RECESSION ALARM

[unlawflcombatnt]

The Recession Alarm has officially been sounded. According to Briefing.com, "The recession alarms go off when the cumulative 6 month decline exceeds 1.0% amid a string of 3 or more consecutive monthly declines...With a 5th consecutive decline and a cumulative 6-month decline exceeding -1.0% the index suggests an economic contraction..." There has actually been a 6 month decline of -1.4%.
Note: economic "contraction" = RECESSION.

It is of interest to note, however, that Briefing.com is calling this a "false alarm." That's what financial experts always claim, when their own criteria result in a negative finding. (There must be some reason our criteria led to an incorrect conclusion, because we just don't want to accept it. And we don't want the public to accept it, either, because they'll stop spending and investing.)

It's nice to know our financial "experts" are completely unemcumbered by any sense of truth or honesty. The link for the Leading Indicators is at: http://www.briefing.com/GeneralContent/Active/PrintPage/PrintPage.aspx?PageId=217

unlawflcombatnt

EconomicPopulistCommentary

http://www.unlawflcombatnt.blogspot.com/

________________________________
Investment does NOT create jobs. It only "allows" for their creation. Only DEMAND for goods creates jobs, because it requires workers to produce goods. Investment may "permit" job growth, but only DEMAND necessitates it.

[Karenina]

1. It's really sad.

Seems no one is paying attention... :shrug:

[Coexist]

2. has this been reported anywhere else?

My husband won't believe it unless it is from a major financial source.

[unlawflcombatnt]

6. RECESSION ALARM

I haven't seen the recession alarm notice reported anywhere else. I doubt that I will. I recommend to everyone to simply go to the Briefing.com link, and come to your own conclusions. Briefing.com is one of the sources on Yahoo that publishes economic calendars. As of yet, I haven't found another source that has stated criteria for a "recession alarm." I suspect there are some, however.

Certainly no one in the financial world wants to alarm the public. People might reduce their future investments, and reduce the overvaluation of the stock market. They might even stop borrowing off the overvalued equity in their homes, and reduce their debt-financed spending. (Heaven forbid the general public might be "deceived" by the reporting of actual facts, or the dangerously honest assessment of those facts.)

I've been watching Briefing.com's "Leading Indicator" reports for almost a year. Originally, I thought they'd stated that a "recession alarm" would go off when Leading Indicators had declined for 3 consecutive months. When that finally did happen, it seemed they added an extra condition -- that the 6-month total decline had to be at least 1%.

Now that their criteria have been met again, they're simply claiming it's a false alarm. How convenient. In addition, they've printed in bold letters underneath the recession alarm notice, that they disagree with their own interpretation. This is the 1st time I've ever seen them use bold print in that area. They are terrified that readers might accept their initial recession alarm interpretation, rather than the subsequent re-interpretation that it is incorrect.

They're in effect saying that, even though their OWN recession alert criteria have been met, they still think it's a false alarm. (I suspect they were still claiming we weren't in a recession in 2001-2002. I suspect they were still claiming the stock market was doing well when the Dow Jones was below 8500 and declining.)

This kind of reporting is just further evidence that financial analysts, like the Bush administration, will take even the most negative information, and put a positive spin on it. This forces lay people to do their own research, and draw their own conclusions.

This is a sad state of affairs. But we simply cannot trust the government, media, or financial world to give us unbiased information. They're simply publishing self-serving propaganda, and nothing more.

unlawflcombatnt

[Coexist]

7. I noticed that qualifier in bold,

that's why I asked if it had been seen anywhere else. Thanks for the info.

[Chicago1]

3. Thanks for the heads up

Your information is always apprecaited.

America's Work Stories
http://usaworkstories.blogspot.com
[e-mail]

[Jeff In Milwaukee]

4. I'm certainly no economist...

but looking at April's numbers, it appears as though if it weren't for the rise in building permits (people locking in low interest rates while there's still time?), the Index would have been severely in the toilet. Am I reading that correctly?

I don't see any reason to call this a "false alarm," especially with consumer expectations and consumer goods orders so clearly on the downside.

[Nikki Stone 1]

9. Didn't Greenspan just come out "worried" about the inflated housing market

That is what concerns me most right now. Housing prices are terribly inflated. It makes me think of the hyperbolic overvaluing of Tokyo real estate right before the Asian stock markets crashed, starting with Thailand in the mid 90s.

[Jeff In Milwaukee]

16. I think he made comments on the subject

a week or two ago -- only after some real estate experts started warning about the issue nearly a year ago. Alan Greenspan -- always fighting the last war!

I'm concerned, too. I just bought a house and I certainly don't want to see me equity vanish overnight.

[Igel]

5. I have a question about the graphs and the chart.

The graphs are mostly leading indicators.

Is the chart a summary of the data, or kinds of data, that produced the charts? I.e., is it referring to actual unemployment and production, or to those things that are usually harbingers of declines in employment and production?

The question is not trivial.

(Even overlooking the difference between the definitions used by your link and the NBER, which is much more widely cited in determining the endpoints of a recession.)

[unlawflcombatnt]

10. Leading Indicators

The chart with the blue bars shows the leading indicators. "Leading indicators" consist of 10 different measurements:

Manufacturing Workweek
Initial Unemployment Claims
Consumer Goods Orders
Vendor Performance
Nondef. Capital Goods Orders
Building Permits
Stock Prices
Real M2
Interest Rate Spread
Consumer Expectations


These don't directly measure production, but they do measure the initial unemployment claims. They certainly do NOT seem all inclusive to me. My point was that Leading Indicators are often used to measure the success of our economy, and there has been an overall downward trend in these measurements over the last year. Briefing.com has defined their "recession alert" criteria numerous times. I just find it disingenuous that when their criteria ARE met, they call it a "false alarm."

Again, if you're suggesting their "criteria" are not completely representative, I COMPLETELY AGREE. Their criteria ignore an important consensus statement by economists -- that 2/3 of economic activity is due to consmer spending. These indicators poorly represent that 2/3. I certainly DO have issues with that.

My own opinion is that average, AGGREGATE inflation-adjusted weekly income is more important than ANY of the individual indicators given. This is the money available to buy American production. If income is added to consumer borrowing, this is the best index of the maximum amount of money consumers can spend. And consumer spending cannot be maintained indefinitely by increased borrowing. So the long-term limit on consumer spending is consumer income. The most important fraction of that income is Aggregate American wages. (Increased income from bonuses to CEOs, and dividends to affluent stockholders, does little to increase consumer spending.)

Apparently, the financial world does not share my views (though they ARE shared by most non-Neocon economists). Apparently they consider consumers' ability to BUY American products of minor importance. Given that 80% of American production is purchased by Americans, this seems to be a major omission. But accepting the importance of consumer spending would not support their agenda. It would conflict with arguments favoring tax cuts for the top 2%. It would conflict with the "investment creates jobs" myth, and the "more investment creates more jobs" corollary. After all, we can still make profits off goods we can't sell, can't we? Can't people spend money, even if they don't have any? Some seem to think so.

unlawflcombatnt

[Coexist]

8. Help me out here, please - I am not knowledgable in this area

I got this when I googled recession description:
http://economics.about.com/cs/businesscycles/a/depressions.htm
<snip>
Recession: The Newspaper Definition
The standard newspaper definition of a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters

and this when I googled U.S. GDP 2005
http://www.finfacts.com/irelandbusinessnews/publish/article_10001968.shtml
<snip>
US GDP rises 3.5% in first quarter 2005
By Finfacts Team
May 26, 2005, 18:56

So my question is - does this mean that we can't be in a recession? Serious question - please educate me.

[unlawflcombatnt]

11. GDP vs. Leading Indicators

I think you're a lot more knowledgeable than you think.

The GDP increase and the Leading Indicator ARE in direct conflict. That's really part of the point I was making in my previous posting, "GDP vs. Economic Growth."

I think the GDP equation has serious flaws, when it is used to determine economic "growth." I think "Leading Indicators" also has serious shortcomings. I think the Leading-Indicator Recession Alarm is meant to be a recession warning, only. But again, I distrust government statistics, and I'm skeptical of their GDP measurement.

The formula,

GDP=ConsumerSpending+Investmnt+GovtSpending+TradeBalance,

has some serious shortcomings. For one, it implies that a lack of consumer spending can be made up for by (capital) investment. That may be true over the short-term, but it is illogical in the long-term. Consumer spending is 2/3 of all economic activity. If it declines, how can investment compensate? Investment is supposed to provide for increased production. How does that compensate, if consumer spending goes down? Doesn't business have to SELL the products to make a profit? How can they sell more product when consumer spending goes down? Will increased investment, and the increased production it provides, make up for decreased sale of products? Can MORE money be made with LESS dollars of sale? Not usually. It simply doesn't make sense. Yet that is exactly what the GDP equation suggests, and that's how they arrive at their 3.5% GDP increase.

Furthermore, they actually add surplus inventories into the "investment" part of the equation. Again, should un-sellable products be included in GDP? Does an unsellable product contribute to profits? Would production of square wheels increase GDP? How could that possibly compensate for decreased dollars in sales?

I'm going to insert my previous posting on GDP vs. Economic Growth here. It may get deleted, but I'll at least try.

_________

GDP vs. ECONOMIC GROWTH


The GDP equation is as follows:

GDP=ConsumerSpending+Investmnt+GovtSpending+TradeBalance

Economists state that consumer spending, or consumption, is 2/3 of all economic activity. It's the generally accepted consensus that consumer income is the biggest determinant of consumer spending. Logically, it is essentially the only long-term determinant of consumption. (Consumption financed by borrowing cannot last indefinitely.) Thus, consumer income is the biggest determinant of GDP.

Interestingly enough, debt-financed consumer spending is also included in the GDP equation. So consumer spending includes the sale of goods bought with money that doesn't even exist. Much of consumer spending is financed with money from home equity loans. Does such spending really indicate economic "growth," or is it economic "fantasy"? Does increased debt really indicate economic "growth"? Don't we have to pay that back some day? Does the overvaluation of assets in the real estate market and stock market really indicate economic growth? When money borrowed off these overvalued assets is used to prop up consumer spending, does that really contribute to economic growth? Should this "overvaluation-financed" spending really be added to GDP? The truth is, the GDP equation becomes a less accurate indicator when workers are compensated more poorly.

Investment, and investment capital, only have value if they increase the amount of goods SOLD. (It's SALE of goods that create profits, not production.) If consumer spending is low, obviously less investment capital is needed. In spite of this, the equation allows for investment capital to actually make-up for decreased consumer spending. This is simply illogical. If consumers are NOT spending their money and buying more goods, what benefit is there to building more factories? How can anyone call that economic "growth"? Basically, this allows the government to falsely state that the economy is "growing," while the sale of goods is declining.

Also included in the "investment" category is unsold inventory. So by this equation, the economy can "grow" by building more unused production facilities, and producing more un-sold goods. So if someone produces goods nobody can afford to purchase, the "assumed" value is simply added to the total.


If income is reduced, shouldn't it affect the other factors? If so, how would it affect them? Let's start with investment. Investment will not make any real contribution to GDP if consumer spending declines. Increased investment is supposed to increase production. If income falls, so does demand for production. If demand falls, there is NO benefit to increased investment. There is no need to build more production facilities or provide more services, if there is no demand for them. Excess "investment" would simply go into corporate coffers, in the form of CEO salaries, stock holder dividends, "cash-on-hand" and bank accounts. In actual reality, as opposed to economists' "pseudo-reality," this investment would add absolutely NOTHING to GDP in the long-term. (It's mis-allocated money that would have contributed to GDP, if it had it gone toward consumer spending.)

How about government spending? Government spending is financed exclusively from taxes. Taxes subtract directly from private wealth. Thus, government spending reduces private wealth, dollar-per-dollar. However, the "marginal propensity to consume" concept needs to be considered here. (Which basically states that the more affluent devote a smaller percentage of their wealth towards consumption. The more affluent they are, the smaller the percentage.) Taxes on lower income individuals reduce consumption more than those on higher income individuals. Taxes directed mainly at consumers, such as sales tax, reduce consumption spending dollar-for-dollar. In contrast, taxes on corporations primarily reduce investment spending. Thus, the type of taxation affects how much it subtracts from consumer spending. But it is clear that government spending subtracts significantly from consumer spending. In addition, reduced consumer income reduces the money availabe for taxation. Government spending cannot make up for consumer spending reduction. Not only does it depend on consumer income, it subtracts from consumer spending directly.

In summary, the GDP equation is almost overwhelmingly dependent on consumer income. Labor cost reductions reduce income, and GDP. When $90/day workers are replaced with $2/day foreign workers, consumer income drops. Consumer spending then drops as well, further reducing demand for goods and services. The increased profits made from the labor cost reduction do NOT help the economy. The increased investment capital that results has NO benefit when consumption drops. It merely provides a short-term gain in profits, at the expense of a long-term loss in GDP. Unfortunately, many "experts" have a blindspot to this simple mathematical reality.

unlawflcombatnt

EconomicPopulistCommentary

http://www.unlawflcombatnt.blogspot.com/

_____________________________
Investment does NOT create jobs. It only "allows" for their creation. Increased Demand for goods creates jobs, because it necessitates hiring of workers to produce more goods. Investment "permits" job growth. Demand necessitates it.

Building a factory does NOT create jobs. Demand for production DOES create jobs. Goods are not produced if there is no demand for them. Without demand for goods, there is no demand for workers to produce them. Without demand, no amount of investment creates jobs.

[Coexist]

13. wow - I was actually able to follow that - thank you

another problem I see - is that if consumer spending goes down (Jane and John Smith are worried about the economy affecting their jobs, maxed out on their credit cards, home equity loans at 110% of home value) how the heck are they supposed to be able to now INVEST?

That makes no sense to me - or am I taking a view that is too simplistic?

[unlawflcombatnt]

15. Right on target

You're right on target about investing. The question is not only how are you supposed to invest, but why would you want to? How can you make money off your investment, if consumers buy LESS dollar-value of products? You'll simply overvalue what you invest in. Can your investment really yield returns, if product sales go down? Isn't that how businesses make money -- by SELLING goods? Or is excess investor money simply channeled into CEO salaries and bonuses?

[Coexist]

17. thanks for the lesson

I hope the extra investor money isn't going into a Golden Parachute fund. That would really suck.

[unlawflcombatnt]

22. Extra Investment Money

What's really bad is when corporate CEOs run the company into the ground while taking home large salaries and bonuses. Then when it goes bankrupt due to their bad management, they escape with their own money. Meanwhile, the employees and small shareholders pay for their bad management if the company goes under.

When a corporation declares bankruptcy, some money should come out of the CEOs" own personal wealth. As it stands now, the most culpable person often gets hurt the least. CEOs have often extracted all of their money from the corporation, prior to letting it go under.

unlawflcombatnt
EconomicPopulistCommentary
http://www.unlawflcombatnt.blogspot.com/
________________________________
Investment does NOT create jobs. It only "allows" for their creation. Only DEMAND for goods creates jobs, because it requires workers to produce goods. Investment may "permit" job growth, but only DEMAND necessitates it.

[Nikki Stone 1]

14. A question

Re: consumer spending and investment

"How can they sell more product when consumer spending goes down? Will increased investment, and the increased production it provides, make up for decreased sale of products?"

If we assume the investment is being made for sales in another market (not domestic consumers) would that change the argument?

[unlawflcombatnt]

18. Investment in foreign market

That's a good point. Investment in a foreign market certainly would change that some. But keep in mind that by far the largest market in the world is the American consumer market. That's because we have the highest aggregate consumer income in the world. Investment in markets with low aggregate consumer income is going to be a lot less profitable. No foreign countries have as much spendable income available to purchase our production. None are even close. As such, none of those markets have nearly as much overall investment potential. Also, according to the media, most countries are doing worse than we are economically.

Again, the benefit of investment is determined ultimately by the sale of products the investment provides for. It's difficult to substitute a lower-wage, lower spending foreign market for the American market. Even a rapidly expanding economy, like that of China, provides only a limited market for sale of production. Workers simply don't make enough money to buy very much.

The truth is that many exporting countries are highly dependent on the American consumer market. Investing in production in a foreign market may be of some benefit, but it is certainly limited.

unlawflcombatnt
EconomicPopulistCommentary
http://www.unlawflcombatnt.blogspot.com/
________________________________
Investment does NOT create jobs. It only "allows" for their creation. Only DEMAND for goods creates jobs, because it requires workers to produce goods. Investment may "permit" job growth, but only DEMAND necessitates it.

[Fire Walk With Me]

12. Brings back memories of Bush 1's "Double-Dip" Recession

http://hnn.us/articles/1006.html

Would a War with Iraq Doom Us to a Double-Dip Recession?
By Robert Brent Toplin
Mr. Toplin is Professor of History at the University of North Carolina at Wilmington.

"Since the end of 2001, President George W. Bush has been rattling his saber in the direction of Saddam Hussein, threatening war with Iraq. During this period, oil prices have surged by 46 percent, and the U.S. economy, which had been showing signs of recovery near the end of 2001, has become limp. The connection is significant. In the current economic environment, talk about war is not cheap.

Alan Greenspan, chairman of the Federal Reserve Board, has observed an interesting “coincidence” related to the recent history of oil. All recessions since the 1970s came on the heels of higher energy costs. The first price boost occurred after 1973, when OPEC established an embargo on petroleum. A second surge appeared in 1979 in response to the Iranian revolution and additional production cutbacks by OPEC. A third recession occurred when prices rose after Iraq’s invasion of Kuwait in 1990."

[ebayfool]

19. Well, looky at that! Was Greenspan accidentally right on this?

"All recessions since the 1970s came on the heels of higher energy costs."
------
Makes me feel like I invested in the right things for now ...

my garden, my pantry, my medicine cabinet & my tools.

[Coexist]

20. and we do certainly have that, don't we.

[unlawflcombatnt]

21. Oil Price Increase

You're right about energy prices. Higher energy prices have been involved with most recent recessions. I'm not sure I understand why, but the stock market is VERY responsive to oil price changes. Wall Street, at least, considers it important.

unlawflcombatnt
EconomicPopulistCommentary
http://www.unlawflcombatnt.blogspot.com/
________________________________
Investment does NOT create jobs. It only "allows" for their creation. Only DEMAND for goods creates jobs, because it requires workers to produce goods. Investment may "permit" job growth, but only DEMAND necessitates it.

[unlawflcombatnt]

23. RECESSION ALARM called off by CHANGING STATISTICS

Just when I thought the government, and its propaganda agents couldn't stoop any lower, they have sunk to an even newer low. They have CHANGED the information in the "recession alarm" report. In this case, the culprit is publisher of Leading Indicators. The publisher is the pseudo-private Conference Board ("pseudo," because they are paid by our tax dollars.) In reality, they're a government controlled propaganda disseminator.

This is not the first time I've seen them favorably alter their statistics, or favorable change their own method of calculation. They have actually arrived at a new method for calculating interest rate spread. And of course, it ALWAYS leads to higher readings, causing the Leading Indicator reading to be higher. What a surprise!! I'll post this new distortion, I mean revision, in another post.

For those of you who copied down the information on leading indicators, you'll be able to see the new "update." The April index of leading indicators was revised upward to a 0.0% change. This change is due almost exclusively to the + 0.7% addition made to "consumer goods order."

It starting to appear like we can't possibly EVER go into a recession. The Bush administration will simply change the statistics to show otherwise.

Here is the new statement from "Briefing.com", regarding their new distortion/revision:

"The cumulative 6-month decline now exceeds -1% as theApril revision steal away the (absurd) recession warning."(emphasis mine.)
Briefing.com sees the current economy strong and self-sustaining and the index provides a false read on future economic growth.
2/3 of the five month decline comes from 3 components: reduced mfg deliveries (to rebound with orders), a narrowing interest rate spread (low long term ylds) and falling consumer expectations (which rebounded 13% in June).
In May nine of the ten components showed declines. Only the stock market showed a gain.
Coincident index has shown only one monthly decline over the last year and a half."

I'll try to post the graphs of the leading indicators, both the before and after. Also, you can see where the change was made by viewing the start page for Briefing.com at

http://www.briefing.com/Siver/Calendars/EconomicCalendar.htm

This must be the "revisionist" history Bush is always talking about.

[PsycheCC]

25. How Can They Just Change the Numbers to Fit the Bush Agenda?

This is starting to sound like the Iraq War. They didn't like the numbers leading to a Recession Alarm, so they just arbitrarily altered the number to stop the alarm??? Is that even legal? And these guys are paid with TAX DOLLARS!

Unlawful, you're bringing me down here... :cry:

[unlawflcombatnt]

28. Number changes

I think it is legal for them to change the numbers. Especially if they made them up in the 1st place. They call these changes "revisions." It's amazing how many times such "revisions" take place.

I still remember one hilarious example from last year. In December, they claimed that the new home sales rate had decreased 12% from October to November. In other words, the annual new home sales rate had dropped dropped 12% in 1/11th of a year. Can that actually happen? If sales had been 0 in November, it would have dropped the annual rate 9%. So 12% isn't even possible, unless some homes had become "un-sold." Of course with the Bush administration, anything is possible. The government just states that new information came in, or something along those lines.

Who knows, maybe Bush will go back and retroactively claim an additional million jobs were created in his 1st term. The Republicans are pretty good at after-the-fact revisions. After all, we didn't go into Iraq to find WMDs, we went in to spread democracy. That's what they told us in the first place, isn't it? They wouldn't lie about a thing like that, would they?

[PsycheCC]

29. You Crack Me Up, Unlawful!

"Who knows, maybe Bush will go back and retroactively claim an additional million jobs were created in his 1st term. The Republicans are pretty good at after-the-fact revisions. After all, we didn't go into Iraq to find WMDs, we went in to spread democracy. That's what they told us in the first place, isn't it? They wouldn't lie about a thing like that, would they?"
:applause: :rofl:

Of course not! They would NEVER do something like that!

[BlueStateBlue]

30. They do it all the time n/t

[unlawflcombatnt]

24. Recession Alert

Though the Conference board managed to statistically manipulate its way out of a recession alarm, the economic conditions measured by the leading indicators still look bad. Leading indicators have declined by 1.9% over the last twelve months. Over the last 6 months, there has been a 2.2% annual rate of decline. According to economist Robt. Brusca at FAO Economics, "the decline in the (index) is just what we had seen before the 2001 recession began." This statement is confirmed by Jason Schenker at Wachovia Securities who states:"Year-over-year the (index) is down by 1.9%, and the last time this happened was in April 2001, in the midst of the last recession." These statements come from an AFP article posted on Yahoo News on June 20th. The title of the article is "US leading indicators suggest US economy cooling."

[PsycheCC]

32. Recovery? What Recovery?

Unlawful said, "According to economist Robt. Brusca at FAO Economics, 'the decline in the (index) is just what we had seen before the 2001 recession began'."

I don't know how many times I've heard similar remarks. Some version of "We're right back where we were before the 2001 recession." What I want to know is: Where's the Recovery? Did I pull a Rip Van Winkle and miss it? No one I know personally saw it either. Reminds me of the little old lady in the Wendy's commercial hollering "Where's the BEEF?" This was definitely a meatless recovery.

Laughing at my own joke---> :rofl: (love those emoticons)

[unlawflcombatnt]

36. Where's the Recovery?

The leading indicators have been trending downward for over 6 months. Wages, after adustment for inflation, have also declined.

What hasn't declined?

1. CEO salaries
2. Corporate profits
3. Consumer Price Index
4. National Debt
5. Military Spending
6. Number of people below the poverty level
7. Number of those unemployed
8. Number of people who can't afford a home
9. Number of people without health insurance
10. Number of people who've lost their pension plan
11. Number of people whose real wages have decreased
12. Percent of the tax burden paid by the bottom 98%

Does this add up to a "recovery"?

[julianer]

26. It's worse than you think

in all probability.

The world economy is teetering on the precipice of a 20's style crash.

Here's a left-wing site's take on the deficit. It links to other articles on the world and US economies:

http://www.wsws.org/articles/2005/jun2005/usde-j21.shtml

[unlawflcombatnt]

27. Trade & Budget Deficits

Julianer,

Thanks for that link. I'd like to post some of the statistics given at that site.

For the 1st quarter of 2005, the U.S. balance of payments deficit rose to $195.1 billion. This is the highest level ever. This is a 3.6 percent increase over the previous quarter's record of $188.4 billion (the final three months of 2004.) At the 1st quarter's rate, the annual rate would be $780 billion.

The current account deficit for 2004 was $668.1 billion. This was an increase of 28.6 percent over 2003, when the deficit was $519.7 billion. Again, at the current rate, the 2005 deficit will be $780 billion.

We need to "change the course." And real soon.

unlawflcombatnt

______________________
Capitalism cannot function without consumer income. The benefits of capital investment are limited by consumers' ability to buy the products of capital investment. There must be balance between the "means of consumption" and the "means of production."

[unlawflcombatnt]

31. Existing Home Sales Declined

Existing Home Sales declined by 0.7% this last month, from an annual rate of 7.18 million to 7.13 million. The link for the story is below.

http://news.yahoo.com/s/ap/20050623/ap_on_bi_go_ec_fi/economy;_ylt=ApXomcmYuDedzPjjhOxLWmOs0NUE;_ylu=X3oDMTA3bGI2aDNqBHNlYwM3NDk-

The financial commentators/spin doctors preface this report by saying that this is the "2nd higest total ever." But it also denotes an annual sales rate decrease of 50,000 homes. I wouldn't consider this positive news for the real estate industry.

unlawflcombatnt

[unlawflcombatnt]

33. Dow Jones Drops 300 in 2 days

The Dow Jones dropped 123 points today, following a decline of roughly 190 points on Thursday, June 23rd. The Dow Jones was just under 11,000 in early March. It closed today at 10,297. The link for this is
http://finance.yahoo.com/q/bc?s=%5EDJI&t=5d&l=on&z=m&q=l&c=

Anyone who claims the economy is doing well is really putting some spin on recent statistics.


unlawflcombatnt

EconomicPopulistCommentary

http://www.unlawflcombatnt.blogspot.com/

______________________
Capitalism cannot function without consumer income. The benefits of capital investment are limited by consumers' ability to buy the products of capital investment. There must be balance between the "means of consumption" and the "means of production."

[Coexist]

34. my husband just put some of our money back into the market

last week, after we took it all out in December - should we wait it out or get the heck out?

[unlawflcombatnt]

35. Stock Market

FLDem5,

You've asked a good question. Before I give you my opinion, however, I should warn you that I am NOT a stock market expert. Though I understand a number of things about it, my opinion should be viewed as that of a complete amateur.

That being said, I can tell you what I've done. I've pulled EVERYTHING I had out of the stock market. In my opinion, it WILL sink again. When is another question.

All of my IRA money is invested in GOLD bullion (coins). I'll discuss this a little more later.

My understanding of the current stock market is based on some very simplistic ideas. Most economists not involved with the stock market state it is overvalued. The price to earnings ratio is very high.

A high "price-to-earnings" ratio means to me that companies are "glutted with capital," and that the sales of their products are lagging behind. The "earnings" are certainly affected by product sales. The price is affected by consumer demand for the stock. So I would interpret this as the demand for stocks is in excess compared to sales and profits.

Now let me digress to consumer demand and product sales. Inflation-adjusted hourly wages have DECREASED. Since the end of January 2005 through May 2005, inflation-adjusted hourly wages have decreased 1.8% (from $8.32/hour in January to $8.17/hour in May) Again, these are inflation-adjusted wages calculated by the Bureau of Labor Statistics. At this rate, hourly wages are decreasing at a 5.4% annual rate.

It seems likely to me that consumer spending will decline, as a result of decreasing consumer income. Assuming "earnings" are related to product sales, it seems earnings would also decline. In theory, this would result in a further increase in the price-to-earnings ratio. In my opinion, as this P/E ratio increases, people will starting selling their stocks. This will result in stock price declines. Once they start declining, it becomes a self-perpetuating decline, impeded only by those who think it's going to go back up.

The stock market appears to be very responsive to oil price changes. I definitely do not understand why it responds as much as it does. But an oil price decrease might push the stock market back up.

From all of this, I can't see any reason to think there will be a sustained rebound. With the current ECONOMIC TERRORIST in the White House, I can't see any way the wage decline won't continue. Even Warren Buffet has lamented the "lack of good investment opportunities."

Again, I have no money in the stock market. My opinion is that it will decline. My IRA account is exclusively in gold bullion. I doubt I'll get rich off of it. But I won't go broke either. Gold sells for $440/ounce today. It was $280/ounce when Bush took office. The Dow Jones was near 11,000 when Bush took office. It's under 10,300 today. Which one seems like a better investment?

unlawflcombatnt

EconomicPopulistCommentary

http://www.unlawflcombatnt.blogspot.com/

______________________
Capitalism cannot function without consumer income. The benefits of capital investment are limited by consumers' ability to buy the products of capital investment. There must be balance between the "means of consumption" and the "means of production."

[unlawflcombatnt]

37. Recession

I just wanted to add here that 34% of Americans think we are currently in a recession. This information can be found on the Rasmussen polls at:
http://www.rasmussenreports.com/Bush_Job_Approval.htm

unlawflcombatnt

EconomicPopulistCommentary

http://www.unlawflcombatnt.blogspot.com/

______________________
Capitalism cannot function without consumer income. The benefits of capital investment are limited by consumers' ability to buy the products of capital investment.

There must be balance between the "means of consumption" and the "means of production."

[unlawflcombatnt]

38. Economic Recovery?

Many economic indexes have DECLINED for the month of May. For many of these indexes, this is the 2nd straight month of decline.

The weekly sales report for June 18th declined 0.1% over the same week in May.

The unfilled orders index decreased to -6, down from a -3 in April.

The shipments index declined for the 2nd month in a row. May's index was 17, down from 23 in April, and down from 33 in March. This index has declined roughly 50% in 2 months.

New orders and backlogged orders also decreased. The new orders index decreased to 51.7% in May, down from 53.7 in April, which was down from 57.1% in March. These indexes are all measures of consumer demand. These declines are a strong indicator of decreasing consumer demand.

As a result of decreasing sales and unfilled orders, manufacturers were alsoreducing their number of employees. Again this is the 2nd month in a row they've done so. The Index of Supply Side managers employment index was 48.8% for May, marking the lowest reading in 18 months. The Labor Dept. reported a decrease in manufacturing employment of 7,000.

The Housing industry is also showing signs of decline. The Mortgage Bankers Association's purchase index for the week of June 17th showed a sharp decline to 479.4, down from 529.3 in the week of June 10th. The MBA's refinancing index also decreased to 257.5 for the week of June 17th. This was a 39 point decrease from the previous week's 296.7

The purchasing managers index of industrial activity has also declined for the 2nd straight month. May's index declined sharply, from 65.6 in April to 54.1. April's 65.6 was also a decline from March's 69.2. This makes the 2-month decline 22%.

The production and new orders index declined sharply, from 71.0 in April to 57.9 in May. This new orders index is the lowest since September 2003. This is worth repeating. The May new orders index is the lowest it's been since September 2003.

May auto sales decreased to 16.8 million, from April's 17.5 million.

May's help-wanted index was 39 for the 2nd month in a row, down
from February's 41.

May's index of supply side managers (ISM), decreased for the 2nd month in a row. May's 51.4 marked a decline from April's 53.5. April's number also marked a decline from March's 55.2.

The University of Michigan's Survey Research Center for May also showed the 2nd straight month of decline in consumer sentiment. May's index was 86.9, down from 87.7 in April, and down from 92.6 in March.

This BusinessWeek Online story can be found on Yahoo News at:

http://news.yahoo.com/s/bw/20050627/bs_bw/nf200506245186db081/nc:1203;_ylt=Aje7ftUWrB8BEYk_QZtLFyDv5rEF;_ylu=X3oDMTBiMW04NW9mBHNlYwMlJVRPUCUl

My count is that 13 separate economic indicators DECLINED. Does all of this sound like an economic recovery? Does this sound like a "strong" economy?

unlawflcombatnt

EconomicPopulistCommentary

http://www.unlawflcombatnt.blogspot.com/

______________________
Capitalism cannot function without consumer income. The benefits of capital investment are limited by consumers' ability to buy the products of capital investment.

There must be balance between the "means of consumption" and the "means of production."