November Publication Schedule

The Lehmann Letter (SM)  November is an important month. The presidential election is a week away and is going down to the wire. There will be no shoo-in.  The economy will continue to grow no matter who is elected. And it will grow slowly because we have already done all that can be done to stimulate acceleration: Interest rates are rock-bottom and fiscal-stimulus is long past. Household balance sheets are key, and their repair goes on slowly. Only gradually will households be willing to borrow and spend more.  Let’s maintain our attention on the economic indicators below. Expect their incremental Continue reading

Election Impact

The Lehmann Letter (SM) A week remains until election day. The economy gains strength as the recovery continues. Conditions are not robust, but they are improving.  Whoever wins the election will take credit for progress accomplished. President Reagan did in the 1980s, President Clinton did in the 1990s and so did President Bush before The Great Recession of 2008.  The New York Times discussed this in an article that appeared over the weekend on October 28:  “Who Gets Credit for the Recovery?” http://www.nytimes.com/2012/10/28/sunday-review/who-gets-credit-for-the-recovery.html  As that story said:  “… the odds that the recovery has finally begun have never been higher. Continue reading

Household Balance Sheets

The Lehmann Letter (SM) Household Balance Sheets  Over the weekend, on October 27, The New York Times ran an informative article on household balance sheets:  “Rise in Household Debt Might Be Sign of a Strengthening Recovery” http://www.nytimes.com/2012/10/27/business/rise-in-household-debt-might-be-sign-of-a-strengthening-recovery.html?ref=annielowrey&_r=0  Pay special attention to the article’s chart, which shows household borrowing emerging from a long period of contraction. Households are finally borrowing again.  That’s good news because household borrowing finances residential construction and consumer durables purchases. More borrowing = More spending = Swifter economic expansion.  But inspection of the chart shows how far we have to go before household borrowing returns to robust Continue reading

GDP: The Long Grind Upward

The Lehmann Letter (SM) This morning the Commerce Department reported that GDP grew by 2.0 % last quarter: http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1 The economy continues to recover, but it is not expanding rapidly. And it won’t expand rapidly for the foreseeable future because there is no driving force to lead the expansion. In past recoveries the GDP expanded rapidly because rising interest rates had depressed residential construction. Building popped back as soon as interest rates fell. This time a real-estate bubble collapsed, crushing household balance sheets. Now, as households painstakingly repair their finances, the economy gingerly move forward. One bright spot: Government spending Continue reading

Earnings Peak

The Lehmann Letter (SM)  Earnings are crucial for stock market performance, and they are at an all-time high. But the stock market has faltered lately because fears about shrinking sales have cast gloom over earnings projections.  This letter has emphasized that profit margins’ stellar performance has driven earnings’ recent growth. (Earnings = Profit margins X Sales volume) Since margins have probably peaked, any fears regarding sales volume will cast doubt on earnings’ prospects. That’s bad for the stock market.  Lately Standard & Poor’s has reported actual earnings (not projected earnings) of slightly under $90 per share. Unfortunately that figure has Continue reading

The Bifurcated Economy: Business and Household Views

The Lehmann Letter (SM) The recent stock market selloff drew attention to earnings forecasts. This letter believes earnings growth will be difficult because profit margins are already at record levels. That puts the entire burden on sales volume, and that is also likely to grow slowly. (Total profits = Profit margins X Sales volume)  These doubts take many forms. This morning’s New York Times carried an article observing that businesses do not share households’ optimism:  “Firms Don’t Share Consumer Optimism” http://www.nytimes.com/2012/10/24/business/economy/companies-arent-as-optimistic-as-consumers.html?ref=todayspaper&_r=0  Some observers point to housing’s recent rebound as evidence of consumers’ buoyant spirits. This morning’s Census Bureau report, for Continue reading

The European Debt Work-Out

The Lehmann Letter (SM) Europe’s struggle is beginning to look like a traditional debt work-out. Deficits are shrinking. The strong are providing assistance for the weak. Some investors have fled, but others see opportunity. First the bad news: European debt will remain a problem even after deficits have shrunk. Even a nation that borrows less continues to pile up debt. See, for instance, this article in today’s New York Times:  “Despite Push for Austerity, European Debt Has Soared” http://www.nytimes.com/2012/10/23/business/global/despite-push-for-austerity-eu-debt-has-soared.html?ref=todayspaper&_r=0  The key excerpts:  “Some of the countries that have made the most progress in closing their budget gaps — Greece, in Continue reading

Corporate Earnings: Has the Peak Arrived?

The Lehmann Letter (SM) For some time this letter has observed that business sales must grow robustly in order to maintain strong growth in corporate earnings. That’s because the evidence pointed to a profit-margin peak. If margins have topped out, then increasing sales volume becomes the only avenue for improved earnings. Consider: Total profits = Profit margins X Sales volume.  Profit margins reached record levels as business responded to the recession by reducing its labor force more rapidly than sales shrank. As a result the margin between selling price and cost per unit of output grew. But the layoffs are Continue reading

Home Sales: Why the Expansion Won’t Be Robust

  The Lehmann Letter (SM) Residential real estate has turned the corner. All signs are now positive: Sales and prices are rising while mortgage rates and inventories are low. But that doesn’t mean a robust expansion awaits us.   This morning’s report from The National Association of Realtors is illustrative:   http://www.realtor.org/news-releases/2012/10/september-existing-home-sales-down-but-prices-continue-to-improve   Existing-home sales fell slightly to 4.75 million in October. Take a look at the chart and you can see that a booming market would be breaking through 5 million on its way to 6 million. But that booming market continues to elude us.    Existing-Home Sales (Recessions Continue reading

Housing: Dead Issue?

The Lehmann Letter (SM)   Housing will apparently not be an issue in the presidential election campaign. Neither candidate has dwelled upon it thus far.  And, now that the housing news is improving, housing may not receive mention.  Today’s San Francisco Chronicle took up the matter in an article entitled:  “Obama, Romney skip housing in debates” http://www.sfgate.com/business/networth/article/Obama-Romney-skip-housing-in-debates-3957782.php  The article quotes Trulia Chief Economist Jed Kolko:  “’The urgency around housing isn’t there anymore,” he says. “Prices are now rising in most parts of the country, construction is up, sales are up, vacancies are down, inventories are down. Even though there are still Continue reading