from Counterpunch from a couple of days ago:

Is Hyper-Inflation Around the Corner?

By MIKE WHITNEY | Counterpunch | June 9, 2009

The Republicans are convinced that hyperinflation is just around the corner, but don't believe it. The real enemy is deflation, which is why Fed chief Bernanke has taken such extraordinary steps to pump liquidity into the system. The economy is flat on its back and hemorrhaging a half a million jobs per month. The housing market is crashing, retail sales are in a funk, manufacturing is down, exports are falling, and consumers have started saving for the first time in decades. There's excess capacity everywhere and aggregate demand has dropped off a cliff. If it wasn't for the Fed's monetary stimulus and myriad lending facilities, the economy would be stretched out on a marble slab right now. So, where's the inflation? Here's Paul Krugman with part of the answer:

"It's important to realize that there's no hint of inflationary pressures in the economy right now. Consumer prices are lower now than they were a year ago, and wage increases have stalled in the face of high unemployment. Deflation, not inflation, is the clear and present danger....

"Is there a risk that we'll have inflation after the economy recovers? That's the claim of those who look at projections that federal debt may rise to more than 100 percent of G.D.P. and say that America will eventually have to inflate away that debt—that is, drive up prices so that the real value of the debt is reduced....Such things have happened in the past....

"Some economists have argued for moderate inflation as a deliberate policy, as a way to encourage lending and reduce private debt burdens (but)... there's no sign it's getting traction with U.S. policy makers now."

Krugman believes that conservatives have conjured up the inflation hobgoblin for political purposes to knock Obama's recovery plan off-course. But even if he's mistaken, there's little chance that inflation will flare up anytime soon because the economy is still contracting, albeit at a slower pace than before. A good chunk of the Fed's liquidity is sitting idle in bank vaults instead of churning through the system. According to Econbrowser, excess bank reserves have bolted from $96.5 billion in August 2008 to $949.6 billion by April 2009. Bernanke hoped the extra reserves would help jump-start the economy, but he was wrong. The people who need credit, can't get it; while the people who qualify, don't want it. It's just more proof that the slowdown is spreading.

That doesn't mean that the dollar won't tumble in the next year or so when the trillion dollar deficits begin to pile up. It probably will. Foreign investors have already scaled back on their dollar-based investments, and central banks are limiting themselves to short-term notes, mostly 3 month Treasuries. If Bernanke steps up his quantitative easing and continues to monetize the debt, there's a good chance that central bankers will jettison their T-Bills and head for the exits. That means that if he keeps printing money like he has been, there's going to be a run on the dollar.

Now that the stock market is showing signs of life again, investors are moving out of risk-free Treasuries and into equities. That's pushing up yields on long-term notes which could potentially short-circuit Bernanke's plans for reviving the economy. Mortgage rates are set off the 10 year Treasury, which shot up to 3.90 per cent by market's close last Friday. The bottom line is that if rates keep rising, housing prices will plummet and the economy will tank. This week's auctions will be a good test of how much interest there really is in US debt.

Read the rest of the article.

Labels: Ben Bernanke, deflation, financial crisis, Inflation, recession

 

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6/12/2009 05:46:00 PM 1 comments

 

Stock Market's Loss Means Higher Wages?

by Dollars and Sense

Dean Baker has put forth a provocative claim on his blog:

The lead article in the New Year's Day edition of the Washington Post bemoaned the loss of $6.9 trillion in value in U.S. stock market last year. While those who own large amounts of stock have reason to shed tears, this may end being good news for the rest of us.

The loss of stock wealth means that stockholders have less claim to value of the country's output. The U.S. economy can produce just as much in 2009 as it did in 2008 (in fact somewhat more, because of labor force and productivity growth). If stockholders can demand less because of the reduced value of their stock, then this leaves more for the rest of us.

The most visible evidence of how the loss of stockholder wealth can benefit the rest of us was the sharp decline in consumer prices over the last three months. As a result, real wages rose at almost a 15 percent annual rate in the three months from September through November.

Of course, insofar as the demand generated by stockholders (and homeowners, who have also seen their wealth plummet) is not replaced by other sources, then workers are losing jobs. Eventually weakness in the labor market will put more downward pressure on real wages. However, if the loss of demand from stockholders is effectively replaced by demand from the government or foreign sector, then the vast majority of the country will be made better off by this plunge in stock prices.

The Post should have reporters who understand this fact.

--Dean Baker

Addendum: Since the question has been asked repeatedly, I will try to quickly explain how the fall in stock prices can make non-stockholders wealthier. There are two components to the wealth that people have in stock.

One component is the flow of income in dividends, which is turned based loosely on the growth of corporate profits. If, for the moment we make the unrealistic assumption that the growth in profits is unaffected by the crash (there will be feedback effects as we are seeing -- the plunge in demand that resulted from the stock and housing crash is also leading to declines in profits), then this future flow of dividend income will not be affected.

The second component of wealth is that value of the stock itself. How much can I get for selling my 100 shares of Verizon today. This second component is obviously directly affected by the fall in stock prices. Stockholders will consume based in part on the value of their stock wealth. The logic is that they try to more or less balance their consumption over their lifetime. If they have more wealth, then they can consume more over their lifetime.

To take a simple example, imagine a person is 75 and can expect to live another 10 years, and had $200,000 in stock. Then we might expect this person to spend roughly 10 percent of her wealth or $20,000 a year. Now suppose the market has crashed and her stock is only worth $100,000. Then we would expect her spend just $10,000 a year.

This is what is happening as a result of the stock crash. Stockholders have less wealth and therefore are spending less money on cars, vacations and everything else. The reduction in demand places downward pressure on the price of these goods, making them cheaper for everyone. Those folks who did not have a lot of stock gain in this story, assuming that they hold onto their jobs.

Labels: Dean Baker, deflation, Inflation, stock market, wages, Washington Post

 

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1/03/2009 02:38:00 PM 0 comments

 

Baker Deflates Deflation-Panic Bubble

by Dollars and Sense

There's a lot of talk in the business press about deflation and why we should be worried about it ("like trying to catch a falling knife" is the preferred metaphor).

Dean Baker takes issue with much of what's being written in a recent post on Beat the Press.

Okay, so let's parse this one. If prices are falling, why should we buy items today when we can get them for a lower price next month? That's a real good question.

Has anyone bought a computer in the last two decades? I have run across a few people who have. According to the Commerce Department, computer prices have been falling at the rate of more than 30 percent a year over most of the last two decades. If people felt that it made more sense to wait for prices to drop, we should expect the computer market to have been very weak. That isn't quite consistent with the explosion in computer sales over this period.

But, returning to the other items that might fall in price, if we turn to Japan, which supposedly suffered from deflation for a decade following the collapse of its bubbles, the rate of deflation was typically less than 1 percent a year. (Prices did rise in some years during this decade.)

This means that for a typical item in a typical year, the price would be falling at a rate of less than 0.1 percent a month. That means the pair of pants that i could buy today for $30 will cost just $29.97 cents next month. If I put off buying for two months, then I would only have to pay $29.94. You could easily understand how this would discourage consumption. Of course, the actual rate of deflation was slower in most years.

Baker acknowledges that housing prices are in a serious downward slide, and that this impacts consumer spending, saving, and a myriad of other related industries. But he argues that the housing market is a separate matter, and isn't even factored into the inflation indexes.

Labels: Dean Baker, deflation, housing bubble, Inflation

 

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11/23/2008 04:21:00 PM 0 comments