Fellow
Shortrunners,
The last week in March brought both good and bad news economically. The good news is that signs of recovery among a number of indicators, including consumer confidence and GDP, were strong. Despite earnings releases and forecasts from the financial markets which appear less optimistic, there was good news to be heard as well. Greenspan, in a rather eloquent speech on corporate governance over the past decade, suggested that the Enron scandal had served well as a lesson to other businesses. Furthermore, he suggested that current accounting practices were already under scrutiny and the resulting decline in share prices of firms with shady accounting practices was evidence of the market's ability to discourage such actions.
The bad news is that at the same time, we had another regressive trade move from the White House. I apologize for having focused almost entirely on international trade these past few weeks, but the blows against trade proliferation which have recently developed are worth scrutiny. The Department of Commerce recently imposed a 29% tariff on hardwood imports from Canada on the premise that Canadians were "dumping" wood into the country at excessively low prices. Americans should be opposed to this new tariff. Not only does it further remove America from the status of a leader in international trade cooperation, but it's also going to cause inflation. Estimates of the increased cost of production of new homes have reached higher than $1000.
To make matters worse, rumor has begun to circulate that the Bush administration may make a move to protect the textile industry, an out of date and non-competitive though still relatively large group concentrated mainly in the Carolinas. This would be in spite of the fact that the average imported textile or article of clothing actually already has a 17% tariff on it. Another protectionist move would further jeopardize free trade and would certainly cloud analysis of efforts that have been made by the current plan of Trade Adjustment Assistance towards textile workers. TAA is a federal program that helps to protect workers who have suffered because their skills were made obsolete due to increased international trade.
Finally, in spite of recent criticisms of its effectiveness, the Bush administration rightly decided to increase US aid to developing nations. The US currently gives about $10 billion to the developing world, a meager percentage in comparison to the rest of the developed world. The President's plan would take a significant step by increasing that aid to $15 billion. Perhaps an outgrowth of recent criticism, the President has tied aid packages to developing countries' willingness to end corruption and move towards more democratic governments, both of which are positive goals. At the same time however, the move has been criticized because it is not slated to come into effect until 2006. Thus skeptics note that the actual increase in aid if calculated at present values is actually smaller than the headline figures and secondly that the plan won't take effect until the President, if re-elected, is already in his second term.
Sincerely,
Daniel Hicks
Economic Releases
The data section
provides charts and data for the most important economic indicators.
Existing Home Sales: 5.88 Million
- Despite a small decline, existing home sales remained historically high in February's release. With the recovery of the US economy now more widely accepted and the blame being laid on over-investment and exuberant stock prices, a new focus of attention has earmarked house prices as the next conceivable imbalance. Americans are not the worst off, however; a recent study by the Economist magazine showed that among developed nations, with a few exceptions, housing prices have risen sharply over the course of the year.
Consumer Confidence: 110.2
- Overall consumer confidence in the US rose sharply, climbing around 15 points. To help give a better sense of the magnitude of this increase, it is in fact comparable in size to the monthly decrease the index recognized following September 11th.
- Advance orders for durable goods climbed 1.5% in February. The index recorded an increase in aircraft orders, which by their very nature distort the index and reduce some of the overall figure's explanatory value. At the same time however, the aircraft orders are likely military expenditures, given that aircraft passenger activity is still depressed.
New Home Sales: 875,000
- During February, new home sales grew to 875,000, yet another sign of strength in the labor market. It is beginning to sound like a broken record, but there clearly are signs that it is the housing market which has "saved" the world's economy from a much more serious slowdown.
GDP: 1.7%
- A second revision to fourth quarter GDP figures in the US put growth at 1.7%, an increase of 0.3% over previous estimates. Although this rate of growth is a far cry from the greater portion of the 1990's, growth of 1.7% is much more than many economists had expected. Even though it may be too early to say that the economy is out of the woods, this release is still strongly optimistic.
Jobless Claims: 394,000
- Initial jobless claims spiked to 394,000 last week, approaching the 400,000 benchmark. The slightly disheartening labor market release was accompanied by upward revisions to the past weeks jobless claims figure as well.
Personal Income: 0.6%
- According to the Bureau of Economic Analysis, personal income rose nearly $50 billion during February, an increase of 0.6%. Personal disposable income increased an even larger 0.7%. At the same time, consumption, as measured by the PCE, rose 0.5%. The outpacing of consumption activity by income growth is something that will be key to helping bring American households out of debt.
ECRI Weekly Leading Index: 122.7
- The ECRI WLI rose to 122.7 last week. The increase has continued to trend upward over the past few weeks and is clearly indicating expansion (recovery) in the short-term.
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