An article titled ‘Industry Fears U.S. May Quit New Car Habit’ asks this question:  “For all the drastic cuts and financial overhauls that are meant to secure a future for General Motors and Chrysler, their prospects in coming years will be determined more by the answer to a simple question: Can American drivers live without that new-car smell?”.  It is a question I have been pondering for at least the past 4 months.  4 months ago my wife and I were contemplating trading her car.  We didn’t, largely because we found the trade-in value of her car had dropped precipitously last October – November, and that drop in trade-in value was not matched by a % drop in new car sticker prices let alone a matching drop in absolute $ prices.

As I have said many times on this blog – and as reported in the referenced article – in the 2002 – 2007 period Americans borrowed against their houses, had access to easy credit, and in the case of ‘new car

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An article titled ‘Consumer sentiment rises in May; better times seen’ says “U.S. consumer sentiment rose in May, reaching the highest level since September, as more Americans feel the end of the recession is approaching, according to a survey released Friday by the University of Michigan and Reuters”, stating that the consumer sentiment index rose to 68.7 from 65.1 in April.  The article says that in mid-May the estimate was 67.9 and that economists were looking for a final May result of 68.  Consumer sentiment was at a 28 year low last November at 55.3, and has averaged 88.2 over the past 10 years. That said, the Michigan report says the Consumer Expectations Index rose to 69.4 in May from 63.1 in April, and is up 27% over the past three months.  Finally, in the past few days The (U.S.) Conference Board reported that the one-month increase in confidence indicated that consumers believe the economy’s worst has passed.

I find these different indices confusing and difficult to assess in the context of how meaningful they are.  According to Wikipedia:

•    the University of Michigan Consumer Sentiment Index ‘is a consumer confidence index’ normalized to a value of 100 in December 1964, and is based on 500 telephone interviews each month in which 50 core questions are asked.  The objective is to gain a near term assessment of consumer attitudes on the business climate, personal finance, and spending; and,

•    the U.S. Consumer Confidence Index is normalized to a value of 100 in 1985.  5,000 households are each asked 5 questions about current business conditions, business conditions for the next 6 months, current employment conditions, employment conditions for the next 6 months, and family income for the next 6 months.

Whether meaningful conclusions can be drawn from these surveys will depend on at least the efficacy of regionality of respondents, whether the surveyed populations are representative of the population as a whole, and the consistency with which the questions are asked.  I would be surprised if these things are not accounted for in the surveys.  That said, I find it difficult to believe a cross-section of U.S. households collectively think things are getting better when jobs continue to the lost.  Accordingly, I for one do not place much weight on these reports, but rather look to the actual retail sales numbers when they are reported.

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An article titled ‘Billions of bacteria produce nickel and clean water’ says that Vancouver’s BioteQ Environmental Technologies Inc. has developed a process called anaerobic respiration where bacteria “breathe in” sulphur and “exhale” sulphide, a substance used to crystallize nickel remnants in water generated in Xstrata PLC’s Raglan Mine, near Kattiniq, Nunavik – which nickel remnants can be extracted and sold along with the rest of the mine’s production – and that armed with new funding from the Canadian National Research Council “BioteQ is adapting its method for one of Canada’s toughest environmental conundrums: how to deal with massive amounts of contaminated water generated by the oilsands in Alberta”.  The article also says Brad Marchant, CEO of BioteQ is confident of a solution by this time next year, and quotes him as saying “A lot of water problems are the same (across) industries”.  To put experimental oilsands remediation into perspective, the article reports that this remediation effort has received recent Canadian Federal Government commitments of at least $1 billion.

While there is no assurance that such a process will work in the Canadian Oil Sands, and the article itself quotes at least one doubter, this is an interesting development that I think bears watching.  The Canadian Oil Sands represent approximately 1/3 of the world’s known oil reserves in circumstances where the referenced article says new UN data largely blame the oilsands for a 4% jump in carbon emissions to 747 megatonnes in 2007.  It seems inconceivable to me that the Canadian Oil Sands will not be developed.  That technology is required to ensure the ‘greenness’ of extraction going forward is not surprising.  That such technology will be developed, while not certain, surely can be assigned a high probability given the need to extract that oil commercially combined with scientific ingenuity.

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An article titled ‘GDP hints recession is moderating’ says that reports released this morning says the U.S. economy contracted slightly less than initially estimated in the first quarter and U.S. corporate profits rebounded – and that U.S. GDP, which measures total goods and services output within U.S. borders, dropped at a 5.7% annual rate (forecasters expected a drop of 6.1%, down from a 6.3% annualized decrease in Q4 2008. Exports fell 28.7% in Q1 2009, the largest decline since Q4 1971 (the decline was 23.6% in Q4 2008.  Business investment dropped by 36.9% (a record) and residential investment dropped 38.7% (the biggest decline since Q2 1980).  Importantly (as I see it) U.S. consumer spending rose 1.5% – albeit lower than the 2.2% estimated last month by the U.S. government.

These numbers are better than I would have expected.  As best I know, in 2008 U.S. Government revenues were approximately U.S.$2.6 trillion.  Assuming a direct relationship between GDP and U.S. Government revenues – which I think is unlikely to be accurate but likely to be directionally correct – a 5.7% reduction in GDP would, all other things equal, result in an approximate U.S.$150 billion in U.S. Government revenues in 2009 from 2008.  A second article written by Casey Research says that “when you add in all revenue from all sources (including Social Security revenue, government fees, etc.), the fiscal year-to-date – October through April – revenue shortfall comes to 19%, vs. the 14.6% projected in Obama’s budget, and that in the midst of the Great Depression, the 1931 federal tax revenues had fallen by 52% from their 1929 highs. While we do not expect anything that dramatic in 2009, it would not be unrealistic to see a 20% to 25% reduction in cash flow from tax collections this tax season. Such a drop would pose significant challenges given that spending commitments are off the charts and climbing”.

Reduced U.S. Government revenues – at whatever amount they finally come in at – will increase U.S. Government deficits and the U.S. Cumulative National Debt.  This has to be a significant concern.  As I have said in prior posts on this blog, U.S. jobs must go positive and the U.S. consumer must spend so as to directly and indirectly create U.S. Government, State and Municipal tax revenues – or in my view there is nowhere economically positive for the U.S. (and to some degree the rest of the world) to go any time soon.

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