Economic Slowdown

**~~unlawflcombatnt~~** · 24 Sep 06,, 08:44

Evidence continues to mount that the U.S. economy is slowing down much more than predicted. Thursday's economic data was nearly all negative. Leading Indicators declined as predicted, leaving the 1-month change at -0.2%. Not surprisingly, the government has again downwardly revised previously published statistics. July's Leading Indicator total was downwardly revised to -0.2% from the previously published -0.1%. The biggest downward revisions came in manufacturers' Consumer Goods Orders, revised downward -0.13%, from +0.1% down to -0.12%. July's Manufacturing Workweek was also downwardly revised to +0.06% increase from the original +0.12%.

5 of the last 7 months have shown declines in Leading Indicators. Though the 6-month total is only a -0.6% change (less than the -1.0% suggestive of a recession), the 7-month total is -1.1%. Also worth noting, according to the Conference Board, the most important single indicator of the 10 leading indicators is the interest rate spread between the 10-year Treasury note and the Federal funds rate. This has also declined. August marks the 2nd straight decline in this number, going from -0.02 in July to -0.04 in August. Below is a modified copy of September 21st's Leading Indicator report from Briefing.com, with the previously posted (pre-revision) numbers for Leading Indicators on the bottom chart. The key alterations are underlined in red, with the previous numbers posted in italics next to the current numbers.

LEADING INDICATORS

The top part of this chart can also be found at: Briefing.com: Leading Indicators

An even more unsuspected decline came from the Philadelphia Fed Manufacturer Index. The actual index came in at -0.4, much worse than the predicted +13.0. This was the 1st negative reading since April 2003. The 6-month business outlook was also negative at -0.2. This was the 1st negative reading on the 6-month outlook since before the last recession. Most of the individual components of the index are at their lowest level in 6 years, according to the Philadelphia Fed. Below is a modified copy of the Philadelphia Fed report from Briefing.com. Again the "predicted" results from 9/20/06 are shown on the bottom chart. The current total and previously predicted total are underlined in red.

PHILADELPHIA FED MANUFACTURING INDEX

The top part of this chart can be found at Briefing.com: Philadelphia Fed

A graphic representation of the state of our economy can be seen from the red line in the Leading Indicators graph below from Briefing.com. Notice the current steep drop in Leading Indicators parallels a similar drop leading up to the 2001 recession.

unlawflcombatnt

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Economic Patriot Forum

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**Shek** · 24 Sep 06,, 14:07

You might want to look up the difference between percentage and percentage points. Some of your statements are totally incorrect based on this simple difference.

**Julie** · 24 Sep 06,, 15:08

Originally Posted by shek

You might want to look up the difference between percentage and percentage points. Some of your statements are totally incorrect based on this simple difference.

Well, "number cruncher," I really need a better response than that.

Here's my situation the last 3 weeks. No long lines at Home Depo, and no big contract jobs, only small ones to keep the men paid, but not enough to pay my big bills coming due the first of the month.

If a miracle doesn't occur in the morning, I have to let one of my two-man crews go, and one of them just had a newborn baby. It's either that, or not make my house payment.

The housing market is where the big jobs are and there is a definite slow-down there. I quoted 3 big fence jobs last week at new homes, cut the prices, and still got beat out of them because it's been dog eat dog the last 3 weeks.

What's your answer?

**Bill** · 24 Sep 06,, 15:19

JULIE: The housing market is DEFINITELY slowing down- and thank god.

Regular people had been priced out of the market by a 150% local growth in housing costs.

**~~xplore~~** · 24 Sep 06,, 15:20

Originally Posted by Julie

Well, "number cruncher," I really need a better response than that.

Here's my situation the last 3 weeks. No long lines at Home Depo, and no big contract jobs, only small ones to keep the men paid, but not enough to pay my big bills coming due the first of the month.

If a miracle doesn't occur in the morning, I have to let one of my two-man crews go, and one of them just had a newborn baby. It's either that, or not make my house payment.

The housing market is where the big jobs are and there is a definite slow-down there. I quoted 3 big fence jobs last week at new homes, cut the prices, and still got beat out of them because it's been dog eat dog the last 3 weeks.

What's your answer?

CPI and PPI doesnt show any sign of slowdown. And companies are posting double digit profits. However economy would moderate due to consective intrest rate hikes.

**Shek** · 24 Sep 06,, 15:27

Originally Posted by Julie

Well, "number cruncher," I really need a better response than that.

Here's my situation the last 3 weeks. No long lines at Home Depo, and no big contract jobs, only small ones to keep the men paid, but not enough to pay my big bills coming due the first of the month.

If a miracle doesn't occur in the morning, I have to let one of my two-man crews go, and one of them just had a newborn baby. It's either that, or not make my house payment.

The housing market is where the big jobs are and there is a definite slow-down there. I quoted 3 big fence jobs last week at new homes, cut the prices, and still got beat out of them because it's been dog eat dog the last 3 weeks.

What's your answer?

Supply and demand.

**Shek** · 24 Sep 06,, 15:28

Originally Posted by xplore

CPI and PPI doesnt show any sign of slowdown. And companies are posting double digit profits. However economy would moderate due to consective intrest rate hikes.

The Fed kept the fed funds rate where it was at, which would indicate that they are happy with the balance between growth and inflation.

**~~xplore~~** · 24 Sep 06,, 15:34

Originally Posted by shek

The Fed kept the fed funds rate where it was at, which would indicate that they are happy with the balance between growth and inflation.

One of the big reasons Fed stopped was energy prices and it was expected that energy prices will help to moderate economy. But you see now for last couple of months the Crude Oil is 10 ucks down. I think from this quarter fed will start raising rates again. Inflation is still a problem and not under control.

**Shek** · 24 Sep 06,, 16:01

Originally Posted by xplore

One of the big reasons Fed stopped was energy prices and it was expected that energy prices will help to moderate economy. But you see now for last couple of months the Crude Oil is 10 ucks down. I think from this quarter fed will start raising rates again. Inflation is still a problem and not under control.

Our two statements are not mutually exclusive. As I said, they were happy with the balance between growth and inflation to the extent that they didn't change the rates. That wasn't to say that they were peachy keen happy with the economy in general.

http://www.federalreserve.gov/boardd...2006/20060920/

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market.

Readings on core inflation have been elevated, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.

Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack Guynn; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred an increase of 25 basis points in the federal funds rate target at this meeting.

**Julie** · 24 Sep 06,, 17:00

Originally Posted by shek

Supply and demand.

I haven't had to get out and "beat the bushes" since the first year I began my business.....which has been about 7 years ago.

Answer my question....where is the "demand?"

Is it a "slow down" or are we seriously headed into a recession?

http://money.cnn.com/2006/09/22/mark...ex.htm?cnn=yes

**GVChamp** · 24 Sep 06,, 19:24

So, are the indicators falling or not? They have predicted every single recession since they've been implemented (plus some more...)

The Fed isn't going to be raising rates before the election. Not gonna happen.

**Shek** · 25 Sep 06,, 04:33

Originally Posted by Julie

I haven't had to get out and "beat the bushes" since the first year I began my business.....which has been about 7 years ago.

Answer my question....where is the "demand?"

Is it a "slow down" or are we seriously headed into a recession?

http://money.cnn.com/2006/09/22/mark...ex.htm?cnn=yes

First, your question wasn't about only the demand side, and you need both supply and demand to answer the question fully. My guess is that you've had some more companies in your business enter the market in the past 7 years - they are part of the answer as well.

Second, you shouldn't be surprised whatsoever that demand is slowing given that mortgage rates have been increasing for quite a while now. However, the full effects depend on your region. For example, my buddy who is a GC is still booked out a year and the demand for his work hasn't dropped off.

Third, we are in a slow down, which isn't surprising given the torrid pace that the economy was growing earlier in the year. However, we aren't anywhere close to being in a recession.

**Shek** · 25 Sep 06,, 04:35

Originally Posted by GVChamp

The Fed isn't going to be raising rates before the election. Not gonna happen.

Why not? Bernanke's term lasts beyond that of Bush. There's a reason why monetary policy is independent of the executive. I guess you could point to the conflicting actions that jammed Bush 41 over a decade ago, but that's ancient history given the celebrity status of the Fed since then.

**GVChamp** · 26 Sep 06,, 00:20

Originally Posted by shek

Why not? Bernanke's term lasts beyond that of Bush. There's a reason why monetary policy is independent of the executive. I guess you could point to the conflicting actions that jammed Bush 41 over a decade ago, but that's ancient history given the celebrity status of the Fed since then.

IIRC, it is an unspoken rule that the Fed does not change rates so close to elections for fear that it will be accused of interfering with the election. The effects of monetary policy probably wouldn't be fully felt in that time period, meaning the argument AGAINST changing rates just because an election is on the horizon is bunk, but I don't think Helicopter Ben is "man enough" to challenge the rule.

**Shek** · 26 Sep 06,, 01:08

Originally Posted by GVChamp

IIRC, it is an unspoken rule that the Fed does not change rates so close to elections for fear that it will be accused of interfering with the election. The effects of monetary policy probably wouldn't be fully felt in that time period, meaning the argument AGAINST changing rates just because an election is on the horizon is bunk, but I don't think Helicopter Ben is "man enough" to challenge the rule.

Interesting. I guess we'd have to check out past elections to see if this holds. I do agree that Bernanke certainly doesn't look the tough part.