Recent jobless claims data still show signs of continuing backlogs, as highlighted in today’s weekly report on new unemployment benefit applications. The slight decline in claims for the week ending October 12—down 15,000 to a seasonally adjusted figure of 358,000—signals progress following the previous spike, which was partly due to computer issues. However, this recent drop does not yet provide solid evidence that the trend is returning to a downward trajectory.
Following the resolution of the shutdown, the government has reopened its doors, and the imminent threat of a Treasury default has subsided. However, a thorough assessment of the damage is now necessary. Evaluating the economic impact of the fiscal conflict in Congress will be a time-consuming task, hindered by the absence of updates on crucial economic indicators that fell victim to the political gridlock in Washington. It remains uncertain whether these statistics, including September’s retail sales figures, will be released anytime soon. In the meantime, it is worthwhile to examine what we currently understand through the latest macroeconomic data. A slight recovery seems to be underway, as reflected in the Macro-Markets Risk Index (MMRI), which closed at 10.4% on October 16—its highest level since mid-September. A reading below 0% indicates heightened recession risk, while figures above 0% suggest a tendency toward economic growth.
The upcoming US industrial production report for September is expected to be postponed due to the government shutdown. Although the Federal Reserve, which produces these figures, is operational, it advises that the report depends on data from other government agencies affected by the shutdown. The timing of the release of September’s figures remains uncertain. Nevertheless, the average econometric forecast from The Capital Spectator anticipates a 0.2% increase in industrial production compared to the previous month. This forecast is limited, as it doesn’t take into account the latest updates to the R-4 and VAR-7 models, which rely partially on payroll data. Unfortunately, the September employment data is still undisclosed due to the budget impasse.
Given the available information, the Capital Spectator’s expectation of a 0.2% increase for September’s industrial production represents a slowdown compared to the previously reported 0.4% rise for August. Furthermore, this forecast is below several consensus projections from recent surveys of economists.
The report on US housing starts for September is likely to be delayed due to the government shutdown. Once released, the average econometric forecast from The Capital Spectator estimates housing starts will total 891,000 (seasonally adjusted annual rate), indicating a modest decline from the previously reported total of 891,000 for August. In contrast, various consensus forecasts based on surveys of economists anticipate a slight increase in housing starts for September compared to the previous month.
Understanding value as a significant risk factor is well-established in academic literature and is widely utilized in the realm of asset management. The rationale is clear: acquiring undervalued assets historically yields strong performance, supported by extensive theoretical frameworks. However, determining whether an asset is undervalued in real time can be challenging. Traditional valuation metrics—such as book value, earnings, and other accounting standards—are often reported with significant delays. Moreover, certain asset categories, like commodities, cannot be accurately valued with the cash-flow methods typically applied to stocks, bonds, and real estate. Consequently, value investing requires considerable time and effort.
To create real-time value signals that could enhance conventional methods, a recent study suggests looking at market price signals for guidance.
James Hamilton, a respected economist at the University of California, San Diego, clarifies the often convoluted discussion around fiscal deficits and spending in Washington:
Problem 1 is that the debt-ceiling vote has always been, and always will be, a political charade. The true decisions revolve around how much the government will allocate for programs and how much it will collect in taxes. Once Congress settles these two issues, if expenditures surpass tax revenues, the government must borrow more. The notion of holding a separate vote on borrowing serves only one purpose—allowing minority party representatives to perform theatrics as if they were truly addressing the deficit.
On Tuesday night, the outlook for a political resolution to avert a US Treasury default appears increasingly bleak. Fitch Ratings announced today that it has placed the United States’ ‘AAA’ Long-term foreign and local currency Issuer Default Ratings (IDRs) on Negative Rating Watch, citing the ongoing negotiations over raising the debt ceiling. This prolonged stalemate threatens to undermine confidence in the U.S. dollar’s status as the world’s leading reserve currency, as it raises doubts about the U.S. government’s commitment to its financial obligations—an integral factor explaining why its ‘AAA’ rating can accommodate a higher debt level than that of other sovereigns.
The Senate is reportedly making strides toward a political solution that would reopen the government and raise the debt ceiling. However, it is becoming increasingly clear that any resolution will likely be a temporary fix, leading to future rounds of potential shutdowns and defaults. It seems we have entered a phase of continuous political turbulence, where such chaos is now the norm. The consequences of this distressing shift will include heightened uncertainty and intermittent challenges in analyzing economic conditions and asset pricing.
Are you interested in R? R is the statistical software environment that is rapidly becoming the industry standard for data analysis. Think of R as a more powerful version of Excel, providing greater flexibility and capability for analyzing a myriad of data. The best part? It’s free and is supported by a vibrant community of users and programmers, including some of the brightest minds in economics and statistics writing packages specifically for this platform. If you are in Iselin, NJ (about a 40-minute drive from New York City) next Tuesday, October 22, you are welcome to attend the New Jersey R meeting at 7 PM at the Hilton Woodbridge (120 Wood Avenue South). I will be giving a brief presentation on macro and markets using R to explore various aspects of the business cycle and investment. There will be three other presentations that evening, making it a great opportunity for learning. This event is free, but please confirm attendance in advance via email:
newjerseyR@mango-solutions.com
For more details, visit:
www.newjerseyr.org/
www.meetup.com/NewJerseyR/
Another week has passed without a resolution to the political deadlock in Washington that has left the federal government partially shut down. This Thursday marks a critical deadline, as the Treasury could potentially default if Congress does not raise the debt ceiling. What happens after October 17 if the government cannot continue borrowing? The immediate outcome would be that spending would be restricted to cash reserves and incoming tax revenue. The implications of such an event for the markets, the financial system, and the economy are uncertain, but we may soon discover the answers.
