Yesterday's Economy
New York State Manufacturing Index
On Monday November 17th, 2008, we learned (to no one's surprise) that the Japanese economy slipped into a recession. The New York State Manufacturing Index came in at the lowest reading since 2001 and Citigroup announced that it planned to lay off 50,000 employees, in addition to the 23,000 people laid off earlier in the year.
Wholesale Inflation Drops
On Tuesday, November 19th, 2008, wholesale inflation experienced the biggest drop since 1947 which is great news...however (and there's always a however) Core Inflation rose.
When the PPI (Producer Price Index) figures are released, there is an overall number and a core number. The overall number is just that, an overall gauge of inflation (or price increases) in the wholesale sector, which usually flows through to the consumer. The "core" number is the overall number minus food and energy. Because the price of oil has dropped so much recently, this threw off the overall readings and caused the steep decline. When food and energy were removed from the equation, inflation actually rose. In other inflation news, the UK experienced its steepest consumer price drop since 1997. As their economy slides into recession, the Bank of England is expected to cut their interest rates soon. In fact, there are rumors that Central Banks around the world are again planning a coordinated rate cut. This should be good for the US Dollar and for oil prices, which in turn will help our economy a bit.
FDIC Chair Sheila Bair, Treasury Secretary Hank Paulson, and Fed Chair Ben Bernanke Testifies
In other news, the FDIC Chair Sheila Bair, Treasury Secretary Hank Paulson, and Fed Chair Ben Bernanke testified before the House Committee on Financial Services today and were grilled regarding the TARP (Troubled Assets Relief Program). Besides concerns that Mr. Paulson is simply playing "whack-a-mole" with the economic challenges that keep springing up, the big area of contention was that Mr. Paulson has not followed through on some requirements of the bill. The biggest item was the purchasing of "troubled assets" and helping stem the tide of defaults and foreclosures. Mr. Paulson basically said that he thought about it and that he changed his mind (I am taking some interpretive liberties here). FDIC Chair Sheila Bair proposed making some significant changes to the modification process for lenders. Not enough modifications are taking place because lenders are seeing that many modified loans are re-defaulting and the current modification process is only delaying the inevitable.
CPI Numbers
Wednesday, November 19th, 2008, CPI numbers came in a bit better than expected. This left us with a tame inflation figure which should be good for interest rates. Housing numbers came in weak, as expected. The silver lining in all of this is that we are getting closer to the low ebb of the credit and real estate markets.
Us Auto Makers Seeking Bailout
The Big Three U.S. auto makers are looking for a bailout. Mr. Paulson is firmly against this idea, but does acknowledge the ramifications. For every one job on an auto assembly line, there are approximately 7.5 jobs in auto-related industries. If you compound that with the other non-auto related businesses that are supported by these workers, the failure of GM, Chrysler and Ford would add more pain to an already weak economy.
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