Today's Indicators

by Dollars and Sense

US new home sales increased almost 10% more than forecasted in July, and, perhaps more important, unsold inventories dropped to 7.5 months worth of supply, the lowest that number has registered since April. 2007. There was a huge 32% increase over June in the Northeast. Too bad most of the troubled properties are in the West. Still, even the South registered a 16% monthly rise (don't know how benighted Florida performed v. other states in the region).

This big number, taken in tandem with yesterday's Consumer Confidence figure, provides a much-needed boost to the notion that the US consumer sector is finally starting to respond to the electroshock therapy provided by the monetary and fiscal dollops thrown at it (very indirectly regarding monetary policy: banks still aren't lending). Friday's personal income reading will be decisive in gauging whether or not this view is really robustly supported. Pesonal incomes have been on life support all year, with gains coming only from government transfers, which are now thinning out.

Interestingly, builders are beginning to buy land again, after a three-year hiatus. Housebuilder stocks are boooming on Wall Street these days.

US durable goods orders also surged in July, led by purchases of aircraft. Capital goods orders increased by a quite-respectable 9.5%, consituting the best performance in this area since December, 2007. This is important, because business investment, like consumer spending, really needs a vigorous push if this recovery is to become at all sustaining. But even here, caution is in order:

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, slipped 0.3 percent in July, the Commerce Department said.

Analysts polled by Reuters had expected core capital goods to increase 1 percent. The prior month was revised to show a 3.6 percent rise, previously reported as a 2.6 percent increase.

Durable goods orders are a leading indicator of activity in manufacturing, which in turn provides a good barometer for overall business health.

Durable goods inventories fell 0.8 percent in July, after declining 1.5 percent the prior month..

Germany, with its big capital goods exporters, also saw a bigger rise in business sentiment in July than forecast.

In addition, as cannot be emphasized enough, the process of deleveraging the vastly bloated debt of the US consumer and corporate sectors has scarcely begun. It is very difficult, indeed, to see how sustainble upticks in either is possible given this constraint, especially with prospects for employment, wages, corporate defaults, less government largesse and the possibility of higher taxes all added into the mix.

Finally, the death of Senator Kennedy may resuscitate the public option in some sort of form. God knows what that means for the bond vigilantes and exit-strategists....

Labels: business confidence, deficit, durable goods, economic indicators, Edward Kennedy, Germany, health care reform, new home sales

 

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8/26/2009 09:23:00 AM 0 comments

 

Dollars & Sense not surprised by falling markets

by Dollars & Sense

This morning, the New York Times is aflutter about sharp dips in global stock markets and a new report on the decline of U.S. manufacturing. Dollars & Sense has been following the economic developments that led to this situation for years. Excerpts from the NYT and links to Dollars & Sense coverage below.

In the lead NYT story, Global Markets Fall Again on Fears About U.S. Economy, Keith Bradsher and Martin Fackler report:

Stock markets fell sharply across most of Asia again today and continued declining in Europe as investors worried about weakness in the American economy.

The stocks of Asian companies that export to the United States, such as the Sony Corporation, suffered particularly heavy losses today following a report on Tuesday from the Commerce Department that orders for cars, washing machines and other durable goods dropped 8 percent in January.

"There is a worry that U.S. consumption could slow substantially..." the chief Asia economist in the Hong Kong offices of Credit Suisse, Tao Dong, said.

In Floyd Norris and Jeremy W. Peters' Wall St. Tumble Adds to Worries About Economies, Stuart Hoffman, chief economist of PNC Financial, adds that, since "global markets have been strong for years, 'We've had this 'What me worry?' mentality. And this is a little bit of a wake-up call.'"

In January 2006, Dollars & Sense on the fragility of world markets' dependence on the dollar and the health of the U.S. economy:

It's what lies behind the slide of the dollar that has even many mainstream economists spooked: an unprecedented current account deficit—the difference between the country's income and its consumption and investment spending. The current account deficit, which primarily reflects the huge gap between the amount the United States imports and the amount it exports, is the best indicator of where the country stands in its financial relationship with the rest of the world. (Dollar Anxiety: The advantages of imperial finance have propped up the U.S. economy—but they may not last. By John Miller, in Dollars & Sense Jan/Feb 2006.)

In his NYT analysis A Recession That Arrived on Cats' Paws, David Leonhardt writes:

The nation's manufacturing sector managed to slip into a recession with almost nobody seeming to notice. Well, until yesterday.

Wall Street was caught off guard when the Commerce Department reported yesterday morning that orders for durable goods ... plunged almost 8 percent last month. That's a big number, but it really shouldn't have come as too much of a surprise. In two of the last three months, the manufacturing sector has shrunk, according to surveys by the Institute for Supply Management that have been out for weeks.

But the new report seemed to focus investors' attention on the problems in manufacturing and became one more reason for people to sell stocks.

Dollars & Sense wasn't surprised, given our coverage of recent declines in the U.S. manufacturing sector. In the Mar/Apr 2004 issue of Dollars & Sense, John Miller wrote:

By 2000 ... manufacturing had already hit the skids. Industrial production fell steadily, contributing to a general excess of industrial capacity. Today, capacity utilization rates still hover at about 75%, and the manufacturing sector has shed jobs for some 42 straight months. (High and Dry: The Economic Recovery Fails to Deliver)

And in January 2003, Ellen Frank answered Dollars & Sense reader Lane Smith's questions about the effects of NAFTA on the U.S. economy:

Since the North American Free Trade Agreement (NAFTA) between the United States, Mexico, and Canada went into effect, trade within North America has increased dramatically.

NAFTA's effects on employment, on the other hand, are hotly debated. Clinton administration officials estimated in the late 1990s that expanded trade in North America had created over 300,000 new U.S. jobs. Economic Policy Institute (EPI) economists Robert Scott and Jesse Rothstein contend, however, that such claims amount to "trying to balance a checkbook by counting the deposits and not the withdrawals."

Employment in virtually all U.S. manufacturing industries has declined since NAFTA went into effect. (Doctor Dollar, Dollars & Sense Jan/Feb 2003.)

In the NYT, David Leonhardt continues:

Is the entire United States economy in danger of going the way of the manufacturing sector? Is it possible that we're headed for a real recession?

The forecasters at the Economic Cycle Research Institute in New York, who have accurately predicted each of the last three recessions, argue that the current slowdown won't amount to much more than a lull. Lakshman Achuthan, the institute's managing director ... thought the odds of a recession over the next year were less than 20 percent. ... [t]he chief United States economist at High Frequency Economics, who's more bearish than most forecasters right now ... still puts the odds at only 30 percent.

But for all the attention that formal recessions get on Wall Street, they are not really the benchmark that matters to most people. A significant slowdown that falls short of a recession can do a lot of damage to stock prices, profits and wages.

Only in the last few months, for example, has the current expansion grown strong enough to give most American workers pay increases that outpace inflation. Those raises would be endangered if the economy were to slow from last year's growth rate of 3.4 percent to even 2 percent.

Dollars & Sense on how the U.S. economy has spent years stiffing wage-earners:

The current economic recovery has done less to raise wages and more to pump up profits than any of the eight other recoveries since World War II. No wonder inequality continues to worsen, and most people still doubt that the economic turnaround will ever benefit them.(Slow Wage Growth But Soaring Profits in the Current Recovery. By John Miller, in Dollars & Sense Sep/Oct 2004.)

Also in March 2004's High and Dry: The Economic Recovery Fails to Deliver, John Miller discusses the causes behind today's turmoil: "Tax cuts, home sales, mortgage refinancing fueled by low interest rates, and Iraq-driven military spending—not self-sustaining job and wage growth—fueled the ... growth spurt."

For the best (and most prescient) economic news and analysis, reports on economic justice activism, primers on economic topics, and critiques of the mainstream media's coverage of the economy, subscribe to Dollars & Sense.

Labels: dollar, durable goods, manufacturing, recession, stock market, wages

 

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2/28/2007 09:29:00 AM 0 comments