Fellow Shortrunners,

     The war in Iraq seems to be winding down and as of yet, no major improvement in the US economy or in the financial markets seems to be forthcoming.  Indeed, the US economy may be stronger than that of its major trading partners, but most economists attribute this to looser monetary policy and massive fiscal stimuli.  In a speech this week, Federal Reserve Chairman Greenspan remarked that the war in Iraq was not yet over, and that its impact on the economy would only become clearer in hindsight. 

     Economists for the Economic Cycle Research Institute noted that their leading indicator, the WLI, had already recovered to pre-war levels, indicating that the economy would likely see improvement in the short-term.  It seems that politicians are leaning the same way, as Congress showed continued resistance to further pressure from the White House for a new round of tax cuts.  It could be argued that the US economy had already begun to suffer during the buildup to conflict with Iraq, as uncertainty hampered business and individual planning activity.  If this is indeed the case, it is likely that we would not expect to see an improvement for a number of reasons.

     The first is that most people are not clear on what the US is likely to do next.  Recent harsh exchanges between Syria and several key US figures such as Bush and Rumsfeld has led some to consider the possibility of continued instability in the region.  Second, even if the war is ending, a strong presence is still necessary in Iraq at least for the time being, if only to stop the looting.  Third, the situation in North Korea seems likely to trouble investors and policy makers alike.  If the United States is going to prosecute nations pursuing weapons of mass destruction, it rightly should turn its eyes to the east.  The situation is complicated by N. Korea's proximity to its southern neighbor Japan.  The entire region is also already experiencing economic woes as business travelers shun travel for fear of contracting SARS.  Policy makers should be wary of these risks and not expect too much from the US economy until things settle down.

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

Consumer Credit: 1%
Release Date: 4/07

• During February, outstanding consumer credit increased by 1%, a smaller than expected increase.  The increase came as revolving debt, typically classified as shorter maturity debt like that of credit cards, increased and non-revolving debt such as mortgages declined.  The decrease in non-revolving debt is the result of two trends, one a recent slowdown in home sales and two a major decline in auto sales, two large ticket items that require financing.

Wholesale Inventories: 0.3%
Release Date: 4/08

• Wholesale inventories rose 0.3% on average during the month of February.  Wholesale sales during the same period rose in spite of weak performance in automobile sales.  Rising stocks at wholesales is bad news for the manufacturing sector which will likely see a slowdown in new orders and shelves remain full.

Trade Balance: -$40.3 Billion
Release Date: 4/10

• The US current account deficit continued to improve, shrinking to -$40.3 billion on goods and services during February.  The commerce department's release showed falling imports and rising exports.  Improvement in the deficit at this moderate pace will be seen as a good thing by many economists and politicians, as the growing deficit and looming dollar overhang has long been a cause of worry and put the value of the US dollar at risk.

Jobless Claims: 405,000
Release Date: 4/10

• The ever volatile jobless claims figure fell to 405,000 for the week from 443,000 the week before.  The fall was a significant improvement as the figure moved closer to the benchmark 400,000 mark.  Continuing claims, a measure of the difficulty experienced by those out of work, for an extended period of time in finding work declined as well. 

Retail Sales: 2.1%
Release Date: 4/11

• During March, retail sales in the US rose by 2.1%, the Commerce Department said Friday.  The increase is good news for the economy, suggesting that Americans are continuing their spending plans despite continued uncertainty over the potential costs associated with the conflict in the Middle East.

Producer Price Index: 1.5%
Release Date: 4/11

• The Bureau of Labor Statistics' Producer Price Index rose significantly for the second straight month in March, rising 1.5%.  Even more interesting is that the core PPI, arguably a more heavily watched indicator of price pressure, rose by 0.7%, a large month to month increase.  This increase suggested that energy prices alone, driven up by the war in Iraq, were not the only danger to price stability facing the economy.

ECRI Weekly Leading Index: 120.5
Release Date: 4/11

• The Economic Cycle Research Institute's Weekly Leading Index rose to 120.5 from a downwardly revised 119.2 the week before.  The index's growth rate showed considerable improvement moving from -1% to -0.1%.

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Issue #148

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