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Thursday, July 17, 2008

What's Not The Matter With Kansas

Philly Fed wasn't half-bad either:


I can't tell what's going on with unemployment claims. It's hard to separate autos from the school closing seasonal surge. Maybe next week....

The headline on housing starts and permits is misleading, because NYC changed its building codes July 1st, causing a big surge of authorization activity. But if you look at the regional detail, it really is decent. Authorizations in the south and west were both up on the month, and in the west single-family authorizations rose. What has happened is that building lots are selling for very little in some places, and sometimes you can get improved building lots almost free. Healthier builders can sometimes compete with market inventory. We are bottoming in some areas and still falling in others. Of course, this is bad news for some builders with a lot of land and completions in inventory! Completions rose in May and June.

Freight is still okay in the US. Truckline for May:


Rail traffic has been hard to correlate this spring. There was the auto strike earlier, and the huge midwestern floods probably depressed June's figures. For the second quarter, carloads were down 0.6 YoY and intermodal (more closely aligned with consumer/retail) was down 2.4% YoY. However the huge drop in carloads in June (3.6%) probably pushed carloadings for the quarter into negative territory. As the flooding abated, carloads have risen, and are still slightly positive (0.3%) YTD compared to 2007.

Treasury receipts show decent results for 2008, especially on FUT. FY to date (June 30, 2008 compared to June 29, 2007), FUT shows little change from the previous year, corporate income taxes are stabilizing, and WIET is holding well. FUT is such a strong predictor of employment that I am certain that the US economy would have hit trough and be slightly accelerating if it were not for fuel prices.

As it is, fuel prices will cause consumer spending in retail stores to be very constrained this winter, so the US economy has not hit trough. But there are aspects of the economy that have bottomed out and are resurging, and others that are very close to a bottom under current conditions. This is going to provide some support as the winter heating shock hits. There's some strength on the ground in this economy; the reads I am getting from a lot of small banks are good and business conditions are actually improving in some areas.

I'm guessing US trough 2nd quarter 2009. Bank failures might peak in 2010. Consumer and commercial debt defaults will be rising for some time.

Let's see. An idiotic move to raise taxes on businesses could blow my prediction up. There is some political uncertainty. A hurricane in the gulf would probably just jiggle things around but not make much difference. We really do need to open our public policies to domestic energy generation.

Some areas of heavy industry (look at UT, for example) might take a further hit as the EU recession hits Asia. We will need to replace some Asian exports with internal demand next year.

It will take several years for fuel prices to drop significantly, because the recent round of spot price inflation really hasn't been reflected all that much in consumer price levels.


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