ISM Index down but still up

The PMI numbers for January are in.

PMI at 35.6, up from 23.1 in December.

The industries reporting growth in January — listed in order — are: Textile Mills; and Petroleum & Coal Products

The industries reporting contraction in January — listed in order — are: Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Paper Products; Plastics & Rubber Products; Transportation Equipment; Printing & Related Support Activities; Fabricated Metal Products; Computer & Electronic Products; Primary Metals; Chemical Products; Wood Products; Machinery; Miscellaneous Manufacturing; Furniture & Related Products; and Food, Beverage & Tobacco Products.

Will have to wait for Feb numbers to see if this is a trend or just noise.

Feeling Poorer? Personal Income and Outlays December 2008

BEA just released December numbers for disposable personal income.

Personal income decreased $25.3 billion, or 0.2 percent, and disposable personal
income (DPI)decreased $25.1 billion, or 0.2 percent, in December, according to
the Bureau of Economic Analysis.

Is this good news? Maybe, when you look at what happened in November.

In November,personal income decreased $44.0 billion, or 0.4 percent, DPI
decreased $33.9 billion, or 0.3 percent, and PCE decreased $77.8 billion, or 0.8
percent, based on revised estimates.

Why is disposable income important?

Well, one of the most fundamental and strongest relationships in economics has to do with income and consumption. This is the consumption function which we all learned way back when in into economics.

It basically states that the more money you have, the more money you will spend. Pretty self-explanatory.

So if the DPI decreased by $25 billion in December that means that your average American could have spent $81 fewer dollars this month, but did not. Which means that businesses need less people, so more are unemployed, which reduces the DPI further, which leads to more layoffs etc.

There are a couple of things that the government can do right away to increase DPI (theoretically).

1. One is to lower taxes. Fewer taxes means that the average consumer would have more money in his pocket to buy things. This may not work simply because people who have more money may choose to save this money rather than spend it. Compared with other investment option available to the average person right now, the best way to save money may be to pay down debt. Deleveraging is not only for corporations.

2. Government transfer payments (unemployment, etc.) The government gives money to people who in turn spend it. Again the problem might be that people save the money rather than spend it.

GDP, Imports and You

The economy contracted by an annual rate of 3.8 percent in the fourth quarter of 2008. So I am guessing they are either multiplying the fourth quarter numbers by 4 to get this annual rate, or they are taking information for all of 2008, which includes the fourth quarter.

I am guessing it is the former, so for the 4th quarter I am assuming GDP declined by .95%

Not surprising since the national unemployment rate rose by 0.9% in the fourth quarter alone, and if we assume that a 1% increase in the unemployment rate translates into a 2-3% fall in GDP.

But wait, GDP fell by around the same proportion that unemployment rose. What gives, the GDP should be in the ballpark range of 1.8% to 2.7%.

Well,

The gross domestic product — a crucial measure of economic performance —
shrank at an annual rate of 3.8 percent in the fourth quarter of 2008. The decline would have been much steeper — more than 5 percent — if shipments of goods had fallen as sharply as orders.

“The difference between 3.8 and 5.1 percent is the inventory buildup,” Nigel Gault, chief United States economist at IHS Global Insight, said. “My only explanation is that companies could not cut production fast enough.”

With inventory accumulation gone, the economy will contract in first quarter at more than a 5 percent annual rate, Mr. Gault predicted.

So manufacturers did not cut production in the same proportion to falling consumer demand. So warehouse inventories should be bulging, right? Or goods should still be in shipment.

So we are back to the 1950's model of supply chains, where warehouses function as a demand buffer, with production slowing until the unused inventory is depleted and more factory orders are made. So much for all the promise that the modern distribution center and just in time production.

This buildup makes sense for automobile manufacturers, or durable goods where there is a long supply chain, many producers and assemblers along the way and where consumer demand is hard to gauge. To see an example of this, just look at the buildup of cars at the ports of Long Beach.

For the smaller, single source products (plastics, apparel, shoes, small electronics manufacturing, etc) the cutback is huge. These are the types of products that would come in huge containers from Asia and would need a modern distribution center, since these are high velocity goods.

This means that any buildup in inventories for Inland Empire distribution centers is likely to be minimal. Port volume is already declining, meaning that someone in China got the message that Americans are not in the buying mood anymore.

But if you are in desperate need to temporarily house inventory overflow because your suppliers never got the memo, and are located in the Inland Empire, have I got a deal for you.

"Shocking" Fall In Air Cargo

Shocking?

No.

DHL would still be in business if it was shocking. Instead, they saw what was comming and decided to leave.

Airlines report ‘shocking’ fall in cargo traffic
By Kevin Done in London
Published: January 29 2009 19:24 Last updated: January 29 2009 19:24

The airline industry on Thursday reported an “unprecedented and shocking” plunge in global air cargo traffic.

The International Air Transport Association said traffic volumes fell 22.6 per cent year-on-year in December. Air freight accounts for 35 per cent of the value of goods traded internationally.

But what about us?

LAX air cargo volume off 13.5% in 2008

Los Angeles International Airport, the fourth-busiest U.S. airport, saw a 13.5 percent decline in air cargo volumes during 2008, according to statistics released Tuesday. Air cargo moving through the airport last year, including mail and freight, fell from 2.08 million tons in 2007 to 1.8 million tons in 2008. The drop was solely attributable to a 14.3 percent decline in air freight through LAX, which easily offset a 10.2 percent increase in air mail in 2008. Mail cargo increased to 73,505 tons from 66,707 tons in 2007. Freight fell to 1.72 million tons from 2.01 million tons. Passenger traffic through the airport also declined 4.7 percent to 59.5 million from 62.44 million in 2007.

NPR Talks About Commercial Real Estate

Here is the link:

Here is what I liked:

Making Lemonade

But in every crisis, there is also opportunity.

Michael Fay recently set up a new distressed property services group at Colliers Abood Wood-Fay, a real estate company in Miami. Fay got started in the business in the 1980s, helping the Resolution Trust Co. and other government agencies liquidate property during the savings and loan crisis. He sees many of the same opportunities emerging in this downturn.

With declining property values — plus rising vacancy rates — Fay says commercial landlords face tough decisions.

"Now that the music has stopped, there are a lot of people — banks, investors, lenders — [who] are caught with this way-overvalued property that has got highly leveraged land and it's gone into foreclosure," Fay says. "And now they're trying to sell it. And it's going for literally 40 cents, 50 cents, 30 cents on the dollar in some areas."

As bad as that is, it's not the biggest problem facing commercial real estate. What many commercial landlords worry about is the same thing bedeviling homeowners, businessmen and the economy at large: the lack of available credit.

Kinda Funny

http://www.thebailoutgame.us/

The score represents the DOW, something I am not sure I agree with.

Maybe a better metric should be:
A. Unemployment Rate
B. Consumer Confidence (I hate the fact that I am implicitly advocating such an arcane metric)
C. Income Disparity
D. GDP
E. Wealth (Housing values, economic prospects, stock market etc.)

Maybe the stock market is not such a bad indicator of the overall economy, on an aggregate level. However, as the sole metric to maximize, there are some artificial things that can be done in the short term to really boost your score in this game.

ProTip: Do not let Lehman fail.

Interview With Chairman of Zimbabwe's Reserve Bank

I thought this was pretty interesting.

‘It Can’t Be Any Worse’

The head of Zimbabwe's reserve bank explains the policies that have led to hyperinflation

Alternatively heralded as an incompetent fool and a tragic hero, Gideon Gono has been at the center of Zimbabwe's economic decline since he was appointed governor of the country's Reserve Bank in 2003. A ZANU-PF insider and by many accounts president Robert Mugabe's right-hand man, Gono generally keeps himself shielded from the foreign press, fortifying himself in luxury hotels or his 47-bedroom mansion in Harare. Gono is known in some circles as "Mr. Inflation" because he has overseen the printing of billions of dollars in worthless notes, most recently Zimbabwe's trillion-dollar bill, to be launched later this year.

Your critics blame your monetary policies for Zimbabwe's economic problems.

I've been condemned by traditional economists who said that printing money is responsible for inflation. Out of the necessity to exist, to ensure my people survive, I had to find myself printing money. I found myself doing extraordinary things that aren't in the textbooks. Then the IMF asked the U.S. to please print money. I began to see the whole world now in a mode of practicing what they have been saying I should not. I decided that God had been on my side and had come to vindicate me.

In November you shut down Zimbabwe's stock exchange. Will you open it again?

The stockbrokers were creating a money supply that wasn't there. I printed Z$1.5 quadrillion, but the exchange was operating with Z$100 sextillion. So I said, "Who is doing my job?" Unless there is more discipline and honor, the exchange will stay closed. I can't be bothered. I don't know when it'll open. It's a free market, a business which must be allowed to succeed or fail.