Economic comments, week ending Feb. 17

By John W. Davidson | Feb 20, 2012
US Retail Sales (blue in the chart below) increased +0.4 percent in January.  The data was solid, but on the low end of expectations.  Core Retail Sales (red), without the more volatile auto components, gained +0.7 percent.  The chart below shows that the monthly changes in Retail Sales have been between 0% and 1 percent for the two and a half years since the end of the Great Recession (shaded) during which the monthly change dropped to between -3 percent and -4 percent.

Economic news was mostly positive for the week. In fact, ISI's Economist Nancy Lazar reported that this has been the 20th successive week of positive economic news for the U.S. Still, the geopolitical tension around the Greek bailout ruled the capital markets. Signs of an agreement gave the equity markets a spurt. Bond markets, the U.S. dollar and credit spreads were mixed. Energy prices were higher; Gold prices were a touch higher, but Silver prices were lower on the week.

 

Perspective

This weekend, Clyde Prestowitz spoke at the Camden Conference, "The U.S. in a 21st Century World: Do We Have What it Takes?" Prestowitz rephrased: "Do we have what it takes to right our economy and maintain our economy in the much increasingly globally competitive environment and do we have what it takes to have the economic backing for all the other priorities that we have?"

To answer that question, Mr. Prestowitz used the analogy of a bridge hand. He said that the hand he would most like to play was the U.S. hand, as opposed to the hands of the Eurozone, Japan, or China even though the U.S. hand today is not as good the ones of 10 or 20 years ago. Nonetheless, like a bridge hand, you could still lose if you do not play those cards well. So, how do we play the hand?

Prestowitz points to U.S.'s decline of manufacturing and argues for a federal policy to encourage keeping manufacturing in the U.S. He contrasts our lack of policy to those of our Asian and European competitors where access to governmental officials, tax-free holidays, reduced utility costs, and capital grants have lured away U.S. manufacturers. He illustrated his point using Intel's decision to locate a chip plant in China.

In the coming weeks you will be able to go to the website, read highlights, listen, and watch videos of the conference speakers. I recommend Prestowitz's presentation as one of the many excellent ones in the 2012 Camden Conference.

 

 

 

Economic Releases

U.S. Retail Sales (blue in the chart below) increased +0.4 percent in January. The data was solid, but on the low end of expectations. Core Retail Sales (red), without the more volatile auto components, gained +0.7 percent. The chart below shows that the monthly changes in Retail Sales have been between 0 percent and 1 percent for the two and a half years since the end of the Great Recession (shaded) during which the monthly change dropped to between -3 percent and -4 percent.


 

 

 

Chart Source & URL: Federal Reserve Bank of St. Louis FRED database

 

 

Other economic releases

 

In the U.S., most of the news was on the soft side of expectations. U.S. Industrial Production was flat in January, well below expectations. January Capacity Utilization, at 78.5 percent, was four ticks better than the original December report, but a tick below the upward revision of 78.6 percent.

Manufacturing was strong, but weakness in mining and utilities pulled the January numbers lower. January Housing Starts increased to 699,000; Permits increased to 676,000, led by the multifamily component.

In February, the Philadelphia Fed General Conditions rose to 10.2 while the Empire State Index rose to 19.5. On the positive side, Initial Jobless Claims fell to 348,000, pulling the 4-week average down to 365,250. Inflation has remained well contained; January PPI rose only +0.1 percent, but the core PPI (less food  and energy) rose +0.4 percent; January CPI, both headline and core, rose +0.2 percent. The YOY CPI rose 2.9 percent; the Core YOY CPI rose 2.3 percent.

Canadian Manufacturing Sales rose +0.6 percent in December and 9.1 percent YOY. Canadian CPI rose +0.4 percent in January, but its Core rate rose only +0.2 percent.

European news for 2011 has been softer, but some of the more recent releases have been positive. Eurozone Industrial Production fell -1.1 percent in December. Germany's fourth quarter flash GDP fell -0.2 percent. But, Germany's February ZEW Survey of Current Conditions and Business Expectations both rose well above consensus forecasts. German PPI rose +0.6 percent in January. France's fourth quarter flash GDP report gained +0.2 percent. In the UK, January Retail Sales rose +0.9 percent, well above consensus; January Unemployment remained 8.4 percent; January CPI fell -0.5 percent.

China cut its reserve requirement a half point in response to its cooling housing market and softer export market, which is feeling the weight of the European sovereign-debt crisis.

 

Equities Markets

Equity markets rallied across the globe on improved expectation of a Greek debt deal and on better economic news.


 

Bond Markets

Government bond markets were mixed again on the week. TIP and Mortgage rates fell in the U.S. emerging market credit spreads narrowed, but investment grade spreads widened.



 

 

 

Currencies & Commodities

The U.S. dollar was mixed on the week, gaining on the Euro and Yen, but falling against the Pound and Looney. Energy commodity prices rallied while gold inched lower and silver prices fell.

 


 

 

Comments (0)
If you wish to comment, please login.