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Are We in a Recovery?
- Bank Failures
- Barack Obama
- Bond
- Case-Shiller
- Cash For Clunkers
- Commercial Real Estate
- David Rosenberg
- Double Dip
- Federal Deposit Insurance Corporation
- Gluskin Sheff
- Housing Prices
- Market Share
- Monetary Policy
- New Home Sales
- Personal Income
- Real estate
- recovery
- Rosenberg
- Unemployment
- Unemployment Claims
From The Daily Capitalist
A lot of data came in last week with conflicting indications.
In addition to the raw data I get (from the same sources as everyone else), I review reports from other economists and commentators as well. Some of them I know I will always disagree with, others I highly respect. While I like to keep track of conventional wisdom, I always read the data first and come to my own conclusions before I read what others think. It helps me stay "honest" if you will. Then if I've missed something, I can think it through a bit more.
The reason I am saying this is that one of the economists I respect is David Rosenberg at Gluskin Sheff. His last report (Friday, March 5) was so good that I'm going to quote from it quite a bit. It mirrors a lot of what I have been saying, and he says it quite well and we will all benefit from his analysis.
But first, here's a reprise of recent data:
Residential Real Estate:
[New home] sales dropped 11.2% in January from a month earlier to a seasonally adjusted annual rate of 309,000, the Commerce Department said Wednesday. The decline brought sales to their lowest level since the government began tracking the numbers in 1963. Sales were 6.1% lower than in January 2009. ...
The drop in sales in January triggered an increase in the backlog of unsold new homes on the market, pushing it up to the equivalent of what would normally be sold in 9.1 months versus eight months in December. And the abundance of homes on the market continued to bring prices down. The median sales price for new homes fell 2.4% to $203,500 in January, compared with a year ago.
Prices are the lowest since December, 2003.
The Case-Shiller Q4 report showed housing prices rising for the 7th straight month, although prices declined 2.5% YoY. But ... it has been flattened out for the last quarter.
Commercial Real Estate:
The amount of distressed commercial real estate assets on the books of the nation's banks and thrifts approached $60 billion as of year-end 2009. That is up from $52 billion just three months earlier, a 15% increase. ...
Loans on nonresidential income-producing properties that had been foreclosed on increased from $5.84 billion to $7.05 billion - a 21% increase. Loans on multifamily properties that had been foreclosed on increased from $1.44 billion to $1.75 billion - a 22% increase. Loans on nonresidential income-producing properties that were 90 days or more past due or were in nonaccrual status increased from $37.05 billion to $41.74 billion - a 13% increase. Loans on multifamily properties that were 90 days or more past due or were in nonaccrual status increased from $7.75 billion to $9.39 billion - a 21% increase.
Banks:
The FDIC has announced that they will need to raise money to cover another $20 billion in losses and may sell bonds to do it.
The Federal Deposit Insurance Corporation is bracing for a new wave of bank failures that could cost the agency many billions of dollars and further strain its finances.
With bank failures running at their highest level in nearly two decades, the F.D.I.C. is racing to keep up with rising losses to its insurance fund, which safeguards savers’ deposits. On Tuesday, the agency announced that it had placed 702 lenders on its list of “problem” banks, the highest number since 1993.
Credit remains very tight.
Total assets [i.e., loans] of insured institutions fell for a fourth consecutive quarter, declining by $137.2 billion (1.0 percent). During the year, total industry assets declined by a net $731.7 billion (5.3 percent), the largest percentage decline in a year since the inception of the FDIC [1942].
Employment:
New claims for jobless benefits fell last week, but the number of workers filing first-time claims remains stubbornly high as many employers resist adding jobs in the face of a tepid economic recovery. ... Initial unemployment claims fell by 29,000 to a seasonally adjusted 469,000 in the week ended Feb. 27, the Labor Department said Thursday. ...
[N]onfarm business productivity rose at a 6.9% annual rate during the fourth quarter, higher than the initial 6.2% estimate, as employers got more output from workers, the Labor Department said Thursday.
Employment fell in construction and information, while temporary help services added jobs. Total government employment, including state and local jobs, fell by 18,000. At the same time, the federal work force grew by 7,000, helped by an influx of Census workers, which added 15,000 temporary workers.
President Barack Obama said today’s reports on unemployment and payrolls show the measures the government is taking to spur hiring are working, and he called on Congress to extend aid to the unemployed.
Employment has stabilized in the past several months, but it is important to note that jobs are still being shed. What we are talking about is that the rate of unemployment is going down; employment overall is not rising. The rise in productivity is good for employers: getting as much productivity out of existing employees as they can before hiring new people.
Manufacturing:
The Institute for Supply Management’s (ISM) factory index rose again in January, the seventh monthly increase. The index actually fell to 56.5 from 58.4 in January, but anything over 50 is considered to represent expanding production.
[The ISM reported] incomes rose 0.1 percent, the report also showed, less than anticipated and restrained by declines in interest and dividend payments. Wages and salaries climbed 0.4 percent, the most since April.
The new orders index dropped to 59.5 from 65.9, and the production index fell to 58.4 from 66.2. The employment index rose to 56.1 from 53.3, the third month above 50, indicating that more firms are hiring than shedding workers. The prices paid index slipped to 67 from 70, showing that price pressures are high but easing.
Unit labor costs in nonfarm businesses fell 5.9 percent in the fourth quarter of 2009, the result of productivity increasing faster than hourly compensation. Unit labor costs decreased 4.7 percent from the same quarter a year ago, the largest four-quarter decline since the series began in 1948.
[F]ourth-quarter productivity gains reflected a 7.6% quarterly jump in output which was brought down slightly by a 0.6% increase in hours worked. Inflation-adjusted hourly wages are hurting: They fell 2.8% from the prior quarter.
Spending/Saving:
Personal income increased by 0.1% compared to the prior month, while personal spending climbed by 0.5%, the Commerce Department said Monday. The saving rate in January was 3.3%, the lowest since 2.9% in October 2008 and down from 4.2% in December.
More than three-quarters of the retailers who delivered February results Thursday did better than analysts had expected. Overall, sales at stores open a least a year, a closely watched retail measure, rose 4.1% from the same month a year earlier, according to Retail Metrics Inc.
I believe the current improvements in productivity and employment are cyclical: retailers of products have sold off excess inventory and are carefully restocking shelves, employed people are still buying stuff, at a modest level, manufacturers are ramping up production to meet this demand and are still cutting costs as they strive for efficiency, resulting in a resumption of manufacturing activity. This is why we had a Q4 jump in GDP--mostly from the manufacturing sector.
Some, perhaps a lot, of this activity was due to stimulus money working its way through the economy, Cash for Clunkers, tax credits, and housing tax credits. The h0using market was supported by these credits and Fed purchases of MBS.
With the stimulus money wearing off, and with the tax credits and the Fed MBS purchases cease in April, will the economy sink back into the tank?
I have been forecasting a double dip, commencing sometime in the second half because the fundamental problems underlying the economy have not been cured. I am talking about the debt overhang in the economy: residential real estate debt, commercial real estate debt, and consumer debt. This is why credit is tight. It won't loosen until bank balance sheets are cleaned up. Other than subdued cyclical recovery, there is nothing to sustain growth, organic growth, to the next stage of recovery.
But don't take my word for it. Here are key excerpts from Rosenberg's report:
- If this was a normal monetary policy cycle, then we would be creating 150,000 jobs by now because that is what we usually get 2½ years after the Fed begins to ease.
- [W]hile the headline unemployment rate managed to stabilize at 9.7% compared with consensus views of a modest uptick, the more inclusive U6 measure, which takes into account the overall level of underemployment in the economy, rose to 16.8% from 16.5%.
- The message to Mr. Market is that while there was much to cheer about in terms of the headline payroll number, there is still enough rot in the labour market below the surface that should still be a cause for concern in terms of the sustainability of the nascent economic recovery.
- It could well be that businesses see what we see — a recovery that has been engineered by massive bouts of fiscal and monetary stimulus that is likely to be unsustainable. So, against that uncertain backdrop they are opting to tap staffing firms to skate them for now rather than make a commitment to hire full-time staff.
- We come back to the idea of what happens next? Companies are not deploying their cash for new capital spending growth and instead are focusing on merger and acquisition strategies. Growth through market share rather than organic expansion seems to be the course of action for many companies who understand what the broad contours of the economy will look like in the future in what is likely to be a multi-year deleveraging cycle.
- To get back to full employment, we will need to see 12 million jobs created and here we are still waiting for the losses to come to an end. Until we get there, and it could take anywhere from 5 to 10 years, then expect deflation to be the primary trend in the future. Deflation in wages, rents and credit are hardly the hallmarks of a background conducive to anything other than lower bond yields, an obviously murky fiscal outlook and periodic counter-trend gyrations in market interest rates.
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Cheney says the war will pay for itself ????????????????? how is that going cheney ?????????? taxpayer loves no bid contracts ?????????????????????????
after hitting a brick wall at 100mph in a Kia, the-now quadriplegic driver wakes from his coma ... is he in 'recovery' ?
technically, but....
rosenberg has been wrong for an awfully long time now ............
Looking for the double top at 1148 - 1150 in S&P... then going all in short with stops up at 1175.
Let's make this simple....
You have recovery when tax revenues are increasing....without any increases in taxes....
Are they ?
This is a classic example of how the government, in collusion with big corporations, take advantage of a bad situation. Don't expect any "real" economic upturn until they get everything they want including healthcare and more corporate regulation. More because it insulates the larger sluggish behemoths against the more efficient start up competitors.
Total mismanagement of a free market but perfectly engineered cronyism. If the government was really interested in turning the situation around, it would release the many technologies the public has paid for through NASA and DOD. Instead it chooses to through crumbs.
Better than expected?
Better than expected!
jobless recovery = direct result of exporting American jobs and manufacturing for the last 30 years.
and don't say we didn't try and warn you!
UH... I think Rosenberg just cut-and-paste his stuff from last summer.
Same analysis. Same ignorance (and lack of admission) that everything is WAY better than he forecasts.
He can go sit at the Roubini/Faber/Roach table while the business cycle continues. The light will shine on him again in a few years...
It's the best darned recovery that fiat money can buy.
Too long. Gotta see what Kim Kardashian is up to.
According to Austrian Business Cycle theory, the companies that grew too big during the boom are not going to be the ones who are going to lead the recovery, since their specialty is producing goods that have been oversupplied. It's therefore sensible for them to cut down staff and merge with similar struggling companies.
A real recovery cannot come from the same companies that went bust. It has to come from new small businesses.
The problem is: who wants to take the risk and go into hock to open a new small business when you have no earthly idea of what's coming down the pike!
That is why the first stage of a recovery is a return to profitability.
I see us barely having any GDP growth in Q2 (1% or less final revision) and officially going negative in Q3 of this year.
I didn't read any of this on Yahoo Finance.
Good article - Funny how the unemployment number is spun like we went from 500000 weekly to a little undr 450k per week like its good news - a little under half a million losing their jobs every week for 2 years is good news . You have to wonder if the number is declining because there are now less people to fire ???
What's that Demotivator? "Sometimes the best way to improve morale is to fire all the unhappy people." Something like that.
Excellent as always!