

World View & Market Commentary.
Forest first; Trees second.
Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.
Highlights
The economy regained momentum in the final quarter of 2010-and in most of the right places. Fourth quarter GDP accelerated to a moderately healthy 3.2 percent annualized gain, following a 2.6 percent increase the prior quarter. The latest figure fell short of analysts' median forecast for a 3.5 percent boost. But the detail is stronger than the headline number.
The last quarter of 2010 was led by sharp improvement in net exports to a gap of $392.2 billion from $505.0 billion in the third quarter. Exports rose an annualized 8.5 percent while imports dropped 13.6 percent Also boosting GDP were personal consumption expenditures, up an annualized 4.4 percent; business investment in equipment & software, up 5.8 percent; and residential investment, up 3.4 percent. Nonresidential structures posted a modest rise.
Weakness was led by a sharp slowing in inventory investment to $7.2 billion from $121.4 billion in the third quarter. Government purchases slipped 0.6 percent.
The bottom line is that final sales have picked up significantly. Final sales of domestic product strengthened to a 7.1 percent increase from 0.9 percent annualized in the third quarter. Growth in real final sales to domestic purchasers (takes out net exports) picked up to 3.4 percent, following a 2.6 percent boost in the third quarter.
Year-on-year, real GDP in the fourth quarter is up 2.8 percent, compared 3.2 percent in the third quarter.
Economy-wide inflation as measured by the GDP price index softened to 0.3 percent in the fourth quarter, following a 2.1 percent increase the prior quarter. The consensus expected a 1.5 percent gain.
Today's report is clearly positive for forward momentum in the recovery despite a slightly disappointing headline number. Demand is picking up and inventories are not out of control-a very good combination. Still, growth is moderate and there are no signs of pending excessive growth.
Highlights
Wage inflation is no threat to accommodation by the Federal Reserve which closely watches the employment cost index. The ECI rose a very mild and lower-than-expected 0.4 percent in the fourth quarter compared with the third quarter. Compared with fourth quarter 2009, the ECI rose 2.0 percent for the second lowest year-on-year fourth-quarter reading ever. The lowest reading ever was plus 1.4 percent in fourth-quarter 2009.
Details show 0.4 percent increases across the board for both wages & salaries and for benefits in both the civilian-worker and private-industry breakdowns. It was not, to say the least, a big pay-raise year for the American worker whose wages & salaries rose only 1.6 percent. This is the second lowest reading ever behind fourth-quarter 2009's plus 1.5 percent. Workers did get a bit bigger boost of 2.9 percent on the benefit side.
Credit card rates at record highs near 15%
NEW YORK (CNNMoney) -- Interest rates are now hovering near record highs, at an average rate of 14.72%. And if your credit is bad enough, you could even end up with a rate as high as 59.9% APR.That's because while the CARD Act helped crack down on certain fees and requires more disclosures, it didn't cap every credit card holder's worst enemy: interest rates.
Sure, the new rules prevent banks from raising most interest rates retroactively, but there's no limit on the rates they can charge new customers.
"Rates are going up because card issuers know that once you get a card they can't raise the rates, so they're raising rates on the front end to ensure they get the revenue from that interest," said Beverly Harzog, credit card expert at Credit.com.
APRs have climbed more than 20% over the past two years and hit an all-time high of an average 14.78% in mid-November, based on weekly data CreditCards.com collects from 100 of the nation's top credit card issuers.
And there's no end in sight. While interest rate caps have been proposed -- including a proposal earlier this month from New York Congressman Maurice Hinchey that would limit rates at 15% -- none have been passed into law so far.
Highlights
The Labor Department is blaming snow storms in the South for a very disappointing and totally unexpected 51,000 rise in initial jobless claims to 454,000 for the January 22 week (prior week revised 1,000 lower to 403,000). But unfortunately the jump also reflects what the Labor Department calls "normal" volatility in the numbers at this time of year, which is the heaviest time for initial claims (Labor Department comments provided by Market News International).
The four-week average jumped 15,750 to 428,750 which is nearly 15,000 higher than a month ago and which suddenly points to trouble for the monthly employment report. Continuing claims also rose, up 94,000 to 3.991 million in data for the January 15 week. The unemployment rate for insured workers rose one tenth to 3.2 percent. In unadjusted data for the January 8 week, the department reports that 9.41 million people claimed unemployment benefits, down from 9.63 million in the prior week.
Heavy weather may be playing a major negative role in January economic data. Hopefully it will be just a one-time effect that will quickly reverse. Markets are showing limited reaction, at least initially, to today's report.
Highlights
Durables orders are living up to their reputation as one of the most volatile monthly series in the U.S.-and the latest report was disappointing. Durables orders in December unexpectedly dropped 2.5 percent, following a revised 0.1 percent fall the month before. Weakness was primarily in nondefense aircraft orders. Excluding transportation, new orders for durable goods were more favorable, advancing 0.5 percent after a 4.5 percent surge in November. By industry, strength was mostly in machinery with others industries generally down but after healthy gains the prior month.
By major industries, transportation fell a monthly 12.8 percent in December after declining 13.1 percent the month before. The latest decline was mainly in nondefense aircraft which plunged a monthly 99.5 percent-again, essentially Boeing orders likely falling due to delays in its Dreamliner delivery dates. Also, within transportation, motor vehicles actually increased 1.7 percent while defense aircraft & parts fell back 10.9 percent.
Outside of transportation, strength was narrowly focused with machinery jumping 10.6 percent (November in parenthesis, up 0.3 percent). Other industries were down but generally after a notable gain the month before. Primary metals fell 4.7 percent (up 13.8 percent); fabricated metals down 1.0 percent (up 2.9 percent); computers & electronics down 1.2 percent (up 6.5 percent); electrical equipment down 0.1 percent (up 8.6 percent); and all others down 1.1 percent (up 0.8) percent.
Business investment in equipment continues to show strength outside of aircraft. Nondefense capital goods orders excluding aircraft in December rose 1.4 percent after gaining 3.1 percent the prior month. Shipments for this series rose 1.7 percent, following a 1.4 percent increase in November.
Overall, the report should be considered in light of ex-transportation showing the overall trend over two or three months. Essentially, manufacturing is still on an uptrend though one not as robust as believed last month.
Definition
The Chicago Fed National Activity Index (CFNAI) is a monthly index designed to better gauge overall economic activity and inflationary pressure. The CFNAI is a weighted average of 85 existing monthly indicators of national economic activity. It is constructed to have an average value of zero and a standard deviation of one. Since economic activity tends toward trend growth rate over time, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend. (Federal Reserve Bank of Chicago)
HighlightsA 20.8% year over year decline? These numbers put the lie to supposed improvement in the housing market, not to mention the economy as a whole. I think a lot of activity is based on foreclosures, many are cash deals done by investors and not by families intent on living in them. In other words, the housing market, I believe, is even worse than the numbers make it appear, which is already pathetically weak.
The run of weakness in purchase applications deepened severely in the Janauary 21 week, down 8.7 percent to take the index back to its lowest point since October. Heavy weather and the shortened holiday week put the focus on the unadjusted index which fell a less severe 3.1 percent for a still substantial 20.8 percent year-on-year decline.
Refinancing activity also fell heavily, down an adjusted 15.3 percent for the lowest level since January last year. Rates are affordable but well off their lows, up three basis points in the week to 4.80 percent for 30-year mortgages.
The recent jump in rates motivated the fence sitters in December, at least for existing home sales in data released last week. But the ongoing slide in the purchase index points to a January setback.
Highlights
Home-price contraction eased in November according to Case-Shiller data that show a 0.4 percent adjusted dip for the composite 10 index in November compared to a 1.0 percent drop in October (revised one tenth lower) and declines of 0.8 percent and 0.5 in the two prior months. Note that Case-Shiller data are based on a three-month average which suggests that November may have actually showed a gain. Unadjusted data, which are also watched for this report, show a steeper decline of 0.8 percent which however is still improved from October's 1.3 percent drop.
But the results aren't that encouraging, showing declines across most cities led by Detroit, Atlanta, and Chicago. Year-on-year comparisons show an adjusted 0.4 percent decline for the composite 10 index and an adjusted 1.6 percent decline for the composite 20. Further data on home prices will be released at 10:00 a.m. ET today with the FHFA house price index.
Super-Cycle Leaves No Economy Behind as Davos Shifts to GrowthJan. 24 (Bloomberg) -- For only the third time since the Industrial Revolution, the world may be entering a long-term growth cycle that will lift all economies simultaneously, driving bond yields and commodity prices higher.
The depth and scope of the expansion will be a focus for discussion at this week’s annual meeting of the World Economic Forum in Davos, Switzerland. Evidence of a broadening global recovery will enable U.S. Treasury Secretary Timothy F. Geithner, investor George Soros and 2,500 political, business and academic leaders to shift their emphasis away from crisis- fighting.
With the economic and investment outlooks “much better” than in recent years, “people are talking about how to get back to business as normal and what comes next,” said Jitesh Gadhia, a delegate to the conference and the London-based senior managing director at Blackstone Group LP, which runs the world’s largest buyout fund.
Goldman Sachs Group Inc., PricewaterhouseCoopers LLP and London’s Standard Chartered Bank are among the financial companies sending executives to the meeting. Their economists predict a growth spurt in coming decades led by emerging nations that will be strong enough to boost developed countries.