March Consumer Confidence and the Housing Market

 

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

The Conference Board's March Consumer Confidence number came in at 70.2 this morning. As has been the case for the last four years, hope for a better tomorrow is holding the number up. It certainly wasn't the real estate market, which has been shown to be weak once again.

A healthy consumer confidence number is 90 or above. This number has not been this high at any point since the "recovery" began in mid-2009. It has instead ranged between a deep recession level in the 40's and a milder recession level in the 70s. What has caused repeated rises and falls in the number are changes in the Expectations sub-component. How people view current conditions has remained dismally low.

This is how it works. Consumers are bombarded with stories from the news media about how the economy is heading up and then they are asked if they think the economy will be better in six months. Not surprisingly, many answer yes and this causes overall consumer confidence to rise. As the months go on and they don't see any real improvement they become more pessimistic and they don't  think things will be better in six months and then the number falls. This scenario has played out multiple times in the last three years.

Expectations for a better future zoomed to 88.4 in February, but fell back somewhat to 83.0 in March.
The Present Situation Index, however, was a very poor 46.4 in February, but rose to 51.0 in March. While these numbers are not good, they are much better than some Present Situation numbers during the "recovery" year of 2011. Those were at depression levels. The worst number last year however wasn't the Present Situation one, but the Jobs Are Plentiful reading. This was statistically indistinguishable from zero at one point. Since negative numbers are not possible in the report, the reading has not gotten worse.

There have been two running news stories since the beginning of 2012 that have buoyed the consumer confidence numbers — an improving employment situation and a recovering housing market. Both of these may prove to be illusory. The hype about the real estate recovery is already starting to unravel. 

U.S. home prices dropped for the fifth month in a row in January according to the S&P/Case-Shiller home price index. They are now down 34.4% from their highs in July 2006. The National Association of Realtors has reported that existing home sales slipped 0.9 percent in February to an annual rate of 4.59 million units. As for pending contracts, a whopping 33% were canceled last month. While many have pointed out that home sales were much better in February 2012 than they were in February 2011, they usually neglect to mention that most of the U.S. was snowed in last February and this February was one of the warmest on record. The real recovery seems to have been one in the weather.

The sharp differences in weather from year to year can impact any economic statistic that is seasonally adjusted. The employment numbers are in this category. They may have been juiced up by a warmer winter as well. If so, U.S. consumers will start to become less hopeful about the future as they have before and the confidence numbers will start drifting down later this year.

Disclosure: None

Daryl Montgomery
Author: "Inflation Investing - A Guide for the 2010s"
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. There is no intention to endorse the purchase or sale of any security.

U.S. Economy Continues to Deteriorate Despite 'Recovery'

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


A number of economic reports in the last few days indicate that the U.S. economy has not only not failed to recover from the recession, but continues to fall deeper into a hole. Banking, consumer confidence, employment numbers, durable goods and the housing industry - each representing a different aspect of the economy - are all sending out troubling signs. Despite the onslaught of negative data, mainstream economists continue to echo the official U.S. government view that "the recovery is still on track".

Updated statistics from the FDIC indicate that there were 702 banks on the troubled list as the end of 2009. This is an increase of 27% from the third quarter. FDIC numbers also show that U.S. banks cut lending by 7.5% in the fourth quarter of last year. Since lending is the lifeblood of the economy this doesn't bode well for the future. The FDIC also had to put aside an additional $17.8 billion for future bank failures. Its deposit insurance fund is now at a negative $20.9 billion. Despite statements that it has enough cash to keep operating (Bear Stearns and Lehman Brothers made similar claims), it is only a matter of time before the FDIC is bailed out. This will take place before the end of the year and will be done by tapping a line of credit from the Treasury department. Expect this event to be downplayed by mainstream media reports with claims that it is not really a bailout.

While the U.S. banking system continues to dissolve, consumers are losing confidence in the economy. The Conference Board numbers for February fell a whopping 10.5 points to 46 (around 100 is a good number). The present situation subindex fell to 19.4, the lowest level since February 1983 when the U.S. was trying to recover from a severe double dip recession. Before the Credit Crisis, consumer spending represented 72% of the U.S. economy. Without their participation, a sustainable recovery is not possible. Other reports indicate there is no way in the near future that consumers can resume their vital economic role. Consumers not only don't have credit, credit card debt was dropping at close to a 20% annual rate at the end of last year, but they are worried about the job market as well.

The weekly jobless claims indicate why the job picture is still troubling. Initial claims were up 22,000 last week to 496,000 (a number around 400,000 indicates recession and 300,000 indicates a healthy economy).  These numbers are highly volatile because they come from state unemployment offices that are notorious for backlogs in processing the claims. This problem occurred during the holiday season and the claim numbers were consequently lower. The mainstream media then fell all over itself to report the tremendous improvement in the employment picture, instead of the real story of bureaucratic incompetence that was preventing accurate numbers from being produced.  Market watchers usually only pay attention to the four-week moving average to get around this problem. This number has risen by 30,000 to 473,750 in the last four-weeks.

The just released Durable Goods report got major headlines about how bullish the number was. This is only the case as long as you don't look at the details of the report. Responsible for the good headline number was a 126% increase in civilian aircraft orders (these orders can be cancelled by the way). Outside of transportation, orders fell 0.6%. Core capital equipment and machinery orders dropped 2.9% and 9.7% respectively. These two numbers are the important ones that determine the direction of the economy. For all of 2009, durable goods fell a record 20%.

Finally, housing doesn't look like it is in recovery mode either. Housing was the epicenter of the Credit Crisis and it will be years before all the damage wrought by the bubble will be worked out. According to the Mortgage Bankers Association, mortgage applications for home purchases have just fallen to a 13-year low. New home sales in the U.S. fell to the lowest level on record in January (records go back almost 50 years). Government nationalized Freddie Mac reported it lost another $7.8 billion in the fourth quarter. That brings its total loss to $25.7 billion for all of 2009. Freddie Mac purchased or guaranteed one in four U.S. home loans in 2009. The Obama administration has promised a blank check to Freddie along with its companion housing entity Fannie Mae, also nationalized and bleeding money, to cover losses up until 2012.

This is little evidence that the U.S. economy has recovered from the recession or is going to recover from the recession any time soon. The support for the recovery viewpoint comes from government statistics that have been highly manipulated. All governments of course want to present a rosy picture of their handling of the economy for political reasons and it is much easier to make the numbers better than it is to actually make the economy better. Eventually the public catches on to this game however. The recent consumer confidence numbers indicate that the American public is no longer buying the public relations story, but is starting to pay more attention to the realities they have to face on a day to day basis.

Disclosure: No positions

NEXT: The Impossible Contradictions of U.S. Consumer Spending

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Japan Climbs Out of Recession...Again

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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Japan's second quarter GDP figures were released last night and indicated the economy grew by 3.6% on an annual basis. This was after a 14.2% decline in the first quarter. What caused the turnaround? 'Government stimulus measures' as usual were cited and a big increase in export growth. Internal demand remains incredibly weak. Japan joins Germany and France, which also climbed out of recession thanks to government stimulus measures. The United States, the king of government stimulus measures, is predicted to join them in the third quarter.

This is not the first time Japan has 'recovered' from or avoided recession thanks to government stimulus measures. This also happened in 1993, 1997, 1998, 1999, 2001, 2004 and now after the 2008/2009 recession. Japan is very good at recovering from recession. The only problem is that it is even better at falling into recession. Insolvency of the banking system - the current problem in the U.S. is almost identical - is what has caused the two-decade economic nightmare. Residential real estate in Tokyo lost 90% of its value from the bubble top. Top A level commercial properties declined 99%. So far the stock market had a 18 year sell-off there after bottoming last October (assuming it doesn't go lower again). The Nikkei fell 3.1% last night. Hong Kong was down 3.6% and Shanghai down 5.8%. Apparently the good news wasn't good enough.

Problems in the market began last Friday, when U.S. Consumer Confidence suddenly dropped. Economists had predicted it would be going up. Imagine, consumers are becoming less confident even though unemployment is likely to be a major problem for at least another year (by economists own admission) and their income is likely to continue to fall. Who could have predicted that not having a job or money would make consumers less confident? Certainly not U.S. economists. And how are consumers going to increase their spending under such circumstances? Obviously they aren't going to. So much for the 72% of the U.S. GDP (based on 2008) that consumer spending is responsible for getting better. Nevertheless, I have little doubt that U.S. GDP will be positive next quarter - although people who insist on dealing with reality will have trouble understanding how this occurred.

The stock market was buoyed when second quarter U.S. GDP was released a couple of weeks ago. It was a major surprise that the decline was only 1.0%. What caused this better performance? Nothing involved with consumer spending or industrial production (although there were claims that the auto industry was doing better - try not to laugh). Government stimulus measures were the key. Federal government expenditures were up 10.9% in the quarter and state expenditures were up 2.4%. How state expenditures were up when at least 20 states are facing major budgetary problems is not clear. Like Japan though, as long as the U.S. keeps up the government stimulus measures, it will be good at climbing out of recession. It will probably be able to do so over and over and over again in the next decade or two.

NEXT: Monday's Ugly Market Action

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

A Recovery Reminscent of 1990s Japan

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

Economists are predicting that the U.S. recession is over or will be soon. A Wall Street Journal survey found that 57% of economists think the recession is already over. Another 23% think it will end this month or next. Their predictions for GDP growth in the third quarter are currently around 3% and range as high as 6%. Nevertheless economists are not predicting that the employment picture will be improving anytime soon or that incomes will rise. They make it clear that the recovery means "things are less bad than they were previously" and "this is definitely a recovery that only a statistician can love". Statistics are indeed one of the few things that will be manufactured while the blossoming 'recovery' takes place.

The big areas of the economy are still not doing well, even in the statistics. Retail sales surprised economists yesterday when they fell 0.1% in July. Economists had predicted they would rise 0.7%. The key to the 'improvement' was the government's cash for clunkers program which is revving up the auto industry (you should ask yourself, what is going to happen to the auto industry when this program stops?). Indeed it did, but not enough to turn retail sales positive. Excluding autos, retail sales were down 0.6%. General merchandise sales were down 0.8% and department store sales down 1.6%. Yeah, consumers are spending again all right. Consumer spending is 70% of the U.S. economy.

CPI was out this morning and prices were supposedly down 2.1% year over year. Responsible for most, if not all of the drop, were energy prices which were down more than 28%. Oil peaked last July at $147 a barrel, then dropped sharply until hitting $33 a barrel in December. Going forward the current oil price compared to last years is going to turn from a huge drop into possibly a big gain. Expect CPI figures to start rising in the fall as a result.

The industrial production figures are out later this morning and after dropping 17 months in a row are expected to be up. While this is hardly surprising, expect the press to claim it indicates recovery. This is like saying a stock that dropped 17 days in a row and then goes up on the 18th day is rallying.

New numbers were released this morning on the real estate market. At the end of the second quarter, 32.2% of all U.S. mortgaged properties were under water. This unbelievable huge number was actually down slightly from the 32.5% at the end of the first quarter. The real estate industry declared that this was "great news". While all of these mortgages are potential future foreclosures, it is currently predicted that the U.S. foreclosure rate will peak at only 4%. If the U.S. government pays off the mortgages for the other 28%, and I wouldn't put it past them, this could happen.

Essentially any good GDP numbers will be the result of government injections into the economy. This is like a company that borrows a million dollars including the million dollars as part of its earnings. Government boosting of GDP on borrowed or printed money should not be included in the figures (don't assume that reform is ever going to be made). In these circumstances, when the programs that boosted the economy end, GDP falls right back down. This is exactly what happened in Japan in the 1990s and early 2000s. The economy stayed in the doldrums for two decades.

NEXT: Japan Climbs Out of Recession ... Again

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.