Thursday, June 30, 2005

Inflation, shminflation part 3

The release of the May personal income and outlays report allows me to update the consumer inflation numbers I talked about two weeks ago.

After release of the May CPI report, I said
A consumer inflation level of 2.8% is quite low in the grand scheme of things and is now at its lowest point since September 2004. Energy prices have obviously been through the roof, with the compound annual rate for the last three months standing at 28.7%. That being said, the core CPI is a mere 2.2% and has been more or less steady for the last seven months.
Regarding the PCE measure, I noted that overall consumer inflation was running at 2.7% while the core index was just 1.6%. The April figures have been revised downwards to 2.6% and 1.5% respectively, and the preliminary May figures are a mere 2.2% and 1.6%. We're still not at the deflation scare levels of 2003 when core PCE inflation was all the way down to 0.8%, but there is no doubting that these levels are exceedingly tame.

Inflation, shminflation.

From Mad Dog to LSD . . .

Yesterday I argued that the punch bowl fueling the US economic party was little more than 'bum wines' like Mad Dog and Cisco (ah, those college days . . .). Barry Ritholtz has a, shall we say, more 'provocative' analogy.

Weak US income growth

That weak May retail sales report was no joke. As the BEA reports this morning, personal consumption expenditures fell in real terms for the second time this year.

While the slight fall in consumption expenditures is good news in the big picture of global economic adjustment, the failure of American disposable incomes to rise much at all -- and then to find their way into personal savings -- takes the shine off my contrarian interpretation.

Most disconcerting was the miniscule rise in nominal wages and salaries (+$8bn) in May, the weakest increase in a year. Total employee compensation also rose (+$11.3bn) the smallest amount since last June. These kinds of numbers are more characteristic of 2002 and the midst of the job recession than of an economy with "solid fundamentals".

Let's step back and take a wider look at real disposable personal income, the real "solid fundamental" of good growth. Over the last three months, DPI growth deflated by the PCE price index has been $16.4bn. Other recent three-month periods with weaker growth all have mitigating circumstances: the big dividend payout in December 2004 affecting March 2005; and changes in federal income tax withholding affecting October and November 2003. In fact, you have to go all the way back to the second half of 2002 (when real DPI fell five of six months) to find income growth as weak as what we have seen over the March-May 2005 period.

No surprise, then, that personal savings as a percentage of disposable personal income was 0.6% in May. If you want the optimistic scenario, remember that this is up from April's 0.5%. Over the last three months, the US personal savings rate is a pathetic 0.57%. Only the three months following 9/11 -- when the US went on its "shop to stop the terrorists" binge -- was lower, and then just barely (0.54%). But what is our excuse this time around?

Maybe we all really do belive that saving is just for chumps. As the insighful Daniel Akst skillfully argues (irony index: high), why play the ant with his taxed shelter and supplies when you can play the grasshopper and enjoy those luxurious foodstamps and the dignity of state-aid medical insurance?

Wednesday, June 29, 2005

Final revisions point to "bad growth"

There seems to be back-slapping all around this morning in the wake of the release of the final revisions to 2005:I GDP.
The economy logged a solid 3.8 percent growth rate in the first quarter of 2005, a performance that was better than previously thought and a fresh sign the expansion is on firm footing.

The new reading on gross domestic product, released by the
Commerce Department on Wednesday, marked an improvement from the 3.5 percent annual rate estimated for the quarter just a month ago and matched the showing registered in the final quarter of 2004. . . .

The first-quarter's showing was slightly better than the 3.7 percent growth rate that economists were forecasting before the report was released.

"It was a solid quarter, particularly in the face of high and rising energy prices," said Mark Zandi, chief analyst at "It illustrates the resilience of the economy and the durability of the current economic expansion."
And yet Stephen Roach expended thousands of pixels on Monday arguing that there is an important difference between "good growth" and "bad growth".
The former is well supported by internal income generation and saving. The latter is driven by asset bubbles and debt.
The final numbers for 2005:I point pretty strongly toward "bad growth". Nominal wages and salaries were up 1.7% in 2005:I, but PCE inflation was up 1.9%. Thus another quarter of falling real income from labor. This hardly stopped us from spending, of course; personal consumption expenditures were up 3.6% in real terms. One can't point to non-labor income as the firm foundation of this spending, however, since overall personal savings settled in at a mere 0.9% -- the second time in three quarters we have spent more than 99% of our personal income.

Final revisions also show a US economy more dependent on housing than at any time in the last 25 years -- now 5.8% of GDP -- and growing -- up 11.5% in 2005:I. As nonresidential investment cools -- growing in real terms by double-digits in six of the seven quarters 2003:II to 2004:IV, yet down to 4.1% last quarter -- more of the investment load is borne by the residential sector. And it should be no surprise in light of the miniscule 1.1% annualized inflation rate in housing.

Even though the Fed is all but certain to raise the federal funds rate to 3.25% tomorrow, it's been a long time since Alan & Co. really had the power to take the punch bowl away from these party-goers. Everybody is riding high on Mad Dog and Cisco -- promising painful headaches the morning after.

Tuesday, June 28, 2005

Lookin' for fun and feelin' groovy?

The Conference Board tells us today that John and Jane Consumer are feelin’ good. It’s not exactly clear, however, why they are.

Monday, June 27, 2005


From Martin Wolf's column in the Financial Times today (sub. only):
High savings rates in oil-rich countries are not surprising. Nor are they foolish. Recipients of a windfall do well to spread the spending out over time. But Russia's current account surplus of 10 per cent of GDP last year must also reflect the dreadful investment climate in that country.

Yet Asia is, once again, the big story. China's investment rate is 15 percentage points higher than the pre-crisis average, while its savings rate is 12 percentage points higher (see chart). The Asean four invested only 21 per cent of GDP in 2004, which is 4 percentage points lower than the pre-crisis average, while their savings rates are 3 points higher. Finally, the Asian newly industrialised countries have also lowered their investment rates by 4 percentage points since before the crisis, while their savings rates have dropped by almost 2 points.

Thus the soaring savings surplus of emerging Asia is the result of rising savings rates and, in some cases, of falling investment rates as well. More­over, if China's massive investment rate were to fall to levels that are normal elsewhere, its current account surplus could jump to enormous levels.
What is interesting in this instance of overaccumulation is the extent to which state policies have managed it. As Wolf points out, in their quest to limit domestic investment, Asian states have gone on a sterilization binge:
the excess of the increase in foreign currency reserves over the expansion of their monetary base has been very large: between 2002 and 2004, it was 19 per cent of GDP in the newly industrialised countries, 11 per cent in China and 8 per cent in India.
Why are these states so keen to limit productive investment in their own economies? Clearly China feels its best bet is to sell to the United States, not at home. From 1997 to 2004, US goods imports from China surged 214% in nominal terms, from $62.6bn to $196.7bn. So far this year the US is on pace to import $252.3bn in goods from China -- over 300% more than just 8 years ago. Moreover, as Wolf points out, "Already [China's] ratio of trade (exports plus imports) to GDP is 70 per cent. This is much the same as for South Korea." It is truly astounding how dependent on trade this largest country in the world is.

And as China goes, so goes East Asia, for most if not all of the rest of East Asia is along for the Chinese ride.

Of course, there is no necessary reason why more capital investment into China will be funneled into the productive sector. The Shanghai real estate market indicates as much. China is producing an enormous amount of capital -- thanks to transnational corporations especially -- but as yet cannot provide anywhere near enough profitable avenues for its investment.

The history of the resolution of crises of overaccumulation is the devaluation of capital. Inflation (including currency devaluation) is one means, but the commitment of the most powerful central banks of the world to near-zero inflation makes this an unlikely avenue of resolution. Asset devaluation -- such as a real estate collapse -- is another, perhaps more likely candidate. Bankruptcy and unemployment are also on the list. One must also consider the social and geographical diversity of these processes of devaluation. In periods of acute overaccumulation, the goal is always to stick the 'other guy' with the costs of devaluation -- whether the 'other guy' is another industry, another social class or another country. Financial crisis gives birth to crisis in the 'real economy' and all scramble to make sure the 10-ton weight falls on somebody else.

Or will Uncle Alan -- or Uncle Ben in the future -- find us yet another asset to soak up this excess capital, cascading us from one bubble to another to another? I certainly don't rule out the evil genius of the financial sector finding us still one more roller coaster to ride.

Saturday, June 25, 2005


Sorry for the mess which has become my blog. I can't figure out why there is the persistent enormous gap between the title and the post of the first entry on the front page. I've tinkered with about everything I can think of and the only thing that fixed it (a "float:left" command for the post) made it work in IE but screwed it up completely in Netscape.

I have a help request into Blogger; we'll see what happens. Any advice is most welcome!

UPDATE: Thanks to everyone who extended me aid in my time of need. In the end I decided wholesale template change was an appropriate means of fixing the problem. So welcome to the "new and improved" General Glut's Globblog.


Yet more evidence that, in the face of overaccumulation, Alan Greenspan is the invisible man as far as long-term interest rates go.
US 10-year Treasury yields looked set to close below 4 per cent this week even as investors prepared for the Federal Reserve to raise short-term interest rates again next week.

At the same time, the yield on the German 10-year Bund fell as low as 3.105 per cent on Friday, its lowest since Bundesbank records began in 1973. . . .

David Rosenberg, chief US economist at Merrill Lynch says yields at these levels are hardly such a conundrum if one takes a starting point of June 2003, when the 10-year touched a low of 3.1 per cent as investors worried about the spectre of deflation. From then until 2004, yields rose as investors prepared for the eventual rise in short term rates. �The 10-year is merely in the mid-point of the range since that time,� he said in a research note.
As the Fed continues to top up interest rates, the rest of the world is cutting them like gangbusters. The Bank of Sweden lowered rates 50 basis points on Tuesday to 1.5%; a minority of the Bank of England's monetary policy committee voted for rate cuts at their June meeting, the first time anybody voted for reductions in nearly two years; the Bank of Japan publicy professed its commitment again today to what Rueters calls its "ultra-easy monetary policy"; and everybody and their brother and their brother's neighbor are putting mounting pressure on the European Central Bank to drop rates from its longstanding 2.0%. With a commitment to a ridiculously low inflation rate of 2%, the ECB is still digging in its heels, but the planets are beginning to align against them.

Thursday, June 23, 2005


Alan Greenspan pays the Vogon today before the Senate Finance Committee, saying in short, "resistance is useless".

Greenspan and Treasury Secretary John Snow, who testified to the Senate Finance Committee, faced persistent questioning from some legislators who said China's trade policies, especially its currency regime, are unfair and illegal. Greenspan also cast doubt that a revaluation of China's currency would be beneficial to U.S. companies and the economy.

"Some observers mistakenly believe that a marked increase in the exchange value of the Chinese renminbi relative to the U.S. dollar would significantly increase manufacturing activity and jobs in the United States," Greenspan said. "I am aware of no credible evidence that supports such a conclusion." . . .

"Any significant elevation of tariffs that substantially reduces our overall imports, by keeping out competitively priced goods, would materially lower our standard of living," Greenspan said.

The Fed chairman said "few, if any" American jobs would be protected by a tariff on Chinese goods. U.S. workers displaced by trade with China should be compensated through unemployment insurance programs and retraining, he said.
So tell me again what the difference is between a "mainstream" Democrat and a Republican on trade?

Overall, US goods imports on a census basis are up $328.7bn in current dollars from 2001 to 2004 -- an increase of 28.8% in three years. Somewhere around one-third of that increase is due solely to China, from whom imported goods on a CIF basis have risen by $101.1bn in current dollars -- an increase of 92.5%.

Over the same period, US goods exports have risen just $89.7bn (Census basis, current dollars), not even enough to balance the import increase from China alone.

The sectors with the largest growth in imports from China from 2001 to 2004 are:

Office machines -- $25.4bn
Telecommunications equipment -- $14.6bn
Misc. manufactured articles (esp. toys) -- $10.7bn
Furniture -- $7.0bn
Electrical machinery, apparatus and appliances, n.e.s. -- $6.6bn
Apparel and clothing -- $5.1bn
Manufactures of metals -- $4.6bn
General industrial machinery and equipment -- $3.4bn
Textiles -- $2.6bn
Travel goods, handbags -- $2.1bn
Road vehicles -- $2.1bn
Footwear -- $1.7bn
Prefabricated buildings -- $1.5bn
Iron and steel -- $1.3bn
Scientific instruments -- $1.1bn

Growth in these 15 SITC sectors make up 89% of the overall import growth from China over the 2001-04 period. With the demise of the Multifiber Agreement at the end of last year, clothing and textiles are now in 2005 contributing much more to the imbalance than these figures show.

Embedded in Greenspan's comments is the assumption that relative currency values play little if any role in trade between the US and developing Asia. Thus there is no currency adjustment in the world which will cause Americans to consume more domestic computers, TVs, toys, furniture, electrical machinery, clothing and textiles. Those sectors -- those hit hardest by Chinese imports over the last three years -- are to be given up for good, apparently.

And make no mistake, they've been hit hard:

Computer and electronic products: -422,600 jobs (-24.2%)
Machinery: -226,800 jobs (-16.6%)
Apparel: -141,700 jobs (-33.2%)
Textile mills + textile product mills: -122,400 jobs (-22.7%)
Electrical equipment and appliances: -110,100 jobs (-19.8%)
Furniture and related products: -69,700 jobs (-10.8%)
Dolls, toys and games: -7,700 jobs (-29.3%)

MANUFACTURING: -2.1 million jobs (-12.8%)

Lest one forget, the slow death of the US manufacturing sector was effectively halted in the mid-1990s, and in 1998 there were 17.6 million jobs in the sector, up from 16.8 million in 1993. By 2004, however, there were just 14.3 million -- a 19% decline in only six years.

One of the things that helped the US manufacturing sector -- and thus the US trade balance -- in the 1990s was the weak dollar. This time around, however, Uncle Alan has seemingly told us to just forget about manufacturing, manufacturning jobs and the trade deficit. All the retraining and unemployment benefits in the world aren't going to turn the US trade deficit around, and Greenspan's comments about "materially lower[ing] our standard of living" suggests that it would in fact be criminal to address it.

So if relative currency adjustments are ruled out as medicine for the trade deficit -- for the dollar needs to adjust against Asia, not Europe -- we're left with dramatically higher US interest rates to do all the heavy lifting -- and just think what that will do to our "material standard of living". Alan can't see past his nose for all the contradictions in his own argument.

Wednesday, June 22, 2005


Roger Altman chimes in on "the conundrum" in yesterday's WSJ (sub. only), but does little more than echo Ben Bernanke:
Three alternative schools of thought have emerged to explain it. One is that the bond market has overshot. A second is that the growth outlook is actually weaker than the consensus forecast, and the bond market is discounting such slower growth before it manifests itself. But the right answer involves excess global liquidity which, for the moment, has nowhere else to go but into dollar-denominated fixed- income assets like U.S. Treasury securities. . . .

What is uncommon is for developing regions to run positive international accounts. Historically, they have grown rapidly and consumed foreign capital on a net basis. But today the opposite is true. Remarkably, Latin America, China, Africa and the Middle East are in surplus, as shown in the chart nearby.

By definition, such unprecedented foreign liquidity must be invested, and more of such capital usually flows into fixed income instruments than equities. Believe it or not, comparable rates outside the U.S. are even lower than ours. Economic growth is so anemic in Europe and Japan, for example, that the yield on Japan's 10-year government bond is 1.3%, while the 10-year German Bund is at 3.3%. At the margin, therefore, the highest returns are realized on American bonds. That is why this excess foreign liquidity has nowhere else to go.
In braver times, this used to be called the "overaccumulation of capital", the 'natural' tendency of capitalism to overproduce capital which, because of the glut, consequently has difficulty finding profitable avenues for investment. The smart money breaks out of the tired old circiut of M - C - M' and into the magic of M - M', bypassing production altogether.

Whereas Marx saw this tendency as capitalism's terminal illness, the capitalist state in particular has found ingenious means by which to mop it up, as Giovanni Arrighi pointedly observes in his sweeping Braudelian work The Long Twentieth Century (p. 232):
In every phase of financial expansion of the world-economy, the overabundance of money capital engendered by the diminishing returns and increasing risks of its employment in trade and production has been matched or even surpassed by a roughly synchronous expansion of the demand for money capital by organizations for which power and status, rather than profit, were the guiding principle of action.
Thus the "global savings glut" is simply the reverse side of the "government debt mountain". As capital (and increasingly states) see profits waning in the realm of production it removes investment from the mundane processes of making things and delivering services and places it instead into the arena of financial intermediation and speculation. This fits the present condition as the IMF notes:
In the ASEAN countries and the NIEs, the increased current account surpluses result from a marked drop in investment, largely a reaction to the excessive investment prior to the 1997-98 crisis. In Japan also, investment has fallen steadily following the bubble years.
Recall also that in the US, real nonresidential investment peaked in 2000 and has still not recovered to that level.

At the same time, governments of the most advanced capitalist economies happily find a wealth of cheap money available for their consumption and consequently borrow -- heavily. The two together generate a cycle of savings and debt which describes our present economy to a T. From 2000 to 2003, the general government fiscal balance as a percentage of GDP fell from +1.3% to -4.6% in the US; +1.3% to -3.8% in Germany; -1.4% to -4.2% in France; +3.9% to -3.3% in the UK; and -6.1% (2001) to -7.8% in Japan.

So instead of calling it the "global savings glut" and acting like it's something new under the sun, let's call it plain old "overaccumulation" which we've seen far too many times before.

Tuesday, June 21, 2005


Vietnamese Prime Minister Phan Van Khai . . . is meeting Bush in the Oval Office on Tuesday during a weeklong visit to the United States, where he is meeting with business leaders on both coasts. Khai is ringing the opening bell at the New York Stock Exchange later this week
Boy, they don't make communists like they used to.

Monday, June 20, 2005


A real gem from today's Wall Street Journal (sub. required):
Federal Reserve officials expect housing prices eventually to level off and restrain consumer spending. But they believe business investment and exports will increase by then and pick up the slack, maintaining overall growth for the U.S. economy.

Real US nonresidential investment grew 10.6% in 2004, not terribly far below the pace of the roaring 90s when annual real nonresidential investment growth from 1991-99 averaged 12.7% a year. Real US exports grew 8.6% in 2004, just about the pace of the roaring 90s when annual real export growth from 1991-99 averaged 8.9%. And yet we're supposed to see a major increase in both nonresidential investment and exports after the housing bubble comfortably plateaus??


I noted earlier this month that California in particular has built its recent job recovery -- what little there is of it -- on the housing sector. Firstly, the Golden State has seen slower than average job growth from April 2003 to April 2005 -- 2.4% compared to 2.8% in the US minus California. On top of that slower job growth is an economy stunningly dependent on the statewide housing bubble. Over the same 24-month period, 32.7% of all new jobs in CA have been in either construction or real estate while in the rest of the country over the same period, 15.3% of all new jobs have been in these two sectors.

Calculated Risk, always a great source for housing bubble news and analysis, thinks he may be seeing the demise of the bubble. San Diego is a good market to look at since it has one of the most eggregious run-ups in housing prices combined with the widest income-to-price ratios and the heaviest use of adjustable-rate mortgages, and in San Diego, CR notices that real estate and mortgage financing firms are planning on cutting jobs in the future. At the same time he notes that construction firms are still expanding, leading to the question of whether real estate and mortgage financing firms are a leading indicator of the end of the bubble.

Below is a chart showing the annual rate of change for jobs in the construction, real estate and finance/insurance sectors in San Diego since January 2001.

As you can see, all of these are off their 2003 or early 2004 growth rates. Real estate and finance/insurance in particular are in the doldrums, with both sectors nearly stagnant in terms of job growth. Construction continues to surge ahead, but its growth rate is down sharply from where it was six months ago, not to mention the near-12% growth rates a year ago.

Note also the differences between these three sectors (which I have somewhat liberally defined as "housing-related") and the rest of the San Diego job market. While the housing-related sector overall has seen annual monthly growth rates as high as 8%, the rest of the economy can barely get over 1.5% growth, still far below the 2.5%+ rate of early 2001.

Yet for now it seems that the housing-related sector is still able to carry the San Diego economy. So far in 2005 jobs in these three sectors have grown 1.5% -- the growth rate in construction is 2.5% -- while in the overall economy job growth is a mere 0.2%. Amazingly, so far this year new construction jobs have been a net 88% of all new nonfarm jobs in San Diego. When the building boom ends in San Diego, it will take the whole regional economy down with it.

UPDATE: Here is the data for new construction jobs as a % of total new jobs in all the major California metropolitan regions, May 2004 to May 2005:
Riverside-San Bernardino-Ontario: 51.1%
Oakland-Fremont-Hayward: 43.0%
San Diego-Carlsbad-San Marcos: 30.9%
Los Angeles-Long Beach-Glendale: 25.4%
Santa Ana-Anaheim-Irvine: 20.2%
Sacramento: 13.1%
San Francisco-San Mateo-Redwood City: 12.3%
San Jose-Sunnyvale-Santa Clara: job loss since May 2004

Friday, June 17, 2005


In my recent posts on inflation -- Inflation, Shminflation and Inflation, Shminflation Part 2 (I agree, I'm no poet) -- I hinted at a case for a return to whiffs of deflation in the coming year. You may say I'm a dreamer, but I'm not the only one.


Back around the turn of the century, smart economists like Catherine Mann were saying that a US current account deficit above 5.0% of GDP would spur natural counter-balancing mechanisms to bring the US accounts back toward balance. In our brave new world, however, CA deficits of even 6% of GDP are clearly no match for the greatest consumer engine on earth.

How do we know? Because the BEA reports today that the US current account deficit in 2005:I hit yet another record, both in absolute and relative terms. In absolute terms the CA deficit was $195.1bn, up from 2004:IV's $188.4bn. In relative terms the CA deficit was 6.40% of GDP, up from 2004:IV's 6.28%. Since the revised deficits have all been trending larger than the preliminary data over the last three quarters, one wonders if we won't be edging toward a deficit nearer 6.5% of GDP before all is said and done.

It is interesting how the US financial income flows continue to stay stubbornly positive despite the country's ever-growing net investment deficit. The balance on income for 2005:I was $3.8bn, nearly the same as 2004:IV's $3.2bn. One wonders how much of this can be chalked up to the weak dollar during the first three months of this year, and suspects that with the stronger dollar of 2005:II this number may finally turn negative.

A second interesting tale told by this report is the big surge in unilateral current transfers, whose deficit jumped to $27.1bn from $22.4bn in 2004:IV. Of that extra $4.7bn of outflow, only $1.4bn was growth in private remittances while $3.3bn of it was growth in US government grants which, as the BEA itself notes, "includes transfers of goods and services under U.S. military grant programs".

So let's track the relative growth in the US CA deficit over the last 8 quarters:
2003:II . . . 4.73%
2003:III . . 4.64%
2003:IV . . . 4.44%
2004:I . . . . 5.09%
2004:II . . . 5.72%
2004:III . . . 5.65%
2004:IV . . . 6.28%
2005:I . . . . 6.40%
As Brad Setser pointed out on Wednesday, foreign interest in long-term US securities is slackening, with both March and April flows looking particularly weak. In addition, foreign capital investment into the United States in 2005:I was at its lowest level in a year. It's always dangerous to predict the end of a tide that thus far seems bound and determined to rise. But will the rest of the world simply shrug off a CA deficit of 7% of GDP, too?

Thursday, June 16, 2005


Alan & Co. is set to raise the federal funds rate at the end of the month to 3.25%, but anybody who once thought that Fed tightening has any effect on the housing market has long since given up on that fairy tale.

Freddie Mac reports today that mortgage rates continue to hover around 14-month lows. The one-year ARM stands at just 4.25%, still within the band it has bounced around in since late 2002; the 30-year FRM is at 5.63%, well below the top of its recent band.

Yesterday the Mortgage Bankers Association told us that its index of mortgage loan application volume was 46.1% higher than this time last year while its purchase index hit a record high this week and its refinancing index is at its highest point in 14 months.

No surprise, then, that the Commerce Department reports via Bloomberg that
U.S. housing starts rose 0.2 percent last month to the fastest rate since February as low mortgage rates and an improved job market kept homebuilders on pace for their best year since 1978. . . .

"This is an extremely strong reading," said Ken T. Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio, who predicted a 2 million rate for housing starts. "With the decline in bond yields and mortgage rates, consumers have had another chance to get another bite out of the apple here."
Another bite indeed.

Of course, the US economy is becoming increasingly dependent on biting the same apple over and over and over again. Via Bloomberg:
Residential construction has been a source of strength for the economy this year, growing at an 8.8 percent annual rate in the first quarter, faster than the 3.5 percent for the economy in general. Production of construction supplies grew at a 4.5 percent annual rate in the first quarter, faster than the 3.5 percent rate for all industry, the Fed reported yesterday.
In 2005:I the residential construction sector made its highest quarterly contribution to overall GDP since 1978:IV, and in annual terms, 2004 was the most housing-dependent year since 1978. The great difference between 2004 and 1978 is that twenty-five years ago exports and investment were much more important in relative terms than they are in today's domestic-consumer-driven economy. If the housing sector grows any larger in relative terms we'll have to go all the way back to 1955 to find a more housing-dependent US economy.
Construction has accounted for 141,000 of the 898,000 jobs added in the U.S. this year, and more hiring is likely: a survey by Manpower Inc. said U.S. hiring expectations for the third quarter were highest among construction companies, with 43 percent saying they planned to add workers.
In 2004, 15.5% of all new jobs were in construction. In 1978, the last time the US was so dependent on housing for its economic growth, just 9.0% of all new jobs were in construction. Or go all the way back to 1955 when construction made up just 11.7% of all new jobs.

Note also that US job growth is becoming more, not less, dependent on construction. So far in 2005 the (SA) figure is up to 15.7%, and over the last three months, the (SA) figure is up to a whopping 19.8%.

So have another big bite of that ARM apple. Your neighbor's job depends on it.

Wednesday, June 15, 2005


Yesterady we had the May producer price index report showing us inflation in America is nothing to worry about. Today we have the May consumer price index telling us the same thing.
The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent in May, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The May level of 194.4 (1982-84=100) was 2.8 percent higher than in May 2004. . . .

The Chained Consumer Price Index for All Urban Consumers (C-CPI-U) was unchanged in May on a not seasonally adjusted basis. The May level of 113.1 (December 1999=100) was 2.5 percent higher than in May 2004.
A consumer inflation level of 2.8% is quite low in the grand scheme of things and is now at its lowest point since September 2004. Energy prices have obviously been through the roof, with the compound annual rate for the last three months standing at 28.7%. That being said, the core CPI is a mere 2.2% and has been more or less steady for the last seven months.

Not only have we been getting mild inflation reports from the producer and consumer levels, we're also getting them on the import front as well. In May the US import price index fell markedly, -1.3%. Much of this was thanks to falling petroleum import prices, but non-petroleum import prices were also down, -0.3% in May which was the first monthly decline since October 2004. Annual non-petroleum import price inflation is just 2.5% and annual non-fuel import price inflation is a mere 2.0%. Non-petroleum import inflation is at its lowest level since July 2004, and non-fuels import inflation is at its lowest point since February 2004.

So the message seems to be: bring on the stuff!

Tuesday, June 14, 2005


Get laid. Get stoned. Get dead.

And this is going to lead the Dems back to power in 2006/08??


If you want to find inflation, look to housing. You won't find it in consumer goods and services, where PCE inflation is running at a tepid 2.7% and core PCE inflation at a downright cool 1.6%. And as the BLS tells us this morning, you won't find it at the producer level, either.
The Producer Price Index for Finished Goods fell 0.6 percent in May, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This decline followed a 0.6-percent increase in April and a 0.7-percent advance in March. At the earlier stages of processing, prices received by manufacturers of intermediate goods decreased 0.7 percent in May, after rising 0.8 percent in the preceding month, while the crude goods index moved down 2.0 percent, following a 2.7-percent jump in April.
Finished goods inflation has fallen from 5.0% in November 2004 to just 3.5% now in May. Intermediate goods inflation is down from 9.9% in November to 6.3% in May, and volatile crude goods inflation has plummeted from 25.2% in November to a mere shadow of its former self at 6.1%.

The story is especially interesting when you simply remove energy goods. Non-energy finished goods inflation stands in May at just 2.2%; non-energy intermediate goods inflation is at 4.6%; and non-energy crude goods are actually back in deflationary mode, with an annual price change of -4.1%.

The tie-ins to the housing market are interesting as well. Prices on softwood lumber have plunged, -10.8% from May 2004. Prices on hardwood lumber are down as well, -1.7% y-o-y. Plywood prices are vanishing before our eyes, -22.3% since this time last year, and millwork prices up just 2.4%.

The prices of stuff to put in your new house are staying tame as well. Wholesale furniture prices are up 3.6% (although retail furniture and bedding is actually -0.6%) and floor coverings prices are up 8.2% (although up a much tamer 2.0% at the retail level), but home appliances are up only 1.6%, lawn and garden equipment up just 0.7%, and home electronics prices continue to fall, -3.5% since May 2004.

So it appears the PPI report offers lots more fuel for the housing fire: less pressure for interest rate hikes past June; cheaper wood for construction; low inflation on things to stuff all thoses new (and newly bought) houses with.

The May CPI report comes out tomorrow. Look for more disinflation there as well, especially in light of the weak May retail sales report. We may even begin creeping back to the days of late 2003 when "deflation" was on everybody's lips.

Monday, June 13, 2005


First it was Alan Greenspan. Then it was Alan Greenspan again. Then the East Asian central banks pitched in. And now the Army is doing its part to keep the US housing boom going.
The Army wants to double the top cash bonus for new recruits to $40,000 in an effort to stem a continued recruiting shortfall in the midst of the Iraq war.

As another incentive, the Army is proposing a pilot program to provide up to $50,000 in home mortgage help for recruits who sign up for eight years of active duty, Lt. Col. Thomas Collins said in an interview Thursday. Congress must approve both plans.
Maybe instead of hazard pay, new recruits can bargain for interest-only loans instead. Or maybe just keep the bank at bay when foreclosure time comes.

Saturday, June 11, 2005


Max Sawicky has been running a small series of late he calls "Postcards from the Edge", and yours truly gets a mention yesterday as one of the few bloggers who has the temerity to dissent from the free trade faith. Well, I can thank my education in economics for that, for I am not a professional economist nor have I any degrees in economics. I have a B.A. in Political Science and Russian Language and Literature; an M.A. in International Affairs; and a Ph.D. in Political Science with a supporting program in Geography. In these fields you can do all the political economy you want and never be spoon-fed liberal orthodoxy nor face immense professional pressure (whether social or ideological) to bow down at the altar of free trade. Political economy is truly the land of the free where dissenters are liberated from their shackles.

Brad DeLong, who is a fine person and a fine economist as well as a darling of the pro-free trade liberal blogosphere, takes issue with Max as you might expect.
Well, free trade is a very important pie-growing mechanism--and, as a way of boosting growth in poor parts of the world, an important step toward a truly human world and a secure world.

Plus there are much better tools for repairing the income distribution than tariffs and quotas. If only we could assemble a political coalition behind any of them...

And effective trade regulation is hard to do and inevitably polluted by politics.
Ah, spoken like a true liberal: "polluted by politics". The market is the pristine heaven tainted by the grubby hands of power.

Globalization doesn't work (see here and here for recent and easy summary statements). One look at the US trade deficit will show you this. Per the religion of comparative advantage the US is surrendering its manufacturing base but without replacing it with anything the US can exchange for all the manufactured imports the country is hell-bent to consume. Furniture, cars, iron and steel, even food -- you name it, we're turning it over to the pristine heaven of globalization. And we will pay the price.

Hell, lots of folks already are. I must dissent from Paul Krugman (another pro-free trade liberal) in that the story of the demise of the American middle class is not simply one of corrupt men in positions of power (read: the Bush administration) -- as if Bill Clinton was God's gift to America! At a structural level, the vision of Robert Reich (another pro-free trade liberal -- they're everywhere!) is basically the same as that of George W. Bush. Reich would just give the country six months more unemployment insurance.

As Friedrich List said, "And who would be consoled for the loss of an arm by knowing that he had nevertheless bought his shirts forty per cent cheaper?" Well, you have your answer if one fellow gets the shirt and it's somebody else's arm.

Friday, June 10, 2005


Yes, March was indeed just a dream.
The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total April exports of $106.4 billion and imports of $163.4 billion resulted in a goods and services deficit of $57.0 billion, $3.4 billion more than the $53.6 billion in March, revised.
This number puts the US trade deficit back into familiar territory. The $57bn shortfall makes April's deficit the fourth largest of all time, with three of the four coming in 2005 alone. So far on the year the US trade deficit is a whopping 22% larger than in 2004. If we stay the course, the trade deficit will wind up over $750bn this year!

There is much to slice and dice in this report. One of the most interesting tidbits is the downward revision of the already (relatively) small March trade deficit. It was originally reported at $55.0bn, but now is revised down to $53.6bn. Anything under $55bn and one could credibly begin talking about a turning point in the persistent growth of the trade deficit. April's numbers put that talk to a halt.

It is quite amazing that the trade deficit continues to hover in the high $50bns when US goods exports hit a record in April: $74.5bn. Of course, US goods imports blew all previous figures out of the water in April: $136.7bn. The problem continues to be excessive US imports, not sluggish US exports.

What are we importing too damn much of? Surprisingly, the category of consumer goods is playing less and less a role in explaining the US trade deficit. So far for 2005, consumer goods imports are 12.3% higher while overall goods imports are up 15.7%. The real culprit seems to be industrial supplies imports, up a big 30.8% this year.

And this is not just a story about oil. Imports of industrial supplies minus fuels (crude oil, other petroleum products, natural gas, and liquified petroleum gases) are still up 20.4%, much higher than overall goods imports growth. Other big gainers include bauxite and aluminum (+30.7%), steelmaking materials (+46.9%), iron and steel mill products (+46.4%) and iron and steel products n.e.s. (+32.0%).

Let's take a closer look. If we check out NAICS 331 (primary metal manufacturing) which includes iron, steel and aluminum, we see massive growth in imports this year (through March April) from China (+$739m+$932m), Brazil (+$593m+$834m), Russia (+$561m+$857m), Canada (+$492m+$639m) and Mexico (+$343m+$456m). Looks like the death of the US steel and aluminum industries is taking its revenge on the trade deficit.

To put an exclamation point on the claim that this is not just a story about oil, note that US non-petroleum goods imports are up 13.0% in 2005 while total US goods exports are up 11.0% and total US exports (goods and services) are up 11.5%.

Now, discuss.

Thursday, June 09, 2005

fatbear calls our attention to Friday's release of the April US trade balance data. According to Bloomberg the consensus forecast is a deficit of $58bn, which would come in as the fourth largest monthly deficit ever, $3bn more than March's pullback tally but $2.5bn less than February's record.

As I claimed last month, March's numbers looked awfully funny. If I may quote myself,
When taking in the big picture, however, clearly the significant drop in the overall deficit for March is due almost single-handedly to a drop in consumer goods and auto-related imports from China. There is clearly something fishy going on here.
$58bn sounds about right to me. calmo is putting in for $60bn and fatbear at "slightly over" $60bn. Remember, a deficit of $60.6bn is the all-time record.

The betting window is now open. I'm sure fatbear will sort everything out once 8:30am rolls around.

Looks like there is something else Americans aren't going to make anymore.
General Motors Corp. said Tuesday that it would eliminate 25,000 U.S. manufacturing jobs and close several factories over the next three years to revive its sagging North American auto operations. . . .

The job cuts outlined by Rick Wagoner, GM's chief executive, would slash the Detroit-based giant's hourly employment in the U.S. by 23%. At the end of last year, the company had 111,000 hourly workers and 39,000 salaried workers in the U.S., plus 31,000 in Canada and Mexico.
Some are trying to mystify this story by pointing to all the Japanese and European firms producing vehicles in the United States. Reuters, for example, says
GM, the world's biggest auto maker followed by Toyota, lost $1.1 billion in the first quarter and is riding out its worst financial crisis in more than a decade. It has been closing and idling plants over the past four years and will have cut its annual North American assembly capacity to 5 million vehicles by the end of this year from 6 million in 2002.

Meanwhile, top Japanese auto makers are adding jobs and assembly lines in North America to meet growing demand there, prompting executives, including Toyota President Fujio Cho, to dismiss concerns that their success would reignite a political backlash.
Not so fast there. Ten years ago (April 1995) there were 1,249,800 workers in the US motor vehicle and motor vehicle parts manufacturing sector (NAICS 3361, 3362, 3363). Today (April 2005) there are just 1,099,900 -- a 12.0% decline in a decade. If we focus in on just the motor vehicles sector (NAICS 3361) we see a fall over the same period from 297,700 to 255,200 -- a 14.3% decline. Even if Toyota or BMW are adding jobs, they are nowhere near making up for the loss of jobs under GM and Ford.

Moreover, the import penetration of the US market is growing; all those Japanese models aren't made in the US after all. In 1989 (the earliest year for which I could easily dig up data), domestic production of motor vehicles made up 77% of domstic supply (production + imports - exports). By the recent employment peak of 1995 that figure was down only slightly to 76%. Yet seven years further on, i.e. by 2002 (for data see here and here), domestic production was a mere 70% of domestic supply (up to 72% in 2003).

Regardless of the fact that Japanese firms are now producing in the US when they weren't in the early 1980s, the overall value of vehicles produced in the US relative to imports is falling, and along with it, the number of jobs in this sector.

Yet another line of production the United States used to be competitive in, going the way of textiles and furniture, apparently? But back in November the deputy governor of the People's Bank of China tried to console us by saying,
�The appreciation of the RMB will not solve the problems of unemployment in the US because the cost of labour in China is only three per cent that of US labour. They should give up textiles, shoe-making and even agriculture probably.

�They should concentrate on sectors like aerospace and then sell those things to us and we would spend billions on this. We could easily balance the trade.�
So how is that robust US aerospace sector doing, anyway? Since the same benchmark -- April 1995 -- the US aerospace sector has gone from 525,900 jobs to 457,900 jobs -- down 13%, amazingly similar to the story in motor vehicles.

Still, the US maintains its position as a net exporter of aerospace products and parts, unlike in motor vehicles. However, the trade surplus here is down notably off the 1998-99 peak, and even if the US can keep its head above water in this sector, the increasing capital intensivity of production means there won't be any jobs to show for aerospace's trade success.

Perhaps Americans can sell travel insurance to the world's auto, air and future space wayfarers instead?

Wednesday, June 08, 2005

On Monday I wrote a post about the California housing market demonstrating the disconnect between stratospheric rises in housing prices there combined with unimpressive job growth. Moreover, that job growth has been highly dependent on the property development sector itself: California's employment recovery over the last two years has been twice as dependent on construction and real estate than has the rest of the country.

Since we all had so much fun with this little exercise on Monday (come on, admit it, you did enjoy yourselves, didn't you), I thought I would do the same today for another raging housing market -- Florida.

The Sunshine State has indeed been frothy. Over the last five years no market has seen larger house price inflation than West Palm Beach, and over the last four quarters, eight of the ten hottest real estate markets have been in Florida. That being said, the Florida real estate boom seems on much more solid footing than the bubble in California.

From April 2003 to April 2005, US minus Florida job growth has been 2.5%, while over the same period Florida job growth has been an impressive 6.4%. Already Florida is on a completely different plane than is California. In addition, 18.7% of all new jobs in Florida have been in either construction or real estate, whereas for the rest of the country that figure has been only slightly lower, at 16.7%. Thus Florida, unlike California, has not been inordinately dependent on the property development sector for its job growth.

While 50-70% of all new mortgages in California markets are ARMs, Miami-Ft. Lauderdale is "only" 41% ARM in 2005:I; Orlando, 38%; Tampa-St. Pete's, 35%. Again, Florida stands on much firmer ground.

The number of existing houses on the market in Florida continues to rise (5.8% y-o-y) whereas they are actually falling in California (-2.0%), and the monthly cost of owning in Miami is 36% higher than renting while in Los Angeles it is 51% higher and in the Bay Area, 69% higher.

Does this mean there is no bubble in Florida? The amazing run-up in prices since early 2004 suggests that maybe Florida is just getting to the bubble gate a bit slower than California. Miami's affordability index has quickly slid from 99.35 in 2000 to just 75 last year. Thus in the General's opinion, the place to watch for fall-out from a popping bubble is still California, which makes Florida's froth look downright reasonable.

Tuesday, June 07, 2005

According to Forbes, with help from, in 2004 the affordability index of houses in Los Angeles was a stunningly low 57.21. In 1990 -- just as the previous California real estate bubble was popping -- the index stood at 60.27.

In San Francisco, the index in 2004 stands at 60.55. In 1990 it was 61.04.

There are a lot of overextended people out there in California, and a lot of jobs dependent on the construction and real estate sectors in the Golden State, too.

Look out below!

It looks like at least one real-estate dependent economy has crossed over the peak and is slipping down the opposite side of the mountain. In the UK today it's all about
reduced profits, real and expected, [which] may be signs of a significant slowdown in an economy that has distinguished itself from the sluggish ones in Continental Europe through reliable growth - most of it driven by free-spending consumers.

"There are signs of stress," said Vicky Redwood, an economist at Capital Economics, a consultancy here. "There has been a sharp rise in personal bankruptcies and a rise in mortgage arrears and repossessions. You are starting to see some signs of trouble."

. . . at the core of Britain's economy lies a phenomenon more familiar to Americans than to Europeans - a boom in real estate.
As a card-carrying member in good standing of the Anglosphere, the UK is almost wholly focused on domestic retail spending for economic growth. And as the below graph shows, Nigel and Gemma Consumer have been keeping a tight fist on their pocketbooks this year, and the tie-in to the housing market is unmistakable.
Annual growth in the unadjusted value of retail sales was negative for the first time since May 1967. Average weekly sales in April were �4.6 billion, 0.1 per cent lower than a year ago. The largest falls in sales values over the year were for household goods stores and department stores, at 6.0 per cent and 4.4 per cent respectively.

In turn the British manufacturing sector (what is left of it) is slumping badly and began shedding jobs for the first time in more than a year. Others are warning that up to 150,000 retail jobs are hanging in the balance as well. Talk of interest rates cuts is once again all the buzz, and the Bank of England may begin backtracking on the repo rate as soon as August.

Alan Greenspan still can't figure out why long-term interest rates are so low (and his rhetoric about a 'whole new world' out there should give everyone scary late-90s flashbacks), but the hypothesis that low rates are a signal of future economic weakness seems to be gaining traction. After all, the UK has had an inverted yield curve for some time now . . .

Monday, June 06, 2005

The story of the burgeoning US housing bubbles is not simply one of asset-deflation risk. It's also a story of employment. The most frothy housing bubbles have not only generated oversized consumption founded upon equity withdrawal but have generated oversized employment in the construction and real estate sectors. When there is nobody to pay the mortgage, if and when these bubbles burst they will take down not only housing prices but houses as well.

Calculated Risk has a nice chart today showing regional housing price inflation since 2002:I. Clearly the Pacific region has the most run-away price increases, and within that region the story is nearly all about California. From 2002 to 2004 median house prices rose 68% in Riverside/San Bernardino, 54% in Los Angeles, 52% in Orange County, 52% in San Diego, 51% in Sacramento and 24% in the Bay Area. Of the top seven most inflationary markets over these two years, five are in California (and the remaining two in neighboring Nevada!).

Now we all know that California is growing in terms of population much faster than most other parts of the country. According to the Census Bureau, California's population grew 6.0% from 2000 to 2004 whereas the US minus California grew 4.1%. The job situation in the Golden State and the rest of the US is much more similar, however: +0.3% in California and -0.3% in the rest of the country.

Focusing in on the most recent two years (April 2003-April 2005), California's job growth is not impressive at all. The Golden State has seen 2.4% job growth over the last 24 months while the rest of the country has seen 2.8% growth. Moreover, the nature of the job growth in California is highly skewed toward the real estate sector. Over the same 24-month period, 32.7% of all new jobs in CA have been in either construction or real estate. In the rest of the country over the same period, 15.3% of all new jobs have been in these two sectors.

So let's sum up the California economy since April 2003. Markedly stronger than average population growth. Rampant inflation in house prices much higher than the national average. Yet weaker than average job growth and very high dependence of that weaker growth on the construction and real estate sectors. And don't forget much higher than average reliance on ARMs, very high price-to-income ratios, and falling rental prices in some markets.

In this highly real-estate dependent economy, when something in the housing sector begins to give in California, it's going to get real ugly real fast.

Friday, June 03, 2005

And to think, at least one professional economist thought May job growth of 250,000 was a distinct possibility.
Nonfarm employment edged up by 78,000 in May following a much larger increase in April, and the unemployment rate was essentially unchanged at 5.1 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Payroll employment continued to grow over the month in health care and construction, but was little changed in the other major industry sectors.
Putting the strong April together with the weak May, we get an average for 2005:II thus far at 176,000 jobs per month, just slightly above the level needed to simply keep pace with population growth. For the calendar year the US economy is averaging a nearly identical 180,000 jobs per month.

Note that the 2005 job growth pace is not markedly higher than the second half of 2004, which turned in a monthly average of just 162,000 jobs. And both are down noticeably from the pace of the first half of 2004 which tallied 204,000 jobs per month on average. One might to tempted to say that this "job recovery" if it can even be called that, is stalling already.

As expected by anybody reading this blog, AngryBear, Calculated Risk or Brad Setser, the construction sector was one of the few big gainers in May, adding 20,000 jobs. Within the realm of construction, it really all came down to "residential specialty trade contractors" who added 25,500 jobs. The housing boom continues to put plumbers, electricians and kitchen designers to work.

Apart from residential speciality trade contractors, the only other category at this second level of disaggregation to rack up five-figure job gains in May was health care at 25,600. No wonder unit labor costs are rising so much.

In light of the country's enormous goods trade deficit, the news that manufacturing continues to shed jobs can't be welcomed. May marks the third month in a row that the manufacturing labor force has shrunk and the tenth month of decline out of the last twelve. Manufacturing employment had been slowly declining from its recent 1998 peak until 2000, but has truly imploded since Bush became president, down 16% since January 2001.

The bad employment news sent interest rates tumbling once again, and the 10-year quickly made it down to 3.82% today. Folks can't keep their consumption levels up based on wage and salary income, so look for another round of Greenspan's ARM magic to carry the US economy through the rest of the year.

Thursday, June 02, 2005

Martin Wolf of the Financial Times has long worked with a simple but effective geography to analyze the contemporary global economy: the Anglosphere and the rest. The Anglosphere -- especially the US, UK and Australia -- is the global engine of consumption, running huge trade deficits, even huger current account deficits, big housing bubbles, low household savings, and a dominant finance capital sector.

Although the US is certainly the center of this Anglosphere, one should not forget its other members, not least of which is because what happens in the UK and Australia is likely a portent of things to come in the US. I've harped on this theme regarding the UK often (recent examples are here and here), but I haven't given Australia its due. Time to begin making amends today.

Australia made big news on Tuesday for tallying a 2005:I current account deficit in excess of 7.2% of GDP. It makes the US CA deficit of 6.3% of GDP (in 2004:IV) look downright tame. In addition, the Australian net international investment position is even uglier, at some -64% of GDP, while the US NIIP in 2004 was around -25%. One is even tempted to ask if the Australians can run such enormous deficits, why worry about the US?

While the Australian economy looks even more unbalanced than does the US, and thus more susceptible to a wrenching adjustment, this is only apparent. Much of Australia's enormous CA deficit is made up of negative investment income flows. For 2005:I net income was -4.0% of GDP. In the US net income flow is much much smaller, just +0.1% in 2004:IV.

In turn, the Australian trade deficit is a much smaller proportion of the current account deficit, and thus of GDP, than is the US trade deficit. In 2005:I the Aussie goods and services balance was -3.3% of GDP; the American balance was a much larger -5.7% of GDP. Thus while the Australian CA deficit is much larger in relative terms than is the US CA deficit, the Australian trade deficit is much smaller in relative terms.

One sees the same thing when looking simply at the export side. The relative size of the Australian export sector is nearly twice as large as that of the US. In 2005:I total Australian exports (goods and services) were around 18.5% of GDP, while in the US they were only 10.0%.

This is an important difference between the two economies. As Nouriel Roubini and Brad Setser have pointed out (see p. 26), the ongoing Australian CA deficits have, until recently, been due to payments on existing debt whereas the US CA deficits are the result of structural trade deficits. In addition, the larger Australian export base means the country can better sustain a high debt-to-GDP ratio than can the US with its small export base. Finally, the Australian dollar has begun responding to these large deficits per a 'soft landing' scenario, its trade-weighted index down some 5% since February 2004 and down 1.6% over the last month. The USD, on the other hand, has only been strengthening in the face of larger and larger deficits.

Wednesday, June 01, 2005

The Glut family made it back to the US safe and sound yesterday. British Airways was excellent as always, and thanks to their fine movie selection I finally had a chance to see Hotel Rwanda. Incredibly moving and well acted.

I hadn't planned on posting today, but this news drove me from my unpacking.
Ten-year US Treasury yields fell to their lowest level in more than a year on Wednesday following weak manufacturing data and suggestions rate rises would soon end.

Richard Fisher, head of the Dallas Federal Reserve, said the rate-rise cycle was in its eighth inning � of a nine-inning baseball game. The Fed has raised rates eight times, by 2 percentage points, since last June.
Despite the talk after the release of the latest Fed minutes that Greenspan & Co. were nowhere near the end of its tightening cycle, it seems Roach and his fellow skeptics (including yours truly) were probably right again.
Ten-year Treasury yields dropped as low as 3.882 per cent, while yields on 30-year bonds fell to their lowest in almost two years at 4.231 per cent. . . .

Investors were eyeing potential hedging by holders of mortgage-backed securities who buy Treasuries to hedge the potential losses to their MBS portfolios from any wave of refinancings related to the fall in mortgage borrowing rates. Strategists calculate that it could become worthwhile for homeowners to refinance mortgages if Treasury yields fall to between 3.8 per cent and 3.85 per cent.
Amazing to think there may be yet more life in the US housing bubbles. If the ten-year does fall to 3.8%, just think of how many more months of bubbling! And then the housing/current account Day of Reckoning would be pushed well past the 2006 elections, in my view.

The global credit glut continues.