Ethan Harris,must read：“postponable purchases”at 16.8 percent of

What Harris calls “postponable purchases” -- housing, spending on durable goods such as cars, and business investment in equipment and software -- stood at 16.8 percent of gross domestic product in the second quarter. That compares with a postwar low of 16 percent in the same period a year earlier and the post-war average of 20.6 percent, according to calculations by Bank of America-Merrill Lynch.


Thursday Look Ahead: Markets Already Looking to Friday's Jobs Report
Published: Wednesday, 1 Sep 2010 | 10:03 PM ET Text Size By: Patti Domm
CNBC Executive Editor
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Friday's jobs number is the next big hurdle for markets, and traders expect it to be pivotal to the Fed's next easing move, as well as a factor in whether the stock market can continue to rally.



Stocks on Wednesday roared higher on stronger U.S. and Chinese manufacturing data, the first bright spot in the U.S. economic data stream in quite awhile. The Dow jumped 254 points to 10,279, and the S&P 500 was up nearly 3 percent at 1060, after theISM manufacturing survey, at 56.3, beat expectations and surpassed July's 55.5 level.

"The ISM is a reassuring sign. It says that although some of the data has been weaker of late, you are not seeing the kind of downward spiral that would precede a recession or sharp slowdown...It is one of the more reliable indicators that we have because it's not revised. It's a survey. Historically, it's proven to be a good indicator," said Barclay's Capital chief U.S. economist Dean Maki.

Maki does not expect the number to have much bearing on the August employment report, though the ISM employment index was at a 27 year high, reflecting an improved pace of manufacturing hiring over the last several months.

"You did see new orders fall so we do think there's some slowing to come in manufacturing output, but what this really tells us is the fears of a sharp slowdown or double dip have been overdone, and we are continuing to be in a moderate recovery. You don't get a reading of 56.3 when the economy is spiraling downward," he said. Any reading over 50 in the ISM indicates growth.

While Thursday has several important economic reports, traders are focused on Friday's August employment report, which is expected to show an increase in private sector jobs of just above 40,000. Maki expects the private sector added 60,000, down from July's 71,000. He expects non farm payrolls to be negative 70,000, including the loss of 115,000 temporary govenrment census workers and another 15,000 state and local government employees.

Thursday's calendar includes weekly jobless claims and productivity and labor costs, at 8:30 a.m. Factory orders and pending home sales are at 10 a.m. Chain stores report August sales, which are expected to show a soft back-to-school shopping season. Thomson Reuters expects sales of stores in its index to be up 2.5 percent.

There is also a heavy dose of Fed speak Thursday, including testimony by Fed Chairman Ben Bernanke before the Financial Crisis Inquiry Commission at 9 a.m. FDIC chair Sheila Bair also speaks before the panel.

Boston Fed President Eric Rosengren and Cleveland Fed President Sandra Pianalto both speak in Washington at a summit on foreclosed and vacant properties. Outgoing Fed Vice Chairman Donald Kohn spoke to CNBC's Steve Liesman and his exclusive interview will continue to air on Squawk Box, starting at 7 a.m.

Whither Markets?

As stocks ripped higher Wednesday, bonds sold off, and the 10-year yield rose above 2.6 percent at one point. It was at 2.582 in late afternoon trading. The stock market, widely expected by strategists to struggle through September and October, saw its best start for a September since 1998. There was plenty of chatter on both bond and stock desks about major asset allocation changes driving the moves in bonds and stocks.


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"Even though we've been looking for a correction, it's too early to claim victory," said RBS Treasury strategist John Briggs, noting that bonds are at levels that have lured in buyers.

"This ISM, being top tier data, with the employment component at the highest since 1983...it opens up the possiblity that the (bond) market could be traded two ways," said Briggs. Bonds prices have been rising as stocks slumped in one of the worst August performances in nine years.

The jobs report will be key. "I think this one is more important than the last few. The Fed's on edge. They're data dependent because we're data dependent...If this number is really good, it sets the tone for the next few weeks and sets a range for the bond market.

If it's awful, it opens the door for whether the Fed does quantitative easing," he said. The third choice is "plodding along' and plodding along is not good enough, but it might be good enough to hold off quantitative easing for another month."

The Fed has indicated it could expand its Treasury purchase program to drive down rates. It currently is buying Treasurys with the proceeds from the maturing mortgage securities in its portfolio, in an effort to keep its balance sheet steady.

Stock traders, meanwhile, said they saw healthy buying demand along with some short covering Wednesday. Financials and industrials were the best gainers, up about 3.9 percent.

Steve Massocca, managing director at Wedbush Securities, said he expects to see some follow through Thursday. But the market still needs another catalyst.

"I think we're washed out. I don't think you're going to see the market get below 1040 on the S and P, but I don't think you get above 1100 either. You need something definitive to happen," he said.

Traders Wednesday were also speculating about the possibility that Democrats, facing a tough mid-term election, could change their views on extending the Bush tax cuts. If the cuts were extended across the board, they believe it would be a positive for stocks.

"One logical surmise from the policital surveys is that the Administration is going to take a more centrist tone, that is mabye more amenable to business," said one trader.

In the foreign exchange market, the dollar lost nearly a percent against the euro Wednesday, but gained a half percent against the yen.

"The dollar/yen is going to be a yoyo, very much dependent on how U.S. data prints," said Boris Schlos*****erg of GFT Forex.

Schlos*****erg said he is watching the European Central Bank which holds a rate meeting early Thursday. "I think (ECB President Jean-Claude) Trichet is going to pat himself on the back because data out of the Eurozone has for the most part shown improvement. You can make a case that there's some decoupling between the U.S., Asia and Europe, and Germany is a beneficiary of strong demand out of China," he said.

- Follow me on Twitter @pattidomm.


Economy Avoids Recession Relapse as Data Can't Get Much Worse
By Rich Miller and Simon Kennedy - Sep 1, 2010 4:21 PM PT
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Business ExchangeTwitterDeliciousDiggFacebookLinkedInNewsvinePropellerYahoo! BuzzPrint A trader looks down while working on the floor of the New York Stock Exchange in New York. Photographer: Jin Lee/Bloomberg


Play VideoSept. 2 (Bloomberg) -- Paul Donovan, deputy head of global economics at UBS AG, talks about the outlook for the U.S. economy and Federal Reserve monetary policy. Donovan also discusses the European Central Bank meeting today. ECB President Jean-Claude Trichet may signal that the bank will stay in crisis mode into next year as the risk of a renewed U.S. recession threatens the euro region’s economic rebound. Donovan speaks with Linzie Janis on Bloomberg Television's "Global Connection." (Source: Bloomberg)


Play VideoAug. 27 (Bloomberg) -- Martin Feldstein, an economics professor at Harvard University, discusses the outlook for the U.S. economy. Feldstein talks with Bloomberg's Michael McKee and Betty Liu from the Fed's annual symposium in Jackson Hole, Wyoming. (Source: Bloomberg)


Play VideoAug. 27 (Bloomberg) -- Ethan Harris, head of North America economics at Bank of America-Merrill Lynch Global Research, talks about the outlook for Federal Reserve policy. Fed Chairman Ben S. Bernanke said today the U.S. central bank “will do all that it can” to ensure a continuation of the economic recovery and said more securities purchases may be warranted if growth slows. Harris speaks with Margaret Brennan on Bloomberg Television's "InBusiness." (Source: Bloomberg)


Play VideoAug. 27 (Bloomberg) -- Vincent Reinhart, resident scholar at the American Enterprise Institute and Catherine Mann, an economics professor at Brandeis University, talk about the outlook for the U.S. economy and Federal Reserve Chairman Ben S. Bernanke's speech at the Kansas City Fed’s annual monetary symposium in Jackson Hole, Wyoming. Reinhart and his wife Carmen Reinhart presented a paper at the symposium that finds the U.S., Germany and other advanced economies may face a decade of slow growth and high unemployment if the aftermath of the 2007 financial crisis tracks other post-crisis recoveries of the past century. Reinhart and Mann talk with Matt Miller and Michael McKee on Bloomberg Television's "Street Smart." (Source: Bloomberg)


Play VideoAug. 26 (Bloomberg) -- Richard Bove, an analyst at Rochdale Securities LLC, talks about the U.S. banking industry and the performance of the Federal Deposit Insurance Corp. Bove speaks with Tom Keene and Ken Prewitt on Bloomberg Radio's "Bloomberg Surveillance." (This is an excerpt. Source: Bloomberg)
The U.S. economy is so bad that the chance of avoiding a double dip back into recession may actually be pretty good.

The sectors of the economy that traditionally drive it into recession are already so depressed it’s difficult to see them getting a lot worse, said Ethan Harris, head of developed markets economics research at BofA Merrill Lynch Global Research in New York. Inventories are near record lows in proportion to sales, residential construction is less than half the level of the housing boom and vehicle sales are more than 40 percent below five years ago.

“It doesn’t rule out a recession,” Harris said. “It just makes it less likely than otherwise.”

The possibility of the economy lapsing into another contraction during the next year is 25 percent, he said in a Sept. 1 report. Harris cut his forecast for growth this year by 0.1 percentage point to 2.6 percent and lowered his 2011 estimate by a half point to 1.8 percent, according to the report.

Federal Reserve policy makers agree that a renewed contraction is unlikely, although the risks have risen.

“I expect the economy to continue to expand in the second half of this year, albeit at a relatively modest pace,” Fed Chairman Ben S. Bernanke said in an Aug. 27 speech.

The Standard & Poor’s 500 Index might increase to about 1,300, while the yield on the 10-year Treasury note would rise toward 4 percent during the next six months or so if the U.S. steers clear of another decline, said James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management, which manages $342 billion.

Bond Yield

The S&P index closed at 1,080.29 at 4 p.m. yesterday in New York, while the yield on the 10-year Treasury note was 2.58 percent at 4:12 p.m., according to BGCantor Market Data.

“We could have a really violent move,” Paulsen said. “The markets have a lot of double dip priced in,” he added. “I think the idea of that happening is pretty remote.

The risks of a renewed economic contraction have risen due to a spate of disappointing economic data, said Lyle Gramley, a former Fed governor who’s now a senior economic adviser for the Potomac Research Group in Washington. He reckons the chance of a relapse is 35 percent, up from 10 to 20 percent a month ago.

“We will probably avoid a double dip,” Gramley said. “But we’re in for a prolonged period of subpar growth of 2 percent or less.”

Falling Orders

Orders for nondefense capital goods excluding aircraft, a proxy for future business investment, fell 8 percent in July, the biggest decline in one-and-a-half years, while sales of new homes dropped unexpectedly to an annual pace of 276,000, the lowest level on record, according to Commerce Department figures released last week. The department also reduced its estimate of second-quarter growth on Aug. 27 to 1.6 percent from 2.4 percent.

The unemployment rate probably rose to 9.6 percent this month from 9.5 percent in July as employers reduced payrolls by 100,000, according to the median forecasts of more than 70 economists surveyed by Bloomberg News. The Labor Department is scheduled to release the jobs data on Sept. 3.

Bernanke described the recovery in the job market as “painfully slow” and said in his Aug. 27 speech at Jackson Hole, Wyoming, that it had “damped confidence.”

“Things can get worse,” said Martin Feldstein, a professor at Harvard University in Cambridge, Massachusetts, and president emeritus of the National Bureau of Economic Research. “When the economy is moving forward at a very slow pace, very close to zero, the risk is we could slip over into the negative side of zero.”

Combating a Contraction

Feldstein served as chairman of the White House Council of Economic Advisers from 1982 to 1984, around the time of the last double dip in the U.S. He put the possibility of a contraction at one in three and also voiced doubts about the Fed’s ability to combat it, given how low interest rates already are.

“I think there is very little that the Fed can do,” Feldstein, a member of the NBER committee that determines when recessions start and stop, said in a Bloomberg television interview on Aug. 27.

“With growth at a stall speed of 1 percent or below, the stock markets could sharply correct, and credit spreads and interbank spreads widen while global risk aversion sharply increases,” said Nouriel Roubini, the New York University economist who predicted the global financial crisis.

“A negative feedback loop between the real economy and the risky asset prices can easily then tip the economy into a formal double dip,” Roubini, chairman of Roubini Global Economics LLC, said in an Aug. 25 e-mail message.

Slow Recoveries

History argues against such a setback now, said Randall Kroszner, a former Fed governor who is now a professor at the University of Chicago Booth School of Business. Other industrial nations that experienced major financial crises, such as Spain in 1977 and Sweden in 1991, avoided double dips, though their recoveries were slow.

Even Japan, which suffered a lost decade of minimal growth after a real-estate bubble burst in the early 1990s, managed to stage a three-year rebound before its economy was knocked back down by the 1997-98 Asian financial crisis.

“My overview is that we have a very disappointing recovery rather than a double dip,” said Carmen Reinhart, a professor at the University of Maryland in College Park who co-wrote a book on crises with Harvard professor Kenneth Rogoff.

Credit Controls

The only double dip in the U.S. since the end of World War II occurred 30 years ago, when the economy turned up in mid-1980 only to fall back into recession a year later. That situation isn’t applicable today, said Gramley, who was at the Fed at the time. The initial decline in 1980 was triggered when President Jimmy Carter imposed credit controls. He quickly reversed himself when the economy collapsed in response.

Postwar recessions traditionally have been prompted by the Fed boosting rates to fight inflation, oil prices rising sharply or businesses suddenly reducing inventories, Gramley said. None of that looks likely this time, he added.

The Fed cut the overnight bank lending rate to close to zero percent in December 2008 and has signaled it intends to keep it there for an extended period.

The central bank “will do all that it can to ensure continuation of the economic recovery,” Bernanke said in his Jackson Hole speech.

Oil prices have fallen as growth has slowed. Crude oil for October delivery settled at $73.91 a barrel yesterday on the New York Mercantile Exchange, down from the 2010 high of $86.84 set on April 6.

All-Time Low

The inventory/sales ratio for U.S. businesses was 1.26 in June, just above its all-time low of 1.23 in March and April and below 1.37 a year ago, according to Commerce data.

The housing market, whose collapse kicked off the economic decline that began in December 2007, also looks to be stabilizing at a depressed level, after factoring out the ups and downs in sales prompted by a home-buyers’ tax credit and its expiration in April, Paulsen said.

Residential construction totaled $358.1 billion at a seasonally adjusted annual rate in the second quarter, compared with $813.3 billion in the first quarter of 2006, at the height of the housing boom, according to Commerce Department data.

What Harris calls “postponable purchases” -- housing, spending on durable goods such as cars, and business investment in equipment and software -- stood at 16.8 percent of gross domestic product in the second quarter. That compares with a postwar low of 16 percent in the same period a year earlier and the post-war average of 20.6 percent, according to calculations by Bank of America-Merrill Lynch.

‘Period of Stagnation’

“Even if they fall back down, you probably wouldn’t get a recession; you’d get a period of stagnation,” Harris said.

Vehicle sales in the U.S. clocked in at a seasonally adjusted annual rate of 11.54 million in July, up slightly from 11.3 million in July last year and down sharply from 20.65 million in July 2005, according to Autodata Corp., a research company based in Woodcliff Lake, New Jersey.

It would probably take a flare-up of the financial crisis to push the economy back down and that’s less likely than it was prior to 2007, said Jacob Frenkel, chairman of JPMorgan Chase International in New York.

“The likelihood of a financial meltdown is now much lower than it was in the past,” he said.

The U.S. banking industry “has more capital as a percentage of assets right now than in any time since 1935,” Richard Bove, an analyst with Rochdale Securities in Lutz, Florida, said in an Aug. 26 interview with Tom Keene on Bloomberg Radio.

Positive Yield Curve

The positive yield curve -- with long-term interest rates higher than short-term ones -- also argues against a fall back into recession, according to Arturo Estrella, professor of economics and department head at Rensselaer Polytechnic Institute in Troy, New York. The yield curve has turned negative prior to all of the last seven recessions, with no false signals since 1967, his research shows.

Bernanke said in Jackson Hole that U.S. households have also made “greater progress in the repair of their balance sheets.” He pointed in particular to the rise in the personal- savings rate, which was 5.9 percent in July, compared with a 3.3 percent average since the start of 2000.

Fed policy makers have also highlighted the strength of demand overseas as a plus for the U.S. economy, especially for manufacturing companies.

Faster Pace

Manufacturing in the U.S. expanded at a faster pace than forecast in August as the Institute for Supply Management’s factory index rose to a three-month high of 56.3 from 55.5 in July. Readings greater than 50 in the Tempe, Arizona-based group’s index signal growth. The figure was projected to drop to 52.8, according to the median forecast in a Bloomberg News survey.

“I tend to be cautiously optimistic about growth,” said Harvard professor James Stock, who is also a member of the NBER’s Business Cycle Dating Committee. “All the excesses have been corrected.” A double dip is “quite unlikely,” he added.

To contact the reporters on this story: Rich Miller in Washington [e-mail] Simon Kennedy at [e-mail]

所有跟帖： 

• “postponable purchases”large portion of world trade, more subjec -marketreflections- ♂ (17924 bytes) () 09/02/2010 postreply 06:50:59

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• Net of inventory adjustments, the economy's demand for goods and -marketreflections- ♂ (984 bytes) () 09/02/2010 postreply 10:52:34

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• “postponable purchases”The dimensions of the trade shock in 2008 -marketreflections- ♂ (5955 bytes) () 09/02/2010 postreply 09:03:24