The Skeptical Speculator



Japanese and US leading indices indicate weakness, US trade deficit improves (May 10)
The rise in Japan's leading index above 50 in February could not be sustained in March. From Bloomberg:

Japan's economy may slow as cooling export growth prompts companies to cut output, the government's broadest outlook indicator showed.

The leading index, derived from 12 statistics including production and stock prices, fell to 20 percent in March from 54.5 the previous month, signaling growth will slow over the next two quarters, the Cabinet Office said today in Tokyo. The index has been below 50 in nine of the past 12 months...

The coincident index fell to 33.3 percent in March from 70 in February, today's report showed.
In the US, the ECRI's leading index improved last week but remained in recession territory. Reuters reports:

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index edged up to 133.5 in the week to May 2 from 131.8 in the prior week, revised from 131.9...

The index's annualized growth rate remained negative,...


Interest rates left unchanged in Europe amid negative data (May 9)
The two most important central banks in Europe left interest rates unchanged yesterday. Bloomberg reports:

The European Central Bank and the Bank of England kept interest rates unchanged today, trying to balance the risk of faster inflation against the danger that higher credit costs will drag down economic growth.

The Frankfurt-based ECB left its benchmark refinancing rate at 4 percent, as predicted by all 53 economists surveyed by Bloomberg News, and President Jean-Claude Trichet signaled it won't cut rates anytime soon. The Bank of England, which has lowered rates three times since early December, left its benchmark at 5 percent, still the highest among the Group of Seven nations.
Economic growth, though, may be faltering in Europe.

Retail sales in the euro area declined 1.6 percent in March from a year earlier, the most since at least 1995. Sales declined 0.4 percent from February.

In Germany, Europe's largest economy, industrial production fell 0.5 percent in March, manufacturing or...


Oil and US productivity up, US stocks and pending home sales down (May 8)
Oil was up yesterday and according to this Bloomberg report, it was because of improving US productivity.

Crude oil was little changed near a record $123.93 a barrel in New York after a government report showed that U.S. worker productivity accelerated, signaling stronger economic growth and increased energy demand.

Oil almost doubled in the past year and may rise further if the economy improves in the U.S., the world's biggest energy user. Productivity climbed at a 2.2 percent annual rate in the first quarter after a 1.8 percent gain in the previous three months, the Labor Department said yesterday.

The report "shows that maybe our economy is starting to strengthen here," said Gordon Elliott, risk management specialist at FC Stone LLC in St. Louis Park, Minnesota. "It's hard to believe we could get more demand at these prices, but it could be" the case...

"Better productivity means better demand," said Phil Flynn, a commodities trader for Chicago-based Alaron Trading Corp. "We could be...


Economic data indicate no imminent rush of rate cuts (May 7)
With the Federal Reserve now apparently on pause, which central bank is the most likely to cut rates next? One candidate is the Bank of England.

Reuters reports the latest purchasing managers' indices from the UK.

Growth in Britain's manufacturing sector slowed in April, as expected, but there was no let-up in inflationary pressures as firms ratcheted up prices at the fastest rate on record...

The Chartered Institute of Purchasing and Supply/NTC purchasing managers' index slipped to 51.0 in April from 51.3 in March. Although marginally above the consensus forecast of 50.8, it was the weakest reading since January and the second weakest in the past two years.
The UK service sector decelerated even more sharply.

Growth in Britain's dominant services sector all but dried up in April, sliding to a five year low as companies struggled against the sharpest rate of cost inflation on record, a survey showed on Tuesday...

The Chartered Institute for Purchasing and Supply/NTC purchasing managers' i...


Bernanke urges more action as credit tightens (May 6)
The US service sector may have rebounded but other reports show that the US economy is not out of the woods. MarketWatch reports that banks in the US have tightened loan standards.

Consumers and businesses found it harder to borrow money over the past three months, the Federal Reserve reported Monday, a sign that the historic credit crunch now hitting the economy is still worsening despite Herculean efforts by the Fed.

More than half of the banks surveyed by the Fed said they had tightened the screws on commercial and industrial loans, commercial real estate loans, residential mortgages, and home-equity lines of credit. Large numbers of banks tightened standards for other types of loans, including consumer credit cards.

Almost no banks eased credit terms for any type of loan, the Fed said in its quarterly senior loan officer survey. Read the full survey results.
Ben Bernanke is no doubt concerned. From Bloomberg:

Federal Reserve Chairman Ben S. Bernanke, seeking to end the worst housing...


Unresolved US imbalance could mean more pain (May 6)
Greg Ip says: "Economy May Face Prolonged Pain, History Suggests".

The worst of the financial pain may have passed, but the economic pain could be just starting...

The nation's financial markets have rallied since early March...

But history suggests celebration may be premature. It's common in a crisis for markets to hit bottom long before the economy does. That's because markets are forward-looking and because economic weakness is the way the underlying imbalances that produced a crisis are corrected.
Where is the imbalance in the US?

... For several years, U.S. home prices and home construction kept climbing past levels considered sustainable. Homes became collateral for trillions of dollars in borrowing. That depressed savings, inflated consumption, fueled rapid lending and loosened loan standards.

When home prices stopped rising, the diciest mortgages began to default, triggering the crisis. But even now, prices are above most estimates of sustainable levels, and household saving has ...


US employment shrinking but not economic output (May 5)
According to the latest employment report, the United States economy lost jobs in April but not as many as economists had expected. Nevertheless, the recent trend in the monthly employment number has been unusually weak considering that most of the other economic indicators have not provided clear signals that the economy has entered recession.

On Friday, the Labor Department reported that non-farm payroll employment declined by 20,000 in April. This was the fourth consecutive month that employment in the US has contracted based on the establishment survey.

Nevertheless, the report on Friday showed an improvement in the employment situation. The number of jobs lost in April was less than the average monthly rate of 80,000 job losses in the first three months of the year. It was also less than the estimate among economists for a loss of between 75,000 and 80,000 jobs.

The separate household survey provided an even more positive picture. According to this survey, the US economy gained 36...


Stocks up on better-than-expected US data (May 3)
Yesterday's US economic data were better than expected. Reuters reports:

The Labor Department said on Friday that 20,000 jobs were shed last month, far fewer than the 80,000 that economists had anticipated. The national unemployment rate, which is compiled from a separate survey, unexpectedly fell to 5 percent from 5.1 percent in March...

A report at mid-morning from the Commerce Department [showed] a stronger-than-expected 1.4 percent rise in March U.S. factory orders...

Just before the employment figures were issued, the Fed announced fresh action to add liquidity to credit markets, increasing the size of some cash auctions for financial institutions as well.
The US stock market could not take full advantage though. Reuters reports:

U.S. stocks made modest gains on Friday after jobs data that offered fresh evidence the economic slowdown is not as severe as feared, but technology shares faded on a surprise loss from Sun Microsystems Inc...

The Dow Jones industrial average was up 48.20 po...


US stocks soar despite negative economic data (May 2)
US economic data yesterday were mostly negative. Bloomberg reports:

Manufacturing in the U.S. shrank for a third month and rising prices eroded consumers' buying power as the six-year economic expansion ground to a halt.

The factory index compiled by the Tempe, Arizona-based Institute for Supply Management was unchanged at 48.6 in April. The Commerce Department said consumer spending rose 0.4 percent in March. Stripping out the effect of inflation, purchases were up 0.1 percent after stagnating the previous month...

The Labor Department reported separately that first-time claims for unemployment insurance rose more than forecast last week, to 380,000. The total number of Americans receiving benefits climbed to 3.019 million, the highest level since April 2004.

The Commerce Department also reported today that spending on U.S. construction projects fell 1.1 percent in March as homebuilding posted the biggest one-month drop on record.
Nevertheless, market sentiment has turned positive. From...


Fed cuts rates, may pause (Apr 30)
As expected, the Federal Reserve cut the fed funds rate by 25 basis points to 2 percent and moved towards a pause in easing.

Yesterday's US economic data had not been too bad and perhaps suggest that a pause is warranted. GDP increased 0.6 percent. ADP reported 10,000 additional private sector jobs. The National Association of Purchasing Management-Chicago's business activity index edged up to 48.3 this month from 48.2 in March.

An improvement in the US trade deficit contributed to economic growth in the first quarter. That's bad news for other economies.

Canada's economy shrank 0.2 percent in February.

In Europe, sentiment deteriorated in April, with the economic sentiment index for the euro area falling to 97.1 from 99.6 in March. Consumer price inflation in the euro area slowed to 3.3 percent this month while unemployment remained at 7.1 percent in March.

Things are also turning for the worse in the UK. On Tuesday, the BoE had reported that mortgage approvals had fallen to their lowes...