Germany Budges

The Lehmann Letter (SM)    Once again the European nations have decided to hang together rather than hang separately. Their efforts to save the Euro appear to bring them more rapidly together rather than drive them apart. Chancellor Angela Merkel said it wouldn’t happen, but……. Yesterday Germany made major concessions to support the Euro. As The New York Times reported in today’s edition: “European Leaders Agree to Use Bailout Fund to Aid Banks” http://www.nytimes.com/2012/06/29/world/europe/european-union-meeting-opens-without-french-german-accord.html?_r=1&ref=todayspaper “Mr. Van Rompuy (president of the European Council) called the agreement a “breakthrough that banks can be recapitalized directly,” which represents a concession by northern European Continue reading

GDP and the Bifurcated Economy

The Lehmann Letter (SM)    Today’s GDP report reconfirms our bifurcated economy. Throughout the recovery some data has been strong while other data has been weak. http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1 Sad news first: GDP grew by 1.9% in the first quarter. The really sad news: GDP growth would have been higher had it not been for government’s continued contraction. Government spending has fallen since the beginning of 2010. That’s too bad because government spending is within our direct control and could have grown had we desired that. We can’t do much about housing or business investment, but we can and could have seen Continue reading

Business Investment: Gloom Sets In

The Lehmann Letter (SM)    Lately there have been too many signs of sluggish or nonexistent growth: Home building, new-vehicle sales, consumer confidence. We need exuberance to herald robust recovery. It’s not there. Are we locked in a range? Eventually we will no longer be able to say, “It’s too soon to tell.” Business investment in new equipment had been a rosy exception to households’ reluctance to purchase tangible assets. This morning the Census Bureau reported approximately $70 billion in new orders for nondefense capital goods for May. http://www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf  New orders have been stuck at around $70 billion for several Continue reading

Consumer Confidence: From Sizzle to Fizzle

The Lehmann Letter (SM) When you look at the chart you can see that consumer confidence popped back nicely from recession’s deep trough. That sizzle is now fizzle. Economic expansion can’t proceed with exuberance while consumer confidence is mired in the doldrums. Consumer confidence has stalled. The long climb out of recession’s trough has reached a plateau, and that’s bad for consumer demand. This morning the Conference board reported “…the fourth consecutive moderate decline…” June’s index-value was 62.0 https://www.conference-board.org/press/pressdetail.cfm?pressid=4526 The problem is not so much decline. The index is essentially flat. But there’s no need to quibble. The index has Continue reading

New-Home Sales Uptick: Another Mirage?

The Lehmann Letter (SM) We’ve been crawling for so long in the housing-rebound desert that any sign of an oasis raises suspicions of another mirage. For instance………. This morning the Census Bureau announced 369,000 new-home sales in May. http://www.census.gov/construction/nrs/pdf/newressales.pdf Take a look at the chart and the latest report seems unremarkable. New-home sales have stagnated under 400,000 since the depths of the recession. We will have cause to cheer when sales break through 400,000 and then 600,000 and maybe even 800,000. But sales under 400,000 hardly seem cause for celebration. New Home Sales (Click on chart to enlarge) (Recessions shaded) Continue reading

Balance-Sheet Crisis

The Lehmann Letter (SM)    You can’t simultaneously cut back and spend more. Cutting back will ease the balance-sheet crisis and spending more will speed recovery. But you can’t cut back and spend more at the same time. Much of the United States and Europe – households, banks and governments – faces a balance sheet crisis: Shaky assets, depleted liquidity, too much debt and too little net worth. The evidence is all around us: Homes underwater, credit-rating downgrades and insolvent governments. We all know the solution: Pay your debts, tighten your belt, spend less, be frugal, curtail borrowing, blah blah Continue reading

Home Sales Remain Weak

The Lehmann Letter (SM) Today’s announcement from the National Association of Realtors blames supply constraints for last month’s weak sales. http://www.realtor.org/news-releases/2012/06/existing-home-sales-constrained-by-tight-supply-in-may-prices-continue-to-gain Supply constraints may limit recent sales in some markets, but it is difficult to reconcile the chart with a chronic supply-side problem. If a true, overall supply-side problem really does exist, then new construction should recover quickly. Let’s hope so. If the economic recovery is like a ship trying to get underway, then housing is the anchor that prevents it from doing so. Take a look at the chart. Home sales over the past five years look like an Continue reading

Why the Fed Can’t Help

The Lehmann Letter (SM) The Federal Reserve’s Federal Open Market Committee reports today. Hopes and expectations are high that the Fed will reduce long-term interest rates to further stimulate the economy. Problem is: Temporary additional borrowing and spending by the federal government would probably be more effective at boosting the economy than whatever rate reductions the Federal Reserve announces today. We are in a liquidity trap and lower rates won’t help much. In 1936 John Maynard Keynes publicized the liquidity trap in “The General Theory of Employment Interest and Money.” According to Lord Keynes, reducing interest rates is not effective Continue reading

Balance Sheet Crisis Grips America and Europe

The Lehmann Letter (SM) America and Europe find themselves in a balance-sheet crisis. Here at home households have too little cash, too much debt and too little net worth. They can’t do the borrowing and spending required to adequately stimulate national economic recovery. Today’s Census Bureau report on May residential construction provides evidence: http://www.census.gov/construction/nrc/pdf/newresconst.pdf New building permits were up but starts were down. Either way recovery has been sluggish: Insufficient to provide oomph for the rest of the economy. Some of Europe’s households also find themselves with too little cash, too much debt and too little net worth. They, too, Continue reading

Europe’s Struggle

The Lehmann Letter (SM)    It appears that Greek voters have chosen to remain in the euro zone. But that does not mean that Europe’s struggle has ended. There are alternative visions on how to go forward. Some say austerity: Balanced budgets – with their spending cuts and tax increases – so that debtor nations can repay their bills. Others say stimulus: Temporary deficits – with their spending increases and tax reductions – so that debtor economies can grow sufficiently to repay their bills. There are also longer-term concerns. Germany wants to be sure that everybody understands that all nations Continue reading