The U.S. government’s auto trade- in program probably lifted retail sales in August to their biggest gain in more than three years and boosted factory output, economists said before reports this week.
Total purchases climbed 1.9 percent, the most since January 2006, according to the median of 60 estimates in a Bloomberg News survey ahead of Commerce Department figures due Sept. 15. The Obama administration’s “cash for clunkers” plan also helped industrial production in August to its first back- to-back monthly increase since 2007, economists said.
Americans flocked to auto showrooms last month to take advantage of the incentive program while purchases of other items were subdued even as evidence mounts that the worst recession since the Great Depression is ending. With unemployment forecast to reach 10 percent by the end of the year, consumer spending likely won’t lead the recovery.
Cars and light trucks sold at a 14.1 million annual pace last month, up 25 percent from July, according to industry figures. It was the biggest gain since October 2001.
Last month General Motors Co. called back 1,350 union workers, its biggest one-time increase in jobs since 2006, as it ramped up second-half production in part to meet demand linked to the government trade-in program.
The Fed’s measure of production, due Sept. 16, probably rose 0.6 percent, the most since October, according to the survey. The report may also show the proportion of plant capacity in use in the U.S. climbed to 69.1 percent, the highest in five months.
Manufacturing in the New York region posted its first back-to-back monthly expansion since January 2008, economists said before a report due Sept. 15. The New York Fed’s general economic index likely climbed to 15 this month from 12.1 in August, according to the survey.
The housing market also is showing early signs of a rebound. A Commerce Department report due Sept. 17 will show builders broke ground on 600,000 new homes last month at an annual rate, a 3.3 percent gain and the fastest pace since November, according to the survey median.
The world’s largest economy contracted 1 percent in the second quarter, the Commerce Department said last month, the fourth
Temporary Rebound In Consumer Sales Coming Up
by ilene - September 13th, 2009 6:04 am
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Temporary Rebound In Consumer Sales Coming Up
Economists now estimate ‘Clunkers’ Probably Boosted Retail Sales.
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DiggNon-Manufacturing ISM Still Contracting
by ilene - September 3rd, 2009 2:53 pm
Non-Manufacturing ISM Still Contracting
Courtesy of Mish The Institute for Supply Management August 2009 Non-Manufacturing ISM Report On Business® shows the Non-Manufacturing (Service) sector is still contracting.
"The NMI (Non-Manufacturing Index) registered 48.4 percent in August, 2 percentage points higher than the 46.4 percent registered in July, indicating contraction in the non-manufacturing sector for the 11th consecutive month but at a slower rate. The Non-Manufacturing Business Activity Index increased 5.2 percentage points to 51.3 percent. This is the first time this index has reflected growth since September 2008. The New Orders Index increased 1.8 percentage points to 49.9 percent, and the Employment Index increased 2 percentage points to 43.5 percent. The Prices Index increased 21.8 percentage points to 63.1 percent in August, indicating a substantial increase in prices paid from July."
Non-Manufacturing Survey Results
click on chart for sharper image
Even though things are contracting at a slower pace, 12 non-manufacturing industries are still contracting while only 6 are expanding. From the report:
The six industries reporting growth in August based on the NMI composite index — listed in order — are: Real Estate, Rental & Leasing; Health Care & Social Assistance; Transportation & Warehousing; Utilities; Accommodation & Food Services; and Information. The 12 industries reporting contraction in August — listed in order — are: Management of Companies & Support Services; Mining; Finance & Insurance; Arts, Entertainment & Recreation; Professional, Scientific & Technical Services; Construction; Other Services; Agriculture, Forestry, Fishing & Hunting; Wholesale Trade; Educational Services; Public Administration; and Retail Trade.
The most striking thing in the report is the price index soaring from 41.3 to 63.1. Bloomberg discusses the report in U.S. Service Industries Contracted at Slower Pace.
The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, rose to 48.4, exceeding forecasts and the highest level in 11 months, from 46.4 in July, according to the Tempe, Arizona-based group. Readings below 50 signal contraction.
A measure of new export orders rose to 54 from 47.5, while the index of prices paid rose to 63.1, the highest in 11 months, from 41.3. The gain in prices was the biggest 1-month jump since records began in 1997, due to higher energy costs.
Federal Reserve efforts to unlock credit and government measures such as the “cash-for-clunkers” incentive program are reviving
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THOUGHTS ON THIS MORNING’S DATA
by ilene - September 3rd, 2009 1:24 pm
THOUGHTS ON THIS MORNING’S DATA
Courtesy of The Pragmatic Capitalist
Mixed bag of data this morning depending on how you want to interpret things. Retail sales were mixed with discounters performing well and high end retailers performing poorly. The U.S. consumer continues to keep spending under wraps and is very price conscious when they do buy goods and other items. This morning’s retail sales data was another sign that the cash for clunkers is going to detract from sales for months to come. This is by far the most worrisome component of anyone’s v-shaped recovery thesis. The U.S. consumer is simply not coming back as fast as many would like.
Jobless claims continued to trend sideways at 570K. Continuing claims shot higher to 6.23MM. This is continuing bad news for U.S. consumers. 570K claims and 6.23MM continuing are truly remarkable figures for an economy that is supposedly on the mend. This doesn’t bode well for a consumer recovery. Perhaps most alarming is the sideways movement. This likely means we’ll see little to no change in overall job losses tomorrow while the market expects a 10% decline in job losses. Don’t be shocked if we see a figure very close to last month’s 247K….
ISM manufacturing was essentially in-line at 48.4. Econoday reports:
But there are definitely signs of improvement that point to a plus 50 reading for the composite index perhaps as soon as next month. Prices jumped 22 points to 63.1, a gain, especially given flat fuel prices, pointing to rising demand for inputs. Business activity, akin to a production index, showed an actual month-to-month increase in August, up more than 5 points to 51.3. This index on the manufacturing side rose above 50 in June, by the way matching that month’s cyclical pivot higher in total U.S. manufacturing sales.
The composite index attempts to anticipate GDP and these results may temper related estimates which have been climbing to as much as 4 percent for next year. But the coincident indicators in this report — the prices index and business activity index — point to ongoing expansion. Yet the headline was weaker than expected, pushing stocks and commodities lower.
All in all, it’s a fairly worrisome set of data for anyone who believes the consumer is going to rebound to their old habits and save the economy. Thus far, there are little to…
What’s Priced In?
by ilene - September 3rd, 2009 11:55 am
What’s Priced In?
Courtesy of Mish
This morning’s Breakfast with Dave is another good one. Rosenberg discusses the ISM, car sales, housing, and most importantly "What’s Priced In?"
Yesterday was an exclamation mark on just how much is priced in because ISM surged to 52.9 (see more below) and pending home sales soared 3.2% MoM (best level since June, 2007, no less) — though construction spending in June did dip 0.2% as declines in nonresidential and public construction overwhelmed the recovery in the residential sector. And there was also the news that global chip sales rose in July for the fifth time in as many months — by a ripping 5.3% (though still down 18.2% YoY). Not only was the stock market down 2.2% yesterday, but it was on higher volume to boot (+19% on the NYSE) — distribution days are never very good signposts.
As everyone knows, we have been very busy working hard to identify what the markets are discounting in terms of future economic growth and came to the conclusion months ago that the equity rally in particular was leapfrogging the outlook. It’s one thing to price out the recession, which is what a 20% rally suggests, but once you surge over 50% from any low the market is usually in year two of the recovery phase. Even if the economy does better than we think it is capable of, the reality is that the stock market has discounted a whole lot of growth — from our lens, two year’s worth. We can debate the macro outlook, to be sure, but the market does look now as though it is going to sit and wait for the fundamentals that have been priced in to come to fruition.
From a purely technical standpoint, which is beyond our purview but must be addressed since so much of the bear market rally was technically-based, a 50% retracement would imply a corrective phase to 840-850 on the S&P 500, which would imply that the market is back to pricing in a 2.0% growth trajectory for the coming year (precisely where the corporate bond market is in terms of its embedded outlook for growth).
Presently, it is still unclear whether or not we are going to necessarily undergo this correction — so many times in this bear market rally buyers have come in after the type of giveback
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GIVING MORE SCOTCH TO THE DRUNKEN SAILOR
by ilene - September 2nd, 2009 8:49 pm
GIVING MORE SCOTCH TO THE DRUNKEN SAILOR
Courtesy of The Pragmatic Capitalist
David Rosenberg has some concise thoughts on a topic we’ve been banging the drum on for a long time – you can’t solve a debt crisis with more debt:
No wonder we are seeing a housing recovery, and it’s not just about the $8,000 tax credit for first-time buyers. How does the White House possibly allow this extra goodie to expire in November? The FHA is picking up where subprime lenders left off: the agency has seen its mortgage business jump 70% in the past year (!) and its market share in just three years has gone from 3.0% to 23% — it is allowing borrowers to finance up to 96.5% of homes priced all the way up to $729,750. Guess what, the default rate has risen to nearly 7% from 5½% a year ago. And, it is the taxpayer that is going to be picking up this tab … again! So, the policy formula here is that after excessive leverage got us into this mess, is to encouraging even more debt and come to think of it, Cash-for-Clunkers did the exact same thing — enticing people who were probably quite content with their jalopy to take on more than $10 billion of new debt. Amazing. It’s like giving another bottle of scotch to the drunken sailor, but hey — we can’t have the economy weak going into a mid-term election year now, can we?
Source: Gluskin Sheff
August Car Sales Sucked!
by ilene - September 1st, 2009 1:10 pm
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August Car Sales Sucked!
Jeez. Here we were thinking that the auto companies would come out with good numbers today, but that they’d need a big asterisk due to Cash-for-Clunkers.
But nope. They were just bad. Ford (F) missed lofty expectations, and Chrysler’s monthly sales actually showed a dip, when analysts were expecting a gain.
Cash-for-Clunkers sure was a hit, but mainly for the foreign automakers it seems.
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THOUGHT’S ON FRIDAY’S DATA
by ilene - August 28th, 2009 12:57 pm
THOUGHT’S ON FRIDAY’S DATA
Courtesy of The Pragmatic Capitalist
Nothing mind blowing to report this morning. In fact, more of the same – weak consumers, signs of deflation and “better than expected” earnings. Consumer sentiment came in essentially flat this morning at 65.7. This was a slight drop from the last reading, but nothing significant.
The more important news this morning is the personal income and outlays. Personal incomes were flat for the month and fell 2.4% year over year. Consumer spending was up 0.2% for the month and 1.1% year over year. It’s nice to see that people are making less and spending more. All joking aside, the boost in spending was due almost entirely to cash for clunkers which we all know is about the most fiscally irresponsible program this government has ever put together. As I mentioned a few weeks ago, this program has the potential to be highly destructive. Taking out a loan from China to finance a program that encourages consumers to take out a loan to purchase a depreciating asset they likely don’t need….The effect on retail sales should be large, but the government just wants to see the near-term boost in GDP.
The market is rising on good earnings news, however (at least it was when I started writing). Intel raised their guidance, Dell posted horrible (though “better than expected”) numbers and Tiffany’s and J. Crew both posted terrible, but “better than expected” quarters. The analysts are still playing catch-up here and that alone is enough to give the market a reason to jump.
New Bubble Threatens Global Rebound
by ilene - August 24th, 2009 3:53 pm
New Bubble Threatens Global Rebound
Courtesy of Mish
Although Belief In Wizards Runs Deep there are a few free thinkers who don’t see it that way. Andy Xie is one of them. Please consider New Bubble Threatens a V-Shaped Rebound.
In a normal economic cycle, an inventory-led recovery would be followed by corporate capital expenditure, leading to employment expansion. Rising employment leads to consumption growth, which expands profitability and more capex. Why won’t it work this time? The reason, as I have argued before, is that a big bubble distorted the global economic structure. Re-matching supply and demand will take a long time.
The process is called Schumpeterian creative destruction. Keynesian thinking ignores structural imbalance and focuses only on aggregate demand. In normal situations, Keynesian thinking is fine. However, when a recession is caused by the bursting of a big bubble, Keynesian thinking no longer works.
The lifespan of a bubble depends on how it affects demand. The longest-lasting are property and technology bubbles. The multiplier effect of a property bubble is multifaceted, stimulating investment and consumption in the short term. The supply chain it impacts is very long. From commodity producers to real estate agents, it could stimulate more than one-fifth of an economy on the supply side. On the demand side, it stimulates credit growth and financial sector earnings, and often boosts consumption through the wealth effect. Because a property bubble is so powerful, the negative effects of a bursting are great. Excess supply created during a bubble’s lifespan takes time to consume. And a bust destroys the credit system.
A technology bubble occurs when investors exaggerate a new technology’s impact on corporate earnings. A breakthrough such as the Internet improves productivity enormously. However, consumers receive most of the benefits. Competition eventually shifts temporarily high corporate profitability toward lower consumer prices. Because the emergence of an important technology brings down consumer prices, central banks often release too much money, which flows into asset markets and creates bubbles. While an underlying technology leads to an economic boom, the bubble feels real. More capital pours into the technology. That leads to overcapacity and destruction of profitability. The bubble bursts when speculators finally realize that corporate earnings won’t rise after all.
The cost of a technology bubble is essentially equal to the amount of over-investment involved. Because a technological breakthrough expands the
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Retail sales disappoint … again
by ilene - August 13th, 2009 10:22 pm
Retail sales disappoint … again
Courtesy of Tim Iacono at The Mess That Greenspan Made
The Commerce Department reported(.pdf) that, after rising 0.8 percent in June, retail sales fell 0.1 percent in July, disappointing analysts who were expecting a gain of 0.8 percent.
The wildly popular "Cash for Clunkers" program saw motor vehicle sales surge 2.8 percent, but broad declines in other categories pulled overall sales lower, paced by a 2.1 percent decline in sales at home building material and garden equipment stores.
Gasoline station sales also declined 2.1 percent, but this was largely due to lower prices at the pump during the July reporting period.
Excluding motor vehicles and parts, sales fell well short of the consensus estimate of a 0.1 percent gain, down 0.6 percent in July after rising 0.5 percent the in June.
On a year-over-year basis, retail sales are now down 8.5 percent.
The fallout from the bursting of the housing
Interestingly, sales at electronics and appliance stores are down 14.6 percent from a year ago, presumably due to a lagging household appliance sector rather than consumer electronics such as iPhones and iPods which still seem to be flying off of the shelves.
It’s hard to imagine how a bigger bubble than the housing bubble could ever be created as this particular bubble had so many second-order effects on the economy, the area shaded in gray in the graphic above being one of the major ones.
Government Bailouts and the Stock Market – The Seen and the Unseen
by ilene - August 11th, 2009 1:29 pm
Government Bailouts and the Stock Market – The Seen and the Unseen
Courtesy of Mish
Inquiring minds are reading Cash for Clunkers Is Just a Broken Windshield by Caroline Baum. It’s the best trashing to date of the "cash for clunkers" program.
Transferring money from taxpayers to car buyers is a transfer. The money taken from taxpayers can’t be used for something else.
This is the lesson of Frederic Bastiat’s essay, “That Which is Seen, and That Which is Unseen.” Bastiat, a 19th century French political economist, tells the story of a shopkeeper who has to hire a glazier to repair a broken window, providing work and income for him in the process. That’s what is seen.
What is unseen is what the shopkeeper would have done if he didn’t have to pay the glazier. He might have bought shoes for his children, providing income for the shoemaker, who in turn could buy leather to produce more shoes. The glazier’s gain is the shoemaker’s loss. There is no net gain, no job or income creation, from this transaction.
Broken Window Fallacy
The “broken window fallacy,” as it is known, can be applied to all government spending. The $787 billion fiscal stimulus enacted in February transfers money from taxpayers to the government to allocate as it sees fit. The effect of the government’s expenditures shows up as growth in gross domestic product. Auto manufacturers produce more cars to meet the juiced demand, adding to GDP. This is what’s seen.
What is unseen is what would have been produced by the private sector had the government not confiscated future revenue via taxation.
Cash for clunkers requires that trade-ins be scrapped, whether they are fully depreciated or not. How is destroying something good for the nation?
James Hamilton, professor of economics at University of California, San Diego, says cash for clunkers adopts the worst of the New Deal policies and adapts it to today’s circumstances.
The Agricultural Adjustment Act of 1933 “paid farmers to slaughter livestock and plow up good crops, as if destroying useful goods could somehow make the nation wealthier,” Hamilton writes on his blog. “And yet, here we are again, with the cash for clunkers program insisting that working vehicles must be junked to qualify for the subsidy.”
Caroline touched on several key issues. The first is is money taken from taxpayers can’t
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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