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.

Stock Rally in Beginning of Month Ignored Economic Reality

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.


U.S. stocks had an impressive rally the first four days of the month and this is generally a bullish indicator.  The rally took place with a backdrop of really ugly economic news however and that is not bullish. Weakness has a way of coming back to haunt the market as European bank news is demonstrating today.

U.S. economic reports for the last few months have been generally bad to awful. Nothing changed last week. While the ISM manufacturing index went up, this supposedly occurred because of a big increase in manufacturing jobs (the inflation component of the report was the actually the biggest gain, but the mainstream media somehow didn't report this negative news). This gain was not corroborated by the government's August employment report, which showed a drop in manufacturing jobs, nor by anecdotal evidence or anything else taking place on the planet earth. The stock market of course rallied strongly on the news.

The ISM non-manufacturing index, which measures the almost four times bigger service sector, didn't get nearly as much media coverage. It barely remained in positive territory. The inflation component, also the highest number in this report, was chiefly responsible for the number not going negative and indicating contraction.  Two components of the report were clearly in contraction however - exports and employment. The service sector losing jobs is a big negative for the overall U.S. economy.

Also lost in the stock buying frenzy was August car sales. They were down 21% year over year. This followed the 27% monthly drop in existing home sales in July and the 33% drop in new home sales in May. Last August was the peak of the Cash for Clunkers program. The numbers for car sales and home sales both demonstrate what happens when government incentives are no longer available in a market. While new homes sales fell to the lowest level ever recorded, August car sales were only at a 28-year low. For those who don't recall, 1982 was when the previous double-dip recession took place.

Government stimulus programs didn't fix the housing and car markets, but merely made them look better. This works for a while, but reality eventually rears its ugly head. A report from Europe today said that "the continent's major banks have more potentially risky government debt on their books than was disclosed during stress tests earlier this year." This wasn't exactly a piece of information that required the skills of Sherlock Holmes to uncover. At the time of their release, the stress tests were roundly criticized as being a phony PR gambit that set the bar so low that any bank not declaring insolvency in the next week would pass. Stocks of course went up on the news back then and today they are going back down.

Economic reality will eventually be reflected in the stock market. As I have said many times however, it's not the economy that drives the stock market in the short term, but liquidity. The Fed obviously kept pushing the 'flood the financial system with liquidity' button in early September. What happens when they stop doing this? See the homes sales and car sales numbers for a hint of how stimulus withdrawal impacts a market.

Disclosure: No positions.

Daryl Montgomery
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.

New Homes Reveal Old Problems With Government Statistics

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 U.S. New Home Sales report released on December 23rd indicated a drop of 11.3% in November. Analysts had expected a gain. According to the previous Commerce Department reports, new homes sales had risen every month since April. They were expected to rise again in November because a government tax credit for new home buyers was originally scheduled to end in the beginning of the month (it was extended to June 2010), so analysts had assumed that there would be a rush of last minute buyers. There may have been and without them the drop might have been much greater than 11%.

New Home Sales is almost certainly the most inaccurate of the economic reports issued by the U.S. government. I can say this with some certainty because it would be almost impossible to produce something more error ridden. One of the major news services stated in their coverage of the November report, "Government statisticians have low confidence in the monthly report, which is subject to large revisions and large sampling and other statistical errors. In most months the government isn't sure whether sales rose or fell." Read that last sentence again and then consider that if the U.S. government is willing to issue an official report on housing that is about as accurate as picking numbers randomly out of a hat, how much can you trust the GDP, CPI, PPI (the two major inflation reports) and Non-Farms Payroll reports. Also note that the mainstream financial media seems to be well aware of the lack of reliability, but doesn't mention it except on very rare occasions when the news is particularly bad.

If the New Homes Sales report is so prone to inaccuracy why not just fix the problem? This is indeed a good question. The statistical tools to make this report better have been known for decades and yet the U.S. Commerce department doesn't seem to be able to apply them. It can be assumed that this isn't done because they don't want to do it. Statistically sloppy work is extremely prone to manipulation after all, solidly done work is not.

When confronted with this problem, you will get a more accurate picture of what is taking place by looking at many months of data in aggregate and comparing it to the previous year (the errors will cancel out at least to some extent). In the first 11 months of 2009, new home sales are down 24% from the first 11 months in 2008. Inventories have been falling throughout 2009 and are now at 38 year lows. The number of homes under construction or planned for construction have fallen to a record low. If new home sales were rising between April to October as the Commerce Department reported, why are home builders building fewer and fewer homes? That doesn't look like an industry in recovery as the public has been repeatedly told. For some reason, we seem to have gotten a glimpse of the true state of the housing market in the November New Home Sales report. Perhaps the guy in charge of producing cheerful statistics was on vacation? Somehow, I'm sure he'll be back soon.

Disclosure: Not relevant.

NEXT: Investing Themes for the Next Decade

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.

No Recovery in Jobs

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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The Jobs Report was out this morning and it contained little evidence that an economic recovery was taking place with a loss of 216,000 jobs in August. The headline unemployment rate jumped to 9.7% (a 26-year high), while the alternate figure which includes discouraged and involuntary part-time workers rose to 16.8% (the highest since this number has been published). This was the 20th month in a row that there has been a loss of jobs. U.S. employment in the private sector is now lower than it was in 1999.

Revisions in June and July's numbers indicate an extra 49,000 jobs were lost in those months. It is quite likely downward revisions will take place for the August number as well, which is based on a survey of businesses. The separate household survey (which is much more accurate because it is a large random sample) indicated that 392,000 jobs were lost in August and unemployment rose by 466,000. The only industry group in the private sector to add jobs in August was health care. It has consistently added jobs during the entire Credit Crisis.

Weekly claims to collect unemployment insurance came in at 570,000 this week. This is still well above the 400,000 level that indicates a recessionary economy. A true economic recovery would lower this number well below 400,000 and keep it there. Many American workers are not eligible for unemployment, so when they become unemployed they don't show up in the weekly claims or total numbers receiving jobless benefits. That number has reached 6.23 million and while rising lately has had some dips because a number of unemployed have exhausted their benefits and are no longer included.

As bleak as these figures are, the mainstream media managed to put a positive spin on them because the total job losses came in slightly better than expectations (the unemployment rate was worse though). News articles for some time have indicated that a 'jobless recovery' would be taking place. A jobless recovery is an oxymoron and there is no such thing. This only first appeared after the early 1990s recession was supposedly over. It appeared again in the early 2000s. Why at these times and not before? The government started making major statistical 'improvements' to the GDP numbers and related figures in the 1980s and followed up with more in the 1990s. After this was done, it was possible for the economic statistics to have a recovery despite what was happening in the real world. Only when employment starts increasing and job gains become consistent will the recession actually be over.

NEXT: Gold Breaks $1000

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.

Brother, Can You Spare a Job?

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:

The employment report was released this morning and the news can only be described as devastating. There was a loss of 533,000 jobs in November, the most this year so far. This was also the biggest drop in 34 years, when 602,000 jobs were lost in December 1974. On top of November's reduction in jobs, September and October was revised sharply downward with losses those months much worse than initially reported. Despite the large drop in jobs, the official unemployment rate rose only to 6.7% last month from 6.5% the month before. Unemployment would have been even higher if government statisticians hadn't decided that 422,000 people had left the labor force. Still, even this 'modified' figure is at a 15-year high.

The unusually low reported unemployment rate isn't the only thing in the report that should make you suspicious either. It is obvious that the government grossly and conveniently underestimated job losses before the presidential election where the state of the economy was a major issue damaging Republican electoral prospects. The September figures were the last ones reported before the election. Initially, there was a loss of 159,000 jobs, which is pretty bad, but not nearly as bad as what really happened. Right after the election, this number was revised downward to a loss of 284,000 jobs. In today's report it was revised downward further to a loss of 403,000 jobs. Total yearly jobs losses reported before the election were 760,000. Today that number is being reported as 1.9 million - a rather steep increase and much more dismal picture than voters were given just one month ago when they went to the polls.

Job losses last month were widespread, hitting factories, construction companies, financial firms, retailers, leisure and hospitality, and others industries. Nevertheless, there were job gains in government, education (mostly government as well) and health care. Every bad employment report this year has in fact shown an increase in government employment, even though many states, local governments, and school districts are severely strapped financially. If you extrapolated these increases out, you would also see that they indicate in the long-term we will all be government employees. For some reason, I have trouble finding them credible.

All in all it can be said that the deteriorating employment picture is the result of two factors. First, the U.S. economy is indeed falling apart and already in deep recession. Secondly, a lot of deterioration in the employment picture that is being reported now, has actually taken place over the last several months. The U.S. government is just admitting the truth. Of course, the past figures may be somewhat worse than even what we have been told so far.

NEXT: Tribune Bankruptcy Has it All

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.