A number of pundits today were quick to declare that the business cycle had finally rolled over last month because consumer spending fell slightly in June, as noted in this morning’s update via the Bureau of Economic Analysis. One blogger insisted—insisted!—that the 0.1% decline last month in real (inflation-adjusted) personal consumption expenditures (PCE) was a clear and unambiguous death knell for U.S. economic growth. But in the rush to judgment, some analysts are overlooking a few things.
Monthly Archives: July 2012
Personal Income Rebounds In June With Flat Consumer Spending
Disposable personal income (DPI) is rising again, but consumption remains flat. That’s the message in today’s update for the June income and spending report from the Bureau of Economic Analysis. The trend is certainly encouraging on the income front. But the unchanged level of personal consumption expenditures (PCE) is a problem if it continues. Then again, it’s not surprising that the public is inclined to save these days. The paradox of thrift may be a bigger problem in the months ahead if the urge to save rolls on and/or accelerates. But the fact that DPI has made an impressive rebound in terms of its growth rate in June suggests that it’s still premature to expect the worst. Savings mixed with higher income is hardly a sign of an economic apocalypse. Then again, one month alone never tells us much.
Asset Allocation Could Use A Few Good Benchmarks
A pair of analysts at Lyxor Asset Management have a request for index vendors: create a new generation of multi-asset class benchmarks. “The need of such indexes is crucial for all investors that manage multi-asset classes,” write Rodolphe Louis and Thierry Roncalli. “Today, it is unthinkable to manage an equity or a fixed-income portfolio without a reference to a benchmark. And this benchmark is generally an index representing the market portfolio.” It’s time for a renewed focus on stock/bond indexes, they assert. While we’re at it, let’s develop a suite of multi-asset class indexes beyond a basic equity/fixed-income mix.
Book Bits | 7.28.2012
● Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street
By Neil Barofsky
Review via The New York Times
Mr. Barofsky justifiably spends time on Treasury’s failure to get banks to stem home foreclosures. But he charges that Treasury helped give birth to the Tea Party “by rolling out a hurried and poorly thought-out mortgage modification program,” when what actually spawned that movement was conservatives’ opposition to the very idea of bailing out troubled homeowners, which Mr. Barofsky so favors. That his book is being released now, amid the presidential campaign, reflects perhaps the biggest contradiction of all: If Treasury has been making policies exclusively “by Wall Street for Wall Street,” as Mr. Barofsky says, why then has a once friendly Wall Street turned so hostile to President Obama’s re-election?
Q2 GDP Rises a Sluggish 1.5%
The U.S. economy grew at a real (inflation-adjusted) 1.5% (seasonally adjusted annual rate) in the second quarter of 2012, the Bureau of Economic Analysis reports. That’s roughly in line with consensus forecasts, but it’s disappointing nonetheless. The economy’s tepid 1.5% growth rate represents a slowdown from Q1’s 2.0% pace and a world away from the 4.1% rate posted in last year’s fourth quarter.
Strategic Briefing | 7.27.12 | Q2 U.S. GDP Preview
‘Subpar’ Now Par for the Economic Course
The Wall Street Journal | July 26
Friday’s first take on U.S. gross-domestic-product growth for the second quarter is unlikely to improve the mood: forecasters see an annualized increase of just 1.5%. Not only is that lower than a downward-revised 1.9% rate in the first quarter, but it would put the economy even farther off the growth trajectory that it typically would be enjoying three years after a recession’s end.
The Employed-to-Unemployed Ratio: A Brief Clarification
Earlier today I looked at the history of what appears to be another useful metric for monitoring the business cycle: the ratio of nonfarm payrolls to the unemployment rate in terms of its 12-month percent change. I attributed the “discovery” of this indicator to Bob Dieli, an economist who crunches the numbers at NoSpinForecast.com. But after reading the post, Dieli alerts me that I was mistaken and that he was in fact watching was the ratio of the employed to the unemployed–both in terms of the actual numbers reported each month in the household survey of the employment report. On a 12-month rolling basis, the two signals are virtually identical. Nonetheless, Dieli’s clarification is worth noting because it moves us closer to an apples-to-apples comparison in terms of the underlying data.
A Mixed Bag Of Economic Updates
Today’s updates on initial jobless claims and durable goods orders bring encouraging news, albeit with a caveat: a widely followed subcategory of durable goods—commonly referred to as business investment—looks troubling. Does the weakness in business investment—i.e., new orders for non-defense capital goods less aircraft—overwhelm the brighter numbers in durable goods overall and the sharp drop in new filings for unemployment claims?
Another Business Cycle Indicator Worth Watching
Strategic Briefing | 7.25.12 | Is The Fed Set To Roll Out QE3?
Fed Leaning Closer to New Stimulus if No Growth Is Seen
The New York Times | July 24
A growing number of Federal Reserve officials have concluded that the central bank needs to expand its stimulus campaign unless the nation’s economy soon shows signs of improvement, including job growth. The question is expected to dominate the agenda when the Fed’s policy-making committee meets next week, with some members pushing for immediate action while others seek to delay a decision at least until the committee’s next meeting in September, so they can see a few more weeks’ worth of economic data.