Fellow
Shortrunners,
Last week witnessed the beginning of yet another round of World Cup Soccer. At the same time, the majority of the US economy appears to be recovering steadily from its brief recession and the events of September 11th. Nonetheless, domestic stock markets continue to perform poorly. The simple explanation is that profits simply aren't materializing, nor are they likely to do so in the near future. Another explanation may be found in a pullback in foreign investment in our economy.
For the economy as a whole, weakened foreign interest in investing in the US could severely damage the value of the dollar. As someone who expects to spend next year in England, the prospect of a fall in the value of the dollar is a disconcerting one. It will spark domestic inflation, as prices for import goods rise. Even more troubling is that the simple prospect of a falling dollar might be enough to keep foreigners from investing in the US, a trend which could reinforce any fall in the value of the dollar and a process which could easily turn into a vicious cycle.
During the boom, many economists feared that the dollar overhang (dollars circulating outside the US economy) and the lofty valuation of the dollar could create exactly this problem. For one foreign economy, Argentina, which pegged its peso to the dollar, the lofty valuation was lethal. It hampered Argentina's ability to export, leading to massive unemployment and a four year recession. The ideal situation for these economists was a slow fall in the value of the dollar so as to prevent any serious foreign investment implications.
In truth, the value of the dollar against a wide range of foreign currencies has fallen about 5% since the start of March. When commentators ascribed Argentina's woes to the dollar's strength, there were calls for recreating the peg with other currencies or scraping it as a whole. Many respected economists, including potential future Fed Chairman John Taylor, are being lambasted for their involvement in the ailing country. At any rate, this new downward trend in the dollar was simply too little too late to save Argentina's currency peg and prevent its economy from its current disaster state. Falling purchasing power will assuredly affect America's lifestyle. On an individual basis, this hits the wallet directly. The moral of the story? Should foreigners decide not to continue to prop up the dollar, that vacation you've been dreaming of might suddenly cost a much prettier penny.
Sincerely,
Daniel Hicks
Economic Releases
The data section
provides charts and data for the most important economic indicators.
Existing Home Sales: 5.79 Million
- Even as other indicators of the economy this week came in rather bleak, existing home sales climbed a hefty 7% in April, far surpassing a number of analysts' expectations. The housing market, despite many negative predictions, has thus far shown few signs of weakness.
Consumer Spending: 0.5%
- During the month of April, consumer spending rose 0.5%, outpacing growth in personal income which rose 0.3% for the same period. Continued consumer spending will help to keep the economy churning, but the Fed believes further rejuvenation of the economy will take growth in business investment.
- The Conference Board's Index of Consumer Confidence rose to 109.8 in May, as the many of those polled viewed the present economy's current performance in a good light. The index reached one of its highest levels since pre-September 11th. At the same time, expectations for future growth fell, a sign that many believe the recovery will not continue. Weakness in corporate profits and the labor market may be dousing strength in other sectors of the economy.
1st Quarter Productivity: 8.4%
- Partially the result of a larger number of layoffs, overall output per man hour rose at a large 8.4% annualized rate during the first quarter. Manufacturing productivity rose an even higher 9.4%. When firms show resilience in their output despite cutting back on man-hours worked, we're being given a sign that perhaps the level of employment over the previous few quarters was excessive. At any rate, high productivity should help to contain cost pressures as well as to raise long-run standards of living.
Jobless Claims: 410,000
- Jobless claims decreased slightly last week to 410,000. The number of jobless claims, while decreasing, is still high enough to suggest a weak labor market which continues to sag behind the rest of the economy.
ECRI Weekly Leading Index: 122.0
- For the week, the ECRI WLI appears to have stabilized around 122. The long term growth rate of 4.5% still indicates future economic growth.
Site News
We've had some issues with our ISP, as such many subscribers did not receive last week's newsletter. I didn't attempt to resend simply because I did not want anyone to get two copies. If you're interested the article is available in the newsletter archive. We've also gotten a new t-shirt, which should be made available online soon.
If you would like to unsubscribe, simply reply with the word unsubscribe in the subject line.
Issue #105
the short run weekly is a free
service. please help support its development
SCREEN SAVER
Do you like our intro movie? Then download the shortrun.com screen
saver now!