Friday, September 28, 2012

It's The Economy Stupid: Getting Personal

Personal Income was lower than expected.  Kind of like my paycheck.

 

Personal Spending came in as expected and slightly higher than the last reporting period. Kind of like my checking account. 

 

Personal Income

AUG

0.2%

0.1%

0.3%

 

Personal Spending

AUG

0.5%

0.5%

0.4%

 

PCE Deflator MoM

AUG

0.5%

0.4%

0.0%

 

PCE Deflator YoY

AUG

1.5%

1.5%

1.3%

 

PCE Core MoM

AUG

0.1%

0.1%

0.0%

 

PCE Core YoY

AUG

1.6%

1.6%

1.6%

 

 

 

It's Always the Economy, Stupid

By DANIEL HENNINGER

The Wall Street Journal

September 27, 2012, Page A17, Opinion Section

-       Barack Obama wants to talk about his windmill economy. Next week's debate should discuss the one we've got now.

 

'Stupid," in the famous quotation from 1992's Clinton vs. Bush campaign—"It's the economy, stupid"—is whoever thinks a U.S. presidential election is about something else. All presidential elections are about the economy. Yes, there are other issues, but it's also true that a whale has pilot fish. Still, most politicians would rather talk about anything but the economy, which they see in one of two ways—as a personal piggy bank or a mystery. Neither is discussable in public. This is the sixth presidential election since "stupid" was first identified, and nothing has changed.

 

Barack Obama has reduced the whole economic record of his first term to one word: Bush. He's talking about the next U.S. economy, in which, he says, some people will be making windmills. Or capturing the rays of the sun.

 

His rebooted challenger, Mitt Romney, led an audience in Nevada last week through his plan to revive the economy. Mentioned first, and so presumably most important, he'd pursue "energy independence." Second most important: Crack down on trade "cheaters." That would be China, which is a long way from Vegas.

 

Next Wednesday night, these two will be hauled onto a stage in Denver for their first debate on "domestic issues," a euphemism for the economy. Nothing—and that includes Jim Lehrer—can make these two talk about the economy as it's understood by the average American voter. But the odds are Mitt Romney will talk about it and Barack Obama won't.

 

Mr. Obama will stay on message in Denver, redirecting his opponent and interrogator to the economy before he was president (or even in politics)—"challenges that have built up over decades"—and about the wind-driven economy that will exist after he's re-elected. But not about the economy in between. If this were an episode of "Homeland," Mitt Romney's first question to his evasive competitor would be: "Mr. President, what are you hiding?"

 

It's true, as Mr. Obama argues, that the numbers of unemployed Americans began to rise abruptly after September 2008 when the financial crisis erupted, and that the president's name then was George W. Bush. What Mr. Obama won't say is that the financial crisis resulted from the implosion of a housing market transformed into a toxic landfill by Congress, regulators, Fannie, Freddie and mortgage packagers. The Bush presidency was a bystander.

 

Also left unsaid by Mr. Obama but free for the telling by Mr. Romney is that as the U.S. unemployment rate hit 9.5% in June 2009 and a shocked public was looking for a response, the new president introduced the Affordable Care Act. Whatever else one may say about ObamaCare, it has nothing directly to do with U.S. employment. For the next nine months, as unemployment ran between 9.5% and 10%, Congress at Mr. Obama's insistence worked on his health-care legislation. When Mr. Obama signed the bill into law in March 2010, the unemployment rate was 9.8%. If an opponent wanted to describe this in partisan terms, he might say that the president legislated an entitlement dream while the economy burned.

 

Last Sunday in his "60 Minutes" interview, Mr. Obama referred vaguely to "some emergency actions" he took to deal with the post-2008 economic crisis. His primary emergency measure was the $831 billion stimulus bill, which was written by House Democratic committee chairmen and passed in February 2009, a few weeks after his inauguration. As a partisan might put it, the Obama-Pelosi stimulus was a fire-and-forget ballistic missile shot into the economic ozone. Even today, no one knows where the stimulus landed. There was also cash-for-clunkers.

 

In 2009, Mr. Obama's economic forecasters said the economic growth rate would be 3.2% in 2010 and 4% each year the rest of his first term. That would have been great. Even partisans would have been happy with 4% growth. That is closer to the average U.S. growth rate of 3%, which, as the politicians say when claiming credit, made America strong.

 

We didn't get that growth rate from 2010 to 2012. Instead, it has averaged just above 2%. In the first quarter of this year, growth dropped below 2%. In the second quarter it fell further to 1.5%. That Barack Obama simultaneously was president is a coincidence.

 

In May 2010, someone in Washington decreed a moratorium on deepwater oil-drilling in the U.S. The unemployment rate that month was 9.6%.

 

In July 2010, Mr. Obama signed the Dodd-Frank Act, which he said would prevent Wall Street from ever "writing its own rules." Or doing much of anything productive. The unemployment rate then was 9.5%. A year later it was 9.1%.

 

In August 2011, Standard & Poor's released its historic downgrade of U.S. debt. It's hard to remember who was president then, but the unemployment rate was still 9.1%.

 

U.S. unemployment is now flatlined at 8%, at 17% for young workers and at infinity for everyone who has given up looking for a job during the nearly four years Mr. X has been president.

 

This isn't George Bush's economy. It isn't the windmill economy. It's the economy we've got right now. With luck, someone in Denver next week will think it's worth talking about.

 

 

 

Thursday, September 27, 2012

It's The Economy Stupid: Oops!

GDP for the Quarter was 1.3%.  The economists consensus estimate was 1.7%.  Not a single economist surveyed estimated GDP that low.  The economists’ estimates ranged from 1.4% to 2.0%.

 

Durable Goods Orders for August were -13.2%.  The economists consensus estimate was -5.0%. 

 

So much for the economy getting better.  But don’t worry.  The Fed is working on this. 

 

Of course, unless they are going change their strategy and actually hire 30 million people it might take a while.

 

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

 

Thursday, September 20, 2012

It's The Economy Stupid: Leading Economic Indicators

Jeez.  The hits just keep on coming…

 

Economic Event

Period

Economic Survey

Actual Reported

Original Prior

Revised Prior

Philadelphia Fed Index

SEP

-4.5

-1.9

-7.1

 

Leading Economic Indicators

AUG

-0.1%

-0.1%

0.4%

0.5%

 

Let’s look at the good news.  The Philadelphia Fed’s Index of manufacturing activity was not as negative as last month and not as negative as economist predicted.  It was negative, just not as negative.  But let’s put a really positive spin on this.  The Philadelphia Fed Manufacturing Index rose to -1.9 from -7.1.

 

And the Leading Economic Indicators was negative too, but just a little negative at -0.1%.  Want it to be more positive?  They revised last month’s figure upwards to 0.5% from 0.4%. 

 

And that’s the good economic news.  Not as negative, and just a little negative.

 

 

It's The Economy Stupid: Jobs

Jobs.  Why doesn’t Washington get this?  Anything that promotes and aids job creation is good.  Anything that deters or hinders job creation is bad.  Want the economy to do better?  Concentrate on job creation.  

 

I may be a little simple minded, but it sure seems to me that, as compared to unemployed people, employed people probably have the capacity to spend more money.

 

Economic Event

Period

Economic Survey

Actual Reported

Original Prior

Revised Prior

Initial Jobless Claims

SEP 15

375K

382K

382K

385K

Continuing Jobless Claims

SEP 8

3300K

3272K

3286K

3304K

 

Okay, so, more Americans than forecast filed Jobless Claims last week.

 

After the Labor Department revised last week’s numbers, it turns out that Initial Jobless Claims decreased by 3,000 in the week ended Sept.

15 to 382,000. The median forecast of 49 economists surveyed by Bloomberg projected 375,000.

 

The four-week moving average, a less volatile measure than the weekly figures, climbed to 377,750 last week from 375,750.

 

 

 

Friday, September 14, 2012

If You Invest in Stocks, Ben Bernanke Is Your Friend

If you invest in stocks, Ben Bernanke is your bestest friend.  Pay cash for your stock purchases?  Do not use margin to finance your investment portfolio?  Think you are not leveraged? 

 

Perhaps it’s time to rethink that position.  Or at least take into consideration what is going to happen when Ben stops playing the QE game.

 

Green Line is the S&P 500 Stock Index

Yellow Line is the Total U.S. Debt Outstanding

Time Period is from January 2, 2009 until Today

 

 

 

 

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

 

It's The Economy Stupid: CPI

The headlines will read that the Consumer Pride Index rose in August by the most in any single month since 2009.

 

Economic Event

Period

Economic Survey

Actual Reported

Original Prior

Revised Prior

Consumer Price Index MoM

AUG

0.6%

0.6%

0.0%

 

CPI Ex Food & Energy MoM

AUG

0.2%

0.1%

0.1%

 

Consumer Price Index YoY

AUG

1.7%

1.7%

1.4%

 

CPI Ex Food & Energy YoY

AUG

2.0%

1.9%

2.1%

 

 

 

 

 

 

 

But really, take away fuel costs and the story is quite different.  CPI Ex Food & Energy actually rose less than expected.

 

And limited job opportunities and low wages make it harder for companies to pass along higher commodities prices to their customers. Persistent joblessness along with few signs of a pronounced pickup in inflation is what allowed Federal Reserve policy makers to undertake an open ended QE3 yesterday in an attempt to boost economic expansion.

 

So, there are at least some signs of inflation in these numbers.  Does QE3 plant the seeds for greater inflation later on?  Yes, probably.  Will QE3 lead to inflation immediately?  No, probably not.  Does the Fed believe that it can unwind all the QE’s in a manner that will avoid much higher inflation?  Yes, surely.  Will the Fed actually be able to unwind all the QE’s in a manner that will avoid much higher inflation?  That’s the $64 Thousand dollar question.

 

 

 

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

 

Thursday, September 13, 2012

Bernanke on QE3

In his Q&A regarding the Fed’s decision to implement QE3 through the purchase of mortgage backed securities Bernanke said in no uncertain terms that part of what they are hoping to do is affect home prices, higher home prices.

 

If you're a potential new home buyer trying to get everything together to qualify for a mortgage and buy a house, how is a HIGHER home price helping you???

How is a LARGER down payment better for you???

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

 

It's The Economy Stupid: Jobs, The Fed & Ben Bernanke

Ben Bernanke:

 

Fed has limited tools to work with

Fed wants to work towards its goal of maximum employment and price stability

Fed wants to work towards those goals through the housing market

Fed is going to buy mortgage backed securities

Fed is going to keep low mortgage rates low

Fed hopes this will increase home prices

Fed hopes increased home prices will increase home loans and home building and more jobs in the housing market

 

John Broussard:

 

If they want to spur employment in housing, they are going to have to make home loans more available.  Just keeping our already low rates low may help home prices, may help existing home owners, may help financial institutions REO inventory, but how does it help the bulk of new home buyers?  Seems to me the things they are struggling with are the down payment and credit score requirements to qualify for a new home loan.  But hey, that’s just me and my observations.

 

The truth is that the Fed really does have very limited tools to work with towards achieving their maximum employment goal.  Let’s face it.  If low rates were all that were needed we would already be there.

 

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

 

It's The Economy Stupid: Game On with QE3

The Fed has voted to implement QE3. 

 

The Federal Reserve said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month in a bid to

Keep interest rates low and PERHAPS boost growth and reduce unemployment.

 

The Fed Statement:

“If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate,” the Federal Open Market Committee said today.

 

The FOMC said it would likely hold the federal funds rate near zero “at least through mid-2015.” Since January, the Fed had said the rate was likely to stay low at least through late 2014. The Fed said “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”

    

The Fed also said it will continue its program to swap $667 billion of short-term debt with longer-term securities to lengthen the average maturity of its holdings, an action dubbed Operation Twist. The central bank will also continue reinvesting its portfolio of maturing housing debt into agency mortgage-backed securities.

 

Hopes and dreams.  The Fed is all about hopes and dreams.

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

 

It's The Economy Stupid: PPI & Jobs

Wholesale prices in the U.S. increased in August by the most in more than three years, reflecting a surge in energy costs. The producer price index climbed 1.7 percent after an increase of 0.3 percent in July.  The gain in producer prices was the biggest since June 2009.  Companies may find it difficult to pass on higher energy costs as the global economic slowdown and so-called fiscal cliff of higher taxes and government spending cuts prompt their customers to limit spending.

 

The number of Americans filing applications for unemployment benefits rose more than projected last week, showing scant improvement on the outlook for jobs.       Jobless claims increased 15,000 in the week ended Sept. 8, the biggest gain in almost two months, to 382,000.  It is estimated that Tropical Storm Isaac resulted in about 9,000 applications for benefits. 

 

The job market appears to be cooling as a global slowdown and looming U.S. tax policy changes keep businesses hesitant about hiring. Persistent unemployment, is a “grave concern” according to Federal Reserve Chairman Ben S. Bernanke.  The Fed policy makers meet today to consider whether new steps are needed to boost the world’s biggest economy.

 

 

Economic Event

Period

Economic Survey

Actual Reported

Original Prior

Revised Prior

Producer Price Index MoM

AUG

1.2%

1.7%

0.3%

 

PPI Ex Food & Energy MoM

AUG

0.2%

0.2%

0.4%

 

Producer Price Index YoY

AUG

1.6%

2.0%

0.5%

 

PPI Ex Food & Energy YoY

AUG

2.6%

2.5%

2.5%

 

Initial Jobless Claims

SEP 8

370K

382K

365K

367K

Continuing Claims

SEP 1

3318K

3283K

3322K

3332K

 

 

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

 

Friday, September 7, 2012

Another Economic Tidbit

Okay, I am going to stop after this one.  Well, at least I mean that as of this moment.

 

Another interesting payroll tidbit.  In the month of August 2012, more people were added to the Food Stamp program (+173 MILLION) than were added to Non-Farm Payrolls (+96 THOUSAND)

 

That’s right.  More people went on food stamps than those who managed to find a job.

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

 

It's The Economy Stupid: Lies, Damned Lies, and Statistics, Part DEUX

From my beautiful and very brainy friend Monica Sonnier of First Tennessee (she probably has a new last name, but I don’t remember it):

 

Interesting statistic...If the labor force were the same size as it was 4 years ago, the unemployment rate would be 11.4%.

 

It's The Economy Stupid: Lies, Damned Lies, and Statistics

Today the reported Unemployment Rate fell from 8.3% to 8.1%, despite the fact that we added less jobs in Nonfarm Payrolls and less jobs in Private Payrolls and we actually lost jobs in Manufacturing Payrolls.  How can this happen?  Well here’s the math.  For every person who got a job and was added to the Payroll numbers almost four (4) people stopped looking for a job.

 

Economics For Dummies:  If you take 1 step forward and 4 steps backward, you are actually losing ground.

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

 

How bad is the employment picture?

How bad is the complete employment picture?  Below is a graph of the labor force participation rate.  The labor force participation rate represents the proportion of the population of the U.S. that is in the labor force.  You have to go back to 1981 to find a labor participation rate as low as it is today.  And our population has not shrunk since 1981. 

 

 

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

 

It's The Economy Stupid: Payrolls & Unemployment

Economic Event

Period

Economic Survey

Actual Reported

Original Prior

Revised Prior

Change in Nonfarm Payrolls

AUG

130K

96K

163K

141K

Change in Private Payrolls

AUG

142K

103K

172K

162K

Change in Manufact. Payrolls

AUG

10K

-15K

25K

23K

Unemployment Rate

AUG

8.3%

8.1%

8.3%

 

Underemployment Rate

AUG

 

14.7%

15.0%

 

 

We added less Nonfarm Payroll jobs than expected and less than previously reported.  We added less Private Payroll jobs than expected and less than previously reported.  And the change in Manufacturing Payrolls was actually NEGATIVE, the worst number in 2 years.  So how did the Unemployment Rate DROP???  Well, that’s easy.  The workforce shrank greater than change in payrolls shrank.  So less people are looking for jobs, more people have given up on looking for jobs.  That’s not exactly a good thing.

 

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

 

Thursday, September 6, 2012

It's The Economy Stupid: Jobless Claims Lower

Economic Event

Period

Economic Survey

Actual Reported

Original Prior

Revised Prior

Initial Jobless Claims

SEP 1

370K

365K

374K

377K

Continuing Claims

AUG 25

3315K

3322K

3316K

3328K

Challneger Job Cuts YoY

AUG

-

36.9%

-44.5%

-

ADP Employment Change

AUG

140K

201K

163K

173K

 

Initial jobless claims tick lower; trends suggest no material change in labor market conditions 

 

Initial jobless claims fell to 365k in the week ending September 1 from a revised 377k a week earlier (previously reported as 374k), slightly below the consensus estimates. The decline in claims left the four-week moving average unchanged at 371k. The four-week moving average has ranged between 364k and 377k since July, suggesting little change in labor market conditions over the past two months.

 

Continuing claims fell 6k during the week ending August 25 to 3322k from 3328k a week earlier and the four-week moving average ticked lower by 3k to 3321k.

The insured unemployment rate held steady at 2.6% for the 24th consecutive week.

 

Overall, this report suggests that the modest improvement in labor market conditions that began in July has held through August, but greater momentum in hiring is lacking.