Business Inventories: 0.0%

• Business inventories showed little signs of significant flux in May.  Behind the overall release of a 0% change was a rise in wholesale and retail inventories and a draw down in manufacturing stocks.  While business inventories were flat during May, an increase in business sales has led to a slight turnaround in the inventory/sales ratio.  The inventory to sales ratio now stands at 1.42.

• Perhaps the most pessimistic figure with respect to growth in the United States that has been available in recent months has been industrial production.  This raw measure of economic output declined a strong 0.7% last month, and has declined for the past nine months.  The slowdown in the industrial production is representative of several things.  First, it indicates that the manufacturing sector in the US is certainly in recession and contracting its output.  Second, it indicates that overall demand for raw and intermediate goods in the US is slipping.  Next, it suggests that business over-invested in capital and inventories, leading to a sharper than expected slowdown.  Capacity utilization, released alongside industrial production, fell to 77% and has been dropping like a rock.  Capacity utilization, which gives us an indication of how much of the economy's productive capability is being employed, has fallen nearly 5% from yearly highs.  This is mixed news.  If utilization rates decrease, as they have, it indicates a slowing economy.  At the same time, lower capacity utilization rates can help to prevent inflationary pressure from taking hold in the economy.

• The National Association of Home Builders index fell two percent to 56% from 58% in July.  The index is centered around 50, with numbers above 50 indicating growth.  Although, growth decelerated, the overall housing market remains elevated and is helping to keep the economy as a whole afloat.

• In June, the economy experienced a slight bump in recorded inflation.  The overall rate, employed in the production of COLA's rose 0.2%.  Core inflation, arguably just as important to economists showed an even larger rise of 0.3%.  On a year over year basis, the consumer price index has risen 2.7%.  Interestingly enough, overall price index were not strongly affected by a significant drop in energy prices.

• Housing starts, one of the more popular indicators of the housing market because it indicates the commencement of a process of housing construction, rose 0.3% during the month of June to 1,658,000 units.  Strength in the housing market has recently come from single family residential home building.

• Reigning in slightly from the week before last's phenomenally large jump in jobless claims, total claims totaled 414,000 during the week.  As it stands, the general trend in jobless claims appears to be indicating a labor market which is certainly not improving and may even be deteriorating slightly.  Rising unemployment in the US may help to ease inflationary pressure but it certainly won't help to stimulate demand.

• The overall trade balance for the United States improved to a deficit of $28.3 billion in May.  The contraction of the deficit was the result of both strong exports and contracting imports.  Import demand fell in every category for which it was measured as the US economy cools down and begins to demand lower amounts of foreign goods.  One factor which has recently helped to release some of the slack from the trade balance has been the decreasing petroleum prices.   

• During June, the index of leading indicators rose slightly to 109.6.  The leading index has been increasing for the past three weeks, foretelling a slight improvement in the overall economy in the near future.  The lagging index, which gives a reading of past economic activity, continued to decline, indicating that the US economy has indeed been slipping rapidly.

• Mirroring the Index of Leading Indicators, the ECRI Weekly Leading Index rose to 119.9 last week.  The weekly leading index has been suggesting that the US economy will fall into a recession, and judging from the index's lead time, it is likely suggesting that the economy will still get worse before it gets better.

• The Treasury, acting as fiscal agent, recorded a surplus of $31.9 billion during June.  The cumulative surplus for Fiscal Year 2001 stands at $169 billion, slightly less than the surplus present at the same time last year (this is most likely due to changes in the receipt schedule).  Interestingly enough, corporate profits which have been key in the budget surpluses realized over the past few years saw an extremely significant drop.  

Classroom

    Check out the new classroom section and watch for it to grow and change in the coming weeks as we implement drastic reconstruction to the section.  Comment and suggestions as to the best method for this kind of a section would be extremely helpful.    

Articles / Book Reviews

   Newest Articles:

Balance East and West
- Contributed by Kautilya AKD

Bush's Tax Plan Just Doesn't Cut It
- by Alex Rothenberg

   Newest Book Reviews:

The Firm, The Market and The Law by Ronald Coase
Megatrends Asia by John Naisbitt
Geography and Trade by Paul Krugman
Fuzzy Math by Paul Krugman
Growth Theory: An Exposition by Robert Solow

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