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Tuesday, June 15, 2010

Empire State Manufacturing Survey

I read all these very month, but don't usually comment. But this one seems to show where we are so precisely! (Let's see if Philly Fed on Thursday agrees.)

There's an interactive version of the graph at the link. Note that current and general business conditions have generally been leveling out over the last few months. That's the end of the inventory replenishment cycle.

As with Chicago PMI, the details of the report show that manufacturers have been very restrained in inventory builds, which should mean that there is growth left. They did not overshoot.

This report was not wonderful, but was generally positive - while gains in employment were lower, employment was still rising and the average workweek was rising.

Of particular note, the special question was about 2010 capital spending plans:
In the current survey, nearly twice as many responding firms reported increases (46 percent) as reductions (25 percent) in overall capital spending in 2010—a marked contrast with the results of an identical survey conducted last June, which showed far more respondents reporting decreases (56 percent) than increases (20 percent). As for specific categories of investment, respondents, on balance, plan to raise spending on software, computers (hardware), and non-computer equipment, but to cut spending on structures.
Recoveries can only go as fast as they can go. This one has to be production-led.

Retail is showing a moderation, but higher levels of B2B activity will slowly boost jobs, incomes and increase economic activity. Tax receipts so far in June show nice YoY gains. I think this should be the peak period for Census-related WIET, but continued corporate gains imply that we have moderate growth left.

It is very difficult to quantify the impact of the Gulf spill - except that it is negative. For some local areas, it is strongly negative. But it is also true that a lot of money will be injected into the area in the form of indemnity and in clean-up efforts.

That is, it will if the administration doesn't overdo it and drive BP straight into bankruptcy. In that case, the flow of money would be deeply impaired. Bad as things are, taking an axe to BP will generate a much worse outcome.

I am not so sanguine as you (not that you were wildly so). We may have been up a hair, but it is still down significantly from earlier in the year. I suspect the increase was within the margin of error.

This caught my eye:

"As for specific categories of investment, respondents, on balance, plan to raise spending on software, computers (hardware), and non-computer equipment, but to cut spending on structures."

I read that as short payback, productivity investments, but no indication at all of expansion. It would also indicate a lot of the revenue is going to foreign sources.
"Bad as things are, taking an axe to BP will generate a much worse outcome."

I keep being amazed, astounded and overwhelmed by how abso-dam-lutely EAGER this Administration seems to be to "generate worse outcomes" by stomping their regulatory jackboots all over processes they haven't got Clue #1 about....
I think the fines alone would bankrupt BP considering the new oil spill estimates and the possible conclusion of negligence on BP's part. I do think that the average citizen of the coastal areas will wind up bearing the most pain, followed by the American taxpayer.
It was loose lending practices that created the credit bubble and now it is loose regulation that created the oil spill fiasco. We need regulations enforced not discarded for short term gain.
Rick - but it does imply enough increased channel activity to generate another slim rise in GDPI. Only that will prevent another downturn.

We'll see. All of this may be overtaken by blind government mismanagement. The private sector is groaning under shocks, and has to be left alone to recover.
Spork - The best outcome would be a heightened regulatory regime, but to get BP to pay gradually and leave it to operate to generate the income stream. The punitive urge, while understandable, seems likely to inflict another blow on the most affected areas.

Pulling their leases will put them under. Trying to take all their cash right now will put them under.
This is moral hazard writ large. BP will eventually file
BK once they have all their oily ducks in a row. This will stick you and I with the bill. i would propose
stripping BP of their assets and auctioning them off to raise the funds needed to repair the coast. I do not
believe they can continue with this disaster hitting their corporate balance sheet any way. They will put
their shareholders before all else. "No man can serve two masters. "
Anon - I don't think BP can escape claims through BK. At least as far as I am familiar with other such assets, these claims ride through BK.

I am concerned more with BP's ability to generate an income stream to pay claims!
Karl Denninger is talking about that this evening. Denninger's point is BP worldwide is not in play. Only the US based company is in play. If Obama and the administration push too hard, it may be the best (or only) solution for BP to just declare bankruptcy and let that process play out:


It is not clear to me what would happen if BP decided to just walk away (strategic default, anyone?). Would they just walk away from trying to stop the leak, too? Could this administration actually leave us worse off with all its thrashing around?

I also noticed that Destin is going to risk US suits and try to block the pass without USCG approval. I see also that Jindal is going to take action without approval, too. That could make for some really interesting proceedings. Will the US sue state and local for protecting their coasts from oil when the US hasn't gotten around to doing so itself. This may end up having some major ramifications for redefining federalism and the scope of US government power.
Rick - after watching the speech tonight, I'd be striking out on my own too. I don't know whether the various barrier plans will work, but the alternative is guaranteed failure.

You can't get blood from a stone. The US can only seize US-based assets from BP, and if the US tries to seize too much with threats, I am sure BP will just file for BK and let the US talk to the bankruptcy judge.

Yes, even in total tragedy one generally can worsen the situation when acting without reason.
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