Fellow
Shortrunners,
Two new members were sworn into the Board of Governors on Monday. The first was Ben Bernanke, a former economist at Princeton and member of NBER, the organization entrusted with measuring business cycles in the US. The second was Donald Kohn, who has a long history as an aid to the Board. Greenspan, who swore in the new officers, later found out that he himself would soon be on the receiving end as well. It seems that Greenspan is soon to receive honorary knighthood from the United Kingdom. Greenspan will gain the privilege of placing KBE (Knight Commander of the Order of the British Empire) after his name, but being of American birth cannot receive the title Sir.
Our new knight and his new board members' work is cut out for them this coming week. The Federal Reserve will meet this coming Tuesday to set monetary policy. The majority of economists are forecasting no change in interest rates to be made during the meeting. Nonetheless, thanks in part to some talk at Morgan Stanley, there has been whispering of the possibility of another rate cut. Suspicions have been raised that the stock market's recent weakness has been spilling over into the real economy, damaging spending and confidence. Also this week, Americans can expect to hear some more on the economy from the President, who is holding a forum in Waco, Texas, to discuss the economy.
There have been several new developments on last week's topics. First, on Monday, in what amounted to a rather stark change of direction, Treasury Secretary O'Neill commented that talks between the IMF and Brazil were going well. The nation, which last week chastised Mr. O'Neill for his harsh comments regarding foreign aid, was said to be asking for some $10 billion to help support its currency. Two days later, on Wednesday, it received a promise of $30 billion in loans from the IMF. Finally, on the home front, the President signed into law the Trade Promotion Authority legislation passed by Congress last week.
Sincerely,
Daniel Hicks
Economic Releases
The data section
provides charts and data for the most important economic indicators.
ISM
Non-
Manufacturing Index: 53.1%
Release Date: 8/5
- Growth in the service sector slowed from a reading of 57.2% in June to 53.1% in July, the Institute for Supply Management said Monday. The deceleration was less marked than that experienced by the manufacturing sector last week, though still suggests a large amount of economic weakness in the service sector. Caution appears to be dominating investment decisions among the business community.
Wholesale Trade:
0.6%
Release Date: 8/7
- Sales of wholesale merchants rose 0.6% during June. The strong sales growth rapidly outpaced inventory growth which came in at 0.3% during the same period. I don't believe that any significant inventory correction is still occurring from the 2000-2001 era and that continued sales growth should spark further orders and production.
Import and Export Prices: 0.4% and 0.3% respectively
Release Date: 8/7
- During July, import prices rose 0.4%, the labor department said earlier this week. The increase was largely the derivative of a significant rise in oil prices. Rising import prices and a falling dollar will help to quell deflationary pressure. Export prices rose as well, increasing 0.3% during the same period.
Consumer Credit:
$8.4 Billion
Release Date: 8/7
- Growth in consumer credit slowed from $9.5 billion to $8.4 billion in June. Non-revolving credit, such as longer-term loans, expanded at a faster rate than revolving credit, which includes debt instruments such as credit cards. Growth in credit for the second quarter of 2002 is outpacing that of the first, a sign that consumer spending is robust.
Producer Price Index: -0.2%
Release Date: 8/8
- During July, the producer price index fell 0.2%. The core index, which excludes food and energy prices, fell 0.3%. Falling producer prices have helped to fuel fears that the US economy may be heading for the same sort of downward spiral which has inflicted the Japanese economy for the past decade.
Jobless Claims:
376,000
Release Date: 8/8
- Jobless claims fell more than expected this week to 376,000. The decrease of 9,000 claims is good news for the struggling labor market. Continuing claims, a measure of the difficulty of finding a job once out of the market, rose.
Productivity:
1.1%
Release Date: 8/9
- 2nd quarter's productivity growth of 1.1% seems trivial compared to the now revised first quarter growth of 8.6%. At the same time however, the economy has been showing a number of signs of weakness, and the reading of 1.1% actually exceeded most analysts' expectations. Continued productivity growth should help to raise long-term growth in the US. Unit labor costs rose a moderate 2.4%, adding more substance to the threat that the US may soon face deflationary pressure.
ECRI Weekly Leading Index: 121.7
Release Date: 8/9
- The ECRI Weekly Leading Index rose to 121.7 from a reading of 120 last week. In spite of this, the index's long term growth rate fell to 2.6%. The index is currently forecasting weak growth.
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