There was an abundance of economic indicators released this week, and taken together – they offered little insight into the future. The latest Fed FOMC minutes were released – ditto.
August 2010 Business Sales which include manufacturing, wholesale and retail improved 0.1% MoM according to US Census.and 8.2% YoY. Econintersect using unadjusted data concurs that there was a MoM increase. But additional context is that July data was not good, and if this data is ignored – the overall trend line is flat and support Econintersect’s zero to slow growth economic scenario.
Business inventories have been rising for a half a year. This could be indicative of a slowing economy, although inventory to sales ratios had dropped to historic lows at the end of the 1Q2010 – so much of the rebuilding was due to returning inventories into the historical ranges. Econintersect believes inventories are now well within the historical range.
The Empire State Manufacturing Survey for October 2010 was released with the following headline:
The general business conditions index rose 12 points, to 15.7. The new orders and shipments indexes were also positive and well above their September levels. The inventories index dipped below zero, falling to its lowest level since January.
Econintersect’s view of the unadjusted data tells a different story – falling new orders and backlog. There is not much seasonality in the data as manufacturer’s tend to pre-compensate for seasonal factors. Falling backlog is not indicative of an expanding economy. New orders continues a general downtrend. Remember, this is a survey and not hard data – in other words, do not take this data to the bank.
Weekly Economic Release Scorecard:
|Bond Market Bubble||Debatable|
|Sept. Rail Traffic||Up||Flat|
|NFIB Small Business Sentiment||Up Slightly||Down|
|FOMC meeting minutes||No clues||?|
|Foreclosures||Moratorium||Existing home sales 30% distressed|
|Detailed review foreclosure processing|
|Ceridian-UCLA Pulse of Commerce Index||Down||Down|
|Aug. International Trade||U.S. Trade deficit grew|
|September PPI||modest increase|
|Sept. Retail Sales||Improved|
|Sept. Container Counts||Exports Up, Imports Down||Retailers anticipating slower sales?|
|September CPI||1.1% inflation|
|Housing Price Trends||?||Likely down|
Basically, Econintersect, although on a recession watch, sees nothing in the data this week which is indicative of a recessing economy except for falling truck transport counts. When one piece of data contradicts, it is likely a data anomaly. However, trucking also could be one of the earlier indicators. We will continue to monitor this.
The Weekly Leading Indicator from ECRI improved slightly in this week’s release to -6.9% from -7.0%. This is suggesting the six month future will be worse than today.
The Federal Reserve too is on a recession watch. Chairman Bernanke gave a wide ranging speech on inflation this week, but our attention was drawn to monetary policy decisions contemplated by the Fed. Chairman Bernanke argued both sides of continued monetary easing in the event the economy slowed further.
For example, a means of providing additional monetary stimulus, if warranted, would be to expand the Federal Reserve’s holdings of longer-term securities. Empirical evidence suggests that our previous program of securities purchases was successful in bringing down longer-term interest rates and thereby supporting the economic recovery. A similar program conducted by the Bank of England also appears to have had benefits.
However, possible costs must be weighed against the potential benefits of nonconventional policies. One disadvantage of asset purchases relative to conventional monetary policy is that we have much less experience in judging the economic effects of this policy instrument, which makes it challenging to determine the appropriate quantity and pace of purchases and to communicate this policy response to the public. These factors have dictated that the FOMC proceed with some caution in deciding whether to engage in further purchases of longer-term securities.
Here is a one sentence paraphrasing of the above quote: ‘We don’t have much experience in these matters so we are not quite sure what we might do.’ Talk about a foggy crystal ball! It would be nice if the Fed had a plan based on experiential data. Absent that it would be nice if their medium had access to a vision as they all sit around the table holding hands.
Bankruptcies this Week: Kentucky USA Energy , Consolidated Horticulture Group,