Reading this morning’s latest weekly update on jobless claims inspires the question: When will we see evidence that a new recession is here, or lurking in the near future? The answer: Not today. If there’s a clear sign that the economy’s set to tumble, it’s not obvious in last week’s new applications for unemployment benefits. In fact, this leading indicator continues to tell us that the labor market is slowly improving. New claims dropped by 12,000 to a seasonally adjusted 367,000 last week. One number doesn’t tell us much, of course, but it’s hard to dismiss the trend.
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Gold Tricks In A New Bottle
Brett Arends of MarketWatch delivers a gentle profile of James Grant and his long-standing support for a return to the gold standard. Grant, who pens the newsletter Grant’s Interest Rate Observer, is among the metal’s leading promoters. He’s even been cited as a possible candidate to run the Federal Reserve. In that unlikely outcome, we certainly know how Grant would act. Arends quotes Grant as saying that the dollar’s value should be stable and unchanging, with the not-so-subtle implication that future crises would be averted with this policy.
Continued Improvement For Manufacturing Activity In January
January looked a bit better through the prism of the ISM manufacturing index, which rose again last month to 54.1 from December’s 53.1. That’s the third monthly increase in a row. Readings above 50 are generally interpreted as a sign that the economy is growing. It’s hardly a knock-out blow against analysts warning of high recession risk these days, but it’s clearly a step in the right direction. At this critical juncture for the global economy, anything that doesn’t bite us is a big help.
Major Asset Classes | Jan 31, 2012 | Performance Update
Last month was kind to risky assets. Indeed, there was no red ink in January for our broadly defined benchmarks of stocks, bonds, REITs and commodities. Ironically, cash (3-month T-bills) retreated ever so slightly on a monthly basis. Otherwise, the overall performance in this year’s first month was the best since last October, with the Global Market Index (a passive, market-value weighted mix of all the major asset classes) rising a robust 4.0% last month.
ADP: Job Growth Slows In January
Job growth slowed in January, according to ADP. It wasn’t a cataclysmic slowdown, but it’s enough to keep the debate about recession risk bubbling. U.S. nonfarm private sector employment increased by a seasonally adjusted 170,000 last month, according to the ADP Employment Report. That’s down from the 292,000 gain in December. It’s clear that the labor market is still expanding, and that’s one more favorable trend for the optimists. But the magnitude of the downshift is hardly a clear signal of hope about the future. At the very least, the outlook for the business cycle is a bit more hazy in the wake of this report.
A Troubling Trend For Income & Spending Rolls On
American consumers are spending less and saving more. That’s the message in yesterday’s personal income and consumption report for December from the Bureau of Economic Analysis. That’s a healthy development for household balance sheets and, in the long run, it’s a plus for the economy. But if you’re looking for a fresh sign that the economy will avoid a recession, it’s not clear that these numbers will suffice.
A Day In New York…
The personal spending and income report for December is scheduled for release later this morning. The consensus forecast is looking for a rebound after November’s tepid rise. The stakes are high, given the recent deterioration in the trend. I’ll be reviewing today’s numbers from afar, however, as I’m heading off to IMCA’s investment consultant conference in New York. I’ll have a belated reaction to today’s economic news when I return to the normal routine tomorrow.
Another Crossroads For The New Abnormal?
The tight correlation in the last several years between the Treasury market’s inflation outlook and the stock market (S&P 500) has been a reliable barometer of macro conditions in a period that I like to call the new abnormal. As I discussed last October, in normal times, there’s minimal correlation between equity market prices and inflation expectations. Indeed, higher inflation is generally considered troublesome above a certain level… most of the time. But normality gave way in the wake of the financial crisis in late-2008, which brought us a new paradigm. And so, falling inflation expectations, until further notice, are accompanied by falling stock prices; if the trend persists, it leads to a deterioration in macro conditions. This illness will end one day, but not yet. (For the theory behind this empirical fact, see David Glasner’s research paper on the so-called Fisher effect.) Hold that thought as we consider the latest signals from the stock market in the context of inflation expectations and the implications for the economy.
Book Bits For Saturday: 1.28.2012
● The Benefit and The Burden: Tax Reform-Why We Need It and What It Will Take
By Bruce Bartlett
Review via The Financial Times
America’s tax system is a mess. It is unfair, poorly understood and riddled with loopholes. It is ill-equipped to raise the revenues needed to deal with the debt crisis, still less the future needs of an ageing population. It is now over 25 years since it last underwent much reform. An overhaul is long overdue. The case for change is presented in The Benefit and the Burden, a succinct, lucid book by Bruce Bartlett, an economist who spent many years in government working for Republican congressmen and in the administrations of Ronald Reagan and George H.W. Bush. In Mr Bartlett’s view, higher tax revenues are needed to stabilise the US’s finances; one of the goals of tax reform should be to make the higher tax burden more bearable. But it will not happen unless there is a much better public understanding of how the tax system works.
US Economic Growth Accelerates Modestly In Fourth Quarter
Another backward-looking economic report dispatched a fresh round of hope today for thinking that a new recession isn’t knocking on our collective doorstep. The U.S. economy expanded at an annual real rate of 2.8% in last year’s fourth quarter, the Bureau of Economic Analysis reports. That’s a respectable bit of improvement over Q3’s 1.8% sluggish pace. Granted, the latest number fell short of the consensus forecast, which called for a 3.1% rise .But it’s hard not to notice that the Q4 GDP still rose at the fastest rate since the second quarter of 2010. Perhaps it’s fair to say we’re slumping toward progress.