April 11, 2008
February Existing-Home Sales Up, Prices Down
I guess by now the secret is out that the U.S. housing market is a little soft. The February report isn't going to change anybody's mind. The median sales price fell another 2% (actually 1.9%, but who's counting) to $195,900, 8.2% lower than a year ago. Prices fell in all 4 regions of the country. There were 2 positive signs; a slight increase in the number of transactions from 4.89 million to 5.03 million homes, and a reduction in the inventory of homes for sale from 4.16 million to 4.03 million homes. You can see the full report by clicking here, Existing Home Sales, February, 2008.
There are also signs that mortgage-backed securities are beginning to trade again. That's what we need to fix the problem. Don't hyperventilate yet but this report is OK, Dog.
JR
Posted by John Rutledge at 5:35 AM | Comments (1) | TrackBack
April 10, 2008
Initial Unemployment Claims 357K, Down 53K from Last Week
Initial unemployment claims fell sharply this week, reversing out the big jump the week before. In the week ending April 5, initial claims were 357K, a decrease of 53K from the previous week's revised figure of 410K. The 4-week moving average was 378K, up slightly from the previous week's revised average of 376K. You can read the full report by clicking here, Unemployment Insurance Weekly Claims Report.
As I wrote out last week, the big jump the week before was caused by the impact of the American Axle strike, which forced a number of auto assembly plants to close, resulting in 42K layoffs. This week's number, 357K, is based on data collected a week after the layoffs, which gives us a clearer picture of the demand forces at work in manufacturing. The 4 week moving average of 378K is consistent with slow, positive GDP growth but not consistent with the negative GDP growth we would need to be a recession.
JR
Posted by John Rutledge at 11:08 PM | Comments (0) | TrackBack
April 8, 2008
Dubai World launches Web site in Chinese
Interesting article in today's Khaleej Times, Dubai World launches Web site in Chinese. Investors from China and Gulf countries are getting acquainted because there is a real resource complementarity between the regions. And because both have been repelled by the U.S. authorities in recent attempts to invest their vast stocks of dollars. I think the U.S. has triggered the dollar selloff not by increasing the supply of dollars (the monetary base and bank reserves have each grown less than 2% in the last year), but by eroding the demand for dollar assets by showing investors that they will not be allowed to use the dollars to buy assets.
JR
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April 7, 2008
February Consumer Credit +2.4%
Consumer credit increased at an annual rate of 2.4% in February; revolving credit grew at a 5.9% rate, and nonrevolving credit was up 0.4%. You can read the full report by clicking here, FRB: G.19 Release--Consumer Credit--April 7, 2008.
Interest rates on new car loans at banks (7.27%) are down from their peak (7.92%) a year ago, but not nearly as much as the Fed funds rate. Auto finance company rates (5.37%) are substantially higher than they were as recently as December (4.33%). Credit card rates (11.40%) are down a full percent from a year ago (12.57%).
Apparently these guys did not get the memo about Fed ease and falling Fed funds rates. They did get the memo, however, about falling used car prices and rising credit card risk. tough time to have to borrow money.
This report is consistent with slow, positive growth. Reports of the death of the American consumer have been exaggerated.
JR
PS: This report of a +2.4% increase in February consumer credit was brought to you by the miracle of seasonal adjustment. The actual number ($2538.6 billion) is down a little from January ($2555.8 billion), just down less than the normal January-February drop. I am always skeptical of seasonally adjusted numbers. This one too.
Posted by John Rutledge at 4:41 PM | Comments (0) | TrackBack
Egyptian Workers Riot Over Rising Food Prices
Government programs in the US and other countries to force consumers to use ethanol in place of gasoline have led to skyrocketing corn, grain, and meat prices around the world. (The irony--ethanol requires more fossil fuel than gasoline, is more expensive and produces more carbon emissions. Double irony--the US restricts ethanol imports from Brazil.) That's a problem here in the US but it is a disaster in poor countries where food purchases still take one-third of family income. This is producing political unrest in many places. Egypt is the latest victim.
Nearly 40 percent Egypt's 76 million people live below or near the poverty line of $2 a day. The prices of staples such as cooking oil and rice have nearly doubled in recent months, amid widespread shortages of government-subsidized bread.
Thousands of demonstrators angry about rising prices and stagnant salaries torched buildings, looted shops and hurled bricks at police who responded with tear gas Sunday in a northern industrial town as Egyptians staged a nationwide strike. You can read the full story here, Egyptian Workers Riot Over Rising Prices.
150 people were arrested and 80 were wounded in Mahalla el-Kobra, where riots broke out among residents and workers at the largest textile factory in Egypt. Protesters stormed city hall, burned tires in the streets, smashed chairs through shop windows and ran off with computers. At least two schools were set ablaze and facades of banks were vandalized, police said. Nearly 100 others were arrested elsewhere across Egypt, officials said, as thousands skipped work and school and hundreds protested over the rising cost of food and deteriorating working conditions.
The strike and riots in the north came two days before key elections for local councils, causing jitters in the government, which last week lifted import duties on some food items in an effort to soften economic discontent.
The U.S.-backed government strongly warned citizens against participating in the strikes and demonstrations. Strikes and protests are illegal in Egypt, and protesters are often detained by Egyptian security forces.
In an effort to thwart mass protests downtown, the government sent hordes of riot police to many of Cairo's main squares to intimidate people from showing up.
In Mahalla, workers at the Misr Spinning and Weaving Factory initially planned to stage a sit-in Sunday at the mill, which employs 25,000 people. But the sit-in was canceled after hundreds of security forces showed up at the facility and labor leaders said the government promised to pass a law raising the minimum wage. Disgruntled workers and younger activists instead held a protest that turned violent in the main town square later Sunday.
An Egyptian security official said the 2,000 protesters damaged property and hurled bricks, forcing police to disperse them with tear gas. About 50 were wounded in the riots.
JR
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April 6, 2008
Some Truth About Trade
Interesting editorial in the New York Times calling out presidential candidates for using protectionist rhetoric on the campaign trail. You can read the piece by clicking here Some Truth About Trade.
I don't like either party's approach to trade. Overall trade raises GDP and incomes, but it helps some people and hurts others, especially during the period when industries, companies and workers have to adjust to new patterns of production and work. We don't want it to go away. We couldn't make it go away anyway--it is the law of gravity. But we can do things to make the adjustments easier on people. I wold like to scrap all the rhetoric and see a reasoned discussion of how to best live in today's global economy. It's pretty clear to me that we want to get as much capital as possible to (voluntarily) locate in the U.S. And we want to help prepare people for the most productive work.
JR
There’s nothing like international trade to help bridge the nation’s ideological divide. As Barack Obama and Hillary Clinton travel the Rust Belt, the Democratic candidates seem to be eschewing the advice of their economic advisers and turning to Karl Rove’s playbook.
It was Mr. Rove who urged Dick Cheney in 2000 to forget the free trade spiel and promise voters in West Virginia that a Bush administration would protect American steel from cheap imports. “If our trading partners violate our trade laws, we will respond swiftly and firmly,” Mr. Cheney thundered.
Those words seem to echo in Mr. Obama’s attacks against “unfair” trade deals — including Nafta, Cafta and President Bill Clinton’s decision to establish regular trade relations with China. Mrs. Clinton seems to draw inspiration as well, railing to the Pennsylvania A.F.L.-C.I.O. against alleged dumping of Chinese steel: “When I’m President, China will be a trade partner not a trade master,” she said.
Such pandering may play on the stump, especially in Pennsylvania, where workers fear for their jobs as the country’s manufacturing base shrinks. Mr. Bush won West Virginia, only the fourth Republican to do so since 1932. Still, whoever wins in November would be foolish to choose protectionism.
Democrats need to tell voters the truth: First, trade is good for the economy, providing cheap imports and markets for exports, spurring productivity and raising living standards. And second, while trade can drive down some wages and displace some jobs, Democrats have real ideas to help workers cope. Mrs. Clinton and Mr. Obama should base their approach on these ideas. They would not only make sound policy, they would also provide a competitive advantage over John McCain.
Senators Clinton and Obama know protectionism could have disastrous consequences. Do they really want a trade war with China, the United States’ second-biggest trading partner? Would they want to block a global trade accord designed to help the poorest countries?
Strengthening rules on workers’ rights in Nafta would be a good thing to do, on the merits. But it would do little to help American workers compete with cheaper Mexican labor. If a President Obama or a President Clinton were to fulfill their pledge to renegotiate the deal, he or she would quickly find that Canada and Mexico would want changes, too. Immigration reform would most likely top Mexico’s list. And if push came to shove, would either candidate take the country out of Nafta when about a third of its exports go to Mexico and Canada?
American workers need more to help them cope in a globalizing economy. The puny program to help workers displaced by trade needs to be strengthened and broadened to include other workers displaced by economic forces beyond their control, including technology.
Workers need affordable health insurance that will not disappear when they are laid off. Unemployment insurance needs to be strengthened, perhaps to include some form of insurance to shore up the wages of displaced workers who are forced to take lesser-paying jobs. A more progressive tax policy could help redistribute some of the gains of trade accruing to those on the top of the income scale. More investment in physical and human capital — from roads and railways to workers’ lifelong education — would enable businesses and workers to better compete.
Senators Clinton and Obama can offer policies that will help American workers embrace rather than fear a globalized world. American voters certainly deserve a more serious discussion about trade.
Posted by John Rutledge at 5:48 PM | Comments (0) | TrackBack
April 4, 2008
March Employment Down 80,000
(April 4, 2008) - The BLS released The Employment Situation: March 2008 on Friday morning, announcing that the unemployment rate rose from 4.8% to 5.1% in March while non-farm payroll employment fell by 80K jobs. Payroll employment has declined by 232K over the past 3 months. Both average hourly earnings (+0.3%) and total hours worked (+0.2%) increased. The Household Survey showed a smaller job loss (22,000) in March.
The 80K job loss number was not a complete shock. The day before, we saw 407K initial unemployment claims--a big number. It is worth noting, however, that 51K of the jobs were lost in construction due to the housing crunch. And 42K jobs in March were lost as a result of the American Axle strike that shut down a number of auto plants.(The strike was on March 10; the initial claims number was for the week of March 12). Together, that accounts for -93K jobs in March.
Bottom line. Medium ugly but more consistent with modest positive growth than falling GDP. I still think we will see 1%-ish Q1 growth with a pickup after that.
JR
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March 2008 Non-Manufacturing Index (NMI) at 49.6%
(April 3, 2008) - The ISM released the March 2008 Non-Manufacturing ISM Report On Business last week, reporting that the Non-Manufacturing Index (NMI) increased 0.3 percentage point to 49.6 from 49.3 in February. Although both numbers indicate mild contraction (both are below 50) they are a welcome rebound from the scary 44.6 number reported in January. This confirms my suspicion that the January number was hit hard by the change in seasonal adjustment factors they made that month. The figures, taken together, show a flat economy, which would produce a growth number in the 1-1.5% range for the first quarter.
Non-manufacturing business activity increased for the second consecutive month. The New Orders Index increased 0.6 percentage point to 50.2%, and the Employment Index contracted for the third consecutive month, remaining at 46.9%. The Prices Index increased to 70.8% in March, indicating a faster rate in price increases than in February. According to the NMI, 11 non-manufacturing industries reported growth in March. Members' comments reflect concern about rising fuel and energy costs and the impact they are having on commodity prices.
JR
Posted by John Rutledge at 3:04 PM | Comments (0) | TrackBack
Initial Claims Down 9,000 to 366,000
(April 3, 2008) - The Department of Labor released their Unemployment Insurance Weekly Claims Report, announcing that in the week ending March 29, the advance figure for seasonally adjusted initial claims was 407,000, an increase of 38,000 from the previous week's revised figure of 369,000. The 4-week moving average was 374,500, an increase of 15,750 from the previous week's revised average of 358,750.
Note that this report measures initial claims for the week of March 12. That number is inflated because the American Axle strike that shut down a number of auto plants took place on March 10. That makes the number not a reliable indicator of the strength of product demand.
The advance number for seasonally adjusted insured unemployment during the week ending March 22 was 2,937,000, an increase of 97,000 from the preceding week's revised level of 2,840,000. The 4-week moving average was 2,859,000, an increase of 32,250 from the preceding week's revised average of 2,826,750.
JR
Posted by John Rutledge at 3:03 PM | Comments (0) | TrackBack
April 3, 2008
Russia Moves to Limit Foreign Investment
Protectionism is alive and well in Russia too, as you can see in this article Russia Moves to Limit Foreign Investment.
Last year I wrote a paper for the International Finance Forum Journal likening protectionism to the turbulence that is created when fluid flows more rapidly through a cylinder. It is the result of increased velocity in the presence of friction. In the case of protectionism, it is faster global growth and faster capital flows in a world where it is costly for people to change jobs and careers. It is a side-effect of faster growth--a good thing. But we must find a way to manage it by reducing frictions via education, job training and relocation assistance.
JR
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