Fellow
Shortrunners,
The economy seems ripe for recovery. Interest rates are holding steady at 40 year lows and inflation simply is not present. Yet there are signs that no immediate strength will be forthcoming. The first is a weak labor market. Jobless claims have remained above 400,00 for the past 3 weeks. Second, a cooling manufacturing sector is likely to hamper growth. Finally, the prospect of war is unlikely to help growth. Indeed, potential conflict may deter business investment, trade deals, and influence supply decisions.
A second consequence of possible war in the Middle East is a steep price for crude oil. Indeed, oil prices have approached $30 a barrel, a historically high rate and certainly a drag on economic activity. OPEC members will convene next week to decide output targets. Regardless of their decision, oil prices are likely to remain inflated. Why? The possibility of war is adding a premium to oil prices. The existence of such premium are evident anytime we can find a changing likelihood. For example, Saddam's surprise decision to allow weapons inspectors into the country was greeted by immediately falling oil prices. Oil prices have a long history of being correlated with economic activity around the world. If I were to anticipate any substantial economic recovery in the US, I would first look for falling oil prices.
Daniel Hicks
Economic Releases
The data section
provides charts and data for the most important economic indicators.
Wholesale Inventories: 0.6%
Release Date: 9/9
- Wholesale industries increased 0.6% in July the Commerce Department said Monday. Accompanying the increase was a 0.6% increase in wholesale sales. Despite the strong growth, wholesale inventories are still at low levels when compared to historical values.
Jobless Claims:
426,000
Release Date: 9/12
- In a rather depressing release, jobless claims continued to rise to 426,000 last week. Continued increases in jobless claims are suggestive of rising levels of unemployment and likely to contribute to economic weakness throughout the economy.
Current Account:
-$115.5 Billion
Release Date: 9/12
- The current account deficit for the US climbed to $115.5 billion during the first quarter, a record high. Possible reasons for continued growth include continued strong demand for foreign autos as well as higher prices for crude. Weakness in the global community are also hampering the effects of a weakening dollar.
Producer Price Index:
0.0%
Release Date: 9/13
- On Friday, the Bureau of Labor Statistics stated that the producer price index for August was unchanged. The core index, which excludes agricultural and energy products for their volatility, fell 0.1%. A continued lack of inflationary pressure will keep fears of deflation alive.
Retail Sales:
0.8%
Release Date: 9/13
- Retail sales rose 0.8% in August, the third straight month of positive growth. Good news for the economy was that excluding auto sales, we are still seeing positive sales growth. Automobile sales, heavily affected by changing interest rates and comprising a large portion of a typical consumer's budget, could easily offer a deceptively positive outlook for sales growth.
ECRI Weekly Leading Index: 120.5
Release Date: 9/13
- The ECRI Weekly Leading Index fell to 120.5 this week on continued financial weakness. At its current level the ECRI is predicting a continued slow recovery.
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Issue #119
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