Global Economic Intersection

January 2012 Pending Home Sales Suggest Improving Market

Steven Hansen — Mon, 27 Feb 2012 19:09:00 +0000

Written by Steven Hansen

The short and sweet version of the Econintersect analysis of the National Association of Realtors (NAR) pending home sales index: NAR January 2012 press release:

index up 2.0% month-over-month and up 8.0% year-over-year

Econintersect Analysis:

index up 5.7% month-over-month and up 10.1% year-over-year
this index value is predicting February 2012 existing home sales of 275,000 - which would be a 9.1% gain year-over-year in existing home sales

From the NAR press release: Read more »

The European coup d’état

admin — Mon, 27 Feb 2012 09:08:10 +0000

by Guest Author Rudo de Ruijter, Court Fool.info

Preliminary message to Parliamentarians.

What is special in this ESM treaty (European Stability Mechanism)? The Ministers of Finance get a new part-time function as Governors of the ESM. The national parliaments have no authority over their Minister of Finance, when the latter acts as Governors of the ESM. The Governors freely dispose of the State's Vaults. No veto-right has been foreseen for the national parliaments. Ratifying this treaty is the death of the sovereign democracies of the Eurozone.

(And if you are not a Parliamentarian, make sure your Parliamentarians get this message, for otherwise they will give the key of democracy to the devil without even being aware of it!)

Economic Law of Gravity

Ajay Shah — Sun, 26 Feb 2012 06:35:19 +0000

by Ajay Shah

Editor's note: From Wikipedia, the Newtonian Law of Gravity says the force between two bodies is proportional to product of the two masses and inversely proportional to the distance between them. The equation is

where G is a proportionality constant known as the gravitational constant.

A key intuition of modern thinking in international trade and international finance is that distance matters much more than we think. We may like to believe that the world is becoming more flat. We may like to believe that for weightless things like services and financial flows, distance is irrelevant. But the research evidence is unambiguous: there is a `gravity model' in the affairs of men. The interactions between two countries tend to go up in proportion to the product of their GDP, and vary inversely with the squared distance between them. Read more »

Coincident Data Providing Confirmation of Improving Economy

Steven Hansen — Sat, 25 Feb 2012 06:19:16 +0000

Written by Steven Hansen

On Friday on CNBC, ECRI renewed their recession call - now saying a recession should hit by mid-year 2012. Supporting evidence for this call was based on coincident data's growth rate-of-change was falling to historical recession levels. There is no current data in my world that is suggesting a USA recession. Econintersect focuses on elements of economic releases (and not the headlines) which historically have led economic cycles. Econintersect's analysis is always based on the change of rate of growth. And for the most part, these economic elements are suggesting the economy is improving - but also are indicating the growth rate of change is slowing or flat. But in all cases to date, the growth rate of change is above historical rate-of-change which would indicate an upcoming recession. Most readers focus on the headlines of economic releases - jobs up, jobs down, industrial production up, industrial production down, trade up, trade down. Pundits grab these headlines and spout, then the markets react. Many of these pundits and most readers cannot assign a relative importance to individual headlines anyway. Read more »

Final February 2012 Michigan Consumer Sentiment At 12 Month High

Doug Short — Sat, 25 Feb 2012 00:38:02 +0000

by Doug Short, Advisor Perspectives/dshort.com

The University of Michigan Consumer Sentiment Index final report for February came in at 75.3, a rebound from the 72.5 preliminary report and the highest reading since February a year ago. Today's number was above the Briefing.com's consensus forecast of 73.0 and Briefing.com's 73.5. See the chart below for a long-term perspective on this widely watched index. Because the sentiment index has trended upward since its inception in 1978, I've added a linear regression to help understand the pattern of reversion to the trend. I've also highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy. Read more »

New Home Sales Better than Headlines in January 2012

Steven Hansen — Fri, 24 Feb 2012 21:21:15 +0000

Written by John Lounsbury and Steven Hansen

Another data release where the previous month was changed enough to negate that month's analysis. In any event, last month now looks better - and new home sales volumes are up or equal for the fourth month in a row. This continues to indicate new home sales may be at the bottom of the decline which began in 2005. Let us start with perspective - new home sales are less than 1/4 of the peak values seen in 2005 - and are running at levels last seen in the 1970's (non seasonally adjusted data). But still, the last 6 months have been stronger than 2010 sales. Read more »

China and the Global Crisis

Michael Pettis — Fri, 24 Feb 2012 04:59:20 +0000

by Michael Pettis

This posting is from the January 30 issue of my newsletter, and so ignores recent events in Chongqing, but of course those events make my discussion of the political debate entry all the more relevant, I think. Before getting to the policy debate, I want to mention that in late January Caixin, one of my favorite magazines, had an interview with Liu Mingkang, former China Banking Regulation Commission chairman. In it Liu says:

I’ve said in the past that this economic crisis will spread from the United States to Europe and finally land in Asia. Now we can see that it’s already begun influencing Asia.

Beijing’s Great Bailout to Defuse Ticking Local Debt Bombs

admin — Thu, 23 Feb 2012 05:24:04 +0000

By EconMatters

In the previous post, we briefly mentioned that

"....there could be some hidden debt bombs as a recent Bloomberg finding suggests that China's banks may be understating their exposure to runaway local borrowing by possibly billions of dollars that is raising fears of a government bailout."

Here are more details. It appears that, based on a Bloomberg News survey, the construction boom by many local governments as part of China's stimulus program that started in November 2008 have now become too big to complete and may require a bailout even bigger than the Euro debt crisis. Read more »

Existing Home Sales: Is NAR Data Correct for January?

Steven Hansen — Wed, 22 Feb 2012 19:59:49 +0000

The National Association of Realtors (NAR) completely destroyed its December 2011 existing homes sales data and analysis with their January release today - and now they are saying their January 2012 data is better. At this point there is no doubt sales volumes are increasing - but the improvement originally conveyed in December makes the January "improvement" a step backwards. Home sales prices too were screwed up in December - at the time it seemed strange prices were shown as increasing. This is what we had said in our December analysis: Read more »

January 2012 CFNAI Shows Economy Expanding Above Historical Trend

Steven Hansen — Tue, 21 Feb 2012 19:18:20 +0000

The January 2012 Chicago Fed National Activity Index (CFNAI) release shows the 3 month moving average of +0.14 - indicating national economic activity was slightly above its historical trend. The index is approximately equal to the levels one year ago, and has broken out of the range channel it has languished in for the last 8 months. The Chicago Fed National Activity Index (CFNAI) is Econintersect’s primary coincident indicator tool as it provides a summary quantitative value for all the economic data being released. The data is not spun or explained - it is what it is. However, this index may not be accurate in real time (see caveats below) - and it did miss the start of the 2007 recession. Read more »

Out of the Garden of Europe and into the World Economy

admin — Mon, 20 Feb 2012 09:06:42 +0000

by Macrotides

Monetary policy is a bit like watering a garden. Its nourishment is intended to foster growth and jobs, and when in full bloom, a rising standard of living for the majority of people in society. A functioning spigot (central bank) and nozzle at the end of the hose (banking system) are needed for monetary policy to water the economic garden. If either isn’t functioning properly, too much or too little water will flow from the financial system into the economy. Just as too much water can kill a healthy plant, too much money can cause inflation, erode the purchasing power of workers, and lower their standard of living. When too little money (credit) flows, economies contract, unemployment rises, and government tax revenue falls. Read more »

Mortgage Settlement Plan is More Bank Bailout

admin — Sun, 19 Feb 2012 08:15:43 +0000

Guest Author: Yves Smith, author of the best seller "Econned" and founder of the widely read blog Naked Capitalism, where this article first appeared with the title: Quelle Surprise! Taxpayers Will Be Paying for Part of Mortgage Settlement

The whole purpose of a settlement is that a party pays damages to rid themselves of liability, and the amount they pay (and “pay” can include the cost of reforming their conduct) is less than what they expect to suffer if they were sued and lost the case (otherwise, it would make more sense for them to fight). But in the topsy-turvy world of cream for the banks, crumbs for the rest of us, we have, in the words of Scott Simon, head of the mortgage business at bond fund manager Pimco, in an interview with MoneyNews, lots of victims paying for banks’ misdeeds: Read more »

Less Growth Seen on Business Green Shoot

Steven Hansen — Sat, 18 Feb 2012 07:30:45 +0000

Greece continues to screw up the economic landscape. The unanswerable question remains how Greece will default. Greece (as well as its weak sisters) cannot survive without an overhaul of the basic structure of the Eurozone. No talks are underway to reform the basic Eurozone structure - only continuing efforts to slash budgets which will intensify the death spiral. It amazes me at the market continuing to react to "good" Eurozone news. There is no good news - only bad news in various degrees. Read more »

January 2012 Consumer Price Index Moderates, But Core Inflation Rises

Doug Short — Sat, 18 Feb 2012 04:45:20 +0000

by Steven Hansen and Doug Short

The Consumer Price Index (CPI-U) annual inflation rate fell to 2.9% in January 2012 from 3.0% in December. This was above the Econintersect expectation of 2.5%. Core inflation (CPI less food and energy) was rose slightly to 2.3% annual inflation [note that the Federal Reserve uses 2.0% core inflation as an inflation target]. There has been some hinting at the Fed that inflationary targets may be flexible at this time with so much economic slack, and the Fed statements continue to indicate they expect inflation to recede in the coming months. Read more »

January 2012 Leading Economic Index Forecasts Improving Economy

Steven Hansen — Fri, 17 Feb 2012 21:01:08 +0000

This is the second month of the "new" Leading Economic Index from The Conference Board, and after a month of review this index appears to be a significant tool useful for long-range outlook economic forecasts.

The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.4 percent in January to 94.9 (2004 = 100), following a 0.5 percent increase in December and a 0.3 percent increase in November.

This index is designed to forecast the economy six months in advance. Additional comments from the economists at The Conference Board add context to this positive outlook. Read more »

Container Movements Show Flat Start to 2012

Steven Hansen — Fri, 17 Feb 2012 03:36:13 +0000

Combined imports and export container shipment growth was literally zero year-over-year at the Ports of LA and Long Beach in January 2012. This is a flat start for the new year. Exports (which are an indicator of competitiveness and global economic growth) slightly contracted for the second time since August 2010. Read more »

February 2012 Philly Fed Survey Improves Slightly

Steven Hansen — Fri, 17 Feb 2012 03:24:33 +0000

The Philly Fed Business Outlook Survey headlines for February 2012 show the index again improved slightly - and it remains in expansion territory. Survey components new orders and unfilled orders have improved - with both now in expansion territory.

Responses from manufacturing firms polled for this month’s Business Outlook Survey suggest that regional manufacturing activity continued to expand in February. The survey’s broad indicators for general activity, new orders, and shipments all increased from their readings in January. Firms reported near-steady employment levels but an increase in average work hours. More firms reported higher input prices this month, and a sizable share of firms reported price increases for their own manufactured goods. The survey’s broad indicators of future activity fell from levels in recent months but continue to reflect optimism about future manufacturing growth.

PPI Continued to Moderate in January 2012

Steven Hansen — Thu, 16 Feb 2012 20:22:50 +0000

The Producer Price Index (PPI) finished goods prices increased 4.1% year-over-year in January 2012 (less than the 4.8% in December) - and increased 0.1% month-over-month. The PPI represents inflation pressure that could move into consumer prices - and the PPI continues to moderate. PPI finished goods also is showing moderating pressures from intermediate goods and crude goods price inflation - in fact the differential in the producer price chain has almost disappeared. The market had been expecting a 0.3% month-over-month increase in finished goods prices (compared to the 0.1% increase). Read more »

January 2012 Building Permits Indicates 2012 Will Be a Good Year

Steven Hansen — Thu, 16 Feb 2012 20:15:23 +0000

Residential building permits and construction completions in January 2012 show the industry rebound is continuing - and it is being fueled this month by both single family and apartments (structures with 5 or more units). US Census Headlines:

building permit up 0.7% month-over-month, up 19.0% year-over-year
construction completions down 12.0% month-over-month, up 4.1% year-over-year
the market expected 650K to 675K annualized housing permits versus the 676K reported

Econintersect Analysis:

Building permits are up 20.4% month-over-month, up 27.2% year-over-year.
construction completions are down 4.7% month-over-month, up 2.3% year-over-year.

USA Home Prices and Rents Climbing in February 2012

admin — Thu, 16 Feb 2012 01:13:23 +0000

by Guest Author Scott Sambucci, Altos Research

"The latest home prices data shows that a stable market in January is leading to an up month in February. Rents and newly listed property prices all climbing weekly."

Like Giants fans around the country still celebrating a big win, the housing markets seem to want to play the role of the triumphant underdog. Rolling into February 2012, the housing market has a set of reasonably bullish signals. But is it too early to celebrate? Read more »