Fellow Shortrunners,

     Over the past two weeks, a flurry of economic indicators have dominated the scene.  This week was rather mild among the government statistical agencies, but certainly not among the world's economic policy makers.  The growing rift between the United States and what has come to be called Rumsfeld's Old Europe is manifesting itself outside the political arena.  This, combined with other issues, will make progress at the most recent meeting of the World Trade Organization now seems unlikely.  As international tensions run high, a compromise on the high level of EU agricultural support is a long shot.  A promising proposal put forward by Brazil to resolve issues on the sale of low cost US drugs to developing countries initially made waves, but progress is not certain.  Domestically, politicians dabbled in several issues with high economic stakes this week.

     Some advocates called for the use of the Strategic Petroleum Reserves (not surprisingly the Exxon CEO warned of the "dangers" of using such resources).  Oil prices continued to rise as the eastern coast of the US was inundated in snow and the rest of the world continues to experience a cold winter.  Add to that disrupted oil supply from Venezuela's financial collapse and uncertainty in the Middle East and you get oil prices on par with those during the first Gulf War.  In spite of this, Alan Greenspan seems to think the US economy's fundamentals are solid and that once uncertainty over Iraq clears up, the economy will return to more solid footing.  A little creative rewording of the same line of reasoning brings us to the conclusion that indeed uncertainty in Iraq is hampering growth, otherwise we would be on solid footing.

     In what I had called a test of central bank independence, Federal Reserve Chairman, Alan Greenspan, came out strongly against the proposed Bush tax cut in his Humphrey-Hawkins testimony this week.  Citing the potential drag on economic growth that might result from ballooning deficits, the veteran policy maker cautioned that any tax cut should be met by reductions in spending.  Greenspan, who in general has favored tax cuts in the past, this week emphasized the current danger of allowing deficit spending to increase.  Deficits can serve as an indirect tax on Americans by raising long-term interest rates and cutting prospects for profitability and economic growth.

     On the other hand, Greenspan specifically spoke in favor of the Bush administration's plan to eliminate, or at least to reduce, the double taxation on dividends provided that fiscal restraint (i.e. government downsizing) was done to prevent a rise in the debt/GDP ratio of the US.  I tend to agree that reducing the tax on dividends is a good idea for the American economy, but for other reasons than have been offered in the planned stimulus package (for my take on the argument see issue (link the word issue too) #91 Irrationally Taxing the System).

Economic Releases
The data section provides charts and data for the most important economic indicators.
After two busy weeks of releases, it was a rather quiet week for economic data.

Retail Sales: -0.9%
Release Date: 2/13

• The Commerce Department said this week that retail sales were slower in January, falling 0.9% from December's pace.  Excluding volatile (and cooling) autos , overall retail sales during the period were up 1.3%

Jobless Claims: 377,000
Release Date: 2/13

• On Thursday the Department of Labor said that initial jobless claims dropped by 18,000 to 377,000.  The move is a rather impressive movement in the index, but given recent volatility in claims, I would look for continued decreases before much stock is put into the predictive power of this release. A 4-week moving average of jobless claims, used to smooth the series, climbed 4,000 to 389,000 yet remained below the key 400,000 figure.

Business Inventories: 0.6%
Release Date: 2/14

• Overall business inventories grew 0.6% during December, but remain at low levels.  At this stage, rising inventories are good news because they may indicate that business are perceiving a pick up in demand.

Industrial Production: 0.7%
Release Date: 2/14

• After falling for 2 of the past 3 months, industrial output at mines, utilities, and factories in the US increased by a hefty 0.7% in January.  The increase is good news for the US manufacturing sector which appears to have recently hit a soft patch after only having just recovered from a rather strong recession.  Capacity utilization, a measure of the percentage of society's productive resources employed, rose 0.7 percentage points to 75.7%, but remains historically low.

ECRI Weekly Leading Index: 119.9
Release Date: 2/14

• Due to an upward revision in last week's figure, the ECRI Weekly Leading Index fell to 119.9 this week.  The index's growth rate, which moved into positive territory following the series revisions, fell from 0.6% to 0.4%.

Site News

     As usual, I welcome comment or feedback; simply reply to this newsletter.

If you would like to unsubscribe, simply reply with the word unsubscribe in the subject line.

Issue #140

the short run weekly is a free service. please help support its development.

SCREEN SAVER
Do you like our intro movie?  Then download the shortrun.com screen saver now!