The Lehmann Letter © Today the Bureau of Economic analysis released( GDP data (in $billions): ………2008-I…. 2008-II…2008-III……2008-IVGDP..11,646…..11,727.4…..11,712.4…..11,599.4C……..8,316.1…..8,341.3……8,260.6……8,186.9I…….1,754.7……1,702.0…..1,703.7…….1,648.5(X-M)-462.0…….-381.3…….-353.1……..-356.4G…….2,039.1……2,058.9…..2,088,1……2,097.7C = ConsumptionI = Investment(X-M) = Net ExportsG= Government Notice that, for the first time, every component except government expenditures fell. (Since net exports were negative because imports exceeded exports in all quarters, a larger number indicates a drop.) Consumption and investment declined by large amounts. The domestic private economy is contracting rapidly. There is every indication that will continue into 2009. © 2009 Michael B. Lehmann

Home Sales: The Heart Of The Problem

The Lehmann Letter © Today the Census Bureau reported the sale of 331,000 new homes in December ( ). Take a look at the chart. Home sales have fallen from a record high of about 1.3 million to a record low of about one-third of a million. That’s a drop of three fourths, an unprecedented decline. And they may continue to fall. New-Home Sales (Click on chart to enlarge) Recessions shaded This chart, perhaps more than any other, goes to the root of the problem. Our easy-credit and lax regulatory climate from 2000 through 2006 generated a 100-year flood of Continue reading

They Should Know

The Lehmann Letter © Today the Federal Reserve decided to maintain the federal-funds rate (the interest rate at which banks lend to each other) at near zero. The Federal Open Market Committee, which sets this rate for the Fed, made these comments on the economy ( ): “Information received since the Committee met in December suggests that the economy has weakened further. Industrial production, housing starts, and employment have continued to decline steeply, as consumers and businesses have cut back spending. Furthermore, global demand appears to be slowing significantly. Conditions in some financial markets have improved, in part reflecting government Continue reading

Consumer Confidence

The Lehmann Letter © Today the Conference Board released its consumer-confidence survey( ). The Board said: “The Conference Board Consumer Confidence Index™, which had decreased in December, inched lower in January and continues to be at a historic low. The Index now stands at 37.7 (1985=100), down from 38.6 in December….” The index has hovered at or below 40 since the fall. The following chart shows that these are unprecedented readings. It also makes clear that January’s number is no fluke. We’re stuck in a rut. Consumer Confidence (Click on chart to enlarge) Recessions shaded We probably won’t escape from Continue reading

Head Down Or Feet Up?

The Lehmann Letter ® Today the Associated Press reported ( ) that Democrats and Republicans continue to argue whether spending increases or tax cuts will have the swiftest positive impact on employment. This is reminiscent of the argument over whether people grow from the head down or the feet up: Difficult to resolve. The argument for spending increases says: If the government spends the funds, it’s done and fail-safe. The road gets built; the bridge is repaired. People are directly employed on the project. Spending opponents disagree: By the time the funds are spent, the economy will be recovering of Continue reading

Another Record

The Lehmann Letter ® Today the Census Bureau said ( ) that work began on 550,000 housing units in December. The chart below reveals that is a post-WWII record low. Housing Starts (Click on chart to enlarge) (Recessions shaded) Worse yet, this is a 101,000 drop from November’s 651,000 total. That’s a huge decline and seems to say we may not have hit bottom. But when will that happen? And how many more of these record lows – spread out over a variety of indicators – can we stand? Could we be headed for a depression? The economic stimulus package Continue reading

Industrial Destruction

The Lehmann Letter © The financial and business news has focused so heavily upon the banking system’s ailments that the underlying economy’s bad fortune has received short shrift. For instance, on January 16 the Federal Reserve reported ( that capacity utilization had fallen to 73.6 percent in December. (Capacity utilization answers this question: What is the current rate of industrial production expressed as a percentage of the maximum? Industrial = Mining, manufacturing and public utilities.) This seems like an ordinary and uninteresting statistic until one places it in the context of the chart below. Capacity Utilization (Click on chart to Continue reading

Borrowing & Spending Our Way To Prosperity

The Lehmann Letter © Today’s San Francisco Chronicle reported ( the University of California’s Christina Romer, President-elect Obama’s nominee to head the Council of Economic Advisors, endorsed the House of Representative’s $825 billion stimulus package. Testifying at her confirmation hearing before the Senate Banking Committee, Prof. Romer said that her chief task will be to “ensure that the tragedy of the 1930s is not repeated.” House Republicans were not so sure, as the Chronicle article reported: “’Oh, my God,’ said House Republican leader John Boehner, R-Ohio. ‘It appears my Democratic colleagues think they can borrow and spend their way back Continue reading

Consumer Credit

The Lehmann Letter © On January 8 The Federal Reserve announced ( that consumer credit fell $8 billion in November. Multiply that monthly figure by 12 to put it on an annual basis, and you have a roughly $96 billion decline. The following chart shows that this is a big setback, especially if sustained in the coming months. Consumer Credit (Click on chart to enlarge) (Recessions shaded) Consumer credit supports the purchase of many durable goods, especially motor vehicles. During the real-estate boom households treated their homes like fountains of money, refinancing their mortgages and using the proceeds for auto Continue reading

Involuntary Inventory Accumulation

The Lehmann Letter © Today the Census Bureau released November data for business sales and inventories: Here’s the Bureau’s summary: Sales. The U.S. Census Bureau announced today that the combined value of distributive trade sales and manufacturers’ shipments for November, adjusted for seasonal and trading-day differences but not for price changes, was estimated at $1,057.0 billion, down 5.1 percent (±0.2%) from October 2008 and down 8.9 percent (±0.5%) from November 2007. Inventories. Manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,485.1 billion, down 0.7 percent (±0.1%) from Continue reading