The Importance of Savings

The chart above shows the U.S. savings rate, which has been clocking in between 5%-6% for almost two years. This is an incredibly importance development for a variety of reasons.1.) First, it indicates that people are not spending all of their earnings at once, but instead are putting some money aside for a "rainy day."2.) It provides fuel for consumption....

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Krugman on Commodities

From the NY Times:So the case for a speculative component is a lot stronger this time around. But — and this is important — the speculation is not being driven by financialization, by all those index fund investors going long. Cotton hoarding seems to be taking place at the level of individual Chinese farmers and factories, with no indication that they’re being influenced by the futures market. And iron ore hasn’t been available for futures-market speculation: the first futures markets there came into existence just a few days ago. For at...

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U.S. Is the World's Largest Manufacturer

From the AP:Yet America remains by far the No. 1 manufacturing country. It out-produces No. 2 China by more than 40 percent. U.S. manufacturers cranked out nearly $1.7 trillion in goods in 2009, according to the United Nations. The story of American factories essentially boils down to this: They've managed to make more goods with...

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Yesterday's Markets

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Let The Good Times Role!

As David Cameron sheds tears today for the average British householder, who will face a "difficult and tough" year ahead, it is reassuring to know that the banking sector is booming again.The Telegraph reports that four HSBC, Barclays, Lloyds and Standard Chartered will announce combined profits of £24.2BN (a rise of over 10% compared with the £21.5BN they reported last year).To some extent these profits (and associated bonuses) will be recouped by taxes. However, the key to the banks' "reassimilation" into "polite" society will be whether they...

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Weekly Indicators: Good bye Recovery Edition

- by New Deal democratThe big news this week was 4th Quarter GDP, which was +3.2% unadjusted, and up 2.6% in real terms, and up 2.9% for all of 2010 in real, inflation-adjusted terms. This means that all those people who say we aren't in a Recovery are now correct - but only in a backhanded sense. Since real GDP is now higher than it was at any time before the recession, we are no longer in a "recovery," but in an economic "expansion" instead. As an aside, I frequently read on some blogs that we shouldn't pay attention to GDP because it doesn't...

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Real GDP Up 3.2%

From the BEA:Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.2 percent in the fourth quarter of 2010,(that is, from the third quarter to the fourth quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.6 percent.The Bureau emphasized that the fourth-quarter advance estimate released today is based on source data that are incomplete or subject to further revision...

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Yesterday's Market

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Alex P. Keaton is President

- by New Deal democratI'm going to take a little foray out of this blog's typical comfort zone, to take the opportunity today to sum up my core opinion of Barack Obama. To put it simply, with the exception of skin color, the conservative hero of TV's "Family Ties," Alex P. Keaton (Michael J. Fox's character), is President.This note has been long-in-coming, but is provoked by two notes I just read. First, Paul Rosenberg at Open Left says:Obama has accomodated himself, and worked tirelessly to redifine liberalism or progressivism in terms of a neo-liberal...

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Inflation Increasing ... Except in the U.S

From the WSJ:With the risks of a double-dip recession apparently receding in most parts of the world, another economic challenge is emerging: inflation. Rising prices for food, energy and other commodities are reducing the disposable incomes of poor people across the planet, providing a trigger for street protests in North Africa and posing a deep conundrum for policy makers world-wide......In the euro zone, rising prices could lead the European Central Bank to increase interest rates, intensifying pressures on weak economies such as Greece...

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What the Fed Sees, Beige Book Redux and Possible Potholes

From the latest Fed statement:Information received since the Federal Open Market Committee met in December confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions. Growth in household spending picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, while investment in nonresidential structures is still...

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Soros Warns About Cuts

George Soros has issued a warning at the Davos financial summit that Britain's austerity programme may push the country into recession again.Whilst it should not be forgotten that Soros made money out of betting against the UK in 1992, when the UK was pursuing the folly of the exchange rate mechanism, he may well have a point.Cutting public expenditure, and hoping that the private sector will take up the slack will only work if there is room to significantly loosen monetary policy.Interest rates are near zero, there is no further room to loosen...

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The Cost of Traffic

From the Texas Tribune:Think repairing the state’s roads and highways is costly? Try not repairing them. That's the message from transportation advocacy groups, which say poor road conditions are costing Texas drivers $22.6 billion per year in car damage, fuel costs and traffic accidents. But as Mose Buchele of KUT News reports, before any of those problems can be addressed, we should all prepare for a bumpy ride.But, it's not like bad roads cost us anything or that there are no viable infrastructure projects....

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Now He Talks About Investment....

From last nights SOTU:The third step in winning the future is rebuilding America. To attract new businesses to our shores, we need the fastest, most reliable ways to move people, goods, and information – from high-speed rail to high-speed internet. Our infrastructure used to be the best – but our lead has slipped. South Korean homes now have greater internet access than we do. Countries in Europe and Russia invest more in their roads and railways than we do. China is building faster trains and newer airports. Meanwhile, when our own engineers...

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Are Housing Prices Bottoming?

From Bloomberg:U.S. home prices have reached a bottom and may be set to rise in the first half as buyers take advantage of increased affordability, said Karl Case, the economist who co-founded the S&P/Case-Shiller home price index. “Prices have gone flat, bouncing around at what I think is essentially a bottom,” Case, a retired professor of economics at Wellesley College, said in a radio interview today on “Bloomberg Surveillance.” “We’re really going to have to wait to see what the spring market brings.” The S&P/Case-Shiller index of...

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Dark Days Coming

Yesterday's lousy "growth" figures (a fall of 0.5% in GDP) have heralded further bad news. Minutes from January's MPC meeting show that two members voted for an increase in rates, they must be mad.The mood of gloom surrounding the economy was further depressed by a speech made last night by Mervyn King (Governor of the Bank of England), in which he said that wages will have to fall and that we are facing the worst economic conditions for 90 years.I wonder if George Osborne has actually factored all of this into his economic pla...

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More on Commodity Prices

From Bloomberg:Cotton futures soared to a record on speculation that global supplies will fail to keep pace with rising demand in China, the world’s largest user. Chinese imports surged 86 percent in 2010 as economic growth lifted demand from textile mills and adverse weather hurt the domestic crop. The country’s purchases may increase before next month’s Lunar New Year holidays, said Han Sung Min, a broker at Korea Exchange Bank Futures Co. On Jan. 12, the U.S. government cut its global-production outlook. Prices have more than doubled in the...

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The Washington Lobotomy Factory Moves in High Gear

From the WSJ:House Majority Leader Eric Cantor said he didn't support allowing states to seek bankruptcy protection and ruled out any federal bailouts of state governments. "There will not be a federal bailout of the states," he said at a news conference Monday.Rep. Cantor, (R., Va.), is the latest Washington official to take a dim view of further fiscal aid to state governments. On Jan. 7, Federal Reserve Chairman Ben Bernanke ruled out a central-bank bailout of state and local governments straining under municipal debt burdens, saying the...

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Yesterday's Market

The IWMs -- which have led the market higher -- are clearly now in a correction and will probably lead the SPYs and QQQQs lower. The IEFs are still consolidating and the dollar is moving low...

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Economy Shrinks 0.5%

The Office for National Statistics (ONS) has released figures for Q4 2010 that show that the UK economy contracted by 0.5% in this period. "Experts" had been predicting a rise of 0.5%.Needless to say, the weather is being blamed for some of this fall.However, cold snap or not (even allowing for the fact that the ONS invariably has to revise its figures), it is clear that any rush to raise rates (as being mooted by some "experts") would be folly indeed when the economy is so very clearly "fragil...

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Commodity Prices Spiking -- Is Speculation to Blame?

Consider these two stories:First we have this:French President Nicolas Sarkozy said regulation of commodity markets will be a priority as he leads the Group of 20 nations this year, and inaction may cause food rioting in the world’s poorest countries. Some commodity markets lack safeguards to limit price spikes and “price manipulation,” Sarkozy said at a press briefing in Paris today. France’s head of state said he asked Russian President Dmitry Medvedev to help study the role of derivatives in commodity-price swings. “If we do nothing, we risk...

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Expect More Economic Growth

Last week, we saw a string of solid economic reports come out that indicate more economic growth ahead. Perhaps most importantly was the index of leading economic indicators, that increased 1%. From the press release:The Conference Board Leading Economic Index® (LEI) for the U.S. increased 1.0 percent in December to 112.4 (2004 = 100), following...

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Irish Woes

Ireland stands on the brink of political and economic chaos, and will drag the Euro down with it.The resignation from the government of the Green Party, over the resignation of Brian Cowen as leader of Fianna Fail (but not as Prime Minister), means that the government will have to bring forward the date of the general election (originally planned for March 11.However, the finance bill (scheduled to be debated this Friday) has yet to be passed. The bailout agreed with the IMF/EU is contingent on that bill passing. In the event that it does not pass,...

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Weekly Indicators: The depths of Winter edition

- by New Deal democratMeteorologically speaking, we are at the coldest point of the winter. From now on, we can begin to look forward to spring.Economically speaking, housing has been stuck in the depths of winter for two years, and that was the spotlight of the monthly data this week. Housing starts declined more than expected to 529,000, but were still above 2009 lows. Permits, however, surged 91,000 to 635,000. Existing home sales increased for the 3rd time in 4 months, from 4.12 million annualized in August to 5.28 million last month. Months...

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Will Oil Prices Derail the Recovery?

From This Week in PetroleumIn late December, the average national retail price of regular grade gasoline rose above $3 per gallon for the first time since October 2008. However, when gasoline sold for $3 per gallon in October 2008, gasoline prices were in the midst of a sharp decline that saw prices fall from a peak of $4.11 per gallon in July...

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More Budget Stupidity

The Financial Times -- which has one of the most ridicules copyright policies of any newspaper -- has a story today about the city of Vallejo California. They had to declare bankruptcy, so now there are almost no city services to speak of. Potholes are everywhere and the police are horribly understaffed. The paper goes on to note that this is the future for more than a handful of U.S. cities.But here is the rub: it's all the unions fault for demanding outlandish benefits packages. Never mind that all the parties to the contract sat down at...

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Beige Book, Part 4: Real Estate

From the Beige Book:Activity in residential real estate and new home construction remained slow across all Districts. A majority of the Districts, including Boston, New York, Cleveland, Atlanta, Chicago, Minneapolis, Dallas, and San Francisco characterized local housing markets as weak and sluggish with little change from the previous reporting...

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