April Indicators: Focus on Construction

The Lehmann Letter (SM) Everybody is waiting for tomorrow’s employment report to gain insight into the expansion’s strength. But April’s economic indicator publication schedule reveals that employment is only one measure among many. This letter has argued that residential construction is key to the speed and strength of the economy’s advance. Housing starts and home sales are critical. If residential construction remains in the doldrums the economy’s progress will disappoint. We’ll see. ECONOMIC INDICATOR PUBLICATION SCHEDULE April 2011 Source (* below)……Series Description……Day & Date Quarterly Data BEA…………………GDP…………..……Thu, 28th Monthly Data ISM..Purchasing managers’ index…Fri, 1st BLS…………….Employment………… Fri, 1st BEA..New-vehicle sales.(Approximate).Thu, 7th Continue reading

Home Sales Down: What Will Drive the Economy?

The Lehmann Letter (SM) Yesterday’s letter reported that February housing starts and existing-home sales fell. This morning the Census Bureau announced that February new-home sales dropped to 284,000: http://www.census.gov/const/newressales.pdf Place this number on the chart to gain perspective. You can see that new-home sales have fluctuated below 400,000 since they crashed in 2007 — 2009. This is further confirmation that residential construction remains in a rut. New-Home Sales (Click on chart to enlarge.) Recessions shaded That bears directly on the recovery’s strength. The key issue remains: Will the economy gain sufficient momentum to provide full employment? Put differently: Will we Continue reading

Housing: A Drag on the Economy

The Lehmann Letter (SM) There are three key reports on housing released each month: the Census Bureau’s estimate of housing starts, the National Association of Realtor’s bulletin on existing-home sales and the Census Bureau’s figure for new-home sales. The housing starts and existing-home numbers are out, and they are terrible: http://www.census.gov/const/newresconst.pdf http://www.realtor.org/press_room/news_releases/2011/03/feb_decline February housing starts fell to 479,000 and February existing-home sales fell to 4.88 million. Both are seasonally adjusted annual rates. These are clear setbacks, and the housing starts number is reminiscent of the depths of the recent recession. New-home sales will be out tomorrow, and this letter will Continue reading

More Debt: Good News

The Lehmann Letter (SM) There is great concern about debt, both public and private. Most of us have borrowed at some time in our life, and most of us instinctively know that too much debt is dangerous. So it is no surprise when analysts point to high debt levels as a cause of the recent recession and anemic recovery. Ironically and paradoxically it is also true that we must borrow more to finance the growth in spending needed to speed economic expansion. We may dislike debt, but right now we need more of it. That’s why a recent report by Continue reading

Japan: Other Points of View

The Lehmann Letter (SM) There has been so much doom and gloom accompanying events in Japan, it is refreshing to see other points of view. Two Japanese, writing on the op-ed page of this morning’s New York Times, expressed pride and hope in their country. They not only wish Japan well, they also expect better days ahead: http://www.nytimes.com/2011/03/17/opinion/17azuma.html?_r=1&ref=todayspaper http://www.nytimes.com/2011/03/17/opinion/17Murakami.html?ref=todayspaper These views point out how difficult it is to forecast a nation’s ability to deal with setbacks and adversity. So many crosscurrents come into play. For each cause for pessimism one can find a countervailing reason for optimism. Stock markets suffered Continue reading


The Lehmann Letter (SM) Events in Japan have troubled stock markets around the world. Are this morning’s downturns an omen of things to come? Pessimism is called for if one judges by the impact of Hurricane Katrina on New Orleans. It’s been years since that disaster struck, and New Orleans has not recovered. Both the economy and the population have shrunk. But San Francisco rebounded swiftly from the 1906 earthquake and fire. It was not long before the city rebuilt and the economy was humming again. San Francisco’s experience reminds us that disaster often provide stimulus. Government, business and households Continue reading

What Now?

The Lehmann Letter (SM) Tsunamis! Oil! Revolution! What now? Many are wondering if this economic expansion has legs and wondering whether or not the two-year bull market has run its course. On Wednesday David Leonhardt published an article in The New York Times, discussing the impediments to continued economic expansion: http://www.nytimes.com/2011/03/09/business/economy/09leonhardt.html?scp=2&sq=david%20leonhardt&st=cse In yesterday’s Wall Street Journal, David Wessel did the same: http://online.wsj.com/article/SB10001424052748704629104576190491020327586.html But today’s Wall Street Journal carried an optimistic article about households paying down their debts and thereby improving their ability to spend: http://online.wsj.com/article/SB10001424052748704823004576192602754071800.html?mod=ITP_pageone_0 Yet Floyd Norris of The New York Times wrote pessimistically today about squandered opportunities for Continue reading

Consumer Credit Grows

The Lehmann Letter (SM) The Middle Eastern and North African rebellions have generated $100-oil and fears of its potential impact on the economy. This letter has expressed the view that a slowdown in the economic recovery and economic expansion is a greater risk than soaring consumer prices. Thus far, however, oil’s impact on consumer demand is not evident. The Commerce Department reported February automobile sales of 13.4 million at a seasonally-adjusted annual rate. That’s a nice bump upward from January’s 12.6 million figure. New-vehicle sales have grown strongly throughout the winter. Yesterday the Federal Reserve announced that consumer credit rose Continue reading

Employment: Good News at Last

The Lehmann Letter (SM) This morning’s February employment report from the Bureau of Labor Statistics should bring smiles all around: http://stats.bls.gov/news.release/empsit.nr0.htm Employers added 192,000 jobs in February. As you can see from the chart, that’s the biggest gain since the initial bounce back from the depths of the recession. Private employment grew even more strongly, adding 222,000 jobs, while government employment fell by 30,000. The unemployment rate, at 8.9%, was virtually unchanged from January’s 9.0%. This disconnect, between the large number of new jobs added and the stubbornly high unemployment rate, illuminates the rough road ahead. The economy requires 200,000 Continue reading

March Is Off To A Strong Start

The Lehmann Letter (SM) This morning the Institute for Supply Management reported that its Purchasing Managers’ Index increased to 61.4% in February from 60.8% in January: http://www.ism.ws/ISMReport/MfgROB.cfm?navItemNumber=12942 This is a strong sign that manufacturing activity is growing and is a good omen for the overall economy. Purchasing Managers’ Index (Click on chart to enlarge.) Recessions shaded All readings over 50% indicate expansion. Those under 50% signal contraction. The chart shows that the index has been over 50% for some time. Today’s 61.4% report confirms continued robust activity. The index reflects a manufacturing sector that has put recession behind it. Keep Continue reading