Sunday, May 1, 2011

notes on the week ended April 30th

the first ever press conference by a Fed chairman this week ate up a lot of what could have otherwise been useful & productive economic cyberspace this week...in a sense, one can understand that the participating media might get as excited as a commoner at a royal wedding, but to see that hardened econobloggers would actually think some new policy direction would result from a reporters question is a bit much...so they were all predictably let down, and each & every had at least one post to that effect after said press conference...there were really no tough questions, and Bernanke's responses werent really different than his previous speeches & what's been already outlined in the monthly FOMC statements...the highlights can be summarized by noting what the Fed cant or wont do anything about; unemployment, rising gas prices, & stagnating GDP growth…you can find a couple dozen links to this story or responses/complaints about it from the blogosphere right after the usual Fed links at the beginning of this week's blog post..

we also got the preliminary report on first quarter GDP from the BEA this week, and even though forecasts for it had been falling from the first guesstimates of around 4%, the 1.8% stall speed growth rate still came in below most expectations...although its not something i'd normally look at, the component numbers that made up the report almost all seemed to be unusual outliers...for instance, federal government spending was down 7.9%, with the defense component of that down 11.7%, hardly something one could blame on harsh winter weather, as some MSM reports did; but no one reporting the numbers offered any further explanations...while residential & commercial construction spending were down as expected, equipment & software spending was up 11.6%, exports were up 4.6%, & the change in inventories added 0.93% to the first-quarter change in real GDP...with state & local spending down 3.3%, the total hit to government spending was down 5.2%...GDP growth at this level is not expected to add jobs, and a further confirming sign of weakness came in the unemployment first claims report, which at 429,000 was the highest since january...most forecasts of GDP for the remainder of the year are higher, in the 2 1/2 to 3% range, but at even that rate doesnt bode well for a robust recovery...

macroadvisors, an oft-sited consulting firm led by former fed governor larry meyers, believes the growth in the US labor force could be faster than expected by other forecasters, and we got the first sign that they might be right this week...while most had taken the McDonalds hiring plans to be 50,000 as previously announced, they got so many applications from overqualified workers they decided to add 62,000 new minimum wage, mostly part time workers...with over a million applications submitted by 2010 graduates and laid off school teachers, McDonalds is now looking to have the most highly educated crew of hamburger helpers in the fast food business...

Real House Prices <<<click on chart / much of the media reported an increase in new home sales, which at 300,000 was up from 270K in february; but it was still the worst march new home sales on record...also this week, case shiller reported their 20 cities home price index for the 3 months ending february and it was down only 0.2%, slightly less than it's been slipping previously... although it's now 31.7% off the peak, it remains one of the few home price indexes which is still above the early 2009 lows, although it's not either when adjusted for inflation, as the adjacent chart shows...lender processing services (LPS) also reported stats on delinquencies and foreclosures, and new delinquencies continue to shrink, with the total down 12% from a year ago...of the 6.33 million troubled home loans, 2.12 million loans are less than 90 days delinquent, 1.99 million are over 90 days delinquent, & 2.22 million are in foreclosure...of those in foreclosure, 31% have not made a payment in over 2 years...with 3 times more homes entering the foreclosure process each month than are being sold out of it, foreclosure inventory continues to increase and is now over 8 times the historical norm...

while there has been extensive coverage of the flooding on the mississippi and the ohio rivers, as well as the worst april tornado outbreak since 1974 (havent seen final confirmed figures), there is a weather story which has slipped under the media radar...rainfall for april has set records from southern illinois to ohio (ie, cleveland, columbus & cincinnati set records), leaving most of the fields in the eastern cornbelt saturated and puddled...as most of you know, i usually have a large garden, and with my friable sandy loam it's not uncommon for me to be able to start early crops in march...this is the first year in 39 years when i have been unable to till all april because of saturated ground; nor have i seen a tractor out anywhere in my county...so i did some looking at conditions in other states, and found that as of the latest USDA report (the 24th) only 2% of indiana corn was in, compared to 50% same date last year; only 10% of illinois is planted, compared to 67% last year; only 3% of iowa corn is in, compared to a normal 28%, and only 1% of ohio's corn has been planted...my thinking is that even some of what is already planted may rot, as i watched live radar all week, and heavy thunderstorms persisted until thursday...as any corn grower will tell you, total yields decrease the later your corn is planted, so this does not bode well for supplies, with corn stocks 15% already below last years, and 40% of our corn going to ethanol...this could change with a couple weeks of warm dry weather, but it bears watching, especially in light of the agricultural disasters worldwide last summer...

oil prices closed the month with their 8th consecutive gain, with WTI over $113 and brent touching $127 before closing lower...with the spread between brent and domestic crude showing no signs of abating, private barges are starting to move cheap crude down the mississippi to take advantage of that differential (louisiana sweet is also $127)...two private companies also announced plans to build a pipeline from cushing to houston... possibly due to a seasonal blend change (my speculation), gas prices shot up in ohio on friday, with columbus topping the 2008 record of $4.08 and most other cities posting 17c price hikes...

even though its been pushed into the background by US media, the nuclear crisis at fukashima continues to worsen...robots sent into the #1 unit early this week took the highest radiation readings since the crisis began, new data shows ongoing criticalities at Unit 2, and the Union of Concerned Scientists was sent photographic proof that the reactor core exploded at unit 3...the first economic stats after the triple disaster were out this week too, with march japanese retail sales down 8.5%, and industrial production down 15.3% from february...toyota's domestic output crashed 63%, and with GM ramping up production in china, they're now expected to reclaim the position of world's #1 auto maker...echoing last week's action against the US, S&P cut japan's outlook from stable to negative on high reconstruction costs...i almost expect some pundit to suggest that maybe they shouldnt rebuild after the earthquake, to keep their credit rating intact...

it was also another week of watching borrowing costs in europe climb, as 2 year rates for greece moved steadlly above 25%, irish 2 year rates topped 12%, and portugal's hit 11 3/4%, all records...with the EU enforced spending cuts, greece's deficit came in much worse than expected at 10.5% of their GDP...with self-imposed austerity, spain's unemployment rate climbed over 21%, and their retail sales crashed...and the austere conservative government of the UK also reported poor GDP numbers, with zero growth now extending over the last 6 months...businessinsider produced a slideshow of which country's banks stand to get hurt the most in "the inevitable greek restructuring"; bottom line, everyone is affected, but it's german & french banks that take the worst hit...

the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me...

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