Retail Sales in U.S. Likely Increased Most in Four Months
Bloomberg | Feb 14
Economists anticipate that retail sales in the U.S. rebounded in January, marking the largest increase in four months, primarily driven by rising auto demand. The expected rise of 0.8 percent would follow a modest gain of 0.1 percent in December, according to the median forecast from 82 economists surveyed by Bloomberg News.
The recent uptick in the stock market has also come with heightened inflation expectations. This is a positive development as we navigate the new abnormal. Eventually, the stock market and inflation expectations may diverge, but that day has not yet arrived. For now, the economy continues to struggle against the constraints of its post-crisis reality, necessitating support from increased inflation anticipation.
● Coming Apart: The State of White America, 1960-2010
By Charles Murray
Review via LA Times
Charles Murray’s latest work isn’t the sensational piece that led him to the Politically Incorrect Ten Most Wanted list nearly two decades ago with his co-authorship of “The Bell Curve.” However, by offering a data-backed examination of the cultural and sociological foundations of inequality, “Coming Apart: The State of White America, 1960-2010” arrives at a critical moment amid the prominent political and policy discussions of the 2012 elections, which revolve around the growing wealth gap and potential remedies.
Regular followers of The Capital Spectator are aware that the still positive but decelerating trend in personal income and spending has raised concerns for some time. Among the various risks related to key economic indicators and their potential repercussions for the business cycle, this issue ranks high on my list. Today’s consumer sentiment update suggests that the public shares these worries.
Although the economy appears poised for improved performance, we remain far from experiencing a genuine boom. In fact, some skeptics argue that contraction is more likely than growth in the near future. Heightened confidence in avoiding macroeconomic turbulence is necessary. But how can we achieve this? While job growth seems to be gaining momentum, it could benefit from additional support. Positive developments in residential real estate may also emerge in the coming months.
In macroeconomics, it’s wise to refrain from drawing definitive conclusions based solely on one economic indicator. However, as initial jobless claims consistently trend lower, maintaining a recession forecast becomes increasingly challenging. One certainty remains: either the recent improvements in the labor market are misleading, or the analysts still predicting an imminent recession may soon have to revise their stance. Current data continues to favor growth, and this week’s update on unemployment claims only reinforces that case. In fact, new claims decreased by a healthy 15,000 to a seasonally adjusted total of 358,000—a figure not seen since early 2008. More notably, the latest figures strongly suggest the downward trend is holding steady, a crucial element for this leading economic indicator known for accurately signaling weakening conditions.
Vanguard is preparing to launch its inaugural foreign-bond funds. While the rollout has been delayed, the firm announced that it will introduce a range of ETFs and index mutual funds designed for various foreign bonds, including products targeting emerging markets. Unlike most existing foreign bond ETFs, such as SPDR Barclays International Treasury ETF (BWX) and Van Eck Market Vectors Emerging Market Local Currency Bond ETF (EMLC), Vanguard’s new offerings are set to hedge currency exposure from a U.S. dollar investor’s perspective. Vanguard claims that this strategy is superior for U.S. investors as it mitigates volatility, though it remains unclear if this approach is indeed the best for managing a foreign bond fund.
Job openings in the United States increased to 3.4 million as of the last business day of December, a rise from 3.1 million one month prior, according to a report from the Labor Department. “While job openings still lag behind the 4.4 million openings at the start of the recession in December 2007, they have grown by 39 percent since the recession ended in June 2009,” the accompanying press release noted.
Is there confusion surrounding economic policy? Some economists suggest that uncertainty regarding various policy aspects, including regulation and taxation, has been burdensome for the economy. But how should we define policy uncertainty? A Stanford economist, Nicholas Bloom, along with Ph.D. candidate Scott Baker, proposes a potential resolution through a new benchmark, the Index of Economic Policy Uncertainty (EPU). Recent data from this index shows a significant decline in U.S. policy uncertainty as of January.
What Lies Ahead for Europe?
CNN | Feb 6
The European Central Bank has alleviated the sovereign debt crisis by injecting substantial funds into the banking system. However, the underlying tensions remain. According to S&P, the eurozone faces a 40% risk of slipping into a severe recession this year, with predictions of economic contraction reaching up to 2%. Without comprehensive reforms that establish a more cohesive fiscal union, uncertainty will continue to loom over Europe’s economic landscape.
Increase in German Manufacturing Orders
The Wall Street Journal | Feb 7
German manufacturing orders exceeded expectations in December, spurred by heightened demand from outside the eurozone, suggesting that Europe’s largest economy might be poised to avoid recession despite ongoing debt challenges. New orders rose by 1.7% from the previous month, following a revised decline of 4.9% in November, according to the economics ministry’s data released Monday. While the volatility of German orders is noted, such figures indicate that factory activity has not collapsed. Annalisa Piazza, a strategist at Newedge in London, commented that a slight recovery is anticipated in the first quarter of 2012.
