The Lehmann Letter (SM) This morning the Commerce Department announced that GDP grew by 2.0% in the third quarter: That means the economy is out of recession, with recovery in the weak-to-moderate range. GDP (Click on chart to enlarge.) Recessions shaded It also means that we can expect no more benefit from fiscal or monetary policy. Here’s why: Federal government expenditures grew by 8.8% – a healthy clip. But that obviously was not sufficient to pull the entire economy along at a buoyant rate. The Federal Reserve has kept interest rates low and plans to reduce long-term rates by Continue reading

New-Home Sales

The Lehmann Letter (SM) Sales of new homes were 307,000 in September, a 6.6% increase over August, according to today’s bulletin from the Census Bureau: The chart puts those numbers in perspective. New-home sales remain in the doldrums. New Home Sales Click on chart to enlarge.) Recessions shaded That brings to a close this month’s cycle of important building data. The trend is clear: Residential real estate is flat, with recovery and growth a prospect for the future. On Friday the Commerce Department is scheduled to release its first estimate for third-quarter GDP growth. This will provide an opportunity Continue reading

Home Sales

The Lehmann Letter (SM) This morning the National Association of Realtors reported that existing-home sales surged 10% in September: Lawrence Yun, the Realtors’ chief economist, commented: “A housing recovery is taking place but will be choppy at times depending on the duration and impact of a foreclosure moratorium. But the overall direction should be a gradual rising trend in home sales with buyers responding to historically low mortgage interest rates and very favorable affordability conditions.” That assessment, i.e.”…a gradual rising trend…,” is right on. Once upon a time, in the housing slumps of the 1970s and early 1980s, the Continue reading

Housing Starts: How to Read the Numbers

The Lehmann Letter (SM) Today’s Census Bureau announcement that housing starts grew slightly in September was good news: But it also illustrated the importance of putting data in historical perspective. Chart 5.7 Housing Starts Click on image to enlarge) Recessions shaded The chart shows that housing starts have fluctuated around 600,000 at a seasonally-adjusted annual rate for over year. Today’s report of 610,000 starts falls within that range. But the most important observation is housing starts’ tumble from their high of over 2 million and their continued languishing in the trough. These readings demonstrate the importance of historical perspective. Continue reading

The Chairman Speaks

The Lehmann Letter (SM) Today’s Boston speech by Federal Reserve Chairman Ben Bernanke ( carried these words in its conclusion: “… (the Fed) is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation over time to levels consistent with our mandate.” That means the Fed will pursue an expansionary policy in order to stimulate borrowing and spending and slightly lift inflation to levels consistent with a robust economy. The Fed has a tough row to hoe. Additional ease can’t hurt, but the economy’s slack borrowing and spending have more to do with households’ Continue reading

Stock Market Run Up

The Lehmann Letter (SM) The stock market has enjoyed a robust run up this fall. The chart reveals that the S&P 500 has gained about 50% from its recession lows. The chart also reveals that the S&P must gain another 25% to exceed the peaks enjoyed in 2000 and 2007. The stock market has fluctuated in a range over the past decade. What has driven the market thus far and will those forces be sufficient to drive it to new higher ground? Chart 1.1 S&P 500 Click on image to enlarge) Recessions shaded Supply-side forces have prevailed to date. The Continue reading

The Way Forward

The Lehmann Letter (SM) The last letter began with this question: “What will lift the economy out of the doldrums?” “Strong demand,” is the answer. But we haven’t yet found the source for this much-needed demand. Household borrowing and spending collapsed when real estate imploded. The federal government tried to make up the difference with its borrowing and spending. Now the government’s efforts have become political liabilities. So we can’t expect federal expenditures to show the way. That means we’ll have to wait for households to reduce their debts and re-liquefy their balance sheets before consumer spending begins to slowly Continue reading

Auto Sales

The Lehmann Letter (SM) The Bureau of Economic Analysis has released September new-vehicle sales: . Scroll down to the “Motor vehicles” link and go to table six of the spreadsheet. You’ll see that new-vehicle sales were 11.7 million in September. Now compare that to the historical data in the chart. There’s been a gradual recovery from recession lows, but it’s been a slow ascent. New-vehicle sales remain at levels not seen since the 1981-82 recession and earlier slumps. Chart 5.5 New-Vehicle Sales (Click on image to enlarge) Recessions shaded These figures are all part of the weak-economy syndrome. Auto Continue reading

Foreclosure Crisis

The Lehmann Letter (SM) Today’s New York Times carries a front-page article on “Flawed Paperwork……” by Gretchen Morgenson: It’s about the foreclosure crisis and begins with these paragraphs: “As some of the nation’s largest lenders have conceded that their foreclosure procedures might have been improperly handled, lawsuits have revealed myriad missteps in crucial documents. “The flawed practices that GMAC Mortgage, JPMorgan Chase and Bank of America have recently begun investigating are so prevalent, lawyers and legal experts say, that additional lenders and loan servicers are likely to halt foreclosure proceedings and may have to reconsider past evictions.” The article Continue reading

October Publication Schedule

The Lehmann Letter (SM) Last month this letter drew attention to weakness in housing because housing is a key indicator of consumer demand. This month’s letters will also focus on consumer demand by examining new-vehicle sales, consumer credit and consumer confidence. Here’s the schedule for some of October’s consume-demand-related releases. Source (* below)……Series Description……Day & Date BEA….New-vehicle sales……(Approximate).Wed, 6th Fed………..Consumer credit……(Approximate).Thu, 7thCensus……….……..Housing starts………….Tue, 19thNAR………………Existing-home sales…….Mon, 25th Census…………..New-home sales…………Wed, 27th Conf Bd………….Consumer confidence….. Thu, 21st * BEA = Bureau of Economic Analysis of the U.S. Department of Commerce* Census = U.S. Bureau of the Census* Conf Bd = Conference Board* Fed Continue reading