by Calculated Risk on 8/30/2012 03:51:00 PM

Fed Chairman Ben Bernanke is scheduled to speak on Friday at 10 AM ET at the Jackson Hole Economic Symposium.

From Jon Hilsenrath at the WSJ: Bernanke's Dilemma Over His Legacy

[W]hen the chairman speaks Friday morning at the central bank's annual retreat here, he must once again address whether there is more the Fed can do to get the economy going and whether it is worth taking chances on controversial new programs. All along he has argued these efforts are worth it and appears likely to stick to that line in his speech.

Beyond big issues of the moment—such as whether the Fed will launch a new bond-buying program—a broader question looms in Jackson Hole about Mr. Bernanke's legacy. Long after his term as chairman ends in 17 months, will he be remembered as the Fed chief who did too little to combat high unemployment or the one who did too much and unleashed inflation and financial instability with the actions he took? Critics make both arguments.

I'd like to think that Bernanke isn't thinking about his legacy, but that he is focused on what is best for the economy. So far the inflation critics have been wrong, and high inflation still seems very unlikely with a depressed economy, and significant resource slack.

More from Hilsenrath:

The Fed signaled strongly in the minutes of its August 1 policy meeting that in September it is likely to offer new assurances that interest rates will stay low beyond 2014 and that it is seriously considering more bond purchases. One issue Mr. Bernanke might clear up on Friday: Whether U.S. economic data since that meeting—some of it modestly stronger—has changed his outlook.

Goldman Sachs chief U.S. economist Jan Hatzius estimates that a $500 billion bond-buying program would boost growth by 0.2 percentage points for a year and bring down the unemployment rate by 0.1 percentage point.

Bernanke will not announce a new program at Jackson Hole. The most he will do is argue the Fed can do more and still has tools that will be effective - and he will probably say that help from fiscal authorities to provide more stimulus in the short term, and a credible long term plan to reduce the deficit, would be very helpful (good luck).

I think the key will be how he describes the economy and his view of growth prospects.

by Calculated Risk on 8/30/2012 02:29:00 PM

In addition to the decent personal income and outlays report for July released this morning, and solid retailer results for August, it appears auto (and light truck) sales increased in August.

TrueCar is forecasting: August 2012 New Car Sales Expected to Be Up 17 Percent

For August 2012, new light vehicle sales in the U.S. (including fleet) is expected to be 1,255,392 units, up 17.2 percent from August 2011 and up 8.9 percent from July 2012 (on an unadjusted basis)
...
The August 2012 forecast translates into a Seasonally Adjusted Annualized Rate (“SAAR”) of 14.2 million new car sales, up from 12.1 million in August 2011 and up from 14.1 million in July 2012

Edmunds.com is forecasting: August Car Sales Offer a Pleasant Summer Surprise for the Auto Industry

Edmunds.com ... forecasts that 1,287,603 new cars will be sold in August for an estimated Seasonally Adjusted Annual Rate (SAAR) this month of 14.5 million light vehicles. If the numbers hold, August will be the second best month of 2012 in terms of SAAR and the third best month in terms of unit sales.

“Sales showed signs of flattening out in the first couple months of summer, so August’s sales figures will come as a nice surprise for everyone in the auto industry,” says Edmunds.com Senior analyst Jessica Caldwell.
...
Edmunds.com estimates that August’s projected sales will be an 11.7 percent increase from July 2012, and a 20.1 percent increase (unadjusted for number of selling days) from August 2011. Retail SAAR will come in at 12.0 million vehicles in August, with fleet transactions accounting for 17.0 percent of total sales. An estimated 3.1 million used cars will be sold in August, for a SAAR of 36.9 million (compared to 3.2 million – or a SAAR of 36.3 million – used car sales in July).

The cash-for-clunkers spike was at a SAAR of 14.546, and the Edmunds forecast is close. Note: There was one more selling day in August 2012 than in August 2011. Light vehicle sales for August will be released on Tuesday, Sept 4th.

This doesn't suggest "a substantial and sustainable strengthening in the pace of the economic recovery" (from the FOMC minutes), but it does suggest some pickup in Q3.

by Calculated Risk on 8/30/2012 11:00:00 AM

From the Kansas City Fed: Growth in Tenth District Manufacturing Activity Improved Moderately

The Federal Reserve Bank of Kansas City released the August Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that growth in Tenth District manufacturing activity improved moderately, and producers’ optimism continued to edge higher.

“Factory activity in our region grew slightly faster this month, in spite of the ongoing drought having a negative effect on producers of agricultural equipment” said Wilkerson. “Firms also expected production to accelerate in coming months.”
...
Growth in Tenth District manufacturing activity improved moderately in August, and producers’ optimism continued to edge higher. Price indexes were relatively stable, although the share of producers planning to raise prices increased further. Several respondents said the ongoing drought has negatively affected their business, mainly through higher input costs and slower sales for agricultural-related products.

The month-over-month composite index was 8 in August, up from 5 in July and 3 in June. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. ... The production index climbed from 2 to 7, and the shipments, new orders, and order backlog indexes all moved back into positive territory. The new orders for export index inched higher but remained below zero, while the employment index dipped slightly from 6 to 2.
Most future factory indexes improved further after rebounding last month. The future composite index edged up from 13 to 16, and future production and shipments indexes increased notably after no change last month. The future order backlog index jumped from 3 to 14, while the employment index remained unchanged.

This was below expectations of a 5 reading for the composite index. However the regional manufacturing surveys were mostly weak in August. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (dashed green, through August), and five Fed surveys are averaged (blue, through August) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through July (right axis).

The ISM index for August will be released Tuesday, Sept 4th, and these surveys suggest another weak reading.

by Calculated Risk on 8/30/2012 09:02:00 AM

The BEA released the Personal Income and Outlays report for July:

Personal income increased $42.3 billion, or 0.3 percent, and disposable personal income (DPI) increased $39.9 billion, or 0.3 percent, in July, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $46.0 billion, or 0.4 percent. In June, personal income increased $46.1 billion, or 0.3 percent, DPI increased $37.4 billion, or 0.3 percent, and PCE increased $3.5 billion, or less than 0.1 percent, based on revised estimates.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.4 percent in July, in contrast to a decrease of 0.1 percent in June. ... The PCE price index increased less than 0.1 percent in July, compared to an increase of 0.1 percent in June. The PCE price index, excluding food and energy, increased less than 0.1 percent, compared to an increase of 0.2 percent.
...
Personal saving -- DPI less personal outlays -- was $506.3 billion in July, compared with $516.2 billion in June. The personal saving rate -- personal saving as a percentage of disposable personal income -- was 4.2 percent in July, compared with 4.3 percent in June.

The following graph shows real Personal Consumption Expenditures (PCE) through July (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

This graph shows real PCE by month for the last few years. The dashed red lines are the quarterly levels for real PCE.

A key point is the PCE price index has only increased 1.3% over the last year, and core PCE is up only 1.6%. The PCE price index - and core PCE - hardly increased in July.

by Calculated Risk on 8/30/2012 08:30:00 AM

The DOL reports:

In the week ending August 25, the advance figure for seasonally adjusted initial claims was 374,000, unchanged from the previous week's revised figure of 374,000. The 4-week moving average was 370,250, an increase of 1,500 from the previous week's revised average of 368,750.

The previous week was revised up from 372,000, so this was an increase from the reported level a week ago.

The following graph shows the 4-week moving average of weekly claims since January 2000.



Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 370,250.

This was above the consensus forecast of 370,000.



And here is a long term graph of weekly claims:

All current Employment Graphs