Wikinvest Wire

The week's economic reports

Saturday, April 12, 2008

More weakness in housing, a 26-year low in consumer confidence, and rising import/export prices highlighted the week's economic reports.

Stocks and bonds ended with the S&P 500 Index down 2.7 percent to 1,333, now down 9.2 percent for the year, and the yield of the 10-year U.S. Treasury note fell 1 basis point to 3.47 percent.

Pending home Sales: The National Association of Realtors' (NAR) index of pending home sales fell 1.9 percent in February to just 84.6, its lowest reading since the index began in 2001. This monthly tally of existing homes entering a sales contract agreement has dropped 21.4 percent from the year-ago level of 107.6.

Lawrence Yun, the trade group's chief economist, said in a statement that the pending home sales dip "implies we're not out of the woods yet, though an era of successive deep sales declines appears to be over." The Realtors group maintained its prediction that the housing market would pick up in the second half of the year and that the median price of a U.S. home would decline by just 1.4 percent. The NAR has an abysmal track record of forecasting sales volume and prices.

International Trade: The trade gap between the U.S. and the rest of the world unexpectedly widened in February to $62.3 billion after an upwardly revised $59.0 billion deficit in January. Exports increased 2.0 percent, however, imports surged 3.1 percent as the U.S. purchase of consumer and other goods from foreign trading partners set a new record.

The value of petroleum imports fell by 5.1 percent and energy related imports declined 12.5 percent. Crude oil prices rose modestly from $84.09 to $84.76, a record high, however, the quantity of imported oil fell 11.1 percent from January, consistent with lower energy demand amid a slowing U.S. economy. Oil prices will be much higher in the March report which, when combined with the surprisingly large trade deficit in February, may be enough to push economic growth into negative territory for the first quarter.

Consumer Sentiment: The Reuters/University of Michigan consumer sentiment index plunged to a 26-year low, dropping from 69.5 in March to 63.2 in April, well below analysts' expectations near 70.

The April reading was the lowest since March of 1982, during the 1970s "stagflation" hangover, exactly two years after government reported inflation had peaked at an annual rate of 14.6 percent in 1980.
Interestingly, the annual inflation rate in March of 1981 was 10.6 percent and in March of 1982 it was 6.9 percent meaning that the mood of the consumer was still rather foul after two years of moderating prices.

Even more interesting is that sentiment is about the same now, with inflation at four percent, as it was in 1982, when inflation was almost double that rate at about seven percent. This is a good indication of how inflation is underreported today versus a quarter century ago as consumer sentiment generally tracks inflation and gasoline prices more than anything else.

There have been only twelve worse readings for this index over its 50-year history, which, when you think about it, is a truly astonishing statistic - by this measure, since 1958, the mood of the consumer has been worse only two percent of the time. High food and energy prices are weighing on the consumer as one-year inflation expectations rose from 4.3 percent in March to 4.8 percent in April, the highest reading since 1990.

Import/Export Prices: Import prices surged 2.8 percent in March after an increase of just 0.2 percent in February and export prices surprised to the upside as well, gaining 1.5 percent after a 0.9 percent increase the month prior. As was the case for the report on international trade earlier in the week, the rising price of crude oil was not completely to blame for the overall monthly increase as non petroleum costs rose to a new all-time high.

Excluding petroleum, all other import prices rose 1.1 percent in March and 5.4 percent on a year-over-year basis. The monthly change was the highest monthly increase on record and the annual rate of increase was nearly double the 2.8 percent gain over the same months during 2006 and 2007.

On a year-over-year basis, overall import prices increased 15 percent, which is about the exact same percentage decline experienced by the U.S. Dollar, casting some doubt on the conventional wisdom of Fed economists that there is only about a ten percent pass-through between a declining currency and rising import prices.

Summary: This was a relatively light week of economic data, but it was all very bad - consumer sentiment at lows last seen in 1982, all-time lows for pending home sales, soaring import/export prices, and a widening trade gap that will cause real GDP growth for the first quarter to move even lower.

Consumer credit rose at only a modest pace, which is good for the personal savings rate but bad for the U.S. economy that is driven by consumer spending financed to an unhealthy degree by new credit.

The only bright spot for the week was a dramatic plunge in weekly jobless claims, but this comes off of the first reading above the psychologically important 400,000 level a week ago that was revised upward last week. Since the week-to-week changes are virtually meaningless, a sequence of many weeks of lower initial claims would be necessary to think that the job market will not deteriorate further from here.

The Week Ahead: The coming week will be highlighted by reports on retail sales on Monday and consumer prices on Wednesday. Also scheduled for release are reports on producer prices, New York area manufacturing activity, and the homebuilders' housing market index on Tuesday, housing starts and industrial production on Wednesday, and leading economic indicators and the Philadelphia Fed survey on Thursday.

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dearieme said...

But apart from that, Mrs Lincoln, .......

Anonymous said...

The dollar has almost collapsed and our exports grow 2%.
How pathetic.

little larry sellers said...

I just discovered a site which offers daily one hour .mp3 broadcasts on the economy. They also post a lot of the audio onto YouTube. The host is definitely long on gold and a vocal critic of the Bernanke (and probably Greenspan) Fed.

I've only heard some of Thursday's broadcast when the host angrily dissected the export numbers relative to the declining dollar. Seemed like good stuff... has anyone listened to this guy regularly?

Anonymous said...


Did you watch this?

The Coming Collapse of the Middle Class

by Elizabeth Warren

doho said...

oil and inflation with dollar and yield declines!!

Re: The Import Price Index is used to help gauge the impact on inflation from changes in the value of the U.S. dollar. It’s an inverse relationship, whereby a lower dollar typically leads to higher import inflation, and vice versa. The impact occurs with a lag, which can vary by industry from a few months to a few years. This index is released as part of a dual report: Import/Export Price Index, yet the export portion rarely garners attention since it doesn’t feed into overall U.S. inflation.

Increasing downside risks for the economy continues to surface as the U. of Michigan Confidence index plunged to a 26 year low of 63.2, with consumers feeling the strains in the economy as employment and growth prospects fade. Rising inflationary pressures also sparked concerns for the economy as the Import Price index jumped to 14.8 percent from 13.6 percent, with most of the blame falling on rising petroleum prices. cur...7951369811.html

U.S. government debt remained higher after the Labor Department said prices of goods imported into the U.S. rose in March, reflecting surging energy costs and a weaker dollar, which set a record low of $1.5913 per euro yesterday.

The 2.8 percent increase in the import price index followed a 0.2 percent gain the prior month. ximpim.nr0.htm

US Dollar May Gain as US Import Prices Likely to Signal Accelerating Inflation
THURSDAY, 10 APRIL 2008 dai...7864397299.html
What about that pesky inflation issue? Won’t more accommodative monetary policy only fan price pressures? This topic may come to the forefront on Friday as the US import price index is expected to have risen 2.0 percent in March from the month prior while the index is also forecasted to have surged a whopping 13.7 percent from a year earlier. Such a result will only increase anticipation for the CPI release next week, which is also very likely to highlight the rising inflation pressures in the US economy and effectively leaves the Federal Reserve’s hands tied.

WATCH import/exports and

Anonymous said...


Fed Was Ready to Lend to More Brokers

The Fed gave itself the authority to aid investment banks before it announced on Sunday, March 16, that the companies could take out direct loans from the central bank in a similar way to commercial banks. The disclosure came in an April 8 letter from the Fed to Senate Banking Committee Chairman Christopher Dodd that was obtained by Bloomberg News.

If Chairman Ben S. Bernanke and the New York Fed find it ``appropriate,'' the central bank may lend ``to other primary securities dealers,'' the letter said. It said the authority would apply where the New York Fed ``finds that adequate credit accommodations are not available to the borrower from other banking institutions.''

Bernanke and other Fed officials have omitted the broader approval from previous statements and testimony on their March 14 decision to rescue Bear Stearns. Two days later, they opened up lending to investment banks at the same so-called discount rate used by commercial banks.

``This is an important detail that the Fed should have disclosed in its previous account of the catastrophic weekend,'' said Tom Schlesinger, executive director of the Financial Markets Center in Howardsville, Virginia. Releasing such information in a piecemeal way ``tends to undermine the Fed's reputation for transparency and perhaps more broadly its credibility,'' he said.

Tim said...

I'll have a look at the patriot stuff and the Elizabeth Warren video - she does great work.

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