Fellow Shortrunners,

      British roads are suffering from dramatic congestion.  The rise in traffic has prompted politicians to pursue plans to reduce the burden on many of the country's roadways.  The government has set a tentative goal of reducing overall crowding on Britain's roads by some 6% over the next 10 years.  The first major plan, a proposal by London's mayor Ken Livingston, will come into force this February and aims at tackling the near standstill traffic jams that grip inner London nearly every day.  Indeed the most common joke running around is that traffic in the city is slower today than it was during the days of horse drawn carriages.  The sad part is, it's true.  Average speed in the city runs at about 9 mph.

      Aptly termed congestion charging, the program would introduce a £5 ($8) fee daily to travel into the central portion of the city.  Those traveling frequently into the city and those living in the designated area will be required to pay the relatively hefty fee every day.  Only delivery trucks, motorcycles, taxis, and buses will be exempt from the charges. Drivers are expected to purchase permits to pay the daily charge.  To enforce compliance, a complicated computer video monitoring system is being installed that will take pictures of the license plates of vehicles driving through central London, check them in a database of plates of paying drivers, and bill those without permits.  Being caught will mean a hefty fee approaching £80 ($128).  To accommodate more people on public transport, an additional 200 buses will be added to London's already sizable fleet.

      Congestion charging should, in theory, reduce traffic problems in central London in two ways.  A greater disincentive to drive into or through central London should reduce traffic, pushing more people towards public transport.  Secondly, if the system is able to pay off its relatively hefty setup costs, revenue from congestion charging could be used to finance further public transportation improvements.  What remains to be seen however is the efficacy and popularity of such a system.  Initial tests suggest that the computer systems can catch over 70% of violators, which is a promising sign.  The program is rooted in firm economic principles, but this doesn't guarantee success.  There are also secondary factors slowing traffic through the city which won't be addressed by the plan, such as new construction.  Others cite the introduction of more pedestrian crossings over the past few years, some with more time devoted to walkers, as a reason for the slower traffic.  If anything, the mayor's plan is a risky one.  The question seems not to be whether the system can work, but rather whether the drivers of London will abide it.

Economic Releases

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

Business Inventories: -0.1%
Release Date: 10/15

• Business inventories, in contrast to most analysts' predictions, declined in August, falling 0.1% for the month.  A decline in inventories is good news for US manufacturers who could do well to receive new orders as merchants attempt to rebuild their stocks.

NAHB Index: 62%
Release Date: 10/16

• The NAHB Housing Market Index fell to 62% from 63% in September.  The housing market continues to show strong price and demand activity and will help to support the economy's overall growth picture.

Industrial Production: -0.1%
Release Date: 10/16

• During September, industrial production declined 0.1%.  Industrial production has recently begun to falter under weaker performance from the US manufacturing sector.  Capacity utilization, a measure of the relative employment of society's productive resources, fell to 75.9% from 76% the month before.  Low capacity utilization should help to keep supply price pressure from rising.

Housing Starts:1.84 Million
Release Date: 10/17

• Housing starts soared over 13% during September, more than making up for their decline in August.  An unsustainable rate of increase, the jump suggests that the low interest rate environment and consequent low mortgage rates are having a dramatic impact on economic activity.  Strong housing starts added fuel to the fire for an already strong stock market performance this week.

Jobless Claims:  411,000
Release Date: 10/17

• Jobless claims, in a recent bout of volatility, rose back above 400,000 to 411,000 last week.  Continuing claims rose as well.  The labor market has consistently been one of the weakest performers of the US economy over the past few quarters.

Consumer Price Index: 0.2%
Release Date: 10/18

• Fears of a potential war with Iraq continued to drive up energy prices.  Rising prices at the pump helped to spark an increase of nearly 0.7% for energy related goods.  A strong lack of inflation in other sectors of the economy helped to keep overall inflation down to 0.2%.  The core index, sometimes more important to economists, rose a more moderate 0.1%.

Trade Balance: -$38.5 Billion
Release Date: 10/18

• The United States deficit on goods and services rose to some $38.5 billion in August.  The increase of nearly 10% suggests a number of trends.  The first is that the US economy may be stronger than expected even with rising prices for a number of imports such as petroleum.  The second is that the world economy is weakening, with the result being a decline in exports. 

ECRI Weekly Leading Index: 116.5
Release Date: 10/18

• The ECRI Weekly Leading Index dropped from 118.1 to 116.5 last week, citing weak performance in the stock market and other financial indicators.  The leading index compiles data from the previous week, in this case the week ending Oct 11th.  Given the positive earnings releases this week and the financial markets' remarkable performance, coupled with positive labor market releases, next week's release of the ECRI WLI will likely rise (wait did I just forecast a leading index designed at forecasting future growth?).

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Issue #123

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