February 17, 2012
Another Month, Another Rise In The Conference Board's Leading Indicator
The economy is poised to continue growing for the foreseeable future, according to the January update of the Conference Board's leading indicator index. "This fourth consecutive gain in the LEI reflected fairly widespread strength among its components, pointing to somewhat more positive economic conditions in early 2012," says Conference Board economist Ataman Ozyildirim in a press release.
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Inflation & The New Abnormal
The trend in headline inflation slowed last month, the Labor Department reports. Consumer prices rose 2.9% for the year through January—a slightly slower pace than the annual 3.0% rise as of December. Meanwhile, core inflation—consumer prices less food and energy—inched higher on an annual basis, advancing 2.3% for the year through last month, or up slightly from December's 2.2% rate. What does it all mean? For the moment, nothing much has changed relative to the previous update. But because we’re still in the new abnormal, higher inflation remains a positive. By that standard, today’s CPI offers a mixed bag of news on the margin.
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Kicking The Tires Of Multi-Asset Class Funds
Actively managed asset allocation products are hot. The supply is growing rapidly and there's a broad variety of strategies to choose from. The product designs range from conservative balanced funds to aggressive trading-oriented strategies and they're available in open-end mutual funds and ETF formats. But some things never change, and so it's still hard to beat a passive benchmark of all the major asset classes. That headwind alone doesn't necessarily mean that you should shun actively managed multi-asset class funds, but it's a reminder that there's no free lunch in this corner of investment products. In other words, all the standard caveats that apply to active single-asset class funds apply here. Your mission, if you choose to accept it, is figuring out if you can overcome the odds.
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February 16, 2012
Jobless Claims Fall Again...To A New Four-Year Low
Initial jobless claims dropped again last week, slipping 13,000 to a seasonally adjusted 348,000, the Labor Department reports. That’s the lowest number of new filings for unemployment benefits since March 2008. The trend, in other words, is still sending a strong signal that the labor market recovery—and economic growth—will roll on.
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Expecting More From Housing
Last week I wondered if the housing sector had finally hit bottom. There's a good case for arguing "yes," although the bigger question is whether housing will be a contributor to overall economic growth? That's still a mystery in terms of timing, but the odds are looking better for the optimistic outlook is increasingly relevant. Perhaps we'll find some fresh clues in the update for January's housing starts, scheduled for release later this morning. The consensus forecast calls for a moderate increase over December, according to Briefing.com.
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February 15, 2012
Is Gold Really An Inflation Hedge?
Earlier today I wrote that macro history raises serious questions about returning the monetary system to a gold standard, a goal that some pundits (and a few Republican candidates for president) advocate. Looking to gold as a cure for economic volatility rests partly on the assumption that the metal is a reliable inflation hedge through time. But as it turns out, gold's inflation-hedging attributes may not be as durable as conventional wisdom claims. As The Free Exchange at Economist.com notes, there's a "gold puzzle" in them 'thar hills.
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Industrial Production Was Flat In January
Industrial production was basically unchanged last month, the Federal Reserve reports. Economists were expecting a substantial rise and so today’s update was a negative surprise. Is that a sign of trouble for the economy? No, not really, at least not yet. Industrial production alone isn’t all that valuable as a forward-looking measure of the business cycle, although it does tend to confirm other warning signs when recession risk is rising. By that standard, there’s not much going on here since the annual pace of industrial production is still growing at a healthy clip. If you're looking for a smoking gun that tells us the economy's set to tumble, you won't find it here. Sure, it could be the start of something worrisome, but it might just as easily turn out to be noise, and so the net result at the moment is that today's data point is more or less a wash.
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Papering Over The Gold Standard's Flaws
Pushing for a return to the gold standard as a cure for economic volatility is the new new thing in populist circles these days. Holding out the promise of a kinder, gentler business cycle needs no introduction. Several Republican presidential candidates have embraced the idea, and there's no shortage of pundits jumping on gold's bandwagon, including former Wall Street Journal editor George Melloan, who proclaims: "Let's return to the gold standard" in The American Spectator. Alas, the cure is an illusion, and one that's based on a misreading of economic history. Hard money talk can whip up a crowd, but a sober reading of the past on this topic leaves lots of questions--questions that Melloan and others of his persuasion rarely address.
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February 14, 2012
A January Thaw For Retail Sales
Retail sales rose 0.4% last month, the government reports. That’s below what many economists were forecasting, but predictions aside there’s nothing particularly troubling with the latest numbers. Indeed, the revival in January’s retail sales growth after December’s sluggish pace is welcome news.
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The Forecast File: US Retail Sales For January
Retail Sales in U.S. Probably Rose by the Most in Four Months
Bloomberg | Feb 14
Sales at U.S. retailers probably rose in January by the most in four months, led by growing demand for autos, economists said before a report today. The projected 0.8 percent increase would follow a 0.1 percent December advance, according to the median forecast of 82 economists surveyed by Bloomberg News.
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February 13, 2012
Is The New Abnormal On Its Last Legs?
The recent rise in the stock market has been accompanied by an increase in inflation expectations. That’s a healthy sign while we’re trapped in the new abnormal. One day the stock market and inflation expectations will go their separate ways, but not yet. Meantime, the economy's still struggling to break free of post-crisis gravity and so it still requires the assistance from higher inflation expectations.
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February 11, 2012
Book Bits For Saturday: 2.11.2012
â— Coming Apart: The State of White America, 1960-2010
By Charles Murray
Review via LA Times
Charles Murray's new book is hardly the bombshell that placed him on the Politically Incorrect Ten Most Wanted list 18 years ago when he co-wrote "The Bell Curve" with Richard J. Herrnstein in 1994. But by providing a data-driven argument for inequality's cultural and sociological roots, "Coming Apart: The State of White America, 1960-2010" arrives just in time for the central political and policy debate in the 2012 elections: What is the nature of the widening gap between the rich and everyone else — and what can, or should, be done about it?
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February 10, 2012
Consumer Sentiment Dips. A Sign Of Trouble, Or Just A Temporary Setback?
Regular readers of The Capital Spectator know that the still positive but decelerating trend in personal income and spending has been a concern on these pages for some time. Among the risks to worry about when it comes to the key economic reports and the potential blowback for the business cycle, this is near the top of my list. Today’s update on consumer sentiment suggests that the crowd is also worried.
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Been Down So Long--Has Housing Finally Bottomed?
The economy may be poised for better days, but we’re still a long way from a genuine boom. Indeed, some folks remain skeptical generally and warn that the economy is more likely to contract than grow in the foreseeable future. A higher level of confidence that we’ll sidestep macro trouble is in order. But how? Job growth seems to be perking up, but it could use some help. Maybe we’ll catch a break with residential real estate in the months ahead too. Yes, real estate.
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February 9, 2012
Still No Sign Of Recession Risk In Latest Jobless Claims Data
Never say never in macroeconomics, especially when it’s based on one economic indicator. But the longer that initial jobless claims zig zag lower, the harder it’ll be to maintain a recession forecast. One thing is sure: either the revival in the labor market in recent months is one giant head fake, or the handful of analysts telling us (still) that a new recession is imminent will soon cry “uncle.†Meanwhile, the data continues to give the forces of growth the edge, and today’s weekly update on new filings for unemployment benefits only strengthens the case. Indeed, new claims dropped last week by a healthy 15,000 to a seasonally adjusted 358,000. That’s the second-lowest reading since early 2008 (the lowest reading was for a week last month). More importantly, the latest numbers strongly suggest that the downward trend is intact. That's a crucial factor for this leading indicator, which has a good record of telling us when the economy is weakening.
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Vanguard's Forex-Hedged Foreign Bond ETFs
Vanguard will soon be launching its first foreign-bond funds, although the roll-out date has been delayed, the firm reports. The proposed set of ETFs and index mutual funds will target a broad definition of foreign bonds as well as products for emerging markets. But unlike most of the existing foreign bond ETFs, such as SPDR Barclays International Treasury ETF (BWX) and Van Eck Market Vectors Emerging Market Local Currency Bond ETF (EMLC), the new Vanguard funds will hedge currency exposure from a U.S.-dollar-investor perspective. Vanguard argues that this is a superior approach for U.S. investors investing in foreign bonds because it will dampen volatility. True, but it's not clear that this is a better way to manage a foreign bond fund.
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February 8, 2012
Job Openings On The Rise
Job openings in the U.S. rose to 3.4 million on the last business day of December, up from 3.1 million a month earlier, the Labor Department reports. “Although the number of job openings remained below the 4.4 million openings when the recession began in December 2007, the number of job openings has increased 39 percent since the end of the recession in June 2009,†according to the accompanying press release.
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February 7, 2012
Quantifying Economic Policy Uncertainty
Is economic policy muddled? Some economists argue that confusion on the outlook for a range of policy fronts, such as regulation and tax policy, has been weighing on the economy. But how does one define policy uncertainty? A Stanford economist (Nicholas Bloom) and a Ph.D. candidate (Scott Baker) offer a possible solution with an attempt to quantify the concept in a new benchmark: Index of Economic Policy Uncertainty (EPU). According to the index’s latest data through January, U.S. policy uncertainty has fallen sharply.
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Strategic Briefing | 2.7.2012 | Europe & Recession Risk
What's next for Europe?
CNN | Feb 6
The European Central Bank has thrown cold water on the sovereign debt crisis by injecting billions of euros into the banking system, but the embers of the crisis are still smoldering. S&P says the eurozone has a 40% chance of entering a severe recession this year, with the economy projected to shrink by as much as 2%. Unless comprehensive reform creates a much tighter fiscal union, uncertainty will continue to cast a dark cloud over Europe's economic future.
German Manufacturing Orders Rise
The Wall Street Journal | Feb 7
German manufacturing orders rose more than expected in December, driven by a surge in demand from outside the euro zone, in the latest sign that Europe's largest economy may yet avoid recession despite the euro zone's debt crisis. New orders rose 1.7% on the month in adjusted terms, after slumping by a downwardly revised 4.9% in November, data from the economics ministry showed Monday.... While German orders data are "very volatile", the latest figures "seem to suggest that factory activity has not collapsed," even after German economic growth moderated in the fourth quarter "as demand from abroad was hit by the global slowdown," said Annalisa Piazza, a strategist at Newedge in London. "If anything, a slight pick-up is expected in the first quarter of 2012," she said.
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February 6, 2012
The Seasonal Factor & January's Encouraging Employment Report
January’s payrolls report looks convincingly strong to many economists, but some skeptics warn that the seasonal adjustment in the first month of the year is usually quite hefty and so there's less good news in the numbers than we've been told. That inspires looking at the unadjusted data on a year-over-year basis in search of clarity. But here too the results are encouraging.
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February 4, 2012
Book Bits For Saturday: 2.4.2012
â— The People's Money: How Voters Will Balance the Budget and Eliminate the Federal Debt
By Scott Rasmussen
Interview with author via Newsmax
Independent pollster and political analyst Scott Rasmussen tells Newsmax that the real federal debt is $120 trillion — and he has a new book with proposals that could save the government more than $100 trillion over the coming decade.
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February 3, 2012
Private Payrolls Post A Surprisingly Strong Gain In January
Today's employment report from the U.S. Labor Department delivered a hefty blow against the idea that recession risk is high for the immediate future. Private nonfarm payrolls rose by a net 257,000 in January (total nonfarm payrolls rose by a slightly lower 243,000 because of a 14,000 decrease in the government's workforce). That's the strongest monthly increase for the private sector since last April and a tidy increase over December's revised gain of 220,000. Economists overall had been expecting a considerably lower increase of well under 200,000 for private payrolls for January. But with today's update in hand, it appears that job creation is accelerating in corporate America. Is this surprising? Not really. As I've been discussing for months, the falling trend in new weekly jobless claims has been signaling for some time that the labor market would continue to heal and perhaps grow at a moderately faster pace. Today's jobs report certainly lends persuasive support for that view.
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