Fed Funds Flattened

THE BE YOUR OWN ECONOMIST ® BLOG The Lehmann Letter © Today the Federal Reserve reduced its federal-funds-rate target to between 0% and ¼%. You can read the Fed’s press release at:http://www.federalreserve.gov/newsevents/press/monetary/20081216b.htm . Direct your attention to these key passages: “Since the Committee’s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further…… “The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and Continue reading

Liquidity Trap

THE BE YOUR OWN ECONOMIST ® BLOG The Lehmann Letter © In his 1936 “General Theory Of Employment, Interest and Money,” John Maynard Keynes discussed what he called the liquidity trap. The trap occurred when demand had pushed bond prices – think U.S. Treasury securities – so high that they could rise no further. At that point, in an economy awash in liquidity, interest rates hit rock bottom at barely above zero. Keep in mind that bond prices and interest rates very inversely. Let’s say a 30-year bond sells for $1,000 and pays $50 annual interest for a 5% yield. Continue reading

Deflation’s Root

THE BE YOUR OWN ECONOMIST ® BLOG The Lehmann Letter © Yesterday the Federal Reserve released its third-quarter 2008 flow-of-funds report. Households’ $117.4 billion reduction in outstanding debt caught the attention of many. Consumers are pulling back. But there was another aspect of the report that generated less attention. To review the numbers for yourself, go to (http://www.federalreserve.gov/releases/z1/Current/z1r-2.pdf). Calculate total private nonfinancial borrowing by subtracting federal borrowing from the total for all domestic nonfinancial sectors and then adding foreign borrowing. You should arrive at these totals for 2008. 2008First Quarter $1,555.0 BillionSecond Quarter $772.0 BillionThird Quarter -$277.7 Billion The following Continue reading

Consumer Credit

THE BE YOUR OWN ECONOMIST ® BLOG The Lehmann Letter © Today the nation closely followed news of the auto-industry rescue package. Last Friday, December 5th, the Federal Reserve released its consumer-credit report (http://www.federalreserve.gov/releases/g19/Current/). These data have a direct bearing on the auto industry’s problems because consumers borrow heavily to finance motor-vehicle purchases. You can see from the chart below that consumer credit has grown by about $100 billion a month for the last five years. But the most recent entry spiked downward. Was this an aberration? Consumer Credit (Click on chart to enlarge) Recessions shaded It’s too early to Continue reading

Obama Has It Right

THE BE YOUR OWN ECONOMIST ® BLOG The Lehmann Letter © Today’s news reported that President-elect Obama favors a massive public-works program to boost aggregate demand and employment, a rescue for Detroit to avoid the risk of bankruptcy for the Big Three and expanded relief for homeowners facing foreclosure. Right on! The American people have to believe that our government is taking the lead in fighting recession, not sitting on the sidelines. That’s key to boosting confidence and private expenditures. Small measures won’t do. Relief must be stunning and occur forthwith. A trillion dollars is a good start. There’s much Continue reading

The Crisis Deepens

THE BE YOUR OWN ECONOMIST ® BLOG The Lehmann Letter © This morning’s employment report from the Bureau of Labor Statistics is alarming (http://stats.bls.gov/news.release/empsit.nr0.htm): “Nonfarm payroll employment fell sharply (-533,000) in November, andthe unemployment rate rose from 6.5 to 6.7 percent, the Bureau of LaborStatistics of the U.S. Department of Labor reported today. November’sdrop in payroll employment followed declines of 403,000 in September and320,000 in October, as revised. Job losses were large and widespreadacross the major industry sectors in November.” November’s job loss – 533,000 – signals deep recession. So does the upward revision of the September and October figures Continue reading

December Publication Schedule & Web Sources

THE BE YOUR OWN ECONOMIST ® BLOG The Lehmann Letter © You can use the WEB SOURCES listing (below) to find the data on your own and read the accompanying press release. The addresses take you to the source’s home page and the steps tell you how to navigate the site. That way (rather than provide a direct link to the data) you can become familiar with these sites and find additional information on your own. PUBLICATION SCHEDULE December 2008 Source (* below)…………Series Description…………Day & Date Quarterly Data BLS……………………….Productivity………………..….Wed, 3rd BEA……………International transactions………….Wed, 17th BEA…………………………GDP………………………..……Tue, 23rd Monthly Data ISM………………….Purchasing managers’ index……….Mon, Continue reading

Autos and Manufacturing

THE BE YOUR OWN ECONOMIST ® BLOGThe Lehmann Letter © The Big Three are testifying before Congress again, trying to make their case for a bailout. Maybe they’ll succeed. But there is something everyone can agree on: The automobile industry and all manufacturing are in trouble. November new-vehicle sales were 10.1 million at a seasonally-adjusted annual rate. See where that is on the chart below. Is there any wonder that the industry is in crisis? New-Vehicle Sales (Click on chart to enlarge)Recessions shaded Yesterday the Institute for Supply Management said the Purchasing Managers’ Index fell to 36.2 in November (http://www.ism.ws/ Continue reading

It’s Official

THE BE YOUR OWN ECONOMIST ® BLOG The Lehmann Letter © Today the National Bureau of Economic Research announced (http://wwwdev.nber.org/cycles/dec2008.html) that “…a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.” So there you have it. It’s official. We’re in a recession and have been for a year, despite the Bush administration’s reluctance to pin a tail on that donkey. The Bureau justified its Continue reading