Fellow Shortrunners,

      Sometimes even I fail to appreciate the importance of modern economic reforms.  Moving to London has, over the course of the past few weeks, reminded me of exactly how crucial many modern economic developments are for quotidian life.  The first has been my experience with British Telecom.  Anti-trust action broke new ground in the United States when it separated Standard Oil.  That progressive step continued and the US has recently encouraged competition in the utilities.  Competition among telecommunications corporations led to rapid acceptance of new information technologies.  It also became so fierce as to drive down prices (bad news for technology firms but good news for customers).

      A lack of competition stifles innovation and technological progress.  More noticeably, it also stifles customer service.  High speed internet access is one such case.  Despite deregulation and a number of new competitors, provision in many parts of London still relies upon Britain's telecom mammoth BT.   As such, obtaining an internet connection capable of sending this newsletter through BT has been a difficult process claiming over 2 weeks of effort.  I mention this both to illustrate the importance of competition and to provide an excuse for my sporadic newsletters over the past few weeks.  I am truly sorry for any inconvenience and for those interested, Weekly Newsletters for the past few weeks are available in the newsletter archive on the website.  

      The second major observation is just how easy one of the world's largest cities can find itself brought to a standstill.  In the course of a month, access to the inner city has been seriously impeded 3 times.  The first time came when some 400,000 British came into the city of London to show their support for the "Liberty and Livelihood" of the countryside.  The march was sparked by efforts in Parliament to outlaw foxhunting, but grew in size when the entire countryside decided to amend a slew of new reasons for marching.  The second two days in which London ground to a halt, the London Underground workers went on strike.  The absence of the tube as a means of transportation made travel in the city nearly impossible even with many not even venturing out for the day.  In both instances, the protestors are certainly making a point and gaining attention, but at what cost?

     Strikes and protests can seriously damage the economy.  A recent poll showed that Americans are, on average, more concerned about the economy than about the prospect of war in Iraq.  This is not surprising  This view, which reflects a change in popular opinion over the past month portends a dramatic decline in consumer confidence.  This is why, when California dock workers went on strike, the President was correct in moving to send the strikers back to work.  Bush's motion to end the strike motivated both sides to sign an 80 day suspension agreement.  This is important for a number of reasons.  On the international side, resolving the strike is crucial for a number of other countries in Asia which are heavily reliant upon US trade.  It should also help the faltering US economy as economists had estimated costs of the strike to run at $2 billion a day.

Economic Releases

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

Consumer Credit: 2.9%
Release Date: 10/7

• Consumer credit rose $4.2 billion in August.  At an annualized rate of 2.9% the increase in credit during the month was more than modest.  There are a number of reasons why consumers might be concerned about the economy including labor market weakness and uncertainty surrounding Iraq.  A more important note to take away from the report is not why Americans are concerned about the economy but the simple knowledge that they are concerned.  Wary consumers will likely spell dangerous tides for retail sales and overall economic growth.

Import / Export Prices: 0.7% / 0.2%
Release Date: 10/10

• During September, import prices rose faster than export prices, increasing 0.7% in comparison to 0.2%.  The decline in terms of trade were largely the result of increased energy expenditures (i.e. higher oil prices). 

Wholesale Inventories: 0.2%
Release Date: 10/10

• During August, wholesalers continued to build up their inventories.  This could be partially the result of increased worry (in August) over the possibility (now a reality) of a dock workers strike which would hampered imports and thus access to goods.

Jobless Claims: 384,000
Release Date: 10/10

• In a rather startling reverse of direction, jobless claims declined to 384,00 last week.  The change is good news but needs to be continued out over the course of a few weeks to dramatically impact expectations.  Continuing claims, a four-week moving average of jobless claims, actually rose for the week, breaking 400,000 and reminding analysts that the labor market still has a way to go.

Retail Sales: -1.2%
Release Date: 10/11

• Retail sales shrank by 1.2% in September as automobile peddlers finally found it difficult to capture new buyers on the basis of low-interest loans.  Falling retail sales, likely a result of declining consumer confidence, presents a significant threat to economic growth. 

Producer Price Index: 0.1%
Release Date: 10/11

• The Producer Price Index rose an insignificant 0.1% in September under offsetting conditions of rising energy prices and falling agricultural prices.  The corresponding core index rose 0.1%.  Many economists, including the dovish Federal Reserve President from Texas have expressed concern about the possibility of deflation. 

ECRI Weekly Leading Index: 118.2
Release Date: 10/11

• The ECRI Weekly Leading Index rose from 118.1 to 118.2 Friday.  Economists at the ECRI are still optimistic about the likelihood of economic recovery in the US but have added a condition to their view.  Namely, economic recovery will continue as long as we don't see another round of strong corporate layoffs.

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Issue #122

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