Fellow Shortrunners,

     On Friday, the US was handed the largest-ever defeat in the history of international trade disputes.  The WTO ruled in favor of the EU's demand for €4 billion in trade sanctions for the United States' violation of international trade laws.  The EU has long claimed that US corporations abroad are receiving an unfair competitive advantage under a set of tax laws which exempts them from 15-30% of normal corporate taxes, a view that the WTO obviously shared.  The right to impose €4 billion in sanctions is a huge victory for the EU, and though a compromise will likely be found so that such drastic measures aren't taken, efforts are already underway in Congress to replace the laws which provide the unfair tax shelter.

     This is the second time in recent weeks that the US has bowed to European trade demands, with some of Bush's steel tariffs already having fallen to foreign pressure.  Nonetheless, in both cases, international trade law clearly showed the US to be in the wrong, and the US's acceptance of this week's WTO ruling bodes well for the DOHA round of trade talks because it suggests a more cooperative US (though the remainder of the steel tariffs and current domestic agricultural subsidies remain obtrusive stumbling blocks).

     For the week, there were a number of surprising economic releases.  During the first half of the week, housing data showed extremely large monthly gains, as did advance durable goods orders.  These gains offer a deceptively attractive view of the US economy.  They are most likely interest rate-induced, as low mortgage rates and low interest auto loans are spurring the demand.  Other indicators are suggesting that the economy really isn't recovering.  First, consumer confidence, a nice barometer of the typical American's economic outlook, fell sharply.  Second, and making larger waves, jobless claims broke 400,000 last week.  The increase indicates that the job market simply isn't creating enough jobs.  Labor market weakness will damper incomes (personal income was unchanged last month) and likely weaken recovery.

Economic Releases

The data section provides charts and data for the most important economic indicators. 

New Home Sales: 6.7%
Release Date: 8/26

• New home sales rose much more rapidly than economists at briefing.com had predicted.  The Commerce Department's release suggests that the housing market is still likely to provide a major crutch to US economic growth in the short-term.

Existing Home Sales: 4.5%
Release Date: 8/26

• Existing home sales, like new home sales, made a large jump forward in July, increasing 4.5%. Continued low interest rates, and expectations for continued low interest rates, have kept mortgage rates down and are providing cheap credit for home purchasers.

Consumer Confidence: 93.5%
Release Date: 8/26

• The Conference Board's widely watched index of consumer confidence fell to 93.5 in August from 97.0, a sign that not everyone perceives the economy as recovering so strongly.  Weak consumer confidence will act as a further restraint on growth prospects, limiting consumption and investment activity.

Advance Durable Goods: 8.7%
Release Date: 8/27

• Advance durable goods orders surged in July, far surpassing expectations and more than making up for weakness in June.  The gain was largely fueled by continued auto sales and thus demand for new orders.  The gain was the largest since October of 2001 when orders were inflated for a number of reasons related to September 11th. 

2nd Quarter GDP Revision: 1.1%
Release Date: 8/29

• Gross Domestic Product for the US remained a sub par 1.1% during the second quarter, the BLS said Thursday when the number underwent revision to incorporate newly available data.  The weak growth figure was a drastic change from the rapid recovery the economy had been experiencing in the first quarter. 

Jobless Claims: 403,000
Release Date: 8/29

• Breaking the threshold of 400,000, Jobless Claims rose to 403,000 last week.  The rising jobless claims is a sign that the economy simply isn't creating enough jobs.  The increase has many expecting a weaker overall unemployment figure to come out later in September.

Consumer Spending: 1.0%
Release Date: 8/30

• On Friday, the commerce department confirmed that consumer spending rose 1.0% in July.  Personal income, released alongside consumer spending, was flat for the same period.  The weak personal income figure is disappointing, but the index has made several strong advances over the course of the past few months, and continued consumer spending should help prevent any instance of a double-dip.

ECRI Weekly Leading Index: 120.5
Release Date: 8/30

• Weakness in the labor market, among other factors, helped to bring the ECRI Weekly Leading index down 0.2 to 120.5 last week. The index's growth rate, which has fallen significantly in recent weeks, reached up to 1.5%.

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Issue #117

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