Wesbury Sees Creative Destruction, Not Market Gloom: Tom Keene

Wesbury Sees Creative Destruction,
Not Market Gloom: Tom Keene

By Mary Childs and Tom Keene

Aug. 25 (Bloomberg) -- The U.S. economy won’t slide back into recession if companies selling new technologies create jobs and the Federal Reserve maintains an “accommodative” monetary policy, according to Brian Wesbury, chief economist at First Trust Portfolios LP in Wheaton, Illinois.

“The economy’s not going to have a double dip,” Wesbury said in a radio interview today on “Bloomberg Surveillance” with Tom Keene. “What we need is the creative side of the creative destruction. We’re getting the destruction of jobs due to productivity. What we need is the creation.”

During the Industrial Revolution, government was small and manufacturing positions were created as jobs were lost on farms, according to Wesbury. Today, such devices as Apple Inc.’s iPad and Motorola Inc.’s Droid will help propel growth and create jobs, he said.

“We’re going to now, in the next decade, see this morph and change our world dramatically,” he said. “We’re in the hot spot, we’re not in the decline.”

U.S. stocks fell for a fifth straight day as reports from the Commerce Department showed new-home sales slid last month to a record low and durable-goods orders increased less than forecast, casting doubt on the U.S. economic recovery. The yield on the 10-year Treasury note touched a 19-month low.

Sales of existing homes plunged by a record 27 percent in July as the effects of a government tax credit waned, the National Association of Realtors reported yesterday.

According to Wesbury, this week’s housing reports don’t indicate the world’s largest economy is doomed.

‘Totally Ingenuous’

“I’m surprised we had any sales at all in July,” Wesbury said. “It’s totally disingenuous for people to look at that number and argue it’s somehow an underlying proof of a weak economy. We just lost one of the biggest supports of housing that we’ve ever had as a nation, so of course they fell.”

On March 9, Wesbury forecast that the U.S. economy may have added 300,000 jobs that month. Payrolls rose by 208,000, according to Labor Department figures.

Employers eliminated 131,000 positions in July after a revised reduction of 221,000 in the previous month, the Labor Department reported Aug. 6. The U.S. unemployment rate stayed at 9.5 percent.

Grandpa

Creative Destruction occurs when CNBC's favorite permabull mixes shrooms and kool-aid.


October 11, 2009
Brian Wesbury Op-Ed piece in WSJ


When it comes to the economy and financial markets, good news has far outweighed bad news in 2009. Just about every piece of economic and financial market data is tracing out a V-shaped recovery.


Many fear a W-shaped economy, otherwise known as a double-dip recession. These fears are overblown. Grandpa: we do not fear a shape Brian, however your permabull stance is rather scary.


By nearly every measure, the economy is tracing out a V-shaped recovery. The pouting pundits of pessimism say that people aren't spending, but retail sales (excluding autos) are up at a 3.9% annual rate so far this year versus double-digit declines late last year. Manufacturing has turned the corner (the ISM Manufacturing Index has been above 50 for two straight months), imports and exports are bouncing back, commodity prices are up significantly, and real GDP is set for a solid gains of 3%-4%. Grandpa: V-shaped recovery? 2009 Q4 GDP was 5.0% while 2010 Q2 was just revised to 1.6%. We are back to 2009 Q3 GDP levels so you might review your recovery consonants.


Housing has turned the corner as well. After bottoming in January, new home sales are up 58% at an annual rate. Housing starts have also bottomed, housing inventories have plummeted, and home prices are on the rise. Grandpa: creative destruction occurs again, 6.09 million seasonally ajusted existing home sales in October 2009 and 3.83 million in July 2010. "Turned the corner"?? Existing home sales DOWN 37% nine months after your op-ed piece. Inventory of existing homes for July was 12.5 months versus 7 months in October 2009.


Yes, unemployment rose to a new high of 9.8% in September. But the U.S. was losing 700,000 private-sector jobs per month at the beginning of the year and has seen that monthly total shrink consistently ever since to an average of 196,000 in August and September. There was a one-month hiccup in June, when job losses accelerated, and then another hiccup in September. But the trend is clear, and smaller job losses will give way to job gains. Grandpa: during the first 3 weeks of August 2010, weekly initial jobless claims have averaged 488,000...HELLO!!


Jobs are always a lagging indicator, but there are three other contributing factors to the current lackluster jobs numbers. First, CEOs are skeptical of the recovery and tentative about hiring. And productivity is allowing more production with fewer workers. But productivity can only hold off new hiring for so long. With inventories at rock-bottom levels, consumer spending on the rebound and profit-margins wide, job growth should expand sharply in the quarters ahead. Expect positive job growth in late 2009 or early 2010. Grandpa: see above and for the record, July and August 2010 data is not deemed early 2010...




Brian's complete shroom and kool-aid op-ed

Goldman Sachs lowers 2011 GDP (Zero Hedge) and the U.S. Equity market launches well off its low

The algorithmic gamers manipulating the U.S. Equity market embrace Goldman Sachs' reduction of 2011 GDP growth by 24% as a reason to launch the market well off its lows. The Dow was down 160 and closes down a paltry 21 points. U.S. Equities remain a must own replacement for those outdated Hummels as a pathetic non-farm payroll  report combined with Goldman Sachs' GDP reduction for 2011 creates a perfect buying opportunity to start a new collection of common stock (a piece of paper that will never drop in value).

So passe'

A must own for 2010...all the popular

kids are buying...

Zero Hedge

It's official: the double dip is here. Goldman's Jan Hatzius just lowered his GDP forecast for 2011 from 2.5% to 1.9% (kiss goodbye all those 93 EPS estimates on the S&P), increased his unemployment forecast from 9.8% to 10.0%, boosted his inflation expectation from 0.4% to 1.0%, and said that QE lite is now on the table, as he expects that "the FOMC to announce that they will reinvest the paydown of mortgage-backed securities in the bond market at next Tuesday’s meeting." Look for all other sell-side "strategists" (here's looking at you Neil Dutta) to lower their economic outlook in kind, and the 2011 S and P consensus to decline accordingly.

From Goldman Sachs:

Over the past two to three months, the US economic recovery has lost a considerable amount of its momentum. As a result, our forecast of a significant slowing in US growth in the second half of 2010—widely regarded as implausible just three months ago—is now increasingly accepted as the baseline. As the data disappointments intensified in early July, we indicated that we would consider revisions to our economic outlook. With the annual revisions to real GDP now behind us, we are making the following changes:

1. Slower growth in 2011. We continue to expect real GDP growth to average 1½% at an annual rate in the second half of 2010. However, we have scaled back the anticipated reacceleration in US output in 2011, largely due to heightened congressional resistance to extending various measures of fiscal stimulus. Thus, whereas we previously forecasted growth to rise from 2½% in the first quarter to 3½% by the second half, we now look for a more gradual pickup—from 1½% in the first quarter to 3% in the fourth quarter. The 2¼% fourth-quarter-to-fourth-quarter average is about 0.9 percentage points below our previous forecast; on an annual average basis our forecast for growth in 2011 drops to 1.9% from 2.4%. As a result of this downgrade, we now expect the jobless rate to rise to 10% by early 2011 and remain there for the rest of the year.

2. Continued disinflation, but at a slower pace than before. We now expect both the price index for personal consumption expenditures excluding food and energy (core PCE index) and the core CPI to slow to a year-to-year rate of ½% by year-end 2011; our previous forecasts were ¼% and zero, respectively. Although the growth revision implies a larger output gap over the next 18 months, two other considerations dominate: (a) upward revisions to core PCE inflation announced in the latest annual GDP revisions, and (b) signs that disinflation in rents may have ended.

3. A return to unconventional monetary easing by late 2010/early 2011. We expect the Federal Open Market Committee (FOMC) to respond to renewed upward pressure on the unemployment rate with another round of unconventional monetary easing. These measures could involve more asset purchases—probably Treasury securities—and/or a more ironclad commitment to low short-term policy rates. If the committee decides on more asset purchases, the amount would be at least $1 trillion (trn).

4. A “baby step” to unconventional easing next week. Although it is a fairly close call, we now expect the FOMC to announce that they will reinvest the paydown of mortgage-backed securities in the bond market at next Tuesday’s meeting. This would be a “baby step” in the direction of renewed unconventional easing, although it would probably be packaged as a decision to prevent a gradual tightening of the overall stance.

Goldman Sachs, cranky after the weekend, Lowers U.S. Second-Quarter Growth Forecast by 33%

It appears that the fine folks at Goldman Sachs came back to work in a cranky mood. Not only do they cut their estimate for GDP growth by a 1/3, they took Bank of America off their conviction buy list.

By Carlos Torres
July 19 (Bloomberg) -- A surge in imports and slower consumer spending reduced U.S. economic growth in the second quarter, according to economists at Goldman Sachs Group Inc.

The world’s largest economy grew at a 2 percent annual pace from April through June, down from a previously estimated 3 percent pace, according to revised estimates by Goldman economists. Forecasts for the second half of the year remained at an average 1.5 percent pending the government’s annual revisions to gross domestic product due July 30.

“At that point, we may need to make downward revisions, judging from the relentless run on disappointments in recent weeks,” Ed McKelvey, a senior economist at Goldman Sachs in New York wrote in a July 16 note to clients. “While it is conceivable that the slowdown will prove fleeting, several factors strongly suggest otherwise.”

Among the issues that will damp growth in the second half are the loss of support from fiscal stimulus and inventory replenishment, the excess supply of vacant housing, state and local budget constraints, a lack of credit, and weak employment gains, McKelvey said.

The cut in the growth forecast follows similar reductions by economists at JPMorgan Chase & Co. and UBS Securities LLC in New York.

May 2010 Existing Home Sales Missed by 444,000

National Association of Realtors Press Release
Existing-home sales remained at elevated levels in May on buyer response to the tax credit, characterized by stabilizing home prices and historically low mortgage interest rates, according to the National Association of Realtors®. Gains in the West and South were offset by a decline in the Northeast; the Midwest was steady.

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, were at a seasonally adjusted annual rate of 5.66 million units in May, down 2.2 percent from an upwardly revised surge of 5.79 million units in April. May closings are 19.2 percent above the 4.75 million-unit level in May 2009; April sales were revised to show an 8.0 percent monthly gain.

Lawrence Yun, NAR chief economist, said he expects one more month of elevated home sales. “We are witnessing the ongoing effects of the home buyer tax credit, which we’ll also see in June real estate closings,” he said. “However, approximately 180,000 home buyers who signed a contract in good faith to receive the tax credit may not be able to finalize by the end of June due to delays in the mortgage process, particularly for short sales.

“In addition, many potential sales are being delayed by an interruption in the National Flood Insurance Program. Florida and Louisiana, also impacted by the oil spill, have the highest percentage of homes that require flood insurance.”

As the leading advocate for homeownership issues, NAR is supporting Senate amendments to extend the home buyer tax credit closing deadline through September 30 for contracts written by April 30, and to renew the flood insurance program. “Sales and related local economic activity would have been higher without delays in the closing process or flood insurance issues,” Yun noted.

Total housing inventory at the end of May fell 3.4 percent to 3.89 million existing homes available for sale, which represents an 8.3-month supply at the current sales pace, compared with an 8.4-month supply in April. Raw unsold inventory is 1.1 percent above a year ago, but is still 14.9 percent below the record of 4.58 million in July 2008.

A parallel NAR practitioner survey shows first-time buyers purchased 46 percent of homes in May, down from 49 percent in April. Investors accounted for 14 percent of transactions in May compared with 15 percent in April; the remaining sales were to repeat buyers. All-cash sales were at 25 percent in May, edging down from a 26 percent share in April.

Distressed homes slipped to 31 percent of sales last month, compared with 33 percent in April; it was also 33 percent in May 2009.

Link to NAR press release


Grandpa: One again, the all knowing economists over shot on the June estimate as the NAR report came in 444,000 less than the pundits' concensus estimate. One can only imagine just how massive the revisions to macro economic data (including GDP and Jobs growth) will be by the best and brightest on Wall Street.

Economists' GDP Estimate for 2010 is....

Dylan Ratigan, Bill Fleckenstein and Bary Ritholz on the rollercoaster economy

The clear reason for Bill Fleckenstien and Barry Ritholz absence on CNBC is that Dylan Ratigan left the puppet show for a venue affording both Dylan and his guests to speak their mind and shoot straight with the viewing audience.

Bill, Barry and Dylan discuss the rollercoaster U.S. economy and the yippee "V" shaped recovery is a myth. Bill states the Federal Reserve is out of control as the Federal Reserve continues to print money and then prints even more when the first 10 batches do not produce desired effects.

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