Today’s Census data show another decline in the number of single-family houses under construction:
Category: Macroeconomics
October Rail Traffic – Still Upbeat
October was another solid month for America’s railroads, according to the Association for American Railroads. October traffic was 11% higher than the depressed levels of a year ago:
Intermodal traffic (think trailers and containers) is up 14% over 2009, thus returning to 2008 levels:
Carloads (think bulk materials like coal, grains, minerals, and chemicals plus autos) are up almost 9%:
Quantitative Easin’
In the style of Barry White, Curtis Threadneedle considers the Fed’s expected Wednesday move:
Money quote (so to speak): “Lending short term–baby, that’s just teasing–I want to lend forever.”
P.S. If this reminds you of Merle Hazard, it should. Merle and Curtis are buddies.
Another Tepid Quarter for GDP
BEA released its first estimates for third-quarter GDP yesterday. Headline growth was a disappointing, if not surprising, 2.0%.
Here’s my usual graph of how various components of the economy contributed to overall growth:
Housing fell back into the red, while non-residential structures eked out a small gain. Consumers continued to spend at a moderate pace (consumer spending grew at a 2.6% rate, thus adding 1.8 percentage points to growth). But the big stories were the continued boost from inventories, and the continued drag (in GDP-accounting terms) from imports.
The pessimistic take on inventories (see, for example, this tweet from Nouriel Roubini) is that the third quarter build up was unintentional, and thus is bearish for fourth quarter growth. The optimistic take, I suppose, is that maybe businesses see stronger demand ahead. But that feels rather, er, speculative.
For my usual set of caveats about the import figures (and, therefore, all of these figures), see my last post on the GDP numbers.
U.S. Economy Word Cloud
Tim Kane at the Kauffman Foundation is out with his latest survey of economics bloggers (full disclosure: I am both an adviser to the survey and a participant in it).
My favorite feature this quarter is a word cloud of adjectives (and some adverbs) that the respondents offered to an open-ended question about the U.S. economy:
Among the more amusing responses from other bloggers: taupe and flirtatious.
You can find the full survey results here.
Home Construction Hits Yet Another Low
Housing starts and permits usually dominate the headlines on residential construction data day. In September, for example, single-family starts increased a healthy 4.4% (total starts increased 0.3%), and single-family permits rose 0.5% (but total permits declined 5.6%).
Those are certainly important measures, but I also like to look at a third measure of residential activity in the report: the number of single-family houses under construction.
That measure suggests that the housing market has continued to deteriorate in recent months:
The number of single-family homes under construction at the end of September fell to just 269,000, down about 14% from a year ago. I had once hoped that the housing market was putting in a bottom, with homes under construction plateauing at about 300,000. But we’ve now witnessed five straight months of declines.
August Rail Traffic, An Upbeat Economic Indicator
August was a busy month for America’s railroads, according to the Association for American Railroads. Traffic spiked up, as often happens during the month. More importantly, August traffic was 11% higher than a year ago (the same gain as reported in July):
Intermodal traffic (think trailers and containers) is up almost 20%, thus returning to 2008 levels:
Underemployment Moves Up in August
Friday’s job report was decidedly mixed. Private employers added 67,000 jobs–more than expected, but still tepid. Meanwhile the unemployment rate ticked up to 9.6%, and the U-6 measure of underemployment moved up to 16.7%:
Both the headline unemployment rate (U-3) and the underemployment rate (U-6) are below their peaks of late 2009, but have basically been moving sideways. That’s much better than the sharp increases in 2008 and most of 2009. But we have a very long way to go.
Further Signs of a Slowdown
As expected, BEA’s second stab at GDP growth for the second quarter was even less inspiring than the first. Headline growth was a tepid 1.6%, down from the 2.4% previously reported. Consumer spending and business spending on equipment and software were actually stronger than earlier estimates, but business structures, inventories, and exports all weakened, while imports (which deduct from GDP the way BEA calculates it) grew faster than previously expected.
Last month I pointed out one, small silver lining in the original GDP report: every major category of demand had increased. That is still true in the revised data, although structures just squeaked by with a miniscule 0.01 percentage point contribution to overall growth:
Investment showed particular strength. Business investment in equipment and software (E&S) grew at a 25% pace, thus adding about 1.5 percentage points to overall GDP growth. Boosted by the end (hopefully permanent) of the new homebuyer tax credit, housing investment grew at a bubble-like 27% pace (adding about 0.6 percentage points to GDP).
Despite solid growth in disposable incomes–up 4.4% adjusted for inflation–consumer spending grew at only a 2.0% pace. As a result, the saving rate increased to 6.1%, compared with 5.5% in the first quarter.
And then there are imports. As I’ve discussed before, BEA calculates GDP by adding up all the components of demand for U.S. products–consumers, businesses, governments, and export markets–and then subtracting the portion of that demand that is supplied by imports. That means that any growth in imports appears as though it subtracts from overall economic growth.
That happened in a big way in the second quarter. Imports grew at a brisk 32% pace, thus subtracting (using BEA’s accounting approach) 4.5 percentage points from overall growth. Which is why all those blue bars in the graph net out to only 1.6% GDP growth.
I should also note that BEA’s calculation of contributions to GDP growth, which I graphed above, is subject to the same criticism that I’ve leveled at the claim that consumer spending is 70% of the economy. In a perfect world, an appropriate share of the imports (the red bar) would be netted against each of the components of demand (the blue bars). The result would be a graph of contributions that would truly illustrate how much each category of demand actually contributed to U.S. GDP growth. I hope to take a crack at that in the future (but I said that last month, too).
The Yield Spread and the Odds of Recession
Worries about a double-dip recession have spawned much economic commentary … and a humorous country and western song. So how likely is a return to recession?
Researchers at the San Francisco Fed took a crack at this question a few weeks ago. Their answer? It depends.
When they used a traditional model based on the leading economic indicators, the probability of a second dip turned out to be about 25% over the next two years (the blue line). When they dropped one indicator from their model, that probability doubled to about 50% (the red line).
That important indicator is the yield spread–the difference between the 10-year Treasury interest rate and federal funds rate. In recent decades, the yield spread has done a terrific job at anticipating recessions. When the federal funds rate has risen above the 10-year rate, the economy has invariably fallen into recession.
As I noted briefly the other day, the relative steepness of today’s yield curve (10-year rate about 2.5 percentage points above the fed funds rate) thus suggests, by itself, that renewed recession is unlikely, despite recent weak economic data. On the other hand, there are reasons to believe that this time things are different (usually a scary phrase). After all, fed funds rate has been pushed down almost to zero and yet the economy no longer appears to be responding. That’s exactly the logic that inspired the SF Fed researchers to try their model without the yield spread.