Two Bits of Good News

1: New residential home building permits are up - this is a classic 'leading indicator' (though it is not at all clear that we need new homes at the moment in the US) and thus a good sign about the direction of the economy for 2010.

2: Core inflation was essentially zero. So after yesterday's scare about the PPI, the fear that inflation concerns would motivate the Fed to tighten monetary policy has now subsided.

Economic Recovery: Good News / Bad News

Data released by the fed today suggest that the recovery, while slow, is starting to get some traction as industrial production rose 0.8 percent in November. The graphic above shows recent history. This is good news. However, data from New York state showed a strong contraction from recent trends in manufacturing. This is bad news.

Tempering that somewhat we much higher than expected producer price inflation. This can be written off as a energy cost created spike, but if it keeps up the fed will have to reconsider its loose monetary policy. That said, I don't think this by itself will cause that much concern in the Fed - the recovery is still much too weak. So this is not bad news yet, but could become bad if it keeps up.



All in all, more signs of an economy struggling to get real traction in the face of high unemployment and a still weak housing market. Graphics from the Reuters wire story.

Things are Getting Better...Slowly

Despite the dismal US unemployment report, there are signs that the economy is stabilizing and even turning the corner, albeit slowly.

In Oregon, The UO Index of Economic Indicators rose again last month suggesting that the state is, along with the US, gradually coming out of the recession.

So how is the economy in the US overall. Well, there is a lot to be hopeful about, but still a number of cautionary signs which, to me, tell a story of recovery, but slow and 'jobless.'

Here is a look at some recent signs of US economic health:

Productivity growth soared in Q3, increasing at a rate of 9.5%. October retails sales in the US showed healthy growth as well. Initial jobless claims are decreasing and have been for a while, but are still high - suggesting that job losses will continue for some time yet. [And note that productivity soared with a cutback in labor utilization] Vehicle sales and home sales are up after having been spurred by incentive programs, so it is not clear that they will continue, but the programs have succeeded in staunching the bleeding in those sectors.

Credit markets have stabilized, but banks are still hoarding capital and focusing on investments rather then commercial banking so credit is still scarce. Today's Oregonian has a nice graphic showing how SBA backed small business loans have reduced significantly in the state (but, of course, it is not available on line).

Also, consumption spending, which had been recovering, took an unexpected fall in September as did real disposable personal income. Consumer confidence also dropped.

However, factory orders are up and inventories are down which is good news.

Some are now arguing that a new round of fiscal stimulus is needed to sustain, and make more robust, the recovery. I disagree. It may be true that more stimulus could be helpful, but I just don't think that we can accomplish it given they way it has been handled up to this point. Frankly, it is hard to spend that much money quickly and effectively. I thought the first round was so necessary that it was worth the tradeoff, I don't think that about the second. Perhaps if we were talking about block grants to the states...but even then I think the marginal positive impact of additional stimulus is now outweighed by the marginal negative impact of the additional debt necessary to fund it.

And, of course, unemployment is going to be the last thing to improve, so as today's unemployment report illustrates, things can be getting better but we can still see the worsening of the unemployment situation.

Poll Results: Uncertainty Reigns

The poll has been closed for a week now and I have been meaning to talk about it for a while and now I shall finally do so.  There was a broad consensus that sometime in the range of Q4 2009 to Q2 2010 we will see the recession end - but also that the contraction will extend into 2011, suggesting that there is a lot of pessimism out there still.  Though I wonder if some have in their minds when the economy will recover, not start to recover as the poll was asking.

In a related topic Moody's Economy.com labeled Oregon as one of the states it expects to see turn around first.  I hope that they are right, but I am a bit skeptical: I am not sure that pent-up demand for technology is going to really filter down to Oregon that quickly unless there is strong demand from abroad as well, and that is a big question mark.    

But I hope they are right.  I answered Q4 2009 in the poll, by the way, and I still think we will see an end of the fall by then, but I also anticipate a slow recovery.