NEW$ & VIEW$ (27 AUGUST 2013)

Durable-Goods Orders Drop 7.3%

(…) Outside of the volatile transportation category, durable-goods orders were still relatively weak for the month, declining 0.6%, the Commerce Department said Monday.

July’s decline was the first in four months. In June, total orders rose 3.9%, but were up only 0.1% excluding transportation.

Pointing up A key gauge of business spending—nondefense capital goods orders, excluding aircraft—fell 3.3% in July after rising for five straight months.

Crying face  This 3.3% drop offsets the 3.4% gain of the previous 2 months, deflating hopes of a strong rebound in capex.


(Doug Short)

So, housing is not as strong as it first appeared, now capex is deflating. What will Ben do? Oh! There also this coming:

Treasury to Hit Debt Limit In October

The Treasury said it would hit its borrowing limit in mid-October and be unable to pay all of its bills soon after, narrowing the window for maneuver on budget talks.

(…) The new mid-October deadline falls just two weeks after Congress and the White House must reach a separate agreement over how to fund government operations beyond Sept. 30, the end of the federal fiscal year. Failure to do so would trigger a partial government shutdown. (…)

The White House has spent several months working with a small group of Republican senators to discuss a budget agreement that some Democrats had hoped would clear the way for an increase in the debt ceiling. Those talks have not progressed beyond an early stage, people familiar with the process have said. (…)

Emerging Europe Haven in Selloff

Investors are turning to Central and Eastern Europe amid the selloff hitting markets in the developing world.

Stock markets in Central and Eastern Europe are up 1.2% in the past three months, compared with a 7.5% drop in emerging markets overall, according to index provider MSCI. These markets have risen 2.3% when Russian companies, which have been hard hit by falling commodity prices, are excluded.


Mug  German Business Mood Brightens

The Ifo institute’s business confidence index increased for the fourth consecutive month, to 107.5 in August from 106.2 in July, and hitting its highest level since April 2012.

Fingers crossed  Fall in Thai Exports Hides Good News for Southeast Asia  A fall in exports would hardly seem reason for Thailand to celebrate, but there are signs that the slump in demand from its key trade partners is easing, a picture reflected across Southeast Asia.

Thailand’s exports slipped 1.5% on-year in July and rose only 0.6% in the January-July period.

But that was better than declines of 5.3% in May and 3.4% in June, reflecting the fact that demand from China, Japan, the U.S. and E.U. – Thailand’s four largest export partners – is improving.

Vietnam on Monday reported a robust 11.6% on-year rise in August exports, slightly softer than July’s 13.7% gain but still strong.

In Singapore, non-oil domestic exports improved to a 0.7% on-year fall in July, after June’s 8.9% drop. Indonesia’s exports fell 4.5% in June from a year earlier after dropping 8.6% in May, while Philippine exports rose 4.1% in June following a 0.8% fall in May.

In Malaysia, June exports contracted 6.9% compared with May’s 5.8% fall, but that was better than economists’ expectations for 7.5% contraction.

How Much Household Wealth Has Been Recovered?

This is from the St-Louis Fed’s 2012 annual report:

The Federal Reserve reported March 7, 2013, that aggregate household net worth at the end of 2012 was $66.1 trillion, nearly back to its precrisis peak of $67.4 trillion, reached at the end of the third quarter of 2007. After falling to $51.4 trillion at the end of the first quarter of 2009, the subsequent increase of $14.7 trillion through the end of last year represented a recovery of 91 percent of the losses suffered. Does this mean that the financial damage of the financial crisis and economic recession largely has been repaired?


The simple metric of aggregate household net worth is misleading for at least three reasons. First, the effect of inflation is ignored. Consumer prices increased about 2 percent per year in the five and one-quarter years since the third quarter of 2007, reducing the purchasing power of a dollar by a total of about 10 percent. Therefore, a return to the previous nominal dollar peak does not mean that a given amount of wealth could buy as much as before.

Second, simple aggregate net worth does not adjust for population growth. The number of households increased by about 3.8 million between the third quarter of 2007 and the end of 2012, or about 3.4 percent. The wealth of all American households now is shared by more families than before.

Third, the recovery of wealth has not been uniform across families. Of the total recovery of $14.7 trillion between the first quarter of 2009 and the fourth quarter of 2012, $9.1 trillion, or 62 percent, of the gain was due to higher stock-market wealth. Stock wealth is unevenly held, with the vast majority of stocks owned by a relatively small number of wealthy families. Thus, most families have recovered much less than the average amount.

Clearly, the 91 percent recovery of wealth losses portrayed by the aggregate nominal measure paints a different picture than the 45 percent recovery of wealth losses indicated by the average inflation-adjusted household measure. Considering the uneven recovery of wealth across households, a conclusion that the financial damage of the crisis and recession largely has been repaired is not justified.

This next chart from the report is scary: the younger population lost 3 times as much as the median. Since they own little in equities, most of them are still deeply suffering from the crisis.


Unsurprisingly, consumer confidence has thus recovered to its pre-crisis level for the higher income segment while people in the other income segments remain substantially less upbeat. Note in the chart below that the black line includes all incomes over $50,000. I suspect that the $50-75 bracket would also not come out so buoyant.

On the one “end”:

McMansions Make a Comeback

The average size of a new home now exceeds the levels reached during the housing boom, the latest sign the market is catering more to older, more affluent buyers and less to younger and first-time buyers.

imageData released by the Census Bureau this month confirmed the trend and showed that the average size of a new home was a record 2,642 square feet in the second quarter, eclipsing the record of 2,561 square feet set in the first quarter of 2009. The average size has bounced between small gains and declines for more than a year, but the 5.2% jump in the second quarter was the largest quarter-to-quarter gain since the Commerce Department began tracking the data on a quarterly basis in 1987. (…)

Some builders say they are intentionally building bigger homes to justify higher prices they must charge to recoup the rising cost of land. Prices for finished lots increased 24% in the second quarter from a year earlier, according to housing-research firm Zelman & Associates. “If you pay top dollar for land, you need to build a bigger home on it to make money,” said John Burns, chief executive of a home-building consulting firm in Irvine, Calif. (…)

On the other “end”:

Stuck Working Part-Time? Blame the Economy

More than four years after the recession ended, nearly a fifth of American workers are part-timers, well above normal levels. More than 8 million people are working part-time because they can’t find full-time jobs. That’s given rise to fears of deep, structural shifts in the U.S. labor market due to technology, globalization or perhaps the new health care law, which will require companies to provide health insurance to full-time employees.

But a new paper from the Federal Reserve Bank of San Francisco argues there’s a simpler explanation for the rise of part-time work: the weak economy. (…)

The rise in part-time work during the latest recession wasn’t out of step with past downturns. At the height of the recession, about 20% of workers were part-timers, up from about 17% when the recession began. That’s worse than during the milder recessions of the 1990s and early 2000s, but actually a somewhat lower peak than in the severe recession of the 1980s.

What has been different this time around is the pace of recovery. The share of Americans working part-time has fallen since the recession ended in June 2009, but only very slowly. In recent months, it has even edged back up, though it’s too soon to say whether the uptick has been a real trend or a statistical oddity. (…)

But Mr. Valletta and Ms. Bengali dig a bit deeper into these involuntary part-timers, distinguishing between former full-timers whose hours have been cut back and those who have taken part-time jobs because they can’t find anything else. The first category has been declining fairly steadily during the recovery, though the progress has stalled a bit this year. But the second category has continued to trend upward.

In other words, fewer companies are cutting hours, but they aren’t yet hiring full-time workers. That pattern reflects another trend in the recovery: Layoffs have dropped back to pre-recession levels, but hiring remains slow. The problems are likely one and the same: Companies aren’t disproportionately hiring part-timers; they just aren’t hiring many workers at all. With jobs scarce, the unemployed are accepting whatever work they can find.

“It is more probable that the continued high incidence of individuals working part time for economic reasons reflects a slow recovery of the jobs lost during the recession rather than permanent changes in the proportion of part-time jobs,” the authors write. (…)

I am not convinced. The truth is that employment has increased since 2009 but unlike after past big recessions, full-time employment has seriously lagged. Companies have voluntarily cut full-timers and still improved productivity.



Debt Drags on China’s Growth

As worries over China’s debt problem mount, the burden of paying off those loans could be the trigger that tips runaway credit into slower economic growth and financial stress.

(…) Nationwide, four-and-a-half years of breakneck growth in lending has significantly increased China’s debt burden. Outstanding borrowing by businesses and households rose to 170% of gross domestic product at the end of 2012 from 117% in 2008, according to data from the Bank for International Settlements. The 2012 figure for the U.S. was 157%. (…)


There are few signs of imminent crisis. Bad debt levels in China’s banks are low. A high savings rate means bank deposits continue to accumulate, and a tightly controlled capital account makes it hard for funds to go anywhere else.

And Beijing has multiple tools to manage problems. In many cases, lenders and borrowers are both state-owned. Central government debt is low.

Even without a crisis, though, rising costs of repayment still threaten to choke growth, already testing a 20-year low. If money is used to service debt, companies can’t invest as much as they otherwise would and local governments might have to limit what they spend on crucial public services. (…)

That adds fragility to an overstretched financial sector, which might have to slow lending if bad debts mount. Bank loan books have already doubled in size since the end of 2008. (…)

Given existing debt levels, an increase in lending rates of one percentage point would add almost two percentage points of GDP to the annual burden of repayment.

A key fault line is the repayment capacity of China’s local governments. Since the 2008 financial crisis, town halls around China have borrowed heavily to pay for a splurge in spending on roads, railway and airports. With many of those projects generating little or no returns in the short term, repayment is a challenge and some local governments are taking on more borrowing to repay existing loans. (…)

China also appears to be getting less bang for every dollar that is borrowed. Credit expanded about 20% year on year in the first half of 2013, while GDP increased just 7.6%. One possible reason: New debt is being used to repay interest on loans rather than make productive investments. (…)

The FT has been hitting on the same nail: The debt dragon
China’s credit habit proves hard to kick

Some of the FT charts:








China Construction Bank Sees Bad-Debt Risk

China Construction Bank Corp. 601939.SH -0.47% encountered a surge in overdue loans during the first half of the year and could face a “hidden crisis” if the situation worsens, its top official warned on Monday.

Speaking at a news briefing on Monday, Mr. Wang said nonperforming loans remain a small portion of outstanding total loans. Still, he said, nonperforming loans at CCB had risen rapidly compared with a year earlier.

There has been “a big rise in overdue loans, and that is a hidden crisis for nonperforming loans.”

Loans are generally classified as overdue before a bank categorizes them as nonperforming.



Study Shines Light on Fracking

So much oil and water is being removed from South Texas’ Eagle Ford Shale that the activity has probably led to a recent wave of small earthquakes, according to a study that appears in the online edition of the journal Earth and Planetary Science Letters.

The Wall Street Journal reviewed the findings in advance of publication. The peer-reviewed study’s authors suggest that taking oil and water out of the ground allows surrounding rock and sand to settle, triggering small tremors that are typically too weak to be noticed on the surface.

The new study doesn’t find much evidence that the man-made fracturing is causing earthquakes all by itself.

Netherlands fracking moves step closer
Government report says risks are ‘manageable’

(…) The report by the consultancies Witteveen and Bos, Arcadis, and Fugro acknowledges the risks but says the possibility of groundwater pollution is “very small”, partly because Dutch shale gas reserves lie much deeper than those in the US, at three to four kilometres rather than 1.5. (…)

France and Bulgaria have banned fracking altogether, and there has also been strong resistance in some German states. Yet America’s Energy Information Administration puts Europe’s recoverable reserves on a par with America’s. (…)

The final word:

Winking smile  Washington DC Drivers Ranked Most Accident-Prone  That’s because they are DRIVING BLIND.


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