Fellow
Shortrunners,
Rebounding economic activity was evident in last week's releases. Positive revisions to GDP growth, signs of a manufacturing recovery, and a speech by Greenspan helped to propel the financial markets. Indeed, the pace of some economic indicators have even started a small whisper of the potential for contractionary monetary policy. That said, a raise in interest rates at the next meeting is still a remote possibility. One thing is for certain, if the slowdown is indeed over, it has surprised many in its brevity and its timidity.
The recession raises more questions than it answers. For one thing, was it even a recession? Economic activity surely slowed, and everyone continues to call it a recession. Heck, even recent publications by the Federal Reserve Bank of St. Louis graphing historical data that show shaded regions for recessions have included the current slowdown. It's almost as if it's a historical fact already. But in the technical sense of the word, this recession never happened, since it doesn't meet the qualification of two zero or negative quarters of GDP growth. In this respect the slowdown is in some ways enlightening.
By its nature, the slowdown has forced current thought to challenge the notion of conventional wisdom as it regards the concept of a recession. Perhaps, as some argue, it would be better to dispose of the technical negative growth definition and look at any serious slowdown in growth as a recession. Indeed, many are doing just this. There is no correct answer to the question. When economic growth slows, many people find themselves in tougher situations. It is the varied impact of economic stagnation that makes the term recession harder to define.
Economists often refer to a second term when speaking of an economic slowdown, that of a depression. Did the US economy just experience a depression? Certainly not. If you ask an economist the same question about Japan today, you might get a different answer. Some economists associate depressions with the repeated (technical) or prolonged recessions. Others view them as a step further than recession, an additional psychic or mental collapse that can occur with economic strife.
At any rate, Americans can be thankful that whatever just happened to the US economy was indeed mild. Despite a few naysayer predictions of a double-dip, another brief slowdown, most of the economy seems to be breathing a sigh of relief associated with the end of the recession. We should, in my opinion, take something away from it. There are valuable lessons to be learned on inventory management, financial accounting practices, security valuation, and even perhaps the more trivial but certainly not less interesting, economic terminology.
Sincerely,
Daniel Hicks
Economic Releases
The data section
provides charts and data for the most important economic indicators.
Existing Home Sales: 6.04 Million
- Existing home sales surged in January to 6.04 million, rising some 700,000 units. The increase put home sales at the highest point that it has ever reached and is probably the largest single month gain the index has ever recorded. A move like this is more than evidence of recovery. It may suggest that interest rates are too low, and indeed some speculation has begun to circulate around Wall Street that the next Fed meeting may see an interest rate increase.
Consumer Confidence: 94.1
- Consumer Confidence during February declined from 97.8, despite the broad array of positive signals we are seeing. It is important to understand that a great many of the signals are just now becoming evident, despite the fact that they measure past economic activity. It is sometimes said that confidence is a leading and a lagging indicator. It leads in the respect that it affects future economic activity and it lags because at times uncertainty will lead to a lack or a surplus of confidence.
- New Home Sales dropped in January, falling about 150,000 units to 823,000. The decrease helps to explain the gain in existing home sales, as a clear transfer in spending is evident. Another explanation offered by some economists is that seasonal factors may have come into play in depressing the figure.
Durable Goods: 2.6%
- Advance orders for durable goods rose in January. IT orders rose, something that the economy hasn't seen a trend in for quite a while. Another major gainer was aircraft orders. My money is that this rise is largely due to government spending on military aircraft, or if it's on passenger jets, that its on the smaller units. Boeing, which recently unveiled a new class of 747's, has yet to sell a single 747 this year. It continues production on its order backlog, but demand is clearly slipping.
Gross Domestic Product: 1.4%
- Overall real US GDP rose 1.4% in the fourth quarter according to BEA revisions. They cited a rapid increase in consumer spending as the main engine of growth. A return to growth is a key in rebuilding confidence and helping to remove pessimism from a gloomy market.
Construction Spending: 1.5%
- In January, domestic construction spending picked up the pace, rising by 1.5%. Abnormally good weather for January was cited as one possible cause for the gain which should help to bolster overall GDP growth figures.
Jobless Claims: 383,000
- For the week, initial jobless claims rose 17,000 to 383,000. The gain is slightly exacerbated by a downward revision to the previous week's figure. A clearer picture of the labor markets really won't be visible until the overall unemployment release becomes available later this month.
ISM (NAPM) Manufacturing Index: 54.7
- For the first time in a year and a half the ISM index rebounded to strong positive growth. The increase was the result of gains in both new orders and production as well as declines in inventory. This index, which was surprisingly positive, only had one sour apple in that employment activity remained weak. This could be continued structural adjustment left over from an exuberant labor market at the turn of the century.
Personal Income and Consumption: 0.4% for both figures
- Both overall personal income and personal consumption rose 0.4% during January. Decreasing personal taxes was a large component of the rise in disposable income. Transfer programs also increased their payments after a positive revision to cost of living measures used in calculating payments.
ECRI Weekly Leading Index: 120.5
- The ECRI Weekly Leading Index rose from a revised 119.8 last week. The gain matches some of the positive action we have been seeing across the economy this week and likely contributed to the optimism behind Friday's stock market boom.
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:
Recipe for
Disaster: The Rise and Fall of Currency Boards in Argentina
- Richard Carew
Balance
East and West
- Contributed by Kautilya AKD
Site News
Check out the new additions to the book reviews section.
If you would like to unsubscribe, simply reply with the word unsubscribe in the subject line.
Issue #92
There are currently 676 subscribers to the short run weekly
please help support development
of the short run weekly as a free service
SCREEN SAVER
Do you like our intro movie? Then download the shortrun.com screen
saver now!