by Calculated Risk on 5/12/2005 02:24:00 AM

The Financial Times is reporting that "France's manufacturing industry may be in recession after unexpectedly weak industrial production figures on Wednesday"

Manufacturing output tumbled by 0.3 per cent in the first three months of 2005, and by 0.9 per cent in March compared with February, according to Insee, the French statistics office. France has been one of the eurozone's best performing economies but the latest data point to a marked deterioration.

Confidence indicators suggest French manufacturing has also remained weak in the current quarter. A second successive quarterly fall would mark a technical recession in manufacturing although the strength of the rest of the economy means France is still some way from overall recession.

Meanwhile, the International Herald Tribune is reporting "Japan's index of leading economic indicators was below 50 percent in March for a second month, suggesting that the country's economic growth may stall, the Cabinet Office said Wednesday."

"The slump of the Japanese economy will continue, though the risk that it will fall back into recession is fading," said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management in Tokyo. "We can't expect corporate profits to expand this year as they did last year."

Industrial production fell 0.3 percent in March from February, the government said on April 28. Spending by households headed by a salaried worker slid 1.1 percent in the same month, the second month of decline, the government said on the same day.

The Japanese economy probably expanded at an annual 2.5 percent pace in the first quarter, according to a Bloomberg News survey.

The global imbalance story continues ...

by Calculated Risk on 5/11/2005 09:57:00 PM

Danielle DiMartino continues her series on housing with "More than real estate in danger".

How widespread will the fallout be when housing's no longer driving the train?

Mark Zandi, chief economist at Economy.com, was one of the first to identify the broad economic implications of a potentially overheated housing market.

Mr. Zandi breaks the sector's impact into three areas:

•Direct effects – home building, home improvement and professions directly tied to home sales.

•Indirect effects – the cash the American home is generating via cash-out refinancings, home-equity borrowing and capital gained from home sales.

•Spillover effect – the impact housing is having on non-household balance sheets.

I tried to quantify these same impacts in "After the Housing Boom: Impact on the Economy" on Angry Bear.

"More and more alarm bells are going off every day," Mr. Zandi said, "and speculation is infecting a growing number of communities across the country."

I hope Zandi is wrong, but I'm afraid he is right.

by Calculated Risk on 5/11/2005 08:30:00 AM

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis released the monthly trade balance report today for March:

"... total March exports of $102.2 billion and imports of $157.2 billion resulted in a goods and services deficit of $55.0 billion, $5.6 billion less than the $60.6 billion in February, revised.

March exports were $1.5 billion more than February exports of $100.7 billion.

March imports were $4.1 billion less than February imports of $161.2 billion."

Note: all numbers are seasonally adjusted.

UPDATE: See also:
Kash, Angry Bear: US Imports: What and from Where?
Brad Setser: Good News. Trade deficit falls to $55 billion
Macroblog: The U.S. Current Account Deficit: How Big Is Sustainable?
UPDATE2: More from Kash: The US's Comparative Advantage
And pgl responds to the paper by Kouparitsas(recommended by macroblog): Pleasant Current Account Arithmetic (or was it fuzzy math)


Click on graph for larger image.

This graph shows the monthly trade balances for 2003, 2004 and 2005 and depicts the worsening year over year trade imbalance. The March trade deficit improved from February as exports increased $1.5 Billion and imports decreased $4.1 Billion.



The recent increase in oil prices had an impact on the March trade deficit. The average contract price for oil jumped from $36.85 in February to $41.14 in March. This is below the DOE estimate for the contract price and below the record for the import contract price of $41.79 in October.



This graph shows total petroleum imports per month for 2003, 2004 and the first three months of 2005. Petroleum imports were about 30% of the trade deficit or about 1.5% of GDP. Even without petroleum imports, the trade deficit would be close to 4% of GDP - a serious problem.


This is an unexpected improvement in the trade deficit and reminds us that this number is difficult to predict.

by Calculated Risk on 5/11/2005 01:29:00 AM

Danielle DiMartino has been writing a series on the Real Estate bubble. In "A delicate question of policy" she writes:

If it really is dangerous to have all your eggs in one basket, we might be fried.

The Bank Credit Analyst research firm published three statistics on the housing industry this week that show how heavily the economy is leaning on the housing market.

•Real estate lending represents a record 53 percent of bank loans.

•Housing accounts for a record 29 percent of household assets.

•Residential real estate has captured 35 percent of private investment – the highest in 35 years.

"Housing has assumed a worryingly large role in the U.S. economy and financial system," the report concluded, "and it will be traumatic when the bubble bursts."

Doug Kass, the astute hedge fund manager of Seabreeze Partners, echoed the report: "There's no doubt we're in a real estate concentric economy."
...

"There is tremendous interest rate risk right now because of the abusive use of interest-only and adjustable-rate mortgages in the last few years," Mr. Kass said. "If we have to reset those mortgages at higher rates, it presents a huge risk to households' balance sheets."

His conclusion: "It's an accident waiting to happen."

DiMartino asks: "Just how widespread will the fallout be? More on that tomorrow."

I'll be waiting.

by Calculated Risk on 5/10/2005 04:36:00 PM

According to the National Association of Home Builders: "Housing To Stay Healthy As It Recedes From Its Peak".

"... economists appearing at a forecasting conference held by the National Association of Home Builders (NAHB) last week said housing should remain healthy through next year even as it recedes from peak levels. Driven by ongoing population growth and household formations, an expanding market for second homes and the need to replace aging units, demand for housing should hold up well in the foreseeable future, said panelists."

There was some concern expressed about "speculative investment activity" in some of the hotter housing markets: California, Las Vegas, South Florida, Washington, D.C. and the New York-Boston corridor, but the panelists expect to see a slowdown in the rate of price appreciation rather than a decline in prices.

J.P. Morgan’s Glassman discounted fears of reduced house-price appreciation taking a toll on the economy. With the exception of a few boom markets, he said, higher prices largely reflect the real estate market catching up with the lagging prices of the 1990s. “Worry if you want to,” he told audience members. “But I think I would take most of the worries with a grain of salt and just get back to business.”

Whew! I guess I've been wrong: "After the Housing Boom: Impact on the Economy". That is a relief.