United States

The US economy has slowed. Job creation and GDP have dropped and unemployment claims have risen to near recession levels, but retail sales, durable good orders and manufacturing ISM are holding above contraction rates. Unemployment is below 5.0%, a rate that in past economic eras, say 15 years ago, would have been viewed thankfully by all concerned. The recession question is still unanswered.

The joint testimony of Ben Bernanke, the Fed Chairman, and Hank Paulson, the Treasury Secretary, before Congress was sober and economically downbeat. The outlook for the economy has worsened said Mr. Bernanke in his prepared statement. With the American economy weaker than previously thought, the Fed’s insurance rate cuts, which began six months ago are beginning look very prudent. Considering his now longstanding commitment to respond to economic conditions, the Chairman’s statement promises further rate reductions. Even though the extant statistics are poor but not terrible, Mr. Bernanke expects worse times ahead.


The EMU trade balance moved sharply into deficit in December at -€2.1 billion, and the November surplus was downgraded by almost 1/3 to +€2.0 from +€2.7 billion. Exports fell 2.5% and imports rose 0.7%. With these new figures it is estimated that exports will not make any contribution to GDP when the revised fourth quarter numbers are issued. The preliminary GDP figure was 2.3% year to year, 0.1% higher than the forecast and could be adjusted lower.


Buoyant commodity markets and prices have been good for the Australian Dollar. World demand for commodities has been the main driver of prices, but with the world economy set to slow, the downside risk for the aussie has increased. Not withstanding the recent Reserve Bank of Australia’s 0.25% hike, inflation and growth pressures on the Australian economy should subside in the months ahead, bringing the negatives for the currency into sharp relief.

Economic Releases February 11 – 15

United States

Wednesday: retail sales gained 0.3% in January well ahead of the median forecast for a contraction of 0.4%. December’s -0.4% reading was unrevised. Retail sales minus automobile sales, the ‘ex-auto’ number also grew by 0.3% , better than the +0.2% forecast; December’s figure was adjusted 0.1% higher to -0.3%, November and October were each revised down 0.2% , November to +0.8% and October to +1.5%. The January number is not quite as positive as it first appears because gasoline prices pushed up the headline number, without its inclusion the retail sales number would have been +0.1%. If the 2.0% rise in gas station sales is subtracted from the ex auto number the result is flat for the month.

Thursday: the International Trade Balance registered -$58.8 billion in December a surprise 6.5% improvement over November’s $63.1 billion deficit; -$61.5 billion had been forecast. It was the best month to month performance since October 2006 when the deficit shrank 9.3%. Imports fell $2.2 billion, -1.1%, even though the importation of oil and related items rose $1.3 billion as volume fell but the total value rose based on the record price of $82.76 per barrel. Exports rose 1.5%.

Only the deficit with the OPEC nations increased, reaching a record $12.3 billion; in November it had been -$11.8 billion. The gap with China fell to $18.8 billion from $24.0 billion and that with Japan slid to $0.5 billion to $6.6 billion. The non-oil deficit was $34.8 billion, the lowest since November 2003.

Exports are growing a 12% yearly clip, more than three times the growth rate of imports. This disparity could add up to 0.3% to 4th quarter GDP upon revision because the actual trade balance is better than the estimate that was used to generate the advanced GDP figure. In 2007 the total deficit was $711.6 billion, 6.2% smaller than the 2006 deficit of $758.5 billion.

Jobless claims for the week of February 9th dropped 9,000 to 348,000, 340,000 had been predicted. The four week moving average gained 12,000 to 347,250 as the low numbers for early January drop out of the average. It is the highest average since October 2005. The trend higher in the moving average is worrying but it is not yet at recessionary levels of 375,000 or more.

Friday: University of Michigan Consumer Sentiment fell precipitously in February to 69.6 from January’s 78.4 level; 75.0 had been forecast. Except for a few months immediately before the Iraq invasion in 2003 this is the lowest reading since 1993 and it has a recessionary feel about it. ‘Current conditions’ fell to 85.4 from 94.4 and ‘expectations’ sank to 59.4 from 68.1.

The Treasury International Capital System information (TICS) gathered by the Treasury Department recorded 56.5 billion in net Long Term Securities Purchases in December. Foreigners purchased $69.1 billions in US securities and US residents bought $12.6 in foreign instruments. Of the total overseas purchases $33.3 were by private sources, down from $58.5 in November; $35.8 billion were bought by governments or associated entities, almost triple the $11.8 billion bought in November. Foreign governments have not curtailed their acquisition of American debt instruments. In 2007 the average monthly net purchase of long term securities by foreigners was $61.76 billion, more than adequate to fund the monthly average international trade deficit of 59.18 billion.

Industrial production rose 0.1% in January half the +0.2% predicted; Capacity utilization moved up 0.1% to 81.5.


Tuesday: the ZEW Survey economic expectations’ improved to -41.4 in February from -41.7; ‘current conditions’ plummeted to 21.8 from 47.8.

Wednesday: industrial production contracted 0.2% in December well below the expected 0.6% expansion; November’s result moved up 0.1% on revision to -0.4%. The year on year rate fell to 1.3% in December barely half the +2.7% rate in November, +2.4% had been anticipated. Including revisions the fourth quarter gain of 0.1% was far less than the +1.4% jump in the third quarter. Industrial production has declined 0.9% since August of last year. Flash fourth quarter GDP was up 0.4%, slightly better than the +0.3% prediction and rating +2.3% on the elapsed year, 0.1% better than predicted. There was no currency market reaction to the numbers.


Tuesday: the ZEW Survey of ‘financial experts’ showed a bit of positive movement in the ‘economic expectation ‘ category rising to -39.5 in February from January’s -41.6; -45.0 had been the median forecast. It was the first rise in 9 months for the expectation index which had been at a 15 year low, but it remains well below the long term average of 30.7. In contrast the ‘current conditions’ component fell for the eighth straight month to 33.7 in February from 56.6, exhibiting the sharpest drop in month to month results since July 2001. It was also the lowest reading since August 2006; the forecast had been for a small decline to 50.0. Most of the data was collected before the ECB moved to a rate neutral stance last Thursday. Total retail sales for December were revised substantially lower to +0.4% from the preliminary +2.2%, with the yearly number falling to -9.1% from -8.3%. Both numbers are seasonally adjusted. In 2007 these sales fell 3.28%. These figures are collected by the German Bundesbank. The response of the German consumer to a real or potential economic slowdown is very different than that of his US counterpart. In the States consumers practically have to be threatened with foreclosure before they curtail their free spending ways, while in Germany they seem to pull back at the first sign of future trouble. The historical and cultural differences are striking. So too is the effect of higher tax rates in Germany which leave much less disposable income in the hands of the German consumer.

Wednesday: wholesale prices rose 1.4% in January, a rather shocking +6.9% yearly rate. Prices had fallen 0.5% in December, which was +5.1% on the year. Flash GDP for quarter four was +0.3% and +1.6% year on year, as expected. It was the slowest quarterly growth since the second quarter of 2007, positive exports and equipment orders were offset by moribund consumer spending.

United Kingdom

Monday: the Department of Communities and Local Government (DCLG) House Price index cooled a bit in December rising 9.1% year on year; the November figure was revised higher to 9.7% from 9.5%. This index is based on completed mortgages rather than asking prices so it provides a better gauge of actual selling price levels. The Producer Price Index for input prices gained 2.6% in January and a hefty 19.1% year on year. Output prices were 1.0% higher, up 5.7% on the year. Core output prices rose slightly less at +0.8% and +3.1% year on year.

Tuesday: CPI in January was better than expected at -0.7% for the month and +2.2% for the elapsed year; +0.6% and +2.3% had been predicted. December’s readings were +0.6% and +2.1%. Nevertheless the January year on year number was the highest since June of last year. Core CPI fell 1.0% in January, far lower than the +1.5% prediction and December’s +1.4% rise. British Retail Consortium (BRC) retail sales rebounded in January with ‘like for like’ sales rising 2.6% after December’s +0.3% fall with ‘total sales’ more than doubling to +4.9% from +2.3%. The BRC warned that the increase could be due to higher prices adding to the value of sales.

Wednesday: the Royal Institute of Chartered Surveyors (RICS) House Price Balance for January sank to -54.7%, its weakest since December of 1992. The record low is -63.0%. The International Labor Organization (ILO) standard unemployment rate dropped to 5.2% in December from 5.3% in November. Average earning including bonuses added 3.9% as expected in December, just under the 4.0% reading of the prior month. With employment rising there can be some question about the degree of economic slowdown predicted for the next several quarters by the BOE and others.


Wednesday: consumer confidence fell 0.5 to 37.5 in January the lowest in 4 ½ years and the fourth consecutive drop.

Thursday: preliminary fourth quarter GDP was much stronger that expected a t +0.9%, a +3.7% annual clip. Even though the annual rate was more than twice the 1.5% forecast, the BOJ will not be moved to consider a rate response.


Money supply (M2) rose 18.94% in January over the same month a year ago. In December the gain was 16.72%.