Michael Ramirez (HT: Tom Sullivan)
More on Walmart's sustainability push
Leading indicators show continued improvement
The Conference Board’s index of leading indicators rose by 0.7% in June after gaining 1.3% in May. This index is comprised of the top 10 economic indicators such as unemployment claims, building permits, and stock prices. In past recessions, sharp increases like the index has experienced over the last 3 months have indicated that recovery was underway.
Housing highlights
The latest figures on home construction just came out. Here’s a rundown:
- Total housing starts came in at 582,000 in June, up 3.6% from an upwardly revised 562,000 in May. Permitting activity also climbed — 8.7% to 563,000 from 518,000 a month earlier. Starts haven’t been higher than this since November..
- By property type, single family construction activity rose 14.4%, while multifamily construction dropped 25.8%. Single family permits rose 5.9%, while multifamily permits rose 18.8%. The increase in single family building was the biggest since December 2004.
- Regionally, starts rose 28.6% in the Northeast and 33.3% in the Midwest. Starts fell 1.4% in the South and 14.8% in the West. Permitting activity was up in all four regions, with the South leading the way at 13.9% and the West showing the weakest growth at 1.9%.
For some time, the housing market has been showing signs of stabilization. Not a robust recovery, but an end to the “cliff diving” we saw in 2007 and 2008. This phase will be marked by ongoing price declines in many locales, albeit more gradual ones. We will also see a gradual stabilization in sales rates … a gradual decline in the level of inventory for sale … and a gradual bottoming out of construction activity. Today’s starts and permitting figures fit with this projection, as did yesterday’s NAHB report on builder optimism.
Again, though, the word to emphasize is “gradual.” The new home industry has done a good job of reducing supply — with inventory for sale now in line with the long-term average. But the existing home market is still vastly oversupplied, and we continue to be inundated with an influx of distressed and foreclosed properties. That means anyone hoping for a robust “V”-shaped recovery is likely to be disappointed.
Walmart unveils sustainability index
Walmart today unveiled its Sustainable Product Index, a guide for rating the sustainability of products. The project will be rolled out in three phases, beginning with a survey of all of Walmart’s suppliers around the globe. The survey consists of 15 questions in four categories: energy and climate, material efficiency, natural resources and people and community. Suppliers will be asked to fill out the questionnaire by October 1.
The second phase of the project involves the development of a Sustainability Index Consortium, a coalition of universities and suppliers, retailers, NGOs and government entities working together to build a global product-lifecycle database, measuring the impact and resource use of products from raw materials through to end-of-life. Walmart said it intends to make the database open to the world rather than use it as proprietary information, although the company has yet to choose a partner help develop of the database.
Finally, once all the lifecycle data has been compiled and analyzed, Walmart and its partners will develop a customer-facing rating system to enable shoppers to make choices based on the environmental impact of their purchases.
Minimum wage = minimum benefit
Here’s some economic logic to ponder. The unemployment rate in June for American teenagers was 24% and even White House economists are predicting more teenage job losses. When the minimum wage increases to $7.25 an hour from $6.55 on July 24, it will effectively raise the cost of employing teenagers (and other entry-level workers) once again, thereby exacerbating the situation.
The national wage floor will have increased 41% since the three-step hike was approved by Congress in May 2007. Then the economy was humming, with an overall jobless rate of 4.5% and many entry-level jobs paying more than the minimum. That’s a hard case to make now, with a 9.5% national jobless rate and thousands of employers facing razor-thin profit margins.
If Congress were wise and compassionate, it would at least suspend the wage hike for one or two years until the job market recovers. We know this Congress won’t do that, but someone has to speak up for the poorest, least skilled Americans.
Wall Street Journal (click here)
Retail sales up slightly
Today’s report indicates that advance monthly retail sales in June 2009 increased 0.6% from May but declined 9.0% from June 2008, to $342.1 billion. Excluding autos, June retail sales rose 0.3% from the prior month but declined 7.9% from the prior year.
Some might consider this a dead cat bounce given that the increase was almost entirely due to the combination of a 2.3% rebound in motor vehicle sales and a 5.0% price-related surge in sales at gasoline stations.
“On the whole, this was a decidedly mixed report as the better than expected print on the headline number masks the weak underbelly of core consumer spending, which continues to decline” as one commentator puts it.
Looking at the quarterly retail sales trend shows that retail sales have risen 3.5% over the last three months versus a 9.0% decline over the last year.
Proposal on table to tax wealthy to pay for health care
The House Ways and Means Committee might propose a tax on high-income Americans to help fund an overhaul of the health care system. The surtax probably would be levied on earners who make more than $250,000 per year. Another proposal favored by Republicans would tax employer-provided health benefits. See full story here.
Curious how this reminds me of the story of an economics professor at Texas Tech that said he had never failed a single student before, but had once failed an entire class. That class had insisted that socialism worked–that it was a great equalizer. No one would be poor and no one would be rich.
The professor then said OK, we’ll have an experiment in this class on socialism.
All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A. After the first test the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. But, as the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too; so they studied little. The second test average was a D! No one was happy. When the 3rd test rolled around the average was an F.
The scores never increased. Despite the bickering, blaming, and hard feelings, no one would study for the benefit of anyone else. To their great surprise, they all failed. The professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great; but when government takes all the reward away, few will try or want to succeed.
More light….
From the Chicago Fed President, Charles Evans:
… there have been some favorable developments of late, and the possibility that the economy is closer to a turning point is stronger now than just three months ago. Although the data have been uneven, our reading of the recent indicators is that the pace of contraction is slowing and that activity is bottoming out. We expect modest increases in output in the second half of this year followed by somewhat stronger growth in 2010.
So what are these signs of improvement that underlie this forecast? First, financial market conditions have improved, with credit spreads and other measures of market stress much lower than they were in late 2008 and early 2009.
Consumer spending, which had dropped sharply since the second half of last year, has been roughly flat so far in 2009. Housing markets, after more than three years of decline, have also shown some signs of stabilizing. Sales of both new and existing homes have appeared to flatten out in recent months, though both remain at very low levels. Meanwhile, homebuilders have reduced their backlog of unsold new homes—a precondition for any recovery in homebuilding. But the backlog of unsold existing homes remains high, and delinquency and foreclosure rates continue to be a substantial risk to the housing market recovery.
Labor markets remain weak, but there has been a (somewhat uneven) decline in the pace of job losses. The May and June average of monthly declines in employment was about half the rate of contraction as the beginning of this year, and newly filed jobless claims seem to have peaked in late March. However, firms are still reluctant to hire, and the unemployment rate reached 9-1/2 percent in June and will likely further increase through the remainder of the year before it flattens out in 2010.
The industrial side of the economy has been especially hard hit this year, but there are signs that the worst of the decline in the sector is in the past. Business fixed investment remains weak, but the decline is getting shallower. Steep inventory liquidations made significant negative contributions to output growth in late 2008 and early 2009. But this means that inventories are in better alignment with sales, so we expect to see less dramatic liquidation in the months ahead. In turn, the smaller declines translate into a net positive for GDP growth. Finally, in the coming months, the fiscal stimulus will continue to have positive influences on the economy.
Currently, core inflation is near 2 percent, a level I generally find acceptable. In the near term, I think the downward forces on inflation will be greater than the upward forces, and we could see some declines in core inflation. But over the medium term I see the risks to the inflation forecast as being more balanced.
Consumers reducing debt
U.S. consumers reduced their debt in May for the fourth consecutive month, the Federal Reserve reported Wednesday. Total seasonally adjusted consumer debt fell $3.22 billion, or a 1.5% annual rate, in May to $2.52 trillion. Consumer credit fell in eight of the past ten months. The drop in May is the smallest of the group. This is the longest string of declines in credit since 1991. Credit-card debt had the biggest drop in May, falling $2.86 billion, or 3.7% to $928 billion. Non-revolving credit, such as auto loans, personal loans and student loans. fell $367.1 million or 0.3% to $1.59 trillion.
The graph above shows the year-over-year (YoY) change in consumer credit. Consumer credit is off 1.8% over the last 12 months. The record YoY decline was 1.9% in 1991 – and that record will be broken over the next couple of months.
Note: Consumer credit does not include real estate debt.