Where's the Shout Out?

Posted on Friday, October 30, 2009
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My post/ chart @ 9:34 AM ET regarding the impact cash for clunkers had on GDP.

Jake 30 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/wheres-shout-out.html
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What Now?

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My latest four posts:

• Durable Goods and GDP / Equity Market Collapse
• Q3 GDP: Subsidized Consumption Edition
• Thank You Cash for Clunkers
• Personal Income and Outlays Under Pressure

Can be summarized as we had a HUGE downturn and the recent upturn was due in large part to:

1. Massive stimulus (think autos / housing)
2. Inventory restocking (details of the coming "mother of all corrections" from July here)

Now, lets take a look at the historical data showing the importance of each to Q3's recovery.

Q3 GDP Breakdown

Unless you think autos, housing, or an inventory rebuild can be sustainable areas for future growth, the importance of the chart above is the green "other". The "other" accounted for last of the growth pre-recession as the housing market stumbled and while we have seen a recovery (i.e. the "other" is no longer a drag), it accounted for a minuscule amount of growth in the latest quarter.

The million dollar question is 'can the economy grow on its own in coming quarters?'. While the stimulus (homeowner tax credit) and inventory restocking (which I suspect will only get bigger) should allow the economy to grow well through this year, the impact of both will likely be reduced going into Q1 of next year.

My guess, is that all the taxpayer money that was (wasted?) used to pull demand into Q3 from future quarters, was done so with the hope of kick-starting the consumer in a manner that used to be done through Fed interest rate cuts. That worked in the past when consumers needed a nudge, but what if the answer is not for the US consumer to power the world's growth, but to rebuild and invest (i.e. save) for the future.

Source: BEA

Jake 30 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/what-now.html
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Personal Income and Outlays Under Pressure

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RTT News with details of the latest release:

With consumers saving more as a result of economic uncertainty, the Commerce Department released a report on Friday showing that personal spending decreased in September, while personal income came in nearly unchanged.

The report showed that personal spending fell by 0.5 percent in September following an upwardly revised 1.4 percent increase in August. The moderate pullback in personal spending came in line with the expectations of economists.

Additionally, the Commerce Department said that personal income decreased by less than 0.1 percent in September after edging up by a revised 0.1 percent in the previous month. Economists had expected income to be unchanged.

More important is longer term trends. Broken down below are the components of personal income over the past three years. The broad theme is decreased income, increased savings, yet relatively steady consumption.



Looking closer at the year over year changes in each, we do see a paradigm shift between consumption and savings, which has been partially eased by the reduction in taxes allowing consumers to spend more on the margin over the past year.



This is all in the face of the pulling of demand from the future into the latest quarter (i.e. consumption "should" have been much less) due to the cash for clunkers program.

The question is what happens now? More on that in a bit.

Source: BEA

Jake 30 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/personal-income-and-outlays-under.html
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Thank You Cash for Clunkers

Posted on Thursday, October 29, 2009
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Motor vehicles added a whopping 1.66% of the 3.5% growth in Q3 GDP. More specifically, motor vehicle output was up... wait for it... 157.6% on an annualized basis.



Source: BEA

Jake 29 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/thank-you-cash-for-clunkers.html
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Q3 GDP: Subsidized Consumption Edition

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When the going gets tough, the U.S. consumer... consumes.

QoQ GDP Annualized


Consumption as a Percent of GDP

Jake 29 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/q3-gdp-subsidized-consumption-edition.html
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Durable Goods and GDP

Posted on Wednesday, October 28, 2009
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There have been a number of things pointed at to explain today's sell-off, one being Goldman Sachs reduced GDP forecast. I personally am in the "nothing can go up forever" / "market is overvalued" camp. BUT, here is Goldman via FT Alphaville regarding today's durable goods release:

Headline gain is in line with consensus and below our figure, but with a composition less dependent on volatile components than some (including us) had expected. Bookings for capital goods recover almost all of past two months' setbacks. Shipments somewhat weaker, especially for nondefense capital goods, but they will eventually follow orders. Based on these data and other recent reports, we now estimate tomorrow's GDP to be +2.7% at an annual rate, versus +3.0% previously.

And the details of the new orders portion of durable goods for September...



And year to date 2009 vs. that same time frame from 2008 which shows we can at least always count on the war machine.



So durable goods new orders are down almost 30% over that time frame. Rather than asking why the market is selling off today, shouldn't we be asking why the market is UP over the last 12 months?

Source: Census

Jake 29 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/durable-goods-and-gdp.html
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Consumer (Lack of) Confidence

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The Conference Board details:

Says Lynn Franco, Director of The Conference Board Consumer Research Center: "Consumers' assessment of present-day conditions has grown less favorable, with labor market conditions playing a major role in this grimmer assessment. In fact, the Present Situation Index is now at its lowest reading in 26 years (Index 17.5, Feb. 1983). The short-term outlook has also grown more negative, as a greater proportion of consumers anticipate business and labor market conditions will worsen in the months ahead. Consumers also remain quite pessimistic about their future earnings, a sentiment that will likely constrain spending during the holidays."

Source: Conference Board

Jake 28 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/consumer-lack-of-confidence.html
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Case Shiller Surge in Perspective

Posted on Tuesday, October 27, 2009
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Following my post about existing homes (the homes that are selling are lower-end), below is some detail of the most recent Case Shiller home price index release.

The deal? Home prices are SURGING (except in Vegas).



But, we need to put that SURGE in perspective.



Source: S&P

Jake 28 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/case-shiller-surge-in-perspective.html
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More on Existing Home Sales

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Last week EconomPic detailed the strength in the existing home sales jump wasn't as strong as detailed... namely due to the discounts required to get those homes sold.

Barry at The Big Picture provides additional detail:

Less than 10% of the homes sold in the US were > $500k. We know the high end has collapsed, but we are not discussing multi-million dollar homes, mind you, but over $500k as a mere 8.2% of sales. I was surprised. (I wish we had data going back decades, which we could then normalize for inflation).

In September, 70% of transacted homes were priced under $250,000.

Check out the year-over-year growth rates — also astonishing:

Homes under $100k are up 22.5%
$100-$250 +6%
$250-$500 -5.2%
$500k-$750 +4.0%
$750-$1m -2.6%
$1M up -1.2%

I took that data and crossed it against data from the NAR to get the following:



What we see is that the entire jump is due to increase from the lower-end of the housing market, due in large part due to the fact that those are the houses that have been foreclosed, were purchased the past few years by should have been renters, and the first time homeowner credit.

Source: Realtor.org

Jake 28 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/more-on-existing-home-sales.html
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The Death of the Newspaper

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The AP details:

Circulation at newspapers shrank at an accelerated pace in the past six months, driven in part by stiff price increases imposed by publishers scrambling to offset rapidly eroding advertising sales.

Average daily circulation at 379 U.S. newspapers plunged 10.6 percent in the April-September period from the same six-month stretch last year, according to figures released Monday by the Audit Bureau of Circulations.

As both publications indicated earlier in the month, The Wall Street Journal surpassed USA Today as the top-selling newspaper in the United States. The Journal's average Monday-Friday circulation edged up 0.6 percent to 2.02 million — making it the only daily newspaper in the top 25 to see an increase.

USA Today suffered the worst erosion in its 27-year history, dropping more than 17 percent to 1.90 million. The newspaper, owned by Gannett Co., has blamed reductions in travel for much of the circulation shortfall, because many of its single-copy sales come in airports and hotels.

The New York Times stayed in third place at 927,851, down 7.3 percent from the same period of 2008. Its Sunday edition remained the top weekend seller at 1.4 million, a decrease of 2.6 percent.

Source: ABC (hat tip The Big Picture)

Jake 27 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/death-of-newspaper.html
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Dallas Manufacturing Turns Down

Posted on Monday, October 26, 2009
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We all know about Texas and the energy business, but Bizjournals details its manufacturing prowess:

The Lone Star state produces at least 8 percent of the United States' total manufactured goods, ranking behind California in production.

Who knew? Unfortunately, Reliable Plant details the less than enthusiastic results:

Texas factory activity declined in October, according to business executives responding to the Texas Manufacturing Outlook Survey, released October 26 by the Federal Reserve Bank of Dallas. The production index — a key indicator of current manufacturing activity — edged further into negative territory, suggesting output in October contracted after remaining stable in September.

Current activity indexes for new orders and shipments turned negative, erasing gains seen last month. The company outlook and business activity indexes remained slightly negative, but a growing majority of executives reported no changes from the prior month and only a fifth noted worsening outlooks and decreased business activity

Source: Dallas Fed

Jake 27 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/dallas-manufacturing-turns-down.html
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On the Relationship Between High Yield and Equities

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Bloomberg details the outperformance of high yield relative to equities:

The worst performance by U.S. stocks compared with junk bonds since at least
1986 is making investors even more bullish on equities.

While owning debt in the riskiest companies has paid about the same as the Standard & Poor's 500 Index over the last 23 years, bonds are returning more than twice as much in 2009, according to data compiled by Merrill Lynch & Co. and Bloomberg. When high-yield credit beat the S&P 500 by 32 percentage points in the 12 months ending March 11, 2003, stock gains exceeded bonds by 19 percentage points for the rest of the year.

Bonds rated below Baa3 by Moody's Investors Service and BBB- at S&P are returning more after the worst recession in 70 years spurred purchases of securities that wouldn't be erased in a bankruptcy. They rose faster than stocks as companies in the S&P 500 reported two years of declining earnings, the longest stretch since the Great Depression.

"There was a flight up the capital structure that swelled the interest in high-yield bonds," said Kevin Starke, a CRT Capital Group analyst in Stamford, Connecticut. "Why own the equity of a company, which is almost a guaranteed wipeout in most bankruptcies, when you could own the bonds and have a shot at a recovery and still have an equity-like return?"

While the performance of each has diverged, the relationship has not. The chart below details the change in the S&P 500 (in points) against the spread of those bonds rated BB, to Treasuries (inversed). When the spread narrows and high yield outperforms, so does the S&P 500.



The big difference this year was the massive amount of income high yield was generating at lows (at one point reaching ~20% above Treasuries vs. the 2-3% dividend yield spit out by equities).

Source: Barclays

Jake 26 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/on-relationship-between-high-yield-and.html
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Business Loans Record Freefall

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We have detailed the deflationary pressures from low capacity utilization and high unemployment before, but John Mauldin details the deflationary pressure coming out of an area that was / is supposed to power the U.S. recovery... businesses. We have detailed the pullback in new loans to consumers, but below shows the reduction in business loans:

Then we have Reduced Borrowing and Lending, as consumers are paying down debt and banks are reducing their lending. Both are necessary in a credit crisis-caused recession. Bank lending is basically back to where it was two years ago, and shows no sign off rebounding. Banks, as I have written, are buying US government debt in an effort to shore up their balance sheets. Lending to small business, the real engine of job creation, is sadly decreasing eachmonth.

The chart below shows the year over year change in business loans as a percent of GDP going back 6o years.



Source: BEA / St. Louis Fed

Jake 26 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/business-loans-record-freefall.html
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Non-Manufacturing Layoffs Continue to Rise

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In the most recent Mass Layoff (i.e. an action involving the layoff of at least 50 persons from a single employer) release, we see a bifurcation between manufacturing and all other positions. While it appears that manufacturing mass layoffs are coming off highs, which results in the downturn of overall claims due to mass layoffs, mass layoffs from non-manufacturers have increased in recent months (i.e. the blue).



Source: BLS

Jake 26 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/non-manufacturing-layoffs-continue-to.html
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Existing Home Sales... Not as Strong as You May Think

Posted on Friday, October 23, 2009
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Bloomberg reports:

Jake 23 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/existing-home-sales-not-as-strong-as.html
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Eurozone Industrial Production: Strong, but Split

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The Good

Interactive Investor with the details:

"Euro zone industrial orders encouragingly rose by a larger-than-expected 2.0
percent month-on-month in August, thereby achieving a fourth successive increase. The underlying improvement was highlighted by the fact that euro zone industrial orders jumped by 7.1 percent in the three months to August compared to the three months to May.

The Not So Good

"However, it should be noted that August's rise in euro zone industrial orders was highly dependent on a 3.8 percent month-on-month increase in demand for intermediate goods while there were falls in orders for consumer goods and capital goods. Furthermore, euro zone industrial orders were still down by 23.1 percent year-on-year in August.

The Worrisome

The bifurcation between the "haves" and "have nots". While overall, the Euro Area was up 2% in August, countries were more than split to the downside.

Jake 23 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/eurozone-industrial-production-strong.html
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UK Economy Continues to Contract

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The U.K. "surprised"with a 6th straight quarter of contraction. George Buckley of Deutsche Bank via the Telegraph with the details:

"The worst thing is that every single component of GDP that was published did not rise. It's a bad number. It's the first time that we have seen a six straight quarters of contracting GDP - this is akin to the peak to trough we saw in the 1980s."

"It raises the possibility they (Bank of England Monetary Policy Committee) will have to do more on QE. This will surprise the MPC. This means you've got more spare capacity. It means inflation will be pulled down more."

Source: Stats.Gov.UK

Jake 23 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/uk-economy-continues-to-contract.html
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The Politics of Global Warming

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File this under the "what the what" section. Yahoo reports:

Just 57 percent think there is solid evidence the world is getting warmer, down 20 points in just three years, a new poll says. And the share of people who believe pollution caused by humans is causing temperatures to rise has also taken a dip, even as the U.S. and world forums gear up for possible action against climate change.

Odd timing... or is it?

The steepest drop has occurred during the past year, as Congress and the Obama administration have taken steps to control heat-trapping emissions for the first time and international negotiations for a new treaty to slow global warming have been under way. At the same time, there has been mounting scientific evidence of climate change -- from melting ice caps to the world's oceans hitting the highest monthly recorded temperatures this summer.

Hmmm.... so when Obama starts to take steps to control emissions, the broader public changes their opinion. My initial thought was that this can't POSSIBLY because climate change is in any way a political issue (well, we all know about Republican's and energy, but that was always under the guise that the cost of doing something outweighs the benefits, but the FACTS are pretty clear)... right? Wrong.

So how has the Republican party made their case? Using research from the EPA? Nope. The EPA believes humans have impacted our climate. So what is it? Apparently Minority Leader John Boehner's "cow farts" theory from April is getting some traction.

If CO2 is the culprit, then why did God create farting cows?

Minority Leader John Boehner described the overwhelming scientific consensus that carbon dioxide is contributing to climate change as "comical" during an appearance on Sunday, noting that cow flatulence contributes CO2 to the environment all the time...

"The idea that carbon dioxide is a carcinogen that is harmful to our environment is almost comical," said Boehner. "Every time we exhale, we exhale carbon dioxide. Every cow in the world, you know when they do what they do you've got more carbon dioxide."

And the results per Environment Magazine:

While more than three-fourths of Democrats (76 percent) believe global warming is already happening, only 42 percent of Republicans share that view in 2008.

Un-friggin believable.

Source: Yahoo

Jake 23 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/politics-of-global-warming.html
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U.S. Fighting While We We're Down: Productivity Edition

Posted on Thursday, October 22, 2009
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WSJ reports:

Both the U.S. and South Korea saw productivity rise 1.2% in 2008, the first full year of the recession, from 2007. They experienced the largest increases of the 17 countries included in the Labor Department's international manufacturing-productivity report released Thursday. Productivity, which is defined as output per hour worked, declined in 12 of the countries, with the largest drops in Singapore and Denmark.

In the U.S., "productivity growth in manufacturing has been above that in services for some time," said Mike Elsby, an assistant professor of economics at the University of Michigan. "Put another way, manufacturing has been progressively doing more with less for 40 years. Consequently, I would expect it to continue."

Over the long run, productivity is key to improved living standards because it spurs rising output, incomes and asset values. But in a down economy, improving productivity with existing workers might mean hiring fewer new ones.

Source: BLS

Jake 23 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/us-fighting-while-we-were-down.html
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Strong, But "Flaky" Leading Economic Indicators

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Not sure why the .pdf of the latest Leading Economic Indicators is called "Flaky.pdf", but the results are strong none-the-less. Marketwatch reports:

U.S. leading economic indicators rose 1% in September, the sixth straight increase and a strong signal that a "recovery is developing," the Conference Board reported Thursday.

Eight of the 10 indicators were positive in September, the private research group said.

Over the past six months, the index of leading indicator has risen 5.7%, the fastest increase since 1983. Nine of the 10 indicators have risen over the past six months.

Source: Conference Board

Jake 22 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/strong-but-flaky-leading-economic.html
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What if the U.S. is Unable to Power the Global Recovery?

Posted on Wednesday, October 21, 2009
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Reuters details:

Japan's exports edged lower for the third consecutive month in September as a rising yen weighs on overseas shipments and as a rebound driven by global stimulus spending and the stocking of inventories starts to wane.

Shipments to China continued to improve, but economists doubt this will continue as the country is trying to prevent its fiscal stimulus from forming asset bubbles in its economy.

Exports to the United States, a vital market for Japanese goods, were also slow to recover, suggesting exports will make less of a contribution to Japan's growth in coming months.

"The yen's rise is hurting corporate revenues. While the global economy is picking up, the boost to exports from strength in China may start to fade," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

"What's needed now is for consumption to recover in the United States, which is the major market for high value-added Japanese goods. In that sense, it may take time for exports to stage a full-fledged expansion."

As can be seen below, the relative strength of China has been a huge driver of the Japanese recover, but Japanese exports to the U.S. are down 34% year over year (which coincidentally matches Japanese exports to the "world ex-China", also down 34% year over year).



So when (or maybe more accurately stated will) the U.S. be able to provide the global economy with much needed private demand?

With a stretched out consumer that is busy rebuilding their personal balance sheet (or unemployed, thus busy just making ends meat), I personally doubt it. Even if they wanted and/or were willing to, is the U.S. consumer even able to with a shrinking supply of credit available to them and diminished personal assets to lever even if they do have access to a loan.

Source: Customs.Go.JP

Jake 22 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/what-if-us-is-unable-to-power-global.html
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State by State Unemployment: Nowhere to Hide

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The BLS details:

Between August and September 2009, 15 states and the District of Columbia experienced statistically significant changes in employment, all of which were decreases. The largest statistically significant job losses occurred in New York (-81,700), Texas (-44,700), California (-39,300), Wisconsin (-21,700), and Michigan (-21,500). The smallest statistically significant decreases in employment occurred in Hawaii (-4,200), Nebraska (-6,300), and Arkansas (-7,700).

Over the year, 46 states experienced statistically significant changes in employment, all of which were decreases. The largest statistically significant job losses occurred in California (-732,700), Florida (-360,400), Michigan (-308,800), Illinois (-306,900), Texas (-303,700), Ohio (-258,100), New York (-256,100), and Georgia (-245,400). The smallest statistically significant decreases in employment occurred in South Dakota (-7,900) and Montana (-8,400).

Source: BLS

Jake 21 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/state-by-state-unemployment-nowhere-to.html
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Producer Prices Surprise to the Downside

Posted on Tuesday, October 20, 2009
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NY Times details:

Even as investors were bidding up the prices of commodities like oil and gold last month, wholesale prices in the United States were falling, reflecting weak demand at home.

The government's Producer Price Index fell 0.6 percent in September after rising by 1.7 percent a month earlier, the Labor Department reported on Tuesday. The figures show that, despite a weakening dollar, inflation remains a remote concern as the American economy struggles to pull itself out of a deep recession.

"The demand for goods is still very soft; the United States economy is just barely recovering," said Allen Sinai, president of Decision Economics. "In a weak economy where consumer spending is weak, businesses have been slashing left and right. This surprisingly deflationary result reflects that."

Food and energy prices fell for the month, and prices were sharply lower than last year, when the financial crisis deflated a commodities bubble that had lifted gasoline prices to $4 a gallon and sent the dollar to record lows. In September, producer prices were down 4.8 percent from a year ago, and prices paid by consumers were 1.3 percent lower.

That said, expect the producer price index to level off over the next few months. As an example... if over the next three months the index is flat, the year over year change will bounce back to positive territory due to the comparison to the "cliff diven" months from Q4 of last year.



Source: BLS

Jake 21 Oct, 2009

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Source: http://econompicdata.blogspot.com/2009/10/producer-prices-surprise-to-downside.html
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