Wednesday, June 20, 2012

David Henderson takes on a Keynesian myth

From Defining Ideas at the Hoover Institution's blog

"Keynesians and others have their own explanations for why the Keynesian predictions of postwar economic disaster did not come to pass. The three most popular are: Rosie the Riveter left the labor force; the G. I. Bill put many returning soldiers in college rather than into the workforce; and the American people stopped saving and started spending the money they had accumulated during the war. The data, however, do not support these explanations."

Wednesday, June 6, 2012

Latest Beige Book Rundown

FRB: Beige Book - June 6, 2012 The Boston summary: Improvement is modest but hiring outside IT is thin. Few complain about inflation
Economic activity in the First District continues to expand, with contacts in most sectors citing steady growth. Commercial real estate markets show slight improvement and residential real estate contacts are finally mentioning recovery, albeit fragile. Respondents in this round rarely mention prices or pricing. Except for software and IT services where growth continues to be relatively strong, few firms are doing substantial hiring. The outlook is generally for more of the same, although a couple of manufacturers mention making contingency plans for a potential slowdown.
       Retail
First District retail contacts continue to report that business is good, consumer sentiment seems to be improving, and fears have moderated about higher gasoline prices hurting spending in other categories. Recent year-over-year sales changes range from near zero to gains of 2 percent to 5 percent. One firm, buoyed by recent performance, has increased its overall 2012 sales forecast from 2.5 percent to 4.5 percent. Consumer spending is particularly strong on adult clothing, household goods, and items related to home improvement and maintenance. While respondents have generally positive expectations for their businesses in 2012, some express concern that U.S. economic growth will be hampered by domestic political tensions and potential negative spillovers from a European economic downturn.

The travel and tourism sector in the First District continues to report strong results. Both business and leisure travel have been up in the first four months of the year, and advance hotel bookings continue to be robust. For 2012, the industry expects a 9.5 percent increase over 2011.

Manufacturing and Related Services.
According to our contacts, the manufacturing sector in the First District continues to grow, but the outlook remains guarded, perhaps slightly more so than in recent months.

Thirteen of 16 responding firms report growing sales in the most recent period compared with a year earlier. Idiosyncratic factors appear to be driving the weakness for one firm with declining sales; contacts at the other two could not point to anything other than general macroeconomic weakness as explanations. A manufacturer of industrial motors mentions the situation in Europe while noting that sales are soft in all regions in which the company sells.
The jury is still out on the role of weather in the evolution of business conditions over the last six months. Several of our contacts cited mysterious sales declines at various points which then corrected themselves. A manufacturer of hoses was off 30 percent at the end of March but then had his "best April ever" and was back on plan by this round. He hypothesizes that winter goods weren't selling, so big retailers--hoping to avoid having to store snow shovels and road salt over the summer--lacked space until recently to put spring goods on the shelves.
Dramatic changes in U.S. energy supply continue to affect economic activity, according to manufacturing respondents. A chemical manufacturer in the First District said that the low current price of natural gas is restructuring the world chemical industry. For the first time in decades, chemical firms are building ethylene crackers in the United States.
All contacts doing business in Europe report that the European manufacturing economy is near or in recession. Asia continues to be relatively strong, but one contact in the industrial membrane business said that "the best and most stable market" is the United States.
Fourteen of 16 contacts report that their firms are hiring; nonetheless, they remain reluctant to add to headcount in any significant way. One manufacturer of parts for the aerospace and automotive industry says that, despite strong growth, they have relied mostly on temporary workers to increase production. A contact in the industrial distribution business reports that if conditions do not improve, they will cut staff. Another firm which makes industrial motors says they are drawing up contingency plans for a serious decline which include a hiring freeze.

Software and Information Technology Services
New England software and information technology firms report mixed results through May, with some experiencing continued growth and others citing modest slowdowns. Nevertheless, year-over-year revenue increases in the first quarter remained largely in the high-single digits, bolstered by steady demand from the healthcare and banking sectors and a resurgence of activity in the manufacturing sector. Indeed, one contact closed a deal in Q1 with a very large electronics manufacturer, and another reports that deal sizes are beginning to grow, particularly in their software solutions for manufacturers and distributors. Other contacts, however, assert that clients in general remain reticent to finalize large deals.

Most contacts report increases in headcount, with many continuing to add sales and marketing personnel as well as billable consultants; by contrast, one firm recently completed a realignment in which headcount was reduced by approximately 5 percent. Capital and technology spending and selling prices have gone largely unchanged since February. Looking forward, New England software and IT contacts remain cautiously optimistic, with upticks in activity and strong pipelines tempered by concerns regarding the U.S. economy and the European debt crisis.

Staffing Services
New England staffing firms report that business conditions are largely unchanged since the previous conversations in February, with year-over-year revenue increases in the first quarter generally in the mid-single digits. Labor demand from the healthcare and manufacturing sectors is steady, and one contact reports renewed activity in the financial sector. However, demand for office and clerical assistance has weakened in recent weeks, and activity in the construction, civil engineering, and accounting sectors remains anemic. The number of permanent and temporary-to-permanent placements continues to grow, albeit modestly; however, two contacts say this trend is likely attributable to their own internal efforts to boost permanent hires, rather than improvements in labor-market fundamentals.
Regarding labor supply, candidates with high-end skill sets such as nurses, mechanical and electrical engineers, and software developers remain difficult to find; one contact reports that this shortage of qualified labor has begun to put upward pressure on pay rates. Other contacts, however, say that increases in bill rates and pay rates, if any, are due almost entirely to changes in their business mix. The outlook among New England staffing contacts is generally consistent with that of three months ago, with most expecting their current rate of growth to continue or pick up through the end of the year.

Commercial Real Estate
According to contacts, commercial property markets in the First District remain in a holding pattern, with some signs of improvement. The strength of Boston's commercial market continues to stand out within the region and nationally, making it the target of a tremendous amount of investor interest. Construction activity in Boston appears to be increasing--contacts report an uptick in large-scale build-to-suit construction activity for the first time in several years. However, the market is still not strong enough to warrant speculative construction. In Portland, construction activity has increased significantly from the last report, propelled by projects in the public, industrial office, and multifamily sectors. Elsewhere in the First District, construction activity is muted. Strict lending standards are still the norm District-wide.

Despite a recent uptick in showings, demand in the industrial sector remains flat across New England. Office leasing volumes throughout the District are unchanged from six weeks ago, and the retail sector continues to be quiet in New England. The outlook among contacts is that, barring significant macroeconomic turmoil, conditions should remain flat or improve slightly in the rest of the year.

Residential Real Estate
Residential real estate shows further signs of improvement in the First District as year-over-year increases in sales continued in April across the region. Contacts report steady increases in market activity, which they attribute to low interest rates and competitive prices as well as confidence in economic conditions. In the Greater Boston area, sales continue to increase while inventories fall to low levels, particularly in the condominium market. Some respondents say activity among first-time homebuyers has increased, reflecting continued affordability. Reports also indicate increased activity for homes in the mid-price range. Changes in median sales prices compared to a year ago vary across the First District, with some states experiencing modest gains and others observing moderate declines. Rhode Island, where the median sales price in April dropped almost 8 percent from a year earlier, faced the largest price decline in the region, but the drop was close to zero excluding distressed sales.
Though contacts characterize housing markets as recovering, they note that conditions remain fragile; in particular, with sales gains fairly well established, their concerns focus on the possibility of further price declines. Contacts expect the delicate recovery of housing markets to continue gradually; most anticipate modest gains in sales activity for the next several months and modest price changes, up and down. Respondents say declining inventory levels and increasing demand in Greater Boston may put upward pressure on prices there.

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