If they Fed could drive the stock market to a new high each time they cut rates, we'd all be living large and sitting sideways on our wallet. If they do cut rates soon, they will destroy the housing market. Why? Because commodities will likely launch another assault and immediately renew inflationary threats. That will drive long rates higher and do just the opposite of what was intended. The reality is the Fed is not Jesus Christ.
Since when does Residential investment simply fall back to the median and stop? One look at the graph tells you it will fall lower than that.
Second question -- everyone's crowing about the 3.1 percent rise in consumer spending in Q3. But can't some of that be attributed to inflation -- i.e. it's prices, not consumption, that's rising?
Jason - Someone else commented on an earlier post that 1.6 GDP minus the deflator heads towards zero. Inigo Montoya would say: You keep using that word "growth". I do not think it means what you think it means.
There is real growth, and then there is inflationary "growth".
CR,
One suggestion. If you can use our online spreadsheet Zoho Sheet - Online Spreadsheets you can directly embed charts and data, also point people to a publicly available online spreadsheet so they can play with the numbers.
The data being discussed here are real, inflation adjusted data. Not nominal. Only if the statisticians attributed to little of nominal growth to inflation can we attribute any of the growth discussed here to inflation. There are lots of people howling that recent inflation figures understate inflation, but those most familiar with the construction data mostly argue that some inflation series still overstate inflation. There is no obvious reason to think believe that any of the 1.6% reported growth in output or the 3.1% reported growth in personal spending represents inflation.
CME futures framing lumber prices 06
jan 20- $359 mar contract
May 19- $319 july contract
July 20-$280 Sept contract
Oct 20 -$247 Nov contract
How about:
paint
insulation
nails
construction equipment
roofing materials
pools
home heating equipment
home airconditioners
cement
gutters
windows
sidling materials
doors
door and window screens
fencing
brick
tile
kitchen appliances
tiolets
sinks
sink fitures
fireplaces and accessories
flooring
wawawa, Basically RI is calculated by estimating construction-put-in-place. They also factor in starts somehow. The BEA is updating their links for Key source data and assumptions for "advance" estimates - once it's back up I'll try to post how they define RI.
k harris reitterates: Those most familiar with the construction data mostly argue that some inflation series still overstate inflation.
Well there it is case closed. If you think inflation is understated it is only because you just aren't familiar with the construction data.
Gosh, with inflation licked, balance of payments corrected, the commodities, asset and housing bubles successfully debunked, the dollar rising and the budget projecting surpluses in all out years perhaps Bernake can devote his later years to saving endangered species.
If ignorance of the manipulation of reported inflation is requsite to seeing true inflation I'll gladly accept the label rather than trust those "most familiar with the construction data."
The wildcard is, as it has been, lending policy. I'm STILL getting two new credit card offers weekly offering 0% int. until '08. If the same banks extend similarly curious loan offers to homeowners, a significant housing collapse could be delayed & delayed.
Maybe this is the real "new economy" Greenspan used to talk of. No one works, we all just continually refi our homes for cash to live on, & trust our FED to print enough money every ten or so years to inflate home prices to cover our borrowings.
It's easier to do than one might think. The FED no longer tracks the money we print, it continues to deflate (& to look for new ways to further deflate) our inflation readings & it refuses to consider the effects of ever-growing credit. Disappointing, BB. You work a lifetime & finally get your dream job & what do you do - everything you've scorned for your entire academic life. Relax, BB, go to a few of those parties, settle in to your new job & enjoy the view. Just make sure you allow your Banks to stay "competitive", Henry Paulson will tell you when it's time to print more money. Shrill, you bet.
ron:
am I reading your post correctly in that lumber will be dropping in price steadily through the year? or at least I can buy forward at those prices now? what is the spot price?
for a GMP guy like me, this is outstanding news and will only add to my bottom line.
Moreover, it normalizes the numbers Bob.
Robert, kh is being helpful and instructive to Jason and RP by letting them know that the numbers are infation adjusted, however problematic that is to you and your demanding standards.
Your sarcastic "Gosh..." is not nearly so helpful nor instructive, but I have great hopes for you.
Yes, I'm investing my precious time in cultivating an even more hard-working Robert who we can trust to the kharris level and not this one:
<
blockquote>I'll gladly accept the label rather than trust those "most familiar with the construction data."
calmo, I don't like the idea that because I object to the methodology used to determine inflation rate that I must not understand the data. There is reasonable basis to say what kharris says that in the construction data inflation may be overstated. Copper may have quadrupled in price but that can be obviated by substitution for but one example. That said there is an equal rationale behind saying inflation is understated. Reasonable people should be able to disagree and I just don't think being told preemptively that any disagreement is based on ignorance is a constructive position.
My "gosh" comment was illustrative of just how annoying and useless such a cavalier disregard can look to others.
I too appreciated the expansion of the formal definition of "real gdp." That doesn't mean tution and health care didn't go up another 6%. Oh wait, I don't really know that being preemptively judged ignorant of the true conditions. I sure hope the bursar accepts this "short" tuition check.
"If they do cut rates soon, they will destroy the housing market. Why? Because commodities will likely launch another assault and immediately renew inflationary threats."
BDG, I disagree. When the Fed cuts their rate, I can only presume that it would be at a time when the economy is on a continuing downward trend. Commodities won't be in much demand if business growth is slowing (or contracting). If commodity prices were to actually rise, it would be based on speculation, not demand.
This whole economic scenario of a housing bust and aftermath recession is taking time. I think the spin has been soft landing is here, the downturn has reached bottom etc etc.
Frankly I think the concept that it has just begun is the correct analogy.
We have yet to see the consumer react to housing prices drop nearly 10%.
This is indeed a 'slow train wreck' that is in its infancy. Do not buy the spin that it will be 'all ok again' by mid 2007.
Something this big ends so magically?
Would not it be wonderful IF dreams came true? The real world is much different.
CR - your chart gave me an idea. At first, I just summarized the highlights of the BEA release, but then I had to update my Angrybear post as Cesar Conda was saying things over at the National Review that caused me to bang my head against the wall (memo to self - you tend to do that everytime you read the National Review). But then I had to do a 2nd update thanking you for your chart as I had business investment to it - and then did some discussion about the two series. Enjoy!
is it just possible that with the concoction of the infinite # of loan products available to us and not our prior generations, comparing some of the future to past trends is a bit misguided? i'm not saying housing investment hasn't overshot, but assuming a doomsday crash is a bit premature. if i see a couple of straight quarters of below 1% GDP and some sizable layoffs across sectors then i'll say we're onto something but right now it's speculation backed by whiffs in the air.
properties have been repriced due the evolution in mortgages. so we're on a different level until that goes away for the fundamentals. but the margins are where the normal stuff will still take place.
Not sure about lumber but nominal Orientedstrand Board (OSB) are the lowest since 2002. September prices were close to the lowest ever for September. Approximately 57% of OSB is used in new housing. Pricing is very elastic; current prices indicate new housing construction will be very weak in the next several months.
properties have been repriced due the evolution in mortgages. so we're on a different level until that goes away for the fundamentals. but the margins are where the normal stuff will still take place.
Roubini is suddenly getting a bit more respect with his almost dead-on Q3 GDP prediction
Ya well, you're only as good as your next game.
NR predicted 0.5% for Q4 on Krudlow this afternoon... I don't know if anyone saw it but it was real...
Larry tried to paint the numbers as not that bad & Roubini's call as a lucky sucker punch... then Nouriel brought up the auto mfg errors and said the numbers were really worse than reported... Larry about had a cow, "Are you saying the administration is making up numbers, did you hear THAT, Nouriel says the administration is making things up for the election!!!"
Went something like that.
Then LK went off on a tangent about the Virginia Senate race and how Dems are perverts. He looked like he needed a line in the worst way.
I'm really getting to enjoy CNBC's afternoon line up - Kudlow & Cramer except now separated at birth. Comedy Central better watch out - if they ran this at night I'd quit watching Stewart & Colbert... you can't make stuff up as funny as Kudlow or weird as Cramer...
With residential investment down 17% is it possible a great deal of that money went into the stock market?
Since lowest point in July the market is up about 15%.
What do you think?
The BEA says:
GDP (Third Quarter 2006 (advance)): 1.6% [per year]
The odds of the Fed's cutting interest rates soon just went up.
From DeLong's blog and Prudent bear.
U.S. Economy: Growth Slows to 1.6% as Housing Slides (Update3) - Bloomberg.com
If they Fed could drive the stock market to a new high each time they cut rates, we'd all be living large and sitting sideways on our wallet. If they do cut rates soon, they will destroy the housing market. Why? Because commodities will likely launch another assault and immediately renew inflationary threats. That will drive long rates higher and do just the opposite of what was intended. The reality is the Fed is not Jesus Christ.
How "residential investment" is defined?
Since when does Residential investment simply fall back to the median and stop? One look at the graph tells you it will fall lower than that.
Second question -- everyone's crowing about the 3.1 percent rise in consumer spending in Q3. But can't some of that be attributed to inflation -- i.e. it's prices, not consumption, that's rising?
Jason - Someone else commented on an earlier post that 1.6 GDP minus the deflator heads towards zero. Inigo Montoya would say: You keep using that word "growth". I do not think it means what you think it means.
There is real growth, and then there is inflationary "growth".
CR,
One suggestion. If you can use our online spreadsheet Zoho Sheet - Online Spreadsheets you can directly embed charts and data, also point people to a publicly available online spreadsheet so they can play with the numbers.
As an example, the NAR data is at Zoho Sheet
(disclosure: I am with Zoho)
Thanks,
Sridhar
Jason and RP,
The data being discussed here are real, inflation adjusted data. Not nominal. Only if the statisticians attributed to little of nominal growth to inflation can we attribute any of the growth discussed here to inflation. There are lots of people howling that recent inflation figures understate inflation, but those most familiar with the construction data mostly argue that some inflation series still overstate inflation. There is no obvious reason to think believe that any of the 1.6% reported growth in output or the 3.1% reported growth in personal spending represents inflation.
CME futures framing lumber prices 06
jan 20- $359 mar contract
May 19- $319 july contract
July 20-$280 Sept contract
Oct 20 -$247 Nov contract
How about:
paint
insulation
nails
construction equipment
roofing materials
pools
home heating equipment
home airconditioners
cement
gutters
windows
sidling materials
doors
door and window screens
fencing
brick
tile
kitchen appliances
tiolets
sinks
sink fitures
fireplaces and accessories
flooring
wawawa, Basically RI is calculated by estimating construction-put-in-place. They also factor in starts somehow. The BEA is updating their links for Key source data and assumptions for "advance" estimates - once it's back up I'll try to post how they define RI.
Best Wishes.
Hey you,
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I want visit these Blog soon again to look all the news.
k harris reitterates: Those most familiar with the construction data mostly argue that some inflation series still overstate inflation.
Well there it is case closed. If you think inflation is understated it is only because you just aren't familiar with the construction data.
Gosh, with inflation licked, balance of payments corrected, the commodities, asset and housing bubles successfully debunked, the dollar rising and the budget projecting surpluses in all out years perhaps Bernake can devote his later years to saving endangered species.
If ignorance of the manipulation of reported inflation is requsite to seeing true inflation I'll gladly accept the label rather than trust those "most familiar with the construction data."
Bernsteinschmuk? WTF?
The wildcard is, as it has been, lending policy. I'm STILL getting two new credit card offers weekly offering 0% int. until '08. If the same banks extend similarly curious loan offers to homeowners, a significant housing collapse could be delayed & delayed.
Maybe this is the real "new economy" Greenspan used to talk of. No one works, we all just continually refi our homes for cash to live on, & trust our FED to print enough money every ten or so years to inflate home prices to cover our borrowings.
It's easier to do than one might think. The FED no longer tracks the money we print, it continues to deflate (& to look for new ways to further deflate) our inflation readings & it refuses to consider the effects of ever-growing credit. Disappointing, BB. You work a lifetime & finally get your dream job & what do you do - everything you've scorned for your entire academic life. Relax, BB, go to a few of those parties, settle in to your new job & enjoy the view. Just make sure you allow your Banks to stay "competitive", Henry Paulson will tell you when it's time to print more money. Shrill, you bet.
ron:
am I reading your post correctly in that lumber will be dropping in price steadily through the year? or at least I can buy forward at those prices now? what is the spot price?
for a GMP guy like me, this is outstanding news and will only add to my bottom line.
CR, that's a great graph. By using % of GDP it automatically takes things like population gain into effect.
Moreover, it normalizes the numbers Bob.
Robert, kh is being helpful and instructive to Jason and RP by letting them know that the numbers are infation adjusted, however problematic that is to you and your demanding standards.
Your sarcastic "Gosh..." is not nearly so helpful nor instructive, but I have great hopes for you.
Yes, I'm investing my precious time in cultivating an even more hard-working Robert who we can trust to the kharris level and not this one:
<
blockquote>I'll gladly accept the label rather than trust those "most familiar with the construction data."
<
blockquote>
anonymous: link to todays CME futures CME Group - Home
calmo, I don't like the idea that because I object to the methodology used to determine inflation rate that I must not understand the data. There is reasonable basis to say what kharris says that in the construction data inflation may be overstated. Copper may have quadrupled in price but that can be obviated by substitution for but one example. That said there is an equal rationale behind saying inflation is understated. Reasonable people should be able to disagree and I just don't think being told preemptively that any disagreement is based on ignorance is a constructive position.
My "gosh" comment was illustrative of just how annoying and useless such a cavalier disregard can look to others.
I too appreciated the expansion of the formal definition of "real gdp." That doesn't mean tution and health care didn't go up another 6%. Oh wait, I don't really know that being preemptively judged ignorant of the true conditions. I sure hope the bursar accepts this "short" tuition check.
"If they do cut rates soon, they will destroy the housing market. Why? Because commodities will likely launch another assault and immediately renew inflationary threats."
BDG, I disagree. When the Fed cuts their rate, I can only presume that it would be at a time when the economy is on a continuing downward trend. Commodities won't be in much demand if business growth is slowing (or contracting). If commodity prices were to actually rise, it would be based on speculation, not demand.
"When the Fed cuts their rate, I can only presume that it would be at a time when the economy is on a continuing downward trend."
The fed will not cut rates unless inflation is within the acceptable range. It currently isn't.
This whole economic scenario of a housing bust and aftermath recession is taking time. I think the spin has been soft landing is here, the downturn has reached bottom etc etc.
Frankly I think the concept that it has just begun is the correct analogy.
We have yet to see the consumer react to housing prices drop nearly 10%.
This is indeed a 'slow train wreck' that is in its infancy. Do not buy the spin that it will be 'all ok again' by mid 2007.
Something this big ends so magically?
Would not it be wonderful IF dreams came true? The real world is much different.
CR - your chart gave me an idea. At first, I just summarized the highlights of the BEA release, but then I had to update my Angrybear post as Cesar Conda was saying things over at the National Review that caused me to bang my head against the wall (memo to self - you tend to do that everytime you read the National Review). But then I had to do a 2nd update thanking you for your chart as I had business investment to it - and then did some discussion about the two series. Enjoy!
Home vacancy rates incread by 32% y/y in the 3rd quarter. I suspect there are alot of over housed investors in that group.
http://www.census.gov/hhes/www/housing/hvs/qtr306/q306prss.pdf
Roubini is suddenly getting a bit more respect with his almost dead-on Q3 GDP prediction:
CORRECT: Roubini's call for a recession sounds more real now - MarketWatch
At the moment the article is featured prominently on the front page of Marketwatch (which has been fairly bullish recently IMO).
Psychological sea change?
is it just possible that with the concoction of the infinite # of loan products available to us and not our prior generations, comparing some of the future to past trends is a bit misguided? i'm not saying housing investment hasn't overshot, but assuming a doomsday crash is a bit premature. if i see a couple of straight quarters of below 1% GDP and some sizable layoffs across sectors then i'll say we're onto something but right now it's speculation backed by whiffs in the air.
properties have been repriced due the evolution in mortgages. so we're on a different level until that goes away for the fundamentals. but the margins are where the normal stuff will still take place.
Lumber futures:
Be careful, extremely seasonal. You have to show years of data to make a rational point.
Dr. Roubini is my hero.
He definitely called that, way in advance, and last quarter too, I think.
Something else that augments his view: inventory bloat among automakers, that will necessitate production cuts.
Not sure about lumber but nominal Orientedstrand Board (OSB) are the lowest since 2002. September prices were close to the lowest ever for September. Approximately 57% of OSB is used in new housing. Pricing is very elastic; current prices indicate new housing construction will be very weak in the next several months.
properties have been repriced due the evolution in mortgages. so we're on a different level until that goes away for the fundamentals. but the margins are where the normal stuff will still take place.
Ummmmm... dc, care to translte that?
Roubini is suddenly getting a bit more respect with his almost dead-on Q3 GDP prediction
Ya well, you're only as good as your next game.
NR predicted 0.5% for Q4 on Krudlow this afternoon... I don't know if anyone saw it but it was real...
Larry tried to paint the numbers as not that bad & Roubini's call as a lucky sucker punch... then Nouriel brought up the auto mfg errors and said the numbers were really worse than reported... Larry about had a cow, "Are you saying the administration is making up numbers, did you hear THAT, Nouriel says the administration is making things up for the election!!!"
Went something like that.
Then LK went off on a tangent about the Virginia Senate race and how Dems are perverts. He looked like he needed a line in the worst way.
I'm really getting to enjoy CNBC's afternoon line up - Kudlow & Cramer except now separated at birth. Comedy Central better watch out - if they ran this at night I'd quit watching Stewart & Colbert... you can't make stuff up as funny as Kudlow or weird as Cramer...
"Are you saying the administration is making up numbers,"
OH, No we have bunch of church going, bible reading, ethical people in the white house.
They do not lie, they just masterfully deceive.