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World View & Market Commentary.
Forest first; Trees second.
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The fourth quarter turned out to be not as strong as initially estimated. Fourth quarter GDP growth was revised down to 2.8 percent annualized growth from the advance estimate of 3.2 percent. The new figure fell short of analysts' forecast for 3.4 percent. However, the fourth quarter was still marginally healthier than the third quarter pace of 2.6 percent.
The downward revision to the percent change in real GDP primarily reflected an upward revision to imports (less negative) and downward revisions to state and local government spending and to personal consumption expenditures that were partly offset by an upward revision to exports.
Notably, demand numbers were revised down somewhat. Final sales of domestic product were bumped down to 6.7 percent from the initial estimate of 7.1 percent. Final sales to domestic purchasers (takes out net exports) were nudged down to 3.1 percent from the original estimate of 3.4 percent for the fourth quarter.
Separate from the direction of revisions, some components in absolute strength are relatively healthy. PCEs came in at an annualized 4.1 percent, compared to 2.4 percent in the third quarter. Nonresidential fixed investment gained 5.3 percent in the latest period, residential investment rose modestly, and net exports improved sharply. In contrast, inventory investment slowed significantly, slicing off 3.7 percentage points from GDP growth. And government purchases declined slightly.
Year-on-year, real GDP in the fourth quarter is up 2.7 percent, compared 3.2 percent in the third quarter.
On the inflation front, the GDP price index was little revised, coming in at 0.4 percent, compared to the initial estimate of 0.3 percent. The market median forecast was for 0.3 percent. However, the recent spike in oil prices makes the fourth quarter numbers basically irrelevant.
Today's report is a disappointment as equity futures eased a bit on the news though remained notably positive. The still moderate growth in the economy certainly explains currently sluggish growth in employment. But more recent monthly data show the recovery continuing, albeit at a moderate pace.
Another Runaway General: Army Deploys Psy-Ops on U.S. Senators
The U.S. Army illegally ordered a team of soldiers specializing in "psychological operations" to manipulate visiting American senators into providing more troops and funding for the war, Rolling Stone has learned – and when an officer tried to stop the operation, he was railroaded by military investigators.
Geithner Butt of Jokes No More as Obama’s Money Man Now on Top
Feb. 24 (Bloomberg) -- Treasury Secretary Timothy Geithner says the U.S. economy is in a “much stronger position” than it was two years ago.
The same could be said of him.
Once the focal point for criticism of the administration’s struggle to resolve the financial crisis, opposed by almost all Senate Republicans for confirmation, and the butt of jokes by late-night comedians, Geithner has emerged as President Barack Obama’s most powerful economic policy maker. His influence on everything from overhauling housing finance to remaking the corporate tax code is reminiscent of the clout that Robert Rubin and James Baker enjoyed when they ran Treasury.
“Many would have faltered during those tough days at the beginning, but he didn’t,” said Roger Altman, founder of the investment bank Evercore Partners Inc. and a former deputy Treasury secretary under President Bill Clinton. “And, between the success of the TARP investments, the auto rescues, and the overall recovery in the banking system, he’s now on top.”
The Chicago Fed national activity index fell to minus 0.16 in January from December's plus 0.18 (revised from plus 0.03). The three-month average, however, improved to minus 0.10 from minus 0.14 (revised from minus 0.22). Negative readings suggest that U.S. growth is slightly below historical trend and that inflation pressures one year out will be subdued. Details show a smaller contribution from production and employment, a larger contribution in orders, and less though still substantial drag from consumption and housing.
Durables orders made a nice comeback in January but there is a lot in the detail. Durables orders in January rebounded 2.7 percent, following a revised -0.4 percent dip in December (previously estimated at down 2.3 percent). Excluding transportation, new orders for durable goods fell back, declining 3.6 percent after a 3.0 percent rise in December and 4.6 percent boost in November. The headline number looks very good for January but a key question is whether ex-transportation offsets that. Basically, the ex-transportation decrease followed two strong months, meaning the decline is not so disconcerting. Durables manufacturing continues on a moderate uptrend.
Transportation led January's overall gain, spiking a monthly 27.6 percent after an 11.9 percent decrease in December. The latest increase was primarily due to a massive 4,900.0 percent (not a typo) monthly surge in nondefense aircraft orders. Yes, the base for the percentage gain was miniscule in December. Also, within transportation, motor vehicles actually advanced 0.4 percent while defense aircraft & parts increased 20.6 percent.
Outside of transportation, gains were seen in primary metals, up 1.1 percent; fabricated metals, up 0.8 percent; and "other," up 1.7 percent. Ex-transportation was led down by a 13.0 percent drop in machinery orders. Also retreating were computers & electronic parts, down 6.8 percent, and electrical equipment, down 4.9 percent.
Business investment in equipment declined after two notable gains. Nondefense capital goods orders excluding aircraft in January fell 6.9 percent, following a 4.3 percent increase in December and a 3.3 percent rise in November. Shipments for this series slipped 2.0 percent, following a 2.5 percent increase in December.
Overall, the headline number for durables orders likely overstates current strength while the ex-transportation number for January probably overstates current month weakness. Durables orders are extremely volatile and the underlying trend is moderately positive.
Jobless claims data are indicating meaningful improvement for the labor market. Initial claims for the February 19 week fell 22,000 to 391,000 (prior week revised 3,000 higher to 413,000). The four-week average confirms the improvement, falling a sizable 16,500 to 402,000 for a nearly 30,000 decline from the month-ago level. A break below 400,000 in future weeks would begin to raise expectations for sizable payroll gains and extending declines for the unemployment rate. The Labor Department isn't citing any special factors in the data though California was partially estimated in the week while three other states were fully estimated.
Continuing claims also fell substantially, down 145,000 in data for the February 12 week to 3.790 million. The four-week average is down 55,000 to 3.893 million for an 87,000 month-to-month improvement. The unemployment rate for insured workers fell one tenth to 3.0 percent. In other data, total unadjusted emergency claims, in data for the February 5 week, rose nearly 56,000 to 3.685 million. Total unadjusted unemployment claims fell nearly 90,000 to 9.159 million, also data for the February 5 week.
The jobs market, based on initial claims, looks to be finding traction, right at the time that oil prices are spiking. Markets are showing little reaction to this very positive report.
Borrowers are locking in lower interest rates, making for a burst in both refinancing and purchase applications. Refinancing applications jumped 17.8 percent in the February 18 week with purchase applications up 5.1 percent, pulling levels back up from two weeks of declines. The average 30-year mortgage rate, reflecting demand for Treasuries tied to Middle East unrest, fell 12 basis points in the week to an average 5.00 percent.
Essex South Register of Deeds John O’Brien announced today that he will be seeking over $22 million dollars from the Mortgage Electronic Registration System, “MERS” which represents several major banking conglomerates. O’Brien bases the $22M number on the fact that the Salem registry has recorded over 148,663 MERS mortgages since 1998. After a careful review of a number of these mortgages O’Brien said it became very clear to him that MERS had assigned mortgages to other entities at least twice without paying a recording fee. Based on this information the taxpayers have been defrauded out of $22,299,450 in Southern Essex County alone. It is quite possible that in some cases they may have assigned the notes more than twice resulting in even greater loss of revenue. O’Brien called MERS “one of the greediest schemes ever perpetrated on the American people. They have compromised the integrity of the public land recordation system and in doing so, have wreaked havoc on our economy”.
Feb. 22 (Bloomberg) -- European Central Bank council member Yves Mersch said officials may toughen their language on inflation next week, indicating a readiness to raise interest rates in coming months.
“I would not be surprised at most colleagues concluding that we have upside risks to price stability,” Mersch said in an interview in Luxembourg yesterday. With the economy strengthening and inflation in breach of the ECB’s 2 percent limit, policy makers will “inevitably” have to “rebalance our monetary policy stance,” Mersch said, without giving a timeframe.
The rate of home-price contraction held steady in December, according to Case-Shiller data which shows a 0.4 percent month-on-month adjusted decline for the composite-10 index which is unchanged from November. The rate of year-on-year decline, however, deepened significantly to 1.2 percent from November's year-on-year decline of 0.5 percent (revised from minus 0.4 percent). Declines for the unadjusted data show deepening rates consistent with heavier weather in December vs November. The unadjusted month-to-month decline is 0.9 percent vs November's decline of 0.8 percent. Year-on-year, the unadjusted contraction for the composite-10 deepened to 1.2 percent vs November's 0.5 percent while the composite-20 contraction deepened to 2.4 percent vs November's 1.6 percent.
On the positive side, city by city data shows the isolated appearance of strength though declines continue for most. Quarter-to-quarter adjusted data show easing in year-on-year contraction, to 2.1 percent in the fourth quarter vs the third quarter's contraction of 3.3 percent.
Heavy supply including price competition from foreclosures continues to depress the housing sector. But the economy as a whole, unlike the prior recovery, is moving forward without the housing sector. Price data for January will be posted with tomorrow's existing home sales report and Thursday's new home sales report.