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Friday, July 17, 2009
All Ears Tuned In to Bernanke's Testimony
Mark Lieberman, Senior Economist
FOXBusiness
This month, the nation’s recession reached a milestone by becoming the longest economic downturn -- into its 18th month
-- since the Great Depression. (Did you ever notice how the 43-month downturn from August 1929 through March 1933 is always
capitalized?)
There will be little in the way of data to definitively point to a near-term end to the current recession which began officially
in December 2007. We head into what might be the lightest data week of the year, which will mean we focus more on Federal
Reserve Chairman Ben Bernanke’s semi-annual Monetary Policy testimony.
The minutes of the June 23-24 meeting of the Federal Open Market Committee released in the week just ended hinted at what
Bernanke’s prepared remarks might contain by including revised economic forecasts from the members of the Fed.
The revised forecasts were mixed: overall economic decline as measured by gross domestic product not as steep as forecast
in April, but unemployment remaining high for a longer period. This is not quite a “jobless recovery” since contraction will
continue, but it's close.
The strongest evidence the recession may be winding down came with the report on housing permits and starts showing a sharp
rebound but that positive number follows a long string of seemingly favorable statistics with negative undertones.
In the case of the housing data, the higher level of permits and starts -- not merely for all housing but specifically for
single-family homes -- will only add to the glut of homes on the market and the inventory of unsold homes was exacerbated
by in increase in single family home completions in June. In May (the last month for which data are available), builders were
completing three homes for every two they sold. We can expect a similar ratio when June new home sales are reported July 27.
Another first-blush positive number was the report on retail sales showing a 0.6% boost, the fourth time retail sales have
improved in the last six months. But the June “improvement” was due to higher gasoline prices, not to revived consumer activity.
Retail sales are reported in “nominal” terms, that is the actual dollars spent so that when prices for a particular category
increase sales appear to have increased. Gasoline takes a significant piece of the consumer dollar and thus has a double impact:
it causes sales to increase but more significantly diverts dollars from other potential purchases. Indeed, the increase in
gasoline station sales -- $1.4 billion in June -- exceeded the increase in all retail sales (excluding auto sales) which meant
sales in some discretionary categories declined to accommodate spending on food.
Adding to the complicated mix: average hourly earnings in June were flat to May while average weekly hours dropped, so that,
in effect, hourly workers had less to spend and wound up spending more of it at the pump.
That was driven home with the real earnings report for June showing real earnings -- defined as the change in earnings adjusted
for price changes -- actually fell 1.2% from May to June, the steepest month-to-month decline since January 1996.
A third potentially misleading number was the report in initial jobless claims, which dropped to the lowest level since January,
a decline of 47,000 from the prior week and 86,000 in the past two. The number was not as good as it may have appeared since
it reflected adjustments applied by the Department of Labor to account for annual auto industry furloughs as plants are reconfigured
for new models. Those furloughs though took place earlier this year.
The fall-off in initial claims will likely be reversed in the coming week, but just optimism about the sharp drop had to be
dismissed, concerns about the offsetting increase shouldn’t set off alarm bells.
One bit of futuristic good news could come Friday, when the third phase of an increase in the Federal minimum wage kicks in.
The minimum will go to $7.25 an hour (from $6.55). While the number of workers directly affected by the change is relatively
small, since many companies maintain a wage ladder, far more workers will see slightly thicker pay envelopes -- with an estimated
$5.5 billion increase in purchasing power for individuals most likely to spend, not save, the increased take-home pay.
All that said, the numbers won’t detract from Bernanke who has expressed concerns about a jobless recovery. If he is not reappointed
as Federal Reserve chairman when his term expires next January, this could be Bernanke’s last Monetary Policy report to Congress.
Mark Lieberman is the senior economist for the FOX Business Network. Prior to joining FOX, he served as first vice president and manager of economic analysis and research at Washington Mutual in New York. Before that, he served as senior vice president at Dime Savings Bank of New York (which was later acquired by Washington Mutual), where he specialized in credit and risk management. He is a member of the Executive Committee of the New York Association for Business Economics. He has a degree in Economics from the Wharton School of the University of Pennsylvania.
MONDAY | July 20 | LEADING ECONOMIC INDICATORS (Jun) |
May actual: 100.2 UP 1.2 | ||
June Consensus: 100.6 | ||
Atlanta Federal Reserve Bank President Dennis Lockhart Speaks on the U.S. economy at The Rotary Club of Nashville | ||
TUESDAY | July 21 | NO DATA RELEASES |
Federal Reserve Chairman Ben S. Bernanke delivers semi-annual Monetary Policy Report Testimony to House Financial Services Committee | ||
WEDNESDAY | July 22 | MBA APPLICATION INDEX (Week ended: July 17) |
Total Index: | ||
Week Ended July 10: 514.4 UP 4.3% | ||
Four-week moving average: 500.1 DOWN 4.5% | ||
Purchase Index: | ||
Week Ended July 10: 258.8 DOWN 9.4% | ||
Four-week moving average: 273.6 UP 1.1% | ||
Refi Index: | ||
Week Ended July 10: 2,009.4 UP 17.7% | ||
Four-week moving average: 1,826.6 DOWN 8.9% | ||
No July 17 consensus | ||
FHFA HOUSE PRICE INDEX (May) | ||
April actual: 198.6 DOWN 6.8% Y-Y | ||
No May consensus | ||
Federal Reserve Chairman Ben S. Bernanke delivers semi-annual Monetary Policy Report Testimony to Senate Banking, Housing and Urban Affairs Committee | ||
THURSDAY | July 23 | UNEMPLOYMENT INSURANCE CLAIMS (Wk Ended Jul 18) |
Initial Claims: | ||
July 11 Actual: 522,000 DOWN 47,000 | ||
July 18 Consensus: 545,000 | ||
Four-week moving average: 584,5000 | ||
No July 18 consensus | ||
Continuing Claims (Wk ended July 11) | ||
Week Ended July 4: 6,273,000 DOWN 642,000 | ||
July 11 Consensus: 6,400,000 | ||
EXISTING HOME SALES (Jun) | ||
May actual: 4,770,000 UP 2.4% | ||
June consensus: 4,700,000 DOWN 1.5% | ||
MASS LAYOFFS (Jun) | ||
Announcements | ||
May actual: 2,933 UP 8.1% | ||
No June consensus | ||
Separations | ||
May actual: 312,880 UP 15.4% | ||
No June consensus | ||
Federal Reserve Governor Daniel K. Tarullo testifies on Regulatory Restructuring before the Senate Committee on Banking, Housing and Urban Affairs | ||
FRIDAY | July 24 | UNIVERSITY OF MICHIGAN CONSUMER SENTIMENT (Final) (Jul) |
June (Final) actual: 70.8 UP 2.1 | ||
July (Preliminary) actual: 64.6 DOWN 6.2 | ||
July (Final) consensus: 70.5 | ||
HOUSING VACANCIES AND HOME OWNERSHIP RATE (2Q 2009) | ||
VACANCIES | ||
1Q 2009 Actual: 2.7% DOWN 0.2 | ||
No 2Q 2009 Consensus | ||
HOME OWNERSHIP RATE | ||
1Q 2009 Actual: 67.3 DOWN 0.2 | ||
No 2Q 2009 Consensus |
FOX Translator
No data currently available.
No data currently available.
Real yields have curves; unless, of course, it's a flat yield curve.
The yield curve is exactly that: a curved line on a graph that plots the interest rates of several bonds with different maturity dates, starting one month all the way up to 30 years. but equal credit status. It's often used to predict interest rate changes and where the economy is headed. The rates are connected with those of everything from savings accounts to car loans.
Under "normal" circumstances, the longer a bond matures, the higher the interest rates, because longer-term investments generally pay more. So, economists love to see a "steep" yield curve, or one that goes progressively higher.
It doesn't always work that way. An inverted, or negative, yield curve has been referred to as the "evil twin" of the normal curve. Rather than rates going up over time, rates go down. This curve, which is rare, can occur in anticipation of an economic slowdown and is sometimes considered a precursor to a recession.
Finally, flat yield curves occur when rates are relatively constant from the short term to long term. This often signals economic uncertainty.