Today’s update on new jobless claims is encouraging because of what didn’t’ happen. New filings for unemployment benefits didn’t rise last week, which keeps hope alive that a new recession can be avoided for the foreseeable future. But while new claims dropped by 6,000 last week to a seasonally adjusted 403,000, this mild decline isn’t all that convincing. The ranks of the newly unemployed continue to swell each week by roughly 400,000, a stark reminder that the labor market is still struggling. As a result, the economy remains vulnerable, even if it’s not at the tipping point.
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Awkward History Lessons
Ron Paul, a Republican congressman running for president, indicts the Federal Reserve in today’s Wall Street Journal. Surely there’s no shortage of mistakes that can and should be leveled at the central bank. Institutions run by mere mortals are nobody’s idea of perfection. Yet there’s also some progress to report. In contrast to the early 1930s, the Fed’s response to the financial crisis was better this time. That’s a low standard, but at least we don’t have 25% unemployment. Better, but not good enough. But as Paul sees it, the true solution is removing the central bank from the system. All will be well, he suggests, once we let the market take over the delicate task of managing the nation’s money supply. The historical precedent for this idea, however, is thin, to say the least.
Housing Starts & Inflation Rise In September
This morning’s updates on consumer inflation and housing construction for September offer some additional support for my previous post on thinking that September won’t be seen as the start of a new recession. The quick summary: housing starts rose 15% last month, the fastest pace since January; consumer inflation slowed, but only marginally, suggesting that disinflation/deflationary forces related to economic contraction remain minimal.
Macroeconomic Advisers: US GDP Rose 0.4% In August
It’s still too early to dismiss the threat of a new recession, but if there’s macro trouble ahead it’s not obvious in the big picture for August. Macroeconomic Advisers released its latest monthly estimate of U.S. GDP to the public yesterday and reports that the economy expanded 0.4% in August. That’s down from July’s 0.9% pace, and so the question is whether September’s numbers will reflect a further slowing in the broad trend? Answering that question still requires guesswork since all of September’s numbers haven’t been released yet. (The official government GDP report is calculated quarterly and the first Q3 estimate is scheduled for release on Oct. 27.)
The New Abnormal: Inflation Expectations & The Stock Market
There’s a rumor going around that the crowd’s worried about inflation. Tim Bond of Odey Asset Management speaks for many of this persuasion when he writes in the Financial Times that “the rise in inflation has been the main factor responsible for the sharp slowdown in global growth since the start of the year.” Normally, worrying about pricing pressures is an accurate description of how the capital markets respond to higher inflation expectations, and rightly so. Inflation is a corrosive force that eats into wealth. But these aren’t normal times.
The Trouble With Return Anomalies
Is the small cap risk premium dead? The question endures for a rather practical reason: sometimes the excess return on small stocks vs. large companies evaporates. No one’s ever sure if it’ll return. That’s the nature of return “anomalies.”
Book Bits For Saturday: 10.15.2011
● Red Alert: How China’s Growing Prosperity Threatens the American Way of Life
By Stephen Leeb with Gregory Dorsey
Review via Publishers Weekly
he U.S. was galvanized by the terrorist attacks of September 11, but according to economist Leeb, what we should have been worrying about was the contemporaneous emergence of China’s enormous impact on commodity conservation and use. By 2012, the Chinese will hold a leading position in every aspect of renewable energy. Leeb argues that we as a nation are not paying enough attention to the threat of China’s growing influence; he paints a picture of our government as fundamentally scattered and shortsighted, though his ire isn’t aimed at any particular administration. Our political and economic systems don’t lend themselves to tackling major problems until they reach crisis proportions, whereas the Chinese are relentlessly long-term thinkers (furthermore, their leaders don’t have to answer to a fickle electorate)… Terse, well-reasoned, and comprehensive, this is a much-needed shot in the arm for American complacency.
No Sign Of Recession In September Retail Sales
Any one economic indicator is suspect as a measure of the broad trend, but the updates arrive one at a time and so we must take ‘em as we get ‘em. Taking this morning’s retail sales report at face value suggests that the recession talk of late is premature. Retail purchases rose sharply last month, gaining 1.1% on a seasonally adjusted basis over August. That’s the best month for retail sales since February. Recession where is thy sting?
Research Review | 10.14.2011 | Inflation Expectations
The Future of Inflation
Joseph G. Haubrich (Cleveland Fed) | Oct 5, 2011
To the extent that actual inflation varies more than expected inflation and expected inflation varies more than the central tendency, there is reason to think that the high rates we have been experiencing are temporary, soon to be replaced with a different cut from the deck.
Caught In A Trap
There’s still not a whole heck of a lot going on with jobless claims. That’s good news to a degree since it suggests that the recession risk, while elevated, isn’t rising. But it’s also bad news because it’s a sign too that the labor market isn’t likely to break out of its slump with a burst of strong job growth any time soon. This could on for a while and it probably will.