« May 28, 2006 - June 03, 2006 | Main | June 11, 2006 - June 17, 2006 »
Krishna Guha reports in the Financial Times on the (surprise!) upbeat assessment of the economy delivered by Ed Lazaer, chairman of the White House Council of Economic Advisers.
White House economists stuck to their guns on Thursday and forecast a soft landing for the US economy in spite of mounting market fears of inflation and slowing growth.Releasing the administration’s twice-yearly update on the economy, Ed Lazear, the chairman of the council of economic advisers, said it did not expect higher-than-expected inflation in the first few months of this year to “cascade into future periods”.
He said there was no need to be alarmed by inflation expectations, saying they had stabilised at about 2.5 per cent and were “steady out to the distant future”. “All the indications we have seen are that we are moving to a soft landing,” he added, predicting that growth would remain robust and job creation would improve from recent depressed levels.
Mr Lazear said US trade data were moving “not only in the right direction but really at the right pace as well” and said he was relaxed about recent volatility in the dollar. “We see no reason to be alarmed by anything that is happening out there,” he said.
The White House raised its estimate for consumer price inflation this year to 3 per cent, from 2.4 just six months ago. That is in line with last month’s forecast by the Organisation for Economic Co-operation and Development but lower than the 3.3 per cent median forecast in the latest Bloomberg poll of private-sector economists.
The White House now expects the economy to grow at 3.6 per cent this year, faster than last year. That is again in line with OECD predictions but 0.2 percentage points higher than the Bloomberg median forecast. . . .
Mr Lazear expressed confidence that rising US interest rates would not push the economy into a sharp growth slowdown. He said that while new home starts had fallen sharply, house prices continued to rise, albeit at much slower rates than in the recent past.
The expansion was “deepening and broadening”, he claimed, with increased contributions from investment and exports. The White House forecasts that growth will be sufficient to generate an average of 156,000 jobs a month this year – roughly enough to keep unemployment stable. Last month the economy generated only 75,000 non-farm jobs.
Posted by dan at 09:51 AM
Zarqawi is killed. The stock market falls. Ergo: investors hate America.
Just remember you heard it here first before you'll hear it on Cavuto.
Kidding aside, it's a near certainty that if the market had risen today, commentators on CNBC, Fox and elsewhere would have been ascribing the rise to the success in the war on terror and its potential to strengthen President Bush's political standing.
Posted by dan at 10:47 AM
Christopher Swann reports in the Financial Times on the emerging stalemate between buyers and sellers of U.S. homes.
The number of unsold homes on the American market has risen by more than 1m over the past year, a gain of a third, increasing the prospect of a rapid cooling of the US property market. The inventory of new and existing homes waiting for buyers is now approaching 4m.The surge in unsold homes has been largely due to a release of new properties on the market rather than a sharp slowdown in sales. This suggests that many sellers are eager for one last payout before the halcyon days of the market draw to a close. Speculative buyers may also be trying to exit the market before conditions deteriorate.
"We should start to see a stand-off as buyers offer lower prices and homeowners refuse," said Paul Ashworth, US analyst at consultants Capital Economics. "After a period of frustration, sellers should become more realistic about what their homes are worth."
The pace of home sales has slowed over the past year, but not dramatically. Existing home sales have fallen by just under 6 per cent over the past year to an annualised 6.75m units in April. New home sales are down from an annualised 1.27m last April to 1.198m units this year.
Despite continued robust sales, the inventory of unsold homes has continued to rise. With sales at their current pace, it would now take six months to sell the existing homes on the market - the largest oversupply since the National Association of Realtors started collecting figures in 1999.
Posted by dan at 09:52 AM
Kemba Dunham has an excellent article in the Wall Street Journal on condo conversions that don't quite make it.
One of the first signs that the Gateway Club at Orchid Lakes was going condo was when the owner of the Boynton Beach, Fla., apartment complex closed the gym within the past year. Tenants became suspicious when they couldn't get a clear answer why they no longer had access.Their fears turned out to be well founded. Residents complain that they were later offered steep "insider" prices to buy their units -- $400,000 for a $1,500-a-month rental in one case. Some declined and moved out. When would-be buyers were wooed at a luau at the pool, existing tenants were excluded.
"It was like we were the redheaded stepchildren," says Jack Carney, a 41-year-old salesman who lives at the Gateway Club with his wife and three children.
Now, Gateway's owner, faced with slow sales, is reversing course and reverting to apartments. Although one-third of the 319 units had been upgraded in anticipation of sales, no deals were closed. The owner had to refill the complex with renters, so incentives -- like lower rent -- were offered. Current tenants say they weren't given the same perks when they looked into resigning their leases.
As double-digit housing-price appreciation cools in many markets, rental apartments once seen as ripe for conversion into more lucrative condominiums are beginning to return to their roots.
Michael Cohen, a research strategist at Boston real-estate analysis firm Property & Portfolio Research Inc., dubs the reversions "repartments." "It's definitely becoming a problem," he says. "Some of these projects probably don't look as attractive as they did six months ago when developers were buying the conversions."
Posted by dan at 09:06 AM
Somebody needs a new naming consultant. Patrick Bart and Russell Gold report in the Wall Street Journal on difficulties Chevron is having with a liquified-natural-gas project in Australia.
A surprise decision by Australian environmental regulators to try to block Chevron Corp.'s huge Gorgon natural gas project highlights how even the most reliable gas-producing nations may not be able to deliver new supplies as quickly as expected -- a development that could drive up gas prices in the years ahead.Western Australia state's Environmental Protection Authority said it had rejected the proposed $8 billion offshore liquefied-natural-gas, or LNG, project on the grounds that Chevron and its partners couldn't satisfactorily mitigate some of its environmental risks. The agency cited concerns including potential damage to flatback turtle nesting areas near the proposed LNG processing plant Chevron and its partners plan to build on an island off Australia's west coast."
Help me out here, folks. If you're going to build a gigantic project dealing with a product that is highly flammable and has the potential to impact the environment negatively, why the heck would you name it after a vicious mythological monster that spews fire?
Posted by dan at 09:01 AM
FOURTH ESTATE TAX
The upside of working at the Wall Street Journal: it's an excellent paper, well-respected in corporate America, and it's easy to get your calls answered.
The downside of working at the Wall Street Journal: your colleagues on the editorial page are capable of some truly, truly loony stuff.
From yesterday's editorial on the gay marriage amendment debate:
In fact, the best thing gay activists could do for themselves at the federal level would be to support repeal of the death tax, since under current law gay couples often lack inheritance rights. That would accomplish more than anything that will emerge from this week's political spectacle over amending the Constitution.Get that? For gay activists, who have a myriad of issues on their plate--not least the fact that the Senate Republican caucus revealed itself this week to be overwhelmingly hostile and homophobic--the best thing they can do is support repeal of a tax levied on the tiniest sliver of the American population.
I look forward to learning how people concerned about genocide in Darfur can best serve their cause by supporting a further reduction in capital gains taxes.
Posted by dan at 08:50 AM
June 07, 2006
RIDING THE BUS
Doug Cameron reports in the Financial Times that high gas prices seem to be pushing more people in the midwest to use inter-city buses.
Stagecoach, the UK-based transport group, said two-thirds of the passengers on its new US discount bus service had been driven from their cars by high petrol prices.The company is testing its Megabus concept fromChicago to six Midwest cities in the latest bid to drive growth at Coach USA, the bus group it acquired for £1bn ($1.9bn) in 1999.
Dale Moser, president of Coach USA, said the service had been targeted at "silver surfers" and young professionals, but with petrol prices pushing $3 a gallon, there had been "an inter-modal shift from the auto". Research since the service was launched in April showed that "67 per cent of the passengers are trying us as opposed to driving".
Posted by dan at 06:40 AM
ROYAL PAINS
I don't know what's sillier: the fact that England still has titled aristocrats, or the fact that the titled aristocrats receive farm subsidies--and Tony Blair's government wants to protect them. George Parker and Ben Hall report in the Financial Times
Britain's biggest landowners, including some of the country's wealthiest aristocrats, would lose a combined hundreds of millions of pounds in farm subsidies under plans being drawn up in Brussels.Mariann Fischer Boel, EU farm commissioner, will revive plans next year to put a ceiling on the subsidies any single landowner can receive, likely to be set at about €300,000 (£207,000) a year.
The move would hit landowners like the Duke of Westminster and Duke of Marlborough, whose farms were among about 2,000 across Europe which received more than €300,000 in 2003. Collective farms in former EastGermany would also be affected.
But the British government said yesterday it would fight to preserve the big payouts for large farms, claiming that its blue-blooded gentry were exponents of modern, large-scale, efficient agriculture. . . .
According to figures released under Britain's Freedom of Information Act, the Duke of Westminster received 448,000 pound in subsidides for Grovesnor Farms, while Blenheim Farm Partnership, owned by the Duke of Marlborough, was paid 511,000 pounds in 2004."
Posted by dan at 06:31 AM
FRANCO-PRUSSIAN WAR
French president Jacques Chirac calls for a "Franco-Prussian" solution to the takeover battle brewing over Paris-based exchange Euronext. Martin Arnold, Norma Cohen, and RIchard Milne report in the Financial Times
Jacques Chirac waded into the battle for Euronext on Tuesday by saying a “Franco-German solution” with Deutsche Börse would be better than the recently agreed merger between the Paris-based stock exchange operator and the New York Stock Exchange.The French president’s comments come amid growing anxiety about the $10bn takeover among Euronext’s large shareholders and users in Paris, and could encourage Deutsche Börse, the NYSE’s German rival, to counter-bid. Some Euronext shareholders have already criticised the “sudden rush” to cement the deal with NYSE.
France has no veto over a merger by Euronext, a Netherlands-based company operating the Paris, Amsterdam, Brussels and Lisbon bourses and London’s Liffe futures market. However, political opposition could create headaches for the heavily regulated stock exchange operator.
Mr Chirac, speaking at a Franco-German summit in Rheinsberg, said: “I will not hide the fact that I favour the Franco-German solution for reasons of principle, and I would regret it if this solution is not adopted in the end.”
Despite the tendency of its leaders to spout economic inanities, France remains a popular destination for foreign direct investment. The FT, again:
Strong productivity, higher research spending and rising numbers of skilled migrants helped France remain the third most popular destination for foreign investors in 2006, Christine Lagarde, French trade minister, said yesterday.Foreign direct investment inflows averaged an annual €32.4bn ($41.5bn, £22.3bn) from 2003 to 2005, according to an annual study of 10 countries published by the French agency for overseas investment. But France slipped from fifth to sixth place for inward investment measured as a proportion of GDP.
The country's image with overseas investors has suffered from the talk of "economic patriotism" surrounding bids for companies ranging from Arcelor steel to Tattinger champagne, and from the wave of protests that forced the government to scrap its proposed "first job contract".
"The labour market and its rigidity is clearly one of France's weak points in attracting investment," Ms Lagarde said.
Posted by dan at 06:26 AM
June 06, 2006
MILKING VALUE
Commodity arbitrage spreads into plastics. Ilan Brat reports in the Wall Street Journal on the case of the missing milk crates:
"Missing milk crates used to wind up in college dormitories as bins for clothes, books and CDs. Today pilfered crates -- as well as pallets, bakery trays and other containers made from a pricey high-density plastic resin -- are going into grinders in recycling plants, say dairy and soft-drink industry loss-prevention officials and police. As oil prices have climbed, so too have prices for the petroleum-based resin used in milk crates, pallets and other such items. Prices of the resin jumped more than 40% after Hurricane Katrina, rising to 87.50 cents per pound in November, according to Plastics News. Today prices are hovering in the 70 cents-per-pound range, nearly double the price just three years ago.Dairy and soft-drink industry people cite mounting evidence that the thieves are either plastic recyclers or bandits who sell to recyclers, who then grind up the plastic and sell it to toy makers or other manufacturers who may not know that they are buying stolen goods. Recyclers have been arrested in southern California and Detroit for grinding up stolen plastic, and dairy and soft-drink industry officials and police suspect recyclers in Pennsylvania, Georgia and Florida are doing the same.
Some companies are staking out recycling plants, hiring private investigators and asking lawmakers to help curb the losses. A bill in the California Assembly would require recyclers to request proof of ownership for any bakery trays and milk crates they buy. A Florida dairy group is considering supporting legislation that would require grocery retailers to pay deposit fees on milk crates.
Posted by dan at 12:59 PM
HELICOPTER MAN
Federal Reserve Chairman Ben Bernanke earned his reputation for being more concerned about deflation than inflation in part because of this 2002 speech where he approvingly quoted a Milton Friedman phrase about the utility of a "helicopter drop" of money.
Now that Bernanke is suggesting that inflation is, indeed, a problem, the stock markets are getting somewhat antsy. Traders apparently didn't realize that Bernanke's helicopter comes equipped with a high-powered, super-duper liquidity vacuum. And it looks like he might have to turn it on.
Posted by dan at 12:51 PM
W.W.S.D?
what would Suze (Orman) do. My latest in Slate, on Henry Paulson's personal finance issues.
Posted by dan at 12:50 PM
June 05, 2006
GREEN DORITOS?
No, it's not a disgusting new flavor. Chad Terhune reports in the Wall Street Journal that PepsiCo., maker of Doritos and other salty snacks, which runs the eight largest trucking fleet in the U.S., is aggressively seeking ways to reduce energy use. And succeeding.
"In 2000, Frito-Lay set a 10-year goal of shrinking its electricity use by 25%, fueul consumption by 30% and water usgae by 50%--all per pound of product made. The company says it is ahead of schedule in reaching those goals. The efforts so far have saved Frito-Lay $40 million and reduced its greenhouse-gas emissions by roughly 14%. . . .In Florida and Califonria, about 100 Frito-Lay salespeople have swithced to driving Toyota Prius gasoline-electric hybrid cars instead of regular gas-powered sedans, and two hybrid-powered snack delivery vans will be tested in Texas. . ."
Posted by dan at 10:10 AM
ROYAL PAIN
And you thought the Clinton marriage was politically difficult. In France, the Socialist party is having its own domestic partnership problems. Peggy Hollinger and Martin Arnold report in the Financial Times:
Ségolène Royal's determined bid to represent the French left at next year's presidential election appears to be causing public and private strains after her partner and leader of the Socialist party, François Hollande, yesterday criticised her controversial stance on law and order.Mr Hollande, himself a potential presidential candidate, told Le Journal du Dimanche he was opposed to to Ms Royal's suggestion that the military should be used to help reinsert young delinquents into society.
"Certain of Ségolène's ideas go in the right direction," he said. "On the other hand I don't agree with her view on the use of the army . . . That is neither its role nor its function."
In a separate interview he insisted that Ms Royal's proposals would "not be included" in the Socialist platform for the presidential election, which is being hammered out now by party members and is due to be adopted in July.
The mother of four, who has been criticised for making a bid for the candidacy before developing a policy platform, has begun to give substance to her campaign by tackling an issue normally dominated by the right, and in particular by Nicolas Sarkozy, leader of the ruling UMP party, who has declared his intention to become a presidential candidate.
Posted by dan at 10:06 AM
RATIONAL RATIONING?
Martin Feldstein comes out for gasoline rationing in the Wall Street Journal. It's actually a cap and trade scheme, but it sure sounds like something out of World War II.
"The government would decide how many gallons of gasoline should be consumed per year and would give out that total number of TGRs [tradeable gasoline rights]. In 2006, Americans will buy about 110 billion gallons of gasoline. To keep that total unchhanged in 2007, the government would distribute 110 billion TGRs. To reduce total gasoline consumption by 5%, it would cut the number of TGRs to 104.5 billion."Well worth reading the whole thing.
Posted by dan at 10:03 AM
MISLEADING AGGREGATES
My latest in the New York Times, on why the economy isn't as great as the Bush administration and its allies would have us believe. The reason: the aggregates they cite to buttress their case are misleading.
As if on cue, former Bush economic adviser Glenn Hubbard appears on the the Wall Street Journal editorial page to rhapsodize about the Bush boom. Nothing to worry about, he writes. Everything is hunky-dory. The only thing we have to fear is tax increases and the existence of Social Security and Medicare.
Sample quote:
"While pundits' hand-wringing about the economy misses the mark, there is a void in talking about the big story--the extraordinary performance of producttivity growth in the U.S. eocnomy over the past decade."Alas, that's not the only void. Hubbard dismisses concerns about wage stagnation by putting quotations around the words "wage stagnation." There's no mention of the lame job growth, the fact that figures on median wages, savings, and asset growth have been poor in recent years. And certainly no mention of the story flagged on the front page of today's Financial Times:
"US companies have increased their share of the eocnomic pie at a faster rate over hte past five years than at any time since the second world war.Recent government figures show that profits from production as a share of national income have risen from 7 per cent in mid-2001 to 12.2 per cent at the start of this year. This rate of growth is unprecedented since such records began in 1947."
What good is 5 per cent economic growth when the overwhelming share of the growth goes to corporations and high wage earners? Why is it that nearly five years into an economic expansion, real wages are barely growing? How come tax changes that favor capital haven't led to the creation of lots of jobs? Hubbard doesn't ask, and he doesn't seem to be much interested.
Posted by dan at 09:44 AM
SCANNERS
My latest in Slate, on the tyranny of Bookscan.
Posted by dan at 09:42 AM