Economic Commentaries

Entries for March 2015


The spring thaw is arriving late, but weather conditions did begin to normalize during March. For those, like most Federal Reserve officials, who believe harsh weather was primarily responsible for the economy’s sluggish pace over the past several months, this should be welcome. Indeed, evidence of a rebound in activity indicators is surfacing, but so far it is also spotty.

Data reports for March, which have been trickling in, have largely been disappointing. For example, market based purchasing managers measures were uniformly weak, remaining below 50 in China; below general expectations in Europe and the U.S. The Richmond Federal Reserve activity index was forecast to be positive but it was actually negative. And both New York and Philadelphia regional indexes showed recovery but to a level that was modest absolutely and disappointing relative to general expectations.

Reports on jobless claims have been more encouraging, falling from around 350K weekly during the polar vortex to around 325K weekly during March. Perhaps reflecting this consumer confidence measures rebounded in March. But rising confidence has not yet translated into stronger demand. Weekly retail sales gains were anemic in March, running at about the same 1.5% yearly rate that persisted in January and February. And mortgage demand has remained muted, matching data on pending home sales which fell for an eighth consecutive month in February.

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Posted in: General

The Federal Reserve’s open market committee meets this week amidst high expectations that it will affirm a move toward normalizing the interest rate structure at some point this summer. There are three reasons. First. The Fed is anxious to move off the zero bound because it believes there is no longer an economic emergency. Second, job growth is strong and the jobless rate is approximating what the Fed believes is the noninflationary fully employed rate. Third, the Fed seems convinced that inflation will move toward its 2% target relatively soon.

We are fully aware of the Fed’s anxiety. But we are less convinced of the timing than most financial market participants seem to be. Economic growth in the winter quarter is running between 1% and 2% annually with inflation at the same rate but with a minus sign in front of it. If so, this would be a second consecutive quarter wherein nominal GDP approximates zero.

To be sure, adverse weather and the L.A. port strike were disruptive. These should be less of a drag going forward and indeed a measurable rebound in activity should soon be evident. However, the downturn in the energy patch has not yet been fully reflected in economic data reports. This should blunt any perceived rebound and indeed many are beginning to be dissuaded of the notion that the energy downturn will be short lived.

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Posted in: General