Regular readers of The Capital Spectator know that the still positive but decelerating trend in personal income and spending has been a concern on these pages for some time. Among the risks to worry about when it comes to the key economic reports and the potential blowback for the business cycle, this is near the top of my list. Today’s update on consumer sentiment suggests that the crowd is also worried.
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Been Down So Long–Has Housing Finally Bottomed?
The economy may be poised for better days, but we’re still a long way from a genuine boom. Indeed, some folks remain skeptical generally and warn that the economy is more likely to contract than grow in the foreseeable future. A higher level of confidence that we’ll sidestep macro trouble is in order. But how? Job growth seems to be perking up, but it could use some help. Maybe we’ll catch a break with residential real estate in the months ahead too. Yes, real estate.
Still No Sign Of Recession Risk In Latest Jobless Claims Data
Never say never in macroeconomics, especially when it’s based on one economic indicator. But the longer that initial jobless claims zig zag lower, the harder it’ll be to maintain a recession forecast. One thing is sure: either the revival in the labor market in recent months is one giant head fake, or the handful of analysts telling us (still) that a new recession is imminent will soon cry “uncle.” Meanwhile, the data continues to give the forces of growth the edge, and today’s weekly update on new filings for unemployment benefits only strengthens the case. Indeed, new claims dropped last week by a healthy 15,000 to a seasonally adjusted 358,000. That’s the second-lowest reading since early 2008 (the lowest reading was for a week last month). More importantly, the latest numbers strongly suggest that the downward trend is intact. That’s a crucial factor for this leading indicator, which has a good record of telling us when the economy is weakening.
Vanguard’s Forex-Hedged Foreign Bond ETFs
Vanguard will soon be launching its first foreign-bond funds, although the roll-out date has been delayed, the firm reports. The proposed set of ETFs and index mutual funds will target a broad definition of foreign bonds as well as products for emerging markets. But unlike most of the existing foreign bond ETFs, such as SPDR Barclays International Treasury ETF (BWX) and Van Eck Market Vectors Emerging Market Local Currency Bond ETF (EMLC), the new Vanguard funds will hedge currency exposure from a U.S.-dollar-investor perspective. Vanguard argues that this is a superior approach for U.S. investors investing in foreign bonds because it will dampen volatility. True, but it’s not clear that this is a better way to manage a foreign bond fund.
Job Openings On The Rise
Job openings in the U.S. rose to 3.4 million on the last business day of December, up from 3.1 million a month earlier, the Labor Department reports. “Although the number of job openings remained below the 4.4 million openings when the recession began in December 2007, the number of job openings has increased 39 percent since the end of the recession in June 2009,” according to the accompanying press release.
Quantifying Economic Policy Uncertainty
Is economic policy muddled? Some economists argue that confusion on the outlook for a range of policy fronts, such as regulation and tax policy, has been weighing on the economy. But how does one define policy uncertainty? A Stanford economist (Nicholas Bloom) and a Ph.D. candidate (Scott Baker) offer a possible solution with an attempt to quantify the concept in a new benchmark: Index of Economic Policy Uncertainty (EPU). According to the index’s latest data through January, U.S. policy uncertainty has fallen sharply.
Strategic Briefing | 2.7.2012 | Europe & Recession Risk
What’s next for Europe?
CNN | Feb 6
The European Central Bank has thrown cold water on the sovereign debt crisis by injecting billions of euros into the banking system, but the embers of the crisis are still smoldering. S&P says the eurozone has a 40% chance of entering a severe recession this year, with the economy projected to shrink by as much as 2%. Unless comprehensive reform creates a much tighter fiscal union, uncertainty will continue to cast a dark cloud over Europe’s economic future.
German Manufacturing Orders Rise
The Wall Street Journal | Feb 7
German manufacturing orders rose more than expected in December, driven by a surge in demand from outside the euro zone, in the latest sign that Europe’s largest economy may yet avoid recession despite the euro zone’s debt crisis. New orders rose 1.7% on the month in adjusted terms, after slumping by a downwardly revised 4.9% in November, data from the economics ministry showed Monday…. While German orders data are “very volatile”, the latest figures “seem to suggest that factory activity has not collapsed,” even after German economic growth moderated in the fourth quarter “as demand from abroad was hit by the global slowdown,” said Annalisa Piazza, a strategist at Newedge in London. “If anything, a slight pick-up is expected in the first quarter of 2012,” she said.
The Seasonal Factor & January’s Encouraging Employment Report
January’s payrolls report looks convincingly strong to many economists, but some skeptics warn that the seasonal adjustment in the first month of the year is usually quite hefty and so there’s less good news in the numbers than we’ve been told. That inspires looking at the unadjusted data on a year-over-year basis in search of clarity. But here too the results are encouraging.
Book Bits For Saturday: 2.4.2012
● The People’s Money: How Voters Will Balance the Budget and Eliminate the Federal Debt
By Scott Rasmussen
Interview with author via Newsmax
Independent pollster and political analyst Scott Rasmussen tells Newsmax that the real federal debt is $120 trillion — and he has a new book with proposals that could save the government more than $100 trillion over the coming decade.
Private Payrolls Post A Surprisingly Strong Gain In January
Today’s employment report from the U.S. Labor Department delivered a hefty blow against the idea that recession risk is high for the immediate future. Private nonfarm payrolls rose by a net 257,000 in January (total nonfarm payrolls rose by a slightly lower 243,000 because of a 14,000 decrease in the government’s workforce). That’s the strongest monthly increase for the private sector since last April and a tidy increase over December’s revised gain of 220,000. Economists overall had been expecting a considerably lower increase of well under 200,000 for private payrolls for January. But with today’s update in hand, it appears that job creation is accelerating in corporate America. Is this surprising? Not really. As I’ve been discussing for months, the falling trend in new weekly jobless claims has been signaling for some time that the labor market would continue to heal and perhaps grow at a moderately faster pace. Today’s jobs report certainly lends persuasive support for that view.