May 16, 2012
Industrial Production Rebounds Sharply In April
If you’re looking for evidence that recession risk is rising, you won’t find it in today’s update on industrial production, which surged 1.1% in April—the biggest monthly rise since December 2010. The cycle may be drag us down in the months ahead, but industrial production is putting up a pretty good imitation of swimming against the tide.
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May 15, 2012
Retail Sales Growth Turns Sluggish In April
Retail sales rose a meager 0.1% last month on a seasonally adjusted basis, the smallest monthly gain since December, the Census Bureau reports. The retreat in the growth rate isn’t terribly surprising, given the relatively strong pace in each month during the first quarter. Nonetheless, today's sales news won't inspire confidence amid all the renewed worries about the potential blowback for the global ecoomy if Greece leaves the euro and the possibility of rising recession risk in the U.S.
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Strategic Briefing | 5.15.12 | Will Greece Leave The Euro?
European leaders and financial markets braced for Greece exit from euro
The Guardian | May 15
With attempts in Athens to form a government after last week's election looking increasingly doomed, European leaders abandoned their taboo on talking about the possibility that Greece might have to leave the euro.Shares, oil, and the euro were all sold heavily on Monday in anticipation that anti-austerity parties would garner support in a second Greek election likely to be held next month, bringing the row between Greece and its European creditors to a climax.
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May 14, 2012
Is That A Recession Or Just More Slow-Growth Turbulence?
The Economic Cycle Research Institute last week repeated its forecast that the U.S. is headed for a new recession, a prediction that the consultancy has been emphasizing since last September. There is some damning evidence to consider, starting with the slumping rate of growth in personal income, a danger sign that’s been with us for months.
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May 12, 2012
Book Bits | 5.12.2012
● Better, Stronger, Faster: The Myth of American Decline... and the Rise of a New Economy
By Daniel Gross
Q&A with author via Kai Ryssdal (Marketplace)
Ryssdal: All right, so here comes the put-up-or-shut-up: You say early in this book that the ingredients are already here. You say 'it's tough to see what exactly is going to propel the United States forward, but the ingredients are already here.' Like what?
Gross: Well exports is obviously one of them. The fact that the world has been growing more rapidly than the U.S. is a big source of this declinist thinking. An author like Tom Friedman goes to China and says, 'Oh boy, they're building high-speed rails and look at us, we can't build infrastructure; we're finished.' Exports started turning up in April 2009, before the economy at large did. In the last two years, they're up 35 percent. When the rest of the world gets rich, or gets middle-class, they buy what we make. That includes Boeing jets, gas turbines. I found a family-controlled, little company in suburban Pennsylvania that makes wallpaper. 2007, 2008 -- 80 percent of this business was at home; now 70 percent is overseas.
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May 11, 2012
Strategic Briefing | 5.11.12 | The Outlook For Oil Prices
Oil: A Temporary Selloff?
BCA Research | May 10
Oil prices may stay under downward pressure in the near term and are particularly vulnerable to euro volatility. Nonetheless, our cyclical bias is still positive.... Moreover, many of the headwinds for oil prices should prove temporary even if a washout in the euro does develop. Generous Fed liquidity reduces the odds of sustained U.S. equity weakness at a time when the U.S. economy is on a stable, albeit slow growth path. In this environment, lower oil and product prices have a self-stabilizing aspect by supporting consumer and business confidence, suggesting that without a major exogenous shock, the downside in oil prices from current levels is lmiited. Bottom line: Our Commodity & Energy Strategy service maintains that oil prices should be higher by year-end.
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May 10, 2012
Jobless Claims Fall (Just Barely) Last Week
There’s good news and bad news in today’s weekly update of initial jobless claims. The good news is that new filings for jobless benefits fell last week, albeit by a slim 1,000 to a seasonally adjusted 368,000. That’s also the bad news. A more convincing drop--ideally to new post-recession lows--is what's needed to boost confidence. Instead, we seem to be stuck in neutral, and so there's no resolution yet for the main question weighing on the economic outlook: Are the last two months of weak growth in private payrolls signs of deeper troubles for the U.S. economy?
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Does History Support NGDP Targeting Now?
The debate about targeting a higher rate of growth for nominal gross domestic product (NGDP) keeps the blogosphere humming, but the discussion doesn’t mean much if Fed Chairman Ben Bernanke doesn't embrace the idea. Don't hold your breath. Last month he said the idea is "reckless." That's monetary-speak for: Don't even think about it. But if NGDP targeting is considered a radical notion by some, including those at the pinnacle of monetary power, the empirical record suggests otherwise.
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May 9, 2012
Is The Recent Fall In Inflation Expectations A New Warning Sign?
The new abnormal is still with is, and that means that the recent fall in inflation expectations could be signaling trouble ahead… again. Implied inflation, based on the yield spread between the nominal and inflation-indexed 10-year Treasuries, remains tightly linked with the ebb and flow of the stock market and, by implication, the broader economy. That’s an unusual relationship in the grand scheme of financial and economic history, but it’s a relationship that rolls on in the wake of the Great Recession. It’s also a relationship that in recent weeks seems to be anticipating a new round of problems for the economy. (For the theory behind this empirical fact, see David Glasner's research paper on the so-called Fisher effect.)
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May 8, 2012
Investing In A G-Zero World
The planet is ripe with investment opportunity, according to most of the speakers at an ETF conference I attended yesterday in Boston. From emerging markets to sector rotation to alternative betas, optimism abounds, attendees were told.
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May 7, 2012
Strategic Briefing | 5.7.12 | Fed Governors & Monetary Policy Under Pressure
The Most Important Economic Story Nobody Is Talking About
The Atlantic | May 3
By failing to appoint new members to the Federal Reserve, Obama has failed the economy.... Behind every great central banker stands a great central banking committee. Or at least a pliant one. It's this latter reality that President Obama still has not quite recognized. And this malign neglect of most matters monetary has added a wholly unnecessary degree-of-difficulty to the economic recovery.... As Greg Ip of The Economist has pointed out, most of Bernanke's colleagues now want to raise rates before he does. He increasingly looks isolated.... It's worth remembering that even the hawks project inflation to remain below target and unemployment to remain above target for the next few years. If the Fed believes its own forecasts, it should be doing more.... There are two unfilled seats on the FOMC. President Obama's picks for those positions have been among the victims of the endless Republican obstruction in the world's greatest deliberative body. There's a simple solution. Obama could just bypass the Senate with recess appointments. That's what he did for the Consumer Financial Protection Bureau (CFPB) and National Labor Relations Board (NLRB). Why not do the same for the Federal Reserve (or the Federal Housing Finance Agency)?
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May 5, 2012
Book Bits | 5.5.2012
● The Clash of Generations: Saving Ourselves, Our Kids, and Our Economy
By Laurence Kotlikoff and Scott Burns
Summary via publisher, MIT Press
The United States is bankrupt, flat broke. Thanks to accounting that would make Enron blush, America’s insolvency goes far beyond what our leaders are disclosing. The United States is a fiscal basket case, in worse shape than the notoriously bailed-out countries of Greece, Ireland, and others. How did this happen? In The Clash of Generations, experts Laurence Kotlikoff and Scott Burns document our six-decade, off-balance-sheet, unsustainable financing scheme. They explain how we have balanced our longer lives on the backs of our (relatively few) children. At the same time, we've been on a consumption spree, saving and investing less than nothing. And that’s not to mention the evisceration of the middle class and a financial system that has proven it can’t be trusted. Kotlikoff and Burns outline grassroots strategies for saving ourselves--and especially our children--from what could be a truly catastrophic financial collapse.
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May 4, 2012
Is April's Slow/Low Payroll Growth Signaling The New Normal Or A New Recession?
Economists were expecting a relatively weak month for job growth in April, but today’s payrolls report from the Labor Department managed to disappoint the crowd even by the downsized standards of late. Employment in the private sector rose by a thin 130,000 on a seasonally adjusted basis, down from March’s modest 166,000 gain. April’s increase was the lowest since last August. The unemployment rate, surprisingly, managed to slip a bit to 8.1%, but that's irrelevant given today's meager gain in the working population.
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Strategic Briefing | 5.4.12 | Gov't Spending & The Economy
What stimulus? Government is holding us back
Rex Nutting (MarketWatch) | May 4
Everyone’s worried that the economy may go over a “fiscal cliff” next year, but they’re missing something essential: We’ve been falling down a “fiscal hill” for two years already. After giving the economy a huge boost in 2009 and 2010, fiscal policy has become contractionary. Now that the private sector is on the mend, the lack of government spending is the biggest factor holding back the economy. And it could get worse.
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May 3, 2012
Jobless Claims Fell Sharply Last Week
Suddenly the sun came out… again. New filings for jobless benefits dropped a hefty 27,000 last week to a seasonally adjusted 365,000. It appears that the downward trend in new claims is intact after all. The last several weeks had raised new doubts, courtesy of a modest rise in new claims, but today's news takes the edge off the worst fears. As always, caution is required for reading too much into any one number for this volatile series. But the trend is far less prone to short-term noise and on that score there’s cheery news in today’s update, as the following charts show.
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A New Old Explanation For Recessions & Financial Crises
Edward Conard, a retired executive of Bain Capital and a major donor to Mitt Romney's presidential campaign, tells us that the precipitating cause of the 2008 financial crisis was a surge in demand for liquidity. He's right, of course. The appetite for safety went into overdrive in the final months of that fateful year. This may be a controversial explanation in some circles, but it shouldn't be. Divisive or not, Conard's accounting of how the economy nearly melted down is an excuse to consider how far we've come (or not) in dissecting the business cycle when it goes negative in the extreme. It's also an opportunity for a refresher course on considering the practical policy responses.
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May 2, 2012
ADP Reports Sharply Slower Job Growth In April
The April update of the ADP Employment Report is a clear signal for keeping expectations low for Friday’s influential payrolls report from the U.S. Labor Department. Employment in the private sector grew by only 119,000 last month, according to ADP’s estimate. That’s a 41% drop in the pace of job growth vs. March’s 201,000 gain and is the slowest rate of increase since last September.
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May 1, 2012
Manufacturing Activity Strengthens In April
The first major economic report for April brings encouraging news. Economic activity in the manufacturing sector expanded last month, the Institute for Supply Management reports. One update must be taken in context with the broader trend, of course. Indeed, a single report can't wipe away the recent worries about another spring slowdown. Still, today's ISM news offers a timely burst of optimism that promotes the idea that the weak economic news in some corners over the past several weeks isn't necessarily the last word on what's ahead.
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