ex-pat in UK writes:
The real question is the amount of overhang. If there has been little excess than this will pick up faster, over building then much slower. Any useful data as to which scenario?
ex-pat in UK | 03.19.08 - 10:10 am | #

energyecon writes:
OT,

CR how about a post on CP 30 day spreads - they just ticked up to 105 basis points yesterday - yikes!

FRB Commercial Paper
energyecon | 03.19.08 - 10:12 am | #

CalculatedRisk writes:
energyecon, wow. The third wave continues.

BTW, did the font just shrink on the blog? Weird.

Best Wishes.
CalculatedRisk | Homepage | 03.19.08 - 10:24 am | #

halpmeh writes:
yes font looks weird this morning
halpmeh | 03.19.08 - 10:26 am | #

4822 writes:
Maybe they can get work designing the Lunar Hilton:

http://www.spacefuture.com/archive/ hotels_in_space.shtml
4822 | 03.19.08 - 10:28 am | #

12th Percentile writes:
The Fed just made sweeping font regulation changes. If you write about this in smaller letters it doesn't seem so bad.
12th Percentile | 03.19.08 - 10:30 am | #

bluestatedon writes:
"BTW, did the font just shrink on the blog? Weird."

The WSJ is reporting that National Font Index futures have plummeted this morning, prompting a run on large size fonts, also known as AAA Fonts. What's left are smaller, subprime fonts. This is giving ammunition to those who say we are entering a deflationary period in font sizes, as the supply of large, easily readable fonts is contracting.
bluestatedon | 03.19.08 - 10:30 am | #

4822 writes:
I hear there's lots of work in Dubai and the UAE also.
4822 | 03.19.08 - 10:33 am | #

Yearning to Learn writes:
CR:

there is a percipitous fall in this index this month, a first for your chart. however, the data set only goes back a few years

the downturn up to 2002 was more of a sawtooth pattern downwards, this was cliffdiving.

is that of any significance?
Yearning to Learn | 03.19.08 - 10:34 am | #

energyecon writes:
bluestatedon,

LOL - just when the demographics were creating demand for large font sizes!
energyecon | 03.19.08 - 10:35 am | #

4822 writes:
Wonder what the graphs would look like with arabic fonts?
4822 | 03.19.08 - 10:37 am | #

charlie writes:
I'm betting that markets will be much lower by the end of this year. The graphs seems to support my bet.

I think the government can only prop things up for a few more months and then they'll just give up and focus on the recovery. I suspect we'll be hearing about crazy public works projects by the end of the summer.
charlie | 03.19.08 - 10:37 am | #

Ross writes:
An architect is one who drafts plans for your house and then plans drafts on your money.

The McBoxes, JCP etc., are cutting back store openings. No supprise here.
Ross | Homepage | 03.19.08 - 10:38 am | #

DH writes:
I was going to ask the same question?
about the third wave.

Looks like the TED spread is widening too? Wierd!

http://www.bloomberg.com/apps/qu...cker=.TEDSP: IND

should not things be going back to normal by now. After all, GSE are
gonna Bail out the banks, or did I miss something?
DH | 03.19.08 - 10:38 am | #

Frank228 writes:
They are *this* close to pushing this mess onto the next administration. I don't think they'll make it, but they'll give away the store trying.
Frank228 | 03.19.08 - 10:41 am | #

bluestatedon writes:
"just when the demographics were creating demand for large font sizes!"

It's been a truism for years that Typography Street doesn't care about Main Street, or its aging population. Clinton is introducing a bill mandating at least 36 pt type on all mortgage documents.
bluestatedon | 03.19.08 - 10:42 am | #

Marcus Aurelius writes:
With all of the ugly shit being built around here, these stylistically-challenged "design" firms deserve to fail - regardless of the economy. We have to live with their eyesores for a long time.
Marcus Aurelius | 03.19.08 - 10:44 am | #

bluestatedon writes:
"crazy public works projects by the end of the summer."

Like rebuilt bridges, roads, overpasses, that sort of crazy thing? I hope to God Bush resists all attempts by those crazy liberals to run up huge deficits doing that kind of stuff. What a colossal waste of money.
bluestatedon | 03.19.08 - 10:45 am | #

blackhat writes:
bluestatedon,

Working infrastructure is for pussies.
LOL
blackhat | Homepage | 03.19.08 - 10:47 am | #

Pondering the Mess writes:
Indeed, and you'll have to pay for that 36-point font since not paying will be illegal. Unfortunately, you won't have a job since all font production will have been outsourced to some 3rd world nation; they'll produce fonts for sale in Amerika far cheaper than we ever could, but nobody will have the money to buy them. But that's for the better since the only fonts they can produce are 8-point Wing-Ding fonts that are covered in lead paint!

As for crazy public works projects, how about doing something about the falling apart infrastructure? That bridge on I-95 with the crumbling support pillar is not acceptable; nor was the bridge collapse last year in Minnesota. We have plenty of money for McMansions and useless shopping malls - just hope the road doesn't fall apart on your way there?!
Pondering the Mess | 03.19.08 - 10:47 am | #

Marcus Aurelius writes:
It's font deflation. Theres bee a 3.75pt. cut across the board. 11.55 pt. is the new 12 pt.
Marcus Aurelius | 03.19.08 - 10:49 am | #

NSA writes:
.ereh dnuora egnarts gnitteg era sgnihT
NSA | 03.19.08 - 10:50 am | #

k harris writes:
Moody's reports commercial real estate prices have fallen for 3 straight months, as of January. S&P reports real estate prices continued to rise as of December, and that CRE has "relatively healthy fundamentals." Gotcha. Very clear.
k harris | 03.19.08 - 10:51 am | #

Nemo writes:
Quick, somebody call Howard Roark
Nemo | Homepage | 03.19.08 - 10:51 am | #

scav writes:
Oh, come on! We're all subscript now!!
scav | 03.19.08 - 10:53 am | #

OriginalFrank writes:
Frank228 writes:
> They are *this* close to pushing this mess onto the next administration. I don't think they'll make it, but they'll give away the store trying.

Sure, why not? The previous administration junked Glass-Seagall and set all this in motion.
OriginalFrank | 03.19.08 - 10:56 am | #

Misean writes:
There is no font shortage. The Write Model B shows that the fundementals are solid.

I'm long Times New Roman in all sizes, and I'm thinking of getting into Courier as well as a risk play in Sans Serif.

S.
Misean | 03.19.08 - 10:57 am | #

probert writes:
who is Howard Roark?
probert | 03.19.08 - 10:58 am | #

Marcus Aurelius writes:
OriginalFrank | 03.19.08 - 10:56 am

________


BwaaHaaaahahahahahhhahahahhhahah...HA!

Clinton did it!

BwaaHaaaahahahahahhhah....!

Oy.
Marcus Aurelius | 03.19.08 - 11:01 am | #

Sebastian writes:
Another non-informative but visually-deceptive chart.:) What it shows is the level of fear or pessimism, not whether it's rational or if it's going to be long-lasting.

Look at the chart. The last time it was this low was in the depths of the last recession, in fact the virtual low-point just before the recovery began.

So, based on the evidence of the chart, what does this reading tell us about economic conditions, based on what happened the last time the reading was at the same level?


Sebastian
Sebastian | 03.19.08 - 11:05 am | #

The Leveraged Loan Market writes:
Ben;

It's been almost a day,,,,just another fix, please, just another fix....

I shaking and shivering,,,,,sweating,,,,naseous,,,,,

After this hit I swear that I will never, ever ask for another quick fix again.
The Leveraged Loan Market | 03.19.08 - 11:06 am | #

Misean writes:
Seb,

It says things are bad. That's no saw tooth yoy trend down. That's a collapse. A collapse is generally worse than channel trends down with clear channel lows and highs with nice looking bottoms and trend channel reversals.

JMHO.

Cheers,
Misean | 03.19.08 - 11:08 am | #

NoVa writes:
Go Casey Serif! A font of real estate knowledge.
NoVa | 03.19.08 - 11:08 am | #

MSM writes:
With respect to the third wave, on the Fed's Commercial Paper Releases page, the plot "Discount rate history" has color choices for its data lines that give, I presume unintentionally, the aesthetic of flames rising from the curves, beginning with the first wave last summer.

Burning down the (credit) house.
MSM | 03.19.08 - 11:11 am | #

Marcus Aurelius writes:
So, based on the evidence of the chart, what does this reading tell us about economic conditions, based on what happened the last time the reading was at the same level?


Sebastian
Sebastian | 03.19.08 - 11:05 am

___

It tells us several things.

First, it reminds us that the two periods you cite don't come close to being similar.

Secondly, it shows us that there hasn't been as fast and precipitous a drop anywhere else on the chart.

And finally, it demonstrates your pedestrian talent as a dissembler.

Your lips are purple from the Kool-aid. Go wash your face.
Marcus Aurelius | 03.19.08 - 11:12 am | #

Neal writes:
What it tells is apparent to anyone involved in the construction business--commercial construction is way down and heading lower.

Sebastian--maybe you can blow smoke out of your ass all day long, but I know and live commercial, retail, office, tenant improvement, industrial, utility and public construction.

Commercial, retail, office and tenant improvement construction is dying like Valentines flowers.

Industrial construction is tough, with the exception of defence contractors.

Utility construction is still going strong, but these are long term construction projects. If you're involved, you have work. If not, you won't.

Public construction will be OK this summer because of the lag between perceived need and tax based funding. Look for a giant fall next year.

So Sebastian--go long on whatever you want, but don't pretend you know anything about this topic.
Neal | 03.19.08 - 11:15 am | #

k harris writes:
Sebastian,

The billing index is not a measure of emotion. It is a measure of transactions - money spent preparing to build commercial real estate fell hard in the first 2 months of 2008. Since commercial construction starts following architectural billings, there is good reason to think that CRE starts are due to fall. That is not a guarantee, but it is the way things work. We have a good indication that real activity is going to fall. Why do you want to argue otherwise?
k harris | 03.19.08 - 11:16 am | #

Sebastian writes:
Misean said: "It says things are bad. That's no saw tooth yoy trend down. That's a collapse. A collapse is generally worse than channel trends down with clear channel lows and highs with nice looking bottoms and trend channel reversals."

A collapse is worse? You mean like October, 1987? August, 1998? When the problems in the financial markets weren't confirmed by broad economic weakness and recession was still 3 years in the future? When those stock market collapses created a huge buying opportunity, because everyone was so petrified with fear?

Yes, I'm sure you're right...Wright.:)


Sebastian
Sebastian | 03.19.08 - 11:16 am | #

Marcus Aurelius writes:
Seb:

Do you want to talk CRE or stocks.
Marcus Aurelius | 03.19.08 - 11:17 am | #

burnside writes:
Seldom has Sebastian exposed his game more clearly.
burnside | 03.19.08 - 11:18 am | #

wally writes:
As Neal reminds, the architectural billings are not just for a bunch of strip malls. Included in that would be multifamily, offices, industrial buildings, schools, government and public works. There will be different stories in each category, but the overall total still will be an indicator of total future construction.
Architects do very little of the single family housing total- probably less than a couple of percent, overall.
wally | 03.19.08 - 11:24 am | #

scav writes:
Ah, Seb's just appointed himself the decider in charge of all valid data, models and interpretation and is doing this all for our own good. We just fail to appreciate him. Or something like that. Oh well.

I don't color within the lines either. AND I mix fonts.
scav | 03.19.08 - 11:25 am | #

Misean writes:
Seb,

You're comparing stock prices to a billing index. O.K.

That's an interesting comparison. Next time I go shopping I'll compare Home Depot employee's wages with the price of oranges at Costco. Ought to be informative.

Cheers,
Misean | 03.19.08 - 11:26 am | #

OriginalFrank writes:
BwaaHaaaahahahahahhhahahahhhahah...HA!
Clinton did it!
BwaaHaaaahahahahahhhah....!

Oy.
Marcus Aurelius | 03.19.08 - 11:01 am | #

I'm pleased that my partisan attempt to hang blame for such a complex situation - with a multiplicity of causes over a long period of time - on a single politician struck your funny bone.

I was afraid that the ludicrous nature of it might escape readers.
OriginalFrank | 03.19.08 - 11:26 am | #

Bob Dobbs writes:
"burnside writes:
Seldom has Sebastian exposed his game more clearly."

I agree. Nothing but a troll. But he finds good pickings among the many newcomers who haven't spotted his game yet.
Bob Dobbs | Homepage | 03.19.08 - 11:34 am | #

Sebastian writes:
k harris said: "The billing index is not a measure of emotion. It is a measure of transactions - money spent preparing to build commercial real estate fell hard in the first 2 months of 2008. Since commercial construction starts following architectural billings, there is good reason to think that CRE starts are due to fall."

Then that pattern should be reflected in the chart CR provided, shouldn't it? Yet at the end of 2001, the last time the index was this low, that's when the *recovery* began, *after* the slowdown had run its course.

So what do we really know? That activity will either slow down or pick up.


Sebastian
Sebastian | 03.19.08 - 11:41 am | #

Sebastian writes:
Marcus Aurelius, Misean and Bob Dobbs: Thank-you for your helpful responses, and have a nice day.:)


Sincerely,

Sebastian
Sebastian | 03.19.08 - 11:43 am | #

Fair Economist writes:
Backs up CR's idea of a long recession. According to the usual lead times, commercial construction won't fall off until the 4th quarter. And I really don't expect residential construction to be picking up then, either.
Fair Economist | 03.19.08 - 11:49 am | #

Sebastian writes:
Fair Economist said: "Backs up CR's idea of a long recession."

I would agree that it supports the idea of a *long way off* recession, preceded by a period of slower economic growth.

The economic impact is moving at a much slower pace than CR has been estimating, however fast the credit-market developments have been moving.


Sebastian
Sebastian | 03.19.08 - 12:01 pm | #

Dirk van Dijk writes:
Seb, as I understand it the Wright B model is based on the yield curve adjusted for the overall level of the curve. Does it incorporate spreads? On a variety of fronts spreads are historically wide, and most people and businesses cant borrow at anything close to the T curve. If spreads remain realatively constant over time, then the t-curve is a good proxy for the rest of the yield curves, and given the consistency of that data is easier to work with. However, if spreads are blowing out, it will give misleading signals. Based on the T curve alone, things dont looks so bad going forward, but it looked awful about a year ago and information off the yield curve has a long lag. Aside from the curve, the rest of the adta looks pretty bleak to me, at the very least pointing to a garden variety recession. given the fradgile state of the financial markets, it is one that could morph into something much worse.
Dirk van Dijk | Homepage | 03.19.08 - 12:09 pm | #

Sebastian writes:
Dirk van Dijk said: "Seb, as I understand it the Wright B model is based on the yield curve adjusted for the overall level of the curve. Does it incorporate spreads?..."

Technically, it *is* a spread (specifically a maturity spread), the spread between the yields on short-term Treasuries and long-term Treasuries, adjusted by a coefficient to account for the level of the Fed funds rate.

This maturity spread already *did* forecast slower economic growth, when it inverted 18 months ago (the "simple spread", Model B never inverted). The spreads of other kinds (spreads involving investment quality, like between high-grade paper and low-grade paper) are *coincident* indicators of fear levels. That's a major difference.

Both the "simple" Treasury-yield spread and Model B (adjusted for Fed funds) are both steeply positive now, which is highly stimulative (with a lag, of course).


Sebastian
Sebastian | 03.19.08 - 12:35 pm | #

k harris writes:
Sebastian,

Um, non-residential construction spending bottomed from Q4 2001 to Q1 2004. So unless you are arguing that the billing index should (for some religious reason) provide a forecast of GDP or the S&P or your mood, rather than non-residential construction spending, you have simply mispoken. Billings are a very reliable indicator of future activity in the sector in which this blog has specialized for the past few years.

So what do we really know? That residential construction activity is very, very likely to slow, and that you will continue to say "irrational" about every indicator that fails to support your own mistaken view. Now, go look up "irrational".
k harris | 03.19.08 - 1:48 pm | #

Sebastian writes:
k harris said: "Um, non-residential construction spending bottomed from Q4 2001 to Q1 2004."

While the overall economy was recovering, post-recession.

Is that consistent with CR's evidence and point of view, that a lot worse is coming? You aren't bothered by the inconsistency, that this index means one thing at one level, but the exact opposite at a similar level?

Don't you and CR need to look-up "irrational", too?:)


Sebastian
Sebastian | 03.19.08 - 2:27 pm | #

Sebastian writes:
k harris, please strike this: "Don't you and CR need to look-up "irrational", too?:),

as I shouldn't have said it, and apologize.

Every piece of evidence presented by CR is offered to and widely accepted by readers as being backed by the presumption of recession, either as a fait accompli or an imminent event.

If you take out that presumption, the evidence doesn't look nearly as strong, supporting only slower economic growth. If the U.S. economy only slows down a bit instead of falling into recession, it's easier for the economy to accelerate again into a higher growth level.

Mid-cycle slowdowns are like that, deceptive to the point of making it look as though it's a dead-bang cinch that recession is coming, only to have those recession fears just evaporate, with the real recession ultimately being delayed for years.


Sebastian
Sebastian | 03.19.08 - 2:54 pm | #

k harris writes:
Sebastian,

The point I made to you was very specifically that the billing index leads non-residential construction. You come back and urge me to be bothered by the fact that it doesn't (did not in the one instance you cite) lead GDP.

If you really want me to care about the relation between the billing index and GDP, OK, I will. GDP did not return to trend till around 2003. The fact that non-residential construction was a drag all through that period of below-trend output probably contributed to below trend output.

There really is no place to hide if you are honest about the data. If you go back through our host's inventory of comments, you'll find that he thinks residential real estate leads the economy and non-residential real estate. Whatdayaknow, that has been the case so far in this cycle. He thinks that billings lead non-residential activity, and whatdayaknow, that was the case in the prior cycle. So my question to you is, other than making vague claims that don't address our hosts analysis, or claiming some nefarious underlying recessionary view - which by the way is what the housing data have pointed to for over a year, ISM data are near pointing to, and financial market freeze-ups universally result in - what's your point?
k harris | 03.19.08 - 3:28 pm | #

smelly cat writes:
it's the trend, seb, the trend.
smelly cat | 03.19.08 - 3:35 pm | #

Sebastian writes:
k harris said: "There really is no place to hide if you are honest about the data. If you go back through our host's inventory of comments, you'll find that he thinks residential real estate leads the economy and non-residential real estate..."

Here's CR's most-recent chart (I believe) for residential and non-residential private construction spending. (If there's a newer one that I didn't find, I'd accept that.)

http://bp3.blogger.com/ _pMscxxEL...endingDec07.jpg

It appears as though there's now been a full 8 quarters now (of the 5-8 quarter lead-time, as of December), with no slowdown in non-residential construction spending.

So, instead of me drawing the conclusion, *you* tell me what conclusion can be logically drawn from that, based only on the data.

Myself, I view this in much the same way as with the yield-curve inversion 18 months ago: If the expected outcome (recession) doesn't arrive within the established lead-time of the indicator (12-18 months), it's not logical to assume it's wrong.

It's irrational to assume that the indicator is wrong because of a preconceived notion that recession is coming soon.


Sebastian
Sebastian | 03.19.08 - 4:32 pm | #

scav writes:
Seb, given you're not dead yet, it's a good bet you'll never be.
scav | 03.19.08 - 4:37 pm | #

Sebastian writes:
scav said: "Seb, given you're not dead yet, it's a good bet you'll never be."

Nice thought, but unfortunately I'm on a one-way-only trip.:) The economy goes through corrective cycles that allow it to start fresh.


S.
Sebastian | 03.19.08 - 4:52 pm | #

KnotRP writes:
I note CR had predicted (or should I say "expected, barring something unusual") the non-residential downturn, many many months ago. He explained why he expected it, and everyone who's been on this blog any amount of time has been waiting and watching for the predicted turn. Now it shows up, within the predicted window, and the data source is pretty damn hard to argue with.
I give CR a lot of credit to sticking to the knitting, month in, month out. It's the sign of a disciplined mind.

Meanwhile, I note that Sebastian's sole prediction seems to be "no recession", which will have the benefit of being true until the NBER gets around to post-dating one, which could be a long time from now. This seems to be a low bar in the prediction game, both in terms of risk of being wrong in public, and in terms of actionable value. I appreciate devil's arguments -- probably more than the average person does -- so I'm inclined to appreciate a Sebastian in the mix, but there ain't much argument in the "no recession" prediction...at least not any more than I can shake out of my magic 8 ball.
KnotRP | 03.19.08 - 8:09 pm | #

KnotRP writes:
In general, Sebastian, I get the sense that you accumulate your goals by prudently managing the goal posts. You seem to be quiet adept at it, too...
KnotRP | 03.19.08 - 8:12 pm | #

russell120 writes:
In my neck of the woods some of the short term indicators are good. The pressure is on the smaller projects that the larger residential builders can also build.

However, late cycle work is some of the best work for certain types of contractors: I imagine the Fire Alarm contractors are in heaven.

Sebastian is correct that the economy can be turning up as the lagging indicator commercial construction goes down. But that remains to be seen if that is the case here.

CR - you are cheating I think - you used to say commercial lags residential by 5 quarters. Now the parameter has been expanded to a point where it is not of great predictive value. Unfortunately the AIA billing, for all its failings seems to be the best indicator. It is a great shame that they also don't give a Y-O-Y number. It is also unfortunate that it is going down.
russell120 | 03.19.08 - 8:22 pm | #

Sebastian writes:
KnotRP said: "...so I'm inclined to appreciate a Sebastian in the mix, but there ain't much argument in the "no recession" prediction...at least not any more than I can shake out of my magic 8 ball."

I could have predicted this, too.:)

"No, you're wrong! No, you're wrong! No you're wrong!"

followed by, "Yeah, you were right, but so what, anybody could've done that and what difference does it make, anyway?":)


S.
Sebastian | 03.20.08 - 7:40 am | #

k harris writes:
Sebastian,

I don't need to rely on the link you offer. Non-residential construction spending data are publicly available. Those publicly available data show non-residential construction spending peaked in November and have fallen since then. In fact, I made this point earlier, but you seem to have ignored it. Reality does not rely on the data you have been willing to notice. Reality is reality. Now, currently available data on non-residential construction spending may not actually reflect reality, but that is something neither of us can know at this point. As of right now, the data support our host's conclusions. It is unseemly to spin and wiggle in an effort to avoid confronting that fact.
k harris | 03.20.08 - 8:50 am | #