A glass half empty or ?...
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What to be Thankful for? By Ashraf Laidi
If we were to make a list of the year's economic events that we need to feel thankful for, here are just a few:
1) Growth Remains Healthy: We're still far from the hard landing that many doomsayers had predicted, despite the sell-off in equities (NASDAQ is down 25% on the year) and 45% off its March highs, given the direct concentration of US households in the stock market. Indeed, GDP in Q3 more than halved, reaching 2.7% from 5.6% in Q2, but a rebound in Q4 stemming from a projected comeback in public spending and continuously robust home sales and rebounding housing starts. Thus, there still remains the strong possibility of posting annual GDP growth above the 4% handle this year, for the 4th consecutive year.
2) Without Real Danger of Inflation: The other positive, is that the Fed seems to have reached the end of its tightening cycle, without reaching that classic dilemma of "slowing growth-rising inflation). Despite the fact that oil prices still hover near $35 per barrel, $4 below their 10-year high, inflation has not exactly spilled over to non-energy items. Headline CPI y/y may have stubbornly remained above 3%, but the core rate is well capped at 2.5-2.6%. Meanwhile, other inflation indicators, such as the Economic Cycle Research Institute’s (ECRI) inflation index fell to 117.1 in October from a downwardly revised 119.2. The annualized growth rate fell to -6.4% from -2.7%. As for the ECRI’s future inflation gauge, if dropped to 120.2 in September from 121.3 in August. Meanwhile, the inflationary impact from a tightening labor market (cost push price pressures) seems to be conveniently stabilizing as measured through the ECI (Q1 = 1.4%, Q2 = 1.0% and Q3 = 0.9%).
As for Greenspan’s key indicator--pool of available workers-- it seems to be loosening again, so that it doesn’t irritate the FOMC. Note, that the FOMC’s last 2 policy statements (Aug and Oct) rationalized that “utilization of the pool of available workers remains at an unusually high level” as the main reason to keeping the tightening bias. The good news is that this pool of workers is no longer shrinking. The pool of workers rose by 50,000 in October following a drop of 216,000 and 86,000 in September and August respectively.
In light of the unfolding deterioration in US stocks, the Fed could be your only friend this December, when it is expected (hoped) to remove its tightening bias at the Dec 10 FOMC meeting.
3) While Dollar Remains Solid thanks partly to healthy inflows of foreign Capital: Last but not least, contrary to those dollar-bears who thought that foreign investors were no longer going to finance the swelling US deficit, thankfully…they were wrong. The table below shows the rising dollar-bound inflows this year, which are behind the ant-inflationary strength of the dollar.
Table follows in article (see URL above) |
