Wednesday, July 14, 2004

Economy Watch: Peaking Already?

There are a slew of results out today, which confirm the oldman's previous lolapallooza indicator (rock concert ticket sales), as reported in the NYT.

First off the bat, there's the weakness in Intel's chip sales forecast. The oldman noted Intel before and the tech sector in general as fingering a downward trend.

The Intel Corporation, the world's largest maker of computer chips, said on Tuesday that its profit nearly doubled in the second quarter. Its shares, however, dropped in after-hours trading after the company lowered its forecast of profit margins and reported that its inventories had risen.

The report sent jitters through the technology industry amid growing concerns that a broad recovery is not materializing as quickly as many executives had predicted.

Meanwhile Globalization, again contrary to the claims of proponents, shows in Houston that offshoring labor leads to localized economic depression because of capital flight even despite a rise in oil prices.
The tepid effect of elevated energy prices on Houston's economy in recent months comes even as energy companies continue migrating to the city. For example, Citgo, the American subsidiary of Venezuela's national oil company, recently announced that it was moving its headquarters to Houston from Tulsa, Okla. Somewhat similarly, ChevronTexaco agreed to acquire and occupy one of Enron's empty towers - a move that would bring more than 500 jobs here from Northern California and New Orleans.

But in spite of such developments, Houston's downtown - where dozens of glistening towers were built during previous growth spurts - remains crestfallen. Even with the introduction of a light-rail system intended to attract business, it is a far cry from the bustling late 1990's, before the collapse of Enron and difficulties at big competitors like Dynegy and the El Paso Corporation.

In the first quarter, Houston had the greatest increase in downtown office vacancy rates of any large city in the country, climbing to 24 percent from 19.5 percent, according to PricewaterhouseCoopers.

Empty skyscrapers are only part of the listlessness that continues to define parts of the city's economy. The rapid increase in property values on the East and West Coasts has not been mirrored in Houston, where the median home price is $140,000, or about the national average, after climbing by a modest 3 percent last year, according to Richard Murray, a professor of political science at the University of Houston.

There are several reasons Houston is not enjoying a return to the days of the 1970's, when it was the nation's fastest-growing metropolitan area, flush with oil money and a backdrop for stories about roughnecks in the big city. A leading reason is the evolution in the oil business in Texas and around the world that has concentrated deal making and specialized research in Houston while large, labor-intensive exploration projects moved elsewhere. [emphasis added]

Finally and most devastating for those happy smiley face optimistic forecasters that touted consumer confidence as a reason why things are going great, retail sales show a sharp curtailing. The consumers may be confident, but they're just not spending that much. Not. Everyone who's anybody knows that consumer confidence can be fickle and often either significantly lags or leads the general economic situation. Consumers can anticipate or suspend judgement for a time, leading consumer confidence to be a volatile or outlier number. Consumer confidence is always the last thing you check on your economic health list, and not the first. Follow the money. What people spend tells you a lot more about where they're at then what people say.
America's shoppers had a tight grip on their pocketbooks and wallets in June, dropping sales at the nation's retailers by 1.1 percent. It was the largest decline in 16 months.

The buying retreat, reported Wednesday by the Commerce Department, came after shoppers had splurged in May. In that month, they pushed merchants' sales up by a strong 1.4 percent, a showing that was even better than first estimated a month ago.

Bad weather and higher energy prices were blamed for the pullback, economists say. Another possible factor: a slowdown in the growth of the nation's payrolls in June. The economy added a net 112,000 jobs last month, less than half of the amount that economists had forecast.

The 1.1 percent drop in retail sales was the largest since February 2003, when sales fell by the same amount. June's decline was shaper than the 0.7 percent drop that some economists were predicting.

The falloff was led by a sharp 4.3 percent decrease in sales at automobile dealerships, which enjoyed a sizable 3.2 percent gain in sales during May.

Excluding sales of automobiles, all other sales dipped by 0.2 percent in June, compared with a 0.9 percent rise in May. The modest 0.2 percent drop in overall sales, excluding autos, matched economists' expectations.

Right, that's why wholesale inventories started building and durable goods orders declined. Just keep telling yourself "it's just the auto sales dammit, everything else is fine.". Not.

I don't mind when someone else disagrees with me, but I have to roll my eyes in disgust when I see hypocritical and self-serving selective attention. It's okay to have a different view, but you need to learn how to refute contrary arguments instead of just focusing on what agrees with your worldview.

Otherwise you get the "groupthink" of the CIA, and the Bush Administration, and the upper echelons of the British political-intelligence complex at Whitehall that produced the debacle in intelligence we have today.


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