Corporate Profits Rise Slightly

The Lehmann Letter (SM) This morning, along with its announcement that first-quarter 2015 GDP fell by 0.7%, the Bureau of Economic Analysis said that after-tax corporate earnings rose slightly to $1,893.8 billion:  (Row 45) Will they rise to $2,000.0 billion? They must do so soon if they are to maintain their steep rate of increase since the trough of the Great Recession. Corporate Profits (Recessions shaded) Here are the recent numbers. Compare them to the chart. $Billions: 2011 First Quarter           1,399.2 Second Quarter      1,466.1 Third Quarter          1,482.1 Fourth Quarter        1,545.1 2012 First Quarter           1,730.3 Second Quarter      1,724.9 Third Quarter          Continue reading

Confronting Conventional Wisdom on Cheap Oil

The Lehmann Letter (SM) The conventional wisdom says cheap oil boosts the economy by reducing household expenses, thereby liberating funds for increased consumption. But the Associated Press posted a story on May 22, carried by The San Francisco Chronicle on May 26, that confronts that analysis: “Cheap oil can hurt the economy, but experts missed it” “If there was one thing most economists agreed on at the start of the year, it was this: Plunging oil prices would boost the U.S. economy. “It hasn’t worked out that way…. “….It turns out that the economic effects of lower energy prices Continue reading

New Home Sales Stronger, But Continue to Lag

The Lehmann Letter (SM) This morning the Census Bureau reported 517,000 new homes sold (at a seasonally-adjusted annual rate) in April: Sales have exceeded 500,000 in three of the past four months. That’s a good start for the year. But sales – like the home-construction industry generally – have been on a plateau. And the chart reveals how low that plateau is: Near the trough of earlier recessions. New Home Sales (Recessions Shaded) Here are the seasonally adjusted data at an annual rate: 2013 January        442,000 February       439,000 March           449,000 April              451,000 May              430,000 June             463,000 July              376,000 August          Continue reading

The Rental Squeeze

The Lehmann Letter (SM) Single-family home prices are rising. So are apartment rents. Seems that the surge into single-family homes before the Great Recession discouraged apartment construction. Now that a home is beyond the reach of many, apartment rents are rising with the influx into these units. Laura Kusisto’s article in yesterday’s Wall Street Journal, posted the day before, reported these developments: “New Luxury Rental Projects Add to Rent Squeeze” Her words summarize the problem: “….New construction has almost always fetched higher rents than older units, due mainly to the rising cost of land and construction. But in past Continue reading

Existing-Home Sales Remain Flat

The Lehmann Letter (SM) This morning the National Association of Realtors reported 5.04 million existing-home sales in April, a slight drop from March’s 5.21 million rate: The Realtors also said: “…Despite the monthly decline, sales have increased year–over–year for seven consecutive months and are still 6.1 percent above a year ago….” True…. But sales were exceptionally weak last spring. The chart and table reveal flat sales for the past two years. Existing Home Sales (Recessions shaded) Existing home sales in millions: 2013 March           4.96 April              4.99 May              5.15 June             5.16 July              5.38 August          5.33 September    5.26 October        5.13 November     Continue reading

About Innovation and Crying Wolf

The Lehmann Letter (SM) See today’s New York Times article by Eduardo Porter, posted yesterday, on America’s precarious perch on the research and development (R&D) peak: “American Innovation Lies on Weak Foundation” Mr. Porter pursues a theme popular 25 years ago: The U.S. is losing the R&D race. Then came the personal computer, the web, word-processing and statistical packages and social media. Microsoft, Apple, Intel, Facebook, Google, Oracle, etc. ended all that talk. So it seems anachronistic that Mr. Porter should pursue that theme once more: “…talk to a scientist in a research lab almost anywhere and you are Continue reading

Housing Starts Jump

The Lehmann Letter (SM) Housing starts, which had been flat at around 1 million for over a year, made a nice upward move in April. This morning the Census Bureau reported 1,135,000 starts at a seasonally-adjusted annual rate: Despite this show of strength, housing starts remain at a historically low level. You can see in the chart that they have risen to a level equal to the trough in earlier cycles. Boom conditions are a long way off. Housing Starts (Recessions shaded) These figures are presented in thousands of homes started, so that 0.9 is shown in its raw Continue reading

Capacity Utilization Still Lagging

The Lehmann Letter (SM) The economy can’t seem to gain industrial traction. On Friday, May 15 the Federal Reserve reported that industry operated at 78.2% of capacity in April as industrial output fell slightly for the fifth month: You can see from the chart that – in past expansions – capacity utilization reached 85%. That wasn’t true before the Great Recession and is not happening today. Capacity Utilization (Recessions shaded) Here’s the recent record. 2013 January        77.4 February       77.8 March           78.0 April              77.8 May              77.8 June             77.8 July              77.5 August          77.8 September    78.3 October        78.2 November     78.5 December     78.4 Continue reading

Weak Wholesale Prices

The Lehmann Letter (SM) Take a look at the lead paragraph of today’s Bureau of labor Statistics producer-price (wholesale-price) report: “The Producer Price Index for final demand fell 0.4 percent in April, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices moved up 0.2 percent in March and decreased 0.5 percent in February. On an unadjusted basis, the index for final demand declined 1.3 percent for the 12 months ended in April.” Wholesale prices fell at a 4.8% (0.4% X 12) rate in April and “…declined 1.3 percent for the 12 months ended in April.” Continue reading