Fellow Shortrunners,

     This week the Institute for Supply Management released two monthly reports on the state of the US economy, one for the manufacturing sector and one for the non-manufacturing.  Both indexes plummeted, with the ISM's non-manufacturing sector falling to its lowest level since the month after September 11th.  The decline masked another trend that is rapidly becoming apparent.  Global trade flows are taking a beating.  The largest decliner amongst the ISM's long list of components was export activity. 

     The rift over Iraq is separating not only countries but individuals.  Daring and active restaurateurs in France boycott iconic US products such as Coke,  a protest in the name of Bush, "le Busher" -- a common French pun, which translates to "the Butcher."  The other side of the Atlantic is equally culpable, pushing Freedom food instead of French food.  On a larger scale, it seems that some US firms are spurning trade with regions of the Middle East, fearing patriotic customer protestations.  Such actions are dangerous.  These are not simple political statements, though they may not be perceived as such.  Not only do they spurn efforts at international cooperation, they threaten years of progress on trade. 

     While the economic powerhouse that is the US import machine may continue to churn even in recession, the rest of the world may not be as quick to join the fray.  Exports tend to have a higher elasticity of demand than most domestic goods, meaning that when there is a slowdown, trade takes a proportionally larger hit.  It seems that in this case, a global slowdown is being coupled with stagnant trade talks (little progress has been made at the WTO this week despite upbeat comments by a hopeful US trade representative). It is unlikely that they will progress very far.  This is a tragedy not only for the US and Europe, but for the world's developing nations which were eagerly looking forward to the reduction of the rich world's agricultural subsidization. Works needs to be done to repair international relations and soon, otherwise years of progress in trade talks will fall as yet another casualty of the war in Iraq.

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

Construction Spending: -0.2%
Release Date: 4/01

• Construction spending in the United States fell 0.2% during February.  In spite of the minor decline, construction spending is bound to mortgage rates which heavily influence the level of demand.  As such, construction spending is currently running at a historically high pace and continues to be one of the stronger sectors of the economy.

ISM Manufacturing Index: 46.2%
Release Date: 4/01

• The Institute for Supply Management's survey based manufacturing index came in at a bleak 46.2% for the month of March.  The index is centered around 50 with figures above that mark suggesting expansion and figures below signifying contraction.  The index dropped from a reading just above 50 during February and is its lowest since November 2001 (which was depressed for more obvious reasons).

ISM Non-Manufacturing Index: 47.9%
Release Date: 4/03

• With rising price pressure and sharply declining employment and exports, the ISM non-manufacturing index for March painted the picture of an economy heading to (or perhaps already in) a recession.  Dropping below the 50% figure, the ISM's index will likely give policymakers more ammunition to argue for further efforts to stimulate the economy.

Jobless Claims: 445,000
Release Date: 4/04

• Eclipsing analyst expectations, jobless claims jumped from 407,000 the previous week to reach 445,000 last week.  Economists consider levels of jobless claims that are this high to be suggestive of a weak and probably deteriorating US labor market. 

Unemployment: 5.8%
Release Date: 4/04

• The number of those out of work and actively seeking work stayed at 5.8% in March, in spite of a reduction in the overall number of US jobs during the month.  Most people think that businesses are unusually uncertain given the war with Iraq and are thus reluctant to pursue any more hiring activity.

ECRI Weekly Leading Index: 119.2
Release Date: 4/04

• Economists for the ECRI suggested that the current slowdown in economic activity will persist as long as the war in Iraq continues.  The WLI's growth rate, intended to smooth out weekly fluctuations and provide a more meaningful predictor of future growth, remained negative at -1.0%.

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Issue #147

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