Rocky Road

The Lehmann Letter © Today the Census Bureau released two reports that illustrate how rough this recovery will be. August new home sales ( of 429,000 were about one-third greater than their January trough of 329,000. But look at the following chart for perspective. We remain two-thirds below the peak of several years ago. It will be a long, hard slog back to robust growth. Chart 5.9 New Home Sales (Click on image to enlarge) Recessions shaded New orders for nondefense capital goods tell essentially the same story ( August’s $52.7 billion remains in the trough. And the following chart Continue reading

Five in a Row

The Lehmann Letter © Today The Conference Board released its Leading Economic Index (LEI): The index gained in August, the fifth consecutive monthly improvement following a 20-month losing streak. Ken Goldstein, a Conference Board economist said, “These numbers are consistent with the view that after a very severe downturn, a recovery is very near. But, the intensity and pattern of that recovery is more uncertain.” That says it all. The recession is over, but we can’t gauge the strength of the recovery. Keep in mind: Just because we’re no longer going south doesn’t mean we’re speeding north. This could Continue reading

Profits & Profit Margins

The Lehmann Letter © The stock market has done well over the past half year despite a limited recovery in corporate profits. Chart 2.1 Profits (Click on image to enlarge) Recessions shaded Perhaps investors’ enthusiasm has something to do with a much stronger performance by profit margins. Chart 2.3 Profit Margins (Click on image to enlarge) Recessions shaded You can see that profit margins continued to grow throughout the recession even as total profits fell. Recall that total profits = Profit margins X sales volume. If sales volume plunges by more than margins improve, total profits will fall. That’s what Continue reading

Federal Deficit

The Lehmann Letter © In a September 10 posting this blog said: “Demand will grow sharply when – and only when – buyers begin borrowing freely once more in order to finance their purchases. As long as they scrimp and save, guarding their balance sheets, demand will remain in the doldrums.” If that’s true for private borrowing and spending, what about public borrowing and spending? Can it take up the slack? Better Yet: Has federal borrowing and spending compensated for the shortfall in private borrowing and spending? See for yourself. Chart 7.1 Federal Deficit (Click on image to enlarge.) Recessions Continue reading

Private Borrowing

The Lehmann Letter © The rest of the economy stalled when home prices and home sales began falling in 2006. The financial crisis, for instance, began with the debacle in mortgage-backed securities. Mortgage borrowing is an important component of total borrowing and the following chart illustrates their demise. The economy can’t recover strongly unless this line heads sharply upward. Chart 6.3 Private Borrowing (Click on image to enlarge.) Recessions shaded Purchasers put fewer dollars into the spending stream when borrowing contracts. Total spending falls even more if borrowers repay their debts, as they recently have. Demand will grow sharply when Continue reading

Good News… Bad News

The Lehmann Letter © Today the Federal Reserve released its Beige Book summary of economic conditions ( . The report began, “Reports from the 12 Federal Reserve Districts indicate that economic activity continued to stabilize in July and August.” That’s good news: Stability is better than decline. Soon the recession will be over because a sufficient number of indicators are no longer falling. But that’s not the same as robust recovery. Yesterday, for instance, the Fed reported that consumer credit fell by $21.5 billion or 10.4% ( ). That’s a $258 billion drop at an annual rate. Households are repaying Continue reading


The Lehmann Letter © It’s become clear over the summer that everyone expects the recession to end shortly. But what does that mean? Recession over = Economy no longer headed south. That could signify a sharp recovery or it could signify no growth at all. Keep in mind: The economy only has to stop shrinking for the recession to be over. The recovery could be halting, shallow and disappointing and still count as a recovery. So it’s worth repeating this blog’s earlier analysis of past recessions and recoveries. Before the 1990-91 recession the Federal Reserve let interest rates fall whenever Continue reading