The Month Ahead

The Lehmann Letter (SM)  Yesterday Spain and Greece passed austerity measures that they hope will permit them to remain in the euro zone by obtaining funding from the rest of Europe.  See these articles in today’s New York Times:  “Despite Public Protests, Spain’s 2013 Budget Plan Includes More Austerity” http://www.nytimes.com/2012/09/28/business/global/spain-unveils-sweeping-budget-cuts.html?ref=todayspaper  “Greece Agrees on New Package of Budget Cuts and Taxes” http://www.nytimes.com/2012/09/28/world/europe/greece-agrees-on-new-austerity-package.html?ref=todayspaper  This letter has been a euro-optimist from the beginning. Europe’s economy is weakening, but its key nations continue their resolve to maintain the euro. This letter will keep you posted in the coming month as the story unfolds.  Meanwhile, Continue reading

End of the Month

The Lehmann Letter (SM)  The last major data releases of the month appeared today. They disclose, once again, the evidence of a bifurcated economy. Recovery from recession is slow. We have not launched into a robust recovery. Consequently the federal deficit remains high. Yet corporate profits are doing exceptionally well.  To begin: The Census Bureau announced that new orders for nondefense capital goods were flat: http://www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf  That means that business is not exuberantly investing in new plant and equipment.  And the Commerce Department released its report for second-quarter GDP, profits and the federal deficit: http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1  GDP growth was anemic, profits Continue reading

Housing’s Two Measures

The Lehmann Letter (SM) Sales of new homes and home prices are two measures of the residential real-estate market. The building and selling of new homes has remained flat even though home prices have begun to recover. We all hope that rising prices will stimulate new home construction and sales.  This morning’s news provides additional evidence of a bifurcated market. The Census Bureau reported 373,000 new homes sold in August: http://www.census.gov/construction/nrs/pdf/newressales.pdf  This was no change from the previous month and the chart shows that sales have remained flat and near their recession lows.  New Home Sales (Recessions shaded) But two Continue reading

Consumer Confidence: Nice Pop

The Lehmann Letter (SM) This morning The Conference Board reported a nice pop in consumer confidence, which rose to 70.3: https://www.conference-board.org/press/pressdetail.cfm?pressid=4605  In the Board’s press release, Lynn Franco, Director of Economic Indicators put it this way:  “The Consumer Confidence Index rebounded in September and is back to levels seen earlier this year (71.6 in February 2012). Consumers were more positive in their assessment of current conditions, in particular the job market, and considerably more optimistic about the short-term outlook for business conditions, employment and their financial situation. Despite continuing economic uncertainty, consumers are slightly more optimistic than they have been Continue reading

Optimistic on Homebuilders

The Lehmann Letter (SM) This morning’s Ahead of the Tape column in The Wall Street Journal expresses optimism in the shares of home builders:  “The Door Is Now Open to Home Builders” http://online.wsj.com/article/SB10000872396390443890304578010721904480326.html?mod=ITP_moneyandinvesting_0  Here are some key passages:  “Although home prices turned the corner just this past spring, shares of home builders have more than tripled on average since their 2009 nadir……..  “………there is cause for at least short-term cheer, particularly for home builders that rallied after last week’s housing-starts data. Single-family housing starts rose at the quickest pace since April 2010…….  “While not home-free, home builders have given investors Continue reading

Household Balance Sheets: Under Repair

The Lehmann Letter (SM)  This letter has observed that consumer purchases of new homes and automobiles won’t recover fully until households have repaired their balance sheets. Households have too much debt, too little liquidity and shrunken assets and net worth.  For an update on this, accompanied by good graphics, see this article in today’s Wall Street Journal: “Rising Home Values Repair Balance Sheets” http://online.wsj.com/article/SB10000872396390444165804578008284088711620.html#project%3DFLOW0921%26articleTabs%3Darticle  The article begins with this sentence:  “A strengthened housing market is lifting property values and helping Americans repair their balance sheets, a trend that could spur the economy by making households more willing to spend…..  But Continue reading

Existing-Home Sales: Can the Fed Boost Them?

The Lehmann Letter (SM)  Yesterday’s letter on housing starts commented on the difficulty confronting the Federal Reserve in its effort to boost residential construction. It will take more than low interest rates for construction to become sufficiently robust to pull the economy out of its lethargy.  Yesterday the National Association of Realtors reported that August existing-home sales had risen to 4.82 million from 4.47 million in July:   http://www.realtor.org/news-releases/2012/09/august-existing-home-sales-and-prices-rise   Existing-Home Sales (Recessions shaded)  That’s a nice improvement and we hope it’s the start of a trend. But home sales have been stuck in the 4 to 5 million range Continue reading

Residential Construction: The Fed’s Challenge

The Lehmann Letter (SM) The Federal Reserve hopes it can drive the economy forward with the radically expansionary policy it announced last week, and the Fed realizes that housing is its biggest challenge. Will the Fed’s dramatic easing accelerate housing’s halting recovery? This morning the Census Bureau announced that August housing starts were, “…2.3 percent (±10.2%)* above the revised July estimate of 733,000 and … 29.1 percent (±12.8%) above the August 2011 rate of 581,000:” http://www.census.gov/construction/nrc/pdf/newresconst.pdf That appears encouraging, and obviously reflects an improvement that occurred before the Fed announced its new policy. But consider this: There were 720,000 housing Continue reading

Industry Stalls

The Lehmann Letter (SM) The Federal Reserve’s embrace of a vigorously expansionary monetary policy captured the news last week and overshadowed the Fed’s report on falling industrial production and capacity utilization: http://www.federalreserve.gov/releases/g17/Current/default.htm The Fed announced that August industrial production fell by 1.2% and capacity utilization declined to 78.2% from 79.2% in July. The Fed attributed some but not all of this weakness to Hurricane Isaac. This letter has observed the slowdown in manufacturing activity that began several months ago. This latest report confirms a bad omen. The economy is not heading for recession but it is not gathering the strength Continue reading

Federal Reserve Policies and Corporate Profits

The Lehmann Letter (SM) The stock market reacted exuberantly to the Federal Reserve’s announcement of its major new easing initiative. But this morning’s New York Times carried a warning for investors: “Earnings in United States Are Beginning to Feel a Pinch” http://www.nytimes.com/2012/09/17/business/earnings-outlook-in-us-dims-as-global-economy-slows.html?ref=todayspaper&moc.semityn.www As this letter has articulated in the past: Corporate profits can only improve with robust increases in sales volume because profit margins are not likely to grow further. The major gains from business cost-cutting are behind us and it does not seem likely that the economy will grow quickly. The New York Times article has these quotes to Continue reading