Fellow
Shortrunners,
For the past few weeks, the story we kept hearing was the same; the stock markets were falling, but the economy was recovering. This week's economic releases have given us something more to worry about, namely evidence of economic weakness. In an amalgamation of bad news, it appears that falling confidence is leading to lower levels of hiring, investment, and new orders. As such, this week, the stock market's woes seemed to take front stage, overshadowing several other important economic developments.
First, the President has finally gained Trade Promotion Authority (TPA). Won by a close vote in the House and by a rather substantial margin in the Senate, TPA provides the President the ability to choose trade packages which Congress can then approve or reject. The concept is not new, trade promotion authority used to be law but expired in 1994, and then President Clinton was unable to renew it. For Mr. Bush, who has taken heat for his actions to protect the steel industry and his extension of further aid to agriculture (which continues to inflame the world's developing countries), TPA may provide a means to push through the Free Trade Area of the Americas and prove he is truly a proponent of trade liberalization. FTAA, as it is abbreviated, would essentially extend NAFTA further south. Such a move could certainly help Latin America's ailing economies, which could benefit from increased interaction with America and its massive consumer market. For America, a newly established FTAA could provide an impetus for the provision of more foreign aid to Latin America, something badly needed by Brazil, Argentina and Uruguay to name a few.
Second, this week, on a similar note, Treasury Secretary Paul O'Neill managed to spark a good deal of anger by suggesting that foreign aid to Latin America might easily find itself in Swiss Bank Accounts. His comment that his upcoming visit would bring no plans for immediate aid didn't do wonders for the region's financial markets either. Brazil's President went so far as to demand that the secretary retract his remarks about aid leaving the country. To be fair to Mr. O'Neill, aid does often finds itself in the wrong hands. One of the most serious problems has been food aid to regions of Africa. South Africa (the region not specifically the country), suffering from two years of bad harvests, is in significant danger of famine. In Zimbabwe, the government has begun cutting food shipments to regions which voted against Mr. Mugabe and purposeful starvation has begun to claim lives. The self-elected President is purposely starving his opposition. Similar actions have been done by corrupt governments in the past such as that of Somalia. Is there a solution? The unfortunate answer is that in many instances, aid can not be the only solution to solving some nation's problems. The task probably lies most heavily with the UN, and it's a daunting one.
Sincerely,
Daniel Hicks
Economic Releases
The data section
provides charts and data for the most important economic indicators.
Consumer Confidence:
97.1
Release Date: 7/30
- In my opinion, the most depressing figure from this week was the drastic drop in consumer confidence from 106.3 to 97.1. Falling confidence can only hamper investment plans and decrease the likelihood of further economic recovery. A survey driven index, consumer confidence is likely bearing the brunt of America's frustration with its bear market.
Gross
Domestic Product: 1.1%
Release Date: 7/31
- Second quarter GDP slowed considerably from 1st quarter 2002, falling from growth rates of 5% to 1.1%. The release managed to start a great deal of worrying over the possibility of a double-dip recession. In spite of all the worrying, the deceleration in growth was largely the result of a shrinking in consumer spending, something that was arguably needed to help consumers prevent a build-up in personal debt. It is also tough to try to suggest a trend from one figure. Even if we did do so, this weeks personal spending figure indicates that all powerful consumer spending may be picking back up, as personal spending rose 0.5% in June.
ISM
Manufacturing Index: 50.5%
Release Date: 8/1
- According to the Institute for Supply Management (formerly the NAPM), the nation's Manufacturing sector grew, though at a markedly slower rate, for the 9th straight month, with orders and production expanding. There were however signs of general weakness, including weak manufacturing employment and a rapid slowdown in most of the index's indicators. A reading of 50.5% indicates slow to no growth, and is a drastic change from some of the positive figures we have been seeing over the past few months.
Jobless Claims:
387,000
Release Date: 8/1
- Jobless claims climbed by a hefty 20,000 in number last week. The increase compounded fears Thursday that the economy may be headed for yet another recession. Continuing claims, released alongside initial claims, rose as well.
Personal Income: 0.6%
Release Date: 8/2
- In a release Friday, the commerce department reported that the average American's personal income rose 0.6% in June, outpacing personal spending growth, which came in at 0.5%. This trend of income outpacing spending has been evident over the past few weeks and has largely worked to bring the nation's saving rate to a more reasonable level.
Unemployment: 5.9%
Release Date: 8/2
- The headline unemployment figure remained unchanged at 5.9% in July. The release was still weaker than expected as job creation came in at a meager 6,000 positions for the month. Stagnant job growth suggests that, while overall unemployment may not be worse, the labor market's position hasn't ameliorated.
ECRI Future Inflation
Gauge: 106.4
Release Date: 8/2
- The ECRI FIG rose to 106.4 in July from 103.4 in June. Some have suggested that the rise was due in a large part to a surge in real estate loans and that inflationary pressure in the US is indeed growing.
ECRI Weekly Leading Index: 120.1
Release Date: 8/2
- For the second straight week, the ECRI WLI slipped a relatively large amount. Despite recent talks of a double-dip recession, commentators for ECRI still maintain that the index does not forecast this occurring.
Site News
The chartroom is still being renovated, I'll keep you posted on its status.
If you would like to unsubscribe, simply reply with the word unsubscribe in the subject line.
Issue #113
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!