Scott Sumner returns to the debate with a piece for The Economist, and just in the nick of time.
Is The Summer Of 2011 Following A Different Script?
History isn’t repeating itself this summer. That may change, but for now the economy seems to be righting itself. Or perhaps it’s more accurate to say that the economy is finding some support. Granted, it’s tenuous and precarious, but it’s still better than the alternative. It was a different story a year ago, when the deterioration picked up a head of steam and trouble bubbled all the way through August. It’s still too early to rule out a repeat performance, but for the moment there’s reason to think that maybe, just maybe, the summer of 2011 will be better.
Surprisingly, May Was A Decent Month For Economic Activity Overall
The broad trend in U.S. economic data held up surprisingly well in May, considering the downgrade in expectations lately. The Capital Spectator’s Composite Economic Index (an equally weighted mix of 18 indicators) gained 0.9% last month, reversing April’s slight retreat. The portion of leading indicators in that mix fared even better, jumping 1.8% in May. Overall, May was a respectable month for growth, despite various signs of trouble in some isolated areas. We shouldn’t minimize the warnings signs. In particular, the sharp fall in job growth is disturbing, although it’s still unclear if it has legs. Meantime, the overall picture is still one of forward momentum. That’s encouraging because it offers some hope that the economy could withstand a slowdown in growth in the labor market, at least for a short period.
What’s Your Portfolio Telling You?
There’s a lot of investment advice out there, but most of it is irrelevant for you, or any one investor. The problem is that every portfolio’s different, which means that relevant advice should be customized for a specific asset mix.
Consumer Spending Flat In May As Income Rises Modestly
Is the sluggish economy finally inspiring consumers to implement a self-imposed round of personal austerity? It looks that way after reading today’s update of personal spending and income for May. Disposable personal income rose modestly by 0.2% last month, matching April’s gain and posting the eighth straight monthly increase. But personal consumption expenditures were virtually unchanged in May, rising by the smallest of margins and thereby delivering the weakest month for consumer spending since the slight decline in June 2010.
Strategic Briefing | 6.27.2011 | Debt, Austerity & Stimulus
Debt Hamstrings Recovery
The Wall Street Journal | June 27
Around the globe, the inability of governments and households to reduce their debt continues to cast a shadow over Western economies and the financial health of individuals. Today, U.S. consumers have more mortgage and credit-card debt than they did five years ago, and the U.S. budget deficit is worsening. At the same time, European governments are having to throw billions more euros at Greece to keep it afloat. The fundamental problem is that reversing the trend of piling on the debt requires some combination of cutting spending, growing income or the economy, and inflation. But wage growth is stagnant and home prices, which underpin much of the debt problem, are still falling. Meanwhile, in a vicious circle, businesses aren’t hiring or investing because they know consumers are tapped out. Banks, for their part, are hoarding cash, being stingy with new loans.
Book Bits For Saturday: 6.25.2011
● Investing in Energy: A Primer on the Economics of the Energy Industry
By Gianna Bern
Excerpt via publisher, Bloomberg/Wiley
The energy industry is undergoing unprecedented change as it reacts to new challenges in safety, regulation, exploration, and alternative-energy initiatives. One need only layer on the global political environment and the long-ranging repercussions of the 2010 Gulf of Mexico oil spill or the turmoil in the Middle East to realize that the energy sector is as complex as it has ever been. From this increasing complexity springs the need for this book. The following pages present a framework for understanding the basic elements of energy-industry economics. While not covering geology or refining from technical standpoints, this book provides a framework for analyzing the industry’s basics and economics, and thereby helps prepare investors and other energy-industry professionals to more confidently venture forth into this vast and complex sector. This book explores various opportunities available to investors in the energy arena and provides tools to better equip those new and not so new to investing in oil, gas, and alternatively generated energy. Time-tested analytic tools and investment criteria are utilized to provide the reader a better understanding of the economics behind the various energy sectors. Thoughtful and deliberate use of these analytic tools should enable deeper understandings of opportunities and more confident investment decisions.
Durable Goods Orders Rise 1.9% In May
Score another point in favor of the soft patch theory vs. expecting a new recession around the next corner. New orders for durable goods rose by a seasonally 1.9% in May, reversing the previous month’s sharp 2.7% loss. If we strip out some of the volatile sectors of the report, there’s still a pop in last month’s tally. For example, ignoring transportation equipment leaves durable goods orders up by 0.6%; excluding defense translates into a 1.9% gain for the rest of new orders for durable goods.
The Limits Of Looking For The Perfect Index Fund
SmartMoney frets that innovation in index fund design may be going too far. “Financial firms are racing to improve the classic index fund. But are they improving it to death?” wonders Rehma Kapadia. Perhaps, although it’s important to keep the indexing wars in perspective when it comes to real world money management. If you’re choosing index funds, you should choose carefully, of course. Beware of new-fangled products that promise the moon. But there’s a point of diminishing returns by diving ever deeper into the minutiae of fund design in an effort to identify the absolute best products, or the worst. Most of your analytical efforts should be directed at the far-more crucial aspect of investing: asset allocation design and management. That doesn’t mean you can ignore individual fund analysis, but don’t let it overwhelm your research efforts.
Weekly Jobless Claims Remain Elevated
Not good, not good. Initial jobless claims popped higher by 9,000 to a seasonally adjusted 429,000, the Labor Department reports. previous week’s claims were also revised up by 6,000 to 420,000. The surge in new claims in April has subsided, but the message seems to be that it’s subsided to a relatively elevated level vs. the trend that had been unfolding in this year’s first quarter. The stakes are high. Hanging in the balance is deciding if the May’s sharp slowdown in job creation was a one-time event or the start of materially weaker employment numbers in the months ahead.