Economy reviving before stimulus

[Botnst]

New signs emerge that recession may be near bottom

By CHRISTOPHER S. RUGABER, AP Economics Writer
2 mins ago

WASHINGTON – New signs that the recession could be nearing a bottom emerged Thursday, as factory orders were far better than expected and the Dow industrials surged over 8,000 for the first time in two months.
The Commerce Department said orders for manufactured goods rose 1.8 percent in February, reversing six straight monthly declines and easily beating estimates of another drop. Other economic indicators came in better than expected Wednesday, including construction spending and pending home sales.

Meanwhile, world leaders meeting in London on Thursday pledged $1.1 trillion to global institutions such as the International Monetary Fund to combat the downturn. And the European Central Bank agreed to cut a key interest rate to a record low of 1.25 percent.

Still, the job situation remains grim. Traditionally, the labor market doesn't pick up until well after a recovery has started.

The monthly unemployment report due out Friday likely will be dismal, and new jobless claims reported Thursday were worse than expected.

The Labor Department said initial claims for unemployment insurance rose to a seasonally adjusted 669,000 from the previous week's revised figure of 657,000. That total was above analysts' expectations and the highest in more than 26 years, though the work force has grown by about half since then.

Financial stocks led a rally on Wall Street after the board that sets U.S. accounting standards gave banks and other companies more leeway when valuing assets and reporting losses. The Dow Jones industrial average added more than 240 points, or 3.1 percent, to 8,004 in afternoon trading, the first time it has risen above 8,000 since Feb. 10. Broader indices also surged.
Bank of America Chief Executive Ken Lewis also bolstered the financial markets when he told CNBC that the recession is "getting close to the bottom."

Still, economists said the jobless claims figures indicate that companies continue to lay off workers at a rapid pace.

"Claims are typically one of the very first indicators to signal economic recovery, and there is no sign of that in the data yet," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a client note.
The tally of laid-off workers claiming benefits for more than a week rose 161,000 to 5.73 million, setting a record for the 10th straight week. That also was above analysts' expectations and indicates that unemployed workers are having difficulty finding new jobs. The continuing claims data lag the initial claims by one week.

An additional 1.5 million people received benefits under an extended unemployment compensation program Congress approved last year. That's as of March 14, the latest data available. Jobless benefits typically last 26 weeks, but the federal government is paying for an additional 20 to 33 weeks of compensation under the extended program, depending on each state's unemployment rate.

As a proportion of the work force, the number of people on the jobless benefit rolls is the highest since May 1983. The four-week moving average of jobless claims, which smooths out weekly volatility, rose to 656,750, the highest since October 1982, when the economy was emerging from a steep recession.

Employers are eliminating jobs and taking other cost-cutting measures to deal with sharp reductions in consumer and business spending. The current recession, now in its 17th month, is the longest since World War II.
Economists forecast that Friday's report will show employers cut 654,000 jobs in March, while the unemployment rate increased to 8.5 percent from 8.1 percent, according to a survey by Thomson Reuters.

Some economists raised their projection for job losses in March in response to the increase in claims. David Resler, chief economist at Nomura Securities International, said he now expects the department will report payroll cuts of 725,000 in March, up from a previous forecast of 680,000.
Companies reduced their payrolls by 651,000 jobs in February, a record third straight month of job losses above 600,000.

A private survey Wednesday said businesses cut 742,000 jobs in March. Employment at medium- and small-sized companies fell the sharpest — by a combined 614,000. The rest of the job cuts came from big firms — those with 500 or more workers_ according to the report from Automatic Data Processing Inc. and Macroeconomic Advisers LLC.

More job losses were announced this week. 3M Co., the maker of Scotch tape, Post-It Notes and other products, said Tuesday it's cutting another 1,200 jobs, or 1.5 percent of its work force, because of the global economic slump. Fewer than half the jobs will be in the U.S., but include hundreds in its home state of Minnesota. The 1,200 figure includes cuts made earlier in the first quarter.

Elsewhere, healthcare products distributor Cardinal Health Inc. said it would eliminate 1,300 positions, or about 3 percent of its work force, and semiconductor equipment maker KLA-Tencor Corp. said it will cut about 600 jobs, or 10 percent of its employees.

Among the states, California reported the biggest increase in new claims for the week ending March 21 with a jump of more than 6,700, which it attributed to layoffs in the construction and service industries. The next largest increases were in Missouri, Kansas, Oklahoma and Iowa, according to the Labor Department data.

The biggest drop was in Texas, which had 4,822 fewer claims as the trade, service, manufacturing and transportation industries cut fewer jobs. New York, Tennessee, Illinois and Virginia had the next largest declines.
The Federal Reserve has cut a key benchmark interest rate to nearly zero in an effort to jump-start lending and embarked on a series of radical programs to inject billions of dollars into the financial system.

The Obama administration's $787 billion stimulus package, approved by Congress in February, is trying to counter the recession by providing money for public works projects, extending unemployment benefits and helping states avoid budget cuts.

[JollyRoger]

Looks like Obama is doing a great job!

[MTUpower]

Merrill's Rosenberg: A New Bull Market? Are You Out of Your Mind?
Posted Apr 02, 2009 08:44am EDT by Henry Blodget in Investing, Recession, Banking
Related: ^dji, ^gspc, xlf

From The Business Insider, April 2, 2009:

Merrill's economist David Rosenberg is unfortunately leaving the firm. Before he goes, however, he wants to warn you again that this boomlet is all just a sucker's rally. In fact, he thinks the market is headed to startling new lows.

Why?"

It all starts with the housing market.

Here are some excerpts from the report David published yesterday:
Need to see housing stabilize to put in a definitive bottom
We have said it once and we shall say it again, that it all comes down to housing, the quintessential leading indicator. It was the deflation in home prices in the summer of 2006 that led the crunch in the mortgage market later that year, which in turn led the credit collapse in the summer of 2007. That led the onset of the bear market in the fall of 2007; which subsequently led the recession at the end of that year. That finally triggered the severe consumer down-leg, which is ongoing, notwithstanding the seasonal noise in the data through the first two months of 2009. So, for the domino game to flip in the other direction, as is it did in the aftermath of the 1990-91 meltdown in the economy, stock market and consumer confidence – we desperately need to see housing prices stabilize to put in a definitive bottom.

A total lack of equilibrium in the housing market
To reiterate, there is simply no sustainable recovery in the economy, the stock market or the financial backdrop until we get some clarity on the outlook for residential real estate prices. It was rather telling that the Case-Shiller home price index sagged a record 2.8% in December. As the nearby table illustrates, every major city had double-digit home price declines over the past three months. And not only was January the 30th consecutive monthly decline, taking the cumulative decline from the mid-2006 peak to an unprecedented 29%, it is a critical sign that we continue to have a total lack of equilibrium in the housing market. In other words, the “price” is still telling us that, at the latest data point, we still have more sellers than buyers, which is amazing considering that this is now a three-year-old depression in the housing market, despite the fact that affordability has improved to its best level ever recorded.

Would take over three years to achieve price stability
The problem is that prices do not begin to stabilize until we break below eight months’ supply – and they tend to deflate 3% per quarter until that happens. So as impressive as it is that the builders have taken single-family starts below underlying sales, their efforts are just not sufficient to prevent real estate prices from falling further. In fact, even if the builders were to declare a moratorium immediately – that is taking starts to ZERO – demand is so weak and the unsold inventory so intractable that it would now take over three years to achieve the holy grail of price stability in the residential real estate market.

A lethal deflationary combination
The combination of a 10% savings rate and 10% unemployment rate is a lethal deflationary combination that the Obama dream team of economists seems prepared to fight hard against, and we wish them good luck, but we think we are in for another year of very weak economic growth that warrants a focus on safe income wherever you can get it, and a focus on high-quality assets and defensive sectors in the equity market.

S&P 500 will hit new lows, in our view
We remain of the view that the risk of earnings disappointments will take the S&P 500 to new lows before the bear market runs its course. Based on the outlook for corporate profits and the typical trough P/E multiple that characterized recession bear markets, it would not surprise us to see the S&P 500 gravitate in a 475-650 range for an extended period of time.

Will retest or break below 2% on the 10-year Treasury note
As for the here and now, just consider that consumer discretionary stocks have outperformed the market by 520 bps since the S&P 500 hit its interim low back on March 9, while the homebuilders have outperformed by nearly 2000 basis points. It could be time to sell some calls. As for bonds, we would just have to assume that if the yield on the 10-year note sank to 2% in December on the rumor of the Fed buying Treasuries, we will ultimately retest or perhaps even break below that level on the fact. Considering that the 10-year T-note tested the 3% threshold no fewer than four times before the Fed made its quantitative easing announcement last month, at least we know what the risks are to the view. It seems pretty one-sided.

[JollyRoger]

Predicting the direction of markets, well, if I could do it I would not be wasting my time here, I'd be sunning on one of my Pacific islands. The best we have in the case of markets is usually hindsight. Right now hindsight is telling us that we screwed the pooch using neo-con economics, hopefully next year's hindsight will be better. using something new. Otherwise, one man's feeling is really as good as the next's. I think we are looking at two years of hard times, and the gamble is going to be whether or not we build an actual 21st Century economy, something the Bush team failed miserably at. Obama, thanks to the American system, now gets his swing at the ball. Let's all hope it works out, unless of course you've had a Limbaughtomy, and you are hoping you end up in the poor house.

[cmbdiesel]

Originally Posted by JollyRoger

Looks like Obama is doing a great job!

Just to say it before someone else -
Obama is just coasting on the fine economic policy of his predecessor.

[JonL]

The short "answer" is that it is too soon to tell.

[Fitz]

What bull****! The consumer driven economy isn't coming back. Meanwhile Obama stumbled through his press conference today at the G-20, the reality of our situation written all over his face.

[JollyRoger]

Yes, it was such a dismal failure the stock market went way up, they always do that on the bad news.

[A264172]

Economics is more politics than science.

[mwood]

And when the market goes back down (which it will) it will revert back to Bush's fault, or the fault of all Republicans.

[Botnst]

You guys all missed the point. There are signs that the economy has bottomed-out, according to the article original post. This is without any intervention from the so-called "stimulus" package.

As to whether or not this is president X's or president Y's economy, that's all nearly pure BS, though most people don't want to believe it. Most people believe that correlation is the same as causation. That's the shaman's trick to fool the villagers. It works.

[DieselAddict]

Originally Posted by Botnst

You guys all missed the point. There are signs that the economy has bottomed-out, according to the article original post. This is without any intervention from the so-called "stimulus" package.

As to whether or not this is president X's or president Y's economy, that's all nearly pure BS, though most people don't want to believe it. Most people believe that correlation is the same as causation. That's the shaman's trick to fool the villagers. It works.

Keyword signs. The number of unemployed is still rising. A just because factory orders are up this month doesn't mean they will be up next month. Also some of the government intervention has already taken effect, particularly the bailout of Wall Street. Obama's recently passed stimulus was mostly intended as a long term investment with most of it starting to take effect next year. You should read the news more often.

[Botnst]

Originally Posted by DieselAddict

Keyword signs. The number of unemployed is still rising. A just because factory orders are up this month doesn't mean they will be up next month. Also some of the government intervention has already taken effect, particularly the bailout of Wall Street. Obama's recently passed stimulus was mostly intended as a long term investment with most of it starting to take effect next year. You should read the news more often.

When things are still declining the various factors are not mixed and fluctuating. Various factors are mixed and/or fluctuating. This is before any of the stumulus package has had time for its intended effect. Follow the little dots.

.....

B

[DieselAddict]

Originally Posted by Botnst

When things are still declining the various factors are not mixed and fluctuating. Various factors are mixed and/or fluctuating. This is before any of the stumulus package has had time for its intended effect. Follow the little dots.

.....

B

Weak.

[JonL]

An important factor in getting the economy to turn around is for people to believe that the economy is turning around even before it does. Hence many of the prognostications such as "New signs emerge that recession may be near bottom."

It seems to me that the TARP money and whatever other money the government has infused has helped to stabilize things for now, but many underlying problems still exist, and the collateral damage of those underlying problems will also persist for quite some time making the recovery long and slow.