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May 28, 2004

Economic News: Mixed to Hopeful

Nothing here you can't get off Yahoo Finance, but since I read this stuff, I might as well digest it and blog it.

OPEC considers quota suspension. Trouble is, most oil-producers, except Saudi Arabia, are already pumping at capacity. However:

Suspending output quotas temporarily would make little difference to actual output but could provide the psychological impact on prices that OPEC's President Purnomo Yusgiantoro spoke of in Jakarta on Thursday.

It would also give official cartel blessing for Saudi to pump more without blatantly ignoring any new, higher quota.

This might not have a major impact on oil prices, but it couldn't help but have a sanguine affect.

Once again, Midwest factory activity surprises. "Midwest factory activity surprises" = "a bad surprise for John Kerry," since he's counting on a lingering manufacturing recession to deliver him Ohio.

And Michigan. And Wisconsin. And Pennsylvania. And Minnesota. And etc.:

Strength in the Chicago Purchasing Management index of business activity backed up that argument. The index jumped to 68.0 in May, when economists had looked for a modest pullback to 61.0 after April's already robust 63.9. The employment index also firmed, pointing to some improvement in the labor market.

"This is a very stunning report. The Chicago PMI is a volatile series and I thought you'd get some retracement and you didn't," said an impressed Joseph LaVorgna, senior U.S. economist at Deutsche Bank Securities.

But complicating this is the public's anxiety over rising gas prices and the uncertain (they think) situation in Iraq, which has reduced confidence:

The University of Michigan's final survey of consumer confidence for May showed its index falling to 90.2 from April's final reading of 94.2.

"What's affecting consumer sentiment is the geopolitical news, which is quite negative coming out of Iraq. But also the rise in oil prices is of concern to consumers as it affects their pocketbooks directly and that surely had an impact," said Kevin Logan, senior economist at Dresdner Kleinwort Wasserstein.

On the other hand, personal spending rose with expectations, personal incomes jumped, and yet inflation remained tame:

Personal spending rose 0.3 percent in April, the smallest gain in six months, the Commerce Department said. The figure was in line with forecasts.

More importantly for the economic outlook, incomes rose by a solid 0.6 percent, the biggest gain since last November as the job market improved. The rise showed households will have the wherewithal to keep on spending in the months ahead even if gasoline prices stay high.

A key indicator of inflation in the report -- and the Fed's favored measure of prices -- came in weaker than expected with a 0.1 percent increase, easing worries in the bond market that the Fed would need to make a series of aggressive rate hikes. The annual increase in the core personal consumption expenditures index was a moderate 1.4 percent.

"This eases fears that the Fed was behind the curve," said JP Morgan senior economist Jim Glassman.

"It allows the Fed to go at a measured pace without causing people to worry they are falling behind. The inflation scares are going to be dying down," he said.

Net effect? Well, the markets are slightly down.

Runaway inflation and interest rates, the liberals' latest economic bugaboos -- now that their unemployment bugaboo has been thoroughly rubbished by events -- would seem to be a phantasmal threat at this point.

Alas, no cowbell for mixed-to-hopeful economic news.


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posted by Ace at 02:19 PM

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