The Short Run Weekly Issue 79

Fellow Shortrunners,

There were a few bright spots this week in what was largely a depressing week of economic releases. The housing market, buoyed by lower interest rates, showed strong signs of improvement in October, and increased military spending helped to lead a rise in durable goods orders. On the other hand, consumer confidence, a strongly watched indicator, added to a steep descent from September with another fall in October, and revisions to estimates of 3^rd Quarter GDP in the US put economic growth at a lousy -1.1%.

Around the world this week, many other central banks were struggling to grasp with their country's economic woes as well. Economic slowdown in the US and the events of September 11th are forcing other central banks to take action to prop up consumer spending. On Tuesday, the Bank of Canada dropped interest rates half a percentage point. Slowdown is evident in Europe with EU nations reporting slow growth and rising unemployment, and its likely that they too will drop rates at their next meeting. The Bank of Japan met this week, coming to the conclusion that it could do little more for the economy. It has already dropped Japan's discount rate to below 0.1%, although real interest rates in the economy are higher due to their deflationary problems.

One of the world's largest companies fell to pieces last week. Enron, the energy giant, appears to have to file for bankruptcy. Its failure was not in its energy business, but that it became far too over-exposed to the financial markets, becoming a trading center for derivatives and other risky financial bets. The development is likely to impact the market for energy as well as to destabilize already weakening economies around the world as many nations were financially linked to the company in one way or another.

Lastly, with the last remnants of the Taliban appearing to crumble, questions surrounding the future of the war against terrorism have been springing to life. With this comes another problem for Greenspan & Co. as both American consumers and investors, as well as foreign nations, look wearily upon the prospect of further conflict or even disagreement between the current coalition as to the fate of nations such as Iraq. Increased uncertainty will damage recovery prospects by reducing investment and business expansion activity and compelling consumers to cut back.

Sincerely,
Daniel Hicks

Economic Releases

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

Consumer Confidence: 82.2

The Conference Board released another low consumer confidence figure for November, with the value plunging yet again from 85.3 to 82.2. Consumer confidence figures are far from their 1999-2000 peaks and will give strong support to a case for further fiscal and monetary expansion. Regaining consumer confidence is a tough task, and it's likely that the economy's economic woes will continue before we see any signs of significant improvement.

Existing Home Sales: 5,170,000 units

Existing home sales rose over 5% in October, as the housing market continues to fluctuate and somehow remains strong in the face of economic slowdown. The lower interest rates and consequent lower mortgage rates are definitely key factors in helping this growth.

Jobless Claims: 488,000

Last week, both initial and continuing claims rose as further weakness was perceivable in the labor market. The rising jobless claims figures suggest that the next unemployment release from the BLS will offer little in the way of positive news.

Advance Durable Goods Orders: 12.8%

In a strong recovery from September, durable goods orders rose 12.% in October. Aircraft orders remained strong despite cutbacks in private spending. This means that there was an increase in military bookings for aircraft.

New Home Sales: 880,000 units

New home sales rose along with existing home sales during October, both of which are obviously receiving a large boost from lower interest rates. The expanding housing market is good news for nominal GDP growth but is unlikely to save the economy from recession.

3rd Quarter GDP Revision: -1.1%

3rd Quarter GDP was revised downward to -1.1%, an indication that the economy was slowing faster than had been previously estimated. Economists typically require two quarters of negative GDP growth such as this to term the slowdown a recession. The economy's largest peacetime expansion, however, has ended.

ECRI Weekly Leading Index: 117.5

The ECRI Weekly Leading Index rose again, as last week saw rises in the financial markets as well as the positive housing market figures. Offsetting these, we obviously had the rising jobless claims.

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

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