Consumer Confidence: Not Enough Progress

The Lehmann Letter (SM) It’s hard to imagine robust economic expansion without a strong recovery in consumer confidence. After all, why would households spend more if their sentiment remains gloomy?  Today’s report from The Conference Board signals improvement, but also shows a long road ahead:  The Conference Board reported consumer confidence rose to 68.1 in April.  The chart shows strong recovery, but it also shows that consumer confidence must rise above 80 and then break through 100 for there to be a true signal of expansion.  Consumer Confidence   (Recessions shaded)  Lynn Franco, the Director of Economic Indicators at The Continue reading

Noise in the Data

The Lehmann Letter (SM) This letter took comfort that last week’s GDP data were reasonably strong. Many other observers commented on the report’s weakness. Either way, be aware of the statistical noise in these releases. There can be strong variation outside the trend.  But this offers the opportunity to step back and comment on the larger picture. There is little doubt of the weak recovery from the Great Recession. Despite soaring profit margins and profits and a robust stock market, growth in aggregate demand, output and employment have been anemic.  The Federal Reserve had greater control in the Old Economy Continue reading

Good GDP Report

The Lehmann Letter (SM) This morning the Commerce Department reported that first-quarter GDP rose 2.5%:  That’s a nice, solid number.  Growth was strong across all sectors except government. You wouldn’t know it because of all the swirling controversy, but government – state and local as well as federal – is shrinking. This contraction in government spending has constrained GDP’s growth and thereby held back the recovery and the growth in employment.  But household consumption, residential construction and business capital expenditures, including inventory accumulation, continue to advance. Let’s enjoy this good news as we head into the weekend.  (To be Continue reading

When the Experts Don’t Know………

The Lehmann Letter (SM) Eduardo Porter contributed a fascinating report for yesterday’s New York Times: “Economists Agree: Solutions Are Elusive”  He said the world’s top economists don’t understand the dynamic of the Great Recession, don’t know what policies to prescribe to get out of the slump and don’t know how to prevent a recurrence of this tragedy. Here is how the article began: “Last week the International Monetary Fund hosted a conference of some of the world’s top macroeconomists to assess how the most intense crisis to have shaken the industrialized economies since the Great Depression has changed the Continue reading

Business Capital Expenditures Remain Disappointing

The Lehmann Letter (SM) Notice the striking similarity in the charts between the record for new orders for nondefense capital goods and the stock market: Big advances until 2000 and then fluctuation in a range. Business capital expenditures have not done well since 2000 and neither has the stock market. Despite record profits, business investment in new equipment seems to reflect the lackluster performance in company value. New Orders for Nondefense Capital Goods   (Recessions shaded)  Stock Market   (Recessions shaded)  Today’s report from the Census Bureau is not encouraging:  Business ordered $70.2 billion in nondefense capital goods for March. That Continue reading

Home Sales: Supply-Side Problem

The Lehmann Letter (SM)  The Great Recession was a demand-side problem: Households had borrowed to the point that growing purchases could no longer be sustained. The economy shrank as a consequence.  Housing was at the epicenter of the contraction and, over the years, the supply of new and existing homes shriveled in response to the downturn. Now that demand has begun to recover, a shortage of new and existing homes has driven prices upward.  Observers go one step further and say that the supply shortfall is inhibiting housing’s comeback. That may explain the meager rebound in the data released this Continue reading

A Different Take

The Lehmann Letter (SM) Last week was a bad week in so many ways.  Washington reached no compromise on guns as murder and mayhem gripped Boston.  Was there an optimistic straw we could grasp?  Perhaps….  Willie Brown, former head of the California State Assembly and former mayor of San Francisco and well-connected politico, had a constructive take on the gun-legislation failure. He believes that Democrats sacrificed gun-control in order to succeed with immigration reform and a federal-budget agreement. Mr. Brown’s view: The Democrats are saving their big push for immigration and budget legislation, areas where bipartisanship is desperately needed.  Here’s Continue reading

Bust Without a Boom?

The Lehmann Letter (SM) Could we be heading for a downturn before enjoying the usual benefits of economic expansion?  That doesn’t happen often. The recession of 1938 – in the midst of the Great Depression – is the most recent example.  The monetarists have consistently expressed fears of such a downturn occurring soon. They say that the Federal Reserve’s expansion policy is creating another bubble. Their argument has two facets: (1) Excess liquidity will generate an inflation that leads to recession, and (2) Artificially low interest rates will drive investors into risky assets that create another bubble and another collapse. Continue reading

Dark Clouds

The Lehmann Letter (SM) Yesterday was not a good day. Indeed, it’s been a bad week.  There have been too many disasters, both intentional and accidental.  Yesterday’s rejection of the gun-control compromise didn’t help. No matter what one’s view of the issues, compromise is essential for moving matters forward. Congress will attempt immigration reform next and then move on to the budget. Compromise begets compromise. Intransigence begets what has become all too familiar.  Meanwhile the Federal Reserve continues to move its expansionary policy forward. That policy does not seem to have kindled commodity-price inflation or a rapid rise in consumer Continue reading

Bifurcated Profits

The Lehmann Letter (SM) There’s been a bifurcated recovery from the Great Recession: Earnings are strong but wages are not; auto sales have mostly recovered while home-building has just begun to recover; consumption expenditures are stronger than capital expenditures. On April 15 The New York Times ran a story about bifurcated business performance: “As Wall St. Soars in Tough Era, Company Size Is a Big Factor” The article found evidence that large companies are doing better than small companies: “,,,while the outlook among small-business owners remains stuck near recession levels, Wall Street is again expecting the largest companies to Continue reading