The floods in the Midwest are driving up the price of corn to all-time highs. That is only one consequence of the latest in a series of natural disasters. Consumers are concerned that things could get worse. There was no major hurricane last summer or the summer before. There hasn't been an electricity blackout since 2003. This is not an economy strong enough to shrug off a shock like this. But the real problem, perhaps, is the lack of any positive event or trend to offset all the negative developments. The economy then, might continue to be soft this summer, if we are lucky.
Tuesday, July 1, 2008
Vehicle Sales
Despite low prices and low borrowing rates, vehicle sales remain minimal (about 15 million, annualized). They are not likely to pick up, despite low prices and deals on car loans. With consumer attitudes so low about how much worse the economy may get, consumers are spending more time looking at alternatives (like mass transit), rather than buying a new vehicle this summer. Fuel-efficient models are selling, for obvious reasons. But the market for new or used SUVs is moribund, for equally obvious reasons.
Thursday, July 3, 2008
8:30am Employment Situation (Bureau of Labor Statistics)
The May decline in jobs was not large. But it was the 5th straight monthly decline, with all signs pointing to more job losses this summer. The economy might have shed another 50,000 workers (manufacturing, construction, and a few service-sector jobs, which would exclude health and education). In short, the trend all through the first half of the year is likely to have continued at the second half of the year. And the concern is that there will be little change in trend until late in the year, if then.
This further implies that GDP growth was as weak in the second quarter as in the first, and probably will change little in the third quarter, which is about to start. But the year-over-year gain in average hourly wages was probably 3.4-to-3.5 percent in June, not much different from earlier this year. Simply put, sustained job weakness is still not enough to allow wage costs to fall.
Regionally, the Midwest and Northeast have been weak for some time. The South Atlantic region has gone from one of the strongest to one of the weakest. There is still some strength in labor markets in the West South Central, Mountain, and Pacific regions. If job declines start to pile up there, it would imply that this weak national economy will not return to a robust pace until 2009.
The Conference Board Employment Trends Indexes for the regions suggest conditions may not worsen but are some months away from even beginning to turn around. If there is no region turning around, this suggests a national turnaround is even further away.
The Leading Economic Indicators for five of the nine countries tracked by The Conference Board fell in the latest round of reports. The surprise is that the U.S. is not one of them, for a change. The U.S. and Mexico, along with Australia and Korea, all had a positive report in the latest round. U.K. and France all lost ground economically (and in the Euro 2008). Spain, Germany and Japan also lost economic ground. Energy and inflation are taking a toll around the globe. Central banks, including the Federal Reserve are debating whether the inflation threat outweighs concerns about growth. The inflation problem is global, and as such no individual country's monetary policy is sufficient to offset rising energy, food, transportation, and other costs. This is one reason why stock prices around the world have lost most of the gains of the past few months. The big worry is what is coming next, as the price of a barrel of oil hits an all-time high of over $140.
