The outlook for inflation is dropping fast, according to the yield spread between the nominal and inflation-indexed 10-year Treasuries. That’s worrisome if the economy’s growth momentum is slowing. Although some pundits argue that higher inflation is a big risk, the Treasury market is telling us different. If the economy is downshifting, falling inflation expectations are a sign of trouble.
Monthly Archives: May 2011
Do High Gasoline Prices Threaten Consumer Spending?
The rebound in retail sales is at the top of the list for thinking that the economy will weather any challenges to growth in the months ahead. Consumer spending, after all, accounts for roughly 70% of GDP, as we’ve so often been told. That implies that a robust rate of growth in retail sales is just what the doctor ordered to chase away the business cycle blues. The good news is that the headline number for retail sales certainly looks encouraging these days. But if we strip out sales at gasoline stations, the case for optimism suffers a bit.
Jobless Claims Fall For 2nd Week
You can almost hear the collective sigh of relief after reading this morning’s update on initial jobless claims. There really wasn’t much room for more bad news, which makes last week sizable fall in new filings for unemployment benefits all the sweeter. Yup, we dodged a bullet here–for the second week in a row. Jobless claims are still running too high to offer much comfort, but there’s a stronger argument today in favor of seeing the recent jump in this series as a statistical blip…maybe. One week at a time here… again.
Shift Risk
Barry Eichengreen on the risk from changes in global economic power and influence:
Shifts in global economic and financial power create unfamiliar circumstances, and unfamiliar circumstances create risks. In the 1960s and 1970s the rising powers, Europe and Japan, complained of destabilizing economic impulses emanating from the United States. This source of economic risks has been around for a long time, in other words, although its form continues to mutate. But now, in addition, the U.S. and other advanced economies must worry about the risk of adverse shocks arising out of events in China and other emerging markets. The day when the Chinese economy was too small and isolated to have a first-order impact on the rest of the world is long past, in other words. Policy analysts in the U.S. and other advanced countries need to worry about the impact on their own economy of a sharp economic slowdown in China, of a sudden drop in property prices in that country’s major cities, or of an outbreak of labor unrest. These are not matters on which U.S. policy planning has traditionally focused. It now should.
Workers Of The World Unite… And Spend
Dominique Strauss-Kahn has some explaining to do that goes beyond defending himself against sexual assault charges. Maybe it’s just me, but I’m having a hard time squaring DSK’s preference (and financial ability) for living large and his political alliance with socialism. It’s been a long road from the Paris Commune to Porsche, the 21st century symbol of socialism.
The Big Fade On The REIT Yield Premium
It’s been more than two years since the markets hit bottom after the financial crisis of late 2008/early 2009. What a long strange trip it’s been. It may get stranger still. But in the interest of finding some context, it’s useful to compare returns since the trough. Let’s arbitrarily call the end of February 2009 as the bottom. How have markets fared since?
Housing Activity Weakens In April & Industrial Production Is Flat
Today’s update on new housing starts and building permits for April isn’t surprising, but it’s still not encouraging. Permits slipped 4% last month and are down by nearly 13% from a year ago. Housing starts look even worse, falling nearly 11% in April, pushing the seasonally adjusted annual rate down by 24% vs. the year-earlier number.
Slim Index Pickings In 401(k) Plans
Ron Lieber argues that 401(k) plans should offer index funds. “This shouldn’t be a controversial statement,” he writes in a recent New York Times article. “Yet it passes for one in Washington, where regulators and legislators are still mired in a never-ending debate over whether stockbrokers, certain insurance salespeople and others ought to meet that standard, known in legal circles as a fiduciary duty.”
Slower Growth vs. Slow Growth
Manufacturing activity in the state of New York “improved in May, but at a slower pace than in April,” according to this morning’s update of the Empire State Manufacturing Survey from the New York Fed. Meanwhile, the outlook for U.S. economic growth softened a bit according to economists surveyed by the National Association for Business Economics. “NABE panelists revised their projections for economic growth in 2011 downward compared with their February projections,” says Richard Wobbekind, NABE president in a statement. “Real GDP is expected to grow at a moderate pace of roughly 3 percent in the current year and only slightly faster in 2012.”
Strategic Briefing | 5.16.2011 | US Debt Ceiling
Debt ceiling drama starts today
CNNMoney | May 16
Monday’s the day: The federal debt will hit its legal limit and Congress doesn’t plan to do anything about it. That leaves Treasury Secretary Timothy Geithner in a bit of a pickle. It now falls to him to jump through hoops every day to keep the world’s largest economy from defaulting on its legal obligations. Geithner told Congress that he estimates he has enough legal hoop-jumping tricks to cover them for another 11 weeks or so. But then he said that’s it. If lawmakers don’t get it together by Aug. 2, the United States will no longer be able to pay its bills in full.