Deller's two cents: Not a whole lot of news this week, but what there is is positive. Couple observations, monetary policy (Federal Reserve Bank) is pretty much maxed out and we need movement on fiscal policy (job plan type policies). The current "war" in congress is basically saying the fiscal policy is dead and the resulting vote of no confidence is congress's ability to move forward is hindering the recovery. Second, most economists are now pretty much in agreement, until the housing market recoveries we will see lack-luster economic growth.
Economic Week in Review: Consumers show surprising strength
October 14, 2011
Retail sales grew faster than expected in September as the Federal Open Market Committee (FOMC) minutes showed considerable debate about what the Fed should do next to help the economy out of its funk. For the week ending October 14, the S&P 500 Index rose 6% to 1,225 (for a year-to-date total return-including price change plus dividends-of about -2.74%). The yield on the 10-year U.S. Treasury note increased 16 basis points to 2.26% (for a year-to-date decrease of 104 basis points).
Federal Reserve ponders its next move
In the minutes of its September 20-21 meeting, which were made public on Wednesday, the FOMC downgraded its outlook, stating that "economic growth remains slow." At that meeting, the FOMC had adopted Operation Twist, an unconventional bond-purchasing policy aimed at lowering long-term borrowing rates and encouraging consumers and businesses to spend more. Three of the ten committee members had voted against the policy, and, as the minutes indicate, there was considerable debate among committee members about which steps to take to counter the slow pace of economic recovery.
"The discussions show a committee that's much more worried about the risk of deflation than about inflation over the next few months," said Roger Aliaga-Díaz, Vanguard senior economist. "The minutes send a clear message that the Fed has many unconventional policies at its disposal and is ready to use them as needed. Specifically, large-scale asset purchase policies (such as QE3) are regarded as the most effective tool to prevent inflation from falling too low."
Higher consumer spending
Despite weak job and income growth, retail sales rose 1.1% in September, the largest monthly gain since February and nearly double the expected rate. Among the big winners were autos, furniture, clothing, and gas stations. For the third quarter, sales were up 4.5%-but still less than the double-digit gains of late 2010 and first quarter of this year.
In August, business inventories rose 0.5% while the retail inventories component climbed 0.8%-much faster than July's 0.1% gain. The August increase was driven in part by a 1.5% rise in motor vehicle inventories. The strong September retail sales figures appeared to justify the larger inventories in August.
Trade deficit is unchanged despite record gap with China
While the overall U.S. trade deficit remained virtually unchanged in August, the U.S. deficit with China widened to a record $29 billion. Analysts say that China has been keeping its currency artificially low to boost its exports.
On Wednesday, Congress approved free-trade deals with Colombia, Panama, and South Korea. The deals could boost U.S. exports by $13 billion a year, according to the U.S. International Trade Commission.
The economic week ahead
Upcoming reports include producer prices (Tuesday), consumer prices and new construction (Wednesday), and existing-home sales and leading economic indicators (Thursday).
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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 still have most of it left."
Seasick Steve
