The economic news this week focuses on retail sales (Wednesday), wholesale inflation, new jobless claims and industrial production (Thursday), and consumer price inflation and consumer sentiment (Friday). For a bit of context, here are some links that caught our attention…
Monthly Archives: July 2010
TALKING UP DEFLATION
The market’s falling inflation forecast over the last two months took a breather yesterday, but the subject of monetary policy and the heightened risk of deflation is hotter than ever, as we’ve been discussing (here and here, for example). It wasn’t obvious that the central bank was prepared to act, but now it appears that the Fed is starting to recognize the problem, or so recent news reports suggest.
STATISTICAL REFRESHMENT…FOR NOW
The case for deflation retreated a bit today with this morning’s update of weekly jobless claims. New filings for unemployment benefits slumped by a tidy 21,000 last week to 454,000, the government reported. That’s the biggest weekly drop since mid-April and the decline represents a tactical victory for the bulls. But until and if the trend rolls on it’s only marginally encouraging. The strategic outlook, in other words, is still up for grabs.
THE MAIN EVENT
Yesterday’s sharp rally in the stock market takes the edge off of deflation concerns…for the moment. But let’s not forget that the Treasury market’s implied 10-year inflation forecast is still bouncing around at the lowest levels since last October. In other words, yesterday’s revival of bullish spirits in equities didn’t pare deflationary anxiety, at least not yet.
DOUBLE DIP TALK: 7.7.2010
Beauty is in the eye of the beholder, and so is the risk (or lack thereof) for recession. Almost everyone agrees that the threat of a new economic contraction is higher today than it was a few months back, but the consensus ends there. What looks like a fait accompli to one dismal scientist appears as a minor hazard to another. For some perspective on the debate, and a bit of context for monitoring the risk of a new recession, read on…
DEFLATION RISK IS STILL RISING
When we last left the Treasury market on Friday, the market’s forecast of inflation for the 10 years ahead had fallen at the steepest pace in a year.
MODEST PRIVATE SECTOR JOB GROWTH IN JUNE
The decline of 125,000 in nonfarm payrolls for June isn’t a surprise. Most economists were forecasting a decline of 100,000 or so. Nor is the tumble necessarily an omen for the economy. A big factor in the retreat in the headline number is the termination of temporary Census workers. And if we strip out the government’s influence, there’s good news: private-sector employment added 83,000 new jobs last month, a rebound from May’s tepid 33,000 gain. But the modest rebound in private sector employment isn’t a revelation either, based on the consensus forecast among dismal scientists. Overall, the debate about whether the labor market is on a sustainable path of recovery is still alive and kicking.
MORE RISK AVERSION IN JUNE
June was another rough month for risky assets, although the losses were considerably deeper with U.S. stocks from a dollar-based return perspective. REITs also took a hit: for the first time since the opening months of 2009, real estate securities dropped by more than 5% for the second month running. Bonds, on the other hand, did quite well in June. With the threat of deflation taking a toll on investor sentiment, the safety of fixed-income (even at unusually low yields) attracted capital flows last month like moths to a flame. And commodities overall, as per the Dow Jones-UBS Commodity Index, managed to eke out a fraction gain.