PCE

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Yes, these numbers look to throw a wet blanket on global market psychology. The better than expected earnings season is pretty much fully discounted, and month end/month beginning allocations are behind us.

June was a weak month for government spending that seems to have been reversed in July (from Mike Norman), which accounts for the lower ‘savings rate,’ but those numbers won’t show up for a while.

And the talk by the administration, Congress, and all the critics regarding ‘fiscal responsibility’ and tax increases has functioned to make the point a ‘second stimulus’ is out of the questions without some kind of collapse.

Inflation remains in check with the large output gap keeping a lid on wages and relatively stable crude oil prices keeping costs under control.


Karim writes:

  • Weakness in personal income (-1.3%) a bit more than expected, largely reflecting end of government transfers to households
  • But wage and salary income also still very weak, down 0.4% and down every month this year.
  • Yr/Yr personal income down 3.4% and wage and salary income down 4.7%
  • Drop on personal savings rate from 6.2% to 4.6% largely reflects weakness in income described above
  • Revisions in PCE Deflator reflect same as occurred in GDP data last week: YR/YR Deflator through May now -0.3% vs 0.1% and Core Deflator now 1.6% vs 1.8%.
  • For June, headline deflator rose 0.546% and fell 0.4% Yr/Yr; Core Deflator rose 0.161% and 1.5% Yr/Yr.

Putting aside July auto sales, hard to see meaningful rebound in consumer spending (70% of GDP) with these income numbers; record string of decline in labor income


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First Lady Requires More Than 20 Attendants

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Yes, seems to be seriously excessive!

First Lady Requires More Than 20 Attendants

By Dr. Paul L. Williams

1. $172,2000 – Sher, Susan (Chief Of Staff)

2. $140,000 – Frye, Jocelyn C. (Deputy Assistant to the President and Director of Policy And Projects For The First Lady)

3. $113,000 – Rogers, Desiree G. (Special Assistant to the President and White House Social Secretary)

4. $102,000 – Johnston, Camille Y. (Special Assistant to the President and Director of Communications for the First Lady)

5. Winter, Melissa E. (Special Assistant to the President and Deputy Chief Of Staff to the First Lady)

6. $90,000 – Medina, David S. (Deputy Chief Of Staff to the First Lady)

7. $84,000 – Lelyveld, Catherine M. (Director and Press Secretary to the First Lady)

8. $75,000 – Starkey, Frances M. (Director of Scheduling and Advance for the First Lady)

9. $70,000 – Sanders, Trooper (Deputy Director of Policy and Projects for the First Lady)

10. $65,000 – Burnough, Erinn J. (Deputy Director and Deputy Social Secretary)

11. Reinstein, Joseph B. (Deputy Director and Deputy Social Secretary)

12. $62,000 – Goodman, Jennifer R. (Deputy Director of Scheduling and Events Coordinator For The First Lady)

13. $60,000 – Fitts, Alan O. (Deputy Director of Advance and Trip Director for the First Lady)

14. Lewis, Dana M. (Special Assistant and Personal Aide to the First Lady)

15. $52,500 – Mustaphi, Semonti M. (Associate Director and Deputy Press Secretary To The First Lady)

16. $50,000 – Jarvis, Kristen E. (Special Assistant for Scheduling and Traveling Aide To The First Lady)

17. $45,000 – Lechtenberg, Tyler A. (Associate Director of Correspondence For The First Lady)

18. Tubman, Samantha (Deputy Associate Director, Social Office)

19. $40,000 – Boswell, Joseph J. (Executive Assistant to the Chief Of Staff to the First Lady)

20. $36,000 – Armbru ster, Sally M. (Staff Assistant to the S ocial Secretary)

21. Bookey, Natalie (Staff Assistant)

22. Jackson, Deilia A. (Deputy Associate Director of Correspondence for the First Lady)

Copyright 2009 Canada Free Press.Com

There has never been anyone in the White House at any time that has created such an army of staffers whose sole duties are the facilitation of the First Lady’s social life. One wonders why she needs so much help, at taxpayer expense, when even Hillary, only had three; Jackie Kennedy one; Laura Bush one; and prior to Mamie Eisenhower social help came from the President’s own pocket.

By the way… his does not include makeup artist Ingrid Grimes-Miles, 49, and “First Hairstylist” Johnny Wright, 31, both of whom traveled aboard Air Force One on her recent trip to Europe!


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ISM

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Agreed.

We could see positive growth for while without much improvement in final demand, supported longer term by government, exports, and investment.

Equity markets strong, better than expected earnings, with real estate to follow with a lag, and high unemployment keeping real wages/business costs down.

Real wealth continues to flow from the bottom to the top.

Risks include rising marginal tax rates next year and other possible demand drains from one time fiscal adjustments running their course. But that’s too far ahead for markets to discount.


Karim writes:

Details strong; anecdotes weak. Suggests an inventory restocking, but little to no improvement in final demand.

Consistent with Fed baseline of H2 restocking to lead to positive Q3 and Q4 growth but concern over next catalyst going into 2010.

Strength in orders vs inventories could well see headline rise above 50 next month.



July June
Index 48.9 44.8
Prices paid 55.0 50.0
Production 57.9 52.5
New Orders 55.3 49.2
Inventories 33.5 30.8
Employment 45.6 40.7
Export Orders 50.5 49.5
Imports 50.0 46.0

* “[There is concern about] overall health of strategic suppliers — continue to see new suppliers filing Chapter 7 or 11, posing significant risk to supply chain.” (Machinery)

* “We believe our inventories are now at the bottom of this cycle, driving stronger demand for raw materials.” (Paper Products)

* “While our aftermarket business has improved slightly, we are still awaiting an increase in OEM demand.” (Transportation Equipment)

* “No stimulus for manufacturing.” (Fabricated Metal Products)

* “Looking at another round of shutdowns to align supply with projected demands.” (Nonmetallic Mineral Products)


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Taking a side on commercial real estate

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Today’s news- rising oil/declining dollar means costs of materials and replacement costs rising.

The only inflation risk comes with rising oil costs which are back up over 71 dollars this am, up from low 60’s last week.

Rising consumption overseas in general seems to be driving up prices here as we compete with a billion new consumers for scarce resources.

Commercial Real Estate – Make Up Your Own Mind

By Malay Bansal


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China GDP

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Adding 14% to GDP is a very serious fiscal adjustment that clearly is working.

And it is operationally sustainable if they so desire.

Not to mention the credit expansion and foreign direct investment.

Yes, there can always be setbacks, but nothing that a fiscal adjustment can’t handle.

China: Bogus Boom?

By John H. Makin

It is important to understand how China’s remarkable reported economic performance is possible in the midst of a global recession. True, China enacted a massive stimulus package last November worth about 14 percent of GDP and aimed at boosting domestic demand as exports fell sharply.


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cash for clunkers may cost govt. up to $45,354 per vehicle

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(short version)

“Cash for Clunkers” Program May Cost $45,354 per vehicle

By Avery Goodman

(Seeking Alpha) — The “Cash for Clunkers” program has been a “great success”, at least according to the government, and the auto industry. Within days of its kickoff, all $1 billion allocated to the program has been used up by Americans who have eagerly lined up to trade their clunkers for new vehicles.

Some refreshingly honest reporting has come from Edmunds.com, a car buying site that is telling the truth, in spite of benefiting from an increase in business and site traffic, due to the program. According to Edmunds, about 200,000 old low mileage cars would normally traded in, every 3 months, in exchange for more efficient higher mileage cars, without this program.

The highest rebate is $4,500, and the lowest is $3,500. If everyone qualified for $4,500 per vehicle, about 222,000 vehicles would have just taken advantage of the government’s money. At $3,500, 286,000 vehicles will have been sold.

I assume that, given all the raving, the government will eventually get around to assigning more money. It will take at least 2 or 3 months for the legislation to work its way through Congress. Meanwhile, if all buyers have qualified for the higher $4,500 rebate, the “cash for clunkers” program will mean a marginal increase in car sales of 22,000 this quarter. $1 billion divided by 22,000 means a net cost to the government of $45,354 per car.

If all buyers only qualify for the $3,500 rebate, it means a marginal increase in sales of about 86,000, or a net cost to the taxpayers of $11,628 per vehicle. In all likelihood, however, there will probably be a mix of vehicles qualifying for various rebates between $3,500 and $4,500. Based upon that assumption, Edmunds.com estimates that the average cost to the taxpayer will be about $20,000 per vehicle.

Even most of the marginally extra sales really represent people who were going to buy a new car eventually anyway. They are just buying a bit sooner than they expected. Old clunkers don’t last forever, and they are almost all eventually replaced. The government is shifting tomorrow’s demand to today, stealing from tomorrow to pay for today, but at great cost to the taxpayer.


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GDP/ECI

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Karim writes:

Most important info in the report is the benchmark revisions: The first year of the recession (Q4 2007-Q3 2008) was revised from -0.8% to -1.9%. This adds a full percentage point to the Fed’s output gap measure. Also, Q2 2009 negative print marks first time U.S. economy has had four consecutive quarters of negative growth since 1947.

Q4 2008 was revised from -6.4% to -5.5%; Q1 2009 from -5.4% to -6.3%

The weaker Q1 number (especially inventories) led to the Q2 inventory drag being less than expected (-0.8%) and hence Q2 being less negative than expected at -1%.

The other components of GDP were either in line or weaker than expected. All numbers below are annualized rate of change:

  • Private consumption: -1.2% vs 0.6%
  • Non-residential fixed investment: -8.9% vs -43.6%
  • Residential fixed-investment (housing): -29.3% vs -38.2%
  • Exports: -7% vs -29.9%
  • Govt: 5.6% vs -2.6%

ECI posts second lowest advance on record at 0.4% (after 0.3% prior quarter).


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SZ News: Leading Indicators Rise, Signaling Slump Is Abating

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Yes, seems to be world wide.

The combined global fiscal measures both pro active and ‘automatic’ seemed to have halted the slide.

Depressions are highly improbable with non convertible currency and floating fx policies.

Swiss Leading Indicators Rise, Signaling Slump Is Abating

By Klaus Wille
July 31 (Bloomberg) — Switzerland’s leading economic
indicators rose more than economists forecast in July, adding to
signs the worst economic slump in three decades is bottoming
out.

The KOF’s monthly aggregate of indicators that aims to
predict the economy’s direction about six months ahead increased
to minus 0.99 points from a revised minus 1.49 in June, the
Zurich-based research institute said today. Economists had
forecast that the index would rise to minus 1.45 from an
initially reported minus 1.65, based on the median of 13
estimates in a Bloomberg News survey.

Switzerland’s economy is moving toward a recovery after a
0.8 percent contraction in the first quarter, reports this month
showed. The UBS consumption indicator increased for the first
time in three months in June and the slump in manufacturing
eased. In the euro area, the biggest buyer of Swiss exports,
confidence in the economic outlook rose to an eight-month high.

“This figure is still low, meaning that Swiss gross
domestic product is likely to continue declining significantly
over the coming months relative to the previous year,” KOF said
in the statement. “However, the current barometer trend
indicates that the GDP growth rate should bottom out soon.”

The Swiss National Bank forecasts that the Alpine country’s
economy will shrink as much as 3 percent this year, which would
be the steepest decline since 1975.


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NY FED – Shadow Financial Market

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The findings add support to my proposal to ban banks from all secondary markets

Federal Reserve Bank of New York
Staff Reports
The Shadow Banking System:
Implications for Financial Regulation
Tobias Adrian
Hyun Song Shin
Staff Report no. 382
July 2009

This paper presents preliminary findings and is being distributed to economists and other interested readers solely to stimulate discussion and elicit comments. The views expressed in the paper are those of the authors and are not necessarily reflective of views at the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

The Shadow Banking System: Implications for Financial Regulation
Tobias Adrian and Hyun Song Shin
Federal Reserve Bank of New York Staff Reports, no. 382
July 2009
JEL classification: G28, G18, K20

Abstract
The current financial crisis has highlighted the growing importance of the “shadow banking system,” which grew out of the securitization of assets and the integration of banking with capital market developments. This trend has been most pronounced in the United States, but it has had a profound influence on the global financial system. In a market-based financial system, banking and capital market developments are inseparable: Funding conditions are closely tied to fluctuations in the leverage of market-based financial intermediaries. Growth in the balance sheets of these intermediaries provides a sense of the availability of credit, while contractions of their balance sheets have tended to precede the onset of financial crises. Securitization was intended as a way to transfer credit risk to those better able to absorb losses, but instead it increased the fragility of the entire financial system by allowing banks and other intermediaries to “leverage up” by buying one another’s securities. In the new, post-crisis financial system, the role of securitization will likely be held in check by more stringent financial regulation and by the recognition that it is important to prevent excessive leverage and maturity mismatch, both of which can undermine financial stability.


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