The Lehmann Letter © Today’s GDP numbers were awful (http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=1&Freq=Qtr&FirstYear=2006&LastYear=2008 ). Last month’s preliminary estimate of 2008’s fourth-quarter decline was -3.8%. This has now been revised to -6.2%. A GDP revision of this magnitude is rare and is another sign of the economy’s startling deterioration. (A final revision will appear at the end of next month, but it probably won’t materially improve today’s figure.) Here are the data: …………………………..2008-I…. 2008-II…2008-III….2008-IVGross domestic product…………0.9………2.8……….-0.5…….-6.2Consumption………………………..0.9……….1.2………-3.8…….-4.3Investment…………………………-5.8………-11.5………0.4……-20.8Net exports………………………….4.6……….17.5……..7.4………-5.6 Government………………………..5.8…………6.6……..13.8……..6.7 Consumption, investment and trade dragged the economy downward. Only government expenditures propped it up. Investment’s 20.8% plunge reflects business plant and equipment’s sharp drop, compounding residential Continue reading

Heroic Assumptions?

The Lehmann Letter ® Today’s news reported that the President’s budget calculations include the projection that GDP will contract by 1.2% this year and expand by 3.2%, 4.0% and 4.6% in each of the following years. In addition, the budget assumes unemployment will rise to 8.1% this year and fall slightly to 7.9% next year. Let’s hope so. Because if those numbers are too optimistic and GDP falls more sharply and recovers more slowly so that unemployment rises to 10% or more, the president’s objective of halving the deficit by the end of his first term won’t be met. Here’s Continue reading

A Choice, Not An Echo

The Lehmann Letter ® In 1964 Barry Goldwater, the Republican candidate for president, promised the nation a choice, not an echo. Senator Goldwater pledged not be Democratic-light: A mere echo of the Democratic voice. No, Mr. Goldwater said he would adhere to free-market principles and take the nation in an entirely different direction. Senator Goldwater lost to Lyndon Johnson. But Ronald Reagan carried the Senator’s free-market principles to victory in 1980. And he gave them special emphasis by adding supply-side economics. Mr. Reagan said he would spur the market forward with tax cuts skewed in favor of upper-income earners. That, Continue reading

The Spring of ‘97

The Lehmann Letter ® Today the stock market fell back to its spring 1997 level. It would be bad enough if we had suffered stagnation over the past 12 years, so that the market did not have far to fall. But that’s not the case. We’ve had two booms in the intervening years: The dot-com bubble of the late 1990s and the housing bubble of 2003-2007. In both cases the stock market and the economy surged to robust levels before tumbling back down. The tech boom ignited the first boom. What generated the second (housing) surge and collapse? We know Continue reading

The Fed’s Forecast

The Lehmann Letter ® On February 18 the Federal Reserve released the most recent minutes of the Fed’s Open Market Committee, which sets the federal funds rate:http://www.federalreserve.gov/newsevents/press/monetary/fomcminutes20090128.pdf The Fed’s near-term projection has become increasingly gloomy, with a consensus that the economy will shrink in 2009. The forecast concluded, however, that recovery would begin in the second half of 2009 in response to expansionary monetary and fiscal policies. “Participants’ projections for the change in real GDP in2009 had a central tendency of -1.3 to -0.5 percent,compared with the central tendency of -0.2 to 1.1 percentfor their projections last October. In explainingthese Continue reading

The President’s Housing Plan

The Lehmann Letter ® President Obama today announced his housing-recovery plan. It provides mortgage lenders and servicers with incentives to modify mortgage-loan terms to help struggling homeowners avoid foreclosure. Will it work? We’ll see. The key question: Is it large enough and sufficiently drastic to substantially mitigate the wave of foreclosures? Those who wanted more may be disappointed. They asked for: (1) A foreclosure moratorium that calls a halt to all foreclosures for a specified period of time. (2) A “cramdown” of loan terms to keep all those at risk of foreclosure in their homes. The cramdown could include principal Continue reading

Involuntary Inventory Accumulation: Still A Problem

The Lehmann Letter © On Thursday the Census Bureau released December data for business sales, inventories and the inventory/sales ratio: http://www.census.gov/mtis/www/mtis_current.html The Bureau said that inventories had risen by 0.9 percent while sales were down 11.8 percent from a year earlier. Consequently, the inventory/sales ratio (sales divided by inventories) climbed from 1.26 to 1.44 (see following chart). (Click on image to enlarge,) To repeat what this blog said a month ago: The recent rise interrupted the long-run downward trend. Over the past decade businesses have required fewer and fewer inventories to support their sales. That was a measure of improved Continue reading

FDR & Barack

The Lehmann Letter © We all know there are many in Congress who oppose the stimulus package. There are also many who support the concept but say the package is too small. The supporters should take heart and recall the argument over whether or not the New Deal or WWII brought an end to the Great Depression. That argument is shaped by the New Deal’s detractors who say that the New Deal was not effective because the war – not the New Deal – restored full employment. That’s true, but it’s a non sequitur to draw the conclusion that the Continue reading

The President’s Press Conference

The Lehmann Letter © At this evening’s press conference President Obama clearly stated his position and his policy. An economic crisis confronts us: A crisis so severe that it requires a drastic and a prompt response. And the economic stimulus package that will emerge from Congress and that the President will sign is the best response under all the circumstances. The House Democrats want more, but there is no way they can get more. The House Republicans want less, but they fail to understand that Reaganomics is not appropriate. The Senate Democrats have their eye on the prize, but can’t Continue reading


The Lehmann Letter © The Bureau of Labor Statistics’ crafts its employment reports to convey data, not drama. But today’s report does both (http://stats.bls.gov/news.release/empsit.nr0.htm ): “Nonfarm payroll employment fell sharply in January (-598,000) and the unemployment rate rose from 7.2 to 7.6 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Payroll employment has declined by 3.6 million since the start of the recession in December 2007; about one-half of this decline occurred in the past 3 months. In January, job losseswere large and widespread across nearly all major industry sectors.” If we continue to Continue reading