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The Week's Economic Reports
Saturday, February 10, 2007
Following is a summary of last week's economic reports. In a week very thin on news about the economy, rising quarterly productivity was about the only highlight. For the week, the S&P 500 Index declined 0.7 percent to 1,438 and the yield of the 10-year U.S. Treasury note fell 4 basis points to 4.78 percent.
ISM Services Index: The non-manufacturing index from the Institute for Supply Management rose from a downwardly revised 56.7 in December to 59.0 in January. Shrinking inventories, a sign of healthy consumer spending, was the primary contributor to the monthly increase that now puts the index at a nine-month high. The services index is faring much better than the manufacturing index from the ISM - as indicated a week ago, the manufacturing index now shows contraction during two of the last three months.
Productivity and Labor Costs: Productivity in the fourth quarter rose at its fastest pace since the first quarter of 2006, up 3.0 percent after a downwardly revised 0.1 percent decline in the third quarter. Labor costs rose less than expected, up 1.7 percent after an upwardly revised 3.2 percent increase in the third quarter.
For all of 2006, unit labor costs rose 2.8 percent while productivity increased 2.1 percent. The productivity gain last year was the weakest showing since 1997, causing concern over the long-term trend in this important statistic.
Consumer Credit: Consumer credit rose by $6.0 billion in December following an upwardly revised total of $13.7 billion in November. The December increase breaks down as $5.4 billion in nonrevolving credit (e.g., automobile purchases) and $0.6 billion in revolving credit (e.g., credit card use).
Summary: This was one of the lightest weeks for economic news in recent memory. Except for the quarterly rebound in productivity amid slowing annual gains, it was also one of the most uneventful as well.
The Week Ahead
The week ahead offers a full slate of economic data highlighted by two reports on housing - the homebuilders' housing market index on Thursday and housing starts on Friday. Also on tap are reports on international trade on Tuesday, retail sales and business inventories on Wednesday, industrial production and two regional manufacturing reports on Thursday, and wholesale prices on Friday.
Chart courtesy of Northern Trust.
On an unrelated note, it was a bit surprising to see the lead story at the weekend edition of Yahoo! Finance on the subject of avoiding foreclosure.
Not more than a few months ago, Kendra Todd (of The Apprentice fame) was in this spot talking about how silly all the real estate bubble talk was.
7 comments:
Trump and his minions are a clear contrarian indicator.
The productivity increase (or lack thereof) is an interesting, foreboding thing. Dean Baker has been on this story.
In sum, the way modern economists measure economic progress, productivity is key. If productivity lags inflation, we're screwed. Of course, it actually has lagged "true" inflation for a long time now, but the effect has extended into even the massaged numbers. They can't hide it anymore.
I predict the "economic reports" next week will be overshadowed by the realization that the entire housing market is going to gap down 10-30%.
When the housing bubble bursts, we'll all pay
Not to gloat, but "I told you so" - about two years ago, if I remember correctly. Today, nearly one in four mortgages (23.8 percent) in the Vallejo-Fairfield area are expected to be in foreclosure. That's a 405 percent increase since the 1998-2001 rates of 4.7 percent and the highest in the nation. Ain't it great to be Numero Uno?
Remember the slides from the presentation I gave back in 2005 regarding foreclosures in the last six months of 2004? I only wish that I could predict the outcome of horse races and stocks as well as this. Unfortunately, horses and stocks are pretty much based on chance, not stupidity, which makes it much easier to detect and predict the outcome.
My biggest concern is how much will the bailout of the stupidity and greed in the lending industry cost us taxpayers for the rest of our lives - and our descendants' lives? There are billions of dollars in bad paper floating around out there that will eventually end up in some sewer farm to be paid off by us. We are still paying off the bailout of the Lincoln Savings & Loan collapse, which was totally caused by fraud on the CEO's part.
And, by the way, Allen "Everything is Wonderful" Greenspan was a Lincoln financial consultant
who pronounced its financial status as excellent just months before the scandal broke. His next job, of course, was chairman of the Fed, probably based on his excellent resume.
Thank you, Mr. Greenspan, for rescuing us from the "Internet bubble" by creating a "housing bubble" that we will pay off for generations - unless China forgives our debt in return for ownership of the United States. Better have our children practice their Chinese.
Last year I relocated to Moab, Utah, and when I returned to Vacaville for the holidays, I noticed, but was not surprised by, the city's new "strip mall," that was supposed to be the resurrection of the Nut Tree, with a conference center, hotel, etc.
Funny how predictable these things are. Project promises and deliveries are rarely even identifiable as coming from the same developers and politicians who originally proposed and approved them. They are just quietly swept under the rug in City Hall, where they are trampled in the endless quest for more, bigger, better, until there is no more and my hometown is just another asphalt wasteland.
Thanks for letting me vent. Unfortunately, this tragic comedy is only just beginning. No one knows what Acts II and III will bring.
Bud F. Turner, Moab, Utah
You can already see the "gap down" at Zillow for December and January sales (at least where I've been looking out here in California). Sales data is always weird at this time of year, but if you look at the most recent sales for a familiar neighborhood, you can see prices paid dropping significantly.
Today I told a relative looking to sell a couple properties that there would likely be no "spring rally" this year.
We spent that in December.
And now, we have the spring non-rally plus the vanishing subprime, Alt-A, no-doc, neg-am buyer contingents to deal with.
I checked Zillow; you're right -- down more. Another 3% haircut in the last two months on a family property that had already dropped 10% since last Sept. Ouch.
I still have a friend who considers real estate a hedge against inflation! (Because it's a "real asset", after all!)
We might not have a spring rally, but there will be a rally.
As the level of pain increases on those who have borrowed too much (i.e. most Americans) the level of pressure that Congress exerts on the Fed will also increase. It is only a matter of time before the weak Fed caves and slash rates dramatically there by reinflating the housing bubble.
The smart thing to do is to wait a few more months (6?) as prices decline, then buy some real estate before rates are cut dramatically.
Doing this will allow one to get in at a relative low point, refinance after a little while to lock in a lower rate for the life of the loan, and then also allow the Fed to inflate away the real value of your loan as opposed to letting it inflate away the real value of your savings (assuming they are in dollars).
Please post any comments or holes that you see in the logic of this gameplan.
Fed or no Fed, there will be no such thing as a reflation of the housing bubble. Get out and get into something safe. The only choice is how fast to cave the currency. Too fast and you have run away inflation expectations (hyperinflation). Too slow and you will get Al's cascading cross defaults. Wild card is how much is ROW willing to see their currencies strengthen relative to USD.
re: the rally
don't count on higher home prices this year or next....this is probably just the beginning of the price correction irregardless of where interest rates go....look for a bottom in about 2011, when everyone is disgusted at the housing market
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