Deller's two cents: slow growth, frustratingly slow growth, but at least its growth. The index of leading indicators is up, modestly, suggesting the risk of slipping into a new recession is unlikely at least through the end of this year. Several major corporations are reporting their quarterly earnings next week and how those look will be very important. My "gut" tells me that most earnings reports will be positive suggesting firms have or are returning to profitability. Now will firms use those rising profits to expand/invest (i.e., hire people) or buy-out competitors? If the former, great, if the latter, not so good.
Economic Week in Review:
More chronicles of a slow recovery
October 22, 2010
This week's economic reports were variations on a now-familiar theme: notes of growth with melancholy undertones. The Fed's latest report reiterated expectations of a "modest" recovery. The housing market and employment situation remained troublesome. For the week ended October 22, the S&P 500 Index rose 0.6% to 1,183 (for a year-to-date total return-including price change plus dividends-of about 7.8%). The yield of the 10-year U.S. Treasury note ended the week at 2.59% unchanged from last week (for a year-to-date decrease of 126 basis points).
Economy grows at a subdued pace
The Federal Reserve's "Beige Book," a survey of economic conditions across its 12 central banks, found the economy growing in September and early October, but at a "modest" pace. Manufacturing activity was more subdued than it had been earlier in the economic recovery, but remained a source of strength in most regions. As it has been throughout the past two years, the housing market remained "weak." Home prices were generally lower than they were a year ago. The report also noted that consumer spending was up slightly, but that most people limited their expenditures to necessities and items they felt were good bargains. Although commodity and raw material prices rose, retailers were not passing their higher costs to consumers.
Industrial production slips
Industrial production fell 0.2% in September, its biggest decline since June 2009. The slowdown in production was primarily caused by a sharp decline in utility output, which fell 1.9%. Another weak spot was factory output, which dipped 0.2%. For the third quarter, the annual rate of factory output increased 4.8%-down from a 7.0% rate in each of the previous three quarters. Although the production results were disappointing, and indicate a slowdown in manufacturing, some analysts suggest this setback may be temporary because manufacturing activity surveys, including the ISM Index, showed modest factory growth in September.
Housing starts up slightly
Housing starts rose 0.3% in September, to an annualized rate of 610,000 units. Single-family home construction, which was up 4.4%, contributed most to the gain. Housing completions also jumped 7.3%. Still, the number of total housing permits shrunk nearly 6%, with multifamily housing permits down about 20%. Weakness in the economy as a whole, including high unemployment, continued to dampen demand for new homes.
Index of leading indicators inches up
The Conference Board's index of leading economic indicators edged up 0.3% in September. Boosting the index were financial components,including the interest rate spread and money supply, as well as improvements in initial unemployment claims. Key points of weakness included a decline in building permits. The coincident indicator, which includes nonfarm payrolls, personal incomes minus transfers, and industrial production, remained unchanged. "The LEI remains on a general upward trend, but it is growing at its slowest pace since the middle of 2009," said Ataman Ozyildirim, an economist at The Conference Board. "There isn't any indication of a relapse into another downturn through the end of the year."
The economic week ahead
Next week will be busy for those following economic news. The highlight of the week's reports will be third-quarter gross domestic product figures released Friday. Other reports to look out for include: existing-home sales (Monday), consumer confidence (Tuesday), durable goods and new-home sales (Wednesday), and employment cost index (Friday).
--
Steven C. Deller
Professor and Community Development Economist Department of Agricultural and Applied Economics
515 Taylor Hall --- 427 Lorch Street
University of Wisconsin-Madison/Extension Madison, WI 53706
608-263-6251
"I started out with nothing and I have most of it left."
Seasick Steve
