Put simply, business lost money through the first quarter and probably continues to lose money in the second quarter. This is not a recipe for the economy to pick up momentum this spring. Nonetheless, financial markets are reflecting a belief that the worst is over and the economy will be improving over the next few months. That could mean more volatility in the financial sector, even as interest rates begin to return to something closer to normal conditions.
Tuesday, May 13, 2008
8:30 AM Advance Retail Sales (Bureau of the Census)
Consumer confidence has declined sharply. Plus, money dropped at the gas station is money that will not be spent elsewhere. Finally, with home building so slow, fewer new appliances and less furniture are being purchased. So why are some expecting to see retail sales perk up this spring? Yes, consumers could be spending rebate checks. And yes, some stores are suggesting that steep discounting can move merchandise. But can it help retailers turn a profit. It would seem more likely that non-auto related spending remains in a range of 0.2-to-0.3 percent per month. Auto-related sales are very likely to be weaker than that, possibly even no growth at all. These numbers reflect a quite nervous consumer. That isn't likely to change very much even through the summer.
Wednesday, May 14, 2008
8:30 AM Consumer Price Indexes (Bureau of Labor Statistics)
Prices for food and energy are still picking up. But the big story is that the "core" CPI (which excludes food and energy) is still rising at the 0.2-to-0.3 percent per month trend rate. Expect this trend to continue at least through the summer, even with a very weak economic environment. A slower economy is not slowing inflation. In fact, inflation might even edge higher.
Thursday, May 15, 2008
9:15 AM Industrial Production and Capacity Utilization (Federal Reserve Board)
Demand is soft and business (especially at the wholesale level) wants to reduce inventory (and carrying charges). Therefore, industrial production very likely edged lower in April, perhaps even by 0.5 percent. Auto, furniture and appliances, and some high-tech are all cutting back — because demand is weak and there is a need to minimize inventory accumulation.
Friday, May 16, 2008
8:30 AM Housing Starts and Building Permits (Bureau of the Census)
This could be the good news of the week. Home building fell below 1 million units in March (annualized) but probably didn't fall much further, if at all, in April. Yes it is at a two-decade low, but it may finally (two years into the decline) be bottoming out.
The world's economy is growing a little more slowly this spring. Higher energy prices, high and rising food prices, and financial and credit markets are limiting growth domestically, in Europe, and in East Asia. Only China and India are still growing robustly, although the problems cited affect them as well.
The one positive change is the recent narrowing in interest rate spreads. That could help credit flow more normally. The most negative change is clearly the continued difficulty in supplying enough food to meet demand. That the cyclone blew into the "Rice Bowl" of Myanmar certainly does not help to stabilize the price of a major staple, one that has more than doubled in the past year. This problem will only compound as production in the Irrawaddy Delta region remains limited while relief and reconstruction efforts are under way.
