Green Shoots Or Just Grass B Green? Industrial Production, Homebuilder Confidence and Uncle Sam's Bad Debt
It has been more than four years since the Great Credit Unwind became the butt of Saturday Night Live sketches, and yet there is no solid evidence that the economy is recovering.
On the recession-is-ending side, industrial production was up slightly in January, as was capacity utilization, per the Federal Reserve Bank's new release. Manufacturing is down slightly. The quote:
Industrial production edged up 0.1 percent in February following a gain of 0.9 percent in January. Production was likely held down somewhat by winter storms in the Northeast. Manufacturing decreased 0.2 percent in February, with mixed results among its major industries. The output of mines rose 2.0 percent, while the index for utilities rose 0.5 percent. At 101.0 percent of its 2002 average, industrial output in February was 1.7 percent above its year-earlier level. Capacity utilization for total industry moved up 0.2 percentage point to 72.7 percent, a rate 7.9 percentage points below its average from 1972 to 2009.
It's notable that industrial production was actually below the 2002 level for several months in 2009. Notable, but maybe not meaningful if you've become convinced, as I have, that all the net value created in the 21st century has been fake, and that when the economy finds its level it will be someplace back in Bill Clinton's first term or George H.W. Bush's only term.
Meanwhile, the National Association of Home Builders has released its hombebuilder confidence index (not on the NAHB site yet), which shows confidence down two points from the previous month. NAHB reasonably attributes the drop to bad weather:
Builder confidence in the market for newly built, single-family homes fell back two points to 15 in March as poor weather conditions and distressed property sales posed increasing challenges to both builders and buyers, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today.
"Unusually poor weather conditions certainly had a negative effect on builders' business in February," said NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich. "At the same time, the continual flow of distressed properties priced below the cost of production is having an adverse effect on new-home appraisals and also making it tough for builders' customers to sell their existing homes."
That's some phrase: "continual flow of distressed properties priced below the cost of production." I ain't seeing any way to make money building a house under that equation. And because we have only seen the tip of the straw that broke the groundhog's shadow inventory, that situation doesn't look likely to change this year. There are millions of inevitable foreclosures destined to hit the market, but thanks to feckless banks and government support, this pain will hit the market in a trickle over years rather than a torrent all at once.
It's also notable that the conditions NAHB cited to explain last month's increase in homebuilder confidence—low interest rates and the First Time Home Buyer Tax Credit—are still in place, so that bad weather (which, contrary to the claims of self-absorbed east coasters, did not occur everywhere in the U.S.A.) is being asked to explain a lot.
Finally, there is the looming intervention by the U.S. government's true friends, who just want Washington to admit it has a spending problem. Today, Moody's managing director of sovereign risk Pierre Cailleteau speculated that the United States and the United Kingdom may both lose their AAA ratings.
"We expect the situation to further deteriorate in terms of the key ratings metrics before they start stabilizing," Cailleteau tells Bloomberg. "This story is not going to stop at the end of the year. There is inertia in the deterioration of credit metrics."
I don't see a whole lot of reason to take Moody's seriously, and I'd expect worries about Uncle Sam's deadbeatery to show up in, for example, 10-year-treasury yield curves. So far, they have not, but there are theories about that.
Still, it's kind of hard to find a downside in a downgrade of government debt, or even the holiest of grails, a default by the federal government. Among other things, this might force more states to take the bankruptcy option, force the United States to sell off assets, reduce the public workforce, and end malignant frivolities like, well, the First Time Home Buyer Tax Credit.
Anyway, it's probably been four years since Saturday Night Live had a funny routine, so maybe it's not really such a long time. But the Civil War was over in four years. You can dog it and still get a college education in four years. I'm sure Mozart or somebody was composing symphonies at four. It's a long time now that the weakness of the U.S. economy has been generally recognized, and history's greatest Keynesian Klown Kar of economic experts has no evidence that it's getting better.