Karim writes:

Durables data was firm.

  • Shipments ex-aircraft and defense (proxy for current qtr business capex) up 0.8%; stands 2.2% above Q4 avg; implication is real capex up 5-6% in q1 after 13.3% gain in q4
  • Orders ex-aircraft and defense (proxy for future capex) up 1.1%

New home sales down 2.2% (prior mth revised to -8.7% from -11.2%); level of new home sales of 308k (annualized) makes new all-time low for 2nd straight month. As a % of the overall economy, hard to see housing go much lower!

One Response

  1. My apologies for posting something slightly unrelated, but the below from Kohn’s speech today and may mark a sea-change…


    relevant language:

    A second issue involves the effect of the large volume of reserves created as we buy assets. The Federal Reserve has funded its purchases by crediting the accounts that banks hold with us. Those deposits are called “reserve balances” and are part of bank reserves. In our explanations of our actions, we have concentrated, as I have just done, on the effects on the prices of the assets we have been purchasing and the spillover to the prices of related assets. The huge quantity of bank reserves that were created has been seen largely as a byproduct of the purchases that would be unlikely to have a significant independent effect on financial markets and the economy. This view is not consistent with the simple models in many textbooks or the monetarist tradition in monetary policy, which emphasizes a line of causation from reserves to the money supply to economic activity and inflation. Other central banks and some of my colleagues on the Federal Open Market Committee (FOMC) have emphasized this channel in their discussions of the effect of policy at the zero lower bound. According to these types of theories, extra reserves should induce banks to diversify into additional lending and purchases of securities, reducing the cost of borrowing for households and businesses, and so should spark an increase in the money supply and spending. To date, that channel does not seem to have been effective; interest rates on bank loans relative to the usual benchmarks have continued to rise, the quantity of bank loans is still falling rapidly, and money supply growth has been subdued. Banks’ behavior appears more consistent with the standard Keynesian model of the liquidity trap, in which demand for reserves becomes perfectly elastic when short-term interest rates approach zero. But portfolio behavior of banks will shift as the economy and confidence recover, and we will need to watch and study this channel carefully.

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