Industrial production was basically unchanged last month, the Federal Reserve reports. Economists were expecting a substantial rise and so today’s update was a negative surprise. Is that a sign of trouble for the economy? No, not really, at least not yet. Industrial production alone isn’t all that valuable as a forward-looking measure of the business cycle, although it does tend to confirm other warning signs when recession risk is rising. By that standard, there’s not much going on here since the annual pace of industrial production is still growing at a healthy clip. If you’re looking for a smoking gun that tells us the economy’s set to tumble, you won’t find it here. Sure, it could be the start of something worrisome, but it might just as easily turn out to be noise, and so the net result at the moment is that today’s data point is more or less a wash.
Papering Over The Gold Standard’s Flaws
Pushing for a return to the gold standard as a cure for economic volatility is the new new thing in populist circles these days. Holding out the promise of a kinder, gentler business cycle needs no introduction. Several Republican presidential candidates have embraced the idea, and there’s no shortage of pundits jumping on gold’s bandwagon, including former Wall Street Journal editor George Melloan, who proclaims: “Let’s return to the gold standard” in The American Spectator. Alas, the cure is an illusion, and one that’s based on a misreading of economic history. Hard money talk can whip up a crowd, but a sober reading of the past on this topic leaves lots of questions–questions that Melloan and others of his persuasion rarely address.
A January Thaw For Retail Sales
Retail sales rose 0.4% last month, the government reports. That’s below what many economists were forecasting, but predictions aside there’s nothing particularly troubling with the latest numbers. Indeed, the revival in January’s retail sales growth after December’s sluggish pace is welcome news.
The Forecast File: US Retail Sales For January
Retail Sales in U.S. Probably Rose by the Most in Four Months
Bloomberg | Feb 14
Sales at U.S. retailers probably rose in January by the most in four months, led by growing demand for autos, economists said before a report today. The projected 0.8 percent increase would follow a 0.1 percent December advance, according to the median forecast of 82 economists surveyed by Bloomberg News.
Is The New Abnormal On Its Last Legs?
The recent rise in the stock market has been accompanied by an increase in inflation expectations. That’s a healthy sign while we’re trapped in the new abnormal. One day the stock market and inflation expectations will go their separate ways, but not yet. Meantime, the economy’s still struggling to break free of post-crisis gravity and so it still requires the assistance from higher inflation expectations.
Book Bits For Saturday: 2.11.2012
● Coming Apart: The State of White America, 1960-2010
By Charles Murray
Review via LA Times
Charles Murray’s new book is hardly the bombshell that placed him on the Politically Incorrect Ten Most Wanted list 18 years ago when he co-wrote “The Bell Curve” with Richard J. Herrnstein in 1994. But by providing a data-driven argument for inequality’s cultural and sociological roots, “Coming Apart: The State of White America, 1960-2010” arrives just in time for the central political and policy debate in the 2012 elections: What is the nature of the widening gap between the rich and everyone else — and what can, or should, be done about it?
Consumer Sentiment Dips. A Sign Of Trouble, Or Just A Temporary Setback?
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.
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.