Sunday, April 10, 2005

Economic Week in Review

ECRI Weekly Leading Index 134.70 -.15%

Initial Jobless Claims for last week fell to 334K versus estimates of 330K and 353K the prior week. Continuing Claims rose to 2688K versus estimates of 2625K and 2598K prior. "The continuing claims number actually looks good, suggesting slow to moderate improvement in the unemployment rate," said Scott Anderson, an economist at Wells Fargo. The insured unemployment rate held at 2.1%, where it has been since mid-January, Bloomberg reported. The US unemployment rate fell in March to 5.2% from 5.4%. Monthly job growth has averaged 159,000 for the first three months of this year versus an average of 183,000 in 2004. The economy needs to create about 100,000 jobs a month to keep the unemployment rate from rising, according to most economists, Bloomberg reported. The percentage of teenagers in the workforce or looking for work has steadily fallen over the past two decades to the lowest on record, according to recent statistics. Teens are studying more, are taking heavier course loads and are involved in more extracurricular activities than ever before, USA Today reported. The percentage of teens who are enrolled in school has jumped 10 percentage points over the last two decades to 81%, the most recent Labor Dept. data show.

Wholesales Inventories for February rose .6% versus estimates of a .7% increase and a 1.0% gain in January. Sales fell for the first time in 21 months, Bloomberg said. The ratio of purchases to inventories rose to 1.18 months, the highest since January of 2004 though still close to last April's record low, Bloomberg reported. "I know this is the first sales decline in a while, but it doesn't look like anything worrisome, especially since we know retail sales were decent," said Stuart Hoffman, chief economist at PNC Financial. Some economists said rising corporate confidence about the economy encouraged the buildup of stockpiles. Oil inventories started the month at 294.4 million barrels of crude and finished at 301.6 million barrels, according to Ron Planting, an economist with American Petroleum Institute. He also said oil inventories were 6% above the five-year average of 287 million barrels, Bloomberg reported.

Consumer Credit for February fell to $5.6B versus estimates of $7.5B and $11.6B in January. "Consumers have grown slightly more cautious about the outlook the last few months so it is no surprise that they did not make as many purchases with credit cards in February," said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi. Economists surveyed by Bloomberg forecast that consumer spending in the first quarter of the year rose 3.1%, after rising 4.2% at an annual rate in the fourth quarter and 3.8% for all of 2004. Sales at stores open at least a year rose 4.7% in February, and then rose 4.1% in March, the International Council of Shopping Centers said. Most of the credit slowdown is on the car-credit side, a reflection of car sales and of the incentives available for car sales," said Kevin Harris, chief economist at Informa Global Markets US. The economy is projected to grow at a 4.0% annual rate in the first quarter, after growing at a 3.8% pace the previous three months, according to the median estimate of economists surveyed by Bloomberg.


BOTTOM LINE: Overall, last week's economic data were mixed. I continue to expect modest job gains over the coming months. The pace of improvement will allow unemployment to gradually decline without spurring a substantial increase in unit labor costs, which are the main component of inflation. The decline in wholesale sales is more evidence that the economy is slowing modestly. I continue to expect US GDP growth, currently the strongest of all industrialized nations, to slow from around 4.0% this quarter to a more sustainable 3.0% over the next couple of quarters. I also continue to believe that with the US dollar firming, foreign purchases of US assets remaining strong, the CRB Index turning lower, inflation only near average rates, global economic growth slowing and significant problems at a few major US companies, it is highly unlikely the Fed will actually raise rates 50 basis points at any meeting in the foreseeable future. Wal-Mart's lowered estimates are due to higher energy prices finally making a dent in consumer spending. While spending is slowing from very high levels, it is likely to pick back up in the second half of the year as energy prices decline, long-term interest rates remain low and employment prospects continue to improve. The fact that oil inventories are 6% above historical averages is likely a result of companies expecting even higher prices in the future, which has temporarily resulted in an artificial boost in demand. As perceptions change regarding the direction of oil prices, this demand will evaporate and likely cause an even greater decline in the price of crude than would otherwise be the case. Finally, the ECRI Weekly Leading Index declined .15% to 134.70 and is still near cycle highs.

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