September 2, 2010
JOBLESS CLAIMS DIP, BUT REAL PROGRESS IS STILL MIA
Jobless claims fell slightly last week, dropping by 6,000. That's good news. The trouble is that we're still at an elevated 472,000 on a seasonally adjusted basis. One data point doesn't say much, of course. What does the longer-term trend show? Lots of volatility recently, but nothing much has changed.
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A BRIGHT LIGHT IN A DARK ROOM
Manufacturing activity turned up again last month, the Institute for Supply Management reported yesterday, offering the first statistical review of August's economic profile. The crowd was pleased: stocks soared and bond prices fell. But the bigger test of the trend in August comes tomorrow, when the government's payrolls report for last month is published.
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September 1, 2010
A WARNING SIGN FROM "STICKY" INFLATION?
When we last checked in with the monthly consumer price index, headline inflation was running at an annualized 1.2% pace as of this past July, off sharply from 2.7% in January, the Labor Department reported. Clearly, the trend so far this year is down. The question is whether we’re headed for even lower rates of inflation? Or deflation?
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August 31, 2010
IS THERE AN AUSTERITY TRAP?
Bloomberg has a story that suggests that fiscal austerity NOW isn't all it's cracked up to be. Ireland has tightened its belt, but to what end? For the moment, this isn't an encouraging argument for going hawkish.
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THE FED MUST MANAGE EXPECTATIONS
The case for thinking that effective central banking is all about managing expectations is persuasive. There are lots of formal papers arguing for no less, and the numbers confirm that this is indeed how the world works.
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August 30, 2010
SPENDING & INCOME RISE IN JULY. YES, BUT...
Disposable personal income (DPI) and personal consumption expenditures (PCE) gained 0.2% and 0.4%, respectively, vs. flat performance in June, the Bureau of Economic Analysis reported today. That's encouraging, as these things go in the summer of 2010. But as usual, the fine print leaves room for debate.
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MOMENTUM PROFILE FOR THE MAJOR ASSET CLASSES
Momentum isn't everything, but it's hardly chopped liver. You could spend the next several months reviewing the literature published over the past two decades that make a case for showing a little respect for price momentum, or the tendency of prices to continue moving in the same direction relative to recent history. Should you focus exclusively on momentum for managing portfolios? No, of course not. But neither should you ignore it.
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August 29, 2010
READING ROUNDUP FOR SUNDAY: 8.29.2010
►After the Fall
Carmen M. Reinhart and Vincent R. Reinhart/working paper presented at Kansas City Fed conference
"Real per capita GDP growth rates are significantly lower during the decade following severe financial crises and the synchronous world-wide shocks. The median post-financial crisis GDP growth decline in advanced economies is about 1 percent."
►Hiring, Manufacturing Probably Cooled on Signs U.S. Recovery Is Stumbling
Shobhana Chandra/Bloomberg
"Hiring and manufacturing probably cooled in August, showing companies are scaling back as the U.S. recovery shows signs of stumbling, economists said before reports this week."
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August 28, 2010
THE MORNING AFTER BERNANKE'S SPEECH
At yesterday's central banking confab in Jackson Hole, Fed Chairman outlined what the Fed can do to further juice the economy. The initial reaction from the stock market was positive, with the S&P 500 jumping 1.7% on Friday. But in a sign of the treacherous road ahead, the bond market was unimpressed. Bonds sold off yesterday and the benchmark 10-year Treasury Note yield rose to 2.65%, the highest since August 13. Yes, folks, it's going to get complicated from here on out.
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August 27, 2010
GDP REVISED DOWN TO 1.6% FOR Q2
The U.S. economy grew at a tepid 1.6% annualized real rate in this year's second quarter, the government reported today. That's down from the earlier estimate of 2.4% growth. The revised 1.6% rise is slightly higher than consensus forecast among economists, but there's no getting around this uncomfortable fact: the economy slowed dramatically in Q2, falling to a 1.6% pace from 3.7% in Q1.
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THE BOTTOM LINE ON THE RISK OF A DEBT CRISIS
Arnold Kling hits the macroeconomic nail on the head with a very heavy rhetorical hammer:
...it would appear to be quite likely that the United States will
experience a debt crisis within the next two decades, unless the path for fiscal policy changes from what is projected by the Congressional Budget Office. However, international capital markets continue to treat U.S. Treasury debt as a fairly safe asset. One way to interpret this phenomenon is that investors expect the United States to take steps to get its fiscal house in order.
The assumption that the United States will have the political will to stabilize its fiscal position is based more on hope than on recent experience. If the political process continues to enlarge the government’s commitments to spend in the future, investor expectations will change at some point. That change in market perception is likely to be swift and severe.
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WILL THERE BE A QE2? WILL IT MATTER?
Fed Chairman Ben Bernanke is scheduled to speak today at the Kansas City Fed's annual Jackson Hole conference in Wyoming. Will he outline a new plan for monetary stimulus? If so, will the second wave of quantitative easing (QE2) be bold--bold enough to work? Or maybe he'll just offer the same chit-chat that we've been hearing for months by telling us that the recovery is slowing and that nominal rates will stay low for an extended period.
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August 26, 2010
JOBLESS CLAIMS: BETTER BUT STILL HIGH
Today's update on new filings for unemployment benefits brings a reprieve from last week's disturbing surge in new claims. For the moment, we can breathe a sigh of relief. But while the trend has improved, it's still not healthy.
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RATE DEBATE
Minneapolis Fed president Narayana Kocherlakota's recent speech has unleashed a storm of criticism. The offending remark: "To sum up, over the long run, a low fed funds rate must lead to consistent—but low—levels of deflation."
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August 25, 2010
WAITING FOR GODOT...OR BERNANKE
The yield on the 10-year Treasury Note was under 2.5% this morning at one point—the lowest since early 2009 and down sharply from this past April's 4% range. Not surprisingly, inflation expectations are falling too. The market's outlook for inflation slipped below 1.5% yesterday for the decade ahead, based on the yield spread between the nominal and inflation-indexed 10-year Notes. The last time this inflation forecast was so low was July 2009.
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August 24, 2010
EXISTING HOME SALES TAKE A DIVE
As widely expected, existing home sales fell sharply last month. The expiration of the federal government's home buyer tax credit was probably a factor. Whatever the reason, the news is unmistakably bearish for the housing market, with repercussions for the broader economy as well. As the National Association of Realtors (NAR) advised in a press release accompanying today's update: "Sales are at the lowest level since the total existing-home sales series launched in 1999, and single family sales – accounting for the bulk of transactions – are at the lowest level since May of 1995."
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HOW THE OTHER HALF THINKS ABOUT DEFLATION/INFLATION
The case for worrying about deflation, or at least continued disinflation, is fairly compelling, as we noted yesterday. But is deflation fate? No, at least not yet. Much depends on the Federal Reserve's actions in the weeks ahead. There's also the question of how the economy fares. Was the recent slowdown in economic momentum temporary--or the sign of something more ominious for the business cycle?
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August 23, 2010
INFLATION EXPECTATIONS STILL FALLING
The summer is winding down and so too is the market's outlook for inflation. The 10-year forecast for inflation, based on the yield spread between nominal and inflation-indexed Treasuries, dipped under 1.6% last week—the lowest level in about a year.
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August 18, 2010
A SHORT HOLIDAY...
The Capital Spectator will be MIA for a few days. Back on Monday, August 23.
