The Short Run Weekly Issue 82

Fellow Shortrunners,

Several key trends are becoming clear this holiday season. Although most anyone could probably have guessed it themselves, retailers are not doing as well as they would like. Some have resorted to deeper discounts to drive growth, but profits for most companies are not likely to be stellar. Only a few discount retailers, such as Wal-Mart, stand to benefit from the weaker economic climate. That said, there are a few positive signs that should offer some hope.

The unemployment rate stands at 5.7%, a far cry from its 3.9% low just a short while ago. At the same time however, initial jobless claims, which give us a week by week estimate of labor market activity, have come down from highs near 500,000 (a recessionary figure) to the upper 300,000s. This is a dramatic move for a weekly figure. If businesses are willing to go out and hire, there must be demand somewhere. Indeed rising housing starts are key indication that confidence in the future remains robust, but a clearer picture won't be available until the next consumer confidence release.

On the international scene, I'd like to return to Argentina as I've been covering economic activity in the country for the past year and a half. Citizens have been rioting in the streets because of the poor economy which has been massively hindered by a large external debt and its fixed currency peg which has exasperated the problem. These problems have caused massive unemployment and hardship. On Thursday Ferdinand De La Rua resigned his presidency, paving way for a new provisional president whose first move was to cancel debt payments, basically freezing the debt indefinitely. It will remain un-serviced pending renegotiations. The move, which basically cuts hundreds of millions of dollars of debt payment and makes the country's $135 billion in debt not an immediate issue, carries severe repercussions as the country's status as a debtor nation will likely be crushed. Indeed its debt has already been downgraded by several rating agencies. Argentina's economy had been suffering for quite a while, especially throughout the past few years while the US dollar has remained strong internationally. Something had to be done, but the question which only time will answer has to be "Was this the right solution?"

I wish everyone a happy and safe holiday season, and hope everyone is enjoying some time off from work or school to relax!

Sincerely,
Daniel Hicks

Economic Releases

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

NAHB Housing Market Index: 57

Showing strong signs of improvement in December, the NAHB Housing Market Index regained some of its color after a pale October and November. The gain is largely due to low interest rates and perhaps an exaggerated downturn in the two previous months.

Housing Starts: 1.65 Million

Construction on new homes jumped in November. This is a good sign that expectations of the future are not that dismal. More importantly perhaps, if there is to be any sustained economic recovery in the US, confidence must improve.

Trade Balance: -$29.4 billion

During October, rebounding economic activity in the states pushed the trade balance back down to a deficit of -$29.4 billion. The move reverses a recent trend of a shrinking deficit. Both imports and exports increased as global trade is correcting from its September 11th induced slump.

Index of Leading Indicators: 0.5%

The Index of Leading Indicators climbed 0.5% during November. The gain should have little impact on the markets as economists have been seeing some signs of a turnaround for a while now.

Jobless Claims: 384,000

Jobless claims continued to shrink last week falling to 384,000. This is good news for a weary economy as falling jobless claims is a good indication that economic activity may be re-igniting if firms are hiring in anticipation of future sales.

Treasury Budget: $-54.3 Billion

During November, governmental expenditures exceeded revenues and the total deficit exceeded $54 billion. With increased security and defense spending, the federal government has been forced to run deficits over the past few months and with economic downturn a surplus is no longer likely an issue.

Personal Income: -0.1%

During November, personal income declined some 0.1%. Consumption expenditures declined by an even larger 0.7% which helped to improve the overall saving rate, a trend that has been evident over the past year and may have contributed to the economic downturn.

3rd Quarter GDP Revision: -1.3%

The revision to third quarter growth in the US was a depressing one. With strong downward revisions, overall GDP shrank some 1.3%.

ECRI Weekly Leading Index: -0.4%

Despite having increased for the past few weeks, falling jobless claims, and a few other good releases, the ECRI Weekly Leading Index contracted by 0.4% last week.

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:

Money and Power by Howard Means
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